<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
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PAYLESS SHOESOURCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MISSOURI 48-0674097
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3231 E. 6TH STREET
TOPEKA, KANSAS 66607-2207
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(913) 233-5171
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Securities to be registered pursuant to Section 12(b) of the Act:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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<S> <C>
Common Stock, par value $.01 per share The New York Stock Exchange, Inc.
Preferred Stock Purchase Rights The New York Stock Exchange, Inc.
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
None
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<PAGE>
PAYLESS SHOESOURCE, INC.
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM LOCATION IN INFORMATION STATEMENT
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1. Business................................. Summary; Risk Factors; Management's
Discussion and Analysis of Results of
Operations and Liquidity and Capital
Resources; Business; The Distribution;
Consolidated Financial Statements
2. Financial Information.................... Summary; Risk Factors; Selected Historical
Financial Information; Pro Forma
Capitalization; Unaudited Pro Forma
Consolidated Financial Statements;
Management's Discussion and Analysis of
Results of Operations and Liquidity and
Capital Resources; Consolidated Financial
Statements
3. Properties............................... Business
4. Security Ownership of Certain Beneficial
Owners and Management.................... Beneficial Ownership of Management;
Security Ownership of Certain Beneficial
Owners
5. Directors and Executive Officers......... Management
6. Executive Compensation................... Executive Compensation; Beneficial
Ownership of Management; Security
Ownership of Certain Beneficial Owners
7. Certain Relationships and Related Summary; Transactions Between the Company
Transactions............................... and May; The Distribution
8. Legal Proceedings........................ Business
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters...................... Summary; Risk Factors; Beneficial Ownership
of Management; Security Ownership of
Certain Beneficial Owners; Description of
Capital Stock
10. Recent Sales of Unregistered Securities.. None
11. Description of Registrant's Securities to
be Registered............................ Risk Factors; Description of Capital Stock;
Purposes and Effects of Certain Provisions
of the Charter, the By-Laws and the Rights
Agreement
12. Indemnification of Directors and
Officers................................... Management
13. Financial Statements and Supplementary Summary; Management's Discussion and
Data....................................... Analysis of Results of Operations and
Liquidity and Capital Resources;
Consolidated Financial Statements
14. Disagreement with Accountants on
Accounting and Financial Disclosure...... None
15. Financial Statements and Exhibits
</TABLE>
(a) Financial Statements--See Index to Combined Financial Statements
(b) Exhibits:
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S> <C>
2.1 Form of Distribution Agreement, dated as of April 2, 1996,
between The May Department Stores Company ("May") and the
Registrant.*
3.1 Form of Amended and Restated Articles of Incorporation of
the Registrant.*
3.2 Form of Amended and Restated By-Laws of the Registrant.*
4.1 Form of Rights Agreement, dated as of April 2, 1996, be-
tween the Registrant and The Bank of New York, as Rights
Agent.*
10.1 Form of Tax Sharing Agreement, dated as of April 2, 1996,
between May and the Registrant.*
10.2 Form of Sublease, dated as of April 2, 1996, between May
and the Registrant.*
10.3 Form of Multicurrency Credit Agreement, dated as of
, 1996 among the Registrant, several financial
institutions and Bank of America National Trust and Sav-
ings Association.*
10.4 Form of Administrative Services Agreement, dated as of
April 2, 1996, between May and the Registrant.
10.5 Payless ShoeSource, Inc. 1996 Stock Incentive Plan.*
10.6 Payless ShoeSource, Inc. Spin-Off Stock Plan.*
10.7 Payless ShoeSource, Inc. Spin-Off Cash Plan.*
10.8 Payless ShoeSource, Inc. Restricted Stock Plan for Non-
Management Directors.*
10.9 Form of Employment Agreement between the Registrant and
certain executives of the Registrant.*
10.10 Payless ShoeSource, Inc. Supplementary Retirement Plan.*
10.11 Payless ShoeSource, Inc. Profit Sharing Plan.*
10.12 Payless ShoeSource, Inc. Deferred Compensation Plan.*
10.13 Payless ShoeSource, Inc. Executive Incentive Compensation
Plan for Payless Executives.*
10.14 Form of Management Severance Agreement.*
10.15 Form of Indemnification Agreement.*
21.1 Subsidiaries of the Registrant.*
</TABLE>
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*Filed herewith.
II-1
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Payless ShoeSource, Inc.
/s/ Ullrich E. Porzig
By: _________________________________
Name: Ullrich E. Porzig
Title: Chief Financial Officer
Date: April 9, 1996
II-2
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[LOGO -- PAYLESS SHOESOURCE]
THE MAY DEPARTMENT STORES COMPANY
611 OLIVE STREET
ST. LOUIS, MISSOURI 63101
April [ ], 1996
Dear Fellow Shareowners:
I am pleased to announce that the Board of Directors of The May Department
Stores Company has authorized a distribution by May of the shares of common
stock of Payless ShoeSource, Inc. to owners of May's common stock. Payless is
the largest footwear retailer in the United States, with over $2.3 billion in
sales in 1995. Payless sold over 200 million pairs of shoes in 1995,
representing one out of every five pairs sold in the United States. As of
February 3, 1996, Payless operated 4,549 self-service, affordably priced
family shoe stores, of which 773 include Payless Kids expansions. Its stores
are located in 49 states, the District of Columbia, Puerto Rico and the United
States Virgin Islands.
Your board of directors believes that the distribution will enable May and
Payless to concentrate on their respective businesses and, as a result, will
enable the market to reflect properly the performance of each company. In
addition, as an independent company with its own publicly traded stock,
Payless will be better able to attract, retain and motivate its associates by
offering economic incentives and rewards tied more directly to Payless'
performance.
If you are a shareowner of record of May common stock at the close of
business on April [ ], 1996, you will receive .16 share of Payless common
stock for every share of May common stock you own (and a cash payment for any
fractional share of Payless common stock you are entitled to receive). No
action is required on your part to receive your distribution. The distribution
will be effective on May [ ], 1996. You will receive your Payless stock
certificate in a separate mailing shortly after May [ ], 1996. After the
distribution, May will own no shares of Payless common stock.
Payless' common stock has been approved for listing and will be traded on
the New York Stock Exchange under the symbol "PSS."
As discussed in more detail in the accompanying Information Statement, May
has received an opinion of counsel to the effect that you will not recognize
gain or loss by reason of the distribution (except for cash received for
fractional shares, if any). In addition, the aggregate basis of your May
common stock and of your Payless common stock (including the fractional
shares, if any) will be the same as the aggregate basis in your May common
stock before the distribution, and will be allocated in proportion to the fair
market value of each. We will send you additional information with your June
1996, dividend to help you allocate your tax basis between your May common
stock and your Payless common stock.
The Information Statement, which is being distributed to all owners of May
common stock in connection with the distribution, describes the transaction in
detail and contains important information about Payless, including financial
statements and other financial information.
Very truly yours,
David C. Farrell
Chairman of the Board and
Chief Executive Officer
<PAGE>
PHOTOS [TO COME]
Photo of exterior of typical Payless ShoeSource Store.
<PAGE>
THE MAY DEPARTMENT STORES COMPANY
FREQUENTLY ASKED QUESTIONS
ABOUT THE
DISTRIBUTION OF COMMON STOCK OF
PAYLESS SHOESOURCE, INC.
1. WHAT WILL I RECEIVE AS A RESULT OF THE PAYLESS DISTRIBUTION?
May shareowners of record on April [ ], 1996 will automatically receive a
distribution of .16 share of Payless ShoeSource, Inc. common stock for each
share of May common stock they own. For example, if you own 100 shares of May
common stock on April [ ], 1996, you will receive 16 shares of Payless common
stock.
2. WHAT WILL HAPPEN IF MY PAYLESS STOCK DISTRIBUTION YIELDS BOTH WHOLE SHARES
AND A FRACTION OF A SHARE?
Your Payless fractional share will be aggregated with other fractional
shares and the Bank of New York (our distribution agent) will sell shares
equal to the aggregate of all of the fractional shares on the open market. The
Bank of New York will then mail you a check for your part of the net sale
proceeds.
3. WHEN WILL I RECEIVE MY PAYLESS SHARES?
If you hold your May shares in your own name or in May's Dividend
Reinvestment Plan, your Payless stock certificate will be mailed to you on or
about May [ ], 1996. You should allow several days for the mailing to reach
you.
4. WHAT IF I HOLD MY MAY SHARES THROUGH MY STOCKBROKER, BANK OR OTHER NOMINEE?
If you hold your May shares through your stockbroker, bank or some other
nominee, you are not a shareowner of record of those shares. Your receipt of
Payless stock depends on your arrangements with the nominee that holds your
May shares for you. May anticipates that stockbrokers, banks and other
nominees will credit their customers' accounts with Payless stock about May
[ ], 1996, but you should check with your stockbroker, bank or other nominee.
5. IF I PARTICIPATE IN THE MAY PROFIT SHARING PLAN, HOW WILL THE PAYLESS
SHARES BE HANDLED IN MY ACCOUNT?
The trustee of the May Profit Sharing Plan holds all of the May common stock
held for your account in the May Stock Fund of the May Profit Sharing Plan. As
a shareowner, the trustee will receive shares of Payless common stock in the
distribution. It then will convert those Payless shares into additional May
shares by selling the Payless shares after the distribution and using the
proceeds to purchase more May common stock for the May Stock Fund in the May
Profit Sharing Plan.
6. IF I PARTICIPATE IN THE PAYLESS PROFIT SHARING PLAN, HOW WILL THE PAYLESS
SHARES BE HANDLED IN MY ACCOUNT?
The trustee of the Payless Profit Sharing Plan holds all of the May common
stock held for your account in the May Stock Fund of the Payless Profit
Sharing Plan. As a shareowner, the trustee will receive shares of Payless
common stock in the distribution. It then will transfer the Payless shares to
your Payless stock account in the Payless Profit Sharing Plan.
7. HOW MUCH IS A SHARE OF PAYLESS COMMON STOCK WORTH?
Payless stock has been approved for listing and will be traded on the New
York Stock Exchange under the symbol "PSS." Trades in Payless common stock,
and the prices at which the stock trades, will be reported on the New York
Stock Exchange Composite Tape.
<PAGE>
8. HOW WILL THE DISTRIBUTION AFFECT THE MARKET PRICE OF MY MAY COMMON STOCK?
The first day that May stock will be traded in the market without the right
to the distribution (the "ex-distribution" date) will be May [ ], 1996. That
morning, the market price of May common stock will decrease. The decrease
should be roughly equivalent to .16 times the value of one share of Payless
common stock. For example, if the Payless stock price just before the
distribution were $20 per share, it would be expected that the May stock price
would decrease by about $3.20 (the approximate market value of .16 of a share
of Payless stock). Together, the market value of your May shares and the
Payless shares that you receive in the distribution should add up to
approximately the price for your May shares just before the ex-distribution
date, subject to market factors.
9. WHAT IF I WANT TO BUY OR SELL SHARES OF MAY OR PAYLESS COMMON STOCK?
You should consult with your own financial advisors, such as your
stockbroker, bank or other advisor. Neither May nor Payless will make
recommendations about buying, holding or selling May stock or Payless common
stock.
10. HOW WILL THE DISTRIBUTION AFFECT THE DIVIDENDS I CURRENTLY RECEIVE ON MY
MAY SHARES?
The distribution has no effect on the May dividend. Payless does not expect
to pay dividends initially. As with any company, the declaration and payment
of dividends in the future are subject to the discretion of the respective
boards of directors of May and Payless and will depend on various factors.
11. DO I HAVE TO PAY TAXES ON THE PAYLESS SHARES I RECEIVE?
As discussed in more detail in the attached Information Statement, May will
receive an opinion of counsel that the May shareowners will not recognize a
taxable gain or loss when receiving whole shares of Payless common stock
pursuant to the distribution. If you receive cash in lieu of fractional
shares, you will recognize gain or loss equal to the difference between such
cash received and the amount of tax basis allocable to such fractional shares.
In addition, you may have to pay taxes if you sell your Payless shares. If you
have any questions, you should consult your own tax advisor regarding your tax
treatment.
12. HOW WILL I BE ABLE TO DETERMINE MY TAX BASIS IN MY NEW SHARES OF PAYLESS
COMMON STOCK? WILL MY TAX BASIS IN MY MAY SHARES BE AFFECTED BY THE
DISTRIBUTION?
Generally, the basis in your current May stock (your "old" tax basis) should
be divided up and allocated proportionally to your May stock and to the
Payless common stock you receive in the distribution. May will send you
additional information with your June 1996, dividend to help you allocate your
tax basis between your May common stock and your Payless common stock.
13. WHO SHOULD I CALL FOR MORE INFORMATION?
Please call The Bank of New York, Shareowner Services at 800-524-4458.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT ON FORM 10 RELATING TO THESE SECURITIES HAS BEEN FILED +
+WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS INFORMATION STATEMENT DOES +
+NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THESE +
+SECURITIES. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY AND SUBJECT TO COMPLETION, DATED APRIL 9, 1996
INFORMATION STATEMENT
[LOGO -- PAYLESS SHOESOURCE]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
This Information Statement is being furnished by The May Department Stores
Company ("May") in connection with the distribution (the "Distribution") by May
to owners of record of May common stock on April [ ], 1996 (the "Record Date"),
of .16 share of common stock, par value $.01 per share (including the
associated preferred stock purchase rights, the "Common Stock"), of its wholly
owned subsidiary, Payless ShoeSource, Inc. (the "Company"), for every one share
of May common stock owned on the Record Date. Following the Distribution, May
will own no shares of Common Stock. The Distribution will be effective on May
[ ], 1996 (the "Distribution Date"). Certificates representing the shares of
Common Stock will be mailed to shareowners as soon thereafter as practicable.
No consideration will be paid by May shareowners for the shares of Common
Stock. There is no current public trading market for the Common Stock, although
it is expected that a "when-issued" trading market will develop on or about the
Record Date. The Common Stock has been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange under the symbol
"PSS."
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" ON PAGE 13.
-----------
NO VOTE OF SHAREOWNERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION.
NO PROXIES ARE BEING SOLICITED AND YOU ARE NOT REQUESTED TO TAKE
ANY ACTION WITH RESPECT TO YOUR SHARES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS INFORMATION STATEMENT IS APRIL , 1996
<PAGE>
References herein to "dollar" and "$" are to United States dollars, and the
terms "United States" and "U.S." mean the United States of America, its
states, its territories, its possessions and all areas subject to its
jurisdiction.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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Additional Information............ 3
Summary........................... 4
Introduction...................... 13
Risk Factors...................... 13
Selected Historical Financial
Information...................... 15
Pro Forma Capitalization.......... 17
Unaudited Pro Forma Consolidated
Financial Statements............. 18
Management's Discussion and
Analysis of Results of
Operations and Liquidity and
Capital Resources................ 21
Business.......................... 25
Financing......................... 31
Management........................ 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Executive Compensation............. 37
Beneficial Ownership of Management. 41
Security Ownership of Certain
Beneficial Owners................. 42
Transactions Between the Company
and May........................... 42
Description of Capital Stock....... 44
Purposes and Effects of Certain
Provisions of the Charter, the
Bylaws and the Rights Agreement... 45
Comparison of Rights of Shareowners
of May and the Company............ 52
The Distribution................... 56
Independent Public Accountants..... 59
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 (as the same may be amended
or supplemented from time to time, the "Registration Statement") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") with respect
to the Common Stock to be received by May shareowners in the Distribution.
This Information Statement does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected and copied at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the Regional Offices of the Commission at Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of this
material should also be available on-line through EDGAR and can be obtained by
mail from the Public Reference Branch of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. The Company will also be subject to the
proxy solicitation requirements of the Exchange Act and will furnish audited
financial statements to its shareowners in connection with its annual
shareowners meeting.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and related notes thereto
appearing elsewhere in this Information Statement.
THE COMPANY
Payless ShoeSource, Inc. (the "Company") is the largest footwear retailer in
the United States, with over $2.3 billion in sales in 1995. The Company sold
over 200 million pairs of shoes in 1995, representing one out of every five
pairs sold in the United States. The Company's share of the estimated $33
billion United States footwear market was 6.4% in 1995 and has grown
consistently over the past two decades. The Company is led by a team of
experienced management executives who have an average of 19 years of retail
industry experience.
The Company operated, as of February 3, 1996, 4,549 self-service, affordably
priced, family shoe stores, of which 773 include Payless Kids expansions. The
Company's stores are located in 49 states, the District of Columbia, Puerto
Rico and the United States Virgin Islands. The Company's stores average 3,000
square feet and carry approximately 11,000 pairs of shoes. The stores offer
more than 1,000 shoe styles at prices that average $11.00.
The Company has broad customer appeal, providing a complete assortment of
affordably priced, quality footwear for women, men and children from all age
groups, and from households with incomes that represent 85% of the United
States population. The Company has significant market penetration with its
target customer, women aged 18-64. In fact, over 40% of its targeted customers,
regardless of household income, purchased at least one pair of shoes from the
Company last year. In addition to shoes, the stores offer accessories,
including handbags and hosiery.
Management believes the Company is the most profitable footwear retailer in
the United States. However, 1995 results were negatively impacted by a
difficult retail environment (as evidenced by most specialty apparel and
footwear chains experiencing store-for-store declines), the devaluation of the
peso contributing to a 22% store-for-store decline in the Company's Mexican
border stores, and the integration of over 500 store locations acquired from
Kobacker, which increased the Company's fixed costs while causing some transfer
sales from existing stores to new stores opened nearby. The Company has
achieved a compound annual sales growth rate of 11.3% over the last five years
and consistent cash flow. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES--Review of Financial
Condition--Cash Flow."
During 1995, management identified steps to increase store profitability. As
a result of this analysis, during the fourth quarter of 1995, in connection
with the Distribution, the Company committed to close or relocate approximately
450 unprofitable stores during 1996. A one-time pretax special and nonrecurring
charge of $71.8 million associated with these store closings or relocations and
a plan to reduce central office overhead by means of census reduction and
expense control programs was recorded in 1995. The pro forma impact on 1995
results, had these stores been closed or relocated at the beginning of 1995,
would have been a $15.4 million increase in earnings before income taxes. For a
discussion of the assumptions used to determine the pro forma impact on 1995
results, see "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS."
The Company's objective is to increase sales and profits through increased
store-for-store sales in existing locations combined with selective openings of
profitable new stores. Management intends to achieve this objective through the
following strategic initiatives:
. build on merchandising strengths (women's dress shoes, children's,
sandals) while accelerating new or revitalized strategies of
comfort, wide widths and leather;
. continue to capitalize on long-standing relationships with vendors
and factories to provide the best assortment and value to the
customer while maintaining strong margins;
. increase the selling productivity of the front portions of all
stores and maximize the strength of urban store locations through
more focused merchandising;
4
<PAGE>
. leverage competitive advantage in distribution to increase sales
(build on the Company's ability to quickly respond to validated
fashion trends while capitalizing on its sophisticated physical
distribution system to optimize sales replenishment);
. increase market share by capturing the sales of low priced
footwear retailers and discount mass-merchandisers that have gone
out of business or closed stores in recent months (the Company is
strongly positioned to capture market share due to the convenient
nationwide network of stores in all types of locations (malls,
shopping centers, central business districts and free-standing
stores));
. identify productive sites for new stores in existing and new
markets; and
. drive down operating costs through cost control programs and the
leveraging of technology.
In addition, the Company believes that, as an independent company with its
own publicly traded stock, it will be able to establish equity-based incentive
compensation arrangements which will more selectively attract, retain and
motivate its associates by offering benefits tied directly to the associate's
efforts to improve the Company's performance.
The Company believes that these initiatives will lead to improved operating
results, however, there can be no assurance that such improvement will occur.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES." Furthermore, the Company believes there is
opportunity for continued profitable expansion of its business in the United
States.
The May Department Stores Company ("May") currently owns all of the
outstanding shares of common stock, par value $.01 per share, of the Company
(together with the associated preferred stock purchase rights, the "Common
Stock"). Following the consummation of the pro rata distribution to the owners
of May common stock of all of the outstanding shares of Common Stock (the
"Distribution"), May will own no shares of Common Stock, and the Company will
operate as an independent, publicly owned corporation. See "TRANSACTIONS
BETWEEN THE COMPANY AND MAY" and "THE DISTRIBUTION."
The principal executive offices of the Company are located at 3231 E. 6th
Street, Topeka, Kansas 66607-2207, and its telephone number is (913) 233-5171.
THE DISTRIBUTION
Distributing Company............ The May Department Stores Company. Immedi-
ately after the Distribution, May will own no
shares of Common Stock, and the Company will
operate as an independent, publicly owned
corporation.
Common Stock to be Distributed.. Approximately 39.9 million shares, based upon
the number of shares of common stock of May
expected to be outstanding on April [ ], 1996
(the "Record Date").
Distribution Ratio.............. .16 share of Common Stock for every one share
of May common stock (16 shares of Common
Stock for every 100 shares of May common
stock) held by May common shareowners of rec-
ord on the Record Date.
Trading Market and Symbol....... The Common Stock has been approved for list-
ing, subject to official notice of issuance,
on the New York Stock Exchange, Inc. ("NYSE")
under the symbol "PSS."
Record Date..................... Close of business on April [ ], 1996.
5
<PAGE>
Distribution Date............... May [ ], 1996. The Distribution Agent (as
defined below) will mail share certificates
commencing as soon thereafter as is practica-
ble. See "THE DISTRIBUTION--Manner of Effect-
ing the Distribution."
Distribution Agent.............. The Bank of New York.
Fractional Share Interests...... No certificates representing fractional share
interests will be issued. Owners of May com-
mon stock entitled to receive less than a
full share of Common Stock will receive cash
in lieu of such fractional share interest.
See "THE DISTRIBUTION--Manner of Effecting
the Distribution."
Dividend Policy................. The Company currently does not intend to pay
cash dividends on the Common Stock. See "RISK
FACTORS--Dividend Policy."
Reasons for the Distribution.... To permit each of May and the Company to
adopt strategies and pursue objectives appro-
priate to its specific retail segment and to
permit the Company to structure incentive and
benefit programs to reflect the Company's
performance in order to better attract, re-
tain and motivate its associates.
Tax Consequences................ May will receive an opinion of counsel to the
effect that, among other things, receipt of
the Common Stock will be tax-free for Federal
income tax purposes to the shareowners of May
(except to the extent cash is received for
fractional share interests of Common Stock),
and May will not recognize income, gain or
loss as a result of the Distribution. See
"THE DISTRIBUTION--Federal Income Tax Conse-
quences of the Distribution."
Relationship with May after the As a result of the Distribution, the Company
Distribution.................... will cease to be a subsidiary of or otherwise
affiliated with May and will thereafter oper-
ate as an independent, publicly held company.
However, May and the Company will enter into
certain agreements providing for (i) the or-
derly separation of May and the Company and
the making of the Distribution, (ii) the pro-
vision by May of certain interim services to
the Company following the Distribution, (iii)
the ongoing relationship between May and the
Company with respect to lease arrangements
for certain store locations and (iv) the al-
location of certain tax and other liabili-
ties. Mr. Thomas A. Hays, who has been the
Deputy Chairman of May since 1993 and a di-
rector of May since 1983, will serve on the
Company's board of directors after the Dis-
tribution. Mr. Hays has announced his retire-
ment as Deputy Chairman and as a director of
May, effective April 30, 1996. See "TRANSAC-
TIONS BETWEEN THE COMPANY AND MAY" and "MAN-
AGEMENT--Directors."
Certain Considerations.......... Shareowners should carefully consider the
matters discussed under the section entitled
"RISK FACTORS" in this Information Statement.
6
<PAGE>
Comparison of Rights of
Shareowners of May and the
Company.........................
The rights of the shareowners of Common Stock
will be governed by the corporate laws of the
State of Missouri rather than the State of
New York (which is currently the jurisdiction
of incorporation of May), the Company's
Amended and Restated Articles of Incorpora-
tion and Amended and Restated Bylaws. The
corporate laws of the State of Missouri ap-
plicable to the Company differ in certain re-
spects from the corporate laws of the State
of New York applicable to May, including with
respect to amendments to the articles of in-
corporation and bylaws, shareowner action
without a meeting, issuance to officers, di-
rectors and employees of rights or options to
purchase shares, loans to directors, the lim-
itation on directors' personal liability, in-
spection of the shareowner list and certain
anti-takeover statutes. In addition, the
rights of shareowners of the Company differ
from the rights of shareowners of May with
respect to certain matters, including, among
others, removal of directors and the calling
of special shareowners meetings. For a sum-
mary of these differences, see "COMPARISON OF
RIGHTS OF SHAREOWNERS OF MAY AND THE COMPA-
NY."
7
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth summary selected historical financial
information for the Company. The historical financial information presented
below reflects periods during which the Company did not operate as an
independent company, and, accordingly, certain assumptions were made in
preparing such financial information. Therefore, such information may not
necessarily reflect the consolidated results of operations or financial
position that would have existed if the Company had been an independent company
during the periods shown or of the Company's future performance as an
independent company. The financial information set forth below should be read
in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto contained elsewhere in this Information Statement. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND LIQUIDITY
AND CAPITAL RESOURCES." Earnings per share data are presented on a pro forma
basis only. See "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA."
<TABLE>
<CAPTION>
FISCAL YEAR(1)
-----------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(MILLIONS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net retail sales............... $2,330.3 $2,116.4 $1,966.5 $1,787.8 $1,547.5
Cost of sales.................. 1,688.7 1,489.8 1,366.1 1,223.9 1,056.5
Selling, general and
administrative expenses....... 479.9 408.4 378.7 351.6 310.7
Interest expense, net.......... 1.0 1.1 0.9 0.8 1.3
Special and nonrecurring items. 71.8(2) -- -- -- --
-------- -------- -------- -------- --------
Total cost of sales and
expenses...................... 2,241.4 1,899.3 1,745.7 1,576.3 1,368.5
-------- -------- -------- -------- --------
Earnings before income taxes... 88.9 217.1 220.8 211.5 179.0
Provision for income taxes..... 34.9 85.6 88.0 80.4 68.2
-------- -------- -------- -------- --------
Net earnings................... $ 54.0(2) $ 131.5 $ 132.8 $ 131.1 $ 110.8
======== ======== ======== ======== ========
Pro forma earnings per share... $ 2.58(3)
========
</TABLE>
- --------
(1) The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal year 1995 includes 53 weeks.
(2) During the 1995 fourth quarter, in connection with the Distribution, the
Company committed to close or relocate approximately 450 unprofitable
stores during 1996. In addition, the Company committed to restructure its
central office and other personnel. The 1995 net earnings, excluding
special and nonrecurring items, is $97.5. The pro forma impact on 1995
results, had these stores been closed or relocated at the beginning of
1995, would have been a $15.4 increase in earnings before income taxes. For
a discussion of the assumptions used to determine the pro forma impact on
1995 results, see "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS."
(3) Represents pro forma earnings per share as computed in the Pro Forma
Consolidated Statement of Earnings. See "UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS."
8
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR(1)
--------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT SALES PER
SQUARE FOOT)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $ 232.0 $ 242.8 $253.5 $206.1 $191.7
Property and equipment, net...... $ 560.0 $ 590.6 $433.9 $383.9 $343.5
Total assets..................... $1,014.3 $1,019.8 $840.8 $732.7 $692.7
Total debt....................... $ 11.5 $ 13.1 $ 14.5 $ 16.1 $ 16.9
May equity investment............ $ 752.9 $ 793.9 $661.0 $571.1 $530.9
OTHER FINANCIAL DATA:
Net retail sales growth.......... 10.1% 7.6% 10.0% 15.5% 13.3%
Earnings before interest, income
taxes, depreciation and
amortization (EBITDA) (2)....... $ 185.2(3) $ 295.2 $288.7 $245.2 $226.1
Stores opened.................... 276 756 322 348 399
Stores closed.................... 162 100 113 73 71
Number of stores (at period end). 4,549 4,435 3,779 3,570 3,295
Sales per square foot............ $ 154 $ 161 $ 165 $ 161 $ 152
Capital expenditures............. $ 95.4 $ 255.2 $139.8 $119.3 $145.6
Present value of operating
leases.......................... $ 885.5 $ 952.1 $779.9 $688.1 $554.0
</TABLE>
- --------
(1) The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal year 1995 includes 53 weeks.
(2) EBITDA should not be considered in isolation or as a substitute for
measures of performance or cash generation prepared in accordance with
generally accepted accounting principles. See the Company's Consolidated
Financial Statements and the Notes thereto, contained elsewhere in this
Information Statement.
(3) 1995 EBITDA, excluding special and nonrecurring items, is $257.0.
9
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The Company has no operating history as an independent company. The
historical consolidated financial statements reflect periods during which the
Company did not operate as an independent company, and, accordingly, certain
assumptions were made in preparing such financial statements. Therefore, such
historical consolidated financial statements may not necessarily reflect the
consolidated results of operations or financial position that would have
existed had the Company been an independent company.
The underlying assumptions that result in the pro forma adjustments are: (1)
with respect to the Pro Forma Consolidated Balance Sheet, (a) the Distribution
occurred on February 3, 1996 and (b) the store closings or relocations
resulting in the special and nonrecurring charge happened on February 3, 1996,
and (2) with respect to the Pro Forma Consolidated Statement of Earnings, (a)
the Distribution occurred on January 29, 1995 and (b) the store closings or
relocations resulting in the special and nonrecurring charge happened on
January 29, 1995.
The pro forma consolidated financial statements should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
contained elsewhere in this Information Statement. The pro forma consolidated
financial information is presented for informational purposes only and may not
necessarily reflect the future results of operations or financial position of
the Company or what the results of operations or financial position would have
been had the Company's business been operated as an independent company during
such period.
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 3, 1996
---------------------------------------
PRO FORMA PRO
HISTORICAL(1) ADJUSTMENTS(2) FORMA
------------- -------------- --------
(MILLIONS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C>
NET RETAIL SALES...................... $2,330.3 $(102.9)(a) $2,227.4
-------- ------- --------
Cost of sales......................... 1,688.7 (95.3)(a) 1,593.4
Selling, general and administrative
expenses............................. 479.9 (22.9)(a)
6.1 (b) 463.1
Interest expense, net................. 1.0 -- 1.0
Special and nonrecurring items........ 71.8(4) (71.8)(c) --
-------- ------- --------
Total cost of sales and expenses...... 2,241.4 (183.9) 2,057.5
-------- ------- --------
Earnings before income taxes.......... 88.9 81.0 169.9
Provision for income taxes............ 34.9 31.8 (d) 66.7
-------- ------- --------
NET EARNINGS(3)....................... $ 54.0(4) $ 49.2 $ 103.2
======== ======= ========
Pro forma earnings per share.......... $ 2.58
========
Outstanding shares of Common Stock.... 39.9(e)
========
</TABLE>
- --------
(1) See the Company's Consolidated Financial Statements and Notes thereto,
contained elsewhere in this Information Statement.
(2) See accompanying NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA.
(3) The Company is unaware of any increases in costs related to the purchase of
merchandise due to the termination of its relationship with May.
Incremental costs that will be incurred because the Company is an
independent company have been reflected in the pro forma adjustments above.
See accompanying NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA.
(4) During the 1995 fourth quarter, in connection with the Distribution, the
Company committed to close or relocate approximately 450 unprofitable
stores during 1996. In addition, the Company committed to restructure its
central office and other personnel. The 1995 net earnings, excluding
special and nonrecurring items, are $97.5. The pro forma impact on 1995
results, had these stores been closed or relocated at the beginning of
1995, would have been a $15.4 increase in earnings before income taxes. For
a discussion of the assumptions used to determine the pro forma impact on
1995 results, see "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS."
10
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
FEBRUARY 3, 1996
--------------------------------------
PRO FORMA PRO
HISTORICAL(1) ADJUSTMENTS(2) FORMA
------------- -------------- --------
(MILLIONS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and marketable securities........ $ 4.6 $ $ 4.6
Accounts receivable, net.............. 4.4 4.4
Merchandise inventories............... 398.0 398.0
Other current assets.................. 43.9 43.9
--------- ------- --------
Total Current Assets................ 450.9 450.9
Property and Equipment:
Land.................................. 6.5 6.5
Buildings and leasehold improvements.. 564.6 564.6
Furniture, fixtures and equipment..... 278.7 278.7
Property under capital leases......... 18.7 18.7
--------- ------- --------
Total property and equipment.......... 868.5 868.5
Accumulated depreciation and
amortization......................... (308.5) (308.5)
--------- ------- --------
Property and equipment, net........... 560.0 560.0
Goodwill................................ 2.9 2.9
Other Assets............................ 0.5 0.5
--------- ------- --------
Total Assets........................ $ 1,014.3 $ -- $1,014.3
========= ======= ========
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of capital lease
obligations.......................... $ 1.2 $ $ 1.2
Accounts payable...................... 65.0 65.0
Accrued expenses...................... 152.7 152.7
--------- ------- --------
Total Current Liabilities........... 218.9 218.9
Capital Lease Obligations............... 10.3 10.3
Deferred Income Taxes................... 8.9 8.9
Other Liabilities....................... 23.3 23.3
Equity:
May equity investment................. 752.9 (752.9)(a) --
Shareowners' equity................... -- 752.9 (a) 752.9
--------- ------- --------
Total Liabilities and Equity........ $ 1,014.3 $ -- $1,014.3
========= ======= ========
</TABLE>
- --------
(1) See the Company's Consolidated Financial Statements and Notes thereto,
contained elsewhere in this Information Statement.
(2) See accompanying NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA.
11
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
PRO FORMA STATEMENT OF EARNINGS
The pro forma adjustments to the accompanying historical consolidated
statement of earnings for the year ended February 3, 1996, are described below:
(a) To reflect the impact on sales, cost of sales, and selling, general and
administrative expenses of closing or relocating approximately 450
unprofitable stores as of the first day of fiscal 1995. The pro forma
impact on 1995 results, had these stores been closed or relocated at the
beginning of 1995, would have been a $15.4 increase in earnings before
income taxes. The pro forma impact was determined using the actual results
of operations for these stores and the Company's experience from 1995
closed store transfer sales (the sales increase at continuing Payless
stores near Payless stores that closed).
(b) To reflect the estimated aggregate cost of $7.2 which would have been
incurred by the Company as an independent company, based on estimates by
the management of the Company and May, and the $1.1 decrease of profit
sharing expense under the Payless Profit Sharing Plan versus the costs
incurred under the May Profit Sharing and Retirement Plans. The $7.2
consists primarily of additional payroll expense required to provide
administrative services in the areas of tax, treasury, risk management and
insurance, legal, external reporting and benefits administration. In
addition, other components include increased insurance costs, increased
legal and other professional fees, as well as fees associated with a credit
facility. The pro forma decrease in profit sharing expense of the Payless
Profit Sharing Plan is based on Company stand-alone results whereas under
the May Profit Sharing Plan, the Payless profit sharing was based on May
consolidated results.
(c) To reflect the assumption that special and nonrecurring items took place on
the first day of fiscal 1995.
(d) To reflect revised income tax provision associated with the pro forma
adjustments described above at an assumed combined state and Federal income
tax rate of 39.3%.
(e) The number of outstanding shares represents the 1995 weighted average
outstanding shares of May common stock and an assumed distribution ratio of
.16 share of Common Stock for each share of May common stock, plus .125
shares of Common Stock to be issued to Company associates in accordance
with the Spin-Off Stock Plan. See "EXECUTIVE COMPENSATION--Spin-Off Stock
Plan and Spin-Off Cash Plan."
PRO FORMA BALANCE SHEET
The pro forma adjustments to the accompanying historical consolidated balance
sheet at February 3, 1996, are described below:
(a) To reflect the elimination of May's equity investment resulting from the
Distribution.
12
<PAGE>
INTRODUCTION
On April [ ], 1996, the board of directors of May declared a distribution,
payable to the owners of record of May common stock, at the close of business
on the Record Date, of .16 share of Common Stock of the Company for every
share of May common stock (16 shares of Common Stock for every 100 shares of
May common stock) outstanding on the Record Date.
Shareowners of May with inquiries relating to the Distribution should
contact the office of the Corporate Treasurer at The May Department Stores
Company, 611 Olive Street, St. Louis, Missouri, 63101-1799. May's telephone
number is (314) 342-6300. After the Distribution Date, shareowners of the
Company with inquiries relating to the Distribution or their investment in the
Company should contact the office of the Chief Financial Officer at the
Company, 3231 E. 6th Street, Topeka, Kansas 66607-2207. The Company's
telephone number is (913) 233-5171.
RISK FACTORS
UNAVAILABILITY OF MAY'S FINANCIAL AND OTHER RESOURCES
Prior to the consummation of the Distribution, the Company has been operated
as a wholly owned subsidiary of May. Following consummation of the
Distribution, it will no longer be able to rely on May for financial support
or benefit from its relationships with May to obtain credit or receive
favorable terms for the purchase or sale of certain goods and services. Except
as described under "TRANSACTIONS BETWEEN THE COMPANY AND MAY," following
consummation of the Distribution the Company will be responsible for obtaining
its own sources of financing and for its own corporate administrative services
such as tax, treasury, risk management and insurance, accounting, legal,
research and development, information systems, and human resources. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND LIQUIDITY
AND CAPITAL RESOURCES--Review of Financial Condition--Cash Flow."
RISKS OF FOREIGN MANUFACTURING
The Company contracts for the manufacture of its merchandise with
independent third parties in the United States and 13 foreign countries.
Factories in the People's Republic of China ("China") have been a source of
approximately 80% of the Company's merchandise.
Risks inherent in foreign manufacturing (i.e., manufacturing outside the
United States) include economic and political instability, transportation
delays and interruptions, restrictive actions by foreign governments, the laws
and policies of the United States affecting importation of goods, including
duties, quotas and taxes, trade and foreign tax laws and fluctuations in
currency exchange rates. While the Company has not historically experienced
material adverse effects from these risks, there is no assurance that in the
future these risks will not result in increased costs and delays or disruption
in product deliveries that could cause loss of revenue and damage to customer
relationships.
China currently enjoys "most favored nation" ("MFN") status under United
States tariff laws, which provides the most favorable category of United
States import duties. China's MFN status is annually reviewed by Congress.
Extension of this status is subject to political uncertainties. The loss of
MFN status for China would likely result in substantially increased costs to
the Company in the purchase of merchandise from China until the Company could
arrange to shift its merchandise requirements to alternative manufacturers in
other countries. The Company believes, however, that its competitors in the
footwear industry would be similarly affected.
COMPETITION
The Company operates in a highly competitive retail market competing
primarily with national and regional discount mass-merchandisers, as well as
with other self-service discount shoe stores and off-price outlet stores.
Competition is based on product selection and quality, availability, price,
store location, customer service and efficient promotional activities. The
Company has successfully operated in its markets with each of these segments
of retailing for many years and has continued to capture increased market
share by offering a wider selection of fashionable styles and compelling
prices in conveniently located stores; however, the Company is facing
increased competition from certain national discount mass-merchandisers.
13
<PAGE>
ABSENCE OF PRIOR TRADING MARKET FOR THE COMMON STOCK
There has not been any established public trading for the Common Stock,
although it is expected that a "when-issued" trading market may develop on or
about the Record Date. The Common Stock has been approved for listing on the
NYSE, subject to official notice of issuance, under the symbol "PSS." There
can be no assurance as to the prices at which the Common Stock will trade
before or after the Distribution Date. In particular, the market price for the
Common Stock may be somewhat volatile immediately following the Distribution
because, among other reasons, (i) the shares of Common Stock currently held by
May will be distributed to nearly 43,000 owners of record, some of whom may
not choose to retain such shares, (ii) the shares of Common Stock distributed
to The May Department Stores Company Profit Sharing Plan in the Distribution
will be sold over time and the proceeds reinvested in May common stock, and
(iii) shares of Common Stock will be sold by The Bank of New York, as
distribution agent, to eliminate fractional share interests. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" and "THE DISTRIBUTION--Manner of
Effecting the Distribution." Prices for shares of Common Stock will be
determined in the marketplace and may be influenced by many factors, including
the depth and liquidity of the market for the shares, investor perception of
the Company, changes in economic conditions in the retail industry and general
economic and market conditions. In addition, the stock market often
experiences significant price fluctuations that are unrelated to the operating
performance of the specific companies whose stock is traded. Market
fluctuations, as well as economic conditions, may adversely affect the market
price of the shares of Common Stock. See "THE DISTRIBUTION--Listing and
Trading of the Shares of Common Stock."
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS AND
OTHER MATTERS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Payless Charter") and Amended and Restated Bylaws (the
"Payless Bylaws") including provisions classifying the board of directors,
governing business transactions with certain shareowners, restricting the
calling of special shareowner meetings and requiring advance notice for
shareowner proposals and certain provisions of the General and Business
Corporation Law of Missouri (the "GBCL") could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. In addition, the Rights (as hereinafter defined) could have similar
anti-takeover effects. Such charter and bylaw provisions and the Rights could
diminish the opportunities for a shareowner to participate in certain tender
offers, including tender offers at prices above the then current market value
of the Common Stock and may also inhibit fluctuations in the market price of
the Common Stock that could result from takeover attempts. See "PURPOSES AND
EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BYLAWS AND THE RIGHTS
AGREEMENT." In addition, the Company's board of directors, without further
shareowner approval, may issue preferred stock that could have the effect of
delaying, deterring or preventing a change in control of the Company. The
issuance of preferred stock could also adversely affect the voting power of
the owners of the Common Stock, including the loss of voting control to
others. The Company has no present plans to issue any preferred stock. See
"DESCRIPTION OF CAPITAL STOCK--Preferred Stock." In connection with the
Distribution, the Company has agreed to indemnify May for certain taxes
resulting from the failure of the Distribution (or certain related
transactions) to qualify as tax-free transactions if such failure is
attributable to certain actions by, or relating to, the Company, including
certain change of control transactions involving the Company and certain
dispositions of the Company's assets occurring prior to the second anniversary
of the Distribution Date. See "TRANSACTIONS BETWEEN THE COMPANY AND MAY--Tax
Sharing Agreement." It is anticipated that the Credit Agreement (as defined
herein) will include a covenant prohibiting a change in control of the
Company. See "FINANCING." These agreements may have the effect of discouraging
or preventing an acquisition of the Company, which may in turn depress the
market price for the shares of Common Stock.
DIVIDEND POLICY
The Company anticipates that future earnings will be used principally to
support operations and to finance new store openings, store expansions and
remodelings and, thus, the Company does not intend to pay cash dividends on
the Common Stock in the near future. The payment of cash dividends in the
future will be at the discretion of the Company's board of directors. The
declaration of dividends and the amount thereof will depend on a number of
factors, including the Company's financial condition, capital requirements,
funds from operations, future business prospects and such other factors as the
board of directors of the Company may deem relevant. In addition, the Credit
Agreement (as defined herein) will contain restrictions on the Company's
ability to make payments and distributions, including dividends on the Common
Stock. See "FINANCING."
14
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected historical financial information for
the Company. The historical financial information presented below reflects
periods during which the Company did not operate as an independent company,
and, accordingly, certain assumptions were made in preparing such financial
information. Therefore, such information may not necessarily reflect the
consolidated results of operations or financial position that would have
existed if the Company had been an independent company during the periods
shown or of the Company's future performance as an independent company. The
financial information set forth below should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto contained
elsewhere in this Information Statement. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES."
Earnings per share data are presented on a pro forma basis only. See
"UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
FISCAL YEAR(1)
-----------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(MILLIONS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net retail sales............... $2,330.3 $2,116.4 $1,966.5 $1,787.8 $1,547.5
Cost of sales.................. 1,688.7 1,489.8 1,366.1 1,223.9 1,056.5
Selling, general and
administrative expenses....... 479.9 408.4 378.7 351.6 310.7
Interest expense, net.......... 1.0 1.1 0.9 0.8 1.3
Special and nonrecurring items. 71.8(2) -- -- -- --
-------- -------- -------- -------- --------
Total cost of sales and
expenses...................... 2,241.4 1,899.3 1,745.7 1,576.3 1,368.5
-------- -------- -------- -------- --------
Earnings before income taxes... 88.9 217.1 220.8 211.5 179.0
Provision for income taxes..... 34.9 85.6 88.0 80.4 68.2
-------- -------- -------- -------- --------
Net earnings................... $ 54.0(2) $ 131.5 $ 132.8 $ 131.1 $ 110.8
======== ======== ======== ======== ========
Pro forma earnings per share... $ 2.58(3)
========
</TABLE>
- --------
(1) The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal year 1995 includes 53 weeks.
(2)During the 1995 fourth quarter, in connection with the Distribution, the
Company committed to close or relocate approximately 450 unprofitable stores
during 1996. In addition, the Company committed to restructure its central
office and other personnel. The 1995 net earnings, excluding special and
nonrecurring items, is $97.5. The pro forma impact on 1995 results, had these
stores been closed or relocated at the beginning of 1995, would have been a
$15.4 increase in earnings before income taxes. For a discussion of the
assumptions used to determine the pro forma impact on 1995 results, see
"UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS."
(3)Represents pro forma earnings per share as computed in the Pro Forma
Consolidated Statement of Earnings. See "UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS."
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR(1)
--------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT SALES PER
SQUARE FOOT)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $ 232.0 $ 242.8 $253.5 $206.1 $191.7
Property and equipment, net...... $ 560.0 $ 590.6 $433.9 $383.9 $343.5
Total assets..................... $1,014.3 $1,019.8 $840.8 $732.7 $692.7
Total debt....................... $ 11.5 $ 13.1 $ 14.5 $ 16.1 $ 16.9
May equity investment............ $ 752.9 $ 793.9 $661.0 $571.1 $530.9
OTHER FINANCIAL DATA:
Net retail sales growth.......... 10.1% 7.6% 10.0% 15.5% 13.3%
Earnings before interest, income
taxes, depreciation and
amortization (EBITDA)(2)........ $ 185.2(3) $ 295.2 $288.7 $245.2 $226.1
Stores opened.................... 276 756 322 348 399
Stores closed.................... 162 100 113 73 71
Number of stores (at period end). 4,549 4,435 3,779 3,570 3,295
Sales per square foot............ $ 154 $ 161 $ 165 $ 161 $ 152
Capital expenditures............. $ 95.4 $ 255.2 $139.8 $119.3 $145.6
Present value of operating
leases.......................... $ 885.5 $ 952.1 $779.9 $688.1 $554.0
</TABLE>
- --------
(1) The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal year 1995 includes 53 weeks.
(2) EBITDA should not be considered in isolation or as a substitute for
measures of performance or cash generation prepared in accordance with
generally accepted accounting principles. See the Company's Consolidated
Financial Statements and the Notes thereto, contained elsewhere in this
Information Statement.
(3) 1995 EBITDA, excluding special and nonrecurring items, is $257.0.
16
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the consolidated capitalization, the pro
forma adjustments and the pro forma consolidated capitalization of the Company
as if the distribution took place on February 3, 1996. The pro forma
information may not reflect the capitalization of the Company in the future or
as it would have been had the Company been an independent company as of
February 3, 1996. Assumptions regarding the number of shares of Common Stock
may not reflect the actual numbers at the Distribution Date.
<TABLE>
<CAPTION>
FEBRUARY 3, PRO FORMA PRO FORMA
1996(1) ADJUSTMENTS(1) AS ADJUSTED
----------- -------------- -----------
(MILLIONS)
<S> <C> <C> <C>
Current maturities of capital lease
obligations............................ $ 1.2 $ $ 1.2
Long-term capital lease obligations..... 10.3 10.3
Equity:
May equity investment................. 752.9 (752.9)
Shareowners' Investment:
Common Stock, $0.01 par value,
authorized 120.0 shares, outstanding
39.9 shares.......................... 0.4 0.4
Preferred Stock, $0.01 par value,
authorized 25.0 shares, no outstanding
shares.................................
Contributed capital and retained
earnings............................... 752.5 752.5
------ ------- ------
Total Equity........................ 752.9 752.9
Total capitalization................ $764.4 $ -- $764.4
====== ======= ======
Debt-to-capitalization ratio(2)......... 1% 1%
</TABLE>
- --------
(1) This table should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto and the Unaudited Pro Forma
Consolidated Financial Statements and the Notes thereto, contained
elsewhere in this Information Statement.
(2) Debt-to-capitalization has been computed by dividing total debt, which
includes current maturities and long-term capital lease obligations by
capitalization, which includes current maturities and long-term capital
lease obligations, and noncurrent deferred taxes of $8.9. The debt-to-
capitalization ratio, including the present value of future minimum rental
payments under operating leases as debt and as capitalization, is 54% as
of February 3, 1996 and pro forma as adjusted, respectively.
17
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The Company has no operating history as an independent company. The
historical consolidated financial statements reflect periods during which the
Company did not operate as an independent company, and, accordingly, certain
assumptions were made in preparing such financial statements. Therefore, such
historical consolidated financial statements may not necessarily reflect the
consolidated results of operations or financial position that would have
existed had the Company been an independent company.
The underlying assumptions that result in the pro forma adjustments are: (1)
with respect to the Pro Forma Consolidated Balance Sheet, (a) the Distribution
occurred on February 3, 1996 and (b) the store closings or relocations
resulting in the special and nonrecurring charge happened on February 3, 1996,
and (2) with respect to the Pro Forma Consolidated Statement of Earnings, (a)
the Distribution occurred on January 29, 1995 and (b) the store closings or
relocations resulting in the special and nonrecurring charge happened on
January 29, 1995.
The pro forma consolidated financial statements should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto contained elsewhere in this Information Statement. The pro forma
consolidated financial information is presented for informational purposes
only and may not necessarily reflect the future results of operations or
financial position of the Company or what the results of operations or
financial position would have been had the Company's business been operated as
an independent company during such period.
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 3, 1996
---------------------------------------
PRO FORMA PRO
HISTORICAL(1) ADJUSTMENTS(2) FORMA
------------- -------------- --------
(MILLIONS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C>
NET RETAIL SALES...................... $2,330.3 $(102.9)(a) $2,227.4
-------- ------- --------
Cost of sales......................... 1,688.7 (95.3)(a) 1,593.4
Selling, general and administrative
expenses............................. 479.9 (22.9)(a)
6.1 (b) 463.1
Interest expense, net................. 1.0 -- 1.0
Special and nonrecurring items........ 71.8(4) (71.8)(c) --
-------- ------- --------
Total cost of sales and expenses...... 2,241.4 (183.9) 2,057.5
-------- ------- --------
Earnings before income taxes.......... 88.9 81.0 169.9
Provision for income taxes............ 34.9 31.8 (d) 66.7
-------- ------- --------
NET EARNINGS(3)....................... $ 54.0(4) $ 49.2 $ 103.2
======== ======= ========
Pro forma earnings per share.......... $ 2.58
========
Outstanding shares of Common Stock.... 39.9(e)
========
</TABLE>
- --------
(1) See the Company's Consolidated Financial Statements and Notes thereto,
contained elsewhere in this Information Statement.
(2) See accompanying NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS.
(3) The Company is unaware of any increases in costs related to the purchase
of merchandise due to the termination of its relationship with May.
Incremental costs that will be incurred because the Company is an
independent company have been reflected in the pro forma adjustments
above. See accompanying NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL DATA.
(4) During the 1995 fourth quarter, in connection with the Distribution, the
Company committed to close or relocate approximately 450 unprofitable
stores during 1996. In addition, the Company committed to restructure its
central office and other personnel. The 1995 net earnings, excluding
special and nonrecurring items, are $97.5. The pro forma impact on 1995
results, had these stores been closed or relocated at the beginning of
1995, would have been a $15.4 increase in earnings before income taxes.
18
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
FEBRUARY 3, 1996
--------------------------------------
PRO FORMA PRO
HISTORICAL(1) ADJUSTMENTS(2) FORMA
------------- -------------- --------
(MILLIONS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and marketable securities........ $ 4.6 $ $ 4.6
Accounts receivable, net.............. 4.4 4.4
Merchandise inventories............... 398.0 398.0
Other current assets.................. 43.9 43.9
-------- ------- --------
Total Current Assets................ 450.9 450.9
Property and Equipment:
Land.................................. 6.5 6.5
Buildings and leasehold improvements.. 564.6 564.6
Furniture, fixtures and equipment..... 278.7 278.7
Property under capital leases......... 18.7 18.7
-------- ------- --------
Total property and equipment.......... 868.5 868.5
Accumulated depreciation and
amortization......................... (308.5) (308.5)
-------- ------- --------
Property and equipment, net........... 560.0 560.0
Goodwill................................ 2.9 2.9
Other Assets............................ 0.5 0.5
-------- ------- --------
Total Assets........................ $1,014.3 $ -- $1,014.3
======== ======= ========
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of capital lease
obligations.......................... $ 1.2 $ 1.2
Accounts payable...................... 65.0 65.0
Accrued expenses...................... 152.7 152.7
-------- ------- --------
Total Current Liabilities........... 218.9 218.9
Capital Lease Obligations............... 10.3 10.3
Deferred Income Taxes................... 8.9 8.9
Other Liabilities....................... 23.3 23.3
Equity:
May equity investment................. 752.9 (752.9)(a) --
Shareowners' equity................... -- 752.9 (a) 752.9
-------- ------- --------
Total Liabilities and Equity........ $1,014.3 $ -- $1,014.3
======== ======= ========
</TABLE>
- --------
(1) See the Company's Consolidated Financial Statements and Notes thereto,
contained elsewhere in this Information Statement.
(2) See accompanying NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS.
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA STATEMENT OF EARNINGS
The pro forma adjustments to the accompanying historical consolidated
statement of earnings for the year ended February 3, 1996, are described
below:
(a) To reflect the impact on sales, cost of sales, and selling, general and
administrative expenses of closing or relocating approximately 450
unprofitable stores as of the first day of fiscal 1995. The pro forma
impact on 1995 results, had these stores been closed or relocated at the
beginning of 1995, would have been a $15.4 increase in earnings before
income taxes. The pro forma impact was determined using the actual results
of operations for these stores and the Company's experience from 1995
closed store transfer sales (the sales increase at continuing Payless
stores near Payless stores that closed).
(b) To reflect the estimated aggregate cost of $7.2 which would have been
incurred by the Company as an independent company, based on estimates by
the management of the Company and May, and the $1.1 decrease of profit
sharing expense under the Payless Profit Sharing Plan versus the costs
incurred under the May Profit Sharing and Retirement Plans. The $7.2
consists primarily of additional payroll expense required to provide
administrative services in the areas of tax, treasury, risk management and
insurance, legal, external reporting and benefits administration. In
addition, other components include increased insurance costs, increased
legal and other professional fees, as well as fees associated with a
credit facility. The pro forma decrease in profit sharing expense of the
Payless Profit Sharing Plan is based on Company stand-alone results
whereas under the May Profit Sharing Plan, the Payless profit sharing was
based on May consolidated results.
(c) To reflect the assumption that special and nonrecurring items took place
on the first day of fiscal 1995.
(d) To reflect revised income tax provision associated with the pro forma
adjustments described above at an assumed combined state and Federal
income tax rate of 39.3%.
(e) The number of outstanding shares represents the 1995 weighted average
outstanding shares of May common stock and an assumed distribution ratio
of .16 share of Common Stock for each share of May common stock, plus .125
shares of Common Stock to be issued to Company associates in accordance
with the Spin-off Stock Plan. See "EXECUTIVE COMPENSATION--Spin-Off Stock
Plan and Spin-Off Cash Plan."
PRO FORMA BALANCE SHEET
The pro forma adjustments to the accompanying historical consolidated
balance sheet at February 3, 1996, are described below:
(a) To reflect the elimination of May's equity investment resulting from the
Distribution.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto contained elsewhere in
this Information Statement. Since the Company was a wholly owned subsidiary of
May during the periods presented, the financial statements may not necessarily
reflect the consolidated results of operations or financial position of the
Company had it been an independent, public company during those periods. All
dollar amounts herein are stated in millions, except where expressly stated in
billions and except shoe price information.
GENERAL
The Company is the largest footwear retailer in the United States, with over
$2.3 billion in sales in 1995. The Company sold over 200 million pairs of
shoes in 1995, representing one out of every five pairs sold in the United
States. The Company's share of the estimated $33 billion United States
footwear market was 6.4% in 1995, and has grown consistently over the past two
decades. The Company is led by a team of experienced management executives who
have an average of 19 years of retail industry experience.
The Company operated, as of February 3, 1996, 4,549 self-service, affordably
priced, family shoe stores, of which 773 include Payless Kids expansions. The
Company's stores are located in 49 states, the District of Columbia, Puerto
Rico and the United States Virgin Islands. The Company's stores average 3,000
square feet and carry approximately 11,000 pairs of shoes. The stores offer
more than 1,000 shoe styles at prices that average $11.00.
During recent years, the Company has grown sales by means of an aggressive
store opening program, which included acquisitions. The five year compounded
annual sales growth rate for the period ended February 3, 1996 was 11.3%.
During 1995, management focused on store profitability as well as continued
net retail sales growth. The Company opened 114 net new stores, adding 329,000
square feet of retail space. In addition, the Payless Kids expansion program
continued by expanding 138 stores by a total of 133,000 square feet. As
announced January 17, 1996, the Company will close or relocate approximately
450 unprofitable stores during 1996. In addition, the Company committed to
restructure its central office and other personnel. The Company recorded a
one-time pretax special and nonrecurring charge of $71.8. The pro forma impact
on 1995 results, had these stores been closed or relocated at the beginning of
1995, would have been a $15.4 increase in earnings before income taxes. For a
discussion of the assumptions used to determine the pro forma impact on 1995
results, see "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS."
In 1994, the Company opened 656 net new stores, adding 2.6 million square
feet of retail space. During the year, the Company purchased 550 store
locations from The Kobacker Company and The Shoe Works, Inc. (collectively,
"Kobacker") in 29 states and the District of Columbia. The Company remodeled
and reopened 416 of these stores in the 1994 fourth quarter, all under the
Payless ShoeSource name. In addition, 354 locations were expanded by an
average of 1,000 square feet to include additional selling space for the
Payless Kids format.
In 1996, the Company anticipates adding approximately 240 new stores, with
more than 720,000 square feet of retail space. Approximately 10% of these new
stores are planned to include adjacent Payless Kids expansions. The Company's
total capital expenditures in 1996 are estimated to be $114, including $61 to
open new stores, $24 to remodel existing stores and $29 to make other required
capital improvements. Management anticipates that cash flow from operations
and borrowings under the Company's credit facility will be sufficient to
finance, among other things, its projected capital expenditures.
21
<PAGE>
REVIEW OF OPERATIONS
Net earnings, including the impact of the special and nonrecurring items,
were $54.0 in 1995. Net earnings, excluding the impact of the special and
nonrecurring charge, totaled $97.5 in 1995 compared with $131.5 in 1994 and
$132.8 in 1993. Total Company return on revenues, was 2.3% in 1995 compared
with 6.2% in 1994 and 6.8% in 1993. The 1995 return on revenues, excluding the
special and nonrecurring items, was 4.2%.
Results for the past three years were as follows:
<TABLE>
<CAPTION>
1995(1) 1994(1) 1993(1)
----------------- -------------- --------------
% OF % OF % OF
$ SALES $ SALES $ SALES
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
NET RETAIL SALES............ $2,330.3 100.0 $2,116.4 100.0 $1,966.5 100.0
Cost of sales............... 1,688.7 72.5 1,489.8 70.4 1,366.1 69.5
Selling, general and
administrative expenses.... 479.9 20.6 408.4 19.3 378.7 19.3
Interest expense, net....... 1.0 -- 1.1 -- 0.9 --
Special and nonrecurring
items...................... 71.8(2) 3.1 -- -- -- --
-------- ----- -------- ----- -------- -----
Earnings before income
taxes...................... 88.9 3.8 217.1 10.3 220.8 11.2
Provision for income
taxes(3)................... 34.9 39.3 85.6 39.4 88.0 39.8
-------- ----- -------- ----- -------- -----
NET EARNINGS................ $ 54.0(2) 2.3% $ 131.5 6.2% $ 132.8 6.8%
======== ===== ======== ===== ======== =====
</TABLE>
- --------
(1) The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal year 1995 includes 53 weeks.
(2) During the 1995 fourth quarter, in connection with the Distribution, the
Company committed to close or relocate approximately 450 unprofitable
stores during 1996. In addition, the Company committed to restructure its
central office and other personnel. See "--Special and Nonrecurring
Items," below. The 1995 net earnings, excluding these special and
nonrecurring items, is $97.5. The pro forma impact on 1995 results, had
these stores been closed or relocated at the beginning of 1995, would have
been a $15.4 increase in earnings before income taxes. For a discussion of
the assumptions used to determine the pro forma impact on 1995 results,
see "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS."
(3) Percent of sales column represents effective income tax rate.
Net Retail Sales. Net retail sales, on a 52-week basis, increases
(decreases) for 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 VS. 1994 1994 VS. 1993
--------------------------- ------------------------------------------
STORE-FOR- STORE-FOR-
TOTAL STORE(1) TOTAL STORE(1)
----- --------- ----- ---------
<S> <C> <C> <C>
8.8% (3.7)% 7.6% (0.2)%
</TABLE>
- --------
(1) Store-for-store sales represent sales of those stores open during both
years.
The 1995 store-for-store decrease reflects an overall sluggish retail
environment, combined with transfer sales (the sales lost by existing Payless
stores to new Payless stores that opened in or near an existing trade area),
estimated to be $9, that resulted from the acquisition of locations from
Kobacker, and a sales decline in the Company's Mexican border stores,
estimated to be $17, caused by the devaluation of the peso. Based on industry
sources, the Company believes it outperformed its competition in 1995 and
increased its share of the footwear market. The Company is addressing transfer
sales through closing unprofitable stores located near other Company stores.
It is expected that those closings will result in a transfer of sales to
nearby stores at a higher profit flow-through. The value of the peso appears
to have stabilized based on recent exchange rates as well as improved store-
for-store performance in Mexican border markets.
22
<PAGE>
Total sales increases for 1994 include the results of 656 net new stores,
partially offset by a 0.2% store-for-store sales decrease.
Cost of Sales. Cost of sales includes cost of merchandise sold and buying
and occupancy costs. Cost of sales was $1,688.7 in 1995 compared with $1,489.8
in 1994, a 13.4% increase. As a percent of net retail sales, cost of sales was
72.5% in 1995 compared with 70.4% in 1994. The drop in store-for-store sales
caused an increase in the occupancy cost as a percent of sales. The Company
also took additional markdowns to maintain current inventories.
Cost of sales was $1,489.8 in 1994 compared with $1,366.1 in 1993, a 9.1%
increase. As a percent of net retail sales, cost of sales was 70.4% in 1994
compared with 69.5% in 1993. The 1994 percent increase was primarily due to
increased occupancy, rent and depreciation expense rates resulting from a
decrease in store-for-store sales and from the expenses associated with
opening the Kobacker locations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $479.9 in 1995 compared with $408.4 in 1994, a
17.5% increase. The increase of 17.5% was due principally to a 15.1% increase
in the average number of stores. As a percent of net retail sales, selling,
general and administrative expenses were 20.6% compared to 19.3% in 1994,
resulting from a 3.7% decline in store-for-store sales coupled with relatively
fixed store staffing costs.
Selling, general and administrative expenses were $408.4 in 1994 compared
with $378.7 in 1993, a 7.8% increase. The increase was due to an 8.5% increase
in the average number of stores. As a percent of net retail sales, selling,
general and administrative expenses remained flat in spite of a 0.2% decrease
in store-for-store sales.
Interest Expense. Interest expense is primarily related to capitalized lease
obligations.
Special and Nonrecurring Items. During the 1995 fourth quarter, in
connection with the Distribution, the Company committed to close or relocate
approximately 450 unprofitable stores during 1996. In addition, the Company
implemented a plan to reduce central office overhead by means of census
reduction and expense control programs. A one-time pretax special and
nonrecurring charge of $71.8 was recorded for these initiatives. The major
components of the charge include a $29.9 noncash write-off of leasehold
improvements, fixtures and equipment, $3.7 attributable to employee severance
costs and $38.2 for other store closing costs. Substantially all store
closings are expected to take place by the end of the 1996. The Company
anticipates most of the cash outflows to occur by the end of 1996, with the
remainder in 1997. The pro forma impact on 1995 results, had the stores been
closed or relocated at the beginning of 1995, would have been a $15.4 increase
in earnings before income taxes. For a discussion of the assumptions used to
determine the pro forma impact on 1995 results, see "UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS."
Income Taxes. The effective income tax rates were 39.3%, 39.4% and 39.8% in
1995, 1994 and 1993, respectively.
The decrease in the 1994 effective income tax rate to 39.4% from 39.8% in
1993 relates to an increase in wages eligible for the Federal Targeted Jobs
Tax Credit.
Impact of Inflation. Historically, the Company's sales growth and earnings
have not been materially impacted by inflation. The shoe industry experienced
no inflation in 1995 and over the last three years the inflation rate has
averaged less than one-half of 1%.
23
<PAGE>
REVIEW OF FINANCIAL CONDITION
Cash Flow.
Sources and (uses) of cash flows are summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Operating activities................................. $159.3 $ 234.1 $ 167.9
Investing activities................................. (64.7) (235.0) (116.8)
Financing activities................................. (1.6) (1.4) (1.7)
------ ------- -------
Increase (decrease) in cash before transactions with
May................................................. 93.0 (2.3) 49.4
Net transactions with May............................ (95.0) 1.4 (42.9)
------ ------- -------
Increase (decrease) in cash.......................... $ (2.0) $ (0.9) $ 6.5
====== ======= =======
</TABLE>
Cash flow from earnings, before special and nonrecurring charges, plus
depreciation/amortization was $192.9 in 1995. This was 8.3% of net sales in
1995 compared with 9.9% in 1994 and 10.2% in 1993. The Company's cash flow
tends to be fairly consistent from quarter to quarter.
The 1994 investing activities include $126.6 related to the acquisition and
remodeling of the Kobacker locations.
Financing Activities. Historically, cash collected by the Company in excess
of store operating needs was transferred to May on a daily basis and all the
Company's cash requirements were funded by May through a non-interest bearing
intercompany account. The debt and investment levels prior to the Distribution
may not be indicative of debt and investment levels had the Company operated
as an independent company during these periods.
The Company has received commitments with respect to a $200 million
multicurrency revolving credit facility with Bank of America National Trust
and Savings Association ("BofA") as agent. Interest on outstanding balances
under the credit facility will accrue on a variable rate basis based on, at
the Company's option, LIBOR or the reference rate announced by BofA from time
to time. The credit facility will be available for working capital needs and
capital expenditures. See "FINANCING."
Management believes that its cash flow from operations, together with
borrowings under the credit facility, will provide it with sufficient
resources to meet its working capital needs and to finance its projected
capital expenditures.
Financial Condition Ratios. The debt-to-capitalization ratio was 1%, 2% and
2% at the end of each of 1995, 1994 and 1993, respectively. For purposes of
the debt-to-capitalization ratio, total debt is defined as current maturities
and long-term capital lease obligations. Capitalization is defined as current
maturities and long-term capital lease obligations, noncurrent deferred taxes
and May equity investment. The debt-to-capitalization ratio, including the
present value of future minimum rental payments under operating leases as debt
and as capitalization, was 54%, 55% and 55% in 1995, 1994 and 1993,
respectively. The 1995 debt-to-capitalization ratio, after reducing the
capitalized value of leases to reflect the closing or relocating of
approximately 450 unprofitable stores, would be 53%.
Fixed charge coverage was 2.0x, 3.6x and 4.1x in 1995, 1994 and 1993,
respectively. Fixed charges are defined as gross interest expense and the
interest component of rent expense. Fixed charge earnings represent earnings
before income taxes plus fixed charges. In 1995, the decrease in coverage
resulted principally from the decrease in earnings before income taxes. The
1995 fixed charge coverage, excluding special and nonrecurring items, was
2.8x. In 1994, the decline in coverage resulted from the rent expense, and
therefore, the interest component of rent expense, growing at a faster rate
than fixed charge earnings.
24
<PAGE>
Capital Expenditures. The Company emphasizes return on net assets and
internal rate of return as the principal operating measures in evaluating
investments in new stores and remodels, and elimination of unproductive space.
In 1995, the Company's capital expenditures totaled $95.4, $49.1 for new
stores, $27.9 for remodels of existing stores and $18.4 for other necessary
improvements.
In 1994, the Company's capital expenditures, excluding the acquisition of
Kobacker locations, totaled $128.6, including $91.9 for new stores, $26.0 for
remodels of existing stores and $10.6 for other necessary improvements.
In 1996, the Company's capital expenditures are estimated to be $114,
including $61 to open new stores, $24 to remodel existing stores and $29 to
make other necessary improvements. Management anticipates that cash flow from
operations and borrowings under the Company's credit facility will be
sufficient to finance, among other things, its projected capital expenditures.
BUSINESS
OVERVIEW
The Company is the largest footwear retailer in the United States, with over
$2.3 billion in sales in 1995. The Company sold over 200 million pairs of
shoes in 1995, representing one out of every five pairs sold in the United
States. The Company's share of the estimated $33 billion United States
footwear market was 6.4% in 1995 and has grown consistently over the past two
decades. The Company is led by a team of experienced management executives who
have an average of 19 years of retail industry experience.
The Company operated, as of February 3, 1996, 4,549 self-service, affordably
priced, family shoe stores, of which 773 include Payless Kids expansions. The
Company's stores are located in 49 states, the District of Columbia, Puerto
Rico and the United States Virgin Islands. The Company's stores average 3,000
square feet and carry approximately 11,000 pairs of shoes. The stores offer
more than 1,000 shoe styles at prices that average $11.00.
The Company has broad customer appeal, providing a complete assortment of
affordably priced, quality footwear for women, men and children from all age
groups, and from households with incomes that represent 85% of the United
States population. The Company has significant market penetration with its
target customer, women aged 18-64. In fact, over 40% of its targeted
customers, regardless of household income, purchased at least one pair of
shoes from the Company last year. In addition to shoes, the stores offer
accessories, including handbags and hosiery.
Management believes the Company is the most profitable footwear retailer in
the United States. However, 1995 results were negatively impacted by a
difficult retail environment (as evidenced by most specialty apparel and
footwear chains experiencing store-for-store declines), the devaluation of the
peso, contributing to a 22% store-for-store decline in the Company's Mexican
border stores, and the integration of over 500 store locations acquired from
Kobacker which increased the Company's fixed costs while causing some transfer
sales from existing stores to new stores opened nearby. The Company has
achieved a compound annual sales growth rate of 11.3% over the last five years
and consistent cash flow. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES--Review of Financial
Condition--Cash Flow."
During 1995, management identified steps to increase store profitability. As
a result of this analysis, during the fourth quarter of 1995, in connection
with the Distribution, the Company committed to close or relocate
approximately 450 unprofitable stores during 1996. A one-time pretax special
and nonrecurring charge of $71.8 million associated with these store closings
or relocations and a plan to reduce central office overhead by means of census
reduction and expense control programs was recorded in 1995. The pro forma
impact on 1995 results, had these stores been closed or relocated at the
beginning of 1995, would have been a $15.4 million increase in earnings before
income taxes. For a discussion of the assumptions used to determine the pro
forma impact on 1995 results, see "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS."
25
<PAGE>
The Company's objective is to increase sales and profits through increased
store-for-store sales in existing locations combined with selective openings
of profitable new stores. Management intends to achieve this objective through
the following strategic initiatives:
. Build on merchandising strengths (women's dress shoes, children's,
sandals) while accelerating new or revitalized strategies of comfort,
wide widths and leather. See "--Merchandising."
. Continue to capitalize on long-standing relationships with vendors and
factories to provide the best assortment and value to the customer while
maintaining strong margins. See "--Product Sources."
. Increase the selling productivity of the front portions of all stores and
maximize the strength of urban store locations through more focused
merchandising. See "--Merchandising" and "--Stores."
. Leverage competitive advantage in distribution to increase sales (build
on the Company's ability to quickly respond to validated fashion trends
while capitalizing on its sophisticated physical distribution system to
optimize sales replenishment). See "--Merchandising" and "--Merchandise
Distribution."
. Increase market share by capturing the sales of low priced footwear
retailers and discount mass-merchandisers that have gone out of business
or closed stores in recent months (the Company is strongly positioned to
capture market share due to the convenient nationwide network of stores
in all types of locations (malls, shopping centers, central business
districts and free-standing stores)). See "--Stores," "--Expansion
Strategy" and "--Competition."
. Identify productive sites for new stores in existing and new markets. See
"--Expansion Strategy."
. Drive down operating costs through cost control programs and the
leveraging of technology. See
"--Stores."
In addition, the Company believes that, as an independent company with its
own publicly traded stock, it will be able to establish equity-based incentive
compensation arrangements which will more selectively attract, retain and
motivate its associates by offering benefits tied directly to the associates'
efforts to improve the Company's performance.
The Company believes that these initiatives will lead to improved operating
results, however, there can be no assurance that such improvement will occur.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES." Furthermore, the Company believes there is
opportunity for continued profitable expansion of its business in the United
States.
INDUSTRY
The retail footwear industry can be divided into high, moderate and value-
priced segments, and is dominated by the Company and national discount mass-
merchandisers in the value-priced segment. The high priced segment is
controlled by department stores. The moderate priced segment, which is
dominated by specialty shoe chains and mass merchants, is declining, in part
due to improved product quality in the value priced segment and price
competition from the high priced segment.
Based on industry data, the United States footwear market is estimated to be
$33 billion and 1 billion pairs, and has stayed relatively flat over the past
several years. The value-priced segment as a percent of the total pairs has
more than doubled over the past 15 years. Industry data suggests that the
quality offered in the value priced segment has improved significantly over
the last 15 years, causing the doubling of this segment's share of the market.
MERCHANDISING
The Company offers a broad assortment of fashionable footwear to meet every
need of its customers. This breadth of assortment allows the Company to
provide basic, seasonal and fashion shoes in dress, casual, athletic and
workboot categories. Shoes are constructed in leather, canvas and manmade
materials. Styling is updated
26
<PAGE>
regularly to keep pace with proven fashion trends. The Company purchases
product to appeal specifically to various segments of the population.
Particular focus is placed on identifying highly desirable product selection
to meet the specific needs of urban and ethnic market segments. The Company
also carries handbags, hosiery, polish and other accessories.
The merchandising effort is led by the President and three general
merchandise managers with an average of 24 years of retail experience. They
direct teams of buyers, planners and distributors that interact with vendors,
agents, factory owners and representatives of the Company's Payless ShoeSource
International office to design, select, produce, inspect and distribute
footwear and accessories for the Company. The Company's experienced buying
organization, combined with its strong relationship with its vendors, enables
it to be on the forefront of capitalizing on proven fashion trends.
STORES
The Company's highly recognizable yellow and orange signing package appears
in a variety of retail formats including strip centers, regional and super-
regional shopping malls, junior centers, central business districts and free-
standing locations. The store appearance remains very consistent from location
to location attesting to the flexibility of the Company's store design. The
Company is focusing on improving the fixturing and product presentation in the
front portion of its stores, using new selling fixtures and eliminating
unproductive space. The Company believes this will improve sales productivity,
although there can be no assurance as to any such improvement. Stores average
approximately 3,000 square feet and carry approximately 11,000 pairs of shoes.
The stores offer more than 1,000 shoe styles at prices that average $11.00.
The Company continually evaluates its cost control programs in order to drive
down operating costs. The Company takes advantage of new developments in
technology to improve productivity at the store level.
The Company's stores operate successfully in rural, suburban and urban
environments providing convenient locations and broad appeal to customers in
every setting. The Company operates stores profitably in trade areas with
populations as small as 20,000 people.
The 10 states with the largest concentrations of the Company's stores are
identified below.
<TABLE>
<CAPTION>
PAYLESS
STATE STORES KIDS
----- ------ -------
<S> <C> <C>
California............... 727 183
Texas.................... 388 65
New York................. 305 49
Florida.................. 289 44
Illinois................. 234 23
Pennsylvania............. 214 44
Ohio..................... 212 56
Michigan................. 172 30
Washington............... 115 27
New Jersey............... 112 21
Other.................... 1,781 231
----- ---
Total.................... 4,549 773
===== ===
</TABLE>
Of the 4,549 locations, 773 have been expanded by an average of 1,000 square
feet to include additional selling space for the Payless Kids format. These
stores are located throughout the country. Wider aisles, child-friendly
seating and an entertainment center enhance the shopping experience for
families.
Substantially all of the Company's stores are leased. The leases typically
have a primary term of 10 years, with one or two five-year renewal options.
Leases usually require payment of base rent, applicable real estate taxes,
common area expenses and, in some cases, percentage rent based on the store's
sales volume.
27
<PAGE>
The Company's stores are highly automated with an electronic point of sale
register and a back office computer that not only records transactions from
the register, but also serves many other store supporting functions including
price look up, accumulation of associate hours worked and communications with
the Company's headquarters in Topeka, Kansas. Store associates receive regular
weekly communications from the Company's headquarters explaining promotional
and display requirements.
The Company's retail operations are directed centrally by a senior officer
and a small support staff. The retail operations organization is subdivided
into six divisions headquartered in the cities of Atlanta, Baltimore, Chicago,
Dallas, Denver and Los Angeles. Divisions are directed by a vice president,
two to four operations managers and a small support staff.
Each store has a manager and approximately five associates. The stores are
organized into districts. District supervisors report to the division offices
and have full financial responsibility for the stores in their district.
Division offices also have loss prevention and inventory control functions.
Human resources and merchandising support are provided from the Company's
headquarters.
MARKETING
The Company's marketing efforts are multi-dimensional, including nationally
broadcast television advertising, national magazine advertisements, local
market radio and newspaper inserts in support of major promotional periods. In
addition to media support, the Company has in-store promotional materials,
including posters, signs and point of sale items. The Company's promotional
message emphasizes not only the affordable prices to which its customers have
grown accustomed, but also quality, fashion, selection, comfort, wide widths
and a full range of sizes for the entire family.
The Company's marketing staff is augmented by a full-service advertising
concern that provides creative services, media purchase and consumer research.
PRODUCT SOURCES
The Company utilizes a network of vendors and factories in 13 foreign
countries and the United States to procure its products which are manufactured
to meet the Company's demanding specifications and standards. The strength of
the Company's relationships with vendors and factories, some dating back over
40 years, has allowed the Company to adapt quickly its sourcing strategies to
reflect changing political and economic environments. On several occasions
over the past years, many of the Company's vendors and factory owners have
played significant roles in developing production in new factories and in new
countries without compromising production capacity or product quality.
Factories in China are a source of approximately 80% of the Company's
merchandise. See "RISK FACTORS--Risks of Foreign Manufacturing." The Company
does not purchase "seconds" or "overruns" and does not own any manufacturing
facilities. The Company's vendors are required to carry liability insurance
and are responsible for financial damages associated with copyright and
product liability. The Company closely integrates its merchandise purchasing
requirements with various manufacturers through its sourcing organization
which has offices in Topeka, Kansas, and in Taiwan, China, Indonesia and
Brazil.
On a worldwide basis, approximately two-thirds of the Company's merchandise
is acquired through a network of third-party vendors. Payless ShoeSource
International, the Company's Taipei, Taiwan based subsidiary, arranges
directly with factories the design, selection, production management,
inspection and distribution of approximately one-third of the shoes acquired
for the Company, providing a meaningful cost advantage.
28
<PAGE>
QUALITY ASSURANCE
The Company's quality assurance organization sets standards and
specifications for product performance and appearance. It communicates those
standards and specifications through its copyrighted quality assurance manual.
The Company stands behind the quality of the shoes it sells to its customers
by permitting return of merchandise purchased with proper documentation.
The quality assurance organization also provides technical design support
for the Company's direct purchasing function. It is responsible for review and
approval of vendor and factory technical design, performing worldwide
laboratory testing of materials and components and for performing in-factory
product inspections to ensure that materials and factory production techniques
are consistent with Company specifications. The Company locates its field
inspection personnel close to the factories and freight consolidation
facilities it uses throughout the world.
PRODUCTION MANAGEMENT
The production management organization manages an aggressive and ongoing
process to qualify and approve new factories, while continually assessing
existing factory service and quality of performance. New factories must meet
minimum standards required for quality of shoe production and minimum capacity
requirements. They must also agree to the Company's production control
processes and certify that neither they nor their suppliers use forced or
child labor. Factory performance must continually improve or run the risk of
being removed from the list of approved factories. The production management
organization utilizes a unique, internally developed production control
process by which the Company is electronically linked to its factories and
vendors. By utilizing this process, production management is able to assure
the Company of on-time deliveries, with the minimum lead time and without
incurring unnecessary costs.
The Company believes that maintaining strong factory relationships,
improving key factory performance factors and improving factory profitability
is critical to long-term sourcing stability. Its manufacturing services group,
based in Asia, provides direction and leadership to key factories in the areas
of overall productivity improvement and lead time reduction.
MERCHANDISE DISTRIBUTION
The Company believes that its state-of-the-art distribution system is a
major competitive advantage. The Company's merchandise distribution teams are
able to track shoes by the pair from order placement through the sale to the
customer by the use of sophisticated systems, including perpetual inventory,
product planning and retail price management systems. These systems are
maintained by experienced information systems executives and enhanced
regularly to improve the product distribution process. Distribution analysts
regularly compare sales by size and inventory by size and style, down to the
individual shoe level when necessary, to maintain the highest availability of
product within the Company's stores.
The Company operates a single 765,000 square foot distribution center in
Topeka, Kansas, capable of replenishing sales by style, color and size. This
facility operates seven days-a-week and has sufficient capacity to support
more than 5,000 stores with current technology. Management believes this is
one of the most highly-automated and cost-efficient distribution facilities in
the industry. Stores receive product at least once a week, maintaining a
constant flow of fresh and replenished merchandise.
EXPANSION STRATEGY
The Company anticipates adding 240 new stores in 1996. As a result of these
store openings, the Company anticipates having approximately 4,340 stores
operating at the end of fiscal 1996. Approximately 10% of these new stores are
planned to include adjacent Payless Kids' expansions. In the five year period
commencing in 1997, the Company anticipates opening approximately 500 net new
stores in new and existing markets. Each new store investment decision is
based on a careful review of market potential, the ability to achieve a
targeted
29
<PAGE>
return on net assets and internal rate of return criteria. As the Company
expands into smaller markets, it is anticipated that lower volume stores
opened will reduce sales per square foot. However, the Company expects these
stores to generate positive cash flow at these lower volumes and increase the
Company's overall profitability. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES--CAPITAL
EXPENDITURES." The Company believes that there is opportunity for continued
profitable expansion of its business in the United States. There is no
assurance, however, that the Company will achieve its expansion strategy.
In 1997, the Company's capital expenditures are estimated to be $107
million. Both 1996 and 1997 capital expenditures will be financed through
operating cash flows and the credit facility. No additional closings are
anticipated for 1996. For the five year period commencing 1997, the Company
anticipates opening 250 stores and closing 150 stores in each of those years
as a result of normal changes in retail trade areas and expiring leases.
COMPETITION
The Company operates in a highly competitive retail market competing
primarily with national and regional discount mass-merchandisers, as well as
with other self-service discount shoe stores and off-price outlet stores.
Competition is based on product selection and quality, availability, price,
store location, customer service and efficient promotional activities. The
Company has successfully operated in its markets with each of these segments
of retailing for many years and has continued to capture increased market
share by offering a wider selection of fashionable styles and compelling
prices in conveniently located stores; however, the Company is facing
increased competition from certain national discount mass-merchandisers.
The competitive landscape continues to change. Within the past two years,
several direct self-service competitors have ceased to operate or closed
significant numbers of stores. Direct mall competitors and regional discount
mass-merchandisers have had to reorganize and restructure, providing the
Company continued opportunities to increase revenues. The diversity of store
types (stores in strip centers, regional and super-regional shopping malls,
junior centers, free-standing locations and central business districts) and a
broad geographic base allow the Company to take advantage of these changes and
continue to grow.
EMPLOYEES
The Company currently employs approximately 24,000 associates, of whom
approximately 13,000 are full-time and 11,000 part-time. The part-time
associates are primarily store sales/customer service personnel. Approximately
650 of the Company's distribution center associates are covered by collective
bargaining agreements. The Company considers its union and non-union employee
relations to be good.
The Company is led by a team of senior management executives who have an
average of 19 years of retail industry experience, including an average of
nine years with the Company.
LITIGATION
The Company is a party to a number of legal proceedings that arose in the
ordinary course of business. While the outcome of these legal proceedings
cannot be predicted with certainty, management does not expect these matters
to have a material adverse effect on the business, operations or financial
position of the Company.
TRADEMARKS
The Company owns, in connection with footwear, all rights to "Payless,"
"Payless ShoeSource" and "Payless Kids," each of which is used as a trademark
in connection with various merchandise or as a service mark. The Company owns
all rights to the distinctive yellow and orange logo used in its signage and
advertising. In the United States, the Company has registered 45 key marks and
owns over 50 common law marks under which it markets private label
merchandise. In its on-going effort to protect its intellectual property, the
Company has registered its "Payless ShoeSource" and "Payless Kids" marks
extensively abroad and is actively pursuing registration abroad of its other
trademarks. All of the Company's registered trademarks may be renewed
indefinitely. In addition, all common law marks are of indefinite duration
provided they continue to be used.
30
<PAGE>
EFFECT OF COMPLIANCE WITH ENVIRONMENTAL LAWS
Compliance with Federal, state and local laws regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment has not had, and is not expected to have, a material effect on
capital expenditures, earnings or the competitive position of the Company. The
Company is not aware of any such laws with which it is not in material
compliance.
FINANCING
The Company has received commitments from Bank of America National Trust and
Savings Association ("BofA") and certain other financial institutions
(collectively, the "Banks"), pursuant to which the Banks, subject to certain
terms and conditions, have agreed to provide to the Company an unsecured
multicurrency revolving credit facility in an aggregate amount not to exceed
$200 million (the "Facility"). The Facility provides for revolving loans to be
made to, and letters of credit to be issued for the account of, the Company
for general corporate purposes. The Company and BofA are currently negotiating
the terms and conditions of the Credit Agreement which will govern the terms
of the Facility (the "Credit Agreement"). A copy of the form of the Credit
Agreement currently under negotiation is filed as an exhibit to the
Registration Statement of which this Information Statement is a part. Based
upon discussions to date, the Company anticipates that the Credit Agreement
will include the terms and conditions described below.
Borrowings under the Credit Agreement will bear interest, at the Company's
option, (i) at BofA's Base Rate in effect from time to time or (ii) subject to
certain limitations, at LIBOR for the applicable interest period, plus, in the
case of borrowings bearing interest based on LIBOR, a margin of between .40%
and .75%, depending upon the Company's consolidated fixed charge coverage
ratio at certain specified times. Fees shall accrue on a quarterly basis with
respect to the undrawn amount of all outstanding letters of credit under the
Facility at a per annum rate equal to the margin applicable to LIBOR
borrowings for the applicable fiscal quarter. In addition, the Company will
pay a fee on the unutilized portion of the Banks' commitments under the Credit
Agreement ranging from .150% to .225% per annum depending upon the Company's
consolidated fixed charge coverage ratio at certain specified times.
Subject to the terms and conditions to be set forth in the Credit Agreement,
the loans made and the letters of credit issued pursuant to the Credit
Agreement may be borrowed, repaid and reborrowed from time to time until the
date five years after the date of the Credit Agreement (the "Maturity Date")
subject to the satisfaction of certain conditions on the date of any borrowing
or issuance, including (i) the accuracy of representations and warranties of
the Company contained in the Credit Agreement, (ii) the absence of a default
under the Credit Agreement and (iii) the absence of any material adverse
change in the operations, business, properties or financial condition of the
Company and its subsidiaries taken as a whole since February 3, 1996. The
loans are payable in full on the Maturity Date. Borrowings under the Credit
Agreement may be prepaid in whole or in part at any time without premium or
penalty.
The Credit Agreement will require the Company to meet certain financial
covenants, including a minimum fixed charge coverage ratio, a maximum debt to
capitalization ratio and a minimum level of tangible net worth. The Credit
Agreement will also contain covenants which, among other things, will limit or
restrict the ability of the Company and its subsidiaries to (i) incur
indebtedness (including contingent obligations) or allow to exist or grant
liens in respect of their assets, (ii) sell their respective assets or enter
into certain acquisition transactions, (iii) make payments and distributions
(including dividends on the Common Stock), (iv) enter into certain
transactions with their respective affiliates, (v) make loans and investments
and (vi) permit a change of control. In addition to the foregoing, the
Company's obligations under the Credit Agreement are required to be guaranteed
by Payless ShoeSource Merchandising, Inc., Payless ShoeSource Distribution,
Inc. and Payless ShoeSource Worldwide, Inc. and each other domestic subsidiary
of the Company, the total assets of which constitute 5% or more of the total
consolidated assets of the Company and its subsidiaries.
31
<PAGE>
In connection with the Credit Agreement, the Company has agreed to pay BofA
an arrangement fee and an annual agency fee. The Company has also agreed to
pay the out-of-pocket costs and expenses (including reasonable fees and
expenses of counsel) of (i) the Agent in connection with the preparation,
execution, delivery, administration, amendment or waiver of any provisions of
the Credit Agreement and the related credit documents and (ii) the Agent and
each Bank in connection with the enforcement of any of their rights and
remedies under the Credit Agreement and related credit documents. In addition,
the Company has agreed to indemnify the Agent and the Banks against any
losses, claims, damages, liabilities and expenses caused by or arising out of
or in connection with the Credit Agreement and the related credit documents.
MANAGEMENT
DIRECTORS
The Payless Charter and the Payless Bylaws provide that the Company's board
of directors may have no less than three and no more than 15 members, as
determined from time to time by the board, each to hold office for a term of
three years and until his or her successor shall have been elected and
qualified, with the terms staggered so that approximately one-third of the
directors will stand for election in any one year. The Company anticipates
that as of the Distribution Date the board of directors will consist of six
persons, each of whom will be elected for a term expiring at the annual
meeting of shareowners indicated below and until his successor is elected and
qualified. The following table sets forth information concerning the persons
who will serve as directors.
<TABLE>
<CAPTION>
TERM EXPIRES AT
NAME AGE ANNUAL MEETING IN
---- --- -----------------
<S> <C> <C>
Steven J. Douglass.................................. 46 1999
Howard R. Fricke.................................... 60 1999
Thomas A. Hays...................................... 63 1998
Richard A. Jolosky.................................. 61 1997
Michael E. Murphy................................... 59 1998
Robert L. Stark..................................... 63 1997
</TABLE>
Steven J. Douglass will become the Chairman of the Board and Chief Executive
Officer of the Company as of the Distribution Date. Mr. Douglass has been
Chairman and Chief Executive Officer of the Company since April, 1995. He
joined the Company in 1993 and served as Senior Vice President/Director of
Retail Operations from 1993 to January, 1995 and as Executive Vice
President/Director of Retail Operations from January, 1995 to April, 1995.
Prior to his association with the Company, Mr. Douglass held several positions
at divisions of May, serving as Chairman of May Company, Ohio (1990-1993) and
Senior Vice President and Chief Financial Officer of J.W. Robinsons (1986-
1990). He also held positions in May's corporate office from 1976 to 1986,
including Senior Vice President of Planning and Reporting (1982-1986) and Vice
President of Planning (1980-1982). Prior to joining May in 1976, Mr. Douglass
was employed by the J.L. Hudson division of Dayton Hudson, as Director of
Store Operations (1975), Manager--Financial Analysis (1974-1975) and Manager--
General Accounting (1972-1974).
Howard R. Fricke has been the Chairman of the Board, President and Chief
Executive Officer of The Security Benefit Group of Companies since 1988.
Between 1974 and 1988, Mr. Fricke served as Senior Vice President of Horace
Mann Insurance Companies, President and Chief Executive Officer of Commercial
Credit Company's insurance subsidiaries, and Chairman and Chief Executive
Officer of Anchor National Life Insurance Company and its affiliate, Anchor
National Financial Services, Incorporated. Before 1974, Mr. Fricke was
employed in various capacities by Horace Mann Insurance Company, Franklin Life
Insurance Company and State Farm Insurance.
Thomas A. Hays has been the Deputy Chairman of May since 1993 and has
announced his retirement as Deputy Chairman and as a director of May effective
April 30, 1996. Mr. Hays joined May in 1969 in the finance
and operations areas. From 1972 to 1984, he served as Chairman, President or
Chief Executive Officer of several operating divisions of May. Mr. Hays was
named Vice Chairman of May in 1982 and President in 1985. He was elected to
May's board of directors in 1983. Mr. Hays is also a director of May,
Mercantile Bancorporation and Union Electric Company.
32
<PAGE>
Richard A. Jolosky has been President of the Company since January, 1996. He
initially joined the Company in September 1982, serving as Executive Vice
President--Merchandising (1982-1984) and then as President (1985-1988). Prior
to rejoining the Company in 1996, Mr. Jolosky was President and Chief
Executive Officer of Silverman Jewelry Company (1995-1996), Chief Executive
Officer of the Richard Allen Company (1992-1995), a consultant for Northern
Automotive Company, and President and Chief Executive Officer of J & T Shoe
Company (1988). Before joining the Company initially, he was employed as
Senior Vice President and General Merchandise Manager of Jefferson Ward (1981-
1982) and Vice President and General Merchandise Manager for Wal-Mart (1978-
1981). Mr. Jolosky also held several positions at the Meier & Frank division
of May, including General Merchandise Manager (1975-1978), Divisional
Merchandise Manager (1968-1975) and Buyer (1965-1968). Mr. Jolosky began his
career at Gimbel's Milwaukee, serving as Buyer, (1961-1965) and as Assistant
Buyer (1960-1961).
Michael E. Murphy has been the Vice Chairman and Chief Administrative
Officer of Sara Lee Corporation since 1994. He joined Sara Lee in 1979,
serving as Executive Vice President and Chief Financial and Administrative
Officer from 1979 to 1993 and as Vice Chairman and Chief Financial and
Administrative Officer from 1993 to 1994. He became a director of Sara Lee in
1979. Prior to joining Sara Lee, Mr. Murphy was employed by Ryder System, Inc.
(1974-1979) as Group Vice President--Finance and later as Executive Vice
President--Finance, by Hanes Corporation (1969-1974) in various positions,
including Vice President--Knitwear Administration and by General Foods'
Maxwell House Division (1962-1969). Mr. Murphy is a member of the Advisory
Board of the J.L. Kellogg Graduate School of Management of Northwestern
University, a member of the Chicago Committee of the Chicago Council on
Foreign Relations and a director of the National Association of Manufacturers,
Northwestern Memorial Corporation (university hospitals) and Chicago's Lyric
Opera. Mr. Murphy is also on the board of directors of GATX Corporation.
Robert L. Stark became Dean of The Regents Center at the University of
Kansas in 1993, after retiring from Hallmark Cards, Inc. Prior to his becoming
dean, Mr. Stark was employed by Hallmark Cards, Inc. for 35 years in several
capacities, including: Executive Vice President, President of the Personal
Communication Group, Group Vice President, President of Hallmark, Canada and a
member of the board of directors. He is also on the board of directors of
Redman Industries, Inc., Mercantile Bancorporation, Century Products and
Packerware Corporation.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors will have two committees: an Audit and Finance
Committee and a Compensation and Nominating Committee.
The functions of the Audit and Finance Committee include making
recommendations to the board of directors as to the selection of the firm of
independent public accountants and auditors to examine the books and accounts
of the Company for each fiscal year, the proposed engagement arrangements for
the independent public accountants and auditors for each fiscal year, and the
advisability of having the independent public accountants and auditors make
specified studies and reports regarding auditing matters, accounting
procedures, tax or other matters. The Audit and Finance Committee will also
review the results of the audit for each fiscal year, such accounting policies
of the Company as are deemed appropriate for review by the Committee, the
coordination between the independent public accountants and auditors and the
Company's internal auditing group, the scope and procedures of the Company's
internal audit work and the quality and composition of the Company's internal
audit staff. The Audit and Finance Committee will also be responsible for
reviewing and making recommendations to the board of directors with respect to
the following matters: (a) the financial policies of the Company, debt
ratings, short-term versus long-term debt positions, debt-to-capitalization
ratios, fixed charge coverage, working capital and bank lines, dividend
policy, the long-range financial plans of the Company, the Company's capital
expenditure program including rate of return standards and evaluation methods,
specific debt and/or equity placement activities, external financial
relationships (with investment bankers, commercial bankers, insurance
companies, etc.), financial public relations and communication programs,
profit sharing plan investments, financial aspects of proposed acquisitions
and/or divestitures, and the Company's insurance and risk management program.
The members of the Audit and Finance Committee will be Messrs. Hays, Murphy
and Stark, each of whom will be an independent director as required by the
rules of the NYSE.
33
<PAGE>
The functions of the Compensation and Nominating Committee include
considering and recommending to the board of directors and Company management
the overall compensation programs of the Company, reviewing and approving the
compensation payable to the senior management personnel of the Company and
reviewing and monitoring the executive development efforts of the Company to
assure development of a pool of management and executive personnel adequate
for orderly management succession. The Committee will also review significant
changes in employee benefits plans and stock related plans; serve as the
"Committee" under the Company's profit sharing plan, 1996 Stock Incentive
Plan, executive incentive compensation plan for corporate executives,
supplementary retirement plan, long-term disability plan and deferred
compensation plan; and identify and recommend to the board candidates for
directors, members of committees of the board of directors and the successor
to the chief executive. The members of the Compensation and Nominating
Committee will be Messrs. Hays, Fricke and Murphy, each of whom is a
"disinterested person" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code
(the "Code").
The board of directors of the Company may, from time to time, establish
certain other committees to facilitate its work.
COMPENSATION OF DIRECTORS
Management directors will not be entitled to additional compensation by
reason of their directorship or attendance at meetings of the board of
directors of the Company or any committee thereof or at meetings of the
shareowners. Non-management directors will receive 1,000 shares of Common
Stock upon joining the board. Non-management directors also will be paid an
annual fee of $35,000, payable in Common Stock. All such shares of stock are
subject to restrictions on transferability and to forfeiture. For 1996, the
number of shares to be paid as the annual fee will be determined based upon
the average of the high and low trading prices of the Common Stock on the NYSE
for each of the first thirty trading days on which trading in the Common Stock
on the NYSE occurs. Beginning in 1997, the number of shares will be determined
based upon the arithmetic average closing prices of the shares on the date of
the annual meeting. Non-management directors also will be paid $1,000 in cash
per meeting for attending more than twelve meetings (board and committee) in a
year.
EXECUTIVE OFFICERS
The following table sets forth certain information about the persons who
will be executive officers of the Company as of the Distribution Date. Each
such person will have been elected to the indicated office with the Company on
or prior to the Distribution Date and will serve at the pleasure of the board
of directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steven J.
Douglass 46 Chairman of the Board and Chief Executive Officer
Richard A.
Jolosky 61 President
Ullrich E.
Porzig 50 Senior Vice President and Chief Financial Officer
Bryan P.
Collins 42 Senior Vice President--General Merchandise Manager--Women's
Gerald F.
Kelly 48 Senior Vice President--Logistics/Information Services
Duane L.
Cantrell 40 Senior Vice President--Retail Operations
Thomas L.
Rinehart 41 Senior Vice President--General Merchandise Manager--Men's
Michael S.
Wilkes 42 Senior Vice President--General Merchandise Manager--Children's
Jed L. Nor-
den 45 Senior Vice President--Human Resources
Harris
Mustafa 42 Senior Vice President--Merchandise Distribution
Stephen
Farley 41 Senior Vice President--Marketing
Curtis H.
Barlow 47 Senior Vice President--Real Estate/Construction
</TABLE>
Steven J. Douglass. See "MANAGEMENT--Directors."
Richard A. Jolosky. See "MANAGEMENT--Directors."
34
<PAGE>
Ullrich E. Porzig has been the Company's Senior Vice President and Chief
Financial Officer since he rejoined the Company in February, 1996. He served
the Company in that same capacity from 1986 to 1988. Between 1993 and 1996,
Mr. Porzig was Senior Vice President--Finance and Chief Financial Officer and
Treasurer of Petro Stopping Centers L.P. From 1982 to 1993, he was employed by
May in various capacities including Senior Vice President--Finance of Foley's
(1988-1993), Senior Vice President and Chief Financial Officer of Meier &
Frank (1985-1986) and Vice President--Planning & Analysis of May (1982-1985).
In addition, he was employed by the Diamond's division of Dayton Hudson as
Vice President and Controller (1980-1982), by the J.L. Hudson division of
Dayton Hudson as Assistant Controller (1978-1980), Director--Credit (1977-
1978), Director--Internal Audit (1976-1977) and Director--Profit
Analysis/Capital Planning (1973-1976), and by Ford Motor Company as Analyst--
Systems Planning/Operations Research (1969-1973).
Bryan P. Collins has been the Company's Senior Vice President and General
Merchandise Manager--Women's since January, 1994. He also served the Company
as Senior Vice President--Women's Seasonal/Leisure (July, 1991-January, 1994),
Vice President--Merchandise Administration (March, 1991 until July, 1991),
Vice President/Division Merchandise Manager--Athletics (1983-1985), Buyer--
Children's (1980-1983), Buyer--Athletics (1978-1980), Assistant Buyer--Men's
(1977-1978), and Assistant Buyer--Canvas (1976-1977). Mr. Collins commenced
his employment with the Company in 1975 in the distribution area. Before
rejoining the Company in 1991, Mr. Collins was employed by Topline Imports as
President (1989-1991), Executive Vice President (1987-1989) and Marketing
Manager (1985-1987).
Gerald F. Kelly has been the Company's Senior Vice President--
Logistics/Information Services since February, 1996. He has also served the
Company as Senior Vice President--Information Services and Chief Financial
Officer (1990-1996) and Senior Vice President--Information Services (1986-
1990). Prior to joining the Company, Mr. Kelly was employed by Wilson Sporting
Goods as Vice President--Management Services (1984-1986) and by James H.
Lowery & Associates as Vice President (1983-1984). He was a principal with
Arthur Young & Company from 1982 to 1983, and prior to that he was a Managing
Partner at Professional Computer Resources (1980-1982).
Duane L. Cantrell has been the Company's Senior Vice President--Retail
Operations since May, 1995. He has also served the Company as Senior Vice
President--Merchandise Distribution and Planning (1993-1995), Senior Vice
President--Merchandise Distribution (1990-1993), Vice President--Distribution
(1989-1990), Vice President--Divisional Merchandise Manager--Women's Casuals
(1985-1989), Buyer--Women's Casuals (1984-1985), Director--Profit
Planning/Analysis (1983-1984), Director--Merchandise Planning/Budget (1982-
1983) and Manager--Merchandise Control (February, 1982-August, 1982). Between
1978 and 1982, Mr. Cantrell served in positions of increasing responsibility
within the Company.
Thomas L. Rinehart has been the Company's Senior Vice President--General
Merchandise Manager-- Men's since December, 1992. Before joining the Company,
he was employed by The Custom Shop as President (1992), by Club International
as President (1991-1992) and by Burdines, a division of Federated Department
Stores, as Vice President--General Merchandise Manager (1976-1991).
Michael S. Wilkes has been the Company's Senior Vice President--General
Merchandise Manager--Children's since January, 1994. He has also served the
Company as Senior Vice President--General Merchandise Manager--Women's
Dress/Casual (1990-1994), Senior Vice President--General Merchandise Manager--
Children's (1990), Vice President--General Merchandise Manager--Children's
(1989-1990), Vice President--Divisional Merchandise Manager--Women's Casuals
(1989) and Buyer--Children's (1986-1988). Before joining the Company, Mr.
Wilkes was employed by Gold Circle, a division of Federated Department Stores,
as Senior Buyer--Ladies Sportswear (1982-1986) and by Richman Gordman as
Buyer--Children's and Men's (1975-1982).
Jed L. Norden has been the Company's Senior Vice President--Human Resources
since July, 1985. He also served May as Vice President--Executive Development
(1984-1985). Prior to joining May, Mr. Norden was employed by Ingersoll-Rand,
as General Manager--Personnel and Facilities (1982-1984), Manager--Engineered
35
<PAGE>
Pump Group (1978-1982), Manager--Corporate Personnel (1977-1978), Corporate
Manager--Organization Development (1976-1977), Manager--Corporate Recruiting
(1975-1976), and Manager--Employee Relations Automatic Production Systems
Division (1973-1975).
Harris Mustafa has been the Company's Senior Vice President--Merchandise
Distribution since May, 1995. He has also served the Company as Vice
President--Financial Planning/Purchasing (1990-1995), Assistant Controller
(1989-1990), Director--Store Finance (1989), Director--Seasonal
Planning/Analysis (1987-1989) and Assistant Controller (1987). Before joining
the Company, Mr. Mustafa was employed by the Target division of Dayton Hudson
as Manager--Audit (1983-1987), Senior Financial Analyst (1981-1983), Internal
Auditor (1979-1981), Assistant Merchandise Controller (1978-1979) and
Assistant Buyer (1977-1978).
Stephen Farley has been the Company's Senior Vice President--Marketing since
July, 1994. He has also served the Company as Vice President--Marketing (1993-
1994) and as Vice President--Advertising (1992-1993). Prior to joining the
Company, Mr. Farley was employed by Earl Palmer Brown as Executive Vice
President of Client Services (1989-1992), by Pizza Hut, Inc. as Senior
Director (1987-1989), by Saatchi and Saatchi as Management Supervisor (1983-
1987), and by N.W. Ayer, Inc. as Account Executive (1980-1983).
Curtis H. Barlow has been the Company's Senior Vice President--Real
Estate/Construction since December, 1993. Prior to joining the Company, Mr.
Barlow was employed by The Vons Companies, Inc. as Senior Vice President--Real
Estate (1992-1993), and by Wal-Mart Stores, Inc. as Vice President--Real
Estate (1986-1992) and Director--Real Estate (1984-1986). Between 1977 and
1984, Mr. Barlow served in other positions of increasing responsibility within
the Wal-Mart organization.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Payless Charter provides that any director or officer of the Company who
is made a party to any action, suit or proceeding in connection with services
to the Company or its subsidiaries will be indemnified against expenses,
judgments, fines and amounts paid in settlement to the maximum extent
permitted by Missouri law. In addition, the Payless Charter authorizes the
Company to purchase officer and director liability insurance and to create a
trust fund, grant a security interest or use other means, including
contractual arrangements, to ensure the payment of amounts owed pursuant to
the Company's indemnification obligation.
Section 351.355(1) of the GBCL provides that a corporation may indemnify a
director, officer, employee or agent of the corporation in any action, suit or
proceeding other than an action by or in the right of the corporation, against
expenses (including attorney's fees), judgments, fines and settlement amounts
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action, had no reasonable cause to believe his conduct
was unlawful. Section 351.355(2) provides that the corporation may indemnify
any such person in any action or suit by or in the right of the corporation
against expenses (including attorneys' fees) and settlement amounts actually
and reasonably incurred by him in connection with the defense or settlement of
the action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that he may not be indemnified in respect of any matter in which he has
been adjudged liable for negligence or misconduct in the performance of his
duty to the corporation, unless authorized by the court. Section 351.355(3)
provides that a corporation shall indemnify any such person against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the action, suit or proceeding if he has been successful in
the defense of such action, suit or proceeding and if such action, suit or
proceeding is one for which the corporation may indemnify him under Section
351.355(1) or (2). Section 351.355(7) provides that a corporation shall have
the power to give any further indemnity to any such person, in addition to the
indemnity otherwise authorized under Section 351.355, provided such further
indemnity is either (i) authorized, directed or provided for in the articles
of incorporation of the corporation or any duly adopted amendment thereof or
(ii) is authorized, directed or provided for in any bylaw or agreement of the
corporation which has been adopted by a vote of the shareowners of the
corporation, provided that no such indemnity shall indemnify any person from
or on account of such person's conduct which was finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful.
36
<PAGE>
The Company expects to enter into indemnification agreements with each
director and certain executive officers of the Company providing, among other
things, for the indemnities described above. Similar indemnification
agreements may be entered into from time to time with additional officers of
the Company.
The Company expects to have in place a policy of insurance under which the
directors and officers of the Company are insured, subject to the limits of
the policy, against certain losses, as defined in the policy, arising from
claims made against such directors and officers by reason of any wrongful
acts, as defined in the policy, in their respective capacities as directors or
officers.
EXECUTIVE COMPENSATION
The following table summarizes compensation expected to be paid to the
Company's Chief Executive Officer and the five other most highly compensated
executive officers (the "named executive officers") for services to be
rendered in all capacities in fiscal year 1996.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
------------------ --------------------------------
AWARDS PAYOUTS
---------- ----------
NAME & RESTRICTED LONG TERM ALL OTHER
PRINCIPAL STOCK STOCK INCENTIVE COMPENSATION
POSITION YEAR SALARY(2) BONUS(3) AWARDS(4) OPTIONS PAYOUTS(8) (9)
--------- ---- --------- -------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven J. Douglass 1996 $587,500 $120,000 -- 33,125(5) $128,400 $6,523
Chairman of the Board 62,500(6)
and Chief Executive 12,500(7)
Officer
Richard A. Jolosky 1996 $450,000 $ 90,000 -- 62,500(6) $ 96,300 $5,678
President 12,500(7)
Duane L. Cantrell 1996 $292,481 $ 58,995 -- 7,437(5) $ 62,591 $4,706
Senior Vice President-- 5,000(6)
Retail Operations 2,500(7)
Bryan P. Collins 1996 $289,916 $ 58,478 -- 7,437(5) $ 62,042 $4,694
Senior Vice President-- 5,000(6)
General Merchandise 2,500(7)
Manager
Jed L. Norden 1996 $266,825 $ 53,820 -- 7,500(5) $ 57,101 $4,552
Senior Vice President-- 5,000(6)
Human Resources 2,500(7)
Ullrich E. Porzig 1996 $266,825 $ 53,820 -- 5,000(6) $ 57,101 $4,552
Senior Vice President-- 2,500(7)
Chief Financial Officer
</TABLE>
- --------
1. The Summary Compensation Table does not reflect certain non-cash
compensation made available to the named executive officers for the fiscal
year because the aggregate amounts of such compensation are below the
required disclosure thresholds.
2. The table reflects annualized amounts expected to be paid to the named
executive officers or deferred by the named executive officers during
fiscal 1996. Annual salary changes for each of the named executive officers
and for all salaried associates normally occur on May 1 of each year.
3. "Bonus" reflects the annual portion of the bonus payable under the
Company's Executive Incentive Compensation Plan for Payless Executives,
assuming performance at the "target" level. See
37
<PAGE>
"--Performance Based Bonus Plans." The bonuses will be paid or deferred
under the Company's Deferred Compensation Plan, which provides that all
deferrals will be distributed to participants in lump sum cash payments
immediately following a change in control of the Company (as defined in the
plan).
4. It is expected that on or about the Distribution Date the following
restricted stock awards will be made to the named executive officers under
the Company's Spin-Off Stock Plan: Mr. Douglass--22,500 shares, Mr.
Jolosky--16,875 shares, Mr. Cantrell--7,125 shares, Mr. Collins--7,063
shares, Mr. Norden--6,500 shares and Mr. Porzig--6,500 shares. As of the
date of the award, the value of such restricted stock will be equal to the
market price of the Common Stock on such date multiplied by the number of
shares granted to the named executive officer. See "--Spin-Off Stock Plan
and Spin-Off Cash Plan."
5. It is expected that on or about the Distribution Date options to acquire
the number of shares of Common Stock listed above will be granted under the
1996 Stock Incentive Plan in exchange for options to acquire May common
stock previously granted to the executive. See "--1996 Stock Incentive
Plan" for a discussion of the terms and conditions of these options.
6. It is expected that on or about the Distribution Date options to acquire
the number of shares of Common Stock listed above will be granted under the
1996 Stock Incentive Plan. These options will have a term of 10 years and
25% of the options will become exercisable on each of the first through
fourth anniversaries of the Distribution Date. These options will have an
exercise price equal to the average of the high and low trading prices of
the Common Stock on the NYSE for each of the first 30 days on which trading
in the Common Stock occurs.
7. It is expected that shortly after the Distribution Date options to acquire
the number of shares of Common Stock listed above will be granted under the
1996 Stock Incentive Plan. These options will have a term of 10 years and
25% of the options will become exercisable on each of the first through
fourth anniversaries of the grant date. The options will have an exercise
price equal to the market price of the Common Stock on the date the options
are granted.
8. "Long-Term Incentive Payouts" represent the long-term portion of the bonus
payable under the Executive Incentive Compensation Plan for Payless
Executives, assuming performance at the "target" level and a stock price
adjustment based on a 7% stock price increase. The bonuses will be paid or
deferred under the Company's Deferred Compensation Plan. See note 3, above,
and "--Performance Based Bonus Plans."
9. "All Other Compensation" represents the Company's estimated contribution to
the named executive officer's account in the Company's Profit Sharing Plan.
PERFORMANCE BASED BONUS PLANS
The Company has two performance based bonus plans that cover approximately
400 associates. Each plan links a major portion of each associate's potential
total pay to the associate's performance and to the Company's performance.
Executive Incentive Compensation Plan for Payless Executives. The Executive
Incentive Compensation Plan for Payless Executives will apply to 12
associates, including the named executive officers. Participants will be
eligible to receive annual cash awards (for individual fiscal years) and long-
term cash awards (for three-year long-term performance periods; long-term
performance periods will be phased in following the Distribution, so that the
initial long-term performance period will cover fiscal 1996, the second long-
term performance period will cover 1996-7 and long-term performance periods
after that will cover three fiscal years). These awards will be based upon
attaining earnings per share and return on net assets (RONA) performance
standards relating to the Company as a whole and also based on the performance
of the Common Stock price over the long-term performance periods. In addition,
awards are expected to be subject to an automatic upward or downward
adjustment to reflect the Company's performance as compared to the performance
of a group of competitors. The plan will be administered by the Compensation
and Nominating Committee of the board of directors (the "Committee"). The
performance standards are expected to be set by the Committee at the beginning
of the measurement periods and are expected to be measured by the Committee
after the close of the measurement
38
<PAGE>
periods. The maximum annual award payable under the plan's formula will be 30%
of the executive's base salary and the maximum long-term award payable under
the plan's formula will be 45% of the executive's average base salary over the
long-term performance period. The awards for the named executive officers may
also be adjusted downward on a discretionary basis by the Committee.
Performance Incentive Plan. The Company's Performance Incentive Plan applies
to over 388 associates of the Company and its subsidiaries. Participants may
receive annual cash awards based upon attaining certain measures of
performance tailored to the participant's job. Performance standards are set
at the beginning of the fiscal year and measured after the close of the fiscal
year. The maximum annual award payable under the plan's formula ranges from 5%
to 50% of the associate's base salary.
1996 STOCK INCENTIVE PLAN
No associates of the Company will be eligible to receive options under any
May stock option plan for fiscal 1996 or any future year. Prior to the
Distribution Date, May, as sole shareowner of the Company, will approve the
1996 Stock Incentive Plan. Under the plan, the Company may issue stock
options, restricted stock, performance restricted stock, stock appreciation
rights and performance units.
Executives who have stock options from May that are exercisable before the
Distribution Date may elect to waive all of their rights under those May
options, in which case the Company will grant the executive an option for 1.25
shares of Common Stock for each share of May common stock that is subject to a
May option that the executive waives. In addition, May options that become
exercisable after the Distribution Date will lapse. However, the Company will
grant executives an option for 1.25 shares of Common Stock for each share of
May common stock that is subject to a May option that lapses. Each of these
new Company options will have a term of 10 years, and 50% of the options will
become exercisable on each of the first and second anniversaries of the
Distribution Date. These options will have an exercise price equal to the
average of the high and low trading prices of the Common Stock on the NYSE for
each of the first 30 days on which trading in the Common Stock occurs.
SPIN-OFF STOCK PLAN AND SPIN-OFF CASH PLAN
The Company will have a Spin-off Stock Plan under which approximately
375,000 shares of restricted Common Stock will be issued to approximately 130
associates on or about the Distribution Date. Under the plan, associates will
be granted shares of restricted stock, and generally they must remain employed
by the Company through the vesting dates in order for the forfeiture
restrictions to lapse. Restrictions lapse on one-third of the shares covered
by the grants on each of the Distribution Date, the first anniversary of the
Distribution Date and the second anniversary of the Distribution Date. The
plan provides that, in the event of a change in control (as defined in the
plan), the restrictions will lapse on all remaining shares.
The Company will have a Spin-off Cash Plan under which approximately 600
associates are eligible to receive cash payments of amounts ranging from 10%
to 37.5% of their base salary. Generally, associates must remain employed by
the Company through the payment dates in order to be entitled to payment. One-
half of the cash payments will be made on each of the first and second
anniversaries of the Distribution Date. The plan provides that, in the event
of a change in control (as defined in the plan), the cash payments will be
accelerated.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
AGREEMENTS
Each of the named executive officers is a party to an employment agreement
with the Company. The employment agreements will expire on or before April 30,
2000. The agreements provide for an annual salary at the annual rates shown in
the table, with increases subject to the discretion of the board of directors
of the Company. Prior to the Distribution, the Company will enter into
severance agreements with each of the named executive officers. The agreements
provide that the executive is entitled to benefits if (i) a "change in
control" of the Company occurs and (ii) during the 180 days following such
change in control, the executive determines
39
<PAGE>
in good faith that, as a result of the change in control, he is unable to
execute his duties effectively. Following that 180 day period, employment must
be actually or constructively terminated other than for cause or disability
during the term of the agreement for benefits to be payable. Under the
severance agreements, a "change in control" would include any of the following
events: (i) any "person," as defined in the Exchange Act, acquires 50% or more
of the Company's voting securities; (ii) a majority of the Company's directors
are replaced during a three-year period; or (iii) shareowners approve certain
mergers, or a liquidation, or sale of all or substantially all of the
Company's assets.
The severance agreements provide a lump sum payment equal to three times the
sum of (i) base salary at termination or, if greater, base salary immediately
prior to the change in control plus (ii) target bonus with maximum share price
adjustment for the year in which the change in control occurs. Each agreement
also provides 36 months of continued medical and life insurance benefits and,
if the terminated executive is within five years of his or her eligibility
date, eligibility in the Company's post-retirement life and medical insurance
benefits. The agreements with officers who are subject to Section 16(b) of the
Exchange Act provide for a cash payment in cancellation of stock options. The
agreement with the Chairman and Chief Executive Officer provides a "tax gross-
up" payment to ensure that the above mentioned payments are not subject to net
reduction due to imposition of excise taxes which are payable under Section
4999 of the Code. The agreement with the President provides for 50% of such
payment. The Company established a trust which would be funded upon a
potential change in control to provide the benefits under the severance
agreements and which would, upon an actual change in control, become
irrevocable.
PROFIT SHARING PLAN
As of April 1, 1996, Company associates became covered by a new profit
sharing plan (the "Payless Profit Sharing Plan"). Prior thereto, Company
associates were covered by The May Department Stores Company Profit Sharing
Plan (the "May Plan"). On April 1, 1996, substantially all of the associates'
balances in the May Plan, including amounts invested in May common stock, were
transferred to the Payless Profit Sharing Plan. Because shares of Common Stock
will be distributed in connection with the Distribution to the trustee of the
Payless Profit Sharing Plan on shares of May common stock held for the Company
associates' accounts, it is anticipated that approximately 132,000 shares of
Common Stock will be owned by the Payless Profit Sharing Plan for the accounts
of Company associates as of the Distribution Date.
Benefits under the Payless Profit Sharing Plan are related to the Company's
performance each year and to the value of the Common Stock. Generally, the
Company expects to contribute 2.5% of its pretax net profits to the Payless
Profit Sharing Plan each year. Associates will be able to voluntarily
contribute to the Payless Profit Sharing Plan on both a before-tax and after-
tax basis. Associates will be able to direct that the Company's contribution
to their accounts and/or their voluntary contributions be invested in a
Company Common Stock fund, or one of several other funds.
RETIREMENT PLAN AND SUPPLEMENTARY RETIREMENT PLAN
The Company will not have a pension retirement plan. However, Company
associates who are covered by the May Retirement Plan as of the Distribution
will continue to vest in the benefits earned under that plan. Benefits accrued
through the Distribution Date (expressed as a single life annuity payable
beginning at age 65) will be "frozen" and paid out in the future.
The Company will have a supplementary retirement plan (the "Supplementary
Plan") covering, generally, associates who, at one time, have compensation in
a calendar year equal to at least twice the amount of "wages" then subject to
the payment of old age, survivor and disability insurance Social Security
taxes. Under the Supplementary Plan, covered associates will become entitled
to a single life annuity retirement benefit equal to (i) 2% of the average of
the highest three out of the last five fiscal years of final annual salary and
bonuses (reported as Salary, Bonus and Long-Term Incentive Payouts in the
Summary Compensation Table) multiplied by their years of service, up to a
maximum of 25 years, (ii) reduced by primary Social Security benefits, by
40
<PAGE>
Company-provided benefits provided under the Payless Profit Sharing Plan and
by Company-provided benefits under plans operated by May which may be payable
to the associate, and, if appropriate, by amounts to reflect early retirement.
The minimum benefit under the Supplementary Plan will be the amount of
Company-provided benefits which would have been payable under the Payless
Profit Sharing Plan, including benefits which would have been transferred from
the May Profit Sharing Plan, and under the May Retirement Plan, determined
without regard to any statutory limits, less the amount of Company-provided
benefits actually payable under those plans.
The Supplementary Plan will provide that, in the event of a change in
control (as defined in the plan), vesting will be accelerated in limited
circumstances and benefits will not be forfeitable. The Company will establish
a trust which will be funded upon a potential change in control to provide
accrued benefits under the Supplementary Plan and which will, upon an actual
change in control, become irrevocable.
The following table shows the estimated aggregate annual benefits payable
upon retirement at normal retirement age (65) (assuming a retirement in 1996)
for persons in specified compensation and years of service classifications
covered by the Company's Profit Sharing Plan and, if eligible, the
Supplementary Plan. The named executive officers are expected to have, as of
the end of 1996, the following years of service, respectively: Mr. Douglass,
20 years; Mr. Jolosky, 19 years; Mr. Cantrell, 18 years; Mr. Collins, 14
years; Mr. Norden, 12 years; and Mr. Porzig, 11 years.
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
ANNUAL -----------------------------------------------------------------------------
EARNINGS 20 25 30 35
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 500,000 $188,893 $236,116 $236,116 $236,116
$ 600,000 $226,671 $283,339 $283,339 $283,339
$ 700,000 $264,450 $330,563 $330,563 $330,563
$ 800,000 $302,229 $377,786 $377,786 $377,786
$ 900,000 $340,007 $425,009 $425,009 $425,009
$1,000,000 $377,786 $472,323 $472,232 $472,232
</TABLE>
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the shares of
Common Stock which are expected to be beneficially owned by each director and
named executive officer of the Company and by all directors and officers of
the Company as a group as of the Distribution Date based on their respective
holdings of May common stock as of April 4, 1996 and shares of restricted
Common Stock expected to be granted on or about the Distribution Date. See
"EXECUTIVE COMPENSATION." Based upon such data, no director or executive
officer will beneficially own, as of the Distribution Date, more than 5% of
the shares of the Common Stock outstanding at such date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP PERCENTAGE
---- -------------------- ----------
<S> <C> <C>
Steven J. Douglass........................ 3,093 *
Richard A. Jolosky........................ 0 *
Duane L. Cantrell......................... 1,016 *
Bryan P. Collins.......................... 144 *
Jed L. Norden............................. 0 *
Ullrich E. Porzig......................... 1,588 *
Howard R. Fricke.......................... 0 *
Thomas A. Hays............................ 38,106 *
Michael E. Murphy......................... 0 *
Robert L. Stark........................... 96 *
All directors and executive officers
as a group (16 persons).................. 44,043 *
</TABLE>
- --------
*Less than 1%
41
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The only shareowner of the Company prior to the Distribution Date is May.
After the Distribution Date, May will own no shares of Common Stock.
Based on information which has been obtained from May's records and a review
of statements filed with the Securities and Exchange Commission pursuant to
Section 13(g) of the Exchange Act with respect to May common stock and
received by May prior to April 4, 1996, no person known to May will be the
beneficial owner of more than 5% of the Common Stock upon completion of the
Distribution other than as set forth below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF COMMON
STOCK AS OF THE PERCENT OF CLASS
DISTRIBUTION AS OF THE
NAME AND ADDRESS DATE DISTRIBUTION DATE
---------------- ---------------- -----------------
<S> <C> <C>
Oppenheimer Group, Inc. 2,144,503 5.4%
Oppenheimer Tower
World Financial Center
New York, New York 10281
</TABLE>
The May Plan provides for an investment fund which is invested in shares of
May common stock (the "May Common Stock Fund"). As of the Record Date, the
trust under the May Plan is expected to own approximately 11 million shares of
May common stock (4.4% of the outstanding shares of May common stock). As a
result of the Distribution, the May Plan trust will own approximately 4.4% of
the outstanding Common Stock on the Distribution Date. The terms of the May
Plan require that the May Common Stock Fund be invested solely in shares of
May common stock and sufficient cash for liquidity. Common Stock distributed
to the May Common Stock Fund and owned by the trust following the Distribution
will be systematically liquidated by the trustee, after which time the May
Plan trust will own no shares of the Common Stock.
The Payless Profit Sharing Plan provides for an investment fund which is
invested in shares of May common stock (the "Payless Profit Sharing Plan May
Common Stock Fund"). As of the Record Date, the trust under the Payless Profit
Sharing Plan is expected to own approximately 132,000 shares of May common
stock (less than 1% of the shares of May common stock outstanding) in the
Payless Profit Sharing Plan May Common Stock Fund. As a result of the
Distribution, the Payless Profit Sharing Plan trust will own Common Stock.
Under the terms of the Payless Profit Sharing Plan, those shares will be
transferred to accounts of the Company's associates in an investment fund
which is to be invested in Common Stock. Thereafter, those shares will be
subject to the terms of the Payless Profit Sharing Plan.
TRANSACTIONS BETWEEN THE COMPANY AND MAY
The Company and May have entered into a number of agreements for the purpose
of defining the ongoing relationship between them. These agreements have been
developed in connection with the repositioning of the Company by May and
therefore are not the result of arm's-length negotiation between independent
parties. Additional or modified agreements, arrangements and transactions may
be entered into by the Company, May and May's subsidiaries after completion of
the Distribution. Any such future agreements, arrangements and transactions
will be determined through negotiations on an arm's-length basis between the
Company and May or May's subsidiaries, as the case may be.
In the past, May has provided certain services to the Company, including
employee benefit design, insurance, legal, taxes, import and treasury
services. The Company intends to perform or secure these services
42
<PAGE>
independently in the future. However, for a limited period of time, May may
continue to provide certain corporate services until such independent
arrangements can be completed. The following is a summary of certain past,
present and anticipated future agreements, arrangements and transactions
between the Company and May.
DISTRIBUTION AGREEMENT
The Distribution Agreement sets forth the principal corporate transactions
required to effect the Distribution, the conditions to the Distribution and
certain other agreements governing matters following the Distribution.
Pursuant to the Distribution Agreement, the Company and May have agreed to
indemnify each other against certain liabilities. The Company has agreed to
assume and to pay, perform and discharge all obligations, liabilities and
losses arising out of or relating to the Company's business, whether such
obligations, liabilities or losses arise before, on or after the Distribution
Date. The Company will indemnify May from and against any and all liabilities
and obligations in respect to (a) all contracts, agreements, undertakings,
notes, letters of credit, bonds, guarantees, warranties, indemnities, accounts
payable, purchase orders, leases, licenses, liens, mortgages, restrictions and
covenants, (b) all employee or employment related obligations and liabilities,
including, without limitation, amounts due to Company employees under any
employment contract, arrangement or other employee agreement, benefit plan or
payroll practice, (c) all environment conditions and responsibilities and (d)
all actions, including those relating to damage or injury to person, property,
business or reputation.
Each of the Company and May have agreed to indemnify the other against any
and all losses arising out of or due to any claim that the information
provided by them and included in this Information Statement or the
Registration Statement is false and misleading with respect to any material
fact or omits to state any material fact required to be stated in such
documents or necessary in order to make the statements in such documents not
misleading or any failure to perform or violation of any provision of the
Distribution Agreement.
Pursuant to the terms of the Distribution Agreement, and except as otherwise
provided in the Distribution Agreement or any other agreement between the
parties, May and the Company release each other from and against any claim
they may have against each other or their respective executives which relates
to events, actions or omissions taken or occurring on or prior to the
Distribution Date.
The Distribution Agreement also includes procedures for notice and payment
of indemnification claims and provides that the indemnifying party may assume
the defense of a claim or suit brought by a third party.
SUBLEASE
From time to time, beginning in 1982, May entered into leases with third
parties for approximately 360 of the Company's store locations. The Company
and May have entered into a sublease agreement (the "Sublease") which defines
the ongoing relationship between them with respect to those store locations
and as many as 11 additional locations that May may be obligated to lease
during 1996.
The Sublease provides that the Company may continue to operate stores at
these locations, subject to certain obligations, including, without
limitation, the obligations to pay rent, taxes and other charges, carry
insurance and maintain the premises. The Company will be permitted to sub-
sublet individual locations for all or part of the existing term of the
applicable underlying lease, but any such sub-sublet will not release the
Company from its obligations under the Sublease. The Company will indemnify
May against certain liabilities, including those arising out of (i) any injury
to, or death of, any person or loss or damage to property on any of the leased
premises, (ii) any breach by the Company of provisions of the Sublease or
related documents, (iii) nonpayment of rent, (iv) the performance of any labor
or services or the furnishing of any materials or other property with respect
to any of the leased premises, or (v) any claim, proceeding or contest in
connection with a condemnation or other taking of any of the leased premises.
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The Sublease also provides that the Company can request that May exercise
the next exercisable option to renew or extend the term of certain underlying
leases for one or more store locations. May will exercise the option under
certain conditions, including that the request was timely received, the
Company is not in default under the underlying lease or the Sublease, the
Company is operating a store at the location and certifies that it expects to
continue to do so, the Company satisfies certain financial tests and the
exercise of the option will not extend the term of the underlying lease beyond
May 1, 2006.
TAX SHARING AGREEMENT
Through the Distribution Date, the results of operations of the Company and
its domestic subsidiaries that are at least 80% owned by the Company (the
"Company Group") will be included in May's consolidated Federal income tax
returns ("May Consolidated Federal Returns"). In connection with the
Distribution, May and the Company have entered into a Tax Sharing Agreement
(the "Tax Sharing Agreement") that provides, among other things, for the
allocation between May and the Company of Federal, state, local and foreign
tax liabilities for all periods through the Distribution Date. Generally, the
Company will be responsible for the portion of any deficiencies of May
assessed with respect to all periods up to and including the Distribution Date
that give rise to a tax benefit to the Company in a post-Distribution period.
The Company will also be responsible for all income taxes imposed on the
Company Group during the taxable period or portion thereof beginning on
February 4, 1996 and ending on or before the Distribution Date. Furthermore,
the Tax Sharing Agreement provides that if the Distribution fails to qualify
as a tax-free distribution as a result of any event occurring prior to the
second anniversary of the Distribution Date that results from the breach of
certain covenants made by the Company in the Tax Sharing Agreement or involves
either the stock or assets (or any combination thereof) of any member of the
Company Group, then the Company must indemnify and hold May harmless, on an
after-tax basis, from any tax liability imposed upon it in connection with the
Distribution. The Tax Sharing Agreement also prohibits the Company from
entering into certain transactions or disposing of substantially all of its
assets prior to the second anniversary of the Distribution Date in the absence
of a prior opinion of independent tax counsel or receipt of a private letter
ruling from the Internal Revenue Service (the "Service") that such transaction
or disposition will not cause the Distribution to be a taxable transaction.
ADMINISTRATIVE SERVICES AGREEMENT
May and the Company have entered into an Administrative Services Agreement
pursuant to which May, in exchange for fees specified in the Administrative
Services Agreement, will provide certain administrative services with respect
to all demands for damages made against the Company or for which the Company
is an indemnitor and which are based on workers' compensation, general
liability or automobile liability for incidents occurring prior to April 1,
1996. The Administrative Services Agreement will remain in effect until the
earlier of March 31, 2016 or the settling of the last open claim covered by
the agreement. The Administrative Services Agreement provides that the Company
is liable for expenses related to such claims and provides that the Company
will indemnify and hold harmless May for any action, proceeding or
investigation related to May's performance of services under the agreement.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Prior to the Distribution Date, the Company intends to file the Payless
Charter with the Secretary of State of the State of Missouri, and the board of
directors of the Company intends to adopt the Payless Bylaws. Under the
Payless Charter, the total number of shares of all classes of stock that the
Company has authority to issue is 145,000,000, of which 120,000,000 are shares
of Common Stock, par value $.01 per share, and 25,000,000 are shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). No shares
of Preferred Stock will be issued in connection with the Distribution,
although 430,000 shares of Series A Junior Participating Preferred Stock will
be reserved for issuance in connection with the Rights Agreement (as defined
below). Based
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on the number of shares of May common stock outstanding at April 4, 1996,
approximately 39.9 million shares of Common Stock constituting approximately
33% of the authorized Common Stock, will be issued to shareowners of May.
COMMON STOCK
The owners of Common Stock will be entitled to one vote for each share on
all matters voted on by shareowners, including the election of directors, and
the owners of such shares will possess all voting power, except as otherwise
required by law or provided in any resolution adopted by the board of
directors of the Company with respect to any series of Preferred Stock. The
Common Stock will not have cumulative voting rights. It is currently expected
that the first annual meeting of shareowners of the Company following the
Distribution will be held in May, 1997. Subject to any preferential or other
rights of any outstanding series of Preferred Stock that may be designated by
the board of directors of the Company, the owners of Common Stock will be
entitled to such dividends as may be declared from time to time by the board
of directors of the Company from funds available therefor. See "CERTAIN
CONSIDERATIONS--Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, owners of Common Stock will be entitled to receive
pro rata all assets of the Company available for distribution to such owners
remaining after payment of liabilities and liquidation preference of any
outstanding Preferred Stock. Owners of Common Stock have no rights to convert
their Common Stock into any other securities and there are no redemption or
sinking fund provisions with respect to such shares. All of the outstanding
shares of Common Stock are fully paid and nonassessable, and the shares of
Common Stock to be issued in connection with the Distribution, when issued,
will be fully paid and nonassessable. Additional shares of Common Stock may be
issued without shareowner approval, other than such approval as may be
required by applicable stock exchange rules.
PREFERRED STOCK
The board of directors of the Company will be authorized to provide for the
issuance of shares of Preferred Stock, in one or more classes or series, and
to fix for each such class or series such voting powers, designations,
preferences and relative, participating, optional and other special rights,
and such qualifications, limitations or restrictions thereon, as are stated in
the resolutions adopted by the board of directors of the Company providing for
the issuance of such class or series and as are permitted by the GBCL. The
Company has no present plans to issue any of the Preferred Stock. See
"PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BYLAWS AND THE
RIGHTS AGREEMENT--Preferred Stock."
NO PREEMPTIVE RIGHTS
No owner of any stock of the Company of any class authorized at the
Distribution Date will then have any preemptive right to subscribe to any
securities of the Company of any kind or class.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The Bank of New
York.
PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF
THE CHARTER, THE BYLAWS AND THE RIGHTS AGREEMENT
GENERAL
The Payless Charter, the Payless Bylaws and the Rights Agreement to be
entered into between the Company and The Bank of New York, as Rights Agent
(the "Rights Agreement"), contain certain provisions that could make more
difficult the acquisition of control of the Company by means of a tender
offer, open market purchases, a proxy contest or otherwise. Set forth below is
a description of such provisions in the Payless Charter, the Payless Bylaws
and the Rights Agreement. Such description is intended as a summary only and
is qualified in its
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entirety by reference to the Payless Charter, the Payless Bylaws and the
Rights Agreement, the forms of which are included as exhibits to the
Registration Statement of which this Information Statement forms a part.
Classified Board of Directors; Removal of Directors. The Payless Charter
provides that the number of directors shall be not less than three nor more
than 15, with the exact number of directors to be determined from time to time
by a majority of the entire board of directors. The directors shall be divided
into three classes, as nearly equal in number as is reasonably possible,
serving staggered three-year terms so that directors' initial terms will
expire at the annual meeting of the Company's shareowners held in 1997, 1998
and 1999, respectively. Starting with the 1997 annual meeting of the Company's
shareowners, one class of directors will be elected each year for a three-year
term. See "MANAGEMENT--Directors."
The Company believes that a classified board of directors will help to
assure the continuity and stability of the Company's board of directors and
the Company's business strategies and policies as determined by the board of
directors of the Company, since a majority of the directors at any given time
will have had prior experience as directors of the Company. The Company
believes that this in turn will permit the board to represent more effectively
the interests of shareowners.
With a classified board of directors, at least two annual meetings of
shareowners, instead of one, will generally be required to effect a change in
a majority of the members of the board of directors. As a result, the
classification of the board of directors of the Company may discourage proxy
contests for the election of directors, unsolicited tender offers or purchases
of a substantial block of the Common Stock because it could prevent an
acquiror from obtaining control of the board of directors of the Company in a
relatively short period of time. In addition, pursuant to the Payless Charter,
a director may be removed only for cause and only by the affirmative vote of
owners of two-thirds of the outstanding shares of Common Stock entitled to
vote thereon. As a result, a classified board of directors delays shareowners
who do not agree with the policies of the board of directors from replacing
directors, unless they can demonstrate that the directors should be removed
for cause and obtain the requisite vote. Such a delay may help ensure that the
board of directors of the Company, if confronted with a proxy contest or an
unsolicited proposal for an extraordinary corporate transaction, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes is the best interest of the Company's
shareowners.
Filling Vacancies on the Board. The Payless Charter provides that vacancies
on the board of directors may be filled only by a majority of the board of
directors then in office, even if less than a quorum or by the sole remaining
director. Accordingly, the board of directors could temporarily prevent any
shareowner from obtaining majority representation on the board of directors by
enlarging the board of directors and filling the new directorships with its
own nominees.
Special Meetings; Limitations on Shareowner Action by Written Consent. The
Payless Charter provides that shareowner action can be taken only at an annual
or special meeting of shareowners. The Payless Charter provides that special
meetings of shareowners may be called only by the board of directors, the
Chairman of the board of directors, or the President. Shareowners are not
permitted to call a special meeting or to require that the board of directors
call a special meeting of shareowners. Moreover, the business permitted to be
conducted at any special meeting of shareowners is limited to the purpose or
purposes specified in the written notice of such meeting.
Pursuant to the GBCL and the Payless Bylaws, any action by written consent
of shareowners in lieu of a meeting must be unanimous. The provision of the
GBCL and the Bylaws requiring unanimity for shareowner action by written
consent gives all the shareowners of the Company entitled to vote on a
proposed action the opportunity to participate in such action and will prevent
the owners of a majority of the voting power of the Company from using the
written consent procedure to take shareowner action. Moreover, a shareowner
cannot force shareowner consideration of a proposal over the opposition of the
board of directors, the Chairman of the board of directors or the President by
calling a special meeting of the shareowners.
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Business Combination Provision. In addition to any affirmative vote required
by the GBCL or otherwise, the Payless Charter requires the approval of a
majority of the outstanding shares of Voting Stock of the Company (as defined
therein), excluding Voting Stock held by any Interested Shareholder (defined
generally as the beneficial owner of 20% or more of the Voting Stock of the
Company), or any Affiliate (as defined therein) or Associate (as defined
therein) of such Interested Shareholder, as a condition of certain "Business
Combination" (as defined therein) transactions with or for the benefit of an
Interested Shareholder, unless (i) certain price criteria are satisfied, or
(ii) the Business Combination transaction was approved by the board of
directors of the Company prior to such Interested Shareholder's Stock
Acquisition Date (as defined therein), or the purchase of stock made by such
Interested Shareholder on such Interested Shareholder's Stock Acquisition Date
had been approved by the board of directors of the Company prior to such
Interested Shareholder's Stock Acquisition Date, or (iii) the Business
Combination had been approved by a majority of the outstanding Voting Stock
not beneficially owned by such Interested Shareholder or any Affiliate or
Associate of such Interested Shareholder no earlier than five years after such
Interested Shareholder's Stock Acquisition Date. The price criteria under the
Payless Charter relate to the minimum value to be paid to the owners of Common
Stock.
Amendment of Certain Charter and Bylaw Provisions. The Payless Charter
provides that the Payless Bylaws may only be amended by a vote of two-thirds
of the entire board of directors. The Payless Charter provides that any
proposal to amend, repeal or adopt any provision of the Payless Charter must
be approved by the affirmative vote of the owners of not less than a majority
of the outstanding shares of stock of the Company entitled to vote thereon,
unless such proposal is not recommended by the affirmative vote of a majority
of the entire board of directors, in which case the affirmative vote of at
least two-thirds of the outstanding shares of the Company is required.
Advance Notice Provisions for Shareowner Proposals and Shareowner
Nominations. The Payless Bylaws establish an advance notice procedure with
regard to business to be brought before an annual or special meeting of
shareowners of the Company (the "Business Procedure") and with regard to the
nomination, other than by or at the direction of the board of directors, of
candidates for election as directors (the "Nomination Procedure").
The Business Procedure provides that at an annual or special meeting only
such business may be conducted as has been specified in the notice of meeting,
brought before the meeting by or at the direction of the board of directors,
otherwise properly brought before the meeting by or at the direction of the
board of directors, or by a shareowner who has given timely written notice to
the Company's corporate secretary (the "Secretary") of such shareowner's
intention to bring such business before the meeting. The Nomination Procedure
provides that only persons who are nominated by or at the direction of the
board of directors, by a nominating committee or person appointed by the board
of directors, or by a shareowner who has given timely written notice to the
Secretary prior to the meeting at which directors are to be elected, will be
eligible for election as directors. Under the Business Procedure or the
Nomination Procedure, to be timely, notice must be delivered to or mailed and
received at the principal executive offices of the Company not less than 75
days nor more than 90 days prior to the meeting; provided, however, that in
the event that less than 90 days' notice or prior public disclosure of the
date of the meeting is given or made to shareowners, notice by the shareowner
to be timely must be so received not later than the close of business on the
15th day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made, whichever was first.
Under the Nomination Procedure, a shareowner's notice to the Company
proposing to nominate a person for election as a director must contain certain
information (i) about each proposed nominee, including, without limitation,
(a) the name, age, business address and residence address of the nominee, (b)
the principal occupation or employment of the nominee, (c) the class and
number of shares of Common Stock which are beneficially owned by the nominee
and (d) any other information relating to the nominee that is required to be
disclosed in solicitations of proxies for election of directors pursuant to
the Regulation 14A under the Exchange Act and (ii) about the shareowner
proposing to nominate such person, including, without limitation, (a) the name
and record address of the shareowner and (b) the class and number of shares of
Common Stock which are beneficially owned by the shareowner. Under the
Business Procedure, a shareowner's notice relating to the conduct of business
other than the nomination of directors at an annual meeting must contain
certain information (i) about such business and about the proposing shareowner
including, without limitation, (a) a brief description of the business desired
to be brought before the meeting and the reasons for conducting such business
at the meeting,
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(b) the name and record address of the proposing shareowner, (c) the class and
number of shares of Common Stock owned by the proposing shareowner and (d) a
description of any material interest of the shareowner in such business. If
the chairman of the meeting determines that a person was not nominated in
accordance with the Nomination Procedure, such person will not be eligible for
election as a director and such nomination shall be disregarded. If such
chairman determines that business was not properly brought before such meeting
in accordance with the Business Procedure, such business will not be
transacted at such meeting.
By requiring advance notice of nominations by shareowners, the Nomination
Procedure will afford the board of directors a meaningful opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the board of directors, to inform shareowners about
such qualifications. By requiring advance notice of proposed business, the
Business Procedure will provide a more orderly procedure for conducting annual
meetings of shareowners and, to the extent deemed necessary or desirable by
the board of directors, will provide the board of directors with a meaningful
opportunity to inform shareowners, prior to such meeting, of any business
proposed to be conducted at such meeting, together with any recommendation of
the board of directors' position as to action to be taken with respect to such
business, so as to enable shareowners better to determine whether they desire
to attend such a meeting or grant a proxy to the board of directors as to the
disposition of any such business. Although the Payless Bylaws do not give the
board of directors any power to approve or disapprove shareowner nominations
for the election of directors or proposals for action, they may have the
effect of precluding a contest for the election of directors or the
consideration of shareowner proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
proposal without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to the Company and its shareowners.
PREFERRED STOCK
The Payless Charter authorizes the board of directors of the Company to
establish one or more classes or series of Preferred Stock and to determine,
with respect to any class or series of Preferred Stock such voting powers,
designations, preferences and relative, participating, optional and other
special rights, and such qualifications, limitations or restrictions thereon,
as are stated in the resolutions adopted by the board of directors of the
Company providing for the issuance of such series and as are permitted by the
GBCL.
The Company believes that the availability of the Preferred Stock will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions and in meeting other corporate needs that might
arise. Having such authorized shares available for issuance will allow the
Company to issue shares of Preferred Stock without the expense and delay of a
special shareowners meeting. The authorized shares of Preferred Stock, as well
as shares of Common Stock, will be available for issuance without further
action by the Company's shareowners, unless such action is required by
applicable law or the rules of any stock exchange on which the Company's
securities may be listed. Although the board of directors of the Company has
no intention at the present time of doing so, it would have the power (subject
to applicable law) to issue a series of Preferred Stock that could, depending
on the terms of such series, impede the completion of a merger, tender offer
or other takeover attempt. For instance, subject to applicable law, such
series of Preferred Stock might impede a business combination by including
class voting rights that would enable the holder to block such a transaction.
The board of directors will make any determination to issue such shares based
on its judgment as to the best interests of the Company and its shareowners.
The board of directors, in so acting, could issue Preferred Stock having terms
which could discourage an acquisition attempt or other transaction that some,
or a majority, of the shareowners might believe to be in their best interests
or in which shareowners might receive a premium for their stock over the then
market price of such stock. See "--Rights Agreement."
CONTROL SHARE ACQUISITION STATUTE
Under the control share acquisition statute of the GBCL, a potential
acquiror must notify the target corporation that it has acquired or proposes
to acquire capital stock of the target corporation which would cause the
acquiror to move into one of several defined ranges of voting power (20% to
33%, 33% to 50%, 51% to 100%). Without the approval of a majority of the
outstanding shares not owned by the acquiror, officers or employee-directors,
the control shares do not receive voting rights.
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RIGHTS AGREEMENT
In connection with its decision to make the Distribution, May decided that
the Company should have a shareowner rights plan and the Company would
distribute one associated right ("Right") with each share of Common Stock
distributed. Accordingly, as of April 2, 1996 the Company adopted the
shareowner rights plan described below, entered into the Rights Agreement and
distributed to May one Right for each outstanding share of Common Stock that
May owned prior to the Distribution Date. Each share of Common Stock being
distributed by May will carry with it an associated Right which is evidenced
by the certificate representing the share. Each Right entitles the registered
owner to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), at a purchase price of $80 per one-one hundredth of a
share, subject to adjustment. The following description of the Rights is a
summary of the material terms thereof. A copy of the form of the Rights
Agreement (the "Rights Agreement"), between the Company and The Bank of New
York, as Rights Agent, is filed as an exhibit to the Registration Statement of
which this Information Statement forms a part.
Immediately following the Distribution Date, the Rights will be attached to
all outstanding shares of Common Stock and will be represented by the
certificates representing such shares until a Rights Distribution Date occurs.
No separate certificates evidencing the Rights (the "Rights Certificates")
will be distributed prior to the Rights Distribution Date. The Rights will
separate from the Common Stock and a "Rights Distribution Date" will occur
upon the earlier of (i) 10 business days following a public announcement that
a person or group of affiliated or associated persons (an "Acquiring Person")
has acquired, or obtained the right to acquire, beneficial ownership of 20% or
more of the outstanding shares of Common Stock (the "Stock Acquisition Date"),
or (ii) 10 business days (or such later date as the board of directors shall
determine) following the commencement of a tender or exchange offer that would
result in a person or group beneficially owning 20% or more of such
outstanding shares of Common Stock (the "Tender Offer Date") or (iii) 10
business days following the declaration by the board of directors that a
person has become an "Adverse Person" upon a determination that such person
has become the beneficial owner of a substantial amount of Common Stock (but
in no event less than 15% of the outstanding Common Stock) and that such
beneficial ownership is intended to cause the Company to repurchase such
Common Stock or to take action intended to provide such person with short-term
financial gain under circumstances as where the board of directors determines
that the best long-term interests of the Company would not be served or is
causing, or is reasonably likely to cause, a material adverse impact on the
business or prospects of the Company.
Until the Rights Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such
Common Stock certificates, (ii) the Common Stock certificates will contain a
notation incorporating the Rights Agreement by reference, and (iii) the
surrender for transfer of any certificates for Common Stock outstanding will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificates. Pursuant to the Rights Agreement, the
Company reserves the right to require prior to the occurrence of a Triggering
Event (as defined below) that, upon any exercise of Rights, a number of Rights
be exercised so that only whole shares of Series A Preferred Stock will be
issued (or fractions that are integral multiples of one one-hundredth of a
share).
The Rights are not exercisable until the Rights Distribution Date and will
expire at the close of business on April 30, 2006, or such later date as the
board of directors establishes under certain circumstances, unless earlier
redeemed by the Company as described below.
As soon as practicable after the Rights Distribution Date, Rights
Certificates will be mailed to owners of record of the Common Stock as of the
close of business on the Rights Distribution Date and, thereafter, the
separate Rights Certificates alone will represent the Rights. Except as
otherwise determined by the board of directors, only shares of Common Stock
outstanding prior to the Rights Distribution Date will be issued with Rights.
Each share of Series A Preferred Stock purchased upon exercise of the Rights
will be entitled to a minimum preferential quarterly dividend payment equal to
the greater of (i) $1.00 per share, and (ii) 100 times the dividend, if any,
declared per share of Common Stock. In the event of liquidation, the owners of
the Series A Preferred
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Stock will be entitled to a minimum preferential liquidation payment equal to
the greater of (a) $10 per share and (b) 100 times the payment made per share
of Common Stock. Each share of Series A Preferred Stock will have 100 votes
and will vote together with the Common Stock. In the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount per share of Common Stock received in such merger,
consolidation or other transaction. These rights are protected by customary
antidilution provisions. The shares of Series A Preferred Stock will, if
issued, be junior to any other series of Preferred Stock which may be
authorized and issued by the Company, unless the terms of any such other
series provide otherwise. Because of the nature of the Series A Preferred
Stock's dividend, liquidation and voting rights, the value of one one-
hundredth of a share of Series A Preferred Stock purchasable upon the exercise
of each Right should approximate the value of one share of Common Stock.
In the event that (i) any Person becomes the beneficial owner of 20% or more
of the then outstanding shares of Common Stock (unless such acquisition is
made pursuant to a tender or exchange offer for all outstanding shares of the
Company, upon terms and conditions determined by a majority of the Continuing
Directors (as defined below) to be in the best interest of the Company and its
shareowners (a "Qualifying Offer")) or (ii) the board of directors declares a
person to be an Adverse Person, each owner of a Right (other than an Acquiring
Person or an Adverse Person, certain related parties and transferees) will
thereafter have the right to receive, upon exercise, Common Stock (or, in
certain circumstances, cash, property or other securities of the Company),
having a value equal to two times the exercise price of the Right. For
example, at an exercise price of $50 per Right, each Right not owned by an
Acquiring Person, an Adverse Person or by certain related parties or
transferees following the event set forth above would entitle its owner to
purchase $100 worth of Common Stock (or other consideration, as noted above)
for $50. Assuming that the Common Stock had a per share market price of $10 at
such time, the owner of each valid Right would be entitled to purchase 10
shares of Common Stock for $50. The Rights are not exercisable following the
occurrence of any of the events described above until such time as the Rights
are no longer redeemable by the Company as described below. Notwithstanding
any of the foregoing, following the occurrence of any of the events set forth
in this paragraph, all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by any Acquiring
Person or Adverse Person or by certain related parties or transferees will be
null and void.
In the event that at any time following the Stock Acquisition Date, (i) the
Company is acquired in a merger or business combination transaction in which
the Company is not the surviving corporation (other than a merger consummated
pursuant to a Qualifying Offer); (ii) the Company is the surviving corporation
in a consolidation or pursuant to which all or part of the outstanding shares
of Common Stock are changed or exchanged for stock or other securities of any
other person or cash or any other property; or (iii) more than 50% of the
combined assets or earning power is sold or transferred (in each case other
than certain consolidations with, mergers with and into, or sales of assets or
earning power by or to subsidiaries of the Company as specified in the Rights
Agreement), each owner of a Right (except Rights which have previously been
voided as set forth above) shall thereafter have the right to receive, upon
exercise thereof, common stock of the acquiring company having a value equal
to two times the exercise price of the Right. The events described in this
paragraph and in the preceding paragraph are referred to as the "Triggering
Events."
In order to prevent dilution, the Purchase Price payable, the number and
kind of shares covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time (i) in the event of a stock dividend
on, or a subdivision, combination or reclassification of, the Series A
Preferred Stock, (ii) if owners of Series A Preferred Stock are granted
certain rights or warrants to subscribe for Series A Preferred Stock or
securities convertible into Series A Preferred Stock at less than the current
market price of the Series A Preferred Stock, or (iii) upon the distribution
to holders of the Series A Preferred Stock of evidences of indebtedness, cash
(excluding regular quarterly cash dividends), assets (other than dividends
payable in Series A Preferred Stock) or subscription rights or warrants (other
than those referred in (ii) immediately above).
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares of Series A Preferred Stock are required to be
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issued (other than fractions which are integral multiples of one one-hundredth
of a share of Series A Preferred Stock) and, in lieu thereof, the Company may
make an adjustment in cash based on the market price of the Series A Preferred
Stock on the trading day prior to the date of exercise.
At any time until 10 business days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01
per Right (payable in cash, shares of Common Stock or other consideration
deemed appropriate by the board of directors). The Company may not redeem the
Rights if the board of directors has previously determined a person to be an
Adverse Person. Immediately upon the action of the board of directors ordering
redemption of the Rights, the Rights will terminate and the only right of the
owners of Rights will be to receive the $.01 redemption price.
For purposes of the Rights Agreement, the term "Continuing Director" means
any member of the board of directors of the Company who was a member of the
board on the Distribution Date, and any person who is subsequently elected to
the board if such person is recommended or approved by a majority of the
Continuing Directors, but shall not include an Acquiring Person, an Adverse
Person or an affiliate or associate of an Acquiring Person, or Adverse Person
or any representative of the foregoing entities.
Until a Right is exercised, the owner thereof, as such, will have no rights
as a shareowner of the Company, including, without limitation, the right to
vote or to receive dividends.
Any of the provisions of the Rights Agreement may be amended by the board of
directors of the Company prior to the Rights Distribution Date, other than the
redemption price and the number of one-hundredths of a share of Series A
Preferred Stock for which a right is exercisable, and the Purchase Price may
not be reduced. After the Rights Distribution Date, the provisions of the
Rights Agreement may be amended by the board in order to cure any ambiguity,
to make changes which do not adversely affect the interests of owner of Rights
(excluding the interests of any Acquiring Person or Adverse Person) or to
shorten or lengthen any time period under the Rights Agreement, except that no
amendment to adjust the time period governing redemption may be made at such
time as the Rights are not redeemable. The Final Expiration Date (as defined
in the Rights Agreement) may be extended and the Purchase Price may be
increased at any time prior to a Stock Acquisition Date, a Tender Offer Date
or upon the determination of the board of directors that a person has become
an Adverse Person.
The Rights have certain anti-takeover effects. They may reduce or eliminate
(i) "two-tiered" or other partial offers which do not offer fair value for all
of the Common Stock; (ii) the accumulation by a third party of 20% or more of
the Common Stock in open-market or private purchases in order to influence or
control the business and affairs of the Company without paying an appropriate
premium for a controlling position in the Company; and (iii) the accumulation
of shares of Common Stock by third parties in market transactions for the
primary purpose of attempting to cause the Company to be sold. In addition,
the Rights will cause substantial dilution to a person or group that attempts
to acquire the Company in a manner defined as a Triggering Event unless the
offer is conditioned on a substantial number of Rights being acquired. The
Rights should not, however, affect any prospective offeror willing to make an
offer for all outstanding shares of Common Stock and other voting securities
at a price and on terms which are in the best interests of the Company and its
shareowners as determined by the board of directors or affect any prospective
offeror willing to negotiate with the board of directors because as part of
any negotiated transaction the Rights would either be redeemed or otherwise
made inapplicable to the transaction. The Rights should not interfere with any
merger or other business combination approved by the board of directors since
the board of directors may, at its option, at any time until ten business days
following a Stock Acquisition Date, redeem all, but not less than all, of the
then outstanding Rights at the $.01 redemption price.
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COMPARISON OF RIGHTS OF SHAREOWNERS OF MAY AND THE COMPANY
The following is a summary of certain of the material differences between
the rights of shareowners of May and the rights of shareowners of the Company.
The rights of the shareowners of Common Stock will be governed by the
corporate laws of the State of Missouri rather than the State of New York
(which is currently the jurisdiction of incorporation of May), the Payless
Charter and the Payless Bylaws. The rights of the shareowners of May common
stock will be governed by the corporate laws of the State of New York, the
Restated Certificate of Incorporation of May (the "May Charter") and the
Bylaws of May (the "May Bylaws"). The following discussion is intended only to
highlight certain material differences between the rights of shareowners of
May and the rights of shareowners of the Company. This discussion does not
purport to constitute a detailed comparison of the provisions of the New York
Business Corporation Law (the "NYBCL") or the GBCL or of the charters or the
bylaws of the two companies.
AMENDMENTS TO ARTICLES OF INCORPORATION
May. Under the NYBCL, an amendment or change to the certificate of
incorporation must be authorized by a vote of the board of directors, followed
by a vote of the owners of a majority of all outstanding shares entitled to
vote thereon at a meeting of shareowners (except in certain limited
circumstances), unless the certificate provides for a higher vote. When an
amendment of the certificate would affect certain substantial rights of the
holders of a class of stock, the NYBCL provides that the enactment of the
amendment requires the approval of a majority of the outstanding shares of the
affected class voting as a separate class in addition to a majority of all
outstanding voting shares. If only one or more series of any class, but not
the entire class, are adversely affected by a proposed amendment, then only
the holders of each series whose rights would be adversely affected shall be
entitled to participate in the vote as a separate class.
Payless. Under the GBCL, amendments to a corporation's articles of
incorporation need not be approved by the board of directors but may be
submitted for approval of not less than a majority of outstanding shares
entitled to vote thereon; provided, however, that an amendment which provides
that Missouri's control share acquisition statute (as discussed below), does
not apply to "control share acquisitions" of shares of a corporation may only
be adopted by the vote of two-thirds of all outstanding shares entitled to
vote upon such amendment. The Payless Charter provides that any charter
amendment which is not approved by the affirmative vote of a majority of the
entire board of directors must be approved by the affirmative vote of at least
two-thirds of the outstanding shares of Common Stock.
AMENDMENTS TO BYLAWS
May. Under the NYBCL, bylaws may be adopted, amended or repealed by a
majority vote of all shareowners entitled to vote in the election of
directors. When provided either by the certificate of incorporation or by a
bylaw adopted by the shareowners, the board of directors may also adopt, amend
or repeal bylaws but any bylaw adopted by the board may be amended or repealed
by the shareowners. The May Bylaws provide that the Bylaws may be amended or
added to by a vote of two-thirds of all the directors of May.
Payless. Under the GBCL, the bylaws of a corporation may be made, altered,
amended or repealed by the shareholders, unless and to the extent that such
power may be vested in the board of directors by the articles of
incorporation. The Payless Charter provides that only the board of directors
is authorized to adopt new Bylaws or to make, amend, alter or rescind the
Bylaws of the Company, and a vote of two-thirds of the entire board of
directors constitutes the act of the board.
ELECTION OF DIRECTORS; REMOVAL OF DIRECTORS
May. Under the NYBCL, cumulative voting in the election of directors is only
available if specifically provided for in the certificate of incorporation.
The May Charter does not provide for cumulative voting in the election of
directors. The May Charter provides that the number of directors will be not
less than three nor more than 21 with the exact number to be fixed by the
Bylaws. The May Bylaws fix the number of directors at 13. The May Charter also
provides for a classified board of directors. Under the NYBCL, any or all
directors may be removed for cause by a vote of the shareowners and if the
certificate of incorporation or the bylaws so provide
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a director may be removed without cause by shareowner vote. Neither the May
Charter nor the May Bylaws provides for removal without cause.
Payless. Under the GBCL, cumulative voting is required for the election of
directors unless the articles of incorporation or the bylaws provide
otherwise. The Payless Charter eliminates cumulative voting rights. The
Payless Charter provides that the number of directors will be not less than
three nor more than 15, with the exact number to be determined by a majority
of the entire board of directors. Payless anticipates that as of the
Distribution Date the board will consist of six persons. The Payless Charter
also provides for a classified board of directors. Under the GBCL, unless the
articles of incorporation or the bylaws provide otherwise, any or all
directors may be removed, with or without cause, by a vote of the owners of at
least a majority of the voting power of the shares then entitled to vote at an
election of directors. The Payless Charter provides that the directors of the
Company may be removed only for cause and only by the affirmative vote of two-
thirds of the outstanding shares of the Company.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
May. Under the NYBCL, newly created directorships and vacancies occurring
for any reason other than removal without cause may be filled by a vote of the
board of directors, unless the corporation's certificate of incorporation or
bylaws require that the shareholders fill such newly created directorships or
vacancies. Unless the certificate of incorporation or a bylaw adopted by the
shareowners provides otherwise, vacancies occurring in the board of directors
through removal of directors without cause may only be filled by a vote of
shareowners. Neither the May Charter nor the May Bylaws provides for removal
of directors without cause.
Payless. Under the GBCL, vacancies on the board of directors may be filled
by the board of directors, unless the articles of incorporation or bylaws
provide otherwise. The GBCL does not contain a provision similar to that in
New York providing that a vacancy occurring through the removal of directors
without cause may only be filled by a shareowner vote.
APPROVAL OF CERTAIN BUSINESS TRANSACTIONS
May. The NYBCL provides that unless a greater vote is provided for in the
certificate of incorporation, the affirmative vote of two-thirds of all
outstanding shares entitled to vote thereon is required to effect a merger, a
consolidation, a share exchange or the sale, lease or disposition of all or
substantially all of a corporation's assets. The May Charter does not provide
for a greater supermajority vote. The NYBCL also provides that notwithstanding
any provision in the certificate of incorporation, the owners of shares of a
class or series are entitled to vote as a class if a proposed merger or
consolidation contains any provision which, if contained in an amendment to
the certificate of incorporation, would entitle the owner of shares of such
class or series to vote as a class thereon; in such a case, in addition to the
required two-thirds vote of all outstanding shares, the merger or
consolidation must be authorized by a vote of the owners of a majority of all
outstanding shares of each such class or series. Notwithstanding shareholder
approval, the board may abandon the proposed sale, lease, exchange or other
disposition without further action by the shareholders, subject to the rights,
if any, of third parties under any contract relating thereto.
Payless. For mergers, consolidations and transactions involving a sale,
lease or exchange or other disposition of all or substantially all of a
corporation's assets, the GBCL requires the affirmative vote of at least two-
thirds of the outstanding shares entitled to vote thereon. The GBCL permits a
corporation to require a greater vote in either its articles of incorporation
or its bylaws. Neither the Payless Charter nor the Payless Bylaws provides for
a greater supermajority vote. The GBCL does not have a class vote provision
for mergers and consolidations similar to the New York requirement described
above.
SPECIAL MEETINGS
May. Under the NYBCL, special meetings of shareowners may be called by the
board of directors and by such other person or persons authorized to do so by
the corporation's certificate of incorporation or bylaws. The May Bylaws
provide that only the board of directors may call special shareowner meetings.
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Payless. The GBCL contains a provision similar to that in the NYBCL. The
Payless Bylaws provide that special meetings may be called at any time by the
board of directors, the Chairman of the board of directors or the President of
the Company.
SHAREOWNERS' ACTION WITHOUT A MEETING
May. The NYBCL provides that shareowners may take any action without a
meeting by written consent only if such consent is signed by the owners of all
outstanding shares entitled to vote thereon, unless a lesser number is
provided in the certificate of incorporation. The May Charter does not provide
otherwise.
Payless. The GBCL also requires unanimous written consent for shareowner
action without a meeting. However, unlike the NYBCL, the articles of
incorporation may not provide otherwise.
PREEMPTIVE RIGHTS OF SHAREOWNERS
May. Unless the certificate of incorporation provides otherwise, the NYBCL
provides for preemptive rights where an issuance of securities would adversely
affect the dividend or voting rights of owners of equity shares. In addition,
unless otherwise provided in the certificate of incorporation, the NYBCL
provides that shares issued in certain transactions, such as mergers or
consolidations or offerings for consideration other than cash, shall not be
subject to preemptive rights. The May Charter eliminates preemptive rights.
Payless. The GBCL provides preemptive rights to shareowners to acquire
additional shares of a corporation unless such rights are limited or denied in
the articles of incorporation. The Payless Charter eliminates preemptive
rights.
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES TO DIRECTORS, OFFICERS AND
EMPLOYEES
May. The NYBCL requires the affirmative vote of a majority of the shares
entitled to vote in order to issue to officers, directors or employees, rights
or options to purchase stock.
Payless. The GBCL does not require shareowner approval of such transactions.
Payless is subject to the rules of the NYSE which require shareowner approval
of Payless' option plans and grants thereunder in certain instances.
LOANS TO DIRECTORS
May. Under the NYBCL, any loan made by the corporation to any director must
be authorized by a vote of the shareowners. For purposes of this
authorization, the shares held by the director who would be the borrower are
not entitled to vote.
Payless. The GBCL does not include such a provision.
LIMITATIONS ON DIRECTORS' LIABILITY
May. The NYBCL permits a corporation to limit or eliminate a director's
personal liability to the corporation or the owners of its capital stock for
breach of duty. This limitation is generally unavailable for acts or omissions
by a director which were (i) in bad faith, (ii) involved international
misconduct or a knowing violation of law or (iii) involved a financial profit
or other advantage to which such director was not legally entitled. The NYBCL
also prohibits limitations on director liability for acts or omissions which
resulted in a violation of a statute prohibiting certain dividend
declarations, certain payments to shareowners after dissolution and particular
types of loans. The May Charter does not include a provision eliminating the
directors' personal liability.
Payless. The GBCL does not contain similar express provisions that permit a
corporation to eliminate or limit the personal liability of a corporation's
directors to the corporation and its shareowners for monetary damages for such
directors' breach of their fiduciary duty.
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INSPECTION OF SHAREOWNER LIST
May. With respect to the inspection of the shareowner list, the NYBCL
provides a right of inspection on at least five days' written demand (i) to
any person who shall have been a shareowner for at least six months
immediately preceding the demand or (ii) any person owning, or authorized in
writing by, at least five percent (5%) of any class of outstanding shares.
Payless. The GBCL provides that each shareowner may have access to the books
of the company and under such regulations as may be prescribed by the bylaws.
ANTI-TAKEOVER STATUTES
May. The NYBCL prohibits any "business combination" (as defined therein)
between a "resident domestic corporation" and an "interested shareowner" for
five years after the date that the interested shareowner became an interested
shareowner unless prior to that date the board of directors of the domestic
corporation approved the business combination or the transaction that resulted
in the interested shareowner becoming an interested shareowner. After five
years, such a business combination is permitted only if (i) it is approved by
a majority of the shares not owned by, or by an affiliate of, the interested
shareowner or (ii) certain statutory fair price requirements are met. A
"resident domestic corporation" is defined as any corporation that (i) is
incorporated in New York, and (ii) has its principal executive offices and
significant business operations in New York or has a least 250 or 25% of its
employees in New York (including employees of its 80% subsidiaries), and (iii)
has at least 10% of its stock beneficially owned by New York residents. An
"interested shareowner" is any person who beneficially owns, directly or
indirectly, 20% or more of the outstanding voting stock of the corporation.
The NYBCL does not contain a control share acquisition provision similar to
that provided under the GBCL.
Payless. The GBCL includes provisions governing "business combinations"
similar to the ones contained in the NYBCL. The only significant difference
relates to the definition of a "resident domestic corporation." Under the
GBCL, a "resident domestic corporation" is defined as any corporation that has
(i) 100 or more shareowners; (ii) its principal place of business, its
principal office, or substantial assets within Missouri; and (iii) either (a)
more than ten percent (10%) of its shareowners resident in Missouri; (b) more
than ten percent (10%) of its shares owned by Missouri residents; or (c)
10,000 shareowners resident in Missouri. The Payless Charter includes
provisions regulating "business combinations" with "interested shareholders"
which are substantially identical to those contained in the GBCL.
The GBCL also contains a "control share acquisition statute" which provides
that an "acquiring person" who after any acquisition of shares of a publicly
traded corporation has the voting power, when added to all shares of the same
corporation previously owned or controlled by the acquiring person, to
exercise or direct the exercise of: (i) 20% but less than 33 1/3%, (ii) 33
1/3% or more but less than a majority or (iii) a majority, of the voting power
of outstanding stock of such corporation, must obtain shareowner approval for
the purchase of the "control shares." The statute prohibits an acquiring
person from voting its shares unless certain disclosure requirements are met
and the retention or restoration of voting rights if approved by both: (i) a
majority of the outstanding voting stock, and (ii) a majority of the
outstanding voting stock after exclusion of "interested shares." "Interested
shares" are defined as shares owned by the acquiring person, by directors who
are also employees, and by officers of the corporation. Shareowners are given
dissenters' rights with respect to the vote on control share acquisitions and
may demand payment of the fair value of their shares.
A number of acquisitions of shares are deemed not to constitute control
share acquisitions, including good faith gifts, transfers pursuant to wills,
purchases pursuant to an issuance by the corporation, mergers involving the
corporation which satisfy the other requirements of the GBCL, transactions
with a person who owned a majority of the voting power of the corporation
within the prior year or purchases from a person who has previously satisfied
the provisions of the control share acquisition statute so long as the
transaction does not result
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in the purchasing party having voting power after the purchase in one of the
percentage ranges beyond the range for which the selling party previously
satisfied the provisions of the statute. Additionally, a corporation may
exempt itself from application of the statute by an amendment to its articles
of incorporation or bylaws expressly electing not to be covered by the
statute. Neither the Payless' Charter nor Bylaws includes such an election.
ANTI-GREENMAIL PROVISION
May. The NYBCL provides that no domestic corporation may purchase more than
ten percent (10%) of its stock from a shareowner who has held the shares for
less than two years at any price which is higher than the market price unless
such transaction is approved by both the corporation's board of directors and
a majority of the shares entitled to vote or the corporation offers to
purchase shares from all the owners on the same terms.
Payless. The GBCL does not include a similar provision.
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
May is engaged primarily in the department store business. The Company is
engaged in the self-service, affordably priced, family shoe business. The
board of directors and management of May believe that today's business
environment requires management to focus on a single retail segment. In recent
years, May has undertaken a program to strengthen its competitive position in
its core department store business by concentrating May's management and
financial resources on the department store business. Over the years, May has
implemented several strategic elements of this plan, including (i) increasing
its internal investments in the department store business, (ii) acquiring
other department store businesses and department store assets and (iii)
disposing of many of its other lines of business, including its shopping
center business, its catalog showroom business and its discount department
store business. In addition, May believes that the Company must implement a
more effective incentive and benefit program designed to better attract,
retain and motivate its associates by offering economic rewards tied more
directly to the performance of the Company than the incentive arrangements
that are currently in effect.
Currently, May's outstanding common stock is widely held and publicly
traded. Each of May's shareowners owns less than 5% of May's outstanding
common stock, except for the May Plan, which owns approximately [ ]% of the
common stock and the Oppenheimer Group, Inc., which owns or controls
approximately 5.4% of the outstanding May common stock. Consequently, the
value of May's equity is determined in the public market, based on the
performance of May, as a whole. Since May is engaged primarily in the
department store business,
the value of May's equity primarily reflects the market's view of the
performance of May's department store business and does not adequately reflect
the performance of the Company.
Distributing the shares of Common Stock to the shareowners of May will
permit the creation of (i) a separate profit sharing plan that will be funded
based on the Company's performance and offer associates the opportunity to
invest in Common Stock and (ii) a separate stock incentive plan under which
--stock options may be granted (permitting the Company's executives to buy
Common Stock),
--shares of restricted Common Stock of the Company may be issued to the
Company's senior executives, and
--performance units may be credited to the accounts of the Company's senior
executives,
all of which will provide employees of the Company and its subsidiaries with
equity incentives directly linked to the performance of the Company and its
stock, rather than to the performance of May's department store business with
which they are not involved. These incentive plans will help the Company to
better attract, retain and motivate its management.
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MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution have been set
forth in the Distribution Agreement. May will effect the Distribution on the
Distribution Date by providing for the delivery of the shares of Common Stock
to the Distribution Agent for distribution to the owners of record of May
common stock on the Record Date. The Distribution will be made on the basis of
.16 share of Common Stock for every share of May common stock (16 shares of
Common Stock for each 100 shares of May common stock) outstanding on the
Record Date. The actual total number of shares of Common Stock to be
distributed will depend on the number of shares of May common stock
outstanding on the Record Date. The shares of Common Stock will be fully paid
and nonassessable, and the owners thereof will not be entitled to preemptive
rights. See "DESCRIPTION OF CAPITAL STOCK." The Distribution will be effective
on May [ ], 1996. Certificates representing the shares of Common Stock will
be mailed to May shareowners on or about May [ ], 1996.
No certificates or scrip representing fractional shares of Common Stock will
be issued to May shareowners as part of the Distribution. The Distribution
Agent will aggregate fractional shares into whole shares and sell them in the
open market at then prevailing prices on behalf of owners who otherwise would
be entitled to receive fractional share interests, and such persons will
receive instead a cash payment in the amount of their pro rata share of the
total proceeds, net of selling expenses. See "THE DISTRIBUTION--Federal Income
Tax Consequences of the Distribution." Such sales are expected to be made as
soon as practicable after the Record Date. NONE OF MAY, THE COMPANY OR THE
DISTRIBUTION AGENT WILL GUARANTEE ANY MINIMUM SALE PRICE FOR THE SHARES OF
COMMON STOCK, AND NO INTEREST WILL BE PAID ON THE PROCEEDS.
After the Distribution, owners of May common stock will continue to own
their shares of May common stock and, if such shareowners were shareowners of
record on the Record Date, they will have also received shares of Common
Stock. No owner of May common stock will be required to pay any cash or other
consideration for the shares of Common Stock received in the Distribution or
to surrender or exchange shares of May common stock in order to receive shares
of Common Stock. The Distribution will not affect the number of, or the Rights
attached to, outstanding shares of May common stock.
After the Distribution, May will own no shares of Common Stock and the
Company will operate as an independent, publicly owned corporation.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
May will receive a tax opinion from its counsel, Skadden, Arps, Slate,
Meagher & Flom, concluding that the Distribution will qualify as a tax-free
transaction under Section 355 of the Code. Such opinion, however, is not
binding on the Service or a court. Accordingly, there can be no assurance that
the Service will not challenge such conclusion or that a court will not
sustain such challenge.
CONSEQUENCES OF QUALIFICATION AS A TAX-FREE DISTRIBUTION. The following is a
summary of the material Federal income tax consequences of the Distribution
assuming that it qualifies as a tax-free transaction:
(1) Pursuant to Section 355 of the Code, May shareowners will not
recognize any income, gain or loss upon the receipt of the shares of Common
Stock (except in connection with cash received in lieu of fractional
shares) pursuant to the Distribution. A May shareowner who receives cash in
lieu of fractional shares as a result of the sale of such shares by the
Distribution Agent will be treated as if such fractional shares have been
received by the May shareowner as part of the Distribution and then sold by
such shareowner. Accordingly, such shareowner will recognize gain or loss
equal to the difference between the amount of cash so received and the
amount of tax basis allocable (as described below) to such fractional
shares. Such gain or loss will be capital gain or loss, provided that such
fractional shares would have been held by such shareowner as a capital
asset at the time of the Distribution.
(2) A May shareowner's tax basis for the May common stock with respect to
which shares of Common Stock are received will be apportioned between such
May shares and such shares of Common Stock (including any fractional
shares) in proportion to the fair market values of each on the date the
shares of
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Common Stock are distributed to the May shareowners. Such allocation must
be calculated separately for each block of May shares (shares purchased at
the same time and at the same cost) with respect to which the shares of
Common Stock are received. The holding period for the shares of Common
Stock received in the Distribution will include the period during which
such May shares were held (provided that such May shares were held as a
capital asset at the time of the Distribution).
(3) Neither May nor the Company will recognize any income, gain or loss
as a result of the Distribution.
Treasury regulations governing Section 355 of the Code require that each May
shareowner who receives shares of Common Stock pursuant to the Distribution
attach a statement to the Federal income tax return that will be filed by the
shareowner for the taxable year in which such shareowner receives the shares
in the Distribution, which statement shows the applicability of Section 355 of
the Code to the Distribution. May will provide each May shareowner with
information necessary to comply with this requirement.
CONSEQUENCES OF FAILURE TO QUALIFY AS A TAX-FREE DISTRIBUTION. May does not
intend to seek a ruling from the Service as to the Federal income tax
treatment of the Distribution. Rather, as stated above, May has received an
opinion from its counsel, Skadden, Arps, Slate, Meagher & Flom, that the
Distribution will qualify as a tax-free transaction under Section 355 of the
Code. If the Service were to challenge such treatment successfully and a court
were ultimately to hold that the Distribution failed to qualify as a tax-free
transaction under Section 355 of the Code, the following Federal income tax
consequences would result:
Each May shareowner would be considered to have received a taxable dividend
includable in income in an amount equal to the fair market value on the
Distribution Date of the shares received in the Distribution plus the amount
of any cash received in lieu of fractional shares. In general, if certain
conditions are met, any amount received by a corporate owner of May common
stock that is treated as a dividend would be eligible for the dividends-
received deduction.
In addition, a shareowner's basis in the shares of Common Stock received in
the Distribution would equal the fair market value of the shares on the date
the shares of Common Stock are distributed to the May shareowner, and the
shareowner's holding period for the shares will begin on the date after the
date of the Distribution. In such event, a May shareowner's basis and holding
period for the May common stock would not be affected by the Distribution.
If the Distribution is considered a taxable transaction, May would recognize
gain, but not loss, in the amount equal to the difference between the fair
market value of the shares of Common Stock distributed and May's basis in the
shares. Pursuant to the Tax Sharing Agreement, if the Distribution fails to
qualify as a tax-free distribution under certain circumstances for which the
Company is responsible, the Company is obligated to indemnify and hold May
harmless, on an after-tax basis, from any tax liability imposed upon it in
connection with the Distribution, which liability would be material to the
Company. See "TRANSACTIONS BETWEEN THE COMPANY AND MAY--Tax Sharing
Agreement."
ALL SHAREOWNERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
LISTING AND TRADING OF THE SHARES OF COMMON STOCK
The Common Stock has been approved for listing on the NYSE, subject to
official notice of issuance, under the symbol "PSS." The Company expects that
initially it will have approximately 43,000 owners of record of the shares of
Common Stock, based on the number of shareowners of record of May on April
, 1996.
A "when-issued" trading market is expected to develop shortly before the
Record Date. The term "when-issued" means that shares can be traded prior to
the time certificates are actually available or issued. Prices at which the
shares of Common Stock may trade on a "when-issued" basis or after the
Distribution cannot be predicted. See "CERTAIN CONSIDERATIONS--Absence of
Prior Trading Market for the Common Stock."
58
<PAGE>
The shares of Common Stock distributed to May shareowners will be freely
transferable, except for shares received by persons who may be deemed to be
"affiliates" of the Company under the Securities Act of 1933, as amended (the
"Securities Act"). Persons who may be deemed to be affiliates of the Company
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with, the Company and may
include the directors and principal executive officers of the Company as well
as any principal shareowner of the Company. Persons who are affiliates of the
Company will be permitted to sell their shares of Common Stock only pursuant
to an effective registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act, such as
the exemption afforded by Rule 144 thereunder.
INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors of the Company expects to appoint Arthur Andersen LLP
as the Company's independent public accountants to audit the Company's
financial statements for the fiscal year 1996. Arthur Andersen LLP has served
as May's independent public accountants throughout the periods covered by the
financial statements included in this Information Statement.
59
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Statement of Earnings for the Fiscal Years 1995, 1994 and
1993...................................................................... F-3
Consolidated Balance Sheet as of February 3, 1996 and January 28, 1995..... F-4
Consolidated Statement of Cash Flows for the Fiscal Years 1995, 1994 and
1993...................................................................... F-5
Notes to Consolidated Financial Statements................................. F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareowners of
The May Department Stores Company:
We have audited the accompanying consolidated balance sheet of Payless
ShoeSource, Inc. (a Missouri corporation) and subsidiaries as of February 3,
1996, and January 28, 1995, and the related consolidated statements of
earnings and cash flows for each of the three fiscal years in the period ended
February 3, 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Payless ShoeSource, Inc.
and subsidiaries as of February 3, 1996, and January 28, 1995, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended February 3, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Kansas City, Missouri
February 19, 1996
F-2
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
1995* 1994 1993
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
NET RETAIL SALES..................................... $2,330.3 $2,116.4 $1,966.5
-------- -------- --------
Cost of sales........................................ 1,688.7 1,489.8 1,366.1
Selling, general and administrative expenses......... 479.9 408.4 378.7
Interest expense, net................................ 1.0 1.1 0.9
Special and nonrecurring items....................... 71.8 -- --
-------- -------- --------
Total cost of sales and expenses..................... 2,241.4 1,899.3 1,745.7
-------- -------- --------
Earnings before income taxes......................... 88.9 217.1 220.8
Provision for income taxes........................... 34.9 85.6 88.0
-------- -------- --------
NET EARNINGS......................................... $ 54.0 $ 131.5 $ 132.8
======== ======== ========
</TABLE>
- --------
*1995 contains 53 weeks.
See the Notes to Consolidated Financial Statements.
F-3
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
(MILLIONS)
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................. $ 4.6 $ 6.6
Accounts receivable, net.............................. 4.4 4.6
Merchandise inventories............................... 398.0 393.9
Other current assets.................................. 43.9 20.4
-------- --------
Total Current Assets.................................... 450.9 425.5
Property and Equipment:
Land.................................................. 6.5 7.7
Buildings and leasehold improvements.................. 564.6 550.2
Furniture, fixtures and equipment..................... 278.7 271.0
Property under capital leases......................... 18.7 20.9
-------- --------
Total property and equipment.......................... 868.5 849.8
Accumulated depreciation and amortization............. (308.5) (259.2)
-------- --------
Property and equipment, net........................... 560.0 590.6
Goodwill................................................ 2.9 2.9
Other Assets............................................ 0.5 0.8
-------- --------
Total Assets............................................ $1,014.3 $1,019.8
======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Current maturities of capital lease obligations....... $ 1.2 $ 1.5
Accounts payable...................................... 65.0 101.5
Accrued expenses...................................... 152.7 79.7
-------- --------
Total Current Liabilities............................... 218.9 182.7
Capital Lease Obligations............................... 10.3 11.6
Deferred Income Taxes................................... 8.9 9.2
Other Liabilities....................................... 23.3 22.4
Equity:
May equity investment................................. 752.9 793.9
-------- --------
Total Liabilities and Equity............................ $1,014.3 $1,019.8
======== ========
</TABLE>
See the Notes to Consolidated Financial Statements.
F-4
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
(MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings............................................. $54.0 $131.5 $132.8
Adjustments for noncash items included in earnings:
Depreciation and amortization.......................... 95.3 77.0 67.0
Deferred income taxes (noncurrent)..................... (0.3) 11.7 (1.4)
Special and nonrecurring charges....................... 71.8 -- --
Tax benefit on special and nonrecurring charges........ (28.2) -- --
Accounts receivable, net................................. 0.2 (0.6) (1.3)
Merchandise inventories.................................. (4.1) (20.4) (58.1)
Other current assets..................................... 4.7 (6.9) 0.5
Accounts payable......................................... (36.5) 11.1 25.5
Accrued expenses......................................... 1.2 26.4 (7.6)
Other assets and liabilities, net........................ 1.2 4.3 10.5
----- ------ ------
Total Operating Activities............................... 159.3 234.1 167.9
----- ------ ------
INVESTING ACTIVITIES:
Capital expenditures..................................... (95.4) (255.2) (139.8)
Disposition of property and equipment.................... 30.7 21.5 23.0
Other.................................................... -- (1.3) --
----- ------ ------
Total Investing Activities............................... (64.7) (235.0) (116.8)
----- ------ ------
FINANCING ACTIVITIES
Repayment of capital lease obligations................... (1.6) (1.4) (1.7)
Net transactions with May................................ (95.0) 1.4 (42.9)
----- ------ ------
Total Financing Activities............................... (96.6) -- (44.6)
----- ------ ------
INCREASE (DECREASE) IN CASH ............................. (2.0) (0.9) 6.5
CASH, BEGINNING OF YEAR.................................. 6.6 7.5 1.0
----- ------ ------
CASH, END OF YEAR........................................ $ 4.6 $ 6.6 $ 7.5
===== ====== ======
Cash paid during the year:
Interest............................................... $ 1.0 $ 1.2 $ 1.2
Income taxes........................................... -- -- --
</TABLE>
See the Notes to Consolidated Financial Statements.
F-5
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Description of Business and Basis of Presentation. Payless ShoeSource, Inc.
("Company"), a Missouri corporation, was founded in 1956. The Company is the
largest footwear retailer in the United States. The Company operated as of
February 3, 1996, 4,549 self-service, affordably priced, family shoe stores,
of which 773 include Payless Kids expansions. The Company's stores are located
in 49 states, the District of Columbia, Puerto Rico and the United States
Virgin Islands. The Company utilizes a network of vendors and factories in 13
foreign countries and the United States to source its products which are
manufactured to meet the Company's demanding specifications and standards.
Factories in the People's Republic of China have been a source of
approximately 80% of the Company's merchandise.
On January 17, 1996, May announced that it anticipates distributing the
Company's outstanding shares of common stock (the "Common Stock") to
shareowners of May common stock ("the Distribution"). Upon consummation of the
Distribution, the Company will become independent of May. The consolidated
financial statements include the accounts of the Company and all wholly owned
subsidiaries.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts. While the financial statements
reflect all available information and management's judgement and estimates of
current conditions and circumstances, prepared with the assistance of
specialists within and outside the Company, actual results could differ from
those estimates. All dollar amounts in these notes are stated in millions,
unless otherwise noted.
Fiscal Year. The Company's fiscal year ends on the Saturday closest to
January 31. Fiscal year 1995 ended on February 3, 1996 and included 53 weeks.
Fiscal years 1994 and 1993 ended on January 28, 1995, and January 29, 1994,
respectively, and both included 52 weeks. References to years in these
financial statements and notes relate to fiscal years rather than calendar
years.
Net Retail Sales. Net retail sales (sales) represent the sales of all stores
operated during the period, are net of returns and exclude sales tax.
Cost of Sales. Cost of sales includes the cost of merchandise sold and
buying and occupancy costs.
Advertising Costs. Advertising costs are expensed at the time the
advertising takes place. Included in selling, general and administrative
expenses were advertising and sales promotion costs of $60.6, $53.4, and $46.3
in 1995, 1994 and 1993, respectively. Other current assets included $0.6 and
$0.6 in 1995 and 1994, respectively, for prepaid advertising and sales
promotion costs.
Income Taxes. The Company is included in a consolidated tax return filed by
May for Federal tax purposes. Income taxes as shown in the consolidated
statement of earnings represent the provision calculated on a separate return
basis. Effective with the beginning of 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
The cumulative effect of adopting SFAS No. 109 was insignificant and,
therefore, no adjustments were reflected in the financial statements. SFAS No.
109 requires income taxes to be accounted for using a balance sheet approach
known as the liability method. The liability method accounts for deferred
income taxes by applying statutory tax rates in effect at the date of the
balance sheet to differences between the book and tax basis of assets and
liabilities. Adjustments to deferred taxes resulting from statutory rate
changes flow through the tax provision in the year of the change.
Accounts Receivable. Sales are made for cash or third party credit and
therefore no customer trade receivables exist. Accounts receivable represents
amounts due for damage claims, wholesale of shoes to liquidators, and sublease
rentals. Accounts receivable is shown net of a collectibility allowance of
$0.7 and $0.5, in 1995 and 1994, respectively.
F-6
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Merchandise Inventories. Merchandise inventories are valued by the retail
method and are stated on the lower of cost or market basis.
Property and Equipment. Property and equipment are recorded at cost.
Property and equipment are depreciated on a straight-line basis over their
estimated useful lives. Investments in properties under capital leases and
leasehold improvements are amortized over the shorter of their useful lives or
their related lease terms.
Goodwill. Goodwill represents the excess of cost over the fair value of net
tangible assets at the dates of acquisition. Substantially all amounts are
amortized using the straight-line method over a 40-year period. Goodwill is
presented net of accumulated amortization of $1.7 and $1.6 in 1995 and 1994,
respectively.
Derivatives Policy. The Company's policy is to use financial derivatives
only to reduce risk in conjunction with specific business transactions. Gains
and losses related to hedges of firm commitments or anticipated transactions
are deferred and recognized in operating results or included in balance sheet
amounts when the transaction occurs. The effect of these activities is not
material to the Company's financial condition or results of operation.
2. RELATIONSHIP WITH PARENT.
May has provided services to the Company, including legal, benefit
administration, risk management and insurance, income and payroll tax
management and treasury services. These financial statements include specific
charges from May for legal and risk management and insurance services based
upon utilization and are representative of May's actual cost. These charges
were $4.2, $3.6 and $3.1 in fiscal years 1995, 1994 and 1993, respectively.
These costs could have been different had the Company operated as an
independent company during these periods.
May has allocated common expenses to the Company on an incremental basis. As
such, these financial statements do not include general corporate overhead
allocations for benefit administration, income and payroll tax management and
treasury services. The Company believes that the incremental allocation
approach is reasonable, however these financial statements may not be
indicative of the cost structure had the Company operated as an independent
company during these periods.
Historically, cash collected by the Company in excess of store operating
needs was transferred to May on a daily basis and all of the Company's cash
requirements were funded by May. The cumulative net impact of these cash
transfers and other intercompany transactions have historically been recorded
as an intercompany payable to May. Intercompany transactions include amounts
paid by May for Federal, state and local income taxes, payroll taxes and
worker's compensation and general liability claims. Accordingly, these
financial statements may not be indicative of the debt or investment structure
and related interest expense or income that might have resulted had the
Company operated as an independent company.
All intercompany debt owed to May was contributed to May equity investment
as of February 3, 1996, and therefore, has been deemed to be part of the May
equity investment in all periods presented. No interest expense has been
charged to the Company relating to the intercompany debt balances since May
does not carry any debt that is specifically related to the Company.
The Company will continue to use May to process and settle the worker's
compensation and general liability claims incurred prior to the Distribution
in accordance with various agreements. The charges for these services will
approximate May's cost of providing the services.
3. SPECIAL AND NONRECURRING ITEMS.
During the 1995 fourth quarter, in connection with the Distribution, the
Company committed to close or relocate approximately 450 unprofitable stores.
In addition, the Company implemented a plan to reduce central office overhead
by means of census reduction. A pretax special and nonrecurring charge of
$71.8 was recorded for these initiatives.
F-7
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The special and nonrecurring charge is comprised of the following:
<TABLE>
<CAPTION>
NON-
CASH CASH TOTAL
----- ----- -----
<S> <C> <C> <C>
Property and equipment write-off and other store closing
costs....................................................... $38.2 $29.9 $68.1
Employee severance costs..................................... 3.7 -- 3.7
----- ----- -----
Total...................................................... $41.9 $29.9 $71.8
===== ===== =====
</TABLE>
The non-cash expenses represent the write-off of leasehold improvements,
fixtures and equipment upon store closing or relocation. Management
anticipates that the special and nonrecurring items will be completed in one
year.
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," was issued. This statement requires that long-lived assets
and certain identifiable intangibles to be held and used or disposed of by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
statement is effective for fiscal years beginning after December 15, 1995;
however, May, and therefore the Company, adopted this statement in 1995. There
is no impact to the Company in addition to the amounts reflected in the
special and nonrecurring items. The value of the long-lived assets included in
the special and nonrecurring items was estimated using fair value less cost to
sell. The write-off is predominately book value related to assets to be
abandoned.
In connection with the Distribution, the Company has a Spin-off Stock Plan
and a Spin-off Cash Plan. Under these retention programs, the Company will pay
out up to 375,000 shares of restricted stock with no exercise price and cash
payments of amounts ranging from 10% to 37.5% of associates' base salaries.
These retention incentives are contingent upon continued employment for up to
two years subsequent to the Distribution Date. The expense related to these
incentives will be expensed as earned during the retention period. Estimates
of these expenses (unaudited) by fiscal year are as follows:
<TABLE>
<S> <C>
1996............................... $10.4
1997............................... 4.1
1998............................... 0.7
</TABLE>
4. MAY EQUITY INVESTMENT.
The following analyzes May's investment in the Company for the fiscal years
presented:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of the fiscal year................. $793.9 $661.0 $571.1
Net earnings............................................ 54.0 131.5 132.8
Intercompany transactions with May:
Net cash transfers (to) from May for:
Operating activities................................ (168.9) (242.8) (175.6)
Capital expenditures, net........................... 64.7 233.7 116.8
Increase (decrease) cash balances................... (2.0) (0.9) 6.5
Repayment of capital lease obligations.............. 1.6 1.4 1.7
Other............................................... -- 1.3 --
------ ------ ------
Net cash transfers.................................. (104.6) (7.3) (50.6)
Intercompany allocations.............................. 9.6 8.7 7.7
------ ------ ------
Net intercompany transactions with May.................. (95.0) 1.4 (42.9)
------ ------ ------
Balance at end of fiscal year........................... $752.9 $793.9 $661.0
====== ====== ======
</TABLE>
F-8
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
May equity investment includes the original investment in the Company and
the net intercompany payable from the Company reflecting transactions
described in Note 2. Intercompany allocations represent costs for specific
services discussed in Note 2, profit sharing expense discussed in Note 5 and
pension costs discussed in Note 6.
5. PROFIT SHARING.
Associates of the Company participated in The May Department Stores Company
Profit Sharing Plan ("May Plan"), a qualified profit sharing plan which covers
substantially all associates who are paid for 1,000 hours or more in a year
and have attained age 21. The May Plan is a defined contribution plan which
provides for discretionary matching allocations at a variable matching rate
generally based upon changes in May's annual earnings per share, as defined in
the May Plan. During the period when Company associates were covered under the
May Plan, May allocated employer contribution expense to the Company based
upon its associate contributions and an estimate of the annual variable match
rate. The Company's expense under the May Plan was $1.8, $2.3 and $2.3 in
1995, 1994 and 1993, respectively.
6. PENSION.
Associates of the Company participated in The May Department Stores Company
Retirement Plan ("May Retirement Plan") covering substantially all associates
who are paid for 1,000 hours or more in a year and have attained age 21. The
May Retirement Plan is noncontributory and provides benefits based upon years
of service and pay during employment. Pension expense was charged to the
Company by May based upon the Company's actuarially determined portion of
service costs. The expense charged to the Company was $3.6, $2.8 and $2.3 in
1995, 1994 and 1993, respectively.
Company associates who were covered by the May Retirement Plan prior to the
Distribution Date will continue to vest in the benefits earned under that
plan. Benefits accrued through the Distribution Date will be "frozen" and paid
out in the future.
7. TAXES.
The provision for income taxes and related percent of pretax earnings for
the last three years were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- ----------
$ % $ % $ %
----- ----- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Current Provision:
Federal................................ $50.7 $62.6 $64.1
State and local........................ 11.0 15.1 15.8
----- ----- ----- ---- ----- ----
Taxes currently payable................ 61.7 69.4% 77.7 35.8% 79.9 36.2%
Deferred Provision:
Federal................................ (22.0) 6.5 6.6
State and local........................ (4.8) 1.4 1.5
----- ----- ----- ---- ----- ----
Deferred taxes......................... (26.8) (30.1)% 7.9 3.6% 8.1 3.6%
----- ----- ----- ---- ----- ----
Total Provision...................... $34.9 39.3% $85.6 39.4% $88.0 39.8%
===== ===== ===== ==== ===== ====
</TABLE>
The reconciliation between the statutory Federal income tax rate and the
effective income tax rate for the last three years follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate............................. 35.0% 35.0% 35.0%
State and local income taxes.................................. 7.0 7.6 7.8
Federal tax benefit of state and local income taxes........... (2.5) (2.6) (2.7)
Other, net.................................................... (0.2) (0.6) (0.3)
---- ---- ----
Effective income tax rate..................................... 39.3% 39.4% 39.8%
==== ==== ====
</TABLE>
F-9
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Major components of deferred tax assets and (liabilities) were as follows:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
Accrued expenses and reserves........................... $40.3 $13.4
Depreciation/amortization and basis differences......... (14.5) (14.5)
Other deferred income tax liabilities, net.............. 5.1 5.1
----- -----
Net deferred income taxes............................... 30.9 4.0
Net current deferred income tax assets.................. 39.8 13.2
----- -----
Noncurrent deferred income taxes........................ $(8.9) $(9.2)
===== =====
</TABLE>
Net current deferred income tax assets are included in other current assets
in the accompanying balance sheet. Taxes other than income taxes consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Payroll...................................................... $31.4 $27.4 $24.7
Real estate and personal property............................ 31.2 26.2 22.7
----- ----- -----
Total...................................................... $62.6 $53.6 $47.4
===== ===== =====
</TABLE>
8. OTHER CURRENT ASSETS.
In addition to net current deferred income tax assets, other current assets
consisted of prepaid expenses and supply inventories.
9. ACCRUED EXPENSES.
Components of accrued expenses included:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
Special and nonrecurring charges........................ $ 68.4 $ --
Insurance costs......................................... 29.0 24.0
Taxes other than income................................. 19.8 14.2
Construction costs...................................... 11.2 18.5
Interest and rent expense............................... 9.3 5.6
Salaries, wages and employee benefits................... 4.8 5.2
Accrued escalating rent (current portion)............... 3.0 2.9
Advertising expenses.................................... 1.7 1.9
Other operating expenses................................ 5.5 7.4
------ -----
Total................................................. $152.7 $79.7
====== =====
</TABLE>
10. LEASE OBLIGATIONS.
The Company leases substantially all of its stores.
Rental expense for the Company's operating leases consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Minimum rentals........................................... $221.3 $184.7 $161.4
Contingent rentals based on sales......................... 3.0 4.2 4.9
------ ------ ------
Real property rentals..................................... 224.3 188.9 166.3
Equipment rentals......................................... 0.7 0.6 0.7
------ ------ ------
Total................................................... $225.0 $189.5 $167.0
====== ====== ======
</TABLE>
F-10
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has certain lease agreements that include escalating rents over
the lease term. Cumulative expense recognized on the straight-line basis in
excess of cumulative payments is $26.3, and is included in accrued expenses
and other liabilities.
Future minimum lease payments at February 3, 1996, were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
------- --------- --------
<S> <C> <C> <C>
1996................................................ $ 2.4 $ 214.5 $ 216.9
1997................................................ 2.4 195.0 197.4
1998................................................ 2.4 176.9 179.3
1999................................................ 2.4 158.5 160.9
2000................................................ 1.5 136.8 138.3
After 2001.......................................... 6.9 337.2 344.1
----- -------- --------
Minimum lease payments.............................. 18.0 $1,218.9 $1,236.9
----- -------- --------
Less imputed interest component..................... 6.5
-----
Present value of net minimum lease payments of which
$1.2 is included in current liabilities............ $11.5
=====
</TABLE>
The present value of operating leases was $885.5 at February 3, 1996.
Property under capital leases is summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
Cost.................................................... $18.7 $20.9
Accumulated amortization................................ (11.7) (12.8)
----- -----
Total................................................... $ 7.0 $ 8.1
===== =====
</TABLE>
11. QUARTERLY RESULTS (UNAUDITED).
Summarized quarterly data for 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995
--------
QUARTER FIRST SECOND THIRD FOURTH YEAR
------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Net Retail Sales................... $569.6 $622.7 $586.4 $551.6 $2,330.3
------ ------ ------ ------ --------
Cost of Sales...................... $403.6 $445.7 $421.9 $417.5 $1,688.7
------ ------ ------ ------ --------
Net Earnings (Loss)................ $ 26.5 $ 34.2 $ 25.7 $(32.4)(1) $ 54.0(1)
====== ====== ====== ====== ========
</TABLE>
- --------
(1) Net earnings, excluding special and nonrecurring items, are $11.1 and
$97.5, respectively.
<TABLE>
<CAPTION>
1994
--------
QUARTER FIRST SECOND THIRD FOURTH YEAR
------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Net Retail Sales.......................... $516.7 $544.6 $540.1 $515.0 $2,116.4
------ ------ ------ ------ --------
Cost of Sales............................. $356.5 $381.6 $376.2 $375.5 $1,489.8
------ ------ ------ ------ --------
Net Earnings.............................. $ 34.4 $ 37.3 $ 34.5 $ 25.3 $ 131.5
====== ====== ====== ====== ========
</TABLE>
F-11
<PAGE>
[MAP TO COME FROM DTP]
Map showing store locations by state at fiscal 95 year end.
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[Payless Shoe Source LOGO]
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EXHIBIT INDEX
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EXHIBIT
NUMBER DESCRIPTION PAGE
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2.1 Form of Distribution Agreement, dated as of April 2, 1996,
between The May Department Stores Company ("May") and the
Registrant.*
3.1 Form of Amended and Restated Articles of Incorporation of the
Registrant.*
3.2 Form of Amended and Restated By-Laws of the Registrant.*
4.1 Form of Rights Agreement, dated as of April 2, 1996, between
the Registrant and The Bank of New York, as Rights Agent.*
10.1 Form of Tax Sharing Agreement, dated as of April 2, 1996, be-
tween May and the Registrant.*
10.2 Form of Sublease, dated as of April 2, 1996, between May and
the Registrant.*
10.3 Form of Multicurrency Credit Agreement, dated as of
, 1996 among the Registrant, several financial in-
stitutions and Bank of America National Trust and Savings
Association.*
10.4 Form of Administrative Services Agreement, dated as of April
2, 1996, between May and the Registrant.
10.5 Payless ShoeSource, Inc. 1996 Stock Incentive Plan.*
10.6 Payless ShoeSource, Inc. Spin-Off Stock Plan.*
10.7 Payless ShoeSource, Inc. Spin-Off Cash Plan.*
10.8 Payless ShoeSource, Inc. Restricted Stock Plan for Non-Man-
agement Directors.*
10.9 Form of Employment Agreement between the Registrant and cer-
tain executives of the Registrant.*
10.10 Payless ShoeSource, Inc. Supplementary Retirement Plan.*
10.11 Payless ShoeSource, Inc. Profit Sharing Plan.*
10.12 Payless ShoeSource, Inc. Deferred Compensation Plan.*
10.13 Payless ShoeSource, Inc. Executive Incentive Compensation
Plan for Payless Executives.*
10.14 Form of Management Severance Agreement.*
10.15 Form of Indemnification Agreement.*
21.1 Subsidiaries of the Registrant.*
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* Filed herewith.
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DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement"), dated as of April 2, 1996, by and
between THE MAY DEPARTMENT STORES COMPANY ("May") and PAYLESS SHOESOURCE, INC.
("Payless").
RECITALS
WHEREAS, Payless is presently a wholly-owned subsidiary of May; and
WHEREAS, May has determined that it is in the best interest of May, Payless
and the shareowners of May to distribute to the holders of May common stock all
of the outstanding shares of Payless common stock (the "Distribution"); and
WHEREAS, it is the intention of May that, following the Distribution, May
shall own no shares of Payless common stock; and
WHEREAS, in connection with the Distribution, May and Payless have entered
or will enter into the Tax Sharing Agreement, the Sublease, the Administrative
Services Agreement and certain other agreements (collectively, the "Ancillary
Agreements"); and
WHEREAS, the Parties have determined that it is necessary and desirable to
set forth certain understandings and agreements in connection with the
Distribution;
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements, provisions and covenants contained in this Agreement, the Parties
hereby agree as follows:
DEFINITIONS
As used herein, the following terms have the following meanings:
ACTION means any claim, suit, action, litigation, arbitration, inquiry,
subpoena, discovery request, proceeding, investigation, dispute, violation or
citation (or any threat of any of the foregoing), whenever, however and wherever
initiated, however, whenever and wherever arising, and however denominated.
AFFILIATE means, with respect to any entity, another entity directly or
indirectly controlling, controlled by or under common control with such entity.
BUSINESS means the Payless Group together with the business, assets,
liabilities, operations, occupancies and employee benefit and other plans of the
Payless Group.
COMMISSION means the Securities and Exchange Commission.
DISTRIBUTION AGENT has the meaning ascribed to it in the Form 10.
DISTRIBUTION DATE means the business day as of which the Distribution shall
be effective, as determined by the board of directors of May.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
EXECUTIVES means current and former directors, officers and employees,
including any current and former in-house professionals (such as architects,
engineers, accountants, lawyers, risk management and insurance executives, tax
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advisors, pension or other plan administrators, and similar and dissimilar
professionals).
FORM 10 means the Registration Statement on Form 10 filed by Payless with
the Commission to effect the registration of the Payless common stock pursuant
to the Exchange Act, as such registration statement may be amended from time to
time.
INFORMATION STATEMENT means the information statement to be sent to each
holder of May common stock in connection with the Distribution.
LOSSES means any and all losses, liabilities, claims, damages (including
exemplary and punitive damages), judgments, awards, fines, penalties,
obligations, payments, costs and expenses, including, without limitation, the
costs and expenses of any and all Actions, demands, assessments, judgments,
settlements, and compromises relating thereto and reasonable attorney fees
(including in-house counsel costs) and other legal expenses in connection
therewith.
MAY GROUP means May and its Affiliates other than the Payless Group.
PARTIES means May and Payless, and Party means May or Payless as the
context requires.
PAYLESS GROUP means Payless and its direct and indirect subsidiaries as of
the Distribution Date.
RECORD DATE means the date in 1996 determined by May's board of directors
as the record date for determining the shareowners of May entitled to receive
Payless common stock in connection with the Distribution.
Capitalized terms used herein which are not defined herein shall have the
same meaning as in the Form 10.
ARTICLE I
THE DISTRIBUTION
Section 1.1. May and Payless shall prepare, and May shall mail to the
holders of May common stock as of the Record Date, the Information Statement
which shall set forth appropriate disclosure concerning Payless, the
Distribution and any other appropriate matters. May and Payless shall also
prepare, and Payless shall file with the Commission, the Form 10 which shall
include or incorporate by reference the Information Statement. May and Payless
shall use reasonable efforts to cause the Form 10 to become effective under the
Exchange Act; provided, however, that nothing contained in this Agreement shall
create an obligation for May to complete the Distribution, it being understood
that May, in its sole discretion, will decide if and when the Distribution shall
occur.
Section 1.2. May and Payless shall cooperate in preparing, filing with
the Commission and causing to become effective any registration statements or
amendments thereto that are appropriate to reflect the establishment of or
amendments to any Payless employee benefit and other plans described in the Form
10.
Section 1.3. May and Payless shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement.
Section 1.4 Payless shall prepare, file and pursue an application to
permit the listing of the Payless common stock on the New York Stock Exchange.
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Section 1.5 May's board of directors may, in its discretion,
establish the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution. In no event shall the
Distribution occur unless the following conditions shall, unless waived by May,
have been satisfied:
(a) all necessary regulatory approvals shall have been received;
(b) the Form 10 shall have become effective under the Exchange Act;
(c) Payless' board of directors shall have been elected by May, as
sole shareowner of Payless, and the Payless Certificate and Payless By-Laws
shall be in effect;
(d) May's board of directors shall have formally approved the
Distribution and shall not have abandoned, deferred or modified the Distribution
at any time prior to the Record Date;
(e) May shall have received an opinion of counsel acceptable to it
with respect to the federal income tax consequences of the Distribution;
(f) there shall have been no adverse change in the financial condition
of either May or Payless from the date hereof; and
(g) there shall have been no adverse change in market conditions from
the date hereof.
Section 1.6. On the Distribution Date or as soon thereafter as
practicable, subject to the conditions set forth in this Agreement, May shall
deliver to the Distribution Agent a certificate or certificates representing all
of the then outstanding shares of Payless held by May, endorsed in blank, and
shall instruct the Distribution Agent to distribute to each holder of record of
May common stock on the Record Date a certificate or certificates representing
such holder of record's allotted share(s) of Payless common stock as determined
by May's board of directors. Payless agrees to provide all certificates for
shares of Payless common stock that the Distribution Agent shall require in
order to effect the Distribution.
Section 1.7. No certificates or scrips representing any fractional
shares of Payless common stock will be issued to May common stock shareowners as
part of the Distribution. In lieu of receiving fractional shares, each holder
of May common stock who would otherwise be entitled to receive a fractional
share of Payless common stock pursuant to the Distribution will receive cash for
such fractional share as provided in the Form 10. Payless and May agree that
May shall instruct the Distribution Agent to determine the number of whole
shares and fractional shares of Payless common stock allocable to each holder of
record of May common stock as of the Record Date, to aggregate all such
fractional shares into whole shares and to sell the whole shares thereby
obtained in the open market at then prevailing prices on behalf of holders who
otherwise would be entitled to receive fractional share interests and to
distribute to each such holder such holder's ratable share of the net proceeds
of such sale.
Section 1.8. The fees and expenses of the Distribution Agent shall be
paid by May.
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ARTICLE II
ASSUMPTION, INDEMNITY AND RELEASE
Section 2.1.
(a) COMPREHENSIVE OBLIGATIONS, CLAIMS AND LIABILITIES. Payless, on its
behalf and on behalf of the Payless Group, does hereby assume and agree to pay,
perform and discharge all obligations, liabilities and Losses in any way arising
out of or relating to the Business (whether known or unknown, absolute,
contingent or otherwise, matured or not matured, accrued or unaccrued, of
whatever nature and whenever arising and regardless of when discovered, and
including contingent liabilities and obligations as have accrued or will accrue
to the May Group relating to the past, present or future Business), or to acts
or events occurring or conditions existing with respect to the Business, whether
before, on or after the Distribution Date, including without limitation (a) all
contracts, agreements, commitments, undertakings, notes, letters of credit,
bonds, guarantees, warranties, indemnities, accounts payable, purchase orders,
leases, licenses, liens, mortgages, restrictions and covenants, (b) all employee
or employment related obligations and liabilities, (c) all environmental
conditions and responsibilities (including without limitation hazardous and
toxic waste and material), and (d) all Actions, including those relating to
damage or injury to person, property, business or reputation (all of the
foregoing collectively the "Assumed Liabilities"); PROVIDED, HOWEVER, that the
Assumed Liabilities do not include the obligations of May pursuant, and subject
to the provisions of, the Ancillary Agreements. The Assumed Liabilities
include, but are in no way limited by, the obligations and liabilities of the
Payless Group set forth in the Form 10. The Payless Group's obligations with
respect to the Assumed Liabilities shall be unconditional and primary and shall
be without regard to, and shall not be offset or limited by, any reserves that
are or may have been recorded on the books of the May Group or the Payless
Group.
(b) INDEMNITIES AGAINST ASSUMED LIABILITIES. The Payless Group shall
jointly and severally indemnify, protect, defend and hold harmless the May Group
and each of its successors, assigns, officers, directors, employees and benefit
plans, including ERISA plans (each, an "Indemnified Person" and, where the
context so requires, an "Indemnified May Person") from and against any and all
Assumed Liabilities, regardless of any negligence of the Indemnified Party that
might have given rise or contributed thereto, and shall reimburse to such
Indemnified Person all costs reasonably incurred by such Indemnified Person on
account of the Assumed Liabilities. The obligations of Payless and the Payless
Group pursuant hereto shall in no way be limited or be deemed modified by reason
of the May Group administering certain of those claims pursuant to the
Administrative Services Agreement entered into between Payless and May.
(c) EMPLOYEE OBLIGATIONS AND INDEMNITIES. Without limiting Section 2.1(a)
or (b), the Payless Group jointly and severally agrees to pay all amounts due to
its employees under any employment contract, arrangement or other employment
agreement, payroll practice or employee benefit plan and to make no changes or
amendments to any employee benefit plan after the date of the Distribution which
would diminish the vested interest of any employee with respect to such benefit
plan. Further, the Payless Group jointly and severally agrees to indemnify,
protect, defend and hold harmless the May Group against all Actions by employees
with respect to amounts due to Payless Group employees under any employment
contract, arrangement or other employee agreement, benefit plan or payroll
practice.
Section 2.2. SECURITIES INDEMNITY. (a) By Payless. Payless shall
indemnify, protect, defend and hold harmless each Indemnified May Person (and
shall reimburse such Indemnified May Person for all costs and expenses
reasonably incurred) with respect to any and all Losses of such Indemnified May
Person arising out of or due to, directly or indirectly, any claim that the
information provided by the Payless Group and included in the Information
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Statement or the Form 10, is false and misleading with respect to any material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading or any failure to perform or
violation of any provision of this Agreement by the Payless Group.
(b) By May. May shall indemnify, protect, defend and hold harmless the
Payless Group and each of its successors, assigns, officers, directors,
employees and benefit plans, including ERISA plans (each, an "Indemnified
Person" and, where the context so requires, an "Indemnified Payless Person")
(and shall reimburse such Indemnified Payless Person for all costs and expenses
reasonably incurred) with respect to any and all Losses of such Indemnified
Payless Person arising out of or due to, directly or indirectly, any claim that
the information provided by the May Group and included in the Information
Statement or the Form 10, is false and misleading with respect to any material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading or any failure to perform or
violation of any provision of this Agreement by the May Group; PROVIDED,
HOWEVER, that under no circumstance shall May be required to indemnify any
Indemnified Payless Person where the information at issue (or the data from
which such information was derived) was supplied to the May Group by the Payless
Group or an Indemnified Payless Person.
Section 2.3. PROCEDURES. (a) In order for an Indemnified Person to
be entitled to the benefits of Section 2.1(b) or Section 2.2 with respect to a
claim by a third party ("Third Party Claim"), such Indemnified Person shall
notify the indemnitor promptly after receipt by such Indemnified Person of
notice of the Third Party Claim; PROVIDED, HOWEVER, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent that the indemnitor shall have been actually prejudiced as a result
of such failure. Thereafter, the Indemnified Person shall deliver to the
indemnitor promptly after the Indemnified Person's receipt thereof, copies of
all notices and documents (including court papers) received by the Indemnified
Person with respect to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnified Person, the
indemnitor shall defend and shall have the right to compromise, at its own
expense, the Third Party Claim. The Indemnified Person will cooperate, at the
expense of the indemnitor in connection with such defense. Such cooperation
shall include the retention and, upon the indemnitor's request, the provision to
the indemnitor of records, compilations and information which are, in the
indemnitor's reasonable opinion, relevant to such Third Party Claim, access to
premises and making employees available on a mutually convenient basis to be
interviewed, to testify and to provide additional information and explanation of
any material provided. The Indemnified Person shall have the right, at its own
expense, to participate in the defense of a Third Party Claim. In no event
shall an Indemnified Person compromise a Third Party Claim without the
reasonable consent of the indemnitor. The indemnitor shall not, without the
reasonable consent of the Indemnified Person, compromise, or refuse to
compromise, a Third Party Claim which seeks or provides for equitable relief or
otherwise affects the operations or the contingent liabilities of the
Indemnified Person.
Section 2.4. ANCILLARY AGREEMENTS. Nothing in this Agreement shall be
construed to limit in any way the terms of any Ancillary Agreement.
Section 2.5. INTENT. By way of amplification and not limitation, the
intent of the Parties, as between themselves, is that, subject to the Ancillary
Agreements and the releases and waivers contained in Section 2.6 of this
Agreement, (a) the Payless Group and the May Group shall be considered as if
they had never been Affiliates, (b) all actions, by whomsoever taken or omitted,
relating to the Business on or prior to the Distribution Date shall be deemed
taken or omitted by the Payless Group, and (c) the Payless Group shall
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indemnify, protect, defend and hold harmless the May Group from all liabilities
relating to the Business accruing before, on or after the Distribution Date.
Section 2.6. RELEASE AND WAIVER. (a) By the May Group. May, on its
behalf and on behalf of the May Group, does hereby waive irrevocably in favor
of, release, remise, acquit, forever discharge, and shall forever be barred from
asserting against, the Payless Group and the Payless Executives all, of all and
from all Actions and Losses that the May Group may have or claims to have
against the Payless Group or the Payless Executives, for events, acts or
omissions occurring or taken on or prior to the Distribution Date, including,
without limitation, errors, omissions, malpractice, breach of fiduciary duty,
ultra vires acts and other similar or dissimilar acts or omissions which have
been, could be or might be asserted by the May Group against the Payless Group
or any Payless Executives for acts or omissions in the conduct of affairs for,
or advice or counsel to, the May Group on or prior to the Distribution Date.
Nothing contained in this Section 2.6(a) shall apply to, or limit the scope of,
Section 2.1 or Section 2.2(a) hereof.
(b) By the Payless Group. Payless, on its behalf and on behalf of the
Payless Group, does hereby waive irrevocably in favor of, release, remise,
acquit, forever discharge, and shall forever be barred from asserting against,
the May Group and the May Executives all, of all and from all Actions and Losses
that the Payless Group may have or claims to have against the May Group or the
May Executives, for events, acts or omissions occurring or taken on or prior to
the Distribution Date, including, without limitation, errors, omissions,
malpractice, breach of fiduciary duty, ultra vires acts and other similar or
dissimilar acts or omissions which have been, could be or might be asserted by
the Payless Group against the May Group or any May Executives for acts or
omissions in the conduct of affairs for, or advice or counsel to, the Payless
Group on or prior to the Distribution Date. Nothing contained in this Section
2.6(b) shall apply to, or limit the scope of, Section 2.2(b) hereof.
ARTICLE III
MISCELLANEOUS
Section 3.1. DIFFERING FACTS. It is understood and agreed by and
between Payless and May that the facts and assumptions in respect of which this
Agreement is made may hereafter prove to be other than or different from the
facts and assumptions now known or made by either of them, or believed by either
of them to be true. Each of Payless and May expressly accepts and assumes the
risk of the facts and assumptions proving to be different, and each of them
agrees that all the terms and conditions of this Agreement shall be in all
respects effective and not subject to termination or rescission by any such
difference in facts or assumptions.
Section 3.2. DUE INQUIRY. Each of Payless and May represents and
warrants to the other that it (a) has made due and diligent inquiry into the
facts and matters which are the subject matter of this Agreement; (b) fully
understands the legal effect of this Agreement; and (c) is duly authorized and
empowered to execute, deliver and perform this Agreement according to its terms
and conditions.
Section 3.3. NON-RECOURSE. May makes no (and specifically disclaims
all) representations and warranties whatsoever, including without limitation
that there are any rights or interests associated with the Business or the
Assumed Liabilities. The Payless Group shall have no recourse whatsoever, and
hereby waives all recourse, against the May Group in connection with, arising
from or relating to the Business or the Assumed Liabilities.
Section 3.4. GOVERNING LAW; SUBMISSION TO JURISDICTION; INJUNCTION.
This Agreement shall be deemed an agreement and contract made under the laws of
the State of Delaware and all matters arising under, growing out of, or in
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connection with this Agreement shall, for all purposes, be governed
substantively and, to the extent the courts specified below must or may follow
State procedural laws, procedurally, including periods for limitations of
actions, by, and construed in accordance with, the laws of the State of
Delaware, without giving effect to such State's conflict of laws rules or
principles.
The Parties agree that any legal action or proceeding between them arising
under, growing out of, or in connection with this Agreement shall be brought
only in, and tried by the United States District Court for the Eastern District
of Missouri or, absent subject matter jurisdiction by such Federal Court, in the
Circuit Court of the State of Missouri for the City of St. Louis.
Each Party (and each person or entity who is bound or benefitted by this
Agreement) irrevocably (a) submits itself to the personal jurisdiction of such
courts (but only for any action or proceeding in connection with this Agreement
and not for any other purpose whatsoever) and, if and only if, it is not present
or does not have an agent for service of process in the territorial jurisdiction
of such courts, consents to the service of process outside the territorial
jurisdiction of such courts in any such action or proceeding in connection with
the Agreement by mailing copies thereof by (i) certified or registered, return
receipt requested United States mail, postage prepaid, if mailed to a United
States of America address or (ii) internationally recognized private mail
carrier (with evidence of delivery or attempted delivery), if mailed to an
address outside the United States of America, all charges billed to or paid by
sender, in each case to the recipient's last known address, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (c) agrees that it will not bring any
action in whole or in part arising under, growing out of, or in connection with
this Agreement or any of the transactions contemplated by this Agreement in any
court other than a court of the United States sitting in and for the Eastern
District of Missouri or, absent subject matter jurisdiction by such Federal
Court, in the Circuit Court of the State of Missouri for the City of St. Louis.
The Parties agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
Parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in the courts and as provided above in this section, such injunctive
relief being in addition to any other remedy to which such Party is entitled at
law or in equity.
Section 3.5. THIRD PARTY BENEFICIARIES. Except for each Indemnified
Person and the Payless and May Executives, all of which are intended
beneficiaries of the provisions of this Agreement referring to them, neither
this Agreement nor any provision hereof shall inure to the benefit of any person
or entity other than the Payless Group and the May Group.
Section 3.6. SEVERABILITY. The provisions of this Agreement shall be
severable if any of the provisions herein (including any provisions within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law. To
the extent feasible, any provision held invalid, void or unenforceable shall be
reformed so as to make it valid and enforceable and to reflect as nearly as
possible the intent of the Parties (including that set forth in Section 2.5
hereof).
Section 3.7. ENTIRETY OF AGREEMENT. This Agreement constitutes the
entire understanding of the Parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and prior agreements and
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understandings relating to such subject matter. This Agreement does not govern
the Ancillary Agreements.
Section 3.8. AMENDMENT AND WAIVER. This Agreement may not be altered
or amended except by an instrument in writing executed by the Party or Parties
to be charged with such amendment. No term or provision of this Agreement
shall be deemed waived and no breach excused, unless such waiver or consent is
in writing and signed by the Party claimed to have waived or consented. No
waiver shall constitute a continuing waiver, and no waiver of a provision shall
be deemed or construed to constitute a waiver of any other provision whether
similar or not.
Section 3.9. ASSIGNMENT/DELEGATION. Neither Party hereto may assign
its rights or delegate any of its duties under this Agreement without the prior
written consent of the other Party. This Agreement shall be binding upon, and
shall inure to the benefit of, the Parties hereto and their respective
successors and permitted assigns.
Section 3.10. NOTICES. All notices and other communications hereunder
shall be in writing and delivered by hand, by facsimile, by United States Postal
Service, postage prepaid, registered or certified mail (return receipt
requested) or by reputable overnight courier service (charges paid by sender,
next business day delivery and delivery verification requested) and shall be
deemed given (a) when delivered by hand, (b) when transmitted by facsimile (with
either (i) receipt confirmed or (ii) hard copy deposited within one business day
of such transmission with a reputable overnight courier service as above
provided), (c) three business days after mailing if mailed through the United
States Postal Service as above provided, or (d) one business day after
depositing with a reputable overnight courier service as above provided, in each
case addressed to the Parties as follows:
(a) if to May:
The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: General Counsel
Facsimile #: (314) 342-6384
(b) if to Payless:
Payless ShoeSource, Inc.
3231 East 6th Street
Topeka, Kansas 66607
Attention: Chairman
Facsimile #: (913) 295-6804
subject to the right of each Party to designate a different address in the
United States and/or addressee by notice similarly given at least 15 days before
the effectiveness of such new designation.
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IN WITNESS WHEREOF, this Distribution Agreement has been signed by the duly
authorized officers of each of the Parties hereto as of the date first written
above.
THE MAY DEPARTMENT STORES COMPANY PAYLESS SHOESOURCE, INC.
By: _______________________________ By: ________________________________
Title: ____________________________ Title: ______________________________
Attest by: ________________________ Attest by: __________________________
SEAL SEAL
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AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PAYLESS SHOESOURCE, INC.
Pursuant to the provisions of Section 351.106 of the Missouri General
and Business Corporation Law (the "GBCL"), the undersigned Corporation,
originally incorporated under the name Volume Distributors, Inc. on ,
1961, pursuant to a resolution adopted by its sole shareholder as of
, 1996, hereby executes its Amended and Restated Articles of Incorporation:
"FIRST -- The name of the corporation is Payless ShoeSource, Inc.
(the "Corporation").
"SECOND -- The Corporation's registered agent shall be CT Corporation
System at 314 North Broadway, St. Louis, Missouri, 63102.
"THIRD --
A. Classes and Number of Shares. The aggregate number of shares
that the Corporation shall have authority to issue is one hundred forty-five
million (145,000,000), consisting of one hundred twenty million (120,000,000)
shares of common stock, par value $.01 per share (the "Common Stock"), and
twenty-five million (25,000,000) shares of preferred stock, par value $.01 per
share (the "Preferred Stock").
B. Preemptive Rights. All preemptive rights are hereby denied, so
that none of the Common Stock, the Preferred Stock or any other security or
securities of the Corporation shall carry with it, and no holder or owner of any
Common Stock, Preferred Stock or any other security or securities of the
Corporation shall have, any preferential or preemptive right to acquire any
additional shares of Common Stock, Preferred Stock or any other security or
securities of the Corporation.
C. Cumulative Voting. All cumulative voting rights are hereby
denied, so that none of the Common Stock, the Preferred Stock or any other
security or securities of the Corporation shall carry with it, and no holder or
owner of any Common Stock, Preferred Stock or any other security of the
Corporation shall have any right to vote cumulatively in the election of
directors or for any other purpose.
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D. Preferred Stock. Shares of the Preferred Stock of the Corporation
may be issued from time to time in one or more classes or series, each of which
class or series shall have such distinctive designation or title as shall be
fixed by the Board of Directors of the Corporation (the "Board of Directors")
prior to the issuance of any shares thereof. Each such class or series of
Preferred Stock shall have such voting powers, full or limited, or no voting
powers, and such preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof, as
shall be stated in such resolution or resolutions providing for the issue of
such class or series of Preferred Stock as may be adopted from time to time by
the Board of Directors prior to the issuance of any shares thereof pursuant to
the authority hereby expressly vested in it, all in accordance with the
requirements of the GBCL.
" FOURTH --
A. Number and Classification. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, consisting of not less than 3 nor more than 15 directors, the exact
number of directors to be determined from time to time by resolution adopted by
the affirmative vote of a majority of the entire Board of Directors. Any
changes in the number of directors shall be reported to the Secretary of State
of Missouri within thirty calendar days of such change, if required by the GBCL.
The Board of Directors shall be and is divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors, with the term of office of the directors of one class
expiring each year. Each director shall serve for a term ending on the date of
the third annual meeting following the annual meeting at which such director was
elected; provided, however, the directors elected to Class I as of May 4, 1996
shall serve for a term ending on the date of the annual meeting next following
the end of the calendar year 1996, the directors elected to Class II as of May
4, 1996 shall serve for a term ending on the date of the annual meeting next
following the end of the calendar year 1997, and the directors elected to Class
III as of May 4, 1996 shall serve for a term ending on the date of the annual
meeting next following the end of the calendar year 1998. Each director shall
hold office until the annual meeting for the year in which his term expires and
until such director's successor shall be elected and qualified, subject,
however, to such director's earlier death, resignation, disqualification or
removal from office. In the event of any change in the authorized number of
directors, the Board of Directors shall apportion any newly created
directorships among, or reduce the number of directorships in, such class or
classes as shall, so far as possible, equalize the
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number of directors in each class. Notwithstanding the foregoing, whenever the
holders of any one or more classes or series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or series to elect
directors at an annual or special meeting of shareholders, the election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of these Articles of Incorporation or the resolution or
resolutions adopted by the Board of Directors pursuant to Article THIRD
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Article FOURTH unless expressly provided by such terms.
B. Vacancies. Any vacancy in the Board of Directors resulting from any
increase in the number of directors and any other vacancy occurring in the Board
of Directors may be filled by the Board of Directors acting by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director, and any director so elected to fill a vacancy shall hold office until
the next election of directors by shareholders of the Corporation. In no event
shall a decrease in the number of directors shorten the term of any incumbent
director.
C. Removal of Directors. Subject to the rights, if any, of the
holders of shares of Preferred Stock then outstanding, at a meeting called
expressly for that purpose, any or all of the directors of the Corporation, may
be removed from the office at any time, but only for cause and only by the
affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of
the outstanding securities of the Corporation then entitled to vote generally in
the election of directors, considered for purposes of this Article FOURTH as one
class. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of these Articles of Incorporation, the
provisions of this Article FOURTH shall apply in respect of the removal of a
director or directors so elected, to the vote of the holders of the outstanding
shares of that class and not to the vote of the holders of the outstanding
shares as a whole.
"FIFTH -- Elections of directors at an annual or special meeting of
shareholders shall be by written ballot unless the Bylaws of the Corporation
shall otherwise provide.
"SIXTH -- The Corporation shall have perpetual existence.
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"SEVENTH -- The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the GBCL.
"EIGHTH -- The Bylaws of the Corporation may be amended, altered,
changed or rescinded only by a vote of sixty-six and two-thirds percent
(66-2/3%) of the entire Board of Directors.
"NINTH -- Special meetings of the shareholders of the Corporation for
any purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board of Directors or the President. Special meetings of
shareholders of the Corporation may not be called by any other person or
persons.
"TENTH --
A. In addition to any affirmative vote required by the GBCL or this
Articles of Incorporation or the By-laws of the Corporation, and except as
otherwise expressly provided in Section B of this Article TENTH, approval of any
Business Combination (as hereinafter defined) with an Interested Shareholder
shall require the affirmative vote of not less than a majority of the votes
entitled to be cast by the holders of all outstanding shares of Voting Stock (as
hereinafter defined) entitled to vote at a meeting of shareholders called for
such purpose, voting together as a single class, excluding Voting Stock
beneficially owned by any Interested Shareholder (as hereinafter defined) or any
Affiliate (as hereinafter defined) or Associate (as hereinafter defined) of such
Interested Shareholder. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or separate
class vote may be specified, by the GBCL or in any agreement with any national
securities exchange or otherwise.
B. The provisions of Section A of this Article TENTH shall not be
applicable to any Business Combination involving an Interested Shareholder or an
Affiliate or Associate of an Interested Shareholder, and such Business
Combination shall require only such affirmative vote, if any, as is required by
law, any other provision of the Articles of Incorporation of the Corporation,
the By-Laws of the Corporation or otherwise, if:
1. The Business Combination shall have been approved by the Board
of Directors of the Corporation prior to such Interested Shareholder's Stock
Acquisition Date (as hereinafter defined), or the purchase of stock made by
such Interested Shareholder on such Interested Shareholder's Stock Acquisition
Date had
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been approved by the Board of Directors of the Corporation prior to such
Interested Shareholder's Stock Acquisition Date; or
2. The Business Combination shall have been approved by the
affirmative vote of the holders of a majority of the outstanding Voting Stock
not beneficially owned by such Interested Shareholder or any Affiliate or
Associate of such Interested Shareholder at a meeting called for such purpose no
earlier than five years after such Interested Shareholder's Stock Acquisition
Date; or
3. All of the following conditions shall have been satisfied with
respect to the Business Combination:
(a) The aggregate amount of the cash and the Market Value (as
hereinafter defined) as of the Consummation Date (as hereinafter defined) of
consideration other than cash to be received per share by holders of outstanding
shares of Common Stock of the Corporation in such Business Combination is at
least equal to the higher of the following:
(1) The highest per share price paid by such Interested
Shareholder at a time when he was the Beneficial Owner (as hereinafter
defined), directly or indirectly, of five percent or more of the
outstanding Voting Stock of the Corporation, for any shares of Common Stock
of the same class or series acquired by it within the five-year period
immediately prior to the Announcement Date (as hereinafter defined) with
respect to such Business Combination, or within the five-year period
immediately prior to, or in, the transaction in which such Interested
Shareholder became an Interested Shareholder, whichever is higher; plus, in
either case, interest compounded annually from the earliest date on which
such highest per share acquisition price was paid through the Announcement
Date at the rate for one-year United States treasury obligations from time
to time in effect; less the aggregate amount of any cash dividends paid,
and the Market Value of any dividends paid other than in cash, per share of
Common Stock since such date, up to the amount of such interest; and
(2) The Market Value per share of Common Stock on the
Announcement Date with respect to such Business Combination or on such
Interested Shareholder's Stock Acquisition Date, whichever is higher; plus
interest compounded annually from such
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date through the Announcement Date at the rate for one-year United States
treasury obligations from time to time in effect; less the aggregate amount
of any cash dividend paid, and the Market Value of any dividends paid other
than in cash, per share of Common Stock since such date, up to the amount
of such interest;
(b) The aggregate amount of the cash and the Market Value as of the
Announcement Date of consideration other than cash to be received per share by
holders of outstanding shares of any class or series of stock, other than Common
Stock, of the Corporation is at least equal to the highest of the following,
whether or not such Interested Shareholder has previously acquired any shares of
such class or series of stock:
(1) The highest per share price paid by such Interested
Shareholder at a time when he was the Beneficial Owner, directly or
indirectly, of five percent or more of the outstanding Voting Stock of the
Corporation, for any shares of such class or series of stock acquired by
him within the five-year period immediately prior to the Announcement Date
with respect to such Business Combination, or within the five-year period
immediately prior to, or in, the transaction in which such Interested
Shareholder became an Interested Shareholder, whichever is higher; plus, in
either case, interest compounded annually from the earliest date on which
such highest per share acquisition price was paid through the Announcement
Date at the rate for one-year United States treasury obligations from time
to time in effect; less the aggregate amount of any cash dividends paid,
and the Market Value of any dividends paid other than in cash, per share of
such class or series of stock since such earliest date, up to the amount of
such interest;
(2) The highest preferential amount per share to which the
holders of shares of such class or series of stock are entitled in the
event of any voluntary liquidation, dissolution or winding up of such
Corporation, plus the aggregate amount of any dividends declared or due as
to which such holders are entitled prior to payment of dividends on some
other class or series of stock, unless the aggregate amount of such
dividends is included in such preferential amount; and
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(3) The Market Value per share of such class or series of stock
on the Announcement Date with respect to such Business Combination or on
such Interested Shareholder's Stock Acquisition Date, whichever is higher;
plus interest compounded annually from such date through the Announcement
Date at the rate for one-year United States treasury obligations from time
to time in effect; less the aggregate amount of any cash dividends paid,
and the Market Value of any dividends paid other than in cash, per share of
such class or series of stock since such date, up to the amount of such
interest;
(c) The consideration to be received by holders of a particular class
or series of outstanding stock, including Common Stock, of the Corporation in
such Business Combination is in cash or in the same form as the Interested
Shareholder has used to acquire the largest numbers of shares of such class of
series of stock previously acquired by it, and such consideration shall be
distributed promptly;
(d) The holders of all outstanding shares of stock of the Corporation
not beneficially owned by such Interested Shareholder immediately prior to the
consummation of such Business Combination are entitled to receive in such
Business Combination cash or other consideration for such shares in compliance
with paragraphs (a), (b) and (c) of this Section;
(e) After such Interested Shareholder's Stock Acquisition Date and
prior to the Announcement Date with respect to such Business Combination, such
Interested Shareholder has not become the Beneficial Owner of any additional
shares of Voting Stock of the Corporation except (i) as part of the transaction
which resulted in such Interested Shareholder becoming an Interested
Shareholder, (ii) by virtue of proportionate stock splits, stock dividends or
other distributions of stock in respect of stock not constituting a Business
Combination under Paragraph (1)(e) of Section C of this Article TENTH, (iii)
through a Business Combination meeting all of the conditions of this subsection,
or (iv) through purchase by such Interested Shareholder at any price which, if
such price had been paid in an otherwise permissible Business Combination the
Announcement Date and Consummation Date of which were the date of such purchase,
would have satisfied the requirements of paragraphs (a), (b), and (c) of this
Section.
C. For purposes of this Article TENTH:
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1. The term "Business Combination" shall mean:
(a) Any merger or consolidation of the Corporation or any subsidiary
of the Corporation with an Interested Shareholder or any other corporation,
whether or not itself an Interested Shareholder of the Corporation, which is, or
after such merger or consolidation would be, an Affiliate or Associate of such
Interested Shareholder;
(b) Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions to or with an
Interested Shareholder or any Affiliate or Associate of such Interested
Shareholder, of assets of the Corporation or any subsidiary of the Corporation
having an aggregate Market Value equal to ten percent or more of the aggregate
Market Value of all the assets, determined on a consolidated basis, of the
Corporation, having an aggregate Market Value equal to ten percent or more of
the aggregate Market Value of all the outstanding stock of the Corporation, or
representing ten percent or more of the earning power or net income, determined
on a consolidated basis, of the Corporation;
(c) The issuance or transfer by the Corporation or any subsidiary of
the Corporation, in one transaction or a series of transactions, of any stock of
the Corporation or any subsidiary of the Corporation which has an aggregate
Market Value equal to five percent or more of the aggregate Market Value of all
the outstanding stock of the Corporation to an Interested Shareholder or any
Affiliate or Associate of such Interested Shareholder except pursuant to the
exercise of warrants or rights to purchase stock offered, or a dividend or
distribution paid or made, pro rata to all shareholders of the Corporation;
(d) The adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by, or pursuant to any agreement,
arrangement or understanding, whether or not in writing, with an Interested
Shareholder or any Affiliate or Associate of such Interested Shareholder;
(e) Any reclassification of securities, including, without limitation,
any stock split, stock dividend, or other distributions of stock in respect of
stock, or any reverse stock split, or recapitalization of the Corporation, or
any merger or consolidation of the Corporation with any subsidiary of the
Corporation, or any other transaction, whether or not with or into or otherwise
involving an Interested Shareholder, proposed by, or pursuant to any agreement,
arrangement or understanding, whether or not in writing, with such Interested
Shareholder or any
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<PAGE>
Affiliate or Associate of such Interested Shareholder, which has the effect,
directly or indirectly, of increasing the proportionate share of the outstanding
shares of any class or series of voting stock or securities convertible into
Voting Stock of the Corporation or any subsidiary of the Corporation which is
directly or indirectly owned by such Interested Shareholder or any Affiliate or
Associate of such Interested Shareholder, except as a result of immaterial
changes due to fractional share adjustments; or
(f) Any receipt by an Interested Shareholder or any Affiliate or
Associate of such Interested Shareholder of the benefit, directly or indirectly,
except proportionately as a shareholder of the Corporation, of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by or through the Corporation.
2. The term "Voting Stock" shall mean all capital stock of the
Corporation entitled to vote generally in the election of directors.
3. The term "person" shall mean any individual, firm, company or
other entity and shall include any group compromised of any person and any other
person with whom such person or any Affiliate or Associate of such person has
any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of capital stock.
4. The term "Interested Shareholder" shall mean any person who:
(a) Is the Beneficial Owner, directly or indirectly, of twenty percent
(20%) or more of the outstanding Voting Stock of the Corporation; or
(b) Is an Affiliate or Associate of the Corporation and at any time
within the five-year period immediately prior to the date in question was the
Beneficial Owner, directly or indirectly, of twenty percent (20%) or more of the
then outstanding Voting Stock of the Corporation; provided that, for the
purposes of determining whether a person is an Interested Shareholder, the
number of shares of Voting Stock of the Corporation deemed to be outstanding
shall include shares deemed to be beneficially owned by the person but shall not
include any other unissued shares of Voting Stock of the Corporation which may
be issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
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(c) Interested Shareholders shall not include the Corporation, any
subsidiary, any profit-sharing, employee stock ownership or other employee
benefit plan of the Corporation or any subsidiary or any trustee of or fiduciary
with respect to any such plan when acting in such capacity, which as of the date
hereof is the Beneficial Owner of Common Stock representing more than twenty
percent (20%) of the votes entitled to be cast by holders of all of the shares
of Voting Stock outstanding on the date hereof.
5. The term "Beneficial Owner" of any capital stock means a person
who:
(a) Individually or with or through any of its Affiliates or
Associates, beneficially owns such stock, directly or indirectly; or
(b) Individually or with or through any of its Affiliates or
Associates, has the right to acquire such stock, whether such right is
exercisable immediately or only after the passage of time, pursuant to any
agreement, arrangement or understanding, whether or not in writing, or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise; provided, however, that a person shall not be deemed the Beneficial
Owner of stock tendered pursuant to a tender or exchange offer made by such
person or any of such person's Affiliates or Associates until such tendered
stock is accepted for purchase or exchange; or the right to vote such stock
pursuant to any agreement, arrangement or understanding, whether or not in
writing; provided, however, that a person shall not be deemed the Beneficial
Owner of any stock under this item if the agreement, arrangement or
understanding to vote such stock arises solely from a revocable proxy or consent
given in response to a proxy or consent solicitation made in accordance with the
applicable rules and regulations under the Securities Exchange Act of 1934 (the
"Exchange Act") and is not then reportable on a Schedule 13D under the Exchange
Act, or any comparable or successor report; or
(c) Has any agreement, arrangement or understanding, whether or not in
writing, for the purpose of acquiring, holding, voting, except voting pursuant
to a revocable proxy or consent as described in paragraph (b) of this
subdivision, or disposing of such stock with any other person that beneficially
owns or whose Affiliates or Associates beneficially own, directly or indirectly,
such stock.
6. The term "Affiliate" shall mean a person that directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, a specified person.
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7. The term "Associate," when used to indicate a relationship with
any person, means any corporation or organization of which such person is an
officer or partner or is, directly or indirectly, the Beneficial Owner of ten
percent or more of any class of Voting Stock, any trust or other estate in which
such person has a substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity, and any relative or spouse
of such person, or any relative of such spouse, who has the same home as such
person.
8. The term "Consummation Date," with respect to any Business
Combination, means the date of consummation of such Business Combination, or, in
the case of a Business Combination as to which a shareholder vote is taken, the
later of the business day prior to the vote or 20 days prior to the date of
consummation of such Business Combination;
9. The term "control," including the terms "controlling,"
"controlled by" and "under common control with," shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
stock, by contract, or otherwise. A person's beneficial ownership of ten
percent or more of a corporation's outstanding Voting Stock shall create a
presumption that such person has control of such corporation. Notwithstanding
the foregoing, a person shall not be deemed to have control of a corporation if
such person holds Voting Stock, in good faith and not for the purpose of
circumventing this Section, as an agent, bank, broker, nominee, custodian or
trustee for one or more Beneficial Owners who do not individually or as a group
have control of such corporation.
10. The term "stock" means:
(a) Any stock or similar security, any certificate of interest, any
participation in any profit sharing agreement, any voting trust certificate, or
any certificate of deposit for stock; and
(b) Any security convertible, with or without consideration, into
stock, or any warrant, call or other option or privilege of buying stock without
being bound to do so, or any other security carrying any right to acquire,
subscribe to or purchase stock;
11. The term "Stock Acquisition Date," with respect to any person and
the Corporation, means the date that such person first becomes an Interested
Shareholder of the Corporation.
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12. The term "Market Value" means:
(a) In the case of stock, the highest closing sale price during the
thirty-day period immediately preceding the date in question of a share of such
stock on the composite tape for New York Stock Exchange listed stocks, or, if
such stock is not quoted on such composite tape or if such stock is not listed
on such exchange, on the principal United States securities exchange registered
under the Exchange Act on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing bid quotation with respect to a
share of such stock during the thirty-day period preceding the date in question
on the National Association of Securities Dealers, Inc., Automated Quotations
System or any system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock as determined
by the Board of Directors of the Corporation in good faith; and
(b) In the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by the Board of
Directors of the Corporation in good faith.
13. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used in
Paragraphs (3)(a) and (3)(b) of Section B of this Article TENTH shall include
the shares of Common Stock and/or the shares of any other class or series of
capital stock retained by the holders of such shares.
14. With respect to any proposal of the kind referred to in
Section E of this Article TENTH, which is proposed by or on behalf of an
Interested Shareholder or an Affiliate or Associate of an Interested
Shareholder, the term "Disinterested Director" means any member of the Board of
Directors who is not an Affiliate or Associate or representative of such
Interested Shareholder and was a member of the Board prior to the time that such
Interested Shareholder became an Interested Shareholder, and any successor of a
Disinterested Director, while such successor is a member of the Board of
Directors, who is not an Affiliate or Associate or representative of such
Interested Shareholder and is recommended or elected to succeed the
Disinterested Director by a majority of Disinterested Directors.
15. The term "Announcement Date" when used in reference to any
Business Combination, means the date of the first public announcement of the
final, definitive proposal for such Business Combination.
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D. The fact that any Business Combination complies with the
provisions of Section B of this Article TENTH shall not be construed to impose
any fiduciary duty, obligation or responsibility on the Board of Directors, or
any member thereof, to approve such Business Combination or recommend its
adoption or approval to the shareholders of the Corporation, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the Board of
Directors, or any member thereof, with respect to evaluations of or actions and
responses taken with respect to such Business Combination.
E. Notwithstanding any other provision of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by the GBCL,
these Articles of Incorporation or the Bylaws of the Corporation), any proposal
to amend, repeal or adopt any provision of these Articles of Incorporation
inconsistent with this Article TENTH which is proposed by or on behalf of an
Interested Shareholder or an Affiliate or Associate of an Interested Shareholder
shall require the affirmative vote of the holders of not less than sixty-six and
two-thirds percent (66-2/3%) of the votes entitled to be cast by the holders of
all outstanding shares of Voting Stock entitled to vote at a meeting of
shareholders called for such purpose, voting together as a single class,
excluding Voting Stock beneficially owned by any Interested Shareholder and its
Affiliates and Associates; provided, however, that this Section E shall not
apply to, and such sixty-six and two-thirds percent (66-2/3%) vote shall not be
required for any amendment, repeal or adoption unanimously recommended by a
majority of the Disinterested Directors, if a majority of the directors then in
office are Disinterested Directors.
"ELEVENTH --
A. Indemnification of Officers, Directors and Others. The
Corporation shall indemnify to the fullest extent authorized or permitted by law
(as now or hereafter in effect) any person made, or threatened to be made, a
party to or otherwise involved in any action or proceeding (whether civil or
criminal or otherwise) by reason of the fact that he, his testator or intestate,
is or was a director or officer of the Corporation or by reason of the fact that
such director or officer, at the request of the Corporation, is or was serving
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, in any capacity. Nothing contained herein shall affect any
rights to indemnification to which employees other than directors and officers
may be entitled by law. No amendment or repeal of this Article ELEVENTH shall
apply to or have any effect on any right
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to indemnification provided hereunder with respect to any acts or omissions
occurring prior to such amendment or repeal.
B. Insurance, Indemnification Agreements and Other Matters. The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of the law. The Corporation may create a trust fund, grant a
security interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as enter
into contracts providing for indemnification to the fullest extent authorized or
permitted by law and including as part thereof any or all of the foregoing, to
ensure the payment of such sums as may become necessary to effect full
indemnification.
C. Nonexclusivity. The rights to indemnification conferred in this
Article ELEVENTH shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, these Articles of Incorporation of
the Corporation, or the Bylaws or any agreement, vote of shareholders or
directors or otherwise.
"TWELFTH -- The Corporation reserves the right at any time and from
time to time to make, amend, alter, change or rescind any provision contained in
these Articles of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon shareholders herein are granted subject
to this reservation.
"THIRTEENTH -- Notwithstanding the fact that a lesser percentage may
be specified by the GBCL, these Articles of Incorporation or the Bylaws of the
Corporation, any proposal to amend, repeal or adopt any provision of these
Articles of Incorporation shall require the affirmative vote of the holders of
not less than a majority of the outstanding shares of stock of the Corporation
entitled to vote thereon, provided, however, any proposal to amend, repeal or
adopt any provision of these Articles of Incorporation which is not recommended
by the affirmative vote of a majority of the entire Board of Directors shall
require the affirmative vote of the holders of not less than sixty-six and two-
thirds percent (66-2/3%) of the outstanding shares of stock of the Corporation
entitled to vote thereon.
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AMENDED AND RESTATED BYLAWS
OF
PAYLESS SHOESOURCE, INC.
ARTICLE I
OFFICES
-------
Section 1. The registered office of the Corporation shall be in the
City of St. Louis, State of Missouri, or at such other place within the State of
Missouri as the Board of Directors may at any time and from time to time
designate.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Missouri as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. All meetings of the shareholders shall be held either
within or without the State of Missouri as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. The annual meeting of shareholders shall be held at such
place within or without the State of Missouri, at such hour and on such date,
not earlier than May 1 and not later than July 10 in each year as the Board of
Directors may specify in the call of such meeting, at which such meeting the
shareholders shall elect by a plurality vote a Board of Directors, and transact
such other business as may properly be brought before the meeting.
Section 3. Except as otherwise required by law, written notice of the
annual meeting stating the place, date and hour of the meeting shall be given by
mail, postage prepaid, not less than ten or more than seventy days before the
date of the meeting, to each shareholder entitled to vote at such meeting at
such address as shall appear on the books of the Corporation.
<PAGE>
Section 4. The Secretary of the Corporation shall prepare and make,
at least ten days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each shareholder and the number of shares registered
in the name of each shareholder. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any shareholder who is present.
Section 5. Special meetings of the shareholders, for any purpose or
purposes, may be called by the Board of Directors, the Chairman of the Board of
Directors, or the President. Special meetings of shareholders may not be called
by any other person or persons. The business transacted at a special meeting of
shareholders shall be confined to the purpose or purposes specified in the
notice therefor.
Section 6. Except as otherwise required by law, written notice of a
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given by mail, postage
prepaid, not less than ten nor more than seventy days before the date of the
meeting, to each shareholder entitled to vote at such meeting at such address as
shall appear on the books of the Corporation.
Section 7. The holders of a majority of the stock issued and
outstanding and entitled to vote at any meeting, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise provided by law
or by the Articles of Incorporation. If, however, such quorum shall not be
present or represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy even though
less than a quorum, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally called. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed
2
<PAGE>
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting.
Section 8. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of law or the
Articles of Incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
Section 9. Except as otherwise provided by the Articles of
Incorporation, each shareholder of record shall at every meeting of the
shareholders be entitled to one vote for each share of capital stock of the
Corporation entitled to vote thereat held by such shareholder. Such votes may
be cast in person or by proxy, but no proxy shall be voted on or after three
years from its date, unless the proxy provides for a longer period. The Board
of Directors shall prescribe the rules and regulations for voting at all
meetings of the shareholders; provided, however, the vote for the election of
directors, and upon the direction of the presiding officer of the meeting, the
vote on any other question before the meeting, shall be by written ballot.
Section 10. Except as otherwise provided by the Articles of
Incorporation, any action required or permitted to be taken at any annual or
special meeting of shareholders may be taken without a meeting of the
shareholders only if consents in writing, setting forth the action so taken, are
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof.
Section 11. To be properly brought before the annual or any special
shareholders' meeting, business must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a shareholder. In addition to any other applicable requirements,
for business to be properly brought before the annual or any special
shareholders' meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 75 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 90 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 15th day following
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<PAGE>
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made, whichever first occurs. Such shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and record address of the shareholder proposing such
business, (iii) the class and number of shares of common stock of the
Corporation which are beneficially owned by the shareholder and (iv) any
material interest of the shareholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual or any special meeting except in accordance
with the procedures set forth in this Section 11, provided, however, that
nothing in this Section 11 shall be deemed to preclude discussion by any
shareholder of any business properly brought before the meeting.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine and declare, any such business not properly brought before the meeting
shall not be transacted.
Section 12. Except as provided in Section 3 of Article III, only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors. Nominations of persons for election to the
Board of Directors of the Corporation at the annual meeting may be made at the
meeting by or at the direction of the Board of Directors, by any nominating
committee or person appointed by the Board of Directors or by any shareholder of
the Corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Section 12. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the secretary
of the Corporation. To be timely, a shareholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 75 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 90 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, which first occurs.
Such shareholder's notice to the secretary shall set forth (a) as to each person
whom the shareholder proposes to nominate for election or re-election as a
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<PAGE>
director, (i) the name, age, business address and residence of the person, (ii)
the principal occupation or employment of the person, (iii) the class and number
of shares of common stock of the Corporation which are beneficially owned by the
person, and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of directors pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b)
as to the shareholder giving the notice (i) the name and record address of the
shareholder and (ii) the class and number of shares of common stock of the
Corporation which are beneficially owned by the shareholder. Such notice shall
be accompanied by the executed consent of each nominee to serve as a director if
so elected. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as a director of the
Corporation.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine and declare, the defective
nomination shall be disregarded.
ARTICLE III
DIRECTORS
---------
Section 1. Except as otherwise required by law or the Articles of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
Section 2. The number of directors of the Corporation shall be fixed
in the manner provided in the Articles of Incorporation. Except as otherwise
provided in Section 3 of this Article III, the directors of the Corporation
shall be elected by the shareholders of the Corporation, and at each such
election the nominees receiving the greatest number of votes, up to the number
of directors then to be elected, shall be the persons then elected.
Section 3. Except as otherwise required by the Articles of
Incorporation, any vacancy in the Board of Directors resulting from any increase
in the number of directors and any other vacancy occurring in the Board of
Directors may be filled by the Board of Directors acting by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director, and any director so
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<PAGE>
elected to fill a vacancy shall hold office until such director's successor is
duly elected and qualified (subject, however, to such director's earlier death,
resignation, disqualification or removal from office) for a term that shall
coincide with the term of the class to which such director shall have been
elected. In no event shall a decrease in the number of directors shorten the
term of any incumbent director.
Section 4. The Board of Directors may hold its meetings, both regular
and special, and cause the books of the Corporation to be kept, either within or
without the State of Missouri at such place or places as they may from time to
time determine.
Section 5. Subject to Section 8 of this Article III there shall be an
annual meeting of the Board of Directors on the day of the annual meeting of
shareholders in each year or as soon thereafter as convenient, such annual
meeting to be at such place and time (and, if applicable, on such date) as the
Chairman of the Board or the Chief Executive Officer shall designate by written
notice to the directors, and regular meetings shall be held on such dates and at
such times and places either as the directors shall by resolution provide or as
the Chairman of the Board or the Chief Executive Officer shall designate by
written notice to the directors. Except as above provided, no notice of said
annual meeting or such regular meetings of the Board of Directors need be given.
Section 6. Special meetings of the Board of Directors may be called
by the Chairman of the Board, the Chief Executive Officer, the President, the
Secretary or the Treasurer and shall be called by one of the foregoing officers
on the written request of a majority of the entire Board of Directors specifying
the object or objects of such special meeting. In the event that one of the
foregoing officers shall fail to call a meeting within two days after receipt of
such request, such meeting may be called in like manner by the directors making
such request. Notice of each special meeting shall be deposited in the regular
or overnight mail, sent by telecopy, telegram or delivered by hand to each
director not later than the day preceding the date of such meeting, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
Section 7. At all meetings of the Board of Directors a majority of
the entire Board of Directors in office at the time shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law, the
Articles of Incorporation or by these Bylaws. If a quorum, shall not be present
at any meeting of the Board of
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Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 8. Except as otherwise required by the Articles of
Incorporation or these Bylaws, any action required or permitted to be taken by
the Board of Directors at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 9. Any one or more members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time. Participation in a meeting
pursuant to this Section 9 shall constitute presence in person at such meeting.
Section 10. The Board of Directors may, by resolution passed by a
majority of the entire Board, designate one or more committees, each committee
to consist of two or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent allowed by law and as provided in the resolution,
shall have and may exercise all of the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board of Directors.
Section 11. Each committee of the Board shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
Section 12. Directors and members of committees may receive such
compensation for their services, and such reimbursement of expenses, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
7
<PAGE>
Section 13. No contract or transaction between the Corporation and
one or more of its directors or officers, or between the Corporation and any
other corporation, partnership, association, or other organization in which one
or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (a) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (b) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (c) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
Section 14. As used in these Bylaws generally, the term "entire Board
of Directors" means the total number of directors which the Corporation would
have if there were no vacancies.
ARTICLE IV
NOTICES
-------
Section 1. Whenever written notice is required by law, the Articles
of Incorporation or these Bylaws, to be given to any director, committee member
or shareholder, such requirement shall not be construed to mean personal notice,
but such notice may be given in writing, by mail addressed to such director,
committee member or shareholder, at his address as it appears on the records of
the Corporation, with postage thereon prepaid and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States mail.
Written notice may also be given personally or by telecopy, telegram, telex or
cable or by overnight mail. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent of the Corporation that the notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
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<PAGE>
Section 2. Whenever any notice is required by law, the Articles of
Incorporation or these Bylaws, to be given to any director, committee member or
shareholder, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
--------
Section 1. The officers of the Corporation shall be elected by the
Board of Directors and shall consist of the Chairman of the Board, a President,
one or more Vice Presidents, a Secretary, and a Treasurer, and such other
officers, including, without limitation, one or more Executive Vice Presidents,
one or more Senior Vice Presidents, one or more Assistant Secretaries and one or
more Assistant Treasurers, as the Board of Directors may deem necessary and
proper. Any two or more of such offices, exempting the office of President and
Secretary, may be held by the same person, but no officer shall execute,
acknowledge, or verify any instrument on behalf of the Corporation in more than
one capacity.
Section 2. The Board of Directors, at its first meeting held after
each annual meeting of shareholders, shall elect the officers of the
Corporation, who shall be subject to the control of the Board of Directors and
shall have such duties in the management of the Corporation as may be provided
by appropriate resolution of the Board of Directors and/or provided in these
Bylaws.
Section 3. The Board of Directors may determine or provide the method
of determining the compensation of all officers.
Section 4. The officers of the Corporation shall hold office until
their successors are chosen and qualify, or until their earlier resignation or
removal. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors.
Section 5. Each officer of the Corporation shall be subject to the
control of the Board of Directors and shall have such duties in the management
of the Corporation as may be provided by appropriate resolution of the Board of
Directors and/or provided in these Bylaws.
9
<PAGE>
Section 6. Powers of attorney, proxies, waivers of notice of meeting,
consents and other instruments relating to securities owned by the corporation
may be executed in the name of and on behalf of the Corporation by the President
or any Vice President and any such officer may, in the name of and on behalf of
the Corporation, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any corporation
in which the Corporation may own securities and at any such meeting shall
possess and may exercise any and all rights and power incident to the ownership
of such securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
Section 7. Any officer, if required by the Board of Directors, shall
give bond in such sum and with such security as the Board of Directors may
require for the faithful performance of duties.
Section 8. In the case of the absence of any officer of the
Corporation, or for any other reason that the Board may deem sufficient, the
Board of Directors may delegate the powers or duties of such officer to any
other officer or to any other director, or to any other person for the time
being.
ARTICLE VI
CERTIFICATES OF STOCK
---------------------
Section 1. Every holder of stock in the Corporation shall be entitled
to have a certificate signed in the name of the Corporation by the Chairman of
the Board, the President or a Vice-President and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary. Such certificate shall
certify the number of shares owned by such holder in the Corporation.
Section 2. Where a certificate is countersigned by (i) a transfer
agent other than the Corporation or its employee, or (ii) a registrar other than
the Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
10
<PAGE>
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issuance of a new certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as the Board of
Directors shall require and/or to give the Corporation a bond in such sum as it
may direct and with such surety as it may approve, as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than seventy days before the date of such meeting, nor
more than seventy days prior to any other action; provided, however that if the
Board of Directors does not set a record date for the determination of the
shareholders entitled to notice of, and to vote at, a meeting of shareholders,
only the shareholders of record at the close of business on the twentieth day
preceding the date of the meeting shall be entitled to notice of, and to vote
at, the meeting and any adjournment of the meeting. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 6. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any
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other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Articles of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting. Pursuant
to law, dividends may be paid in cash, in property, or in shares of the capital
stock.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
directors may from time to time, in their absolute discretion, deem proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the directors may modify or abolish any such reserve in the manner
in which it was created.
Section 3. All checks or demands for money and all notes and other
obligations of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may at any time and from
time to time designate.
Section 4. The fiscal year of the Corporation shall end on the
Saturday closest to the 31st day of January in each year.
Section 5. The corporate seal shall consist of the words "PAYLESS
SHOESOURCE, INC. MISSOURI" arranged in a circular form around the words and
figures "Corporate Seal 1996" and shall be kept by the Secretary. The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
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ARTICLE VIII
AMENDMENTS
----------
These Bylaws may be amended, altered, changed or rescinded, in whole
or in part, or new Bylaws may be adopted, in the manner provided in the Articles
of Incorporation.
The substance of such amendment, alteration, change, rescission or
adoption or the subject matter thereof shall be submitted in writing at a
preceding meeting of the Board of Directors or notice thereof shall be given to
the directors at least ten days before; waiver of notice by any director being
deemed equivalent to such notice to him.
13
<PAGE>
- -------------------------------------------------------------------------------
PAYLESS SHOESOURCE, INC.
and
THE BANK OF NEW YORK
Rights Agent
__________________
Rights Agreement
Dated as of __________, 1996
- -------------------------------------------------------------------------------
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
Section 1. Certain Definitions 1
Section 2. Appointment of Rights Agent............................. 4
Section 3. Issue of Rights Certificates............................ 4
Section 4. Form of Rights Certificates............................. 5
Section 5. Countersignature and Registration....................... 6
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen
Rights Certificates..................................... 7
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights............................................... 7
Section 8. Cancellation and Destruction of Rights Certificates..... 9
Section 9. Reservation and Availability of Capital Stock........... 10
Section 10. Preferred Stock Record Date............................. 11
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights..................................... 11
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares.................................................. 21
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power........................................... 21
Section 14. Fractional Rights and Fractional Shares................. 23
Section 15. Rights of Action........................................ 24
Section 16. Agreement of Rights Holders............................. 25
Section 17. Rights Certificate Holder Not Deemed a Shareowner....... 25
Section 18. Concerning the Rights Agent............................. 26
Section 19. Merger or Consolidation or Change of Name of Rights
Agent................................................... 26
Section 20. Duties of Rights Agent.................................. 27
</TABLE>
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<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
Section 21. Change of Rights Agent.................................. 29
Section 22. Issuance of New Rights Certificates..................... 30
Section 23. Redemption and Termination.............................. 31
Section 24. Notice of Certain Events................................ 31
Section 25. Notices................................................. 32
Section 26. Supplements and Amendments.............................. 33
Section 27. Successors.............................................. 33
Section 28. Determinations and Actions by the Board of Directors,
etc..................................................... 34
Section 29. Benefits of this Agreement.............................. 34
Section 30. Severability............................................ 34
Section 31. Governing Law........................................... 34
Section 32. Counterparts............................................ 35
Section 33. Descriptive Headings.................................... 35
Exhibit A--Form of Certificate of Designation, Preferences and
Rights...................................................... A-1
Exhibit B--Form of Rights Certificate.................................. B-1
</TABLE>
ii
<PAGE>
RIGHTS AGREEMENT
----------------
RIGHTS AGREEMENT, dated as of _______, 1996 (the "Agreement"), between
Payless ShoeSource Inc., a Missouri corporation (the "Company"), and The Bank of
New York, a banking company organized under the laws of New York (the "Rights
Agent").
W I T N E S S E T H
-------------------
WHEREAS, at board of director meetings held on __________, 1996 and
_________________, 1996, The May Department Stores Company, a New York
corporation and the Company's sole shareowner ("May"), determined to make a
dividend distribution of all outstanding shares of the Company's Common Stock
(as hereinafter defined) to the common shareowners of May (the "Spin-off
Distribution");
WHEREAS, as a part of the Spin-off Distribution, May determined that
it desired to distribute Rights (as hereinafter defined) associated with the
Common Stock to be distributed, that certificates representing such Common Stock
would also evidence such Rights and that the registered holders of Common Stock
would also be the registered holders of the associated Rights;
WHEREAS, in order to effectuate the foregoing May is authorizing and
directing the Company to create a shareowner rights plan, to authorize and issue
to May Rights to be attached to the shares of Common Stock and evidenced by
certificates representing Common Stock and to enter into a rights agreement
substantially in the form of this Agreement;
WHEREAS, it is anticipated that the board of directors of May will
declare the dividend constituting the Spin-off Distribution at a meeting on
April __, 1996, which Spin-off Distribution will have a record date of
April __, 1996 and a distribution date of May __, 1996;
WHEREAS, the dividend to be declared to effect the Spin-off
Distribution will consist of .16 share of Common Stock and one Right attached
to each share of Common Stock to be distributed in respect of each share of May
common stock held on the record date for the Spin-off Distribution and will be
distributed on or about May __, 1996 (the "Effective Date"), to holders of
record of common stock of May on April __, 1996;
WHEREAS, the Board of Directors of the Company has authorized and
declared, and will distribute on or before ___________, 1996, a
dividend distribution of one Right for each share of Common Stock of the Company
outstanding at the close of business on _____________, 1996 (the "Record Date"),
and authorized the issuance of one Right (as such number may hereafter be
adjusted pursuant to the provisions of Section 11(p) hereof) for each share of
Common Stock of the Company issued between the Record Date (whether originally
issued or delivered from the Company's treasury) and the Distribution Date (as
hereinafter defined), each Right initially representing the right to purchase
one one-hundredth of a share of Series A Junior Participating Preferred Stock of
the Company having the rights, powers and preferences set forth in the form of
Certificate of Designation, Preferences and Rights attached hereto as Exhibit A,
upon the terms and subject to the conditions hereinafter set forth (the
"Rights");
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall after the Effective Date be the Beneficial Owner (as such
term is hereinafter defined) of 20% or more of the sum of the shares of Common
Stock then outstanding, but shall not include the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by or for
the Company for or pursuant to the terms of any such plan, or any Person who
becomes an Acquiring Person solely as a result of a reduction in the number of
shares of Common Stock outstanding due to the repurchase of shares of Common
Stock by the Company, unless and until such Person shall purchase or otherwise
become the Beneficial Owner of additional shares of Common Stock constituting 1%
or more of the then outstanding shares of Common Stock. Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an Acquiring Person has become such
inadvertently, and such Person divests as promptly as practicable a sufficient
number of shares of Common Stock so that such Person would no longer be an
Acquiring Person, then such Person shall not be deemed to be an Acquiring Person
for any purposes of this Agreement.
(b) "Adverse Person" shall mean any Person declared to be an Adverse
Person by the Board of Directors upon determination that the criteria set forth
in Section 11(a)(ii)(B) apply to such Person.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended and in effect on the date of
this Agreement (the "Exchange Act").
(d) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or be deemed to
"beneficially own," (A) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange, or (B) securities issuable upon exercise of Rights at any time
prior to the occurrence of a Triggering Event, or (C) securities issuable
upon exercise
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of Rights from and after the occurrence of a Triggering Event
which Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to
Section 11(i) hereof in connection with an adjustment made with respect to
any Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including pursuant
to any agreement, arrangement or understanding, whether or not in writing;
provided, however, that a Person shall not be deemed the "Beneficial Owner"
of, or to "beneficially own," any security under this subparagraph (ii) as
a result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding: (A) arises
solely from a revocable proxy given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under the
Exchange Act, and (B) is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing), for
the purpose of acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso to subparagraph (ii) of this paragraph
(d)) or disposing of any voting securities of the Company; provided,
however, that nothing in this paragraph (d) shall cause a Person engaged in
business as an underwriter of securities to be deemed the "Beneficial
Owner" of, or to be deemed to "beneficially own," any securities acquired
through such Person's participation in good faith in a firm commitment
underwriting until the expiration of forty (40) days after the date of such
acquisition.
(e) "Business Day" shall mean any day other than a Saturday, Sunday or
a day on which banking institutions in the State of Missouri are authorized or
obligated by law or executive order to close.
(f) "Close of business" on any given date shall mean 5:00 P.M., St.
Louis, Missouri time, on such date; provided, however, that if such date is not
a Business Day it shall mean 5:00 P.M., St. Louis, Missouri time, on the next
succeeding Business Day.
(g) "Common Stock" shall mean the common stock, par value $.01 per
share, of the Company, except that "Common Stock" when used with reference to
any Person other than the Company shall mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
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(h) "Continuing Director" shall mean (i) any member of the Board of
Directors of the Company, while such Person is a member of the Board, who is not
an Acquiring Person, an Adverse Person or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any Affiliate
or Associate of an Acquiring Person or Adverse Person, and was a member of the
Board on the Effective Date, or (ii) any Person who subsequently becomes a
member of the Board, while such Person is a member of the Board, who is not an
Acquiring Person, or Adverse Person or an Affiliate or Associate of an Acquiring
Person, an Adverse Person or a representative of an Acquiring Person, Adverse
Person or of any such Affiliate or Associate, if such Person's nomination for
election or election to the Board is recommended or approved by a majority of
the Continuing Directors.
(i) "Person" shall mean any individual, firm, corporation, partnership
or other entity whether organized under the laws of the United States of America
or any state or territory thereof or under the laws of any other country or
political subdivision thereof.
(j) "Preferred Stock" shall mean shares of Series A Junior Participating
Preferred Stock, par value $.01 per share, of the Company.
(k) "Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii) (A) or (B) hereof.
(l) "Section 13 Event" shall mean any event described in clauses (x), (y)
or (z) of Section 13(a) hereof.
(m) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such.
(n) "Subsidiary" shall mean, with reference to any Person, any corporation
of which an amount of voting securities sufficient to elect at least a majority
of the directors of such corporation is beneficially owned, directly or
indirectly, by such Person, or otherwise controlled by such Person.
(o) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such Co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Rights Certificates.
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(a) Until the earlier of (i) the close of business on the tenth
Business Day after the Stock Acquisition Date or (ii) the close of business on
the tenth Business Day (or such later date as the Board of Directors shall
determine) after the date that a tender or exchange offer by any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by or for the Company, for or pursuant to
the terms, of any such plan) is first published or sent or given within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange
Act, if upon consummation thereof, such Person would be the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding or (iii) the close of
business on the tenth Business Day after the Board of Directors determines,
pursuant to the criteria set forth in Section 11(a)(ii)(B) hereof, that a Person
is an Adverse Person (the earliest of (i), (ii) and (iii) being herein referred
to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Company). As soon as practicable after
the Distribution Date, the Rights Agent will send by first-class, postage
prepaid mail, to each record holder of the Common Stock as of the close of
business on the Distribution Date, at the address of such holder shown on the
records of the Company, one or more right certificates, in substantially the
form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right for
each share of Common Stock so held, subject to adjustment as provided herein. In
the event that an adjustment in the number of Rights per share of Common Stock
has been made pursuant to Section 11(p) hereof, at the time of distribution of
the Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Distribution Date,
the Rights will be evidenced solely by such Rights Certificates.
(b) Rights shall be issued in respect of all shares of Common Stock
which are issued after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date. Certificates representing such shares
of Common Stock shall also be deemed to be certificates for Rights, and shall
bear the following legend:
This certificate evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between Payless ShoeSource,
Inc. (the "Company") and Bank of New York, dated as of April __, 1996 (the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of the
Company. Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no longer
be evidenced by this certificate. The Company will mail to the holder of
this certificate a copy of the Rights Agreement, as in effect on the date
of mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances set forth in the Rights Agreement,
Rights issued to, or held by, any Person who is, was or becomes an
Acquiring Person or an Adverse Person or any Affiliate or Associate of
either (as such terms are defined
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in the Rights Agreement), whether currently held by or on behalf of such
Person or by any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and the registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall each be substantially
in the form set forth in Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders thereof
to purchase such number of one one-hundredths of a share of Preferred Stock as
shall be set forth therein at the price set forth therein (such exercise price
per one one-hundredth of a share being referred to herein as the "Purchase
Price"), but the amount and type of securities purchasable upon the exercise of
each Right and the Purchase Price thereof shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a), Section
11(i) or Section 22 hereof that represents Rights beneficially owned by: (i)
an Acquiring Person an Adverse Person or any Associate or Affiliate of an
Acquiring Person or an Adverse Person, (ii) a transferee of an Acquiring Person
an Adverse Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person an Adverse Person becomes such, or (iii) a
transferee of an Acquiring Person or an Adverse Person (or of any such Associate
or Affiliate) who becomes a transferee prior to or concurrently with the
Acquiring Person or the Adverse Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person or the Adverse Person to holders of equity interests in such
Acquiring Person or Adverse Person or to any Person with whom such Acquiring
Person or Adverse Person has any agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect avoidance of Section 7(e) hereof, and
any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon
transfer, exchange, replacement or adjustment of any other Rights Certificate
referred to in this sentence, shall contain (to the extent feasible) the
following legend:
The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Adverse
Person or an Affiliate or Associate of an Acquiring Person or an Adverse
Person (as such
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terms are defined in the Rights Agreement). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and void in
the circumstances specified in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the Company's
seal or a facsimile thereof which shall be attested by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile signature.
The Rights Certificates shall be countersigned by the Rights Agent, either
manually or by facsimile signature, and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have
signed any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Rights Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Rights Certificates had not ceased
to be such officer of the Company; and any Rights Certificates may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Rights Certificate, shall be a proper officer of the Company to sign such
Rights Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates, the certificate number of each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the close of business on the Distribution
Date, and at or prior to the close of business on the Expiration Date, any
Rights Certificate or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a share of
Preferred Stock (or, following a Triggering Event, Common Stock, other
securities, cash or other assets, as the case may be) as the Rights Certificate
or Certificates surrendered then entitled such holder (or former holder in the
case of a transfer) to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Certificates shall make
such request in writing delivered to the Rights Agent, and shall surrender the
Rights Certificate or Certificates to be transferred, split up, combined or
exchanged at the principal office or offices of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of
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assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Rights Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the Rights Agent for countersignature and delivery to the registered
owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-hundredths of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the earlier of (i) the
close of business on April __, 2006 (the "Final Expiration Date"), or (ii) the
time at which the Rights are redeemed as provided in Section 23 hereof (the
earlier of (i) and (ii) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $___, and
shall be subject to adjustment from time to time as provided in Sections 11 and
13(a) hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-hundredth of a share of Preferred Stock (or other securities,
cash or other assets, as the case may be) to be purchased as set forth below and
an amount equal to any applicable transfer tax, the Rights Agent shall, subject
to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any
transfer agent of the shares of Preferred Stock (or make available, if the
Rights Agent is the transfer agent for such shares) certificates for the total
number of one one-hundredths of a share of Preferred Stock to be purchased and
the Company hereby irrevocably authorizes its transfer agent to comply
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with all such requests, or (B) if the Company shall have elected to deposit the
total number of shares of Preferred Stock issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a share of
Preferred Stock as are to be purchased (in which case certificates for the
shares of Preferred Stock represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to, or upon the order of,
the registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, and (iv) after receipt thereof,
deliver such cash, if any, to, or upon the order of, the registered holder of
such Rights Certificate. The payment of the Purchase Price (as such amount may
be reduced pursuant to Section 11(a)(iii) hereof) may be made (x) in cash or by
certified bank check or bank draft payable to the order of the Company, or (y)
by delivery of a certificate or certificates (with appropriate stock powers
executed in blank attached thereto) evidencing a number of shares of Common
Stock equal to the then Purchase Price divided by the closing price (as
determined pursuant to Section 11(d) hereof) per share of Common Stock on the
Trading Day immediately preceding the date of such exercise. In the event that
the Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate. The Company reserves the right to
require prior to the occurrence of a Triggering Event that, upon any exercise of
Rights, a number of Rights be exercised so that only whole shares of Preferred
Stock would be issued.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the occurrence of a Section 11(a)(ii) Event, any Rights beneficially
owned by (i) an Acquiring Person, an Adverse Person or an Associate or Affiliate
of an Acquiring Person or an Adverse Person, (ii) a transferee of an Acquiring
Person or an Adverse Person (or of any such Associate or Affiliate) who becomes
a transferee after the Acquiring Person or the Adverse Person becomes such, or
(iii) a transferee of an Acquiring Person or an Adverse Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person or the Adverse Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration) from
the Acquiring Person or the Adverse Person to holders of equity interests in
such Acquiring Person or Adverse Person or to any Person with whom the Acquiring
Person or Adverse Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action, and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The Company
shall use
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all reasonable efforts to ensure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or an Adverse Person or any
of their respective Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and duly executed the certificate and the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all cancelled Rights Certificates to the Company, or shall, at the
written request of the Company, destroy such cancelled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued shares of Preferred Stock
(and, following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities or out of its authorized
and issued shares held in its treasury), the number of shares of Preferred Stock
(and, following the occurrence of a Triggering Event, Common Stock and/or other
securities) that, as provided in this Agreement including Section 11(a)(iii)
hereof, will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as is required by law following the
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Distribution Date, as the case may be, a registration statement under the
Securities Act of 1933 (the "Act"), with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and
(iii) cause such registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities, and
(B) the date of the expiration of the Rights. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the securities
or "blue sky" laws of the various states in connection with the exercisability
of the Rights. The Company may temporarily suspend, for a period of time not to
exceed ninety (90) days after the date set forth in clause (i) of the first
sentence of this Section 9(c), the exercisability of the Rights in order to
prepare and file such registration statement and permit it to become effective.
Upon any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction if the requisite qualification in
such jurisdiction shall not have been obtained, the exercise thereof shall not
be permitted under applicable law or a registration statement shall not have
been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all one one-hundredths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Rights Certificates and
of any certificates for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in respect of a name other than
that of, the registered holder of the Rights Certificates evidencing Rights
surrendered for exercise or to issue or deliver any certificates for a number of
one one-hundredths of a share of Preferred Stock (or Common Stock and/or other
securities, as the case may be) in a name other than that of the registered
holder upon the exercise of any Rights until such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name
any certificate for a number of one one-hundredths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of the whole or fractional shares of Preferred Stock (or Common Stock
and/or other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
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evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such whole or fractional shares on, and such certificate shall be dated, the
next succeeding Business Day on which the Preferred Stock (or Common Stock
and/or other securities, as the case may be) transfer books of the Company are
open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate, as such, shall not be entitled to any rights of a shareowner
of the Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights. The Purchase Price, the number and kind of shares covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller
number of shares, or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price
in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and
the number and kind of shares of Preferred Stock or capital stock, as the
case may be, issuable on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be entitled to
receive, upon payment of the Purchase Price then in effect, the aggregate
number and kind of shares of Preferred Stock or capital stock, as the case
may be, which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Stock transfer books of the Company
were open, the holder of such Right would have owned upon such exercise and
been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof,
the adjustment provided for in this Section 11(a)(i) shall be in addition
to, and shall be made prior to, any adjustment required pursuant to,
Section 11(a)(ii) hereof.
(ii) In the event:
(A) (1) any Acquiring Person or any Associate or Affiliate
of any Acquiring Person, at any time after the date of this Agreement,
directly or indirectly, shall merge into the Company or otherwise combine
with the Company and the Company shall
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be the continuing or surviving corporation of such merger or combination
and the Common Stock of the Company shall remain outstanding and unchanged,
or (2) any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by or
for the Company for, or pursuant to the terms of, any such plan), alone or
together with its Affiliates and Associates, shall, at any time after the
Effective Date, become the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding, unless the event causing the 20% threshold
to be crossed is a transaction set forth in Section 13(a) hereof or is an
acquisition of shares of Common Stock pursuant to a tender offer or an
exchange offer for all outstanding shares of Common Stock at a price and on
terms determined by the Board of Directors of the Company, after receiving
advice from one or more investment banking firms, to be (a) at a price
which is fair to the Company's shareowners (taking into account all factors
which the Board of Directors deems relevant including, without limitation,
prices which could reasonably be achieved if the Company or its assets were
sold on an orderly basis designed to realize maximum value) and (b)
otherwise in the best interests of the Company and its shareowners, or
(B) the Board of Directors shall declare any Person to be an
Adverse Person, upon a determination that such Person, alone or together
with its Affiliates and Associates, has, at any time after the Record Date,
become the Beneficial Owner of an amount of Common Stock which the Board of
Directors determines to be substantial (which amount shall in no event be
less than 15% of the shares of Common Stock then outstanding) and a
determination by the Board of Directors of the Company, after reasonable
inquiry and investigation, including consultation with such persons as such
directors shall deem appropriate, that (a) such Beneficial Ownership by
such Person is intended to cause the Company to repurchase the Common Stock
beneficially owned by such Person or to cause pressure on the Company to
take action or enter into a transaction or series of transactions intended
to provide such Person with short-term financial gain under circumstances
where the Board of Directors determines that the best long-term interests
of the Company and its shareowners would not be served by taking such
action or entering into such transaction or series of transactions at that
time or (b) such Beneficial Ownership is causing or reasonably likely to
cause a material adverse impact (including, but not limited to, impairment
of relationships with customers or impairment of the Company's ability to
maintain its competitive position) on the business or prospects of the
Company to the detriment of the Company's shareowners,
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then, promptly following the occurrence of a Section 11(a)(ii) Event, proper
provision shall be made so that each holder of a Right (except as provided below
and in Section 7(e) hereof) shall thereafter have the right to receive, upon
exercise thereof at the then current Purchase Price in accordance with the terms
of this Agreement, in lieu of a number of one one-hundredths of a share of
Preferred Stock, such number of shares of Common Stock of the Company as shall
equal the result obtained by (x) multiplying the then current Purchase Price by
the then number of one one-hundredths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event, and (y) dividing that product (which, following such
occurrence, shall thereafter be referred to as the "Purchase Price" for each
Right for all purposes of this Agreement) by 50% of the current market price
(determined pursuant to Section 11(d) hereof) per share of Common Stock on the
date of such occurrence (such number of shares being referred to herein as the
"Adjustment Shares").
(iii) In the event that the number of shares of Common Stock
which are authorized by the Certificate of Incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights are not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company shall: (A) determine the excess of (1) the value of the
Adjustment Shares issuable upon the exercise of a Right (the "Current
Value") over (2) the Purchase Price (such excess being referred to herein
as the "Spread"), and (B) with respect to each Right (subject to Section
7(e) hereof), make adequate provision to substitute for the Adjustment
Shares, upon exercise of the Right and payment of the applicable Purchase
Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or
other equity securities of the Company (including, without limitation,
shares, or units of shares, of preferred stock which the Board of Directors
of the Company has deemed to have the same value as shares of Common Stock
(such shares of preferred stock being referred to herein as "common stock
equivalents")), (4) debt securities of the Company, (5) other assets, or
(6) any combination of the foregoing, having an aggregate value equal to
the Current Value, where such aggregate value has been determined by the
Board of Directors of the Company based upon the advice of a nationally
recognized investment banking firm selected by the Board of Directors of
the Company; provided, however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty (30)
days following the later of (x) the occurrence of a Section 11(a)(ii) Event
and (y) the date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred to herein as
the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated
to deliver, upon the surrender for exercise of a Right and without
requiring payment of the Purchase Price, shares of Common Stock (to the
extent available) and then, if necessary, cash, which in the aggregate are
equal to the Spread. If the Board of Directors of the Company shall
determine in good faith that it is likely that sufficient additional shares
of Common Stock could be authorized for issuance upon exercise in full of
the Rights, the thirty (30) day period set forth above may be extended to
the extent necessary, but not more than ninety (90) days following the
Section 11(a)(ii) Trigger Date, in order that the Company may seek
shareowner approval for the authorization of such
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<PAGE>
additional shares (such period, as it may be extended being referred to herein
as the "Substitution Period"). To the extent that the Company determines that
some action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding Rights, and
(y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant to
such first sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11(a)(iii), the value of each Adjustment Share shall be the
current market price (as determined pursuant to Section 11(d) hereof) per share
of the Common Stock on the Section 11(a)(ii) Trigger Date and the per share or
per unit value of any "common stock equivalent" shall be deemed to be equal to
the current market price (as determined pursuant to Section 11(d) hereof) of the
Common Stock on such date.
(iv) If the rules of the national securities exchange, registered as
such pursuant to Section 6 of the Exchange Act, or of the national securities
association, registered as such pursuant to Section 15A of the Exchange Act, on
which the Common Stock is principally traded would prohibit such exchange or
association from listing or continuing to list, or from authorizing for or
continuing quotation and/or transaction reporting through an inter-dealer
quotation system, the Common Stock or other equity securities of the Company if
the Rights were to be exercised for shares of Common Stock in accordance with
subparagraph (ii) of this Section 11(a) because such issuance would nullify,
restrict or disparately reduce the per share voting rights of holders of Common
Stock, the Company shall: (A) determine the Spread, and (B) with respect to each
Right, make adequate provision to substitute for the Adjustment Shares, upon
payment of the applicable Purchase Price, (1) cash, (2) equity securities of the
Company, including, without limitation, "common stock equivalents," other than
securities which would have the effect of nullifying, restricting or disparately
reducing the per share voting rights of holders of Common Stock, (3) debt
securities of the Company, (4) other assets, or (5) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the Company
based upon the advice of a nationally recognized investment banking firm
selected by the Board of Directors; provided, however, if the Company shall not
have made adequate provision to deliver value pursuant to clause (B) above
within thirty (30) days following the Section 11(a)(ii) Trigger Date, then the
Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, cash having an
aggregate value equal to the Spread. To the extent that the Company determines
that some action need be taken pursuant to the first sentence of this Section
11(a)(iv), the Company (x) shall provide, subject to Section 7(e) hereof, that
such action shall apply uniformly to all outstanding Rights and (y) may suspend
the exercisability of the Rights, but not longer than ninety (90) days after the
Section 11(a)(ii) Trigger Date, in order to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine the
value thereof. In the event of any such
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<PAGE>
suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iv), the value of the Common
Stock shall be the current market price (as determined pursuant to Section
11(d) hereof) per share of the Common Stock on the Section 11(a)(ii)
Trigger Date and the value of any "common stock equivalent" shall be deemed
to have the same value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45) calendar
days after such record date) Preferred Stock (or shares having the same rights,
privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate offering price of the total number of shares of Preferred Stock and/or
equivalent preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or equivalent preferred stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid by delivery of consideration part or all of which may be in a form other
than cash, the value of such consideration shall be as determined in good faith
by the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be conclusive for all
purposes and binding on the Rights Agent and the holders of the Rights. Shares
of Preferred Stock owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed, and in the
event that such rights or warrants are not so issued, the Purchase Price shall
be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the
fair market
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<PAGE>
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent) of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a share of
Preferred Stock and the denominator of which shall be such current market price
(as determined pursuant to Section 11(d) hereof) per share of Preferred Stock.
Such adjustments shall be made successively whenever such a record date is
fixed, and in the event that such distribution is not so made, the Purchase
Price shall be adjusted to be the Purchase Price which would have been in effect
if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) or (iv) hereof, the
"current market price" per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices per share of such
Common Stock for the thirty (30) consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date, and for purposes of
computations made pursuant to Section 11(a)(iii) or (iv) hereof, the
"current market price" per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices per share of such
Common Stock for the ten (10) consecutive Trading Days immediately
following such date; provided, however, that in the event that the current
market price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a
dividend or distribution on such Common Stock payable in shares of such
Common Stock or securities convertible into shares of such Common Stock
(other than the Rights), or (B) any subdivision, combination or
reclassification of such Common Stock, and the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification shall not have occurred prior to the
commencement of the requisite thirty (30) Trading Day or ten (10) Trading
Day period, as set forth above, then, and in each such case, the "current
market price" shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the shares of Common Stock are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if the shares of Common Stock
are not listed or admitted to trading on any national securities exchange,
the last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use, or, if on any such date the
shares of Common Stock are not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market
maker making a market in the Common Stock selected by the Board of
Directors of the Company. If on any such date no market maker is making a
market in the Common Stock, the fair
17
<PAGE>
value of such shares on such date as determined in good faith by the Board
of Directors of the Company shall be used. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
shares of Common Stock are listed or admitted to trading is open for the
transaction of business or, if the shares of Common Stock are not listed or
admitted to trading on any national securities exchange, a Business Day.
If the Common Stock is not publicly held or not so listed or traded,
"current market price" per share shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent
and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "current
market price" per share of Preferred Stock shall be determined in the same
manner as set forth above for the Common Stock in clause (i) of this
Section 11(d) (other than the last sentence thereof). If the current
market price per share of Preferred Stock cannot be determined in the
manner provided above or if the Preferred Stock is not publicly held or
listed or traded in a manner described in clause (i) of this Section 11(d),
the "current market price" per share of Preferred Stock shall be
conclusively deemed to be an amount equal to 100 (as such number may be
appropriately adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the date
of this Agreement) multiplied by the current market price per share of the
Common Stock. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, "current market price" per share of
the Preferred Stock shall mean the fair value per share as determined in
good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes. For all purposes of this Agreement, the
"current market price" of one one-hundredth of a share of Preferred Stock
shall be equal to the "current market price" of one share of Preferred
Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-thousandth of a share of Common Stock
or other share or one-millionth of a share of Preferred Stock, as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which mandates such adjustment, or
(ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Preferred
Stock, thereafter the number of such other shares so receivable upon exercise of
any Right and the Purchase Price thereof shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
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provisions with respect to the Preferred Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9,
10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like
terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
share of Preferred Stock (calculated to the nearest one-millionth) obtained by
(i) multiplying (x) the number of one one-hundredths of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any adjustment in
the number of one one-hundredths of a share of Preferred Stock purchasable upon
the exercise of a Right. Each of the Rights outstanding after the adjustment in
the number of Rights shall be exercisable for the number of one one-hundredths
of a share of Preferred Stock for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such adjustment of
the number of Rights shall become that number of Rights (calculated to the
nearest one-ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
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(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-hundredths of a
share and the number of one one-hundredths of a share which were expressed in
the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the number of one
one-hundredths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable such number of one one-hundredths of a share
of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at less than the current market price, (iii) issuance wholly
for cash of shares of Preferred Stock or securities which by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends, or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its Preferred Stock
shall not be taxable to such shareowners.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets, cash flow or earning
power aggregating more than 50% of the assets, cash flow or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x) at the
time of or immediately after such consolidation, merger or sale there are any
rights, warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish
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or otherwise eliminate the benefits intended to be afforded by the Rights or (y)
prior to, simultaneously with or immediately after such consolidation, merger or
sale, the shareowners of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 26 hereof, take
(or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the Effective Date and prior to
the Distribution Date (i) declare a dividend on the outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares
of Common Stock, or (iii) combine the outstanding shares of Common Stock into a
smaller number of shares, the number of Rights associated with each share of
Common Stock then outstanding, or issued or delivered thereafter but prior to
the Distribution Date, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(q) The failure by the Board of Directors to declare a Person to be an
Adverse Person following such Person becoming the Beneficial Owner of 15% or
more of the outstanding Common Stock shall not imply that such Person is not an
Adverse Person or limit the Board of Directors' right at any time in the future
to declare such Person to be an Adverse Person.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail
or cause the Rights Agent to mail a brief summary thereof to each holder of a
Rights Certificate (or, if prior to the Distribution Date, to each holder of a
certificate representing shares of Common Stock) in accordance with Section 25
hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and into,
any other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o)
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hereof), and the Company shall not be the continuing or surviving corporation of
such consolidation or merger, (y) any Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o) hereof) shall
consolidate with, or merge with or into, the Company, and the Company shall be
the continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (z) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer), in one transaction or a series of related transactions,
assets, cash flow or earning power aggregating more than 50% of the assets, cash
flow or earning power of the Company and its Subsidiaries (taken as a whole) to
any Person or Persons (other than the Company or any Subsidiary of the Company
in one or more transactions each of which complies with Section 11(o) hereof),
then, and in each such case (except as may be contemplated by Section 13(d)
hereof), proper provision shall be made so that: (i) each holder of a Right,
except as provided in Section 7(e) hereof, shall thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of validly authorized
and issued, fully paid, nonassessable and freely tradeable shares of Common
Stock of the Principal Party (as such term is hereinafter defined), not subject
to any liens, encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by (1) multiplying the then current
Purchase Price by the number of one one-hundredths of a share of Preferred Stock
for which a Right is exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the
first occurrence of a Section 13 Event, multiplying the number of such one one-
hundredths of a share for which a Right was exercisable immediately prior to the
first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect
immediately prior to such first occurrence), and (2) dividing that product
(which, following the first occurrence of a Section 13 Event, shall be referred
to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by 50% of the current market price (determined pursuant to Section
11(d)(i) hereof) per share of the Common Stock of such Principal Party on the
date of consummation of such Section 13 Event; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such Section 13 Event,
all the obligations and duties of the Company pursuant to this Agreement; (iii)
the term "Company" shall thereafter be deemed to refer to such Principal Party,
it being specifically intended that the provisions of Section 11 hereof shall
apply only to such Principal Party following the first occurrence of a Section
13 Event; (iv) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of shares of its Common
Stock) in connection with the consummation of any such transaction as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to its shares of Common Stock
thereafter deliverable upon the exercise of the Rights; and (v) the provisions
of Section 11(a)(ii) hereof shall be of no effect following the first occurrence
of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x)
or (y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the Company
are converted in such merger or consolidation, and if no securities are so
issued, the Person that is the other party to such merger or consolidation;
and
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(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party receiving
the greatest portion of the assets, cash flow or earning power transferred
pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer of assets mentioned in paragraph (a) of
this Section 13, the Principal Party will
(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after
such filing and (B) remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Expiration Date; and
(ii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which comply
in all respects with the requirements for registration on Form 10 under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired shares of Common Stock pursuant to a Qualified
Offer (or a wholly owned subsidiary of any such Person or Persons), (ii) the
price per share of Common Stock offered in such transaction is not less than the
price per share of Common Stock paid to all holders of shares of Common Stock
whose shares were purchased pursuant to such tender offer or exchange offer, and
(iii) the form of consideration
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being offered to the remaining holders of shares of Common Stock pursuant to
such transaction is the same as the form of consideration paid pursuant to such
tender offer or exchange offer. Upon consummation of any such transaction
contemplated by this Section 13(d), all rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading
Day immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading, or if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one one-
hundredth of a share of Preferred Stock), which may, at the option of the
Company, be evidenced by depositary receipts upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-hundredth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional
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<PAGE>
shares of Common Stock, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one (1) share
of Common Stock. For purposes of this Section 14(c), the current market value of
one (1) share of Common Stock shall be the closing price of one (1) share of
Common Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading
Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in such holder's own behalf and
for such holder's own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, such holder's right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
shall be entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
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(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company shall be required
to use its best efforts to have any such order, decree or ruling lifted,
overturned or otherwise removed as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Shareowner. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one one-
hundredths of a share of Preferred Stock or any other securities of the Company
which may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Rights Certificate be
construed to confer upon the holder of any Rights Certificate, as such, any of
the rights of a shareowners of the Company or any right to vote for the election
of directors or upon any matter submitted to shareowners at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareowners (except as provided in Section
24 hereof), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by such Rights Certificate shall have been
exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in connection therewith. The provisions
of this Section 18(a) shall survive the termination of this Agreement.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
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(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; provided, however, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person or Adverse
Person and the determination of "current market price") be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
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(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any adjustment required under the provisions of Section 11 or
Section 13 hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after actual notice of any such adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock or Preferred Stock to
be issued pursuant to this Agreement or any Rights Certificate or as to whether
any shares of Common Stock or Preferred Stock will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any shareowner, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company
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resulting from any such act, default, neglect or misconduct; provided, however,
reasonable care was exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Company.
(l) Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Agreement
and the date on and/or after which such action shall be taken or such omission
shall be effective. The Rights Agent shall not be liable for any action taken
by, or omission of, the Rights Agent in accordance with a proposal included in
such application on or after the date specified in such application (which date
shall not be less than five Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to any earlier date) unless prior to taking any such action
(or the effective date in the case of an omission), the Rights Agent shall have
received written instructions in response to such application specifying the
action to be taken.
(m) In addition to the foregoing, the Rights Agent shall be protected
and shall incur no liability for, or in respect of, any action taken or omitted
by it in connection with its administration of this Agreement if such acts or
omissions are in reliance upon (i) the proper execution of the certifications
concerning beneficial ownership appended to the form of assignment and the form
of election to purchase attached hereto unless the Rights Agent shall have
actual knowledge that, as executed, such certification is untrue, or (ii) the
non-execution of such certification including, without limitation, any refusal
to honor any otherwise permissible assignment or election by reason of such non-
execution.
(n) The Company agrees to give the Rights Agent prompt written notice
of any event or ownership which would prohibit the exercise or transfer of the
Right Certificates.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the
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Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then the Rights Agent or any
registered holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of the State of Missouri (or of any other state of the United States so long as
such corporation is authorized to do business in the State of Missouri or the
State of New York), in good standing, having a principal office in the State of
Missouri or the State of New York, which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which either has or is an
affiliate of a corporation which has at the time of its appointment as Rights
Agent a combined capital and surplus of at least $100,000,000. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and mail a notice thereof in writing to the registered holders
of the Rights Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of Rights
in connection with such issuance or sale; provided, however, that (i) no such
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
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Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the tenth Business Day
following the Stock Acquisition Date or (ii) the Final Expiration Date, redeem
all but not less than all the then outstanding Rights at a redemption price of
$.01 per Right, as such amount may be appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). Notwithstanding the foregoing, the Board of Directors may not redeem
any Rights following a determination pursuant to Section 11(a)(ii)(B) that any
Person is an Adverse Person. If, following the occurrence of a Stock Acquisition
Date and following the expiration of the right of redemption hereunder but prior
to any Triggering Event, (i) a Person who is an Acquiring Person shall have
transferred or otherwise disposed of a number of shares of Common Stock in one
transaction, or series of transactions, not directly or indirectly involving the
Company or any of its Subsidiaries, which did not result in the occurrence of a
Triggering Event such that such Person is thereafter a Beneficial Owner of 10%
or less of the outstanding shares of Common Stock, and (ii) there are no other
Persons, immediately following the occurrence of the event described in clause
(i), who are Acquiring Persons, then the right of redemption shall be reinstated
and thereafter be subject to the provisions of this Section 23. Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable after the occurrence of a Section 11(a)(ii) Event until such time as
the Company's right of redemption hereunder has expired. The Company may, at its
option, pay the Redemption Price in cash, shares of Common Stock (based on the
"current market price," as defined in Section 11(d)(i) hereof, of the Common
Stock at the time of redemption) or any other form of consideration deemed
appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and the holders of the then outstanding Rights by
mailing such notice to all such holders at each holder's last address as it
appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Stock. Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made.
Section 24. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional
31
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shares of Preferred Stock or shares of stock of any class or any other
securities, rights or options, or (iii) to effect any reclassification of its
Preferred Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets, cash flow or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each of
which complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case any Section 11(a)(ii) Event shall occur, then (i) the
Company shall as soon as practicable thereafter give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 25 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) hereof,
and (ii) all references in the preceding paragraph to Preferred Stock shall be
deemed thereafter to refer to Common Stock and/or, if appropriate, other
securities.
Section 25. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Payless ShoeSource, Inc.
3231 E. 6th Street
Topeka, Kansas 66607
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
The Bank of New York
101 Barclay Street
New York, New York 10286
32
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Attention:
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the Distribution
Date and subject to the penultimate sentence of this Section 26, the Company and
the Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this Section 26, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder (including, without
limitation, the period within which the Rights may be redeemed in accordance
with Section 23 hereof) or (iv) to change or supplement the provisions hereunder
in any manner which the Company may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Rights Certificates (other
than an Acquiring Person, an Adverse Person or an Affiliate or Associate of an
Acquiring Person, an Adverse Person); provided, this Agreement may not be
supplemented or amended to lengthen, pursuant to clause (iii) of this sentence,
(A) a time period relating to when the Rights may be redeemed at such time as
the Rights are not then redeemable, or (B) any other time period unless such
lengthening is for the purpose of protecting, enhancing or clarifying the rights
of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
26, the Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this Agreement to the contrary, no supplement or amendment
shall be made which changes the Redemption Price, the Final Expiration Date, the
Purchase Price or the number of one one-hundredths of a share of Preferred Stock
for which a Right is exercisable; provided, however, that at any time prior to
(i) existence of an Acquiring Person, (ii) the date that a tender or exchange
offer by any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or any Subsidiary of the Company, or any
Person or entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan) is first published or sent or given
within the meaning of Rule 14d-2(a) of the General Rules and Regulations under
the Exchange Act, if upon consummation thereof, such Person would be the
Beneficial Owner of 20% or more of the shares of Common Stock then outstanding
and if at the time of any amendment or supplement such tender or exchange offer
has not expired or been terminated, or (iii) the Board of Directors determines
that a Person is an Adverse Person, the Board of Directors of the Company may
amend this Agreement to increase the Purchase Price or extend the Final
Expiration Date. Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of Common
Stock.
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Section 27. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of Directors,
etc. For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
(with, where specifically provided for herein, the concurrence of the Continuing
Directors) shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board (with, where specifically provided for herein, the concurrence of the
Continuing Directors) or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights, to
declare that a Person is an Adverse Person or to amend the Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board (with, where specifically provided for herein, the
concurrence of the Continuing Directors) in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other parties, and (y) not subject the Board or the Continuing
Directors to any liability to the holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth Business Day following the date of such determination by the Board of
Directors. Without limiting the foregoing, if any provision requiring a
majority of the Board of Directors of the Company to be Continuing Direc-
tors to act is held by any court of competent jurisdiction or other authority to
be invalid, void or unenforceable, such
34
<PAGE>
determination shall then be made by the Board of Directors of the Company in
accordance with applicable law and the Company's Certificate of Incorporation
and By-Laws.
Section 31. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: PAYLESS SHOESOURCE, INC.
By_________________________ By_______________________
Name: Name:
Title: Title:
Attest: THE BANK OF NEW YORK
By_________________________ By________________________
Name: Name:
Title: Title:
36
<PAGE>
Exhibit A
---------
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
OF
PAYLESS SHOESOURCE, INC.
Pursuant to Section 351.180 of the
General and Business Corporation Law of the State of Missouri
Payless ShoeSource, Inc., a corporation (the "Corporation") organized
and existing under the General and Business Corporation Law of the State of
Missouri (the "GBCL"), HEREBY CERTIFIES:
That pursuant to the authority conferred upon the Board of Directors
by the Amended and Restated Certificate of Incorporation of the Corporation, the
Board of Directors on __________, 1996, adopted the following resolution
creating a series of _______________ (__________) shares of Preferred Stock
designated as Series A Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its Amended
and Restated Articles of Incorporation (the "Articles of Incorporation") and
Section 351.180 of the GBCL, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock," par value $.01
per share (the "Series A Junior Preferred Stock"), and the number of shares
constituting such series shall be 430,000.
2. Dividends and Distributions. (a) Subject to the prior and
superior rights of the holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of Series A Junior Preferred Stock with
respect to dividends, the holders of shares of Series A Junior Preferred Stock
in preference to the holders of Common Stock and of any other junior stock,
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available therefor, dividends payable in cash quarterly on
the fifteenth day of January, April, July and October (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times
A-1
<PAGE>
the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Preferred Stock. In the event the Corporation shall at any time after the
record date for the initial distribution of the Corporation's Preferred Stock
Purchase Rights pursuant to the Rights Agreement, dated as of April 1996,
between the Corporation and The Bank of New York, as Rights Agent (the "Rights
Declaration Date"), (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares or (iv) issue any
shares of its capital stock in a reclassification of the outstanding Common
Stock, then in each such case the amount to which holders of shares of Series A
Junior Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(b) The Corporation shall declare a dividend or distribution on the
Series A Junior Preferred Stock as provided in paragraph (a) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A
Junior Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares of Series A Junior
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Junior
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Junior Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Junior Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be no more than 60 days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A Junior Preferred
Stock shall have the following voting rights:
A-2
<PAGE>
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the shareowners of the
Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series A Junior
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in the Articles of
Incorporation or under applicable law, the holders of shares of Series A Junior
Preferred Stock and the holders of shares of Common Stock shall vote together as
one class on all matters submitted to a vote of shareowners of the Corporation.
(c) (i) If at any time dividends on any Series A Junior Preferred
Stock shall be in arrears in an amount equal to six (6) quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of a period
(herein called a "default period") that shall extend until such time when all
accrued and unpaid dividends for all previous quarterly dividend periods and for
the current quarterly dividend period on all shares of Series A Junior Preferred
Stock then outstanding shall have been declared and paid or set apart for
payment. During each default period, all holders of shares of Series A Junior
Preferred Stock together with any other series of Preferred Stock then entitled
to such a vote under the terms of the Certificate of Incorporation, voting as a
separate class, shall be entitled to elect two members of the Board of Directors
of the Corporation.
(ii) During any default period, such voting right of the holders
of Preferred Stock may be exercised initially at a special meeting called
pursuant to subparagraph (iii) of this Subsection 3(c) or at any annual meeting
of shareowners, and thereafter at annual meetings of shareowners, provided that
neither such voting rights nor the rights of holders of Preferred Stock as
hereinafter provided to increase in certain cases the authorized number of
Directors shall be exercised unless the holders of 25% in number of shares of
Preferred Stock outstanding shall be present in person or by proxy. The absence
of a quorum of the holders of Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting right. At any meeting at which the
holders of Preferred Stock shall exercise such voting right initially during an
existing default period, such holders shall have the right, voting as a separate
class, to elect Directors to fill such vacancies, if any, in the Board of
Directors as may then exist up to two (2) Directors, or, if such right is
exercised at an annual meeting, to elect two (2) Directors. If the number that
may be so elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to make such increase in
the number of Directors as shall be necessary to permit the election by them of
the required number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be increased or
decreased except by vote of the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking senior to or pari passu
with the Series A Junior Preferred Stock.
A-3
<PAGE>
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any shareowner or shareowners
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request the
calling of a special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the Chairman of the Board, the President, a Vice
President or the Secretary of the Corporation. Notice of such meeting and of any
annual meeting at which holders of Preferred Stock are entitled to vote pursuant
to this Section 3(c)(iii) shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall be called for a time
not earlier than 10 days and not later than 60 days after such order or request.
In the event such meeting is not called within 60 days after such order or
request, such meeting may be called on a similar notice by any shareowner or
shareowners owning in the aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding. Notwithstanding the provisions
of this Section 3(c)(iii), no such special meeting shall be called during the
period within 60 days immediately preceding the date fixed for the next annual
meeting of the shareowners.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of Preferred
Stock shall have exercised their right to elect two (2) Directors voting as a
separate class, after the exercise of which right (x) the Directors so elected
by the holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the expiration of
the default period, and (y) any vacancy in the Board of Directors may (except as
provided in Section 3(c)(ii)) be filled by vote of a majority of the remaining
Directors theretofore elected by the class which elected the Director whose
office shall have become vacant. References in this Section 3(c)(iv) to
Directors elected by the holders of a particular class of stock shall include
Directors elected by such Directors to fill vacancies as provided in clause (y)
of the foregoing sentence.
(d) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock, as a separate class, to elect Directors
shall cease, (y) the term of any Directors elected by the holders of Preferred
Stock, as a separate class, shall terminate, and (z) the number of Directors
shall be such number as may be provided for in, or pursuant to, the Certificate
of Incorporation or By-Laws irrespective of any increase made pursuant to the
provisions of Section 3(c)(ii) (such number being subject, however, to change
thereafter in any manner provided by law or in the Certificate of Incorporation
or By-Laws). Any vacancies in the Board of Directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors, even though less than a quorum.
(e) Except as set forth herein or as otherwise provided in the
Certificate of Incorporation, holders of Series A Junior Preferred Stock shall
have no special voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
A-4
<PAGE>
4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Junior Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay or set apart for payment any dividends or make
any other distributions on, or redeem or purchase or otherwise acquire,
directly or indirectly, for consideration any shares of any class of stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior Preferred
Stock, except dividends paid ratably on the Series A Junior Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior Preferred
Stock, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Junior Preferred Stock, or any shares of stock ranking on a
parity with the Series A Junior Preferred Stock, except in accordance with
a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series A Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new
A-5
<PAGE>
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on issuance set
forth herein.
6. Liquidation, Dissolution or Winding Up.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Preferred Stock shall have
received an amount equal to the greater of (a) $10 per share and (b) 100 times
the par value per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series A Junior Preferred Stock unless,
prior thereto, the holders of shares of Common Stock shall have received an
amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately
adjusted as set forth in paragraph (c) below to reflect such events as stock
splits, stock dividends and recapitalizations with respect to the Common Stock)
(such number in clause (ii) being hereinafter referred to as the "Adjustment
Number"). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Junior Preferred Stock and Common Stock, respectively, holders of
Series A Junior Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Series A Junior Preferred Stock and Common Stock, on a per share basis,
respectively.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Junior Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of all such shares
in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(c) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
7. Consolidation, Merger, Share Exchange, etc. In case the
Corporation shall enter into any consolidation, merger, share exchange,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series A Junior Preferred Stock
shall at the same time be similarly exchanged or changed in an amount per share
(subject
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<PAGE>
to the provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is changed or exchanged. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, (iii)
combine the outstanding Common Stock into a smaller number of shares or (iv)
issue any shares of its capital stock in a reclassification of the outstanding
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A Junior
Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
8. No Redemption. The shares of Series A Junior Preferred Stock
shall not be redeemable.
9. Ranking. The Series A Junior Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
10. Amendment. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Junior Preferred Stock so
as to affect them adversely without the affirmative vote of the holders of two-
thirds or more of the outstanding shares of Series A Junior Preferred Stock,
voting together as a single voting group.
11. Fractional Shares. Series A Junior Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Junior Preferred Stock.
IN WITNESS WHEREOF, Payless ShoeSource, Inc. has caused this
Certificate to signed by __________ its _________, this ____ day of __________,
1996.
PAYLESS SHOESOURCE, INC.
By:______________________________
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<PAGE>
Exhibit B
---------
[Form of Rights Certificate]
Certificate No. R- _________ Rights
NOT EXERCISABLE AFTER APRIL __, 2006 OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND
VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
ADVERSE PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON OR AN
ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]/1/
Rights Certificate
PAYLESS SHOESOURCE, INC.
This certifies that , or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of April __, 1996 (the "Rights Agreement"),
between Payless ShoeSource, Inc., a Missouri corporation (the "Company"), and
The Bank of New York, a banking company organized under the laws of New York,
(the "Rights Agent"), to purchase from the Company at any time prior to 5:00
P.M. (St. Louis, Missouri time) on April __, 2006 at the office or offices of
the Rights Agent designated for such purpose, or its successors as Rights Agent,
one one-hundredth of a fully paid, nonassessable share of Series A
________________
/1/ The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
B-1
<PAGE>
Junior Participating Preferred Stock (the "Preferred Stock") of the Company, at
a purchase price of $___ per one one-hundredth of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The Purchase
Price shall be paid, at the election of the holder, in cash or shares of Common
Stock of the Company having an equivalent value. The number of Rights evidenced
by this Rights Certificate (and the number of shares which may be purchased upon
exercise thereof) set forth above, and the Purchase Price per share set forth
above, are the number and Purchase Price as of April __, 1996, based on the
Preferred Stock as constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person an Adverse Person
or an Affiliate or Associate of any such Acquiring Person or Adverse Person (as
such terms are defined in the Rights Agreement), (ii) a transferee of any such
Acquiring Person, Adverse Person Associate or Affiliate, or (iii) under certain
circumstances specified in the Rights Agreement, a transferee of a person who,
after such transfer, became an Acquiring Person, an Adverse Person or an
Affiliate or Associate of an Acquiring Person or an Adverse Person, such Rights
shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-hundredths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right at any time prior to the earlier of the close
of business on (i) the tenth Business Day following the
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<PAGE>
Stock Acquisition Date (as such time period may be extended pursuant to the
Rights Agreement), and (ii) the Final Expiration Date.
The Company is not required to issue fractional shares of Preferred
Stock upon the exercise of any Right or Rights evidenced hereby (other than
fractions which are integral multiples of one one-hundredth of a share of
Preferred Stock, which may, at the election of the Company, be evidenced by
depositary receipts), but in lieu thereof a cash payment may be made, as
provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareowner of the Company or any right to vote for the
election of directors or upon any matter submitted to shareowners at any meeting
thereof, or to give or withhold consent to any corporate action, or, to receive
notice of meetings or other actions affecting shareowners (except as provided in
the Rights Agreement), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Rights Certificate shall
have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of April __, ____
ATTEST: PAYLESS SHOESOURCE, INC.
_____________________________ By____________________________
Secretary Title:
Countersigned:
THE BANK OF NEW YORK
By____________________________
Authorized Signature
B-3
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED___________________________________________________
hereby sells, assigns and transfers unto_____________________________
_____________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Rights Certificate on the books of the within-named Company,
with full power of substitution.
Date:___________________, ____
______________________________________
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person an
Adverse Person or an Affiliate or Associate of any such Person (as such terms
are defined pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person an
Adverse Person or an Affiliate or Associate of any such Person.
Dated: ___________, ____ ____________________________
Signature
B-4
<PAGE>
B-5
<PAGE>
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-6
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)
To: PAYLESS SHOESOURCE, INC.:
The undersigned hereby irrevocably elects to exercise __________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
________________________________________________________________________________
Dated: _______________, ____
___________________________________
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person, an Adverse Person or
B-7
<PAGE>
an Affiliate or Associate of any such Person (as such terms are defined
pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or became an Acquiring Person, an Adverse Person or
an Affiliate or Associate of any such Person.
Dated: ___________, ____ _______________________________________________
Signature
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
B-8
<PAGE>
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT, dated as of April 2, 1996, is entered into
by THE MAY DEPARTMENT STORES COMPANY, a New York corporation ("May"), and
Payless ShoeSource, Inc., a Missouri corporation ("Payless"), and shall be
deemed effective as of May 4, 1996.
RECITALS
On January 17, 1996, May announced its plans to divest itself of its
discount shoe store operations. To this end, May intends to distribute pro rata
on the Distribution Date (as hereinafter defined) the Payless common stock then
owned by May to the owners of May common stock. After the Distribution Date,
May will own no shares of Payless' common stock.
The purpose of this Agreement is to set forth the agreement between
May and Payless with respect to the Federal, state, local and foreign taxes
attributable to each of them and their subsidiaries for all taxable periods
beginning on or before the Distribution Date. This Agreement also provides
certain indemnity obligations between the parties hereto if the actions of
either party or its shareowners have an adverse effect on the tax-free nature of
the distribution described above and consequently the tax liability of the other
party.
The parties agree as follows:
Article I
DEFINITIONS
For purposes of this Agreement, the following definitions shall apply:
(a) "Adjustment" shall mean any final change in any pre-Distribution
Income Tax liabilities of any member of the May Affiliated Group initiated
or agreed to by the IRS.
(b) "Affiliated Group" shall mean an affiliated group of corporations
within the meaning of Code section 1504(a) for the taxable period in
question.
<PAGE>
(c) "Carryback Item" shall mean any net operating loss, net capital
loss, unused general business tax credit or any other Tax Item of the
Payless Affiliated Group which under the Code or any other applicable
Income Tax law can be used to generate a Tax Benefit for the May Affiliated
Group.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
and in effect for the taxable period in question.
(e) "Deferred Taxes" shall mean the tax effect of differences arising
from the recognition of revenue and expense in different periods for tax
and financial statement purposes.
(f) "Deferred Tax Liabilities" shall mean the net liability for
Deferred Taxes for all taxable periods beginning on or before the
Distribution Date.
(g) "Distribution" shall mean the pro rata distribution by May of the
ownership of the stock of Payless to owners of May common stock as of the
close of business on the record date for such distribution.
(h) "Distribution Date" shall mean the date on which the Distribution
occurs. For all purposes, the Distribution shall be effective as of the
close of business on the Distribution Date.
(i) "Event of Loss" shall mean the incurrence by the May Affiliated
Group of any liability for Income Tax as a result of the Distribution.
(j) "Final Determination" shall mean the final resolution of any tax
liability (including all related interest and penalties) in respect of any
Adjustment for a taxable period. A Final Determination shall result from
the first to occur of:
(i) the expiration of 30 days after IRS acceptance of a Waiver
of Restrictions (or partial Waiver of Restrictions) on Assessment and
Collection of Deficiency in Tax and Acceptance of Overassessment on
Federal Revenue Form
2
<PAGE>
870 or 870-AD, except as to reserved matters specified therein (or any
successor comparable form or the expiration of a comparable agreement
or form under the laws of other jurisdictions);
(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is (x) not subject to further judicial
review (by appeal or otherwise) or (y) subject to further judicial
review but with respect to which May notifies Payless, in good faith
and in its sole discretion that it has determined not to appeal;
(iii) the execution of a closing agreement under section 7121 of
the Code or the acceptance by the IRS or its counsel of an offer in
compromise under section 7122 of the Code, or comparable agreements
under the laws of other jurisdictions, except as to reserved matters
specified therein;
(iv) the expiration of the time for filing a claim for refund or
for instituting suit in respect of a claim for refund disallowed in
whole or part by the IRS;
(v) any other final disposition of the tax liability for such
period by reason of the expiration of the applicable statute of
limitations; or
(vi) any other event that the parties agree is a final and
irrevocable determination of the liability at issue.
(k) "Income Taxes" shall mean all Federal, state and local, and
foreign taxes imposed upon, or measured by, income, including, without
limitation, environmental and alternative or add-on minimum taxes, and such
related franchise, excise and similar taxes as have been customarily
included in the provision for income taxes on May's financial statements,
together with all related interest, penalties and additions to tax.
3
<PAGE>
(l) "IRS" shall mean the United States Internal Revenue Service or
any successor thereto, including, but not limited to, its agents,
representatives, and attorneys.
(m) "May Affiliated Group" shall mean, for each taxable period, the
Affiliated Group of which May or any successor of May is the common parent,
as defined in Code Section 1504(a).
(n) "May Group" shall mean, with respect to any taxable period, the
corporations that were members of the May Affiliated Group during such
period, exclusive of the corporations that are included in the Payless
Affiliated Group immediately after the Distribution Date.
(o) "Other Taxes" shall mean any gross income, gross receipts, sales,
use, ad valorem, franchise, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits
tax, custom, duty or other charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by
any governmental authority responsible for the imposition of any such tax.
(p) "Payless Affiliated Group" shall mean, for each taxable period
beginning after the Distribution Date, the Affiliated Group of which
Payless is the common parent, as defined in Code section 1504(a).
(q) "Payless Assets" shall mean all of the assets held by the members
of the Payless Affiliated Group immediately after the Distribution.
(r) "Payless Group" shall mean, with respect to any taxable period,
the corporations that were members of the May Affiliated Group and that are
members of the Payless Affiliated Group immediately after the Distribution
Date.
(s) "Return" shall mean any return, report, information return,
officer report or filing or other document (including, without limitation,
estimated returns and related or supporting informa-
4
<PAGE>
tion) in respect of Income Taxes or Other Taxes, as the case may be.
(t) "Stub Period" shall mean the taxable period (or portion
thereof) that begins on February 4, 1996 and ends on the Distribution Date.
(u) "Tax Benefit" shall mean a reduction in the Income Tax liability
of a corporation (or of the Affiliated Group of which it is a member) for
any taxable period that arises, or may arise in the future, as a result of
any adjustment to, or addition or deletion of, a Tax Item in the
computation of the Income Tax liability of the taxpayer (or the Affiliated
Group of which it is a member).
(v) "Tax Detriment" shall mean an increase in the Income Tax
liability of a corporation (or of the Affiliated Group of which it is a
member) for any taxable period that arises, or may arise in the future, as
a result of any adjustment to, or addition or deletion of, a Tax Item in
the computation of the Income Tax liability of the taxpayer (or the
Affiliated Group of which it is a member).
(w) "Tax Item" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit, or any other item which increases or decreases
Income Taxes paid or payable.
Article II
FILING OF TAX RETURNS
Section 2.1. Pre-Distribution Tax Returns. (a) May shall file all
consolidated Federal Income Tax Returns and all state and local Income Tax
Returns required to be filed on a combined, consolidated or unitary basis for
each member of the May Affiliated Group that are required to be filed for the
taxable year ending February 3, 1996 and for the taxable year that begins on
February 4, 1996 and ends on or after the Distribution Date. Payless
acknowledges that Treas. Reg. sec. 1.1502-77(a) confers certain authority on
May, as the common parent of the May Affiliated Group, with respect to Federal
Income Tax matters for all taxable periods begin-
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<PAGE>
ning on or before the Distribution Date and agrees to enter into any election or
consent reasonably requested by May with respect to such matters for such
taxable years.
(b) May shall file all foreign Income Tax Returns and all state and
local Income Tax Returns for each member of the Payless Group not required to be
included in a combined, consolidated or unitary state and local Income Tax
Return of the May Affiliated Group for the taxable period ending February 3,
1996 and for the taxable period that begins on February 4, 1996 and ends on or
before the Distribution Date. Payless shall file all foreign Income Tax Returns
and all state and local Income Tax Returns for each member of the Payless Group
not required to be included in a combined, consolidated or unitary state and
local Income Tax Return of the May Affiliated Group for the taxable period (if
any) that begins on February 4, 1996 and ends after the Distribution Date.
(c) All Returns with respect to Other Taxes for a period beginning
before the Distribution Date and all other filings required to be filed with any
taxing authority after the Distribution Date shall be filed by the party that
under section 3.5 is responsible for paying the tax to which the Return relates
or for making such filing, as the case may be.
Section 2.2. Post-Distribution Tax Returns. For taxable periods
beginning after the Distribution Date (1) May shall be responsible for filing
tax Returns relating to members of the May Group; and (2) Payless shall be
responsible for filing tax Returns relating to members of the Payless Group.
Article III
PAYMENT OF TAXES
Section 3.1. Certain Pre-Distribution Income Taxes. The parties
acknowledge that there has not yet been a Final Determination of the
consolidated Income Tax liability of the May Affiliated Group for any taxable
period beginning on or after February 3, 1991. The parties further acknowledge
that May has charged or credited to the Payless Group Payless's Deferred Tax
Liabilities
6
<PAGE>
for all taxable periods ending on or before February 3, 1996 based on the
Returns as filed or expected to be filed for such periods. Absent an adjustment
under Section 3.2 or an indemnity obligation under Section 3.3 or Section 3.7,
the parties acknowledge and agree that no further sum shall be due to May from
any member of the Payless Group or from May to any member of the Payless Group
on account of the Income Tax liabilities reflected in the consolidated and other
Returns filed or to be filed with respect to all taxable periods ending on or
before February 3, 1996.
Section 3.2. Payless Deferred Tax Liability. (a) In connection with
May's calculation of Payless' share of the consolidated Income Tax liability of
the May Affiliated Group pursuant to Section 3.1 hereof, the parties acknowledge
that a portion of these Deferred Taxes have been reconciled to and are supported
by the Federal and state and local Income Tax Returns of the May Affiliated
Group filed for all taxable periods ending on or before January 28, 1995. The
parties further acknowledge that the Payless Group has been allocated its
estimated share of Deferred Taxes for the taxable period ending February 3,
1996. Within 120 days of the filing of the Federal Income Tax Return for the
taxable period ending on February 3, 1996, the estimate of Deferred Taxes
allocated to the Payless Group will be reconciled to the actual amounts
determined to be allocable to the Payless Group through the Distribution Date,
and any necessary adjustments will be made between the parties as provided in
Section 3.2(b) below. The determination of whether such an adjustment is
required shall be made in accordance with generally accepted accounting
principles as set forth in Accounting Principles Board Opinion Number 11 and the
methodology used by the May Affiliated Group in preparing its financial
statement for the fiscal year ended February 1, 1997.
(b) To the extent that the actual Deferred Taxes for the taxable
period ending February 3, 1996 are in excess of the amount originally estimated
as described in Section 3.2(a), May will pay Payless this difference. To the
extent that actual Deferred Taxes for the taxable period ending February 3, 1996
are less than the amount originally estimated as described in Section 3.2(a),
Payless will pay May this difference. Such payment shall
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<PAGE>
be made within one hundred and fifty (150) days of the filing by the May
Affiliated Group of the Federal Income Tax Return for the taxable period ending
on February 3, 1996.
Section 3.3. Responsibility for Certain Pre-Distribution Income Tax
Liabilities. (a) Payless shall pay, reimburse and indemnify May as parent of
the May Affiliated Group an amount computed pursuant to paragraph (c) below if
there is an Adjustment that results in a Tax Detriment to the May Affiliated
Group and a corresponding decrease in the Payless Group's Deferred Tax
Liabilities that is required to be reflected (without regard to materiality) in
any financial statements of Payless pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" ("FAS 109")
in a post-Distribution period.
(b) May shall pay, reimburse and indemnify Payless as parent of the
Payless Affiliated Group an amount computed pursuant to paragraph (d) below if
there is an Adjustment that results in a Tax Benefit to the May Affiliated Group
and a corresponding increase in the Payless Group's Deferred Tax Liabilities
that is required to be reflected (without regard to materiality) in any
financial statements of Payless pursuant to FAS No. 109 in a post-Distribution
period.
(c) Any payment made pursuant to paragraph (a) of this Section 3.3
shall be made in accordance with Section 3.8 hereof and shall equal (i) for any
taxable period beginning prior to January 1, 1993, (x) the amount of the
Adjustment (computed without regard to any interest, penalties or additions to
tax), reduced by the amount of any decrease in the Deferred Tax Liabilities of
the May Affiliated Group arising as a result of the effect of such Adjustment in
all pre-Distribution periods, multiplied by (y) thirty-eight and one-half
percent (38 1/2%) and (ii) for any other taxable period, (x) the amount of the
Adjustment (computed without regard to any interest, penalties or additions to
tax), reduced by the amount of any decrease in the Deferred Tax Liabilities of
the May Affiliated Group arising as a result of the effect of such Adjustment in
all pre-Distribution periods, multiplied by (y) thirty-nine and one-half percent
(39 1/2%).
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<PAGE>
(d) Any payment made pursuant to paragraph (b) of this Section 3.3
shall be made in accordance with Section 3.8 hereof and shall equal (i) for any
taxable period beginning prior to January 1, 1993 (x) the amount of the
Adjustment (computed without regard to any interest, penalties or additions to
tax), reduced by the amount of any increase in the Deferred Tax Liabilities of
the May Affiliated Group arising as a result of the effect of such Adjustment in
all pre-Distribution periods, multiplied by (y) thirty-eight and one-half
percent (38 1/2%) and (ii) for any other taxable period, (x) the amount of the
Adjustment (computed without regard to any interest, penalties or additions to
tax), reduced by the amount of any increase in the Deferred Tax Liabilities of
the May Affiliated Group arising as a result of the effect of such Adjustment in
all pre-Distribution periods, multiplied by (y) thirty-nine and one-half percent
(39 1/2%).
Section 3.4. Stub Period Income Taxes. (a) Notwithstanding anything
to the contrary in Section 3.3 hereof, Payless shall be responsible for all
Income Taxes imposed upon, or otherwise allocable to, the Payless Group for the
Stub Period. In this regard, the parties acknowledge that, as of the date of
this Agreement, May has paid Stub Period Income Taxes on behalf of the Payless
Group of $[ x ], and that Payless has fully reimbursed May for the amount of
such payments. In addition, the parties further acknowledge that, pursuant to
Sections 2.1(a) and 2.1(b) hereof, May shall file certain Income Tax Returns on
behalf of, or which include, the members of the Payless Group for the Stub
Period. Payless shall reimburse May for any Income Taxes imposed upon the
Payless Group for the Stub Period in excess of such $[ x ] within five (5) days
of the earlier to occur of the filing of any Return by May or the payment by May
of any Income Tax (including the payment of estimated Income Taxes) for the Stub
Period.
(b) Payless shall pay any Income Tax shown due on any Return that
includes the Stub Period for which it has filing responsibility pursuant to
Section 2.1 hereof.
(c) Payless shall indemnify and hold harmless May as parent of the
May Affiliated Group against all Taxes for the Stub Period for which Payless
9
<PAGE>
is responsible pursuant to this Section 3.4. Any payment required to be made by
Payless to May pursuant to this Section 3.4(c) shall be made in accordance with
Section 3.8 hereof.
(d) If May receives a refund of Income Taxes for the Stub Period for
which May had previously been reimbursed by Payless pursuant to paragraph (a) of
this Section 3.4, May shall pay the amount of such refund to Payless within five
(5) days of receipt thereof. If, in filing any Return for which May has filing
responsibility pursuant to Sections 2.1 or 2.2 hereof, May claims a credit
against Income Taxes that is attributable to Income Taxes for the Stub Period
for which May had previously been reimbursed by Payless pursuant to paragraph
(a) of this Section 3.4, May shall pay the amount of such credit to Payless
within five (5) days of the filing of such Return with respect to which such
credit is claimed.
Section 3.5. Other Taxes. The May Group shall pay all Other Taxes
(and shall be entitled to receive and retain all refunds of Other Taxes) which
are attributable to members of the May Group. The Payless Group shall pay all
Other Taxes (and shall be entitled to receive and retain all refunds of Other
Taxes) which are attributable to members of the Payless Group.
Section 3.6. Carrybacks. Unless May and Payless otherwise agree in
writing, Payless hereby expressly agrees to elect (under Code section
172(b)(3)(C) and, to the extent feasible, any similar provision of any state and
local Income Tax law) to relinquish any Carryback Item (in which event no
payment shall be due from May to Payless in respect of such Carryback Item).
Section 3.7. Responsibility for an Event of Loss. (a)
Responsibility of Payless Group. Payless and any successor corporation shall be
responsible for, and shall indemnify and hold harmless May and each member of
the May Group from all liability, loss, cost, expense or damage in any way
occasioned by an Event of Loss to the extent such Event of Loss would not have
resulted but for (i) a breach of any covenant contained in Section 6.2 of this
Agreement (without regard to whether an opinion of counsel has been obtained);
or (ii) the occurrence of a transaction at any time after the Distribution Date
(whether or not described in Section 6.2 of this Agree-
10
<PAGE>
ment), involving the stock or assets of Payless, other than a purchase of the
stock or assets of Payless by May or its successor, which transaction (x)
results from a binding commitment entered into by Payless prior to or within two
years after the Distribution Date, or (y) was publicly announced, proposed to or
by Payless, approved, considered by Payless' directors, adopted by Payless'
directors or shareowners, or declared prior to or within one year after the
Distribution Date.
(b) Responsibility of May. If an Event of Loss shall occur for which
Payless is not responsible under paragraph (a) of this Section 3.7 and the IRS
(or any other taxing authority) seeks to collect any Income Tax imposed upon May
or any successor from Payless or any member of the Payless Group with respect to
such Event of Loss under the principles of Treas. Reg. sec. 1.1502-6 (or any
similar provision of state, local or foreign law), then May shall indemnify and
hold harmless Payless and each member of the Payless Group from all liability,
loss, cost, expense or damage in any way occasioned by such Event of Loss which
is not the responsibility of Payless.
Section 3.8. Payment. (a) If Payless is required to make a payment
to a member of the May Group under this Agreement, such payment shall be made by
Payless to May or any successor corporation as parent of the May Affiliated
Group, and if May is required to make a payment to a member of the Payless Group
under this Agreement, such payment shall be made to Payless as the parent of the
Payless Group. Any payment by Payless shall be made by the earlier of 5 days
after (1) May makes a tax payment to the applicable taxing authority (including,
without limitation, any payment made in connection with either an estimated or
annual tax liability) or (2) a Final Determination of the tax liability in
question. Any payment by May shall be made by the earlier of 5 days after (1)
May receives a refund from any taxing authority or claims a tax credit on any
Return or (2) a Final Determination of the tax liability in question. The
amount of any payment required to be made by any party to another under this
Agreement shall be an amount which, after subtraction of any additional federal,
state or local taxes payable by the recipient in respect of the receipt of such
payment, is equal to the amount payable hereunder. May and Payless agree that,
11
<PAGE>
without limiting the ultimate payment obligation of the payor set forth in the
preceding sentence, to the extent permitted, any payment made shall be reported
as non-deductible and any payment received shall be reported as non-taxable.
(b) Any payment required to be made from one party to the other under
this Agreement and not made when due shall bear interest, determined at the time
the payment is due, at the rate per annum equal to the Prime Rate as published
in The Wall Street Journal.
Article IV
COOPERATION AND EXCHANGE OF INFORMATION
Section 4.1. Matters Giving Rise to Indemnity. (a) Whenever May or
Payless becomes aware of an issue which it believes gives rise to an indemnity
from the other party under Article III, May or Payless (as the case may be)
promptly shall give notice of the issue to the other party.
(b) In connection with any pre-Distribution Income Tax liability
arising with respect to a Return for which May had filing responsibilities
pursuant to Section 2.1 or 2.2 hereof, May shall have the right to control any
audit or determination by any authority, initiate any claim for refund or
amended return, contest, defend against, resolve and settle any assessment,
notice of deficiency or other adjustment of taxes or otherwise resolve any issue
pertaining to taxes. May acknowledges that, with respect to any negotiation,
settlement or litigation of any Pre-Distribution Tax Liabilities that may give
rise to an indemnification obligation by Payless pursuant to Sections 3.2(a),
3.4 or 3.6(a) hereof in a taxable year beginning after the Distribution, May
shall (i) promptly give notice in writing to Payless of the commencement of the
audit or examination by any taxing authority, (ii) consult in good faith with
Payless in contesting any proposed adjustment to Taxes and (iii) consider any
reasonable advice from Payless concerning such contest. Notwithstanding the
foregoing, all decisions with respect to such negotiation, settlement or
litigation shall be made by May in its sole discretion.
12
<PAGE>
(c) Payless shall have the right, with respect to any Income Tax
Return for which it has filing responsibility pursuant to Sections 2.1 or 2.2
hereof, to control any audit or determination by any authority, initiate any
claim for refund or amended return, contest, defend against, resolve and settle
any assessment, notice of deficiency or other adjustment of such Income Taxes or
otherwise resolve any issue pertaining to such Income Taxes.
(d) The party responsible for the payment of Other Taxes pursuant to
Section 3.5 hereof shall have the right to control any audit or determination by
any authority, initiate any claim for refund or amended return, contest, defend
against, resolve and settle any assessment, notice of deficiency or other
adjustment of such Other Taxes for which such party is responsible or otherwise
resolve any issue pertaining to such Other Taxes.
(e) Except as otherwise provided above, May shall have sole control
over, and shall have no duty to consult with Payless as to, any liability for
Income Taxes of all members of the May Affiliated Group arising on or before the
Distribution Date, including specifically any Income Taxes arising as a result
of the Distribution.
(f) May and Payless hereby agree to pursue and to cooperate in the
pursuit of every opportunity to realize a Tax Benefit for a member of the May
Group or the Payless Group, respectively, unless the Tax Benefit produced
thereby will be less than $25,000.
Section 4.2. Tax Return Information. By July 15, 1996, and November
15, 1996, respectively, Payless shall, and shall cause each appropriate member
of the Payless Group to, provide May with all information reasonably requested
by May to enable May to file the May consolidated Federal Income Tax Return and
those state and local tax Returns required to be filed on a combined,
consolidated or unitary basis for the taxable periods ended February 3, 1996 and
May 4, 1996, respectively.
By January 31, 1997 and November 31, 1997, respectively, May shall
provide Payless with a copy of those portions of the May consolidated Federal
Income Tax Return and those portions of the state and local Income
13
<PAGE>
Tax Returns required to be filed on a combined or consolidated basis relating to
the Payless Group with respect to the taxable periods ended February 3, 1996 and
May 3, 1996, respectively. May shall prepare such Returns on a basis consistent
with its past practices, except as to new Tax Items or as to any changes
required by law.
May and Payless agree to cooperate fully with each other in connection
with the preparation of any tax Return or claim for refund or in conducting any
audit or other proceeding in respect of taxes for all open taxable periods.
Such cooperation shall include making personnel and records available promptly
and within 20 days (or such other period as may be reasonable under the
circumstances) after a request for such personnel or records is made by the tax-
imposing authority or the other party. If any member of the May Group or the
Payless Group, as the case may be, fails to provide any information requested
pursuant to this section, then the requesting party shall have the right to
engage a public accountant of its choice to gather such information. Payless
and May, as the case may be, agree to permit any such public accountant full
access to all appropriate records or other information in the possession of any
member of the May Group or the Payless Group, as the case may be, during
reasonable business hours, and to reimburse or pay directly all costs and
expenses in connection with the engagement of such public accountant.
If any member of the May Group or the Payless Group, as the case may
be, supplies information to a member of the other group pursuant to this section
and an officer of the requesting party signs a statement or other document under
penalties of perjury in reliance upon the accuracy of such information, then a
duly authorized officer of the party supplying such information shall certify,
under penalties of perjury, the accuracy and completeness of the information so
supplied. May agrees to indemnify and hold harmless each member of the Payless
Group and its officers and employees, and Payless agrees to indemnify and hold
harmless each member of the May Group and its officers and employees against any
cost, fine, penalty or other expense of any kind attributable to the negligence
of a member of the May Group or the Payless Group, as the case may be, in
supplying a member of the other group with inaccurate or incomplete information.
14
<PAGE>
Payless shall have access to only those portions of the May
consolidated Federal Income Tax Return and those state and local Income Tax
Returns required to be filed on a combined or consolidated basis relating to the
Payless Group. Under no circumstances will Payless have access to any portions
of the May consolidated Federal Income Tax Return pertaining to the May Group
and those state and local Income Tax Returns required to be filed on a combined
or consolidated basis pertaining to the May Group.
Section 4.3. Record Retention. May and Payless agree to retain the
appropriate records for all taxable periods which may affect the determination
of the Income Tax liability of the May Affiliated Group or the Payless
Affiliated Group for such period until such time as a Final Determination occurs
with respect to such taxable period.
Any party intending to destroy any material, records or documents
shall provide the other party with advance notice and the opportunity to copy or
take possession of such records and documents. The parties hereto will notify
each other in writing of any waivers or extensions of the applicable statute of
limitations that may affect the period for which the foregoing records or other
documents must be retained.
15
<PAGE>
Article V
DISPUTES
Section 5.1. Disputes. If the parties are, after negotiation in good
faith, unable to agree upon the appropriate application of this Agreement, the
controversy shall be settled by arbitration in accordance with the rules of the
American Arbitration Association. Upon written notice by any party to the other
party that the controversy is to be submitted to arbitration, each party shall
appoint an independent arbitrator (who shall be a tax attorney or certified
public accountant) within 30 days, and the two arbitrators so appointed shall
appoint a third arbitrator within 30 days after the appointment of the last
arbitrator appointed within the initial 30-day period. If any party fails to
appoint an arbitrator or the parties agree on a single arbitrator, the
controversy shall be determined by a single arbitrator. If the two arbitrators
are unable to agree on a third arbitrator within 30 days, any party may apply to
the American Arbitration Association to make such appointment, and all parties
shall be bound by any appointment so made. The award of the arbitrators (or
arbitrator) shall be final, and judgment upon the award rendered may be entered
in any court having jurisdiction. The locale of the arbitration shall be St.
Louis, Missouri. The expenses of the arbitration procedure shall be borne in
equal parts by the parties unless the arbitration award specifies otherwise.
16
<PAGE>
Article VI
REPRESENTATIONS AND WARRANTIES
Section 6.1. Representations and Warranties. As an inducement to
enter into this Agreement, each party represents to and agrees with the other
that:
(a) Payless is a corporation duly organized, validly existing and in
good standing under the laws of the State of Missouri and May is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York, and each of them has all requisite corporate power to own,
lease and operate its properties, to carry on its business as presently
conducted and to carry out the transactions contemplated by this Agreement;
(b) it has duly and validly taken all corporate action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby;
(c) this Agreement has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation enforceable in accordance
with its terms (subject, as to the enforcement of remedies, to (i) applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting the enforcement of creditors' rights generally from time to time in
effect, and (ii) to general principles of equity), whether enforcement is sought
in a proceeding at law or in equity; and
(d) none of the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby or the compliance with any
of the provisions of this Agreement will (i) conflict with or result in a breach
of any provision of its Certificate of Incorporation or by-laws, (ii) breach,
violate or result in a default under any of the terms of any agreement or other
instrument or obligation to which it is a party or by which it or any of its
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to it or affecting any of its
properties or assets.
17
<PAGE>
Section 6.2. Covenants. (a) Payless hereby covenants and agrees
that during the two year period after the Distribution Date it will not
participate in any of the following described events or transactions:
a reorganization, consolidation or merger; the sale or disposition of
Payless Assets other than in the ordinary course of business; Payless'
ceasing to conduct an active trade or business; the acquisition or
disposition of shares of stock of Payless by any person or persons;
the redemption or repurchase of shares of its stock by Payless or any
successor; the recapitalization or other reclassification of the
shares of Payless or any successor; the complete or partial
liquidation of Payless or any successor; the exercisability,
transferability or repurchase of rights distributed pursuant to a
stock purchase rights plan or any other act or omission of Payless
which results in failure to comply with each representation and
statement made to counsel in connection with requested opinions with
respect to the Distribution.
(b) Payless represents that, as of the date hereof, it has no present
intention to take any actions described in paragraph (a) of this Section 6.2.
(c) Notwithstanding the foregoing, Payless may engage in acts
inconsistent with the covenants contained in paragraph (a) of this Section 6.2
if:
(i) May consents in writing to such action; or
(ii) on the basis of valid representations, Payless obtains a
ruling from the IRS, or obtains an opinion from a nationally
recognized independent tax counsel selected by Payless and approved by
May, which ruling or opinion states that such action will not cause
either May or its shareowners to recognize taxable income by virtue of
the Distribution.
18
<PAGE>
Article VII
MISCELLANEOUS
Section 7.1. Term of Agreement. This Agreement shall become
effective as of May 4, 1996 and, except as otherwise expressly provided herein,
the respective covenants of the parties contained herein shall continue in full
force and effect indefinitely.
Section 7.2. Prior Tax Sharing Agreements. This Agreement shall
supersede any other tax-sharing or allocation agreement or arrangement in effect
between the parties hereto prior to the effective date hereof with respect to
the matters expressly dealt with herein, but any such prior agreement or
arrangement shall otherwise remain in effect according to its terms.
Section 7.3. Election under Section 1552 of the Code. Nothing in
this Agreement is intended to change or otherwise affect any election made by or
on behalf of the May Affiliated Group with respect to the calculation of
earnings and profits under section 1552 of the Code or the Consolidated Return
Regulations. May, in its sole discretion, is authorized to seek any change in
the method of calculating earnings and profits as it deems desirable.
Section 7.4. Injunctions. The parties acknowledge that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached. The parties hereto shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court having jurisdiction,
such remedy being in addition to any other remedy to which they may be entitled
at law or in equity.
Section 7.5. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. It is hereby
stipu-
19
<PAGE>
lated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such which may be hereafter declared invalid, void or
unenforceable. In the event that any such term, provision, covenant or
restriction is held to be invalid, void or unenforceable, the parties hereto
shall use their best efforts to find and employ an alternate means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction.
Section 7.6. Assignment. Except by operation of law or in connection
with the sale of all or substantially all the assets of a party hereto, this
Agreement shall not be assignable, in whole or in part, directly or indirectly,
by any party hereto without the written consent of the other party; and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void; provided, however, that the provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective successors and permitted assigns.
Section 7.7. Further Assurances. Subject to the provisions hereof,
the parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each of
the parties shall, in connection with entering into this Agreement, performing
its obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders and decrees, obtain all required
consents and approvals and make all required filings with any governmental
agency, other regulatory or administrative agency, commission or similar
authority and promptly provide the other parties with all such information as
they may reasonably request in order to be able to comply with the provisions of
this sentence.
Section 7.8. Parties in Interest. Except as herein otherwise
specifically provided, nothing in this Agreement expressed or implied is
intended to confer any right or benefit upon any person, firm or corporation
20
<PAGE>
other than the parties and their respective successors and permitted assigns.
Section 7.9. Waiver, Etc. No failure or delay on the part of the
parties in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure by the parties therefrom shall in any event be
effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
Section 7.10. Setoff. All payments to be made by any party under
Section 3.7 of this Agreement shall be made without setoff, counterclaim or
withholding, all of which are expressly waived.
Section 7.11. Change of Law. If, due to any change in applicable law
or regulations or the interpretation thereof by any court of law or other
governing body having jurisdiction subsequent to the date of this Agreement,
performance of any provision of this Agreement or any transaction contemplated
thereby shall become impracticable or impossible, the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such provision.
Section 7.12. Confidentiality. Subject to any contrary requirement
of law and the right of each party to enforce its rights hereunder in any legal
action, each party agrees that it shall keep strictly confidential, and shall
cause its employees and agents to keep strictly confidential, any information
which it or any of its agents or employees may acquire pursuant to, or in the
course of performing its obligations under, any provision of this Agreement;
provided, however, that such obligation to maintain confidentiality shall not
apply to information which (x) at the time of disclosure was in the public
domain not as a result of acts by the receiving party or (y) was in the
possession of the receiving party at the time of disclosure.
21
<PAGE>
Section 7.13. Headings. Descriptive headings are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Agreement.
Section 7.14. Counterparts. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
Section 7.15. Notices. All notices, consents, requests,
instructions, approvals and other communications provided for herein shall be
validly given, made or served, if in writing and delivered personally, by
telegram or sent by registered mail, postage prepaid to
May at: The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: Chief Financial Officer
and/or Treasurer
Payless at: Payless ShoeSource, Inc.
3231 E. 6th Street
Topeka, Kansas 66607
Attention: President and/or
Treasurer
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by telegram shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five calendar days after the date the same is mailed.
Section 7.16. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the domestic substantive laws of the
State of Missouri without regard to any choice or conflict of laws rule or
provisions that would cause the application of the domestic substantive laws of
any other jurisdiction.
Section 7.17. Costs and Expenses. Unless otherwise specifically
provided herein, each party agrees to pay its own costs and expenses resulting
from the fulfillment of its respective obligations hereunder.
22
<PAGE>
[BLANK PAGE]
23
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, all
as of the day and year first above written.
THE MAY DEPARTMENT STORES COMPANY
By:
--------------------------------
Louis J. Garr
PAYLESS SHOESOURCE, INC.
By:
--------------------------------
Thomas A. Hays
24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE MAY DEPARTMENT STORES COMPANY
a New York corporation, Sublessor
AND
PAYLESS SHOESOURCE, INC.
a Missouri corporation, Sublessee
--------------------
SUBLEASE
--------------------
Dated as of April 2, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. Certain Definitions............................ 2
"Additional Rent"........................... 2
"Affiliate"................................. 2
"Applicable Rate"........................... 2
"Appurtenant Agreements".................... 3
"Basic Subrent"............................. 3
"default"................................... 3
"Event of Default".......................... 3
"Impositions"............................... 3
"Insurance Requirements".................... 4
"Lease" or "Leases"......................... 4
"Legal Requirements"........................ 4
"Lessor".................................... 5
"Net Award"................................. 5
"Office and Operating Equipment"............ 5
"Property" or "Properties".................. 5
"Property Agreements"....................... 5
"Restoration"............................... 5
"Selling Fixtures".......................... 5
"Taking".................................... 6
2. Sublease of Properties; Transfer of
Leasehold Improvements......................... 6
2A. Excluded Rights, Interests, Privileges
and Benefits................................... 6
3. Term........................................... 8
4. Basic Subrent, Additional Rent and
Other Expenses................................. 8
5. Net Sublease................................... 9
6. Title and Condition; Use....................... 11
7. Maintenance; Alterations; Operation............ 11
8. Indemnification................................ 13
9. Leases......................................... 14
10. Payment of Impositions, Services and
Sublessor's Expenses........................... 15
11. Compliance With Requirements................... 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
12. Discharge of Liens.......................... 16
13. Permitted Contests.......................... 17
14. Insurance................................... 17
15. Casualty.................................... 20
16. Estoppel Certificate; Inspections........... 22
17. Performance by Sublessor.................... 23
18. Assignment and Sub-subletting............... 24
19. Event of Default............................ 25
20. Conditional Limitations; Remedies........... 27
21. Surrender................................... 31
22. Merger...................................... 32
23. Notices..................................... 32
24. Amendments.................................. 33
25. Miscellaneous............................... 33
26. No Recording................................ 34
27. Sublessee's Right to Extend Term of Sublease
as to Certain Properties.................... 34
28. Certifications and Correspondence........... 37
29. Sublessor's Document Review and/or
Preparation Charges......................... 38
30. Sublessee's Disclaimer...................... 38
31. Single Agreement............................ 38
32. Financial Statements and Financial Covenants 39
33. Governing Law; Submission to Jurisdiction;
Injunction.................................. 55
</TABLE>
ii
<PAGE>
SUBLEASE (this "Sublease"), dated as of April 2, 1996, by and between THE
MAY DEPARTMENT STORES COMPANY, a New York corporation ("Sublessor"), having its
headquarters at 611 Olive Street, St. Louis, Missouri 63101, and PAYLESS
SHOESOURCE, INC., a Missouri corporation ("Sublessee"), having its headquarters
at 3231 East 6th Street, Topeka, Kansas 66607.
W I T N E S S E T H:
-------------------
WHEREAS, on January 17, 1996, Sublessor announced its intent to spin-off
Sublessee as an independent publicly owned corporation and, following that
announcement, Sublessor prepared for the eventual distribution of the common
stock of Sublessee to the common stock owners of Sublessor (the "Distribution")
by, among other things, entering into with Sublessee a Distribution Agreement, a
Tax Sharing Agreement and various other agreements, including those referred to
in the Form 10 Registration Statement as initially filed with the Securities
Exchange Commission on February 23, 1996, as amended (the "Form 10");
establishing and providing for various welfare and pension benefit plans for
associates of Sublessee as described in the Form 10; making arrangements for
Sublessee to obtain a revolving credit facility for general corporate and
working capital purposes; and establishing various reserves on Sublessee's
financial books and records and providing for the transfer of Sublessor's equity
investment in Sublessee to stockholder's equity on Sublessee's books and records
in an amount in excess of $750 million;
WHEREAS, this Sublease is an integral part of the Distribution, which is
soon expected to be declared by the board of directors of Sublessor to be
payable to owners of record of Sublessor's common stock at the close of business
on a future date, and Sublessor and Sublessee acknowledge that neither this
Sublease nor any of the other agreements or preparations referred to in the Form
10 would have been entered into or occurred in absence of the contemplation of
the Distribution;
WHEREAS, each of those certain store locations identified and listed on
Schedule A attached hereto and made a part hereof (such store locations, being
the subject matter of and being more
<PAGE>
particularly described in the Leases (as hereinafter defined), are hereinafter
referred to individually as a "Property" and collectively as the "Properties")
is demised and leased to Sublessor, as tenant, pursuant to a written lease
covering each of same (as now or hereafter amended, supplemented, assigned
and/or extended from time to time, individually a "Lease" and collectively the
"Leases");
WHEREAS, Sublessor is unwilling to sublease any one or more Properties to
Sublessee unless Sublessee subleases all Properties;
WHEREAS, Sublessor desires to demise and sublet to Sublessee, and Sublessee
desires to take and sublease from Sublessor, all of the Properties, all upon,
subject to, as limited by, and in accordance with the respective terms,
provisions and conditions hereinafter set forth; and
WHEREAS, Sublessee acknowledges that, other than pursuant to and as
expressly and specifically provided in this Sublease, Sublessee has no right,
title or interest in, to and/or with respect to the Properties and/or the
Leases;
NOW, THEREFORE, in consideration of the premises, including the
Distribution, and for other good and valuable considerations, the receipt and
adequacy of which are hereby acknowledged by each of the parties hereto, and in
consideration of the mutual agreements of the parties hereto, Sublessor and
Sublessee do hereby covenant and agree as follows:
1. Certain Definitions. As used in and for purposes of this Sublease,
the following terms shall have the following respective meanings:
"Additional Rent" has the meaning specified in Section 4.
"Affiliate" means, as to any person or entity, any other person or
entity controlling, controlled by, or under direct or indirect common
control with such person or entity.
"Applicable Rate" means a per annum rate of interest equal to the
lesser of (a) the maximum rate permitted by applicable law and (b) two
percentage points in excess of
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the per annum rate of interest generally charged from time to time by
Citibank, N.A. (or in its absence, the U.S. bank with the highest market
capitalization) at its branches in New York City in respect of U.S. dollar
demand commercial loans to its most credit worthy commercial borrowers,
which per annum rate of interest is customarily referred to as the "prime
rate" of interest. For the purposes of this Sublease, such "prime rate" of
interest shall be ascertained monthly, as of the first business day of each
calendar month, and such rate, as so ascertained, shall be deemed to be the
"prime rate" in effect throughout such calendar month.
"Appurtenant Agreements" means, with respect to each Property, each
and every agreement, sublease, sub-sublease, declaration, easement and
other document or instrument relating to the Property or to which the
Property is, or may become, subject and binding, directly or indirectly,
upon Sublessor and/or Sublessee.
"Basic Subrent" has the meaning specified in Section 4.
"default" means an event, act, fact, condition or occurrence which,
with the lapse of time or the giving of notice or both, would become an
Event of Default.
"Event of Default" has the meaning specified in Section 19.
"Impositions" means (a) all taxes, assessments (including, without
limitation, all assessments for public improvements or benefits, whether or
not commenced or completed within the term hereof), ground rents, water,
sewer or other rents, rates and charges, excises, levies, license fees,
permit fees, inspection fees and other authorization fees and charges, in
each case whether general or special, ordinary or extraordinary, foreseen
or unforeseen, and whether or not the same shall have been within the
express contemplation of the parties, of every type, kind and character
(including all interest and penalties thereon), which at any time have been
or may be assessed, levied, confirmed or imposed on or in respect of
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or be a lien upon (i) one or more of the Properties or any part thereof, or
any interest therein, or any Basic Subrent or Additional Rent or other sum
reserved or payable hereunder, or this Sublease, or any estate, right of
interest herein, (ii) any occupancy, use or possession of or activity
conducted on one or more of the Properties or any part thereof, or (iii)
the gross receipts from one or more of the Properties, or the earnings from
the use and occupancy thereof; and (b) any income, excess profits, sales,
gross receipts, use or similar taxes, duties or imposts, whether of a like
or different nature, imposed or levied upon, assessed against or payable by
Lessor, Sublessor or Sublessee on account of the acquisition, leasing,
subleasing or use of one or more of the Properties, or any part thereof, or
imposed, levied upon, assessed against or measured by the Basic Rent, Basic
Subrent, Additional Rent or any other sums payable by Sublessor under any
Lease or by Sublessee hereunder.
"Insurance Requirements" means all terms of any insurance policy
covering or applicable to all or any part of a Property, all requirements
of the issuer of any such policy, and all orders, rules, regulations and
other requirements of the National Board of Fire Underwriters (or any other
body exercising similar functions) applicable to or affecting all or any
part of such Property, or the use or condition thereof.
"Lease" or "Leases" have the respective meanings specified in the
preambles of this Sublease.
"Legal Requirements" means all laws, statutes, codes, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits,
licenses, authorizations, directions and requirements of, and agreements
with, all governments, departments, commissions, boards, courts,
authorities, agencies, officials and officers, foreseen or unforeseen,
ordinary or extraordinary, and restrictions or agreements of record, which
now or at any time hereafter may be applicable to a Property or any part
thereof, or any of the adjoining
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sidewalks, vaults and vault space, if any, streets or ways, or any use or
condition of a Property or any part thereof.
"Lessor" means the lessor or landlord under a Lease, together with any
successor or successors to its rights and obligations thereunder, including
at any time after the date hereof, the then owner of Lessor's interest in a
Property.
"Net Award" means any insurance proceeds or condemnation award payable
to Sublessor pursuant to the applicable Lease in connection with any
damage, destruction or Taking, less the reasonable costs, fees and expenses
incurred by Lessor or Sublessor in the collection thereof.
"Office and Operating Equipment" means, to the extent necessary in the
customary and normal conduct of Sublessee's business at or within a
Property, any and all desks, tables, chairs, cabinets, office machines,
data processing equipment, electronic point-of-sale equipment, ticketing
and marketing equipment, cleaning equipment, carpeting, trash balers,
compactors, alarm signal devices, computer equipment, signs and other
equipment of a similar or dissimilar nature and use attached to or used in
connection with such Property.
"Property" or "Properties" have the respective meanings specified in
the preambles of this Sublease.
"Property Agreements" means collectively, the Leases, Appurtenant
Agreements and collateral assignments as to one or more of the Leases
and/or Appurtenant Agreements.
"Restoration" means the restoration, repair, replacement or rebuilding
(including any temporary repairs and property protection pending completion
of the work) of one or more of the Properties or any portion thereof and
Sublessee's personal property and leasehold improvements at and/or within
each Property, as nearly as possible to their value, condition and
character immediately prior to any damage, destruction or Taking.
"Selling Fixtures" means, with respect to a Property, any and all
showcases, center islands, modular interior merchandise display partitions,
shelving, display fixtures,
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chairs, display tables, mirrors and other equipment of a similar or
dissimilar nature and use attached to or used in connection with such
Property.
"Taking" means a taking of all or any part of one or more of the
Properties, or any interest therein or right accruing thereto, as the
result of or in lieu of anticipation of the exercise of the right of
condemnation or eminent domain pursuant to any law, general or special, or
by reason of the temporary requisition of the use or occupancy of one or
more of the Properties or any part thereof, by any authority having the
power of condemnation or eminent domain.
2. Sublease of Properties; Transfer of Leasehold Improvements. Upon,
subject to, as limited by, and in accordance with the respective terms,
provisions and conditions set forth in this Sublease, Sublessor hereby demises
and sublets all Properties to Sublessee, and Sublessee hereby takes and
subleases all Properties from Sublessor. Subject to the terms, provisions and
conditions set forth in this Sublease and/or in one or more of the Property
Agreements, Sublessor hereby remises, releases and quitclaims unto Sublessee any
rights, title and interests of Sublessor in and to any and all leasehold
improvements owned by Sublessor and located in, on, or about one or more of the
Properties, all on an "as is, where is, with all faults" basis and there being
no (and Sublessor hereby expressly disclaims any) warranty or representation,
express or implied, with respect thereto, including without limitation that as
to title, merchantability or fitness for a particular purpose, environmental or
hazardous waste matters, any warranty of operation, or otherwise.
2A. Excluded Rights, Interests, Privileges and Benefits. It is expressly
understood and agreed by and between Sublessor and Sublessee that Sublessor is
not assigning, demising, subletting, granting or otherwise conveying to or for
the benefit of Sublessee, and that Sublessee neither has nor shall have any
right, title, interest, benefit and/or privilege with respect to any right,
title, interest, benefit and/or privilege of Sublessor
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under one or more of the Property Agreements, including, without limitation,
with respect to any of the following:
(a) any option or right to renew or extend any Lease of a Property or
the term thereof;
(b) any right, benefit or privilege to assign, terminate, suspend,
reject, amend, modify, extend or supplement one or more of the Property
Agreements;
(c) any right, benefit or privilege to consent to or approve any
matter, action or request for which the Lessor or any other party, pursuant to
one or more of the Property Agreements, may request, or is required to obtain,
an approval or consent; and
(d) any other right, benefit, privilege, interest or remedy under or
arising out of one or more of the Property Agreements; provided, however, that,
without Sublessor representing or warranting in any manner, express or implied,
the existence or transferability of any of the same and without Sublessor having
any obligation to Sublessee to take any action to secure, retain or enforce same
(if, in fact, in existence, transferable and/or enforceable), Sublessor does
hereby conditionally remise, release and quitclaim unto Sublessee during the
term of this Sublease as to the applicable Property, the following but only to
the extent that any of same may be in existence and Sublessor possesses any
right to transfer same to Sublessee:
(i) any right of the tenant under the applicable Lease to participate
in a Merchants' Association (if any) with respect to the Property;
(ii) any right of the tenant under the applicable Lease to use common
area not included in the foregoing general demise, including any right of
the tenant under such Lease to existing tenant signage or to existing
tenant reserved parking spaces;
(iii) any right of tenant under the applicable Lease to existing
separately metered or billed utility connections relative to the Property,
whether or not an existing deposit or written agreement exists;
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(iv) any privilege existing by custom or practice for the tenant under
the applicable Lease to vary ordinary hours of operation from those (if
any) stipulated in such Lease; and
(v) any understanding, written or unwritten, of the tenant and Lessor
under the applicable Lease, as respects the balance or mix of tenants and
Sublessor's status as a tenant falling within a certain category.
3. Term. The term of this Sublease shall begin on the date hereof and,
unless sooner terminated in accordance with the provisions of this Sublease,
shall end on the day before the expiration or sooner termination of the term of
the then only remaining Lease as to a Property still covered by this Sublease;
provided, however, that, in all events, this Sublease shall terminate as to a
particular Property and its related Appurtenant Agreements on the day before the
expiration or sooner termination of the existing current term (or of the then
extended term, if any, arising pursuant to Section 27 hereof) of the applicable
Lease as to such particular Property.
4. Basic Subrent, Additional Rent and Other Expenses. (a) Sublessee
covenants and agrees to pay as rent hereunder (with such payment being made,
unless and until Sublessee is otherwise directed in writing at any time and from
time to time by Sublessor, directly to the persons entitled to receive same as
required under and/or pursuant to one or more of the Property Agreements) all
rents, amounts and charges (collectively, "Basic Subrent") arising under and/or
pursuant to one or more of the Property Agreements, whether accrued and/or
accruing for and/or during either (i) that portion of the respective terms of
the Leases that occurred prior to the date hereof or (ii) the applicable term of
this Sublease with respect to the respective Properties, in the respective
amounts, in the respective manners and at the respective times provided for the
respective payments thereof (regardless of type, kind and character including,
without limitation, any and all additional rent and percentage rent) in the
applicable Property Agreements with respect to the Properties, each of such
payments to be so paid and made for and
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on behalf of Sublessor and for the account of Sublessor. Sublessee covenants
and agrees to so pay, perform and discharge when due, as additional rent
hereunder ("Additional Rent"), (x) unless and until Sublessee is otherwise
directed in writing at any time and from time to time by Sublessor, directly to
the persons entitled to receive the same, all other amounts, liabilities and
obligations arising under and/or pursuant to one or more of the Property
Agreements, together with all interest, penalties and costs which may be added
thereto as provided for therein and/or herein, and (y) to Sublessor or the
persons entitled to receive same, as the case may be, interest at the Applicable
Rate on all overdue Basic Subrent and/or Additional Rent payable by Sublessee
hereunder from the due date thereof until the date of payment. Sublessee also
shall keep, observe and perform, for and on behalf of Sublessor, Sublessor's
other covenants, duties, obligations and undertakings under, pursuant to and/or
arising out of one or more of the Property Agreements.
(b) If and to the extent that Sublessor so requests in writing to
Sublessee from time to time, Sublessee shall furnish satisfactory proof
evidencing payment of Basic Subrent or Additional Rent; and if so requested by
Sublessor, then thereafter and concurrently with making each payment required
hereunder to be paid by Sublessee directly to the persons entitled to receive
same, Sublessee shall send to Sublessor, at such address and to the attention of
such person as Sublessor may direct in writing from time to time, a true and
complete photocopy of the applicable check and stub (indicating thereon the
specific Property, purpose and period for which such payment is being made),
together with a true and complete copy of any writing transmitting same and of
any invoice, statement or bill upon which the payment is based.
5. Net Sublease. This Sublease is a net, net, net sublease and the Basic
Subrent, Additional Rent and all other sums payable by Sublessee hereunder shall
be paid in all events and without counterclaim, setoff, deduction, defense,
abatement, suspension, deferment or diminution of any kind, and Sublessee
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<PAGE>
shall protect, defend, indemnify and hold Sublessor harmless from and against
any and all actions and claims asserted by any Lessor and/or other person
entitled to payment and/or other performance. In the event that Sublessor has
not directed Sublessee to otherwise pay same, if Sublessee timely (not later
than fifteen (15) days prior to their respective due dates) makes directly to
Sublessor any payments due under one or more of the Property Agreements,
Sublessor shall timely pay over such funds to the appropriate Lessor or other
person entitled to receive same. Except as may be otherwise expressly provided
herein and except as and to the extent that the occurrence of certain of the
events listed below results in a reduction, abatement or suspension of Basic
Subrent and/or Additional Rent pursuant to the express terms of the applicable
Property Agreements, this Sublease shall not terminate, nor shall Sublessee have
any right to terminate or avoid this Sublease or be entitled to any abatement or
reduction of any Basic Subrent or Additional Rent, nor shall the obligations and
liabilities of Sublessee hereunder be in any way affected for any reason,
including without limitation, (a) damage to, destruction of or any Taking of any
part of any Property or Properties, (b) any prohibition, restriction of or
interference with any use of any Property or Properties, (c) any matter or
matters affecting title to, or Sublessee's and/or any sub-sublessee's use,
enjoyment and/or occupancy of, any Property or Properties (to all of which
Sublessee hereby acknowledges and agrees it is taking subject), (d) any
bankruptcy or creditor proceeding relating to Sublessor or any Lessor or any
action taken with respect to this Sublease by any trustee or receiver of
Sublessor or by any court in any such proceedings, (e) any failure by Sublessor
to perform or comply with this Sublease or any other agreement or business
dealings with Sublessee, including without limitation, those under and/or
arising out of the Distribution Agreement, (f) acquisition by Sublessee of
ownership of all or part of any Property or Properties or of Sublessor's
interest therein otherwise than as provided herein, (g) any default under one or
more of the Property Agreements, or the expiration, termination, invalidity or
unenforceability of
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one or more (but less than all) of the Leases, or (h) any other occurrence
whatsoever, whether similar or dissimilar to any of the foregoing, any present
or future law to the contrary notwithstanding and whether or not Sublessor or
Sublessee shall have notice or knowledge of any of the foregoing. Sublessee
will remain obligated under this Sublease in accordance with its terms, and
Sublessee waives all rights now or hereafter conferred by statute or otherwise
to modify or avoid strict compliance with this Sublease.
6. Title and Condition; Use. (a) The Properties hereby are sublet, and
Sublessee hereby accepts same, in their respective present condition ("as is,
where is, with all faults") and without any representation or warranty, express
or implied (the same being hereby expressly disclaimed by Sublessor, including
without limitation that as to title, zoning, merchantability or fitness for a
particular purpose, environmental or hazardous waste matters, any warranty of
operation, or otherwise) and subject to the rights of any and all parties in
possession, to the state of Lessor's and Sublessor's title at the commencement
of the term of this Sublease, to any state of the facts which an accurate survey
or a physical inspection thereof might show, and to all Legal Requirements and
Insurance Requirements.
(b) Subject to the terms and provisions of Sections 7(d) and 19
hereof, Sublessee may use a Property for any purpose permitted under the
applicable Lease as to such Property.
7. Maintenance; Alterations; Operation. (a) Sublessee acknowledges that
it has received each of the Properties in good order, condition and repair. As
to each Property, Sublessee covenants and agrees to make all repairs,
replacements and refurbishments and take such other actions in connection
therewith as required under the applicable Property Agreements and to keep and
maintain same in not less than the order, condition and repair required by the
applicable Property Agreements. Sublessor shall not be obligated in any way to
maintain, alter, repair, rebuild, or replace any of the Properties, and
Sublessee expressly waives the right to perform
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any such action at the expense of Sublessor pursuant to any law at any time in
effect.
(b) Sublessee shall protect, defend, indemnify and hold Sublessor and
Lessor harmless in any manner reasonably satisfactory to Sublessor and Lessor
against loss arising out of any encroachment of improvements to a Property upon
any property, street or right-of-way adjoining such Property or violation of any
restrictive covenant affecting such Property or hinderance or obstruction of any
easement or right-of-way to which such Property is subject or impairment of the
rights of others under any such easement or right-of-way.
(c) Sublessee, to the extent and in the manner permitted by the
applicable Property Agreements as to a particular Property, may make
improvements to or alterations of such Property, and each such improvement or
alteration (i) must be in accordance with the applicable terms, provisions and
conditions of the applicable Property Agreements, (ii) must not lessen the
market value, rental value or rentability of any Property or lessen such
Property's usefulness in Sublessee's business, (iii) shall be completed without
undue delay in good and workmanlike manner, and in compliance with the
applicable Property Agreements, all Legal Requirements, and all Insurance
Requirements, and (iv) subject to the applicable provisions of Section 21
hereof, shall become part of such Property and subject to this Sublease.
Sublessee shall promptly pay all costs and expenses of each such improvement or
alteration and shall discharge all liens filed against such Property arising out
of the same except (if and as permitted in the applicable Property Agreements)
when contesting same in good faith in accordance with the applicable terms,
provisions and conditions of the applicable Property Agreements. Sublessee
shall procure and pay for all permits and licenses required in connection with
any such improvement or alteration.
(d) Sublessee shall operate each Property in accordance with the
terms, conditions and provisions of the applicable Property Agreements,
Insurance Requirements and Legal Requirements as to such Property; to the extent
that any of the
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foregoing imposes (directly or indirectly) on Sublessor any obligation to make
improvements, repairs, alterations or remediations, whether or not contemplated
by the applicable Property Agreements, Sublessee shall perform the same at
Sublessee's sole cost and expense.
(e) If and to the extent permitted in the applicable Lease and as
customary and necessary in the normal conduct of Sublessee's business in the
Property, Sublessee may, at its cost and expense, install or place upon or
reinstall or replace upon and remove from each of the Properties any Office and
Operating Equipment, Selling Fixtures and other personal property, inventory and
materials necessary for the operation of the business to be conducted by
Sublessee therein. All such Office and Operating Equipment, Selling Fixtures,
other personal property, inventory and materials shall not become a part of the
Properties and shall not be the property of Sublessor; provided, that upon
termination or expiration of this Sublease and upon the sooner termination or
expiration of this Sublease or the applicable Lease as to a particular Property,
all such Office and Operating Equipment and Selling Fixtures, upon request of
Lessor or Sublessor, and other personal property, inventory and materials shall
be removed by Sublessee promptly and not later than the earlier of (i) fifteen
(15) days thereafter, or (ii) the date required therefor in the applicable
Lease, and Sublessee shall be required to and shall promptly repair any damage
to each Property resulting from such removal to the extent required by the terms
of the applicable Lease.
8. Indemnification. Sublessee hereby agrees to indemnify, defend,
protect and hold Sublessor and Lessor harmless from and against all liabilities,
losses, actions or causes of action, claims, demands, costs, damages, expenses
(including, without limitation, interest, penalties, reasonable attorneys' fees
and the cost of in-house counsel, court costs and expenses of Sublessee,
Sublessor and Lessor) and judgments of any nature arising, or alleged to arise,
from or in connection with (a) any injury to, or the death of, any person or
loss or damage to property on or about each Property or any adjoining property
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heretofore or hereafter arising from or connected with the ownership,
possession, use, condition, occupancy, construction, maintenance, repair or
rebuilding of such Property or any adjoining property, (b) any existing and/or
subsequent breach or violation, or alleged breach or violation of this Sublease,
one or more of the Property Agreements, any Legal Requirement and/or any
Insurance Requirement, (c) performance of any labor or services or the
furnishing of any materials or other property in respect of a Property or any
part thereof, (d) any contest permitted by Section 13, (e) any claim, proceeding
or contest in connection with any insurance proceeds or settlement, or any award
for any Taking, or (f) any nonpayment or delayed payment of any Basic Subrent
and/or Additional Rent, regardless of whether or not same or any such
nonpayments, delayed payments and/or other such claim is based upon matters
accruing or occurring or alleged to have accrued or occurred before, on and/or
after the date hereof. Sublessee will resist and defend any action, suit or
proceeding brought against Sublessor and/or Lessor by reason of any such
aforementioned occurrence. The obligations of Sublessee under this Section 8
shall survive any termination or expiration of this Sublease and any termination
or expiration of the applicable Lease as to a particular Property. Sublessor
will notify Sublessee of any claim asserted against it on account of any such
injury described in clause (a) of the first sentence of this Section 8 and shall
deliver to Sublessee the original or a true copy of any summons or any other
process, pleading or notice issued in connection with any action, suit or
proceeding to assert or enforce any claim in respect of such injury.
9. Leases. Sublessee hereby confirms and acknowledges that it has a
complete, accurate and fully executed counterpart of each of the Leases and that
it is fully familiar with the respective terms, covenants and conditions of each
of the Leases.
Subject to provision for contesting same pursuant to Section 13, Sublessee
will observe and perform all covenants, agreements, terms and conditions
(including all obligations for payment) imposed on the Sublessor by or as a
result of each Lease at the time and in the manner specified in such Lease,
shall promptly
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notify Sublessor of the occurrence of any default under any Lease, and shall
take such action as shall be necessary to cure such default and maintain the
leasehold estate of Sublessor and of each and every Lessor of any Property under
a Lease.
Sublessor shall have no obligation, duty or liability to observe or
perform, or to cause the observance or performance of, any of the covenants,
agreements, terms and conditions (including any and all obligations for payment)
to be observed or performed by Lessor pursuant to the applicable Lease, and
Sublessor shall under no circumstances be obligated to make any repairs or
supply any materials or services or make any payments of money to Sublessee or
to or with respect to any Property.
Sublessee shall not do, or permit or suffer to be done, any act or omission
by Sublessee, its agents, employees, contractors, invitees, subtenants, guests
or representatives, that is prohibited by the applicable Lease as to the
applicable Property, or that would in any way contravene or violate any term,
obligation, covenant, agreement, provision or condition of such Lease, or that
would constitute or give rise to a default under such Lease.
10. Payment of Impositions, Services and Sublessor's Expenses. Sublessee
will pay all Impositions and all charges for utility, communications and other
services rendered or used on or about each of the Properties, before any
interest or penalty may be added, and will furnish to Sublessor and Lessor, upon
request, satisfactory proof evidencing such payment. If any Imposition may
legally be paid in installments and the applicable Lease so permits, Sublessee
shall have the option to pay such Imposition in installments, provided that, if
any Imposition is payable in installments any of which are to become due and
payable after the end of the term of this Sublease or after the termination or
expiration of this Sublease as to a particular Property, as the case may be, all
such installments shall be paid by Sublessee, in the former case, on or before a
date one month prior to the end of the term of this Sublease and, in the latter
case, on the date of termination or expiration of this Sublease as to such
particular Property. Except and unless as otherwise provided in
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the applicable Lease, nothing in this Sublease shall require payment by
Sublessee of any income or excess profits tax or similar tax determined on the
basis of income or revenue of any person or entity other than Sublessee and any
Affiliate of Sublessee, unless such tax is in lieu of or a substitute (in whole
or in part) for another tax or assessment upon or against one or more of the
Properties, which, if such other tax or assessment were in effect, would be
payable by Lessor or Sublessor.
11. Compliance With Requirements. Subject to provision for contesting
same pursuant to Section 13, Sublessee will promptly (a) comply with all Legal
Requirements and Insurance Requirements, (b) procure, maintain and comply with
all permits, licenses and other authorizations required for any use of any
Property or any part thereof then being made, and for the proper construction,
operation, maintenance and repair of any Property or any part thereof, and (c)
comply with all Appurtenant Agreements, instruments of record, contracts and
agreements at the time in force affecting any Property or any part thereof or
any services rendered to or for the benefit of any Property, whether or not any
of the foregoing shall require changes in, or interfere with the use and
enjoyment of, any Property or any part thereof. Sublessee will not do or permit
any act or thing which impairs the rental value or usefulness of any Property or
which constitutes a public or private nuisance.
12. Discharge of Liens. Except for liens being contested in accordance
with Section 13 hereof, Sublessee will not create or permit to be created or to
remain, and will promptly discharge (if created or permitted to be created by
Sublessee), any lien, encumbrance or charge on Sublessee's, Sublessor's or
Lessor's respective interests in any Property, including any Office and
Operating Equipment and Selling Fixtures used in connection with any Property,
or on the Basic Subrent, Additional Rent or any other sum payable under this
Sublease. Nothing contained in this Sublease shall be construed as constituting
the consent or request of Sublessor or Lessor, expressed or implied, to any
contractor, subcontractor, laborer, materialmen or vendor to or
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for the performance of any labor or services or the furnishing of any materials
for the construction, alteration, addition, repair or demolition of or to any
Property or any part thereof. Notice is hereby given that Lessor and Sublessor
will not be liable for any labor, services or materials furnished or to be
furnished to Sublessee, or to anyone holding the Property or any part thereof
through or under Sublessee, and that no mechanic's or other liens for any such
labor, service or materials shall attach to or affect the respective interests
of Lessor or Sublessor in and to any Property or any part thereof.
13. Permitted Contests. If, as, to the extent and in the manner permitted
under the applicable Lease as to a particular Property, Sublessee may contest by
appropriate proceedings, the amount, validity or application of any Imposition,
Legal Requirement or instrument of record, or any lien arising therefrom,
provided that (a) such proceedings shall suspend the collection thereof, (b) no
part of any Property, the Basic Subrent or Additional Rent will during the
pending of such proceedings be subject to sale, forfeiture, loss or
interference, (c) Lessor and Sublessor will not during the pendency of such
proceedings be subject to any criminal or civil liability for failure to pay,
(d) Sublessee shall have furnished such security as may be required in the
proceedings or reasonably required by Sublessor or Lessor pursuant to Section
20(a)(ii), and (e) such contest shall not violate any provision of any one or
more of the Property Agreements. Sublessee will conduct all such contests in
good faith and with due diligence and, promptly after the termination of such
contest, will pay and discharge all amounts which shall be determined to be
payable therein and perform all acts the performance of which shall be ordered
or decreed as a result thereof.
14. Insurance. (a) Sublessee will maintain with insurers of recognized
financial responsibility authorized to do business in the state in which the
applicable Property is located and which are rated not less than A and IX,
respectively, by A.M. Best or equally rated by another recognized national
rating organization, such insurance as is required by the applicable
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<PAGE>
Lease as to the applicable Property and, notwithstanding the fact that same may
not be required under such Lease, the following:
(i) All risk property insurance written on a replacement cost basis
for the full replacement cost (including debris removal) of the Property,
all leasehold improvements thereto, any other property required to be
insured under the applicable Lease, and all of Sublessee's other real
and/or personal property with respect thereto, insuring against perils
included within the classification of "all risk" physical damage insurance,
including, but not limited to, loss or damage from the following perils:
fire, windstorm, cyclone, tornado, hail, explosion, earthquake (with no
more than a 5% deductible payment clause), riot, riot attending a strike,
civil commotion, malicious mischief, vandalism, aircraft, vehicle, smoke
damage, sprinkler leakage, water damage, collapse, flood and the boiler and
machinery perils;
(ii) Commercial General Liability insurance written on an occurrence
basis and covering bodily injury, death, personal injury and property
damage arising out of incidents or accidents occurring on, in or about, or
arising from the operation of, each Property and the adjoining streets,
sidewalks and parking lots and specifically including coverage for product
liability, completed operations, personal injury and all security related
claims, advertising, injury and contractual liability (insuring Sublessee's
indemnities under this Sublease), in the amount of $5 Million per
occurrence. In addition to the requirements for additional insureds below,
such insurance shall include Sublessor and any other designated persons as
additional insureds for all claims including those where Sublessor or the
other designated persons are wholly or partially negligent; and
(iii) Workers' Compensation insurance for the full statutory
liability of Sublessee.
(b) The policies of insurance required to be maintained by Sublessee
pursuant to this Section 14 shall include
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<PAGE>
as insured parties those parties required to be named under one or more of the
Property Agreements, Lessor, Sublessor and Sublessee, as their respective
interests may appear, may provide such reasonable deductible amounts as are
satisfactory to Lessor and Sublessor, shall be otherwise satisfactory to Lessor
and Sublessor and may be carried under blanket policies maintained by Sublessee
if such policies comply with the provisions of this Section 14 and the
requirements of the Property Agreements. Sublessor shall not be required to
prosecute any claim against any insurer or to contest any settlement proposed by
any insurer. At Sublessee's sole cost and expense and at no cost and expense to
Sublessor, Sublessee may prosecute any such claim or contest any such settlement
and, at Sublessee's request, Sublessor will join therein. The aforesaid
policies of insurance shall include such mortgagee endorsements required under
the Property Agreements, a provision for the benefit of each of the named or
additional insureds that not less than thirty (30) days' prior written notice
(or such longer period as may be required under the Property Agreements) of
cancellation or alteration shall be given, a waiver of all rights of subrogation
against Lessor, Sublessor and Sublessee and their respective successors,
successors in interest and assigns, and a provision to the effect that such
insurance shall not be invalidated by any act or neglect of Lessor or Sublessor
or Sublessee or any owner of one or more of the Properties, nor by any
foreclosure or other proceedings or notices thereof relating to one or more of
the Properties or any interest therein, and shall not contain a provision wholly
relieving the insurer thereunder of liability for any loss by reason of the
existence of other policies of insurance covering and insuring against the peril
involved, whether collectible or not, it being understood and agreed that
insurance carried by Sublessee is primary to that of any other insured or
additional insured.
(c) At the commencement of the term of this Sublease, Sublessee shall
deliver to Sublessor (to the attention of its Vice President for Risk Management
and Insurance), and promptly thereafter shall mail to any additional parties
entitled
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<PAGE>
to same under the Property Agreements, either (a) original or duplicate policies
or (b) certificates of the insurers, evidencing all of the insurance which is
required to be maintained hereunder by Sublessee (including copies of
endorsements evidencing that policies comply with the requirements as to
additional insureds, waiver of subrogation, cancellation, and primary
insurance). Within the time required under the Property Agreements, but not
later than thirty (30) days prior to the expiration of any such insurance, other
original or duplicate policies or certificates evidencing the renewal of such
insurance shall be delivered and mailed as hereinabove provided. Should
Sublessee fail to effect, maintain or renew any insurance provided for in this
Section 14, or to pay the premium therefor, or to deliver to Lessor and
Sublessor any of such policies or certificates, Sublessor, at its option, but
without obligation so to do, may upon five (5) days' notice to Sublessee procure
such insurance, and any sums expended by it to procure such insurance shall be
repaid by Sublessee on demand of Sublessor, with interest on such sums at the
Applicable Rate from the date of expenditure by Sublessor to the date of
repayment by Sublessee.
(d) Sublessee shall not obtain or carry separate insurance (other than
general public liability insurance) concurrent in form or contributing in the
event of loss with that required by this Section 14 unless Lessor, Sublessor,
and any holder or holders of a mortgage lien or security interest in any of the
Properties securing any indebtedness of the Lessor or Sublessor are included
therein as named insureds, with loss payable as in this Sublease provided.
Sublessee shall immediately notify Lessor and Sublessor when any such separate
insurance is obtained and shall deliver to Lessor and Sublessor the policies or
certificates evidencing the same.
15. Casualty. (a) If there is any damage to or destruction of a Property
or if any proceedings or negotiations are instituted which do or may result in a
Taking, Sublessee will promptly give notice thereof to Lessor and Sublessor
describing the nature and extent thereof. This Sublease shall remain in
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<PAGE>
full force and effect after any such damage, destruction or Taking, subject to
any adjustment of rent as may be expressly provided in the applicable Lease,
and, unless this Sublease is terminated as to a particular Property pursuant to
Section 15(b) below, Sublessee will promptly and with reasonable diligence (but
not later than is required in the applicable Lease) commence and complete
Restoration of the Property (to the extent such Restoration would otherwise be
the obligation of Sublessor under the applicable Property Agreements as to the
Property) and of Sublessee's leasehold improvements and other personal property
thereto or therein, regardless of the availability or sufficiency of any Net
Award. In the case of a Taking for temporary use, Sublessee shall not be
required to effect Restoration until such Taking shall have terminated.
(b) If permitted by the applicable Property Agreements as to a
particular Property, Sublessee may, in lieu of Restoration, give Lessor and
Sublessor notice of its intention to terminate this Sublease as to such Property
within fifteen (15) days prior to the time within which election must be made
under the applicable Lease. Subject to Sublessee's timely compliance with the
provisions hereof, such termination of this Sublease as to such Property will be
effective on the earliest date the Sublessor is entitled to terminate the
applicable Lease and such Lease is validly terminated. Notwithstanding anything
to the contrary set forth above, Sublessee may not so terminate, and must
proceed with Restoration if required by the applicable Property Agreements
unless Sublessee timely furnishes to Sublessor (i) the written consent of Lessor
(and of other parties having the right to so consent or approve) to not proceed
with Restoration and (ii) a valid, written termination of the applicable Lease.
Such notice of termination shall be accompanied by a certificate of Sublessee,
jointly signed by the President or Chairman and Chief Financial Officer of
Sublessee, and a legal opinion of counsel for the Sublessee, stating that the
requirements of this Section 15(b) for termination of this Sublease with respect
to such Property have been met. On such termination date, Sublessee shall no
longer have any interest in
21
<PAGE>
such Property. Sublessee shall pay the installment of Basic Subrent, Additional
Rent and all other sums due and payable under this Sublease as to such Property
(to the extent not abated pursuant to the express terms of the applicable Lease)
to and including such termination date and/or as otherwise required under the
applicable Lease.
(c) If Sublessee is not in default under this Sublease and if this
Sublease shall not have been terminated with respect to a Property pursuant to
Section 15(b), the Net Award, upon actual receipt (if any) by Sublessor, shall
be paid over to Sublessee for Restoration, except if and as hereinafter limited.
Sublessee will pay or make reimbursement for all costs and expenses of
Restoration. If the costs and expenses of Restoration shall exceed the amount of
the Net Award, the deficiency shall be paid by Sublessee. Anything in this
Section 15 (including this Section 15(c)) to the contrary notwithstanding,
disposition of any Net Award with respect to any Property shall be subject to
the provisions of the applicable Property Agreements with respect to such
Property.
(d) Except as otherwise provided or required by the terms of the
applicable Property Agreements, any Net Award actually received by Sublessor as
compensation for a Taking of temporary use or occupancy of such Property for and
during the term of this Sublease as to such Property shall be paid over to
Sublessee to be used by Sublessee for the purposes provided hereunder and/or
under the applicable Property Agreements.
(e) Sublessor does not, and will not, surrender any right available to
it under a Lease to participate in the determination of the amount of any Net
Award and, provided that the applicable Lease permits, shall permit Sublessee,
at its expense, to participate, will indicate its consent to any Net Award
approved by Sublessee and the applicable Lessor which is not unreasonable, and
will not approve any Net Award without Sublessee's prior written consent, which
shall not be unreasonably withheld.
16. Estoppel Certificate; Inspections. (a) Sublessee will deliver to
Lessor and/or Sublessor, promptly after any request by
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<PAGE>
either of them, (i) a statement as to each Property for which such request is
made, executed by Sublessee's President, Chairman or Chief Financial Officer,
certifying the dates to which the Basic Subrent, Additional Rent and other sums
payable hereunder have been paid, that this Sublease is unmodified (except as
specified) and in full force and effect, and that to Sublessee's knowledge there
is no default by Sublessee (or, if there is, specifying the nature and period of
existence thereof and the action Sublessee is taking or proposes to take to cure
such default) or default hereunder by Sublessor or default by Lessor under the
applicable Lease, and (ii) such information with respect to one or more of the
Properties, or any one thereof, as may reasonably be requested, and (b)
Sublessee will use best efforts to obtain and deliver to Sublessor a similar
statement (as provided in (a)(i) above) from the Lessor under the applicable
Lease as to a particular Property. It is intended that any and all such
statement(s) and information may be relied upon by Lessor, Sublessor and their
respective creditors.
(b) Upon reasonable notice, one or more of Lessor, Sublessor and their
respective authorized representatives may (but shall not be obligated to) enter
one or more of the Properties or any part thereof during normal business hours,
and as often as Lessor or Sublessor may reasonably request, for the purpose of
inspecting the same.
17. Performance by Sublessor. Subject to the limitation that Sublessor
shall not disturb a contest that is permitted and proceeding as and in the
manner required by Section 13, if Sublessee shall fail to make any payment or
perform any act required under this Sublease, Sublessor, without notice to or
demand upon Sublessee and without waiving or releasing any obligation or Event
of Default, may (but shall not be obligated to) make such payment or perform
such act, and may enter upon one or more of the Properties or any part thereof
for such purpose and take all such action as in the opinion of Sublessor may be
necessary or appropriate. No such entry shall be deemed an eviction of
Sublessee.
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<PAGE>
18. Assignment and Sub-subletting. Sublessee shall have no right to, and
shall not, (A) assign, mortgage, pledge or otherwise encumber this Sublease or
its interest in this Sublease or any part thereof in any manner, whether by
operation of law or otherwise, or (B) unless, except and in the manner and
extent as a sublet is specifically and expressly permitted under the applicable
Lease as to a particular Property, sub-sublease any such Property or any part
thereof, but no such sub-sublease (notwithstanding the fact that same may be
permitted under such Lease) shall be for a term expiring beyond the existing
current term of such Lease. Any such attempted assignment, mortgage, pledge or
encumbrance, and any sub-sublease made in violation of this Section 18, shall be
null and void and of no force and effect.
Each permitted sub-sublease shall expressly be subject and subordinate to
the terms, provisions and conditions of this Sublease, the applicable Property
Agreements, and all matters then of record. No sub-sublease or purported
assignment by Sublessee shall affect, reduce or release any obligation,
liability, agreement and/or covenant of Sublessee under and/or pursuant to
and/or arising out of this Sublease, nor any right and/or remedy of Sublessor,
Lessor, Lessor's lender and/or any other person or entity, it being understood
and agreed that all such obligations, liabilities, agreements and covenants of
Sublessee shall continue in full force and effect as the obligations,
liabilities, agreements and covenants of a principal, and not of a guarantor or
surety, to the same extent as though no such purported assignment or sub-
sublease had been made. Promptly after the execution and delivery of any sub-
sublease, Sublessee shall give notice to Sublessor of the existence and term of
such sub-sublease and deliver a conformed copy thereof to Sublessor. Except in
the manner, and upon strict compliance with the terms, provisions and
conditions, set forth in this Section 18, Sublessee may not enter into a sub-
sublease of all or any part of any one or more of the Properties.
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<PAGE>
19. Event of Default. Any one or more of the following occurrences,
conditions or acts shall constitute a material default and an "Event of Default"
under this Sublease:
(a) Regardless of the pendency of any bankruptcy, reorganization,
receivership, insolvency or other proceeding, in law or in equity, or before or
by any administrative tribunal which has or might have the effect of preventing
Sublessee from complying with the terms of this Sublease, Sublessee shall
(i) fail to make payment when due of any Basic Subrent, Additional
Rent or other amount payable by Sublessee hereunder and/or under any one or
more of the Property Agreements, or
(ii) fail to observe or perform any provision of Sections 7, 8, 9, 10,
11, 12, 13, 14, 15, 18, 21, 28, 29 or 33 of this Sublease, or
(iii) fail to observe or perform any other provision of this Sublease,
or
(iv) fail to observe or perform any other provision of any one or more
of the Property Agreements, and such failure shall continue (A) as to
subclause (i) above, for ten (10) days after notice of same from Sublessor
or Lessor, or (B) as to subclause (ii) above, for fifteen (15) days after
notice of same from Sublessor or Lessor, or (C) as to subclauses (iii) and
(iv) above, for thirty (30) days after notice of same from Lessor or
Sublessor; provided, however, that if such failure as to clauses (iii) or
(iv) above cannot be wholly cured by the payment of money and cannot with
due diligence be wholly cured within such period specified therefor, then
Sublessee, if permitted by the applicable Lease, shall have such longer
period as shall be necessary to cure such default as to clauses (iii) or
(iv) above so long as Sublessee proceeds promptly so to cure within the
specified period, prosecutes the cure to completion with due diligence, and
advises Sublessor and Lessor from time to time, upon Sublessor's or
Lessor's request, of the actions which Sublessee is taking and the progress
being made; or
(b) any Lease as to a particular Property shall terminate by reason of
or as a result of either (i) any failure
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<PAGE>
by Sublessee to comply with such Lease and/or this Sublease or (ii) any action,
inaction and/or omission of Sublessee, and Sublessee does not promptly furnish
Sublessor with a document duly executed by the applicable Lessor effectively
terminating the applicable Lease and fully releasing Sublessor, its
predecessors, successors and assigns from any and all obligations and
liabilities with respect to such Lease and Property, regardless of when or how
arising and/or accruing; or
(c) Sublessee is dissolved, files a voluntary petition under any
chapter of the United States Bankruptcy Code or under any similar federal or
state law, makes an assignment for the benefit of creditors, admits in writing
its inability to pay its debts generally as they become due, or consents to the
appointment of a receiver or liquidator (or other similar official) of Sublessee
or of all or substantially all of its business or assets or of the estate or
interest of Sublessee in the Properties, or a petition or an answer proposing
the reorganization of Sublessee or an arrangement of Sublessee or an arrangement
between Sublessee and some or all of its creditors pursuant to the United States
Bankruptcy Code or any similar law, federal or state, is filed in and approved
by any court; or
(d) any of the creditors of Sublessee files a petition to reorganize
or liquidate Sublessee pursuant to the United States Bankruptcy Code or any
similar law, federal or state, and such petition is not discharged, stayed or
denied within sixty (60) days after the date on which such petition was filed;
or
(e) by the order of any court of competent jurisdiction, a receiver or
liquidator (or other similar official) of Sublessee or of all or substantially
all of its business or assets or of the estate or interest of Sublessee in the
Properties is appointed and is not discharged, stayed or dismissed within thirty
(30) days after such appointment, or by decree of such court Sublessee is
adjudicated a bankrupt or is declared insolvent; or
(f) the holder(s) (or trustee(s) or agent(s) on their behalf) of any
evidences of indebtedness upon which
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Sublessee is or may become liable and aggregating Ten Million Dollars
($10,000,000.00) or more, cause such evidences to become due prior to the stated
maturity(ies) and Sublessee does not promptly replace same or otherwise cure.
20. Conditional Limitations; Remedies. The rights and remedies of
Sublessor upon occurrence of an Event of Default are as provided in this Section
20.
(a) Whenever an Event of Default shall have occurred, be continuing
and not cured as hereinabove provided therefor, Sublessor, at its election:
(i) may proceed by appropriate judicial proceedings, either at law or
in equity, to enforce performance or observance by Sublessee of the
applicable provisions of this Sublease and/or to recover damages for the
breach thereof; or
(ii) by notice to Sublessee, may terminate this Sublease as to the
particular Property or one or more of the particular Properties with
respect to which an Event of Default shall have occurred, whereupon, or
prior to any such termination if Sublessor has not elected to so terminate,
all of the other applicable provisions and rights and remedies of Sublessor
set forth in this Section 20 shall apply; provided, however, that Sublessor
shall not so terminate this Sublease as to such Property or one or more of
such Properties, or exercise any other remedy available to it under this
Section 20, so long as the Event of Default is because of a bona fide
dispute between Sublessee and the applicable Lessor(s) and Sublessee is
contesting such Event of Default in good faith and with due diligence and
Sublessee (in a manner and form reasonably satisfactory to Sublessor in
good faith exercise of its reasonable business judgment) has provided and
shall continue to provide reasonable assurance and security to Sublessor of
Sublessee's ability to protect, defend, indemnify and hold Sublessor
harmless from and against any and all claims, losses, damages, actions,
liabilities, costs and expenses (including reasonable attorneys' fees and
the cost of in-
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<PAGE>
house counsel and court costs) and judgments in any manner relating to or
arising out of any such Event of Default; or
(iii) notwithstanding the provisions of Section 20(a)(ii) above, in
the event that an Event of Default or more than one Event of Default
results or has resulted in either (x) a termination of this Sublease as to,
or (y) institution of litigation against Sublessor and/or Sublessee as to,
ten (10) or more Properties in the aggregate within any six-month period of
time or twenty (20) or more Properties in the aggregate during the term of
this Sublease, or in any case with respect to an Event of Default under
19(c), (d), (e) or (f), then, in any such event, by notice to Sublessee,
Sublessor may terminate this Sublease, whereupon Sublessee's estate and
interest in and any and all right of Sublessee to possess, use and/or
occupy the Properties shall forthwith terminate but Sublessee shall remain
liable as hereinafter provided; and thereupon Sublessor shall have the
immediate right of re-entry and possession of the Properties and the right
to remove all persons and property therefrom; and Sublessor may thenceforth
hold, possess and enjoy the Properties free from any rights of Sublessee
and any person or entity claiming by, through or under Sublessee; but
Sublessor shall, nevertheless, have the right to recover forthwith from
Sublessee:
(A) any and all Basic Subrent, Additional Rent and all other
amounts payable by Sublessee hereunder which may then be due and
unpaid or which may then be accrued and unpaid, and
(B) any and all other damages and expenses (including without
limitation, interest, penalties, reasonable attorneys' fees and the
cost of in-house counsel, and court costs and expenses) which Lessor
or Sublessor shall have sustained, or may in the future sustain, or
for which Sublessor or Lessor is or may be liable, by reason of any
breach of this Sublease.
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(b) Upon the occurrence of an Event of Default, Sublessor shall have
the right, whether or not this Sublease shall have been terminated as to a
particular Property pursuant to Section 20(a)(ii) or terminated in total
pursuant to Section 20(a)(iii), to re-enter and repossess one or more (including
all) of the Properties (but in the case of Section 20(a)(ii) only to repossess
the particular Property or Properties) or any part thereof by force, summary
proceedings, ejectment or otherwise and the right to remove any persons and
property therefrom. Sublessor shall be under no liability for or by reason of
such entry, repossession or removal. No such re-entry or taking of possession
shall be construed as an election on Sublessor's part to terminate this
Sublease, or to terminate this Sublease as to any one or more of the Properties,
unless a written notice of such intention is given by Sublessor to Sublessee
pursuant to Section 20(a)(ii) or Section 20(a)(iii), as the case may be, or
unless such termination(s) be decreed by a court of competent jurisdiction.
(c) If Sublessor shall obtain possession of one or more of the
Properties following an Event of Default, Sublessor shall have the right,
without notice, to repair or alter all or any one or more of the Properties in
such manner as Sublessor may deem appropriate to put the same in good order,
condition and repair and to make the same rentable, and shall have the right, at
its option, to relet all or any part of one or more of the Properties, and
Sublessee agrees to pay to Sublessor on demand all reasonable fees, commissions,
costs and expenses incurred by Sublessor in obtaining possession, and in taking
any such action, and to pay to Sublessor when due hereunder during the term of
this Sublease, the Basic Subrent and all Additional Rent and any other amounts
payable by Sublessee hereunder, deducting any rent which Sublessor shall
actually receive in the meantime from any reletting of one or more of the
Properties. Sublessor shall have the right from time to time to begin and
maintain successive legal proceedings against Sublessee for the recovery of any
such deficiency or damages,for and as to all of which Sublessee hereby expressly
agrees to remain liable and further hereby agrees that
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<PAGE>
such liability shall survive the institution of any action to secure possession
of all or a part of one or more of the Properties. Sublessor shall not be
required to wait until the end of the term of this Sublease, or of any
applicable Lease as to a particular Property, to begin any such legal
proceedings.
(d) Sublessee hereby waives and releases all rights at any time
conferred by statute or otherwise which would have the effect of limiting or
modifying any of the provisions of this Section 20, including any right to a
jury trial in an action for ejectment or other action at law. Sublessee will
execute, acknowledge and deliver any instruments which Sublessor may request,
whether before or after the occurrence of an Event of Default, evidencing such
waiver or release. At the request of Sublessor upon the occurrence of an Event
of Default, Sublessee will quit and surrender the Properties (or in case of
Section 20(a)(ii) only the particular Property or Properties) to Sublessor or
its agents, and Sublessor may without further notice enter upon, re-enter and
repossess the Properties by summary proceedings, ejectment or otherwise. The
words "enter", "re-enter", and "re-entry" are not restricted to their technical
legal meanings.
(e) If Sublessee shall be in default in the observance or performance
of any provision of this Sublease and an action shall be brought for the
enforcement thereof, Sublessee shall pay to Sublessor all fees, costs and other
expenses which may become payable as a result thereof or in connection
therewith, including reasonable attorneys' fees and the cost of in-house
counsel, and all court costs and expenses. If Sublessor shall be made a party
to any litigation commenced against Sublessee, Sublessee shall either provide
Sublessor with counsel of recognized ability or pay all costs and attorneys'
fees incurred or paid by Sublessor (including without limitation, the cost of
in-house counsel) in connection with such litigation.
(f) Except as otherwise specifically provided in this Section 20, no
right or remedy herein conferred upon or reserved to Sublessor is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative
30
<PAGE>
and in addition to any other legal or equitable right or remedy given hereunder,
or now or hereafter existing. The failure of Sublessor to insist at any time
upon the strict performance of any covenant or agreement or to exercise any
option, right, power or remedy contained in this Sublease shall not be construed
as a waiver or a relinquishment thereof for the future. A receipt by Sublessor
or Lessor of any Basic Subrent, Additional Rent or any other sum payable
hereunder with knowledge of the breach of any covenant or agreement contained in
this Sublease shall not be deemed a waiver of such breach, and no waiver by
Sublessor of any provision of this Sublease shall be deemed to have been made
unless expressly so made in writing. Sublessor shall be entitled, to the extent
permitted by law, to injunctive relief in case of the violation, or attempted or
threatened violation, of any provision of this Sublease, or to a decree
compelling observance or performance of any provision of this Sublease, or to
any other legal or equitable remedy.
(g) Sublessee hereby waives and surrenders for itself and all those
claiming by, through or under it, including creditors of all kinds, (A) any
right and privilege which it or any of them may have under any present or future
constitution, statute or rule of law to redeem any of the Properties or to have
a continuance of this Sublease for the term hereby demised after termination of
Sublessee's right of occupancy by order or judgment of any court or by any legal
process or writ, or under the terms of this Sublease or after the termination of
the term of this Sublease as herein provided, and (B) the benefits of any
present or future constitution, statute or rule of law which exempts property
from liability, for debt or for distress for rent.
21. Surrender. Upon the expiration or earlier termination of this
Sublease, and upon the expiration or earlier termination of this Sublease or the
applicable Lease as to a particular Property, Sublessee shall surrender the
Property(ies) to Sublessor in good order, condition and repair (but, in all
events, in compliance with the requirements of, and in no less a condition than
that required by, the applicable Leases), subject
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<PAGE>
to any damage, destruction or Taking giving rise to a termination pursuant to
Section 15(b) and as to which Restoration is not required to be made by
Sublessee, and Sublessee shall have removed from each of such Properties all its
personal property situated thereon or therein. In all events, Sublessee shall
promptly repair any damage caused by any such removal and, if Sublessee fails to
do so, Sublessee shall be liable for and pay to Sublessor or Lessor, as the case
may be, all costs and expenses incurred by Sublessor and/or Lessor in connection
with their repairing such damage and Sublessee's failure to do so.
22. Merger. There shall be no merger of this Sublease or of the
subleasehold estate created by this Sublease with the fee or any other estate or
interest in the Properties by reason of the fact that the same person or entity
owns or holds, directly or indirectly, all such estates and interests or any
combination thereof.
23. Notices. All notices and other communications hereunder shall be in
writing and delivered by hand, by facsimile, by United States Postal Service,
postage prepaid, registered or certified mail (delivery verification requested)
or by reputable overnight courier service (charges paid by sender, next business
day delivery and delivery verification requested) and shall be deemed given (a)
when delivered by hand, (b) when transmitted by facsimile (with either (i)
receipt confirmed or (ii) hard copy deposited within one business day of such
transmission with a reputable overnight courier service as above provided), (c)
three business days after mailing if mailed through the United States Postal
Service as above provided, or (d) one business day after depositing with a
reputable overnight courier service as above provided, in each case addressed to
the parties as the follows:
(a) if to Sublessor:
The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: General Counsel
Facsimile #: (314) 342-6384
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with a copy to:
The May Department Stores Company
611 Olive Street
St. Louis, Missouri 63101
Attention: Real Estate Department
Facsimile #: (314) 342-3040
(b) if to Sublessee:
Payless ShoeSource, Inc.
3231 East 6th Street
Topeka, Kansas 66607
Attention: Chief Financial Officer
Facsimile #: (913) 295-6804
subject to the right of each party to designate a different address in the
United States and/or addressee by notice similarly given at least 15 days before
the effectiveness of such new designation.
24. Amendments. This Sublease may not be amended or modified, nor may any
obligation hereunder be waived, orally, and no such amendment, modification or
waiver shall be effective for any purpose unless it is in writing, signed by the
party against whom enforcement thereof is sought.
25. Miscellaneous. Subject to the provisions of Section 31, if any term
of this Sublease or any application thereof shall be invalid or unenforceable,
the remainder of this Sublease and any other application of such term shall not
be affected thereby. Subject to and except as provided in Section 18, this
Sublease shall be binding upon and inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto. The table of
contents and the section headings are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. This Sublease may be
executed in several counterparts, each of which shall constitute an original,
but all of which together shall constitute one and the same instrument.
Nothing contained in this Sublease shall be deemed or construed by the
parties hereto or by any third person to create the relationship of principal
and agent or of partnership or of
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joint venture or any association between Sublessor and Sublessee, and neither
the method of computation of any rent nor any other term, condition or provision
contained in this Sublease and/or in any one or more of the Property Agreements
nor any acts of the parties hereto shall be deemed to create any relationship
between Sublessor and Sublessee other than the relationship of sub-landlord and
sub-tenant.
No waiver of any default and/or Event of Default hereunder shall be implied
from any omission by either party to take any action on account thereof if such
default and/or Event of Default persists or is repeated, and no express waiver
shall affect any default and/or Event of Default other than the default and/or
Event of Default specified in the express waiver, and then only for the time and
to the extent therein stated. No delay or omission by either party hereto to
exercise any right or power accruing upon any non-compliance, default and/or
Event of Default by the other party with respect to any of the terms hereof, or
otherwise accruing hereunder shall impair any such right or power or be
construed to be a waiver thereof. One or more waivers of any breach of any
covenant, term or condition of this Sublease shall not be construed as a waiver
of any subsequent breach of the same covenant, term or condition. The consent
or approval by a party to or of any act by the other party requiring the former
party's consent or approval shall not be deemed to waive or render unnecessary
such former party's consent or approval to or of any subsequent similar acts by
the other party.
Time is of the essence with respect to all matters provided in this
Sublease.
26. No Recording. Neither this Sublease nor any memorandum, notice or
other writing with respect hereto shall be recorded or referred to in any other
recorded document without the express written and mutual consent of Sublessor
and Sublessee.
27. Sublessee's Right to Extend Term of Sublease as to Certain Properties.
Sublessee may request in writing to Sublessor (provided that Sublessee's written
request, together with the "Support Documents" hereinafter defined and described
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(such written request and Support Documents being herein referred to,
collectively, as "Sublessee's Option Request"), are received by Sublessor within
the "Window Period" hereinafter defined) that Sublessor send to the Lessor under
the applicable Lease as to a particular Property (the "Option Property") a
written notice setting forth Sublessor's election to exercise the next
exercisable option (if any) under such Lease to extend the term thereof for the
next applicable option period (such a written notice directly arising from a
Sublessee's Option Request is hereinafter referred to as a "Sublessor's Option
Notice"). Provided that Sublessor received Sublessee's Option Request within
the Window Period, then within thirty (30) days after the expiration of the
Window Period, Sublessor agrees to send Sublessor's Option Notice addressed to
the Lessor and at the address as both were specified in Sublessee's Option
Request unless, notwithstanding Sublessee's certifications and/or assertions to
the contrary (if any) contained in the Support Documents:
(a) Sublessor contends, in good faith, that an Event of Default then
exists with respect to, and gives a notice to terminate this Sublease as to, the
Option Property; or
(b) The Lessor under the Lease of the Option Property has given notice
of a default with respect to such Lease, or such Lease contains a provision
preventing the exercise of an option if the tenant is in default and Sublessee
has not certified to Sublessor in Sublessee's Option Request that there are no
defaults under such Lease; or
(c) Sublessee is not then operating at and within the Option Property
its retail shoe store under a trade name which includes the word "Payless" or,
if then so operating, Sublessee has not certified to Sublessor in Sublessee's
Option Request that Sublessee intends to continue so operating during the
applicable extended term; or
(d) As of the end of Sublessee's fiscal quarter that immediately
preceded Sublessor's receipt of Sublessee's Option Request, the financial
condition of Sublessee does not fully
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satisfy each of the "Financial Covenants" hereinafter defined and specified in
Section 32; or
(e) Sublessee has not provided Sublessor with the certificate required
by Section 32(b); or
(f) Sublessee has notified the "Lender" (hereinafter defined in
Section 32) under any "Major Credit Agreement" (hereinafter defined in Section
32) that an event of default under the Major Credit Agreement has occurred which
has not been cured, or the Lender has declared Sublessee to be in default under
the Major Credit Agreement and such declaration has not been withdrawn; or
(g) Sublessee has not specified the name and address of the Lessor
under the Lease of the Option Property; or
(h) Assuming that it was so sent and constituted a valid exercise of
the option, Sublessor's Option Notice would extend the term of the Lease of the
Option Property beyond May 1, 2006.
In the event that Sublessor is not required to send, and elects not to
send, a Sublessor's Option Notice pursuant to a Sublessee's Option Request as to
an Option Property, Sublessor shall so notify Sublessee and specify the
reason(s) therefor. In the event that such Sublessor's Option Notice is sent
pursuant to Sublessee's Option Request and it is a valid exercise, then the term
of this Sublease as to the Option Property shall be extended accordingly;
otherwise, in all other events, this Sublease shall terminate as to such Option
Property (as provided in Section 3 hereof) on the day before the expiration of
the then current term of the Lease of such Option Property, unless sooner
terminated in accordance with the provisions of this Sublease.
As used in and for the purposes of this Sublease, the following terms shall
have the following respective meanings:
"Support Documents" means a current certification of Sublessee, duly
executed by its President, Chairman or Chief Financial Officer, certifying
as of the date of the applicable Sublessee's Option Request (which shall be
a date within the applicable Window Period): (i) that no Event of Default
then exists under Section 19(a) with respect to the
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Lease of the Option Property or that would entitle Sublessor to pursue its
rights and remedies under Section 20(a)(iii), (ii) that Sublessee is then
operating at and within the Option Property its retail shoe store under a
trade name which includes the word "Payless", and Sublessee intends to
continue so operating during the applicable extended term, (iii) that
Sublessee's certification has attached to it all documents that are to be
delivered to Sublessor before the end of the Window Period pursuant to
Section 32(d)(i) and (ii), (iv) the name and address for the Lessor under
the Lease of the Option Property, (v) that Sublessor's Option Notice, if
sent, is a valid exercise of the next exercisable option to extend under
the Lease of the Option Property and would not extend the term of such
Lease beyond May 1, 2006; and
"Window Period" means that period of time that is neither more than
ninety (90) days nor less than thirty (30) days prior to the date specified
in the Lease of the Option Property for Sublessor, as tenant thereunder, to
give notice of its intention to exercise the next exercisable option to
extend the term of such Lease.
Sublessee acknowledges, understands and agrees that, notwithstanding the
fact that Sublessee may not have any right to extend the term of this Sublease
as to an Option Property pursuant to this Section 27 or, having such right,
fails, is unable or elects not to duly exercise such right as herein provided,
Sublessor shall continue to have all rights under the Lease granted to
Sublessor, as tenant thereunder, including without limitation the right to
exercise for its own benefit and purposes and not for any benefit or purpose of
Sublessee, any one or more of the options to extend the term of such Lease of
the Option Property.
28. Certifications and Correspondence. From time to time upon written
request of Sublessor, Sublessee shall furnish to Sublessor a current written
certification of Sublessee's President, Chairman or Chief Financial Officer,
certifying that, as of the date thereof, all Basic Subrent and Additional Rent
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then due and payable have been paid and no Event of Default then exists under
the Sublease. Further, at all times, promptly upon its receipt of same,
Sublessee shall send to Sublessor or its designee a true and complete copy of
any correspondence and/or other materials received by Sublessee which sets forth
or alleges a dispute or default or a potential dispute or default in connection
with Sublessee's performance of its obligations under, pursuant to and/or
arising out of this Sublease and/or one or more of the Property Agreements.
29. Sublessor's Document Review and/or Preparation Charges. Sublessee
acknowledges that from time to time it will be required, or may otherwise elect,
to furnish certain documents, instruments and/or reports to Sublessor for its
review, consent and/or approval, and that in connection therewith or otherwise
Sublessor may have to review and/or prepare certain documents, instruments,
reports, estoppel certificates, etc., (all of the aforementioned activities
being referred to, collectively, as the "Administrative Activities"). Sublessee
hereby agrees to pay Sublessor for its costs and expenses incurred in connection
with the Administrative Activities promptly upon Sublessor billing Sublessee
therefor. Sublessor's costs and expenses shall include all amounts paid to third
parties and its cost of in-house counsel.
30. Sublessee's Disclaimer. Other than pursuant to and as expressly and
specifically provided in this Sublease, Sublessee hereby disclaims, releases and
relinquishes any and all rights, title, interests, benefits and privileges of
every kind, type and character whatsoever (whether or not written, oral,
contractual, statutory, common law, equitable and/or otherwise) in, to and/or
with respect to the Properties and/or the Leases and/or any of same, it being
the mutual express intent and agreement of Sublessor and Sublessee that any and
all such rights, title, interests, benefits and privileges are hereby
terminated, extinguished and superseded by this Sublease.
31. Single Agreement. This Sublease (including all Schedules hereto)
constitutes a single agreement and no part thereof is severable from any other
part or from the whole.
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Sublessee acknowledges and agrees that but for Sublessee's willingness to
sublease all the Properties from Sublessor pursuant to a single sublease,
Sublessor would not enter into this Sublease nor in any sublease of less than
all the Properties.
32. Financial Statements and Financial Covenants. (a) As used in and for
purposes of this Sublease, the following terms shall have the following
respective meanings:
"Capital Lease" has the meaning specified in the definition of
"Capital Lease Obligations."
"Capital Lease Obligations" means the principal component of all
monetary obligations of Sublessee or any of its subsidiaries under any
leasing or similar arrangement which, in accordance with GAAP, is
classified as a capital lease ("Capital Lease").
"Consolidated Interest Expense" means, for any period, the sum of
total interest expense (including that attributable to Capital Leases in
accordance with GAAP) of Sublessee and its subsidiaries on a consolidated
basis with respect to all outstanding Indebtedness of Sublessee and its
subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, but excluding, however, any amortization of deferred
financing costs, all as determined on a consolidated basis for Sublessee
and its consolidated subsidiaries in accordance with GAAP.
"Consolidated Net Income" means, for any period for any Person, the
aggregate of the net income of such Person for such period, determined in
accordance with GAAP on a
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consolidated basis provided that (i) the net income of any other Person
which is not a subsidiary of such Person shall be included in the
Consolidated Net Income of such Person only to the extent of the amount of
cash dividends or distributions paid to such Person or to a consolidated
subsidiary of such Person and (ii) the net income of any other Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded from the Consolidated Net Income
of such Person. There shall be excluded in computing Consolidated Net
Income for any Person the excess (or the deficit), if any, of (i) any gain
which must be treated as an extraordinary item under GAAP or any gain
realized upon the sale or other disposition of any real property or
equipment that is not sold in the ordinary course of business or of any
capital stock owned by such Person or a subsidiary of such Person over (ii)
any loss which must be treated as an extraordinary item under GAAP or any
loss realized upon the sale or other disposition of any real property or
equipment that is not sold in the ordinary course of business or of any
capital stock owned by such Person or a subsidiary of such Person. Without
limiting the foregoing, all costs and expenses of the Sublessee relating to
management retention incentive payments which are treated as extraordinary
items shall be excluded in computing Consolidated Net Income of the
Sublessee.
"Consolidated Rental Expense" means, for any period, the sum of the
aggregate payments of Sublessee and its subsidiaries on a consolidated
basis under agreements to rent or lease any real or personal property
(exclusive of
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Capital Lease Obligations), all as determined on a consolidated basis for
Sublessee and its consolidated subsidiaries in accordance with GAAP.
"Consolidated Tangible Net Worth" of a Person means, without
duplication, the sum of (a) total stockholders' equity of such Person less
(b) the net book value of all assets of such Person and its consolidated
subsidiaries which would be treated as intangibles under GAAP, including,
without limitation, goodwill and trademarks, but excluding, however, lease
rights associated with acquisitions of below-market leases.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease, dividend,
letter of credit or other obligation (the "primary obligations") of another
Person (the "primary obligor"), including any obligation of that Person (i)
to purchase, repurchase or otherwise acquire such primary obligations or
any security therefor, (ii) to advance or provide funds for the payment or
discharge of any such primary obligation, or to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net
worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the
holder of any such primary obligation against loss in respect thereof
(each, a
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"Guaranty Obligation"); (b) with respect to any surety instrument issued
for the account of that Person or as to which that Person is otherwise
liable for reimbursement of drawings or payments; (c) to purchase any
materials, supplies or other property from, or to obtain the services of,
another Person if the relevant contract or other related document or
obligation requires that payment for such materials, supplies or other
property, for such services, shall be made regardless of whether delivery
of such materials, supplies or other property is ever made or tendered, or
such services are ever performed or tendered, or (d) in respect of any swap
contract. The amount of any Contingent Obligation shall, in the case of
Guaranty Obligations, be deemed equal to the stated or determinable amount
of the primary obligation in respect of which such Guaranty Obligation is
made, or if not stated or if indeterminable, the maximum reasonably
anticipated liability in respect thereof; provided that if any Guaranty
Obligation (a) is limited to an amount less than the obligations guaranteed
or supported the amount of the corresponding Contingent Obligation shall be
equal to the lesser of the amount determined pursuant to the initial clause
of this sentence and the amount to which such guaranty is so limited or (b)
is limited to recourse against a particular asset or assets of such Person
the amount of the corresponding Contingent Obligation shall be equal to the
lesser of the amount determined pursuant to the initial clause of this
sentence and the fair market value of such asset or assets at the date for
determination of the amount of the Contingent Obligation. In the case of
other Contingent
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Obligations, the Contingent Obligation shall be equal to the maximum
reasonably anticipated liability in respect thereof.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound, and for Sublessee it includes this Sublease.
"EBITR" means, for any period, for Sublessee and its subsidiaries on a
consolidated basis, determined in accordance with GAAP, the sum of (a)
Consolidated Net Income for such period plus (b) all amounts treated as
expenses for taxes to the extent included in the determination of such
Consolidated Net Income plus (c) Consolidated Interest Expense to the
extent included in the determination of such Consolidated Net Income plus
(d) Consolidated Rental Expense to the extent included in the determination
of such Consolidated Net Income.
"Financial Covenants" means the covenants specified in Section
32(e)(ii) below.
"fiscal year" and "fiscal quarter" and "fiscal month" mean and refer
to such fiscal periods of Sublessee.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a)
EBITR to (b) the sum of Consolidated Interest Expense plus Consolidated
Rental Expense, in each case, for such period.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and
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statements and pronouncements of the Financial Accounting Standards Board
(or agencies with similar functions of comparable stature and authority),
which are applicable to the circumstances as of the date of this Sublease.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations with
respect to surety instruments; (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets
or businesses; (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person
(even though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or sale of
such property); (f) all principal obligations with respect to Capital
Leases; (g) all indebtedness referred to in clauses (a) through (f) above
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any lien upon or in
property (including accounts and contracts rights) owned by such Person,
even through such Person has not assumed or become liable for the payment
of such Indebtedness; and (h) all Guaranty Obligations in respect of
indebtedness or obligations of others of the
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kinds referred to in clauses (a) through (g) above. In the event any of the
foregoing Indebtedness is limited to recourse against a particular asset or
assets of such Person, the amount of the corresponding Indebtedness shall
be equal to the lesser of the amount of such Indebtedness and the fair
market value of such asset or assets at the date for determination of the
amount of the such Indebtedness. In addition, the amount of any
Indebtedness which is also a Contingent Obligation shall be determined as
provided in the definition of "Contingent Obligation."
"Lender" means the "Banks" and/or "Agent" (as such terms are defined
in the "Multicurrency Credit Agreement" referred to in the definition of
"Major Credit Agreement"), provided, however, at Sublessor's election,
Sublessor may by notice to Sublessee substitute for the Banks and/or Agent
as "Lender" any other banks and/or agent making credit available to
Sublessee under a Major Credit Agreement.
"Major Credit Agreement" means the Multicurrency Credit Agreement
entered into among Sublessee, the several financial institutions referred
to therein as "Banks" and Bank of America National Trust and Savings
Association, provided, however, at Sublessor's election, Sublessor may by
notice to Sublessee substitute for the Multicurrency Credit Agreement (or
any subsequent Major Credit Agreement) any future revolving credit facility
or other loan transaction between Sublessee and one or more lending
institutions involving commitments aggregating $100,000,000 or more.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties or
financial condition of
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Sublessee or Sublessee and its subsidiaries taken as a whole; (b) a
material impairment of the ability of Sublessee to perform its obligations
under the Major Credit Agreement; or (c) a material adverse effect upon the
legality, validity, binding effect or enforceability against Sublessee or
any guarantor of the Major Credit Agreement.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or governmental authority.
"Present Value" means, with respect to each lease of Sublessee and its
subsidiaries treated as an "operating" lease for purposes of external
financial reporting, the periodic minimum or base rental payments due and
payable during the primary term (giving effect to any extension terms as to
which the Sublessee or its subsidiaries have become contractually
obligated) of such lease on or after the date of determination discounted
to an equivalent value as of the date of determination using a discount
rate equal to: (i) subject to clause (ii) with respect to lease extensions,
for operating leases with terms commencing before February 4, 1996, the
rate actually utilized by Sublessee for purposes of calculating the present
value of such operating lease for disclosure of the present value of all
operating leases in the consolidated external financial reports of
Sublessee and its affiliates and (ii) for operating leases with terms
commencing (or extension periods as to which Sublessee or its subsidiaries
first become contractually obligated (other than extension periods for
which the dollar amount of base rent for such extension
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periods is prescribed in the original operating lease)) after February 3,
1996, a rate (the "Year-to-Date Rate") determined as described below by
reference to the weekly year-to-date average of the Friday rates of the
Merrill Lynch Bond Index for corporate issues of "medium" quality with
terms of 10 years or more ("Index")(as such Index is published in The Wall
Street Journal (or similar publication)) for the fiscal year in which the
lease term (or extension period) commences. In the event that the Index
ceases to be published, the Index shall be replaced by a similar index
reflecting rates applicable to corporate issues with similar terms and
credit quality as jointly selected by Sublessee and Lender (but if not so
selected, as may be reasonably determined by Sublessor). With respect to
any operating lease described in clause (i), the discount rate initially
utilized pursuant to clause (i) shall remain in effect for the term of such
operating lease. With respect to any operating lease (or extension period)
described in clause (ii), the discount rate utilized for purposes of
computing the Present Value of Operating Leases shall be (a) with respect
to any fiscal quarter ending in the fiscal year in which such operating
lease (or extension period) became operative (the "Base Year"), the
Year-to-Date Rate determined as of the end of such fiscal quarter and (b)
with respect to any subsequent fiscal year, the Year-to-Date Rate
determined as of the end of the Base Year for such operating lease (or
extension period).
"Present Value of Operating Leases" means, at any time, the sum of the
Present Value of each operating lease of Sublessee and its subsidiaries.
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"Total Capitalization" means, at any time, the sum at such time of (a)
Sublessee's total stockholders' equity plus (b) Total Debt plus (c) the
consolidated non-current deferred taxes of Sublessee and its subsidiaries.
"Total Debt" means, at any time, the sum of (a) the current and long-
term indebtedness obligations for money borrowed, drawn and unreimbursed
letters of credit, drawn and unreimbursed surety bonds, the current portion
of mandatory redeemable preferred stock of Sublessee, Capital Lease
Obligations and, without duplication, Contingent Obligations in respect of
any of the foregoing, in each case, of Sublessee and its subsidiaries on a
consolidated basis, plus (b) the Present Value of Operating Leases.
(b) The obligation of Sublessor to send the Sublessor's Option Notice
hereunder is subject to the conditions and requirements in Section 27 and to the
condition that Sublessor shall have received within the Window Period with
respect to the particular Option Property, a certificate signed by the
President, Chairman or Chief Financial Officer (hereafter a "Responsible
Officer"), dated within such Window Period, in form and substance satisfactory
to Sublessor, stating that:
(i) the representations and warranties contained in Section 32(c) are
true and correct on and as of such date, as through made on and as of such
date; and
(ii) no default exists in Sublessee's performance of the covenants in
Section 32(d) and no event or occurrence exists which would cause Sublessee
to be in default of the requirements of Section 32(e); and
(iii) there has occurred since the date of this Sublease, no event or
circumstance that has resulted or
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could reasonably be expected to result in a Material Adverse Effect; and
(iv) to the best of the Responsible Officer's knowledge, following
diligent inquiry and analysis, as of such date, Sublessee complies with the
Financial Covenants, as if calculated on the last day of the fiscal month
immediately preceding such date, as demonstrated by a schedule attached to
the certificate setting forth the figures providing the basis for the
certificate.
(c) Sublessee represents and warrants to Sublessor that:
(i) There are no actions, suits, proceedings, claims or disputes
pending, or to the best knowledge of Sublessee, threatened or contemplated,
at law, in equity, in arbitration or before any governmental authority,
against Sublessee, or its subsidiaries or any of their respective
properties which may reasonably be expected to have a Material Adverse
Effect.
(ii) Neither Sublessee nor any subsidiary is in default under or with
respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a
Material Adverse Effect.
(iii) Sublessee and its subsidiaries have filed all Federal and other
material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided in accordance
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with GAAP. There is no proposed tax assessment against Sublessee or any
subsidiary that would, if made, have a Material Adverse Effect.
(iv) The audited consolidated financial statements of Sublessee and
its subsidiaries for the fiscal year ended February 3, 1996 and the related
consolidated statements of income or operations, shareholders' equity and
cash flows for the fiscal year ended on that date:
(A) were prepared in accordance with GAAP consistently applies
throughout the period covered thereby, except as otherwise expressly
noted therein;
(B) fairly present the financial condition of Sublessee and its
subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(C) show all material indebtedness and other liabilities, direct
or contingent, of the Sublessee and its consolidated subsidiaries as
of the date thereof, including liabilities for taxes, material
commitments and Contingent Obligations.
To the extent that a certificate is furnished to Sublessor pursuant to Section
32(b) at a time after Sublessee is required to deliver financial statements to
Sublessor pursuant to Section 32(d), the reference in that certificate shall be
to the most current fiscal year ended date of Sublessee.
(d) During the term of this Sublease, unless Sublessor shall waive
compliance in writing:
(i) Sublessee shall deliver to Sublessee, in the same form and detail
as delivered to the Lender (but if not so
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delivered, in such form and detail as satisfactory to Sublessor):
(A) as soon as available, but not later than 120 days after the
end of each fiscal year (commencing with fiscal year ending January
1997), a copy of the audited consolidated balance sheet of Sublessee
and its subsidiaries as at the end of such year and the related
consolidated statements of income or operations, shareholders' equity
and cash flows for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, and
accompanied by the opinion of Arthur Andersen LLP or another
nationally-recognized independent public accounting firm ("Independent
Auditor") which report shall state that such consolidated financial
statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a consistent basis. Such
opinion shall not be qualified or limited, in either case, because of
a restricted or limited examination by the Independent Auditor of any
material portion of Sublessee's or any subsidiary's records; and
(B) as soon as available, but not later than 60 days after the
end of each of the first three fiscal quarters of each fiscal year
(commencing with the first fiscal quarter ending after the date
hereof), a copy of the unaudited consolidated balance sheet of
Sublessee and its subsidiaries as of the end of such quarter and the
related consolidated statements of income, shareholders' equity and
cash flows for the period
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commencing on the first day and ending on the last day of such
quarter, and certified by a Responsible Officer as fairly presenting,
in accordance with GAAP (subject to ordinary, good faith year-end
audit adjustments and the absence of notes thereto), the financial
position and the result of operations of Sublessee and the
subsidiaries.
(ii) Sublessee shall deliver to Sublessor:
(A) concurrently with the delivery of the financial statements
referred to in Sections 32(d)(i), a compliance certificate in the form
delivered to Lender (but if not so delivered, in such form as had
previously been delivered to Lender or as Sublessor may request)
executed by a Responsible Officer; and
(B) promptly, but not later than five days after the date of
filing with the SEC, copies of all financial statements and reports
that Sublessee sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms
10-K, 10-Q and 8-K) that Sublessee or any subsidiary may make to, or
file with, the SEC and such additional information regarding the
business, financial or corporate affairs of Sublessee or any
subsidiary as Sublessor may from time to time request; and
(C) promptly upon the replacement, modification or amendment of
any Major Credit Agreement, a copy of the replacement, modification or
amendment documentation.
(iii) Sublessee shall promptly notify Sublessor:
52
<PAGE>
(A) upon any Responsible Officer becoming aware of the
occurrence of, or the delivery of notice to or from Lender of, any
default or the occurrence or existence of any event or circumstances
that will foreseeably become a default under the Major Credit
Agreement;
(B) of any matter that has resulted, or may, in the judgment of
the Company, reasonably be expected to result, in a Material Adverse
Effect, including (i) breach or non-performance of, or any default
under, a Contractual Obligation of Sublessee or any subsidiary, (ii)
any dispute, litigation, investigation, proceeding or suspension
between the Sublessee or any subsidiary and any governmental
authority; or (iii) the commencement of, or any material development
in, any litigation or proceeding affecting Sublessee or any
subsidiary, including pursuant to any applicable environmental laws;
and
(C) of any material change in accounting policies or financial
reporting practices by Sublessee or any of its consolidated
subsidiaries.
Each notice under this Section 32(d)(iii) shall be accompanied by a written
statement by a Responsible Office setting forth details of the occurrence
referred to therein, and stating what action Sublessee or any affected
subsidiary proposes to take with respect thereto and at what time.
(iv) Sublessee shall maintain and shall cause each subsidiary to
maintain proper books of record and account, in which full, true and
correct entries in conformity with GAAP consistently applied shall be made
of all financial
53
<PAGE>
transactions and matters involving the assets and business of Sublessee and
such subsidiary.
(e) During the term of this Sublease, unless Sublessor shall waive
compliance in writing:
(i) Sublessee shall not, and shall not suffer or permit any subsidiary
to, directly or indirectly, make, create, incur, assume or suffer to exist
any judgment or judicial attachment liens, unless the enforcement of such
liens is effectively stayed and all such liens in the aggregate at any time
outstanding for Sublessee and its subsidiaries do not exceed $10,000,000.
(ii) Sublessee shall comply with the following covenants (the
"Financial Covenants"):
(A) Fixed Charge Coverage Ratio. For the period of four
consecutive fiscal quarters ending on the last day of each fiscal
quarter, Sublessee shall not permit the Fixed Charge Coverage Ratio to
be less than 1.5:1.0; and
(B) Leverage Ratio. Sublessee shall not permit the ratio of (i)
Total Debt to (ii) Total Capitalization to be greater than 60% as of
the last day of any fiscal quarter; and
(C) Consolidated Tangible Net Worth. Sublessee shall not permit
Consolidated Tangible Net Worth to be less than $600,000,000 as of the
last day of any fiscal quarter.
In the event that Sublessor elects, by notice to Sublessee, to modify
any or all of the Financial Covenants to conform to similar financial
covenants in any Major Credit Agreement, from and after such notice the
provisions
54
<PAGE>
of clauses (A), (B) and/or (C) of (e)(ii) above shall be deemed amended to
reflect such modification or modifications without further written
agreement between Sublessor and Sublessee.
33. Governing Law; Submission to Jurisdiction; Injunction. This Sublease
shall be deemed an agreement and contract made under the laws of the State of
Delaware and all matters arising under, growing out of, or in connection with
this Sublease shall, for all purposes, be governed substantively and, to the
extent the courts specified below must or may follow State procedural laws,
procedurally, including periods for limitations of actions, by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to
such State's conflict of laws rules or principles.
The parties agree that any legal action or proceeding between them arising
under, growing out of, or in connection with this Sublease shall be brought only
in, and tried by the United States District Court for the Eastern District of
Missouri or, absent subject matter jurisdiction by such Federal Court, in the
Circuit Court of the State of Missouri for the City of St. Louis.
55
<PAGE>
Each of the parties irrevocably (a) submits itself to the personal
jurisdiction of such courts (but only for any action or proceeding in connection
with this Sublease and not for any other purpose whatsoever) and, if and only
if, it is not present or does not have an agent for service of process in the
territorial jurisdiction of such courts, consents to the service of process
outside the territorial jurisdiction of such courts in any such action or
proceeding in connection with this Sublease by mailing copies thereof by (i)
certified or registered, return receipt requested United States mail, postage
prepaid, if mailed to a United States of America address or (ii) internationally
recognized private mail carrier (with evidence of delivery or attempted
delivery), if mailed to an address outside the United States of America, all
charges billed to or paid by sender, in each case to the recipient's last known
address, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action in whole or in part arising under,
growing out of, or in connection with this Sublease or any of the transactions
contemplated by this Sublease in any court other than a court of the United
States sitting in and for the Eastern District of Missouri or, absent subject
matter jurisdiction by such Federal Court, in the Circuit Court of the State of
Missouri for the City of St. Louis.
The parties agree that irreparable damage would occur in the event that any
of the provisions of this Sublease were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Sublease and to enforce specifically the terms and provisions of this
Sublease in the courts and as provided above in this Section 33, such injunctive
relief being in addition to any other remedy to which such party is entitled at
law or in equity.
Sublessee hereby waives and releases any and all rights at any time
conferred by statute or otherwise which would have the effect of limiting or
modifying any of the terms, provisions, and
56
<PAGE>
conditions of this Sublease, including without limitation any right to a jury
trial in an action for ejectment or other action at law. Sublessee hereby
agrees to execute, acknowledge and deliver any and all instruments which
Sublessor may request, whether before or after the occurrence of any Event of
Default, evidencing such waiver and release.
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
executed by their respective officers thereunto duly authorized, as of the day
and year first above written.
THE MAY DEPARTMENT STORES COMPANY
a New York corporation
Attest: By _______________________________
Executive Vice President
___________________________
Assistant Secretary
PAYLESS SHOESOURCE, INC.
a Missouri corporation
Attest: By _______________________________
Vice President
___________________________
Secretary
57
<PAGE>
- --------------------------------------------------------------------------------
$200,000,000
MULTICURRENCY CREDIT AGREEMENT
DATED AS OF APRIL __, 1996
AMONG
PAYLESS SHOESOURCE, INC.,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS AGENT,
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
ARRANGED BY
BA SECURITIES, INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I DEFINITIONS.......................................... 1
1.1 Certain Defined Terms................................ 1
1.2 Other Interpretive Provisions........................ 23
1.3 Accounting Principles................................ 24
1.4 Currency Equivalents Generally....................... 24
ARTICLE II THE CREDITS.......................................... 24
2.1 Amounts and Terms of Commitments..................... 24
2.2 Notes................................................ 25
2.3 Procedure for Borrowing.............................. 25
2.4 Conversion and Continuation Elections................ 26
2.5 Utilization of Commitments in Offshore Currencies.... 28
2.6 Voluntary Termination or Reduction of Commitments.... 30
2.7 Optional Prepayments................................. 30
2.8 Currency Exchange Fluctuations....................... 30
2.9 Mandatory Prepayments of Loans....................... 31
2.10 Repayment............................................ 31
2.11 Interest............................................. 31
2.12 Fees................................................. 32
(a) Arrangement, Agency Fees...................... 32
(b) Commitment Fees............................... 32
2.13 Computation of Fees and Interest..................... 33
2.14 Payments by the Company.............................. 33
2.15 Payments by the Banks to the Agent................... 34
2.16 Sharing of Payments, Etc............................. 35
ARTICLE III THE LETTERS OF CREDIT................................ 36
3.1 The Letter of Credit Subfacility..................... 36
3.2 Issuance, Amendment and Renewal of Letters of Credit. 37
3.3 Risk Participations, Drawings and Reimbursements..... 40
3.4 Repayment of Participations.......................... 42
3.5 Role of the Issuing Bank............................. 42
3.6 Obligations Absolute................................. 43
3.7 Letter of Credit Fees................................ 44
3.8 Uniform Customs and Practice......................... 45
ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY............... 45
4.1 Taxes................................................ 45
4.2 Illegality........................................... 47
4.3 Increased Costs and Reduction of Return.............. 47
4.4 Funding Losses....................................... 48
4.5 Inability to Determine Rates......................... 49
4.6 Reserves on Offshore Rate Loans...................... 50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.7 Certificates of Banks................................. 50
4.8 Survival.............................................. 50
4.9 Replacement of Certain Banks.......................... 50
ARTICLE V CONDITIONS PRECEDENT.................................. 52
5.1 Conditions of Initial Credit Extensions............... 52
(a) Credit Agreement and Notes...................... 52
(b) Resolutions; Incumbency......................... 52
(c) Organization Documents; Good Standing........... 52
(d) Legal Opinions.................................. 53
(e) Payment of Fees................................. 53
(f) Certificate..................................... 53
(g) Subsidiary Guaranty............................. 53
(h) Other Documents................................. 53
5.2 Conditions to All Credit Extensions............. 53
(a) Notice of Borrowing or Issuance................. 54
(b) Continuation of Representations and Warranties.. 54
(c) No Existing Default............................. 54
ARTICLE VI REPRESENTATIONS AND WARRANTIES.................. 54
6.1 Corporate Existence and Power................... 54
6.2 Corporate Authorization; No Contravention....... 55
6.3 Governmental Authorization...................... 55
6.4 Binding Effect.................................. 55
6.5 Litigation...................................... 55
6.6 No Default...................................... 56
6.7 ERISA Compliance................................ 56
6.8 Use of Proceeds; Margin Regulations............. 57
6.9 Taxes........................................... 57
6.10 Financial Condition............................. 57
6.11 Environmental Matters........................... 58
6.12 Regulated Entities.............................. 58
6.13 Subsidiaries.................................... 58
6.14 Insurance....................................... 58
6.15 Swap Obligations................................ 58
6.16 Full Disclosure................................. 58
ARTICLE VII AFFIRMATIVE COVENANTS........................... 59
7.1 Financial Statements............................ 59
7.2 Certificates; Other Information................. 60
7.3 Notices ........................................ 60
7.4 Preservation of Corporate Existence, Etc........ 61
7.5 Maintenance of Property......................... 61
7.6 Insurance....................................... 62
7.7 Payment of Tax Obligations...................... 62
7.8 Compliance with Laws............................ 62
7.9 Compliance with ERISA........................... 62
7.10 Inspection of Property and Books and Records.... 62
7.11 Environmental Laws.............................. 63
7.12 Use of Proceeds................................. 63
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
7.13 Additional Guarantors......................................... 63
ARTICLE VIII NEGATIVE AND FINANCIAL COVENANTS.......................... 63
8.1 Limitation on Liens........................................... 63
8.2 Disposition of Assets......................................... 65
8.3 Consolidations and Mergers.................................... 66
8.4 Loans and Investments......................................... 67
8.5 Limitation on Indebtedness.................................... 67
8.6 Transactions with Affiliates.................................. 68
8.7 Contingent Obligations........................................ 68
8.8 Restricted Payments........................................... 69
8.9 ERISA......................................................... 69
8.10 Change in Business............................................ 69
8.11 Accounting Changes............................................ 70
8.12 Financial Covenants........................................... 70
(a) Fixed Charge Coverage Ratio.............................. 70
(b) Leverage Ratio........................................... 70
(c) Consolidated Tangible Net Worth.......................... 70
ARTICLE IX EVENTS OF DEFAULT........................................... 70
9.1 Event of Default.............................................. 70
(a) Non-Payment.............................................. 70
(b) Representation or Warranty............................... 70
(c) Specific Defaults........................................ 71
(d) Other Defaults........................................... 71
(e) Cross-Default............................................ 71
(f) Insolvency; Voluntary Proceedings........................ 71
(g) Involuntary Proceedings.................................. 72
(h) ERISA.................................................... 72
(i) Monetary Judgments....................................... 72
(j) Change of Control........................................ 72
9.2 Remedies...................................................... 73
9.3 Rights Not Exclusive.......................................... 74
ARTICLE X THE AGENT.................................................... 74
10.1 Appointment and Authorization; "Agent"........................ 74
10.2 Delegation of Duties.......................................... 74
10.3 Liability of Agent............................................ 74
10.4 Reliance by Agent............................................. 75
10.5 Notice of Default............................................. 75
10.6 Credit Decision............................................... 76
10.7 Indemnification of Agent...................................... 76
10.8 Agent in Individual Capacity.................................. 77
10.9 Successor Agent............................................... 77
10.10 Withholding Tax............................................... 78
10.11 Co-Agents..................................................... 79
ARTICLE XI MISCELLANEOUS............................................... 80
11.1 Amendments and Waivers........................................ 80
11.2 Notices....................................................... 81
11.3 No Waiver; Cumulative Remedies................................ 81
</TABLE>
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<TABLE>
<CAPTION>
<C> <S> <C>
11.4 Costs and Expenses............................................. 82
11.5 Company Indemnification........................................ 82
11.6 Payments Set Aside............................................. 83
11.7 Successors and Assigns......................................... 83
11.8 Assignments, Participations, etc. ............................. 83
11.9 Confidentiality................................................ 85
11.10 Set-off........................................................ 86
11.11 Notification of Addresses, Lending Offices,
Etc. .......................................................... 86
11.12 Counterparts................................................... 86
11.13 Severability................................................... 86
11.14 No Third Parties Benefited..................................... 87
11.15 Governing Law and Jurisdiction................................. 87
11.16 Waiver of Jury Trial........................................... 87
11.17 Judgment....................................................... 88
11.18 Entire Agreement............................................... 88
</TABLE>
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SCHEDULES
---------
Schedule 2.01 Commitments
Schedule 6.07 ERISA
Schedule 6.10 Permitted Liabilities
Schedule 6.11 Environmental Matters
Schedule 6.13 Subsidiaries and Minority Interests
Schedule 8.01 Permitted Liens
Schedule 8.04 Permitted Investments
Schedule 8.05 Permitted Indebtedness
Schedule 8.07 Contingent Obligations
Schedule 11.02 Lending Offices; Addresses for Notices
EXHIBITS
--------
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D-1 Form of Legal Opinion of Counsel to the Company and the
Guarantors
Exhibit D-2 Form of Legal Opinion of General Counsel of The May
Department Stores Company
Exhibit E Form of Assignment and Acceptance Agreement
Exhibit F Form of Promissory Note
Exhibit G Form of Subsidiary Guaranty
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<PAGE>
MULTICURRENCY CREDIT AGREEMENT
------------------------------
This MULTICURRENCY CREDIT AGREEMENT is entered into as of April ___, 1996,
among Payless ShoeSource, Inc., a Missouri corporation (the "Company"), the
several financial institutions from time to time party to this Agreement
(collectively, the "Banks"; individually, a "Bank"), and Bank of America
National Trust and Savings Association, as agent for the Banks.
WHEREAS, the Banks have agreed to make available to the Company a revolving
multicurrency credit facility with a letter of credit subfacility upon the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Certain Defined Terms. The following terms have the following
meanings:
"Acquisition" means any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (a) the acquisition of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a Person
that is a Subsidiary) provided that the Company or the Subsidiary is the
surviving entity.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"Agent" means BofA in its capacity as agent for the Banks hereunder, and
any successor agent arising under Section 10.09.
<PAGE>
"Agent-Related Persons" means, at any time, the Agent at such time,
together with its Affiliates (including, in the case of BofA, the Arranger), and
the officers, directors, employees, agents and attorneys-in-fact of such Persons
and Affiliates.
"Agent's Payment Office" means (a) in respect of payments in Dollars, the
address for payments set forth on Schedule 11.02 or such other address as the
Agent may from time to time specify in accordance with Section 11.02, and (b) in
the case of payments in any Offshore Currency, such address as the Agent may
from time to time specify in accordance with Section 11.02.
"Agreed Alternative Currency" has the meaning specified in subsection
2.05(d).
"Agreement" means this Multicurrency Credit Agreement, as the same may be
amended, supplemented, restated or otherwise modified from time to time.
"Agreement Currency" has the meaning specified in Section 11.17.
"Applicable Commitment Fee Percentage" means, subject to the last sentence
of this definition, for any period, the applicable of the following percentages
in effect with respect to such period:
Fixed Charge Coverage Ratio Applicable Commitment
- --------------------------- Fee Percentage
---------------------
Level I Status .15%
Level II Status .1875%
Level III Status .225%
The Fixed Charge Coverage Ratio shall be calculated by the Company as of the end
of each of its fiscal quarters commencing with the first fiscal quarter ending
after the date hereof and shall be reported to the Agent pursuant to the
Compliance Certificate delivered in accordance with subsection 7.02(b). The
Applicable Commitment Fee Percentage shall be adjusted, if necessary, quarterly
as of the tenth day after the delivery of the Compliance Certificate referred to
above; provided that, if such certificate, together with the financial
statements to which such certificate relates, are not delivered by the date
required pursuant to Section 7.01 and subsection 7.02(b), then from and after
such date until such certificate is so delivered, the Applicable Commitment Fee
Percentage shall be equal to .225%. Until adjusted as described above, the
Applicable Commitment Fee Percentage shall be equal to .1875%.
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<PAGE>
"Applicable Currency" means, as to any particular payment or Loan, Dollars
or the Offshore Currency in which it is denominated or is payable.
"Applicable Margin" means, subject to the second to last sentence of this
definition, for any period, the applicable of the following percentages in
effect with respect to such period:
Fixed Charge Coverage Ratio Applicable Margin
- --------------------------- -----------------
Level I Status .40%
Level II Status .50%
Level III Status .75%
The Fixed Charge Coverage Ratio shall be calculated by the Company as of the end
of each of its fiscal quarters commencing with the first fiscal quarter ending
after the date hereof and shall be reported to the Agent pursuant to the
Compliance Certificate delivered in accordance with subsection 7.02(b). The
Applicable Margin shall be adjusted, if necessary, quarterly as of the tenth day
after the delivery of the Compliance Certificate referred to above; provided
that, if such certificate, together with the financial statements to which such
certificate relates, are not delivered by the date required pursuant to Section
7.01 and subsection 7.02(b), then from and after such date until such
certificate is so delivered, the Applicable Margin shall be equal to .75%.
Until adjusted as described above, the Applicable Margin shall be equal to .50%.
The Applicable Margin for any Interest Period shall be the Applicable Margin in
effect on the first day of such Interest Period and shall not change during such
Interest Period.
"Arranger" means BA Securities, Inc., a Delaware corporation.
"Assignee" has the meaning specified in subsection 11.08(a).
"Assignment and Acceptance" has the meaning specified in subsection
11.08(a).
"Attorney Costs" means and includes all reasonable out-of-pocket fees and
disbursements of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"Bank" has the meaning specified in the introductory clause hereto.
"Banking Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in New York City, Chicago or San Francisco are authorized
or required by law to close and (a)
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<PAGE>
with respect to disbursements and payments in Dollars, a day on which dealings
are carried on in the applicable offshore Dollar interbank market, and (b) with
respect to any disbursements and payments in and calculations pertaining to any
Offshore Currency Loan, a day on which commercial banks are open for foreign
exchange business in London, England, and on which dealings in the relevant
Offshore Currency are carried on in the applicable offshore foreign exchange
interbank market in which disbursement of or payment in such Offshore Currency
will be made or received hereunder.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. (S)101, et seq.).
"Base Rate" means, for any day, the higher of:
(a) 0.50% per annum above the latest Federal Funds Rate; and (b) the
rate of interest in effect for such day as publicly announced from time to time
by BofA in San Francisco, California, as its "reference rate." (The "reference
rate" is a rate set by BofA based upon various factors including BofA's costs
and desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans, which may be priced at, above, or
below such announced rate.)
Any change in the reference rate announced by BofA shall take effect at the
opening of business on the day specified in the public announcement of such
change.
"Base Rate Loan" means a Loan that bears interest based on the Base Rate.
"BofA" means Bank of America National Trust and Savings Association, a
national banking association.
"Borrowing" means a borrowing hereunder consisting of Loans of the same
Type and in the same Applicable Currency made to the Company on the same day by
the Banks under Article II and, other than in the case of Base Rate Loans,
having the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under Section
2.03.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in New York City, Chicago or San Francisco are authorized
or required by law to close and, if the applicable Business Day relates to any
Offshore Rate Loan, means a Banking Day.
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<PAGE>
"Capital Adequacy Regulation" means any guideline, request or directive of
any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capital Lease" has the meaning specified in the definition of "Capital
Lease Obligations."
"Capital Lease Obligations" means the principal component of all monetary
obligations of the Company or any of its Subsidiaries under any leasing or
similar arrangement which, in accordance with GAAP, is classified as a capital
lease ("Capital Lease").
"Cash Collateralize" means to pledge and deposit with or deliver to the
Agent, for the benefit of the Agent, the Issuing Bank and the Banks, as
collateral for the L/C Obligations, cash or deposit account balances pursuant to
documentation in form and substance reasonably satisfactory to the Agent and the
Issuing Bank (which documents are hereby consented to by the Banks).
Derivatives of such term shall have corresponding meanings.
"Certificate Bank" has the meaning specified in subsection 4.09(a).
"Change in Control" means (a) the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of 20% or more of the outstanding shares of voting stock of the
Company, or (b) during any period of twelve consecutive calendar months,
individuals who at the beginning of such period constituted the Company's board
of directors (together with any new directors whose election by the Company's
board of directors or whose nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reasons other than death or disability to constitute a majority of the
directors then in office.
"Closing Date" means the date on which all conditions precedent set forth
in Section 5.01 are satisfied or waived by all Banks (or, in the case of
subsection 5.01(e), waived by the Person entitled to receive such payment).
"Code" means the Internal Revenue Code of 1986, and regulations promulgated
thereunder, in each case, as amended from time to time.
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<PAGE>
"Commitment", as to each Bank, has the meaning specified in Section 2.01.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit C.
"Computation Date" has the meaning specified in subsection 2.05(a).
"Consolidated Interest Expense" means, for any period, the sum of total
interest expense (including that attributable to Capital Leases in accordance
with GAAP) of the Company and its Subsidiaries on a consolidated basis with
respect to all outstanding Indebtedness of the Company and its Subsidiaries,
including, without limitation, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, but excluding, however, any amortization of deferred financing costs,
all as determined on a consolidated basis for the Company and its consolidated
Subsidiaries in accordance with GAAP.
"Consolidated Net Income" means, for any period for any Person, the
aggregate of the net income of such Person for such period, determined in
accordance with GAAP on a consolidated basis, provided that (i) the net income
of any other Person which is not a Subsidiary of such Person shall be included
in the Consolidated Net Income of such Person only to the extent of the amount
of cash dividends or distributions paid to such Person or to a consolidated
Subsidiary of such Person and (ii) the net income of any other Person acquired
in a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded from the Consolidated Net Income of such Person.
There shall be excluded in computing Consolidated Net Income for any Person the
excess (or the deficit), if any, of (i) any gain which must be treated as an
extraordinary item under GAAP or any gain realized upon the sale or other
disposition of any real property or equipment that is not sold in the ordinary
course of business or of any capital stock owned by such Person or a Subsidiary
of such Person over (ii) any loss which must be treated as an extraordinary item
under GAAP or any loss realized upon the sale or other disposition of any real
property or equipment that is not sold in the ordinary course of business or of
any capital stock owned by such Person or a Subsidiary of such Person. Without
limiting the foregoing, all costs and expenses of the Company relating to
management retention incentive payments which are treated as extraordinary items
shall be excluded in computing Consolidated Net Income of the Company.
"Consolidated Rental Expense" means, for any period, the sum of the
aggregate payments of the Company and its Subsidiaries on a consolidated basis
under agreements to rent or lease any real
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<PAGE>
or personal property (exclusive of Capital Lease Obligations), all as determined
on a consolidated basis for the Company and its consolidated Subsidiaries in
accordance with GAAP.
"Consolidated Tangible Net Worth" of a Person means, without duplication,
the sum of (a) total stockholders' equity of such Person less (b) the net book
value of all assets of such Person and its consolidated Subsidiaries which would
be treated as intangibles under GAAP, including, without limitation, goodwill
and trademarks, but excluding, however, lease rights associated with
acquisitions of below-market leases.
"Contingent Obligation" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in respect
thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety
Instrument issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c) to purchase any
materials, supplies or other property from, or to obtain the services of,
another Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property, or for
such services, shall be made regardless of whether delivery of such materials,
supplies or other property is ever made or tendered, or such services are ever
performed or tendered, or (d) in respect of any Swap Contract. The amount of
any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed
equal to the stated or determinable amount of the primary obligation in respect
of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect thereof;
provided that if any Guaranty Obligation (a) is limited to an amount less than
the obligations guaranteed or supported the amount of the corresponding
Contingent Obligation shall be equal to the lesser of the amount determined
pursuant to the initial clause of this sentence and the amount to which such
guaranty is so limited or (b) is limited to recourse against a
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particular asset or assets of such Person the amount of the corresponding
Contingent Obligation shall be equal to the lesser of the amount determined
pursuant to the initial clause of this sentence and the fair market value of
such asset or assets at the date for determination of the amount of the
Contingent Obligation. In the case of other Contingent Obligations other than
in respect of Swap Contracts, shall be equal to the maximum reasonably
anticipated liability in respect thereof and, in the case of Contingent
Obligations in respect of Swap Contracts, shall be equal to the Swap Termination
Value.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which, under Section 2.04,
the Company (a) converts Loans of one Type to another Type, or (b) continues as
Loans of the same Type, but with a new Interest Period, Loans having Interest
Periods expiring on such date.
"Credit Extension" means and includes (a) the making of any Loans hereunder
and (b) the Issuance of any Letters of Credit hereunder.
"Default" means any event or circumstance which, with the giving of notice
pursuant to this Agreement, the expiration of any cure period specified herein,
or both, would (if not cured or otherwise remedied during such cure period)
constitute an Event of Default.
"Disposition" has the meaning specified in Section 8.02.
"Dollar Equivalent" means, at any time, (a) as to any amount denominated in
Dollars, the amount thereof at such time, (b) as to any amount denominated in an
Offshore Currency, the equivalent amount in Dollars as determined by the Agent
at such time on the basis of the Spot Rate for the purchase of Dollars with such
Offshore Currency on the most recent Computation Date provided for in subsection
2.05(a) and (c) as to any amount denominated in an Offshore L/C Currency, the
equivalent amount in Dollars as determined by the Issuing Bank at such time on
the basis of the Spot Rate for the purchase of Dollars with such Offshore L/C
Currency.
"Dollars", "dollars" and "$" each mean lawful money of the United States.
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"EBITR" means, for any period, for the Company and its Subsidiaries on a
consolidated basis, determined in accordance with GAAP, the sum of (a)
Consolidated Net Income for such period plus (b) all amounts treated as expenses
for taxes to the extent included in the determination of such Consolidated Net
Income plus (c) Consolidated Interest Expense to the extent included in the
determination of such Consolidated Net Income plus (d) Consolidated Rental
Expense to the extent included in the determination of such Consolidated Net
Income.
"Effective Amount" means (a) with respect to any Loans on any date, the
aggregate outstanding principal Dollar Equivalent amount thereof after giving
effect to any Borrowings and prepayments or repayments of Loans occurring on
such date; and (b) with respect to any outstanding L/C Obligations on any date,
the Dollar Equivalent amount of such L/C Obligations on such date after giving
effect to any Issuances of Letters of Credit occurring on such date and any
other changes in the aggregate amount of the L/C Obligations as of such date,
including as a result of any reimbursements of outstanding unpaid drawings under
any Letters of Credit or any reductions in the maximum amount available for
drawing under Letters of Credit taking effect on such date.
"Eligible Assignee" means (a) a commercial bank organized under the laws of
the United States, or any state thereof, and having a combined capital and
surplus of at least $200,000,000; (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $200,000,000,
provided that such bank is acting through a branch or agency located in the
United States; and (c) a Person that is primarily engaged in the business of
commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of
a Person of which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a
Subsidiary.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control with the Company within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan;
(b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Company or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization the liability with respect to which has not been satisfied;
(d) the filing of a notice of intent to terminate, the treatment of a Plan
amendment as a termination under Section 4041 or 4041A of ERISA, or the
commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan;
or (f) the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the Company or
any ERISA Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in the definition
of "Offshore Rate".
"Event of Default" means any of the events or circumstances specified in
Section 9.01.
"Exchange Act" means the Securities Exchange Act of 1934, and regulations
promulgated thereunder, in each case, as amended from time to time.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor,
"H.15(519)") on the preceding Business Day opposite the caption "Federal Funds
(Effective)"; or, if for any relevant day such rate is not so
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published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
"Fee Letter" has the meaning specified in subsection 2.12(a).
"FRB" means the Board of Governors of the Federal Reserve System, and any
Governmental Authority succeeding to any of its principal functions.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) EBITR
to (b) the sum of Consolidated Interest Expense plus Consolidated Rental
Expense, in each case, for such period.
"FX Trading Office" means the Foreign Exchange Trading Center of the Agent,
or such other of the Agent's offices as the Agent may designate from time to
time.
"Further Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges
(including, without limitation, net income taxes and franchise taxes), and all
liabilities with respect thereto, imposed by any jurisdiction on account of
amounts payable or paid pursuant to Section 4.01.
"GAAP" means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of (a) in the case of
computations pursuant to Section 8.12, the date of this Agreement and (b) in all
other cases, the applicable date.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantors" means, collectively, each of the Material Subsidiaries of the
Company signatory to the Subsidiary Guaranty and such other Material
Subsidiaries from time to time party to such Subsidiary Guaranty pursuant to
Section 7.13.
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"Guaranty Obligation" has the meaning specified in the definition of
"Contingent Obligation."
"Honor Date" has the meaning specified in subsection 3.03(b).
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to repossession or
sale of such property); (f) all principal obligations with respect to Capital
Leases; (g) all indebtedness referred to in clauses (a) through (f) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contracts rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness;
and (h) all Guaranty Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (a) through (g) above. In the event
any of the foregoing Indebtedness is limited to recourse against a particular
asset or assets of such Person, the amount of the corresponding Indebtedness
shall be equal to the lesser of the amount of such Indebtedness and the fair
market value of such asset or assets at the date for determination of the amount
of such Indebtedness. In addition, the amount of any Indebtedness which is also
a Contingent Obligation shall be determined as provided in the definition of
"Contingent Obligation."
"Indemnified Liabilities" has the meaning specified in Section 11.05.
"Indemnified Person" has the meaning specified in Section 11.05.
"Independent Auditor" has the meaning specified in subsection 7.01(a).
"Insolvency Proceeding" means, with respect to any Person, (a) any case,
action or proceeding with respect to such Person
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before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors; undertaken under U.S. Federal, state or foreign law, including
the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a Base Rate Loan,
the last day of each Interest Period applicable to such Loan and, as to any Base
Rate Loan, the last Business Day of each calendar quarter; provided, however,
that if any Interest Period for an Offshore Rate Loan exceeds three months the
date that falls three months after the beginning of such Interest Period and
after each Interest Payment Date thereafter is also an Interest Payment Date.
"Interest Period" means, with respect to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/Continuation
Date on which a Loan is converted into or continued as an Offshore Rate Loan,
and ending on the date one, two, three or six months thereafter as selected by
the Company in its Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
(a) if any Interest Period would otherwise end on a day that is not a
Business Day, that Interest Period shall be extended to the following Business
Day unless, in the case of an Offshore Rate Loan, the result of such extension
would be to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the preceding Business Day;
(b) any Interest Period pertaining to an Offshore Rate Loan that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(c) no Interest Period shall extend beyond the scheduled Revolving
Termination Date.
"Investments" has the meaning specified in Section 8.04.
"IRS" means the Internal Revenue Service, and any Governmental Authority
succeeding to any of its principal functions under the Code.
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"Issuance Date" has the meaning specified in subsection 3.01(a).
"Issue" means, with respect to any Letter of Credit, to issue or to extend
the expiry of, or to renew or increase the amount of, such Letter of Credit; and
the terms "Issued," "Issuing" and "Issuance" have corresponding meanings.
"Issuing Bank" means, with respect to any Letter of Credit, BofA or any
Bank which at the request of the Company agrees, in such Bank's sole discretion,
to become an Issuing Bank for purposes of Issuing Letters of Credit pursuant to
Article III.
"Judgment Currency" has the meaning specified in Section 11.17.
"L/C Advance" means each Bank's participation in any L/C Borrowing in
accordance with its Pro Rata Share.
"L/C Amendment Application" means an application form for amendment of
outstanding standby or commercial documentary letters of credit as shall at any
time be in use at the Issuing Bank, as the Issuing Bank shall request.
"L/C Application" means an application form for issuances of standby or
commercial documentary letters of credit as shall at any time be in use at the
Issuing Bank, as the Issuing Bank shall request.
"L/C Borrowing" means an extension of credit resulting from a drawing under
any Letter of Credit which shall not have been reimbursed on the date when made
nor converted into a Borrowing of Loans under subsection 3.03(b).
"L/C Commitment" means the commitment of the Issuing Bank to Issue, and the
commitment of the Banks severally to participate in, Letters of Credit from time
to time Issued or outstanding under Article III; provided that the L/C
Commitment is a part of the combined Commitments, rather than a separate,
independent commitment.
"L/C Obligations" means, at any time, the sum of (a) the aggregate undrawn
amount of all Letters of Credit then outstanding, plus (b) the amount of all
unreimbursed drawings under all Letters of Credit, including all outstanding L/C
Borrowings.
"L/C-Related Documents" means the Letters of Credit, the L/C Applications,
the L/C Amendment Applications and any other document relating to any Letter of
Credit, including any of the
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Issuing Bank's standard form documents for letter of credit issuances.
"Lending Office" means, as to any Bank, the office or offices of such Bank
specified as its "Lending Office" or "Domestic Lending Office" or "Offshore
Lending Office", as the case may be, on Schedule 11.02, or such other office or
offices as such Bank may from time to time notify the Company and the Agent.
"Letters of Credit" means any letters of credit (whether standby letters of
credit or commercial documentary letters of credit) Issued by the Issuing Bank
pursuant to Article III.
"Level I Status" exists at any date if at such date the Fixed Charge
Coverage Ratio is greater than 2.0:1.0.
"Level II Status" exists at any date if at such date the Fixed Charge
Coverage Ratio is less than or equal to 2.0:1.0 but greater than 1.6:1.0.
"Level III Status" exists at any date if at such date the Fixed Charge
Coverage Ratio is less than or equal to 1.6:1.0.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other), conditional sale or other title retention agreement, the
interest of a lessor under a Capital Lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the Uniform Commercial Code or any comparable law) but, in any
such case, not including the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Bank to the Company under Article
II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a "Type" of
Loan).
"Loan Documents" means this Agreement, any Notes, the Fee Letter, the
Subsidiary Guaranty, the L/C-Related Documents and all other documents delivered
to the Agent or any Bank by the Company in connection herewith.
"Margin Stock" means "margin stock" as such term is defined in Regulation
G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties or financial
condition of the Company or the Company and its Subsidiaries taken as a whole;
(b) a material
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impairment of the ability of the Company to perform its obligations under any
Loan Document; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against the Company or any Guarantor of any of
the Loan Documents.
"Material Subsidiary" means, at any time, (a) Payless ShoeSource
Merchandising, Inc., a Kansas corporation, Payless ShoeSource Distribution,
Inc., a Kansas corporation, and Payless ShoeSource Worldwide, Inc., a Kansas
corporation, and (b) any other domestic Subsidiary of the Company the total
assets of which constitute 5% or more of the total consolidated assets of the
Company and its Subsidiaries, in each case, determined in accordance with GAAP.
"Minimum Tranche" means, in respect of Loans comprising part of the same
Borrowing, or to be converted or continued under Section 2.04, (a) in the case
of Base Rate Loans, $3,000,000 or any multiple of $1,000,000 in excess thereof,
and (b) in the case of Offshore Rate Loans, the Dollar Equivalent amount of
$3,000,000 or any multiple of 1,000,000 units of the Applicable Currency in
excess thereof.
"Multiemployer Plan" means a "multiemployer plan", within the meaning of
Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes,
is making, or is obligated to make contributions or, during the preceding three
calendar years, has made, or been obligated to make, contributions.
"Note" means a promissory note executed by the Company in favor of a Bank
pursuant to Section 2.02, in substantially the form of Exhibit F.
"Notice of Borrowing" means a notice in substantially the form of Exhibit
A.
"Notice of Conversion/Continuation" means a notice in substantially the
form of Exhibit B.
"Obligations" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company or any
Guarantor to any Bank, the Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment pursuant to subsection
11.08(a), absolute or contingent, due or to become due, now existing or
hereafter arising.
"Offshore Currency" means, at any time, Italian lire, Canadian dollars,
Mexican pesos, British pound sterling and French francs, and any Agreed
Alternative Currency.
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"Offshore Currency Loan" means any Offshore Rate Loan denominated in an
Offshore Currency.
"Offshore L/C Currency" means, at any time, any Offshore Currency and, with
respect to any Letter of Credit, any other currency agreed to by the Issuing
Bank thereof.
"Offshore Rate" means, for any Interest Period, with respect to Offshore
Rate Loans comprising part of the same Borrowing, the rate of interest per annum
(rounded upward to the next 1/16th of 1%) determined by the Agent as follows:
Offshore Rate = LIBOR
------------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any Interest
Period (a) with respect to Offshore Rate Loans denominated in Dollars, the
maximum reserve percentage (expressed as a decimal, rounded upward to the
next 1/100th of 1%) in effect on such day (whether or not applicable to any
Bank) under regulations issued from time to time by the FRB for determining
the maximum reserve requirement (including any emergency, supplemental or
other marginal reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities") and (b) with respect
to all other Offshore Rate Loans, zero; and
"LIBOR" means the rate of interest per annum determined by the
Agent to be the arithmetic mean of the rates of interest per annum notified
to the Agent by each Reference Bank as the rate of interest at which
deposits in the Applicable Currency in the approximate amount of the amount
of the Loan to be made or continued as, or converted into, an Offshore Rate
Loan by such Reference Bank and having a maturity comparable to such
Interest Period would be offered to major banks in the London interbank
market at their request at approximately 11:00 a.m. (London time) two
Banking Days prior to the commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any change
in the Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on the Offshore
Rate, and may be an Offshore Currency Loan or a Loan denominated in Dollars.
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"Organization Documents" means, for any corporation, the certificate or
articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation,
any shareholder rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation.
"originating Bank" has the meaning specified in subsection 11.08(d).
"Other Taxes" means any present or future stamp, court or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery, performance,
enforcement or registration of, or otherwise with respect to, this Agreement or
any other Loan Documents.
"Overnight Rate" means, for any day, the rate of interest per annum at
which overnight deposits in the Applicable Currency, in an amount approximately
equal to the amount with respect to which such rate is being determined, would
be offered for such day by BofA's London Branch to major banks in the London or
other applicable offshore interbank market.
"Participant" has the meaning specified in subsection 11.08(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental
Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA which the Company sponsors, maintains, or to which
it makes, is making, or is obligated to make contributions, or in the case of a
multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five (5) plan years.
"Permitted Liens" has the meaning specified in Section 8.01.
"Permitted Swap Obligations" means all obligations (contingent or
otherwise) of the Company or any Subsidiary existing or arising under Swap
Contracts, provided that each of the following criteria is satisfied: (a) such
obligations are (or were) entered into by such Person in the ordinary course of
business for the purpose of directly mitigating risks associated with
liabilities, commitments or assets held or reasonably anticipated by such
Person, or changes in the value of securities issued by such Person in
conjunction with a securities repurchase program not otherwise prohibited
hereunder, and not for purposes
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of speculation or taking a "market view;" and (b) such Swap Contracts do not
contain any provision ("walk-away" provision) exonerating the non-defaulting
party from its obligation to make payments on outstanding transactions to the
defaulting party.
"Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA)
which the Company sponsors or maintains or to which the Company makes, is
making, or is obligated to make contributions and includes any Pension Plan.
"Present Value" means, with respect to each lease of the Company and its
Subsidiaries treated as an "operating" lease for purposes of external financial
reporting, the periodic minimum or base rental payments due and payable during
the primary term (giving effect to any extension terms as to which the Company
or its Subsidiaries have become contractually obligated) of such lease on or
after the date of determination discounted to an equivalent value as of the date
of determination. For purposes of computing the Present Value: (a) the discount
rate utilized to calculate the Present Value of any Existing Lease (as defined
below) shall be the rate actually utilized by the Company prior to the date
hereof for purposes of calculating the present value of such operating lease for
disclosure of the present value of all operating leases in the consolidated
external financial reports of the Company and its Affiliates; (b) the discount
rate utilized to calculate the Present Value of any Additional Lease (as defined
below) during the fiscal year in which the term of such lease commences (its
"First Lease Year") shall be the Year-To-Date Rate (as defined below) as of the
end of the fiscal quarter for which the computation is made; and (c) the
discount rate for any Additional Lease during any fiscal year other than its
First Lease Year shall be the Year-To-Date Rate as of the end of its First Lease
Year. For purposes of this definition: (i) "Existing Lease" means any
operating lease with a term commencing before February 4, 1996; (ii) "Additional
Lease" means any operating lease with a term commencing after February 3, 1996;
and (iii) "Year-To-Date Rate" means the weekly year-to-date average of the
Friday rates of the Merrill Lynch Bond Index for corporate issues of "medium"
quality with terms of 10 years or more ("Index") as published in The Wall Street
Journal (or similar publication). In the event that the Index ceases to be
published, the Index shall be replaced by a similar index reflecting rates
applicable to corporate issues with similar terms and credit quality as the
Index as jointly selected by the Company and the Agent. The discount rate
applied to any extension of any Existing Lease or Additional Lease shall be: (A)
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if the dollar amount of base rent payable during such extension is prescribed in
the original operating lease, the discount rate originally applicable to such
Existing Lease or Additional Lease, as applicable; and (B) in all other cases,
the discount rate determined as if such extension period constituted an
Additional Lease.
"Present Value of Operating Leases" means, at any time, the sum of the
Present Value of each operating lease of the Company and its Subsidiaries.
"Pro Rata Share" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Bank's Commitment divided by the combined Commitments of all Banks.
"Reference Banks" means BofA, The First National Bank of Chicago and The
Bank of New York.
"Reportable Event" means, any of the events set forth in Section 4043(c) of
ERISA or the regulations thereunder, other than any such event for which the 30-
day notice requirement under ERISA has been waived in regulations issued by the
PBGC.
"Required Banks" means (a) at any time prior to the Revolving Termination
Date, Banks then holding at least 51% of the then aggregate unpaid principal
amount of the Loans, or, if no Loans are outstanding, Banks then having at least
51% of the aggregate amount of the Commitments and (b) at all other times, Banks
then holding at least 51% of the then aggregate unpaid principal amount of the
Credit Extensions.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Responsible Officer" means the chief executive officer, president or any
vice president of the Company, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with financial
covenants, the chief financial officer or the treasurer of the Company, or any
other officer having substantially the same authority and responsibility.
"Revolving Termination Date" means the earlier to occur of:
(a) April __, 2001; and
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(b) the date on which the Commitments terminate in accordance with
the provisions of this Agreement.
"Same Day Funds" means (a) with respect to disbursements and payments in
Dollars, immediately available funds, and (b) with respect to disbursements and
payments in an Offshore Currency, same day or other funds as may be reasonably
determined by the Agent to be customary in the place of disbursement or payment
for the settlement of international banking transactions in the relevant
Offshore Currency.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"Spot Rate" for a currency means the rate quoted by the Agent as the spot
rate for the purchase by the Agent of such currency with another currency
through its FX Trading Office at approximately 11:00 a.m. (Chicago time) on the
date two Banking Days prior to the date as of which the foreign exchange
computation is made.
"Subsidiary" of a Person means any corporation, association, partnership,
limited liability company, joint venture or other business entity of which more
than 50% of the voting stock, membership interests or other equity interests (in
the case of Persons other than corporations), is owned or controlled directly or
indirectly by the Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires, references
herein to a "Subsidiary" refer to a Subsidiary of the Company.
"Subsidiary Guaranty" means the Subsidiary Guaranty, in substantially the
form of Exhibit G, executed and delivered by the Guarantors in favor of the
Agent and the Banks, as the same may be amended, supplemented, restated or
otherwise modified from time to time in accordance with its terms and the terms
hereof.
"Surety Instruments" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety
bonds, performance bonds and similar instruments.
"Swap Contract" means any agreement, whether or not in writing, relating to
any transaction that is a rate swap, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap or option, bond,
note or bill option, interest rate option, forward foreign exchange transaction,
cap, collar or floor transaction, currency swap, cross-currency rate swap,
swaption, currency option or any other, similar transaction (including any
option to enter into any of the foregoing) or any
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combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
"Swap Termination Value" means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined by the Company
based upon one or more mid-market or other readily available quotations provided
by any recognized dealer in such Swap Contracts (which may include any Bank.)
"Taxes" means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, respectively, taxes imposed on or measured by its net income by the
jurisdiction (or any political subdivision thereof) under the laws of which such
Bank or the Agent, as the case may be, is organized or maintains a lending
office.
"Total Capitalization" means, at any time, the sum at such time of (a) the
Company's total stockholders' equity plus (b) Total Debt plus (c) the
consolidated non-current deferred taxes of the Company and its Subsidiaries.
"Total Debt" means, at any time, the sum of (a) the current and long-term
indebtedness obligations for money borrowed, drawn and unreimbursed letters of
credit, drawn and unreimbursed surety bonds, the current portion of mandatory
redeemable preferred stock of the Company, Capital Lease Obligations and,
without duplication, Contingent Obligations in respect of any of the foregoing,
in each case, of the Company and its Subsidiaries on a consolidated basis, plus
(b) the Present Value of Operating Leases.
"Type" has the meaning specified in the definition of "Loan."
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
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"United States" and "U.S." each means the United States of America.
"Wholly-Owned Subsidiary" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of each
class having ordinary voting power, and 100% of the capital stock of every other
class, in each case, at the time as of which any determination is being made, is
owned, beneficially and of record, by the Company, or by one or more of the
other Wholly-Owned Subsidiaries, or both.
1.2 Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding", and the word
"through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
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(f) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(g) This Agreement is the result of negotiations among and has been
reviewed by counsel to the Agent, the Company and the other parties, and is the
product of all parties. Accordingly, it shall not be construed against the
Banks or the Agent merely because of the Agent's or Banks' involvement in its
preparation.
1.3 Accounting Principles.
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Company. Currently, the fiscal year of the Company
ends on the Saturday closest to January 31 of each year.
1.4 Currency Equivalents Generally. For all purposes of this Agreement
(but not for purposes of the preparation of any financial statements delivered
pursuant hereto), the equivalent in any Offshore Currency or other currency of
an amount in Dollars, and the equivalent in Dollars of an amount in any Offshore
Currency or other currency, shall be determined at the Spot Rate.
ARTICLE II
THE CREDITS
-----------
2.1 Amounts and Terms of Commitments. Each Bank severally agrees, on
the terms and conditions set forth herein, to make loans to the Company from
time to time on any Business Day during the period from the Closing Date to the
Revolving Termination Date, in an aggregate principal Dollar Equivalent amount
not to exceed at any time outstanding the amount set forth opposite the Bank's
name in Schedule 2.01 under the heading "Commitment" (such amount as the same
may be reduced pursuant to Section 2.06 or as a result of one or more
assignments pursuant to Section 11.08, the Bank's "Commitment"); provided,
however, that, after giving effect to any Borrowing of Loans, the aggregate
principal Dollar Equivalent amount of all outstanding
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Loans and L/C Obligations shall not exceed the combined Commitments. Within the
limits of each Bank's Commitment, and subject to the other terms and conditions
hereof, the Company may borrow under this Section 2.01, prepay pursuant to
Section 2.07 and reborrow pursuant to this Section 2.01.
2.2 Notes. The Loans made by each Bank shall be evidenced by one or
more Notes. Each such Bank shall endorse on the schedules annexed to its Note
the date, amount and maturity of each Loan made by it and the amount and
Applicable Currency of each payment of principal made by the Company with
respect thereto. Each such Bank is irrevocably authorized by the Company to
endorse its Note and each Bank's record shall be rebuttably presumptive evidence
of the matters set forth therein absent manifest error; provided, however, that
the failure of a Bank to make, or an error in making, a notation thereon with
respect to any Loan shall not limit or otherwise affect the obligations of the
Company hereunder or under any such Note to such Bank.
2.3 Procedure for Borrowing.
(a) Each Borrowing shall be made upon the Company's irrevocable
written notice delivered to the Agent in the form of a Notice of Borrowing
(which notice must be received by the Agent prior to 12:00 noon (Chicago time)
(i) four Business Days prior to the requested Borrowing Date, in the case of
Offshore Currency Loans; (ii) three Business Days prior to the requested
Borrowing Date, in the case of Offshore Rate Loans denominated in Dollars; (iii)
one Business Day prior to the requested Borrowing Date, in the case of Base Rate
Loans, in any such case, specifying:
(A) the amount of the Borrowing, which shall be in an
aggregate amount not less than the Minimum Tranche;
(B) the requested Borrowing Date, which shall be a
Business Day;
(C) the Type of Loans comprising the Borrowing;
(D) the duration of the Interest Period applicable to any
Offshore Rate Loans included in such notice. If the Notice of
Borrowing fails to specify the duration of the Interest Period for
any Borrowing comprised of Offshore Rate Loans, such Interest
Period shall be one month; and
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(E) in the case of a Borrowing comprised of Offshore
Currency Loans, the Applicable Currency;
provided, however, that with respect to any Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Agent not later than
12:00 noon (Chicago time) one Business Day before the Closing Date and such
Borrowing will consist of Base Rate Loans only.
(b) The Dollar Equivalent amount of any Borrowing in an Offshore
Currency will be determined by the Agent for such Borrowing on the Computation
Date therefor in accordance with subsection 2.05(a). Upon receipt of the Notice
of Borrowing, the Agent will promptly notify each Bank thereof and of the amount
of such Bank's Pro Rata Share of the Borrowing. In the case of a Borrowing
comprised of Offshore Currency Loans, such notice will provide the approximate
amount of each Bank's Pro Rata Share of the Borrowing, and the Agent will, upon
the determination of Dollar Equivalent amount of the Borrowing as specified in
the Notice of Borrowing, promptly notify each Bank of the exact Dollar
Equivalent amount of such Bank's Pro Rata Share of the Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Company at the Agent's
Payment Office by 11:00 a.m. (Chicago time) on the Borrowing Date requested by
the Company in Same Day Funds and in the requested currency (i) in the case of a
Borrowing comprised of Loans in Dollars, by 11:00 a.m. (Chicago time), (ii) in
the case of a Borrowing comprised of Offshore Currency Loans, by such time as
the Agent may specify. The proceeds of all such Loans will then be made
available to the Company by the Agent at such office by crediting the account of
the Company on the books of BofA with the aggregate of the amounts made
available to the Agent by the Banks and in like funds as received by the Agent.
(d) After giving effect to any Borrowing, unless the Agent shall
otherwise consent, there may not be more than nine different Interest Periods in
effect.
2.4 Conversion and Continuation Elections.
(a) The Company may, upon irrevocable written notice to the Agent
in accordance with subsection 2.04(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case
of any other Type of Loans denominated in Dollars, to convert any such
Loans (or
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any part thereof in an amount not less than the Minimum Tranche) into Loans
in Dollars of any other Type; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any Loans having Interest Periods expiring on such day
(or any part thereof in an amount not less than the Minimum Tranche).
(b) The Company shall deliver a Notice of Conversion/Continuation to
be received by the Agent not later than 12:00 noon (Chicago time) at least (i)
three Business Days in advance of the Conversion/Continuation Date, if the Loans
are to be converted into or continued as Offshore Rate Loans denominated in
Dollars; (ii) four Business Days in advance of the continuation date, if the
Loans are to be continued as Offshore Currency Loans; and (iii) one Business Day
in advance of the Conversion/Continuation Date, if the Loans are to be converted
into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or
continued;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans in Dollars, the Company has failed to timely select a new
Interest Period to be applicable to such Offshore Rate Loans or if any Default
or Event of Default then exists, unless, in either case, the Company has elected
to and does repay such Loans on or prior to the expiration date of such Interest
Period, the Company shall be deemed to have elected to convert such Offshore
Rate Loans into Base Rate Loans effective as of the expiration date of such
Interest Period. If the Company has failed to select a new Interest Period to
be applicable to Offshore Currency Loans prior to the fourth Business Day in
advance of the expiration date of the current Interest Period applicable thereto
as provided in subsection 2.04(b), or if any Default or Event of Default shall
then exist, the Company shall be deemed to have elected to continue such
Offshore Currency Loans on the basis of a one month Interest Period.
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(d) The Agent will promptly notify each Bank of its receipt of a
Notice of Conversion/Continuation, or, if no timely notice is provided by the
Company, the Agent will promptly notify each Bank of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Bank.
(e) Unless the Required Banks otherwise consent, during the existence
of a Default or Event of Default, the Company may not elect to have a Loan in
Dollars converted into or continued as an Offshore Rate Loan in Dollars or an
Offshore Currency Loan continued on the basis of an Interest Period exceeding
one month.
(f) After giving effect to any conversion or continuation of Loans,
unless the Agent shall otherwise consent, there may not be more than nine
different Interest Periods in effect.
2.5 Utilization of Commitments in Offshore Currencies.
(a) The Agent will determine the Dollar Equivalent amount with
respect to any (i) Borrowing comprised of Offshore Currency Loans as of the
requested Borrowing Date, (ii) outstanding Offshore Currency Loans as of the
last Banking Day of each month, and (iii) outstanding Offshore Currency Loans as
of any redenomination date pursuant to this Section 2.05 or Section 4.05 (each
such date under clauses (i) through (iii) a "Computation Date").
(b) In the case of a proposed Borrowing comprised of Offshore
Currency Loans, the Banks shall be under no obligation to make Offshore Currency
Loans in the requested Offshore Currency as part of such Borrowing if the Agent
has received notice from any of the Banks by 5:00 p.m. (Chicago time) four
Business Days prior to the day of such Borrowing that such Bank cannot provide
Loans in the requested Offshore Currency, in which event the Agent will give
notice to the Company no later than 12:00 noon (Chicago time) on the third
Business Day prior to the requested date of such Borrowing that the Borrowing in
the requested Offshore Currency is not then available, and notice thereof also
will be given promptly by the Agent to the Banks. If the Agent shall have so
notified the Company that any such Borrowing in a requested Offshore Currency is
not then available, the Company may, by notice to the Agent not later than 5:00
p.m. (Chicago time) three Business Days prior to the requested date of such
Borrowing, withdraw the Notice of Borrowing relating to such requested
Borrowing. If the Company does so withdraw such Notice of Borrowing, the
Borrowing requested therein shall not occur and
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the Agent will promptly so notify each Bank. If the Company does not so
withdraw such Notice of Borrowing, the Agent will promptly so notify each Bank
and such Notice of Borrowing shall be deemed to be a Notice of Borrowing that
requests a Borrowing comprised of Base Rate Loans in an aggregate amount equal
to the amount of the originally requested Borrowing as expressed in Dollars in
the Notice of Borrowing; and in such notice by the Agent to each Bank the Agent
will state such aggregate amount of such Borrowing in Dollars and such Bank's
Pro Rata Share thereof.
(c) In the case of a proposed continuation of Offshore Currency Loans
for an additional Interest Period pursuant to Section 2.04, the Banks shall be
under no obligation to continue such Offshore Currency Loans if the Agent has
received notice from any of the Banks by 5:00 p.m. (Chicago time) four Business
Days prior to the day of such continuation that such Bank cannot continue to
provide Loans in the relevant Offshore Currency, in which event the Agent will
give notice to the Company not later than 12:00 noon (Chicago time) on the third
Business Day prior to the requested date of such continuation that the
continuation of such Offshore Currency Loans in the relevant Offshore Currency
is not then available, and notice thereof also will be given promptly by the
Agent to the Banks. If the Agent shall have so notified the Company that any
such continuation of Offshore Currency Loans is not then available, any Notice
of Continuation/Conversion with respect thereto shall be deemed withdrawn and
such Offshore Currency Loans shall be redenominated into Base Rate Loans in
Dollars with effect from the last day of the Interest Period with respect to any
such Offshore Currency Loans. The Agent will promptly notify the Company and
the Banks of any such redenomination and in such notice by the Agent to each
Bank the Agent will state the aggregate Dollar Equivalent amount of the
redenominated Offshore Currency Loans as of the Computation Date with respect
thereto and such Bank's Pro Rata Share thereof.
(d) The Company shall be entitled to request that Loans hereunder
also be permitted to be made in any other lawful currency (other than Dollars),
in addition to the currencies specified in the definition of "Offshore Currency"
herein, that in the opinion of the Required Banks is at such time freely traded
in the offshore interbank foreign exchange markets and is freely transferable
and freely convertible into Dollars (an "Agreed Alternative Currency"). The
Company shall deliver to the Agent any request for designation of an Agreed
Alternate Currency in accordance with Section 11.02, to be received by the Agent
not later than 12:00 noon (Chicago time) at least 10 Business Days in advance of
the date of any Borrowing hereunder proposed to be made in such Agreed Alternate
Currency. Upon receipt of any such request the Agent will promptly notify the
Banks thereof, and each Bank will use its best efforts to respond to such
request
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within two Business Days of receipt thereof. Each Bank may grant or accept such
request in its sole discretion. The Agent will promptly notify the Company of
the acceptance or rejection of any such request.
2.6 Voluntary Termination or Reduction of Commitments. The Company
may, upon not less than three Business Days' prior notice to the Agent,
terminate the Commitments, or permanently reduce the Commitments by an aggregate
minimum Dollar Equivalent amount of $5,000,000 or any Dollar Equivalent multiple
of $1,000,000 in excess thereof; unless, after giving effect thereto and to any
prepayments of Loans made on the effective date thereof, the then outstanding
principal Dollar Equivalent amount of the Loans and L/C Obligations would exceed
the amount of the combined Commitments then in effect. Once reduced in
accordance with this Section 2.06, the Commitments may not be increased. Any
reduction of the Commitments shall be applied to each Bank according to its Pro
Rata Share. All accrued commitment fees to, but not including the effective
date of any reduction or termination of Commitments, shall be paid on the
effective date of such reduction or termination.
2.7 Optional Prepayments. Subject to Section 4.04, the Company may, at
any time or from time to time, upon irrevocable notice to the Agent as described
below, ratably prepay Loans in whole or in part, in minimum Dollar Equivalent
amounts of $3,000,000 or any Dollar Equivalent multiple of $1,000,000 in excess
thereof or such other amount necessary to repay any Offshore Currency Loan in
full. The Company shall deliver a notice of prepayment in accordance with
Section 11.02 to be received by the Agent not later than 12:00 noon (Chicago
time) (a) at least four Business Days in advance of the prepayment date if the
Loans to be prepaid are Offshore Currency Loans, (b) at least three Business
Days in advance of the prepayment date if the Loans to be prepaid are Offshore
Rate Loans in Dollars, and (iii) at least one Business Day in advance of the
prepayment date if the Loans to be prepaid are Base Rate Loans. Such notice of
prepayment shall specify the date and amount of such prepayment and whether such
prepayment is of Base Rate Loans or Offshore Rate Loans, or any combination
thereof, and the Applicable Currency. Such notice shall not thereafter be
revocable by the Company and the Agent will promptly notify each Bank thereof
and of such Bank's Pro Rata Share of such prepayment. If such notice is given
by the Company, the Company shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified therein,
together with accrued interest to each such date on the amount prepaid and any
amounts required pursuant to Section 4.04.
2.8 Currency Exchange Fluctuations. Subject to Section 4.04, if on any
Computation Date the Agent shall have determined
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that the aggregate Dollar Equivalent principal amount of all Loans and L/C
Obligations then outstanding exceeds the combined Commitments of the Banks by
more than $500,000, due to a change in applicable rates of exchange between
Dollars and Offshore Currencies, then the Agent shall give notice to the Company
that a prepayment is required under this Section 2.08, and the Company agrees
thereupon to make prepayments of Loans within one Business Day of such notice
such that, after giving effect to such prepayment the aggregate Dollar
Equivalent amount of all Loans does not exceed the combined Commitments.
2.9 Mandatory Prepayments of Loans. Subject to Section 4.04, if on any
date the Effective Amount of all Loans then outstanding plus the Effective
Amount of all L/C Obligations exceeds the aggregate Commitments (other than as a
result of currency exchange fluctuations), the Company shall immediately, and
without notice or demand, prepay the outstanding principal amount of the Loans
in an amount equal to the lesser of such excess and the amount of the
outstanding Loans and, if any excess shall still remain, shall Cash
Collateralize the L/C Obligations to the extent of such remaining excess.
2.10 Repayment. The Company shall repay to the Banks on April __, 2001
or on such earlier date as such Loans may become due and payable pursuant to
subsection 9.02(b) the aggregate principal amount of Loans outstanding on such
date.
2.11 Interest.
(a) Each Loan shall bear interest on the outstanding principal amount
thereof from the applicable Borrowing Date at a rate per annum equal to the
Offshore Rate plus the Applicable Margin or the Base Rate, as the case may be
(and subject to the Company's right to convert to other Types of Loans under
Section 2.04).
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of
Loans under Section 2.07, 2.08 or 2.09 for the portion of the Loans so prepaid
and upon payment (including prepayment) in full thereof and, during the
existence of any Event of Default, interest shall be paid on demand of the Agent
at the request or with the consent of the Required Banks.
(c) Notwithstanding subsections 2.11(a) and 3.03(d), while any Event
of Default exists, for the period commencing after the Company's receipt of
notice from the Agent at the request, or with the consent, of the Required Banks
or after acceleration, the Company shall pay interest (after as well as before
entry of judgment thereon to the extent permitted by
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law) on the principal amount of all outstanding Loans and other Obligations, at
a rate per annum which is determined by adding 2% per annum to the Applicable
Margin then in effect for such Loans and, in the case of Obligations not subject
to an Applicable Margin, at a rate per annum equal to the Base Rate plus 2%;
provided, however, that, on and after the expiration of any Interest Period
applicable to any Offshore Rate Loan outstanding on the date of occurrence of
such Event of Default for the period commencing after the Company's receipt of
notice from the Agent at the request, or with the consent, of the Required Banks
or acceleration, the principal amount of such Loan shall, during the
continuation of such Event of Default or after acceleration, bear interest at a
rate per annum equal to the Base Rate plus 2%.
(d) Anything herein to the contrary notwithstanding, the Obligations
of the Company to any Bank hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Bank would be contrary to the provisions of
any law applicable to such Bank limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Bank, and in such event
the Company shall pay such Bank interest at the highest rate permitted by
applicable law.
2.12 Fees.
(a) Arrangement, Agency Fees. The Company shall pay an arrangement
fee to the Arranger for the Arranger's own account, and shall pay an agency fee
to the Agent for the Agent's own account, as required by the letter agreement
("Fee Letter") between the Company and the Arranger and Agent dated March 13,
1996.
(b) Commitment Fees. The Company shall pay to the Agent for the
account of each Bank a commitment fee equal to the Applicable Commitment Fee
Percentage times the average daily unused portion of such Bank's Commitment,
computed on a quarterly basis in arrears on the last Business Day of each
calendar quarter based upon the daily utilization for that quarter as calculated
by the Agent. For purposes hereof, each Bank's Commitment shall be deemed
utilized to the extent of its Pro Rata Share of all outstanding Loans and L/C
Obligations. Such commitment fee shall accrue from the Closing Date to the
Revolving Termination Date and shall be due and payable quarterly in arrears on
the last Business Day of each calendar quarter commencing with the first
calendar quarter ending after the date hereof through the Revolving Termination
Date, with the final payment to be made on the Revolving Termination Date;
provided that, in connection with any reduction or termination of
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Commitments under Section 2.06, the accrued commitment fee calculated for the
period ending on such date shall also be paid on the date of such reduction or
termination, with the following quarterly payment being calculated on the basis
of the period from such reduction or termination date to such quarterly payment
date. The commitment fees provided in this subsection shall accrue at all times
after the above-mentioned commencement date, including at any time during which
one or more conditions in Article V are not met.
2.13 Computation of Fees and Interest.
(a) All computations of interest for Base Rate Loans and of fees
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed. All computations of interest for Offshore Rate Loans shall
be made on the basis of a 360-day year and actual days elapsed (which results in
more interest being paid than if computed on the basis of a 365-day year).
Interest and fees shall accrue during each period during which interest or such
fees are computed from the first day thereof to the last day thereof.
(b) For purposes of determining utilization of each Bank's Commitment
in order to calculate the commitment fee due under subsection 2.12(b), the
amount of any outstanding Offshore Currency Loan on any date shall be determined
based upon the Dollar Equivalent amount as of the most recent Computation Date
with respect to such Offshore Currency Loan.
(c) Each determination of an interest rate or a Dollar Equivalent
amount by the Agent shall be rebuttably presumptive evidence thereof in the
absence of manifest error. The Agent will, at the request of the Company or any
Bank, deliver to the Company or the Bank, as the case may be, a statement
showing the quotations used by the Agent in determining any interest rate or
Dollar Equivalent amount.
(d) If any Reference Bank's Commitment terminates (other than on
termination of all the Commitments), or for any reason whatsoever such Reference
Bank ceases to be a Bank hereunder, such Reference Bank shall thereupon cease to
be a Reference Bank, and the Offshore Rate shall be determined on the basis of
the rates as notified by the remaining Reference Bank(s). In such event, the
Company (with the consent of the Agent) may designate another Bank as a
Reference Bank hereunder.
(e) Each Reference Bank shall use its best efforts to furnish
quotations of rates to the Agent as contemplated hereby. If any of the
Reference Banks fails to supply such rates to the Agent upon its request, the
rate of
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interest shall be determined on the basis of the quotations of the remaining
Reference Bank(s).
2.14 Payments by the Company.
(a) All payments to be made by the Company shall be made without set-
off, recoupment or counterclaim. Except as otherwise expressly provided herein,
all payments by the Company shall be made to the Agent for the account of the
Banks at the Agent's Payment Office, and, with respect to principal of, interest
on, and any other amounts relating to, any Offshore Currency Loan, shall be made
in the Offshore Currency in which such Loan is denominated or payable, and, with
respect to all other amounts payable hereunder, shall be made in Dollars. Such
payments shall be made in Same Day Funds, and (i) in the case of Offshore
Currency payments, no later than such time on the dates specified herein as may
be determined by the Agent to be necessary for such payment to be credited on
such date in accordance with normal banking procedures in the place of payment,
and (ii) in the case of any Dollar payments, no later than 12:00 noon (Chicago
time) on the date specified herein. The Agent will promptly distribute to each
Bank its Pro Rata Share (or other applicable share as expressly provided herein)
of such principal, interest, fees or other amounts, in like funds as received.
Any payment which is received by the Agent later than 12:00 noon (Chicago time),
or later than the time specified by the Agent as provided in clause (i) above
(in the case of Offshore Currency payments), shall be deemed to have been
received on the following Business Day and any applicable interest or fee shall
continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Company prior to the
date on which any payment is due to the Banks that the Company will not make
such payment in full as and when required, the Agent may assume that the Company
has made such payment in full to the Agent on such date in Same Day Funds and
the Agent may (but shall not be so required), in reliance upon such assumption,
distribute to each Bank on such due date an amount equal to the amount then due
such Bank. If and to the extent the Company has not made such payment in full
to the Agent, each Bank shall repay to the Agent on demand such amount
distributed to such Bank, together with interest thereon at the Federal Funds
Rate or, in the case of a payment in an Offshore
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Currency, the Overnight Rate, for each day from the date such amount is
distributed to such Bank until the date repaid.
2.15 Payments by the Banks to the Agent.
(a) Unless the Agent receives notice from a Bank on or prior to the
Closing Date or, with respect to any Borrowing after the Closing Date, at least
one Business Day prior to the date of such Borrowing, that such Bank will not
make available as and when required hereunder to the Agent for the account of
the Company the amount of that Bank's Pro Rata Share of the Borrowing, the Agent
may assume that each Bank has made such amount available to the Agent in Same
Day Funds on the Borrowing Date and the Agent may (but shall not be so
required), in reliance upon such assumption, make available to the Company on
such date a corresponding amount. If and to the extent any Bank shall not have
made its full amount available to the Agent in Same Day Funds and the Agent in
such circumstances has made available to the Company such amount, that Bank
shall on the Business Day following such Borrowing Date make such amount
available to the Agent, together with interest at the Federal Funds Rate or, in
the case of any Borrowing consisting of Offshore Currency Loans, the Overnight
Rate, for each day during such period. A notice of the Agent submitted to any
Bank with respect to amounts owing under this subsection 2.15(a) shall be
conclusive, absent manifest error. If such amount is so made available, such
payment to the Agent shall constitute such Bank's Loan on the date of Borrowing
for all purposes of this Agreement. If such amount is not made available to the
Agent on the Business Day following the Borrowing Date, the Agent will notify
the Company of such failure to fund and, upon demand by the Agent, the Company
shall pay such amount to the Agent for the Agent's account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a
rate per annum equal to the interest rate applicable at the time to the Loans
comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing Date
shall not relieve any other Bank of any obligation hereunder to make a Loan on
such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.16 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder), such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks
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such participations in the Loans made by them as shall be necessary to cause
such purchasing Bank to share the excess payment pro rata with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the purchasing Bank the
purchase price paid therefor, together with an amount equal to such paying
Bank's ratable share (according to the proportion of (i) the amount of such
paying Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Company agrees
that any Bank so purchasing a participation from another Bank may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of set-off, but subject to Section 11.10) with respect to such
participation as fully as if such Bank were the direct creditor of the Company
in the amount of such participation. The Agent will keep records (which shall
be conclusive and binding in the absence of manifest error) of participations
purchased under this Section 2.16 and will in each case notify the Banks
following any such purchases or repayments.
ARTICLE III
THE LETTERS OF CREDIT
---------------------
3.1 The Letter of Credit Subfacility.
(a) On the terms and conditions set forth herein (i) the Issuing Bank
agrees, (A) from time to time on any Business Day during the period from the
Closing Date to the Revolving Termination Date to issue Letters of Credit
denominated in Dollars or an Offshore L/C Currency for the account of the
Company, and to amend or renew Letters of Credit previously issued by it, in
accordance with subsections 3.02(c) and 3.02(d), and (B) to honor drafts under
the Letters of Credit; and (ii) the Banks severally agree to participate in
Letters of Credit Issued for the account of the Company; provided that the
Issuing Bank shall not be obligated to Issue, and no Bank shall be obligated to
participate in, any Letter of Credit if as of the date of Issuance of such
Letter of Credit (the "Issuance Date"): (A) the Effective Amount of all L/C
Obligations plus the Effective Amount of all Loans exceeds the aggregate
Commitments or (B) the participation of any Bank in the Effective Amount of all
L/C Obligations plus the Effective Amount of the Loans of such Bank exceeds such
Bank's Commitment. Within the foregoing limits, and subject to the other terms
and conditions hereof, the Company's ability to obtain Letters of Credit shall
be fully revolving, and, accordingly, the Company may, during the foregoing
period,
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obtain Letters of Credit to replace Letters of Credit which have expired or
which have been drawn upon and reimbursed.
(b) The Issuing Bank shall be under no obligation to Issue any Letter
of Credit if:
(i) any order, judgment or decree of any Governmental Authority
or arbitrator shall by its terms purport to enjoin or restrain the Issuing
Bank from Issuing such Letter of Credit, or any Requirement of Law
applicable to the Issuing Bank or any request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction
over the Issuing Bank shall prohibit, or request that the Issuing Bank
refrain from, the Issuance of letters of credit generally or such Letter of
Credit in particular or shall impose upon the Issuing Bank with respect to
such Letter of Credit any restriction, reserve or capital requirement (for
which the Issuing Bank is not otherwise compensated hereunder) not in
effect on the Closing Date, or shall impose upon the Issuing Bank any
unreimbursed loss, cost or expense which was not applicable on the Closing
Date and which the Issuing Bank in good faith deems material to it and for
which the Issuing Bank is not compensated hereunder.
(ii) the Issuing Bank has received written notice from any Bank,
the Agent or the Company, on or prior to the Business Day prior to the
requested date of Issuance of such Letter of Credit, that one or more of
the applicable conditions contained in Article V is not then satisfied;
(iii) the expiry date of any requested Letter of Credit is (A)
more than 360 days after the date of Issuance, unless the Required Banks
and the Issuing Bank have approved such expiry date in writing, or (B)
after five Business Days prior to the scheduled Revolving Termination Date,
unless all of the Banks have approved such expiry date in writing;
(iv) any requested Letter of Credit is not in a form reasonably
acceptable to the Issuing Bank, or the Issuance of a Letter of Credit shall
violate any applicable policies of the Issuing Bank; or
(v) any standby Letter of Credit is for the purpose of supporting
the issuance of any letter of credit by any other Person.
3.2 Issuance, Amendment and Renewal of Letters of Credit.
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(a) Each Letter of Credit shall be issued upon the irrevocable written
request of the Company received by the Issuing Bank (with a copy sent by the
Company to the Agent) at least two Business Days (or such shorter time as the
Issuing Bank may agree in a particular instance in its sole discretion) prior to
the proposed date of issuance. Each such request for issuance of a Letter of
Credit shall be by facsimile or electronic transmission, confirmed immediately
in an original writing, in the form of an L/C Application, and shall specify in
form and detail satisfactory to the Issuing Bank: (i) the proposed date of
issuance of the Letter of Credit (which shall be a Business Day); (ii) the face
amount of the Letter of Credit; (iii) the expiry date of the Letter of Credit;
(iv) the name and address of the beneficiary thereof; (v) the documents to be
presented by the beneficiary of the Letter of Credit in case of any drawing
thereunder; (vi) the full text of any certificate to be presented by the
beneficiary in case of any drawing thereunder; (vii) the currency (which shall
be Dollars or an Offshore L/C Currency) in which the Letter of Credit is to be
denominated; and (viii) such other matters as the Issuing Bank may reasonably
require.
(b) If the Agent is not the Issuing Bank, by 12:00 noon (Chicago time)
on the Business Day next preceding the requested date of issuance of a Letter of
Credit, the Issuing Bank will confirm with the Agent (by telephone or in
writing) that the Agent has received a copy of the L/C Application or L/C
Amendment Application from the Company and, if not, the Issuing Bank will
provide the Agent with a copy thereof. Unless the Issuing Bank has received
notice on or before the Business Day immediately preceding the date the Issuing
Bank is to issue a requested Letter of Credit from the Agent (i) directing the
Issuing Bank not to issue such Letter of Credit because such issuance is not
then permitted under subsection 3.01(a)(ii) as a result of the limitations set
forth in clauses (A) and (B) thereof or subsection 3.01(b)(ii); or (ii) that one
or more conditions specified in Article V are not then satisfied; then, subject
to the terms and conditions hereof, the Issuing Bank shall, on the requested
date, issue a Letter of Credit for the account of the Company in accordance with
the Issuing Bank's usual and customary business practices.
(c) From time to time while a Letter of Credit is outstanding and
prior to the Revolving Termination Date, the Issuing Bank will, upon the written
request of the Company received by the Issuing Bank (with a copy sent by the
Company to the Agent) at least two Business Days (or such shorter time as the
Issuing Bank may agree in a particular instance in its sole discretion) prior to
the proposed date of amendment, amend any Letter of Credit issued by it. Each
such request for amendment of a Letter of Credit shall be made by facsimile,
confirmed immediately in an original writing, made in the form of an L/C
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Amendment Application and shall specify in form and detail satisfactory to the
Issuing Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of
amendment of the Letter of Credit (which shall be a Business Day); (iii) the
nature of the proposed amendment; and (iv) such other matters as the Issuing
Bank may reasonably require. The Issuing Bank shall be under no obligation to
amend any Letter of Credit if: (A) the Issuing Bank would have no obligation at
such time to issue such Letter of Credit in its amended form under the terms of
this Agreement; or (B) the beneficiary of any such Letter of Credit does not
accept the proposed amendment to the Letter of Credit.
(d) The Issuing Bank and the Banks agree that, while a Letter of
Credit is outstanding and prior to the Revolving Termination Date, at the option
of the Company and upon the written request of the Company received by the
Issuing Bank (with a copy sent by the Company to the Agent) at least two
Business Days (or such shorter time as the Issuing Bank may agree in a
particular instance in its sole discretion) prior to the proposed date of
notification of renewal, the Issuing Bank shall be entitled to authorize the
automatic renewal of any Letter of Credit issued by it. Each such request for
renewal of a Letter of Credit shall be made by facsimile, confirmed immediately
in an original writing, in the form of an L/C Amendment Application, and shall
specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of
Credit to be renewed; (ii) the proposed date of notification of renewal of the
Letter of Credit (which shall be a Business Day); (iii) the revised expiry date
of the Letter of Credit; and (iv) such other matters as the Issuing Bank may
require. The Issuing Bank shall be under no obligation to renew any Letter of
Credit if: (A) the Issuing Bank would have no obligation at such time to issue
or amend such Letter of Credit in its renewed form under the terms of this
Agreement; or (B) the beneficiary of any such Letter of Credit does not accept
the proposed renewal of the Letter of Credit. If any outstanding Letter of
Credit shall provide that it shall be automatically renewed unless the
beneficiary thereof receives notice from the Issuing Bank that such Letter of
Credit shall not be renewed, and if at the time of renewal the Issuing Bank
would be required to authorize the automatic renewal of such Letter of Credit in
accordance with this subsection 3.02(d) upon the request of the Company but the
Issuing Bank shall not have received any L/C Amendment Application from the
Company with respect to such renewal or other written direction by the Company
with respect thereto, the Issuing Bank shall nonetheless renew such Letter of
Credit, and the Company and the Banks hereby authorize such renewal, and,
accordingly, the Issuing Bank shall be deemed to have received an L/C Amendment
Application from the Company requesting such renewal.
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(e) The Issuing Bank may, at its election (or as required by the Agent
at the direction of the Required Banks), deliver any notices of termination or
other communications to any Letter of Credit beneficiary or transferee, and take
any other action as necessary or appropriate, at any time and from time to time,
in order to cause the expiry date of such Letter of Credit to be a date not
later than the scheduled Revolving Termination Date.
(f) This Agreement shall control in the event of any conflict with any
L/C-Related Document (other than any Letter of Credit). In addition, unless the
Company and the Issuing Bank shall otherwise expressly agree in writing, any
purported grant of a Lien (or any requirement to do so) contained in any L/C
Related Document shall be ineffective and null and void.
(g) The Issuing Bank will also deliver to the Agent, concurrently or
promptly following its delivery of a Letter of Credit, or amendment to or
renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and
complete copy of each such Letter of Credit or amendment to or renewal of a
Letter of Credit.
3.3 Risk Participations, Drawings and Reimbursements.
(a) Immediately upon the Issuance of each Letter of Credit, each Bank
shall be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from the Issuing Bank a participation in such Letter of Credit and each
drawing thereunder in an amount equal to the product of (i) the Pro Rata Share
of such Bank, times (ii) the maximum amount available to be drawn under such
Letter of Credit and the amount of such drawing, respectively. For purposes of
Section 2.01, each Issuance of a Letter of Credit shall be deemed to utilize the
Commitment of each Bank by an amount equal to the amount of such participation
for so long as any related L/C Obligations shall be outstanding.
(b) In the event of any request for a drawing under a Letter of Credit
by the beneficiary or transferee thereof, the Issuing Bank will promptly notify
the Company and the Agent. Provided that it shall have received such notice,
the Company shall reimburse the Issuing Bank prior to 12:00 noon (Chicago time)
on each date that any amount is paid by the Issuing Bank under any Letter of
Credit (each such date, an "Honor Date") in an amount equal to the amount so
paid by the Issuing Bank; provided that, if such Letter of Credit is denominated
in an Offshore L/C Currency, the Company shall pay to the Issuing Bank the
Dollar Equivalent of the amount of such Offshore L/C Currency paid by the
Issuing Bank under such Letter of Credit. In the event the Company fails to
reimburse the Issuing Bank for the full amount of any drawing under any Letter
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of Credit by 12:00 noon (Chicago time) on the Honor Date, the Issuing Bank will
promptly notify the Agent and the Agent will promptly notify each Bank thereof,
and the Company shall be deemed to have requested that Base Rate Loans be made
by the Banks to be disbursed on the Honor Date under such Letter of Credit,
subject to the amount of the unutilized portion of the Commitment and subject to
the conditions set forth in Section 5.02 other than any notice requirements.
Any notice given by the Issuing Bank or the Agent pursuant to this subsection
3.03(b) may be oral if immediately confirmed in writing (including by
facsimile); provided that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.
(c) Each Bank shall upon any notice pursuant to subsection 3.03(b)
make available to the Agent for the account of the relevant Issuing Bank an
amount in Dollars and in immediately available funds equal to its Pro Rata Share
of the amount of the Dollar Equivalent of the drawing, whereupon the
participating Banks shall (subject to subsection 3.03(d)) each be deemed to have
made a Loan consisting of a Base Rate Loan to the Company in that amount. If
any Bank so notified fails to make available to the Agent for the account of the
Issuing Bank the amount of such Bank's Pro Rata Share of such amount by no later
than 2:00 p.m. (Chicago time) on the Honor Date, then interest shall accrue on
such Bank's obligation to make such payment, from the Honor Date to the date
such Bank makes such payment, at a rate per annum equal to the Federal Funds
Rate in effect from time to time during such period. The Agent will promptly
give notice of the occurrence of the Honor Date, but failure of the Agent to
give any such notice on the Honor Date or in sufficient time to enable any Bank
to effect such payment on such date shall not relieve such Bank from its
obligations under this Section 3.03.
(d) With respect to any unreimbursed drawing that is not converted
into Loans consisting of Base Rate Loans to the Company in whole or in part as
contemplated by subsection 3.03(b), because of the Company's failure to satisfy
the conditions set forth in Section 5.02 other than any notice requirements or
for any other reason, the Company shall be deemed to have incurred from the
Issuing Bank an L/C Borrowing in the amount of such drawing, which L/C Borrowing
shall be due and payable on demand (together with interest) and shall bear
interest at a rate per annum equal to the Base Rate, and each Bank's payment to
the Issuing Bank pursuant to subsection 3.03(c) shall be deemed payment in
respect of its participation in such L/C Borrowing and shall constitute an L/C
Advance from such Bank in satisfaction of its participation obligation under
this Section 3.03.
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(e) Each Bank's obligation in accordance with this Agreement to make
the Loans or L/C Advances, as contemplated by this Section 3.03, as a result of
a drawing under a Letter of Credit, shall be absolute and unconditional and
without recourse to the Issuing Bank and shall not be affected by any
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Bank may have against the Issuing Bank, the Company or
any other Person for any reason whatsoever; (ii) the occurrence or continuance
of a Default, an Event of Default or a Material Adverse Effect; or (iii) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing; provided, however, that each Bank's obligation to make Loans
under this Section 3.03 is subject to the conditions set forth in Section 5.02.
3.4 Repayment of Participations.
(a) Upon (and only upon) receipt by the Agent for the account of the
Issuing Bank of immediately available funds from the Company (i) in
reimbursement of any payment made by the Issuing Bank under the Letter of Credit
with respect to which any Bank has paid the Agent for the account of the Issuing
Bank for such Bank's participation in the Letter of Credit pursuant to Section
3.03 or (ii) in payment of interest thereon, the Agent will pay to each Bank, in
the same funds as those received by the Agent for the account of the Issuing
Bank, the amount of such Bank's Pro Rata Share of such funds, and the Issuing
Bank shall receive the amount of the Pro Rata Share of such funds of any Bank
that did not so pay the Agent for the account of the Issuing Bank.
(b) If the Agent or the Issuing Bank is required at any time to return
to the Company, or to a trustee, receiver, liquidator, custodian, or any
official in any Insolvency Proceeding, any portion of the payments made by the
Company to the Agent for the account of the Issuing Bank pursuant to subsection
3.04(a) in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Bank shall, on demand of the Agent, forthwith
return to the Agent or the Issuing Bank the amount of its Pro Rata Share of any
amounts so returned by the Agent or the Issuing Bank plus interest thereon from
the date such demand is made to the date such amounts are returned by such Bank
to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds
Rate in effect from time to time.
3.5 Role of the Issuing Bank.
(a) Each Bank and the Company agree that, in paying any drawing under
a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain
any document (other
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than any sight draft and certificates expressly required by the Letter of
Credit) or to ascertain or inquire as to the validity or the authority of the
Person executing or delivering any such document.
(b) No Agent-Related Person nor any of the respective correspondents,
participants or assignees of the Issuing Bank shall be liable to any Bank for:
(i) any action taken or omitted in connection herewith at the request or with
the approval of the Banks (including the Required Banks, as applicable); (ii)
any action taken or omitted in the absence of gross negligence or willful
misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(c) The Company hereby assumes all risks of the acts or omissions of
any beneficiary or transferee with respect to its use of any Letter of Credit;
provided, however, that this assumption is not intended to, and shall not,
preclude the Company's pursuing such rights and remedies as it may have against
the beneficiary or transferee at law or under any other agreement. No Agent-
Related Person, nor any of the respective correspondents, participants or
assignees of the Issuing Bank, shall be liable or responsible for any of the
matters described in clauses (a) through (g) of Section 3.06; provided, however,
anything in such clauses to the contrary notwithstanding, that the Company may
have a claim against the Issuing Bank, and the Issuing Bank may be liable to the
Company, to the extent, but only to the extent, of any direct, as opposed to
consequential or exemplary, damages suffered by the Company which the Company
proves were caused by the Issuing Bank's willful misconduct or gross negligence
or the Issuing Bank's wrongful dishonor of any Letter of Credit after the
presentation to it by the beneficiary of a sight draft and certificate(s)
strictly complying with the terms and conditions of such Letter of Credit. In
furtherance and not in limitation of the foregoing: (i) the Issuing Bank may
accept documents that appear on their face to be in order, without
responsibility for further investigation; and (ii) the Issuing Bank shall not be
responsible for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign such Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason.
3.6 Obligations Absolute. The obligations of the Company under this
Agreement and any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing
under a Letter of Credit converted into Loans, shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the
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terms of this Agreement and each such other L/C-Related Document under all
circumstances, including the following:
(a) any lack of validity or enforceability of this Agreement or any
L/C-Related Document;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of the Company in respect of any
Letter of Credit or any other amendment or waiver of or any consent to departure
from all or any of the L/C-Related Documents;
(c) the existence of any claim, set-off, defense or other right that
the Company may have at any time against any beneficiary or any transferee of
any Letter of Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), the Issuing Bank or any other Person, whether in
connection with this Agreement, the transactions contemplated hereby or by the
L/C-Related Documents or any unrelated transaction;
(d) any draft, demand, certificate or other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect; or any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any Letter of Credit;
(e) any payment by the Issuing Bank under any Letter of Credit against
presentation of a draft or certificate that does not strictly comply with the
terms of any Letter of Credit; or any payment made by the Issuing Bank under any
Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-
in-possession, assignee for the benefit of creditors, liquidator, receiver or
other representative of or successor to any beneficiary or any transferee of any
Letter of Credit, including any arising in connection with any Insolvency
Proceeding;
(f) any exchange, release or non-perfection of any collateral, or any
release or amendment or waiver of or consent to departure from any other
guarantee, for all or any of the obligations of the Company in respect of any
Letter of Credit; or
(g) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that might
otherwise constitute a defense available to, or a discharge of, the Company or a
guarantor.
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3.7 Letter of Credit Fees.
(a) The Company shall pay to the Agent for the account of each of the
Banks a letter of credit fee with respect to the Letters of Credit equal to the
Applicable Margin times the average daily maximum amount available to be drawn
on the outstanding Letters of Credit, computed on a quarterly basis in arrears
on the last Business Day of each calendar quarter based upon Letters of Credit
outstanding for that quarter as calculated by the Agent. Such letter of credit
fees shall be due and payable quarterly in arrears on the last Business Day of
each calendar quarter during which Letters of Credit are outstanding, commencing
on the first such quarterly date to occur after the Closing Date, through the
Revolving Termination Date (or such later date upon which the outstanding
Letters of Credit shall expire), with the final payment to be made on the
Revolving Termination Date (or such later expiration date).
(b) The Company shall pay to the Issuing Bank a letter of credit
fronting fee for each Letter of Credit Issued by the Issuing Bank in an amount
agreed to by the Company and the Issuing Bank. Such Letter of Credit fronting
fee shall be due and payable on each date of Issuance of a Letter of Credit or
at such other time as may be agreed upon between the Company and the Issuing
Bank.
(c) The Company shall pay to the Issuing Bank from time to time on
demand the normal issuance, presentation, amendment and other processing fees,
and other standard costs and charges, of the Issuing Bank relating to letters of
credit as from time to time in effect.
3.8 Uniform Customs and Practice. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in the Letters of Credit) apply to the Letters of Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
4.1 Taxes.
(a) Any and all payments by the Company to each Bank or the Agent
under this Agreement and any other Loan Document shall be made free and clear
of, and without deduction or withholding for, any Taxes. In addition, the
Company shall pay all Other Taxes.
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(b) If the Company shall be required by law to deduct or withhold any
Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including deductions
and withholdings applicable to additional sums payable under this Section
4.01), such Bank or the Agent, as the case may be, receives and retains an
amount equal to the sum it would have received and retained had no such
deductions or withholdings been made;
(ii) the Company shall make such deductions and withholdings;
(iii) the Company shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) the Company shall also pay to each Bank or the Agent for the
account of such Bank, at the time interest is paid, Further Taxes in the
amount that the respective Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such Taxes, Other Taxes or
Further Taxes had not been imposed.
(c) The Company agrees to indemnify and hold harmless each Bank and
the Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further
Taxes in the amount that the respective Bank specifies as necessary to preserve
the after-tax yield the Bank would have received if such Taxes, Other Taxes or
Further Taxes had not been imposed, and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with respect
thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly
or legally asserted. Payment under this indemnification shall be made within 30
days after the date the Bank or the Agent makes written demand therefor.
(d) Within 30 days after the date of any payment by the Company of
Taxes, Other Taxes or Further Taxes, the Company shall furnish to each Bank or
the Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to such Bank or the Agent.
(e) If the Company is required to pay any amount to any Bank or the
Agent pursuant to subsection (b) or (c) of this Section 4.01, then such Bank
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the
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jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Company which may thereafter accrue, if such change in the sole
judgment of such Bank is not otherwise disadvantageous to such Bank.
(f) Notwithstanding anything to the contrary contained in this
Agreement, in no event shall the Company be either (i) obligated to pay any
amount to any Bank or the Agent pursuant to subsection (b) or (c) of this
Section 4.01 or (ii) prohibited from deducting or withholding for any applicable
Taxes pursuant to subsection (a) of this Section 4.01, if the Bank or Agent
fails to deliver forms to the Company in accordance with Section 10.10 on a
timely basis, unless such failure would not have occurred but for a change in
law or regulation or in the interpretation thereof by any governmental or
regulatory agency or body charged with the administration or interpretation
thereof, or the introduction of any law or regulation, that occurs on or after
the date hereof.
4.2 Illegality.
(a) If any Bank determines that the introduction of any Requirement
of Law, or any change in any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Bank or its applicable Lending Office to make Offshore Rate Loans
(including Offshore Rate Loans in any Applicable Currency), then, on notice
thereof by the Bank to the Company through the Agent, any obligation of that
Bank to make Offshore Rate Loans shall be suspended until the Bank notifies the
Agent and the Company that the circumstances giving rise to such determination
no longer exist.
(b) If a Bank determines that it is unlawful to maintain any Offshore
Rate Loan, the Company shall, upon its receipt of notice of such fact and demand
from such Bank (with a copy to the Agent), prepay in full such Offshore Rate
Loans of that Bank then outstanding, together with interest accrued thereon and
amounts required under Section 4.04, either on the last day of the Interest
Period thereof, if the Bank may lawfully continue to maintain such Offshore Rate
Loans to such day, or immediately, if the Bank may not lawfully continue to
maintain such Offshore Rate Loan. If the Company is required to so prepay any
Offshore Rate Loan, then concurrently with such prepayment, the Company shall
(without regard to whether the conditions specified in Section 5.02 have been
satisfied) borrow from the affected Bank, in the amount of such repayment, a
Base Rate Loan.
(c) Before giving any notice to the Agent under this Section 4.02, the
affected Bank shall designate a different
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Lending Office with respect to its Offshore Rate Loans if such designation will
avoid the need for giving such notice or making such demand and will not, in the
judgment of the Bank, be illegal or otherwise disadvantageous to the Bank.
4.3 Increased Costs and Reduction of Return.
(a) If any Bank determines that, due to either (i) the introduction
of or any change (other than any change by way of imposition of or increase in
reserve requirements included in the calculation of the Offshore Rate) in the
interpretation of any law or regulation after the date of this Agreement or (ii)
the compliance by that Bank with any guideline or request from any central bank
or other Governmental Authority (whether or not having the force of law) after
the date of this Agreement, there shall be any increase in the cost to such Bank
of agreeing to make or making, funding or maintaining any Offshore Rate Loans or
participating in Letters of Credit, or, in the case of the Issuing Bank, any
increase in the cost to the Issuing Bank of agreeing to issue, issuing or
maintaining any Letter of Credit or of agreeing to make or making, funding or
maintaining any unpaid drawing under any Letter of Credit, then the Company
shall be liable for, and shall from time to time, upon demand (with a copy of
such demand to be sent to the Agent), pay to the Agent for the account of such
Bank, additional amounts as are sufficient to compensate such Bank for such
increased costs.
(b) If any Bank shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Bank (or its
Lending Office) or any corporation controlling the Bank with any Capital
Adequacy Regulation, in any such case, after the date of this Agreement affects
or would affect the amount of capital required or expected to be maintained by
the Bank or any corporation controlling the Bank and (taking into consideration
such Bank's or such corporation's policies with respect to capital adequacy and
such Bank's desired return on capital) determines that the amount of such
capital is increased as a consequence of its Commitment, loans, credits or
obligations under this Agreement, then, upon demand of such Bank to the Company
through the Agent, the Company shall pay to the Bank, from time to time as
specified by the Bank, additional amounts sufficient to compensate the Bank for
such increase.
4.4 Funding Losses. The Company shall reimburse each Bank and hold
each Bank harmless from any loss or expense which the Bank may sustain or incur
as a consequence of:
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(a) the failure of the Company to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(b) the failure of the Company to borrow, continue or convert a Loan
after the Company has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/ Continuation except as set forth in subsection
2.05(b) or (c) ;
(c) the failure of the Company to make any prepayment in accordance
with any notice delivered under Section 2.07;
(d) the prepayment (including pursuant to Section 2.07 or 2.08) or
other payment (including after acceleration thereof) of an Offshore Rate Loan on
a day that is not the last day of the relevant Interest Period; or
(e) the automatic conversion under Section 2.04 of any Offshore Rate
Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained or from charges
relating to any Offshore Currency Loans. For purposes of calculating amounts
payable by the Company to the Banks under this Section 4.04 and under subsection
4.03(a), each Offshore Rate Loan made by a Bank (and each related reserve,
special deposit or similar requirement) shall be conclusively deemed to have
been funded at the LIBOR used in determining the Offshore Rate for such Offshore
Rate Loan by a matching deposit or other borrowing in the interbank market for a
comparable amount and for a comparable period, whether or not such Offshore Rate
Loan is in fact so funded.
4.5 Inability to Determine Rates. If any two of the three Reference
Banks determine that for any reason adequate and reasonable means do not exist
for determining the Offshore Rate for any requested Interest Period with respect
to a proposed Offshore Rate Loan, or the Required Banks determine that the
Offshore Rate applicable pursuant to subsection 2.11(a) for any requested
Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to the Banks of funding such Loan, the
Agent will promptly so notify the Company and each Bank. Thereafter, the
obligation of the Banks to make or maintain Offshore Rate Loans hereunder shall
be suspended until the Agent upon the instruction of the Required Banks revokes
such notice in writing. Upon receipt of such notice, the Company may revoke any
Notice of Borrowing or Notice
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of Conversion/Continuation then submitted by it. If the Company does not revoke
such Notice, the Banks shall make, convert or continue the Loans, as proposed by
the Company, in the amount specified in the applicable notice submitted by the
Company, but such Loans shall be made, converted or continued as Base Rate Loans
instead of Offshore Rate Loans. In the case of any Offshore Currency Loans, the
Borrowing or continuation shall be in an aggregate amount equal to the Dollar
Equivalent amount of the originally requested Borrowing or continuation in the
Offshore Currency, and to that end any outstanding Offshore Currency Loans which
are the subject of any continuation shall be redenominated and converted into
Base Rate Loans in Dollars with effect from the last day of the Interest Period
with respect to any such Offshore Currency Loans.
4.6 Reserves on Offshore Rate Loans. The Company shall pay to each
Bank, in respect of any Offshore Currency Loans, additional costs arising under
any applicable regulations of the central bank or other relevant Governmental
Authority in the country in which the Offshore Currency of such Offshore Rate
Loan circulates on the unpaid principal amount of each Offshore Rate Loan equal
to the actual costs of such reserves allocated to such Loan by the Bank (as
determined by the Bank in good faith, which determination shall be conclusive),
payable on each date on which interest is payable on such Loan, provided the
Company shall have received at least 15 days' prior written notice (with a copy
to the Agent) of such additional interest from the Bank. If a Bank fails to
give notice 15 days prior to the relevant Interest Payment Date, such additional
interest shall be payable 15 days from receipt of such notice.
4.7 Certificates of Banks. Any Bank or any Bank's participant claiming
reimbursement or compensation under this Article IV shall deliver to the Company
(with a copy to the Agent) a certificate setting forth in reasonable detail the
amount payable to the Bank hereunder and such certificate shall be conclusive
and binding on the Company in the absence of manifest error. Notwithstanding
anything to the contrary contained in this Agreement, no amounts shall be
payable by the Company pursuant to Section 4.03, 4.04 or 4.06 with respect to
any period commencing more than 180 days before the delivery of the certificate
contemplated by this Section 4.07.
4.8 Survival. The agreements and obligations of the Company in this
Article IV shall survive the payment of all other Obligations.
4.9 Replacement of Certain Banks.
(a) Notwithstanding any other provision of this Agreement, the
Company, at any time after any Bank or any
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Bank's participant has (i) delivered a certificate pursuant to Section 4.07 or
notified the Agent that it is unable to extend or maintain any Offshore Rate
Loans (including Offshore Currency Loans) or (ii) failed to fund a Loan at any
time that such Bank shall have been committed to make such Loan or in the event
such Bank may be replaced pursuant to the provisions of subsection 11.08(e) (in
any such case, a "Certificate Bank"), shall have the right to replace the
Certificate Bank in accordance with this Section 4.09. Notwithstanding the
foregoing, in no event may the Company replace the Certificate Bank pursuant to
this Section 4.09 if (i) the Agent shall have received notice from the Required
Banks specifying that a Default or an Event of Default shall have occurred and
be continuing and (ii) such Default or Event of Default shall not have been
subsequently cured or waived.
(b) The Company, in exercising its right to replace the Certificate
Bank, shall (i) reduce the Commitment of such Bank to zero and (ii) (A) agree
with one or more Banks to concurrently increase the respective Commitments of
such Bank or Banks by an aggregate amount not in excess of the amount of the
Commitment of the Certificate Bank prior to the exercise of this Section 4.09,
in full substitution of the Certificate Bank, or (B) add one or more additional
Eligible Assignees as signatories to this Agreement for Commitments equal to the
amount of the Commitment of the Certificate Bank prior to the Company's exercise
of this Section 4.09, in full substitution of the Certificate Bank, or (C) any
combination of increases in Commitments pursuant to (A) above and additional new
lenders pursuant to (B) above, so long as the aggregate sum of the increases in
Commitments plus the additional Commitments of the additional lenders equals the
amount of the Commitment of the Certificate Bank prior to the exercise of this
Section 4.09 and no new lender has a Commitment of less than $5,000,000. Any
new lender becoming a signatory to this Agreement shall, without further action,
be considered a Bank for all purposes of this Agreement at the time of execution
of an appropriate Assignment and Acceptance.
(c) The Company shall have the right to select any additional Eligible
Assignee or Eligible Assignees to become signatories to this Agreement pursuant
to subsection 4.09(b) above, subject to the consent of the Agent, which consent
shall not be unreasonably withheld.
(d) The Company shall give the Agent and any Certificate Bank being
replaced not less than five Business Days' notice of the date (which shall be a
Business Day) on which such Certificate Bank shall be replaced.
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(e) Each Bank or additional lender which replaces a Certificate Bank
pursuant to this Section 4.09 shall acquire all (or if more than one Bank or
lender is replacing a Certificate Bank the aggregate shall severally acquire
all) of the then outstanding Loans and L/C Obligations of the Certificate Bank.
(f) At the time of replacement, the Certificate Bank shall have been
paid in full the principal of, and interest accrued and unpaid to the date of
replacement on, all outstanding Loans and unreimbursed L/C Obligations of the
Certificate Bank, and all accrued and unpaid to the date of replacement fees
owing to the Certificate Bank.
(g) After a Certificate Bank is replaced pursuant to this Section
4.09, it shall have no further rights (other than rights which by the terms
hereof survive the termination hereof) or obligations hereunder (and shall no
longer be a "Bank" for purposes hereof); provided that a replaced Certificate
Bank shall retain its rights and obligations as a Bank hereunder with respect to
the period before it was so replaced (except to the extent that it shall have
assigned or otherwise transferred such rights).
ARTICLE V
CONDITIONS PRECEDENT
--------------------
5.1 Conditions of Initial Credit Extensions. The obligation of each
Bank to make its initial Credit Extension hereunder is subject to the condition
that the Agent shall have received on or before the date of the initial Credit
Extension all of the following, in form and substance reasonably satisfactory to
the Agent and each Bank, and in sufficient copies for each Bank:
(a) Credit Agreement and Notes. This Agreement and the Notes
executed by each party thereto;
(b) Resolutions; Incumbency.
(i) copies of the resolutions of the board of directors of the
Company and each Guarantor authorizing the transactions contemplated
hereby, certified as of the Closing Date by the Secretary or an Assistant
Secretary of the Company and such Guarantor; and
(ii) a certificate of the Secretary or Assistant Secretary of
the Company and each Guarantor certifying the names and true signatures of
the officers of
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the Company and such Guarantor authorized to execute, deliver and perform,
as applicable, this Agreement and all other Loan Documents to be delivered
by such Person hereunder;
(c) Organization Documents; Good Standing. Each of the following
documents:
(i) the articles or certificate of incorporation and the bylaws
of the Company and each Guarantor as in effect on the Closing Date,
certified by the Secretary or Assistant Secretary of the Company and such
Guarantor as of the Closing Date; and
(ii) a good standing certificate for the Company from the
Secretary of State (or similar, applicable Governmental Authority) of the
states of Missouri, its state of incorporation, and Kansas and for each
Guarantor from the Secretary of State (or similar, applicable Governmental
Authority) of its state of incorporation as of a recent date, together with
bring-down certificates by facsimile, dated the Closing Date;
(d) Legal Opinions. An opinion of each of (i) Latham & Watkins,
counsel to the Company and the Guarantors, substantially in the form of Exhibit
D-1, and (ii) Louis Garr, general counsel of The May Department Stores Company,
substantially in the form of Exhibit D-2, addressed to the Agent and the Banks;
(e) Payment of Fees. Evidence of payment by the Company of all
accrued and unpaid fees to the extent then due and payable on the Closing Date;
(f) Certificate. A certificate signed by a Responsible Officer on
behalf of the Company, dated as of the Closing Date, stating that:
(i) the representations and warranties contained in Article VI
are true and correct on and as of such date, as though made on and as of
such date;
(ii) no Default or Event of Default exists or would result from
the initial Credit Extension;
(iii) there has occurred since February 3, 1996, no event or
circumstance that has resulted or could reasonably be expected to result in
a Material Adverse Effect; and
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(iv) as of February 3, 1996, the Present Value of Operating
Leases was $885,500,000;
(g) Subsidiary Guaranty. The Subsidiary Guaranty executed and
delivered by a duly authorized officer of each of the Guarantors party thereto;
and
(h) Other Documents. Such other approvals, opinions, documents or
materials as the Agent or any Bank may reasonably request.
5.2 Conditions to All Credit Extensions. The obligation of each Bank
to make any Loan to be made by it (including its initial Loan) and the
obligation of the Issuing Bank to issue, and of each Bank to participate
in, any Letter of Credit are subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date or Issuance Date:
(a) Notice of Borrowing or Issuance. The Agent shall have received
(with, in the case of the initial Loan only, a copy for each Bank) a Notice
of Borrowing or in the case of any Issuance of any Letter of Credit, the
Agent and the Issuing Bank shall have received an L/C Application or L/C
Amendment Application, as required under Section 3.02;
(b) Continuation of Representations and Warranties. The
representations and warranties in Article VI shall be true and correct on
and as of such Borrowing Date or Issuance Date with the same effect as if
made on and as of such Borrowing Date or Issuance Date (except to the
extent such representations and warranties expressly refer to an earlier
date, in which case they shall be true and correct as of such earlier
date); and
(c) No Existing Default. No Default or Event of Default shall
exist or shall result from such Borrowing or Issuance.
Each Notice of Borrowing and L/C Application or L/C Amendment Application
submitted by the Company hereunder shall constitute a representation and
warranty by the Company hereunder, as of the date of each such notice and
as of each Borrowing Date or Issuance Date, that the conditions in
subsection 5.02(a), (b) and (c) are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
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The Company represents and warrants to the Agent and each Bank that:
6.1 Corporate Existence and Power. The Company and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect; and
(d) is in compliance with all Requirements of Law; except where the
failure to do so or to so comply could not reasonably be expected to have a
Material Adverse Effect.
6.2 Corporate Authorization; No Contravention. The execution, delivery
and performance by the Company and the Guarantors of this Agreement and each
other Loan Document have been duly authorized by all necessary corporate action,
and do not and will not:
(a) contravene the terms of any of such Person's Organization
Documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any material Contractual
Obligation to which such Person is a party or any order, injunction, writ or
decree of any Governmental Authority to which such Person or its property is
subject; or
(c) violate any Requirement of Law applicable to such Person.
6.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company or
any Guarantor of the Agreement or any other Loan Document.
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6.4 Binding Effect. This Agreement and each other Loan Document
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.5 Litigation. There are no actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company, or its Subsidiaries or any of their respective
properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) may reasonably be expected to have a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order of any
nature has been issued by any court or other Governmental Authority purporting
to enjoin or restrain the execution, delivery or performance of this Agreement
or any other Loan Document, or directing that the transactions provided for
herein or therein not be consummated as herein or therein provided.
6.6 No Default. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Company. As of the Closing Date,
neither the Company nor any Subsidiary is in default under or with respect to
any Contractual Obligation in any respect which, individually or together with
all such defaults, could reasonably be expected to have a Material Adverse
Effect, or that would, if such default had occurred after the Closing Date,
create an Event of Default under subsection 9.01(e).
6.7 ERISA Compliance. Except as specifically disclosed in Schedule
6.07:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and to the best knowledge of the
Company, nothing has occurred which would cause the loss of such qualification.
The Company and each ERISA Affiliate has made all required contributions to any
Plan subject to Section
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412 of the Code, and no application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code has been made with
respect to any Plan.
(b) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability;
(iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
6.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by Section 7.12.
Neither the Company nor any Subsidiary is generally engaged in the business of
purchasing or selling Margin Stock or extending credit for the purpose of
purchasing or carrying Margin Stock.
6.9 Taxes. The Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Company or
any Subsidiary that would, if made, have a Material Adverse Effect.
6.10 Financial Condition.
(a) The audited consolidated financial statements of the Company and
its Subsidiaries for the fiscal year ended February 3, 1996 and the related
consolidated statements of
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income or operations, shareholders' equity and cash flows for the fiscal year
ended on that date:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein;
(ii) fairly present the financial condition of the Company and
its Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(iii) except as specifically disclosed in Schedule 6.10, show
all material indebtedness and other liabilities, direct or contingent, of
the Company and its consolidated Subsidiaries as of the date thereof,
including liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since February 3, 1996, there has been no Material Adverse
Effect.
6.11 Environmental Matters. The Company conducts in the ordinary course
of business a review of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties, and as a result
thereof the Company has reasonably concluded that, except as specifically
disclosed in Schedule 6.11, such Environmental Laws and Environmental Claims
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
6.12 Regulated Entities. None of the Company, any Person controlling
the Company, or any Subsidiary, is an "Investment Company" within the meaning of
the Investment Company Act of 1940. The Company is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
6.13 Subsidiaries. As of the date of this Agreement, the Company has no
Subsidiaries other than those specifically disclosed in part (a) of Schedule
6.13. The Company has no Material Subsidiaries other than those specifically
disclosed in part (b) of Schedule 6.13 or as disclosed pursuant to subsection
7.03(e) (including their jurisdictions of incorporation). As of the date of
this Agreement, the Company has no equity investments in any other corporation
or entity other than those specifically disclosed in part (c) of Schedule 6.13.
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6.14 Insurance. The properties of the Company and its Subsidiaries are
insured as required by Section 7.06.
6.15 Swap Obligations. Neither the Company nor any of its Subsidiaries
has incurred any outstanding obligations under any Swap Contracts, other than
Permitted Swap Obligations.
6.16 Full Disclosure. None of the representations or warranties made by
the Company in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of the
Company or any Subsidiary in connection with the Loan Documents (including the
offering and disclosure materials delivered by or on behalf of the Company to
the Banks prior to the Closing Date) taken as a whole, contains any untrue
statement of a material fact or omits any material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
ARTICLE VII
AFFIRMATIVE COVENANTS
---------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid, unless the Required Banks waive compliance
in writing:
7.1 Financial Statements. The Company shall deliver to the Agent, with
sufficient copies for each Bank:
(a) as soon as available, but not later than 120 days after the end of
each fiscal year (commencing with fiscal year ending January 1997), a copy of
the audited consolidated balance sheet of the Company and its Subsidiaries as at
the end of such year and the related consolidated statements of income or
operations, shareholders' equity and cash flows for such year, setting forth in
each case in comparative form the figures for the previous fiscal year, and
accompanied by the opinion of Arthur Andersen LLP or another nationally-
recognized independent public accounting firm ("Independent Auditor") which
report shall state that such consolidated financial statements present fairly
the financial position for the periods indicated in conformity with GAAP applied
on a consistent basis. Such opinion shall not be qualified or limited, in
either case, because of a restricted or limited examination by the Independent
Auditor of any material portion of the Company's or any Subsidiary's records;
and
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(b) as soon as available, but not later than 60 days after the end of
each of the first three fiscal quarters of each fiscal year (commencing with the
first fiscal quarter ending after the date hereof, a copy of the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such quarter and the related consolidated statements of income, shareholders'
equity and cash flows for the period commencing on the first day and ending on
the last day of such quarter, and certified by a Responsible Officer as fairly
presenting, in accordance with GAAP (subject to ordinary, good faith year-end
audit adjustments and the absence of notes thereto), the financial position and
the results of operations of the Company and the Subsidiaries.
To the extent included therein, the information required to be
delivered pursuant to this Section 7.01 may be delivered by delivery of the
financial statements and reports required to be delivered pursuant to subsection
7.02(c).
7.2 Certificates; Other Information. The Company shall furnish to the
Agent, with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsection 7.01(a), a certificate of the Independent Auditor
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 7.01(a) and (b), a Compliance Certificate executed by
a Responsible Officer;
(c) promptly, but not later than five days after the date of filing
with the SEC, copies of all financial statements and reports that the Company
sends to its shareholders, and copies of all financial statements and regular,
periodical or special reports (including Forms 10-K, 10-Q and 8-K) that the
Company or any Subsidiary may make to, or file with, the SEC;
(d) promptly after the creation or acquisition of any Material
Subsidiary, the name of such Material Subsidiary, a description of its business,
its net worth and the value of its assets; and
(e) promptly, such additional information regarding the business,
financial or corporate affairs of the Company or any Subsidiary as the Agent, at
the request of any Bank, may from time to time request.
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7.3 Notices. The Company shall promptly notify the Agent:
(a) upon any Responsible Officer becoming aware of the occurrence
of any Default or Event of Default;
(b) of any matter that has resulted, or may, in the judgment of the
Company, reasonably be expected to result in a Material Adverse Effect,
including (i) breach or non-performance of, or any default under, a Contractual
Obligation of the Company or any Subsidiary; (ii) any dispute, litigation,
investigation, proceeding or suspension between the Company or any Subsidiary
and any Governmental Authority; or (iii) the commencement of, or any material
development in, any litigation or proceeding affecting the Company or any
Subsidiary, including pursuant to any applicable Environmental Laws;
(c) of the occurrence of any ERISA Event (but in no event more than 10
days after such ERISA Event), and deliver to the Agent and each Bank a copy of
any notice with respect to such ERISA Event that is filed with a Governmental
Authority and any notice delivered by a Governmental Authority to the Company or
any ERISA Affiliate with respect to such ERISA Event;
(d) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries; and
(e) of any Subsidiary (including its jurisdiction of incorporation)
which is not a Guarantor being or becoming a Material Subsidiary.
Each notice under this Section 7.03 shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Company or any affected
Subsidiary proposes to take with respect thereto and at what time (although the
failure to take any such action shall not constitute a Default or Event of
Default under this Agreement). Each notice under subsection 7.03(a) shall
describe the provisions of this Agreement or other Loan Document that have been
breached or violated.
7.4 Preservation of Corporate Existence, Etc. The Company shall, and
shall cause each Material Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation except as otherwise permitted by this Agreement;
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(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
or desirable in the normal conduct of its business except in connection with
transactions permitted by Section 8.03 and sales of assets permitted by Section
8.02 and except for any of the foregoing the expiration or termination of which
could not reasonably be expected to have a Material Adverse Effect;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks, trade
names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
7.5 Maintenance of Property. The Company shall maintain, and shall
cause each Subsidiary to maintain, and preserve all its material property which
is used in its business in good working order and condition, ordinary wear and
tear excepted except where the failure to so maintain or preserve could not
reasonably be expected to have a Material Adverse Effect.
7.6 Insurance. The Company shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons, provided that the
Company and its Subsidiaries may self-insure against such risks and in such
amounts as is usually self-insured by companies engaged in similar businesses
and owning similar properties in the same general areas in which the Company and
its Subsidiaries operate.
7.7 Payment of Tax Obligations. The Company shall, and shall cause
each Subsidiary to, pay and discharge as the same shall become due and payable,
all tax liabilities, assessments and governmental charges or levies upon it or
its properties or assets, unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are being
maintained by the Company or such Subsidiary.
7.8 Compliance with Laws. The Company shall comply, and shall cause
each Subsidiary to comply, with all Requirements of Law of any Governmental
Authority having jurisdiction over it
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or its business, except where the failure to so comply could not reasonably be
expected to cause a Material Adverse Effect.
7.9 Compliance with ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
7.10 Inspection of Property and Books and Records. The Company shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Company and such Subsidiary. The
Company shall permit, and shall cause each Subsidiary to permit, representatives
and independent contractors of the Agent and representatives of any Bank to
visit and inspect any of their respective properties, to examine their
respective corporate, financial and operating records, and make copies thereof
or abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and, in the presence of the
Company if the Company shall so request, independent public accountants, all at
such reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Company.
7.11 Environmental Laws. The Company shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws except where the failure to do so or to
so comply could not reasonably be expected to have a Material Adverse Effect.
7.12 Use of Proceeds. The Company shall use the proceeds of the Loans
for general corporate purposes and not in contravention of any Requirement of
Law (including Regulation G, T, U and X of the FRB) or of any Loan Document.
7.13 Additional Guarantors. In the event any Person shall hereafter
become a Material Subsidiary, the Company shall promptly cause such Material
Subsidiary to become a party to the Subsidiary Guaranty.
ARTICLE VIII
NEGATIVE AND FINANCIAL COVENANTS
--------------------------------
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So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid, unless the Required Banks waive compliance
in writing:
8.1 Limitation on Liens. The Company shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, make, create, incur, assume
or suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("Permitted
Liens"):
(a) any Lien existing on property of the Company or any Subsidiary on
the Closing Date and set forth in Schedule 8.01 securing Indebtedness
outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 7.07; provided that no notice
of lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent for more than 90 days or remain payable without penalty
or which are being contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the property
subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting of pledges
or deposits required in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on the property of the Company or any Subsidiary securing
(i) the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, (ii) contingent obligations on
surety and appeal bonds, and (iii) other non-delinquent obligations of a like
nature; in each case, incurred in the ordinary course of business and treating
as non-delinquent any deliquency which is being contested in good faith and by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;
(g) Liens consisting of judgment or judicial attachment liens with
respect to judgments that do not constitute
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an Event of Default and in the aggregate do not exceed $10,000,000;
(h) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, are not substantial in amount, and which
do not in any case materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the businesses of the Company
and its Subsidiaries;
(i) Liens on assets of corporations which become Subsidiaries after
the date of this Agreement; provided, however, that such Liens existed at the
time the respective corporations became Subsidiaries and were not created in
anticipation thereof;
(j) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated by
the FRB, and (ii) such deposit account is not intended by the Company or any
Subsidiary to provide collateral to the depository institution;
(k) Liens securing reimbursement obligations incurred in the ordinary
course of business for letters of credit, which Liens encumber only goods, or
documents of title covering goods, which are purchased in transactions for which
such letters of credit are issued;
(l) any extension, renewal or substitution of or for any of the
foregoing Liens; provided that (i) the Indebtedness or other obligation or
liability secured by the applicable Lien shall not exceed the Indebtedness or
other obligation or liability existing immediately prior to such extension,
renewal or substitution and (ii) the Lien securing such Indebtedness or other
obligation or liability shall be limited to the property which, immediately
prior to such extension, renewal or substitution, secured such Indebtedness or
other obligation or liability; and
(m) other Liens securing Indebtedness or other obligations not at any
time exceeding $50,000,000 in aggregate principal amount.
8.2 Disposition of Assets. The Company shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (collectively, a "Disposition")
(whether in one or a
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series of transactions) any property (including accounts and notes receivable,
with or without recourse) or enter into any agreement to do any of the
foregoing, except:
(a) Dispositions of inventory, or used, worn-out, obsolete or surplus
equipment and other assets, all in the ordinary course of business;
(b) Dispositions of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment;
(c) Dispositions of assets (including leasehold interests and related
assets) in connection with sale/leasebacks of stores developed by the Company or
any of its Subsidiaries in the ordinary course of business in amounts and under
circumstances consistent with past practices;
(d) Dispositions of assets received in connection with the bankruptcy
or reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business;
(e) Dispositions of assets between and among the Company and its
Wholly-Owned Subsidiaries and the Disposition of assets from any other
Subsidiary to the Company or a Wholly-Owned Subsidiary of the Company; and
(f) Dispositions not otherwise permitted hereunder which are made for
fair market value; provided that (i) at the time of any Disposition, no Event of
Default shall exist or shall result from such Disposition and (ii) the aggregate
sales price of all assets so sold by the Company and its Subsidiaries, together,
shall not exceed in any fiscal year 5% (but for the fiscal year ending January
1997, 10%) of the total consolidated assets of the Company and its Subsidiaries,
determined in accordance with GAAP, as of the beginning of such fiscal year.
Upon the permitted Disposition by any Guarantor of all or
substantially all of its assets to any Person (and after the subsequent
distribution of the consideration received therefor by such Guarantor to its
shareholder), such Guarantor shall be automatically released from its
obligations under the Subsidiary Guaranty. The Agent shall provide written
confirmation of such release to the Company upon the Company's request therefor.
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8.3 Consolidations and Mergers. The Company shall not, and shall not
suffer or permit any Subsidiary to, merge with or consolidate into any Person,
except:
(a) the Company or any Subsidiary may merge with or consolidate into
any Person, provided that (i) at the time of such merger or consolidation, no
Event of Default shall exist or result from the consummation of such merger or
consolidation and (ii) the Company or such Subsidiary shall be the continuing or
surviving corporation;
(b) any Subsidiary may merge with or consolidate into the Company,
provided that the Company shall be the continuing or surviving corporation, or
with any one or more Subsidiaries, provided that if any transaction shall be
between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary
shall be the continuing or surviving corporation and if any transaction shall be
between a Subsidiary and a Guarantor, the Guarantor shall be the continuing or
surviving corporation or the surviving Subsidiary becomes a Guarantor; and
(c) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise), to the Company or another Wholly-
Owned Subsidiary or as otherwise permitted by Section 8.02.
Any Disposition of assets which would be permitted by Section 8.02 may also be
accomplished via a merger or consolidation of a Subsidiary and such merger or
consolidation shall be permitted pursuant to this Section 8.03.
8.4 Loans and Investments. The Company shall not purchase or acquire,
or suffer or permit any Subsidiary to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, or make or commit to make
any Acquisitions, or make or commit to make any advance, loan, extension of
credit or capital contribution to or any other investment in, any Person
including any Affiliate of the Company (together, "Investments"), except for:
(a) Investments held by the Company or Subsidiary in the form of
cash equivalents or short term marketable securities;
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business;
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(c) extensions of credit by the Company to any of its Wholly-Owned
Subsidiaries or by any of its Subsidiaries to the Company or one of its Wholly-
Owned Subsidiaries;
(d) advances to employees for moving, relocation and travel expenses,
drawing accounts and similar expenditures and loans to employees in the ordinary
course of business;
(e) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business;
(f) Investments of the Company and its Subsidiaries in existence as
of the Closing Date and set forth on Schedule 8.04;
(g) any extension or renewal of any of the foregoing; and
(h) other Investments made in any fiscal year not exceeding
$25,000,000 in such fiscal year in the aggregate; provided that, with respect to
any Acquisition, the prior, effective written consent or approval to such
Acquisition of the board of directors or equivalent governing body of the
acquiree is obtained.
8.5 Limitation on Indebtedness. The Company shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 8.07;
(c) Indebtedness existing on the Closing Date and set forth in
Schedule 8.05;
(d) Indebtedness constituting an Investment permitted pursuant to
Section 8.04; and
(e) Other Indebtedness of the Company and its Subsidiaries so long as
after giving pro forma effect to the incurrence of such Indebtedness as if such
Indebtedness had been incurred on the last date of the most recently completed
fiscal quarter the ratio of (i) Total Debt to (ii) Total Capitalization would
not have been greater than 60%; provided, however, that not
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more than $10,000,000 of such other Indebtedness outstanding at any time shall
be Indebtedness of the Subsidiaries; provided further, however, that solely for
purposes of computations under this subsection 8.05(e), all such other
Indebtedness outstanding at the time of such incurrence shall be included in the
definitions of "Total Debt" and "Total Capitalization".
8.6 Transactions with Affiliates. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Company, except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of the Company or such
Subsidiary.
8.7 Contingent Obligations. The Company shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course
of business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of the Company and its Subsidiaries
existing as of the Closing Date and listed in Schedule 8.07;
(d) Contingent Obligations with respect to Surety Instruments
incurred in the ordinary course of business;
(e) in addition to other Contingent Obligations permitted hereunder,
Contingent Obligations which do not exceed $1,000,000 in the aggregate at any
one time outstanding;
(f) Guaranty Obligations of the Company or of any Guarantor with
respect to any Indebtedness permitted pursuant to subsection 8.05(e); and
(g) the Subsidiary Guaranty.
8.8 Restricted Payments. The Company shall not, and shall not suffer
or permit any Subsidiary to, declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or purchase, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire such shares, now or hereafter outstanding, except
that:
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(a) any Wholly-Owned Subsidiary may pay dividends and make
distributions to the Company or to any other Wholly-Owned Subsidiary;
(b) the Company and any Subsidiary may declare and make dividend
payments or other distributions payable solely in its common stock; and
(c) the Company may declare or pay cash dividends to its stockholders
and purchase, redeem or otherwise acquire shares of its capital stock or
warrants, rights or options to acquire any such shares for cash in an aggregate
amount not in excess of 50% of Consolidated Net Income of the Company and its
Subsidiaries arising after the date hereof, and computed on a cumulative
consolidated basis; provided that, immediately after giving effect to such
proposed action (or, in the case of dividends declared not earlier than 45 days
prior to the payment thereof, at the time of such declaration), no Default or
Event of Default would exist.
8.9 ERISA. The Company shall not, and shall not suffer or permit any
of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan which has
resulted or could reasonably expected to result in liability of the Company in
an aggregate amount in excess of $10,000,000; or (b) engage in a transaction
that could be reasonably expected to be subject to Section 4069 or 4212(c) of
ERISA.
8.10 Change in Business. The Company shall not, and shall not suffer or
permit any Subsidiary to, engage in any material line of business substantially
different from those lines of business carried on by the Company and its
Subsidiaries on the date hereof. The Company shall (a) cause assets generating
at least 90% of the consolidated revenues of the Company and its Subsidiaries to
be owned or leased by the Company at all times and (b) cause assets generating
at least 90% of Consolidated Net Income of the Company and its Subsidiaries to
be owned or leased by the Company and the Material Subsidiaries existing as of
the date of this Agreement at all times.
8.11 Accounting Changes. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as permitted by GAAP or SEC reporting requirements,
or change the fiscal year of the Company or of any Subsidiary.
8.12 Financial Covenants.
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(a) Fixed Charge Coverage Ratio. For the period of four consecutive
fiscal quarters ending on the last day of each fiscal quarter, the Company shall
not permit the Fixed Charge Coverage Ratio to be less than 1.5:1.0.
(b) Leverage Ratio. The Company shall not permit the ratio of (i)
Total Debt to (ii) Total Capitalization to be greater than 60% as of the last
day of any fiscal quarter.
(c) Consolidated Tangible Net Worth. The Company shall not permit
Consolidated Tangible Net Worth to be less than $600,000,000 as of the last day
of any fiscal quarter.
ARTICLE IX
EVENTS OF DEFAULT
-----------------
9.1 Event of Default. Any of the following shall constitute an "Event
of Default":
(a) Non-Payment. The Company fails to pay, (i) when and as required
to be paid herein, any amount of principal of any Loan, or (ii) within five days
after the same becomes due, any interest, fee or any other amount payable
hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by the
Company or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) Specific Defaults. The Company fails to perform or observe any
term, covenant or agreement (i) contained in Section 8.01, 8.04 or 8.07 and such
failure continues unremedied for five Business Days or (ii) contained in either
subsection 7.03(a) or Section 7.12 or in any other provision of Article VIII; or
(d) Other Defaults. The Company fails to perform or observe any other
term or covenant contained in this Agreement or any other Loan Document, and
such default shall continue unremedied for a period of 20 days after the date
upon which written notice thereof is given to the Company by the Agent or any
Bank; or
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(e) Cross-Default. The Company or any Subsidiary (i) fails to make
any payment in respect of any Indebtedness or Contingent Obligation having an
aggregate principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $10,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) and such failure
continues after the applicable grace or notice period, if any, specified in the
relevant document on the date of such failure; or (ii) fails to perform or
observe any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation, and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document on
the date of such failure if the effect of such failure, event or condition is to
cause, or to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to
be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof to
be demanded; or
(f) Insolvency; Voluntary Proceedings. The Company or any Material
Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Material Subsidiary,
or any writ, judgment, warrant of attachment, execution or similar process, is
issued or levied against a substantial part of the Company's or any Material
Subsidiary's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the Company or any Material Subsidiary admits
the material allegations of a petition against it in any Insolvency Proceeding,
or an order for relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; or (iii) the Company or any Material Subsidiary
acquiesces in the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor), or other similar
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Person for itself or a substantial portion of its property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted in liability of the Company under
Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an
aggregate amount in excess of $10,000,000; (ii) the aggregate amount of Unfunded
Pension Liability among all Pension Plans at any time exceeds $10,000,000; or
(iii) the Company or any ERISA Affiliate shall fail to pay when due, after the
expiration of any applicable grace period, any installment payment with respect
to its withdrawal liability under Section 4201 of ERISA under a Multiemployer
Plan in an aggregate amount in excess of $10,000,000; or
(i) Monetary Judgments. One or more final judgments, final orders,
decrees or arbitration awards is entered against the Company or any Subsidiary
involving in the aggregate a liability (to the extent not covered by independent
third-party insurance as to which the insurer does not dispute coverage) as to
any single or related series of transactions, incidents or conditions, of
$10,000,000 or more (determined after allowance for the application of any
insurance proceeds to such judgment or order), and the same shall remain
unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after
the entry thereof; or
(j) Change of Control. There occurs any Change of Control; or
(k) Subsidiary Guaranty. The Subsidiary Guaranty shall fail to remain
in full force and effect (except, with respect to any Material Subsidiary, upon
the merger or consolidation of such Material Subsidiary with and into the
Company or any other Material Subsidiary which is a Guarantor), or any action
shall be taken to discontinue or to assert the invalidity or unenforceability of
the Subsidiary Guaranty (after giving effect to any applicable grace period set
forth therein), or any Guarantor shall fail to comply with any of the terms or
provisions of the Subsidiary Guaranty, or any Guarantor denies that it has any
further liability under the Subsidiary Guaranty, or gives notice to such effect
other than as a consequence of the satisfaction of its obligations thereunder.
9.2 Remedies. If any Event of Default occurs and is continuing, the
Agent shall, at the request of, or may, with the consent of, the Required Banks,
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(a) declare the commitment of each Bank to make Loans to be
terminated, whereupon such commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Banks all rights and remedies
available to it and the Banks under the Loan Documents or applicable law;
provided, however, that upon the occurrence and during the continuance of any
Event of Default specified in subsection (f) or (g) of Section 9.01 with respect
to the Company, the obligation of each Bank to make Loans shall automatically
terminate and the unpaid principal amount of all outstanding Loans and all
interest and other amounts as aforesaid shall automatically become due and
payable without further act of the Agent or any Bank. In addition, following
the occurrence and during the continuance of an Event of Default, so long as any
Letter of Credit has not been fully drawn and has not been canceled or expired
by its terms, upon demand by the Agent, the Company shall, upon the request of
the Required Banks, Cash Collateralize the dollar amount of the aggregate
undrawn amount of all Letters of Credit. Such funds shall be promptly applied
by the Agent to reimburse the Issuing Bank for drafts drawn from time to time
under the Letters of Credit. Such funds, if any, remaining following the
payment of all Obligations in full or the earlier termination of all Events of
Default shall, unless the Agent is otherwise directed by a court of competent
jurisdiction, be promptly paid over to the Company.
9.3 Rights Not Exclusive. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE X
THE AGENT
---------
10.1 Appointment and Authorization; "Agent". Each Bank hereby
irrevocably (subject to Section 10.09) appoints, designates and authorizes the
Agent to take such action on its
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behalf under the provisions of this Agreement and each other Loan Document and
to exercise such powers and perform such duties as are expressly delegated to it
by the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
Without limiting the generality of the foregoing sentence, the use of the term
"agent" in this Agreement with reference to the Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter
of market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
10.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
10.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Company or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No Agent-
Related Person shall be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any other Loan Document, or to inspect
the properties, books or records of the Company or any of the Company's
Subsidiaries or Affiliates.
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10.4 Reliance by Agent.
(a) The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, telegram, facsimile, telex or telephone message, statement or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to the Company), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Banks as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Required
Banks and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 5.01, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to the Bank.
10.5 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to the Agent for the account of the Banks, unless the Agent shall have
received written notice from a Bank or the Company referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". The Agent will notify the Banks of its receipt of any such
notice. The Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Required Banks in accordance with Article
IX; provided, however, that unless and until the Agent has received any such
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Banks.
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10.6 Credit Decision. Each Bank acknowledges that none of the Agent-
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Company and its Subsidiaries, and all applicable bank regulatory laws relating
to the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to the Company hereunder. Each Bank also
represents that it will, independently and without reliance upon any Agent-
Related Person and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of the Company. Except for notices, reports and
other documents expressly herein required to be furnished to the Banks by the
Agent, the Agent shall not have any duty or responsibility to provide any Bank
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of the
Company which may come into the possession of any of the Agent-Related Persons.
10.7 Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Company and without limiting the obligation of the Company to do so), pro rata,
from and against any and all Indemnified Liabilities; provided, however, that no
Bank shall be liable for the payment to the Agent-Related Persons of any portion
of such Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Bank shall reimburse the Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or
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on behalf of the Company. The undertaking in this Section 10.07 shall survive
the payment of all Obligations hereunder and the resignation or replacement of
the Agent.
10.8 Agent in Individual Capacity. BofA and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BofA were not the Agent hereunder and
without notice to or consent of the Banks. The Banks acknowledge that, pursuant
to such activities, BofA or its Affiliates may receive information regarding the
Company or its Affiliates (including information that may be subject to
confidentiality obligations in favor of the Company or such Subsidiary) and
acknowledge that the Agent shall be under no obligation to provide such
information to them. With respect to its Loans, BofA shall have the same rights
and powers under this Agreement as any other Bank and may exercise the same as
though it were not the Agent, and the terms "Bank" and "Banks" include BofA in
its individual capacity.
10.9 Successor Agent. The Agent may, and at the request of the Required
Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent
resigns under this Agreement, the Required Banks shall appoint from among the
Banks a successor agent for the Banks which successor agent shall be approved by
the Company. If no successor agent is appointed prior to the effective date of
the resignation of the Agent, the Agent may appoint, after consulting with the
Banks and the Company, a successor agent from among the Banks. Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article X and
Sections 11.04 and 11.05 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is 30 days
following a retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become effective and the Banks shall
perform all of the duties of the Agent hereunder until such time, if any, as the
Required Banks appoint a successor agent as provided for above.
10.10 Withholding Tax.
(a) If any Bank is a "foreign corporation, partnership or trust"
within the meaning of the Code and such
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Bank claims exemption from, or a reduction of, U.S. withholding tax under
Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the
Agent and the Company, to deliver to the Agent and the Company:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed
and executed copies of IRS Form 1001 before the payment of any interest in
the first calendar year and before the payment of any interest in each
third succeeding calendar year during which interest may be paid under this
Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with the conduct of a United States trade or business by such
Bank, two properly completed and executed copies of IRS Form 4224 before
the payment of any interest is due in the first taxable year of such Bank
and in each succeeding taxable year of such Bank during which interest may
be paid under this Agreement; and
(iii) such other form or forms as may be required under the
Code or other laws of the United States as a condition to exemption from,
or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent and the Company of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of the Company to such Bank, such Bank agrees to notify the
Agent and the Company of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Company to such Bank. To the extent of
such percentage amount, the Agent and the Company will treat such Bank's IRS
Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the Obligations of the Company to such
Bank, such Bank agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of the Code.
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(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent or the Company may withhold from any interest payment
to such Bank an amount equivalent to the applicable withholding tax after taking
into account such reduction. However, if the forms or other documentation
required by subsection (a) of this Section 10.10 are not delivered to the Agent
or the Company, then the Agent or the Company may withhold from any interest
payment to such Bank not providing such forms or other documentation an amount
equivalent to the applicable withholding tax imposed by Sections 1441 and 1442
of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent or the Company did
not properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly executed, or
because such Bank failed to notify the Agent or the Company of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Bank shall indemnify the Agent
and the Company fully for all amounts paid, directly or indirectly, by the Agent
or the Company as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to the
Agent or the Company under this Section 10.10, together with all costs and
expenses (including Attorney Costs). The obligation of the Banks under this
subsection shall survive the payment of all Obligations and the resignation or
replacement of the Agent.
10.11 Co-Agents. None of the Banks identified on the facing page or
signature pages of this Agreement as a "co-agent" shall have any right, power,
obligation, liability, responsibility or duty under this Agreement other than
those applicable to all Banks as such. Without limiting the foregoing, none of
the Banks so identified as a "co-agent" shall have or be deemed to have any
fiduciary relationship with any Bank. Each Bank acknowledges that it has not
relied, and will not rely, on any of the Banks so identified in deciding to
enter into this Agreement or in taking or not taking action hereunder.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company or any Guarantor therefrom, shall be effective unless
the same shall be in writing and signed by the Required Banks (or by the Agent
at
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the written request of the Required Banks) and the Company, and then any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no such waiver,
amendment, or consent shall, unless in writing and signed by all the Banks and
the Company and acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 9.02);
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest other than default
interest, fees or other amounts due to the Banks (or any of them) hereunder or
under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or (subject to clause (ii) below) any fees or other amounts payable
hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Banks or any of
them to take any action hereunder; or
(e) amend this Section 11.01, or Section 2.14, or any provision herein
providing for consent or other action by all Banks;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Required Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document, and (ii) the Fee Letter may be amended, or
rights or privileges thereunder waived, in a writing executed by the parties
thereto.
11.2 Notices.
(a) All notices, requests, consents, approvals, waivers and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by the Company by facsimile (i) shall be immediately confirmed by a
telephone call to the recipient at the number specified on Schedule 11.02, and
(ii) shall be followed promptly by delivery of a hard copy original thereof) and
mailed, faxed or delivered, to the address or facsimile number specified for
notices on Schedule 11.02; or, as directed to the Company or the Agent, to such
other address as
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shall be designated by such party in a written notice to the other parties, and
as directed to any other party, at such other address as shall be designated by
such party in a written notice to the Company and the Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II or X to the Agent shall not be effective until
actually received by the Agent.
(c) Any agreement of the Agent and the Banks herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of the Company. The Agent and the Banks shall be entitled to rely on
the authority of any Person purporting to be a Person authorized by the Company
to give such notice and the Agent and the Banks shall not have any liability to
the Company or other Person on account of any action taken or not taken by the
Agent or the Banks in reliance upon such telephonic or facsimile notice. The
obligation of the Company to repay the Loans shall not be affected in any way or
to any extent by any failure by the Agent and the Banks to receive written
confirmation of any telephonic or facsimile notice or the receipt by the Agent
and the Banks of a confirmation which is at variance with the terms understood
by the Agent and the Banks to be contained in the telephonic or facsimile
notice.
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
11.4 Costs and Expenses. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Agent promptly after demand for all reasonable
out-of-pocket costs and expenses incurred by the Agent in connection with the
development, preparation, delivery, administration and execution of, and any
amendment, supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated
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hereby and thereby, including reasonable Attorney Costs incurred by the Agent
with respect thereto; and
(b) pay or reimburse the Agent, the Arranger and each Bank promptly
after demand for all reasonable out-of-pocket costs and expenses (including
reasonable Attorney Costs) incurred by them in connection with the exercise,
enforcement, attempted enforcement, or preservation of any rights or remedies
under this Agreement or any other Loan Document during the existence of an Event
of Default or after acceleration of the Loans (including in connection with any
"workout" or restructuring regarding the Loans, and including in any Insolvency
Proceeding or appellate proceeding).
11.5 Company Indemnification. Whether or not the transactions
contemplated hereby are consummated, the Company shall indemnify, defend and
hold the Agent-Related Persons, and each Bank and each of its respective
officers, directors, employees, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or replacement of any Bank) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this Agreement
or any Loan Document, or the transactions contemplated hereby, or any action
taken or omitted by any such Person under or in connection with any of the
foregoing, including with respect to any investigation, litigation or proceeding
(including any Insolvency Proceeding or appellate proceeding) related to or
arising out of this Agreement or the Loans or the use of the proceeds thereof,
or related to any Offshore Currency transactions entered into in connection
herewith, whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "Indemnified Liabilities"); provided that the
Company shall have no obligation hereunder to any Indemnified Person with
respect to Indemnified Liabilities to the extent resulting from the gross
negligence or willful misconduct of such Indemnified Person. The agreements in
this Section 11.05 shall survive payment of all other Obligations.
11.6 Payments Set Aside. To the extent that the Company makes a payment
to the Agent or the Banks, or the Agent or the Banks exercise their right of
set-off, and such payment or the proceeds of such set-off or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a
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trustee, receiver or any other party, in connection with any Insolvency
Proceeding or otherwise, then (a) to the extent of such recovery the obligation
or part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or such
set-off had not occurred, and (b) each Bank severally agrees to pay to the Agent
upon demand its pro rata share of any amount so recovered from or repaid by the
Agent.
11.7 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank.
11.8 Assignments, Participations, etc.
(a) Any Bank may, with the written consent of the Company (which
consent shall not be unreasonably withheld) at all times other than during the
existence of an Event of Default, the Agent and the Issuing Bank, if applicable,
at any time assign and delegate to one or more Eligible Assignees (provided that
no written consent of the Company, the Agent or the Issuing Bank, if applicable,
shall be required in connection with any assignment and delegation by a Bank to
an Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee")
all, or any ratable part of all, of the Loans, the Commitments and the other
rights and obligations of such Bank hereunder, in a minimum amount of
$5,000,000; provided, however, that the Company and the Agent may continue to
deal solely and directly with such Bank in connection with the interest so
assigned to an Assignee until (i) written notice of such assignment, together
with payment instructions, addresses and related information with respect to the
Assignee, shall have been given to the Company and the Agent by such Bank and
the Assignee; (ii) such Bank and its Assignee shall have delivered to the
Company and the Agent an Assignment and Acceptance in the form of Exhibit E
("Assignment and Acceptance") together with any Note or Notes subject to such
assignment and (iii) the assignor Bank or Assignee has paid to the Agent a
processing fee in the amount of $3,500.
(b) From and after the date that the Agent notifies the assignor Bank
that it has received (and provided its consent with respect to) an executed
Assignment and Acceptance and payment of the above-referenced processing fee,
(i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Bank under
the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights
and obligations
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hereunder and under the other Loan Documents have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Loan Documents.
(c) Within five Business Days after its receipt of notice by the Agent
that it has received an executed Assignment and Acceptance and payment of the
processing fee, (and provided that it consents to such assignment in accordance
with subsection 11.08(a)), the Company shall execute and deliver to the Agent,
new Notes evidencing such Assignee's assigned Loans and Commitment and, if the
assignor Bank has retained a portion of its Loans and its Commitment,
replacement Notes in the principal amount of the Loans retained by the assignor
Bank (such Notes to be in exchange for, but not in payment of, the Notes held by
such Bank). Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Bank pro tanto. The Agent shall not deliver any
new Notes executed by the Company unless the Agent shall have received the old
Notes to be replaced or customary indemnification in favor of the Agent and the
Company with respect to lost or destroyed notes. Such old Notes shall be
promptly returned to the Company.
(d) Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Company (a "Participant") participating
interests in any Loans, the Commitment of that Bank and the other interests of
that Bank (the "originating Bank") hereunder and under the other Loan Documents;
provided, however, that (i) the originating Bank's obligations under this
Agreement shall remain unchanged, (ii) the originating Bank shall remain solely
responsible for the performance of such obligations, (iii) the Company and the
Agent shall continue to deal solely and directly with the originating Bank in
connection with the originating Bank's rights and obligations under this
Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant
any participating interest under which the Participant has rights to approve any
amendment to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment, consent or waiver
would require unanimous consent of the Banks as described in the first proviso
to Section 11.01. In the case of any such participation, the Participant shall
be entitled to the benefit of Sections 4.01, 4.03 and 11.05 as though it were
also a Bank hereunder. Notwithstanding the immediately preceding sentence, all
amounts payable by the Company or any Subsidiary under this
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Agreement and each other Loan Document shall be determined as if no such
participation had been sold.
(e) Notwithstanding any other provision in this Agreement, any Bank
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement and the Note held by it in favor
of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
Notwithstanding any such pledge, such Bank shall remain liable to the Company
and the Issuing Bank as if such pledge had not been made. In the event of any
enforcement or proposed enforcement of such pledge the Company shall have the
right to replace such Bank pursuant to the provisions of Section 4.09.
11.9 Confidentiality. Each Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by the Company and provided to it by the Company or any Subsidiary, or
by the Agent on the Company's or such Subsidiary's behalf, under this Agreement
or any other Loan Document, and neither it nor any of its Affiliates shall use
any such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents or in connection with other business now
or hereafter existing or contemplated with the Company or any Subsidiary; except
to the extent such information (a) was or becomes generally available to the
public other than as a result of disclosure by the Bank, or (b) was or becomes
available on a non-confidential basis from a source other than the Company,
provided that such source is not bound by a confidentiality agreement with the
Company known to the Bank; provided, however, that any Bank may disclose such
information (i) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (ii) pursuant to subpoena or
other court process; (iii) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (iv) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (v) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (vi) to such Bank's independent auditors and other
professional advisors; (vii) to any Participant or Assignee, actual or
potential, provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Banks hereunder; (viii) as to
any Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which
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<PAGE>
the Company or any Subsidiary is party or is deemed party with such Bank or such
Affiliate; and (ix) to its Affiliates, provided that such Affiliate uses such
information only in connection with this Agreement and agrees in writing to keep
such information confidential.
11.10 Set-off. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Company, any such notice being waived by the Company to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, such Bank to or for the credit or
the account of the Company against any and all Obligations owing to such Bank,
now or hereafter existing, irrespective of whether or not the Agent or such Bank
shall have made demand under this Agreement or any Loan Document and although
such Obligations may be contingent or unmatured. Each Bank agrees promptly to
notify the Company and the Agent after any such set-off and application made by
such Bank; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application.
11.11 Notification of Addresses, Lending Offices, Etc. Each Bank shall
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
11.12 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.13 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
11.14 No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Company, the Banks, the
Agent and the Agent-Related Persons, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents.
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<PAGE>
11.15 Governing Law and Jurisdiction.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED THAT THE AGENT
AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND
THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW.
11.16 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE
BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION 11.16 AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
11.17 Judgment. If, for the purposes of obtaining judgment in any court,
it is necessary to convert a sum due hereunder or any other Loan Document in one
currency into another currency, the rate of exchange used shall be that at which
in accordance with normal banking procedures the Agent could purchase the first
currency with such other currency on the Business Day preceding that on which
final judgment is given. The obligation of the Company in respect of any such
sum due from
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<PAGE>
it to the Agent hereunder or under the other Loan Documents shall,
notwithstanding any judgment in a currency (the "Judgment Currency") other than
that in which such sum is denominated in accordance with the applicable
provisions of this Agreement (the "Agreement Currency"), be discharged only to
the extent that on the Business Day following receipt by the Agent of any sum
adjudged to be so due in the Judgment Currency, the Agent may in accordance with
normal banking procedures purchase the Agreement Currency with the Judgment
Currency. If the amount of the Agreement Currency so purchased is less than the
sum originally due to the Agent in the Agreement Currency, the Company agrees,
as a separate obligation and notwithstanding any such judgment, to indemnify the
Agent or the Person to whom such obligation was owing against such loss. If the
amount of the Agreement currency so purchased is greater than the sum originally
due to the Agent in such currency, the Agent agrees to return the amount of any
excess to the Company (or to any other Person who may be entitled thereto under
applicable law).
11.18 Entire Agreement. This Agreement, together with the other Loan
Documents supersedes the commitment letter dated March 13, 1996 among the
Company, BofA and the Arranger and embodies the entire agreement and
understanding among the Company, the Banks and the Agent, and supersedes all
prior or contemporaneous agreements and understandings of such Persons, verbal
or written, relating to the subject matter hereof and thereof.
[signature pages follow]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Chicago, Illinois by their proper and duly
authorized officers as of the day and year first above written.
PAYLESS SHOESOURCE, INC.
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Agent
By:____________________________
Name:__________________________
Title:_________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
BANK IV WICHITA
By:____________________________
Name:__________________________
Title:_________________________
THE FIRST NATONAL BANK OF
BOSTON
By:____________________________
Name:__________________________
Title:_________________________
THE BANK OF NEW YORK
By:____________________________
Name:__________________________
Title:_________________________
COMMERCE BANK
By:____________________________
Name:__________________________
Title:_________________________
CORESTATES
By:____________________________
Name:__________________________
Title:_________________________
DAI-ICHI KANGYO BANK, LTD.
By:____________________________
Name:__________________________
S-2
<PAGE>
Title:_________________________
THE FIRST NATIONAL BANK OF
CHICAGO
By:____________________________
Name:__________________________
Title:_________________________
WELLS FARGO BANK
By:____________________________
Name:__________________________
Title:_________________________
THE FUJI BANK, LIMITED
By:____________________________
Name:__________________________
Title:_________________________
PNC BANK
By:____________________________
Name:__________________________
Title:_________________________
UNION BANK OF CALIFORNIA
By:____________________________
Name:__________________________
Title:_________________________
UMB BANK
S-3
<PAGE>
By:____________________________
Name:__________________________
Title:_________________________
S-4
<PAGE>
SCHEDULE 2.01
COMMITMENTS AND PRO RATA SHARES
-------------------------------
<TABLE>
<CAPTION>
Bank Commitment Pro Rata Share
---- ------------ --------------
<S> <C> <C>
Bank of America National Trust
and Savings Association
Bank IV Wichita
The First National Bank of Boston
The Bank of New York
Commerce Bank
CoreStates
Dai-Ichi Kangyo Bank, Ltd.
The First National Bank of Chicago
Wells Fargo Bank
The Fuji Bank, Limited
PNC Bank
Union Bank of California
UMB Bank
TOTAL $200,000,000 100%
</TABLE>
<PAGE>
SCHEDULE 11.02
LENDING OFFICES; ADDRESSES FOR NOTICES
--------------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
Address for Notices:
Bank of America National Trust
and Savings Association
Agency Management Services -- Illinois #69596
231 South LaSalle Street
Chicago, Illinois 60697
Attention:
------------------------
Telephone:
--------------
Facsimile:
--------------
Address for Payments:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Bank
Address for Notices:
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention:
------------------------
Telephone:
--------------
Facsimile:
--------------
<PAGE>
BANK IV WICHITA
Address for Notices:
Bank IV Wichita
534 South Kansas Avenue
Second Floor
Topeka, Kansas 66603
Attention: Carol Pecis
Telephone: 913/295-3533
Facsimile: 913/295-3454
THE FIRST NATIONAL BANK OF BOSTON
Address for Notices:
The First National Bank of Boston
100 Federal Street
Mail Stop 01-09-05
Boston, Massachusetts 02110
Attention: Peter L. Griswold
Telephone: 617/434-8312
Facsimile: 617/434-6685
THE BANK OF NEW YORK
Address for Notices:
The Bank of New York
One Wall Street
New York, New York 10286
Attention: Charlotte Sohn
Telephone: 212/635-7869
Facsimile: 212/635-1483
-2-
<PAGE>
COMMERCE BANK
Address for Notices:
Commerce Bank
1000 Walnut Street
18th Floor
Kansas City, Missouri 64105
Attention: Kevin Barth
Telephone: 816/234-2658
Facsimile: 816/234-2333
CORESTATES
Address for Notices:
CoreStates
FCI 1-8-3-12
1339 Chestnut Street
Philadelphia, Pennsylvania 19107
Attention: Randy Southern
Telephone: 215/973-3858
Facsimile: 215/973-6894
DAI-ICHI KANGYO BANK, LTD.
Address for Notices:
Dai-Ichi Kangyo Bank, Ltd.
10 South Wacker Drive
26th Floor
Chicago, Illinois 60606
Attention: Brian W. Riley
Telephone: 312/715-6364
Facsimile: 312/876-2011
-3-
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
Address for Notices:
The First National Bank of Chicago
One First National Plaza
Suite 0324, 10th Floor
Chicago, Illinois 60670-0324
Attention: Lynn Dillon
Telephone: 312/732-7703
Facsimile: 312/732-5296
WELLS FARGO BANK
Address for Notices:
Wells Fargo Bank
222 West Adams Street
Suite 2180
Chicago, Illinois 60606
Attention: Patrick J. Connelly
Telephone: 312/553-6656
Facsimile: 312/553-4783
THE FUJI BANK, LIMITED
Address for Notices:
The Fuji Bank, Limited
225 West Wacker Drive
Suite 2000
Chicago, Illinois 60606
Attention: Peter Hoff
Telephone: 312/621-0500
Facsimile: 312/621-0539
-4-
<PAGE>
PNC BANK
Address for Notices:
PNC Bank
500 West Madison Street
Suite 3140
Chicago, Illinois 60661
Attention: David M. Eichenlaub
Telephone: 312/906-3422
Facsimile: 312/906-3420
UNION BANK OF CALIFORNIA
Address for Notices:
Union Bank of California
350 California Street
11th Floor
San Francisco, California 94104
Attention: Cecilia Valente
Telephone: 415/705-7042
Facsimile: 415/705-7046
UMB BANK
Address for Notices:
UMB Bank
1010 Grand Avenue
Kansas City, Missouri 64106
Attention: Doug Page
Telephone: 816/860-7103
Facsimile: 816/860-7143
-5-
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT ("AGREEMENT")
BY AND BETWEEN
PAYLESS SHOESOURCE, INC., A MISSOURI CORPORATION
(HEREINAFTER REFERRED TO AS "PAYLESS")
and
THE MAY DEPARTMENT STORES COMPANY, A NEW YORK CORPORATION
(HEREINAFTER REFERRED TO AS "MAY")
Effective as of the 1st day of April, 1996.
WHEREAS Payless has liability for, among other matters, certain workers'
compensation, general liability and automobile liability Claims (as defined
herein); and,
WHEREAS Payless wishes May to administer, manage, and act as its agent in
all aspects of the handling and resolving of all Claims;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, Payless and May
agree as follows:
ARTICLE I. DEFINITIONS
As used herein, the following terms have the following meanings:
A. Allocable Claim Expense(s) shall mean all costs allocable to the
settling or resolving of a Claim pursuant to this Agreement, including but not
limited to:
1) Judgments, settlements, monies paid in compliance with workers
compensation statutes, and any other monies paid in resolution of a Claim;
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<PAGE>
2) Legal Expenses (as defined herein);
3) Court and administrative tribunal costs, fees and expenses, including
those incurred on appeal;
4) Court reporter fees and costs for legal transcripts of testimony taken
at civil, criminal or administrative proceedings or at coroners' inquests;
5) Pre- and post-judgment interest paid on a Claim;
6) Fees for service of process;
7) Medical expenses, including costs of independent medical examinations
and/or evaluations for rehabilitation and/or to determine the extent of
injury and/or liability;
8) Fees of employing experts for their advice, opinions or testimony
concerning Claims under investigation or in litigation;
9) Fees of employing experts for the preparation of maps, professional
photographs, accountings, chemical or physical evidence, engineering
services, handwriting experts or any other type of expert used in
investigating or litigating a Claim;
10) Investigative or detective service costs performed by persons who are
not employees of May;
11) Costs of copies of any public record or medical record or of any
deposition and court reported or recorded statements;
12) Reasonable travel expenses incurred in providing
2
<PAGE>
services pursuant to this Agreement;
13) All fines and penalties; and,
14) Any other similar cost, fee or expense reasonably chargeable to the
investigation, negotiation, settlement, payment or defense of a Claim or to
the protection or perfection of subrogation rights.
B. Bank Account(s) shall mean a checking account or checking accounts
established by Payless pursuant to Article VI for the payment of Allocable Claim
Expenses.
C. Claim(s) shall mean all demands for damages due or allegedly due
pursuant to workers' compensation, general liability or automobile liability
which are made against Payless or for which Payless is an indemnitor and which
relate to incidents occurring prior to April 1, 1996, whether or not reported.
D. Confidential Information shall mean statistics or other information
which is commercially valuable, confidential or not otherwise public,
proprietary or a trade secret.
E. Legal Expenses shall mean attorney's fees, including the cost of
in-house counsel, and all other costs, expenses and obligations paid or incurred
in connection with investigating, defending, being a witness in or participating
in, or preparing to defend, be a witness in or participate in, any action
(including any appeal) or threatened action.
F. Nonallocable Expense(s) shall mean expenses incurred in the handling
of Claims pursuant to this Agreement but not allocable
3
<PAGE>
to a specific file, including but not limited to Administrative Fees (as
described in Article VII), state assessments (including without limitation
bonds, letters of credit, actuarial charges and other costs related to the
maintaining of Payless's self-insured status for losses incurred prior to
April 1, 1996), costs for preparation of reports other than those specifically
required under this Agreement, and other miscellaneous costs.
G. Party or Parties shall mean May and/or Payless as the context
requires.
H. Ultimate Projected Loss shall mean the projected estimate of Allocable
Claim Expenses for all Claims covered by this Agreement, as set forth in Article
VIII.
I. Year shall mean a twelve-month period beginning on February 1 and
ending on January 31, except that the first Year shall mean the period beginning
on April 1, 1996 and ending on January 31, 1997.
ARTICLE II. TERM OF AGREEMENT
This Agreement shall be effective on April 1, 1996 and shall terminate on
the earlier of (a) the settling of the last Claim under this Agreement, or (b)
March 31, 2016. Termination of the Agreement shall not terminate the rights or
liabilities of either Party arising prior to termination.
ARTICLE III. LIABILITY
A. Payless will have sole liability and responsibility for all Claims.
B. Nothing in this Agreement is intended, nor shall it be construed, to
impose liability on May for any Claims or expenses of whatever nature, or to act
as a warranty or guaranty by May as to any insurance coverage.
4
<PAGE>
ARTICLE IV. ADMINISTRATIVE SERVICES
A. May shall have sole authority to administer, manage, negotiate,
litigate, settle or otherwise handle all Claims against Payless, and shall have
sole and absolute discretion in the management of the Claims, including but not
limited to developing strategy with regard to a Claim, selection of counsel, and
valuation of Claim settlements.
B. It is the intent of the Parties that this Agreement apply only to (i)
the Claims listed in Exhibit A attached hereto and incorporated by reference
herein, and (ii) Claims incurred but not reported prior to April 1, 1996 which
are substantially similar in nature to those listed in Exhibit A. The
determination as to whether a Claim is substantially similar in nature to those
listed in Exhibit A shall be made by May in its reasonable judgment.
C. Payless shall concurrently herewith and from time to time at May's
request, grant May power of attorney to act on its behalf and in its name. A
copy of the power of attorney is attached hereto as Exhibit B and incorporated
by reference herein. Payless shall not revoke the power of attorney without
May's written consent.
D. May will prepare and send to Payless a quarterly status report, for
informational purposes only, detailing all Claim activity during the preceding
calendar quarter. The report will include a list of all open Claims, Allocable
Claim Expenses paid to date, and the projected costs per Claim.
E. May will evaluate all open Claims liability annually and, where
it so determines, revise its valuation of such Claims and its
5
<PAGE>
projections for Allocable Claim Expenses and Nonallocable Expenses for the next
Year, and will transmit said projections to Payless no less than sixty (60) days
prior to February 1.
F. Payless may review the status of the Claim files for a reasonable
amount of time once a Year at the premises where they are kept and at a time
mutually agreeable to the Parties, provided that such review does not interfere
with May's normal business operations.
G. May may assign or delegate any and all of its responsibilities and
obligations to provide services pursuant to this Agreement.
H. Any assignment by Payless not in accordance with the terms of this
Agreement shall not relieve Payless of its obligations under this Agreement, and
no such assignment shall entitle Payless to terminate or limit this Agreement or
to reduce the fees and bonuses payable hereunder.
ARTICLE V. COOPERATION OF THE PARTIES
Payless agrees to cooperate fully with May in all reasonable respects in
the administration by May of Claims under this Agreement, and, with respect to
workers compensation, in a return to work program. Such cooperation shall
include:
(A) Retain and provide records, compilations and information which are, in
May's opinion, reasonably relevant to such Claims and provide such records,
including payroll reports and hours worked, necessary for the payment of state
assessments;
(B) Provide May full opportunity to interview witnesses and
6
<PAGE>
Payless personnel with regard to any Claim covered by this Agreement.
(C) Promptly forward to May all demand letters, summonses and other papers
regarding a Claim or a lawsuit or other proceeding brought pursuant to a Claim.
(D) Assist in the production of evidence and attendance of witnesses at
any deposition, trial or other hearing, whether civil, criminal or
administrative.
(E) Not commit fraud or perjury.
(F) Not enter into any settlements of Claims unless authorized to do so by
May.
ARTICLE VI. SPECIAL FINANCIAL AND BANKING ARRANGEMENTS
A. ESTABLISHMENT OF A BANK ACCOUNT
(1) To implement this Agreement, Payless agrees that May shall establish
one or more Bank Accounts in the name of Payless at First Interstate Bank of
Texas. At any time during the term of this Agreement, the Parties may mutually
agree to move the Bank Account to another financial institution, provided that
such agreement is in writing.
(2) Payless will own the Bank Account and have responsibility for all
related fees and bank services costs. Payless shall authorize the bank to grant
May exclusive checkwriting authority on the Bank Account for the purpose of
paying all Allocable Claim Expenses by checks drawn on the Bank Account.
(3) Payless shall arrange for deposits into the Bank Account of such
amounts and at such intervals as are sufficient to equal or
7
<PAGE>
exceed all checks clearing the Bank Account. Payless shall continue the
operation and funding of the Bank Account for as long as this Agreement is in
effect.
(4) For the purpose of assuring the adequate and timely funding of the
Bank Account, Payless and the bank shall develop an operating procedure that is
acceptable to May and not inconsistent with this Agreement.
B. PAYMENT PROCEDURE FOR NONALLOCABLE EXPENSES
Payless agrees to pay all Nonallocable Expenses to May within fifteen (15)
days of receipt of May's written request for payment. The Parties shall develop
a mutually agreeable operating procedure consistent with the terms of this
Agreement for the submission of payment requests by May for Nonallocable
Expenses and the timely payment of such requests by Payless.
C. EFFECT OF FAILURE TO PROVIDE ADEQUATE AND TIMELY FUNDING
(1) May is under no obligation whatsoever to use its own funds to pay
either Allocable Claim Expenses or Nonallocable Expenses. However, May, at its
discretion, may pay such expenses and charge Payless interest thereon if any one
of the following occur: (i) Payless fails to timely pay Nonallocable Expenses
pursuant to Article VI.B; (ii) Payless closes the Bank Account and does not
immediately reopen the Bank Account at another financial institution mutually
agreed to by the Parties pursuant to this Agreement; or (iii) the bank refuses
to honor any check written on the Bank Account due to insufficiency of funds.
(2) The applicable interest rate shall be the prime rate plus
8
<PAGE>
one percent (1%) per annum from the date of payment by May to the date of
repayment by Payless. Payless shall reimburse May with such interest within
fifteen (15) days of receiving notice from May of the payment.
(3) Failure by Payless to timely pay the Nonallocable Expenses or to
adequately fund the Bank Account shall constitute a material default by Payless
of its obligations under this Agreement.
ARTICLE VII. ADMINISTRATIVE FEES
A. Payless shall pay May a monthly fee (the "Administrative Fee") equal
to $115 times the number of Claims which are open on the first day of the month,
but in no case shall the monthly Administrative Fee be less than three thousand
dollars ($3,000.00).
B. May shall bill Payless for Administrative Fees on a monthly basis, and
payment shall be due and payable fifteen (15) days after receipt by Payless.
ARTICLE VIII. INCENTIVE BONUS
A. The Parties agree that the Ultimate Projected Loss for all Allocable
Claim Expenses under this Agreement is [TWENTY-FIVE MILLION DOLLARS
($25,000,000.00)].
B. The Parties agree that Payless shall pay to May an incentive bonus
computed and paid as follows:
(1) Each Year May, in its reasonable discretion, shall review Allocable
Claim Expenses actually paid during the prior Year and revise the Ultimate
Projected Loss. May shall send the revision (the "Revised Ultimate Projected
Loss") to Payless by the first day
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<PAGE>
of May.
(2) If the Revised Ultimate Projected Loss is less than the Ultimate
Projected Loss established by this Agreement, Payless shall pay to May a bonus
equal to fifty percent (50%) of the difference between the Ultimate Projected
Loss and the Revised Ultimate Projected Loss, less the cumulative amount of all
bonuses paid in prior Years.
Example:
Year One: If the Revised Ultimate Projected Loss is $24 Million, the Bonus
owed is $500,000 (50% x ($25 Million - $24 Million);
Year Two: If the Revised Ultimate Projected Loss is $23 Million, the Bonus
owed is $500,000:
Bonus = [50% x ($25 Million - $23 Million)] - $500,000 paid in Year
One.
Year Three: If the Revised Ultimate Projected Loss is $22 Million, the
Bonus owed is $500,000:
Bonus = [50% x ($25 Million - $22 Million)] - $1 Million paid in
Years One and Two.
Year Four: If the Revised Ultimate Projected Loss is $21.9 Million, the
Bonus owed is $50,000:
Bonus = [50% x ($25 Million - $21.9 Million)] - $1.5 Million paid in
Years One, Two and Three.
The bonus shall be due and payable no more than thirty (30) days after
transmittal of notice by May to Payless and will be subject to interest from the
date due as and at the rate provided in Article VI.C(2).
(3) If the Revised Ultimate Projected Loss is equal to or greater than the
Ultimate Projected Loss, Payless shall not be required to pay May a bonus.
(4) In the event that the Revised Ultimate Projected Loss is greater than
the Ultimate Projected Loss, May shall rebate to Payless all bonuses previously
received. In no event shall May be
10
<PAGE>
required to pay Payless more than the cumulative amount of all bonuses paid to
it in prior years.
Example:
Year Five: If the Revised Ultimate Projected Loss is $25.2 Million, May
rebates $1,550,000, the cumulative bonuses received in Years One, Two,
Three and Four.
(5) Within 60 days of settling the last open Claim, May will give Payless
written notice, and the bonus will be reconciled by subtracting the actual
Allocable Claim Expenses paid for all Claims under this Agreement from the
Ultimate Projected Loss, and the final bonus will be determined and paid
pursuant to the provisions of this section.
ARTICLE IX. INDEMNIFICATION/LIMITATIONS ON LIABILITY
A. It is the intent of the Parties that Payless shall indemnify, protect,
defend and hold May harmless to the fullest extent now or hereinafter authorized
or permitted by law with respect to any action, proceeding or investigation
brought or threatened regarding the performance of services by May under this
Agreement.
(1) Payless shall indemnify, protect and hold harmless May against all
judgments, settlements, costs (including Legal Expenses and expert fees), fines
or penalties resulting from May's performance of services under this Agreement,
including, where lawful, punitive damages, as long as May's conduct is not
finally adjudicated to have been fraudulent or grossly negligent.
(2) Payless shall indemnify and hold harmless May for any bad faith claim
arising out of May's performance of services pursuant to this Agreement as long
as May's conduct is not finally
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adjudicated to have been fraudulent or grossly negligent. To the extent
permitted by law, Payless intends its indemnification of May to include punitive
damages.
B. Payless shall provide Commercial General Liability, including
professional liability, written on an occurrence basis with combined single
limits of not less than five million dollars ($5,000,000.00) per occurrence
insuring May (in the name of The May Department Stores Company and all its
divisions and subsidiaries, including the Central Regional Claims Corporation),
and its employees and agents as additional insureds for all bodily injury,
property damage, and personal injury claims arising out of the services provided
by this Agreement as well as all damages by reason of any act, error or omission
in professional services rendered or that should have been rendered arising out
of the services performed under this Agreement. This insurance shall be primary
to May's insurance and not subject to any excess or pro-rata type of other
insurance clause in the policy. Prior to the inception of this Agreement
Payless shall provide May with certificates evidencing that coverage is in place
as well as copies of endorsements showing that May is an additional insured and
that this coverage is primary to that of May or any other insured or additional
insureds.
C. Except as otherwise expressly provided by the terms of this Agreement,
each Party shall have the right to bring an action or commence a proceeding
against another Party if it believes the other Party is in breach of its
obligations to perform under the
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terms of this Agreement. A Party shall be deemed to have fulfilled its
obligations if it has acted with the care, skill and diligence that a reasonable
person acting in a similar capacity and familiar with such matters would have
used. Nothing contained in this Section IX.C shall be deemed to limit the
provisions of Section IX.A.
D. Nothing in this or any other section of this Agreement is intended, nor
shall it be interpreted, to give any non-Party to this Agreement any right,
claim or cause of action against Payless or May.
E. The rights of the Parties to sue under this Agreement, whether for
breach of contract or in tort, are not assignable.
ARTICLE X. GENERAL PROVISIONS
A. COMMUNICATIONS
Payless and May acknowledge that in discharging their obligations under
this Agreement they may disclose to each other Confidential Information which is
commercially valuable, confidential or not otherwise public, proprietary or a
trade secret. They agree to make every reasonable effort not to use, distribute
or exploit each other's Confidential Information in whole or in part, to fully
protect and preserve the confidential nature of such information, and not to
disclose such information without the prior written consent of the other Party.
B. BINDING EFFECT
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the Parties hereto and their respective
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successors (including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business and/or
assets).
C. WAIVER
No term or provision of this Agreement shall be deemed waived and no breach
excused, unless such waiver or consent is in writing and signed by the Party
claimed to have waived or consented. No waiver shall constitute a continuing
waiver, and no waiver of a provision shall be deemed or construed to constitute
a waiver of any other provision whether similar or not.
D. SEVERABILITY
The provisions of this Agreement shall be severable if any of the
provisions herein (including any provision within a single section, paragraph or
sentence) are held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, and the remaining provisions shall remain enforceable
to the fullest extent permitted by law. To the extent possible, any provision
held invalid, void or unenforceable shall be reformed so as to make it valid and
enforceable and to reflect the intent of the Parties.
E. ENTIRETY OF AGREEMENT
This Agreement constitutes the entire contract between the Parties as
respects the administration of the Claims and is intended to supersede any and
all prior written or verbal agreements or representations by and among the
Parties with respect thereto. No modification or amendment of this Agreement
shall be valid unless made in writing and signed by a duly authorized
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officer of each of the Parties. This Agreement does not in any way limit the
terms of that certain Distribution Agreement being entered into between the
Parties.
F. HEADINGS
Article and section headings contained in this Agreement are for reference
purposes only and will not affect in any manner the meaning or interpretation of
this Agreement.
G. NOTICE
All notices and other communications required hereunder shall be in writing
and delivered by facsimile during regular business hours, or by certified mail
(delivery verification requested). Any such notice shall be deemed to have been
given, if by facsimile, on the date of transmission, and, if by mail, three
business days after mailing. All communications shall be addressed as follows:
If to May:
The May Department Stores Company
611 Olive Street
St. Louis Missouri 63101
Attention: Vice President-Risk Management
Facsimile #: ______________________
If to Payless:
Payless ShoeSource, Inc.
3231 East Sixth Street
Topeka, Kansas 66607
Attention: ______________________
Facsimile #: ____________________
subject to the right of each party to designate a different address in the
United States and/or addressee by notice similarly given at least fifteen (15)
days before the effectiveness of such new designation.
H. GOVERNING LAW
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This Agreement and the obligations and rights created hereunder shall be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to such state or any other state conflict of law
principles. This Agreement shall not be interpreted to favor one Party over the
other, and no ambiguity herein shall be held against any Party.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the ____ day of ______ ,
1996.
PAYLESS SHOESOURCE, INC.
By: __________________________
__________________________
Title: __________________________
Address: __________________________
SEAL
THE MAY DEPARTMENT STORES COMPANY
By: __________________________
__________________________
Title: __________________________
Address: __________________________
SEAL
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EXHIBIT B
TO
ADMINISTRATIVE SERVICES AGREEMENT DATED APRIL 1, 1996
BETWEEN
PAYLESS SHOESOURCE, INC.
AND
THE MAY DEPARTMENT STORES COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Payless ShoeSource, Inc., a Missouri
corporation with its principal place of business at 3231 East Sixth Street,
Topeka, Kansas, 66607, does hereby nominate, constitute and irrevocably appoint
The May Department Stores Company, a New York corporation with its principal
place of business at 611 Olive Street, St. Louis, Missouri, 63101, as its true
and lawful attorney in fact for itself and in its name, place and stead to act
for Payless ShoeSource, Inc. in all matters related to the investigation,
administration, management, litigation, negotiation, or settlement of claims
based on workers compensation liability, general liability or automobile
liability that relate to occurrences prior to April 1, 1996, and to execute in
its name or in Payless ShoeSource, Inc.'s name, or as agent for Payless
ShoeSource, Inc. any and all agreements or other documents necessary or
advisable to the investigation, administration, management, litigation,
negotiation, or settlement of such claims.
Payless ShoeSource, Inc. hereby gives and grants onto its attorney in fact
full and irrevocable power and authority to do and perform every act necessary,
requisite or proper to be done in and about the premises as fully as it might or
could do were it present, with full power of substitution and revocation, hereby
ratifying and confirming all that its said attorney shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunder set my hand this _______ day of
________, 1996.
Payless ShoeSource, Inc.
By: _______________________________
Title: _______________________________
Executed in the presence of ___________________________________.
State of ______________)
) SS
County of ______________)
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On this ________ day of ________, 1996, before me personally appeared
_________________________, to me personally known, who being by me duly sworn,
did say that he is ____________________ for Payless ShoeSource, Inc., that the
seal affixed to the foregoing instrument is the Corporate seal of said
Corporation, that he is the duly authorized representative of this Corporation
for the purpose of executing and sealing this instrument, and that he
acknowledges said instrument to be the free act and deed of this Corporation.
- ---------------------------------------
Notary Public
My commission expires __________________.
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1996 STOCK INCENTIVE PLAN
I. GENERAL
1. PURPOSE. The purpose of the Plan is to aid the Company and its
Subsidiaries in attracting, retaining, and motivating management employees.
2. DEFINITIONS. Whenever used herein, the following terms shall have the
meanings set forth below:
a. "Board" means the Board of Directors of the Company.
b. "Code" means the Internal Revenue Code of 1986, as amended.
c. "Committee" means a committee designated by the Board, which shall
consist of not less than two members of the Board who shall be appointed by
and serve at the pleasure of the Board and who shall be "disinterested"
within the meaning of Rule 16b-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, and who shall be "outside"
directors within the meaning of Section 162(m) of the Code.
d. "Company" means Payless ShoeSource, Inc.
e. "Disability" means a permanent and total disability which enables
the Participant to be eligible for and receive a disability benefit under
the Federal Social Security Act.
f. "Fair Market Value" means the average of the high and low prices
of the Stock on the New York Stock Exchange on the date in question, or, if
no sale or sales of the Stock occurred on such Exchange on that day, the
average of the high and low prices of the Stock on the last preceding day
when the Stock was sold on the New York Stock Exchange; with respect to a
Stock Appreciation Right, the term means the average of the high and low
prices of the Stock on the New York Stock Exchange on such date or dates as
may be provided in the Stock Appreciation Right Agreement; provided,
however, that with respect to Options granted as of the effective date of
the spin-off (the "Effective Date") of the Company by The May Department
Stores Company ("May") with respect to options previously granted by May
which were waived by the Participant or which were not yet exercisable and
therefore lapsed on the Effective Date, the "Fair Market Value" means the
arithmetic average of the high and low trading prices of the Stock on the
New York Stock Exchange for each of the first 30 trading days on which
trading in the Stock on that exchange occurs.
g. "Incentive Stock Option" means an Option granted under the Plan
which constitutes and shall be treated as an "incentive stock option" as
defined in Section 422 of the Code.
h. "Non-Qualified Stock Option" means an Option granted under the
Plan which shall not constitute or be treated as an Incentive Stock Option.
i. "Non-Tandem Stock Appreciation Right" means a Right described in
Part III, Section 3.
j. "Option" means a right or rights to purchase shares of Stock
described in Part II.
k. "Option Agreement" means the agreement between the Company and a
Participant evidencing the grant of an Option and containing the terms and
conditions, not inconsistent with the Plan, that are applicable to such
Option.
<PAGE>
l. "Participant" means an individual to whom an Option, Right or
Performance Unit is granted or Restricted Stock Grant is made.
m. "Performance Restricted Stock" means Restricted Stock whose
provisions include the restrictions described in Part IV, Section 3(b).
n. "Performance Unit" means a right, described in Part V, to receive
up to 100% of the value of shares of Stock.
o. "Plan" means the 1996 Stock Incentive Plan of the Company, as
amended from time to time.
p. "Related Option" means the Option in relation to which a Tandem
Stock Appreciation Right is granted.
q. "Restricted Stock Grant" means a grant described in Part IV.
r. "Retirement" means retirement as that word is defined in the
Company's Profit Sharing Plan.
s. "Stock" means the Common Stock of the Company.
t. "Stock Appreciation Right" or "Right" means a right described in
Part III which provides for the payment of an amount in cash or Stock in
accordance with such terms and conditions as are provided in the Stock
Appreciation Right Agreement applicable to such Right; provided however,
that in Part III, Section 2, "Right" shall refer only to a "Tandem Stock
Appreciation Right" and that in Part III, Section 3, "Right" shall refer
only to a "Non-Tandem Stock Appreciation Right".
u. "Stock Appreciation Right Agreement" means the agreement between
the Company and a Participant evidencing the grant of a Stock Appreciation
Right and containing the terms and conditions, not inconsistent with the
Plan, that are applicable to such Right.
v. "Subsidiary" means a subsidiary of the Company or an
unincorporated organization controlled, directly or indirectly, by the
Company.
w. "Tandem Stock Appreciation Right" means a Right described in Part
III, Section 2.
3. ADMINISTRATION. The Plan shall be administered by the Committee.
Subject to all applicable provisions of the Plan, the Committee is authorized to
approve grants of Options, Rights or Performance Units or the making of
Restricted Stock Grants in accordance with the Plan, to construe and interpret
the Plan, to prescribe, amend, and rescind rules and regulations relating to the
Plan and to make all determinations and take all actions necessary or advisable
for the Plan's administration. The Committee shall act by vote or written
consent of a majority of its members. Whenever the Plan authorizes or requires
the Committee to take any action, make any determination or decision or form any
opinion, then any such action, determination, decision or opinion by or of the
Committee shall be in the absolute discretion of the Committee.
4. SHARES SUBJECT TO THE PLAN.
(a) Maximum Number of Shares. Stock issued under the Plan shall be
treasury shares subject to the following limitations:
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(i) Plan Maximum. The maximum number of shares of Stock which
may be issued under the Plan is 2,800,000, of which no more than
250,000 may be issued pursuant to Restricted Stock Grants.
(ii) Participant Maximum. The maximum number of Options and
Stock Appreciation Rights which may be granted to any Participant
during the term of the Plan is 500,000; provided, however, that
if a Stock Appreciation Right is issued in substitution for an
existing stock option or in tandem with a stock option, then the
grant of such a Stock Appreciation Right shall not count against
the limit. The maximum number of shares of Stock which may be
issued to each Participant free from restrictions pursuant to a
grant of Performance Restricted Stock is 50,000 per year. The
maximum number of shares of Stock which may be granted to each
Participant pursuant to Performance Units is 50,000 per year.
(b) Expired Options or Rights. If an Option or Right expires,
terminates, ceases to be exercisable or is surrendered without having been
exercised in full, then the shares relating to the Option or Right shall,
unless the Plan has been terminated, again become available under the Plan.
(c) Lapse of Restrictions on Restricted Stock. If any shares of Stock
shall be returned to the Company pursuant to the provisions of Sections 2
or 3 of Part IV or in the instruments evidencing the making of Restricted
Stock Grants, then such shares shall, unless the Plan has been terminated,
again become available under the Plan.
(d) Expired Performance Units. If a Performance Unit expires,
terminates, is surrendered or otherwise ceases to exist, so that no further
shares of Stock may be issued pursuant to such Performance Unit, then the
shares of Stock which could have been issued but were not issued pursuant
thereto shall, unless the Plan has been terminated, again become available
under the Plan.
5. PARTICIPANTS. Participants in the Plan shall be determined as
follows:
(a) Eligibility. The individuals who are eligible to receive Options,
Rights, Performance Units or Restricted Stock Grants hereunder shall be
limited to management employees of the Company and its Subsidiaries
(including employees who are directors and/or officers).
(b) Determination. From time to time the Committee shall, in its sole
discretion, but subject to all of the provisions of the Plan, determine
which of those eligible employees shall receive Option(s), Stock
Appreciation Right(s), Performance Unit(s) or Restricted Stock Grant(s)
under the Plan and the size, terms, conditions and/or restrictions of the
Option(s), Right(s), Performance Unit(s) or Restricted Stock Grant(s).
(c) Differing Terms; Effect of Grant. The Committee may approve the
grant of Option(s) Right(s), or Performance Unit(s) or the making of
Restricted Stock Grant(s) subject to differing terms, conditions and/or
restrictions to any eligible employee in any year. The Committee's
decision to approve the grant of an Option, Right or Performance Unit or
the making of a Restricted Stock Grant to an eligible employee in any year
shall not require the Committee to approve the grant of an Option, Right or
Performance Unit or the making of a Restricted Stock Grant to that employee
in any other year or to any other employee in any year; nor shall the
Committee's decision with respect to the size, terms, conditions and/or
restrictions of any Option, Right or Performance Unit to be granted to an
employee or any Restricted Stock Grant to be made to an employee in any
year require the Committee to approve the grant of an Option, Right or
Performance Unit or the making of a Restricted Stock Grant of the same size
or with the same terms, conditions and/or restrictions to that employee in
any
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<PAGE>
other year or to any other employee in any year. The Committee shall not
be precluded from approving the grant of an Option, Right or Performance
Unit or the making of a Restricted Stock Grant to any eligible employee
solely because such employee may previously have been granted an Option,
Right or Performance Unit or may previously have received a Restricted
Stock Grant.
6. RIGHTS WITH RESPECT TO SHARES OF STOCK. A Participant who has
exercised an Option or Right (payable all or in part in Stock) or to whom a
Restricted Stock Grant has been made or to whom shares of Stock have been issued
pursuant to Performance Units shall have, after a certificate or certificates
for the number of shares of Stock granted have been issued in his name, absolute
ownership of such shares including the right to vote the same and receive
dividends thereon; provided, however that rights with respect to shares issued
in connection with a Restricted Stock Grant shall be subject to the terms,
conditions and restrictions described in the Plan and in the instrument
evidencing the making of the Restricted Stock Grant to such Participant.
7. EMPLOYMENT. In the absence of any specific agreement to the contrary,
no grant of an Option, Right or Performance Unit or making of a Restricted Stock
Grant to a Participant under the Plan shall affect any right of the Company or
its Subsidiaries to terminate the Participant's employment at any time.
II. OPTIONS
1. GENERAL. Each employee chosen to receive an Option(s) may be granted
an Incentive Stock Option, a Non-Qualified Stock Option or both, subject to the
following terms, conditions and restrictions. Each Option granted under the
Plan shall be evidenced by an Option Agreement which shall contain such terms
and conditions consistent with the Plan as the Committee shall determine;
provided, however, that each Option shall satisfy the following requirements and
each Incentive Stock Option shall satisfy the requirement of Part II, Section 2:
(a) Option Price. The option price for each share purchased under
any Option shall be specified in the Option Agreement and, subject to the
provisions of paragraph (b) below and Part VII, Section 3, shall not be
less than Fair Market Value on the date the Option is granted; provided,
however, that in no event shall the option price per share be less than the
par value thereof.
(b) Option Period.
(i) General. The period in which an Option may be exercised shall
not exceed ten years from the date the Option is granted; provided,
however, that the Option may be sooner terminated in accordance with
the provisions of this paragraph (b). Subject to the foregoing, the
Committee may provide that any Option may be exercised, in whole or in
part, at such time or times as the Committee may in its discretion
determine.
(ii) Termination of Employment. If the Participant ceases to be an
employee of the Company or a Subsidiary for any reason other than
Retirement, Disability, or death, all of such Participant's outstanding
Options shall immediately terminate.
(iii) Retirement or Disability. If a Participant's employment is
terminated by Retirement or Disability, the term of any then
outstanding Option held by the Participant shall extend for a period
specified by the Committee in the agreement pertaining to such Option,
and the number of shares in respect of which the Option may be
exercised after the Participant's Retirement or Disability shall be
determined by the agreement pertaining to such Option; provided,
however, that such agreement shall provide that the Committee may
cancel the Participant's Option during such period if the Participant's
Retirement was without the consent of the Company, or if the
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<PAGE>
Participant engages during such period of Retirement or Disability in
employment or activities contrary, in the opinion of the Committee, to
the best interests of the Company.
2. INCENTIVE STOCK OPTIONS. Each Option Agreement evidencing an
Incentive Stock Option shall satisfy the requirement that to the extent that the
aggregate Fair Market Value of Stock with respect to which Incentive Stock
Options are exercisable for the first time by any Participant during any
calendar year (under the Plan and all stock option plans of the Company and its
Subsidiaries) exceeds $100,000, such Options shall be treated as Non-Qualified
Stock Options. For purposes of this Section 2, aggregate Fair Market Value of
Stock shall be determined as of the time the Option with respect to such Stock
is granted.
3. DEATH. If a Participant's employment is terminated by death at a time
when he or she has not fully exercised any then outstanding Option, or if a
Participant dies after Retirement or Disability without having fully exercised
any then outstanding Option, the beneficiary designated by the Participant (or,
in the absence of such designation, the executors or administrators or legatees
or distributees of the Participant's estate) shall have the right to exercise
such Option in whole or in part during such period following the Participant's
death as is set forth in the Option Agreement. The Company shall prescribe the
procedures and requirements for beneficiary designations not inconsistent with
this provision and has the right to review and approve such designations.
4. NONASSIGNABILITY. Each Option shall not be transferable (other than,
upon the death of the Participant, by beneficiary designation, by last will and
testament or by the laws of descent and distribution) and shall be exercisable
during the Participant's lifetime only by the Participant.
5. PAYMENT FOR STOCK. Full payment in cash or, if the Committee approves,
in Stock, for shares purchased shall be made at the time of exercising the
Option in whole or in part. No certificates for shares so purchased shall be
issued until full payment therefor has been made, and a Participant shall have
none of the rights of a shareowner until such certificates are issued to him or
her. In addition, if the Committee approves, the Option Agreement may provide
that the Participant may elect, on terms set forth in the Option Agreement, to
have the Company withhold from the shares of Stock payable to the Participant
upon exercise of an Option the number of shares of Stock having a fair market
value equal to the amount of any required withholding taxes.
6. USE OF PROCEEDS. The proceeds received by the Company from the sale of
Stock pursuant to the exercise of an Option may be used for general corporate
purposes.
7. RESTRICTIONS UPON EXERCISE OF OPTION. The exercise of each Option
shall be subject to the condition that if at any time the Company shall
determine in its discretion that the satisfaction of withholding tax or other
withholding liabilities under any state or Federal law, or that the listing,
registration or qualification of any shares otherwise deliverable upon such
exercise upon any securities exchange or under any state or Federal law, or that
the consent or approval of any regulatory body, is necessary or desirable as a
condition of, or in connection with, such exercise or the delivery or purchase
of shares thereunder, then in any such event such exercise shall not be
effective unless such withholding, listing, registration, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
8. REPRICING PROHIBITED. There shall be no grant of an Option(s) to a
Participant in exchange for a Participant's agreement to cancellation of a
higher-priced Option(s) that was previously granted to such Participant.
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<PAGE>
III. STOCK APPRECIATION RIGHTS
1. GENERAL. Each employee chosen to receive a Stock Appreciation Right(s)
may be granted a Tandem Stock Appreciation Right, a Non-Tandem Stock
Appreciation Right or both, subject to the following terms, conditions and
restrictions and subject to such additional terms, conditions and restrictions
as may be determined by the Committee from time to time hereafter; provided
however, that no Right shall be subject to additional terms, conditions or
restrictions which are more favorable to a Participant than the terms,
conditions and restrictions set forth in the Plan.
2. TANDEM STOCK APPRECIATION RIGHTS. Each Tandem Stock Appreciation Right
may be granted only with respect to a share(s) of Stock for which an Option(s)
has been granted under the Plan, and may be awarded concurrently with the grant
of such Option or at any time thereafter while the Option is outstanding. If
the Committee so determines, a Tandem Stock Appreciation Right may also be
granted with respect to a share(s) of Stock for which an option has been granted
and is outstanding under any other plan of the Company. A Stock Appreciation
Right shall be evidenced by a Stock Appreciation Right Agreement which shall
contain such terms and conditions (which may include limitations as to the time
when such Stock Appreciation Right becomes exercisable and when it ceases to be
exercisable that are more restrictive than the limitations applicable to the
Related Option(s)) not inconsistent with the Plan as the Committee shall
determine; provided, however, that each Tandem Stock Appreciation Right shall
satisfy the following requirements:
(a) Termination of a Right. If the Related Option is exercised, in
whole or in part, then the Right with respect to the shares of Stock
purchased pursuant to such exercise (but not with respect to any
unpurchased shares of Stock) shall terminate as of the date of the
exercise. If an unexercised Right is otherwise exercisable on the date
that the Related Option expires, and if the Fair Market Value of the shares
of Stock with respect to which such Right was granted, determined as of the
date of such expiration, exceeds the Option price of such shares, then,
notwithstanding Section 2(b), the Right shall automatically be deemed to
have been exercised as of the date of such expiration; otherwise, on the
date that the Related Option expires, any outstanding Right related thereto
shall be terminated as of the date of such expiration.
(b) Exercise. Tandem Stock Appreciation Rights may be exercised (i)
only at such time or times as, and to the extent that, the Related Options
shall be exercisable, (ii) only upon surrender of the Related Options with
respect to the shares for which the Rights are then being exercised, and
(iii) subject to the terms and conditions set forth in the Stock
Appreciation Right Agreement; provided that no Tandem Stock Appreciation
Right may be exercised prior to the expiration of six (6) months from the
date of the grant and can only be exercised during the ten-day period
beginning on the third business day following the release of the Company's
quarterly or annual statement of sales and earnings.
3. NON-TANDEM STOCK APPRECIATION RIGHTS. Each Non-Tandem Stock
Appreciation Right may be granted with respect to a share(s) of Stock or, if the
Committee so determines, in exchange for an outstanding Option or an outstanding
stock option granted under any other plan of the Company. A Non-Tandem Stock
Appreciation Right shall be evidenced by a Stock Appreciation Right Agreement
which shall contain such terms and conditions not inconsistent with the Plan as
the Committee shall determine; provided, however, that each Non-Tandem Stock
Appreciation Right shall satisfy the following requirements:
(a) Termination of a Right. A Non-Tandem Stock Appreciation Right
shall terminate as of the earlier of (i) the date of exercise of such
Right, to the extent that it is exercised; or (ii) the termination date
specified in the Stock Appreciation Right Agreement. If an unexercised
Right is otherwise exercisable on the date that it expires, and if the Fair
Market Value of the shares of Stock with respect to which such Right was
granted, determined as of the date of such expiration, exceeds the exercise
price
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of such Right (set forth in the Stock Appreciation Right Agreement), then
the Right shall automatically be deemed to have been exercised as of the
date of such expiration.
(b) Exercise. Non-Tandem Stock Appreciation Rights may be exercised
in accordance with the terms and conditions set forth in the Stock
Appreciation Right Agreement; provided that (i) no Non-Tandem Stock
Appreciation Right that is payable all or in part in Stock may be exercised
prior to the expiration of six (6) months from the date of the grant; (ii)
the exercise price of any Non-Tandem Stock Appreciation Right granted in
exchange for an outstanding Option or for an outstanding stock option
granted under any other plan of the Company shall be the same exercise
price as that outstanding Option or option and (iii) the exercise price of
any Non-Tandem Stock Appreciation Right not granted in exchange for an
outstanding Option or for an outstanding stock option granted under any
other plan of the Company shall be the Fair Market Value of the Stock on
the date of the grant of the Right(s).
4. PAYMENT.
(a) Amount. Upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive the excess of the aggregate Fair
Market Value of the shares of Stock with respect to which the Right is
being exercised (determined as of the date of such exercise) over (i) the
aggregate option price of such shares in the case of Tandem Stock
Appreciation Rights; or (ii) the aggregate exercise price (set forth in the
Stock Appreciation Right Agreement) in the case of Non-Tandem Stock
Appreciation Rights.
(b) Form. Any amount which becomes payable upon exercise of a Stock
Appreciation Right under the Plan shall be paid entirely in cash, entirely
in Stock or partly in cash and partly in Stock in accordance with such
terms and conditions as are provided in the applicable Stock Appreciation
Right Agreement; provided, however, that notwithstanding any provision in
any Stock Appreciation Right Agreement, the Committee may determine in its
sole and absolute judgment that any amount which may become payable upon
exercise of a Right shall be paid entirely in cash.
5. TERMINATION OF EMPLOYMENT.
(a) General. If a Participant ceases to be an employee of the
Company or of a Subsidiary for any reason other than Retirement, Disability
or death, all of such Participant's outstanding Rights shall immediately
terminate.
(b) Retirement or Disability. If a Participant's employment is
terminated by Retirement or Disability, the Participant's right to exercise
all or any portion of any Right after the date of such Retirement or
Disability shall be determined by the provisions of the Stock Appreciation
Right Agreement; provided, however, that such Agreement shall provide that
the Committee may terminate the Participant's Right prior to the date on
which the Right is exercised if the Participant's Retirement was without
the consent of the Company, or if the Participant engages during such
period of Retirement or Disability in employment or activities contrary, in
the opinion of the Committee, to the best interests of the Company.
(c) Death. If a Participant's employment is terminated by death at a
time when the Participant has not fully exercised any then outstanding
Rights, or if a Participant dies after Retirement or Disability without
having fully exercised any then outstanding Rights, the beneficiary
designated by the Participant (or, in the absence of such designation, the
executors or administrators or legatees or distributees of the
Participant's estate) shall have the right to exercise such Right in whole
or in part during such period following the Participant's death as set
forth in the Stock Appreciation Right Agreement. The Company
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shall prescribe the procedures and requirements for beneficiary
designations not inconsistent with this provision and has the right to
review and approve such designations.
6. EXPIRATION. If the period in which a Stock Appreciation Right is
exercisable expires and the Right has not been exercised, then such Right shall
terminate as of the last day on which it was exercisable.
7. NONASSIGNABILITY. Each Right shall not be transferable (other than,
upon the death of the Participant, by beneficiary designation, by last will and
testament or by the laws of descent and distribution) and shall be exercisable
during the Participant's lifetime only by the Participant.
8. RESTRICTIONS UPON EXERCISE OF RIGHTS. The exercise of each Right shall
be subject to the condition that if at any time the Company shall determine in
its discretion that the satisfaction of withholding tax or other withholding
liabilities under any state or Federal law, or that the consent or approval of
any regulatory body, is necessary or desirable as a condition of, or in
connection with, such exercise, then, in any such event, such exercise shall not
be effective unless such withholding, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
IV. RESTRICTED STOCK GRANTS
1. GENERAL. A Restricted Stock Grant made under the Plan shall contain
the following terms, conditions and restrictions and such additional terms,
conditions and restrictions as may be determined by the Committee from time to
time hereafter; provided, however, that no Restricted Stock Grant shall be
subject to additional terms, conditions or restrictions which are more favorable
to a Participant than the terms, conditions and restrictions set forth in the
Plan.
2. RESTRICTIONS. Subject to the provisions of Part IV, Section 3, shares
of Stock granted to a Participant pursuant to a Restricted Stock Grant:
(i) shall not be sold, assigned, conveyed, transferred, pledged,
hypothecated, or otherwise disposed of, and
(ii) shall be returned to the Company forthwith, and all the rights of
the Participant to such shares shall immediately terminate without any
payment or consideration by the Company, if the Participant's continuous
employment with the Company or any Subsidiary shall terminate for any
reason, except as provided in Part IV, Section 4. Such return of such
Stock shall be accomplished by the Participant's delivering or causing to
be delivered to the Secretary or any Assistant Secretary of the Company the
certificate(s) for such shares of Stock, accompanied by such endorsement(s)
and/or instrument(s) of transfer as may be required by the Secretary or any
Assistant Secretary of the Company.
3. LAPSE OF RESTRICTIONS.
(a) General. Subject to the provisions of Part IV, Sections 3(b) and 4
and of Part VII, Section 4, the restrictions set forth in Part IV, Section
2 shall lapse on such date or dates on or after the first anniversary and
on or before the tenth anniversary of the date as of which the Restricted
Stock Grant is made, as the Committee shall determine at the time of the
Restricted Stock Grant.
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(b) Performance Restricted Stock. If the Committee has designated the
Stock covered by a Restricted Stock Grant as Performance Restricted Stock,
then the lapse of restrictions set forth in Part IV, Section 2 that would
otherwise occur on a specified date shall also be subject to the following:
(i) if the Company meets or exceeds the Target Long-Term EPS Growth
Objective (after adjustment for Relative Performance Rank) for the most
recently ended Long-Term Performance Period, then the restrictions that
would otherwise lapse on such date shall lapse as to 100% of the shares
of such Performance Restricted Stock; and
(ii) if the Company meets or exceeds the Threshold Long-Term EPS
Growth Objective (after adjustment for Relative Performance Rank) but
does not meet or exceed the Target Long-Term Growth Objective (after
adjustment for Relative Performance Rank) for the most recently ended
Long-Term Performance Period, then the restrictions on the shares of
Performance Restricted Stock that would otherwise lapse on such date
shall lapse as to (i) 50% of such shares plus (ii) 50% of such shares
multiplied by a fraction (not less than zero and not greater than one),
the numerator of which is the Company's actual Long-Term EPS Growth for
the most recently ended Long-Term Performance Period less the Threshold
Long-Term EPS Growth Objective for such period and the denominator of
which is the Target Long-Term EPS Growth Objective for such period less
the Threshold Long-Term EPS Growth Objective for such period, and the
remaining shares of Performance Restricted Stock shall immediately
forfeit to the Company; and
(iii) if the Company does not meet or exceed the Threshold Long-Term
EPS Objective (after adjustment for Relative Performance Rank) for the
most recently ended Long-Term Performance Period, then 100% of the
shares of such Performance Restricted Stock shall immediately forfeit
to the Company.
For purposes of this Section 3(b), the terms Long-Term Performance Period,
Relative Performance Rank, Target Long-Term EPS Objective and Threshold
Long-Term EPS Objective shall have the same meanings as in the Company's
Executive Incentive Compensation Plan for Payless Executives. No
restrictions shall lapse on any Performance Restricted Stock until the
Committee certifies, in writing, that the requirements set forth in this
Section 3(b) have been satisfied.
(c) Forfeiture. All shares of Stock forfeited under this Section 3
shall be returned to the Company forthwith, and all the rights of the
Participant to such shares shall immediately terminate without any payment
or consideration by the Company.
4. TERMINATION OF EMPLOYMENT BY REASON OF DEATH OR DISABILITY. If a
Participant who has been in the continuous employment of the Company or of a
Subsidiary since the date as of which a Restricted Stock Grant was made to such
Participant shall, while in such employment, die or become Disabled and such
Participant's death or Disability shall occur more than one year after the date
as of which the Restricted Stock Grant was made to such Participant, then the
restrictions set forth in Part IV, Section 2 shall lapse as to all shares of
Restricted Stock granted to such Participant pursuant to such Restricted Stock
Grant on the date of such event. A Participant may file a written designation
of beneficiary to receive, in the event of the Participant's death, any shares
for which restrictions lapse on the date of death. The Company shall prescribe
procedures and requirements for beneficiary designations not inconsistent with
this provision and has the right to review and approve such designations.
5. AGREEMENT BY EMPLOYEE REGARDING WITHHOLDING TAXES. Each Participant
shall agree that, subject to the provisions of Part IV, Section 6,
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(i) no later than the date as of which the restrictions mentioned in
Part IV, Section 2 and in the instrument evidencing the making of the
Restricted Stock Grant shall lapse, such Participant will pay to the
Company in cash, or, if the Committee approves, in Stock, or make other
arrangements satisfactory to the Committee regarding payment of, any
Federal, state or local taxes of any kind required by law to be withheld
with respect to the shares of Stock subject to such Restricted Stock Grant,
and
(ii) the Company and its Subsidiaries shall, to the extent permitted
by law, have the right to deduct from any payment of any kind otherwise due
to the Participant any Federal, state or local taxes of any kind required
by law to be withheld with respect to the shares of Stock subject to such
Restricted Stock Grant.
6. ELECTION TO RECOGNIZE GROSS INCOME IN THE YEAR OF GRANT. If any
Participant properly elects, within thirty (30) days of the date of grant, to
include in gross income for Federal income tax purposes an amount equal to the
fair market value of the shares of Stock granted on the date of grant, such
Participant shall pay to the Company, or make arrangements satisfactory to the
Committee to pay to the Company in the year of such grant, any Federal, state or
local taxes required to be withheld with respect to such shares. If such
Participant shall fail to make such payments, the Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct from any payment
of any kind otherwise due to the employee any Federal, state or local taxes of
any kind required by law to be withheld with respect to such shares.
7. RESTRICTIVE LEGEND; CERTIFICATES MAY BE HELD IN CUSTODY. Each
certificate evidencing shares of Stock granted pursuant to a Restricted Stock
Grant shall, (i) if issued to any person other than the Company for safekeeping
while the restrictions apply, bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock Grant and (ii)
if issued to the Company for safekeeping while the restrictions apply, be noted
as restricted on the records of the transfer agent. Any attempt to dispose of
such shares of Stock in contravention of such terms, conditions and restrictions
shall be ineffective. The Committee may adopt rules which provide that the
certificates evidencing such shares may be held in custody by a bank or other
institution, or that the Company may itself hold such shares in custody, until
the restrictions thereon shall have lapsed.
8. RESTRICTIONS UPON MAKING OF RESTRICTED STOCK GRANTS. The listing upon
the New York Stock Exchange or the registration or qualification under any
Federal or state law of any shares of Stock to be granted pursuant to Restricted
Stock Grants (whether to permit the making of Restricted Stock Grants or the
resale or other disposition of any such shares of Stock by or on behalf of the
employees receiving such shares) may be necessary or desirable as a condition of
or in connection with such Restricted Stock Grants and if, in any such event,
the Board in its sole discretion so determines, delivery of the certificates for
such shares of Stock shall not be made until such listing, registration or
qualification shall have been completed. In such connection, the Company agrees
that it will use its best effort to effect any such listing, registration or
qualification; provided, however, the Company shall not be required to use its
best efforts to effect such registration under the Securities Act of 1933 other
than on Form S-8, as presently in effect, or such other forms as may be in
effect from time to time calling for information comparable to that presently
required to be furnished under Form S-8.
9. RESTRICTIONS UPON RESALE OF STOCK. If the shares of Stock that have
been granted to a Participant pursuant to the terms of the Plan are not
registered under the Securities Act of 1933, as amended, pursuant to an
effective registration statement, such Participant, if the Committee shall deem
it advisable, may be required to represent and agree in writing that (i) any
shares of Stock acquired by such employee pursuant to the Plan will not be sold
except pursuant to an effective registration statement under the Securities Act
of 1933, as amended, or pursuant to an exemption from registration under said
Act and (ii) such Participant is acquiring such shares of Stock for the
Participant's own account and not with a view to the distribution thereof.
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V. PERFORMANCE UNITS
1. GENERAL. The Committee may, from time to time and upon such terms and
conditions as it may determine, grant Performance Units which will become
payable to a Participant upon the achievement of specified performance
objectives. Each grant of Performance Units shall be evidenced by a Performance
Unit Agreement which shall contain such terms and conditions consistent with the
Plan as the Committee shall determine; provided, however that each grant of
Performance Units shall satisfy the following requirements:
(a) Each grant shall specify the number of Performance Units to which it
pertains.
(b) The performance period with respect to each Performance Unit shall be
such period of time commencing with the date of grant as shall be
determined by the Committee at the time of grant.
(c) Each grant shall specify performance objectives, if any, that are to be
achieved in order for payments to be made with respect to such Performance
Units.
(d) Each grant shall specify a minimum acceptable level of achievement in
respect of the specified performance objective below which no payment will
be made and shall set forth a formula for determining the amount of payment
to be made if performance is at or above such minimum, but short of full
achievement of the performance objectives.
(e) Each grant shall specify the time and manner of payment (whether in
cash, shares of Stock or a combination thereof) of Performance Units which
have been earned.
(f) The Committee may adjust the performance objectives and the related
minimum acceptable level of achievement if, in the sole judgment of the
Committee, events or transactions, such as stock splits, recapitalizations,
mergers, combinations, divestitures, spin-offs and the like, have occurred
after the date of grant which are unrelated to the performance of the
Participant and result in distortion of the performance objectives or the
related minimum.
2. PAYMENT FOR PERFORMANCE UNITS. Full and/or partial payment of
Performance Units will be made only upon certification by the Committee of the
attainment by the Participant of the performance objectives.
3. TERMINATION OF EMPLOYMENT BY REASON OF DEATH, DISABILITY OR RETIREMENT.
The Committee may, in its sole discretion, determine that Performance Units
awarded to a Participant shall become partially or fully vested upon such
Participant's termination of employment due to death, Disability or Retirement.
VI. CANCELLATION AND RESCISSION.
1. COMPETITION; CONFIDENTIAL INFORMATION.
(a) Unless an Option Agreement or a Stock Appreciation Right Agreement
(any such agreement being referred to herein as an "Agreement") specifies
otherwise, the Committee may
(1) cancel at any time any unexercised Option or Right; or
(2) rescind any exercise of an Option or Right;
if the Participant is not in compliance with all other applicable
provisions of the Agreement or the Plan or if, prior to any such exercise
or within six months after such exercise, the Participant
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(i) engages in a Competing Business, as such term is defined in the
Agreement; or
(ii) solicits for employment, hires or offers employment to, or
discloses information to or otherwise aids or assists any other person
or entity other than the Company in soliciting for employment, hiring
or offering employment to, any employee of the Company; or
(iii) takes any action which is intended to harm the Company or its
reputation, which the Company reasonably concludes could harm the
Company or its reputation or which the Company reasonably concludes
could lead to unwanted or unfavorable publicity to the Company; or
(iv) discloses to anyone outside the Company, or uses in other than the
Company's business, any "confidential information", as such term is
defined in the Agreement.
(b) Upon exercise of an Option or Right, the Participant shall certify
on a form acceptable to the Committee that the Participant is in compliance
with the terms and conditions of the Agreement and the Plan.
(c) The Company shall immediately notify the Participant in writing of
any cancellation of any unexercised Option or Right. Following receipt of
such notice, the Participant shall have no further rights with respect to
such Option or Right.
(d) The Company shall notify the Participant in writing of any
rescission of an exercise of an Option or Right within one year after the
activity referred to in Part VI, Section 1(a). Within ten days after
receiving such a notice from the Company, the Participant shall either (i)
pay to the Company the excess of the fair market value of the Stock on the
date of exercise of an Option over the exercise price for the Option or the
fair market value of the Stock and/or cash distributed to the Participant
as a result of the exercise of a Right or (ii) return the Stock received
upon the exercise of an Option (in which case the Company will return the
exercise price to the Participant) or return the Stock and/or cash
distributed upon the exercise of a Right.
2. AGREEMENT BY PARTICIPANT REGARDING DEDUCTION. The Participant shall
agree and consent to a deduction from any amounts the Company owes to the
Participant from time to time (including amounts owed as wages or other
compensation, fringe benefits, or vacation pay, as well as any other amounts
owed to the Participant by the Company), to the extent of the amounts the
Participant owes the Company under this Article VI. Whether or not the Company
elects to make any set-off in whole or in part, if the Company does not recover
by means of set-off the full amount owed by the Participant, calculated as set
forth in this Article VI, then the Participant agrees to pay immediately the
unpaid balance to the Company.
VII. MISCELLANEOUS
1. EFFECTIVE DATE. The Plan became effective on April 30, 1996, subject
to approval by shareowners, and the Plan was approved by shareowners on April
30, 1996.
2. DURATION OF PLAN. Unless sooner terminated, the Plan shall remain in
effect until April 30, 2006. Termination of the Plan shall not affect any
Options or Rights previously granted, which Options or Rights shall remain in
effect until exercised, surrendered, or cancelled, or until they have expired,
all in accordance with their terms. Termination of the Plan shall not affect
any Restricted Stock Grants previously made, or Stock previously granted
pursuant to a Restricted Stock Grant; the terms, conditions and restrictions
applicable to shares issued pursuant to a Restricted Stock Grant shall remain in
effect until such terms, conditions and restrictions shall have lapsed all in
accordance with their terms. Termination of the Plan shall not affect any grant
of Performance
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Units previously made; the terms and conditions applicable to such Performance
Units shall remain in effect until the Performance Units are earned in
accordance with their terms.
3. CHANGES IN CAPITAL STRUCTURE. In the event that there is any change in
the capital structure of the Company through merger, consolidation,
reorganization, recapitalization, spin-off or otherwise, or if there shall be
any dividend on the Company's Stock, payable in such Stock, or if there shall be
a Stock split or a combination of shares, then:
(i) the number of shares reserved for Options (both in the aggregate
and with respect to each Participant) and the number of shares subject to
outstanding Options and the price per share of each such Option;
(ii) the number of shares with respect to which Rights may be exercised
(both in the aggregate and with respect to each Participant); and
(iii) the number of shares of Stock reserved for Restricted Stock
Grants under the Plan
shall be proportionately adjusted by the Board as it deems equitable, in its
absolute discretion, to prevent dilution or enlargement of the rights of a
Participant and any shares issued pursuant to such change in capital structure
shall be subject to the same terms, conditions and restrictions as the shares of
Stock with respect to which newly issued shares are issued. The issuance of
Stock for consideration and the issuance of Stock rights shall not be considered
a change in the Company's capital structure. No adjustment provided for in this
Section 3 shall require the issuance of any fractional share.
4. CHANGE IN CONTROL. If while unexercised Options, Rights, Restricted
Stock Grants or Performance Units remain outstanding under the Plan:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any company owned, directly or
indirectly, by the shareowners of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clause (i),
(iii) or (iv) of this Section) whose election by the Board or nomination
for election by the Company's shareowners was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority thereof;
(iii) the shareowners of the Company approve a merger or consolidation
of the Company with any other Company, other than (1) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation or (2) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined) acquires more
than 50% of the combined voting power of the Company's then outstanding
securities; or
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(iv) the shareowners of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets,
then from and after the date of the first of the foregoing events to occur, (a)
all Options and Rights held by active employees on such date shall be
exercisable in full, whether or not otherwise exercisable; (b) the restrictions
set forth in Part IV, Section 2 on all outstanding Restricted Stock Grants,
including Performance Restricted Stock Grants, shall lapse; and (c) Performance
Units shall be earned and become fully payable.
5. AMENDMENT OR TERMINATION. The Board may, by resolution, amend or
terminate the Plan at any time; provided, however, that
(i) shareowner approval shall be required for any changes to the Plan which
would require shareowner approval under the New York Business Corporation
Law, Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or
Section 162(m) of the Code; and
(ii) the Board may not, without the written consent of the Participant,
alter, impair or adversely affect any right of such Participant with
respect to any Option, Right or Performance Unit previously granted, or
Restricted Stock Grant grant previously made to such Participant under the
Plan except as authorized herein.
Notwithstanding the foregoing, the Board may, by resolution, amend the Plan in
any way that it deems necessary or appropriate in order to make income with
respect to the Plan deductible for Federal income tax purposes under Section
162(m) of the Code without regard to the foregoing provisos (i) and (ii), and
any such amendment shall be effective as of such date as is necessary to make
such income under the Plan so deductible.
7. UNFUNDED PLAN. The Plan shall be unfunded. Neither the Company nor
the Committee shall be required to segregate any assets that may at any time be
represented by Options or Rights under the Plan. Neither the Company nor the
Committee shall be deemed to be a trustee of any amounts to be paid under the
Plan. Any liability of the Company to any Participant with respect to a right
shall be based solely upon any contractual obligations created by the Plan, a
Performance Unit Agreement, a Stock Appreciation Right Agreement or an Option
Agreement; no such obligation shall be deemed to be secured by any pledge or any
encumbrance on any property of the Company.
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PAYLESS SPIN-OFF STOCK PLAN
SECTION 1.
The purpose of the Plan is to attract, retain and motivate the key management
associates of Payless ShoeSource, Inc. and its subsidiaries.
SECTION 2. DEFINITIONS
(a) "Associate" means any individual employed by the Company or any
subsidiary of the Company, in an executive capacity, who receives regular
stated compensation in respect of such employer-employee relationship other
than a pension or fee under contract.
(b) "Board" means the board of directors of Payless.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a committee designated by the Board, which shall
consist of not less than two members of the Board who shall be appointed by
and serve at the pleasure of the Board and who shall be "disinterested"
within the meaning of Rule 16b-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, and who shall be "outside"
directors within the meaning of Section 162(m) of the Code.
(e) "Common Stock" means the common stock of Payless.
(f) "Company" means Payless or any subsidiary of Payless which is an employer
of an Associate.
(g) "Fiscal Year" means the fiscal year of the Company as established from
time to time.
(h) "May" means The May Department Stores Company, a New York corporation,
its successors and assigns.
(i) "Participant" means an Associate who has been designated by the Committee
as a participant in the Plan.
(j) "Payless" means Payless ShoeSource, Inc., a Missouri corporation, its
successors and assigns.
(k) "Plan" means the Payless Spin-Off Stock Plan, as it may be amended from
time to time.
(l) "Retirement" means retirement as that term is defined in the Company's
Profit Sharing Plan.
(m) "Spin-off" means the distribution by May of all of the shares of Common
Stock then owned by May to the owners of the common stock of May.
(n) "Transaction Date" means the effective date of the Spin-off.
(o) "Treasury Stock" means shares of Common Stock which (i) have been issued
and reacquired by Payless, (ii) are held in the treasury of Payless on the
Transaction Date and (iii) are reserved by Payless on the Transaction Date
for issuance pursuant to the Plan or pursuant to any other employee incentive
arrangement for Associates.
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SECTION 3. PARTICIPANTS
(a) The individuals who are eligible to receive grants of Common Stock
hereunder shall be limited to Associates, including individuals who are both
Associates and directors of Payless. From time to time, the Committee shall, in
its sole discretion, determine which of those eligible Associates will be
granted shares of Common Stock under the Plan and the size, terms and conditions
of those grants.
(b) Unless the Committee specifically determines otherwise, an Associate is
not eligible to participate in the Plan and receive shares of Common Stock
hereunder if (i) the Associate is offered an employment contract by Payless in
connection with the Spin-off and (ii) the Associate does not execute the
employment contract.
SECTION 4. SHARES SUBJECT TO THE PLAN
(a) Common Stock issued under the Plan shall be Treasury Stock.
(b) The maximum number of shares of Common Stock which may be issued under
the Plan is 425,000 shares (subject to adjustment if the aggregate number of
shares of Common Stock to be distributed in the Spin-off and held in treasury is
different than 41 million shares.
(c) The number of shares of Common Stock which may be granted to any
Participant under the Plan shall be based on the Participant's Basic
Compensation and/or position in effect on February 1, 1996, as follows:
(i) Pay Ranges 11 +: 250 shares for every $10,000 of Basic Compensation
(ii) Buyers: 250 shares for every $10,000 of Basic Compensation
(iii) Pay Ranges 9 - 10: 200 shares for every $10,000 of Basic Compensation
SECTION 5. RESTRICTIONS ON THE COMMON STOCK
(a) Subject to the provisions of Section 5(b) below, the shares of Common
Stock granted to a Participant under this Plan shall not be sold, assigned,
conveyed, transferred, pledged, hypothecated, or otherwise disposed of.
(b) Subject to the provisions of Section 6, the restrictions set forth in
Section 5(a) shall lapse with respect to a grant of Common Stock to a
Participant, as follows:
(i) restrictions on one-third of the shares of Common Stock will lapse on the
Transaction Date;
(ii) restrictions on one-third of the shares of Common Stock will lapse on
the first anniversary of the Transaction Date; and
(iii) restrictions on one-third of the shares of Common Stock will lapse on
the second anniversary of the Transaction Date.
(c) Each certificate evidencing shares of Common Stock granted pursuant to
the Plan shall, (i) if issued to any person other than the Company for
safekeeping while the restrictions apply, bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such Common Stock and
(ii) if issued to the Company for safekeeping while the restrictions apply, be
noted as restricted on the records of the transfer agent. Any attempt to
dispose of such shares of Common Stock in contravention of such terms,
conditions and restrictions shall be ineffective. The Committee may adopt
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rules which provide that the certificates evidencing such shares may be held in
custody by a bank or other institution, or that the Company may itself hold such
shares in custody, until the restrictions thereon shall have lapsed.
SECTION 6. TERMINATION OF EMPLOYMENT
(a) Retirement or Termination by the Company Without Cause. If a
Participant's employment is terminated because of Retirement or because of a
termination by the Company for reasons other than "cause" following the
Transaction Date and prior to any anniversary of the Transaction Date on which
restrictions on shares of Common Stock are scheduled to lapse, then the
restrictions shall lapse as to a pro-rata portion of the shares upon which
restrictions are scheduled to lapse on that anniversary date.
(b) Death or Disability. If a Participant's employment is terminated
following the Transaction Date and prior to any anniversary of the Transaction
Date on which restrictions on shares of Common Stock are scheduled to lapse:
(i) because the Participant is Totally Disabled, as that term is defined in
Payless's Long-Term Disability Plan, then all restrictions on shares of
Common Stock will lapse on the anniversaries of the Transaction Dates on
which they are otherwise scheduled to lapse while the Participant remains so
disabled, so long as the Participant is still considered as a "employee" on
the records of Payless; or
(ii) because of the Participant's death, then the restrictions shall lapse as
to all shares of Common Stock for which the restrictions have not lapsed on
the date of the Participant's death. A Participant may file a written
designation of beneficiary to receive, in the event of the Participant's
death, any shares of Common Stock for which restrictions lapse on the date of
death. The Company shall prescribe procedures and requirements for
beneficiary designations not inconsistent with this provision and has the
right to review and approve such designations.
(c) Other Terminations.
(i) If a Participant's employment is terminated for any reason prior to the
Transaction Date, then the Participant is not eligible to a grant of Common
Stock hereunder; or
(ii) If a Participant's employment is terminated, by the Company for "cause"
or voluntarily by the Participant for reasons other than Retirement,
following the Transaction Date and prior to any anniversary of the
Transaction Date on which restrictions on shares of Common Stock are
scheduled to lapse, then all shares of Common Stock for which the
restrictions have not lapsed at the time of termination shall be immediately
returned to the Company. Such return of Common Stock shall be accomplished
by the Participant's delivering or causing to be delivered to the Secretary
or any Assistant Secretary of the Company the certificate(s) for such shares
of Common Stock, accompanied by such endorsement(s) and/or instrument(s) of
transfer as may be required by the Secretary or any Assistant Secretary of
the Company.
(d) For purposes of this Plan, "cause" shall mean
(i) an intentional act of fraud, embezzlement, theft or any other material
violation of law in connection with the Participant's duties or in the course
of the Participant's employment with the Company; or
(ii) intentional damage to assets of the Company; or
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(iii) intentional disclosure of confidential information of the Company
contrary to the policy of the Company; or
(iv) intentional engagement in any competitive activity which would
constitute a breach of the Participant's duty of loyalty or of the
Participant's obligations under any employment agreement with the
Company; or
(v) intentional breach of any policy of the Company; or
(vi) the willful and continued failure by the Participant to substantially
perform his or her duties with the Company (other than any such failure
resulting from the Participant's incapacity due to physical or mental
illness); or
(vii) the willful engaging by the Participant in conduct which is
demonstrably and materially injurious to the Company, monetarily or
otherwise.
SECTION 7. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the terms of the
Plan, the Committee is authorized to approve Common Stock grants in accordance
with the Plan, to construe and interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan and to make all
determinations and take all actions necessary or advisable for the Plan's
administration.
The Committee shall act by vote or written consent of a majority of its
members. Whenever the Plan authorizes or requires the Committee to take any
action, to make any determination or decision or to form any opinion, then any
such action, determination, decision or opinion by or of the Committee shall be
in the absolute discretion of the Committee.
SECTION 8. WITHHOLDING TAXES
Each Participant shall agree that,
(a) no later than the date as of which the restrictions on the Common Stock
shall lapse, such Participant will pay to the Company in cash, or, if the
Committee approves, in stock, or make other arrangements satisfactory to the
Committee regarding payment of, any Federal, state or local taxes of any kind
required by law to be withheld with respect to the shares of Common Stock, and
(b) the Company and its subsidiaries shall, to the extent permitted by law,
have the right to deduct from any payment of any kind otherwise due to the
Participant any Federal, state or local taxes of any kind required by law to be
withheld with respect to the Common Stock granted pursuant to this Plan.
SECTION 9. RESTRICTIONS UPON MAKING A COMMON STOCK GRANT
The listing upon the New York Stock Exchange or the registration or
qualification under any Federal or state law of any shares of Common Stock to be
granted under the Plan (whether to permit the making of grants or the resale or
other disposition of any such shares by or on behalf of the Participants
receiving such shares) may be necessary or desirable as a condition of or in
connection with the Common Stock grants made pursuant to the Plan and if, in any
such event, the Board in its sole discretion so determines, delivery of the
certificates for such shares of Common Stock shall not be made until such
listing, registration or qualification shall have been completed. In such
connection, the Company agrees that it will use its best efforts to effect any
such listing, registration or qualification; provided, however, the Company
shall not be required to use its best efforts to effect such registration
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under the Securities Act of 1933 other than on Form S-8, as presently in effect,
or such other forms as may be in effect from time to time calling for
information comparable to that presently required to be furnished under Form
S-8.
SECTION 10. EMPLOYMENT
In the absence of any specific agreement to the contrary, no grant of Common
Stock under the Plan shall affect any right of the Company to terminate the
Participant's employment at any time.
SECTION 11. EFFECTIVE DATE
The Plan shall become effective on April 30, 1996.
SECTION 12. DURATION OF THE PLAN
Unless sooner terminated, the Plan shall remain in effect until December 31,
1998. Termination of the Plan shall not affect any Common Stock grants
previously made; the terms, conditions and restrictions applicable to such
shares shall remain in effect until such terms, conditions and restrictions
shall have lapsed all in accordance with their terms.
SECTION 13. ADJUSTMENTS
If (i) following the Spin-off, there is (a) a change in the Common Stock
through merger, consolidation, reorganization, recapitalization or otherwise, or
(b) any dividend on the Common Stock payable in Common Stock, or (c) any split
or combination of shares of Common Stock, or (ii) the number of shares of Common
Stock issued on the Transaction Date (including Treasury Stock) is other than
41,000,000 shares, then the Committee shall adjust the number of Common Stock
which may be granted under the Plan and the number of Common Stock previously
granted under the Plan, and may make such other adjustments in each case as it
deems equitable in its absolute discretion so as to prevent dilution or
enlargement of the rights of Participants and so as to preserve the
Participant's proportionate interest in Payless.
SECTION 14. CHANGE IN CONTROL
If while Common Stock grants remain outstanding under the Plan:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any company owned, directly or indirectly, by
the shareowners of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i), (iii) or (iv) of this
Section) whose election by the Board or nomination for election by the Company's
shareowners was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof;
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(iii) the shareowners of the Company approve a merger or consolidation of the
Company with any other Company, other than (1) a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation or
(2) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as hereinabove defined)
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or
(iv) the shareowners of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets,
then from and after the date of the first of the foregoing events to occur, the
restrictions set forth in Section 5 on all outstanding grants of Common Stock
shall lapse.
SECTION 15. AMENDMENT OR TERMINATION
The Board may, by resolution, amend or terminate the Plan at any time;
provided, however, that
(i) shareowner approval shall be required for any changes to the Plan which
would require shareowner approval under the New York Business Corporation Law,
Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or Section 162(m)
of the Code; and
(ii) the Board may not, without the written consent of the Participant,
alter, impair or adversely affect any right of such Participant with respect to
any Common Stock previously granted to such Participant under the Plan except as
authorized herein.
Notwithstanding the foregoing, the Board may, by resolution, amend the Plan in
any way that it deems necessary or appropriate in order to make income with
respect to the Plan deductible for Federal income tax purposes under Section
162(m) of the Code without regard to the foregoing provisos (i) and (ii), and
any such amendment shall be effective as of such date as is necessary to make
such income under the Plan so deductible.
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<PAGE>
PAYLESS SPIN-OFF CASH PLAN
SECTION 1.
The purpose of the Plan is to attract, retain and motivate the key management
associates of Payless ShoeSource, Inc. and its subsidiaries.
SECTION 2. DEFINITIONS
(a) "Associate" means any individual employed by the Company or any
subsidiary of the Company, in an executive capacity who receives regular
stated compensation in respect of such employer-employee relationship other
than a pension or fee under contract.
(b) "Basic Compensation" means the Participant's annual salary rate on the
Transaction Date.
(c) "Board" means the board of directors of Payless.
(d) "Bonus" means the cash bonus awarded to Participants pursuant to
Section 4.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a committee designated by the Board, which shall
consist of not less than two members of the Board who shall be appointed by
and serve at the pleasure of the Board and who shall be "disinterested"
within the meaning of Rule 16b-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, and who shall be "outside"
directors within the meaning of Section 162(m) of the Code.
(g) "Company" means Payless or any subsidiary of Payless which is an
employer of an Associate.
(h) "May" means The May Department Stores Company, a New York corporation,
its successors and assigns.
(i) "Participant" means an Associate who has been designated by the
Committee as a participant in the Plan.
(j) "Payless" means Payless ShoeSource, Inc., a Missouri corporation, its
successors and assigns.
(k) "Plan" means the Payless Spin-Off Cash Plan, as it may be amended from
time to time.
(l) "Retirement" means retirement as that term is defined in the Company's
Profit Sharing Plan.
(m) "Spin-off" means the distribution by May of all of the shares of common
stock of Payless then owned by May to the owners of the common stock of
May.
(n) "Transaction Date" means the effective date of the Spin-off.
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SECTION 3. PARTICIPANTS
(a) The individuals who are eligible to receive Bonuses hereunder shall be
limited to Associates, including individuals who are both Associates and
directors of Payless. From time to time, the Committee shall, in its sole
discretion, determine which of those eligible Associates will be granted Bonuses
and the size, terms and conditions of those Bonuses.
(b) Unless the Committee specifically determines otherwise, an Associate is
not eligible to participate in the Plan and receive Bonuses hereunder if (i) the
Associate is offered an employment contract by Payless in connection with the
Spin-off and (ii) the Associate does not execute the employment contract.
SECTION 4. BONUSES
(a) Bonuses shall be payable in cash and shall be determined based on the
Participant's Basic Compensation and/or position in effect on February 1, 1996,
as follows:
(i) Company Principals: 37.5% of Basic Compensation
(ii) Pay Ranges 11 - 15: 25% of Basic Compensation
(iii) Buyers: 25% of Basic Compensation
(iv) Pay Range 9 - 10: 20% of Basic Compensation
(v) Pay Ranges 6 - 8: 10% of Basic Compensation
(b) Subject to Section 5 below, the Bonuses will be payable in two
installments. The first installment is payable on the first anniversary of the
Transaction Date. The second installment is payable on the second anniversary of
the Transaction Date.
(c) The Company shall have the right to deduct any sums that federal, state
or local tax laws require to be withheld with respect to any Bonus payments.
SECTION 5. TERMINATION OF EMPLOYMENT
(a) Retirement or Termination by the Company Without Cause. If a
Participant's employment is terminated following the Transaction Date and prior
to the date on which an installment of the Bonus is payable, because of
Retirement or because of a termination by the Company for reasons other than
"cause", then the Participant shall be entitled to a pro-rata portion of the
next installment payment of the Bonus otherwise payable to the Participant.
(b) Death or Disability. If a Participant's employment is terminated
following the Transaction Date and prior to any date on which an installment
payment of the Bonus is payable,
(i) because the Participant is Totally Disabled, as that term is defined
in Payless's Long-Term Disability Plan, then all installment payments will
be paid to the Participant in the ordinary course while the Participant
remains so disabled, so long as the Participant is still considered as a
"employee" on the records of Payless; or
(ii) because of the Participant's death, then all installment payments
scheduled to be paid following Participant's death will be paid to
Participant's beneficiary, if Participant has designated a beneficiary for
the receipt of such payments, or to Participant's estate, in the absence of
such a beneficiary designation.
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<PAGE>
(c) Other Terminations.
(i) If a Participant's employment is terminated for any reason prior to
the Transaction Date, then the Participant is not eligible to receive a
Bonus.
(ii) If a Participant's employment is terminated, by the Company for
"cause" or voluntarily by the Participant for reasons other than
Retirement, following the Transaction Date and prior to the date on which
an installment payment of a Bonus is payable, then the Participant shall
not be eligible to receive any Bonus payment scheduled to be paid following
such termination of employment.
(d) For purposes of this Plan, "cause" shall mean
(i) an intentional act of fraud, embezzlement, theft or any other
material violation of law in connection with the Participant's duties or in
the course of the Participant's employment with the Company; or
(ii) intentional damage to assets of the Company; or
(iii) intentional disclosure of confidential information of the Company
contrary to the policy of the Company; or
(iv) intentional engagement in any competitive activity which would
constitute a breach of the Participant's duty of loyalty or of the
Participant's obligations under any employment agreement with the Company;
or
(v) intentional breach of any policy of the Company; or
(vi) the willful and continued failure by the Participant to substantially
perform his or her duties with the Company (other than any such failure
resulting from the Participant's incapacity due to physical or mental
illness); or
(vii) the willful engaging by the Participant in conduct which is
demonstrably and materially injurious to the Company, monetarily or
otherwise.
SECTION 6. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the terms of
the Plan, the Committee is authorized to approve Bonus payments in accordance
with the Plan, to construe and interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan and to make all
determinations and take all actions necessary or advisable for the Plan's
administration.
The Committee shall act by vote or written consent of a majority of its
members. Whenever the Plan authorizes or requires the Committee to take any
action, to make any determination or decision or to form any opinion, then any
such action, determination, decision or opinion by or of the Committee shall be
in the absolute discretion of the Committee.
SECTION 7. RIGHTS OF PARTICIPANTS
(a) Nothing contained in the Plan shall confer upon any Participant any
right to continue in the employ of the Company or constitute any contract or
agreement of employment or interfere in any way with the right of the Company to
terminate or change the conditions of employment of any Participant.
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(b) The right to receive a Bonus under the Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, levy or charge, and any attempt to do so shall be void; nor shall
any such amounts be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Participant.
SECTION 8. UNFUNDED CHARACTER OF THE PLAN
The right of a Participant to receive any Bonus under the Plan shall be an
unsecured claim against the general assets of the Company. Nothing in the Plan
shall require the Company to invest any amounts in common stock of the Company
or in any other medium.
SECTION 9. EFFECTIVE DATE
The Plan shall become effective on April 30, 1996.
SECTION 10. DURATION OF THE PLAN
Unless sooner terminated, the Plan shall remain in effect until December
31, 1998.
SECTION 11. CHANGE IN CONTROL
If, prior to the date on which an installment of a Bonus is payable:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any company owned, directly or indirectly, by
the shareowners of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i), (iii) or (iv) of this
Section) whose election by the Board or nomination for election by the Company's
shareowners was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof;
(iii) the shareowners of the Company approve a merger or consolidation of
the Company with any other Company, other than (1) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation or (2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than 50% of the combined voting power of
the Company's then outstanding securities; or
(iv) the shareowners of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets,
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then from and after the date of the first of the foregoing events to occur, then
all remaining installments of the Bonus shall be immediately payable to the
Participant.
SECTION 12. AMENDMENT OR TERMINATION
The Board may, by resolution, amend or terminate the Plan at any time;
provided, however, that
(i) shareowner approval shall be required for any changes to the Plan
which would require shareowner approval under the New York Business Corporation
Law, Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or Section
162(m) of the Code; and
(ii) the Board may not, without the written consent of the Participant,
alter, impair or adversely affect any right of such Participant with respect to
any Bonus already granted, but not yet payable, to such Participant under the
Plan except as authorized herein.
Notwithstanding the foregoing, the Board may, by resolution, amend the Plan
in any way that it deems necessary or appropriate in order to make income with
respect to the Plan deductible for Federal income tax purposes under Section
162(m) of the Code without regard to the foregoing provisos (i) and (ii), and
any such amendment shall be effective as of such date as is necessary to make
such income under the Plan so deductible.
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<PAGE>
RESTRICTED STOCK PLAN FOR NON-MANAGEMENT DIRECTORS
EFFECTIVE MAY 4, 1996
I. GENERAL
1. PURPOSE. The purpose of the Plan is to provide certain compensation to
eligible directors of the Corporation and to encourage the highest level of
performance of non-management directors by providing those directors with a
proprietary interest in the Corporation's success and progress by granting them
shares of the Corporation's common stock which are restricted in accordance with
the terms and conditions set forth below.
2. DEFINITIONS. Whenever used herein, the following terms shall have the
meanings set forth below:
(a) "Annual Retainer" means an annual grant of restricted Stock to an
eligible director, as described in Section 5 of Part I of the Plan.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Committee" means a committee designated by the Board, which shall
consist of not less than two employee members of the Board who shall be
appointed by and serve at the pleasure of the Board and who shall be
"disinterested" within the meaning of Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934. No person who is a
Participant may be a member of that committee. Any person who is appointed
a member of that committee and who accepts such appointment shall, by
virtue thereof, be ineligible thereafter to be made a Restricted Stock
Grant under the Plan.
(d) "Corporation" means Payless ShoeSource, Inc.
(e) "Disability" means a medically determinable physical or mental
impairment which renders a Participant substantially unable to function as
a director of the Corporation.
(f) "Initial Grant" means the initial grant of restricted Stock to an
individual who first becomes an eligible director on or after the effective
date of the Plan, as described in Section 5 of Part I of the Plan.
(g) "Participant" means a member of the Board (i) who is not at the
time of grant an officer of the Corporation and (ii) to whom a Restricted
Stock Grant is made under the Plan.
(h) "Plan" means the Restricted Stock Plan for Non-Management
Directors of Payless ShoeSource, Inc.
(i) "Restricted Period" means the period from the Restricted Stock
Grant until the earlier of (i) the cessation of the Participant's
membership on the board by reason of death or Disability and (ii) the later
of (a) the expiration of the six month period immediately following the
Restricted Stock Grant or (b) the date on which the Participant's service
as a director of the Corporation terminates (other than by reason of death
or Disability).
(j) "Restricted Stock Grant" means a grant described in Part II of the
Plan which is made by the Corporation pursuant to the Plan.
(k) "Stock" means the common stock of the Corporation.
<PAGE>
(l) "Year of Service" means (i) each full annual period from the date
of the first annual meeting at which the Participant was elected as a
director (which may include service before or after the Participant became
a Participant, as determined by the Committee) to the date of the last
annual meeting through which the Participant served continually as a
director, and (ii) if the Participant was first elected to become a member
of the Board by the Board during the last six calendar months of the year,
the period from the date of such election until the first annual meeting of
shareholders next following such election.
3. ADMINISTRATION. The Plan shall be administered by the Committee.
Subject to all the applicable provisions of the Plan, the Committee is
authorized to construe and interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan and to make all determinations and
take all actions necessary or advisable for the Plan's administration; provided,
however, that the Committee shall have no discretion with respect to granting
any shares of Stock to any Participant, it being the intent that the granting of
shares of Stock hereunder shall be automatic, pursuant to the formula set forth
in Paragraph 5 of this Part I of the Plan. The Committee shall act by vote or
written consent of a majority of its members. Whenever the Plan authorizes or
requires the Committee to take any action, make any determination or decision or
form any opinion, then any such action, determination, decision or opinion by or
of the Committee shall be conclusive and binding on all persons. The Committee
may obtain such advice or assistance as it deems appropriate from persons not
serving on the Committee.
4. SHARES OF STOCK WHICH MAY BE GRANTED. There may be granted under the
Plan an aggregate of not more than 300,000 shares of Stock, subject to
adjustment as provided in Section 3 of Part III of the Plan. Shares of Stock
granted under the Plan shall be treasury shares. If any shares of Stock shall
be returned to the Corporation pursuant to the termination provisions described
in Section 1 of Part II of the Plan or in the instruments evidencing the making
of Restricted Stock Grants, such shares may again be granted under the Plan.
5. PARTICIPANTS.
INITIAL GRANTS
--------------
The individuals who are eligible to receive Restricted Stock Grants
hereunder shall be limited to all members of the board who are not at the time
of the grant officers of the Corporation. Each eligible director on the
effective date of the Plan shall receive an Initial Grant of 1,000 shares of
restricted Stock. Each individual who first becomes an eligible director after
the effective date of the Plan shall receive an Initial Grant of 1,000 shares of
restricted Stock on the date of first becoming an eligible director.
ANNUAL RETAINERS
----------------
Each individual who is an eligible director on the effective date of the
Plan, and who will continue to be an eligible director after such date, shall
receive an Annual Retainer of $35,000, payable in Stock, the number of shares to
be determined based on the average of the high and low trading prices of the
Stock on the New York Stock Exchange ("NYSE") on each of the first 30 days on
which trading in the stock occurs. Each individual who is an eligible director
on the date of any annual meeting of shareholders held during 1997 and
subsequent years, and who will continue to be an eligible director after the
date of such annual meeting of shareholders, shall receive an Annual Retainer of
$35,000, payable in Stock, the number of shares to be determined based on the
average of the high and low trading prices of the Stock on the NYSE on the date
of such annual meeting of shareholders, or if that day is not a trading day, on
the last trading day thereto.
Each individual who becomes a member of the Board during the period between
any two annual meetings shall receive a pro rata share of the Annual Retainer
based on the number of months remaining from the date the Participant joins the
Board until the next annual meeting. This pro rata portion of the Annual
Retainer shall
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be payable in Stock, the number of shares to be determined based on the average
of the high and low trading prices of the Stock on the NYSE on the date the
Participant joins the Board, or if that day is not a trading day, on the last
trading day thereto.
6. RIGHTS WITH RESPECT TO SHARES OF STOCK. A Participant shall have,
after a certificate or certificates for the number of shares of Stock granted
have been issued in his or her name, absolute ownership of such shares including
the right to vote the same and receive dividends thereon, subject, however, to
the terms, conditions and restrictions described in the Plan and in the
instrument evidencing the making of the Restricted Stock Grant to such
Participant. The Corporation will hold all certificates until all restrictions
on them have lapsed.
II. RESTRICTED STOCK GRANTS
Each Restricted Stock Grant made under the Plan shall contain the following
terms, conditions and restrictions and such additional terms, conditions and
restrictions as may be determined by the Committee from time to time hereafter.
1. RESTRICTIONS. Shares of Stock granted to a Participant pursuant to a
Restricted Stock Grant shall not be sold, assigned, conveyed, transferred,
pledged, hypothecated, or otherwise disposed of until the end of the Restricted
Period, but only to the extent of the shares which had vested on or prior to the
end of the Restricted Period in accordance with Section 2 or 3 of this Part II.
If the restrictions shall not have lapsed at the end of the Restricted Period as
to any of the shares, then, except as provided in Section 3 of this Part II, the
shares as to which the restrictions shall not have lapsed shall be returned to
the Corporation forthwith, and all the rights of the Participant to such shares
shall immediately terminate without any payment or consideration by the
Corporation.
2. VESTING. Except as set forth in Section 3 of this Part II, all
Restricted Stock, whether part of an Initial Grant or an Annual Retainer, is
forfeitable during the first six months following the date of the grant.
Thereafter, as to the Initial Grant, a Participant will be vested with respect
to one-fifth of the shares granted for each Year of Service the Participant has
then completed. A Participant will be vested with respect to one-twelfth of the
shares granted in Annual Retainers that are granted on the date of an annual
meeting on the first day of each month following the date of the annual meeting.
A Participant joining the Board during the period between any two annual
meetings shall be vested in the shares granted in the pro rata Annual Retainer
in equal portions on the first day of each month following the date that
individual joined the Board up to the next annual meeting. Notwithstanding the
foregoing, the Committee may accelerate the vesting of shares under such terms
and conditions as may be appropriate.
3. TERMINATION OF MEMBERSHIP ON BOARD BY REASON OF DEATH OR DISABILITY.
Any provision of Section 2 of this Part II to the contrary notwithstanding, if a
Participant who has been a member of the Board continuously since the date as of
which a Restricted Stock Grant was made to such Participant shall cease to be
such a member by reason of such death or Disability, then the Participant shall
become fully vested on the date of such event as to all shares of Stock granted
to such Participant pursuant to such Restricted Stock Grant.
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4. AGREEMENT BY PARTICIPANT REGARDING WITHHOLDING TAXES. Each Participant
shall agree that, subject to the provisions of Section 5 of this Part II:
(i) such Participant will timely pay to the Corporation, or make
arrangements satisfactory to the Committee regarding payment of, any
federal, state or local taxes of any kind required by law to be withheld
with respect to the shares of Stock subject to such Restricted Stock Grant,
and
(ii) the Corporation and its Subsidiaries shall, to the extent
permitted by law, have the right to deduct from any payment of any kind
otherwise due to the Participant any federal, state or local taxes of any
kind required by law to be withheld with respect to the shares of Stock
subject to such Restricted Stock Grant.
5. ELECTION TO RECOGNIZE INCOME IN THE YEAR OF GRANT. A director may
elect to be taxed when the Stock is granted or when the Stock becomes non-
forfeitable.
(i) If any Participant properly elects, within thirty days of the date of
grant, to include in gross income for federal income tax purpose an
amount equal to the fair market value of the shares of Stock granted on
the date of grant, such Participant shall pay to the Corporation, or
make arrangements satisfactory to the Committee to pay to the
Corporation in the year of such grant, any federal, state or local
taxes required to be withheld with respect to such shares. When such an
election is made, dividends will be taxable as dividends. If such
Participant shall fail to make the required tax payments, the
Corporation and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct from any payment of any kind otherwise due to
the Participant any federal, state or local taxes of any kind required
by law to be withheld with respect to such shares.
(ii) If a director elects to be taxed when the Stock becomes non-
forfeitable, dividends will be taxed as ordinary income until the Stock
ceases to be forfeitable at which time dividends will be taxed as
dividends.
6. RESTRICTIVE LEGEND; CERTIFICATES MAY BE HELD IN CUSTODY. Each
certificate evidencing shares of Stock granted pursuant to a Restricted Stock
Grant shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock Grant. Any attempt to dispose
of such shares of Stock in contravention of such terms, conditions and
restrictions shall be ineffective. The Corporation itself will hold such shares
in custody, until the restrictions thereon shall have lapsed.
7. RESTRICTIONS UPON MAKING OF RESTRICTED STOCK GRANTS. The listing upon
the NYSE or the registration or qualification under any federal or state law of
any shares of Stock to be granted pursuant to Restricted Stock Grants (whether
to permit the making of Restricted Stock Grants or the resale or other
disposition of any such shares of Stock by or on behalf of the Participants
receiving such shares) may be necessary or desirable as a condition of or in
connection with such Restricted Stock Grants and if, in any such event, the
Committee in its sole discretion so determines, delivery of the certificates for
such shares of Stock shall not be made until such listing, registration or
qualification shall have been completed. In such connection, the Corporation
agrees that it will use its best efforts to effect any such listing,
registration or qualification; provided, however, the Corporation shall not be
required to use its best efforts to effect such registration under the
Securities Act of 1933 other than on Form S-3 or Form S-8, as in effect on the
effective date of the Plan, or such other forms as may be in effect from time to
time calling for information comparable to that required to be furnished under
Form
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S-3 and Form S-8 as in effect on the effective date of the Plan. The Corporation
shall not be obligated to issue or deliver any shares of Restricted Stock if the
issuance or delivery of such shares shall constitute a violation of any
provision of any law or of any regulation of any governmental authority or any
national securities exchange.
8. RESTRICTIONS UPON RESALE OF STOCK. If the shares of Stock that have
been granted to a Participant pursuant to the terms of the Plan are not
registered under the Securities Act of 1933 pursuant to an effective
registration statement, such Participant, if the Committee shall deem it
advisable, may be required to represent and agree in writing (i) that any shares
of Stock acquired by such Participant pursuant to the Plan will not be sold
except pursuant to an effective registration statement under the Securities Act
of 1933 or pursuant to an exemption from registration under said Act and (ii)
that such Participant is acquiring such shares of Stock for the Participant's
own account and not with a view to the distribution thereof.
III. MISCELLANEOUS
1. EFFECTIVE DATE. The Plan shall become effective on May 4, 1996.
2. DURATION OF PLAN. Unless terminated pursuant to Section 5 of Part III,
the Plan shall remain in effect.
3. CHANGES IN CAPITAL STRUCTURE. In the event that there is any change in
the capital structure of the Corporation through merger, consolidation,
reorganization, recapitalization or otherwise, or if there shall be any dividend
on the Stock, payable in such Stock, or if there shall be a stock split with
respect to the Stock or combination of shares, then:
(a) the number of shares of Stock reserved for grants under the Plan
shall be proportionately adjusted by the Committee as it deems equitable,
in its absolute discretion, to prevent dilution or enlargement of the
rights of Participants,
(b) any shares issued pursuant thereto shall be subject to the same
terms, conditions and restrictions as the shares of Stock with respect to
which such newly issued shares are issued, and
(c) any cash which is issued pursuant thereto shall be deemed free
from any restrictions.
The issuance of Stock for consideration and the issuance of stock rights with
respect to the Stock shall not be considered a change in the Corporation's
capital structure.
4. EXPENSES OF PLAN. The expenses of the Plan shall be borne by the
Corporation.
5. AMENDMENT OR TERMINATION. The Corporation, by the action of any
individual authorized to act generally on behalf of the Corporation, may amend
or terminate the Plan at time; provided, however, that subject to the provisions
of Section 3 of this Part III, the Corporation may not, without approval by the
holders of a majority of the outstanding shares of stock entitled to vote
thereon and actually voting thereon, increase the number of shares of Stock
which may be granted under the Plan, change the class of individuals eligible to
participate in the Plan or otherwise materially increase the benefits accruing
to Participants under the Plan or materially modify the requirements with
respect to eligibility for participation in the Plan; and provided further that
the provisions of Section 5 of Part I of the Plan and the provision of Section 2
of Part II of the Plan relating to Initial Grants and to Annual Retainers
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may not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act, or the rules and regulations promulgated thereunder. In the event that a
Restricted Stock Grant has been made to a Participant, then no amendment of the
Plan after the date as of which such Restricted Stock Grant was made shall,
unless otherwise required by law, adversely affect any right of such Participant
with respect to such Restricted Stock Grant without the written consent of such
Participant. Termination of the Plan shall not affect any Restricted Stock
Grants previously made or shares of Stock previously granted pursuant thereto;
the terms, conditions and restrictions applicable to such shares shall remain in
effect until such terms, conditions and restrictions shall have lapsed, all in
accordance with their terms.
6. Nothing in this Plan shall be deemed to create any obligation on the
part of the Board to nominate any director for reelection as a director by the
shareholders of the Corporation.
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the ________ day of
_______________, 1996, by and between PAYLESS SHOESOURCE, INC. ("Payless") and
___________________ ("Executive").
In consideration of mutual promises and agreements set forth in this
Employment Agreement, Payless and Executive agree as follows:
1. (a) Payless agrees to employ Executive, and Executive agrees to render
personal services to Payless, for the period from ______________, 1996 to April
30, _______ (the "Contract Term") as ___________________________________ of
Payless ShoeSource, Inc. and/or to perform such other executive duties as may
from time to time be required of Executive by Payless.
(b) Payless agrees to pay Executive basic compensation for such services
during the Contract Term at the annual rate of $___________, payable in equal
semi-monthly installments, and in accordance with Paragraph 5, which annual rate
will be subject to an annual review.
(c) If Executive is eligible to participate in one of Payless's bonus
plans (the "Incentive Plan"), then Executive shall be entitled to such Awards,
if any, which may be payable under the Incentive Plan, determined in accordance
with and subject to all of the terms and provisions of the Incentive Plan.
(d) Payless shall reimburse Executive for all items of normal expense
incurred by Executive as an employee of Payless in accordance with Payless's
reimbursement policies in effect from time to time.
(e) The Executive Compensation Change Memorandum from time to time in
effect, as initialled on behalf of Payless and by Executive, is hereby
incorporated by reference herein and made a part hereof. In addition, Payless
has adopted certain employee benefit plans and has established certain
arrangements concerning executive perquisites which may, from time to time,
confer rights and benefits on the Executive in accordance with their terms, and
Payless may, in the future, adopt additional employee benefit plans and
establish additional arrangements concerning executive perquisites, and may in
the future amend, modify or terminate any of the aforesaid employee benefit
plans and arrangements, all in accordance with their terms and in accordance
with applicable law. Executive shall be entitled to whatever rights and benefits
may be conferred on Executive, from time to time in accordance with the terms of
such plans and arrangements, as they may be amended from time to time,
independent of this Agreement.
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(f) During fiscal year 1996, Payless shall grant to Executive a stock
option grant of ________ shares of Payless common stock, under the terms and
exercise provisions applicable to standard stock option grants under Payless's
Incentive Stock Plan.
(g) (1) With respect to Executive's May stock options that are currently
exercisable or that become exercisable on or prior to the distribution date for
the spin-off of Payless by The May Department Stores Company (the "Distribution
Date"), Executive may elect, on or before April 15, 1996, to waive Executive's
rights to such options, in which event Payless agrees to grant to Executive, on
the Distribution Date, an option to purchase 1.25 shares of Payless common stock
for each May option so waived. The Payless stock options will have a term of ten
years, and 50% of the options will become exercisable on each of the first and
second anniversaries of the Distribution Date. The Payless options will have an
exercise price equal to the arithmetic average of the high and low trading
prices of Payless common stock on the New York Stock Exchange for each of the
first 30 trading days on which trading in the stock on that exchange occurs (the
"30 Day Average Price").
(2) Executive understands that Executive's May stock options that first
become exercisable after the Distribution Date will lapse on that date. Payless
agrees to grant to Executive, on the Distribution Date, an option to purchase
1.25 shares of Payless common stock for each May option so lapsed. The Payless
stock options will have a term of ten years, and 50% of the options will become
exercisable on each of the first and second anniversaries of the Distribution
Date. The Payless options will have an exercise price equal to the 30 Day
Average Price.
(h) Executive shall participate in the Payless Spin-Off Stock Plan, in
accordance with the terms of that plan. Pursuant to the terms of that plan,
Executive shall receive shares of restricted Payless common stock (at the rate
of 250 shares for every $10,000 of Executive's base salary as of the date of
this Agreement), with restrictions to be released with respect to one-third of
the shares on the Distribution Date, one-third of the shares on the first
anniversary of the Distribution Date and one-third of the shares on the second
anniversary of the Distribution Date, subject to the terms of that plan.
(i) Executive shall participate in the Payless Spin-Off Cash Plan, in
accordance with the terms of that plan. Pursuant to the terms of that plan,
Executive shall receive a cash bonus in the amount of 25% of Executive's base
salary as of the date of this Agreement, 50% of which is payable on each of the
first and second anniversaries of the Distribution Date, subject to the terms of
that plan.
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2. (a) At all times during the Contract Term, Executive will:
(i) faithfully and diligently perform Executive's duties in conformity
with the directions of Payless and serve Payless to the best of Executive's
ability; and
(ii) devote Executive's undivided time and attention to the business of
Payless, subject to reasonable vacations in accordance with Payless's
vacation policy as it applies from time to time, to such extent as may be
reasonably necessary for the proper performance of the personal services to
be rendered by Executive under this Agreement; and
(iii) maintain Executive's residence in the Topeka, Kansas metropolitan
area or the environs thereof within reasonable access to the business
activities of Payless therein for the Contract Term.
(b) At all times during the Contract Term, Executive will not:
(i) engage in any activity which conflicts or interferes with or
adversely affects Executive's performance of Executive's duties hereunder,
or
(ii) accept any other employment, whether as an Executive or as a
consultant or in any other capacity, and whether or not compensated
therefor, or
(iii) violate the terms of any of the policies described in Payless's
Policy of Business Conduct distributed from time to time to Executive.
3. (a) At all times during the Contract Term and for a period of [two years;
one year; six months] from actual termination of employment or, if there is more
than [two years; one year; six months] remaining in the Contract Term at the
time of termination of employment, for the remainder of the Contract Term,
Executive will not:
(i) directly or indirectly, own, manage, operate, finance, join, control,
or participate in the ownership, management, operation, financing or
control of, or be employed by or connected in any manner with any Competing
Business, or
(ii) solicit for employment, hire or offer employment to, or disclose
information to or otherwise aid or assist any other person or entity other
than Payless or any subsidiary of Payless in soliciting for employment,
hiring or offering employment to, any employee of Payless or any subsidiary
of Payless, or
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(iii) take any action which is intended to harm Payless or its reputation,
which Payless reasonably concludes could harm Payless or its reputation or
which Payless reasonably concludes could lead to unwanted or unfavorable
publicity to Payless.
Ownership of an investment of less than the greater of $25,000 or 1% of any
class of equity or debt security of a Competing Business shall not constitute
ownership or participation in ownership in violation of Paragraph 3(a).
(b) The term "Competing Business" shall include, but not be limited to,
(i) any discount department store, any shoe store or other retail
business which sells goods or merchandise of the types sold in Payless's
stores at retail to consumers or any group of such stores or businesses or
any other business which competes (for customers, for suppliers, for
employees or for any other resource) against Payless or any of Payless's
subsidiaries, divisions or stores (in the United States or in any other
country in which Payless or any subsidiary of Payless operates a store or
stores at the time), which store, group of stores or business had annual
gross sales volume or revenues (including sales in leased departments) in
the prior fiscal year of more than $25 million or is reasonably expected to
have such sales or revenues in either of the current fiscal year or the
next following fiscal year of more than $25 million; or
(ii) any business which provides buying office services to any store or
group of stores or businesses referred to in Paragraph 3(b)(i); or
(iii) any business (in the United States or in any other country in which
Payless or any subsidiary of Payless operates a store or stores at the
time) in which Executive's functions would be substantially similar to
Executive's functions under this Agreement and which is in material
competition with Payless or any subsidiary or division of Payless.
(c) Background of non-compete restriction:
(i) Payless is one of the leading retail companies in the United States,
with self-service shoe stores throughout the United States and Puerto Rico;
and
(ii) In connection with its business, Payless has expended a great deal of
time, money and effort to develop and maintain its confidential,
proprietary and trade secret information; this information, if misused or
disclosed,
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could be very harmful to Payless's business and its competitive position in
the marketplace; and
(iii) Executive desires to be employed by Payless, to be eligible for
opportunities for advancement within Payless, to be eligible for potential
compensation increases and to be given access to confidential and
proprietary information of Payless necessary for Executive to perform
Executive's job, but which Payless would not make available to Executive
but for Executive's signing and agreeing to abide by the terms of this
Agreement as a condition of Executive's employment by Payless; and
(iv) Executive recognizes and acknowledges that Executive's position with
Payless provides Executive with access to Payless's confidential and
proprietary trade secret information and other confidential business
information; and
(v) Payless compensates its associates to, among other things, develop
and preserve goodwill and relationships on Payless's behalf and to develop
and preserve business information for Payless's exclusive ownership and
use; and
(vi) long-term customer and supplier relationships often can be difficult
to develop and require a significant investment of time, effort and
expense; and
(vii) Executive recognizes and acknowledges that if Executive's employment
with Payless were to cease, Payless needs certain protections in order to
ensure that Executive does not appropriate and use any confidential
information entrusted to Executive during the course of Executive's
employment by Payless or take any other action which could result in a loss
of Payless's goodwill that was generated on Payless's behalf and at its
expense, and, more generally, to prevent Executive from having an unfair
competitive advantage over Payless.
(d) Reasonableness of non-compete restriction. Executive acknowledges and
agrees that the restrictions in Paragraph 3(a) are reasonable and enforceable in
view of the background for the non-compete restriction set forth in Paragraph
3(c) and in view of, among other things,
(i) the markets in which Payless and its subsidiaries operate their
business; and
(ii) the confidential information to which Executive has access; and
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(iii) Executive's training and background, which are such that neither
Payless nor Executive believe that the restraint will pose an undue
hardship on Executive; and
(iv) the fact that a Competing Business could benefit greatly if it were
to obtain Payless's confidential information; and
(v) the fact that Payless would not have adequate protection if Executive
were permitted to work for any Competing Business since Payless would be
unable to verify whether its confidential information was being disclosed
or misused; and
(vi) the limited duration of, the limited scope of, and the limited
activities prohibited by, the restrictions in Paragraph 3(a); and
(vii) Payless's legitimate interests in protecting its confidential
information, goodwill and relationships.
(e) If Executive violates Executive's obligations under Paragraph 3(a),
then Payless shall be entitled to an injunction and other relief provided for in
this Agreement to prevent such violation, and the time during which Executive
violated the obligations shall not count toward satisfying the time during which
the restriction shall apply. For example, if Executive were to join a competitor
at the end of the Contract Term in violation of the restrictions in Paragraph
3(a) and work for such competitor for one month before a court enjoined such
violation, then the [two years; one year; six month] time period of the
restriction would begin when such injunction were issued; the one month during
which Executive violated such restriction would not count toward the time that
the restriction applies.
4. If Executive becomes Totally Disabled and remains continuously so Totally
Disabled for a period of 180 days, then Payless's obligations under this
Employment Agreement, at Payless's option, may be terminated by notice in
writing to that effect given during the continuance of such Total Disability,
such termination to take effect the later of (a) the last day of the month
during which such notice is given or (b) the last day of such 180 day period. If
Executive has made a previous election to participate in Payless's Long Term
Disability Plan (subject to the terms and provisions of that plan), then the
terms of that plan shall apply. "Total Disability" or "Totally Disabled" shall
mean the inability of Executive to perform the normal duties of Executive's job
under this Agreement.
5. (a) If Executive's employment terminates during the Contract Term by
reason of Executive's death or disability, by Executive's voluntary termination
of employment or by Payless for Cause,
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(i) Executive's basic compensation and employee benefits shall cease on
the date of such event, except as otherwise provided herein or in any
applicable employee benefit plan or program; and
(ii) Executive (or Executive's legal representative(s)) shall be entitled
to such portion of any incentive compensation as shall be payable under the
terms of the Incentive Plan.
(b) In addition, if Executive's employment is terminated by reason of
death, then Executive's obligations under Paragraphs 1 and 2 shall cease on the
effective date of such termination.
(c) In addition, if Executive's employment is terminated by reason of
disability, by Executive voluntarily or by Payless for Cause, then Executive's
obligations under Paragraphs 1 and 2 shall cease on the effective date of such
termination and Executive's obligations under Paragraphs 3 and 6 remain in full
force and effect, and Payless shall be entitled to all legal and equitable
rights and remedies under this Agreement, including all of its rights and
remedies referred to in Paragraph 9 of this Agreement, and Payless shall be
entitled to enjoin Executive from violating the provisions of Paragraphs 3 and 6
of this Agreement.
(d) If Executive's employment is terminated by Payless without Cause, then
(i) Executive's employment (and status as an employee) shall cease
immediately; and
(ii) Executive shall be entitled to continue to receive Executive's basic
compensation and fringe benefits referred to in Paragraph 1(e) for the
remainder of the Contract Term, subject to the provisions of Paragraph
5(d)(vi); and
(iii) Executive shall be entitled to such portion of any incentive
compensation as shall be payable under the terms of the Incentive Plan; and
(iv) Executive shall be entitled to post-termination benefits that are
payable under Payless's employee benefit plans in accordance with their
terms based on Executive's service through, and termination of employment
on, the termination date, including any rights Executive may have to
continued participation in Payless's medical plans under COBRA; and
(v) except as expressly provided in this Paragraph 5(d), Executive's
post-termination obligations under this Agreement, including, without
limitation, the provisions of
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Paragraphs 3 and 6, shall continue to apply following such termination; and
(vi) Executive shall use Executive's best efforts to find other employment
which does not violate the provisions of Paragraph 3 hereof. If Executive
accepts such other employment, Executive shall promptly notify Payless of
such employment and of the compensation received, to be received or
receivable from Executive's subsequent employer attributable to the
remainder of the Contract Term, and all basic compensation otherwise
payable under Paragraph 5(d) for the remainder of the Contract Term shall
be reduced to the extent of Executive's similar compensation received, to
be received or receivable from such other employer or other business.
(e) "Cause" means
(i) an intentional act of fraud, embezzlement, theft or any other
material violation of law in connection with Executive's duties or in the
course of Executive's employment with Payless; or
(ii) intentional damage to assets of Payless; or
(iii) intentional disclosure of confidential information of Payless
contrary to the policy of Payless; or
(iv) breach of Executive's obligations under this Agreement; or
(iv) intentional engagement in any competitive activity which would
constitute a breach of Executive's duty of loyalty or of Executive's
obligations under this Agreement; or
(v) intentional breach of any policy of Payless; or
(vi) the willful and continued failure by Executive to substantially
perform Executive's duties with Payless (other than any such failure
resulting from Executive's incapacity due to physical or mental illness);
or
(vii) the willful engaging by Executive in conduct which is demonstrably
and materially injurious to Payless, monetarily or otherwise.
For purposes of this Paragraph 5(e), an act, or a failure to act, shall not be
deemed "willful" or "intentional" unless it is done, or omitted to be done, by
Executive in bad faith or without reasonable belief that Executive's action or
omission was in the
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best interest of Payless. Failure to meet performance standards or objectives,
by itself, will not constitute "Cause".
(f) Executive agrees that, in addition to any other remedies, Payless
shall be permitted, as part of the computation of any final amount or amounts
due to Executive as wages, compensation, bonus, deferred compensation or
otherwise, and before any such amount shall be due and owing, to reduce any
amount which Payless may otherwise owe to Executive by any unpaid amount which
Executive owes to Payless.
6. (a) Executive will not, at any time, directly or indirectly, use or
disclose any of Payless's confidential information for any purpose except for
authorized use or disclosure within the scope of Executive's employment with
Payless.
(b) At Payless's request and/or upon termination of Executive's employment
hereunder, Executive agrees to return to Payless all documents, records,
notebooks, computer diskettes and anything else containing Payless's
confidential information, including all copies thereof, then in Executive's
possession, or under Executive's custody or control.
(c) During the Contract Term and thereafter, Executive shall notify
Payless immediately of any unauthorized possession, use or knowledge of any of
Payless's confidential information. Executive shall promptly furnish details of
such possession, use or knowledge to Payless, will assist in preventing the
reoccurrence of such possession, use or knowledge, and shall cooperate with
Payless in any litigation deemed necessary by Payless to protect the
confidential information.
(d) "Confidential information" means all non-public information pertaining
to Payless's business. Confidential information includes not only information
disclosed by Payless to Executive, but also information developed or learned by
Executive during the course of or as a result of employment with Payless, which
information shall be the property of Payless. All of Payless's confidential
information is and shall be deemed to be Payless's property. Payless's
confidential information includes, without limitation, information and documents
concerning Payless's processes; suppliers (including Payless's terms, conditions
and other business arrangements with suppliers); supplier and customer lists;
advertising and marketing plans and strategies; profit margins; seasonal plans,
goals, objectives and projections; compilations, analyses and projections
regarding Payless's divisions, stores, product segments, product lines,
suppliers, sales and expenses; files; trade secrets and patent applications
(prior to their being public); salary, staffing and employment information
(including information about performance of other executives); and "know-how,"
techniques or any technical
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information not of a published nature relating, for example, to how Payless
conducts its business.
(e) Executive agrees that Executive will not disclose to Payless, use or
induce Payless to use any proprietary information, trade secrets or confidential
business information of others. Executive represents and warrants that
Executive has returned all property, proprietary information, trade secrets and
confidential business information belonging to any prior employers.
7. (a) If any court of competent jurisdiction determines that, but for the
provisions of this Paragraph 7, any provision of this Agreement is illegal, void
as against public policy or otherwise unenforceable because it is deemed to be
overbroad, then such provision shall automatically be amended to the extent (but
only to the extent) necessary to make it sufficiently narrow in scope, time and
geographic area that it is not illegal, void as against public policy or
overbroad. All other remaining terms and provisions shall remain in full force
and effect.
(b) If Executive raises any question regarding the enforceability of any
aspect of this Agreement, including, without limitation, Paragraphs 3 or 6,
Executive specifically agrees that Executive will abide fully by such provisions
unless and until a court of competent jurisdiction has rendered a final judgment
that such provisions are not fully enforceable. Following any such final
judgment, Executive and Payless will abide fully by such judgment.
8. (a) Payless and Executive shall each be entitled to pursue all legal and
equitable rights and remedies to secure performance of the obligations and
duties of the other under this Agreement, and enforcement of one or more of such
rights and remedies shall in no way preclude Payless or Executive from pursuing
any and all other rights and remedies available to each of them.
(b) Executive acknowledges and agrees that the individualized services and
capabilities that Executive will render and provide to Payless during the
Contract Term are of a personal, special, unique, unusual, extraordinary and
intellectual character.
(c) Executive acknowledges and agrees that the restrictions in this
Agreement on Executive are reasonable in order to protect Payless's expectations
and rights under this Agreement and to provide Payless with the protections that
Payless needs to, among other things, safeguard its confidential information.
Payless shall be entitled to injunctive relief in addition to any other remedy
it may have, and Executive expressly consents to injunctive and such other
equitable relief as Payless in good faith believes it may need. Without
limiting the generality of
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the foregoing, if Executive breaches or threatens to breach Executive's
obligations under Paragraphs 3 or 6 hereof, Executive consents to entry of an
order enjoining Executive from rendering personal services to or in connection
with a Competing Business and from using or disclosing any confidential
information.
(d) If Executive's employment is terminated by Executive voluntarily or by
Payless for Cause, Executive shall be liable for all attorneys' fees and costs
incurred by Payless in seeking to enforce its rights under this Agreement.
9. The entire understanding and agreement between the parties has been
incorporated into this Agreement, and this Agreement supersedes all other
agreements and understandings between the parties with respect to the employment
of Executive by Payless or by May. This Agreement shall inure to the benefit of,
and shall be binding upon, Payless, its successors and assigns and upon
Executive and Executive's heirs, successors and assigns; provided, however,
that, since this is an agreement for the rendering of personal services,
Executive cannot assign any of Executive's obligations under this Agreement to
anyone else. This Agreement may be executed in counterparts, in which case each
of the two counterparts shall be deemed to be an original and the final
counterpart shall be deemed to have been executed in Topeka, Kansas.
Executive agrees that this Agreement may be assigned by Payless to a subsidiary
of Payless; such assignment, however, shall not relieve Payless of any of its
obligations hereunder except to the extent that such obligations are actually
discharged by such subsidiary.
10. This Agreement has been executed by Payless at Payless's corporate
headquarters and principal executive offices in Topeka, Kansas. Any questions or
other matter arising under this Agreement, whether of validity, interpretation,
performance or otherwise, shall be governed by and construed in accordance with
the laws of the State of Kansas applicable to agreements made and to be
performed in such state without regard to such state's conflicts of law
provision. All actions and proceedings arising out of or relating directly or
indirectly to this Agreement shall be filed and litigated exclusively in any
state court or federal court located in the City of Topeka, Kansas or in Shawnee
County, Kansas. The parties hereto expressly consent to the jurisdiction of any
such court and to venue therein and consent to service of process if made upon
the Secretary of State of the State of Kansas or if made at Executive's last
known address on the records of Payless.
BY SIGNING THIS AGREEMENT, EXECUTIVE HEREBY CERTIFIES THAT EXECUTIVE (A)
HAS RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW AND STUDY BEFORE SIGNING IT;
(B) HAS READ THIS AGREEMENT
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CAREFULLY BEFORE SIGNING IT; (C) HAS HAD SUFFICIENT OPPORTUNITY BEFORE SIGNING
IT TO ASK ANY QUESTIONS EXECUTIVE HAS ABOUT THIS AGREEMENT AND HAS RECEIVED
SATISFACTORY ANSWERS TO ALL SUCH QUESTIONS; AND (D) UNDERSTANDS EXECUTIVE'S
RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT.
IN WITNESS WHEREOF, this Agreement has been executed Executive, and then by
Payless in Topeka, Kansas on the dates shown below, but as of the date and year
first above written.
Date:
----------------- -------------------------------------------
Executive
PAYLESS SHOESOURCE, INC.
Date: BY:
----------------- ----------------------------------------
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Payless ShoeSource, Inc.
Supplementary Retirement Plan
This document constitutes and sets forth the terms of the Payless ShoeSource,
Inc. Supplementary Retirement Plan (hereinafter referred to as the "Plan"),
effective as of the date Payless ShoeSource, Inc. is "spun-off" from and ceases
to be a subsidiary of The May Department Stores Company (the "Effective Date").
Capitalized terms, not otherwise defined herein, which are defined in the
Payless Profit Sharing Plan shall have the meanings set forth in such plan.
SECTION 1. DEFINITIONS.
1.1 Act means the Social Security Act as in effect from time to time.
1.2 Actuarial Equivalent means a benefit of equivalent value when computed on
the basis of the actuarial principles and tables adopted or otherwise approved
by the Committee.
1.3 Annual Compensation means an Associate's Compensation during a fiscal year
of the Company, on an accrual basis, and shall include all of the Associate's
Compensation accrued for services during such fiscal year, regardless of when
such Compensation is paid or credited.
1.4 Annual Estimated Social Security Benefits means:
(a) the estimated initial annual amount of the Primary Insurance Amount or
the Disability Insurance Benefit (as such terms are defined in the Act),
whichever is applicable, determined by the Committee from available records and
such other information as the Committee may request the Member to furnish, to
which the Member would be entitled under the Act as in effect at the beginning
of the calendar year in which cessation of employment occurs assuming the Member
is not thereafter in employment covered under the Act. The estimated Primary
Insurance Amount shall be applicable under this Plan in all cases except as
hereinafter provided in certain cases of Total Disability and shall be adjusted
in the manner provided in the Act as of the date of retirement if such
retirement occurs on or after the Member's 62nd birthday or as of the Member's
age at retirement were 62 if such retirement occurs before the Member's 62nd
birthday. The estimated Disability Insurance Benefit shall be applicable to a
Member who sustains Total Disability and qualifies for LTD Plan benefits which
are reduced on account of Disability Insurance Benefits under the Act; and
(b) the estimated initial annual amount of benefit to which the Member
would be entitled under any public pension or welfare system of any country
other than the United States of America which is similar to the Primary
Insurance Amount or the Disability Insurance benefit under the Act, as
determined by the Committee in its sole and absolute discretion.
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1.5 Annual Minimum Benefit Amount means:
(a) for all years in which the Member participated in the Payless Profit
Sharing Plan or the May Profit Sharing Plan, the amount of the Company
contribution and forfeitures which would have been allocated to the Member's
Company Accounts in the May and Payless Profit Sharing Plans but for the
limitation on annual additions imposed by Section 415(c)(1) and Section
415(c)(2) of the Internal Revenue Code (the "Code"), and the limitation under
Code Section 401(a)(17) on the amount of such Member's Compensation which may be
taken into account in determining 1) the Member's basic contributions under the
May Profit Sharing Plan and 2) the Member's Allocation Pay Amount under the
Payless Profit Sharing Plan. The Minimum Benefit Amount with respect to the
Payless Profit Sharing Plan shall be determined as if the Company Contribution
for the applicable year or years was invested in the investment fund(s) in which
the Company Contribution actually allocated for the Member was invested. (The
amount determined under this paragraph shall be converted to an annual benefit
which would be produced if the amount determined were paid in the form of an
Actuarially Equivalent immediate life annuity with appropriate adjustments to
the amount on account of investment experience actually experienced by the
Profit Sharing Plan.); and
(b) the difference between the annual amount of Retirement Pension, if any,
to which the Member is entitled under the May Retirement Plan paid in the form
of an immediate life annuity and the annual amount of such Retirement Pension
which would be payable to the Member but for (i) the limitation on benefits
under Section 415(b) of the Code, (ii) the limitation under Code Section 401(a)
(17) on the amount of such Member's Compensation which may be taken into account
in determining such Member's annual amount of Retirement Pension, and (iii) the
limitation under Code Section 415(e) on the benefit payable to a Member who
participates in both a defined benefit plan and a defined contribution plan.
1.6 Annual Retirement Income means the amount determined by multiplying two
percent (2%) of the Member's Average Annual Compensation by the number of years
and fractions thereof (to the closest one-twelfth) of Plan Service, up to a
maximum of twenty-five (25) years of Plan Service, completed by the Member on
his actual Retirement Date.
1.7 Annual Retirement Benefits Offset means the total of the following annual
amounts:
(a) the annual amount of Retirement Pension that would be produced if the
benefits payable under the May Retirement Plan were paid to the Member in the
form of an immediate life annuity,
(b) the annual amount of Retirement Pension that would be produced under
any other retirement plan to which the Company or a related entity contributes
and which credits employment included in Plan Service if the benefits thereunder
were payable in the form of an Actuarially Equivalent immediate life annuity,
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(c) the annual amount of benefits that would be produced if the amount
payable from the Member's Company Accounts under the Payless Profit Sharing Plan
(including Company Accounts which were Employer or Company Accounts under the
May Profit Sharing Plan or Plans merged into the May Profit Sharing Plan) were
paid in the form of an Actuarially Equivalent immediate life annuity, assuming
that:
(i) for each calendar year that the Member was eligible to
participate as a Member of the May Profit Sharing Plan, the
Company Contribution and forfeitures allocated to the Member's
Company Accounts were in an amount equal to the product of the
company's matching rate actually applicable to such year
multiplied by the maximum basic contributions under the May
Profit Sharing Plan which could have been contributed by the
Member for such calendar year;
(ii) appropriate adjustments on account of investment experience were
made to such amount based on the actual investment experience of
the May Profit Sharing Plan, as the Committee shall determine,
(d) the May Retirement Plan and May Profit Sharing Plan offsets set forth
in this section 1.7 shall apply only if the period of membership in those Plans
is included in Plan Service under this Plan.
1.8 Average Annual Compensation means the average of the three highest amounts
of Annual Compensation of the Member accrued with respect to three (not
necessarily consecutive) of the most recent five fiscal years of the Company
ending before the Member's actual Retirement Date.
1.9 Associate means any associate of an Employer under the Payless Profit
Sharing Plan.
1.10 Committee means the committee established by Section 4 of this Plan.
1.11 Company means Payless ShoeSource, Inc. and any other organization which
may be a successor to it.
1.12 Compensation means the total compensation from an Employer (or, for the
period prior to the date Payless ceases to be a subsidiary of May, from an
Employer or from any member of the controlled group of corporations determined
in accordance with Section 414(b) of the Internal Revenue Code of 1986, as
amended, or is a trade or business under common control in accordance with
Section 414(c) of such code, which includes an employer) with respect to an
Associate for services rendered prior to the Associate's actual Retirement Date,
including all regular pay, commissions, overtime pay, cash incentives, prize
awards, amounts
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which an Associate elected to have the Employer contribute directly to the May
or Payless Profit Sharing Plans on the Associate's behalf in accordance with
Section 4.01(b) of each such Plan, amounts not otherwise includable in the
Associate's taxable income pursuant to Section 125 of the Code, and amounts
subject to the Deferred Compensation Plan of May or Payless. Compensation shall
not include a pension, retirement allowance, severance pay, retainer or fee
under contract, any special payments, cash or otherwise, relating to the spin-
off of Payless or distributions from the Profit Sharing Plans.
1.13 Competing Business means any single (i) retail department store; (ii)
discount department store; (iii) catalog showroom store; (iv) specialty store;
(v) furniture store; (vi) shoe store; (vii) clothing store; or a group of any of
the type of stores referred to in (i) through (vii) hereof, which such store or
group of stores had, in its fiscal year ending within the twelve month period
immediately preceding the date of such Member's Retirement Date, a gross sales
volume, including sales in leased or licensed departments, in excess of
$25,000,000.
1.14 Effective Date means the date Payless ceases to be a subsidiary of May.
1.15 Employer means an employer designated as an Employer under the Payless
Profit Sharing Plan.
1.16 Gender. Wherever applicable, the masculine pronoun as used herein shall
include the feminine pronoun.
1.17 May means The May Department Stores Company.
1.18 May Profit Sharing Plan means The May Department Stores Company Profit
Sharing Plan.
1.19 May Retirement Plan means The May Department Stores Company Retirement
Plan.
1.20 (a) Member means any person included in the membership of the Plan as
provided in Section 2.
(b) Retired Member means a Member who retires after the Effective Date and
becomes entitled to a supplementary retirement benefit under this Plan in
accordance with its provisions.
1.21 Payless means Payless ShoeSource, Inc.
1.22 Payless Profit Sharing Plan means the Payless ShoeSource, Inc. Profit
Sharing Plan.
1.23 Retirement Date means the last day of the month in which a Member retires
under the Payless Profit Sharing Plan.
1.24 Plan Service means Years of Service determined using the
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elapsed time method. Plan Members shall receive a Year of Plan Service on each
anniversary date of their commencement of employment with the Employer.
SECTION 2. MEMBERSHIP.
2.1 Eligibility for Membership. Each Associate who is a member of The May
Department Stores Company Supplementary Retirement Plan on the day Payless
ceases to be a subsidiary of May shall become a Member of the Plan as of that
date. Each other Associate of an Employer who has Compensation from an Employer
in any later calendar year completed prior to his Retirement Date equal to at
least twice the amount of "wages" which are subject to the payment of F.I.C.A.
tax by the Associate in such year shall become a Member as of the January 1
thereafter. The Committee, in its discretion, may permit any other Associate to
become a Member if the Committee determines that the Associate's Compensation
from an Employer in any calendar year does not adequately reflect the
Associate's full Compensation for such year.
2.2 Eligibility for Benefits. A Member shall become entitled to benefits under
the Plan only if, and to the extent that, the Plan so provides. The fact that an
Associate becomes a Member shall not, by itself, entitle the Associate to any
benefit under the Plan.
SECTION 3. BENEFITS.
3.1 Normal Retirement.
(a) Subject to the remaining provisions of this Section 3, the annual
supplementary retirement benefit payable to a Member who retires on or after
attaining age 65 shall be equal to the excess, if any, of:
(i) such Member's Annual Retirement Income, over
(ii) the sum of:
. his Annual Estimated Social Security Benefits, and
. his Annual Retirement Benefits Offset.
(b) If the benefit payable under subsection (a) above is less than the
Annual Minimum Benefit Amount computed pursuant to Section 1.5, the Member shall
receive the Annual Minimum Benefit Amount.
3.2 Early Retirement.
(a) A Member may retire early under this Plan at any time after attaining
age 55 and completing 5 years of Plan Service. Subject to the remaining
provisions of this Section 3, the annual supplementary retirement benefit
determined under Sections 3.1(a) and 3.1(b) above, payable to a Member who
retires prior to attaining age 65 shall be first computed on the basis provided
by Section 3.1(a), taking into account only years of Plan Service and Average
Annual Compensation to the Member's Retirement Date or, if applicable, on the
basis provided by Section 3.1(b), which amount
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shall be reduced as follows:
AGE AT REDUCTION IN
RETIREMENT PAYMENT
65 or older No reduction
64 2.0% of Average Annual Compensation
63 4.0% of Average Annual Compensation
62 6.0% of Average Annual Compensation
61 6.5% of Average Annual Compensation
60 7.0% of Average Annual Compensation
59 7.5% of Average Annual Compensation
58 8.0% of Average Annual Compensation
57 8.5% of Average Annual Compensation
56 9.0% of Average Annual Compensation
55 9.5% of Average Annual Compensation
(b) Notwithstanding the other provisions of this Section 3.2, if a Member's
retirement occurs prior to his 62nd birthday, then during the period between his
Retirement Date and the Member's 62nd birthday only, in the calculation of the
Member's supplementary retirement benefit, such Member's supplementary
retirement benefit shall not be reduced by his Annual Estimated Social Security
Benefits.
(c) Notwithstanding anything to the contrary provided in this Section 3.2,
or otherwise in the Plan, if, during the five-year period following the
occurrence of a Change in Control of the Company, the Company terminates a
Member's employment other than for cause and such Member had attained age 50 on
the date on which the Change in Control occurred, then such Member's annual
supplementary retirement benefit shall be computed and paid to such Member as if
such Member had retired at age 55 with at least five years of service on the
date of termination with benefits to be determined as if such Member had been
employed through age 55 at a level of Compensation equal to the Member's Average
Annual Compensation. For this purpose, the Average Annual Compensation of such
Member shall be deemed to be the greater of his Average Annual Compensation
determined (i) as of the date of the Change in Control or (ii) as of the date of
termination of employment.
(d) A "Change in Control of the Company" shall be deemed to have occurred
if:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
or any company owned, directly or indirectly, by the shareowners
of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial
owner" (as defined in Rule 13d-3
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under the Exchange Act), directly or indirectly, of securities
of the Company representing 50% or more of the combined voting
power of the Company's then outstanding securities;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors
and any new director (other than a director designated by a
person who has entered into an agreement with the Company to
effect a transaction described by clause (i), (iii) or (iv) of
this paragraph) whose election by the Board or nomination for
election by the Company's shareowners was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at
least a majority thereof;
(iii) the shareowners of the Company approve a merger or
consolidation of the Company with any other company, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting
power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined)
acquires more than 50% of the combined voting power of the
Company's then outstanding securities, or
(iv) the shareowners of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) "Termination by the Company of employment for cause" means termination
upon:
(i) the willful and continued failure by the Member to
substantially perform his duties with the Company (other than
any such failure resulting from disability or any such actual
or anticipated failure after the Member notifies the Company
of termination for good reason) after a written demand
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for substantial performance is delivered to the Member by the
Company, which demand specifically identifies the manner in
which the Company believes the Member has not substantially
performed his duties, or
(ii) the willful engaging by the Member in conduct that is
demonstrably and materially injurious to the Company,
monetarily or otherwise.
For the purposes of this subparagraph, "good reason" means, without the Member's
express written consent, the occurrence of any of the following circumstances
during the one-year period following a Change in Control of the Company, unless
such circumstances are fully corrected (effective retroactive to and including
the date the circumstances first occurred) within 30 days of the Company
receiving notice of the Member's termination:
(i) a reduction by the Company or its subsidiary, as appropriate,
in the Member's annual base salary, bonus opportunity or
benefits as the same may be increased from time to time except
for across-the-board salary, bonus opportunity or benefit
reductions similarly affecting all management personnel of the
Company and its subsidiaries (and all management personnel of
any person in control of the Company and of all persons,
firms, corporations and partnerships and other entities
controlled by such person); or
(ii) the relocation of the Company's (or its subsidiary's) offices
at which the Member is principally employed to a location more
than 35 miles from such location. or the Company's (or its
subsidiary's) requiring the Member to be based anywhere other
than the Company's (or its subsidiary's) offices at such
location.
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3.3 Cessation of Benefits. Subject to the provisions of Sections 3.4, 3.5 and
3.6, all payments of supplementary retirement benefits hereunder shall cease
upon the death of the Member.
3.4 Form of Benefit. Subject to subsection (b) below, the standard form of the
supplementary retirement benefit payable hereunder shall be an immediate life
annuity; provided, however, that one of the following optional forms of payment
may also be elected:
(a) 100% Joint and Survivor Annuity. This option is an actuarially
reduced benefit payable to a Member during his life and, after his
death, payable for life to such person he shall have designated as
his contingent annuitant.
(b) 50% Joint and Survivor Annuity. This option is an actuarially
reduced benefit payable to a Member during his life and, after his
death, a benefit at one-half the rate of such actuarially reduced
benefit payable for life to such person as he shall have designated
as his contingent annuitant. Unless the Member's spouse consents to
another optional form of payment, this will be the standard form of
payment for a Member who is married at Retirement Date. The
Member's spouse will be the contingent annuitant.
(c) Period Certain Annuity (10 years). This option is an actuarially
reduced benefit payable to a Member during his life with periodic
payments certain terminating at the end of ten years, with provision
that if the Member dies before receiving all the periodic payments
for such ten year period, (i) periodic payments for the remainder of
such period shall be paid to a designated beneficiary, and (ii) if
there is no such designated beneficiary, to his estate.
(d) Period Certain Annuity (15 years). This option is an actuarially
reduced benefit payable to a Member during his life with periodic
payments certain terminating at the end of fifteen years, with
provision that if the Member dies before receiving all the periodic
payments for such fifteen year period, (i) periodic payments for the
remainder of such period shall be paid to a designated beneficiary,
and (ii) if there be no such designated beneficiary, to his estate.
The supplementary retirement benefit payable under an optional form shall be the
Actuarial Equivalent of the supplementary retirement benefit otherwise payable
in the form of an immediate life annuity.
3.5 Standard Payment Period. Supplementary retirement benefit payments shall
be made in monthly installments, except that the Committee may, in its
discretion at any time and from time to time
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prior or subsequent to retirement, direct that such payments be made other than
at monthly intervals, or direct that either a lump sum settlement or a different
form of payment be made equal to the Actuarial Equivalent of the benefit or
remainder thereof otherwise payable.
3.6 Limitation on Payments.
(a) It is recognized that a Member's duties during the period of employment
with the Employer entail the receipt of confidential information concerning not
only the Employer's current operations and procedures but also its short-range
and long-range plans. If (A) the Member during any portion of the period of two
(2) years following his retirement (1) has an aggregate investment (as
determined from time to time) in a Competing Business equal to at least the
greater of (i) $100,000, (ii) 1% in value of such Competing Business or (iii)
such greater amount as the Committee may establish on a case by case basis or
(2) personally renders services to a Competing Business in any manner, including
without limitation, as owner, partner, director, trustee, officer, employee,
consultant or advisor thereof, and (B) the Committee determines, in its
discretion, that such investment or rendering of personal services is contrary
to the best interests of the Company, then all rights to receive any benefits
under the Plan shall immediately cease if the Member does not reduce such
aggregate investment to an amount permitted hereunder or cease rendering such
personal services within 60 days of receipt of written notice of such
determination from the Committee. The term "value" as used herein shall mean the
net worth of such Competing Business, as disclosed by the balance sheet of such
Competing Business, as of the close of the last preceding fiscal year; provided,
however, that with respect to an investment in stock or other securities of a
Competing Business, if such stock or other securities are part of a class of
stock or other securities listed on any stock exchange, the term "value" shall
mean the market value of such class of stock or other securities of such
Competing Business, as of the date of any such determination by the Committee.
(b) Any and all rights to benefits payable to or for the account of a
Member shall at all times be subject to termination (i) if the Committee shall
find such Member guilty of dishonesty or any other unlawful act causing injury
or harm to an Employer or its employees or customers, or (ii) if such Member
voluntarily terminates his employment without the written consent of his
Employer or in violation of a written contract of employment.
(c) Notwithstanding any other provisions of the Plan, in the event that the
aggregate amount of benefits paid under this Plan in any benefit year (the
period commencing on July 1 of any year and ending on the following June 30),
after taking into account the tax effect on the Company, shall exceed five
percent (5%) of the average net earnings of the Company as shown in the
Company's annual report to shareowners for the three (3) most recent consecutive
fiscal years, ending prior to the conclusion of the benefit year, then all
benefits otherwise payable hereunder during
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the next following benefit year shall be reduced or if necessary terminated.
Such reduction shall be made by reducing the benefits otherwise payable during
such next following benefit year in the same proportion that the benefits for
the immediately preceding benefit year (before the imposition of the limitations
provided for by this paragraph) would have had to have been reduced so that no
excess would have occurred during such immediately preceding benefit year.
(d) Notwithstanding anything provided in this Section 3.6 or otherwise in
the Plan, to the contrary, the terms of subsections (a), (b) and (c) of this
Section 3.6 shall cease to apply and shall be null and void immediately upon the
occurrence of a Change in Control of the Company, as defined in Section 3.2(d)
of the Plan.
3.7 Indirect Payment of Benefits. If any retired Member or his beneficiary is,
in the judgment of the Committee, legally, physically or mentally incapable or
incompetent, payment may be made to the guardian or other legal representative
of such retired Member or beneficiary or, if there be none, to such other person
or institution who or which, in the opinion of the Committee, based on
information furnished to the Committee, is then maintaining or has custody of
such retired Member or beneficiary. Such payment shall constitute a full
discharge with respect thereto.
3.8 Termination and Rehire. In the event a Member's employment is terminated
prior to eligibility for early retirement, as described in Section 3.2, (for any
reason other than Total Disability), or in the event that a Member dies prior to
the date as of which supplementary retirement benefits hereunder would otherwise
commence, then no benefits shall be payable under this Plan. If a terminated
Member is rehired under circumstances which result in reinstatement of
membership under the Payless Profit Sharing Plan, reinstatement of membership
under this Plan will occur at the same time. Such reinstatement will result in
cessation of payment of benefits under this Plan. Upon the subsequent
retirement of a Member whose benefits had ceased by reason of this Section 3.8,
supplementary retirement benefits shall again be payable based upon such
adjustments in amounts as the Committee may deem equitable.
3.9 Withholding. The Employer shall withhold from amounts otherwise payable
under this Plan any amounts required to be withheld under federal, state or
local law or regulations, such amounts to be remitted on a timely basis to the
appropriate governmental authorities.
SECTION 4. ADMINISTRATION OF THE PLAN.
4.1 The Committee. Except as otherwise provided herein, the Plan shall be
administered by the Committee and by the Administrative Subcommittee constituted
under the Payless Profit Sharing Plan.
4.2 Delegation of Duties. In the administration of the Plan, the Committee
may, from time to time, appoint agents and delegate to such agents and to the
Administrative Subcommittee such duties as
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it considers appropriate and to the extent that such duties have been so
delegated, the Administrative Subcommittee or agent, as the case may be, shall
be exclusively responsible for the proper discharge of such duties. The
Committee, the Administrative Subcommittee or any agent may from time to time
consult with counsel who may be counsel to the Company.
4.3 Authority. Any decision or action of the Committee (or, with respect to
any duty delegated to it, any decision or action of the Administrative
Subcommittee or of a duly appointed agent) in respect of any question arising
out of or in connection with the administration, interpretation and application
of the Plan and the rules and regulations thereunder shall be in its absolute
discretion and shall be final, conclusive and binding upon all persons having
any interest in the Plan.
SECTION 5. CERTAIN RIGHTS AND OBLIGATIONS.
5.1 Rights of Members, Members' Spouses and Beneficiaries. The rights of the
Members, their spouses, their beneficiaries and other persons are hereby
expressly limited as set forth herein and shall be determined solely in
accordance with the provisions of the Plan.
5.2 Employer-Associate Relationship. The establishment of the Plan shall not
be construed as conferring any legal or other rights upon any Associate or any
other person for a continuation of employment or as interfering with or
affecting in any manner the right of any Employer to discharge any Associate or
otherwise act with relation to such Associate. An Employer may take action
(including discharge) with respect to any Associate or other person and may
treat him without regard to the effect which such action or treatment might have
upon him under the Plan.
5.3 Unfunded Nature of Plan. The Plan shall be unfunded. Neither an Employer
nor the Committee shall be required to segregate any assets in connection with
benefits provided by the Plan. Neither an Employer nor the Committee shall be
deemed to be a trustee of any amounts to be paid under the Plan. Any liability
of an Employer to any person with respect to benefits payable under the Plan
shall be based solely upon such contractual obligations, if any, as shall be
created by the Plan and shall be only a claim against the general assets of the
Employer. and no such liability shall be deemed to be secured by any pledge or
any other encumbrance on any specific property of any Employer.
SECTION 6. NON-ALIENATION OF BENEFITS.
6.1 Provisions with Respect to Assignment and Levy. No benefit payable under
the Plan shall be subject in any manner to anticipation, alienation. sale,
transfer, assignment, pledge, encumbrance, levy or charge, and any attempt so to
anticipate, alienate, sell, transfer, assign, pledge, encumber, levy upon or
charge the same shall be void; nor shall any such benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled to such benefit, except as specifically provided herein.
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6.2 Alternate Application. If any Member, Member's spouse or beneficiary under
the Plan becomes bankrupt or attempts to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge any benefit under the Plan, except as
specifically provided herein, or if any benefit shall be levied upon, garnished
or attached, then such benefit shall, in the discretion of the Committee, cease,
and in that event the Committee may hold or apply the same or any part thereof
to or for the benefit of such Member, Member's spouse or beneficiary, children
or other dependents, or any of them, or in such other manner and in such
proportion as the Committee may deem proper.
SECTION 7. AMENDMENT AND TERMINATION.
7.1 Company's Rights. The Company reserves the right at any time and from time
to time in its sole discretion to modify or amend in whole or in part any or all
of the provisions of the Plan, provided that no amendment shall reduce any
supplementary retirement benefit with respect to a Member who had already
retired and no amendment shall reduce the amount of any supplementary retirement
benefit with respect to a Member who, at the time of amendment, was eligible for
retirement under the terms of the Plan, to a level below that determined as if
retirement were effective at the time of amendment.
Notwithstanding anything provided to the contrary in this Section 7.1 or the
next Section 7.2, following a Change in Control of the Company the Plan may not
be amended or terminated in a manner that would adversely affect the rights of
any Member to his vested annual supplementary retirement benefits. Without
limiting the generality of the foregoing, Section 3.2(c) through (e) may not be
amended or deleted following a Change of Control of the Company.
7.2 Rights to Terminate. Except as provided in the previous Section 7.1, the
Company reserves the right at any time and from time to time in its sole
discretion to terminate the Plan, in whole or in part. In the event the Plan is
terminated, the Employer shall be under no further obligation to provide
benefits under the Plan, except to the extent of any supplementary retirement
benefit with respect to a Member who had already retired and to the extent of
any supplementary retirement benefit with respect to a Member who, at the time
of termination, was eligible for retirement under the terms of the Plan,
determined as if retirement were effective at the time of Plan termination. If
the Plan is partially terminated, the preceding sentence shall apply to Members
in the class with respect to which the Plan is terminated.
SECTION 8. CONSTRUCTION.
The provisions of the Plan shall be construed, regulated, administered and
enforced according to the laws of the State of Kansas.
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PAYLESS SHOESOURCE, INC.
PROFIT SHARING PLAN
INTRODUCTION
Prior to April 1, 1996, Associates of Payless ShoeSource, Inc. ("Payless") were
covered by The May Department Stores Company Profit Sharing Plan ("May Plan").
Effective April 1, 1996, Payless withdrew from and ceased to be a participating
Employer in the May Plan, and established the Payless ShoeSource, Inc. Profit
Sharing Plan. This Plan provides for 1) a Company Contribution in an amount to
be determined by the Company's Board of Directors and allocated to eligible Plan
Members and 2) if elected by the Member, a salary reduction amount, determined
on either a before-tax or after-tax basis.
SECTION 1
DEFINITIONS
1.01 ACCOUNTS means the Company Accounts and Member Accounts established under
Section 6.
1.02 ALLOCATION PAY AMOUNT means with respect to each eligible Member, a) one
(1) times the amount of Pay as defined in Section 1.31 up to the Social Security
Wage Base for the Plan Year, plus b) two (2) times the amount of such Pay in
excess of the Social Security Wage Base for the Plan Year.
In determining each eligible Member's Allocation Pay Amount, only Pay
received during the part of the Plan Year the Member is eligible for the Company
Contribution feature of the Plan, pursuant to Section 2, shall be considered,
and the Social Security Wage Base to be applied for such Member shall be
proportionally prorated if such eligibility is for less than a full Plan Year.
Notwithstanding the foregoing, for the 1996 Plan Year, only Pay received
after the Plan's Effective Date shall be considered and the Social Security Wage
Base shall be prorated accordingly.
Further, notwithstanding the foregoing, with respect to any Plan Year for
which applying the definition of Allocation Pay Amount set forth above would
cause the allocation made pursuant to Section 3.03 to violate the permitted
disparity limitations of Treas. Reg. (S)1.401(l)-2, Allocation Pay Amount shall
be adjusted to permit Section 3.03 to operate in compliance with the limitations
of Treas. Reg. (S)1.401(l)-2.
<PAGE>
1.03 AFTER-TAX CONTRIBUTIONS means Member Contributions which are not Before-
Tax Contributions and which are made by the Member in accordance with Section
4.01(a).
1.04 ASSOCIATE means any person employed by an Employer who receives Pay from
an Employer. Employees in departments operated by others under lease or license
shall be deemed Associates for the purposes of this Plan but only in those cases
approved by the Committee in its discretion where the lessees or licensees shall
have requested participation hereunder and shall have agreed in writing to
assume their respective equitable proportions of the contributions payable to
the Trustees as provided under this Plan. However, the term "Associate" shall
not include any person covered under a collective bargaining agreement unless
and until the Employer and the collective bargaining representatives so agree.
1.05. AUTHORIZED LEAVE OF ABSENCE means any leave of absence authorized by the
Employer under rules established by the Employer.
1.06 BEFORE-TAX CONTRIBUTIONS means contributions which the Member elects (in
accordance with Section 4.01(b)) to have the Employer make directly to the Plan
on behalf of the Member, which election shall constitute an election under Code
Section 401(k)(2)(A). The "Member's Before-Tax Contributions" shall refer to
Before-Tax Contributions made to the Plan by the Employer on behalf of the
Member.
1.07 BENEFICIARY means the person or persons entitled under Section 9.02 to
receive any payments payable under this Plan on account of a Member's death.
1.08 BOARD means the board of directors of the Company.
1.09 CODE means the Internal Revenue Code of 1986, as amended from time to
time.
1.10 COMMITTEE means the Retirement Committee comprised of three members
appointed from time to time by the Board. On and after the date the Company is
no longer a subsidiary of The May Department Stores Company, the Committee shall
be comprised of the Compensation and Nominating Committee of the Board or such
individuals, not less than 3 in number, as the Board shall otherwise designate.
1.11 COMPANY means Payless ShoeSource, Inc. and any other organization which
may be a successor to it.
1.12 COMPANY ACCOUNTS means accounts reflecting the portion of each Member's
interest in the Investment Funds which are attributable to Company Contributions
and to any contributions made by an Employer under Prior Plans, as well as to
any income
<PAGE>
and/or earnings attributable to such Company Contributions, and Prior Plan
contributions.
1.13 COMPANY CONTRIBUTIONS means contributions made by the Company pursuant to
Section 3.
1.14 CURRENT MARKET VALUE means the fair market value as of a particular date,
as determined by the Trustee.
1.15 EFFECTIVE DATE means April 1, 1996.
1.16 EMPLOYER means the Company and, if authorized by the Company to
participate herein, any subsidiary of the Company or any affiliated corporation,
partnership or sole proprietorship which elects to participate herein.
1.17 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.18 FIDUCIARY means the Trustee, each of the members of the Committee
described in Section 13, and any investment manager designated pursuant to
Section 14. The Company shall be a Fiduciary to the extent that the Company has
the power to appoint or remove another Fiduciary.
1.19 FISCAL YEAR means the Company's Fiscal Year.
1.20 GROUP means the Company and any other company which is related to the
Company as a member of a controlled group of corporations in accordance with
Code Section 414(b), or as a trade or business under common control in
accordance with Code Section 414(c). For the purposes of the Plan,for
determining whether or not a person is an employee of the Group and the period
of employment of such person, each such other company shall be included in the
"Group" only for such period or periods during which such other company is a
member of a controlled group or under common control.
1.21 HOUR OF SERVICE means any hour for which an Associate (including a leased
employee) is directly or indirectly compensated, or entitled to compensation, by
the Employer for any of the following:
(a) the performance of duties during the applicable computation period;
(b) a period during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, Military Service, or
Authorized Leave of Absence;
<PAGE>
(c) a period for which back pay is awarded or agreed to, provided that no
Hour of Service has been credited under subsection (a) or (b) with respect to
the same period.
Hours of Service and applicable computation periods shall be determined in
accordance with the requirements of 29 C.F.R. (S) 2530.200b.
1.22 (a) INVESTMENT FUND means any fund for investment of contributions as
described in Section 5.01.
(b) MONEY MARKET FUND means the Investment Fund for investment of
contributions in short-term obligations of high quality issuers including banks,
corporations, municipalities, the U.S. Treasury and other federal agencies, as
provided in Section 5.01(a)(i).
(c) FIXED INCOME INDEX FUND means the Investment Fund for investment of
contributions in corporate, U.S. Government and federal agency securities, as
provided in Section 5.01(a)(ii).
(d) COMMON STOCK INDEX FUND means the Investment Fund for investment of
contributions in the stock issues that comprise the Standard and Poor's 500
Composite Stock Price Index, as provided in Section 5.01(a)(iii).
(e) PAYLESS COMMON STOCK FUND means the Investment Fund for the investment
of contributions in the common stock of the Company, as provided in Section
5.01(a)(iv).
(f) MAY COMMON STOCK FUND means the Investment Fund for investment of
contributions in the common stock of The May Department Stores Company, as
provided in Section 5.01(a)(v).
1.23 MAY PLAN means The May Department Stores Company Profit Sharing Plan.
1.24 MEMBER means any person included in the membership of this Plan as
provided in Section 2.
1.25 MEMBER ACCOUNTS means the Member Before-Tax Accounts and the Member After-
Tax Accounts.
1.26 MEMBER AFTER-TAX ACCOUNTS means the Member Accounts with respect to a
Member's After-Tax Contributions.
1.27 MEMBER BEFORE-TAX ACCOUNTS means the Member Accounts with respect to a
Member's Before-Tax Contributions.
1.28 MEMBER CONTRIBUTIONS means the Member's Before-Tax Contributions and
After-Tax Contributions.
1.29 MILITARY SERVICE means any period of obligatory military service with the
Armed Forces of the United States of America, or
<PAGE>
voluntary service in lieu of such obligatory service, provided that the
Associate returns to active employment with the Employer within the period
during which the Employer would be required to re-employ the Associate under
Federal law.
1.30 NET PROFITS means the consolidated net profits of the Company and such of
its divisions and subsidiaries which elect to participate or do in fact
participate in the Plan, for any given Fiscal Year determined by generally
accepted accounting principles except that (i) no deduction or provision shall
be made for any federal, state or other taxes measured by net income, nor for
any contributions to the Trust or to any other pension or profit sharing plan,
and (ii) there shall be excluded any proceeds from life insurance of which the
Company is beneficiary (whether paid in a single sum or otherwise) and any gains
or losses on the sale of capital assets. Such term shall also mean any
accumulated and undistributed Net Profits (as defined in the preceding sentence)
earned in prior Fiscal Years to the extent that such accumulated and
undistributed Net Profits constitute surplus of the Company and its subsidiaries
available for contributions hereunder.
1.31 PAY means the aggregate of (i) all regular pay, commissions, overtime pay,
cash incentives, and prizes and awards in cash or other property, plus (ii)
amounts which the Associate elects to have the Employer contribute directly to
the Plan on the Associate's behalf in accordance with Section 4.01(b). Pay
shall include any amounts not otherwise includable in the Member's taxable
income pursuant to Code Section 125. Pay shall not include amounts for a
pension, a retirement allowance, a retainer or a fee under contract, deferred
compensation, amounts deferred under the Deferred Compensation Plan of The May
Department Stores Company, the Deferred Compensation Plan of Payless ShoeSource,
Inc., severance pay, or distributions from this Plan. Pay in excess of $150,000
shall be disregarded. Such amount shall be adjusted at the same time and in
such manner as permitted under Code Section 415(d).
In determining the Pay of an Associate, the rules of Code Section
414(q)(6) shall apply, except that, in applying such rules, the term "family"
shall include only the spouse of the Associate and any lineal descendants of the
Associate who have not attained age 19 before the last day of the Plan Year.
1.32 PLAN means the Payless ShoeSource Inc. Profit Sharing Plan.
1.33 PLAN YEAR means a calendar year ending each December 31.
1.34 PRIOR PLAN means either The May Department Stores Company Profit Sharing
Plan or the Volume Shoe Corporation Profit Sharing Plan.
<PAGE>
1.35 QUALIFIED DOMESTIC RELATIONS ORDER means a "qualified domestic relations
order" as that term is defined in Code Section 414(p), provided that such order
was entered on or after January 1, 1985.
1.36 RETIREMENT means a Member's termination of employment on or after age 55
with 5 Years of Service.
1.37 SOCIAL SECURITY WAGE BASE means, with respect to each Plan Year, the
maximum amount of wages which are subject to tax in such year for the Federal
Old Age, Survivors and Disability Insurance System.
1.38 TOTAL AND PERMANENT DISABILITY means, the total incapacity of a Member for
the continued performance of regular active employment with an Employer, which
disability is expected to be permanent, as determined by the Committee, provided
that a Member shall not be considered totally and permanently disabled for
purposes of this Plan unless he qualifies for disability benefits under Title II
of the Federal Social Security Act.
1.39 TRANSFERRED ACCOUNTS means Member and Company Accounts transferred from
the May Plan.
1.40 TRUST AGREEMENT means the agreement or agreements provided for in Section
14, as amended from time to time.
1.41 TRUST FUND means all the assets of the Investment Funds and the assets of
The May Department Stores Company Profit Sharing Plan merged into this Plan
which are held in one or more trusts by the Trustee or Trustees for the purposes
of this Plan.
1.42 TRUSTEE means the corporation, person or persons which may at any time be
acting as Trustee or Trustees under the Trust Agreement.
1.43 UNIT means one of the units representing an interest in an Investment Fund
as provided in Section 6.03.
1.44 UNIT VALUE means the value of each Unit in an Investment Fund as of the
Valuation Date as determined pursuant to Section 6.04.
1.45 VALUATION DATE means the last day of each calendar month.
1.46 YEAR OF SERVICE means a year of employment during which the Associate has
been paid for not less than 1,000 Hours of Service for the Employer. An
Associate shall be credited with a year of employment on each anniversary date
of his commencement of employment with an Employer. Periods of temporary
illness, temporary layoff, Military Service, and Authorized Leaves of Absence
shall not be deemed as breaking continuity of employment and shall be counted in
determining Years of Service. The term "Year of Service" shall also include an
employment year during
<PAGE>
which, except to the extent otherwise provided in Treasury Regulations, a
"leased employee" within the meaning of Code Section 414(n) has been paid for
not less than 1,000 Hours of Service for the Employer even though during such
period the leased employee was not an Associate as defined in Section 1.04. The
term "Year of Service" shall include any period required to be included by the
Family and Medical Leave Act of 1993.
SECTION 2
MEMBERSHIP
2.01 CONDITIONS OF ELIGIBILITY.
(a) Each Associate who on the day before the Effective Date of this Plan
is a Member of or is eligible to be a Member of the May Plan or who would be
eligible to become a Member of the May Plan on April 1, 1996 if the Company
continued to be a participating Employer under the May Plan shall be a Member of
this Plan entitled to make Member Contributions pursuant to Section 4 and
eligible to share in Company Contributions pursuant to Section 3.
(b) Each other Associate shall be eligible to become a Member of this Plan
as follows:
(i) When an Associate has completed a Year of Service and attained
age 21, he shall be eligible to make Member Contributions
pursuant to Section 4 of this Plan, commencing on the later of
(a) July 1, 1996, or (b) the first day of the second month after
he has met the eligibility requirements.
(ii) When an Associate has completed two Years of Service and
attained age 21, he shall be eligible to share in Company
Contributions pursuant to Section 3 of this Plan, effective as
of the first day of the month after he satisfies the
requirements of this subparagraph (ii).
(c) All Years of Service with the Employer and Years of Service with The
May Department Stores Company ("May") while the Employer was part of the Group
which included May are counted toward eligibility, provided that, if an
Associate has a 1-year break in service before satisfying the Plan's condition
of eligibility under Section 2.01(b)(i), service before such break will not be
taken into account.
For the purposes of this Section 2.01, "break in service" means a 12
consecutive month period during which the Associate does not complete more than
500 Hours of Service with the Employer.
<PAGE>
2.02 NO DUAL MEMBERSHIPS. Notwithstanding anything in this Plan to the
contrary, when and as an Employer is obligated, pursuant to an agreement with
any group or association which represents an Associate, to contribute to any
plan involving pensions or other qualified deferred compensation, such Associate
shall not be eligible for membership in this Plan. If such Associate has
Accounts in this Plan, such Accounts shall continue to be revalued as of each
succeeding Valuation Date pursuant to Section 6.04.
2.03 RE-EMPLOYMENT. (a) A former Member who has retired or has otherwise
terminated employment and is rehired shall become a Member on the first day of
the calendar month coinciding with or next following the date of his rehire.
SECTION 3
COMPANY CONTRIBUTIONS
3.01 AMOUNT OF CONTRIBUTION. The Company shall contribute to the Trust, as of
the end of each Plan Year, a certain percentage of its Net Profits. The amount
of the Company's contribution shall be determined by the Company's Board of
Directors in its discretion. Until such time as there is further action by the
Board, the percentage of Net Profits to be contributed is 2 1/2%. Such
contribution shall be made as soon as practicable after the close of the
Company's Fiscal Year, but not later than May 10.
Notwithstanding the foregoing paragraph, for the 1996 Plan Year, the
contribution shall be in an amount which is the sum of (a) 2 1/2% of the Net
Profits for the period May 5, 1996 through February 1, 1997 and (b) and an
amount, in cash, necessary to provide each Member who was a member of the May
Plan on March 31, 1996 with a contribution allocation equal in value to the
Company Matching Allocation he would have received under the May Plan applying
the "effective matching rate" determined under the terms of the May Plan for the
1996 Plan Year to the Member's Contributions made for January, February and
March of 1996.
3.02 ALLOCATION OF CONTRIBUTION. The Company Contribution shall be allocated
to the Company Accounts of all Members who are employed by the Employer on the
last day of the Plan Year.
3.03 ALLOCATION FORMULA. The Company Contribution shall be allocated to all
Members eligible to share in the contribution according to the ratio that each
Member's Allocation Pay Amount for the Plan Year bears to the total Allocation
Pay Amount for all eligible Members for the Plan Year.
Notwithstanding the foregoing paragraph, for the Plan Year ending December
31, 1996, the allocation made to the Company Account of each Member who was a
Member of the May Plan on March 31, 1996, shall be the sum of (a) the amount
determined applying
<PAGE>
the allocation formula set forth in the preceding paragraph for Members who made
Member Contributions under the May Plan during January, February and March of
1996, and, (b) an amount equal in value to the Company Matching Allocation he
would have received under the May Plan applying the "effective matching rate"
determined under the terms of the May Plan for the 1996 Plan Year to the
Member's Contributions made for January, February and March of 1996. The amount
of such contribution shall be subject to applicable limitations, if any, imposed
by the Code.
In no event shall an allocation be made under this Plan Section 3.03 in
excess of an amount permitted by Code Section 401(a(4) and the Regulations
pursuant thereto.
3.04 INVESTMENT OF THE COMPANY CONTRIBUTION. The amount allocated to each
Member pursuant to Section 3.03 shall be credited to his Company Accounts and
invested in one or more of the Investment Funds described in Section 5.01 and in
the percentages designated by the Member in the investment election filed
pursuant to Section 5.02 effective for the most recent December 31.
3.05 RETURN OF COMPANY CONTRIBUTIONS
(a) If a Company Contribution is made to the Trust because of a good faith
mistake of fact, then, within one year of the date of payment of such Company
contribution to the Trust, an amount equal to the excess of (1) the amount of
such Company contribution over (2) the amount that would have been contributed
had a mistake of fact not occurred shall be returned to the Company.
(b) Each contribution made to the Trust shall be made on the condition
that it is currently deductible by the Company under Code Section 404 for the
taxable year with respect to which the contribution is made. If a contribution
subsequently is determined, whether in whole or in part, not to be currently
deductible as provided in the preceding sentence, then, within one year of the
date of disallowance of the deduction of such Company Contribution, an amount
equal to the disallowed deduction shall be returned to the Company.
(c) Earnings attributable to a contribution that is returned pursuant to
Subsection (a) or (b) above shall not be withdrawn, but losses attributable
thereto shall reduce the amount returned to the Company.
3.06 REINSTATEMENT OF CERTAIN COMPANY ACCOUNTS. This provision applies to a
Member who previously was employed by the Employer when it was part of the Group
which included The May Department Stores Company, and who at the termination of
his employment had Company Accounts in the May Plan which were forfeited as a
result of termination of employment under the vesting provisions of the May
Plan.
<PAGE>
If such Member has not incurred 5 consecutive 1-year breaks in service,
the value of the Member's Company Account forfeited under the May Plan will be
restored and will be 100% vested.
For the purposes of this Section 3.06, "break in service" means a 12
consecutive month period during which the Member does not complete more than 500
Hours with the Employer.
SECTION 4
MEMBER CONTRIBUTIONS
4.01 PROCEDURE FOR MAKING CONTRIBUTIONS
(a) Subject to the limitations set forth in Sections 4.02 and 4.03, each
Member may contribute to the Plan an amount equal to not less than 1% nor more
than 15% (in whole percentage points) of his Pay or beginning July 1, 1996, a
flat dollar amount of not less than $2.00 and not more than $10.00 per Pay
period, as he shall have designated pursuant to procedures established by the
Committee; provided, however, that a Member shall not contribute, or elect to
have contributed on his behalf, amounts with respect to Pay received by him
after the close of the calendar year during which his employment terminates and
further provided that any Before-Tax Contributions made on behalf of the Member
shall reduce, by the percentage or dollar amount which he elects to have
contributed pursuant to Section 4.01(b)(i), the percentage or dollar amount of
Pay that the Member may contribute pursuant to this Section 4.01(a).
(b) (i) A Member may elect that his Employer should contribute directly
to the Trust Fund an amount equal to a percentage of his Pay, not less than 1%
nor greater than 5% (in whole percentage points), or beginning July 1, 1996, a
flat dollar amount of not less than $2.00 and not more than $10.00 per Pay
period, which Pay shall be his Before-Tax Contribution.
(ii) A "Section 4.01(b)(ii) Member," as defined below, may elect that,
in addition to any amounts contributed as Before-Tax Contributions pursuant to
Section 4.01(b)(i), his Employer will contribute directly to the Trust Fund an
amount equal to an additional percentage of his Pay or dollar amount, up to any
maximum percentage or dollar amount determined from time to time by the
Committee. A "Section 4.01(b)(ii) Member" is any Member who is determined not to
be a Highly Compensated Employee pursuant to Section 4.02 for the calendar year
in which the election is made.
(c) Notwithstanding any election in accordance with Section 4.01(b), if
the Committee at any time determines that all or any portion of the Member's
Before-Tax Contributions should be treated as After-Tax Contributions in order
for the Before-Tax Contribution provisions of the Plan to qualify as a
"qualified
<PAGE>
cash or deferred arrangement" for purposes of Code Section 401(k), or if the
Actual Deferral Percentage standards set forth in Code Section 401(k)(3) are not
met at the end of the Plan Year; then the Committee, in its sole and absolute
discretion, (i) may, in accordance with Section 4.02(b) below, limit the amount
which shall be contributed by the Employer as Before-Tax Contributions after the
date of such determination on behalf of all or any portion of the Members and
(ii) may except with respect to situations in which Section 4.01(h) applies,
(and prior to March 15 of the calendar year following the Plan Year in which
such contributions are made) declare all or such portion of the Before-Tax
Contributions theretofore or thereafter made on behalf of all or a portion of
the Members to be After-Tax Contributions.
(d) The Employer shall (i) deduct a Member's After-Tax Contributions from
the Pay of the Member in such installments as the Employer may deem appropriate,
(ii) contribute a Member's Before-Tax Contributions on behalf of the Member, and
(iii) reduce the Pay that is paid to the Member directly in cash by an amount
equal to the Member's Before-Tax Contributions in such installments as the
Employer shall deem appropriate. The amounts so deducted and so contributed
shall be paid by the Employer to the Trustee not later than 30 days following
the end of the month with respect to which such amounts are to be so deducted
and contributed or within such shorter period of time as may be designated under
the Code, ERISA or related regulations. The Employer may, from time to time,
make estimated contribution payments to the Trustee during each month.
(e) Effective with the first payroll period paid in any calendar quarter,
or as of such other effective time as may be determined by the Committee, a
Member may elect to change the rate of his After-Tax Contributions to any other
rate permitted by Subsection (a) of this Section 4.01 and may elect to change
the amount to be contributed by the Employer directly to the Trust Fund as
Before-Tax Contributions to an amount equal to an amount permitted by Subsection
(b) of this Section 4.01 with respect to such contributions to be made after the
effective date of the election, pursuant to procedures established by the
Committee.
(f) Not later than 15 days prior to the beginning of a payroll period of a
Member, or not later than such other date as may be determined by the Committee,
such Member may elect pursuant to procedures established by the Committee, (i)
to suspend making After-Tax Contributions and (ii) that the Employer should
suspend making Before-Tax Contributions on his behalf, all as of the beginning
of such payroll period. As of the first day of any calendar quarter after the
date of such suspension(s) and with 15 days prior notice, or as of such other
date and with such notice as may be determined by the Committee, such Member may
elect (i) to resume making After-Tax Contributions and (ii) that the Employer
shall resume making Before-Tax Contributions on his
<PAGE>
behalf, by indicating any amount of contributions permitted under Subsection (a)
and designating an amount equal to any amount of Pay as Before-Tax Contributions
that is permitted under Subsection (b) hereof.
(g) Member Contributions pursuant to this Section 4.01 shall be credited
to Member Accounts.
(h) Notwithstanding any election in accordance with paragraph (b) of this
Section 4.01, the total amount of a Member's Before-Tax Contributions, and other
contributions made by the Member under Code Section 401(k) to another plan
qualified under Code Section 401(a), for any calendar year shall not exceed
$9,500 (as adjusted from time to time by the Secretary of the Treasury or his
delegate, pursuant to Code Section 415(d)). If any Member may reach the $9,500
limit (as adjusted from time to time by the Secretary of the Treasury or his
delegate pursuant to Code Section 415(d)), the Committee can direct that all or
any portion of such Member's Contributions during such year shall be After-Tax
Contributions regardless of such Member's elections pursuant to Sections 4.01(a)
and 4.01(b).
4.02 LIMITATIONS ON BEFORE-TAX CONTRIBUTIONS.
(a) Notwithstanding the foregoing provisions of this Section 4, the
Committee shall limit the amount of Before-Tax Contributions made on behalf of
each "Highly Compensated Employee" (as hereinafter defined) to the extent
necessary to ensure that either of the following tests is satisfied:
(i) The "Actual Deferral Percentage" (as hereinafter defined) of the
group of eligible Highly Compensated Employees is not more than the Actual
Deferral Percentage of all other eligible Associates multiplied by 1.25;
or
(ii) The excess of the Actual Deferral Percentage for the group of
eligible Highly Compensated Employees over that of all other eligible
Associates is not more than two percentage points, and the Actual Deferral
Percentage for the group of eligible Highly Compensated Employees is not
more than the Actual Deferral Percentage of all other eligible Associates
multiplied by 2.0.
For the purposes of this Section 4.02, "eligible" means eligible to be a
Member of this Plan pursuant to Section 2.01(b)(i).
For purposes of this Section 4.02, the term "Highly Compensated Employee"
shall be determined in accordance with Code Section 414(q), and with such rules
and regulations as shall be promulgated by the Internal Revenue Service pursuant
to such Code Section, and shall mean an Associate who, at any time during such
Plan Year or the preceding Plan Year (i) was a 5% owner (as defined in Code
Section 416(i)(1)) with respect to an Employer, (ii) earned more than $66,000 of
"compensation," (as defined in
<PAGE>
Code Section 414(q)(7)) and was among the "top-paid group" (as defined in Code
Section 414(q)(4)), (iii) earned more than $100,000 of "compensation," or (iv)
was one of the fifty highest-paid officers who earned more than $60,000 of
"compensation" (or, if greater, 50% of the defined benefit plan dollar limit in
effect under Code Section 415(b)(1)(A) with respect to such year). For purposes
of this Section 4.02, the $66,000 and $100,000 amounts are to be indexed at the
same time and in the same manner as is the dollar limit applicable to defined
benefit plans under Code Section 415. Notwithstanding any other provision of
this Plan, the Committee may prescribe that a "Highly Compensated Employee"
shall be determined under the calendar year election method described in
Treasury Regulation 1.414(q)-1T, Q&A-14(b). Such election, if made, shall apply
to all other plans maintained by an Employer that are qualified under Code
Section 401(a).
(b) Notwithstanding the provisions of the foregoing paragraph,
(i) In the case of the Plan Year for which the relevant determination
is being made, an Associate not described in subparagraph (ii), (iii) or
(iv) of the foregoing paragraph for the preceding calendar year (without
regard to this subparagraph (b)) shall not be treated as being described
in subparagraph (ii), (iii) or (iv) above unless such Associate is a
member of the group consisting of the 100 Associates paid the greatest
"compensation" during the Plan Year for which such determination is being
made; and
(ii) A former Associate shall be treated as a Highly Compensated
Employee if (a) such Associate was a Highly Compensated Employee when such
Associate separated from service, or (b) such Associate was a Highly
Compensated Employee at any time after attaining age 55.
(iii) For purposes of this Section 4.02, the term "Actual Deferral
Percentage" shall mean, for a specified group of Associates for a Plan
Year, the average of the ratios (calculated separately for each person in
such group) of
A) The aggregate of the Before-Tax Contributions (and such
other contributions which, in accordance with applicable rules and
regulations promulgated by the Internal Revenue Service may be
aggregated with such Before-Tax Contributions for purposes of
demonstrating compliance with the requirements of Code Section
401(k)(3)) which are actually payable to the trust on behalf of each
such Associate, to
<PAGE>
B) Such Associate's compensation (as determined under Code
Section 414(s)) for such Plan Year.
In the event it is determined prior to any payroll period that the amount
of Before-Tax Contributions elected to be made thereafter would cause the
limitation prescribed in this Section 4.02 to be exceeded, the amount of Before-
Tax Contributions allowed to be made on behalf of Highly Compensated Employees
(and/or such other Members as the Committee may prescribe) shall be reduced to a
rate determined by the Committee, and any elections of future Before-Tax
Contributions which exceed the rate determined by the Committee shall be deemed
to be After-Tax Contributions for the remainder of the Plan Year,
notwithstanding the limitations on contribution rate changes in Section 4.01(e).
Except as is hereinafter provided, the Members to whom such reduction is
applicable and the amount of such reduction shall be determined pursuant to such
uniform and nondiscriminatory rules as the Committee shall prescribe.
(c) Notwithstanding the provisions of the foregoing paragraph, with
respect to any Plan Year in which Before-Tax Contributions on behalf of Highly
Compensated Employees exceed the applicable limit set forth in this Section
4.02, the Committee shall reduce the amount of the excess Before-Tax
Contributions made on behalf of the Highly Compensated Employees (by reducing
such contributions in order of Actual Deferral Percentages beginning with the
highest), and shall distribute such excess Before-Tax Contributions (along with
earnings attributable to such excess Before-Tax Contributions, as determined
pursuant to such rules and regulations as shall be prescribed by the Internal
Revenue Service) to the affected Highly Compensated Employees as soon as
practicable after the end of such Plan Year, and in all events prior to the end
of the next following Plan Year. In lieu of such distribution of excess Before-
Tax Contributions, the Committee may, to the extent permitted by applicable
rules and regulations (and (a) except with respect to situations in which
Section 4.01(h) applies, and (b) prior to March 15 of the calendar year
following the Plan Year in which such contributions are made), recharacterize as
After-Tax Contributions for such Plan Year all or a portion of the Before-Tax
Contributions for Members who are Highly Compensated Employees to the extent
necessary to comply with the applicable limit set forth in this Section 4.02.
4.03 DISTRIBUTIONS OF EXCESS DEFERRALS.
(a) Notwithstanding any other provision of the Plan, Excess Before-Tax
Deferrals (as hereinafter defined) and earnings allocable thereto as determined
pursuant to such rules and regulations as are prescribed by the Internal Revenue
Service, may be distributed no later than April 15 to Members who claim such
allocable Excess Before-Tax Amounts (which shall be the "Excess Before-Tax
Deferrals" plus earnings, if any) for the preceding calendar year.
<PAGE>
(b) For purposes of this Section 4.03, "Excess Before-Tax Deferral" means
the amount of elective deferrals (within the meaning of Section Code 402(g)(3))
which is a Member Contribution under Section 4.01 for a calendar year that the
Member allocates to this Plan pursuant to the claim procedure set forth in
subsection 4.03(c) hereof.
(c) The Member's claim shall be in writing; shall be submitted to the
Committee no later than April 1; shall specify the amount of the Member's Excess
Before-Tax Deferral for the preceding calendar year; and shall be accompanied by
the Member's written statement that if such amounts are not distributed, the
Excess Before-Tax Deferrals, when added to amounts deferred under other plans or
arrangements described in Code Sections 401(k), 408(k) or 403(b), exceeds the
limit imposed on the Member in accordance with the applicable provisions of the
Code for the year in which the deferral occurred.
4.04 LIMITATIONS ON AFTER-TAX CONTRIBUTIONS
(a) Notwithstanding the foregoing provisions of this Section 4, the
Committee shall limit the amount of After-Tax Contributions made by or on behalf
of each eligible "Highly Compensated Employee" (as hereinafter defined) to the
extent necessary to ensure that either of the following tests is satisfied:
(i) The "Actual After-Tax Contribution Percentage" (as hereinafter
defined) for the group of Highly Compensated Employees is not more than
the Actual After-Tax Percentage of all other eligible Associates
multiplied by 1.25; or
(ii) The excess of the Actual After-Tax Contribution Percentage for
the group of eligible Highly Compensated Employees over that of all other
eligible Associates is not more than two percentage points, and the Actual
After-Tax Contribution Percentage for the group of eligible Highly
Compensated Employees is not more than the Actual After-Tax Contribution
Percentage of all other Associates multiplied by 2.0.
For purposes of this Section 4.04(a), the term "Highly Compensated
Employee" shall have the same meaning as it has for purposes of Section 4.02.
For purposes of this Section 4.04(a), the term "Actual After-Tax
Contribution Percentage" shall mean, for a specified group of Associates, the
average of the ratios (calculated separately for each person in such group) of
(iii) The aggregate of the After-Tax Contributions (and such
other contributions which, in accordance with applicable rules and regulations
promulgated by the Internal Revenue Service, may be aggregated with such After-
Tax
<PAGE>
Contributions for purposes of demonstrating compliance with the requirements of
Code Section 401(m)(2)) which are actually payable to the Trust by or on behalf
of each such Associate, to
(iv) Such Associate's compensation (as determined under Code Section
414(s)) for such Plan Year.
In the event it is determined prior to any payroll period that the amount
of After-Tax Contributions to be made thereafter would cause the limitation
prescribed in this Section 4.04 to be exceeded, the amount of such contributions
allowed to be made by or on behalf of Highly Compensated Employees (and/or such
other Members as the Committee may prescribe) shall be reduced, notwithstanding
the limitations on contribution rate changes in Section 4.01(e). Except as is
hereinafter provided, the Members to whom such reduction is applicable and the
amount of such reduction shall be determined pursuant to such uniform and
nondiscriminatory rules as the Committee shall prescribe.
Notwithstanding the foregoing paragraph, with respect to any Plan Year in
which After-Tax Contributions made by or on behalf of Highly Compensated
Employees exceed the applicable limit set forth in this Section 4.04(a), the
Committee shall reduce the amount of the excess After-Tax Contributions made by
or on behalf of the Highly Compensated Employees (by reducing such contributions
in accordance with such rules and regulations as the Internal Revenue Service
shall prescribe) in the order of the Actual After-Tax Contribution Percentages
of such Highly Compensated Employees and beginning with the highest, but only to
the extent necessary to comply with the limitations, and shall distribute such
excess After-Tax Contributions (along with earnings attributable to such excess
contributions, as determined pursuant to such rules and regulations as shall be
prescribed by the Internal Revenue Service) to the affected Highly Compensated
Employees as soon as practicable after the end of such Plan Year, and in all
events prior to the end of the next following Plan Year.
(b) Notwithstanding the foregoing provisions of this Section 4, the
Committee shall limit the amount of Allocated Amounts on behalf of each eligible
"Highly Compensated Employee" (as hereinafter defined) to the extent necessary
to ensure that either of the following tests is satisfied:
(i) The "Actual Matching Allocation Percentage" (as hereinafter
defined) for the group of Highly Compensated Employees is not more than
the Actual Matching Allocation Percentage of all other eligible Associates
multiplied by 1.25; or
(ii) The excess of the Actual Matching Allocation Percentage for the
group of eligible Highly Compensated Employees over that of all other
eligible Associates is not more than two percentage points, and the Actual
<PAGE>
Allocated Amount Percentage for the group of eligible Highly Compensated
Associates is not more than the Actual Matching Allocation Percentage of
all other Associates multiplied by 2.0.
For purposes of this Section 4.04(b), the term "Highly Compensated
Employee" shall have the same meaning as it has for purposes of Section 4.02.
For purposes of this Section 4.04(b), the term "Matching Allocation" shall
mean any portion of the Company Contribution deemed to be a matching
contribution, allocated to the Accounts of Members for a Plan Year.
For purposes of this Section 4.04(b), the term "Actual Matching Allocation
Percentage" shall mean, for a specified group of Associates, the average of the
ratios (calculated separately for each person in such group) of
(iii) The aggregate of the Matching Allocations on behalf of each
such Associate, to
(iv) Such Associate's compensation (as determined under Code Section
414(s)) for such Plan Year.
With respect to any Plan Year in which Matching Allocations on behalf of
Highly Compensated Employees exceed the applicable limit set forth in this
Section 4.04(b), the Committee shall reduce the amount of the excess Matching
Allocations on behalf of the Highly Compensated Employees (by reducing such
amounts in accordance with such rules and regulations as the Internal Revenue
Service shall prescribe) in the order of the Actual Matching Allocation
Percentages of such Highly Compensated Employees and beginning with the highest,
but only to the extent necessary to comply with the limitations, and shall
distribute such excess Matching Allocations (along with earnings attributable to
such excess allocations, as determined pursuant to such rules and regulations as
shall be prescribed by the Internal Revenue Service) to the affected Highly
Compensated Employees as soon as practicable after the end of such Plan Year,
and in all events prior to the end of the next following Plan Year, so long as
such distribution is in accordance with the rules and regulations governing Code
Section 401(m).
4.05 AGGREGATE LIMITATIONS
Any other provision of the Plan to the contrary notwithstanding, the
provisions of this Section 4.05 shall apply with respect to a Plan Year if the
conditions of both (a) and (b) below are met:
(a) the sum of (i) the "Actual Deferral Percentage" (as defined in Section
4.02(b)) for the group of eligible Associates who are Highly Compensated
Employees and (ii) the "Actual After-Tax Contribution Percentage" (as defined in
Section 4.04) for
<PAGE>
such group of Highly Compensated Employees exceeds the "Aggregate Limit" (as
hereinafter defined), and
(b) both (i) the Actual Deferral Percentage for the group of eligible
Associates who are Highly Compensated Employees exceeds 125% of the Actual
Deferral Percentage of all other eligible Associate and (ii) the Actual After-
Tax Contribution Percentage of such group of Highly Compensated Employees
exceeds 125% of the Actual After-Tax Contribution Percentage of all such other
Associates.
The term "Aggregate Limit" means the greater of the sum of (i) and (ii)
below or the sum of (iii) and (iv) below:
(i) 125% of the greater of (1) the Actual Deferral Percentage of the
group of eligible Associates who are not Highly Compensated Employees, or
(2) the Actual Contribution Percentage of the group of eligible Associates
who are not Highly Compensated Employees, and
(ii) two plus the lesser of (i)(1) or (i)(2) above (but in no event
more than 200% of the lesser of (i)(1) or (i)(2) above).
(iii) 125% of the lesser of (1) the Actual Deferral Percentage of
the group of eligible Associates who are not Highly Compensated Employees,
and
(iv) two plus the greater of (iii)(1) or (iii)(2) above (but in no
event more than 200% of the greater of (iii)(1) or (iii)(2) above).
If the Actual Deferral Percentage and/or Actual After-Tax Contribution
Percentage for the group of eligible Associates who are Highly Compensated
Employees, determined after any corrective distribution of recharacterization of
excess amounts in accordance with the provisions of Section 4.02(b) and 4.04
have been effectuated, exceed an amount which would cause the limits set forth
in the foregoing provisions of this Section 4.05 to be exceeded, first the
amount of After-Tax Contributions and then the amount of Before-Tax
Contributions shall be reduced, in the same manner and at the same time as such
contributions are reduced in accordance with Sections 4.02(b) and 4.04, but only
to the extent necessary to bring the Plan into compliance with the applicable
limits set forth in this Section 4.05.
SECTION 5
INVESTMENT PROVISIONS
5.01 INVESTMENT FUNDS.
(a) There shall be established as part of the Trust Fund the following
Investment Funds:
<PAGE>
(i) The Money Market Fund, for the investment of contributions in
short-term (shorter than one year) obligations of high quality issuers
including banks, corporations, municipalities, the U.S. Treasury and other
federal agencies.
(ii) The Fixed Income Index Fund, for the investment of contributions
in the corporate, U.S. Government and federal agency securities that
comprise the Lehman Intermediate Government/Corporate Bond Index.
(iii) The Common Stock Index Fund, for the investment of
contributions in a fund comprised of the stock issues that make up the
Standard and Poor's 500 Composite Stock Price Index.
(iv) The Payless Common Stock Fund, for the investment of
contributions in the Common Stock of the Company.
(v) The May Common Stock Fund, for the investment of contributions in
the common stock of The May Department Stores Company ("May"). This fund
shall be available for investment of new contributions until the date as
of which the Company is no longer a subsidiary of May.
(b) Income from investments in each Investment Fund shall be reinvested in
the same Investment Fund.
(c) The Trustee or Trustees may, from time to time, make temporary
investments in short term obligations of the United States Government,
commercial paper, or other investments of a short term nature, for the May
Common Stock Fund, the Payless Common Stock Fund, the Fixed Income Fund, and the
Common Stock Index Fund.
5.02 INVESTMENT DIRECTION.
(a) A Member may elect that his Member Contributions for each calendar
quarter be invested in 1% increments totalling 100% in one or more of the
Investment Funds.
Such election must be made with at least one day notice prior to each
calendar quarter, or prior to membership in the Plan pursuant to procedures
prescribed by the Committee, or on such other date and subject to other
conditions as may be determined by the Committee. Such election shall be
effective until and unless a Member makes a different election for any period,
but only as provided for under Subsection 5.02(b) and Subsection 5.02(c). If the
Member fails to file a timely initial investment election, he shall be deemed to
have elected to have 100% of his Member and Company Contributions invested in
the Money Market Fund.
<PAGE>
(b) A Member may change his election with respect to future Member and
Company Contributions effective with the first payroll period paid in each
calendar quarter with at least one day prior written notice to the Committee
pursuant to procedures prescribed by the Committee, or on such other date and
subject to other conditions as may be determined by the Committee and may not
change his election in any other manner except as provided in Subsection
5.02(c).
After the Company is no longer a subsidiary of The May Department Stores
Company, future Member Contributions which had been directed to be invested in
the May Common Stock Fund shall be invested in the Payless Common Stock Fund
unless the Member elects otherwise.
(c) Effective as of the last day of each calendar quarter with at least
one day prior notice to the Committee, or as of such other date determined by
the Committee, and pursuant to procedures prescribed by the Committee, a member
may elect to have any or all of the value in any of the Investment Funds which
are credited to his Member and/or Company Accounts transferred and invested in
any one or more of the Investment Funds under Section 5.01.
SECTION 6
ACCOUNTS
6.01 MEMBER ACCOUNTS.
The Committee shall maintain or cause to be maintained for each Member
under each Investment Fund in which his Member Contributions are invested
separate Member Accounts which shall reflect the portion of his interest in such
Investment Fund which is attributable to his contributions. The Member's After-
Tax Contributions shall be credited to a separate Member After-Tax Account. The
Member's Before-Tax Contributions shall be credited to a separate Member Before-
Tax Account.
6.02 COMPANY ACCOUNTS.
The Committee shall maintain or cause to be maintained for each Member
separate Company Accounts with respect to the Investment Funds which shall
reflect the portion of his interest in such Investment Fund which is
attributable to Company Contributions, as well as to contributions made by an
Employer under Prior Plans and to any income or earnings attributable to such
Company Contributions and Prior Plan contributions.
6.03 MAINTENANCE OF ACCOUNTS.
For the purposes of maintaining Accounts pursuant to this Section 6, each
Investment Fund, shall be divided into Units, and the interest of each Member in
such Investment Fund shall be evidenced by the number of Units in such
Investment Fund credited to his Accounts.
<PAGE>
6.04 VALUATION OF ACCOUNTS.
As of each Valuation Date the Committee shall determine the value of a
Unit in each Account by dividing the Current Market Value of all property in
each such Account as of such Valuation Date (after deducting any expenses or
other amounts including withdrawals properly chargeable against such Account) by
the number of Units then outstanding to the credit of all Members in each such
Account.
6.05 ANNUAL STATEMENTS.
The Committee shall furnish or cause to be furnished to each Member a
statement of his Company and Member Accounts, at least once each year, or more
frequently if required by applicable law.
6.06 SHARES OF THE MAY DEPARTMENT STORES COMPANY ("MAY STOCK") IN THE MAY
COMMON STOCK FUND.
The provisions of this Section 6.06 shall govern the shares of common
stock in the May Common Stock Fund, including the shares of stock transferred to
the Plan from the May Plan.
(a) The May Stock shall be held by the Trustee in a separate fund of the
Trust designated as the May Common Stock Fund. Subject to the further
provisions of Section 6.07, the May Common Stock Fund shall be invested only in
shares of May Stock. Dividends received by the Trustee in respect of the May
Stock shall be first used to pay expenses of the May Common Stock Fund and then
invested in the Money Market Fund.
(b) A Member may elect to sell some or all of the Units in the May Common
Stock Fund attributable to either his Member or Company Accounts. Such election
shall be made in such manner as provided by the Committee and will be effective
as of the last day of the calendar month in which the election is recorded.
Notwithstanding the foregoing, the Committee may permit Members to elect
to sell Units as of any monthly valuation date and under such further conditions
as may be determined from time to time which shall be applicable to all Members
with Units in the May Common Stock Fund.
(c) The net proceeds from the sale of a Member's interest in the May
Common Stock Fund shall be invested pursuant to the Member's election in one or
more of the other Investment Funds described in Section 5.02.
(d) At such time as all shares of May Common Stock attributable to Units
held in the May Common Stock Fund have been distributed or sold pursuant to
Member election, the May Common Stock Fund shall terminate. Until such time as
such Fund has been terminated, it shall be valued at the same time and in the
same manner as the Investment Funds described in Section 5.02, and maintained to
and valued in Member Accounts in accordance with Sections 6.03.
<PAGE>
(e) Each Member (or beneficiary of a deceased Member) who has Accounts in
the May Common Stock Fund shall, as a named fiduciary within the meaning of
Section 403(a)(1) of ERISA, have the right to direct the Trustee with respect to
the vote of the number of shares of May Stock attributable to Units credited to
him in the May Common Stock Fund as of the latest practicable Valuation Date
prior to each meeting of shareowners of May. For such purpose the Trustee shall
furnish to each such Member prior to each such meeting the proxy statement for
such meeting, together with a form to be returned to the Trustee on which may be
set forth the Member's instructions as to the manner of voting such shares of
stock. Each Member or Beneficiary who has the right under this section to
direct the Trustee with respect to voting shares and who provides timely
instructions to the Trustee shall, as a named fiduciary, be considered to have
directed the Trustee to vote a pro rata portion of the shares attributable to
Units for which the Trustee receives no timely instructions and shares which
have not been credited as of the latest practicable Valuation Date. Upon
receipt of such instructions, the Trustee shall vote such shares in accordance
therewith. If, within such reasonable period of time prior to any such meeting
of the stockholders as may be specified by the Trustee, no instructions shall
have been received by the Trustee from such Member, the Trustee shall vote, in
person or by proxy, such shares of stock proportionally in the same manner as
the May Stock for which the Trustee received voting instructions from Members.
The Trustee shall not divulge the instruction of any Member. The Trustee shall
also be entitled to vote in its sole discretion, in person or by proxy, all
shares of May Stock held by it upon any matters to which as a practical matter
no instructions can be given by Members prior to the meeting.
(f) Each Member who has Accounts in the May Common Stock Fund shall, as a
named fiduciary within the meaning of Section 402(a)(1) of ERISA, have the right
with respect to the number of shares of May Stock attributable to Units credited
to him in the May Common Stock Fund as of the latest practicable Valuation Date,
to direct the Trustee in writing as to the manner in which to respond to a
tender or exchange offer with respect to May Stock, and the Trustee shall
respond in accordance with the instructions so received. The Trustee shall
utilize its best efforts to timely distribute or cause to be distributed to each
Member such information as will be distributed to stockholders of May in
connection with any such tender or exchange offer, together with a form
requesting instructions on whether or not such shares will be tendered or
exchanged. If the Trustee shall not receive timely direction from a Member as
to the manner in which to respond to such a tender or exchange offer, the
Trustee shall not tender or exchange any shares of May Stock with respect to
which such Member has the right of direction. The Trustee shall not divulge the
instructions of any Member. Shares in May Stock Fund Accounts of Members who
direct that such shares be tendered or exchanged shall be transferred to a new
fund.
<PAGE>
6.07 SHARES OF THE COMPANY RECEIVED IN RESPECT OF MAY STOCK.
In the event that shares of the Company are distributed to Members'
Accounts in the May Common Stock Fund, such shares shall be segregated and
transferred to the Payless Common Stock Investment Fund.
6.08 SHARES OF PAYLESS SHOESOURCE, INC. ("PAYLESS STOCK") IN THE PAYLESS COMMON
STOCK FUND
(a) Each Member (or beneficiary of a deceased Member) who has Accounts
invested in the Payless Common Stock Fund shall, as a named fiduciary within the
meaning of Section 403(a)(1) of ERISA, have the right to direct the Trustee with
respect to the vote of the number of shares of Payless Stock attributable to
Units credited to him in the Payless Common Stock Fund as of the latest
practicable Valuation Date prior to each meeting of shareowners of the Company.
For such purpose the Trustee shall furnish to each such Member prior to each
such meeting the proxy statement for such meeting, together with a form to be
returned to the Trustee on which may be set forth the Member's instructions as
to the manner of voting such shares of stock. Each member or Beneficiary who
has the right under this section to direct the Trustee with respect to voting
shares and who provides timely instructions to the Trustee shall, as a named
fiduciary, be considered to have directed the Trustee to vote a pro rata portion
of the shares attributable to Units for which the Trustee receives no timely
instructions and shares which have not been credited as of the latest
practicable Valuation Date. Upon receipt of such instructions, the Trustee
shall vote such shares in accordance wherewith. If, within such reasonable
period of time prior to any such meeting of the shareowners as may be specified
by the Trustee, no instruction shall have been received by the Trustee from such
Member, the Trustee shall vote, in person or by proxy, such shares of stock
proportionally in the same manner as the Payless Stock for which the Trustee
received voting instructions from Members. The Trustee shall not divulge the
instructions of any Member. The Trustee shall also be entitled to vote in its
sole discretion, in person or by proxy, all shares of Payless Stock held by it
upon any matters to which as a practical matter no instructions can be given by
Members prior to the meeting.
(b) Each Member (or beneficiary of a deceased Member) who has Accounts
invested in the Payless Common Stock Fund shall, as a named fiduciary within the
meaning of Section 403(a)(1) of ERISA, have the right with respect to the number
of shares of Payless Stock attributable to Units credited to him in the Payless
Common Stock Fund as of the latest practicable Valuation Date, to direct the
Trustee in writing as to the manner in which to respond to a tender or exchange
offer with respect to Payless Stock, and the Trustee shall respond in accordance
with the instructions so received. The Trustee shall utilize its best efforts
to timely distribute or cause to be distributed to each Member such information
as will be distributed to shareowners of
<PAGE>
the Company in connection with any such tender or exchange offer, together with
a form requesting instructions on whether or not such shares will be tendered or
exchanged. If the Trustee shall not receive timely direction from a Member as
to the manner in which to respond to such a tender or exchange offer, the
Trustee shall not tender or exchange any shares of Payless Stock with respect to
which such Member has the right of direction. The Trustee shall not divulge the
instructions of any member. The proceeds from the tender or exchange of shares
attributable to Units in Payless Common Stock Investment Fund accounts of
members shall be transferred to one of the Investment Funds described in Section
5.01 and pursuant to a procedure established by the Committee.
6.09 VESTING IN MEMBER AND COMPANY ACCOUNTS.
A Member shall have a fully vested interest at all times in his Member and
Company Accounts.
SECTION 7
EXPENSES
7.01 ADMINISTRATIVE EXPENSES.
To the extent permitted by applicable law, the costs and expenses for
administering this Plan, consisting of Trustee fees and expenses, Investment
Manager fees and expenses, fees and expenses of outside experts, expenses of
maintaining records under Section 6 of the Plan, and all other administrative
expenses of the Plan, shall be paid out of the Trust Fund unless the Company
elects to pay them with its own funds. Costs incident to the purchase and sale
of securities, such as brokerage fees, commissions and stock transfer fees, are
not regarded as administrative expenses and shall be borne by the appropriate
Investment Fund or the May Common Stock Fund (until such time as it ceases to be
an Investment Fund) as determined by the Trustee.
SECTION 8
WITHDRAWALS DURING EMPLOYMENT
8.01 WITHDRAWALS PROHIBITED UNLESS SPECIFICALLY AUTHORIZED.
No withdrawal from the Plan shall be permitted prior to a Member's
termination of employment, except as provided in Section 8.02.
8.02 AUTHORIZED WITHDRAWALS.
(a) Prior to his termination of employment, a Member may elect to withdraw
in cash, any or all of the value in his Member After-Tax Accounts.
(b) Prior to his termination of employment, a Member may elect to
withdraw, in the event of a hardship, an amount in cash
<PAGE>
equal to (i) the total amount of the Before-Tax Contributions made to the Trust
on his behalf, or (ii) the value in his Member Before-Tax Account whichever is
less. In any event the amount withdrawn may not be greater than the amount
determined by the Committee as being required to meet the immediate financial
need created by the "hardship" and not reasonably available from other resources
of the Member, whichever amount is less. The term "hardship" means a heavy
financial hardship in light of immediate and heavy financial needs as determined
by the Committee in accordance with Internal Revenue Service regulations. The
amount of an immediate and heavy financial need may include any amounts
necessary to pay any federal, state or local taxes or penalties reasonably
anticipated to result from the distribution. The determination shall be made in
a nondiscriminatory manner. Hardship shall include but not be limited to the
following:
(i) Medical expenses described in Code Section 213(d), previously
incurred by the Member, the Member's spouse, or any of the Member's
dependents (as defined in Code Section 125) or necessary for these persons
to obtain medical care described in Section 213(d);
(ii) Purchase (excluding mortgage payments) of a principal residence
for the Member;
(iii) Payment of tuition, related educational fees, and room and
board expenses for the next 12 months of post-secondary education for the
Member, his or her spouse, children, or dependents (as defined in Code
Section 152);
(iv) The need to prevent the eviction of the Member from his or her
principal residence or foreclosure on the mortgage of the Member's
principal residence.
In addition, such hardship must be one which in the judgment of the
Committee, based on the Member's representations, cannot be relieved (1) through
reimbursement or compensation by insurance or otherwise, (2) by reasonable
liquidation of the Member's assets to the extent such liquidation would not
itself cause an immediate and heavy financial need, (3) by cessation of Member
Contributions under the Plan or (4) 'by other distributions from employee
benefit plans maintained by the Corporation or any other employer or by
borrowing from commercial sources on reasonable commercial terms. The Member
shall be required to submit documentation, to be determined by the Committee,
with his hardship withdrawal request to enable the Committee to make a judgment
regarding the validity of such hardship withdrawal request.
For any Member who has attained age 59 1/2, the hardship requirement shall
be deemed waived.
<PAGE>
(c) A withdrawal election shall be made pursuant to application procedures
established by the Committee. For any withdrawal under paragraph (a) or (b), if
the amount which may be withdrawn exceeds $100, the Member may not withdraw less
than $100, and if the amount which may be withdrawn is less than $100, the
Member shall be required to withdraw all of such amount. Contribution totals and
Account values shall be determined as of the Valuation Date coinciding with or
next following the filing of the withdrawal election. If the Member Accounts
from which withdrawal is made are in more than one Investment Fund, the
withdrawal shall be pro rata from each such Investment Fund.
(d) A Member who was a Participant in and had an account balance in the
Associated Dry Goods Thrift Incentive Plan ("TIP") as of December 31, 1988 which
account became a Company Account under The May Department Stores Company Profit
Sharing Plan and which has been transferred to this Plan shall be entitled to
withdraw the market value of such account balance which was vested as of
December 31, 1988 in the event of a hardship withdrawal request for Before-Tax
Contributions. Such Member may also elect, subject to the provisions of this
Section 8.02, to withdraw the market value in his Member Before-Tax Accounts as
of December 31, 1988.
(e) A Member who was a Participant in or eligible to be a Participant in
the Volume Shoe Corporation Profit Sharing Plan (the "Volume Plan") as of
December 31, 1988 and who had an account balance in the Volume Plan attributable
to Employer Contributions made to the Volume Plan before July 31, 1976 and which
account became a Company Account under The May Department Stores Company Profit
Sharing Plan and which has been transferred to this Plan, shall be entitled to
withdraw the market value of such account balance.
SECTION 9
BENEFITS UPON RETIREMENT, DEATH, DISABILITY, OR TERMINATION OF EMPLOYMENT
9.01 BENEFITS.
Upon a Member's Retirement, death, Total and Permanent Disability, or
other termination of employment, the value of his Member Accounts and his
Company Accounts shall be determined as of the Valuation Date at the end of the
month next following the later of (i) the date of such termination of employment
or (ii) the date the Plan Administrator receives notice of such termination of
employment, whether such notice be written notice or actual notice, and shall be
distributed as provided in Section 10. A temporary Authorized Leave of Absence
for Military Service or for other purposes approved by the Company shall not,
while any such Authorized Leave of Absence is validly in effect be regarded as a
termination of employment for the purposes of this Plan.
<PAGE>
9.02 BENEFICIARY.
Any benefits payable on account of a Member's death shall be paid to such
Member's spouse. If such Member has no spouse or if such Member's spouse shall
have consented to the naming of another beneficiary, such benefits shall be paid
to the person or persons (including, without limitation, estates, trust, or
other entities) last named as beneficiary by such Member on an appropriate form
filed with the Committee. A spouse's consent shall designate a beneficiary,
acknowledge the effect of the consent and be in writing, witnessed by a Plan
representative or notary public. A spouse's consent shall be irrevocable. If no
beneficiary has been so named or the named beneficiary does not survive the
Member, any payment to be made under this Plan on account of a Member's death
shall be paid to such Member's spouse, or, if he has no spouse, to such Member's
estate. Whenever permitted by the Code or regulations thereunder, the Committee
may waive the requirements that a spouse's consent be obtained. Such waiver may
be on a case by case basis or by categories.
SECTION 10
PAYMENT OF BENEFITS
10.01 TIME OF PAYMENT.
(a) All amounts distributable to a Member or his Beneficiary pursuant to
Section 9 shall, unless the Member makes an approved election pursuant to
Section 10.01(b) or 10.01(c), be paid in a lump sum payment to be made as soon
as practicable after the Valuation Date as of which the account values are
determined pursuant to Section 9.01 provided, however, that any additional
amounts which may be allocated to a Member's Company Accounts resulting from a
Company Contribution in respect of the calendar year in which employment
terminates shall be paid as soon as practicable after such contribution.
(b) A Member who was a Member of the May Plan as of June 30, 1990 may
elect that all Transferred Accounts distributable to him pursuant to Section 9
shall be paid in annual installments over a period not to exceed ten years
beginning with the Valuation Date as of which the lump sum payment would
otherwise be made. In the event of the death of a Member prior to the expiration
of such period, all amounts which have not been distributed to him shall be paid
in a lump sum to his designated Beneficiary or his estate if there is no
designated Beneficiary. Subject to the foregoing, each such installment shall be
paid as of a Valuation Date and, until all the Accounts of the Member have been
fully distributed, they shall continue to be revalued as of each succeeding
Valuation Date pursuant to Section 6.04.
Notwithstanding the paragraph above, a Member who as of December 31, 1988
was or was entitled to be a Participant in the Volume Shoe Corporation Profit
Sharing Plan may elect that all
<PAGE>
Transferred Accounts distributable to him pursuant to Section 9 be paid in the
form of equal monthly installments over a period not to exceed 120 months. Such
payments shall otherwise be made in accordance with the foregoing portion of
this Subsection 10.01(b).
(c) A Member who is to receive a distribution in excess of $3,500 may
elect to defer such distribution to age 65. An election to defer distribution
shall conform to such requirements as to form, content, manner, and timing as
shall be determined by the Committee and which requirements shall be applied in
a manner which does not discriminate in favor of Members who are highly
compensated employees (within the meaning of Code Section 414(q)). All Accounts
of a Member who elects to defer his distribution shall continue to be revalued
as of each succeeding Valuation Date pursuant to Section 6.04. A deferred
distribution shall be paid when such Member attains the age of 65 years or at
such earlier or later time as shall be determined by the Committee as permitted
by law. In the event of the death of a Member prior to distribution of the
deferred amounts, all amounts shall be distributed in a lump sum to his
designated Beneficiary or to his estate if there is no designated Beneficiary.
The value for payment shall be determined as of the Valuation Date coincident
with or next following such Member's 65th birthday or such other payment date
determined by the Committee.
10.02 FORM OF PAYMENT.
All distributions shall be made in the form of cash, except that
distributions from the May Common Stock Fund or the Payless Common Stock Fund
shall be made in the form of full shares of May Common Stock or Payless Common
Stock, as applicable (with payment in cash for a fraction of a share) or in cash
if elected by the Member or Beneficiary.
The rights extended to a Member hereunder shall also apply to any
Beneficiary or alternate payee of such Member.
10.03 INDIRECT PAYMENT OF BENEFITS.
If any Member or his Beneficiary has been adjudged to be legally,
physically or mentally incapable or incompetent, payment may be made to the
legal guardian or other legal representative of such Member or Beneficiary as
determined by the Committee. Such payments shall constitute a full discharge
with respect thereto.
10.04 INABILITY TO FIND MEMBER.
If a Member or Beneficiary or other person to whom a benefit payment is
due cannot be found during the three years subsequent to the date a distribution
was required to be made under this Plan, the Accounts shall be forfeited at the
end of such three-year period. The value of such Accounts as of the date the
distribution was required to be made shall be restored if such Member or
Beneficiary or other person makes a claim.
<PAGE>
10.05 COMMENCEMENT OF BENEFIT DISTRIBUTION TO MEMBER.
Notwithstanding anything in this Plan to the contrary, and in accordance
with the Treasury Regulations promulgated under Code Section 401(a)(9),
distributions to a Member must commence not later than the first day of April
following the calendar year in which the Member attains age 70 1/2.
Such distribution may be made by distributing the entire value of the
Member Accounts as of the last day of such calendar year. If otherwise
permitted pursuant to Code Section 401(a)(9) and Regulations thereto, the member
may elect to take such distribution in lump sum or in installments, if he is
otherwise entitled to installment payment pursuant to Section 10.01(b).
10.06 COMMENCEMENT OF BENEFIT DISTRIBUTION TO BENEFICIARY.
Distributions to the Beneficiary entitled under Section 10.02 to receive
any payments payable under this Plan on account of a Member's death shall be
made in a lump sum payment not later than the first day of April following the
calendar year in which the Member would have attained age 70 1/2.
Notwithstanding the above, any portion of a Member's accounts which are
distributable to a Beneficiary shall be distributed within five (5) years of the
Member's death.
10.07 COMMENCEMENT OF BENEFIT DISTRIBUTION TO ALTERNATE PAYEE.
Distributions to an alternate payee entitled under Section 16.01 to
receive any payments payable under this Plan pursuant to the terms of a
Qualified Domestic Relations Order shall be made in accordance with the terms of
such Qualified Domestic Relations Order and this Plan on or after the date on
which the Member has attained his "earliest retirement age" (as defined under
Code Section 414(p)) under the Plan. Notwithstanding the foregoing,
distribution to an alternate payee may be made prior to the Member's attainment
of his earliest retirement age if, but only if: (1) the Qualified Domestic
Relations Order specifies distribution at that time or permits an agreement
between the Plan and the alternate payee to authorize an earlier distribution;
(2) the distribution is a single sum distribution of the alternate payee's
entire benefit entitlement under the Plan; and (3) in the event the present
value of the alternate payee's benefits under the Plan exceeds $3,500, the
alternate payee consents to any distribution occurring prior to the Member's
attainment of earliest retirement age.
Nothing in this Section 10.07 shall be construed to permit a Member to (1)
receive a distribution at a time not otherwise permitted under the Plan, (2)
permit the alternate payee to receive a form of payment not otherwise permitted
under the Plan, or (3) cause his Plan accounts to be valued or otherwise
determined in a manner not otherwise permitted under the Plan.
SECTION 11
<PAGE>
PERMITTED ROLLOVER OF PLAN DISTRIBUTIONS
11.01 ROLLOVER PERMITTED.
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section, a distributee may
elect, at the time and pursuant to procedures prescribed by the Committee, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
11.02 DEFINITIONS.
The following definitions shall apply for the purposes of this Section 11:
(a) Eligible rollover distribution. An eligible rollover distribution is
any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's beneficiary or for a specified period
of ten years or more; any distribution to the extent such distribution is
required under Code Section 401(a)(9); and the portion of any distribution that
is not includable in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
(b) Eligible retirement plan. An eligible retirement plan is an
individual retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 401(b), an annuity plan described
in Code Section 403(a), or a qualified trust described in Code Section 401(a),
and which accepts the distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to a Member's surviving spouse, an
eligible retirement plan is an individual retirement account or individual
retirement annuity.
(c) Distributee. A distributee includes a Member or former Member. In
addition, the Member or former Member's surviving spouse and the Member's or
former Member's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section 414(p), are
distributees with regard to the interest of the spouse or former spouse.
(d) Direct rollover. A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.
<PAGE>
SECTION 12
LIMIT ON CONTRIBUTIONS TO THE PLAN
This Section 12 is intended to conform the Plan to the requirements of
Code Section 415 and limits the contributions that can be made for an individual
under the Plan.
12.01 LIMIT ON CONTRIBUTIONS.
Notwithstanding any provision of the Plan to the contrary:
(a) The "Annual Addition" that may be made to a Member's Accounts in any
calendar year shall not exceed (a) 25% of his Earnings for the calendar year or
(b) $30,000 (as adjusted from time to time by the Secretary of the Treasury or
his delegate, pursuant to Code Section 415(d), provided that no such adjustment
shall be taken into account before the calendar year for which the adjustment
first takes effect).
(b) If a Member participates in a Defined Benefit Plan maintained by the
Extended Group, the sum of the Member's Defined Contribution Plan Fraction and
Defined Benefit Plan Fraction may not exceed 1.0 for any calendar year.
(c) If the limitation imposed by Subsection (a) or (b), above, applies to
a Member in a calendar year, his Member Contributions shall be reduced to the
extent necessary to prevent the limitation with respect to such calendar year
from being exceeded. If the limitation imposed by Subsection (b) above, applies,
the benefits under any Defined Benefit Plan maintained by the Extended Group
shall be reduced before the Annual Additions under this Plan are reduced.
12.02 SPECIAL DEFINITIONS.
For the purposes of this Section 12, the following terms shall have the
following meanings:
(a) ANNUAL ADDITION for any calendar year is the sum of:
(i) the amount of the Company Contributions for the calendar year,
plus
(ii) the Member's Before-Tax Contributions for the calendar year,
plus
(iii) the Member's After-Tax Contributions,
(b) DEFINED BENEFIT PLAN means any plan which is qualified under Code
Sections 401(a) or 403(a) and which is not a Defined Contribution Plan.
(c) DEFINED BENEFIT PLAN FRACTION means a fraction, where the numerator is
the Member's projected annual benefit under the Defined Benefit Plan (determined
as of the close of the calendar year), and the denominator is the lesser of:
<PAGE>
(i) 1.25 multiplied by the dollar limitation in effect under Code
Section 415(b)(1)(A) for that calendar year, or
(ii) 1.4 multiplied by the amount that may be taken into account
under Code Section 415(b)(1)(B) with respect to the Member for the
calendar year.
(d) DEFINED CONTRIBUTION PLAN means any plan which is qualified under Code
Sections 401(a), 403(a), or 405(a) and which provides for an individual account
for each Member and for benefits based solely on the amount contributed to the
account, and any income, expenses, gains, losses, and forfeitures that may be
allocated to the account.
(e) DEFINED CONTRIBUTION PLAN FRACTION means a fraction, where the
numerator is the sum of the Annual Additions to the Member's Accounts as of the
close of the calendar year, and the denominator is the sum of the lesser of the
following amounts for such calendar year and for each prior calendar year of
service with the Extended Group:
(i) 1.25 multiplied by the dollar limitation in effect under Code
Section 415(c)(1)(A) for that calendar year (determined without regard to
Code Section 415(c)(6)), or
(ii) 1.4 multiplied by the amount that may be taken into account
under Code Section 415(c)(1)(B) with respect to the Member for the
calendar year;
provided, that the Corporation may, in accordance with applicable Treasury
Department regulations, elect to calculate the denominator of the Defined
Contribution Plan Fraction in accordance with Code Section 415(e)(6).
(f) EARNINGS means the Member's "415(c) compensation" (as determined under
Section 415(c)(3) of the Code and under Treasury Regulation Section 1.415-
2(d)(11), and including any such compensation received from the Extended Group.
(g) EXTENDED GROUP means the Corporation and any other company which is
related to the Corporation as a member of a controlled group of corporations in
accordance with Code Section 414(b), or as a trade or business under common
control in accordance with Code Section 414(c), plus any other company, trade or
business which would be included by such definition after the modification
thereof required by Code Section 415(h).
12.03 GENERAL.
(a) For purposes of applying the limitations set forth in this Section 12,
all Defined Benefit Plans (whether or not terminated) of the Extended Group
shall be treated as one Defined Benefit Plan, and all Defined Contribution Plans
(whether or not
<PAGE>
terminated) of the Extended Group shall be treated as one Defined Contribution
Plan.
(b) This Section 12 is intended to satisfy the requirements imposed by
Code Section 415 and shall be construed in a manner that shall effectuate this
intent. This Section 12 shall not be construed in a manner that would impose
limitations that are more stringent than those required by Code Section 415.
12.04 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS.
(a) If, as a result of the allocation of forfeitures, a reasonable error
in estimating a Member's Pay or other facts and circumstances to which Treasury
Regulation Section 1.415-6(b)(6) shall be applicable, the "annual additions"
under this Plan would cause the maximum "annual additions" to be exceeded for
any Member, the Committee shall (1) return any Member Contributions credited for
the "limitation year" to the extent that the return would reduce the "excess
amount" in the Member's Accounts, (2) hold any "excess amount" remaining after
the return of any Member Contributions in a "Section 415 suspense account", (3)
use the "Section 415 suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to reduce either Company
Contributions for that Member if that Member is covered by the Plan as of the
end of the "limitation year" or if such Member is not covered by the Plan at the
end of the "limitation year" to reduce Company Contributions for all Members in
the Plan, before any Company Contributions or Member Contributions which would
constitute "annual additions" are made to the Plan for such "limitation year",
(4) reduce Company Contributions for such "limitation year" by the amount of the
"Section 415 suspense account" allocated and reallocated during such "limitation
year. For purposes of (3) above, the Plan may not distribute "excess amounts" to
Members or Former Members.
(b) For purposes of this Section, "excess amount" for any Member for a
"limitation year" shall mean the excess, if any, of (1) the "annual additions"
which would be credited to his account under the terms of the Plan without
regard to the limitations of Code Section 415 over (2) the maximum "annual
additions" determined pursuant to Section 12.01(a).
(c) For purposes of this Section, "Section 415 suspense account" shall
mean an unallocated account equal to the sum of "excess amount" for all Members
in the Plan during the "limitation year." The "Section 415 suspense account"
shall not share in any earnings or losses of the Trust Fund.
12.05 LIMITATION IMPOSED BY CODE SECTION (401)(A)(17).
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual Pay
of each associate taken in to account under the Plan shall not exceed the annual
compensation limit of the Omnibus Budget Reconciliation Act of 1993 ("OBRA
'93"). The OBRA '93 annual Pay limit is $150,000, as adjusted by
<PAGE>
the Commissioner of Internal Revenue Service for increases in the cost of living
in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in
effect for a calendar year applies to any period, not exceeding 12 months, over
which Pay is determined (determination period) beginning in such calendar year.
If a determination period consists of fewer than 12 months, the OBRA '93 annual
Pay limit will be multiplied by a fraction, the numerator of which is the number
of months in the determination period, and the denominator of which is 12.
Any reference in this Plan to the limitation under Code Section 401(a)(17)
shall mean the OBRA '93 annual Pay limit set forth is this provision.
If Pay for any prior determination period is taken into account in
determining an associate's benefits accruing in the current year, the Pay for
that prior determination period is subject to the OBRA '93 annual Pay limit in
effect for that prior determination period. For this purpose, for a
determination period beginning before the first day of the first Plan Year
beginning on or after January 1, 1994, the OBRA '93 annual Pay limit is
$150,000.
SECTION 13
ADMINISTRATION OF THE PLAN
13.01 PLAN ADMINISTRATOR.
The Company shall be the Plan Administrator of the Plan for purposes of
ERISA and shall be a "named fiduciary" as determined in ERISA Section
4.02(a)(2).
13.02 DELEGATION OF AUTHORITY.
(a) Authority to administer the Plan has been delegated to the Committee
and the Administrative Subcommittee in accordance with Section 1.38 (Total and
Permanent Disability), 4.01(b) and (c) (Member Contributions), 6.01 (Member
Accounts), 6.02 (Company Accounts), 6.05 (Annual Statements), 8.02 (Authorized
Withdrawals), 12.04 (Adjustment of Excessive Annual Additions), 18.02
(Withdrawal of an Employer) and this Section 13.
(b) Authority with respect to the Investment Funds of the Plan has been
delegated to the Trustee in accordance with Sections 7.01 (Administrative
Expenses), 5.01(c) (Investment Funds), 14 (Management of the Trust Fund), 6.06
(shares of The May Department Stores Company in the May Common Stock Fund), and
6.08 (shares of Payless ShoeSource, Inc. in the Payless Common Stock Fund).
(c) Authority to direct the investment of the Plan's funds has been
delegated to the Investment Subcommittee in
<PAGE>
accordance with Section 14.03(b), (c) and (d) (Investments and Reinvestments).
13.03 COMMITTEE AND SUBCOMMITTEES.
(a) The Committee shall appoint two subcommittees (an "Administrative
Subcommittee" and an "Investment Subcommittee"), each Subcommittee to consist of
at least three persons, who need not be members of the Board. The Committee and
each Subcommittee shall elect from its members a Chairman and a Secretary, and
may appoint one or more Assistant Secretaries who may, but need not be, members
of the Committee or such Subcommittee, and may employ such agents, such legal
counsel and such clerical, medical, accounting, actuarial and other services as
it may from time to time deem advisable to assist in the administration of the
Plan. The Committee and each Subcommittee may, from time to time, appoint agents
and delegate to such agents such duties as it considers appropriate and to the
extent that such duties have been so delegated, the agent shall be exclusively
responsible for the proper discharge of such duties.
(b) The Administrative Subcommittee shall have the general responsibility
for the administration of the Plan and the carrying out of its provisions, and
shall have general powers with respect to Plan administration, including, but
not limited to, the powers listed in this Section 13.03. The Administrative
Subcommittee shall have the power to interpret and construe the Plan, the power
to establish rules for the administration of the Plan and the transaction of its
business, the power to remedy and resolve inconsistencies and omissions, and the
power to determine all questions which arise in the administration,
interpretation, or application of the Plan, including but not limited to
questions regarding the eligibility, status, Account value and any rights of any
Member, Beneficiary, and any other person hereunder.
(c) The Investment Subcommittee shall have the powers provided for in
Section 14.03(b).
(d) The Committee and each Subcommittee shall act by a majority of its
members and the action of such majority expressed by a vote at a meeting, or in
writing without a meeting, shall constitute the action of the Committee or such
Subcommittee. All decisions, determinations, actions or interpretations with
respect to the Plan by the Committee or either Subcommittee and the individual
committee or subcommittee members shall be in the Committee's, Subcommittee's or
individual member's sole discretion. The decision, determination, action or
interpretation of the Committee or either Subcommittee and the respective
individual members of the Committee or Subcommittee in respect to all matters
within the scope of its authority shall be conclusive and binding on all
persons. No member of the Committee or either Subcommittee shall have any
liability to any person for any action or omission except each for his own
individual willful misconduct.
<PAGE>
(e) Nothing in this Section 13 or in any other provision of the Plan shall
be deemed to relieve any person who is a fiduciary under the Plan for purposes
of ERISA from any responsibility or liability for any responsibility, obligation
or duty which Part 4 of Title 1 of ERISA shall impose upon such person with
respect to this Plan.
13.04 ACCOUNTS AND REPORTS.
The Committee shall maintain or cause to be maintained accounts reflecting
the fiscal transactions of the Plan and shall keep in convenient form such data
as may be necessary for the administration of the Plan. The Committee shall
prepare annually a report showing in reasonable detail the assets and
liabilities of the Plan and setting forth a brief account of the operation of
the Plan for the preceding year.
13.05 NON-DISCRIMINATION.
Neither the Committee nor either Subcommittee shall exercise its
discretion in such a way as to result in discrimination in favor of officers,
shareholders or highly compensated employees (within the meaning of Code Section
414(q)).
SECTION 14
MANAGEMENT OF THE TRUST FUND
14.01 USE OF THE TRUST FUND.
All assets of the Plan shall be held as a Trust Fund in one or more trusts
and shall be used to provide the benefits of this Plan. No part of the corpus or
income shall be used for, or diverted to, purposes other than for the exclusive
benefit of Members and their Beneficiaries under this Plan and administrative
expenses of this Plan.
14.02 TRUSTEES.
The Trust Fund may, at the direction of the Company, be divided into one
or more separate trusts, each of which may have a separate Trustee appointed
from time to time by the Company and subject to removal by the Company. The
Trustee or Trustees of each trust shall have complete authority and discretion
with respect to the investment and reinvestment of the assets of each trust,
subject, however, to (i) the provisions in the Trust Agreements between the
Trustee or Trustees and the Company, and (ii) the provisions of this Plan. Any
or all of such separate trusts shall be referred to collectively from time to
time as the Trust Fund. Any division of the Trust Fund into one or more separate
trusts shall be at the direction of the Company.
14.03 INVESTMENTS AND REINVESTMENTS.
The investment and reinvestment of the assets of the Trust Fund shall be
in accordance with the following:
<PAGE>
(a) The Company shall have the authority to instruct the Trustee or
Trustees to accept and follow the instructions of any designated investment
manager (within the meaning of ERISA Section 3(38)) with respect to the
investment and reinvestment of the assets constituting the Money Market Fund,
the Fixed Income Index Fund, the Common Stock Index Fund, or any other
Investment Funds the Company may designate.
(b) The Investment Subcommittee shall have the powers, with respect to
investment and reinvestment of the assets constituting the Money Market Fund,
the Fixed Income Index Fund, and the Common Stock Index Fund, to promulgate
limitations, restrictions, rules or guidelines with respect to the investment
policies and classes of investments in which the assets of the Money Market
Fund, the Fixed Income Index Fund, and the Common Stock Index Fund may be
invested or reinvested by the Trustee or Trustees, including any such
investments made pursuant to the instructions of any investment manager. In the
event an investment manager designated pursuant to Section 14.03(a) resigns or
otherwise is unable to act, the Investment Subcommittee shall have such power
and authority as otherwise would be exercisable by such Investment Manager.
(c) In the event that the assets of the Trust Fund shall be divided into
one or more separate trusts pursuant to the authority provided for in Section
14.02, then the powers of the Investment Subcommittee as provided for in Section
14.03(b) may be exercised with respect to one or more of such trusts within the
discretion of the Investment Subcommittee.
(d) The powers of the Investment Subcommittee as provided in Section
14.03(b), may be exercised at any time or from time to time by the Investment
Subcommittee within the discretion of the Investment Subcommittee and shall be
pursuant to a written agreement between the Investment Subcommittee and the
Trustee or Trustees or, if an investment manager has been appointed, between the
Investment Subcommittee and the investment manager.
(e) The Trust Agreement between the Company and the Trustee or Trustees
implementing the Plan shall contain provisions effectuating the provisions of
this Section 14 of the Plan. Any such Trust Agreement shall be between the
Trustee or Trustees and the Company.
SECTION 15
CERTAIN RIGHTS AND OBLIGATIONS OF EMPLOYERS AND MEMBERS
15.01 DISCLAIMER OF EMPLOYER LIABILITY.
(a) Liability of Employer: No liability shall attach to any Employer with
respect to a benefit or claim hereunder and Members and their Beneficiaries, and
all persons claiming under
<PAGE>
or through them, shall have recourse only to the Trust Fund for payment of any
benefit hereunder.
(b) Rights of Members and Beneficiaries: The rights of the Members, their
Beneficiaries and other persons are hereby expressly limited and shall be only
in accordance with the provisions of the Plan.
15.02 EMPLOYER-ASSOCIATE RELATIONSHIP.
The establishment of this Plan shall not be construed as conferring any
legal or other rights upon any Associate or any other person to continue in
employment or as interfering with or affecting in any manner the right of an
Employer to discharge any Associate or otherwise act with relation to him. Each
Employer may take any action (including discharge) with respect to any Associate
or other person and may treat him without regard to the effect which such action
or treatment might have upon him as a Member of this Plan.
15.03 CORPORATE ACTION.
With respect to any action permitted or required by the Plan, the Company
may act through its appropriate officers.
SECTION 16
NON-ALIENATION OF BENEFITS
16.01 PROVISIONS WITH RESPECT TO ASSIGNMENT AND LEVY.
No benefit payable under this Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, levy
or charge, and any attempt so to anticipate, alienate, sell, transfer, assign,
encumber, levy upon or charge the same shall be void; nor shall any such benefit
be in any manner liable for or subject to the debts, contracts, liabilities,
engagements or torts of the person entitled to such benefit, except as
specifically provided herein. Notwithstanding the foregoing, the creation,
assignment, or recognition of a right to any benefit payable to an alternate
payee with respect to a Qualified Domestic Relations Order shall not be treated
as an assignment or alienation prohibited by this Section. Any other provision
of the Plan to the contrary notwithstanding, if a Qualified Domestic Relations
order requires the distribution of all or part of a Member's benefits under the
Plan, the establishment or acknowledgment of the alternate payee's right to
benefits under the Plan in accordance with the terms of such Qualified Domestic
Relations Order shall in all events be deemed to be consistent with the terms of
the Plan.
16.02 ALTERNATE APPLICATION.
If a Member or Beneficiary under this Plan becomes bankrupt or attempts to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any
benefit under this Plan, except as specifically provided herein, or if any
benefit shall,
<PAGE>
in the discretion of the Committee, cease, and in that event the Committee may
hold or apply the same or any part thereof to or for the benefit of such Member
or Beneficiary, his spouse, children or other dependents, or any of them, or in
such other manner and in such proportion as the Committee may deem proper.
SECTION 17
AMENDMENTS
17.01 COMPANY'S RIGHTS.
The Company reserves the right at any time and from time to time in its
sole discretion to alter, amend, or modify, in whole or in part, any or all of
the provisions of this Plan, provided, however, no such alteration, amendment or
modification shall be made which shall decrease the accrued benefit of any
Member. Anything in this Plan to the contrary notwithstanding, the Company in
its sole discretion may make any modifications or amendments, additions or
deletions in or to this Plan as to benefits or otherwise and retroactively if
necessary, and regardless of the effect thereof on the rights of any particular
Member or Beneficiary, which it deems appropriate and/or necessary in order to
comply with or satisfy any conditions of any law or regulation relating to the
qualification of this Plan and the trust or trusts created pursuant hereto and
to keep this Plan and said trusts qualified under Code Section 401(a) and to
have the trust or trusts declared exempt from taxation under Code Section
501(a).
17.02 PROCEDURE TO AMEND.
This Plan may be amended by action of the Company's Board of Directors and
evidenced by a written amendment signed by the Company's Secretary or by any
other person so authorized by or pursuant to authority of the Board of
Directors.
17.03 PROVISION AGAINST DIVERSION.
No part of the assets of the Trust Fund shall, by reason of any
modification or amendment or otherwise, be used for, or diverted to, purposes
other than for the exclusive benefit of Members and their Beneficiaries under
this Plan and administrative expenses of this Plan.
SECTION 18
TERMINATION
18.01 RIGHT TO TERMINATE.
The Company reserves the right to terminate this Plan, in whole or in
part, at any time and, if this Plan shall be terminated either in its entirety
or with respect to any Employer included hereunder, the provisions of Section
18.03 shall apply.
<PAGE>
18.02 WITHDRAWAL OF AN EMPLOYER.
If an Employer shall cease to be a participating Employer in this Plan,
the Trust Fund and the Accounts of the Members of the withdrawing Employer and
their Beneficiaries shall be revalued as if such withdrawal date were a
Valuation Date. The Committee shall then direct the Trustee either to distribute
the Accounts of the Members of the withdrawing Employer as of the date of such
withdrawal on the same basis as if the Plan had been terminated pursuant to
Section 18.03 to deposit in a trust established by the withdrawing Employer
pursuant to a plan substantially similar to this Plan assets equal in value to
the assets of the Trust Fund allocable to the Accounts of the Members of the
withdrawing Employer.
18.03 DISTRIBUTION IN EVENT OF TERMINATION OF TRUST.
If this Plan is terminated at any time including a partial termination as
defined in Code Section 411(d)(3), or if contributions are completely
discontinued and the Company determines that the trust shall be terminated, in
whole or in part, the Trust Fund and all Accounts shall be revalued as if the
termination date were a Valuation Date and the affected Members' Accounts shall
be distributed in accordance with Section 10.
18.04 ADMINISTRATION IN EVENT OF CONTINUANCE OF TRUST.
If this Plan shall be terminated in whole or in part or contributions
completely discontinued but the Company determines that the trust shall be
continued pursuant to the terms of the Trust Agreement, the trust shall continue
to be administered as though the Plan were otherwise in effect. Upon the
subsequent termination of the trust, in whole or in part, the provisions of
Section 18.03 shall apply.
18.05 MERGER, CONSOLIDATION OR TRANSFER.
In the case of any merger or consolidation with, or transfer of Plan
assets or liabilities to, any other plan each Member shall be entitled to
receive a benefit immediately after the merger, consolidation or transfer (if
the transferee plan then terminated) which is equal to or greater than the
benefit he would have been entitled to receive immediately before the merger,
consolidation or transfer (if the Plan had then terminated).
SECTION 19
CONSTRUCTION
19.01 APPLICABLE LAW.
The provisions of this Plan except as otherwise governed by ERISA shall be
construed, regulated, administered and enforced according to the laws of the
State of Kansas.
19.02 GENDER AND NUMBER.
<PAGE>
Wherever applicable, the masculine pronoun as used herein shall include
the feminine pronoun and the singular pronoun shall include the plural.
SECTION 20
TOP-HEAVY REQUIREMENTS
20.01 GENERALLY.
For any Plan Year in which the Plan is a Top-Heavy Plan, the provisions of
Sections 20.02, 20.03, 20.04 and 20.05 shall automatically take effect in
accordance with Code Section 416.
20.02 VESTING.
A Member who is credited with an Hour of Service while the Plan is Top-
Heavy, or in any Plan Year after a Plan Year in which the Plan is Top-Heavy, and
who has completed at least three Years of Service shall have a nonforfeitable
right to 100 percent of his accrued benefit and no amount may become forfeitable
if the Plan later ceases to be Top-Heavy. Such accrued benefit shall include
benefits accrued before the Plan becomes Top-Heavy. Notwithstanding any other
provision of this Plan to the contrary, once the vesting requirements of this
Section 20.02 become applicable, they shall remain applicable even if the Plan
later ceases to be Top-Heavy.
20.03 MINIMUM ALLOCATIONS.
(a) Minimum Employer Allocations and allocations of Plan forfeitures for a
Member who is not a Key Employee shall be required under the Plan for the Plan
Year as set forth in Section 20.03(b) and (c).
(b) The amount of the minimum allocation shall be the lesser of the
following percentages of Pay: (i) four percent or, (ii) the highest percentage
at which such allocations are made under the Plan for the Plan Year on behalf of
a Key Employee. For purposes of this paragraph (b), all defined contribution
plans required to be included in an Aggregation Group shall be treated as one
plan. This paragraph (b) shall not apply if the Plan is required to be included
in an Aggregation Group and the Plan enables a defined benefit plan required to
be included in the Aggregation Group to meet the requirement of Code Sections
401(a)(4) or 410. For purposes of this paragraph (b), the calculation of the
percentage at which allocations are made for a Key Employee shall be based only
on his Pay not in excess of $209,200, such amount to be adjusted annually for
increases in the cost of living in accordance with Code Section 401(a)(17).
(c) For purposes of this Section 20.03, the term "Member" shall be deemed
to refer to all Members who have not separated from service at the end of the
Plan Year including, without limitation, individuals who declined to make
contributions to the Plan.
<PAGE>
20.04 PARTICIPANTS UNDER DEFINED BENEFIT PLANS.
If any Member other than a Key Employee is also a participant under a
defined benefit plan of an Employer which is a Top-Heavy Plan, then Section
19.03(a) shall not apply and the required minimum annual contribution for such
Member under this Plan shall be 7 1/2 percent of such Member's Pay. Such
contribution shall be made without regard to the amount of contribution, if any,
made to the Plan on behalf of Employees.
20.05 SUPER TOP-HEAVY PLANS.
If for any Plan Year in which the Plan is a Top-Heavy Plan it is also a
Super Top-Heavy Plan, then for purposes of the limitations on contributions and
benefits under Code Section 415, the dollar limitations in the defined benefit
plan fraction and the defined contribution plan fraction shall be multiplied by
1.0 rather than 1.25. However, if the application of the provisions of this
Section 20.05 would cause any individual to exceed the combined Section 415
limitations on contributions and benefits, then the application of the
provisions of this Section 20.05 shall be suspended as to such individual until
such time as he no longer exceeds the combined Section 415 limitations as
modified by this Section 20.05. During the period of such suspension, there
shall be no Employer Contributions, forfeitures or voluntary nondeductible
contributions allocated to such individual under this or any other defined
contribution plan of an Employer and there shall be no accruals for such
individual under any defined benefit plan of an Employer.
20.06 DETERMINATION OF TOP HEAVINESS.
(a) The determination of whether a plan is Top-Heavy shall be made in
accordance with paragraphs (b) through (d) of this Section 20.06.
(b) If the Plan is not required to be included in an Aggregated Group with
other plans, then it shall be Top-Heavy only if when considered by itself, it is
a Top-Heavy Plan and it is not included in a permissive Aggregation Group that
is not a Top-Heavy Group.
(c) If the Plan is required to be included in an Aggregation Group with
other plans, it shall be Top-Heavy only if the Aggregation Group, including any
permissively aggregated plans, is Top-Heavy.
(d) If a plan is not a Top-Heavy Plan and is not required to be included
in an Aggregation Group, then it shall not be Top-Heavy even if it is
permissively aggregated in an Aggregation Group which is a Top-Heavy Group.
20.07 DETERMINATION OF SUPER TOP HEAVINESS.
A plan shall be a Super Top-Heavy Plan if it would be a Top-Heavy Plan
under the provisions of Section 20.08, but substituting "90 percent" for "60
percent" in the ratio test in Section 20.08.
<PAGE>
20.08 CALCULATION OF TOP-HEAVY RATIOS.
A plan shall be Top-Heavy and an Aggregation Group shall be a Top-Heavy
Group with respect to any Plan Year as of the Determination Date if the sum as
of the Determination Date of the Cumulative Accrued Benefits and the Cumulative
Accounts of Employees who are Key Employees for the Plan Year exceeds 60 percent
of a similar sum determined for all Employees, excluding former Key Employees.
20.09 CUMULATIVE ACCOUNTS AND CUMULATIVE ACCRUED BENEFITS.
(a) The Cumulative Accounts and Cumulative Accrued Benefits for any
Employee shall be determined in accordance with paragraphs (b) through (e) of
this Section 20.09.
(b) Cumulative Account shall mean the sum of the amount of an Employee's
accounts under a defined contribution plan (for an unaggregated plan) or under
all defined contribution plans included in an Aggregation Group (for aggregated
plans) determined as of the most recent plan Valuation Date within a 12-month
period ending on the Determination Date, increased by any allocations due after
such Valuation Date and before the Determination Date.
(c) Cumulative Accrued Benefit means the sum of the present value of an
Employee's accrued benefits under a defined benefit plan (for an unaggregated
plan) or under all defined benefit plans included in an Aggregation Group (for
aggregated plans), determined under the actuarial assumptions set forth in such
plan or plans, as of the most recent plan Valuation Date within a 12-month
period ending on the Determination Date as if the Employee voluntarily
terminated service as of such Valuation Date.
(d) Accounts and benefits shall be calculated to include all amounts
attributable to both Matching Allocations and Employee contributions but
excluding amounts attributable to voluntary deductible Employee contributions.
(e) Accounts and benefits shall be increased by the aggregate
distributions during the five-year period ending on the Determination Date made
with respect to an Employee under the plan or plans as the case may be or under
a terminated plan which, if it had not been terminated, would have been required
to be included in the Aggregation Group.
(f) Rollovers and direct plan-to-plan transfers shall be handled as
follows:
(i) If the transfer is initiated by the Employee and made from a plan
maintained by one Employer to a plan maintained by another Employer, the
transferring plan continues to count the amount transferred under the
rules for counting distributions. The receiving plan does not
<PAGE>
count the amount if accepted after December 31, 1983, but does count it if
accepted prior to December 31, 1983.
(ii) If the transfer is not initiated by the Employee or is made
between plans maintained by the Employers, the transferring plan shall no
longer count the amount transferred and the receiving plan shall count the
amount transferred.
(iii) For purposes of this subsection (f), all Employers aggregated
under the rules of Code Sections 414(b), (c) and (m) shall be considered a
single employer.
20.10 OTHER DEFINITIONS.
(a) For purposes of this Section 20, the definitions in paragraphs (b)
through (i) of this Section 20.10 shall apply, to be interpreted in accordance
with the provisions of Code Section 416 and the regulations thereunder.
(b) AGGREGATION GROUP means a plan or group of plans which included all
plans maintained by the Employer in which a Key Employee is a participant or
which enables any plan in which a Key Employee is a participant to meet the
requirements of Code Section 401(a)(4) or Code Section 410, as well as all other
plans selected by the Corporation for permissive aggregation, the inclusion of
which would not prevent the group of plans from continuing to meet the
requirements of such Code sections.
(c) DETERMINATION DATE means, with respect to any Plan Year, the last day
of the preceding Plan Year.
(d) EMPLOYEE means any person employed by an Employer and shall also
include any Beneficiary of such persons, provided that the requirements of
Sections 20.02, 20.03 and 20.05 shall not apply to any person included in a unit
of Employees covered by an agreement which the Secretary of Labor finds to be a
collective bargaining agreement between Employee representatives and one or more
Employers if there is evidence that retirement benefits were the subject of good
faith bargaining between such Employee representatives and such Employer or
Employers.
(e) EMPLOYER means any corporation which is a member of a controlled group
of corporations (as defined in Code Section 414(b)) which includes the
Corporation or any trades or businesses (whether or not incorporated) which are
under common control (as defined in Code Section 414(c)) with the Corporation,
or a member of an affiliated service group (as defined in Code Section 414(m))
which includes the Corporation.
(f) KEY EMPLOYEE means any Employee or former Employee who is, at any time
during the Plan Year, or was, during any one of the four preceding Plan Years
any one or more of the following: (1) an officer of an Employer, unless 50 other
such officers have higher annual Pay; (2) one of the 10 persons
<PAGE>
employed by an Employer having annual Pay greater than the limitation in effect
under Code Section 415(c)(1)(A), and owning (or considered as owning within the
meaning of Code Section 318) the largest interests in the Employers (if two
Employees have the same interest, the one with the greater Compensation shall be
treated as owning the larger interest); (3) any person owning (or considered as
owning within the meaning of the Code Section 318) more than five percent of the
outstanding stock of an Employer or stock possessing more than five percent of
the total combined voting power of such stock; (4) a person who would be
described in subsection (3) above if "one percent" were substituted for "five
percent" each place it appears in subsection (3) above, and who has annual Pay
of more than $150,000 (for purposes of determining ownership under this
subsection, Code Section 318(a)(2)(C) shall be applied by substituting "five
percent" for "50 percent" and the rules of subsections (b), (c) and (m) of Code
Section 414 shall not apply).
(g) LIMITATION YEAR means the calendar year.
(h) PLAN YEAR means the calendar year.
(i) YEAR OF SERVICE means a year which constitutes a "year of service"
under the rules of paragraphs (4), (5) and (6) of Code Section 411(a) to the
extent not inconsistent with the provisions of this Section 20.
<PAGE>
APPENDIX TO THE
PAYLESS SHOESOURCE, INC. PROFIT SHARING PLAN ("PLAN")
FOR THE PURPOSE OF PROVIDING BENEFITS
TO ASSOCIATES OF THE PUERTO RICAN SUBSIDIARIES
OF THE PAYLESS SHOESOURCE, INC.
Whereas, Payless ShoeSource, Inc. ("Payless") intends that the associates of its
Puerto Rican Subsidiaries be given the opportunity to become Members of the Plan
pursuant to its terms and subject to the conditions of the applicable law of
Puerto Rico; and
Whereas, the Puerto Rico Internal Revenue Code of 1994 (the "Act") contains
certain conditions to Plan qualification with respect to Plan contributions made
on behalf of Puerto Rican residents; and
Whereas, it is Payless' intention that the Plan be designed and operate so as to
be qualified under the Act with respect to contributions made on behalf of
Payless associates in Puerto Rico;
Now, therefore, effective April 1, 1996, the following provisions (being
modifications of certain designated sections of the Plan intended to be
qualified under the U.S. Internal Revenue Code) are adopted with respect to the
Plan only as it may apply to associates of Payless' Puerto Rican subsidiaries
and for the purpose of permitting the contributions made on behalf of such
associates to be treated as contributions made under a Plan qualified under the
Act; and
Further, the following provisions shall be submitted to the Puerto Rican
Secretary of Hacienda for the purpose of obtaining a determination that the Plan
as modified by the Appendix is qualified under the Act; provided further that,
to the extent the Plan as modified is finally determined to be not qualified
under the Act, such provisions shall be deemed to have no force and effect as if
they had not been adopted.
1) 4.01 MEMBER CONTRIBUTIONS.
* * * *
(c) Notwithstanding any election in accordance with Section 4.01(b), if
the Committee at any time determines that all or any portion of the
Member's Before-Tax Contributions should be treated as After-Tax
Contributions in order for the Before-Tax Contribution provisions of the
Plan to qualify as a "qualified cash or deferred arrangement" for purposes
of Section 1165(e) of the Puerto Rico Internal Revenue Code of 1994
("Act"), or if the Actual Deferral Percentage Standards set forth in the
Act are not met at the end of the Plan Year; then the Committee, in its
sole and absolute discretion, (i) may,
<PAGE>
in accordance with Section 4.02(b) below, limit the amount which shall be
contributed by the Employer as Before-Tax Contributions after the date of
such determination on behalf of all or any portion of the Members and (ii)
shall distribute any excess Before-Tax Contributions made with respect to
a Plan Year to the affected Members as soon as practicable after the end
of such Plan Year.
* * * *
(h) Notwithstanding any election in accordance with paragraph (b) of
this Section 4.01, the amount of a Member's Before-Tax Contributions for
any calendar year shall not exceed the lesser of $7,500 or 10% of the
Member's annual Pay (the "Deferral Limit"). If any Member may reach the
Deferral Limit, the Committee can direct that all or any portion of such
Member's Contributions during such year shall be After-Tax Contributions
regardless of such Member's elections pursuant to Sections 4.01(a) and
4.01(b).
2) 4.02 LIMITATIONS ON BEFORE-TAX CONTRIBUTIONS.
(a) Notwithstanding the foregoing provisions of this Section 4, the
Committee shall limit the amount of Before-Tax Contributions made on
behalf of each "Highly Compensated Employee" (as hereinafter defined) to
the extent necessary to ensure that either of the following tests is
satisfied:
(i) The "Actual Deferral Percentage" (as hereinafter defined) of the
group of eligible Highly Compensated Employees is not more than the Actual
Deferral Percentage of all other eligible Associates multiplied by 1.25;
or
(ii) The excess of the Actual Deferral Percentage for the group of
eligible Highly Compensated Employees over that of all other eligible
Associates is not more than two percentage points, and the Actual Deferral
Percentage for the group of eligible Highly Compensated Employees is not
more than the Actual Deferral Percentage of all other eligible Associates
multiplied by 2.0.
For the purposes of this Section 4.02, "eligible" means eligible to be a Member
of this Plan pursuant to Section 2.01.
For purposes of this Section 4.02, the term "Highly Compensated Employee" means
any employee whose Pay is greater than that of two-thirds of all eligible
employees, taking into account only Pay which is considered for the purposes of
Section 4.01.
For purposes of this Section 4.02, the term "Actual Deferral Percentage" shall
mean, for a specified group of Associates for a
<PAGE>
Plan Year, the average of the ratios (calculated separately for each person in
such group) of:
(i) The aggregate of the Before-Tax Contributions (and such other
contributions which, in accordance with applicable rules and regulations
promulgated under the Act may be aggregated with such Before-Tax
Contributions for purposes of demonstrating compliance with the
requirements of the Act) which are actually payable to the trust on behalf
of each such Associate to
(ii) Such Associate's Pay for such Plan Year.
In the event it is determined prior to any payroll period that the amount of
Before-Tax Contributions elected to be made thereafter would cause the
limitation prescribed in this Section 4.02 to be exceeded, the amount of Before-
Tax Contributions allowed to be made on behalf of Highly Compensated Employees
(and/or such other Members as the Committee may prescribe) shall be reduced to a
rate determined by the Committee, and any elections of future Before-Tax
Contributions which exceed the rate determined by the Committee shall be deemed
to be After-Tax Contributions for the remainder of the Plan year,
notwithstanding the limitations on contribution rate changes in Section 4.01(f).
Except as is hereinafter provided, the Members to whom such reduction is
applicable and the amount of such reduction shall be determined pursuant to such
uniform and nondiscriminatory rules as the Committee shall prescribe.
<PAGE>
3) 4.03 DISTRIBUTIONS OF EXCESS DEFERRALS.
* * * *
(b) For the purposes of this Section 4.03, "Excess Before-Tax Deferral"
means the amount of Pay which a Member has elected to have the Employer
contribute to the Trust rather than receive it in cash, which is a Member
Contribution under Section 4.01 for a calendar year that the Member
allocates to this Plan pursuant to the claim procedure set forth in
subsection 4.03(c) hereof.
(c) The Member's claim shall be in writing; shall be submitted to the
Committee no later than March 1; shall specify the amount of the Member's
Excess Before-Tax Deferral for the preceding calendar year; and shall be
accompanied by the Member's written statement that if such amounts are not
distributed, the Excess Before-Tax Deferrals, when added to amounts
deferred under other plans or arrangements described in Act Section
1165(e) exceeds the limit imposed on the Member in accordance with the
applicable provisions of the Act for the year in which the deferral
occurred.
<PAGE>
PAYLESS SHOESOURCE, INC.
DEFERRED COMPENSATION PLAN
Section 1. Purpose.
The purpose of this Plan is to provide an additional incentive to the key
employees of Payless ShoeSource, Inc. to achieve superior performance.
Section 2. Definitions.
(a) Board means the Board of Directors of Payless, as hereinafter defined.
(b) Committee means the Committee appointed to administer the Plan, as
hereinafter defined, as provided in Section 8 hereof.
(c) Common Stock means the Common Stock of Payless, as hereinafter defined.
(d) Corporation means Payless, as hereinafter defined, or any subsidiary of
Payless which is an employer of an Executive, as hereinafter defined, who is a
Participant, as hereinafter defined, in the Plan, as hereinafter defined.
(e) Executive means any individual employed by the Corporation in an executive
capacity who receives regular stated compensation in respect of such employer-
employee relationship other than a pension, retainer or fee under a contract.
(f) Fiscal Year means the fiscal year of the Corporation as established from
time to time.
(g) Payless means Payless ShoeSource, Inc., a Missouri corporation, its
successors and assigns.
(h) Participant means an Executive who has been designated by the Committee as
eligible, and who has elected to participate in the Plan, as hereinafter
defined.
(i) Plan means the Deferred Compensation Plan of the Corporation, as described
herein.
(j) Stock Unit means an accounting equivalent of one share of Common Stock.
(k) Stock Unit Account means an account on the records of the Corporation in
respect of Stock Units which have been and/or may be allocated to a Participant
in the manner hereinafter set forth.
Section 3. Methods of Payment.
(a) Except as hereinafter provided, prior to the commencement of the calendar
year that includes the first day of a Fiscal Year, each Participant shall be
afforded the opportunity of making an election to have any one or more of the
following alternative methods of payment applied to all or a part of any portion
(which such portion shall not exceed one-half, unless specifically provided for
to the contrary in the participant's written contract of employment) of any
compensation of which such Participant shall be the recipient in respect of his
performance during such Fiscal Year:
(i) Alternative (i): Payment of any such compensation that is paid in the
form of a bonus on the first day of April next following the close of such
Fiscal Year or on such subsequent date as the amount thereof is
ascertainable.
(ii) Alternative (ii): Payment thereof at a deferred date or dates either
in a lump sum or in annual installments, as may be determined by the
Committee, such payment when made to include interest, as hereinafter
provided, from the first day of April next following the Fiscal Year in
respect of which the compensation was payable to the date of payment.
<PAGE>
(iii) Alternative (iii): Payment thereof at a deferred date or dates
either in a lump sum or in annual installments, as may be determined by the
Committee, and either in cash or in Common Stock or in both cash and Common
Stock, as may be determined by the Committee, in respect of Stock Units to
be allocated to the Participant as hereinafter provided.
If any Participant shall fail to make an election with respect to any year, he
shall be deemed to have elected not to defer any portion of his compensation for
such year. Notwithstanding the requirements imposed by this paragraph (a) with
respect to the time by which an election must be made, an employee who is
designated by the Committee as a Participant for the first time may, within 60
days of such designation, make any election otherwise permitted under this
paragraph (a) with respect to the Participant's compensation in respect of
employment subsequent to the date on which the election is made.
(b) In connection with all determinations to be made by the Committee as
respects Alternative (ii) and, except for the determination of whether payment
thereunder is to be made in cash or in Common Stock or in both cash and Common
Stock (which determination shall be in the absolute discretion to the
Committee), Alternative (iii), the Participant shall be given an opportunity at
the time he makes his election of indicating his preferences, which preferences
shall be taken into account by the Committee in making its determinations.
Except as provided in Section 12 and Section 13 in no event shall payments under
Alternative (ii) or (iii) commence prior to the earliest of the Participant's
retirement, termination of employment or death (or prior to the occurrence of a
severe financial hardship, as provided below).
The Committee shall make its determination with respect to the payment schedule
(i.e., a lump sum payment or payments in annual installments) under Alternative
(ii) or (iii) prior to the commencement of the calendar year that includes the
first day of the Fiscal Year for which such alternative is elected. Except in
the event of a severe financial hardship, as provided below, the Committee's
determination with respect to a payment schedule shall become irrevocable as of
the first day of the calendar year that includes the first day of the Fiscal
Year for which the determination is made. However, upon the written request of
the Participant (or if applicable, the beneficiary or distributee) the payment
schedule may be revised by the Committee, in its absolute discretion, in the
event that the Participant (or if applicable, the beneficiary or distributee)
incurs a severe financial hardship. Such severe financial hardship must have
been caused by an accident, illness or other event which was beyond the control
of the Participant (or, if applicable, the beneficiary or distributee); and the
Committee shall revise the payment schedule that it had previously established
only to the extent that the Committee considers necessary to eliminate the
severe financial hardship. Notwithstanding the requirements imposed by this
paragraph (b) regarding the date by which the Committee must make a
determination with respect to the payment schedule under Alternative (ii) or
(iii) and the date as of which such determination shall become irrevocable
(except in the event of a severe financial hardship), when a Participant makes
an election pursuant to the last sentence of paragraph (a) of this Section 3,
the Committee shall make its determination with respect to the payment schedule
at any time prior to the date as of which the Participant's election becomes
effective, and its determination shall become irrevocable (except in the event
of a severe financial hardship) as of such effective date.
(c) In the case of a Participant who elects to have all or any part of his
compensation for a particular Fiscal Year paid under Alternative (iii), Stock
Units shall be allocated to such Participant by crediting the same to his Stock
Unit Account, and the number of Stock Units to be so credited for such Fiscal
Year shall be the sum of the following:
(i) the quotient, disregarding fractions, resulting from dividing the
dollar amount of such portion of the Participant's compensation as is to be
so applied to Alternative (iii) by the average closing price of the Common
Stock on the New York Stock Exchange during the month of February ending in
the Fiscal Year next following the Fiscal Year in respect of which such
compensation was payable; plus
<PAGE>
(ii) the quotient, disregarding fractions, resulting from dividing the
aggregate dollar amount of cash dividends which would have been paid to the
Participant during such Fiscal Year had the Stock Units standing in his
Stock Unit Account from time to time during such Fiscal Year been shares of
Common Stock by the average closing price of the Common Stock on the New
York Stock Exchange during the month of February ending in the year next
following such Fiscal Year; plus
(iii) the number of shares of Common Stock, disregarding fractions, which
would have been received by the Participant as stock dividends during such
Fiscal Year had the Stock Units standing in his Stock Unit Account at the
date or dates of payment of such stock dividend(s) been shares of Common
Stock.
Any allocation of Stock Units to a Participant's Stock Unit Account required to
be made pursuant to this paragraph (c) shall be made as of the first day of
April next following the Fiscal Year in respect of which such compensation was
payable or such dividends were paid, as the case may be. The aggregate value of
the fraction or fractions remaining after making the applicable calculations
referred to in subparagraphs (c)(i), (c)(ii) and (c)(iii) of this Section 3
(based upon the average closing price of Common Stock on the New York Stock
Exchange during the month of February next preceding such month of April), shall
not be converted into Stock Units but shall be allocated and added to the amount
elected by the Participant to be paid to him under Alternative (ii) above, or,
if the Participant shall have made no such election under Alternative (ii), then
such remaining amount shall be paid to the Participant as if he had made an
election under Alternative (i) above to be so paid.
(d) Notwithstanding the provisions of Section 3(c) to the contrary, in the
event of a recapitalization of Payless pursuant to which the outstanding shares
of Common Stock shall be changed into a greater or smaller number of shares
(including, without limitation, a stock split or a stock dividend of 25% or more
of the number of outstanding shares of Common Stock), the number of Stock Units
credited to a Participant's Stock Unit Account shall be appropriately adjusted
as of the effective date of such recapitalization.
(e) Interest to be paid under Alternative (ii) shall be credited annually as of
April 1 of each year and shall be at a rate shall be equal to the average yield
on long-term United States Government Bonds (as determined by the Board of
Governors of the Federal Reserve Board and published in the Federal Reserve
Bulletin) for the calendar year prior to said April 1, compounded annually,
provided, however, that if the method of calculation of such average yield shall
be changed, or if the determination and/or the publication thereof be
discontinued, then the Committee shall substitute therefor such alternative
method of determining such interest rate as it, in its discretion, shall deem
appropriate.
Section 4. Limitation of Stock Units.
In no event shall the aggregate number of Stock Units allocated under this Plan
in respect of compensation for any Fiscal Year exceed a number equal to 1/2 of
1% of the total number of shares of Common Stock outstanding at the close of
such Fiscal Year.
Section 5. Distribution from the Stock Unit Account.
(a) Distribution from a Participant's Stock Unit Account shall be made in
accordance with the determinations made by the Committee, as provided in this
Plan. Stock Units shall be adjusted from time to time in accordance with this
Plan until all distributions to which a Participant is entitled hereunder shall
have been made.
(b) If the Committee determines that distribution to a Participant is to be
made in annual installments, the Committee may determine from time to time
whether each particular installment shall be distributed in cash or in Common
Stock or in both cash and Common Stock.
<PAGE>
(c) If the Committee determines that a distribution to a Participant is to be
made in a lump sum in Common Stock, the number of shares of Common Stock to be
so distributed to such Participant shall equal the number of Stock Units then in
his Stock Unit Account. For the purpose of determining the number of shares of
Common Stock to be distributed on a particular annual installment distribution
date, the Committee shall make its calculations as if that annual installment
and all subsequent annual installments were in fact to be made in shares of
Common Stock, as follows: the number of shares of Common Stock which would be
then so distributable, except in the case of the last distribution, shall be
equal to the product, disregarding fractions, of the total number of Stock Units
then credited to the Participant's Stock Unit Account, multiplied by a fraction,
the numerator of which shall be one and the denominator of which shall be the
number of remaining installments; and in the case of the last distribution,
shall be the number of shares of Common Stock equal to the Stock Units then
remaining in the Participant's Stock Unit Account. The Participant's Stock Unit
Account shall be decreased by one Stock Unit for each share of Common Stock
distributed to a Participant.
(d) If the Committee determines that a particular distribution to a Participant
is to be made in cash, a computation shall first be made of the number of shares
of Common Stock which would then be distributable pursuant to paragraph (c) of
this Section 5 if such distribution were to be made in shares of Common Stock.
The number of shares thus determined shall then be converted into cash in
respect of each such distribution by valuing such shares at the average closing
price of the Common Stock on the New York Stock Exchange during the month of
February next preceding the date of such distribution, and the resulting amount
of cash shall be distributed to the Participant. The Participant's Stock Unit
Account shall then be decreased by one Stock Unit for each share of Common Stock
which would have been distributed to the Participant had such cash distribution
been made in shares of Common Stock.
(e) If the Committee determines that a distribution is to be made in part in
Common Stock and in part in cash, paragraphs (c) and (d) of this Section 5 shall
be applied separately to the respective parts of such distribution and to the
respective parts of the Stock Unit Account with respect to which the
distribution is to be made.
Section 6. Death of Participant.
In the event of the death of a Participant prior to complete distribution under
Alternatives (ii) and/or (iii) hereof, all cash and/or Stock Units then
remaining undistributed, or which shall thereafter become distributable to him
pursuant to such Alternatives, shall be distributed to such beneficiary as the
Participant shall have designated in writing to the Corporation, or, in the
absence of such designation, to his personal representative. Such distribution
shall be made at such date or dates either in a lump sum or in annual
installments, as may be determined by the Committee prior to the beginning of
the calendar year that includes the first day of the Fiscal Year for which such
alternative is elected (or, where applicable, the date specified by the last
sentence of Section 3(b)); provided, however, that in the event of a severe
financial hardship, the Committee may subsequently revise its determination in
accordance with the applicable provisions of Section 3(b).
Section 7. Participant's Right Unsecured; Investments.
The right of a Participant to receive any distribution hereunder shall be an
unsecured claim against the general assets of the Corporation. Nothing in this
Agreement shall require the Corporation to invest any amount, the payment of
which has been deferred under Alternative (ii) or (iii), in Common Stock or in
any other medium.
Section 8. Administration of the Plan--Committee.
(a) The Plan shall be administered by a Committee of not less than two nor more
than five persons designated by the Board (which may, but need not, be the
compensation committee of the Board), all of whom shall be directors of the
Corporation and shall serve at the pleasure of the Board. In no event shall any
member of the Committee be a Participant. The Committee shall act by vote or
written consent of a
<PAGE>
majority of its members (except in the case of a two person Committee in
which case any vote or written consent must be unanimous). The Plan may be
amended, modified or terminated by the Board, except that no change may be
made without the approval of the Common Shareowners of Payless (i) in the
maximum number of shares or Stock Units deliverable or allocable in respect
of any Fiscal Year under the plan or (ii) in the provisions of
subparagraphs (c)(i) and (c)(ii) of Section 3 of this Plan relating to the
method of determining the number of Stock Units allocable to a Participant.
(b) The Committee shall prescribe such forms as it considers appropriate for
the administration of the Plan. The forms shall set forth such terms and
conditions not inconsistent with the terms of the Plan as the Committee may
determine and shall designate:
(i) the alternative or alternatives elected by the Participant pursuant to
Section 3(a);
(ii) the Committee's determination of the time or times when payment of
such compensation will be made to the Participant pursuant to Section
3(b)(in the absence of a severe financial hardship);
(iii) the beneficiary (if any) designated by the Participant pursuant to
Section 6; and
(iv) the Committee's determination of the time or times when payment of
such compensation will be made after the Participant's death pursuant to
Section 6 (in the absence of a severe financial hardship).
Section 9. Successors.
The provisions of the Plan with respect to each Participant shall bind the
legatees, heirs, executors, administrators or other successors in interest of
such Participant.
Section 10. Alienation.
(a) Subject to the provisions of Section 6 and paragraph (b) of this Section 10,
no amount, the payment of which has been deferred under Alternative (ii) or
(iii), shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, levy or charge, and any attempt to so
anticipate, alienate, sell, transfer, assign, pledge, encumber, levy or charge
the same shall be void; nor shall any such amount be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the person
entitled to such benefit.
(b) Nothing in this Section 10 shall prohibit the personal representative of a
Participant from designating that any amount be distributed in accordance with
the terms of the Participant's will or pursuant to the laws of descent and
distribution.
Section 11. Withholding.
There shall be deducted from all amounts paid under this Plan any taxes required
to be withheld by any federal, state or local government. The Participants and
their beneficiaries, distributees and personal representatives will bear any and
all federal, foreign, state, local or other income or other taxes imposed on
amounts paid under this Plan as to which no amounts are withheld, irrespective
of whether withholding is required.
Section 12. Discretionary Payment.
(a) Notwithstanding any other provision in any other Section of the Plan to be
contrary, the Committee may, in its sole and absolute discretion, direct an
immediate payment of cash and/or distribution of Stock with respect to amounts
(except those referred to in the next proviso) previously deferred under this
Plan if the
<PAGE>
Committee determines that such action is in the best interests of Payless, the
Participants and their beneficiaries.
(b) In the event that the Committee shall so direct an immediate payment,
distribution and/or release in accordance with Section 12(a), then
(i) the amounts of cash and the numbers of shares of Stock to be so paid
and/or distributed shall be determined by the Committee so as to reflect
fairly and equitably appropriate interest and dividends since the preceding
April 1 and so as to reflect fairly and equitably such other facts and
circumstances as the Committee deems appropriate, including, without
limitation, recent price of the Stock;
(ii) amounts which were otherwise deferred or to be deferred with respect
to the Fiscal Year or long-term period in which such payment or
distribution occurs shall be paid when otherwise payable (such amounts
which would otherwise have been payable prior to the date of such payment
or distribution shall be paid as soon as practicable thereafter);
(iii) in the event that cash is not paid or made available to a Participant
when otherwise due or that shares of Stock are not distributed or otherwise
made available to a Participant when otherwise due, then such Participant
may file a claim for such payment or distribution and, if such Participant
is successful, then the Corporation shall reimburse such Participant for
reasonable attorneys' fees actually paid by the Participant in enforcing
such Participant's rights to such payment or distribution; and
(iv) in the event that cash is not paid or made available to a Participant
when otherwise due, then interest will accrue with respect to such unpaid
amount from the date it was otherwise due until the date it is actually
paid at a rate equal to two percentage points over the prime rate as in
effect from time to time, as determined in good faith the Committee based
on the prime rate charged from time to time by major banks in the City of
New York.
Section 13. Change in Control.
Notwithstanding any other provision in any other Section of this Plan to the
contrary, (i) the value of all amounts deferred by a Participant which have not
yet been credited to the Participant's accounts under this Plan and (ii) the
value of all of a Participant's accounts under this Plan shall be paid to such
Participant in each case in a lump sum cash payment on the occurrence of a
Change in Control of the Corporation or as soon thereafter as practicable, but
in no event later than five days after the Change in Control of the Corporation.
The amounts of cash credited to each Participant's accounts prior to determining
the amount of cash to be paid from these accounts shall be determined by the
Committee (which, for this purpose, shall be comprised of members of the Board
prior to the Change in Control of the Corporation) so as to reflect fairly and
equitably appropriate interest and dividends since the preceding April 1 and so
as to reflect fairly and equitably such other facts and circumstances as the
Committee deems appropriate, including, without limitation, recent price of the
stock. For purposes of payments under this Section 13, the value of Stock Unit
shall be computed as the greater of (a) the closing price of shares of Common
Stock as reported on the New York Stock Exchange on or nearest the date on which
the Change in Control is deemed to occur (or, if not listed on such exchange, on
a nationally recognized exchange or quotation system on which trading volume in
the Common Stock is highest) or (b) the highest per share price for shares of
Common Stock actually paid in connection with any Change in Control.
For purposes of this Plan, a "Change in Control of the Corporation" shall be
deemed to have occurred if
(a) any "person" as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Corporation, any trustee or other fiduciary holding securities
<PAGE>
under an employee benefit plan of the Corporation, or any company owned,
directly or indirectly, by the shareowners of the Corporation in substantially
the same proportions as their ownership of stock of the Corporation), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under Exchange Act),
directly or indirectly of securities of the Corporation representing 50% or more
of the combined voting power of the Corporation's then outstanding securities;
(b) during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Corporation to
effect a transaction described in clause (a), (c) or (d) of this Section) whose
election by the Board or nomination for election by the Corporation's
shareowners was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved cease for
any reason to constitute at least a majority thereof;
(c) the shareowners of the Corporation approve a merger or consolidation of the
Corporation with any other Corporation, other than (1) a merger or consolidation
which would result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
the Corporation or such surviving entity outstanding immediately after such
merger or consolidation or (2) a merger or consolidation effected to implement a
recapitalization of the Corporation (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Corporation's then outstanding securities; or
(d) the shareowners of the Corporation approve a plan of complete liquidation of
the Corporation or an agreement for the sale or disposition by the Corporation
of all or substantially all of the Corporation's assets.
<PAGE>
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR PAYLESS EXECUTIVES
This document constitutes and sets forth the terms of the Payless
ShoeSource, Inc. Executive Incentive Compensation Plan for Payless Executives.
Section 1. PURPOSES OF THE PLAN. The purposes of the Plan are (i) to
provide a means to attract, retain and motivate talented personnel and (ii) to
provide to participating management employees added incentive for high levels of
performance and for additional effort to improve the Company's financial
performance. Payments of awards under this Plan are intended to qualify for tax
deductibility under the provisions of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). Notwithstanding any other provisions of
this Plan, if any decision must be made before a specified date in order for
payments to qualify for such tax deductibility under the tax rules in effect
from time to time, then such decision is to be made before such date.
Section 2. DEFINITIONS. Whenever used herein, the following terms shall
have the following meanings:
(a) "Annual Award" means, for a Participant for a Fiscal Year, the
product of the Participant's Minimum Annual Compensation for such Fiscal
Year multiplied by the aggregate of:
(i) the Participant's Annual EPS Factor for such Fiscal Year, plus
(ii) the Participant's Annual RONA Factor for such Fiscal Year.
(b) "Annual EPS Factor" means, for a Participant for a Fiscal Year (i)
five percent, if actual EPS Growth for such Fiscal Year equals or exceeds
the Participant's Threshold Annual EPS Growth Objective for such Fiscal
Year, plus (ii) ten percent multiplied by a fraction (not less than zero and
not greater than one), the numerator of which is the actual EPS Growth for
such Fiscal Year less the Participant's Threshold Annual EPS Growth
Objective for such Fiscal Year and the denominator of which is the
Participant's Maximum Annual EPS Growth Objective for such Fiscal Year less
the Participant's Threshold Annual EPS Growth Objective for such Fiscal
Year; provided, however, that the Annual EPS Factor shall be subject to
adjustment as provided in Section 6(b).
(c) "Annual RONA Factor" means, for a Participant for a Fiscal Year (i)
five percent if actual RONA for such Fiscal Year equals or exceeds the
Participant's Threshold Annual RONA Objective for such Fiscal Year, plus
(ii) ten percent multiplied by a fraction (not less than zero and not
greater than one), the numerator of which is the actual RONA for such Fiscal
Year less the Participant's Threshold Annual RONA Objective for such Fiscal
Year and the denominator of which is the Participant's Maximum Annual RONA
Objective for such Fiscal Year less the Participant's Threshold Annual RONA
Objective for such Fiscal Year; provided, however, that the Annual RONA
Factor shall be subject to adjustment as provided in Section 6(b).
(d) "Average Annual Compensation" means, for a Long-Term Performance
Period, the Participant's average annual salary rate during such period,
determined on a monthly basis, or such lesser amount as the Participant and
the Company shall agree to, in writing.
(e) "Board" means the Board of Directors of the Company.
(f) "Committee" means a committee designated by the Board, which shall
consist of not less than two members of the Board who shall be appointed by
and serve at the pleasure of the Board and who shall be "outside" directors
within the meaning of Section 162(m) of the Code.
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(g) "Company" means Payless ShoeSource, Inc.
(h) "Disability" means the inability of a Participant to perform the
normal duties of the Participant's regular occupation.
(i) "EPS Growth" means (i) for a Fiscal Year, the annual growth rate in
EPS measured from the immediately preceding Fiscal Year; and (ii) for a
Long-Term Performance Period, the compound annual growth rate in EPS
measured from the Fiscal Year immediately preceding the Long-Term
Performance Period to the last Fiscal Year in the Long-Term Performance
Period. For purposes of this definition, "EPS" for a Fiscal Year means the
Company's EPS for such Fiscal Year as reported in the Company's annual
report to its shareholders for the year of determination (or, in the event
that such item is not included in such annual report, such comparable figure
as may be determined by the Committee) adjusted by the Company's independent
certified public accountants to exclude such non-recurring or extraordinary
items as the Committee shall determine are not representative of the on-
going operations of the Company.
(j) "Fiscal Year" means the fiscal year of the Company.
(k) "Long-Term Award" means, for a Participant for a Long-Term
Performance Period, the product of the Participant's Average Annual
Compensation for such period multiplied by the aggregate of:
(i) the Participant's Long-Term EPS Factor for such period, plus
(ii) the Participant's Long-Term RONA Factor for such period
as such product is adjusted in accordance with Section 5(b) of the Plan.
(l) "Long -Term EPS Factor" means, for a Participant for a Long-Term
Performance Period, (i) five percent if actual EPS Growth for such period
equals or exceeds the Participant's Threshold Long-Term EPS Growth Objective
for such period, plus (ii) ten percent multiplied by a fraction (not less
than zero and not greater than one) the numerator of which is the actual EPS
Growth for such period less the Participant's Threshold Long-Term EPS Growth
Objective for such period and the denominator of which is the Participant's
Maximum Long-Term EPS Growth Objective for such period less the
Participant's Threshold Long-Term EPS Growth Objective for such period;
provided, however, that the Long-Term EPS Factor shall be subject to
adjustment as provided in Section 6(b).
(m) "Long-Term Performance Period" means three consecutive Fiscal Years;
provided, however, that the first Long-Term Performance Period under the
Plan shall be Fiscal Year 1996 and the second Long-Term Performance Period
under the Plan shall be Fiscal Years 1996 and 1997.
(n) "Long-Term RONA Factor" means, for a Participant for a Long-Term
Performance Period (i) five percent if actual RONA for such period equals or
exceeds the Participant's Threshold Long-Term RONA Objective for such period
plus (ii) ten percent multiplied by a fraction (not less than zero and not
greater than one), the numerator of which is the actual RONA for such period
less the Participant's Threshold Long-Term RONA Objective for such period
and the denominator of which is the Participant's Maximum Long-Term RONA
Objective for such period less the Participant's Threshold Long-Term RONA
Objective for such period; provided, however, that the Long-Term RONA Factor
shall be subject to adjustment as provided in Section 6(b).
(o) "Market Value" means the average closing price of the Stock on the
New York Stock Exchange, Inc. during the month of February of the year
specified; provided, however, that "Market Value" for Fiscal Year 1996 means
the arithmetic average of the high and low trading prices of the Stock on
the New York Stock Exchange for each of the first 30 trading days on which
trading in the Stock on that exchange occurs
2
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(p) "Minimum Annual Compensation" means, for a Fiscal Year, the
Participant's rate of minimum annual salary on the first day of the fiscal
month of November in the Fiscal Year.
(q) "Participant" means an individual who has been designated to
participate in the Plan in accordance with Section 3 of the Plan.
(r) "Plan" mean the Payless ShoeSource, Inc. Executive Incentive
Compensation Plan for Payless Executives.
(s) "Relative Performance Rank" means, for a Fiscal Year or for a Long-
Term Performance Period, the relative rank of the Company (as among the
Company and a group of competitors designated by the Committee) based on the
EPS Growth and RONA, respectively, of all such corporations for such
corporations' comparable fiscal periods, as determined by the Committee.
Relative Performance Rank shall be determined based on data provided by the
Company's independent certified public accountants from publicly available
information about all such corporations, and adjusted by such independent
certified public accountants for comparability (adjustments for LIFO, major
non-recurring transactions, etc.) subject to the direction and approval of
the Committee. The Committee may change the number of competitors or
corporations included in the group when, as a result of extraordinary or
unforeseen events, it is no longer appropriate for a particular corporation
to be included in the competitor group (such as when one of the group ceases
operations, merges with another corporation, files for bankruptcy protection
or significantly changes the nature of its business).
(t) "Retirement" means, as to a Participant, retirement as that word is
defined in the Company's Profit Sharing Plan.
(u) "RONA" means (i) for a Fiscal Year, the Company's return on
beginning net assets for such Fiscal Year as reported in the Company's
annual report to its shareowners for the year of determination (or, in the
event that such item is not included in such annual report, such comparable
figure as may be determined by the Committee) adjusted by the Company's
independent certified public accountants to exclude such non-recurring or
extraordinary items as the Committee shall determine are not representative
of the ongoing operations of the Company; and (ii) for a Long-Term
Performance Period, the sum of the RONA for each Fiscal Year in the Long-
Term Performance Period divided by three.
(v) "Stock" means the common stock of the Company.
(w) "Subsidiary" means a subsidiary corporation of the Company within
the meaning of Section 425(f) of Code.
(x) The terms "Maximum Annual EPS Growth Objective," "Maximum Long-Term
EPS Growth Objective," "Target Annual EPS Growth Objective," "Target Long-
Term EPS Growth Objective," "Threshold Annual EPS Growth Objective,"
"Threshold Long-Term EPS Growth Objective," "Maximum Annual RONA Objective,"
"Maximum Long-Term RONA Objective," "Target Annual RONA Objective," "Target
Long-Term RONA Objective," "Threshold Annual RONA Objective" and "Threshold
Long-Term RONA Objective" shall mean the respective objectives determined by
the Committee for each Participant pursuant to Section 7 of the Plan.
Section 3. ELIGIBILITY. Management employees of the Company and its
Subsidiaries shall be eligible to participate in the Plan. The Committee may,
in its sole discretion, designate any such individual as a Participant for a
particular Fiscal Year and/or for a particular Long-Term Performance Period
before the end of such Fiscal Year and Long-Term Performance Period,
respectively. Designation of an individual as a Participant for any period
shall not require designation of such individual as a Participant in any other
period, and designation of one individual as a Participant shall not require
designation of any other individual as a Participant in such period or in any
other period.
3
<PAGE>
Section 4. ANNUAL AWARD. (a) Subject to the other provisions of the Plan,
a Participant for a Fiscal Year who is designated as such for an entire Fiscal
Year shall be entitled to an Annual Award for such Fiscal Year. Subject to the
other provisions of the Plan, a Participant for a Fiscal Year who is designated
as such for less than an entire Fiscal Year shall be entitled to a reduced
Annual Award for such Fiscal Year equal to the Annual Award for such Fiscal Year
multiplied by a fraction, the numerator of which shall be the number of complete
fiscal months between (i) the first day of the fiscal month in which occurs the
date as of which the Participant was so designated and (ii) the end of such
Fiscal Year and the denominator of which shall be twelve.
(b) Notwithstanding any other provision of the Plan, the maximum dollar
amount of any Annual Award for any Participant for any Fiscal Year shall not
exceed $1,500,000.
Section 5. LONG-TERM AWARD. (a) Subject to the other provisions of the
Plan, a Participant for a Long-Term Performance Period who is designated as such
for an entire Long-Term Performance Period shall be entitled to a Long-Term
Award for such period. Subject to the other provisions of the Plan, a
Participant for a Long-Term Performance Period who is designated as such for
less than an entire Long-Term Performance Period shall be entitled to a reduced
Long-Term Award for such period equal to the Long-Term Award for such period
multiplied by a fraction, the numerator of which shall be the number of complete
fiscal months between (i) the first day of the fiscal month in which occurs the
date as of which the Participant was so designated and (ii) the end of such
Long-Term Performance Period and the denominator of which shall be thirty-six.
(b) The Long-Term Award otherwise payable pursuant to Section 5(a) of the
Plan for a Long-Term Performance Period shall be adjusted by multiplying such
Long-Term Award by a percentage equal to a fraction, the numerator of which
shall be the Market Value of the Stock in February of the calendar year in which
such Long-Term Performance Period ends and the denominator of which shall be the
Market Value of the Stock in February of the calendar year in which such Long-
Term Performance Period begins; provided, however, that such percentage shall in
no event be greater than one hundred fifty percent nor less than seventy-five
percent.
(c) Notwithstanding any other provision of the Plan, the maximum dollar
amount of any Long-Term Award for any Participant for any Long-Term Performance
Period shall not exceed $1,500,000.
Section 6. ADJUSTMENTS. (a) DISCRETIONARY ADJUSTMENT OF AWARDS. In the
event that the Committee determines, in its absolute discretion, that an Annual
Award or a Long-Term Award payable to a Participant in accordance with the other
terms of the Plan should be adjusted, upwards or downwards, based on all the
facts and circumstances known to the Committee at the time, then, the Committee
may, in its sole and absolute discretion, increase or decrease any such Annual
Award or Long-Term Award to such amount as it determines; provided, however,
that the Committee may not adjust upwards any Annual Award or Long-Term Award of
any Participant who is a "covered employee" (as defined in Section 162 (m) of
the Code and the regulations thereunder) with respect to the particular
performance period for which the Annual Award or Long-Term Award is being
granted.
(b) ADJUSTMENT FOR RELATIVE RANK. A Participant's Annual EPS Factor, Annual
RONA Factor, Long-Term EPS Factor and Long-Term RONA Factor shall be adjusted in
the following manner based upon the number of competitors in the group of
competitors used to determine the Company's Relative Performance Rank and the
Company's Relative Performance Rank therein:
Number of Competitor Companies (not including the Company)
10 9 8 7 6 5 4
Factor will be no less than
"Target" if the Company's 1st - 1st - 1st - 1st - 1st - 1st - 1st -
rank is: 3rd 3rd 3rd 2nd 2nd 2nd 2nd
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<PAGE>
Factor will be no less than
"Threshold" if the Company's 4th - 4th - 4th - 3rd - 3rd - 3rd - 3rd -
rank is: 6th 6th 6th 4th 4th 4th 4th
Factor will be no higher than
"Threshold" if the Company's 9th - 8th - 7th - 7th - 6th - 5th - 5th
rank is: 11th 10th 9th 8th 7th 6th
Section 7. ANNUAL AND LONG-TERM TARGETS. Threshold, target and maximum
annual and long-term objectives with respect to EPS Growth and with respect to
RONA shall be determined by the Committee as soon as practicable prior to the
commencement of each Fiscal Year and each Long-Term Performance Period for each
Participant or within the period permitted by applicable law. The Committee
shall cause the respective objectives for each Participant to be provided to
such Participant as soon thereafter as practicable. Such objectives shall
remain in effect for the entire Fiscal Year or Long-Term Performance Period, as
appropriate.
Section 8. PAYMENT OF AWARDS. (a) Annual Awards for a Fiscal Year shall
be payable in cash within three months after the close of such Fiscal Year or as
soon thereafter as practicable.
(b) Long-Term Awards for a Long-Term Performance Period shall be payable in
cash within three months after the close of such Long-Term Performance Period or
as soon thereafter as practicable.
(c) A Participant may elect to defer all or a portion of an award by making
such election under the Deferred Compensation Plan with respect to such award.
Such election must be made not later than December 31 of the calendar year
preceding the commencement of the Fiscal Year or Long-Term Performance Period,
as appropriate.
(d) The Company shall have the right to deduct any sums that federal, state
or local tax laws require to be withheld with respect to any payment of awards.
(e) Before any award is paid to a Participant who is a "covered employee"
(as defined in Section 162(m) of the Code and the regulations thereunder), the
Committee shall certify in writing that the material terms of the Plan have been
satisfied.
Section 9. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. In the event of either the death or Disability of
the Participant while employed (a "Section 9(a) Event"), the Participant shall
be entitled to the following:
(i) An Annual Award with respect to the Fiscal Year in which the Section
9(a) Event occurs equal to the Annual Award otherwise payable (if any)
for that Fiscal Year, prorated to the end of the fiscal month in which
such Section 9(a) Event occurs; and
(ii) A Long-Term Award with respect to each Long-Term Performance Period
which includes the Fiscal Year of the Section 9(a) Event; provided,
however, that for purposes of this Section 9(a)(ii) the Long-Term Award
for any Long-Term Performance Period (1) shall be determined at the end
of the Fiscal Year in which the Section 9(a) Event occurs, (2) shall be
determined (and averages used in that determination shall be calculated)
based only on the Fiscal Year and any preceding Fiscal Years otherwise
included in the Long-Term Performance Period and (3) shall be prorated
to the end of the fiscal month in which the Section 9(a) Event occurs.
(b) Retirement.
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(i) In the event of the Retirement of the Participant with the written
consent of the Company, such event shall be deemed to be a Section 9(a)
Event, and the Participant shall be entitled to an Annual Award and to a
Long-Term Award as provided in Section 9(a).
(ii) In the event of the Retirement of the Participant without the
consent of the Company (a "Section 9(b)(ii) Event"), the Participant
shall be entitled to the following:
(1) An Annual Award with respect to the Fiscal Year in which the
Section 9(b)(ii) Event occurs equal to the Annual Award otherwise
payable (if any) for the Fiscal Year, prorated to the end of the
fiscal month in which the Section 9(b)(ii) Event occurs; and
(2) No Long-Term Award following the Section 9(b)(ii) Event. The
Participant shall forfeit any right or entitlement to any award with
respect to any Long-Term Performance Period which has not been
completed on the date of the Section 9(b)(ii) Event. Any Long-Term
Award for a period which ended prior to the Section 9(b)(ii) Event
shall remain unaffected.
(c) Termination of Employment.
(i) In the event of the termination of employment of the Participant not
covered by Sections 9(a) or 9(b) above which occurs at the end of the
term of the Participant's then-current written employment agreement (if
any) with the Company or Subsidiary, or in the event of such a
termination of a Participant who has no current written employment
agreement with the Company or Subsidiary, such event shall be deemed to
be a Section 9(b)(ii) Event, and the Participant shall be entitled to an
Annual Award (but not to a Long-Term Award) as provided in Section
9(b)(ii).
(ii) In the event of the termination of employment of the Participant
not covered by Sections 9(a) or 9(b) above before the end of the term of
the Participant's then-current written employment agreement (if any)
with the Company or Subsidiary, with the written consent of the Company
(a "Section 9(c)(ii) Event"), the Participant shall be entitled to the
following:
(1) An Annual Award with respect to the Fiscal Year in which the
Section 9(c)(ii) Event occurs equal to the actual award otherwise
payable for the Fiscal Year (if any); provided, however, that in the
event that the term of the Participant's then-current employment
agreement is due to expire during that Fiscal Year, then the Annual
Award shall be prorated to the end of the fiscal month in which such
term is due to expire; and
(2) A Long-Term Award with respect to each Long-Term Performance
Period which includes the Fiscal Year of the 9(c)(ii) Event equal to
the Long-Term Award otherwise payable with respect to each Long-Term
Performance Period; provided, however, that in the event that the
term of the Participant's then-current employment agreement (if any)
with the Company is otherwise due to expire during any such period,
then the Long-Term Award with respect to such period shall be
prorated to the end of the calendar month in which such term is due
to expire.
(iii) In the event of the termination of employment of the Participant
not otherwise covered by this Section 9 before the end of the term of
the then-current written employment agreement (if any) with the Company
or Subsidiary, without the written consent of the Company, the
Participant shall not be entitled to any Annual Award or to any Long-
Term Award with respect to any Fiscal Year or Long-Term Performance
Period which has not been completed as of the date of such termination
of employment. The Participant shall forfeit any right or interest in
any award for any such Fiscal Year or Long-Term Performance Period.
Annual Awards and Long-Term Awards with respect to Fiscal Years and
Long-Term Performance Periods which ended prior to the date of such
termination of employment shall remain unaffected.
6
<PAGE>
(d) For purposes of this Section 9, the term "written consent of the
Company" shall refer to an express written consent of the Company, duly executed
by the Company, which, by its own terms, expressly refers to this Section 9 of
the Plan.
Section 10. CHANGES IN RESPONSIBILITIES. In the event that (i) the duties
of a Participant change and the Participant becomes eligible to participate in
another bonus plan of the Company, or (ii) the duties of an employee who is a
participant in another bonus plan of the Company change and the employee is
newly designated by the Committee as a Participant in this Plan, then the
maximum amount that such Participant would be entitled to receive under the Plan
shall be
(1) the Annual Award determined in accordance with the provisions of the
Plan with respect to the entire Fiscal Year in which such event occurred;
and
(2) a Long-Term Award with respect to each Long-Term Performance Period
which has commenced at the time of the event, determined in accordance with
the provisions of the Plan,
subject, in all events, to the Committee's right to adjust such awards in
accordance with and subject to the restrictions set forth in Section 6(a), in
its absolute discretion, which may be exercised in such a way that the Committee
deems fair and equitable based on the performance of Participant while
participating in the other bonus plan of the Company.
Section 11. RIGHTS OF PARTICIPANTS AND BENEFICIARIES. (a) Nothing
contained in the Plan shall confer upon any Participant any right to continue in
the employ of the Company or constitute any contract or agreement of employment
or interfere in any way with the right of the Company to terminate or change the
conditions of employment.
(b) The Company shall pay all amounts payable hereunder only to the
Participant or his or her personal representatives. In the event of the death
of a Participant, payments of all amounts otherwise due to the Participant under
the Plan shall be made to the Participant's beneficiary at the time of death
under the Company Paid Life Plan of Payless ShoeSource, Inc. or to such other
beneficiary as the Participant shall have designated, in writing, for purposes
of this Plan on a form provided by the Company.
(c) Subject to the provisions of Section 11(d), rights to payments under the
Plan shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, levy or charge, and any attempt to do
so shall be void; nor shall any such amounts be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the
Participant or his or her beneficiaries.
(d) Nothing in this Section 11 shall prohibit the personal representatives
of a Participant from designating that any amount that would otherwise be
distributed to the Participant's estate should be distributed in accordance with
the terms of the Participant's last will and testament or pursuant to the laws
of descent and distribution.
Section 12. UNFUNDED CHARACTER OF THE PLAN. The right of a Participant to
receive any Annual Award or Long-Term Award hereunder shall be an unsecured
claim against the general assets of the Company. Nothing in the Plan shall
require the Company to invest any amounts in Stock or in any other medium.
Section 13. CHANGES IN CAPITAL STRUCTURE. In the event that there is any
change in the Stock through merger, consolidation, reorganization,
recapitalization, spin-off or otherwise, or if there shall be any dividend on
the Stock, payable in such Stock, or if there shall be a stock split or
combination of shares, then the fraction provided for in Section 5(b) of the
Plan shall be adjusted by the Committee as it deems desirable, in its absolute
discretion, to prevent dilution or enlargement of the rights of Participants.
The issuance of Stock for consideration and the issuance of Stock rights shall
not be considered a change in the Company's capital structure.
7
<PAGE>
Section 14. AMENDMENT OR TERMINATION. The Committee may, by resolution,
amend or terminate the Plan at any time. Any amendment necessary to bring the
Plan into compliance with Section 162(m) of the Code and any regulations
thereunder shall not require shareowner approval and the effectiveness of such
amendment shall be as of the effective date of the provision in Section 162(m)
of the Code or regulations thereunder giving rise to the amendment. However,
(i) shareowner approval shall be sought for any changes to the Plan which would
require shareowner approval under Section 162(m) of the Code and (ii) except as
provided in the preceding sentence, the Committee may not, without the consent
of the Participant, amend or terminate the Plan in such a manner as to affect
adversely any Annual Award or Long-Term Award which would have been payable,
based on the terms of the Plan immediately prior to any such amendment or
termination, for any Fiscal Year or Long-Term Performance Period which has
already commenced as of the effective date of the amendment or termination.
8
<PAGE>
CONFIDENTIAL
April 5, 1996
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Dear _________________:
Payless ShoeSource, Inc. (the "Company") considers it essential to the best
interests of its shareowners to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control of the Company may exist
and that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareowners.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company, the Company
agrees that you shall receive the severance benefits set forth in this letter
agreement (the "Agreement") in the event your employment with the Company is
terminated under the circumstances described below subsequent to a "change in
control of the Company" (as defined in Section 2).
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof,
and shall continue in effect through April 30, 1997; provided, however, that
commencing on the following May 1 and each May 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless,
not later than the immediately preceding March 1, the Company shall have given
notice that it does not wish to extend this Agreement; and provided, further,
that if a change in control of the Company, as defined in Section 2, shall have
occurred during the original or extended term of this Agreement, this Agreement
shall continue in effect for a period of not less than twenty-four (24) months
beyond the end of the month in which such change in control occurred.
2. CHANGE IN CONTROL; POTENTIAL CHANGE IN CONTROL.
(i) No benefits shall be payable hereunder unless thee shall have been a
change in control of the Company, as set forth below. For purposes of this
Agreement, a
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April 5, 1996
Page 2
"change in control of the Company" shall be deemed to have occurred on the
earliest to occur of any of the following:
(a) any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any company owned, directly or
indirectly, by the shareowners of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities;
(b) during any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (a), (c) or
(d) of this Section) whose election by the Board or nomination for election
by the Company's shareowners was approved by a vote of at least two-thirds
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved cease for any reason to constitute at lease a
majority thereof;
(c) the shareowners of the Company approve a merger or consolidation
of the Company with any other company, other than (1) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation or (2) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined) acquires more
than 50% of the combined voting power of the Company's then outstanding
securities; or
(d) the shareowners of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
(ii) For purposes of this Agreement, a "potential change in control of
the Company" shall be deemed to have occurred if:
(a) the Company enters an agreement, the consummation of which would
result in the occurrence of a change in control of the Company;
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April 5, 1996
Page 3
(b) any person (including the Company) publicly announces an intention
to take or to consider taking actions which if consummated would constitute
a change in control of the Company;
(c) any person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company (or a Company
owned, directly or indirectly, by the shareowners of the Company in
substantially the same proportions as their ownership of stock of the
Company), who is or becomes the beneficial owner, directly or indirectly,
of securities of the company representing 9.5% or more of the combined
voting power of the Company's then outstanding securities, increases his
beneficial ownership of such securities by 5% or more over the percentage
so owned by such person on the date hereof; or
(d) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a potential change in control of the Company has occurred.
(iii) You agree that, subject to the terms and conditions of this
Agreement, in the event of a potential change in control of the Company, you
will remain in the employ of the Company until the earliest of (a) a date which
is 180 days from the occurrence of such potential change in control of the
Company, (b) the termination by you of your employment by reason of Disability
as define din Subsection 3(ii), or (c) the date on which you first become
entitled under this Agreement to receive the benefits provided in Section 4(iii)
below.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(i) GENERAL. If any of the events described in Section 2
constituting a change in control of the Company shall have occurred, you shall
be entitled to the benefits provided in Section 4(iii) upon the subsequent
termination of your employment during the term of this Agreement unless such
termination is (a) because of your death or Disability, (b) by the Company for
Cause or (c) by you other than for Good Reason. In the event your employment
with the Company is terminated for any reason and subsequently a change in
control of the Company should have occurred, you shall not be entitled to any
benefits hereunder.
(ii) DISABILITY. If, as a result of your incapacity due to physical
or mental illness, you shall have been absent from the full-time performance of
you duties with the company for six consecutive months, and within 30 days after
written notice of termination is given you shall not have returned to the full-
time performance of your duties, your employment may be terminated for
"Disability".
(iii) CAUSE. Termination by the Company of your employment for
"Cause" shall mean termination (a) upon the willful and continued failure by you
to substantially perform you duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a Notice of Termination
(as defined in Subsection 3(v)) by you for Good Reason (as defined in Subsection
3(iv)), after a written demand for substantial performance is delivered to you
by the Board, which demand specifically identifies the manner in which the Board
believes that you
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April 5, 1996
Page 4
have not substantially performed your duties, or (b) the willful engaging by you
in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted to be done,
by you not in good faith and without reasonable belief that your action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of conduct
set forth above in this Subsection and specifying the particulars thereof in
detail.
(iv) GOOD REASON. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (1)
during the 180-day period following a change in control of the Company, a good
faith determination by you that as a result of such change in control, you are
not able to discharge your duties effectively or (2) without your express
written consent, the occurrence after a change in control of the Company of any
of the following circumstances unless, in the case of paragraphs (a), (b), (e),
(f), (g) or (h), such circumstances are fully corrected (effective retroactive
to and including the date on which such circumstance first occurred) prior to
the Date of Termination (as defined in Section 3(vi)) specified in the Notice of
Termination (as defined in Section 3(v)) given in respect thereof:
(a) the assignment to you of any duties inconsistent with the position
in the Company that you held immediately prior to the change in control of
the Company, or a significant adverse alteration in the nature or status of
your responsibilities or the conditions of your employment from those in
effect immediately prior to such change in control;
(b) a reduction by the Company in your annual base salary, bonus
opportunity or benefits as in effect on the date hereof or as the same may
be increased from time to time except for across-the-board salary, bonus
opportunity or benefit reductions similarly affecting all management
personnel of the Company and all management personnel of any person whose
actions result in a change in control of the Company and of any person
affiliated with the Company or such person;
(c) the relocation of the Company's offices at which you are
principally employed immediately prior to the date of the change in control
of the Company (your "base location") to a location more than 35 miles from
such location, or the Company's requiring you to be based anywhere other
than the Company's offices at your base location except for required travel
on the Company's business to an extent substantially consistent with your
business travel obligations immediately prior to the date of the change of
control of the Company;
(d) the failure by the Company to pay to you any portion of your
current compensation or to pay to you any portion of an installment of
deferred compensation
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April 5, 1996
Page 5
under any deferred compensation program of the Company within seven (7)
days of the date such compensation is due;
(e) the failure by the Company to continue in effect any material
compensation or benefit plan in which you participate immediately prior to
the change in control of the Company, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue your
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed at the time of the change in control of the
Company except any such failure resulting from an across-the-board
reduction in all material compensation or benefit plans similarly affecting
all management personnel of the Company and all management personnel of any
person whose actions result in a change in control of the Company and of
any person affiliated with the Company or such person;
(f) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's life insurance, medical, dental, accident or disability plans in
which you were participating at the time of the change in control of the
Company, the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits to you or the failure by
the Company to provide you with the number of paid vacation days to which
you are entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in effect at the time
of the change in control of the Company excepting any such failure
resulting from an across-the-board reduction in all such benefits similarly
affecting all management personnel of the Company and all management
personnel of any person whose actions result in a change in control of the
Company and of any person affiliated with the Company or such person;
(g) the failure of the Company to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof; or
(h) any purported termination of your employment that is not effected
pursuant to a Notice or Termination (as defined in Section 3(v)) and, if
applicable, the requirements of Subsection (iii) hereof, which purported
termination shall not be effective for purposes of this Agreement.
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(v) NOTICE OF TERMINATION. Any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 6. "Notice of
Termination" shall mean a notice that
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April 5, 1996
Page 6
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(vi) DATE OF TERMINATION, ETC. "Date of Termination" shall mean (a)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period), and (b) if your
employment is terminated pursuant to Subsection (iii) or (iv) hereof or for any
other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination for Cause shall not be less
than 30 days from the date such Notice of Termination is given, and in the case
of a termination for Good Reason shall not be less than 15 nor more than 60 days
from the date such Notice of Termination is given); provided, however, that if
within 15 days after any Notice of Termination is given, or, if later, prior to
the Date of Termination (as determined without regard to this proviso), the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, then the Date of Termination shall be
the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected); and provided, further, that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence. Notwithstanding the pendency of any
such dispute, the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this Subsection are in
addition to all other amounts due under this Agreement, and shall not be offset
against or reduce any other amounts due under this Agreement and shall not be
reduced by any compensation earned by you as the result of employment by another
employer.
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a
change in control of the Company, you shall be entitled to the following
benefits during a period of disability, or upon termination of your employment,
as the case may be, provided that such period or termination occurs during the
term of this Agreement:
(i) During any period that you fail to perform your full-time
duties with the Company as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the rate in effect at
the commencement of any such period, together with all compensation payable to
you under the Company's disability plan or program or other similar plan during
such period, until this Agreement is terminated pursuant to Section 3(ii)
hereof. Thereafter, or in the event your employment shall be terminated by
reason of your death, your benefits shall be determined under the Company's
retirement, insurance and other compensation programs then in effect in
accordance with the terms of such programs.
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April 5, 1996
Page 7
(ii) If your employment shall be terminated by the Company for Cause
or by you other than for Good Reason, the Company shall pay you your full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, plus all other amounts to which you are entitled under
any compensation plan of the Company at the time such payments are due, and the
Company shall have no further obligations to you under this Agreement.
(iii) If your employment by the Company should be terminated by the
Company other than for Cause or Disability or if you should terminate your
employment for Good Reason, you shall be entitled to the benefits provided
below:
(a) the Company shall pay to you your full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination
is given, no later than the fifth day following the Date of Termination,
plus all other amounts to which you are entitled under any compensation
plan of the Company, at the time such payments are due; provided, however,
that no accrued but unpaid vacation pay shall be payable after the Date of
Termination;
(b) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as severance
pay to you, at the time specified in Subsection (v), a lump sum severance
payment (together with the payments provided in paragraphs (c), (d) and (f)
below, the aggregate of all such payments being referred to as the
"Severance Payments") equal to 300% of the greater of (i) your annual base
salary in effect on the date of Termination or (ii) your annual base salary
in effect immediately prior to the change in control of the Company and
300% of your target bonus (with maximum share price adjustment) with
respect to the year in which the change in control occurs;
(c) in lieu of shares of common stock of the Company ("Common Shares")
issuable upon exercise of outstanding options (other than options
qualifying as incentive stock options ("ISOs") under Section 422A of the
Internal Revenue Code of 1986 (the "Code") which ISOs were granted on or
before the date hereof) ("Options"), and stock appreciation rights
("SARs"), and Performance Units, if any, granted to you under the Company's
1996 Stock Incentive Plan, or any successor or substitute plan(s) thereto
(which Options shall be cancelled upon the making of the payment referred
to below), the Company shall pay to you, at the time specified in
Subsection (iv), an amount in cash equal to the product of (1) the excess
of, in the case of an ISO granted after the date hereof, the closing price
of Common Shares as reported on the New York Stock Exchange on or nearest
the Date of Termination (or, if not listed on such exchange, on a
nationally recognized exchange or quotation system on which trading value
in the Common Shares is highest) and, in the case of all other Options, the
higher of such closing price or the highest per share price for Common
Shares actually paid in connection with any change in control of the
Company, over the per share option price of each Option held by you
(whether or not then fully exercisable), and (2) the number of Common
Shares covered by each such Option;
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April 5, 1996
Page 8
(d) (i) if you have attained age 50 on the Date of Termination and
if, with five additional years of age and service beyond your years of
service determined as of the Date of Termination, you would have been
entitled to receive post-retirement medical and life benefits under
the Company's post-retirement programs, then you shall be entitled to
such benefits as if you had attained those five additional years of
age and years of service as of the Date of Termination, such benefits
to be determined under the terms of such plans as in effect
immediately prior to the change in control of the Company, without
regard to any amendments subsequent to the change in control that
adversely affect the rights of participants thereunder;
(ii) if you have attained age 50 but have not attained age 55 on
the Date of Termination, then for purposes of determining benefits
under Section 3.2(c) of the Company's Supplementary Retirement Plan,
you shall be deemed to be entitled to the benefits under Section
3.2(c) of that plan if, during the five-year period following the
occurrence of a change in control of the Company, the Company
terminates your employment other than for Cause or you terminate your
employment for Good Reason (it being expressly agreed that rights
under this Section 4(iii)(d)(ii) of this Agreement shall survive for
the five year period following the occurrence of a change of control
of the Company);
(e) the Company shall pay to you all legal fees and expenses incurred
by you as a result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination
or in seeking to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code, to any payment
or benefit provided hereunder);
(f) for a thirty-six (36) month period after such termination, the
Company shall arrange to provide you with life and health insurance
benefits substantially similar to those which you were receiving
immediately prior to the Notice of Termination. Notwithstanding the
foregoing, the Company shall not provide any benefit otherwise receivable
by you pursuant to this paragraph (f) if an equivalent benefit is actually
received by you during the thirty-six (36) month period following your
termination, and any such benefit actually received by you shall be
reported to the Company.
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April 5, 1996
Page 9
(iv) The payments provided for in Subsections (iii)(b) and (c) shall
be made not later than the fifth day following the Date of Termination;
provided, however, that if the amount of such payments cannot be finally
determined on or before such day, the Company shall pay to you on such day an
estimate, as determined in good faith by the Company, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest
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April 5, 1996
Page 10
at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth day after the
Date of Termination, in the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to you, payable on the fifth day after demand
by the Company (together with interest at the rate provided in section
1274(b)(2)(B) of the Code).
(v) Except as provided in Subsection (iii) (f) hereof, you shall not
be required to mitigate the amount of any payment provided for in this Section 4
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer, by retirement benefits, by
offset against any amount claimed to be owed by you to the Company, or
otherwise.
(vi) Notwithstanding the provisions of this Agreement, if
(a) any payments or benefits received or to be received by you,
whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result
in a change in control of the Company or any person affiliated with the
Company or such person, constitute "parachute payments" (such payments or
benefits being hereinafter referred to as the "Parachute Payments") within
the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as
amended (the "Code"), and
(b) the aggregate present value of the Parachute Payments reduced
by any excise tax imposed under section 4999 of the Code (or any similar
tax that may hereafter be imposed) (the "Excise Tax") would be less than
three times your "base amount," as defined in section 280G(b)(3) of the
Code,
then, in lieu of that portion of the Parachute Payments to which you would
otherwise be entitled under Section 4(iii)(b) of this Agreement, the Company
shall pay to you an amount under Section 4(iii)(b) of this Agreement, such that
the aggregate present value of the Parachute Payments is equal to 2.99 times
your base amount.
For this purpose, your base amount, the present value of the Parachute
Payments, the amount of the Excise Tax and all other appropriate matters shall
be determined by the Company's independent auditors in accordance with the
principles of section 280G of the Code and based upon the advice of tax counsel
selected by such auditors.
5. COORDINATION WITH EMPLOYMENT AGREEMENT. The terms of this Agreement
shall be coordinated with and applied in conjunction with the terms of your
employment agreement with the Company. In general, it is the intent of the
parties that, in the event of the termination of your employment following a
change in control of the Company, the terms of this Agreement shall supersede
and substitute for the provisions of your employment agreement relating to any
items of current compensation during the term of this Agreement. The benefits
provided by this Agreement shall not, however, be construed to supersede or
substitute for (a) the provisions of
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April 5, 1996
Page 11
your employment agreement relating to any items of current compensation after
the expiration of this Agreement if you are then still an employee of the
Company or (b) except as otherwise provided herein, any post-contract term
benefits provided for in your employment agreement. Without limiting the
foregoing, the Severance Payment shall be construed to be a payment in addition
to (i) any payment or benefit intended to be a retirement payment, a retirement
benefit or a retirement perquisite provided for in your employment agreement,
(ii) any payment or benefit payable to you from and under the terms of the
Company's retirement plans, including any supplementary retirement plan
sponsored by the Company or its subsidiaries and applicable to you and profit
sharing or savings plans and (iii) payments under deferred compensation plans of
the Company or its subsidiaries.
6. SUCCESSORS; BINDING AGREEMENT. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms to which you would be entitled
hereunder if you terminate your employment for Good Reason following a change in
control of the Company, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(ii) This Agreement will inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder had you continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there is no such designee, to your estate.
7. NOTICE. for the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notice to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
8. MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition
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April 5, 1996
Page 12
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Missouri without regard to its
conflicts of law principles. All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Section 4 shall survive the expiration of the
term of this Agreement.
9. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Topeka, Kansas, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that you shall be entitled to seek specific performance of
your right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
12. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of the Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto with respect to the subject matter contained herein.
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April 5, 1996
Page 13
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
Sincerely,
PAYLESS SHOESOURCE, INC.
By
--------------------------------
Agreed to this _______ day
of ___________________.
- ---------------------------
[Executive]
<PAGE>
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INDEMNIFICATION AGREEMENT
AGREEMENT, effective as of ___ day of ____________, 199__, between Payless
ShoeSource, Inc., a Missouri corporation (the "Company") and
______________________________________ (the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors and
officers the most capable persons available; and
WHEREAS, Indemnitee is a director or officer of the Company; and
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, basic protection against undue risk of personal liability of
directors and officers heretofore has been provided through insurance coverage
providing reasonable protection at reasonable cost, and Indemnitee has relied on
the availability of such coverage; but as a result of substantial changes in the
marketplace for such insurance it generally has become more difficult to obtain
such insurance on terms providing reasonable protection at reasonable cost; and
WHEREAS, the Missouri General Assembly, in recognition of the need to secure
the continued service of competent and experienced people in senior corporate
positions and to assure that they will be able to exercise judgment without fear
of personal liability so long as they fulfill the basic duties of honesty, care
and good faith, has so enacted Mo. Rev. Stat. Section 351.355 of The General and
Business Corporation Law of Missouri (the "GBCL"), which empowers the Company to
indemnify its officers, directors, employees and agents and expressly provides
that the indemnification provided by the statute is not exclusive; and
WHEREAS, the By-laws of the Company require the Company to indemnify and
advance expenses to its directors and officers to the fullest extent now or
hereafter authorized or permitted by law and authorize the Company to enter into
agreements providing for such indemnification and advancement of expenses; and
WHEREAS, in recognition of the fact that the Indemnitee continues to serve as
a director or officer of the Company, in part in reliance on the aforesaid By-
laws, and of the fact of Indemnitee's need for substantial protection against
personal liability in order to enhance Indemnitee's continued service to the
Company in an effective manner, and in part to provide Indemnitee with specific
contractual assurance that the protection promised by such By-laws will be
available to Indemnitee (regardless of, among other things, any amendment to or
revocation of such By-laws or any change in the composition of the Company's
Board of Directors or any acquisition transaction relating to the Company), and
due to the possibility that the Company's directors' and officers' liability
insurance coverage could at some future time become inadequate, the Company
wishes to provide in this Agreement for the indemnification of, and the
advancing of expenses to, Indemnitee to the fullest extent (whether partial or
complete) now or hereafter authorized or permitted by law and as set forth in
this Agreement, and, to the extent insurance is maintained, for the continued
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policies,
NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing
to serve the Company directly or, at its request, with another enterprise, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS:
(a) Approved Law Firm shall mean any law firm (i) located in Missouri,
(ii) having 50 or more attorneys and (iii) rated "av" by Martindale-Hubbell
Law Directory; provided, however, that such law firm shall not, for a five-
year period prior to the Indemnifiable Event, have been engaged by the
Company, an Acquiring Person or the Indemnitee.
(b) Applicable Standard of Conduct shall mean the standard established
by Mo. Rev. Stat. Section 351.355.1-.2.
(c) Board of Directors shall mean the Board of Directors of the Company.
(d) Change in Control shall be deemed to have occurred if (i) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended [the "Act"]), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Company representing
20 percent or more of the total voting power represented by the Company's
then outstanding Voting Securities (such person being hereinafter referred to
as an "Acquiring Person"), or (ii) during any 24-consecutive-month period,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or
1
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nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the shareholders of the Company approve
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 (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80 percent of the total voting power represented by
the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iv) the shareholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company's assets.
(e) Claim shall mean any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether conducted by the Company
or any other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(f) Expenses shall include attorneys' fees and all other costs, expenses
and obligations paid or incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or preparing to
defend, be a witness in or participate in, any Claim relating to any
Indemnifiable Event, together with interest, computed at the Company's
average cost of funds for short-term borrowings, accrued from the date of
payment of such expense to the date Indemnitee receives reimbursement
therefor.
(g) Indemnifiable Event shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or is or was serving at the request of the Company
as a director, officer, employee, trustee, agent or fiduciary of another
corporation of any type or kind, domestic or foreign, partnership, joint
venture, trust, employee benefit plan or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity. Without
limitation of any indemnification provided hereunder, an Indemnitee serving
(i) another corporation, partnership, joint venture or trust of which 20
percent or more of the voting power or residual economic interest is held,
directly or indirectly, by the Company, or (ii) any employee benefit plan of
the Company or any entity referred to in clause (i), in any capacity shall be
deemed to be doing so at the request of the Company.
(h) Potential Change in Control shall be deemed to have occurred if (i)
the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change in Control; (ii) any person (including the
Company) publicly announces an intention to take or to consider taking
actions which if consummated would constitute a Change in Control; (iii) any
person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company, who is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 9.5 percent or more of the combined voting power of the
Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by five percentage points or more over the
percentage so owned by such person; or (iv) the Board of Directors adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(i) Reviewing Party shall be (i) the Board of Directors acting by majority
vote of a quorum consisting of directors who are not parties to the
particular Claim with respect to which Indemnitee is seeking indemnification,
or (ii), if such a quorum is not obtainable or, even if obtainable, if a
quorum of disinterested directors so directs, (A) by independent legal
counsel in a written opinion that indemnification is proper in the
circumstances because the indemnification is not precluded by circumstances
described in the last sentence of Section 2 of this Agreement and the
Applicable Standard of Conduct set forth in Mo. Rev. Stat. Section 351.355
has been met by the Indemnitee or (B) the shareholders upon a finding that
the Indemnitee has met the Applicable Standard of Conduct referred to in
clause (ii)(A) of this definition.
(j) Voting Securities shall mean any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT. If Indemnitee was, is or becomes at
any time a party to, or witness or other participant in, or is threatened to be
made a party to, or witness or other participant in, a Claim by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee to the fullest extent now or hereafter authorized or permitted by law
as soon as practicable but in any event no later than 30 days after written
demand is presented to the Company, against any and all Expenses, judgments,
fines (including excise taxes assessed against an Indemnitee with respect to an
employee benefit plan), penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with, or
in respect of, such Expenses, judgments, fines, penalties or amounts paid in
settlement) of such Claim. If so requested by Indemnitee, the Company shall
advance (within two business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"). Notwithstanding anything in this Agreement
to the contrary, (i) Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in any action in which the Indemnitee's conduct has
been finally adjudged to have been knowingly fraudulent, deliberately dishonest
or willful misconduct; (ii) in any derivative action in which Indemnitee has
been finally adjudged to be liable to the Company due to negligence or
misconduct in the performance of his duty to the Company, unless and only to the
extent that the court in which the proceeding was brought so orders after a
determination upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper, and (iii) prior to a Change in Control Indemnitee shall not be entitled
to indemnification pursuant to this Agreement in connection with any Claim
initiated by Indemnitee against the Company or any director or officer of the
Company unless the Company has joined in or consented to the initiation of such
Claim.
3. PAYMENT. Notwithstanding the provisions of Section 2, the obligations of
the Company under Section 2 (which shall in no event be deemed to preclude any
right to indemnification to which Indemnitee may be entitled under Mo. Rev.
Stat. Section 351.355.3) shall be subject to the condition that the Reviewing
Party shall have authorized such indemnification in the specific case by having
determined that the indemnification is not precluded by circumstances described
in the last sentence of Section 2 of this Agreement and Indemnitee is permitted
to be indemnified under the Applicable Standard of Conduct set forth in Mo. Rev.
Stat. Section 351.355.1-.2. The Company shall promptly call a
2
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meeting of the Board of Directors with respect to a Claim and agrees to use its
best efforts to facilitate a prompt determination by the Reviewing Party with
respect to the Claim. Indemnitee shall be afforded the opportunity to make
submissions to the Reviewing Party with respect to the Claim. The obligation of
the Company to make an Expense Advance pursuant to Section 2 shall be subject to
the condition that, if, when and to the extent that the Reviewing Party
determines that Indemnitee would not be permitted to be so indemnified under
Section 2 and applicable law, the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees and undertakes to the full extent required by Mo.
Rev. Stat. Section 351.355.5 to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced legal
proceedings in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any determination made by
the Reviewing Party that Indemnitee would not be permitted to be indemnified
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). If there has been no determination by
the Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, Indemnitee shall have the right to commence litigation in any
court in the State of Missouri having subject matter jurisdiction thereof and in
which venue is proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
4. CHANGE IN CONTROL. If there is a Change in Control (other than a Change
in Control which has been approved by a majority of the Board of Directors who
were directors immediately prior to such Change in Control) then (i) all
determinations by the Company pursuant to the first sentence of Section 3 hereof
and Mo. Rev. Stat. Section 351.355.4 shall be made by independent legal counsel
in a written opinion pursuant to Mo. Rev. Stat. Section 351.355.4 and (ii) with
respect to all matters thereafter arising concerning the rights of Indemnitee to
indemnity payments and Expense Advances under this Agreement or any other
agreement or By-law of the Company now or hereafter in effect relating to Claims
for Indemnifiable Events (including, but not limited to, any such legal opinion
provided under Mo. Rev. Stat. Section 351.355.4) the Company (including the
Board of Directors) shall seek legal advice from (and only from) special,
independent counsel selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld), and who has not otherwise
performed services for the Company (or any subsidiary of the Company) or an
Acquiring Person (or any affiliate or associate of such Acquiring Person) or
Indemnitee within the last five years (other than in connection with such
matters). Unless Indemnitee has theretofore selected counsel pursuant to this
Section 4 and such counsel has been approved by the Company, any Approved Law
Firm selected by Indemnitee shall be deemed to be approved by the Company. Such
counsel, among other things, shall render its written opinion to the Company,
the Board of Directors and Indemnitee as to whether and to what extent the
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the special, independent counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto. As used
in this Agreement, the terms "affiliate" and "associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Act and in effect on the date of this Agreement.
5. ESTABLISHMENT OF TRUST. In the event of a Potential Change in Control,
the Company shall, upon written request by Indemnitee, create a trust for the
benefit of Indemnitee and from time to time upon written request of Indemnitee
shall fund such trust in an amount sufficient to satisfy any and all Expenses
reasonably anticipated at the time of each such request to be incurred in
connection with investigating, preparing for and defending any Claim relating to
an Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable Event from
time to time actually paid or claimed, reasonably anticipated or proposed to be
paid. The amount or amounts to be deposited in the trust pursuant to the
foregoing funding obligation shall be determined by the Reviewing Party, in any
case in which the special, independent counsel referred to above is involved.
The terms of the trust shall provide that upon a Change in Control (i) the trust
shall not be revoked or the principal thereof invaded, without the written
consent of the Indemnitee, (ii) the trustee shall advance, within two business
days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and
the Indemnitee hereby agrees to reimburse the trust under the circumstances
under which the Indemnitee would be required to reimburse the Company under
Section 3 hereof), (iii) the trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above, (iv) the trustee shall
promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (v) all unexpended
funds in such trust shall revert to the Company upon a final determination by
the Reviewing Party or a court of competent jurisdiction, as the case may be,
that Indemnitee has been fully indemnified under the terms of this Agreement.
The trustee shall be an institutional trustee with a highly regarded, national
reputation chosen by Indemnitee. Nothing in this Section 5 shall relieve the
Company of any of its obligations under this Agreement.
6. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee, which are reasonably incurred by Indemnitee
in connection with any claim asserted or action brought by Indemnitee for (i)
indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or By-law of the Company now or hereafter in
effect relating to Claims for Indemnifiable Events and/or (ii) recovery under
any directors' and officers' liability insurance policies maintained by the
Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.
7. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for a portion of the Expenses,
judgments, fines, penalties and amounts paid in settlement of a Claim but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
Moreover, notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been successful on the merits or otherwise in defense of any
or all Claims relating in whole or in part to an Indemnifiable Event or in
defense of any issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified, to the extent permitted by law, against all
Expenses incurred in connection with such Indemnifiable Event.
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8. BURDEN OF PROOF. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
9. NO PRESUMPTION. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, whether civil or criminal, by judgment,
order, settlement (whether with or without court approval) or conviction, or
upon a plea of nolo contendere, or its equivalent, shall not create a
presumption that Indemnitee did not meet any particular standard of conduct or
have any particular belief or that a court has determined that indemnification
is not permitted by applicable law.
10. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the By-laws of the
Company, the GBCL, or otherwise. To the extent that a change in the GBCL
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the By-laws of the Company and
this Agreement, it is the intent of the parties hereto that Indemnitee shall
enjoy by this Agreement the greater benefits so afforded by such change.
11. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any director
or officer of the Company.
12. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Company or any affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company or any affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period shall govern.
13. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be effective
unless in writing and no written waiver shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
14. SUBROGATION. In the event of payment under the Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
15. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.
16. SPECIFIC PERFORMANCE. The parties recognize that if any provision of
this Agreement is violated by the Company, Indemnitee may be without an adequate
remedy at law. Accordingly, in the event of any such violation, the Indemnitee
shall be entitled, if Indemnitee so elects, to institute proceedings, either in
law or at equity, to obtain damages, to enforce specific performance, to enjoin
such violation, or to obtain any relief or any combination of the foregoing as
Indemnitee may elect to pursue.
17. BINDING EFFECT, ETC. This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business and/or
assets of the Company), assigns, spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or of any
other enterprise at the Company's request.
18. SEVERABILITY. The provisions of this Agreement shall be severable if any
of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law.
19. GOVERNING LAW. This Agreement shall be governed by, and be construed and
enforced in accordance with, the laws of the State of Missouri applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as
of the date first above written.
PAYLESS SHOESOURCE, INC.
By:
-------------------------------------------
-------------------------------------------
[Indemnitee]
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<PAGE>
Payless ShoeSource Distribution, Inc.
Payless ShoeSource Merchandising, Inc.
Payless ShoeSource Worldwide, Inc.
Payless ShoeSource International Limited
Payless ShoeSource International, Inc.
PSS Investment I, Inc.
PSS Investment II, Inc.
Payless Controladora, S.A. de C.V.
Payless Servicios, S.A. de C.V.
Payless ShoeSource Internacional Servicos Tecnicos E Inspetoria De Calcados
S/C Ltda.
Payless ShoeSource, S.A. de C.V.
Payless ShoeSource of Puerto Rico, Inc.
Payless ShoeSource of Puerto Rico No. 4150, Inc.
Payless ShoeSource of Puerto Rico No. 4152, Inc.
Payless ShoeSource of Puerto Rico No. 4153, Inc.
Payless ShoeSource of Puerto Rico No. 4154, Inc.
Payless ShoeSource of Puerto Rico No. 4155, Inc.
Payless ShoeSource of Puerto Rico No. 4156, Inc.
Payless ShoeSource of Puerto Rico No. 4157, Inc.
Payless ShoeSource of Puerto Rico No. 4158, Inc.
Payless ShoeSource of Puerto Rico No. 4159, Inc.
Payless ShoeSource of Puerto Rico No. 4161, Inc.
Payless ShoeSource of Puerto Rico No. 4162, Inc.
Payless ShoeSource of Puerto Rico No. 4163, Inc.
Payless ShoeSource of Puerto Rico No. 4164, Inc.
Payless ShoeSource of Puerto Rico No. 4165, Inc.
Payless ShoeSource of Puerto Rico No. 4166, Inc.
Payless ShoeSource of Puerto Rico No. 4167, Inc.
Payless ShoeSource of Puerto Rico No. 4168, Inc.
Payless ShoeSource of Puerto Rico No. 4200, Inc.
Payless ShoeSource of Puerto Rico No. 4201, Inc.
Payless ShoeSource of Puerto Rico No. 4202, Inc.
Payless ShoeSource of Puerto Rico No. 4203, Inc.
Payless ShoeSource of Puerto Rico No. 4204, Inc.
Payless ShoeSource of Puerto Rico No. 4205, Inc.
Payless ShoeSource of Puerto Rico No. 4206, Inc.
Payless ShoeSource of Puerto Rico No. 4207, Inc.
Payless ShoeSource of Puerto Rico No. 4208, Inc.
Payless ShoeSource of Puerto Rico No. 4209, Inc.
Payless ShoeSource of Puerto Rico No. 4210, Inc.
Payless ShoeSource of Puerto Rico No. 4211, Inc.
Payless ShoeSource of Puerto Rico No. 4212, Inc.
Payless ShoeSource of Puerto Rico No. 4213, Inc.
Payless ShoeSource of Puerto Rico No. 4214, Inc.
Payless ShoeSource of Puerto Rico No. 4215, Inc.
Payless ShoeSource of Puerto Rico No. 4216, Inc.
Payless ShoeSource of Puerto Rico No. 4217, Inc.
Payless ShoeSource of Puerto Rico No. 4218, Inc.
Payless ShoeSource of Puerto Rico No. 4219, Inc.
Payless ShoeSource of Puerto Rico No. 4220, Inc.
Payless ShoeSource of Puerto Rico No. 4221, Inc.
Payless ShoeSource of Puerto Rico No. 4222, Inc.
Payless ShoeSource of Puerto Rico No. 4223, Inc.
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Payless ShoeSource of Puerto Rico No. 4224, Inc.
Payless ShoeSource of Puerto Rico No. 4225, Inc.
Payless ShoeSource of Puerto Rico No. 4226, Inc.
Payless ShoeSource of Puerto Rico No. 4227, Inc.
Payless ShoeSource of Puerto Rico No. 4228, Inc.
Payless ShoeSource of Puerto Rico No. 4230, Inc.
Payless ShoeSource of Puerto Rico No. 4231, Inc.
Payless ShoeSource of Puerto Rico No. 4232, Inc.
Payless ShoeSource of Puerto Rico No. 4233, Inc.
Payless ShoeSource of Puerto Rico No. 4234, Inc.
Payless ShoeSource of Puerto Rico No. 4235, Inc.
Payless ShoeSource of Puerto Rico No. 4236, Inc.
Payless ShoeSource of Puerto Rico No. 4237, Inc.
Payless ShoeSource of Puerto Rico No. 4238, Inc.
Payless ShoeSource of Puerto Rico No. 4239, Inc.
Payless ShoeSource of Puerto Rico No. 4240, Inc.
Payless ShoeSource of Puerto Rico No. 4241, Inc.
Payless ShoeSource of Puerto Rico No. 4242, Inc.
Payless ShoeSource of Puerto Rico No. 4243, Inc.
Payless ShoeSource of Puerto Rico No. 4244, Inc.
Payless ShoeSource of Puerto Rico No. 4245, Inc.
Payless ShoeSource of Puerto Rico No. 4246, Inc.
Payless ShoeSource of Puerto Rico No. 4247, Inc.
Payless ShoeSource of Puerto Rico No. 4248, Inc.
Payless ShoeSource of Puerto Rico No. 4249, Inc.
Payless ShoeSource of Puerto Rico No. 4250, Inc.
Payless ShoeSource of Puerto Rico No. 4940, Inc.
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