<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended November 1, 1997
Commission File Number 1-11633
PAYLESS SHOESOURCE, INC.
(Exact name of registrant as specified in its charter)
Missouri 48-0674097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3231 Southeast Sixth Street, Topeka, Kansas 66607-2207
(Address of principal executive offices) (Zip Code)
(913) 233-5171
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days. YES X NO
-------- --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value
37,326,808 shares as of November 29, 1997
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Millions)
Nov. 1, Nov. 2, Feb. 1,
ASSETS 1997 1996 1997
- ------ -------- -------- --------
Current Assets:
Cash and cash equivalents $ 217.3 $ 228.5 $ 193.6
Accounts receivable, net 4.7 4.1 4.3
Merchandise inventories 331.7 330.9 354.9
Other current assets 38.7 35.5 39.4
-------- -------- --------
Total Current Assets 592.4 599.0 592.2
Property and Equipment, at cost 880.6 864.0 834.1
Accumulated Depreciation (393.3) (354.7) (331.6)
-------- -------- --------
Net Property and Equipment 487.3 509.3 502.5
Other Assets 3.5 3.2 3.2
-------- -------- --------
Total Assets $1,083.2 $1,111.5 $1,097.9
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current Liabilities:
Current maturities of
capital lease obligations $ 1.3 $ 1.3 $ 1.3
Accounts payable 88.6 84.1 82.9
Accrued expenses 138.1 144.3 119.1
-------- -------- --------
Total Current Liabilities 228.0 229.7 203.3
Capital Lease Obligations 6.7 9.1 8.2
Deferred Income Taxes 3.0 9.4 6.1
Other Liabilities 27.8 26.6 27.3
Shareowners' Equity 817.7 836.7 853.0
-------- -------- --------
Total Liabilities and
Shareowners' Equity $1,083.2 $1,111.5 $1,097.9
======== ======== ========
The accompanying notes to condensed consolidated financial
statements are an integral part of this balance sheet.
2
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Millions, except per share)
13 Weeks Ended 39 Weeks Ended
--------------------- ---------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
--------- --------- --------- ---------
Net Retail Sales: $ 635.7 $ 576.8 $ 1,997.4 $ 1,810.8
Cost of sales $ 443.4 $ 408.0 $ 1,388.6 $ 1,278.3
Selling, general and
administrative
expenses 138.5 122.1 429.4 382.1
Interest (income)/
expense, net (1.9) (2.2) (6.1) (3.6)
--------- --------- --------- ---------
Earnings before income
taxes 55.7 48.9 185.5 154.0
Provision for income
taxes 22.2 19.5 74.0 61.4
--------- --------- --------- ---------
Net Earnings $ 33.5 $ 29.4 $ 111.5 $ 92.6
========= ========= ========= =========
Earnings per Share $ .89 $ .74 $ 2.87 $ 2.30
========= ========= ========= =========
Average Shares
Outstanding 37.5 40.0 38.8 40.3
========= ========= ========= =========
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
3
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions) 39 Weeks Ended
----------------------
Nov. 1, Nov. 2,
1997 1996
Operating Activities: --------- ---------
Net earnings $ 111.5 $ 92.6
Depreciation and amortization 67.6 68.0
Change in working capital (excluding
cash and cash equivalents) 45.2 94.2
--------- ---------
Total Operating Activities 224.3 254.8
--------- ---------
Investing Activities:
Capital expenditures (59.3) (48.8)
Disposition of property and equipment 6.9 31.4
--------- ---------
Total Investing Activities (52.4) (17.4)
--------- ---------
Financing Activities:
Net repayments of capital lease
obligations (1.4) (1.2)
Amortization (Issuance) of
stock compensation 4.0 4.2
Issuance (Purchase)
of common stock, net (150.8) (16.5)
--------- ---------
Total Financing Activities (148.2) (13.5)
--------- ---------
(Decrease) Increase in Cash
and Cash Equivalents $ 23.7 $ 223.9
Cash and Cash Equivalents,
Beginning of Year 193.6 4.6
--------- ---------
Cash and Cash Equivalents,
End of Period 217.3 228.5
========= =========
The accompanying notes to condensed consolidated financial
statements are an integral part of this statement.
4
<PAGE>
PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Results. These unaudited condensed consolidated
financial statements of Payless ShoeSource, Inc. (the "Company")
have been prepared in the ordinary course of business for the
purpose of presenting information with respect to the Company's 13
and 39 week periods ended November 1, 1997. The Company believes
that all adjustments (none of which were other than normal
recurring accruals) necessary for a fair presentation of the
Company's financial position and operating results have been made.
However, certain items are included in these statements based on
estimates for the entire year. The condensed consolidated
financial statements should be read in conjunction with the
financial statements of the Company included in its 1996 Annual
Report to Shareowners (the "Annual Report"), including the
MANAGEMENT'S DISCUSSION AND ANALYSIS (pages 12-15) and NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (pages 19-23) in the Annual
Report. The results of operations for the 13 and 39 week periods
ended November 1, 1997, are not necessarily indicative of results
for the entire fiscal year ended January 31, 1998.
Note 2. Inventories. Merchandise inventories are stated on the
FIFO (First-In-First-Out) cost basis.
Note 3. Spin-Off. In January 1996, The May Department Stores
Company announced its intention to spin-off the Company. The spin-
off was completed effective May 4, 1996, as a tax-free distribution
to The May Department Stores Company shareowners. The Company's
financial statements presented herein reflect operations on a
stand-alone basis independent of The May Department Stores Company.
As discussed in the Annual Report, the Company is incurring special
retention costs associated with the spin-off which established
Payless as an independent company. Those costs totaled $0.8
million pre-tax for the third quarter 1997, with an additional $0.8
million pre-tax estimated to be incurred in the remainder of the
current fiscal year.
Note 4. Parade of Shoes. On March 10, 1997, the Company acquired
inventory and trademarks, and assumed leases on 186 stores of the
Parade of Shoes division ("Parade") from J. Baker, Inc. The
purchase price was approximately $28 million in cash. Parade sells
women's footwear and accessories in 14 states. Parade had sales of
$123 million in 1996. The Company is operating Parade as a
separate division supported by existing Payless sourcing,
distribution, information systems, real estate and financial
organizations.
The Parade acquisition has been accounted for as a purchase, and
accordingly, the operating results of the acquired stores have been
included in the Company's consolidated results since March 10,
1997.
5
<PAGE>
Note 5. Store Openings/Closings. During the third quarter, the
Company opened 53 Payless stores, including 5 in Canada, and 2
Parade stores. The Company closed 33 Payless and 2 Parade stores.
Note 6. Earnings Per Share. Earnings per share for 1997 and 1996
are computed by dividing net earnings by the average common shares
outstanding during the period.
The Company's first quarter 1996 outstanding shares were calculated
based on the number of Company shares issued and outstanding as of
May 4, 1996, the date of the spin-off from The May Department
Stores Company.
Note 7. Reclassifications. Certain prior period amounts have been
reclassified to conform to the current year presentation.
Note 8. Foreign Currency Translation. Local currencies are the
functional currencies for all subsidiaries. Accordingly, assets
and liabilities of foreign subsidiaries are translated at the rates
of exchange at the balance sheet date. Income and expense items of
these subsidiaries are translated at year-to-date average rates of
exchange. The resultant translation gains or losses are included
in stockholders' equity.
Note 9. Year 2000. In 1996 the Company began modifying its
computer systems to enable continued processing of transactions in
the year 2000 and beyond. Spending for modifications will be
expensed as incurred and is not expected to have a significant
impact on the Company's ongoing results of operations.
Note 10. New Accounting Standard. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128") effective
December 15, 1997. SFAS 128 will simplify the calculation of
earnings per share (EPS) and require the reporting of "basic" and
"diluted" EPS. The Company will adopt SFAS 128 when it reports
1997 annual results. Under the new accounting standard, EPS for
the periods ended November 1, 1997 and November 2, 1996 are stated
below:
13 Weeks Ended 39 Weeks Ended
------------------ ------------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
------- ------- ------- -------
Basic Earnings
Per Share $ 0.89 $ 0.74 $ 2.87 $ 2.30
Diluted Earnings
Per Share $ 0.88 $ 0.73 $ 2.84 $ 2.29
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share includes the effect
of conversions of options.
6
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
A summary of key financial information for the periods indicated is
as follows:
Nov. 1, Nov. 2, Feb. 1,
1997 1996 1997
------- ------- -------
Current Ratio 2.6 2.5 2.9
Debt-Capitalization Ratio* 1.0% 1.2% 1.1%
Fixed Charge Coverage** 3.7x 2.2x 3.2x
* Debt-to-capitalization has been computed by dividing total
debt, which includes current and long-term capital lease
obligations, by capitalization, which includes current and
long-term capital lease obligations, non-current deferred
income taxes and equity. The debt-to-capitalization ratio,
including the present value of future minimum rental payments
under operating leases as debt and capitalization, would be
50.9%, 49.9% and 49.1% for the periods referred to above.
** Fixed charge coverage, which is presented for the trailing 52
weeks in each period ended above, is defined as earnings
before income taxes, gross interest expense, and the interest
component of rent expense, divided by gross interest expense
and the interest component of rent expense. All costs and
expenses of the Company relating to special retention costs
and the special non-recurring charge associated with the
spin-off are included in the above calculation. Excluding
these costs, the fixed charge coverage would be 3.8x, 3.1x
and 3.4x for the periods referred to above.
The Company's fixed charge coverage ratio for the 52 weeks ended
November 1, 1997 increased as compared with the 52 week period
ended November 2, 1996, due primarily to increased earnings.
The Company has in place a $200 million revolving credit facility
with a bank syndication group on which no borrowings were
outstanding at the end of the quarter.
Capital expenditures during the first nine months in 1997 totaled
$59.3 million with an additional $41.7 million estimated to be
expended in the remainder of fiscal year 1997. The Company
anticipates that cash flow from operations and the credit facility
will be sufficient to finance projected capital expenditures (See
cautionary statement on next page as to this and other forward-
looking statements).
The year-to-date increase in cash of $23.7 million resulted from
earnings before depreciation and amortization of $179.1 million
offset by higher capital expenditures, primarily from the
acquisition of Parade, and the repurchase of the Company's common
stock.
7
<PAGE>
In the third quarter, the Company completed its previously
announced $150 million stock repurchase program. During the third
quarter, the Company acquired 0.6 million shares of its common
stock in open market transactions pursuant to Rule 10b-18 for an
aggregate price of $36.9 million.
The Company also announced that its board of directors authorized
the repurchase of an additional $150 million dollars worth of the
Company's common stock in open market transactions, subject to
receipt of a favorable ruling from the Internal Revenue Service and
market conditions.
Results of Operations
Net retail sales represent the sales of stores operating during the
period. Sales percent increases are as follows:
Third Quarter First Nine Months
---------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
Total 10.2% (1.6%) 10.3% 1.8%
Store-for-Store 5.2% 1.5% 6.3% 3.9%
Store-for-store sales represent sales of those stores open during
comparable periods.
The following table presents the components of costs and expenses,
as a percent of revenues, for the third quarter and first nine
months of 1997 and 1996.
First
Third Quarter Nine Months
------------- -------------
1997 1996 1997 1996
------ ------ ------ ------
Cost of sales 69.8% 70.7% 69.5% 70.6%
Selling, general and
administrative expenses 21.8 21.2 21.5 21.1
Interest income/(expense), net .3 .4 .3 .2
------ ------ ------ ------
Earnings before income taxes 8.7% 8.5% 9.3% 8.5%
====== ====== ====== ======
Effective income tax rate 39.9% 39.9% 39.9% 39.9%
====== ====== ====== ======
Net Earnings 5.3% 5.1% 5.6% 5.1%
====== ====== ====== ======
Cost of sales was $443.4 million in the 1997 third quarter, up 8.7%
from $408.0 million in the 1996 third quarter. For the first nine
months of 1997, cost of sales was $1,389 million, a 8.6% increase
from $1,278 million in the 1996 period. For the third quarter and
8
<PAGE>
first nine months, cost of sales, as a percent of revenues,
decreased 0.9% and 1.1%, respectively. Gross margin improvement in
the third quarter was primarily due to the leverage of occupancy
costs gained through positive same store sales and improved
merchandise margins.
Selling, general and administrative expenses were $138.5 million in
the 1997 third quarter, up 13.4% from $122.1 million in the 1996
third quarter. For the first nine months of 1997, selling, general
and administrative expenses were $429.4 million compared with
$382.1 million in the 1996 period, a 12.4% increase. The increase
during the third quarter and the first nine months of 1997 was
attributed to a modest increase in advertising, the operation of
the Parade of Shoes division, and investments in infrastructure and
systems to support future growth.
At the end of the third quarter, the Company operated 4,243 Payless
ShoeSource stores in 50 states, Canada, Guam, Puerto Rico and the
U.S. Virgin Islands and 183 Parade of Shoes stores. The following
table presents the change in store count for the third quarter and
first nine months of 1997 and 1996.
Payless ShoeSource First
Third Quarter Nine Months
-------------- --------------
1997 1996 1997 1996
----- ----- ----- -----
Beginning of quarter/year 4,223 4,280 4,236 4,549
Stores opened 53 35 116 128
Stores closed (33) (51) (109) (413)
----- ----- ----- -----
Ending store count 4,243 4,264 4,243 4,264
===== ===== ===== =====
Parade of Shoes First
Third Quarter Nine Months
1997 1996 1997 1996
----- ----- ----- -----
Beginning of quarter/year 183 0
Stores acquired 0 186
Stores opened 2 N/A 4 N/A
Stores closed (2) (7)
----- -----
Ending store count 183 183
===== =====
From time to time, the Company may publish forward-looking
statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new
products, future store openings, capital expenditures, possible
strategic alternatives and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-
looking statements. In order to comply with the terms of the safe
9
<PAGE>
harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from
the anticipated results or other expectations expressed in the
Company's forward-looking statements. The risks and uncertainties
that may affect the operations, performance, development and
results of the Company's business include, but are not limited to
the following: Changes in consumer spending patterns, consumer
preferences and overall economic conditions, the impact of
competition and pricing, changes in weather patterns, the financial
condition of the suppliers and manufacturers from whom the Company
sources its merchandise, changes in existing or potential duties,
tariffs or quotas, availability of suitable store locations and
appropriate terms, and ability to hire and train associates.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
registrant or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 2 - Changes in Securities None.
Item 3 - Defaults Upon Senior Securities None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
Number Description
------ -----------
3.1 Amended and Restated Articles of Incorporation of
the Registrant.1
3.2 Amended and Restated Bylaws of the Registrant.2
10.5 Payless ShoeSource, Inc. 1996 Stock Incentive Plan, as
amended.*
10.8 Payless ShoeSource, Inc. Restricted Stock Plan for
Non-Management Directors, as amended.*
10.16 Payless ShoeSource, Inc. Deferred Compensation Plan
for Non-Management Directors.*
10.17 Payless ShoeSource, Inc. Executive Incentive
Compensation Plan for Business Unit Management.*
10
<PAGE>
10.18 The Stock Appreciation and Phantom Stock Unit Plan of
Payless ShoeSource, Inc. and Its Subsidiaries for
Payless ShoeSource International Employees.*
11.1 Computation of Net Earnings Per Share.*
27.1 Financial Data Schedule*
* Filed herewith
1) Incorporated by reference from Exhibit 3.1 of the Registrant's
Form 10-Q (file Number 1-11633) for the quarter ended May 4,
1996.
2) Incorporated by reference from Exhibit 3.2 of the Registrant's
Form 10-K (file Number 1-11633) for the year ended February 1,
1997.
(b) Reports on Form 8-K
No reports have been filed on Form 8-K during the quarter
ended November 1, 1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PAYLESS SHOESOURCE, INC.
Date: 12/8/97 /s/ Steven J. Douglass
--------------- ------------------------------
Steven J. Douglass
Chairman and
Chief Executive Officer
Date: 12/8/97 /s/ Ullrich E. Porzig
--------------- ------------------------------
Ullrich E. Porzig
Senior Vice President and
Chief Financial Officer
12
<PAGE>
<PAGE>
Exhibit 11
PAYLESS SHOESOURCE, INC.
COMPUTATION OF NET EARNINGS PER SHARE
13 Weeks Ended 39 Weeks Ended
------------------ ------------------
(Thousands, except per share) Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
-------- -------- -------- --------
Net earnings $ 33,493 $ 29,405 $111,508 $ 92,573
Common shares outstanding 37,473 40,006 38,816 40,311
-------- -------- -------- --------
Net earnings per share $ .89 $ .74 $ 2.87 $ 2.30
======== ======== ======== ========
Primary Computation:
- --------------------
Net earnings $ 33,493 $ 29,405 $111,508 $ 92,573
Common shares outstanding 37,473 40,006 38,816 40,311
Net effect of dilutive stock
options based on the treasury
stock method 661 63 396 101
-------- -------- -------- --------
Outstanding shares for primary
earnings per share 38,134 40,069 39,212 40,412
======== ======== ======== ========
Primary earnings per share $ .88 $ .73 $ 2.84 $ 2.29
======== ======== ======== ========
Fully Diluted Computation:
- --------------------------
Net earnings $ 33,493 $ 29,405 $111,508 $ 92,573
Common shares outstanding 37,473 40,006 38,816 40,311
Net effect of dilutive stock
options based on the treasury
stock method 661 97 540 101
-------- -------- -------- --------
Outstanding shares for fully
diluted earnings per share 38,134 40,103 39,356 40,412
======== ======== ======== ========
Fully Diluted earnings per share $ .88 $ .73 $ 2.83 $ 2.29
======== ======== ======== ========
Note: The Company's 1997 and 1996 outstanding shares was calculated on the
average number of Company shares outstanding during the applicable period.
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 -- THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM PAYLESS SHOESOURCE, INC. CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS FOR THE 39 WEEKS ENDED
NOVEMBER 1, 1997, AND CONDENSED CONSOLIDATED BALANCE SHEET AS OF
NOVEMBER 1, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001008802
<NAME> PAYLESS SHOESOURCE,INC.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<CASH> 217,300<F1>
<SECURITIES> 0<F2>
<RECEIVABLES> 4,700<F3>
<ALLOWANCES> 0<F3>
<INVENTORY> 331,700
<CURRENT-ASSETS> 592,400
<PP&E> 880,600
<DEPRECIATION> 393,300
<TOTAL-ASSETS> 1,083,200
<CURRENT-LIABILITIES> 228,000
<BONDS> 6,700<F4>
<COMMON> 400
0
0
<OTHER-SE> 817,300<F5>
<TOTAL-LIABILITY-AND-EQUITY> 1,083,200
<SALES> 1,997,400<F6>
<TOTAL-REVENUES> 1,997,400
<CGS> 1,388,600
<TOTAL-COSTS> 1,388,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,100)
<INCOME-PRETAX> 185,500
<INCOME-TAX> 74,000
<INCOME-CONTINUING> 111,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,500
<EPS-PRIMARY> 2.84<F7>
<EPS-DILUTED> 2.83<F7>
<FN>
<F1>Includes cash equivalent securities.
<F2>Any "securities" are shown under "Cash".
<F3>Receivables are net after deduction of allowances.
<F4>Consists of Capital Lease Obligations.
<F5>Reflects Retained Earnings and Additional Paid In Capital.
<F6>Reflects net sales.
<F7>Expressed in dollars.
</FN>
<PAGE>
</TABLE>
<PAGE>
Exhibit 10.5
PAYLESS SHOESOURCE, INC.
1996 STOCK INCENTIVE PLAN
Effective May 4, 1996
Last Amended July 17, 1997
<PAGE>
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.
2
<PAGE>
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.
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.
3
<PAGE>
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:
(i) Plan Maximum. The maximum number of shares of Stock
which may be issued under the Plan is 5,200,000, of which
no more than 400,000 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.
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(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
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
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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
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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
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. If the Committee approves, a Participant may elect to
pay all or part of the purchase price for shares pursuant to an
exercise of a Non-Qualified Stock Option by requesting the Company
to reduce the number of shares otherwise issuable to the
Participant upon the exercise of the Non-Qualified Stock Option by
the number of shares with a Fair Market Value sufficient to pay the
exercise price. In addition, if the Committee approves, the
Option Agreement may provide that the Participant may elect, on
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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.
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
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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 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.
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(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
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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 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:
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(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.
(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
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(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,
(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
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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
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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.
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. If the value of a
Performance Unit is paid in whole or in part with Stock, the
number of shares issued with respect to such Unit or portion
thereof that is paid in Stock shall be based on the Fair Market
Value of the Stock on the date the Performance Unit is earned.
In no event shall the total payment of a Performance Unit
(whether in cash, shares of Stock or a combination thereof)
exceed the amount earned based on the performance objectives
established at the time of grant.
(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,
15
<PAGE>
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
(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.
16
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(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
canceled, 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 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
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<PAGE>
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
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<PAGE>
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, (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 (1) 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 (2) except as otherwise provided herein or except for
changes which do not otherwise involve in the aggregate more than
5% of the total shares authorized under the Plan, any other
changes to the Plan that would (a) increase the maximum number of
shares that may be issued under the Plan, (b) permit
participation by persons who are not employees of the Company,
(c) permit regranting or repricing of previously granted stock
options, or (d) waive restrictions on previously granted
restricted stock awards except in the case of retirement or other
termination of employment; 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.
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<PAGE>
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.
20
<PAGE>
<PAGE>
Exhibit 10.8
RESTRICTED STOCK PLAN FOR NON-MANAGEMENT DIRECTORS
Effective May 4, 1996
Last Amended July 17, 1997
<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 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.
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<PAGE>
(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.
(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.
3
<PAGE>
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") for
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 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.
Notwithstanding any provision of the Plan to the contrary,
a Participant may elect, at such time and in such manner as
provided in the Non-Management Directors Deferred Compensation
Plan, the terms of which are hereby incorporated herein, not to
receive his Initial Grant or Annual Retainer(s) in the form of
restricted Stock, but rather and in lieu thereof, to defer some
or all of such amounts pursuant to the provisions of said
Deferred Compensation Plan, with the balance of such Initial
Grant or Annual Retainer which is not deferred, if any, to be
paid in the form of restricted Stock as otherwise provided in
this Plan.
4
<PAGE>
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-
half of the shares granted in Annual Retainers that are granted
on the date of an annual meeting to that Participant on the first
November 1 following the date of the annual meeting and will be
vested in the remaining one-half of such shares as of the first
May 1 following the end of the calendar year in which such shares
were granted. 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
5
<PAGE>
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.
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.
6
<PAGE>
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 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
participants, 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:
7
<PAGE>
(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 any 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 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.
8
<PAGE>
<PAGE>
Exhibit 10.16
PAYLESS SHOESOURCE, INC.
DEFERRED COMPENSATION PLAN
FOR NON-MANAGEMENT DIRECTORS
Effective July 17, 1997
<PAGE>
PAYLESS SHOESOURCE, INC.
DEFERRED COMPENSATION PLAN
FOR NON-MANAGEMENT DIRECTORS
Section 1. Purpose.
The purpose of this Plan is to provide an opportunity for Non-
Management Directors of Payless ShoeSource, Inc. to defer all or
a portion of their Initial Grant and Annual Retainer(s) under the
Restricted Stock Plan, as well as cash compensation for service
on the Board.
Section 2. Definitions.
(a) Annual Retainer means the annual grant of restricted Stock
under the Restricted Stock Plan for Non-Management Directors of
Payless ShoeSource, Inc. and any annual award of cash
compensation payable for service on the Board.
(b) Board means the Board of Directors of Payless, as
hereinafter defined.
(c) Fiscal Year means the fiscal year of Payless as established
from time to time.
(d) Initial Grant means the initial grant of restricted Stock to
an eligible Non-Management Director under the Restricted Stock
Plan and any initial award of cash compensation payable for
service on the Board.
(e) Non-Management Director means a member of the Board who is
not, at the time an election to defer is made, an officer of
Payless.
(f) Payless means Payless ShoeSource, Inc., a Missouri
corporation, its successors and assigns.
(g) Participant means a Non-Management Director who has elected
to participate in the Plan.
(h) Plan means the Deferred Compensation Plan for Non-Management
Directors of Payless, as described herein.
(i) Restricted Stock Plan means the Restricted Stock Plan for
Non-Management Directors of Payless ShoeSource, Inc., all of the
relevant terms of which are incorporated herein.
(j) Stock means the common stock of Payless, as hereinafter defined.
(k) Stock Unit means an accounting equivalent of one share of
Stock.
(l) Stock Unit Account means an account on the records of
Payless 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 effective date
of an individual first becoming an eligible Non-Management
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Director and as of the first day of each calendar year thereafter
while such individual remains an eligible Non-Management
Director, each Participant shall be afforded the opportunity to
make an election to have either of the following alternative
methods of payment applied to all or any portion of the Initial
Grant and/or the Annual Retainer under the Restricted Stock Plan
and of any additional cash compensation which such Participant
shall be entitled to receive as awarded at the annual
shareowners' meeting during said calendar year.
(i) Alternative (i): Payment of the Initial Grant and of
the Annual Retainer in the form of restricted Stock
pursuant to the terms of the Restricted Stock Plan and
payment in cash of any additional compensation that is
payable initially or annually as of the date of the
annual shareowners' meeting.
(ii) Alternative (ii): Payment of any cash compensation at a
deferred date or dates either in a lump sum or in
annual installments, as may be elected by the
Participant, such deferred cash payment when made to
include interest, as hereinafter provided, from the
first day of May next following the date of the annual
shareowners' meeting as of which the compensation was
awarded to the date of payment.
(iii) Alternative (iii): Payment of the amount of the
Initial Grant and of the Annual Retainer,
otherwise payable in the form of restricted Stock,
at a deferred date or dates either in a lump sum
or in annual installments, as may be elected by
the Participant, such deferred payment in the form
of Stock to be made for Stock Units 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 Initial Grant or Annual Retainer, as applicable,
for such year. The Participant shall make an irrevocable
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 for
which such Alternative was elected by the Participant, or, if a
Participant is newly elected or appointed to the Board, prior to
the first meeting following such election or appointment.
(b) Consistent with the provisions of Sections 2 and 3 of Part
II of the Restricted Stock Plan, except in the event of death or
disability as described therein, all or any portion of an Initial
Grant or of an Annual Retainer under the Restricted Stock Plan
which is deferred hereunder shall not vest and shall be forfeited
in the event the Participant shall cease to be a member of the
Board within six months following the date of such grant and
deferral, and a deferred Initial Grant only shall vest and cease
to be forfeitable one-fifth for each Year of Service (as defined
in the Restricted Stock Plan) and a deferred Annual Retainer
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under the Restricted Stock Plan only shall vest and cease to be
forfeitable one-half on the first November 1 following the annual
shareowner's meeting as of which such Annual Retainer is granted
and deferred and the remaining one-half of such Annual Retainer
shall vest as of the first May 1 following the end of the
calendar year in which such grant was made. The cash portion, if
any, of an Annual Retainer shall vest, provided the Participant's
membership on the Board has not ceased, as of the earlier of one-
fifth on the date of each regularly scheduled Board meeting
following the shareowners' meeting at which such cash
compensation was awarded, or in full as of the May 1 following
the date of such annual shareowners' meeting. Notwithstanding
any provision of this Section 3(b) to the contrary, in the event
of a Participant's death or disability as defined in the
Restricted Stock Plan, all outstanding Initial Grants and Annual
Retainers shall be deemed to be fully vested and nonforfeitable.
Vesting of any pro rata Annual Retainer deferred shall occur in
the same manner as described in Section 2 of Part II of the
Restricted Stock Plan and vesting may be accelerated by action of
the Committee under the terms of the Restricted Stock Plan.
(c) Except as provided in Section 12 and Section 13, in no event
shall payments under Alternatives (ii) or (iii) commence prior to
the earlier of (i) the first day of May following the end of the
calendar year during which the Participant's service as a
director of Payless terminates; or (ii) the occurrence of a
severe financial hardship. Upon the written request of the
Participant (or if applicable, the beneficiary or distributee)
the payment schedule elected by the Participant under
Alternatives (ii) or (iii) above may be revised by the Board, 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 Board may revise the payment
schedule that the Participant had previously established only to
the extent that the Board considers necessary to eliminate or
lessen the severe financial hardship.
(d) In the case of a Participant who elects to have all or any
part of his Initial Grant and/or Annual Retainer, as applicable,
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 with respect to
such Initial Grant and/or Annual Retainer 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 Initial Grant or Annual Retainer
compensation, as applicable, as is to be so applied to
Alternative (iii) by the average of the high and low
trading prices of the Stock on the New York Stock
Exchange as of the date of Payless' annual shareowners'
meeting (or, it applicable, the date the Participant
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<PAGE>
first joins the Board) or, if the New York Stock
Exchange is not open on such date, the first preceding
day it was open; plus
(ii) the quotient, disregarding fractions, resulting from
dividing the aggregate dollar amount of cash dividends
which would have been paid to the Participant during
the "Year" had the Stock Units standing in his Stock
Unit Account from time to time during the Year been
shares of Stock by the average of the high and low
trading prices of the Stock on the New York Stock
Exchange as of the date of Payless' annual shareowners'
meeting (or, if applicable, the date the Participant
first joins the Board) or, if the New York Stock
Exchange is not open on such date, the first preceding
day it was open (for purposes of these subparagraphs
(ii) and (iii), the "Year" is the twelve month period
preceding each annual shareowners' meeting); plus
(iii) the number of shares of Stock, disregarding
fractions, which would have been received by the
Participant as stock dividends during the 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 Stock.
Any allocation of Stock Units to a Participant's Stock Unit
Account required to be made pursuant to this paragraph (d) shall
be made as of the date of Payless' annual shareowners' meeting
(or, if applicable, the date the Participant first joins the
Board) as of which such Stock Units were determined. The
aggregate value of the fraction or fractions remaining after
making the applicable calculations referred to in subparagraphs
(d)(i), (d)(ii) and (d)(iii) of this Section 3 shall be converted
into Stock Units, to be accumulated in the Participant's Stock
Unit Account until paid or distributed.
(e) Notwithstanding the provisions of Section 3(d) to the
contrary, in the event of a recapitalization of Payless pursuant
to which the outstanding shares of 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 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.
(f) Interest to be paid under Alternative (ii) shall be credited
annually as of the first day of May next following the date of
Payless' annual shareowners' meeting each year and shall be at a
rate 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 May 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 Board
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<PAGE>
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, when added to the total number of shares of
Restricted Stock granted under the Restricted Stock Plan, exceed
300,000 shares of Stock, as adjusted hereunder or under the
Restricted Stock Plan.
Section 5. Distribution from the Stock Unit Account.
(a) Distribution from a Participant's Stock Unit Account shall
be made in accordance with elections made by the Participant and
the determinations made by the Board, 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 Participant has determined that a distribution is to
be made in a lump sum in Stock, the number of shares of 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 Stock to be distributed on a
particular annual installment distribution date, the Board shall
make its calculations as if that annual installment and all
subsequent annual installments were in fact to be made in shares
of Stock, as follows: the number of shares of 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 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 Stock distributed
to a Participant. Any fractional Stock Unit shall not be
distributed in Stock, but shall be distributed in cash based on
the average of the high and low trading prices of the Stock on
the New York Stock Exchange as of the date of distribution or, if
the New York Stock Exchange is not open on such date, the first
preceding day it was open.
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 the Participant pursuant
to such Alternatives, shall be distributed to such beneficiary as
the Participant shall have designated in writing delivered to the
Board, or, in the absence of such designation, shall be
distributable to the Participant's personal representative. Such
distribution shall be made at such date or dates, either in a
lump sum or in annual installments as elected by the Participant
prior to the beginning of the calendar year for which such
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<PAGE>
Alternative was elected, as determined by the Board and provided
further that in the event of a severe financial hardship, the
Board may revise its determination in accordance with Section
3(c).
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
Payless. Nothing in this Agreement shall require Payless to
invest any amount, the payment of which has been deferred under
Alternative (ii) or (iii), in Stock or in any other medium.
Section 8. Administration of the Plan.
(a) The Plan shall be administered by the Board. 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 in (i) the maximum number of shares or Stock Units
deliverable or allocable in respect of any Fiscal Year under the
plan or (ii) the provisions of subparagraphs (d)(i) and (d)(ii)
of Section 3 of this Plan relating to the method of determining
the number of Stock Units allocable to a Participant.
(b) The Board 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 Board may determine and shall designate:
(i) the Alternative or Alternatives elected by the
Participant pursuant to Section 3(a);
(ii) the Participant's determination of the time or times
when payment of such compensation will be made to the
Participant pursuant to Section 3(a);
(iii) the beneficiary (if any) designated by the
Participant pursuant to Section 6; and
(iv) the Board's determination of the time or times when
payment of such compensation will be made after the
Participant's death pursuant to Section 6.
(c) The Board shall be authorized to interpret and construe the
Plan; to make, 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, consistent
with the terms of the Plan.
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
7
<PAGE>
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 Board 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 Board determines that such action is in the best
interests of Payless, the Participants and their beneficiaries.
(b) In the event that the Board 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 Board so as to reflect fairly and equitably
appropriate interest and dividends since the preceding
May 1 and so as to reflect fairly and equitably such
other facts and circumstances as the Board 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 Payless shall
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<PAGE>
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 Board 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 Payless or as soon
thereafter as practicable, but in no event later than five days
after the Change in Control of Payless. 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 Board so as to reflect fairly and equitably appropriate
interest and any dividends since the preceding allocation date
and so as to reflect fairly and equitably such other facts and
circumstances as the Board deems appropriate, including, without
limitation, recent price of the stock. For purposes of payments
under this Section 13, the value of a Stock Unit shall be
computed as the greater of (a) the closing price of shares of
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 Stock
is highest) or (b) the highest per share price for shares of
Stock actually paid in connection with any Change in Control.
For purposes of this Plan, a "Change in Control of Payless" 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 Payless, any trustee or other fiduciary holding
securities under an employee benefit plan of Payless, or any
company owned, directly or indirectly, by the shareowners of
Payless in substantially the same proportions as their ownership
of stock of Payless), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of Payless representing 50% or more of
the combined voting power of Payless' then outstanding
securities;
9
<PAGE>
(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 Payless to effect a transaction
described in clause (a), (c) or (d) of this Section) whose
election by the Board or nomination for election by Payless'
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 Payless approve a merger or consolidation
of Payless with any other corporation, other than (1) a merger or
consolidation which would result in the voting securities of
Payless 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 Payless or
such surviving entity outstanding immediately after such merger
or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of Payless (or similar transaction)
in which no "person" (as hereinabove defined) acquires more than
50% of the combined voting power of Payless' then outstanding
securities; or
(d) the shareowners of Payless approve a plan of complete
liquidation of Payless or an agreement for the sale or
disposition by Payless of all or substantially all of Payless'
assets.
10
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<PAGE>
Exhibit 10.17
PAYLESS SHOESOURCE, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR BUSINESS UNIT MANAGEMENT
This document constitutes and sets forth the terms of the
Payless ShoeSource, Inc. Executive Incentive Compensation Plan for
Business Unit Management.
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 financial performance of the Company and of
their business units.
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 Earnings Factor for
such Fiscal Year, plus
(ii) the Participant's Annual RONA Factor for such
Fiscal Year.
(b) "Annual Earnings Factor" means, for a Participant for
a Fiscal Year (i) five percent, if actual Earnings Growth for
such Fiscal Year equals or exceeds the Participant's Threshold
Annual Earnings 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 Earnings Growth for such Fiscal Year less the
Participant's Threshold Annual Earnings Growth Objective for
such Fiscal Year and the denominator of which is the
Participant's Maximum Annual Earnings Growth Objective for
such Fiscal Year less the Participant's Threshold Annual
Earnings Growth Objective for such Fiscal Year; provided,
however, that the percentages referred to in this Section 2(b)
may be adjusted by the Committee as provided in Section 4(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
percentages referred to in this Section 2(c) may be adjusted
by the Committee as provided in Section 4(b).
<PAGE>
(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 the Compensation and Nominating
Committee of the Board; provided, however, the Compensation
and Nominating Committee of the Board may delegate its powers
under Sections 2(i), 2(p), 2(t), 2(w), 3, 6, 7 and 10 (but not
under Section 14) to a management committee ("Management
Committee") comprised of the Chief Executive Officer, the
President and such other management personnel as the Chief
Executive Officer and the President may designate from time to
time, none of whom shall be eligible to participate in the
Plan, in which case the term "Committee" with respect to such
Sections shall be deemed to refer to the Management Committee.
(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) "Earnings Growth" means, for a division or Subsidiary,
(i) for a Fiscal Year, the annual growth rate in Earnings for
such division or Subsidiary for such Fiscal Year, measured
from the immediately preceding Fiscal Year; and (ii) for a
Long-Term Performance Period, the compound annual growth rate
in Earnings for such division or Subsidiary for such Fiscal
Year, 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 Section
2(i), Earnings of a division or Subsidiary for a Fiscal Year
means the earnings of such division or Subsidiary for such
Fiscal Year as reported in the Company's internal report(s)
(or, in the event that such item is not included in such
internal report(s) or that such internal report(s) is (are)
changed to delete or modify such item, then 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 division or Subsidiary.
(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 Earnings Factor
for such period, plus
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(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 Earnings Factor" means, for a Participant
for a Long-Term Performance Period, (i) five percent if actual
Earnings Growth for such period equals or exceeds the
Participant's Threshold Long-Term Earnings 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 Earnings Growth for such
period less the Participant's Threshold Long-Term Earnings
Growth Objective for such period and the denominator of which
is the Participant's Maximum Long-Term Earnings Growth
Objective for such period less the Participant's Threshold
Long-Term Earnings Growth Objective for such period.
(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 1998
and the second Long-Term Performance Period under the Plan
shall be Fiscal Years 1998 and 1999.
(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.
(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.
(p) "Minimum Annual Compensation" means, for a Fiscal
Year, (i) the Participant's minimum annual salary rate as of
November 1 of such Fiscal Year or (ii) if a Participant is
designated as such as of a date after November 1 in such
Fiscal Year, the Participant's minimum annual salary rate as
of such date; provided that if the Committee determines that
such compensation rate does not adequately reflect such
Participant's minimum annual salary rate for such Fiscal Year
or if the Fiscal Year does not contain a November 1 (as in a
short year), then the term shall mean the salary rate
determined by the Committee in its absolute discretion;
provided further, that upon the written agreement of the
Participant and the Company, the term shall mean such lesser
amount as is agreed to by the parties.
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(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 Business Unit Management.
(s) "Retirement" means, as to a Participant, retirement
as that word is defined in the Company's Profit Sharing Plan
(or comparable plan of a Subsidiary applicable to a
Participant).
(t) "RONA" means, for a division or Subsidiary, (i) for
a Fiscal Year, the return on beginning net assets of such
division or Subsidiary for such Fiscal Year as reported in the
Company's internal report(s) (or, in the event that such item
is not included in such report(s) or that such report(s) is
(are) changed to delete or modify such item, then 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 division or Subsidiary; and
(ii) for a Long-Term Performance Period, the sum of the return
on beginning net assets of such division or Subsidiary for
each Fiscal Year in the Long-Term Performance Period divided
by three.
(u) "Stock" means the common stock of the Company.
(v) "Subsidiary" means a subsidiary corporation of the
Company within the meaning of Section 425(f) of the Internal
Revenue Code.
(w) The terms "Maximum Annual Earnings Growth Objective,"
"Maximum Long-Term Earnings Growth Objective," "Target Annual
Earnings Growth Objective," "Target Long-Term Earnings Growth
Objective," "Threshold Annual Earnings Growth Objective,"
"Threshold Long-Term Earnings 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 who manage separate business units of the
Company 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.
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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) The Committee may change the percentages referred to in
the definitions of "Annual Earnings Factor" and "Annual RONA Factor"
for any Fiscal Year, provided that the maximum Annual Award which
may be paid under such different percentage may not be greater than
45% of the Participant's Minimum Annual Compensation for such
Fiscal Year.
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 (or, if less, the number of months of duration of such
Long Term Performance Period).
(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.
Section 6. 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, at any time prior to the
closing of the Company's books for a Fiscal Year, the Committee
may, in its sole and absolute discretion, increase or decrease any
such Annual Award (for such Fiscal Year) or Long-Term Award (for
the Long-Term Performance Period ending with such Fiscal Year) to
such amount as it determines.
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Section 7. Annual and Long-Term Targets. Threshold, target
and maximum annual and long-term objectives with respect to
Earnings Growth and with respect to RONA shall be determined by the
Committee as soon as practicable after the commencement of each
Fiscal Year and each Long-Term Performance Period for each
Participant. 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, unless the Committee determines, in its absolute
discretion, that such objectives should be modified.
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 under the Deferred Compensation Plan.
(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.
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.
(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
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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
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<PAGE>
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.
(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. Transfers and Changes in Responsibilities.
(a) In the event that (i) a Participant's responsibilities are
changed or that a Participant is transferred from the Participant's
then-current operating division of the Company or Subsidiary to
another operating division of the Company or Subsidiary or to the
corporate operation of the Company, and (ii) the Participant
remains employed by the Company or by a Subsidiary following such
change or transfer (a "Section 10 Event") and the Participant and
the Company either agree that the Section 10 Event is of such a
character that the Participant's participation in the Plan should
cease as of the date of such Section 10 Event or fail to agree on
whether such Section 10 Event is of such a character, then any
Annual Award or Long-Term Award to which the Participant would
otherwise be entitled under the terms of the Plan shall be prorated
to the date of such event.
(b) In the event that a Section 10 Event occurs and the
Participant and the Company agree that such change or transfer is
of such a character that the Participant's participation should not
cease as of the date of such change or transfer, then
(i) any Annual Award to which the Participant would be entitled
under the terms of the Plan
(1) with respect to the portion of the Fiscal Year before
such event, shall be the pro rata portion of the Annual
Award, if any, otherwise payable to such Participant based
8
<PAGE>
on the Participant's objectives and on the performance of
the division, Subsidiary or operation for which the
Participant was employed before such event, and
(2) with respect to the portion of the Fiscal Year after
such event, shall be the pro rata portion of the Annual
Award, if any, otherwise payable to such Participant based
on the Participant's objectives and on the performance of
the division, Subsidiary or operation for which the
Participant was employed after such event; and
(ii) any Long-Term Award to which the Participant would be
entitled under the terms of the Plan
(1) with respect to the Long-Term Performance Period which
ends with the Fiscal Year in which such event occurs, shall
be based solely on the Participant's objectives and on the
performance of the division, Subsidiary or operation for
which the Participant was employed before such event,
(2) with respect to the Long-Term Performance Period which
ends with the Fiscal Year next following the Fiscal Year in
which such event occurs, shall be prorated, with pro rata
portions being based on the Participant's respective
objectives and on the respective performances of the
division, Subsidiary or operation for which the Participant
was employed before and after such event, and
(3) with respect to the Long-Term Performance Period which
begins with the Fiscal Year in which such event occurs,
shall be based solely on the Participant's objectives and
on the performance of the division, Subsidiary or operation
for which the Participant was employed after such event.
In the event that more than one such Section 10 Event shall
occur in any one Fiscal Year or Long-Term Performance Period for
any Participant, the Committee shall adjust any Annual Award or
Long-Term Award in such manner as the Committee shall determine, in
its absolute discretion, to reflect the purposes and intent of the
Plan. Moreover, the Committee has the right to adjust all awards
pursuant to Section 6, in its absolute discretion, which may be
exercised in such a manner as the Committee deems fair and
equitable, based on the performance of the Participant while
participating in any other bonus or compensation 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) So long as the Participant is alive, 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
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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
Insurance 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 or, in
the absence of a designation of beneficiary, to the Participant's
estate.
(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.
Section 14. Amendment or Termination. The Committee may, by
resolution, amend or terminate the Plan at any time provided,
however, 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.
10
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<PAGE>
Exhibit 10.18
THE STOCK APPRECIATION AND PHANTOM STOCK UNIT PLAN
OF
PAYLESS SHOESOURCE, INC. AND ITS SUBSIDIARIES
FOR
PAYLESS SHOESOURCE INTERNATIONAL EMPLOYEES
PART I. GENERAL
1. Purpose. The purpose of the Plan is to aid
Payless ShoeSource, Inc. and its subsidiaries in attracting,
retaining, motivating and rewarding certain management
employees.
2. Definitions. Whenever used herein, the
following terms shall have the meanings set forth below:
(a) "Agreement" means the agreement between
the Company or any International Subsidiary and a
Participant evidencing the award of Stock Appreciation
Units or Phantom Stock Units and containing the terms
and conditions, not inconsistent with the Plan, that
are applicable to such Units.
(b) "Award" means an award of Units under
the Plan.
(c) "Board" means the Board of Directors of
Payless ShoeSource, Inc.
(d) "Committee" means a committee designated
by the Board which shall consist of not less than 2
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.
(e) "Company" means Payless ShoeSource, Inc.
(f) "Disability" means a total and permanent
disability which enables the Participant to be eligible
for and to receive disability benefits under (i) the
Social Security Act of the United States of America or
(ii) under any comparable governmental arrangements of
a country which are applicable to the Participant. If
there are no comparable governmental arrangements
applicable to a Participant, he shall be deemed to be
Disabled if he would be eligible for disability
benefits under the Social Security Act of the United
States of America if he were a citizen of that country.
(g) "Exercise Price" means, with respect to
a Stock Appreciation Unit, the Fair Market Value of a
share of Stock on the date the Stock Appreciation Unit
is granted.
<PAGE>
(h) "Fair Market Value" of a share of Stock
means the average of the high and low price of the
Stock on the New York Stock Exchange on the date in
question, or if no sales occurred on such day, on the
last preceding day on which Stock was traded.
(i) "International Subsidiary" means any
Subsidiary primarily engaged in business outside of the
United States of America.
(j) "Participant" means an individual to
whom an Award for Stock Appreciation Units or a Phantom
Stock Units is made under the Plan.
(k) "Phantom Stock Unit" means a non-
transferrable, non-assignable right described in Part
II of the Plan awarded by the Company or any Subsidiary
and approved by the Committee under or pursuant to the
Plan which provides for the payment of an amount in
cash in accordance with such terms and conditions, not
inconsistent with the Plan, that are applicable to such
Unit.
(l) "Plan" means The Stock Appreciation and
Phantom Stock Unit Plan of Payless ShoeSource, Inc. and
Its Subsidiaries For Payless ShoeSource International
Employees.
(m) "Retirement" means "retirement" as that
word is defined in any retirement plan sponsored by an
International Subsidiary which is applicable to the
Participant or, if there is no such plan, as defined in
the Company's Profit Sharing Plan.
(n) "Subsidiary" means any company or
unincorporated organization controlled, directly or
indirectly, by the Company or any subsidiary thereof.
(o) "Stock" means common stock of the
Company.
(p) "Stock Appreciation Unit" means a non-
transferrable, non-assignable right described in Part
II of the Plan awarded by the Company or any Subsidiary
and approved by the Committee under or pursuant to the
Plan which provides for the payment of an amount in
cash in accordance with such terms and conditions, not
inconsistent with the Plan, that are applicable to such
Unit and whose Exercise Price is the Fair Market Value
of a share of Stock on the date of the Award.
(q) "Unit" means a Stock Appreciation Unit
or a Phantom Stock Unit. Each Phantom Stock Unit shall
represent the right to receive 100% of the value of a
share of Stock on the day the Unit vests. Each Stock
Appreciation Unit shall represent the right to receive
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the difference, if positive, between the Fair Market
Value of a share of stock on the date the Unit is
exercised and the Exercise Price of the Unit. Units
are not shares of stock and do not entitle Participants
to receive Stock or exercise any rights incident to
ownership of Stock, except that the Committee may
provide in an agreement that holders of Phantom Stock
Units will receive dividend equivalents if any cash
dividends are paid on its Stock by the Company.
3. Administration. The Plan shall be
administered by the Committee. Subject to all the
applicable provisions of the Plan, including, without
limitation, Section 4 of Part I of the Plan, the Committee
is authorized to approve Awards of Units 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. Participants. The individuals who are
eligible to receive Awards for Units hereunder shall be
limited to management employees of any Subsidiary who, on
the date of the award of Units under the Plan, are not
residents of the United States of America.
From time to time the Committee shall in its sole
discretion, but subject to all of the provisions of the
Plan, determine which eligible employees will receive Awards
of Units under the Plan and the size, terms and conditions
of the Unit or Units to be awarded to each Participant. In
any year, the Committee may approve the award to any
eligible employee of Units subject to differing terms and
conditions. Neither the Committee's decision to approve the
award of a Unit to that employee in any other year or to any
other employee in any other year, nor the Committee's
decision with respect to the size, terms and conditions of
the Award(s) to be made to an employee in any year, require
the Committee to approve the award of the Unit(s) of the
same size or with the same terms and conditions to such
employee in any other year or to any other employee in any
year. The Committee shall not be precluded from approving
the award of a Unit to any eligible employee solely because
such employee may previously have received an Award under
the Plan.
5. Employment. In the absence of any specific
agreement to the contrary, no Award of Units to a
Participant under the Plan shall affect any right of the
Participant's employer to terminate the Participant's
employment at any time.
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PART II. UNITS
1. Units. The Committee may from time to time
in its discretion approve the award of Units to employees
who are eligible to receive an Award in accordance with
Section 4 of Part I of the Plan. An Award shall be
evidenced by an Agreement which shall contain such terms and
conditions (which may include vesting provisions and other
restrictions not inconsistent with the Plan as the Committee
shall determine); provided, however, that an Award shall
satisfy the requirements set forth in Part II of the Plan.
2. Grant. An Award may be granted by the
Committee and shall be effective upon the date approved by
the Committee.
3. Exercise and Vesting. Stock Appreciation
Unit Awards may be exercised by the Participant only at such
time or times, and only upon such terms and conditions, as
shall be set forth in the Agreement relating to such Stock
Appreciation Unit Award. A Phantom Stock Unit Award will
vest on the date or dates as are set forth in the Agreement
respecting such Phantom Stock Unit Award.
4. Amount of Payment. Upon the exercise of a
Stock Appreciation Unit Award, a Participant shall be
entitled to receive the excess of the Fair Market Value of a
share of Stock over the Exercise Price of a Unit with
respect to each Unit exercised. Upon vesting of a Phantom
Stock Unit, a participant shall be entitled to receive an
amount for such Unit equal to the Fair Market Value of a
share of Stock on the date the Unit vests.
5. Form of Payment. Any amount which becomes
payable upon exercise or vesting of an Award under the Plan
shall be paid entirely in cash. The Committee may determine
that amounts shall be payable in United States dollars or in
local currency, converted on such basis and at such
conversion rate as the Committee shall deem reasonable.
6. Termination.
(a) General. A Stock Appreciation Unit
Award shall terminate as of the earlier of (i) the date
of exercise of Award, to the extent that it is
exercised, or (ii) the expiration date specified in the
Agreement with respect to such Award. If an
unexercised Stock Appreciation Unit Award is otherwise
exercisable on the date that it expires, and if the
Fair Market Value of Stock with respect to which it was
granted, determined as of the date of such expiration,
exceeds the Exercise Price of the Units (under such
Award as set forth in the Stock Appreciation Unit
Agreement), then the Award shall automatically be
deemed to have been exercised as of the date of such
expiration.
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<PAGE>
(b) Termination of Employment. If a
Participant ceases to be an employee of the Company or
of a Subsidiary, for any reason other than such
Participant's Disability, Retirement or Death, then any
Award not theretofore exercised or vested, as
applicable, shall immediately be terminated and may not
thereafter be exercised, and no payment shall be made
hereunder pursuant to such Award. Each Agreement shall
provide that the Committee may terminate any Award
prior to the date on which the Unit is exercised or
vested, as applicable, if the Participant engages
during the life of the Award in employment or
activities contrary, in the opinion of the Committee,
to the best interests of the Company or of any
Subsidiary.
(c) Disability. If a Participant ceases to
be an employee of the Company or of a Subsidiary by
reason of such Participant's Disability, then the
Participant's rights under the Award after the date of
such Disability shall be determined by the provisions
of the Agreement applicable to such Award.
(d) Death. If a Participant ceases to be an
employee of the Company or of a Subsidiary by reason of
the Participant's death, the participant's rights under
the Award shall be determined by the provisions of the
Agreement applicable to such Award.
(e) Retirement. If a Participant ceases to
be an employee of the Company or of a Subsidiary by
reason of the Participant's Retirement, any unvested
Phantom Stock Units shall expire. The right to
exercise all or any portion of any Award of Stock
Appreciation Units shall be determined by the
provisions of the Agreement applicable to such Award.
7. Non-Assignability. An Award shall not be
transferable (other than by will or the laws of descent and
distribution) and, during the Participant's lifetime, shall
be exercisable by, and payable to, only the Participant.
8. Restrictions. Awards shall be subject to the
condition that if at any time the Company shall determine in
its discretion that the registration of the Plan with any
regulatory authority, the satisfaction of withholding tax or
other withholding liabilities under the law of any
applicable jurisdiction or the consent or approval of any
regulatory body is necessary or desirable as a condition of,
or in connection with, the exercise or vesting of such
Award, then, in any such event, such exercise or vesting
shall not be effective unless such registrations
withholding, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the
Company.
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<PAGE>
9. Repricing Prohibited. There shall be no
grant of a Stock Appreciation Unit in exchange for a
Participant's agreement to cancellation of a Stock
Appreciation Unit with a higher Exercise Price that was
previously granted to such Participant.
PART III. CANCELLATION AND RESCISSION
1. Competition; Confidential Information.
(a) Unless 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 Stock
Appreciation Unit; or
(2) rescind any exercise of a Stock
Appreciation Unit
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
(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 a Stock Appreciation
Unit, 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.
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(c) The Company shall immediately notify the
Participant in writing of any cancellation of any
unexercised Stock Appreciation Unit. Following receipt
of such notice, the Participant shall have no further
rights with respect to such Stock Appreciation Unit.
(d) The Company shall notify the Participant
in writing of any rescission of an exercise of a Stock
Appreciation Unit within one year after the activity
referred to in Part III, Section 1(a). Within ten days
after receiving such a notice from the Company, the
Participant shall pay to the Company the excess of the
Fair Market Value of the Stock on the date of exercise
of a Stock Appreciation Unit over the Exercise Price
for the Unit.
2. Agreement by Participant Regarding Deduction.
The Participant shall agree and consent to a deduction from
any amounts the Company or a Subsidiary 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 or a subsidiary), to the extent of the amounts
the Participant owes the Company under this Part III.
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 Part III, then the
Participant agrees to pay immediately the unpaid balance to
the Company.
PART IV. MISCELLANEOUS
1. Effective Date. The Plan shall become
effective on May 14, 1997.
2. Duration of Plan. The Plan shall remain in
effect until it is terminated by the Company.
3. Withholding. The Company or any Subsidiary
shall have the right to deduct from the amount of any
payment arising from the exercise or vesting of an Award any
taxes required by applicable law to be withheld from such
amount.
4. Unfunded Plan. The Plan shall be unfunded.
Neither the Company nor any Subsidiary nor the Committee
shall be required to segregate any assets that may at any
time be represented by Awards 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 an Award shall be
based solely upon any contractual obligations created by the
Plan or an Agreement, and no such obligation shall be deemed
to be secured by any pledge or any encumbrance on any
property of the Company or of any Subsidiary.
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5. Changes in Capital Structure. In the event
that there is any change in the capital structure of the
Company, through merger, consolidation, reorganization,
recapitalization, spinoff 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, the
number and/or the Exercise Price of the Units shall be
proportionately adjusted by the Board as it deems equitable,
in its absolute discretion, to prevent dilution or
enlargement of the Participant's Award. 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 will
result in fractional Units.
6. Amendment or Termination. The Board may, by
resolution, amend or terminate the Plan at any time;
provided, however, that the Board may not, without the
consent of the holder of the Unit, alter or impair any Award
previously granted 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 United States Federal income tax purposes or
for purposes of comparable income tax laws of another
country and any such amendment shall be effective as of such
date as is necessary to make such income under the Plan so
deductible.
7. Change of Control. If while unexercised
Awards remain outstanding under the Plan:
(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 50% or more of the combined voting power
of the Company'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 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 (2/3) of the directors then still
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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 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 of 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, all outstanding Stock Appreciation Unit
Awards held by active employees on such date shall be
exercisable in full, whether or not otherwise exercisable,
and all outstanding Phantom Stock Unit Awards held by active
employees on such date shall vest in full, and shall be
deemed fully payable.
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