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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 1-14770
PAYLESS SHOESOURCE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1813160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
3231 SOUTH EAST SIXTH AVENUE, TOPEKA, KANSAS 66607-2207
(Address of principal executive offices) (Zip Code)
(785) 233-5171
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.01 per share New York Stock Exchange
Preferred stock purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Registrant's Common Stock held by non-affiliates
based on the closing price of $1,322,131,836 on April 19, 2000, was $58.1875.
The Registrant had 22,261,422 shares of $.01 par value Common Stock issued and
outstanding as of April 19, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Shareowners for the fiscal year
ended January 29, 2000, (the "1999 Annual Report") are incorporated into Part
II, as described herein.
2. Portions of the Registrant's 2000 Proxy Statement for the Annual Meeting to
be held on May 26, 2000, are incorporated into Part III, as described herein.
Such proxy statement will be filed within 120 days after the end of the
fiscal year covered by this annual report on Form 10-K.
This report contains, and from time to time the Registrant may publish,
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
future store openings, possible strategic alternatives and similar matters.
Also, statements including the words "expects," "anticipates," "intends,"
"plans," "believes," "seeks," or variations of such words and similar
expressions are forwarding-looking statements. The Registrant notes that a
variety of factors could cause its actual results and experience to differ
materially from the anticipated results or other expectations expressed in its
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Registrant's business
include, but are not limited to, the following: changes in consumer spending
patterns; changes in consumer preferences and overall economic conditions; the
impact of competition and pricing; changes in weather patterns; successful
implementation of new technologies; Year 2000 matters, the financial condition
of the suppliers and manufacturers from whom the Registrant sources its
merchandise; changes in existing or potential duties, tariffs or quotas;
availability of suitable store locations on acceptable terms; the ability to
hire, train and retain associates; and general economic, business and social
conditions.
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Payless ShoeSource, Inc.
Form 10-K Annual Report
For the fiscal year ended January 29, 2000
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Company
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
Signatures
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PART I
ITEM 1. BUSINESS
GENERAL
Payless ShoeSource, Inc., a Delaware corporation, together with its
subsidiaries, ("Payless," the "Company" or the "Registrant") is the largest
family footwear retailer in the United States with more than $2.7 billion in
sales in the fiscal year ended January 29, 2000 ("1999"). The Company sold
approximately 215 million pairs of shoes in 1999 and served approximately 160
million customers.
As of January 29, 2000, the Company operated 4,492 Payless ShoeSource(R) stores
in 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands,
Guam, Saipan, and Canada. Payless ShoeSource(R) stores feature fashionable,
quality footwear for men, women and children, including athletic, casual, dress,
sandals, work boots and slippers. In addition, the Company operated 220 Parade
stores in 16 states. Parade offers fashionable women's footwear and accessories
at moderate prices.
DEVELOPMENTS
ALLIANCE WITH SHOPKO STORES, INC. In July, Payless entered into a strategic
alliance with ShopKo Stores, Inc. The new "store within a store" concept was
implemented in 13 ShopKo Stores in the fourth quarter. The Company expects to
operate the shoe departments in all 160-plus ShopKo stores by mid-year 2000.
These shoe departments offer the same footwear and accessories available in
Payless ShoeSource(R) stores. The ShopKo(R) alliance is the first step in a
strategy to exploit opportunities to extend the Payless presence in new retail
formats.
E-COMMERCE In the second quarter, the Company launched its exciting E-Commerce
venture: Payless.comsm. This new platform allows the Company to extend its brand
recognition through the Internet and provide customers with another convenient
way to shop with Payless. Payless.com's unique arrangement gives customers the
24-hour shopping convenience plus speedy delivery to their homes or free
delivery to their nearby Payless ShoeSource(R) store. In September,
Payless.comsm became an anchor tenant in America Online's new SHOP@AOL
Marketplace. This attracts more customers to the convenience of Payless.comsm
and further extends the brand. SHARE REPURCHASES In January 1997, the Board of
Directors of the Company authorized the repurchase of up to $150 million of
outstanding Common Stock of Payless in open-market transactions. In September
1997, the Company completed this $150 million repurchase (having repurchased
approximately 2.8 million shares). In September 1997, the Board of Directors of
the Company authorized a second repurchase of up to $150 million of outstanding
Common Stock in open-market transactions, subject to market conditions and
receipt of a favorable ruling from the Internal Revenue Service (the "IRS"). The
Company received the favorable IRS ruling in March 1998. In July 1998, the
Company completed this $150 million repurchase (having purchased approximately
2.2 million shares). In August 1998, the Board of Directors of the Company
authorized a third repurchase of up to $150 million of outstanding Common Stock
of Payless in open-market transactions. In October 1998, the third $150 million
repurchase was increased by the Board of Directors, on the same terms, to $500
million. Between August 1, 1998 and January 30, 1999 the Company repurchased 2.7
million shares and during the last fiscal year, the Company repurchased 2.9
million shares at a cost of approximately $142 million. The aggregate cost of
the 5.7 million repurchased shares in the Company's third stock repurchase
program was approximately $265 million. In March 2000, the Board of Directors
increased the $500 million share authorization to $700 million. On April 10,
2000, the Company completed a modified Dutch auction self-tender for its common
stock repurchasing 7,547,169 shares for approximately $400 million. The Company
is required to return the shares repurchased to authorized but unissued status.
STORES During 1999 the Company had a net increase of 135 Payless ShoeSource
stores (269 openings and 134 closings) and 7 Parade stores (21 openings and 14
closings). Year-end 1999 store count was 4,492 Payless ShoeSource stores and 220
Parade stores.
HISTORY
The Company was founded in Topeka, Kansas in 1956 with a strategy of selling low
cost, high quality family footwear on a self-service basis. In 1962, Volume
Distributors, as the Company was known at the time, became a public company. In
1979, the Company (then called Volume Shoe Corporation) was acquired by The May
Department Stores Company of St. Louis, Missouri ("May"). The Company changed
its name to Payless ShoeSource, Inc. in 1991. On May 4, 1996, Payless became an
independent public company incorporated in Missouri as a result of its spin-off
from May. In June 1998, Payless was reorganized into a holding company structure
with the retail operations
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centralized in Payless ShoeSource, Inc., a Missouri corporation, the indirect,
wholly-owned subsidiary of Payless ShoeSource, Inc., a Delaware corporation. The
Company is listed for trading on the New York Stock Exchange under the symbol
"PSS."
PAYLESS SHOESOURCE(R) STORES
The average size of the Company's Payless ShoeSource(R) stores is approximately
3,300 square feet. Each store carries on average 8,200 pairs of shoes selected
from approximately 500 styles offered. Payless ShoeSource(R) stores operate in a
variety of real estate formats, including shopping malls, central business
districts, free-standing buildings, strip centers and the new "store within a
store." Of the 4,492 Payless ShoeSource(R) locations open at the end of 1999,
714 incorporated a "Payless Kids(R)" area which consists of approximately an
additional 1,000 square feet of selling space devoted to an expanded assortment
of children's shoes and three were exclusively "Payless Kids(R)" stores. The
stores that include a "Payless Kids(R)" area and those that are dedicated
"Payless Kids(R)" stores are located throughout the country, have wider aisles,
children-friendly seating and an entertainment center for children. Payless(R)
intends to phase out the remaining exclusively "Payless Kids(R)" stores.
The Company's Payless ShoeSource(R) stores operate in rural, suburban and urban
environments. The 10 states with the largest concentration of the Company's
Payless ShoeSource(R) stores are identified below (along with the total number
of Payless ShoeSource(R) stores):
STATE NO. OF PAYLESS SHOESOURCE(R) STORES
----- -----------------------------------
CALIFORNIA 647
TEXAS 380
FLORIDA 275
NEW YORK 274
ILLINOIS 203
PENNSYLVANIA 193
OHIO 178
MICHIGAN 155
NEW JERSEY 128
MASSACHUSETTS 103
OTHER (INCLUDING
NON-U.S. STORES) 1,956
-----
TOTAL 4,492
The Company's Payless ShoeSource(R) stores are highly automated, each with an
electronic point of sale register (excluding the ShopKo locations) and a back
office computer which not only records transactions from the register (not in
ShopKo stores), but also serves many other store supporting functions including
price look-up, accumulation of associate hours worked and communications with
the Company's headquarters in Topeka, Kansas. Store associates receive regular
weekly communications from the Company's headquarters describing promotional and
display requirements.
The Company's Payless ShoeSource(R) operations are directed centrally by a
senior officer and a small support staff.
The average Payless ShoeSource(R) store has a manager and approximately five
associates. The stores are organized into districts. District managers, to whom
the store managers report, themselves report to the division offices and have
full responsibility for the stores in their district. Division offices also have
loss prevention and inventory control functions. Human resources, merchandising
support and other more general support services, are provided from the Company's
headquarters.
PARADE STORES
The Company's Parade division, which was acquired in March 1997, from J. Baker,
Inc., of Canton, Massachusetts, emphasizes the retail sale of fashionable,
quality, primarily leather, women's shoes. As of January 29, 2000, the Company
operated 220 Parade stores as a separate division supported by Payless sourcing,
distribution, information systems, real estate, human resources and financial
operations.
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Major markets include New York City, Chicago, Boston, Philadelphia, Washington,
D.C., Miami and Puerto Rico. The average size of a Parade store is approximately
2,400 square feet. These stores operate in a variety of real estate formats
including shopping malls, central business districts and strip centers.
EMPLOYEES
During 1999, the Company's average number of employees was approximately 26,000,
including approximately 14,500 full-time associates and 11,500 part-time
associates. Approximately 675 of the Company's distribution center general
warehouse associates are covered by collective bargaining agreements.
Approximately 150 of the Company's other associates are covered by collective
bargaining agreements. Management believes it has a good relationship with its
employees.
The Company is led by a team of 21 senior management executives who have an
average of 18.1 years of retail industry experience, including an average of
12.5 years with the Company and May.
PRODUCTS
The Company's Payless ShoeSource(R) stores offer a broad assortment of
fashionable, quality footwear for men, women and children, including athletic,
casual, dress, sandals, work boots and slippers. Shoes are constructed with
leather, canvas and man-made materials. Styling is updated regularly in an
effort to remain current with proven fashion trends. During 1999, shoes sold at
Payless ShoeSource(R) stores sold at an average retail price of $11.63/pair. In
addition to shoes, Payless ShoeSource(R) stores offer accessories, including
handbags, shoe polish and hosiery. Parade stores feature fashionable women's
dress, casual and athletic footwear priced in the $20 to $40/pair range.
The Company's merchandising effort is led by the President and three general
merchandise managers with an average of 19 years of retail experience. They
direct teams of buyers, planners and distributors that interact with agents and
factory representatives to design, select, produce, inspect and distribute
footwear and accessories to Payless ShoeSource(R) and Parade stores.
CUSTOMERS
The Company sells footwear to women, men and children of all age groups. The
Company has significant market penetration with its target customers: women
between the ages of 18 and 44. The Company believes that more than 45% of its
target customers purchased at least one pair of shoes from the Company last
year. In 1999, the Company sold more pairs of shoes than any other U.S. footwear
retailer.
SEASONALITY
The retail footwear market is characterized by four high volume seasons: Easter,
early Summer, back-to-school and Winter holiday. The Company must increase
inventory levels during these periods to support the increased demand for
seasonal styles. Unseasonable weather patterns may affect planned sales of
seasonal products such as sandals and boots.
PURCHASING
The Company, both on its own account and through its indirect, wholly-owned
subsidiary, Payless ShoeSource Merchandising, Inc., utilizes a network of agents
and factories in the United States and 10 foreign countries to obtain its
products. These products are manufactured to meet the Company's specifications
and standards. The strength of the Company's relationships with agents and
factories, some dating back over 40 years, has allowed the Company to revise its
sourcing strategies to reflect changing political and economic environments. In
the past, many of the Company's agents and factory owners have played
significant roles in developing production in new factories and in new countries
without compromising production capacity or product quality. Factories in the
People's Republic of China are a source of approximately 84% of the Company's
merchandise. There can be no assurance that a change in political climate with
or in China would not have a material adverse effect on the Company. The Company
does not purchase "seconds" or "overruns" and does not own any manufacturing
facilities. The Company closely integrates its merchandise purchasing
requirements with various manufacturers through its sourcing organization which
has offices in Kansas, Taiwan, China, Brazil and Vietnam. Management believes it
has good relationships with the entities from which it sources, although there
can be no assurance that such relationships will remain good or that such
entities believe that such relationships are good.
Worldwide, approximately 58 percent of the Company's merchandise calculated on
an at cost basis is acquired through a network of third-party agents. Payless
ShoeSource International, Inc., the Company's indirect subsidiary in Taipei,
Taiwan, arranges directly with factories for
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the design, selection, production management, inspection and distribution of
approximately 42 percent of the shoes acquired for the Company.
Risks inherent in foreign manufacturing (i.e., manufacturing outside the United
States) include economic and political instability, transportation delays and
interruptions, restrictive actions by foreign governments, the laws and policies
of the United States affecting importation of goods, including duties, quotas
and taxes, trade and foreign tax laws and fluctuations in currency exchange
rates. While the Company has not historically experienced material adverse
effects resulting from the occurrence of these types of risks, there is no
assurance that in the future the occurrence of these risks will not result in
increased costs and delays or disruption in product deliveries that could cause
loss of revenue and damage to customer relationships and have a material adverse
effect on the Company.
Imports from China currently enjoy "normal trade relations" ("NTR") treatment
under United States tariff laws. NTR treatment provides the most favorable
level of United States import duty rates. China's NTR treatment is annually
reviewed by the United States Government. Extension of this treatment is
subject to uncertainty every year. The loss of NTR treatment for imports
from China would likely result in substantially increased costs to the Company
in the purchase of merchandise from China. The Company believes, however, that
its competitors in the footwear industry would be similarly affected.
QUALITY ASSURANCE
The Company's quality assurance organization sets standards and specifications
for product manufacture, performance and appearance. It communicates those
standards and specifications through its copyrighted quality assurance manual.
The Company stands behind the quality of the shoes it sells to its customers by
permitting return of purchased merchandise with proper documentation evidencing
purchase.
The quality assurance organization also provides technical design support for
the Company's direct purchasing function. It is responsible for review and
approval of agent and factory technical design, for worldwide laboratory testing
of materials and components, and for performing in-factory product inspections
to ensure that materials and factory production techniques are consistent with
Company specifications. The Company locates its field inspection personnel close
to the factories and freight consolidation facilities it uses throughout the
world.
PRODUCTION MANAGEMENT
The production management organization manages an ongoing process to qualify and
approve new factories, while continually assessing existing factory service and
quality of performance. New factories must meet specified quality standards for
shoe production and minimum capacity requirements. They must also agree to the
Company's production control processes and certify that neither they nor their
suppliers use forced or child labor. Factory performance must continually
improve or the factory runs the risk of being removed from the list of approved
factories. The production management organization utilizes a unique, internally
developed production control process by which the Company is electronically
linked to the factories and agents. This process is designed to ensure on-time
deliveries of merchandise with minimum lead time and without unnecessary costs.
The Company believes that maintaining strong factory relationships, improving
key factory performance factors and improving factory profitability is critical
to long-term sourcing stability. Its manufacturing services group, based in
Asia, provides direction and leadership to key factories in the areas of overall
productivity improvement and lead time reduction.
MERCHANDISE DISTRIBUTION
The Company believes that its distribution system provides it with a competitive
advantage. The Company's merchandise distribution teams are able to track shoes
by the pair from order placement through sale to the customer by the use of
perpetual inventory, product planning and retail price management systems. These
systems are maintained by experienced information systems personnel and are
enhanced regularly to improve the product distribution process. Distribution
analysts review sales and inventory by size and style to maintain availability
of product within the Company's stores.
The Company, through its indirect, wholly-owned subsidiary, Payless ShoeSource
Distribution, Inc., operates a single 795,000 square foot distribution center,
including office space, in Topeka, Kansas (the "DC"). The DC is capable of
replenishing in-store product levels by style, color and size. The DC currently
handles approximately 70 percent of the Company's distribution needs and
operates seven days-a-week. Management believes this facility is one of the most
highly-automated and cost-efficient distribution facilities in the retail
footwear industry. The remaining 30 percent of the Company's distribution needs
are handled by a third party facility in Los Angeles, California.
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The Company believes its distribution center system has sufficient capacity to
support more than 5,000 stores. The Company regularly monitors the capacity of
the DC. Stores generally receive new merchandise at least twice a week, in an
effort to maintain a constant flow of new and replenished merchandise.
INDUSTRY SEGMENTS
The retail footwear industry can be divided into high, moderate and value-priced
segments. The high priced segment is comprised principally of department stores.
The moderate priced segment, which includes specialty shoe chains, mass
merchandisers, and junior department stores, has no single dominant competitor.
The Company and national discount mass-merchandisers are predominant in the
value-priced segment.
Based on industry data, the United States footwear market is estimated to be $38
billion/year comprising more than one billion pairs of footwear, and has
remained relatively constant in each respect over the past several years.
Industry data suggests that the quality offered in the value-priced segment has
improved significantly in recent years.
The Company considers itself part of the value-priced segment of the footwear
industry. In 1999, the Company's sales accounted for approximately 7.1 percent
of the total dollar sales of the estimated $38 billion United States footwear
market.
COMPETITION
The Company operates in a highly competitive retail market competing primarily
with national and regional discount mass-merchandisers, as well as with other
discount shoe stores and off-price outlet stores. Competition is based on
product selection, quality and availability, price, store location, customer
service and promotional activities. The Company believes that it has a
leadership position in the footwear market.
INTELLECTUAL PROPERTY
The Company, through its wholly-owned subsidiaries, owns certain copyrights,
trademarks, patents and domain names which it uses in its business and which it
regards as valuable assets. The trademarks include Payless(R), Payless
ShoeSource(R), Payless Kids(R), Parade(sm), and Parade of Shoes(R) and domain
names including: Payless.com(sm). The Company owns all rights to the yellow and
orange logo used in its Payless ShoeSource(R) signs and advertising. In the
United States, the Company has registered over 200 key marks and owns over 50
common law marks under which it markets private label merchandise in its Payless
ShoeSource(R) stores. In addition, the Company owns over 50 registered and
common law marks under which it markets private label merchandise in its Parade
stores. The Company also owns registrations for Payless ShoeSource(R) in over 50
foreign countries. All of the Company's registered trademarks may be renewed
indefinitely.
MARKETING
The Company's marketing efforts are multi-dimensional, including nationally
broadcast television advertising, newspaper and mail inserts in support of major
promotional periods. In addition to media support, the Company utilizes in-store
promotional materials, including posters, signs and point of sale items. Also,
the Company communicates through the promotional funds, media funds, merchants'
associations and similar efforts that are part of the leasing agreements from
its various landlords. Finally, the Company uses publicity efforts to gain low
cost awareness of Payless and its core business.
In addition to its marketing staff, the Company uses professional firms to
assist in advertising, creative services, media purchase, publicity, business
and market planning and consumer research.
ENVIRONMENT
Compliance with federal, state and local statutes, rules, ordinance, laws and
other provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has not had, and is not expected to have, a material effect on
capital expenditures, earnings or the competitive position of the Company.
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FOREIGN OPERATIONS
In late 1997, the Company, through its indirect wholly-owned Canadian
subsidiary, Payless ShoeSource Canada Inc., opened its first store in Canada. By
the end of fiscal year 1999, the Company had opened 180 Canadian stores. In
February of 1999, the Company opened its first store in French-speaking Quebec
Province.
DIRECTORS OF THE COMPANY
Listed below are the names and present principal occupations or, if retired,
most recent occupations of the Company's Directors:
NAME PRINCIPAL OCCUPATION
---- --------------------
STEVEN J. DOUGLASS CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
OF THE COMPANY
DANIEL BOGGAN JR. SENIOR VICE PRESIDENT OF THE NATIONAL COLLEGIATE
ATHLETIC ASSOCIATION
HOWARD R. FRICKE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
OF THE SECURITY BENEFIT GROUP OF COMPANIES
THOMAS A. HAYS RETIRED, FORMERLY DEPUTY CHAIRMAN OF THE MAY
DEPARTMENT STORES COMPANY
KEN C. HICKS PRESIDENT OF THE COMPANY
MYLLE B. MANGUM CHIEF EXECUTIVE OFFICER OF MMS INCENTIVES, LLC
MICHAEL E. MURPHY RETIRED, FORMERLY VICE CHAIRMAN AND CHIEF
ADMINISTRATIVE OFFICER OF SARA LEE CORPORATION
ROBERT L. STARK RETIRED, FORMERLY EXECUTIVE VICE PRESIDENT
HALLMARK CARDS, INC.
EXECUTIVE OFFICERS OF THE COMPANY
Listed below are the names and ages of the executive officers of the Company as
of April 19, 2000 and offices held by them with the Company.
NAME AGE POSITION AND TITLE
---- --- ------------------
STEVEN J. DOUGLASS 50 CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER
KEN C. HICKS 47 PRESIDENT
DUANE L. CANTRELL 44 EXECUTIVE VICE PRESIDENT -- OPERATIONS
JOHN N. HAUGH 37 SENIOR VICE PRESIDENT -- MARKETING
JED L. NORDEN 49 SENIOR VICE PRESIDENT -- HUMAN RESOURCES
ULLRICH E. PORZIG 54 SENIOR VICE PRESIDENT -- CHIEF FINANCIAL
OFFICER AND TREASURER
WILLIAM J. RAINEY 53 SENIOR VICE PRESIDENT -- GENERAL COUNSEL AND
SECRETARY
GARY M. STONE 51 SENIOR VICE PRESIDENT -- CORPORATE
DEVELOPMENT
STEVEN J. DOUGLASS has served as Chairman of the Board and Chief Executive
Officer of Payless since May 4, 1996, the date on which Payless Common Stock was
distributed in a spin-off by May to its shareowners (the "Spin-off"). Mr.
Douglass was also Chairman and Chief Executive Officer of Payless from April
1995 to the Spin-off. He joined Payless in 1993 and served as Senior Vice
President/Director of Retail Operations from 1993 to January 1995 and as
Executive Vice President/Director of Retail Operations from January 1995 to
April 1995. Prior to his association with Payless, Mr. Douglass held several
positions at divisions of May, serving as Chairman of May Company, Ohio
(1990-1993) and Senior Vice President and Chief Financial Officer of J.W.
Robinsons (1986-1990). Mr. Douglass is a director of The Security Benefit Group
of Companies. Mr. Douglass has served as a Director of Payless since April 30,
1996.
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KEN C. HICKS has served as President of the Company since January 28, 1999.
Before joining Payless, he was Executive Vice President and General Merchandise
Manager for Home Shopping Network, Inc. Prior to his association with Home
Shopping Network, Inc., Mr. Hicks held several positions with May serving as:
Senior Vice President and General Merchandise Manager of Foley's Department
Stores (1995-1998), Senior Vice President and General Merchandise Manager for
May Merchandising Company (1990-1995) and as Senior Vice President of Strategic
Planning for May (1987-1990). Mr. Hicks has served as a Director of Payless
since January 28, 1999.
DUANE L. CANTRELL has served as Executive Vice President -- Operations since
April 1997 and as Senior Vice President -- Retail Operations from May 1995 to
April 1997. He was Senior Vice President -- Merchandise Distribution and
Planning (1992-1995) and Senior Vice President -- Merchandise Distribution
(1990-1992). Mr. Cantrell has been employed by the Company since 1978.
JOHN N. HAUGH has served as Senior Vice President -- Marketing since January
2000. He served as Executive Vice President of Marketing and Sales for Universal
Studios (1998-1999) and prior to that he worked for Carlson Companies
(1993-1998).
JED L. NORDEN has served as Senior Vice President -- Human Resources since July
1985. He served as Vice President-Executive Development of May (1984-1985).
Prior to joining May, Mr. Norden held various management positions with
Ingersoll-Rand, most recently serving as General Manager-Personnel and
Facilities (1982-1984).
ULLRICH E. PORZIG has served as Senior Vice President -- Chief Financial Officer
and Treasurer since April 1998. He served as Senior Vice President and Chief
Financial Officer from February 1996 to April 1998 and from 1986 to 1988.
Between 1993 and 1996, Mr. Porzig was Senior Vice President, Chief Financial
Officer and Treasurer of Petro Stopping Centers L.P. From 1982 to 1993, he was
employed by May in various capacities including Senior Vice President-Finance
and Chief Financial Officer of Foley's (1988-1993).
WILLIAM J. RAINEY has served as Senior Vice President -- General Counsel and
Secretary since April 1996. Prior to joining the Company, Mr. Rainey served as
Executive Vice President, General Counsel and Secretary of Fourth Financial
Corporation (1994-1996) and Vice President, General Counsel of Cabot Corporation
(1991-1993).
GARY M. STONE has served as Senior Vice President -- Corporate Development since
October 1999 and served as Senior Vice President -- Store Development from
February 1997 to October 1999. Prior to joining the Company, Mr. Stone was
employed by PepsiCo, Inc. as Senior Vice President and General
Manager -- Restaurant Services (1995-1997) and Vice President, Asset
Development -- Pizza Hut (1990-1995).
ITEM 2. PROPERTIES
The Company leases substantially all of its stores. The leases typically have a
primary term of 5 or 10 years, with none to two five-year renewal options.
During 2000, approximately 815 of the Company's leases, including 177 leases
which, as of January 29, 2000, were month-to-month tenancies, are due to expire.
Leases usually require payment of base rent, applicable real estate taxes,
common area expenses and, in some cases, percentage rent based on the store's
sales volume. Payless ShoeSource stores average approximately 3,300 square feet
and Parade stores average approximately 2,400 square feet. The Company owns and
operates, directly or through its wholly-owned subsidiaries, a 305,000 square
foot central office building and a 795,000 square foot distribution facility,
including office space, both of which are located in Topeka, Kansas.
ITEM 3. LEGAL PROCEEDINGS
On September 16, 1999, a lawsuit entitled Martins, Johns and Mason vs. Payless
ShoeSource, Inc. was filed in the Superior Court of the State of California for
the County of Orange. The plaintiffs, all former managers of Payless ShoeSource
stores in California, allege that the Company violated California wage and labor
laws by not paying them overtime wages for time worked over 40 hours in a week.
The plaintiffs further allege that the case should be certified as a class
action and seek overtime wages for all current or former store managers for
Payless ShoeSource stores in California during the four years prior to September
1999 through the date a judgment may be rendered. Although the lawsuit's outcome
and the amount of any liability that could arise with respect to this lawsuit
cannot be accurately predicted, in the opinion of the Company, any such
liability will not have a material adverse financial effect on the Company.
The Company and its subsidiaries are also parties to ordinary private litigation
incidental to their business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
10
<PAGE> 11
There were no matters submitted to a vote of security holders during the 13
weeks ended January 29, 2000.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREOWNER MATTERS
There were approximately 18,514 registered holders of the Company's Common Stock
as of January 29, 2000 compared to approximately 19,931 registered holders as of
January 30, 1999. The information set forth under the headings "Management's
Discussion and Analysis -- Common Stock and Market Prices" and "Shareowner
Information -- Common Stock" in the Company's 1999 Annual Report is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the heading "Summary of Selected Historical
Financial Information" of the Company's 1999 Annual Report is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information set forth under the heading "Management's Discussion and
Analysis" of the Company's 1999 Annual Report is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Statement of Earnings for the fiscal years 1997, 1998 and 1999,
the Consolidated Balance Sheet as of January 29, 2000 and January 30, 1999, the
Consolidated Statement of Shareowners' Equity, the Consolidated Statement of
Cash Flows for fiscal years 1997, 1998, 1999, the Notes to Consolidated
Financial Statements and the Report of Independent Public Accountants contained
in the Company's 1999 Annual Report to Shareowners are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
a) Directors -- The information set forth in the Company's definitive proxy
statement to be filed in connection with its Annual Meeting to be held on May
26, 2000, under the captions "Election of Directors -- Directors and Nominees
for Directors" and "Additional Information -- Section 16(a) Beneficial Ownership
Reporting Compliance" is incorporated herein by reference.
b) Executive Officers -- Information regarding the Executive Officers of the
Company is as set forth in Item 1 of this report under the caption "Executive
Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the Company's definitive proxy statement to be
filed in connection with its Annual Meeting to be held on May 26, 2000, under
the captions "Election of Directors -- The Board and Committees of the Board --
Compensation of Directors," "Compensation and Nominating Committee Report --
EICP" and "Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
11
<PAGE> 12
The information set forth in the Company's definitive proxy statement to be
filed in connection with its Annual Meeting to be held on May 26, 2000, under
the caption "Beneficial Stock Ownership of Directors, Nominees, Executive
Officers and Persons Owning More Than Five Percent of Common Stock " is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements. The following financial statements are
incorporated herein by reference to the Company's 1999 Annual Report
to Shareowners:
PAGE IN
ANNUAL REPORT
Financial Statements:
Consolidated Statement of Earnings for
the three fiscal years ended
January 29, 2000 18
Consolidated Balance Sheet --
January 29, 2000 and January 30, 1999 19
Consolidated Statement of Shareowners'
Equity for the three fiscal years
ended January 29, 2000 20
Consolidated Statement of Cash Flows
for the three fiscal years ended
January 29, 2000 21
Notes to Consolidated Financial
Statements 22-26
Report of Independent Public 27
Accountants
12
<PAGE> 13
2) EXHIBITS.
NUMBER DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(1)
3.2 Amended and Restated Bylaws of the Registrant.(2)
4 Stockholder Protection Rights Agreement, dated as of April 20,
1998, between the Registrant and UMB Bank, N.A.(1)
10.1 Tax Sharing Agreement, dated April 2, 1996, between The May
Department Stores Company and the Registrant.(3)
10.2 Sublease, dated as of April 2, 1996, between The May Department
Stores Company and the Registrant.(4)
10.3 Credit and Guaranty Agreement dated as of April 17, 2000 among
Payless ShoeSource Finance, Inc., as Borrower, Payless
ShoeSource, Inc. and Certain of its Subsidiaries, as Guarantors,
various Lenders, Goldman Sachs Credit Partners L.P., as Sole Lead
Arranger and Sole Syndication Agent, Bank One, NA, as
Administrative Agent, and First Union National Bank, as
Documentation Agent.*
10.4 Administrative Services Agreement, dated as of April 2, 1996,
between The May Department Stores Company and the Registrant.(4)
10.5 Payless ShoeSource, Inc. 1996 Stock Incentive Plan, as amended
March 16, 2000.*
10.6 Spin-Off Stock Plan, Payless ShoeSource, Inc.(4)
10.7 Spin-Off Cash Plan, Payless ShoeSource, Inc.(4)
10.8 Restricted Stock Plan for Non-Management Directors, as amended
April 20, 1998, effective immediately prior to the effective
time of the Merger (as defined therein).(1)
10.9 Form of Employment Agreement between the Registrant and certain
executives of the Registrant. The Registrant has entered into
Employment Agreements in the form contained in this exhibit with
each of the named executive officers which expire at various
dates on or before May 31, 2003, which contain agreements not to
compete of 1-2 years beyond the expiration date of the respective
Employment Agreements, and provide for annual base salaries at
rates not less than the amounts presently paid to them.*
10.10 Payless ShoeSource, Inc. Supplementary Retirement Plan, as
amended March 16, 2000.*
10.11 Payless ShoeSource, Inc, 401(k) Profit Sharing Plan, as amended
and restated effective April 6, 2000.*
10.12 Payless ShoeSource, Inc. Deferred Compensation Plan, as amended
March 16, 2000.*
10.13 Executive Incentive Compensation Plan of Registrant, as amended
April 20, 1998.(1)
10.14 Form of Control Agreement. The Registrant has entered into Change
of Control Agreements with the named executive officers in the
form contained in this exhibit.*
10.15 Form of Directors' and Officers' Indemnity Agreement of
Registrant.*
10.16 Payless ShoeSource, Inc. Deferred Compensation Plan for
Non-Management Directors, as amended March 16, 2000.*
10.17 Executive Incentive Compensation Plan for Business Unit
Management of Registrant, as amended April 20, 1998, effective
immediately prior to the effective time of the Merger. (1)
13
<PAGE> 14
10.18 The Stock Appreciation and Phantom Stock Unit Plan of Payless
ShoeSource, Inc. and its Subsidiaries for Payless ShoeSource
International Employees, as amended March 16, 2000.*
10.19 Payless ShoeSource, Inc. Profit Sharing Plan for Puerto Rico
Associates, as amended March 16, 2000.*
10.20 Stock Ownership Plan of Registrant, as amended effective June 1,
1998.(1)
10.21 Assumption Agreement, dated as of May 22, 1998, between
Registrant and Payless.(1)
10.22 Consulting Agreement between the Registrant and Richard A.
Jolosky.(6)
10.23 Executive Incentive Compensation Plan for Annual Awards for
Merchandising and Retail Operators Functions, effective May 28,
1999.(7)
11.1 Computation of Net Earnings Per Share.*
12.1 Computation of Ratio of Earnings to Fixed Charges.*
13.1 1999 Annual Report to Shareowners of Payless ShoeSource, Inc.
(only those portions specifically incorporated by reference shall
be deemed filed with the Commission).*
21.1 Subsidiaries of Registrant*
23.1 Consent of Arthur Andersen, LLP.*
27.1 Financial Data Schedule*
* Filed herewith
(1) Incorporated by reference from the Registrant's Form 8-K (File
Number 1-14770) dated June 1, 1998.
(2) Incorporated by reference from the Registrant's Form 10-K
(File Number 1-14770) for the fiscal year ended January 30,
1999.
(3) Incorporated by reference from Exhibit 10.1 of the
Registrant's Form 10-Q (File Number 1-11633) for the quarter
ended May 4, 1996.
(4) Incorporated by reference from the correspondingly numbered
Exhibit to Registrant's Registration Statement on Form 10 (File
Number 1-11633) dated February 23, 1996 as amended through April
15, 1996.
(5) Incorporated by reference from the Registrant's Form 10-K for
fiscal year 1997 (File Number 1-11633).
(6) Incorporated by reference from the Registrant's Form 10-Q (File
Number 1-14770) for the quarter ended October 30, 1999.
(7) Incorporated by reference from the Registrant's Form 10-Q (File
Number 1-14770) for the quarter ended July 31, 1999.
THE COMPANY WILL FURNISH TO SHAREOWNERS UPON REQUEST, AND WITHOUT CHARGE, A COPY
OF THE 1999 ANNUAL REPORT AND THE PROXY STATEMENT, PORTIONS OF WHICH ARE
INCORPORATED BY REFERENCE IN THE FORM 10-K. THE COMPANY WILL FURNISH ANY OTHER
EXHIBIT AT COST.
(b) Reports on Form 8-K:
14
<PAGE> 15
None.
All other schedules and exhibits of the Company for which provision is made in
the applicable regulations of the Securities and Exchange Commission have been
omitted, as they are not required or are inapplicable or the information
required thereby has been given otherwise.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PAYLESS SHOESOURCE, INC.
Date: April 21, 2000 By: /s/ Ullrich E. Porzig
-------------------------
Ullrich E. Porzig
Senior Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ Steven J. Douglass Date: April 21, 2000
- --------------------------
Steven J. Douglass
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
By: /s/ Ullrich E. Porzig Date: April 21, 2000
- -------------------------
Ullrich E. Porzig
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting
Officer)
By: /s/ Ken C. Hicks Date: April 21, 2000
- --------------------
Ken C. Hicks
President and Director
By: /s/ Daniel Boggan Jr. Date: April 21, 2000
- -------------------------
Daniel Boggan Jr.
Director
By: /s/ Howard R. Fricke Date: April 21, 2000
- ------------------------
Howard R. Fricke
Director
By: /s/ Thomas A. Hays Date: April 21, 2000
- ----------------------
Thomas A. Hays
Director
By: /s/ Mylle B. Mangum Date: April 21, 2000
- -----------------------
Mylle B. Mangum
Director
By: /s/ Michael E. Murphy Date: April 21, 2000
- -------------------------
Michael E. Murphy
Director
15
<PAGE> 16
Director
By: /s/ Robert L. Stark Date: April 21, 2000
- -----------------------
Robert L. Stark
Director
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NUMBER
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(1)
3.2 Amended and Restated Bylaws of the Registrant.(2)
4 Stockholder Protection Rights Agreement, dated as of April 20,
1998, between the Registrant and UMB Bank, N.A.(1)
10.1 Tax Sharing Agreement, dated April 2, 1996, between The May
Department Stores Company and the Registrant.(3)
10.2 Sublease, dated as of April 2, 1996, between The May Department
Stores Company and the Registrant.(4)
10.3 Credit and Guaranty Agreement dated as of April 17, 2000 among
Payless ShoeSource Finance, Inc., as Borrower, Payless ShoeSource,
Inc. and Certain of its Subsidiaries, as Guarantors, various
Lenders, Goldman Sachs Credit Partners L.P., as Sole Lead Arranger
and Sole Syndication Agent, Bank One, NA, as Administrative Agent,
and First Union National Bank, as Documentation Agent.*
10.4 Administrative Services Agreement, dated as of April 2, 1996,
between The May Department Stores Company and the Registrant. (4)
10.5 Payless ShoeSource, Inc. 1996 Stock Incentive Plan, as amended
March 16, 2000.*
10.6 Spin-Off Stock Plan, Payless ShoeSource, Inc.(4)
10.7 Spin-Off Cash Plan, Payless ShoeSource, Inc.(4)
10.8 Restricted Stock Plan for Non-Management Directors, as amended
April 20, 1998, effectively immediately prior to the effective
time of the Merger (as defined therein).(1)
10.9 Form of Employment Agreement between the Registrant and certain
executives of the Registrant. The Registrant has entered into
Employment Agreements in the form contained in this exhibit with
each of the named executive officers which expire at various dates
on or before May 31, 2003, which contain agreements not to compete
of 1-2 years beyond the expiration date of the respective
Employment Agreements, and which provide for annual base salaries
at rates not less than the amounts presently paid to them.*
10.10 Payless ShoeSource, Inc. Supplementary Retirement Plan, as amended
March 16, 2000.*
10.11 Payless ShoeSource, Inc. 401(k) Profit Sharing Plan, as amended
March 16, 2000.*
10.12 Payless ShoeSource, Inc. Deferred Compensation Plan, as amended
March 16, 2000.*
10.13 Executive Incentive Compensation Plan of Registrant, as amended
April 20, 1998.(1)
10.14 Form of Control Agreement. The Registrant has entered into Change
of Control Agreements with the named executive officers in the
form contained in this exhibit.*
10.15 Form of Directors' and Officers' Indemnity Agreement of
Registrant.*
10.16 Payless ShoeSource, Inc. Deferred Compensation Plan for
Non-Management Directors, as amended March 16, 2000.*
10.17 Executive Incentive Compensation Plan for Business Unit Management
of Registrant, as amended April 20, 1998, effective immediately
prior to the effective time of the Merger. (1)
17
<PAGE> 18
10.18 The Stock Appreciation and Phantom Stock Unit Plan of Payless
ShoeSource, Inc. and its Subsidiaries for Payless ShoeSource
International Employees, as amended March 16, 2000.*
10.19 Payless ShoeSource, Inc. Profit Sharing Plan for Puerto Rico
Associates, as amended effective March 16, 2000.*
10.20 Stock Ownership Plan of Registrant, as amended effective June 1,
1998.(1)
10.21 Assumption Agreement, dated as of May 22, 1998, between
Registrant and Payless.(1)
10.22 Consulting Agreement between the Registrant and Richard A.
Jolosky.(6)
10.23 Executive Incentive Compensation Plan for Annual Awards for
Merchandising and Retail Operators Functions, effective May 28,
1999.(7)
11.1 Computation of Net Earnings Per Share.*
12.1 Computation of Ratio of Earnings to Fixed Charges.*
13.1 1999 Annual Report to Shareowners of Payless ShoeSource, Inc.
(only those portions specifically incorporated by reference shall
be deemed filed with the Commission).*
21.1 Subsidiaries of Registrant*
23.1 Consent of Arthur Andersen, LLP.*
27.1 Financial Data Schedule*
* Filed herewith
(1) Incorporated by reference from the Registrant's Form 8-K (File
Number 1-14770) dated June 1, 1998.
(2) Incorporated by reference from the Registrant's Form 10-K
(File Number 1-14770) for the fiscal year ended January 30,
1999.
(3) Incorporated by reference from Exhibit 10.1 of the
Registrant's Form 10-Q (File Number 1-11633) for the quarter
ended May 4, 1996.
(4) Incorporated by reference from the correspondingly numbered
Exhibit to Registrant's Registration Statement on Form 10 (File
Number 1-11633) dated February 23, 1996 as amended through April
15, 1996.
(5) Incorporated by reference from the Registrant's Form 10-K for
fiscal year 1997 (File Number 1-11633).
(6) Incorporated by reference from the Registrant's Form 10-Q (File
Number 1-14770) for the quarter ended October 30, 1999.
(7) Incorporated by reference from the Registrant's Form 10-Q (File
Number 1-14770) for the quarter ended July 31, 1999.
18
<PAGE> 1
Exhibit 10.3
CREDIT AND GUARANTY AGREEMENT
DATED AS OF APRIL 17, 2000
AMONG
PAYLESS SHOESOURCE FINANCE, INC.,
AS BORROWER,
PAYLESS SHOESOURCE, INC.
AND CERTAIN OF ITS SUBSIDIARIES,
AS GUARANTORS,
VARIOUS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS SOLE LEAD ARRANGER AND SOLE SYNDICATION AGENT,
BANK ONE, NA,
AS ADMINISTRATIVE AGENT,
AND
FIRST UNION NATIONAL BANK,
AS DOCUMENTATION AGENT
--------------------------------------------------------
$600,000,000 SENIOR SECURED CREDIT FACILITIES
--------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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SECTION 1. DEFINITIONS AND INTERPRETATION........................................................................2
1.1. Definitions........................................................................................2
1.2. Accounting Terms..................................................................................31
1.3. Interpretation, etc...............................................................................31
SECTION 2. LOANS AND LETTERS OF CREDIT..........................................................................32
2.1. Term Loans........................................................................................32
2.2. Revolving Loans...................................................................................32
2.3. Swing Line Loans..................................................................................33
2.4. Issuance of Letters of Credit and Purchase of Participations Therein..............................36
2.5. Pro Rata Shares; Availability of Funds............................................................41
2.6. Use of Proceeds...................................................................................41
2.7. Evidence of Debt; Register; Lenders' Books and Records; Notes.....................................42
2.8. Interest on Loans.................................................................................43
2.9. Conversion/Continuation...........................................................................45
2.10. Default Interest..................................................................................45
2.11. Fees..............................................................................................46
2.12 Scheduled Payments/Commitment Reductions..........................................................47
2.13. Voluntary Prepayments/Commitment Reductions.......................................................48
2.14. Mandatory Prepayments/Commitment Reductions.......................................................50
2.15. Application of Prepayments/Reductions.............................................................51
2.16. General Provisions Regarding Payments.............................................................52
2.17. Ratable Sharing...................................................................................53
2.18. Making or Maintaining Eurodollar Rate Loans.......................................................54
2.19. Increased Costs; Capital Adequacy.................................................................55
2.20. Taxes; Withholding, etc...........................................................................57
2.21. Obligation to Mitigate............................................................................59
2.22. Defaulting Lenders................................................................................60
2.23. Removal or Replacement of a Lender................................................................60
SECTION 3. CONDITIONS PRECEDENT.................................................................................61
3.1. Closing Date......................................................................................61
3.2. Conditions to Each Credit Extension...............................................................66
3.3. Release of Share Collateral.......................................................................67
SECTION 4. REPRESENTATIONS AND WARRANTIES.......................................................................67
4.1. Organization; Powers; Qualification...............................................................67
4.2. Authorization of Credit Documents and Transaction Documents; No Conflict..........................68
4.3. Governmental Consents.............................................................................68
4.4. Binding Obligation................................................................................69
</TABLE>
(i)
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4.5. Historical Financial Statements; Projections.....................................................69
4.6. No Material Adverse Change; No Restricted Payments...............................................70
4.7. Litigation; Adverse Proceedings..................................................................70
4.8. Violation of Law.................................................................................70
4.9. Payment of Taxes.................................................................................70
4.10. Title to Properties..............................................................................70
4.11. Share Collateral.................................................................................71
4.12. Environmental Matters............................................................................71
4.13. No Defaults......................................................................................72
4.14. Governmental Regulation..........................................................................72
4.15. Margin Stock.....................................................................................72
4.16. Employee Matters.................................................................................72
4.17. Employee Benefit Plans...........................................................................73
4.18. Solvency.........................................................................................73
4.19. Transaction Documents............................................................................73
4.20. Year 2000........................................................................................74
4.21. Compliance with Statutes, etc. ..................................................................74
4.22. Disclosure.......................................................................................74
SECTION 5. AFFIRMATIVE COVENANTS................................................................................75
5.1. Financial Statements and Other Reports...........................................................75
5.2. Existence........................................................................................78
5.3. Payment of Taxes and Claims......................................................................78
5.4. Maintenance of Properties........................................................................78
5.5. Insurance........................................................................................78
5.6. Inspections; Lenders Meetings....................................................................79
5.7. Compliance with Laws.............................................................................79
5.8. Environmental....................................................................................79
5.9. Subsidiaries.....................................................................................79
5.10. Further Assurances. ............................................................................80
SECTION 6. NEGATIVE COVENANTS...................................................................................81
6.1. Indebtedness.....................................................................................81
6.2. Liens............................................................................................83
6.3. Equitable Lien; No Further Negative Pledges......................................................84
6.4. Restricted Payments; Restrictions on Subsidiary Distributions....................................85
6.5. Investments......................................................................................86
6.6. Financial Covenants..............................................................................87
6.7. Fundamental Changes; Disposition of Assets; Acquisitions.........................................88
6.8. Disposal of Subsidiary Interests.................................................................89
6.9. Sales and Lease-Backs............................................................................90
6.10. Transactions with Shareholders and Affiliates....................................................90
6.11. Conduct of Business..............................................................................90
6.12. Amendments or Waivers of Certain Transaction Documents...........................................90
</TABLE>
(ii)
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6.13. Fiscal Year......................................................................................91
SECTION 7. GUARANTY.............................................................................................91
7.1. Guaranty of the Obligations......................................................................91
7.2. Contribution by Guarantors.......................................................................91
7.3. Payment by Guarantors............................................................................92
7.4. Liability of Guarantors Absolute.................................................................92
7.5. Waivers by Guarantors............................................................................94
7.6. Guarantors' Rights of Subrogation, Contribution, etc.............................................95
7.7. Subordination of Other Obligations...............................................................96
7.8. Continuing Guaranty..............................................................................96
7.9. Authority of Guarantors or Company...............................................................96
7.10. Financial Condition of Company...................................................................96
7.11. Bankruptcy, etc..................................................................................97
7.12. Notice of Events.................................................................................97
7.13. Discharge of Guaranty Upon Sale of Guarantor.....................................................97
SECTION 8. EVENTS OF DEFAULT....................................................................................98
8.1. Events of Default................................................................................98
SECTION 9. AGENTS..............................................................................................101
9.1. Appointment of Agents...........................................................................101
9.2. Powers and Duties...............................................................................101
9.3. General Immunity................................................................................101
9.4. Agents Entitled to Act as Lender................................................................102
9.5. Lenders' Representations, Warranties and Acknowledgment.........................................103
9.6. Right to Indemnity..............................................................................103
9.7. Successor Administrative Agent and Swing Line Lender............................................103
9.8. Notice of Default...............................................................................105
9.9. Collateral Documents and Guaranty...............................................................105
SECTION 10. MISCELLANEOUS......................................................................................106
10.1. Notices.........................................................................................106
10.2. Expenses........................................................................................106
10.3. Indemnity.......................................................................................107
10.4. Set-Off.........................................................................................107
10.5. Amendments and Waivers..........................................................................107
10.6. Successors and Assigns; Participations..........................................................109
10.7. Independence of Covenants.......................................................................112
10.8. Survival of Representations, Warranties and Agreements..........................................112
10.9. No Waiver; Remedies Cumulative..................................................................112
10.10. Marshalling; Payments Set Aside.................................................................113
10.11. Severability....................................................................................113
10.12. Obligations Several; Independent Nature of Lenders' Rights......................................113
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10.13. Headings.......................................................................................113
10.14. APPLICABLE LAW.................................................................................113
10.15. CONSENT TO JURISDICTION........................................................................114
10.16. WAIVER OF JURY TRIAL...........................................................................114
10.17. Confidentiality................................................................................115
10.18. Usury Savings Clause...........................................................................115
10.19. Counterparts; Effectiveness....................................................................116
</TABLE>
(iv)
<PAGE> 6
APPENDICES: A Term Loan Commitments
B Revolving Credit Commitments
C Notice Addresses
SCHEDULES: 1.1(a) Refinanced Indebtedness
1.1(b) Immaterial Foreign Subsidiaries
4.1 Organization, Etc.
4.10 Ownership of Subsidiaries
6.1 Certain Indebtedness
6.2 Certain Liens
6.5 Certain Investments
6.10 Certain Transactions
EXHIBITS: A-1 Funding Notice
A-2 Conversion/Continuation Notice
A-3 Issuance Notice
B-1 Term Loan Note
B-2 Revolving Loan Note
B-3 Swing Line Note
C Compliance Certificate
D Opinions of Counsel
E Assignment Agreement
F Certificate Re Non-bank Status
G-1 Closing Date Certificate
G-2 Solvency Certificate
H Counterpart Agreement
I Pledge Agreement
(v)
<PAGE> 7
CREDIT AND GUARANTY AGREEMENT
This CREDIT AND GUARANTY AGREEMENT, dated as of April 17, 2000, is
entered into by and among PAYLESS SHOESOURCE FINANCE, INC., a Nevada corporation
("COMPANY"), PAYLESS SHOESOURCE, INC., a Delaware corporation ("PARENT"), and
CERTAIN SUBSIDIARIES OF PARENT, as Guarantors, the Lenders party hereto from
time to time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as sole Lead Arranger
(in such capacity, "LEAD ARRANGER"), and as sole Syndication Agent (in such
capacity,"SYNDICATION AGENT"), BANK ONE, NA, with its main office in Chicago,
Illinois ("BANK ONE"), as Administrative Agent (together with its permitted
successors in such capacity,"ADMINISTRATIVE AGENT"), and FIRST UNION NATIONAL
BANK ("FIRST UNION"), as Documentation Agent (in such capacity,"DOCUMENTATION
AGENT").
RECITALS:
WHEREAS, capitalized terms used in these Recitals shall have the
respective meanings set forth for such terms in Section 1.1 hereof;
WHEREAS, pursuant to the Offer to Purchase for Cash, dated as of March
13, 2000 (as amended from time to time prior to the Closing Date with the
consent of Administrative Agent and Syndication Agent (not to be unreasonably
withheld or delayed), the "OFFER TO PURCHASE"), Parent has made a Cash tender
offer for up to 7,547,130 shares of its outstanding Parent Common Stock,
including the associated preferred stock purchase rights issued under the Rights
Agreement, for the Tender Offer Price (the "TENDER OFFER"), the terms and
conditions of which are more fully described in the Tender Offer Documents;
WHEREAS, in connection with the Tender Offer, certain existing
indebtedness of Parent and its Subsidiaries is being refinanced;
WHEREAS, approximately $541,000,000 of Cash will be required to
consummate the Transaction consisting of (i) up to $400,000,000 to purchase and
retire the Parent Common Stock pursuant to the Tender Offer (the "TENDER OFFER
CONSIDERATION"), (ii) $122,000,000 to refinance the Refinanced Indebtedness
pursuant to the Refinancing, and (iii) $19,000,000 to pay Transaction Costs;
WHEREAS, the Lenders have agreed to extend certain credit facilities to
Company, in an aggregate amount not to exceed $600,000,000, consisting of up to
$400,000,000 aggregate principal amount of Term Loans and up to $200,000,000
aggregate principal amount of Revolving Loans, the proceeds of which will be
used (i) together with certain Cash on hand of the Parent and its Subsidiaries
as of the Closing Date, to pay the Transaction Financing Requirements, and (ii)
for working capital and general corporate and other purposes of Company and its
Subsidiaries;
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<PAGE> 8
WHEREAS, Company has agreed to secure all of its obligations hereunder
by granting to Administrative Agent, for the benefit of Lenders, a First
Priority Lien on all of the Capital Stock of each of its Domestic Subsidiaries
and 65% of all the Capital Stock of each of its direct Material Foreign
Subsidiaries; and
WHEREAS, Guarantors have agreed to guarantee the obligations of Company
hereunder and to secure Company's and all of the Guarantors' respective
Obligations hereunder by granting to Administrative Agent, for the benefit of
Lenders, a First Priority Lien on substantially all of the Capital Stock of each
of their respective Domestic Subsidiaries and 65% of all the Capital Stock of
each of their respective direct Material Foreign Subsidiaries.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Guarantors, Lenders, Issuing
Bank and Agents agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1. DEFINITIONS. The following terms used herein, including in the
preamble, recitals, and schedules hereto, shall have the following meanings:
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate
Determination Date with respect to an Interest Period for a Eurodollar Rate
Loan, the rate per annum obtained by dividing (and rounding upward to the next
whole multiple of 1/16 of 1%) (i) (a) the rate per annum (rounded to the nearest
1/100 of 1%) equal to the rate determined by Administrative Agent to be the
offered rate which appears on Reuters Screen FRBD which displays an average
British Bankers Association Interest Settlement Rate for deposits (for delivery
two Business Days thence) with a term equivalent to such period in Dollars,
determined as of approximately 11:00 a.m. (London, England time) on such
Interest Rate Determination Date, or (b) in the event the rate referenced in the
preceding clause (a) does not appear on such page or service or if such page or
service shall cease to be available, the rate per annum (rounded to the nearest
1/100 of 1%) equal to the rate determined by Administrative Agent to be the
offered rate on such other page or other service which displays an average
British Bankers Association Interest Settlement Rate for deposits (for delivery
two Business Days thence) with a term equivalent to such period in Dollars,
determined as of approximately 11:00 a.m. (London, England time) on such
Interest Rate Determination Date, or (c) in the event the rates referenced in
the preceding clauses (a) and (b) are not available, the rate per annum (rounded
to the nearest 1/100 of 1%) equal to the offered quotation rate to first class
banks in the London interbank market by Bank One or one of its Affiliates for
deposits (for delivery two Business Days thence) in Dollars of amounts
comparable to the principal amount of the applicable Loan of Administrative
Agent, in its capacity as a Lender, for which the Adjusted Eurodollar Rate is
then being determined with maturities comparable to such period as of
approximately 11:00 a.m. (London, England time) on such Interest Rate
Determination Date, by (ii) an amount equal to (a) one minus (b) the Applicable
Reserve Requirement.
"ADMINISTRATIVE AGENT" as defined in the preamble hereto.
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<PAGE> 9
"ADVERSE PROCEEDING" means any action, suit, proceeding
(whether administrative, judicial or otherwise), governmental investigation or
arbitration (whether or not purportedly on behalf of Parent or any of its
Subsidiaries) at law or in equity, or before or by any Governmental Authority,
domestic or foreign (including any Environmental Claims), whether pending or, to
the knowledge of Parent or any of its Subsidiaries, threatened against or
affecting Parent or any of its Subsidiaries or any property of Parent or any of
its Subsidiaries.
"AFFECTED LENDER" as defined in Section 2.18(b).
"AFFECTED LOANS" as defined in Section 2.18(b).
"AFFILIATE" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power (i) to vote 5% or more of the Securities having
ordinary voting power for the election of directors of such Person or (ii) to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting securities or by contract or otherwise.
"AGENT" means each of Lead Arranger, Syndication Agent,
Administrative Agent, Documentation Agent and Collateral Agent.
"AGGREGATE AMOUNTS DUE" as defined in Section 2.17.
"AGGREGATE NET ASSET SALES PROCEEDS" means, as of any date,
the aggregate amount of Net Asset Sale Proceeds received by Parent and its
Subsidiaries in any Fiscal Year.
"AGGREGATE NET DEBT ISSUANCE PROCEEDS" means, as of any date,
the aggregate amount of Net Debt Issuance Proceeds received by Parent and its
Subsidiaries in any Fiscal Year.
"AGGREGATE NET INSURANCE/CONDEMNATION PROCEEDS" means, as of
any date, the aggregate amount of Net Insurance/Condemnation Proceeds received
by Parent and its Subsidiaries in any Fiscal Year.
"AGGREGATE PAYMENTS" as defined in Section 7.2.
"AGREEMENT" means this Credit and Guaranty Agreement, dated as
of April 17, 2000, as it may be amended, supplemented or otherwise modified from
time to time.
"APPLICABLE MARGIN" and "APPLICABLE COMMITMENT FEE PERCENTAGE"
means (i) with respect to Term Loans and Revolving Loans that are Eurodollar
Rate Loans and the Applicable Commitment Fee Percentage, (a) from the Closing
Date until the six-month anniversary of the Closing Date, a percentage, per
annum, determined by reference to the following table as if
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<PAGE> 10
the Leverage Ratio then in effect were in excess of 1.75:1.00; and (b)
thereafter, a percentage, per annum, determined by reference to the Leverage
Ratio then in effect from time to time as set forth below:
<TABLE>
<CAPTION>
APPLICABLE MARGIN APPLICABLE
LEVERAGE FOR TERM LOANS AND COMMITMENT FEE
RATIO REVOLVING LOANS PERCENTAGE
- ---------------------- ------------------------------ ------------------------
<S> <C> <C>
> 1.75:1.00 2.00% 0.50%
-
< 1.75:1.00 1.75% 0.35%
> 1.25:1.00
-
< 1.25:1.00 1.50% 0.30%
> 0.75:1.00
-
< 0.75:1.00 1.25% 0.25%
</TABLE>
and (ii) with respect to Swing Line Loans, and Term Loans and Revolving Loans
that are Base Rate Loans, a percentage per annum equal to (a) the Applicable
Margin for Eurodollar Rate Loans as set forth in clause (i)(a) or (i)(b) above,
as applicable, minus (b) 1.00% per annum. No change in the Applicable Margin or
the Applicable Commitment Fee Percentage shall be effective until three (3)
Business Days after the date on which Administrative Agent shall have received
the applicable financial statements and a Compliance Certificate pursuant to
Section 5.1(c) calculating the Leverage Ratio. At any time Company has not
submitted to Administrative Agent the applicable information as and when
required under Section 5.1(c), the Applicable Margin and the Applicable
Commitment Fee Percentage shall be determined as if the Leverage Ratio were in
excess of 1.75:1.00. Within one (1) Business Day of receipt of the applicable
information as and when required under Section 5.1(c), Administrative Agent
shall give each Lender telefacsimile or telephonic notice (confirmed in writing)
of the Applicable Margin and the Applicable Commitment Fee Percentage in effect
from such date.
"APPLICABLE RESERVE REQUIREMENT" means, at any time, for any
Eurodollar Rate Loan, the maximum rate, expressed as a decimal, at which
reserves (including, without limitation, any basic, marginal, special,
supplemental, emergency or other reserves) are required to be maintained with
respect thereto against "EUROCURRENCY LIABILITIES" (as such term is defined in
Regulation D) under regulations issued from time to time by the Board of
Governors of the Federal Reserve System or other applicable banking regulator.
Without limiting the effect of the foregoing, the Applicable Reserve Requirement
shall reflect any other reserves required to be maintained by such member banks
with respect to (i) any category of liabilities which includes deposits by
reference to which the applicable Adjusted Eurodollar Rate or any other
interest rate of a Loan is to be determined, or (ii) any category of
extensions of credit or other assets which include Eurodollar Rate Loans. A
Eurodollar Rate Loan shall be deemed to constitute Eurocurrency liabilities and
as such shall be deemed subject to reserve requirements without benefits of
credit for proration, exceptions or offsets that may be available from time to
time to the applicable Lender. The rate of
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<PAGE> 11
interest on Eurodollar Rate Loans shall be adjusted automatically on and as
of the effective date of any change in the Applicable Reserve Requirement.
"ASSET SALE" means a sale, lease or sub-lease (as lessor or
sublessor), sale and leaseback, assignment, conveyance, transfer or other
disposition to any Person (other than Parent, Company or Guarantor Subsidiary)
or any exchange of property with any Person (other than any exchange between
Parent, Company or any Guarantor Subsidiary and Parent, Company or any other
Guarantor Subsidiary), in one transaction or a series of transactions, of all or
any part of Parent's or any of its Subsidiaries' businesses, assets or
properties of any kind, whether real, personal, or mixed and whether tangible or
intangible, whether now owned or hereafter acquired, including, without
limitation, the Capital Stock of any of Parent's Subsidiaries, other than (i)
inventory (or other assets) sold or leased in the ordinary course of business,
(ii) Cash Equivalents sold in the ordinary course of business, (iii) any
disposition which is deemed to have occurred in connection with a casualty or
taking (pursuant to the power of eminent domain, condemnation or otherwise)
event which results in Parent or any Subsidiary receiving Net
Insurance/Condemnation Proceeds, or (iv) other than non- perpetual licenses of
Parent's and its Subsidiaries' intellectual property (which licenses may grant
varying degrees of exclusivity provided that Parent or its Subsidiaries retain
an unlimited right to use the intellectual property which is the subject of such
licenses) which are entered into in the ordinary course of business of Parent
and its Subsidiaries, as such business is now or hereafter conducted in
compliance with this Agreement.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement
substantially in the form of Exhibit E, with such amendments or modifications as
may be approved by Administrative Agent.
"AUTHORIZED OFFICER" means, as applied to any Person, any
individual holding the position of chairman of the board (if an officer), chief
executive officer, president or one of its vice presidents (or the equivalent
thereof), and such Person's chief financial officer or treasurer.
"BANK ONE" as defined in the preamble hereto.
"BANKRUPTCY CODE" means Title 11 of the United States Code
entitled "BANKRUPTCY," as now and hereafter in effect, or any successor statute.
"BASE RATE" means, for any day, a rate per annum (rounded to
the nearest 1/100 of 1%) equal to the greater of (i) the Prime Rate in effect on
such day and (ii) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. Any change in the Base Rate due to a change in the Prime Rate
or the Federal Funds Effective Rate shall be effective on the effective day
of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"BASE RATE LOAN" means a Loan bearing interest at a rate
determined by reference to the Base Rate.
"BENEFICIARY" means each Agent, Issuing Bank, Lender and
Lender Counterparty.
5
<PAGE> 12
"BUSINESS DAY" means (i) any day excluding Saturday, Sunday
and any day which is a legal holiday under the laws of the State of New York or
the State of Illinois or is a day on which banking institutions located in such
state are authorized or required by law or other governmental action to close
and (ii) with respect to all notices, determinations, fundings and payments in
connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, the
term "BUSINESS DAY" shall mean any day which is a Business Day described in
clause (i) and which is also a day for trading by and between banks in Dollar
deposits in the London interbank market.
"CAPITAL LEASE" means, as applied to any Person, any lease of
any property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
"CAPITAL STOCK" means any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation), including, without limitation, partnership interests and
membership interests, and any and all warrants, rights or options to purchase or
other arrangements or rights to acquire any of the foregoing.
"CASH" means money, currency or a credit balance in any
demand or Deposit Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within one year
after such date; (ii) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof, in each case maturing within one year after such
date and having, at the time of the acquisition thereof, a rating of at least
A-1 from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no
more than one year from the date of creation thereof and having, at the time of
the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary Federal banking
regulator) and (b) has Tier 1 capital (as defined in such regulations) of not
less than $100,000,000; and (v) shares of any money market mutual fund that (a)
has substantially all of its assets invested continuously in the types of
investments referred to in clauses (i) and (ii) above, (b) has net assets of not
less than $500,000,000, and (c) has the highest rating obtainable from either
S&P or Moody's.
"CERTIFICATE RE NON-BANK STATUS" means a certificate
substantially in the form of Exhibit F.
6
<PAGE> 13
"CHANGE OF CONTROL" means, at any time, (i) any Person or
"group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) (a)
shall have beneficial ownership of 30% or more on a fully diluted basis of the
voting and/or economic interest in the Capital Stock of Parent or (b) shall have
obtained the power (whether or not exercised) to elect a majority of the members
of the board of directors (or similar governing body) of Parent; (ii) Parent
shall cease to beneficially own and control 100% on a fully diluted basis of the
economic and voting interest in the Capital Stock of Company; or (iii) the
majority of the seats (other than vacant seats) on the board of directors (or
similar governing body) of Parent shall cease to be occupied by Persons who
either (a) were members of the board of directors of Parent on the Closing Date
or (b) were nominated for election by the board of directors of Parent, a
majority of whom were directors on the Closing Date or whose election or
nomination for election was previously approved by a majority of such directors;
or (iv) any "change of control" or similar event under any Subordinated
Indebtedness shall occur.
"CLASS" means with respect to Loans, each of the following
classes of Loans: (a) Term Loans and (b) Revolving Loans (including Swing
Line Loans).
"CLOSING DATE" means the date on or before June 3, 2000 on
which the conditions set forth in Section 3.1 have been satisfied and a Credit
Extension shall have occurred.
"CLOSING DATE CERTIFICATE" means a Closing Date Certificate
substantially in the form of Exhibit G-1.
"COLLATERAL ACCOUNT" as defined in Section 2.4(h).
"COLLATERAL AGENT" as defined in the Pledge Agreement.
"COLLATERAL DOCUMENTS" means the Pledge Agreement and all
other instruments, documents and agreements delivered by any Credit Party
pursuant to this Agreement or any of the other Credit Documents in order to
grant to Administrative Agent, for the benefit of Lenders, a Lien on any real,
personal or mixed property of that Credit Party as security for the Obligations.
"COMMITMENTS" means a Term Loan Commitment and/or a Revolving
Credit Commitment.
"COMPANY" as defined in the preamble hereto.
"COMPLIANCE CERTIFICATE" means a Compliance Certificate
substantially in the form of Exhibit C.
"CONSOLIDATED ADJUSTED EBITDA" means, for any period, an
amount determined for Parent and its Subsidiaries on a consolidated basis equal
to the sum, without duplication, of the amounts for such period of (i)
Consolidated Net Income, plus (to the extent the amounts described in clauses
(ii) through (vii) were deducted in calculating Consolidated Net Income) (ii)
Consolidated
7
<PAGE> 14
Interest Expense plus any amounts referred to in Section 2.11(c) payable on or
before the Closing Date, plus (iii) provisions for taxes based on income, plus
(iv) total depreciation expense, plus (v) total amortization expense, plus (vi)
any actual Transaction Costs and plus (vii) other non-Cash items reducing
Consolidated Net Income (excluding any such non-Cash item to the extent that it
represents an accrual or reserve for potential Cash items in any future period
or amortization of a prepaid Cash item that was paid in a prior period), minus
other non-Cash items increasing Consolidated Net Income for such period
(excluding any such non-Cash item to the extent it represents the reversal of an
accrual or reserve for potential Cash item in any prior period), all of the
foregoing as determined in conformity with GAAP.
"CONSOLIDATED ADJUSTED EBITDAR" means, for any period, the sum
of the amounts for such period of (i) Consolidated Adjusted EBITDA plus (ii)
Consolidated Rental Expense, each of the foregoing as determined on a
consolidated basis for Parent and its Subsidiaries in conformity with GAAP.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the
aggregate of all expenditures of Parent and its Subsidiaries during such period
determined on a consolidated basis that, in accordance with GAAP, are or should
be included in "purchase of property and equipment" or similar items reflected
in the consolidated statement of cash flows of Parent and its Subsidiaries.
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period,
Consolidated Interest Expense for such period, excluding any amount not payable
in Cash in such period.
"CONSOLIDATED DEBT/CAPITALIZATION RATIO" means the ratio as of
the last day of any Fiscal Quarter of (i) Consolidated Total Debt plus the
Present Value of Operating Leases to (ii) Consolidated Total Capitalization.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum,
without duplication, of the amounts determined for Parent and its Subsidiaries
on a consolidated basis equal to the sum of (i) Consolidated Cash Interest
Expense and (ii) Consolidated Rental Expense.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total
interest expense (including that portion attributable to Capital Leases in
accordance with GAAP and capitalized interest) of Parent and its Subsidiaries on
a consolidated basis with respect to all outstanding Indebtedness of Parent and
its Subsidiaries, including all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under Interest Rate Agreements, but excluding, however, any
amounts referred to in Section 2.11(c) payable on or before the Closing Date.
"CONSOLIDATED NET INCOME" means, for any period, (i) the net
income (or loss) of Parent and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with GAAP,
minus (ii) (a) the income of any Person (other than a Subsidiary of Parent) in
which any other Person (other than Parent or any of its Subsidiaries) has a
joint interest, except to the extent of the amount of dividends or other
distributions actually paid
8
<PAGE> 15
to Parent or any of its Subsidiaries by such Person during such period, (b) the
income (or loss) of any Person accrued prior to the date it becomes a Subsidiary
of Parent or is merged into or consolidated with Parent or any of its
Subsidiaries or that Person's assets are acquired by Parent or any of its
Subsidiaries, (c) the income of any Subsidiary of Parent to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that income is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary, (d) any after-tax gains
or losses attributable to Asset Sales or returned surplus assets of any Pension
Plan, and (e) (to the extent not included in clauses (a) through (d) above) any
net extraordinary gains or net non-cash extraordinary losses.
"CONSOLIDATED NET TANGIBLE ASSETS" means, at any date of
determination, (i) the consolidated net book value of all assets of Parent and
its Subsidiaries, minus (ii) the consolidated total net book value of all assets
of Parent and its Subsidiaries which would be treated as intangibles under GAAP,
including, without limitation, goodwill and trademarks, all as determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED RENTAL EXPENSE" means for any period, the sum of
the aggregate payments of Parent and its Subsidiaries under agreements to rent
or lease any real or personal property (exclusive of Capital Leases), all as
determined on a consolidated basis for Parent and its Subsidiaries in accordance
with GAAP.
"CONSOLIDATED TOTAL CAPITALIZATION" means for any period, the
sum of (i) Consolidated Total Debt, (ii) the Present Value of Operating Leases
and (iii) total stockholder's equity of Parent.
"CONSOLIDATED TOTAL DEBT" means, as at any date of
determination, the aggregate stated balance sheet amount of all Indebtedness of
Parent and its Subsidiaries determined on a consolidated basis in accordance
with GAAP.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, any
provision of any Security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
"CONVERSION/CONTINUATION DATE" means the effective date of a
continuation or conversion, as the case may be, as set forth in the applicable
Conversion/Continuation Notice.
"CONVERSION/CONTINUATION NOTICE" means a
Conversion/Continuation Notice substantially in the form of Exhibit A-2.
"COUNTERPART AGREEMENT" means a Counterpart Agreement
substantially in the form of Exhibit H.
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<PAGE> 16
"CONTRIBUTING GUARANTORS" as defined in Section 7.2.
"CREDIT DATE" means the date of a Credit Extension.
"CREDIT DOCUMENT" means any of this Agreement, the Notes, if
any, the Collateral Documents, any documents or certificates executed by Company
in favor of Issuing Bank relating to Letters of Credit, and all other documents,
instruments or agreements executed and delivered by a Credit Party for the
benefit of Agents, Issuing Bank or any Lender in connection herewith.
"CREDIT EXTENSION" means the making of a Loan or the issuing
of a Letter of Credit, or the amendment or other modification of a Letter of
Credit to increase its stated amount, extend its period of effectiveness, or
amend the conditions under which it may be drawn.
"CREDIT PARTY" means each Person (other than any Agent,
Issuing Bank or any Lender or any other representative thereof) from time to
time party to a Credit Document.
"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement, futures contract, option contract, synthetic cap or
other similar agreement or arrangement, each of which is for the purpose of
hedging the foreign currency risk associated with Parent's and its Subsidiaries'
operations.
"DEFAULT" means a condition or event that, after notice or
lapse of time or both, would constitute an Event of Default.
"DEFAULT EXCESS" means, with respect to any Defaulting Lender,
the excess, if any, of such Defaulting Lender's Pro Rata Share of the aggregate
outstanding principal amount of Loans of all Lenders (calculated as if all
Defaulting Lenders (other than such Defaulting Lender) had
funded all of their respective Defaulted Loans) over the aggregate
outstanding principal amount of all Loans of such Defaulting Lender.
"DEFAULT PERIOD" means, with respect to any Defaulting Lender,
the period commencing on the date of the applicable Funding Default and ending
on the earliest of the following dates: (i) the date on which all Commitments
are cancelled or terminated and/or the Obligations are declared or become
immediately due and payable, (ii) the date on which (a) the Default Excess with
respect to such Defaulting Lender shall have been reduced to zero (whether by
the funding by such Defaulting Lender of any Defaulted Loans of such Defaulting
Lender or by the non-pro rata application of any voluntary or mandatory
prepayments of the Loans in accordance with the terms of Section 2.13 or Section
2.14 or by a combination thereof) and (b) such Defaulting Lender shall have
delivered to Company and Administrative Agent a written reaffirmation of its
intention to honor its obligations hereunder with respect to its Commitment, and
(iii) the date on which Company, Administrative Agent and Requisite Lenders
waive all Funding Defaults of such Defaulting Lender in writing.
"DEFAULTED LOAN" as defined in Section 2.22.
10
<PAGE> 17
"DEFAULTING LENDER" as defined in Section 2.22.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or
like account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"DOCUMENTATION AGENT" as defined in the preamble hereto.
"DOLLARS" and the sign "$" mean the lawful money of the United
States of America.
"DOMESTIC SUBSIDIARY" means, with respect to any Person, any
Subsidiary of such Person organized under the laws of the United States of
America, any State thereof or the District of Columbia.
"ELIGIBLE ASSIGNEE" means (i) any Lender, any Affiliate of any
Lender and (ii) any commercial bank, insurance company, investment or mutual
fund or other entity that is an "accredited investor" (as defined in Regulation
D under the Securities Act) and which regularly extends credit or buys loans as
one of its businesses; provided, no Affiliate of Parent shall be an Eligible
Assignee.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as
defined in Section 3(3) of ERISA which is or was sponsored, maintained or
contributed to by, or required to be contributed by, Parent, any of its
Subsidiaries or any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice
of violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive (conditional or otherwise), by any Governmental Authority or
any other Person, arising (i) pursuant to or in connection with any actual or
alleged violation of any Environmental Law; (ii) in connection with any
Hazardous Material or any actual or alleged Hazardous Materials Activity; or
(iii) in connection with any actual or alleged damage, injury, threat or harm to
health, safety, natural resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future
foreign or domestic, federal or state (or any subdivision of either of them),
statutes, ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of Governmental
Authorities relating to (i) environmental matters, including those relating to
any Hazardous Materials Activity; (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials; or (iii) occupational safety
and health or industrial hygiene, in any manner applicable to Parent or any of
its Subsidiaries or any Facility.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor thereto.
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<PAGE> 18
"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and (iii)
any member of an affiliated service group within the meaning of Section 414(m)
or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is a member. Any former ERISA Affiliate of Parent or any of its
Subsidiaries shall continue to be considered an ERISA Affiliate of Parent or any
such Subsidiary within the meaning of this definition with respect to the period
such entity was an ERISA Affiliate of Parent or such Subsidiary and with respect
to liabilities arising after such period for which Parent or such Subsidiary
could be liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "REPORTABLE EVENT" within the meaning of Section
4043 of ERISA and the regulations issued thereunder with respect to any Pension
Plan (excluding those for which the provision for 30-day notice to the PBGC has
been waived by regulation); (ii) the failure to meet the minimum funding
standard of Section 412 of the Internal Revenue Code with respect to any Pension
Plan (whether or not waived in accordance with Section 412(d) of the Internal
Revenue Code) or the failure to make by its due date a required installment
under Section 412(m) of the Internal Revenue Code with respect to any Pension
Plan or the failure to make any required contribution to a Multiemployer Plan;
(iii) the provision by the administrator of any Pension Plan pursuant to Section
4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the withdrawal by
Parent, any of its Subsidiaries or any of their respective ERISA Affiliates from
any Pension Plan with two or more contributing sponsors or the termination of
any such Pension Plan resulting in liability pursuant to Section 4063 or 4064 of
ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension
Plan, or the occurrence of any event or condition which could reasonably be
expected to constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan; (vi) the imposition of
liability on Parent, any of its Subsidiaries or any of their respective ERISA
Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the
application of Section 4212(c) of ERISA; (vii) the withdrawal of Parent, any of
its Subsidiaries or any of their respective ERISA Affiliates in a complete or
partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from
any Multiemployer Plan if there is any potential liability therefor, or the
receipt by Parent, any of its Subsidiaries or any of their respective ERISA
Affiliates of notice from any Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to
terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the
occurrence of an act or omission which could give rise to the imposition on
Parent, any of its Subsidiaries or any of their respective ERISA Affiliates of
fines, penalties, taxes or related charges under Chapter 43 of the Internal
Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071
of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a
material claim (other than routine claims for benefits) against any Employee
Benefit Plan other than a Multiemployer Plan or the assets thereof, or against
Parent, any of its Subsidiaries or any of their respective ERISA Affiliates in
connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue
Service of notice of the failure of any Pension Plan (or any other
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Employee Benefit Plan intended to be qualified under Section 401(a) of the
Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue
Code, or of the failure of any trust forming part of any Pension Plan to qualify
for exemption from taxation under Section 501(a) of the Internal Revenue Code;
or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.
"EURODOLLAR RATE LOAN" means a Loan bearing interest at a rate determined
by reference to the Adjusted Eurodollar Rate.
"EVENT OF DEFAULT" means each of the conditions or events set forth in
Section 8.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute.
"FACILITY" means any real property (including all buildings, fixtures or
other improvements located thereon) now, hereafter or heretofore owned, leased,
operated or used by Parent or any of its Subsidiaries or any of their respective
predecessors or Affiliates.
"FAIR SHARE CONTRIBUTION AMOUNT" as defined in Section 7.2.
"FAIR SHARE" as defined in Section 7.2.
"FAIR SHARE SHORTFALL" as defined in Section 7.2.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per
annum (expressed, as a decimal, rounded upwards, if necessary, to the next
higher 1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers on such day, as published for such day (or, if such day
is not a Business Day, for the immediately preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations at approximately
10:00 a.m. (Chicago time) on such day on such transactions received by
Administrative Agent from three Federal funds brokers of recognized standing
selected by Administrative Agent in its sole discretion.
"FINANCIAL OFFICER CERTIFICATION" means, with respect to the financial
statements for which such certification is required, the certification of the
chief financial officer of Parent that such financial statements fairly present,
in all material respects, the financial condition of Parent and its Subsidiaries
as at the dates indicated and the results of their operations and their cash
flows for the periods indicated, subject (in the case of unaudited financial
statements) to changes resulting from audit and normal year-end adjustments and
the absence of footnotes.
"FIRST PRIORITY" means, with respect to any Lien purported to be created in
any Share Collateral pursuant to any Collateral Document, that such Lien is the
only Lien to which such Share Collateral is subject, other than Permitted Liens.
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"FIRST UNION" as defined in the preamble hereto.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of Parent and its Subsidiaries ending
on the Saturday which is the closest to January 31 of each following calendar
year.
"FIXED CHARGE COVERAGE RATIO" means the ratio as of the last day of any
Fiscal Quarter of (i) Consolidated Adjusted EBITDAR for the four-Fiscal Quarter
Period then ending, to (ii) Consolidated Fixed Charges for such four-Fiscal
Quarter Period; provided that for purposes of calculating Consolidated Fixed
Charges for any period prior to the first anniversary of the Closing Date, the
Consolidated Interest Expense for such period included in the determination of
Consolidated Fixed Charges shall be equal to the actual amount of Consolidated
Interest Expense for the period commencing on the Closing Date and ending on the
date of determination multiplied by the quotient of (x) three hundred and
sixty-five (365) divided by (y) the number of days that have passed since the
Closing Date.
"FOREIGN SUBSIDIARY" means, with respect to any Person, any Subsidiary of
such Person that is not a Domestic Subsidiary.
"FUNDING DEFAULT" as defined in Section 2.22.
"FUNDING GUARANTORS" as defined in Section 7.2.
"FUNDING NOTICE" means a notice substantially in the form of Exhibit A-1.
"GAAP" means, subject to the limitations on the application thereof set
forth in Section 1.2, United States generally accepted accounting principles in
effect as of the date of determination thereof.
"GOVERNMENTAL ACTS" means any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any Governmental
Authority.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national or
other government, governmental department, commission, board, bureau, court,
agency or instrumentality or political subdivision thereof or any entity or
officer exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to any government or any court, in
each case whether associated with a state of the United States, the United
States, or a foreign entity or government.
"GUARANTEED OBLIGATIONS" as defined in Section 7.1.
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"GUARANTOR" means each of Parent and each wholly-owned Domestic Subsidiary
of Parent (other than Company).
"GUARANTOR SUBSIDIARY" means each Subsidiary of Parent (other than Company)
that is a Guarantor.
"GUARANTY" means the guaranty of each Guarantor set forth in Section 7.
"HAZARDOUS MATERIALS" means any chemical, material or substance, exposure
to which is prohibited, limited or regulated by any Governmental Authority or
which may or could pose a hazard to the health and safety of any Persons in the
vicinity of any Facility or to the indoor or outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or
threatened activity, event or occurrence involving any Hazardous Materials,
including the use, manufacture, possession, storage, holding, presence,
existence, location, Release, threatened Release, discharge, placement,
generation, transportation, processing, construction, treatment, abatement,
removal, remediation, disposal, disposition or handling of any Hazardous
Materials, and any corrective action or response action with respect to any of
the foregoing.
"HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency Agreement
entered into with a Lender Counterparty in the ordinary course of Parent's or
any of its Subsidiaries' businesses and not for speculative purposes.
"HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if any, that
at any time or from time to time may be contracted for, charged, or received
under the laws applicable to any Lender which are presently in effect or, to the
extent allowed by law, under such applicable laws which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"HISTORICAL FINANCIAL STATEMENTS" means as of the Closing Date, (i) the
audited consolidated financial statements of the Parent and its Subsidiaries for
the Fiscal Years 1997, 1998 and 1999 consisting of balance sheets and the
related consolidated statements of income, stockholders' equity and cash flows
for such Fiscal Years; and (ii) the same store comparable sales flash report for
the most recently ended monthly period for the Parent and its Subsidiaries; and,
in the case of clause (i) accompanied by a Financial Officer Certification.
"IMMATERIAL FOREIGN SUBSIDIARIES" means those Foreign Subsidiaries of
Parent which in the aggregate have (i) gross revenues of less than $1,000,000
and (ii) gross assets of less than $1,000,000, and which as of the Closing Date
are listed on Schedule 1.1 (b). Notwithstanding the foregoing, if at any time
after the Closing Date either the aggregate gross revenues or the aggregate
gross assets of all Immaterial Foreign Subsidiaries under the preceding sentence
exceeds $1,000,000, then one or more of such Immaterial Foreign Subsidiaries
designated by the Parent (or, if the Parent shall make no designation, then one
or more of such Foreign Subsidiaries in descending
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order based on their respective gross revenues or gross assets, as determined by
the Administrative Agent) shall be deemed for purposes of this Agreement to be
Material Foreign Subsidiaries to the extent necessary to eliminate such excess.
"INCREASED-COST LENDERS" as defined in Section 2.23.
"INDEBTEDNESS", as applied to any Person, means, without duplication, (i)
all indebtedness for borrowed money; (ii) that portion of obligations with
respect to Capital Leases that is properly classified as a liability on a
balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money; (iv) any obligation owed for all or any part of the deferred
purchase price of property or services (excluding any such obligations incurred
under ERISA, ordinary course trade payables and expenses accrued in the ordinary
course), which purchase price is (a) due more than six months from the date of
incurrence of the obligation in respect thereof or (b) evidenced by a note or
similar written instrument; (v) all indebtedness secured by any Lien on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person; provided, that the amount of such
indebtedness which has not been assumed by that person or is nonrecourse to the
credit of that Person shall be limited to an amount equal to the lesser of the
amount of such secured indebtedness or the value of the property and assets
securing such indebtedness; (vi) the face amount of any letter of credit issued
for the account of that Person or as to which that Person is otherwise liable
for reimbursement of drawings; (vii) the direct or indirect guaranty,
endorsement (otherwise than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another; (viii) any obligation of such Person the
primary purpose or intent of which is to provide assurance to an obligee that
the obligation of the obligor thereof will be paid or discharged, or any
agreement relating thereto will be complied with, or the holders thereof will be
protected (in whole or in part) against loss in respect thereof; and (ix) any
liability of such Person for the obligation of another through any agreement
(contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise) or (b) to maintain the solvency
or any balance sheet item, level of income or financial condition of another if,
in the case of any agreement described under subclauses (a) or (b) of this
clause (ix), the primary purpose or intent thereof is as described in clause
(viii) above; and (x) obligations of such Person in respect of any exchange
traded or over the counter derivative transaction, including, without
limitation, any Interest Rate Agreement or Currency Agreement, whether entered
into for hedging or speculative purposes; provided, in no event shall
obligations under any Interest Rate Agreements or Currency Agreements be deemed
"Indebtedness" for any purpose under Section 6.6.
"INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities,
obligations, losses, damages (including natural resource damages), penalties,
actions, judgments, suits, claims (including Environmental Claims), costs
(including the costs of any investigation, study, sampling, testing, abatement,
cleanup, removal, remediation or other response action necessary to remove,
remediate, clean up or abate any Hazardous Materials Activity), expenses and
disbursements of any
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kind or nature whatsoever (including the reasonable fees and disbursements of
counsel for Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened by any Person, whether or not any
such Indemnitee shall be designated as a party or a potential party thereto, and
any reasonable fees or expenses incurred by Indemnitees in enforcing this
indemnity), whether direct, indirect or consequential and whether based on any
federal, state or foreign laws, statutes, rules or regulations (including
securities and commercial laws, statutes, rules or regulations and Environmental
Laws), on common law or equitable cause or on contract or otherwise, that may be
imposed on, incurred by, or asserted against any such Indemnitee, in any manner
relating to or arising out of (i) this Agreement, the other Credit Documents or
the Transaction Documents or the transactions contemplated hereby or thereby
(including, without limitation, the Transaction and the Lenders' agreement to
make Credit Extensions or the use or intended use of the proceeds thereof, or
any enforcement of any of the Credit Documents (including any sale of,
collection from, or other realization upon any of the Share Collateral or the
enforcement of the Guaranty)); (ii) the statements contained in the commitment
letter delivered by any Lender to Parent with respect to the transactions
contemplated by this Agreement; or (iii) any Environmental Claim or any
Hazardous Materials Activity relating to or arising from, directly or
indirectly, any past or present activity, operation, land ownership, or practice
of Parent or any of its Subsidiaries.
"INDEMNITEE" as defined in Section 10.3.
"INSTALLMENT" as defined in Section 2.12(a).
"INSTALLMENT DATE" as defined in Section 2.12(a).
"INTEREST PAYMENT DATE" means with respect to (i) any Base Rate Loan, each
April 30, July 31, October 31 and January 31 of each year, commencing on July
31, 2000, and the final maturity date of such Loan; and (ii) any Eurodollar Rate
Loan, the last day of each Interest Period applicable to such Loan; provided, in
the case of each Interest Period of longer than three months "Interest Payment
Date" shall also include each date that is three months, or an integral multiple
thereof, after the commencement of such Interest Period.
"INTEREST PERIOD" means, in connection with a Eurodollar Rate Loan, an
interest period of one-, two-, three- or six-months, as selected by Company in
the applicable Funding Notice or Conversion/Continuation Notice, (i) initially,
commencing on the Credit Date or Conver sion/Continuation Date thereof, as the
case may be; and (ii) thereafter, commencing on the day on which the immediately
preceding Interest Period expires; provided, (a) if an Interest Period would
otherwise expire on a day that is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day unless no further Business Day occurs
in such month, in which case such Interest Period shall expire on the
immediately preceding Business Day; (b) any Interest Period that begins on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clauses (c) through (e), of this definition, end on
the last Business Day of a calendar month; (c) no Interest Period with respect
to any portion of any Term Loans shall extend beyond such Term Loan Maturity
Date; (d) no Interest Period with respect to any portion of the Revolving Loans
shall extend beyond
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the Revolving Credit Commitment Termination Date; and (e) no Interest Period
with respect to any portion of any Term Loans shall extend beyond a date on a
which Company is required to make a scheduled payment of principal of such Term
Loans, unless the sum of (1) the aggregate principal amount of such Term Loans
that are Base Rate Loans, and (2) the aggregate principal amount of such Term
Loans that are Eurodollar Rate Loans with Interest Periods expiring on or before
such date equals or exceeds the principal amount required to be paid on such
Term Loans on such date.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement, interest rate hedging
agreement or other similar agreement or arrangement, each of which is for the
purpose of hedging the interest rate exposure associated with Parent's and its
Subsidiaries' operations.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest
Period, the date that is two Business Days prior to the first day of such
Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended
to the date hereof and from time to time hereafter, and any successor statute.
"INVESTMENT" means (i) any direct or indirect purchase or other acquisition
by Parent or any of its Subsidiaries of, or of a beneficial interest in, any of
the Securities of any other Person (other than a wholly-owned Guarantor
Subsidiary); (ii) any direct or indirect redemption, retirement, purchase or
other acquisition for value, by any Subsidiary of Parent from any Person (other
than Company or any wholly-owned Guarantor Subsidiary), of any Capital Stock of
such Subsidiary; and (iii) any direct or indirect loan, advance (other than
advances or loans to employees for moving, relocation, entertainment and travel
expenses, drawing accounts, purchase of Parent Common Stock and similar
expenditures in the ordinary course of business) or capital contribution by
Parent or any of its Subsidiaries to any other Person (other than Company or any
wholly-owned Guarantor Subsidiary), including all indebtedness and accounts
receivable from that other Person that are not current assets or did not arise
in the ordinary course of business. The amount of any Investment shall be the
original cost of such Investment plus the cost of all additions thereto, without
any adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment.
"INVESTMENT GRADE STATUS" means, at any date of determination, that each of
the following conditions is true: (i) Moody's has assigned to Parent a senior
implied (or any rating category that Moody's replaces for such category) rating
of at least Baa3 and (ii) S&P has assigned to Parent a corporate credit (or any
rating category that S&P's replaces for such category) rating of at least BBB-.
"ISSUANCE NOTICE" means an Issuance Notice substantially in the form of
Exhibit A-3.
"ISSUING BANK" means Bank One as Issuing Bank hereunder, together with its
permitted successors and assigns in such capacity.
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"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership, limited liability company, or
other legal form; provided, in no event shall any corporate Subsidiary of any
Person be considered to be a Joint Venture to which such Person is a party.
"LEAD ARRANGER" as defined in the preamble hereto.
"LENDER" means each financial institution listed on the signature pages
hereto as a Lender, together with each such institution's successors and
permitted assigns.
"LENDER COUNTERPARTY" means each Lender or any Affiliate thereof
counterparty to a Hedge Agreement.
"LETTER OF CREDIT" means a commercial or standby letter of credit issued or
to be issued by Issuing Bank pursuant to this Agreement.
"LETTER OF CREDIT SUBLIMIT" means the lesser of (i) $200,000,000 and (ii)
the aggregate unused amount of the Revolving Credit Commitments then in effect.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of
(i) the maximum aggregate amount which is, or at any time thereafter may become,
available for drawing under all Letters of Credit then outstanding, and (ii) the
aggregate amount of all drawings under Letters of Credit honored by Issuing Bank
and not theretofore reimbursed by or on behalf of Company.
"LEVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter
of (i) Consolidated Total Debt as of such day to (ii) Consolidated Adjusted
EBITDA for the four-Fiscal Quarter period ending on such date.
"LIEN" means (i) any lien, mortgage, pledge, assignment, security interest,
charge or encumbrance of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof and any option, trust or other preferential arrangement
having the practical effect of any of the foregoing and (ii) in the case of
Securities, any purchase option, call or similar right of a third party with
respect to such Securities.
"LOAN" means a Term Loan, a Revolving Loan or a Swing Line Loan.
"MARGIN STOCK" as defined in Regulation T, U or X of the Board of Governors
of the Federal Reserve System as in effect from time to time.
"MATERIAL ADVERSE CHANGE" means a material adverse change in or affecting
the general affairs, management, financial position, shareholders' equity,
results of operations or prospects of Parent and its Subsidiaries taken as a
whole.
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"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
general affairs, management, financial position, shareholders' equity, results
of operations or prospects of Parent and its Subsidiaries taken as a whole; (ii)
the ability of the Credit Parties to fully and timely perform the Obligations in
any material respects; (iii) the legality, validity, binding effect or
enforceability in any material respects against the Credit Parties of the Credit
Documents; (iv) the rights, remedies and benefits taken as a whole, available
to, or conferred upon, any Agent, Issuing Bank and any Lender under any Credit
Document; or (v) the Share Collateral or the Administrative Agent's Liens, on
behalf of Agents and Lenders on the Share Collateral taken as a whole, or the
priority of such Liens.
"MATERIAL FOREIGN SUBSIDIARY" means all Foreign Subsidiaries other than
Immaterial Foreign Subsidiaries.
"MATERIAL SUBSIDIARY" means each Subsidiary of Parent now existing or
hereafter acquired or formed by Parent or its Subsidiaries which, on a
consolidated basis for such Subsidiary and its Subsidiaries, (i) for the most
recent Fiscal Year accounted for more than 5% of the consolidated gross revenues
of Parent and its Subsidiaries or (ii) as at the end of such Fiscal Year, was
the owner of more than 5% of the consolidated total assets of Parent and its
Subsidiaries.
"MAXIMUM AVAILABLE AMOUNT" as defined in Section 2.4(i).
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a
"MULTIEMPLOYER PLAN" as defined in Section 3(37) of ERISA.
"NAIC" means The National Association of Insurance Commissioners, and any
successor thereto.
"NARRATIVE REPORT" means, with respect to the financial statements for
which such narrative report is required, a narrative report describing the
operations of Parent and its Subsidiaries in the form prepared for presentation
to senior management thereof for the applicable Fiscal Quarter or Fiscal Year
and for the period from the beginning of the then current Fiscal Year to the end
of such period to which such financial statements relate; provided, at any time
Parent is a reporting company for purposes of the Exchange Act, the term
"NARRATIVE REPORT" shall mean the report filed by Parent with the SEC for the
financial statements to which such report relates.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, an amount
equal to: (i) Cash payments (including any Cash received by way of deferred
payment pursuant to, or by monetization of, a note receivable or otherwise, but
only as and when so received) received by Parent or any of its Subsidiaries from
such Asset Sale, minus (ii) any bona fide direct costs incurred in connection
with such Asset Sale, including (a) income or gains taxes actually payable by
the seller as a result of any gain recognized in connection with such Asset
Sale, (b) payment of the outstanding principal amount of, premium or penalty, if
any, and interest on any Indebtedness (other than the Loans) that is secured by
a Lien on the stock or assets in question and that is required to be repaid
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under the terms thereof as a result of such Asset Sale, (c) payments associated
with the liquidation of inventory, employee severance and termination of
operating leases as a result of such Asset Sale and (d) direct expenses arising
from such Asset Sale (including reasonable brokerage fees, transfer taxes and
professional fees and expenses).
"NET DEBT ISSUANCE PROCEEDS" means, an amount equal to (i) any Cash
proceeds received by Parent or any of its Subsidiaries from the incurrence of
any Indebtedness by Parent or any of its Subsidiaries or the issuance of
preferred stock Securities by Parent minus (ii) all underwriting discounts and
commissions and other reasonable and customary costs and expenses associated
with the issuance or incurrence of such Indebtedness or issuance of preferred
stock Securities, including reasonable legal fees and expenses. For purposes of
this definition Indebtedness shall not include any Indebtedness permitted to be
incurred pursuant to Section 6.1.
"NET INSURANCE/CONDEMNATION PROCEEDS" means an amount equal to: (i) any
Cash payments or proceeds received by Parent or any of its Subsidiaries (a)
under any casualty insurance policy in respect of a covered loss thereunder or
(b) as a result of the taking of any assets of Parent or any of its Subsidiaries
by any Person pursuant to the power of eminent domain, condemnation or
otherwise, or pursuant to a sale of any such assets to a purchaser with such
power under threat of such a taking, minus (ii) (a) any actual and reasonable
documented costs incurred by Parent or any of its Subsidiaries in connection
with the adjustment or settlement of any claims of Parent or such Subsidiary in
respect thereof, and (b) any bona fide direct costs incurred in connection with
any sale of such assets as referred to in clause (i)(b) of this definition,
including income taxes actually payable as a result of any gain recognized in
connection therewith.
"NON-CONSENTING LENDER" as defined in Section 2.23.
"NON-US LENDER" as defined in Section 2.20(c).
"NOTE" means a Term Note, Revolving Loan Note or a Swing Line Note.
"NOTICE" means a Funding Notice, an Issuance Notice, or a Conversion/
Continuation Notice.
"OBLIGATIONS" means all obligations of every nature of each Credit Party
from time to time owed to the Agents, the Lenders or any of them or their
respective Affiliates (including, without limitation, all former Agents, Lenders
or Lender Counterparties) under any Credit Document or Hedge Agreement
(including, without limitation, with respect to a Hedge Agreement, obligations
owed thereunder to any person who was a Lender or an Affiliate of a Lender at
the time such Hedge Agreement was entered into), whether for principal, interest
(including interest which, but for the filing of a petition in bankruptcy with
respect to such Credit Party, would have accrued on any Obligation, whether or
not a claim is allowed against such Credit Party for such interest in the
related bankruptcy proceeding), reimbursement of amounts drawn under Letters of
Credit, payments for early termination of Hedge Agreements, fees, expenses,
indemnification or otherwise.
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"OBLIGEE GUARANTOR" as defined in Section 7.7.
"OFFER TO PURCHASE" as defined in the recitals hereto.
"ORGANIZATIONAL DOCUMENTS" means (i) with respect to any corporation, its
certificate or articles of incorporation, as amended, and its by-laws, as
amended, (ii) with respect to any limited partnership, its certificate of
limited partnership, as amended, and its partnership agreement, as amended,
(iii) with respect to any general partnership, its partnership agreement, as
amended, and (iv) with respect to any limited liability company, its articles of
organization, as amended, and its operating agreement, as amended. In the event
any term or condition of this Agreement or any other Credit Document requires
any Organizational Document to be certified by a secretary of state or similar
governmental official, the reference to any such "ORGANIZATIONAL DOCUMENT" shall
only be to a document of a type customarily certified by such governmental
official.
"PARENT" as defined in the preamble hereto.
"PARENT COMMON STOCK" means the outstanding common stock of Parent.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to Section 412 of the Internal Revenue Code or Section
302 of ERISA.
"PERMITTED ACQUISITION" means any acquisition, whether by purchase, merger
or otherwise, of all or substantially all of the assets of, all of the Capital
Stock of, or a business line or unit or a division of, any Person; provided,
(i) immediately prior to, and after giving effect thereto, no Default
or Event of Default shall have occurred and be continuing or would result
therefrom;
(ii) all transactions in connection therewith shall be consummated in
accordance with all applicable laws and in conformity with all applicable
Governmental Authorizations;
(iii) any business or property acquired shall be owned 100% by
Company, Parent or a wholly-owned Guarantor Subsidiary thereof;
(iv) in the case of the acquisition of Capital Stock, all of the
Capital Stock (except for any such Securities in the nature of directors'
qualifying shares required pursuant to applicable law) outstanding or
otherwise issued by such Person or any newly formed Subsidiary of Parent in
connection with such acquisition shall be owned 100% by Parent or a
Guarantor Subsidiary thereof, and Parent shall have taken, or caused to be
taken, as of the
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date such Person becomes a Subsidiary of Parent, each of the actions set
forth in Sections 5.9, as applicable;
(v) Parent and its Subsidiaries shall be in compliance with,
immediately before and after giving pro forma effect to such acquisition,
Section 6.6 (as determined in accordance with Section 6.6(e));
(vi) Parent shall have delivered to Administrative Agent at least ten
(10) Business Days prior to the closing of such proposed acquisition, (A) a
certificate in the form of a Compliance Certificate evidencing compliance
with Section 6.6 as required under clause (v) above, together with all
relevant financial information with respect to such acquired assets,
including, without limitation, the aggregate consideration for such
acquisition and any other information required to demonstrate compliance
with Section 6.6 and (B) copies of the definitive documentation relating to
such proposed acquisition; and
(vii) any such proposed acquisition shall be approved by the Board of
Directors or comparable governing body of the relevant Person being
acquired.
"PERMITTED LIENS" means each of the Liens permitted pursuant to Section
6.2.
"PERMITTED SALE-LEASEBACKS" has the meaning assigned to that term in
Section 6.9.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and Governmental Authorities.
"PLEDGE AGREEMENT" means the Pledge Agreement, dated as of April 17, 2000,
substantially in the form of Exhibit I, as it may be amended, supplemented or
otherwise modified from time to time.
"PLEDGOR" as defined in the Pledge Agreement.
"PRESENT VALUE" means, with respect to each lease of Parent and its
Subsidiaries treated as an "operating" lease for purposes of external financial
reporting, the periodic minimum or base rental payments due and payable during
the primary term (giving effect to any extension terms as to which Parent or its
Subsidiaries have become contractually obligated) of such lease on or after the
date of determination discounted to an equivalent value as of the date of
determination. For purposes of computing the Present Value: (a) the discount
rate utilized to calculate the Present Value of any Existing Lease (as defined
below) shall be the rate actually utilized by Parent prior to April 22, 1996 for
purposes of calculating the present value of such operating lease for disclosure
of the present value of all operating leases in the consolidated external
financial reports of Parent and its Affiliates; (b) the discount rate utilized
to calculate the Present Value of any Additional Lease (as defined below) during
the fiscal year in which the term of such lease commences (its "FIRST LEASE
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YEAR") shall be the Year-To-Date Rate (as defined below) as of the end of the
Fiscal Quarter for which the computation is made; and (c) the discount rate for
any Additional Lease during any Fiscal Year other than its First Lease Year
shall be the Year-To-Date Rate as of the end of its First Lease Year. For
purposes of this definition: (i) "EXISTING LEASE" means any operating lease with
a term commencing before February 4, 1996; (ii) "ADDITIONAL LEASE" means any
operating lease with a term commencing after February 3, 1996; and (iii)
"YEAR-TO-DATE RATE" means the weekly year-to- date average of the Friday rates
of the Merrill Lynch Bond Index for corporate issues of "medium" quality with
terms of 10 years or more ("INDEX") as published in The Wall Street Journal (or
similar publication). In the event that the Index ceases to be published, the
Index shall be replaced by a similar index reflecting rates applicable to
corporate issues with similar terms and credit quality as the Index as jointly
selected by Company and the Administrative Agent. The discount rate applied to
any extension of any Existing Lease or Additional Lease shall be: (A) if the
dollar amount of base rent payable during such extension is prescribed in the
original operating lease, the discount rate originally applicable to such
Existing Lease or Additional Lease, as applicable; and (B) in all other cases,
the discount rate determined as if such extension period constituted an
Additional Lease.
"PRESENT VALUE OF OPERATING LEASES" means, at any time, the sum of the
Present Value of each operating lease of Parent and its Subsidiaries.
"PRIME RATE" means the rate of interest per annum that Bank One or its
parent announces from time to time as its prime lending rate, as in effect from
time to time. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer. Bank One or
any other Lender may make commercial loans or other loans at rates of interest
at, above or below the Prime Rate.
"PRINCIPAL OFFICE" means, for each of Administrative Agent, Swing Line
Lender and Issuing Bank, such Person's "Principal Office" as set forth on
Appendix C, or such other office as such Person may from time to time designate
in writing to Company, Administrative Agent and each Lender.
"PROJECTIONS" as defined in Section 4.5.
"PRO RATA SHARE" means (i) with respect to all payments, computations and
other matters relating to the Term Loan of any Lender, the percentage obtained
by dividing (a) the Term Loan Exposure of that Lender by (b) the aggregate Term
Loan Exposure of all Lenders; and (ii) with respect to all payments,
computations and other matters relating to the Revolving Credit Commitment or
Revolving Loans of any Lender or any Letters of Credit issued or participations
purchased therein by any Lender or any participations in any Swing Line Loans
purchased by any Lender, the percentage obtained by dividing (a) the Revolving
Credit Exposure of that Lender by (b) the aggregate Revolving Credit Exposure of
all Lenders. For all other purposes with respect to each Lender, "PRO RATA
SHARE" means the percentage obtained by dividing (A) an amount equal to the sum
of the Term Loan Exposure and the Revolving Credit Exposure of that Lender, by
(B) an amount equal to the sum of the aggregate Term Loan Exposure and the
aggregate Revolving Credit Exposure of all Lenders.
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"REFINANCED INDEBTEDNESS" means the Indebtedness and other obligations
outstanding under (i) the Amended and Restated Multicurrency Credit Agreement,
dated as of May 22, 1998, among Parent, Company, certain Subsidiaries of Parent,
various lending institutions and Bank of America National Trust and Savings
Association, as agent, as amended prior to the Closing Date, (ii) the Note
Purchase Agreement, dated as of November 1, 1998 pursuant to which Parent and
Payless ShoeSource, Inc., a Missouri corporation, issued 6.55% Senior Notes,
Series A, due November 23, 2003, 6.88% Senior Notes, Series B, due November 23,
2005, and 7.35% Senior Notes, Series C, due November 23, 2008, (iii) the Note
Purchase Agreement, dated as of June 1, 1999, pursuant to which Parent and
Payless ShoeSource, Inc., a Missouri corporation issued 7.34% Senior Notes,
Series D, due June 3, 2004, 7.67% Senior Notes, Series E, due June 3, 2009 and
7.78% Senior Notes, Series F, due June 3, 2009 and (iv) the other agreements
identified on Schedule 1.1(a) annexed hereto.
"REFINANCING" means and includes the refinancing and repayment in full of
all amounts outstanding under, and the termination in full of all commitments
and letters of credit in respect of the Refinanced Indebtedness.
"REFUNDED SWING LINE LOANS" as defined in Section 2.3(b)(iv).
"REGISTER" as defined in Section 2.7(b).
"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"REIMBURSEMENT DATE" as defined in Section 2.4(d).
"RELEASE" means any release, spill, emission, leaking, pumping, pouring,
injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of any Hazardous Material into the indoor or outdoor environment
(including the abandonment or disposal of any barrels, containers or other
closed receptacles containing any Hazardous Material), including the movement of
any Hazardous Material through the air, soil, surface water or groundwater.
"REPLACEMENT LENDER" as defined in Section 2.23.
"REQUISITE LENDERS" means one or more Lenders having or holding Term Loan
Exposure and/or Revolving Credit Exposure representing more than 50% of the sum
of (i) the aggregate Term Loan Exposure of all Lenders, and (ii) the aggregate
Revolving Credit Exposure of all Lenders.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution, direct
or indirect, on account of any shares of any Capital Stock of Parent or any of
its Subsidiaries now or hereafter outstanding, except a dividend payable solely
in shares of that class of Capital Stock to the holders of that class; (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of Capital
Stock of Parent
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or any of its Subsidiaries now or hereafter outstanding; (iii) any payment made
to retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire any Capital Stock of Parent or any of its Subsidiaries
now or hereafter outstanding; and (iv) any payment or prepayment of principal
of, premium, if any, or interest on, or redemption, purchase, retirement,
defeasance (including in-substance or legal defeasance), sinking fund or similar
payment with respect to, any Subordinated Indebtedness.
"REVOLVING CREDIT COMMITMENT" means the commitment of a Lender to make or
otherwise fund any Credit Extension (other than any Term Loan). The amount of
each Lender's Revolving Credit Commitment, if any, is set forth on Appendix B or
in the applicable Assignment Agreement, subject to any adjustment or reduction
pursuant to the terms and conditions hereof; REVOLVING CREDIT COMMITMENTS" means
the Revolving Credit Commitments of all Lenders in the aggregate, and the
aggregate amount of the Revolving Loan Commitments as of the Closing Date is
$200,000,000.
"REVOLVING CREDIT COMMITMENT PERIOD" means the period from the Closing Date
to but excluding the Revolving Credit Commitment Termination Date.
"REVOLVING CREDIT COMMITMENT TERMINATION DATE" means the earliest to occur
of (i) June 3, 2000, if the Term Loans are not made on or before that date; (ii)
the fifth year anniversary of the Closing Date, (iii) the date the Revolving
Credit Commitments are permanently reduced to zero pursuant to Section 2.13(b)
or 2.14, and (iv) the date of the termination of the Revolving Credit
Commitments pursuant to Section 8.1.
"REVOLVING CREDIT EXPOSURE" means, with respect to any Lender as of any
date of determination, (i) prior to the termination of the Revolving Credit
Commitments, that Lender's Revolving Credit Commitment; and (ii) after the
termination of the Revolving Credit Commitments, the sum of (a) the aggregate
outstanding principal amount of the Revolving Loans of that Lender, (b) in the
case of Issuing Bank, the aggregate Letter of Credit Usage in respect of all
Letters of Credit issued by that Lender (net of any participations by Lenders in
such Letters of Credit), and (c) the aggregate amount of all participations by
that Lender in any outstanding Letters of Credit or any unreimbursed drawing
under any Letter of Credit, (d) in the case of Swing Line Lender, the aggregate
outstanding principal amount of all Swing Line Loans (net of any participations
therein by other Lenders), and (e) the aggregate amount of all participations
therein by that Lender in any outstanding Swing Line Loans.
"REVOLVING LOAN" means a Loan made by a Lender to Company pursuant to
Section 2.2(a) or Section 2.3(b)(iv).
"REVOLVING LOAN NOTE" means a promissory note substantially in the form of
Exhibit B-2, as it may be amended, supplemented or otherwise modified from time
to time.
"RIGHTS AGREEMENT" means the Stockholder Protection Rights Agreement, dated
as of April 20, 1998, between Parent and UMB Bank, NA, as rights agent.
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"SALE-LEASEBACKS" has the meaning assigned to that term in Section 6.9.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill
Corporation.
"SEC" means the Securities and Exchange Commission or any successor entity.
"SECURED PARTY" has the meaning assigned to that term in the Pledge
Agreement.
"SECURITIES" means any stock, shares, partnership interests, voting trust
certificates, certificates of interest or participation in any profit-sharing
agreement or arrangement, options, warrants, bonds, debentures, notes, or other
evidences of indebtedness, secured or unsecured, convertible, subordinated or
otherwise, or in general any instruments commonly known as "securities" or any
certificates of interest, shares or participations in temporary or interim
certificates for the purchase or acquisition of, or any right to subscribe to,
purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time, and any successor statute.
"SHARE COLLATERAL" means the "Collateral" (as that term is defined in
Section 1.1 of the Pledge Agreement).
"SOLVENCY CERTIFICATE" means a Solvency Certificate of the chief financial
officer of Parent substantially in the form of Exhibit G-2.
"SOLVENT" means, with respect to any Person, that as of the date of
determination both (i) (a) the sum of such Person's debt (including contingent
liabilities) does not exceed all of its property, at a fair valuation; (b) the
present fair saleable value of the property of such Person is not less than the
amount that will be required to pay the probable liabilities on such Person's
then existing debts as they become absolute and matured; (c) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (d) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (ii) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability (irrespective of whether such contingent liabilities
meet the criteria for accrual under Statement of Financial Accounting Standard
No.5).
"SUBJECT TRANSACTION" as defined in Section 6.6(e).
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"SUBORDINATED INDEBTEDNESS" means Indebtedness of Parent and its
Subsidiaries subordinated in right of payment to the Obligations pursuant to
documentation containing maturities, amortization schedules, covenants,
defaults, remedies, subordination provisions and other material terms in form
and substance reasonably satisfactory to Administrative Agent and the Requisite
Lenders.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof; provided, in determining the percentage of ownership interests of any
Person controlled by another Person, no ownership interest in the nature of a
"qualifying share" of the former Person shall be deemed to be outstanding.
"SWING LINE LENDER" means Bank One in its capacity as Swing Line Lender
hereunder, together with its permitted successors and assigns in such capacity.
"SWING LINE LOAN" means a Revolving Loan made by Swing Line Lender to
Company pursuant to Section 2.3.
"SWING LINE NOTE" means a promissory note in the form of Exhibit B-3, as it
may be amended, supplemented or otherwise modified from time to time.
"SWING LINE SUBLIMIT" means the lesser of (i) $3,000,000, and (ii) the
aggregate unused amount of Revolving Credit Commitments then in effect.
"SYNDICATION AGENT" as defined in the preamble hereto.
"TAX" means any present or future tax, levy, impost, duty, assessment,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided, "TAX ON THE OVERALL NET INCOME" of a Person shall be
construed as a reference to a tax imposed by the jurisdiction in which that
Person is organized or in which that Person's applicable principal office
(and/or, in the case of a Lender, its lending office) is located or in which
that Person (and/or, in the case of a Lender, its lending office) is deemed to
be doing business on all or part of the net income, profits or gains (whether
worldwide, or only insofar as such income, profits or gains are considered to
arise in or to relate to a particular jurisdiction, or otherwise) of that Person
(and/or, in the case of a Lender, its applicable lending office).
"TENDER OFFER" as defined in the recitals hereto.
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"TENDER OFFER CONSIDERATION" as defined in the recitals hereto.
"TENDER OFFER DOCUMENTS" means (i) the Offer to Purchase, as such Offer to
Purchase may thereafter have been or may be amended, restated, supplemented or
otherwise modified from time to time on or prior to the Closing Date pursuant to
documentation in form and substance reasonably satisfactory to Syndication Agent
and Administrative Agent (such consent not to be unreasonably withheld or
delayed) and (ii) all related documents, shareholder notices and SEC and other
governmental filings.
"TENDER OFFER PRICE" means the price of $53.00 per share of Parent Common
Stock paid by Parent pursuant to the Tender Offer.
"TERM LOAN" means a Term Loan made by a Lender to Company pursuant to
Section 2.1(a).
"TERM LOAN COMMITMENT" means the Commitment of a Lender to make or
otherwise fund a Term Loan to Company. The amount of each Lender's Term Loan
Commitment, if any, is set forth on Appendix A or in the applicable Assignment
Agreement, subject to any adjustment or reduction pursuant to the terms and
conditions hereof; "TERM LOAN COMMITMENTS" means such Commitments of all Lenders
in the aggregate, and the aggregate amount of the Term Loan Commitments as of
the Closing Date is $400,000,000.
"TERM LOAN COMMITMENT TERMINATION DATE" means the earliest to occur of (a)
June 3, 2000, but only if the Closing Date has not occurred prior to such date,
(b) the Closing Date after giving effect to the funding of the Term Loans on
such date or (c) the date of the termination of the Term Loan Commitment
pursuant to Section 8.1.
"TERM LOAN EXPOSURE" means, with respect to any Lender, as of any date of
determination, (i) at any time prior to the making of the Term Loans, the Term
Loan Exposure of any Lender shall be equal to such Lender's Term Loan Commitment
and (ii) after the initial funding of the Term Loans, the outstanding principal
amount of the Term Loans of that Lender.
"TERM LOAN MATURITY DATE" means the earlier of (i) the fifth year
anniversary of the Closing Date, and (ii) the date that all Term Loans shall
otherwise become due and payable in full hereunder, whether by acceleration or
otherwise.
"TERM LOAN NOTE" means a promissory note substantially in the form of
Exhibit B- 1, as it may be amended, supplemented or otherwise modified from time
to time.
"TERMINATED LENDER" as defined in Section 2.23.
"TOTAL UTILIZATION OF REVOLVING CREDIT COMMITMENTS" means, as at any date
of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans (other than Revolving Loans made for the purpose of
repaying any Refunded Swing Line Loans or
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reimbursing Issuing Bank for any amount drawn under any Letter of Credit, but
not yet so applied), (ii) the aggregate principal amount of all outstanding
Swing Line Loans, and (iii) the Letter of Credit Usage.
"TRANSACTION" means, collectively (i) the consummation of the Tender Offer,
(ii) the consummation of the Refinancing and (iii) the payment of fees and
expenses in connection with the foregoing.
"TRANSACTION COSTS" means collectively, the estimated fees, costs and
expenses payable by Parent and its Subsidiaries in connection with the
transactions contemplated by the Transaction Documents and the Credit Documents.
"TRANSACTION DOCUMENTS" means collectively, (i) the Tender Offer Documents
and (ii) the documents governing the Refinancing and all other documents,
instruments or agreements executed and delivered by Parent or any of its
Subsidiaries in connection therewith.
"TRANSACTION FINANCING REQUIREMENTS" means the aggregate of all amounts
necessary (i) to pay the Tender Offer Consideration, (ii) to refinance the
Refinanced Indebtedness pursuant to the Refinancing; and (iii) to pay the
Transaction Costs.
"TYPE OF LOAN" means (i) with respect to either Term Loans or Revolving
Loans, a Base Rate Loan or a Eurodollar Rate Loan, and (ii) with respect to
Swing Line Loans, a Base Rate Loan.
"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
"UNADJUSTED EURODOLLAR RATE COMPONENT" means that component of the interest
cost to Company in respect of a Eurodollar Rate Loan that is based upon the rate
obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate.
1.2. ACCOUNTING TERMS. Except as otherwise expressly provided herein, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Parent or Company to Lenders pursuant to Section
5.1(a) and 5.1(b) shall be prepared in accordance with GAAP as in effect at the
time of such preparation (and delivered together with the reconciliation
statements provided for in Section 5.1(d), if applicable). Subject to the
foregoing, calculations in connection with the definitions, covenants and other
provisions hereof shall utilize accounting principles and policies in conformity
with those used to prepare the Historical Financial Statements.
1.3. INTERPRETATION, ETC. Any of the terms defined herein may, unless the
context otherwise requires, be used in the singular or the plural, depending on
the reference. References herein to any Section, Appendix, Schedule or Exhibit
shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may
be, hereof unless otherwise specifically provided. The use herein of the word
"include" or "including", when following any general statement, term or matter,
shall not be
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construed to limit such statement, term or matter to the specific items or
matters set forth immediately following such word or to similar items or
matters, whether or not nonlimiting language (such as "without limitation" or
"but not limited to" or words of similar import) is used with reference thereto,
but rather shall be deemed to refer to all other items or matters that fall
within the broadest possible scope of such general statement, term or matter.
SECTION 2. LOANS AND LETTERS OF CREDIT
2.1. TERM LOANS.
(a) Loan Commitments. (i) Subject to the terms and conditions hereof
(including, without limitation, Section 2.6), each Lender holding a Term
Loan Commitment severally agrees to make, on the Closing Date, a Term Loan
to Company in the aggregate amount up to but not exceeding such Lender's
Term Loan Commitment.
(ii) Company may make only one borrowing under the Term Loan
Commitment which shall be on the Closing Date. Any amount borrowed
under this Section 2.1(a) and subsequently repaid or prepaid may not
be reborrowed. Subject to Sections 2.13(a) and 2.14, all amounts owed
hereunder with respect to the Term Loans shall be paid in full no
later than the Term Loan Maturity Date. Each Lender's Term Loan
Commitment shall terminate immediately and without further action on
Term Loan Commitment Termination Date.
(b) Borrowing Mechanics for Term Loans. (i) Company shall deliver to
Administrative Agent a fully executed Closing Date Certificate (which shall
be deemed to be a Funding Notice with respect to the Term Loans) on the
Closing Date. Promptly upon receipt by Administrative Agent of such
Certificate, Administrative Agent shall notify each Lender of the proposed
borrowing.
(ii) Each Lender shall make its Term Loan available to
Administrative Agent not later than 12:00 p.m. (Chicago time) on the
Closing Date, by wire transfer of same day funds in Dollars, at
Administrative Agent's Principal Office. Upon satisfaction or waiver
of the conditions precedent specified herein, Administrative Agent
shall make the proceeds of the Term Loans available to Company on the
Closing Date by causing an amount of same day funds in Dollars equal
to the proceeds of all such Loans received by Administrative Agent
from Lenders to be credited to the account of Company at
Administrative Agent's Principal Office or to such other account as
may be designated in writing to Administrative Agent by Company.
2.2. REVOLVING LOANS.
(a) Revolving Credit Commitments. (i) During the Revolving Credit
Commitment Period, subject to the terms and conditions hereof, each Lender
holding a Revolving Credit Commitment severally agrees to make Revolving
Loans to Company in the aggregate amount up to but not exceeding such
Lender's Revolving Credit Commitment; provided, after giving effect
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to the making of any Revolving Loans in no event shall the Total
Utilization of Revolving Credit Commitments exceed the Revolving Credit
Commitments then in effect.
(ii) Amounts borrowed pursuant to this Section 2.2(a) may be
repaid and reborrowed during the Revolving Credit Commitment Period.
Each Lender's Revolving Credit Commitment shall expire on the
Revolving Credit Commitment Termination Date and all Revolving Loans
and all other amounts owed hereunder with respect to the Revolving
Loans and the Revolving Credit Commitments shall be paid in full no
later than such date.
(b) Borrowing Mechanics for Revolving Loans. (i) Except with regard to
Refunded Swing Line Loans, Revolving Loans that are Base Rate Loans shall
be made in an aggregate minimum amount of $3,000,000 and integral multiples
of $1,000,000 in excess of that amount, and Revolving Loans that are
Eurodollar Rate Loans shall be in an aggregate minimum amount of $3,000,000
and integral multiples of $1,000,000 in excess of that amount.
(ii) Whenever Company desires that Lenders make Revolving Loans,
Company shall deliver to Administrative Agent a fully executed Funding
Notice no later than 10:00 a.m. (Chicago time) at least three (3)
Business Days in advance of the proposed Credit Date in the case of a
Eurodollar Rate Loan, and at least one (1) Business Day in advance of
the proposed Credit Date in the case of a Revolving Loan that is a
Base Rate Loan. Except as otherwise provided herein, a Funding Notice
for a Revolving Loan that is a Eurodollar Rate Loan shall be
irrevocable on and after the date given, and Company shall be bound to
make a borrowing in accordance therewith.
(iii) Notice of receipt of each Funding Notice in respect of
Revolving Loans, together with the amount of each Lender's Pro Rata
Share thereof, if any, together with the applicable interest rate,
shall be provided by Administrative Agent to each applicable Lender by
telefacsimile with reasonable promptness, but (provided Administrative
Agent shall have received such notice by 10:00 a.m. (Chicago time))
not later than 2:00 p.m. (Chicago time) on the same day as
Administrative Agent's receipt of such Notice from Company.
(iv) Each Lender shall make the amount of its Revolving Loan
available to Administrative Agent not later than 12:00 p.m. (Chicago
time) on the applicable Credit Date by wire transfer of same day funds
in Dollars, at the Administrative Agent's Principal Office. Except as
provided herein, upon satisfaction or waiver of the conditions
precedent specified herein, Administrative Agent shall make the
proceeds of such Revolving Loans available to Company on the
applicable Credit Date by causing an amount of same day funds in
Dollars equal to the proceeds of all such Revolving Loans received by
Administrative Agent from Lenders to be credited to the account of
Company at the Administrative Agent's Principal Office or such other
account as may be designated in writing to Administrative Agent by
Company.
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2.3. SWING LINE LOANS.
(a) Swing Line Loans Commitments. During the Revolving Credit
Commitment Period, subject to the terms and conditions hereof, Swing Line Lender
hereby agrees to make Swing Line Loans to Company in the aggregate amount up to
but not exceeding the Swing Line Sublimit; provided, after giving effect to the
making of any Swing Line Loan, in no event shall the Total Utilization of
Revolving Credit Commitments exceed the Revolving Credit Commitments then in
effect. Amounts borrowed pursuant to this Section 2.3 may be repaid and
reborrowed during the Revolving Credit Commitment Period. Swing Line Lender's
Revolving Credit Commitment shall expire on the Revolving Credit Commitment
Termination Date and all Swing Line Loans and all other amounts owed hereunder
with respect to the Swing Line Loans and the Revolving Credit Commitments shall
be paid in full no later than such date.
(b) Borrowing Mechanics for Swing Line Loans.
(i) Swing Line Loans shall be made in an aggregate
minimum amount of $5,000.
(ii) Whenever Company desires that Swing Line Lender
make a Swing Line Loan, Company shall deliver to Administrative Agent a Funding
Notice no later than 12:00 p.m. (Chicago time) on the proposed Credit Date.
(iii) Swing Line Lender shall make the amount of its
Swing Line Loan available to Administrative Agent not later than 2:00
p.m.(Chicago time) on the applicable Credit Date by wire transfer of same day
funds in Dollars, at the Administrative Agent's Principal Office. Except as
provided herein, upon satisfaction or waiver of the conditions precedent
specified herein, Administrative Agent shall make the proceeds of such Swing
Line Loans available to Company on the applicable Credit Date by causing an
amount of same day funds in Dollars equal to the proceeds of all such Swing Line
Loans received by Administrative Agent from Swing Line Lender to be credited to
the account of Company at the Administrative Agent's Principal Office, or to
such other account as may be designated in writing to Administrative Agent by
Company.
(iv) With respect to any Swing Line Loans which have
not been voluntarily prepaid by Company pursuant to Section 2.13, Swing Line
Lender may at any time in its sole and absolute discretion, deliver to
Administrative Agent (with a copy to Company), no later than 11:00 a.m. (Chicago
time) at least one (1) Business Day in advance of the proposed Credit Date, a
notice (which shall be deemed to be a Funding Notice given by Company)
requesting that each Lender holding a Revolving Credit Commitment make Revolving
Loans that are Base Rate Loans to Company on such Credit Date in an amount equal
to the amount of such Swing Line Loans (the "REFUNDED SWING LINE LOANS")
outstanding on the date such notice is given which the Swing Line Lender
requests Lenders to prepay. Anything contained in this Agreement to the contrary
notwithstanding, (1) the proceeds of such Revolving Loans made by the Lenders
other than Swing Line Lender shall be immediately delivered by Administrative
Agent to Swing Line Lender (and not to Company) and applied to repay a
corresponding portion of the Refunded Swing Line Loans and
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(2) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share
of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of
a Revolving Loan made by Swing Line Lender to Company, and such portion of the
Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing
Line Loans and shall no longer be due under the Swing Line Note of Swing Line
Lender but shall instead constitute part of Swing Line Lender's outstanding
Revolving Loans to Company and shall be due under the Revolving Loan Note issued
by Company to Swing Line Lender. Company hereby authorizes Administrative Agent
and Swing Line Lender to charge Company's accounts with Administrative Agent and
Swing Line Lender (up to the amount available in each such account) in order to
immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to
the extent the proceeds of such Revolving Loans made by Lenders, including the
Revolving Loan deemed to be made by the Swing Line Lender, are not sufficient to
repay in full the Refunded Swing Line Loans. If any portion of any such amount
paid (or deemed to be paid) to Swing Line Lender should be recovered by or on
behalf of Company from Swing Line Lender in bankruptcy, by assignment for the
benefit of creditors or otherwise, the loss of the amount so recovered shall be
ratably shared among all Lenders in the manner contemplated by Section 2.17.
(v) If for any reason Revolving Loans are not made
pursuant to Section 2.3(b)(iv) in an amount sufficient to repay any amounts owed
to Swing Line Lender in respect of any outstanding Swing Line Loans on or before
the third Business Day after demand for payment thereof by Swing Line Lender,
each Lender holding a Revolving Credit Commitment shall be deemed to, and hereby
agrees to, have purchased a participation in such outstanding Swing Line Loans,
and in an amount equal to its Pro Rata Share of the applicable unpaid amount
together with accrued interest thereon. Upon one (1) Business Day's notice from
Swing Line Lender, each Lender holding a Revolving Credit Commitment shall
deliver to Swing Line Lender an amount equal to its respective participation in
the applicable unpaid amount in same day funds at the Principal Office of Swing
Line Lender. In order to evidence such participation each Lender holding a
Revolving Credit Commitment agrees to enter into a participation agreement at
the request of Swing Line Lender in form and substance reasonably satisfactory
to Swing Line Lender. In the event any Lender holding a Revolving Credit
Commitment fails to make available to Swing Line Lender the amount of such
Lender's participation as provided in this paragraph, Swing Line Lender shall be
entitled to recover such amount on demand from such Lender together with
interest thereon for three Business Days at the rate customarily used by Swing
Line Lender for the correction of errors among banks and thereafter at the Base
Rate, as applicable.
(vi) Notwithstanding anything contained herein to the
contrary, (1) each Lender's obligation to make Revolving Loans for the purpose
of repaying any Refunded Swing Line Loans pursuant to the second preceding
paragraph and each Lender's obligation to purchase a participation in any unpaid
Swing Line Loans pursuant to the immediately preceding paragraph shall be
absolute and unconditional and shall not be affected by any circumstance,
including without limitation (A) any set-off, counterclaim, recoupment, defense
or other right which such Lender may have against Swing Line Lender, any Credit
Party or any other Person for any reason whatsoever; (B) the occurrence or
continuation of a Default or Event of Default; (C) any adverse change in the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of any Credit Party; (D) any breach of this Agreement or any other
Credit Document by any party thereto; or (E)
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any other circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing; provided that such obligations of each Lender are subject
to the condition that Swing Line Lender believed in good faith that all
conditions under Section 3.2 to the making of the applicable Refunded Swing Line
Loans or other unpaid Swing Line Loans, were satisfied at the time such Refunded
Swing Line Loans or unpaid Swing Line Loans were made, or the satisfaction of
any such condition not satisfied had been waived by Requisite Lenders prior to
or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans
were made; and (2) Swing Line Lender shall not be obligated to make any Swing
Line Loans (A) if it has elected not to do so after the occurrence and during
the continuation of a Default or Event of Default or (B) at a time when a
Funding Default exists unless Swing Line Lender has entered into arrangements
satisfactory to it and Company to eliminate Swing Line Lender's risk with
respect to the Defaulting Lender's participation in such Swing Ling Loan,
including by cash collateralizing such Defaulting Lender's Pro Rata Share of the
outstanding Swing Line Loans.
2.4. ISSUANCE OF LETTERS OF CREDIT AND PURCHASE OF PARTICIPATIONS
THEREIN.
(a) Letters of Credit. During the Revolving Credit Commitment
Period, subject to the terms and conditions hereof, Issuing Bank agrees to issue
Letters of Credit for the account of Company in the aggregate amount up to but
not exceeding the Letter of Credit Sublimit; provided, (i) each Letter of Credit
shall be denominated in Dollars; (ii) the stated amount of each Letter of Credit
shall not be less than $5,000 or such lesser amount as is acceptable to Issuing
Bank; (iii) after giving effect to such issuance, in no event shall the Total
Utilization of Revolving Credit Commitments exceed the Revolving Credit
Commitments then in effect; (iv) after giving effect to such issuance, in no
event shall the Letter of Credit Usage exceed the Letter of Credit Sublimit then
in effect; (v) in no event shall any standby Letter of Credit have an expiration
date later than the earlier of (1) the Revolving Credit Commitment Termination
Date and (2) the date which is one year from the date of issuance of such
standby Letter of Credit; and (vi) in no event shall any commercial Letter of
Credit (x) have an expiration date later than the earlier of (1) the Revolving
Credit Commitment Termination Date and (2) the date which is 180 days from the
date of issuance of such commercial Letter of Credit or (y) be issued if such
commercial Letter of Credit is otherwise unacceptable to the Issuing Bank in
accordance with the Issuing Bank's standard practices. Subject to the foregoing,
Issuing Bank may agree that a standby Letter of Credit will automatically be
extended for one or more successive periods not to exceed one year each, unless
Issuing Bank elects not to extend for any such additional period; provided,
Issuing Bank shall not extend any such Letter of Credit if it has received
written notice that an Event of Default has occurred and is continuing at the
time Issuing Bank must elect to allow such extension; provided, further, in the
event a Funding Default exists, Issuing Bank shall not be required to issue any
Letter of Credit unless Issuing Bank has entered into arrangements satisfactory
to it and Company to eliminate Issuing Bank's risk with respect to the
participation in Letters of Credit of the Defaulting Lender, including by cash
collateralizing such Defaulting Lender's Pro Rata Share of the Letter of Credit
Usage.
(b) Notice of Issuance. Whenever Company desires the issuance
of a Letter of Credit, it shall deliver to Administrative Agent an Issuance
Notice no later than 12:00 p.m. (Chicago time) at least three Business Days or
such shorter period as may be agreed to by Issuing Bank in any
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particular instance, in advance of the proposed date of issuance. Upon the
request of a Lender, Issuing Bank shall deliver to such Lender a copy of each
Letter of Credit and any amendment or modification to a Letter of Credit and
shall notify such Lender of the amount of such Lender's respective participation
in such Letter of Credit pursuant to Section 2.4(e). Upon the request of a
Lender, within fifteen (15) days after the end of each month ending after the
Closing Date, so long as any Letter of Credit shall have been outstanding during
such month, Issuing Bank shall deliver to such Lender a report setting forth for
such month the daily aggregate amount available to be drawn under the Letters of
Credit that were outstanding during such month.
(c) Responsibility of Issuing Bank With Respect to Requests
for Drawings and Payments. In determining whether to honor any drawing under any
Letter of Credit by the beneficiary thereof, Issuing Bank shall be responsible
only to examine the documents delivered under such Letter of Credit with
reasonable care so as to ascertain whether they appear on their face to be in
accordance with the terms and conditions of such Letter of Credit. As between
Company and Issuing Bank, Company assumes all risks of the acts and omissions
of, or misuse of the Letters of Credit issued by Issuing Bank, by the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, Issuing Bank shall not be responsible for: (i) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
any such Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond the
control of Issuing Bank, including any Governmental Acts; none of the above
shall affect or impair, or prevent the vesting of, any of Issuing Bank's rights
or powers hereunder. Without limiting the foregoing and in furtherance thereof,
any action taken or omitted by Issuing Bank under or in connection with the
Letters of Credit or any documents and certificates delivered thereunder, if
taken or omitted in good faith, shall not put Issuing Bank under any resulting
liability to Company. Notwithstanding anything to the contrary contained in this
Section 2.4(c), Company shall retain any and all rights it may have against
Issuing Bank for any liability arising out of the gross negligence or willful
misconduct of Issuing Bank.
(d) Reimbursement by Company of Amounts Drawn or Paid Under
Letters of Credit. In the event Issuing Bank has determined to honor a drawing
under a Letter of Credit, it shall immediately notify Company and Administrative
Agent by telephone and facsimile, and Company shall reimburse Issuing Bank on or
before the Business Day immediately following the date on which such drawing is
honored (the "REIMBURSEMENT DATE") in an amount in Dollars and in same
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day funds equal to the amount of such honored drawing; provided, anything
contained herein to the contrary notwithstanding, (i) unless Company shall have
notified Administrative Agent and Issuing Bank prior to 12:00 p.m. (Chicago
time) on the date such drawing is honored that Company intends to reimburse
Issuing Bank for the amount of such honored drawing with funds other than the
proceeds of a Swing Line Loan, Company shall be deemed to have given a timely
Funding Notice to Administrative Agent requesting Swing Line Lender to make a
Swing Line Loan on the Reimbursement Date in an amount in Dollars equal to the
amount of such honored drawing (up to the amount available under the Swing Line
Sublimit), and (ii) subject to satisfaction or waiver of the conditions
specified in Section 3, Swing Line Lender shall, on the Reimbursement Date, make
a Swing Line Loan in the amount of such honored drawing, the proceeds of which
shall be applied directly by Administrative Agent to reimburse Issuing Bank for
the amount of such honored drawing; and provided further, if for any reason
proceeds of the Swing Line Loan is not received by Issuing Bank on the
Reimbursement Date in an amount equal to the amount of such honored drawing,
Company shall reimburse Issuing Bank, on demand, in an amount in same day funds
equal to the excess of the amount of such honored drawing over the aggregate
amount of such Swing Line Loan, if any, which is so received. Nothing in this
Section 2.4(d) shall be deemed to relieve Swing Line Lender from its obligation
to make Swing Line Loan on the terms and conditions set forth herein, and
Company shall retain any and all rights it may have against Swing Line Lender
resulting from the failure of Swing Line Lender to make such Swing Line Loan
under this Section 2.4(d).
(e) Lenders' Purchase of Participations in Letters of Credit.
Immediately upon the issuance of each Letter of Credit, each Lender having a
Revolving Credit Commitment shall be deemed to have purchased, and hereby agrees
to irrevocably purchase, from Issuing Bank a participation in such Letter of
Credit and any drawings honored thereunder in an amount equal to such Lender's
Pro Rata Share (with respect to the Revolving Credit Commitments) of the maximum
amount which is or at any time may become available to be drawn thereunder. In
the event that Company shall fail for any reason to reimburse Issuing Bank as
provided in Section 2.4(d), Issuing Bank shall promptly notify each Lender of
the unreimbursed amount of such honored drawing and of such Lender's respective
participation therein based on such Lender's Pro Rata Share of the Revolving
Credit Commitments. Each Lender shall make available to Issuing Bank an amount
equal to its respective participation, in Dollars and in same day funds, at the
office of Issuing Bank specified in such notice, not later than 12:00 p.m.
(Chicago time) on the first business day (under the laws of the jurisdiction in
which such office of Issuing Bank is located) after the date notified by Issuing
Bank. In the event that any Lender fails to make available to Issuing Bank on
such business day the amount of such Lender's participation in such Letter of
Credit as provided in this Section 2.4(e), Issuing Bank shall be entitled to
recover such amount on demand from such Lender together with interest thereon
for three Business Days at the rate customarily used by Issuing Bank for the
correction of errors among banks and thereafter at the Base Rate. Nothing in
this Section 2.4(e) shall be deemed to prejudice the right of any Lender to
recover from Issuing Bank any amounts made available by such Lender to Issuing
Bank pursuant to this Section in the event that it is determined that the
payment with respect to a Letter of Credit in respect of which payment was made
by such Lender constituted gross negligence or willful misconduct on the part of
Issuing Bank. In the event Issuing Bank shall have been reimbursed by other
Lenders pursuant to this Section 2.4(e) for all or any portion of any drawing
honored by Issuing Bank under a Letter of Credit, such
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Issuing Bank shall distribute to each Lender which has paid all amounts payable
by it under this Section 2.4(e) with respect to such honored drawing such
Lender's Pro Rata Share of all payments subsequently received by Issuing Bank
from Company in reimbursement of such honored drawing when such payments are
received. Any such distribution shall be made to a Lender at its primary address
set forth below its name on Appendix C or at such other address as such Lender
may request.
(f) Obligations Absolute. The obligation of Company to
reimburse Issuing Bank for drawings honored under the Letters of Credit issued
by it and to repay any Swing Line Loans made by the Swing Line Lender under
Section 2.4(d) and to repay any Revolving Loans made by the Lenders in respect
of any Refunded Swing Line Loans arising out of the Swing Line Loans thereunder
and the obligations of Lenders under Section 2.4(e) shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms hereof under
all circumstances including any of the following circumstances: (i) any lack of
validity or enforceability of any Letter of Credit; (ii) the existence of any
claim, set-off, defense or other right which Company or any Lender may have at
any time against a beneficiary or any transferee of any Letter of Credit (or any
Persons for whom any such transferee may be acting), Issuing Bank, any Lender or
any other Person or, in the case of a Lender, against Company, whether in
connection herewith, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between Company or one of its
Subsidiaries and the beneficiary for which any Letter of Credit was procured);
(iii) any draft or other document presented under any Letter of Credit proving
to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; (iv) payment by
Issuing Bank under any Letter of Credit against presentation of a draft or other
document which does not substantially comply with the terms of such Letter of
Credit; (v) any adverse change in the business, operations, properties, assets,
condition (financial or otherwise) or prospects of Parent or any of its
Subsidiaries; (vi) any breach hereof or any other Credit Document by any party
thereto; (vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing; or (viii) the fact that an Event of Default or
a Default shall have occurred and be continuing; provided, in each case, that
payment by Issuing Bank under the applicable Letter of Credit shall not have
constituted gross negligence or willful misconduct of Issuing Bank under the
circumstances in question.
(g) Indemnification. Without duplication of any obligation of
Company under Section 10.2 or 10.3, in addition to amounts payable as provided
herein, Company hereby agrees to protect, indemnify, pay and save harmless
Issuing Bank from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which Issuing
Bank may incur or be subject to as a consequence, direct or indirect, of (i) the
issuance of any Letter of Credit by Issuing Bank, other than as a result of (1)
the gross negligence or willful misconduct of Issuing Bank or (2) the wrongful
dishonor by Issuing Bank of a proper demand for payment made under any Letter of
Credit issued by it, or (ii) the failure of Issuing Bank to honor a drawing
under any such Letter of Credit as a result of any Governmental Act.
(h) Collateral Account. Bank One is hereby authorized to
establish and maintain at Bank One's Principal Office, as a blocked account in
the name of Bank One and under the sole
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dominion and control thereof, a restricted deposit account designated as
"Payless ShoeSource Collateral Account" (the "COLLATERAL ACCOUNT"). All amounts
at any time held in the Collateral Account shall be beneficially owned by
Company but shall be held in the name of Collateral Agent, for the benefit of
the Secured Parties, as collateral security for the Obligations upon the terms
and conditions set forth herein and pursuant to documentation reasonably
acceptable to Collateral Agent. Company shall have no right to withdraw,
transfer or, except as expressly set forth herein, otherwise receive any funds
deposited into the Collateral Account. Anything contained herein to the contrary
notwithstanding, the Collateral Account shall be subject to such applicable
laws, and such applicable regulations of the Board of Governors of the Federal
Reserve System and of any other appropriate banking or governmental authority,
as may now or hereafter be in effect. All deposits of funds in the Collateral
Account shall be made by wire transfer (or, if applicable, by intra-bank
transfer from another account of Company) of immediately available funds, in
each case addressed to Collateral Agent's Principal Office. Company shall,
promptly after initiating a transfer of funds to the Collateral Account, give
notice to Collateral Agent by telefacsimile of the date, amount and method of
delivery of such deposit. To the extent permitted under Regulation Q of the
Board of Governors of the Federal Reserve System, any cash held in the
Collateral Account shall bear interest at the standard rate paid by Bank One to
its customers for deposits of like amounts and terms. Subject to Collateral
Agent's rights hereunder, any interest earned on deposits of cash in the
Collateral Account shall be deposited directly in, and held in the Collateral
Account.
(i) Application of Collateral Account Proceeds. Upon the
occurrence and during the continuance of an Event of Default at the request of
Issuing Bank or Lenders holding more than 50% of the aggregate Revolving Credit
Exposure, Company shall deliver funds for deposit in the Collateral Account in
an amount equal to the Letter of Credit Usage at such time. If for any reason
the aggregate amount delivered by Company for deposit in the Collateral Account
as aforesaid is less than the Letter of Credit Usage at such time, the aggregate
amount so delivered by Company shall be apportioned among all outstanding
Letters of Credit for purposes of this Section 2.4(i) in accordance with the
ratio of the maximum amount available for drawing under each such Letter of
Credit (as to such Letter of Credit, the "MAXIMUM AVAILABLE AMOUNT") to the
Letter of Credit Usage at such time. Upon any drawing under any outstanding
Letter of Credit in respect of which Company has deposited in the Collateral
Account any amounts described above, Collateral Agent shall apply such amounts
to reimburse Issuing Bank for the amount of such drawing. In the event of
cancellation or expiration of any Letter of Credit in respect of which Company
has deposited in the Collateral Account any amount described above, or in the
event of any reduction in the Maximum Available Amount under such Letter of
Credit, Collateral Agent shall apply the amount then on deposit in the
Collateral Account in respect of such Letter of Credit (less, in the case of
such a reduction, the Maximum Available Amount under such Letter of Credit
immediately after such reduction):
first, to the payment of any amounts payable to
Administrative Agent pursuant to Section 9;
second, to the extent of any excess, to the cash
collateralization pursuant to the terms of this Agreement of any
outstanding Letters of Credit in respect of which
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Company has failed to pay all or a portion of the amounts described
above (such cash collateralization to be apportioned among all such
Letters of Credit in the manner described above); and
third, to the extent of any further excess, to the payment of
any other outstanding Obligations in such order as directed by the
Lenders holding more than 50% of the aggregate Revolving Credit
Exposure.
2.5. PRO RATA SHARES; AVAILABILITY OF FUNDS.
(a) Pro Rata Shares. All Loans (other than Swing Line Loans)
shall be made, and all participations purchased, by Lenders simultaneously and
proportionately to their respective Pro Rata Shares, it being understood that no
Lender shall be responsible for any default by any other Lender in such other
Lender's obligation to make a Loan requested hereunder or purchase a
participation required hereby nor shall any Commitment of any Lender be
increased or decreased as a result of a default by any other Lender in such
other Lender's obligation to make a Loan requested hereunder or purchase a
participation required hereby.
(b) Availability of Funds. Unless Administrative Agent shall
have been notified by any Lender prior to the applicable Credit Date that such
Lender does not intend to make available to Administrative Agent the amount of
such Lender's Loan requested on such Credit Date, Administrative Agent may
assume that such Lender has made such amount available to Administrative Agent
on such Credit Date and Administrative Agent may, in its sole discretion, but
shall not be obligated to, make available to Company a corresponding amount on
such Credit Date. If such corresponding amount is not in fact made available to
Administrative Agent by such Lender, Administrative Agent shall be entitled to
recover such corresponding amount on demand from such Lender together with
interest thereon, for each day from such Credit Date until the date such amount
is paid to Administrative Agent, at the customary rate set by Administrative
Agent for the correction of errors among banks for three Business Days and
thereafter at the Base Rate. If such Lender does not pay such corresponding
amount forthwith upon Administrative Agent's demand therefor, Administrative
Agent shall promptly notify Company and Company shall immediately pay such
corresponding amount to Administrative Agent together with interest thereon, for
each day from such Credit Date until the date such amount is paid to
Administrative Agent, at the rate payable hereunder for Base Rate Loans for such
Class of Loans. Nothing in this Section 2.5(b) shall be deemed to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that Company may have against any Lender as a result of any default
by such Lender hereunder.
2.6. USE OF PROCEEDS. (a) Term Loans. The proceeds of the Term
Loans shall be applied by Company on the Closing Date solely to fund the
payment of Transaction Financing Requirements.
(b) Revolving Loans, Swing Line Loans and Letters of Credit.
The proceeds of the Revolving Loans, Swing Line Loans and Letters of Credit in
an aggregate amount not to exceed
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$50,000,000 may be applied by Company on the Closing Date to fund the payment of
the Transaction Financing Requirements. All of the proceeds of Revolving Loans,
Swing Line Loans and Letters of Credit may be applied by Company for working
capital and general corporate and other purposes of Parent and its Subsidiaries,
including Permitted Acquisitions.
(c) Margin Regulations. No portion of the proceeds of any
Credit Extension shall be used by Parent or any of its Subsidiaries in any
manner that might cause such Credit Extension or the application of such
proceeds to violate Regulation T, Regulation U or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation thereof or to
violate the Exchange Act, in each case as in effect on the date or dates of such
Credit Extension and such use of proceeds.
2.7. EVIDENCE OF DEBT; REGISTER; LENDERS' BOOKS AND RECORDS; NOTES.
(a) Lenders' Evidence of Debt. Each Lender shall maintain on
its internal records an account or accounts evidencing the Indebtedness of
Company to such Lender, including the amounts of the Loans made by it and each
repayment and prepayment in respect thereof. Any such recordation shall be
conclusive and binding on Company, absent manifest error; provided, failure to
make any such recordation, or any error in such recordation, shall not affect
any Lender's Commitments or Company's Obligations in respect of any applicable
Loans; and provided further, in the event of any inconsistency between the
Register and any Lender's records, the recordations in the Register shall govern
absent manifest error.
(b) Register. Administrative Agent shall maintain at its
Principal Office a register for the recordation of the names and addresses of
Lenders and the Commitments and Loans of each Lender from time to time (the
"REGISTER"). The Register shall be available for inspection by Company or any
Lender at any reasonable time and from time to time upon reasonable prior
notice. Administrative Agent shall record in the Register the Commitments and
the Loans, and each repayment or prepayment in respect of the principal amount
of the Loans, and any such recordation shall be conclusive and binding on
Company and each Lender, absent manifest error; provided, failure to make any
such recordation, or any error in such recordation, shall not affect any
Lender's Commitments or Company's Obligations in respect of any Loan. Company
hereby designates Bank One to serve as Company's agent solely for purposes of
maintaining the Register as provided in this Section 2.6, and Company hereby
agrees that, to the extent Bank One serves in such capacity, Bank One and its
officers, directors, employees, agents and affiliates shall constitute
"INDEMNITEES."
(c) Notes. If so requested by any Lender by written notice to
Company (with a copy to Administrative Agent) at least two Business Days prior
to the Closing Date, or at any time thereafter, Company shall execute and
deliver to such Lender (and/or, if applicable and if so specified in such
notice, to any Person who is an assignee of such Lender pursuant to Section
10.6) on the Closing Date (or, if such notice is delivered after the Closing
Date, promptly after Company's receipt of such notice) a Note or Notes to
evidence such Lender's Term Loan, Revolving Loan or Swing Line Loan, as the case
may be.
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2.8. INTEREST ON LOANS.
(a) Except as otherwise set forth herein, each Class of Loan
shall bear interest on the unpaid principal amount thereof from the date made
through repayment (whether by acceleration or otherwise) thereof as follows:
(i) in the case of Term Loans and Revolving Loans:
(1) if a Base Rate Loan, at the Base Rate plus
the Applicable Margin; or
(2) if a Eurodollar Rate Loan, at the Adjusted
Eurodollar Rate plus the Applicable Margin; and
(ii) in the case of Swing Line Loans, at the Base Rate
plus the Applicable Margin.
(b) The basis for determining the rate of interest with
respect to any Loan (except a Swing Line Loan which can be made and maintained
as Base Rate Loans only), and the Interest Period with respect to any Eurodollar
Rate Loan, shall be selected by Company and notified to Administrative Agent and
Lenders pursuant to the applicable Funding Notice or Conversion/Continuation
Notice, as the case may be; provided, the Loans initially shall be made and
maintained as either Base Rate Loans or Eurodollar Rate Loans having an Interest
Period of no longer than one month until the date which is the earlier of (i)
the date which is ninety (90) days following the Closing Date and (ii) the date
that Syndication Agent notifies Company and Administrative Agent that the
primary syndication of the Loans and Commitments has been completed, as
determined by Syndication Agent. If on any day a Loan is outstanding with
respect to which a Funding Notice or Conversion/Continuation Notice has not been
delivered to Administrative Agent in accordance with the terms hereof specifying
the applicable basis for determining the rate of interest, then for that day
such Loan shall be a Base Rate Loan.
(c) In connection with Eurodollar Rate Loans there shall be no
more than nine (9) Interest Periods outstanding at any time. In the event
Company fails to specify between a Base Rate Loan or a Eurodollar Rate Loan in
the applicable Funding Notice or Conversion/Continuation Notice, such Loan (if
outstanding as a Eurodollar Rate Loan) will be automatically converted into a
Base Rate Loan on the last day of the then-current Interest Period for such Loan
(or if outstanding as a Base Rate Loan will remain as, or (if not then
outstanding) will be made as, a Base Rate Loan). In the event Company fails to
specify an Interest Period for any Eurodollar Rate Loan in the applicable
Funding Notice or Conversion/Continuation Notice, Company shall be deemed to
have selected an Interest Period of one month. A soon as practicable after 10:00
a.m. (Chicago time) on each Interest Rate Determination Date, Administrative
Agent shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) the interest rate that shall
apply to the Eurodollar Rate Loans for which an interest rate is then being
determined for the
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applicable Interest Period and shall promptly give notice thereof (in writing or
by telephone confirmed in writing) to Company and each Lender.
(d) Interest payable pursuant to Section 2.8(a) shall be
computed (i) in the case of Base Rate Loans on the basis of a 365-day or 366-day
year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the
basis of a 360-day year, in each case for the actual number of days elapsed in
the period during which it accrues. In computing interest on any Loan, the date
of the making of such Loan or the first day of an Interest Period applicable to
such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar
Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate
Loan, as the case may be, shall be included, and the date of payment of such
Loan or the expiration date of an Interest Period applicable to such Loan or,
with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the
date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the
case may be, shall be excluded; provided, if a Loan is repaid on the same day on
which it is made, one day's interest shall be paid on that Loan.
(e) Except as otherwise set forth herein, interest on each
Loan shall be payable in arrears on and to (i) each Interest Payment Date
applicable to that Loan; (ii) any prepayment of that Loan, whether voluntary or
mandatory, to the extent accrued on the amount being prepaid; and (iii) at
maturity, including final maturity; provided, however, with respect to any
prepayment of a Base Rate Loan, accrued interest shall instead be payable on the
applicable Interest Payment Date.
(f) Company agrees to pay to Issuing Bank, with respect to
drawings honored under any Letter of Credit, interest on the amount paid by
Issuing Bank in respect of each such honored drawing from the date such drawing
is honored to but excluding the date such amount is reimbursed by or on behalf
of Company at a rate equal to (i) for the period from the date such drawing is
honored to but excluding the applicable Reimbursement Date, the rate of interest
otherwise payable hereunder with respect to Revolving Loans that are Base Rate
Loans, and (ii) thereafter, a rate which is 2% per annum in excess of the rate
of interest otherwise payable hereunder with respect to Revolving Loans that are
Base Rate Loans.
(g) Interest payable pursuant to Section 2.8(f) shall be
computed on the basis of a 365-day or 366-day year, as the case may be, for the
actual number of days elapsed in the period during which it accrues, and shall
be payable on demand or, if no demand is made, on the date on which the related
drawing under a Letter of Credit is reimbursed in full. Promptly upon receipt by
Issuing Bank of any payment of interest pursuant to Section 2.8(f), Issuing Bank
shall distribute to each Lender, out of the interest received by Issuing Bank in
respect of the period from the date such drawing is honored to but excluding the
date on which Issuing Bank is reimbursed for the amount of such drawing
(including any such reimbursement out of the proceeds of any Revolving Loans),
the amount that such Lender would have been entitled to receive in respect of
the letter of credit fee that would have been payable in respect of such Letter
of Credit for such period if no drawing had been honored under such Letter of
Credit. In the event Issuing Bank shall have been reimbursed by Lenders for all
or any portion of such honored drawing, Issuing Bank shall distribute to each
Lender which has paid all amounts payable by it under Section 2.4(e) with
respect to such honored drawing such Lender's Pro Rata Share of any interest
received by Issuing Bank in respect of that portion of
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<PAGE> 50
such honored drawing so reimbursed by Lenders for the period from the date on
which Issuing Bank was so reimbursed by Lenders to but excluding the date on
which such portion of such honored drawing is reimbursed by Company.
2.9. CONVERSION/CONTINUATION.
(a) Subject to Section 2.18 and so long as no Default or Event
of Default shall have occurred and then be continuing, Company shall have the
option:
(i) to convert at any time all or any part of any
Term Loan or Revolving Loan equal to $3,000,000 and integral multiples
of $1,000,000 in excess of that amount from one Type of Loan to another
Type of Loan; provided, a Eurodollar Rate Loan may only be converted on
the expiration of the Interest Period applicable to such Eurodollar
Rate Loan unless Company shall pay all amounts due under Section 2.18
in connection with any such conversion; or
(ii) upon the expiration of any Interest Period
applicable to any Eurodollar Rate Loan, to continue all or any portion
of such Loan equal to $3,000,000 and integral multiples of $1,000,000
in excess of that amount as a Eurodollar Rate Loan.
(b) The Company shall deliver a Conversion/Continuation Notice
to Administrative Agent no later than 10:00 a.m. (Chicago time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan) and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan). Except as otherwise provided herein, a
Conversion/Continuation Notice for conversion to, or continuation of, any
Eurodollar Rate Loans (or telephonic notice in lieu thereof) shall be
irrevocable on and after the date given and Company shall be bound to effect a
conversion or continuation in accordance therewith.
2.10. DEFAULT INTEREST. Upon the occurrence and during the continuance
of an Event of Default, the principal amount of all Loans and, to the extent
permitted by applicable law, any interest payments on the Loans or any fees or
other amounts owed hereunder not paid when due, in each case whether at stated
maturity, by notice of prepayment, by acceleration or otherwise, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand
at a rate that is 2% per annum in excess of the interest rate otherwise payable
hereunder with respect to the applicable Loans (or, in the case of any such fees
and other amounts, at a rate which is 2% per annum in excess of the interest
rate otherwise payable hereunder for Base Rate Loans); provided, in the case of
Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at
the time any such increase in interest rate is effective
such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall
thereafter bear interest payable upon demand at a rate which is 2% per annum in
excess of the interest rate otherwise payable hereunder for Base Rate Loans.
Payment or acceptance of the increased rates of interest provided for in this
Section 2.10 is not a permitted alternative to timely payment and shall not
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<PAGE> 51
constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of Administrative Agent or any Lender.
2.11. FEES.
(a) Commitment Fees.
(i) During the Revolving Credit Commitment Period,
Company agrees to pay to Administrative Agent, for distribution to each
Lender having Revolving Credit Exposure in proportion to such Lender's
Pro Rata Share, commitment fees equal to (1) the average of the daily
difference between (a) the Revolving Credit Commitments, and (b) the
sum of (x) the aggregate principal amount of outstanding Revolving
Loans (but not any outstanding Swing Line Loans) plus (y) the Letter of
Credit Usage, times (2) the Applicable Commitment Fee Percentage.
(ii) All such commitment fees shall be calculated on
the basis of a 360-day year and the actual number of days elapsed, and
shall be payable in arrears on April 30, July 31, October 31, and
January 31 of each year, commencing on July 31, 2000, and on the Term
Loan Commitment Termination Date and the Revolving Credit Commitment
Termination Date. Promptly upon receipt by the Administrative Agent of
any amount described in clause (i) the Administrative Agent shall
distribute to each Lender its Pro Rata Share of such amount.
(b) Letter of Credit Fees. Company agrees to pay:
(i) a fronting fee, payable directly to Issuing Bank
for its own account, equal to 0.10% per annum, times the aggregate
daily amount available to be drawn under all outstanding Letters of
Credit issued by such Issuing Bank (determined as of close of business
on any date of determination),
(ii) a letter of credit fee, payable to
Administrative Agent for distribution to each Lender having Revolving
Credit Exposure in proportion to such Lender's Pro Rata Share, equal to
the product of (1) the Applicable Margin for Revolving Loans that are
Eurodollar Rate Loans times (2) the average daily maximum amount
available to be drawn under all such Letters of Credit (regardless of
whether any conditions for drawing could then be met and determined as
of the close of business on any date of determination), and
(iii) such documentary and processing charges for any
issuance, amendment, transfer or payment of a Letter of Credit as are
in accordance with Issuing Bank's standard schedule for such charges
and as in effect at the time of such issuance, amendment, transfer or
payment, as the case may be.
All such letter of credit fees (other than under clause (iii)
above which will be paid on the day of such issuance, amendment,
transfer or payment) shall be calculated on the basis
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<PAGE> 52
of a 360-day year and the actual number of days elapsed, and shall be
payable quarterly in arrears on April 30, July 31, October 31 and
January 31 of each year during the Revolving Credit Commitment Period,
commencing on the first such date to occur after the Closing Date, and
on the Revolving Credit Commitment Termination Date. Promptly upon
receipt by Administrative Agent of any amount described in clause (ii)
above, Administrative Agent shall distribute to each Lender its Pro
Rata Share of such amount.
(c) Agency and Lead Arranger. In addition to any of the
foregoing fees, Company agrees to pay to Agents, for their respective accounts
such other fees in the amounts and at the times separately agreed upon.
2.12. SCHEDULED PAYMENTS/COMMITMENT REDUCTIONS.
(a) Scheduled Payments. The principal amounts of the Term
Loans shall be repaid in installments (each, an "INSTALLMENT") on the dates set
forth below (each, an "INSTALLMENT DATE"), each such Installment to be in the
corresponding amount set forth below:
<TABLE>
<CAPTION>
TERM LOAN
DATE INSTALLMENTS
---- ------------
<S> <C>
July 31, 2000 $5,000,000
October 31, 2000 $5,000,000
January 31, 2001 $5,000,000
April 30, 2001 $5,000,000
July 31, 2001 $12,500,000
October 31, 2001 $12,500,000
January 31, 2002 $12,500,000
April 30, 2002 $12,500,000
July 31, 2002 $20,000,000
October 31, 2002 $20,000,000
January 31, 2003 $20,000,000
April 30, 2003 $20,000,000
July 31, 2003 $27,500,000
October 31, 2003 $27,500,000
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
TERM LOAN
DATE INSTALLMENTS
---- ------------
<S> <C>
January 31, 2004 $27,500,000
April 30, 2004 $27,500,000
July 31, 2004 $35,000,000
October 31, 2004 $35,000,000
January 31, 2005 $35,000,000
Fifth Year Anniversary $35,000,000
of the Closing Date
</TABLE>
Notwithstanding the foregoing, (i) such Installments shall be reduced in
connection with any voluntary or mandatory prepayments of the Term Loans in
accordance with Sections 2.13(a) and 2.14; and (ii) the Term Loans, together
with all other amounts owed hereunder with respect thereto, shall be paid in
full no later than the Term Loan Maturity Date.
(b) Commitment Reductions. The Revolving Credit Commitments
shall be permanently reduced to zero on the fifth year anniversary of the
Closing Date.
2.13. VOLUNTARY PREPAYMENTS/COMMITMENT REDUCTIONS.
(a) Voluntary Prepayments. (i) Any time and from time to time:
(1) with respect to Term Loans, Company may
prepay, without premium or penalty, any such Loans on any
Business Day in whole or in part, in an aggregate minimum
amount of $3,000,000 and integral multiples of $1,000,000 in
excess of that amount;
(2) with respect to Revolving Loans,
Company may prepay, without premium or penalty, any such
Loans on any Business Day in whole or in part in an aggregate
minimum amount of $3,000,000 and integral multiples of
$1,000,000 in excess of that amount; and
(3) with respect to Swing Line Loans,
Company may prepay, without premium or penalty, any such Loans
on any Business Day in whole or in part in an aggregate
minimum amount of $5,000.
(ii) All such prepayments shall be made:
(1) upon not less than one Business Day's
prior written or telephonic notice, in the case of Base Rate
Loans;
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<PAGE> 54
(2) upon not less than three Business Days'
prior written or telephonic notice, in the case of Eurodollar
Rate Loans; and
(3) upon written or telephonic notice on the
date of prepayment, in the case of Swing Line Loans;
in each case given to Administrative Agent or Swing Line Lender, as the
case may be, by 12:00 p.m. (Chicago time) on the date required and, if
given by telephone, promptly confirmed in writing to Administrative
Agent (and Administrative Agent will promptly transmit such telephonic
or original notice for Term Loans or Revolving Loans, as the case may
be, by telefacsimile or telephone to each Lender) or Swing Line Lender,
as the case may be. Upon the giving of any such notice, the principal
amount of the Loans specified in such notice shall become due and
payable on the prepayment date specified therein.
(b) Voluntary Commitment Reductions. (i) Company may,
upon not less than three Business Days' prior written or telephonic
notice confirmed in writing to Administrative Agent (which original
written or telephonic notice Administrative Agent will promptly
transmit by telefacsimile or telephone to each applicable Lender), at
any time and from time to time terminate in whole or permanently reduce
in part, without premium or penalty, Revolving Credit Commitments in an
amount up to the amount by which the Revolving Credit Commitments
exceed the Total Utilization of Revolving Credit Commitments at the
time of such proposed termination or reduction; provided, any such
partial reduction of the Revolving Credit Commitments shall be in an
aggregate minimum amount of $3,000,000 and integral multiples of
$1,000,000 in excess of that amount.
(ii) Company's notice to Administrative Agent shall
designate the date (which shall be a Business Day) of such termination
or reduction and the amount of any partial reduction, and such
termination or reduction of the Revolving Credit Commitments shall be
effective on the date specified in Company's notice and shall reduce
the Revolving Credit Commitments of each Lender proportionately to its
Pro Rata Share thereof.
2.14. MANDATORY PREPAYMENTS/COMMITMENT REDUCTIONS.
(a) Asset Sales. If as of any date, Parent and any of its
Subsidiaries shall have received Aggregate Net Asset Sale Proceeds (including
Net Asset Sale Proceeds received in connection with a Permitted Sale-Leaseback,
but only to the extent such Net Asset Sale Proceeds exceed $50,000,000 since the
Closing Date) in excess of $10,000,000 in any Fiscal Year, Company shall, no
later than the third Business Day following the date the Aggregate Net Asset
Sale Proceeds received exceeds such amount, prepay the Term Loans as set forth
in Section 2.15(b) in an aggregate amount equal to 100% of such excess;
provided, so long as no Default or Event of Default shall have occurred and be
continuing, Company shall have the option, directly or through one or more of
its Subsidiaries, to invest Net Asset Sale Proceeds within three hundred sixty
(360) days of receipt thereof in long term productive assets of the general type
used in the business of Parent and its Subsidiaries or a Permitted Acquisition
made in compliance with Section 6.7(f); provided further,
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<PAGE> 55
pending any such investment all such Net Asset Sale Proceeds shall be applied to
prepay outstanding Revolving Loans (without a reduction in Revolving Credit
Commitments). Notwithstanding anything to the contrary, this Section 2.14(a)
shall not be applicable after the date on which Parent has received an
Investment Grade Status rating.
(b) Insurance/Condemnation Proceeds. If as of any date, Parent
and its Subsidiaries shall have received Aggregate Net Insurance/Condemnation
Proceeds in excess of $10,000,000 in any Fiscal Year, Company shall, no later
than the third Business Day following the date the Aggregate Net
Insurance/Condemnation Proceeds received exceeds such amount, prepay the Term
Loans as set forth in Section 2.15(b) in an aggregate amount equal to 100% of
such excess; provided, so long as no Default or Event of Default shall have
occurred and be continuing, Company shall have the option, directly or through
one or more of its Subsidiaries to invest such Net Insurance/Condemnation
Proceeds within three hundred and sixty (360) days of receipt thereof in long
term productive assets of the general type used in the business of Parent and
its Subsidiaries, which investment may include the repair, restoration or
replacement of the applicable assets thereof or a Permitted Acquisition made in
compliance with Section 6.7(f); provided further, pending any such investment
all such Net Insurance/Condemnation Proceeds, as the case may be, shall be
applied to prepay outstanding Revolving Loans (without a reduction in Revolving
Credit Commitments). Notwithstanding anything to the contrary, this Section
2.14(b) shall not be applicable after the date on which Parent has received an
Investment Grade Status rating.
(c) Issuance of Debt. If as of any date, Parent or any of its
Subsidiaries shall have received Aggregate Net Debt Issuance Proceeds in excess
of $25,000,000 in any Fiscal Year, Company shall, no later than the third
Business Day following the date of receipt of such proceeds exceeding such
amount, prepay the Term Loans as set forth in Section 2.15(b) in an aggregate
amount equal to 100% of such excess. Notwithstanding anything to the contrary,
this Section 2.14(c) shall not be applicable after the date on which Parent has
received an Investment Grade Status rating.
(d) Revolving Loans and Swing Line Loans. Company shall from
time to time prepay first, the Swing Line Loans, and second, the Revolving Loans
to the extent necessary so that the Total Utilization of Revolving Commitments
shall not at any time exceed the Revolving Credit Commitments then in effect.
(e) Prepayment Certificate. Concurrently with any prepayment
of the Loans pursuant to Sections 2.14(a) through 2.14(c), Company shall deliver
to Administrative Agent a certificate of an Authorized Officer demonstrating the
calculation of the amount of the applicable net proceeds. In the event that
Company shall subsequently determine that the actual amount received exceeded
the amount set forth in such certificate, Company shall promptly make an
additional prepayment of the Loans) in an amount equal to such excess, and
Company shall concurrently therewith deliver to Administrative Agent a
certificate of an Authorized Officer demonstrating the derivation of such
excess.
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<PAGE> 56
2.15. APPLICATION OF PREPAYMENTS/REDUCTIONS.
(a) Application of Voluntary Prepayments by Type of Loans. Any
prepayment of any Loan pursuant to Section 2.13(a) shall be applied as specified
by Company in the applicable notice of prepayment; provided, however, the
voluntary prepayment of the Term Loans shall be applied as follows (i) 50% of
each such prepayment shall be applied to prepay the next scheduled Installments
of principal of the Term Loans in the order of maturity and (ii) the remaining
50% of each such prepayment shall be applied to prepay each remaining scheduled
Installments of principal of the Term Loans on a pro rata basis (in accordance
with the respective outstanding principal amounts thereof); provided further, in
the event Company fails to specify the Loans to which any such prepayment shall
be applied, such prepayment shall be applied as follows:
first, to repay outstanding Swing Line Loans to the
full extent thereof;
second, to repay outstanding Revolving Loans to the
full extent thereof; and
third, to prepay the Term Loans with such amount
applied as follows: (i) 50% of each such prepayment shall be applied to
prepay the next scheduled Installments of principal of the Term Loans
in the order of maturity and (ii) the remaining 50% of each such
prepayment shall be applied to prepay each remaining scheduled
Installments of principal of the Term Loans on a pro rata basis (in
accordance with the respective outstanding principal amounts thereof).
(b) Application of Mandatory Prepayments by Type of Loans. Any
amount required to be paid pursuant to Sections 2.14(a) through 2.14(c) shall be
applied to prepay the Term Loans as follows: (i) 50% of such prepayment shall be
applied to prepay each remaining scheduled Installments of principal of Term
Loans in the inverse order of maturity and (ii) the remaining 50% of each such
prepayment shall be applied to prepay each remaining scheduled Installments of
principal of Term Loans on a pro rata basis (in accordance with the respective
outstanding principal amounts thereof).
(c) Application of Prepayments of Loans to Base Rate Loans and
Eurodollar Rate Loans. Considering each Class of Loans being prepaid separately,
any prepayment thereof shall be applied first to Base Rate Loans to the full
extent thereof before application to Eurodollar Rate Loans, in each case in a
manner which minimizes the amount of any payments required to be made by Company
pursuant to Section 2.18(c).
2.16. GENERAL PROVISIONS REGARDING PAYMENTS.
(a) All payments by Company of principal, interest, fees and
other Obligations shall be made in Dollars in same day funds, without defense,
setoff or counterclaim, free of any restriction or condition, and delivered to
Administrative Agent not later than 12:00 p.m. (Chicago time) on the date due at
the Administrative Agent's Principal Office for the account of Lenders;
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<PAGE> 57
funds received by Administrative Agent after that time on such due date shall be
deemed to have been paid by Company on the next succeeding Business Day.
(b) Except as set forth in Section 2.8(e), all payments in
respect of the principal amount of any Loan shall include payment of accrued
interest on the principal amount being repaid or prepaid, and all such payments
(and, in any event, any payments in respect of any Loan on a date when interest
is due and payable with respect to such Loan) shall be applied to the payment of
interest before application to principal.
(c) Administrative Agent shall promptly distribute to each
Lender at such address as such Lender shall indicate in writing, such Lender's
applicable Pro Rata Share of all payments and prepayments of principal and
interest due hereunder, together with all other amounts due thereto, including,
without limitation, all fees payable with respect thereto, to the extent
received by Administrative Agent.
(d) Notwithstanding the foregoing provisions hereof, if any
Conver sion/Continuation Notice is withdrawn as to any Affected Lender or if any
Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any
Eurodollar Rate Loans, Administrative Agent shall give effect thereto in
apportioning payments received thereafter.
(e) Subject to the provisos set forth in the definition of
"Interest Period", whenever any payment to be made hereunder shall be stated to
be due on a day that is not a Business Day, such payment shall be made on the
next succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or of the Revolving Credit
Commitment fees hereunder, as the case may be.
(f) Company hereby authorizes Administrative Agent to charge
Company's accounts with Administrative Agent in order to cause timely payment to
be made to Administrative Agent of all principal, interest, fees and expenses
due hereunder (subject to sufficient funds being available in its accounts for
that purpose).
(g) Administrative Agent shall deem any payment by or on
behalf of Company hereunder that is not made in same day funds prior to 12:00
p.m. (Chicago time) to be a non- conforming payment. Any such payment shall not
be deemed to have been received by Administrative Agent until the later of (i)
the time such funds become available funds, and (ii) the applicable next
Business Day. Administrative Agent shall give prompt telephonic notice to
Company and each applicable Lender (confirmed in writing) if any payment is
non-conforming. Any non-conforming payment may constitute or become a Default or
Event of Default in accordance with the terms of Section 8.1(a). Interest shall
continue to accrue on any principal as to which a non- conforming payment is
made until such funds become available funds (but in no event less than the
period from the date of such payment to the next succeeding applicable Business
Day) at the rate determined pursuant to Section 2.10 from the date such amount
was due and payable until the date such amount is paid in full.
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<PAGE> 58
2.17. RATABLE SHARING. Lenders hereby agree among themselves that, except
as otherwise provided in the Collateral Documents with respect to amounts
realized from the exercise of rights with respect to Liens on the Share
Collateral, if any of them shall, whether by voluntary payment (other than a
voluntary prepayment of Loans made and applied in accordance with the terms
hereof), through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Credit
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts then due and owing to such
Lender hereunder or under the other Credit Documents (collectively, the
"AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion
received by any other Lender in respect of the Aggregate Amounts Due to such
other Lender, then the Lender receiving such proportionately greater payment
shall (a) notify Administrative Agent and each other Lender of the receipt of
such payment and (b) apply a portion of such payment to purchase participations
(which it shall be deemed to have purchased from each seller of a participation
simultaneously upon the receipt by such seller of its portion of such payment)
in the Aggregate Amounts Due to the other Lenders so that all such recoveries of
Aggregate Amounts Due shall be shared by all Lenders in proportion to the
Aggregate Amounts Due to them; provided, if all or part of such proportionately
greater payment received by such purchasing Lender is thereafter recovered from
such Lender upon the bankruptcy or reorganization of Company or otherwise, those
purchases shall be rescinded and the purchase prices paid for such
participations shall be returned to such purchasing Lender ratably to the extent
of such recovery, but without interest. Company expressly consents to the
foregoing arrangement and agrees that any holder of a participation so purchased
may exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by Company to that holder with respect
thereto as fully as if that holder were owed the amount of the participation
held by that holder.
2.18. MAKING OR MAINTAINING EURODOLLAR RATE LOANS.
(a) Inability to Determine Applicable Interest Rate. In the event that
Administrative Agent shall have reasonably determined (which determination shall
be final and conclusive and binding upon all parties hereto), on any Interest
Rate Determination Date with respect to any Eurodollar Rate Loans, that by
reason of circumstances affecting the London interbank market adequate and fair
means do not exist for ascertaining the interest rate applicable to such Loans
on the basis provided for in the definition of Adjusted Eurodollar Rate,
Administrative Agent shall on such date give notice (by telefacsimile or by
telephone confirmed in writing) to Company and each Lender of such
determination, whereupon (i) no Loans may be made as, or converted to,
Eurodollar Rate Loans until such time as Administrative Agent notifies Company
and Lenders that the circumstances giving rise to such notice no longer exist,
and (ii) any Funding Notice or Conversion/Continuation Notice given by Company
with respect to the Loans in respect of which such determination was made shall
be deemed to be rescinded by Company.
(b) Illegality or Impracticability of Eurodollar Rate Loans. In the
event that on any date any Lender shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto but shall be
made only after consultation with Company and
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Administrative Agent) that the making, maintaining or continuation of its
Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such
Lender in good faith with any law, treaty, governmental rule, regulation,
guideline or order (or would conflict with any such treaty, governmental rule,
regulation, guideline or order not having the force of law even though the
failure to comply therewith would not be unlawful), or (ii) has become
impracticable, as a result of contingencies occurring after the date hereof
which materially and adversely affect the London interbank market or the
position of such Lender in that market, then, and in any such event, such Lender
shall be an "AFFECTED LENDER" and it shall on that day give notice (by
telefacsimile or by telephone confirmed in writing) to Company and
Administrative Agent of such determination (which notice Administrative Agent
shall promptly transmit to each other Lender). Thereafter (1) the obligation of
the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate
Loans shall be suspended until such notice shall be withdrawn by the Affected
Lender, (2) to the extent such determination by the Affected Lender relates to a
Eurodollar Rate Loan then being requested by Company pursuant to a Funding
Notice or a Conversion/Continuation Notice, the Affected Lender shall make such
Loan as (or continue such Loan as or convert such Loan to, as the case may be) a
Base Rate Loan, (3) the Affected Lender's obligation to maintain its outstanding
Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier
to occur of the expiration of the Interest Period then in effect with respect to
the Affected Loans or when required by law, and (4) the Affected Loans shall
automatically convert into Base Rate Loans on the date of such termination.
Notwithstanding the foregoing, to the extent a determination by an Affected
Lender as described above relates to a Eurodollar Rate Loan then being requested
by Company pursuant to a Funding Notice or a Conversion/Continuation Notice,
Company shall have the option, subject to the provisions of Section 2.18(c), to
rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders
by giving notice (by telefacsimile or by telephone confirmed in writing) to
Administrative Agent of such rescission on the date on which the Affected Lender
gives notice of its determination as described above (which notice of rescission
Administrative Agent shall promptly transmit to each other Lender). Except as
provided in the immediately preceding sentence, nothing in this Section 2.18(b)
shall affect the obligation of any Lender other than an Affected Lender to make
or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in
accordance with the terms hereof.
(c) Compensation for Breakage of Non-Commencement of Interest Periods.
Company shall compensate each Lender, upon written request by such Lender (which
request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including any interest paid by such
Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate
Loans and any loss, expense or liability sustained by such Lender in connection
with the liquidation or re-employment of such funds but excluding loss of
anticipated profits) which such Lender may sustain: (i) if for any reason (other
than a default by such Lender) a borrowing of any Eurodollar Rate Loan does not
occur on a date specified therefor in a Funding Notice or a telephonic request
for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan
does not occur on a date specified therefor in a Conversion/Continuation Notice
or a telephonic request for conversion or continuation; (ii) if any prepayment
or other principal payment or any conversion of any of its Eurodollar Rate Loans
occurs on a date prior to the last day of an Interest Period applicable to that
Loan; (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on
any date
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specified in a notice of prepayment given by Company; or (iv) as a consequence
of any other default by Company in the repayment of its Eurodollar Rate Loans
when required by the terms hereof.
(d) Booking of Eurodollar Rate Loans. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of such Lender.
(e) Assumptions Concerning Funding of Eurodollar Rate Loans.
Calculation of all amounts payable to a Lender under this Section 2.18 and under
Section 2.19 shall be made as though such Lender had actually funded each of its
relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of such
Lender to a domestic office of such Lender in the United States of America;
provided, however, each Lender may fund each of its Eurodollar Rate Loans in any
manner it sees fit and the foregoing assumptions shall be utilized only for the
purposes of calculating amounts payable under this Section 2.18 and under
Section 2.19.
2.19. INCREASED COSTS; CAPITAL ADEQUACY.
(a) Compensation For Increased Costs and Taxes. Subject to the
provisions of Section 2.20 (which shall be controlling with respect to the
matters covered thereby), in the event that any Lender (which term shall include
Issuing Bank for purposes of this Section 2.19(a)) shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law): (i)
subjects such Lender (or its applicable lending office) to any additional Tax
(other than any Tax on the overall net income of such Lender) with respect to
this Agreement or any of its obligations hereunder or any payments to such
Lender (or its applicable lending office) of principal, interest, fees or any
other amount payable hereunder; (ii) imposes, modifies or holds applicable any
reserve (including any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or for
the account of, or advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of such Lender (other than any such
reserve or other requirements with respect to Eurodollar Rate Loans that are
reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any
other condition (other than with respect to a Tax matter) on or affecting such
Lender (or its applicable lending office) or its obligations hereunder or the
London interbank market; and the result of any of the foregoing is to increase
the cost to such Lender of agreeing to make, making or maintaining Loans
hereunder or to reduce any amount received or receivable by such Lender (or its
applicable lending office) with respect thereto; then, in any such case, Company
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shall promptly pay to such Lender, upon receipt of the statement referred to in
the next sentence, such additional amount or amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender in its sole discretion shall determine) as may be necessary to
compensate such Lender for any such increased cost or reduction in amounts
received or receivable hereunder. Such Lender shall deliver to Company (with a
copy to Administrative Agent) a written statement, setting forth in reasonable
detail the basis for calculating the additional amounts owed to such Lender
under this Section 2.19(a), which statement shall be conclusive and binding upon
all parties hereto absent manifest error.
(b) Capital Adequacy Adjustment. In the event that any Lender (which
term shall include Issuing Bank for purposes of this Section 2.19(b)) shall have
determined that the adoption, effectiveness, phase-in or applicability after the
Closing Date of any law, rule or regulation (or any provision thereof) regarding
capital adequacy, or any change therein or in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its applicable lending office) with any guideline, request or
directive regarding capital adequacy (whether or not having the force of law) of
any such Governmental Authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the capital of such Lender or
any corporation controlling such Lender as a consequence of, or with reference
to, such Lender's Loans or Commitments or Letters of Credit, or participations
therein or other obligations hereunder with respect to the Loans or the Letters
of Credit to a level below that which such Lender or such controlling
corporation could have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
such Lender or such controlling corporation with regard to capital adequacy),
then from time to time, within five Business Days after receipt by Company from
such Lender of the statement referred to in the next sentence, Company shall pay
to such Lender such additional amount or amounts as will compensate such Lender
or such controlling corporation on an after-tax basis for such reduction. Such
Lender shall deliver to Company (with a copy to Administrative Agent) a written
statement, setting forth in reasonable detail the basis for calculating the
additional amounts owed to Lender under this Section 2.19(b), which statement
shall be conclusive and binding upon all parties hereto absent manifest error.
2.20. TAXES; WITHHOLDING, ETC.
(a) Payments to Be Free and Clear. All sums payable by any Credit
Party hereunder and under the other Credit Documents shall (except to the extent
required by law) be paid free and clear of, and without any deduction or
withholding on account of, any Tax (other than a Tax on the overall net income
of any Lender) imposed, levied, collected, withheld or assessed by or within the
United States of America or any political subdivision in or of the United States
of America or any other jurisdiction from or to which a payment is made by or on
behalf of any Credit Party or by any federation or organization of which the
United States of America or any such jurisdiction is a member at the time of
payment. In addition, Company hereby agrees to pay any present or future stamp
or documentary taxes and any other excise or property taxes, charges or
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similar levies which arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note.
(b) Withholding of Taxes. If any Credit Party or any other Person is
required by law to make any deduction or withholding on account of any such Tax
from any sum paid or payable by any Credit Party to Administrative Agent or any
Lender (which term shall include Issuing Bank for purposes of this Section
2.20(b)) under any of the Credit Documents: (i) Company shall notify
Administrative Agent of any such requirement or any change in any such
requirement as soon as Company becomes aware of it; (ii) Company shall pay any
such Tax before the date on which penalties attach thereto, such payment to be
made (if the liability to pay is imposed on any Credit Party) for its own
account or (if that liability is imposed on Administrative Agent or such Lender,
as the case may be) on behalf of and in the name of Administrative Agent or such
Lender; (iii) the sum payable by such Credit Party in respect of which the
relevant deduction, withholding or payment is required shall be increased to the
extent necessary to ensure that, after the making of that deduction, withholding
or payment, Administrative Agent or such Lender, as the case may be, receives on
the due date a net sum equal to what it would have received had no such
deduction, withholding or payment been required or made; and (iv) within thirty
(30) days after paying any sum from which it is required by law to make any
deduction or withholding, and within thirty (30) days after the due date of
payment of any Tax which it is required by clause (ii) above to pay, Company
shall deliver to Administrative Agent evidence satisfactory to the other
affected parties of such deduction, withholding or payment and of the remittance
thereof to the relevant taxing or other authority; provided, no such additional
amount shall be required to be paid to any Lender under clause (iii) above
except to the extent that any change after the date hereof (in the case of each
Lender listed on the signature pages hereof on the Closing Date) or after the
effective date of the Assignment Agreement pursuant to which such Lender became
a Lender (in the case of each other Lender) in any such requirement for a
deduction, withholding or payment as is mentioned therein shall result in an
increase in the rate of such deduction, withholding or payment from that in
effect at the date hereof or at the date of such Assignment Agreement, as the
case may be, in respect of payments to such Lender.
(c) Evidence of Exemption From U.S. Withholding Tax. Each Lender that
is not a United States Person (as such term is defined in Section 7701(a)(30) of
the Internal Revenue Code) for U.S. federal income tax purposes (a "NON-US
LENDER") shall deliver to Administrative Agent for transmission to Company, on
or prior to the Closing Date (in the case of each Lender listed on the signature
pages hereof on the Closing Date) or on or prior to the date of the Assignment
Agreement pursuant to which it becomes a Lender (in the case of each other
Lender), and at such other times as may be necessary in the determination of
Company or Administrative Agent (each in the reasonable exercise of its
discretion), (i) two original copies of Internal Revenue Service Form W-8BEN or
W-8ECI (or any successor forms), properly completed and duly executed by such
Lender, and such other documentation required under the Internal Revenue Code
and reasonably requested by Company to establish that such Lender is not subject
to deduction or withholding of United States federal income tax with respect to
any payments to such Lender of principal, interest, fees or other amounts
payable under any of the Credit Documents, or (ii) if such Lender is not a
"bank" or other Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot
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deliver either Internal Revenue Service Form W-8BEN or W-8ECI pursuant to clause
(i) above, a Certificate re Non-Bank Status together with two original copies of
Internal Revenue Service Form W-8 (or any successor form), properly completed
and duly executed by such Lender, and such other documentation required under
the Internal Revenue Code and reasonably requested by Company to establish that
such Lender is not subject to deduction or withholding of United States federal
income tax with respect to any payments to such Lender of interest payable under
any of the Credit Documents. Each Lender required to deliver any forms,
certificates or other evidence with respect to United States federal income tax
withholding matters pursuant to this Section 2.20(c) hereby agrees, from time to
time after the initial delivery by such Lender of such forms, certificates or
other evidence, whenever a lapse in time or change in circumstances renders such
forms, certificates or other evidence obsolete or inaccurate in any material
respect, that such Lender shall promptly deliver to Administrative Agent for
transmission to Company two new original copies of Internal Revenue Service Form
W-8BEN or W-8ECI , or a Certificate re Non-Bank Status and two original copies
of Internal Revenue Service Form W-8, as the case may be, properly completed and
duly executed by such Lender, and such other documentation required under the
Internal Revenue Code and reasonably requested by Company to confirm or
establish that such Lender is not subject to deduction or withholding of United
States federal income tax with respect to payments to such Lender under the
Credit Documents, or notify Administrative Agent and Company of its inability to
deliver any such forms, certificates or other evidence. Company shall not be
required to pay any additional amount to any Non-US Lender under Section
2.20(b)(iii) if such Lender shall have failed (1) to deliver the forms,
certificates or other evidence referred to in the second sentence of this
Section 2.20(c), or (2) to notify Administrative Agent and Company of its
inability to deliver any such forms, certificates or other evidence, as the case
may be; provided, if such Lender shall have satisfied the requirements of the
first sentence of this Section 2.20(c) on the Closing Date or on the date of the
Assignment Agreement pursuant to which it became a Lender, as applicable,
nothing in this last sentence of Section 2.20(c) shall relieve Company of its
obligation to pay any additional amounts pursuant to Section 2.19(a) in the
event that, as a result of any change in any applicable law, treaty or
governmental rule, regulation or order, or any change in the interpretation,
administration or application thereof, such Lender is no longer properly
entitled to deliver forms, certificates or other evidence at a subsequent date
establishing the fact that such Lender is not subject to withholding as
described herein.
(d) If the Internal Revenue Service or any other Governmental
Authority asserts a claim that Administrative Agent did not properly withhold
tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered or properly completed by such Lender, because
such Lender failed to notify Administrative Agent of a change in circumstances
which rendered its exemption from withholding ineffective, or for any other
reason within such Lender's control), such Lender shall indemnify Administrative
Agent fully for all amounts paid, directly or indirectly, by Administrative
Agent as tax, withholding therefor, or otherwise, including penalties and
interest, and including taxes imposed by any jurisdiction on amounts payable to
Administrative Agent under this subsection, together with all costs and expenses
related thereto (including attorneys fees and time charges of attorneys for
Administrative Agent, which attorneys may be employees of Administrative Agent)
except insofar as any such amounts result from the Administrative Agent's gross
negligence or willful misconduct. The obligations of the Lenders
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under this Section 2.20(d) shall survive the payment of the Obligations and
termination of this Agreement.
2.21. OBLIGATION TO MITIGATE. Each Lender (which term shall include Issuing
Bank for purposes of this Section 2.21) agrees that, as promptly as practicable
after the officer of such Lender responsible for administering its Loans or
Letters of Credit, as the case may be, becomes aware of the occurrence of an
event or the existence of a condition that would cause such Lender to become an
Affected Lender or that would entitle such Lender to receive payments under
Section 2.18, 2.19 or 2.20, it will, to the extent not inconsistent with the
internal policies of such Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (a) to make, issue, fund or maintain its
Credit Extensions, including any Affected Loans, through another office of such
Lender, or (b) take such other measures as such Lender may deem reasonable, if
as a result thereof the circumstances which would cause such Lender to be an
Affected Lender would cease to exist or the additional amounts which would
otherwise be required to be paid to such Lender pursuant to Section 2.18, 2.19
or 2.20 would be materially reduced and if, as determined by such Lender in its
sole discretion, the making, issuing, funding or maintaining of such
Commitments, Loans or Letters of Credit through such other office or in
accordance with such other measures, as the case may be, would not otherwise
adversely affect such Commitments, Loans or Letters of Credit or any interests
of such Lender; provided, such Lender will not be obligated to utilize such
other office pursuant to this Section 2.21 unless Company agrees to pay all
incremental expenses incurred by such Lender as a result of utilizing such other
office as described in clause (a) above. A certificate as to the amount of any
such expenses payable by Company pursuant to this Section 2.21 (setting forth in
reasonable detail the basis for requesting such amount) submitted by such Lender
to Company (with a copy to Administrative Agent) shall be conclusive absent
manifest error.
2.22. DEFAULTING LENDERS. Anything contained herein to the contrary
notwithstanding, in the event that any Lender, at the direction or request of
any regulatory agency or authority, defaults (a "DEFAULTING LENDER") in its
obligation to fund (a "FUNDING DEFAULT") any Loan or its portion of any
unreimbursed payment under Section 2.4(e) (in each case, a "DEFAULTED LOAN"),
then (a) during any Default Period with respect to such Defaulting Lender, such
Defaulting Lender shall be deemed not to be a "Lender" for purposes of voting on
any matters (including the granting of any consents or waivers) with respect to
any of the Credit Documents (other than under Sections 10.5(b) or 10.5(c)(i));
(b) to the extent permitted by applicable law, until such time as the Default
Excess with respect to such Defaulting Lender shall have been reduced to zero,
(i) any voluntary prepayment of the Loans shall, if Company so directs at the
time of making such voluntary prepayment, be applied to the Loans of other
Lenders as if such Defaulting Lender had no Loans outstanding and the Term Loan
Exposure and Revolving Credit Exposure of such Defaulting Lender were zero, and
(ii) any mandatory prepayment of the Loans shall, if Company so directs at the
time of making such mandatory prepayment, be applied to the Loans of other
Lenders (but not to the Loans of such Defaulting Lender) as if such Defaulting
Lender had funded all Defaulted Loans of such Defaulting Lender, it being
understood and agreed that Company shall be entitled to retain any portion of
any mandatory prepayment of the Loans that is not paid to such Defaulting Lender
solely as a result of the operation of the provisions of this clause (b); (c)
such Defaulting Lender's Commitments and outstanding Loans and such Defaulting
Lender's Pro Rata Share of the Letter of Credit Usage shall
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be excluded for purposes of calculating the Commitment fees payable to Lenders
in respect of any day during any Default Period with respect to such Defaulting
Lender, and such Defaulting Lender shall not be entitled to receive any
Commitment fees pursuant to Section 2.11 with respect to such Defaulting
Lender's Commitments in respect of any Default Period with respect to such
Defaulting Lender; and (d) the Total Utilization of Revolving Credit Commitments
and the aggregate principal amount of all outstanding Term Loans as at any date
of determination shall be calculated as if such Defaulting Lender had funded all
Defaulted Loans of such Defaulting Lender. No Commitment of any Lender shall be
increased or otherwise affected, and, except as otherwise expressly provided in
this Section 2.22, performance by Company of its obligations hereunder and the
other Credit Documents shall not be excused or otherwise modified as a result of
any Funding Default or the operation of this Section 2.22. The rights and
remedies against a Defaulting Lender under this Section 2.22 are in addition to
other rights and remedies which Company may have against such Defaulting Lender
with respect to any Funding Default and which Administrative Agent or any Lender
may have against such Defaulting Lender with respect to any Funding Default.
2.23. REMOVAL OR REPLACEMENT OF A LENDER. Anything contained herein to the
contrary notwithstanding, in the event that: (a) any Lender (an "INCREASED-COST
LENDER") shall give notice to Company that such Lender is an Affected Lender or
that such Lender is entitled to receive payments under Section 2.18, 2.19 or
2.20, the circumstances which have caused such Lender to be an Affected Lender
or which entitle such Lender to receive such payments shall remain in effect,
and such Lender shall fail to withdraw such notice within five Business Days
after Company's request for such withdrawal; or (b) any Lender shall become a
Defaulting Lender, the Default Period for such Defaulting Lender shall remain in
effect, and such Defaulting Lender shall fail to cure the default as a result of
which it has become a Defaulting Lender within five Business Days after
Company's request that it cure such default; or (c) in connection with any
proposed amendment, modification, termination, waiver or consent with respect to
any of the provisions hereof as contemplated by Section 10.5(b), the consent of
Requisite Lenders shall have been obtained but the consent of one or more of
such other Lenders (each a "NON-CONSENTING LENDER") whose consent is required
shall not have been obtained; then, with respect to each such Increased-Cost
Lender, Defaulting Lender or Non-Consenting Lender (the "TERMINATED LENDER"),
Company may, by giving written notice to Administrative Agent and any Terminated
Lender of its election to do so, elect to cause such Terminated Lender (and such
Terminated Lender hereby irrevocably agrees) to assign its outstanding Loans and
its Commitments, if any, in full to one or more Eligible Assignees (each a
"REPLACEMENT LENDER") in accordance with the provisions of Section 10.6 and
Terminated Lender shall pay any fees payable thereunder in connection with such
assignment; provided, (1) on the date of such assignment, the Replacement Lender
shall pay to Terminated Lender an amount equal to the sum of (A) an amount equal
to the principal of, and all accrued interest on, all outstanding Loans of the
Terminated Lender, (B) an amount equal to all unreimbursed drawing that have
been funded by such Terminated Lender, together with all then unpaid interest
with respect thereto at such time and (C) an amount equal to all accrued, but
theretofore unpaid fees owing to such Terminated Lender pursuant to Section
2.11; (2) on the date of such assignment, Company shall pay any amounts payable
to such Terminated Lender pursuant to Section 2.18(c), 2.19 or 2.20 or otherwise
as if it were a prepayment; and (3) in the event such Terminated Lender is a
Non-Consenting Lender, each Replacement Lender shall consent, at the time of
such assignment, to each
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matter in respect of which such Terminated Lender was a Non-Consenting Lender;
provided, Company may not make such election with respect to any Terminated
Lender that is also an Issuing Bank unless, prior to the effectiveness of such
election, Company shall have caused each outstanding Letter of Credit issued
thereby to be cancelled. Upon the prepayment of all amounts owing to any
Terminated Lender and the termination of such Terminated Lender's Commitments,
if any, such Terminated Lender shall no longer constitute a "Lender" for
purposes hereof; provided, any rights of such Terminated Lender to
indemnification hereunder shall survive as to such Terminated Lender.
SECTION 3. CONDITIONS PRECEDENT
3.1. CLOSING DATE. The obligation of any Lender to make a Credit Extension
on the Closing Date is subject to the satisfaction, or waiver in accordance with
Section 10.5, of the following conditions on or before the Closing Date:
(a) Credit Documents. Administrative Agent shall have received
sufficient copies of each Credit Document originally executed and delivered by
each applicable Credit Party for each Lender.
(b) Organizational Documents; Incumbency. Administrative Agent shall
have received (i) a copy of each Organizational Document of each Credit Party,
as applicable, and, to the extent applicable, certified as of a recent date by
the appropriate governmental official; (ii) signature and incumbency
certificates of the officers of such Person executing the Credit Documents to
which it is a party; (iii) resolutions of the Board of Directors or similar
governing body of each Credit Party approving and authorizing the execution,
delivery and performance of this Agreement, the other Credit Documents and the
Transaction Documents to which it is a party or by which it or its assets may be
bound as of the Closing Date, certified as of the Closing Date by its secretary
or an assistant secretary as being in full force and effect without modification
or amendment; (iv) a good standing certificate from the applicable Governmental
Authority of each Credit Party's jurisdiction of incorporation, organization or
formation and, with respect to Company and Parent, in each jurisdiction in which
it is qualified as a foreign corporation or other entity to do business, and,
with respect to each Credit Party other than Company, in each jurisdiction in
which it is qualified as a foreign corporation or other entity to do business
and where the failure to be so qualified or in good standing would cause a
Material Adverse Effect, each dated a recent date prior to the Closing Date; and
(v) such other customary documents as Administrative Agent may reasonably
request.
(c) Organizational and Capital Structure. The organizational structure
and the capital structure of Parent and its Subsidiaries, both before and after
giving effect to the Transaction, shall be as set forth on Schedule 4.1.
(d) Capitalization of Holdings and Company. On or before the Closing
Date, Administrative Agent and Syndication Agent shall be reasonably satisfied
in all respects with Parent's and Company's capital structure.
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(e) Transaction Documents; Opinions. (i) (1) All conditions to
the Tender Offer set forth in the Tender Offer Documents shall have
been satisfied or the fulfillment of any such conditions shall have
been waived with the consent of Syndication Agent and Administrative
Agent (such consent not to be unreasonably withheld or delayed), (2)
all shares of Parent Common Stock to be purchased on such date shall
have been tendered to Parent, and such shares shall not have been
validly withdrawn and shall be available for purchase in accordance
with the terms and conditions of the Tender Offer Documents, (3) the
Tender Offer shall have become effective in accordance with the terms
of the Tender Offer Documents, and (4) the aggregate cash
consideration paid to purchase the Parent Common Stock in connection
with the Tender Offer shall not exceed the Tender Offer Consideration.
(ii) Syndication Agent and Administrative Agent shall each have
received a fully executed or conformed copy of each Transaction
Document and any documents executed in connection therewith, together
with copies of each of the opinions of counsel delivered to the
parties under the Transaction Documents, accompanied by a letter from
each such counsel (to the extent not inconsistent with such counsel's
established internal policies) authorizing Lenders to rely upon such
opinion to the same extent as though it were addressed to Lenders.
Each Transaction Document shall be in full force and effect and no
provision thereof shall have been modified or waived in any respect
determined by Syndication Agent or Administrative Agent to be
material, in each case without the consent of Syndication Agent and
Administrative Agent (such consent not to be unreasonably withheld or
delayed).
(iii) Syndication Agent and Administrative Agent shall each have
received a certificate from an Authorized Officer of each of Parent
and Company, in form and substance satisfactory to Syndication Agent
and Administrative Agent, to the effect set forth in clauses (i) and
(ii) above.
(f) Existing Indebtedness. On the Closing Date, Parent and its
Subsidiaries shall have (1) repaid in full all Refinanced Indebtedness, (2)
terminated any commitments to lend or make other extensions of credit
thereunder, (3) delivered to Syndication Agent and Administrative Agent all
documents or instruments necessary to release all Liens securing such Refinanced
Indebtedness or other obligations of Parent and its Subsidiaries thereunder
being repaid on the Closing Date, and (iv) made arrangements satisfactory to
Syndication Agent and Administrative Agent with respect to the cancellation of
any letters of credit outstanding thereunder or the issuance of Letters of
Credit to support the obligations of Parent and its Subsidiaries with respect
thereto.
(g) Transaction Costs. On or prior to the Closing Date, Parent shall
have delivered to Administrative Agent, Parent's reasonable best estimate of the
Transaction Costs (other than fees payable to any Agent) and such estimate
(together with all fees payable to Agents) shall not exceed approximately
$19,000,000.
(h) Governmental Authorizations and Consents. Each Credit Party shall
have obtained all Governmental Authorizations and all consents of other Persons,
in each case that are
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necessary or appropriate in connection with the Transaction and the transactions
contemplated by the Credit Documents and each of the foregoing shall be in full
force and effect and in form and substance reasonably satisfactory to
Syndication Agent and Administrative Agent. All applicable waiting periods shall
have expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse conditions
on the transactions contemplated by the Credit Documents or the Transaction
Documents or the financing thereof and no action, request for stay, petition for
review or rehearing, reconsideration, or appeal with respect to any of the
foregoing shall be pending, and the time for any applicable agency to take
action to set aside its consent on its own motion shall have expired.
(i) Share Collateral. In order to create in favor of Administrative
Agent, for the benefit of Lenders, a valid and, subject to any filing and/or
recording referred to herein, perfected First Priority security interest in the
Share Collateral, the Administrative Agent shall have received:
(i) certificates (which certificates shall be accompanied by
irrevocable undated stock powers, duly endorsed in blank and otherwise
reasonably satisfactory in form and substance to Collateral Agent)
representing all certificated shares of Capital Stock pledged pursuant
to the Pledge Agreement;
(ii) UCC financing statements, duly executed by each applicable
Credit Party with respect to all Share Collateral of such Credit
Party, for filing in all jurisdictions as may be necessary or, in the
opinion of Collateral Agent and Syndication Agent, desirable to
perfect the security interests created in such Share Collateral
pursuant to the Collateral Documents;
(iii) an opinion of counsel (which counsel shall be reasonably
satisfactory to Syndication Agent and Collateral Agent) with respect
to the creation and perfection of the security interests in favor of
Collateral Agent in such Share Collateral as Syndication Agent and
Collateral Agent may reasonably request, in each case in form and
substance reasonably satisfactory to Syndication Agent and Collateral
Agent; and
(iv) evidence that each Credit Party shall have taken or caused
to be taken any other action, executed and delivered or caused to be
executed and delivered any other agreement, document and instrument,
and made or caused to be made any other filing and recording (other
than as set forth herein) reasonably required by Syndication Agent and
Collateral Agent.
(j) Environmental Reports. Syndication Agent and Administrative Agent
shall have received certificates from an Authorized Officer of Company and other
information which Syndication Agent and Administrative Agent may reasonably
request, in form, scope and substance reasonably satisfactory to Syndication
Agent and Administrative Agent, regarding environmental matters relating to the
Facilities.
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(k) Financial Statements; Projections. Lenders shall have received
from Company (i) the Historical Financial Statements, (ii) pro forma
consolidated balance sheets of Parent and its Subsidiaries as at January 29,
2000, prepared in accordance with GAAP and reflecting the consummation of the
Transaction, the related financings and the other transactions contemplated by
the Credit Documents and the Transaction Documents to occur on or prior to the
Closing Date, which pro forma financial statements shall be in form and
substance reasonably satisfactory to Administrative Agent and Syndication Agent,
and (iii) the Projections.
(l) Evidence of Insurance. Syndication Agent and Administrative Agent
shall have received a certificate from Company's insurance broker or other
evidence reasonably satisfactory to it that all insurance required to be
maintained pursuant to Section 5.5 is in full force and effect and that
Administrative Agent, for the benefit of Lenders has been named as loss payee
thereunder to the extent required under Section 5.5.
(m) Opinions of Counsel to Credit Parties. Lenders and their
respective counsel shall have received originally executed copies of the
favorable written opinions of (i) Wachtell Lipton Rosen & Katz, special counsel
for Company, Parent and each Subsidiary Guarantor, (ii) Michael Massey, Esq.,
in-house counsel for Company, Parent and each Subsidiary Guarantor and (iii)
Kummer, Kempf, Bonner & Renshaw, special Nevada counsel for Company, in the
forms of Exhibits D-1 and D-2, respectively, and as to such other matters as
Administrative Agent or Syndication Agent may reasonably request, dated the
Closing Date and otherwise in form and substance reasonably satisfactory to
Administrative Agent and Syndication Agent.
(n) Opinions of Counsel to Syndication Agent. Lenders shall have
received originally executed copies of one or more favorable written opinions of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Syndication Agent, dated
the Closing Date, in form and substance reasonably satisfactory to Syndication
Agent and Administrative Agent.
(o) Fees. Company shall have paid to Syndication Agent, Administrative
Agent and Documentation Agent, the fees payable on the Closing Date referred to
in Section 2.11.
(p) Solvency Certificate. On the Closing Date, Syndication Agent,
Administrative Agent and Lenders shall have received a Solvency Certificate from
Parent dated the Closing Date and addressed to Syndication Agent, Administrative
Agent and Lenders, and in form, scope and substance reasonably satisfactory to
Syndication Agent and Administrative Agent, with appropriate attachments and
demonstrating that after giving effect to the consummation of the Transaction
and the incurrence of Indebtedness in connection therewith and taking into
account the making of the Loans under this Agreement, Parent and its
Subsidiaries are and will be Solvent.
(q) Absence of Material Adverse Change. Since January 30, 1999, there
shall have been no Material Adverse Change which either Administrative Agent or
Syndication Agent, in its judgment, deems material, and Administrative Agent
shall have received a certification from an Authorized Officer of Company to
that effect.
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(r) Completion of Proceedings. All partnership, corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Administrative Agent or Syndication Agent and its counsel shall be
reasonably satisfactory in form and substance to Administrative Agent and
Syndication Agent and such counsel, and Administrative Agent, Syndication Agent
and such counsel shall have received all such counterpart originals or certified
copies of such documents as Administrative Agent or Syndication Agent may
reasonably request.
(s) No Litigation, etc. There shall exist no action, suit, investigation,
litigation or proceeding affecting Parent or any of its Subsidiaries pending or
threatened before any Governmental Authority that (i) could be reasonably likely
to have a Material Adverse Effect or (ii) purports to affect the transactions
contemplated by the Credit Documents or the Transaction Documents.
(t) Closing Date Certificate. Company shall have delivered to Syndication
Agent and Administrative Agent an originally executed Closing Date Certificate,
together with all attachments thereto.
(u) Closing Date. Lenders shall have made the Term Loans to Company on or
before June 3, 2000.
Each Lender, by delivering its signature page to this Agreement and funding
its Term Loan Commitment and/or a Revolving Loan on the Closing Date, shall be
deemed to have acknowledged receipt of, and consented to and approved, each
Credit Document and each other document required to be approved by Requisite
Lenders or Lenders, as applicable, but only to the extent such Credit Documents
and other documents have been made available to such Lender.
3.2. CONDITIONS TO EACH CREDIT EXTENSION. (a) The obligation of each Lender
to make any Loan, or Issuing Bank to issue any Letter of Credit, on any Credit
Date (including the Closing Date), are subject to the satisfaction, or waiver in
accordance with Section 10.5, of the following conditions precedent:
(i) Administrative Agent shall have received a fully executed and
delivered Funding Notice or Issuance Notice, as the case may be;
(ii) with respect to any Revolving Loans or Letters of Credit, after
making any such Credit Extensions requested on such Credit Date, the Total
Utilization of Revolving Credit Commitments shall not exceed the Revolving
Credit Commitments then in effect;
(iii) as of such Credit Date, the representations and warranties
contained herein and in the other Credit Documents shall be true and
correct in all material respects on and as of that Credit Date to the same
extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in
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which case such representations and warranties shall have been true and
correct in all material respects on and as of such earlier date;
(iv) as of such Credit Date, no event shall have occurred and be
continuing or would result from the consummation of the applicable Credit
Extension that would constitute an Event of Default or a Default; and
(v) on or before the date of issuance of any Letter of Credit,
Administrative Agent shall have received all other information required by
the applicable Issuance Notice, and such other documents or information as
Issuing Bank may reasonably require in connection with the issuance of such
Letter of Credit.
(b) Any Notice shall be executed by an Authorized Officer in a writing
delivered to Administrative Agent. In lieu of delivering a Notice, Company may
give Administrative Agent telephonic notice by the required time of any proposed
borrowing, conversion/continuation or issuance of a Letter of Credit, as the
case may be; provided each such notice shall be promptly confirmed in writing by
delivery of the applicable Notice to Administrative Agent on or before the
applicable date of borrowing, continuation/conversion or issuance. Neither
Issuing Bank, Administrative Agent nor any Lender shall incur any liability to
Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized on behalf of Company or for
otherwise acting in good faith.
3.3. RELEASE OF SHARE COLLATERAL.
(a) If at any time, Parent has received an Investment Grade Status rating
then, at the written request of Company and so long as no Default or Event of
Default shall have occurred and be continuing, (x) the Pledge Agreement shall be
immediately and automatically terminated and (y) Collateral Agent shall take or
cause to be taken any action, execute and deliver or cause to be executed and
delivered any agreement, document and instrument, and make or cause to be made
any filing and recording, in each case as reasonably requested by Company in
order to evidence the release of the First Priority Lien of Collateral Agent in
all of the Share Collateral including, without limitation, return of the pledged
Share Collateral and stock powers related thereto; provided, in the event of any
such release, any Liens or security interest on such Share Collateral securing
Indebtedness which is equal and ratable with the Obligations under the Credit
Documents shall be concurrently released.
(b) Company shall pay or otherwise reimburse Administrative Agent for all
reasonable costs and expenses incurred or made by or on behalf of Administrative
Agent, including, without limitation, all attorneys' fees and expenses, in
complying with this Section 3.3.
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SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders and Issuing Bank to enter into this Agreement
and to make each Credit Extension to be made thereby, each Credit Party
represents and warrants to each Lender and Issuing Bank, on the Closing Date and
on each Credit Date, that the following statements are true and correct (it
being understood and agreed that the representations and warranties made on the
Closing Date are deemed to be made concurrently with the consummation of the
Transaction contemplated hereby):
4.1. ORGANIZATION; POWERS; QUALIFICATION.
(a) Each of Parent and its Subsidiaries (i) is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
as identified in Schedule 4.1, (ii) has all requisite power and authority to own
and operate its properties, to carry on its business as now conducted and as
proposed to be conducted, to enter into the Credit Documents and Transaction
Documents to which it is a party and to carry out the transactions contemplated
thereby, and (iii) is qualified to do business and in good standing in every
jurisdiction where its assets are located and wherever necessary to carry out
its business and operations, except in jurisdictions where the failure to be so
qualified or in good standing has not had, and could not be reasonably expected
to have, a Material Adverse Effect. Schedule 4.1 correctly sets forth the
ownership interest of Parent and each of its Subsidiaries in their respective
Subsidiaries as of the Closing Date both before and after giving effect to the
Transaction.
(b) The Capital Stock of each of Parent and its Subsidiaries has been duly
authorized and validly issued and is fully paid and non-assessable. Except as
expressly provided on Schedule 4.1, as of the date hereof, there is no existing
option, warrant, call, right, commitment or other agreement to which Parent or
any of its Subsidiaries is a party requiring, and there is no membership
interest or other Capital Stock of Parent or any of its Subsidiaries outstanding
which upon conversion or exchange would require, the issuance by Parent or any
of its Subsidiaries of any additional membership interests or other Capital
Stock of Parent or any of its Subsidiaries or other Securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase, a
membership interest or other Capital Stock of Parent or any of its Subsidiaries.
4.2. AUTHORIZATION OF CREDIT DOCUMENTS AND TRANSACTION DOCUMENTS; NO
CONFLICT. The execution, delivery and performance of the Credit Documents and
the Transaction Documents have been duly authorized by all necessary action on
the part of each Credit Party that is a party thereto. The execution, delivery
and performance by Credit Parties of the Credit Documents and the Transaction
Documents to which they are parties and the consummation of the transactions
contemplated by the Credit Documents do not and will not (a) violate any
provision of any law or any governmental rule or regulation (including the
Margin Regulations) applicable to Parent or any of its Subsidiaries, any of the
Organizational Documents of Parent or any of its Subsidiaries, or any order,
judgment or decree of any court or other agency of government binding on Parent
or any of its Subsidiaries except to the extent such violation could not be
reasonably expected to have a Material Adverse Effect; (b) conflict with, result
in a breach of or constitute (with due notice or lapse
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of time or both) a default under any Contractual Obligation of Parent or any of
its Subsidiaries except to the extent such conflict, breach or default could not
reasonably be expected to have a Material Adverse Effect; (c) result in or
require the creation or imposition of any Lien upon any of the properties or
assets of Parent or any of its Subsidiaries (other than any Liens created under
any of the Credit Documents in favor of Collateral Agent, on behalf of the
Secured Parties); or (d) require any approval of stockholders or any approval or
consent of any Person under any Contractual Obligation of Parent or any of its
Subsidiaries, except for such approvals or consents which will be obtained on or
before the Closing Date and disclosed in writing to Lenders and except for any
such approvals or consents the failure of which to obtain will not have a
Material Adverse Effect.
4.3. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Credit Parties of the Credit Documents and the Transaction Documents to which
they are parties and the consummation of the transactions contemplated by the
Credit Documents and the Transaction Documents do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any Governmental Authority except for the Share Collateral to be
delivered to Administrative Agent, as of the Closing Date.
4.4. BINDING OBLIGATION. Each Credit Document and each Transaction Document
has been duly executed and delivered by each Credit Party that is a party
thereto and is the legally valid and binding obligation of such Credit Party,
enforceable against such Credit Party in accordance with its respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.
4.5. HISTORICAL FINANCIAL STATEMENTS; PROJECTIONS. (a) The Historical
Financial Statements were prepared in conformity with GAAP and fairly present,
in all material respects, the financial position, on a consolidated basis, of
the Persons described in such financial statements as at the respective dates
thereof and the results of operations and cash flows, on a consolidated basis,
of the entities described therein for each of the periods then ended, subject,
in the case of any such unaudited financial statements, to changes resulting
from audit and normal year-end adjustments. As of the Closing Date, neither
Parent nor any of its Subsidiaries has any contingent liability or liability for
taxes, long-term lease or unusual forward or long-term commitment that is not
reflected in the Historical Financial Statements or the notes thereto and which
in any such case is material in relation to the business, operations,
properties, assets, condition (financial or otherwise) or prospects of Parent
and any of its Subsidiaries taken as a whole.
(b) On and as of the Closing Date, the Projections of Parent and its
Subsidiaries for the period Fiscal Year 2000 through and including Fiscal Year
2004 (the "PROJECTIONS") (i) are based on reasonable assumptions as to all legal
and factual matters material to the estimates set forth therein, (ii) have been
and will be prepared in good faith and with due care; (iii) fairly represent
Parent's expectation on the date of their preparation as to the matters covered
thereby as of the date thereof, and (iv) are based upon good faith estimates and
assumptions believed by Parent to be reasonable at the time made, it being
recognized by Lenders that such projections as to future events are not to be
viewed as facts and that actual results during the period or periods covered by
any such
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projections may differ from the projected results and no assurance can be given
that the Projections will be realized.
(c) The financial statements of Parent and its Subsidiaries most recently
delivered to Administrative Agent pursuant to Section 5.1 were prepared in
conformity with GAAP and fairly present, in all material respects, the financial
position, on a consolidated basis, of the Persons and businesses described in
such financial statements as at the respective dates thereof and the results of
operations and cash flows, on a consolidated basis, of the entities described
therein for each of the periods then ended, subject, in the case of any such
unaudited financial statements, to changes resulting from audit and normal
year-end adjustments and the absence of footnotes. Neither Parent nor any of its
Subsidiaries has any contingent liability or liability for taxes, long-term
lease or unusual forward or long-term commitment which in accordance with GAAP
should be reflected on such financial statements or the notes thereto that is
not reflected in such financial statements or the notes thereto and which in any
such case is material in relation to the business, operations, properties,
assets, financial condition or operations of Parent and its Subsidiaries taken
as a whole.
4.6. NO MATERIAL ADVERSE CHANGE; NO RESTRICTED PAYMENTS. Since January 30,
1999, there has been no Material Adverse Change and no event or circumstance has
occurred that has had or could reasonably be expected to have, either in any
case or in the aggregate, a Material Adverse Effect, and neither Parent nor any
of its Subsidiaries has directly or indirectly declared, ordered, paid or made,
or set apart any sum or property for, any Restricted Payment or agreed to do so
except as permitted pursuant to Section 6.4 or in connection with the
Transactions.
4.7. LITIGATION; ADVERSE PROCEEDINGS. (a) No injunction, stay or restraint
regarding the Tender Offer, the Refinancing or the financing contemplated by
this Agreement has been issued and is in effect, and no pending or threatened
litigation, arbitration, or other proceeding exists which could reasonably be
expected to result in any injunction, stay, or restraint of the Tender Offer,
the Refinancing or the financing contemplated by this Agreement.
(b) There are no Adverse Proceedings, individually or in the aggregate,
that could reasonably be expected to have a Material Adverse Effect.
4.8. VIOLATION OF LAW. Neither Parent nor any of its Subsidiaries (a) is in
violation of any applicable laws (including Environmental Laws) that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, or (b) is subject to or in default with respect to any
final judgments, writs, injunctions, decrees, rules or regulations of any court
or any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
4.9. PAYMENT OF TAXES. Except as otherwise permitted under Section 5.3, all
tax returns and reports of Parent and its Subsidiaries required to be filed by
any of them have been timely filed, and all taxes shown on such tax returns to
be due and payable and all assessments, fees and other governmental charges upon
Parent and its Subsidiaries and upon their respective properties, assets,
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income, businesses and franchises which are due and payable have been paid when
due and payable. Parent knows of no material tax assessment proposed in writing
against Parent or any of its Subsidiaries which is not being timely paid or
actively contested by Parent or such Subsidiary in good faith and by appropriate
proceedings; provided, such reserves or other appropriate provisions, if any, as
shall be required in conformity with GAAP shall have been made or provided
therefor.
4.10. TITLE TO PROPERTIES; OWNERSHIP OF SUBSIDIARIES.
(a) Each of Parent and its Subsidiaries has (i) good, sufficient and legal
title to (in the case of fee interests in real property), (ii) valid leasehold
interests in (in the case of leasehold interests in real or personal property),
and (iii) good title to (in the case of all other personal property), all of
their respective properties and assets reflected in their respective Historical
Financial Statements referred to in Section 4.5 and in the most recent financial
statements delivered pursuant to Section 5.1, in each case except for assets
disposed of since the date of such financial statements in the ordinary course
of business or as otherwise permitted under Section 6.7. Except as permitted by
this Agreement, all such properties and assets are free and clear of Liens.
(b) Parent owns, directly or indirectly, free and clear of any Lien, the
equity Securities of each Subsidiary listed in Schedule 4.10 (as such schedule
may be supplemented in writing by Company from time to time to reflect
transactions or circumstances permitted by this Agreement or, with the written
consent of Administrative Agent, to reflect other transactions or
circumstances), other than a Lien in favor of Administrative Agent pursuant to
the Pledge Agreement.
4.11. SHARE COLLATERAL.
(a) The execution and delivery of the Collateral Documents by Credit
Parties, together with (i) the actions taken on or prior to the date hereof
pursuant to Section 3.1(i) and (ii) the delivery to Collateral Agent of any
Share Collateral not delivered to Collateral Agent at the time of execution and
delivery of the applicable Collateral Document, are effective to create in favor
of Collateral Agent, on behalf of the Secured Parties, as security for the
Obligations of each Credit Party, a valid and perfected First Priority Lien on
all of the Share Collateral, and all filings and other actions necessary or
desirable to perfect and maintain the perfection and First Priority status of
such Liens have been duly made or taken and remain in full force and effect.
(b) No authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority is required for either (i) the pledge or
grant by any Credit Party of the Liens purported to be created in favor of
Collateral Agent pursuant to any of the Collateral Documents or (ii) the
exercise by Collateral Agent of any rights or remedies in respect of any Share
Collateral (whether specifically granted or created pursuant to any of the
Collateral Documents or created or provided for by applicable law).
(c) Except as may have been filed in favor of Collateral Agent as
contemplated by Section 3.1(i), no effective UCC financing statement, fixture
filing or other instrument similar in effect covering all or any part of the
Share Collateral is on file in any filing or recording office.
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(d) All written information supplied to Collateral Agent by or on behalf of
any Credit Party with respect to any of the Share Collateral (in each case taken
as a whole with respect to any particular Share Collateral) is accurate and
complete in all material respects.
4.12. ENVIRONMENTAL MATTERS. (i) Neither Parent nor any of its Subsidiaries
nor any of their respective Facilities or operations are subject to any
outstanding written order, consent decree or settlement agreement with any
Person relating to any Environmental Law, any Environmental Claim, or any
Hazardous Materials Activity that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect; (ii) neither Parent
nor any of its Subsidiaries has received any letter or request for information
under Section 104 of the Comprehensive Environmen tal Response, Compensation,
and Liability Act (42 U.S.C. ss. 9604) or any comparable state law; (iii) there
are and, to each of Parent's and its Subsidiaries' knowledge, have been, no
conditions, occurrences, or Hazardous Materials Activities which could
reasonably be expected to form the basis of an Environmental Claim against
Parent or any of its Subsidiaries that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect; (iv) neither Parent
nor any of its Subsidiaries nor, to any Credit Party's knowledge, any
predecessor of Parent or any of its Subsidiaries has filed any notice under any
Environmental Law indicating past or present treatment of Hazardous Materials at
any Facility, and none of Parent's or any of its Subsidiaries' operations
involves the generation, transportation, treatment, storage or disposal of
hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state
equivalent; (v) compliance with all current or reasonably foreseeable future
requirements pursuant to or under Environmental Laws could not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect;
and (vi) no event or condition has occurred or is occurring with respect to
Parent or any of its Subsidiaries relating to any Environmental Law, any Release
of Hazardous Materials, or any Hazardous Materials Activity which individually
or in the aggregate has had, or could reasonably be expected to have, a Material
Adverse Effect.
4.13. NO DEFAULTS. Neither Parent nor any of its Subsidiaries is in default
in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any of its Contractual Obligations, and no
condition exists which, with the giving of notice or the lapse of time or both,
could constitute such a default, except where the consequences, direct or
indirect, of such default or defaults, if any, could not reasonably be expected
to have a Material Adverse Effect.
4.14. GOVERNMENTAL REGULATION. Neither Parent nor any of its Subsidiaries
is subject to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which may limit its ability to incur
Indebtedness or which may otherwise render all or any portion of the Obligations
unenforceable. Neither Parent nor any of its Subsidiaries is an "investment
company" or a company "controlled" by an "investment company" or a "principal
underwriter" of an "investment company" as such terms are defined in the
Investment Company Act of 1940.
4.15. MARGIN STOCK. Neither Parent nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing
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or carrying any Margin Stock. No part of the proceeds of the Loans made to such
Credit Party will be used to purchase or carry any such margin stock or to
extend credit to others for the purpose of purchasing or carrying any such
margin stock or for any purpose that violates, or is inconsistent with, the
provisions of Regulation T, U or X of the Board of Governors of the Federal
Reserve System.
4.16. EMPLOYEE MATTERS. Neither Parent nor any of its Subsidiaries is
engaged in any unfair labor practice that could reasonably be expected to have a
Material Adverse Effect. There is (a) no unfair labor practice complaint pending
against Parent or any of its Subsidiaries, or to the best knowledge of Parent,
threatened against any of them before the National Labor Relations Board and no
grievance or arbitration proceeding arising out of or under any collective
bargaining agreement that is so pending against Parent or any of its
Subsidiaries or to the best knowledge of Parent and Company, threatened against
any of them, (b) no strike or work stoppage in existence or threatened involving
Parent or any of its Subsidiaries that could reasonably be expected to have a
Material Adverse Effect and (c) to the best knowledge of Parent, no union
representation question existing with respect to the employees of Parent or any
of its Subsidiaries and, to the best knowledge of Parent, no union organization
activity that is taking place, except (with respect to any matter specified in
clause (a), (b) or (c) above, either individually or in the aggregate) such as
is not reasonably likely to have a Material Adverse Effect.
4.17. EMPLOYEE BENEFIT PLANS. Parent, each of its Subsidiaries and each of
their respective ERISA Affiliates are in compliance with all applicable
provisions and requirements of ERISA and the Internal Revenue Code and the
regulations and published interpretations thereunder with respect to each
Employee Benefit Plan, and have performed all their obligations under each
Employee Benefit Plan, other than any such failure to comply or perform that
individually or in the aggregate could reasonably be expected to result in a
liability to Parent or any of its Subsidiaries in excess of $10,000,000. Each
Employee Benefit Plan which is intended to qualify under Section 401(a) of the
Internal Revenue Code is so qualified, except for failures to so qualify that
can be cured without a Material Adverse Effect. No material unsatisfied
liability to the PBGC (other than required premium payments) has been or is
expected to be incurred by Parent, any of its Subsidiaries or any of their ERISA
Affiliates. No ERISA Event has occurred or is reasonably expected to occur that
could reasonably be expected to result in a liability to Parent or any of its
Subsidiaries in excess of $10,000,000. As of the most recent valuation date for
any Pension Plan, the amount of unfunded benefit liabilities (as defined in
Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension
Plans (excluding for purposes of such computation any Pension Plans with respect
to which assets exceed benefit liabilities), does not exceed $10,000,000. As of
the most recent valuation date for each Multiemployer Plan for which the
actuarial report is available, the potential liability of Parent, its
Subsidiaries and their respective ERISA Affiliates for a complete withdrawal
from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA, does not exceed $10,000,000. Parent, each of its Subsidiaries and each
of their ERISA Affiliates have complied with the requirements of Section 515 of
ERISA with respect to each Multiemployer Plan and are not in material "default"
(as defined in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan.
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4.18. SOLVENCY. Each Credit Party is and, upon the incurrence of any
Obligation by such Credit Party on any date on which this representation and
warranty is made, will be, Solvent.
4.19. TRANSACTION DOCUMENTS.
(a) Company has delivered to Syndication Agent and Administrative Agent
complete and correct copies of (i) each Transaction Document and of all exhibits
and schedules thereto as of the date hereof and (ii) copies of any material
amendment, restatement, supplement or other modification to or waiver of each
Transaction Document entered into after the date hereof.
(b) Except to the extent otherwise expressly set forth herein or in the
schedules hereto, and subject to the qualifications set forth therein, each of
the representations and warranties given by any Credit Party in any Transaction
Document is true and correct in all material respects as of the Closing Date (or
as of any earlier date to which such representation and warranty specifically
relates). Notwithstanding anything in the Transaction Document to the contrary,
the representations and warranties of each Credit Party set forth in this
Section 4.19 shall, solely for purposes hereof, survive the Closing Date for the
benefit of Lenders.
(c) All Governmental Authorizations and all other authorizations, approvals
and consents of any other Person required by the Transaction Documents or to
consummate the Transaction have been obtained and are in full force and effect.
On the Closing Date, (i) all of the conditions to effecting or consummating the
Transaction set forth in the Transaction Documents have been duly satisfied or,
with the consent of Administrative Agent and Syndication Agent (such consent not
to be unreasonably withheld or delayed), waived, and (ii) the Tender Offer has
been consummated in accordance with the Transaction Documents and all applicable
laws and all of the shares of Parent Common Stock acquired in connection with
the Tender Offer have been retired.
4.20. YEAR 2000. Parent reasonably believes that all computer applications
that are material to its or any of its Subsidiaries' business and operations are
able to perform properly date-sensitive functions for all dates before and after
January 1, 2000, except to the extent that a failure to do so would not
reasonably have a Material Adverse Effect.
4.21. COMPLIANCE WITH STATUTES, ETC. Each of Parent and its Subsidiaries is
in compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all Governmental Authorities, in respect of
the conduct of its business and the ownership of its property, except such
non-compliance that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
4.22. DISCLOSURE. (a) No representation or warranty of any Credit Party
contained in any Credit Document, Transaction Document or in any other
documents, certificates or written statements furnished to Lenders by or on
behalf of Parent or any of its Subsidiaries for use in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact (known to Parent, in the case of any
document not furnished by either of them) necessary in order to make the
statements contained herein or therein not misleading
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in light of the circumstances in which the same were made. Any projections and
pro forma financial information contained in such materials are based upon good
faith estimates and assumptions believed by Parent to be reasonable at the time
made, it being recognized by Lenders that such projections as to future events
are not to be viewed as facts and that actual results during the period or
periods covered by any such projections may differ from the projected results
and no assurance can be given that the Projections will be realized. There are
no facts known (or which should upon the reasonable exercise of diligence be
known) to Parent (other than matters of a general economic nature) that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect and that have not been disclosed herein or in such other
documents, certificates and statements furnished to Lenders for use in
connection with the transactions contemplated hereby.
(b) The Transaction Documents do not contain any untrue statement of any
material fact or omit to state a material fact (known to Parent or any of its
Subsidiaries, in the case of any document not furnished by it) necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances in which the same were made.
SECTION 5. AFFIRMATIVE COVENANTS
Each Credit Party covenants and agrees that so long as any Commitment is in
effect and until payment in full of all Obligations and cancellation or
expiration of all Letters of Credit, each Credit Party shall perform, and shall
cause each of its Subsidiaries to perform, all covenants in this Section 5.
5.1. FINANCIAL STATEMENTS AND OTHER REPORTS. Parent will deliver to
Administrative Agent and Lenders:
(a) Quarterly Financial Statements. As soon as available, and in any event
within forty five (45) days after the end of each of the first three Fiscal
Quarters of each Fiscal Year, the consolidated balance sheets of Parent and its
Subsidiaries as at the end of such Fiscal Quarter and the related consolidated
statements of income, stockholders' equity and cash flows of Parent and its
Subsidiaries for such Fiscal Quarter and for the period from the beginning of
the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
periods of the previous Fiscal Year, together with a Financial Officer
Certification and a Narrative Report with respect thereto;
(b) Annual Financial Statements. As soon as available, and in any event
within ninety (90) days after the end of each Fiscal Year (commencing with the
Fiscal Year ending January 2001) (i) the consolidated balance sheets of Parent
and its Subsidiaries as at the end of such Fiscal Year and the related
consolidated statements of income, stockholders' equity and cash flows of Parent
and its Subsidiaries for such Fiscal Year, setting forth in each case in
comparative form the corresponding figures for the previous Fiscal Year,
together with a Financial Officer Certification and a Narrative Report with
respect thereto; and (ii) with respect such consolidated financial statements of
Parent and its Subsidiaries, a report thereon of Arthur Andersen LLP or other
independent certified public accountants of recognized national standing
selected by Parent, and
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reasonably satisfactory to Administrative Agent (which report shall be
unqualified as to going concern and scope of audit, and shall state that
such consolidated financial statements fairly present, in all material
respects, the consolidated financial position of Parent and its
Subsidiaries as at the dates indicated and the results of their operations
and their cash flows for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years (except as otherwise
disclosed in such financial statements) and that the examination by such
accountants in connection with such consolidated financial statements has
been made in accordance with generally accepted auditing standards)
together with a written statement by such independent certified public
accountants stating (1) that their audit examination has included a review
of the terms of the Credit Documents, (2) whether, in connection therewith,
any condition or event that constitutes a Default or an Event of Default
has come to their attention and, if such a condition or event has come to
their attention, specifying the nature and period of existence thereof, and
(3) that nothing has come to their attention that causes them to believe
that the information contained in any Compliance Certificate is not correct
or that the matters set forth in such Compliance Certificate are not stated
in accordance with the terms hereof;
(c) Compliance Certificate. Together with each delivery of financial
statements of Parent and its Subsidiaries pursuant to Sections 5.1(a) and
5.1(b), a duly executed and completed Compliance Certificate;
(d) Statements of Reconciliation after Change in Accounting
Principles. If, as a result of any change in accounting principles and
policies from those used in the preparation of the Historical Financial
Statements, the consolidated financial statements of Parent and its
Subsidiaries delivered pursuant to Section 5.1(a) or 5.1(b) will differ in
any material respect from the consolidated financial statements that would
have been delivered pursuant to such subdivisions had no such change in
accounting principles and policies been made, then, together with the first
delivery of such financial statements after such change, one or more a
statements of reconciliation for all such prior financial statements in
form and substance reasonably satisfactory to Administrative Agent;
(e) SEC Filings and Press Releases. Promptly upon their becoming
available, copies of (i) all financial statements, reports, notices and
proxy statements sent or made available generally by Parent to its security
holders acting in such capacity or by any Subsidiary of Parent to its
security holders other than Parent or another Subsidiary of Parent,
(ii) all regular and periodic reports and all registration statements
(other than on Form S-8 or a similar form) and prospectuses, if any, filed
by Parent or any of its Subsidiaries with any securities exchange or with
the Securities and Exchange Commission or any governmental or private
regulatory authority, and (iii) all press releases and other statements
made available generally by Parent or any of its Subsidiaries to the public
concerning material developments in the business of Parent or any of its
Subsidiaries.
(f) Notice of Default. Promptly upon any officer of Parent or Company
obtaining knowledge (i) of any condition or event that constitutes a
Default or an Event of Default or that notice has been given to Parent or
Company with respect thereto; (ii) that any Person has given any notice to
Parent or Company or any of its Subsidiaries or taken any other action with
respect to any event or condition set forth in Section 8.1(b); (iii) of any
condition or event of a type required to be
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disclosed in a current report on Form 8-K of the Securities and Exchange
Commission; or (iv) of the occurrence of any event or change that has
caused or evidences, either in any case or in the aggregate, a Material
Adverse Effect, a certificate of its Authorized Officers specifying the
nature and period of existence of such condition, event or change, or
specifying the notice given and action taken by any such Person and the
nature of such claimed Event of Default, Default, default, event or
condition, and what action Company has taken, is taking and proposes to
take with respect thereto;
(g) Notice of Litigation. Promptly upon any officer of Parent or
Company obtaining knowledge of (i) the institution of, or non-frivolous
threat of, any Adverse Proceeding not previously disclosed in writing by
Company to Lenders, or (ii) any material development in any Adverse
Proceeding that, in the case of either (i) or (ii) if adversely determined,
could be reasonably expected to have a Material Adverse Effect, or seeks to
enjoin or otherwise prevent the consumma tion of, or to recover any damages
or obtain relief as a result of, the Tender Offer, the Refinancing or any
other transactions contemplated hereby, written notice thereof together
with such other information as may be reasonably available to Parent or
Company to enable Lenders and their counsel to evaluate such matters;
(h) ERISA. (i) Promptly upon becoming aware of the occurrence of or
forthcoming occurrence of any ERISA Event that could reasonably be expected
to result in a liability to Parent or any of its Subsidiaries in excess of
$10,000,000, a written notice specifying the nature thereof, what action
Parent, any of its Subsidiaries or any of their respective ERISA Affiliates
has taken, is taking or proposes to take with respect thereto and, when
known, any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto; and (ii) with
reasonable promptness, copies of (1) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by Parent, any
of its Subsidiaries or any of their respective ERISA Affiliates with the
Internal Revenue Service with respect to each Pension Plan; (2) all notices
received by Parent, any of its Subsidiaries or any of their respective
ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA
Event; and (3) copies of such other documents or governmental reports or
filings relating to any Employee Benefit Plan as Administrative Agent
shall reasonably request;
(i) Rating Change. Promptly upon the occurrence of either Moody's or
S&P changing the rating it has assigned to Parent, a written notice
describing such change;
(j) Insurance Report. As soon as practicable and in any event by the
last day of each Fiscal Year, a report in form and substance reasonably
satisfactory to Administrative Agent outlining all material insurance
coverage maintained as of the date of such report by Parent and its
Subsidiaries and all material insurance coverage planned to be maintained
by Parent and its Subsidiaries in the immediately succeeding Fiscal Year;
(k) Environmental Reports and Audits. As soon as practicable following
receipt thereof, copies of all environmental audits and reports with
respect to environmental matters at any Facility or which relate to any
environmental liabilities of Parent or its Subsidiaries which, in any
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such case, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect; and
(l) Other Information. With reasonable promptness, such other
information and data with respect to Parent or any of its Subsidiaries as
from time to time may be reasonably requested by Administrative Agent or
any Lender.
5.2. EXISTENCE. Except as otherwise permitted under Section 6.7, each
Credit Party will, and will cause each of its Subsidiaries to, at all times
preserve and maintain in full force and effect its existence and all rights and
franchises, licenses and permits material to its business; provided, no Credit
Party nor any of its Subsidiaries shall be required to preserve any such
existence, right or franchise, licenses and permits if such Person's board of
directors (or similar governing body) shall determine that the preservation
thereof is no longer desirable in the conduct of the business of such Person,
and that the loss thereof is not disadvantageous in any material respect to such
Person or to Lenders.
5.3. PAYMENT OF TAXES AND CLAIMS. Each Credit Party will, and will cause
each of its Subsidiaries to, pay and discharge as the same shall become due and
payable all Taxes imposed upon it or any of its properties or assets or in
respect of any of its income, businesses or franchises before any penalty or
fine accrues thereon, and all claims (including claims for labor, services,
materials and supplies) for sums that have become due and payable and that by
law have or may become a Lien upon any of its properties or assets, prior to the
time when any penalty or fine shall be incurred with respect thereto; provided,
no such Tax or claim need be paid if it is being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted, so long as
(a) adequate reserve or other appropriate provision, as shall be required in
conformity with GAAP shall have been made therefor, and (b) in the case of a
charge or claim which has or may become a Lien against any of the Share
Collateral, such contest proceedings conclusively operate to stay the sale of
any portion of the Share Collateral to satisfy such Tax or claim. No Credit
Party will, nor will it permit any of its Subsidiaries to, file or consent to
the filing of any consolidated income Tax return with any Person (other than
Parent or any of its Subsidiaries).
5.4. MAINTENANCE OF PROPERTIES. Each Credit Party will, and will cause each
of its Subsidiaries to, maintain or cause to be maintained in good repair,
working order and condition, ordinary wear and tear excepted, all material
properties used or useful in the business of Parent and its Subsidiaries and
from time to time will make or cause to be made all appropriate repairs,
renewals and replacements thereof except where the failure to so maintain or
preserve could not reasonably be expected to have a Material Adverse Effect.
5.5. INSURANCE. Each Credit Party will maintain or cause to be maintained,
with financially sound and reputable independent insurers, such insurance in
respect of the assets, properties and businesses of Parent and its Subsidiaries
as may customarily be carried or maintained under similar circumstances by
Persons of established reputation engaged in similar businesses, in each case in
such amounts (giving effect to self-insurance), with such deductibles, covering
such risks and otherwise on such terms and conditions as shall be customary for
such Persons.
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5.6. INSPECTIONS; LENDERS MEETINGS. Each Credit Party will, and will cause
each of its Subsidiaries to, permit any authorized representatives designated by
any Lender to visit and inspect any of the properties of any Credit Party and
any of its respective Subsidiaries, to inspect, copy and take extracts from its
and their financial and accounting records, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants, all upon reasonable notice and at such reasonable times
during normal business hours and as often as may reasonably be requested and
such visit and inspection shall be coordinated with the Administrative Agent.
Parent and Company will, upon the request of Administrative Agent or Requisite
Lenders, participate in a meeting of Administrative Agent and Lenders once
during each Fiscal Year to be held at Company's corporate offices (or at such
other location as may be agreed to by Company and Administrative Agent) at such
time as may be agreed to by Company and Administrative Agent.
5.7. COMPLIANCE WITH LAWS. Each Credit Party will comply, and shall cause
each of its Subsidiaries and all other Persons, if any, on or occupying any
Facilities to comply, with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority (including all
Environmental Laws), noncompliance with which could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
5.8. ENVIRONMENTAL. Each Credit Party shall promptly take, and shall cause
each of its Subsidiaries promptly to take, any and all actions necessary to (i)
cure any violation of applicable Environmental Laws by such Credit Party or its
Subsidiaries that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, and (ii) make an appropriate response to
any Environmental Claim against such Credit Party or any of its Subsidiaries and
discharge any obligations it may have to any Person thereunder where failure to
do so could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
5.9. SUBSIDIARIES.
(a) With respect to each Person that becomes a Subsidiary of Parent after
the Closing Date, Parent shall promptly send to Administrative Agent written
notice setting forth with respect to such Person (i) the date on which such
Person became a Subsidiary of Parent, and (ii) all of the data required to be
set forth in Schedule 4.1 with respect to all Subsidiaries of Parent; provided,
such written notice shall be deemed to supplement Schedule 4.1 for all purposes
hereof.
(b) With respect to each Person that becomes a wholly-owned Domestic
Subsidiary of Parent after the Closing Date, Parent shall cause such Domestic
Subsidiary to become a Guarantor hereunder and, until the date on which Parent
has received an Investment Grade Status rating, a Pledgor under the Pledge
Agreement by executing and delivering to Administrative Agent a Counterpart
Agreement, and to take all such actions and execute and deliver, or cause to be
executed and delivered, all such documents, instruments, agreements, and
certificates similar to those described in Sections 3.1(b), 3.1(i) and 3.1(m).
(c) Until the date on which Parent has received an Investment Grade Status
rating, with respect to each Person that becomes a Domestic Subsidiary of Parent
after the Closing Date,
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Parent shall promptly take all applicable actions and execute and
deliver all applicable documents, instruments, agreements, and certificates
similar to those described in Sections 3.1(b), 3.1(i) and 3.1(m) with
respect to such Subsidiary, and Parent shall cause the owner of the Capital
Stock of such Subsidiary to become a Pledgor under the Pledge Agreement by
executing and delivering to Administrative Agent a Counterpart Agreement.
(d) Until the date on which Parent has received an Investment Grade
Status rating, with respect to each Person that after the Closing Date
becomes a Foreign Subsidiary of Parent, and the ownership interests of such
Foreign Subsidiary are owned by Parent or by any Domestic Subsidiary
thereof, Parent shall, or shall cause such Domestic Subsidiary to, deliver,
all such documents, instruments, agreements, and certificates as are
similar to those described in Sections 3.1(b), and, except with respect to
Immaterial Foreign Subsidiaries, Parent shall take, or shall cause such
Domestic Subsidiary to take, all of the actions referred to in Section
3.1(i) reasonably requested to evidence and to grant and to perfect a First
Priority Lien in favor of Administrative Agent, for the benefit of Lenders,
under the Pledge and Security Agreement in sixty-five percent (65%) of such
ownership interests.
(e) Until the date on which Parent has received an Investment Grade
Status rating, with respect to each Person that after the Closing Date is
designated as a Material Foreign Subsidiary of Parent in accordance with
the terms hereof, and the ownership interests of such Material Foreign
Subsidiary are owned by Parent or by any Domestic Subsidiary thereof,
Parent shall, or shall cause such Domestic Subsidiary to, deliver, all such
documents, instruments, agreements, and certificates as are similar to
those described in Sections 3.1(b), and Parent shall take, or shall cause
such Domestic Subsidiary to take, all of the actions referred to in Section
3.1(i) reasonably requested to evidence and to grant and to perfect a First
Priority Lien in favor of Administrative Agent, for the benefit of Lenders,
under the Pledge and Security Agreement in sixty-five percent (65%) of such
ownership interests.
5.10. FURTHER ASSURANCES. At any time or from time to time upon the request
of Administrative Agent, each Credit Party will, at its expense, promptly
execute, acknowledge and deliver such further documents and do such other acts
and things as Administrative Agent may reasonably request in order to effect
fully the purposes of the Credit Documents and to provide for payment of the
Obligations in accordance with the terms of this Agreement, any Note and the
other Credit Documents. In furtherance and not in limitation of the foregoing,
each Credit Party shall take such actions as Administrative Agent may reasonably
request from time to time (including, without limitation, the execution and
delivery of guaranties, pledge agreements, acknowledgments of pledge, stock
powers, financing statements and other documents, the filing or recording of any
of the foregoing and the delivery of stock certificates and other collateral
with respect to which perfection is obtained by possession) to ensure that the
Obligations are guarantied by the Guarantors and, prior to the date on which
Parent has received an Investment Grade Status rating, are secured by the Share
Collateral (subject to limitations contained in the Credit Documents with
respect to Foreign Subsidiaries).
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SECTION 6. NEGATIVE COVENANTS
Each Credit Party covenants and agrees that, so long as any Commitment is
in effect and until payment in full of all Obligations and cancellation or
expiration of all Letters of Credit, such Credit Party shall perform, and shall
cause each of its Subsidiaries to perform, all covenants in this Section 6.
6.1. INDEBTEDNESS. No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or
otherwise become or remain directly or indirectly liable with respect to any
Indebtedness, except:
(a) the Obligations;
(b) Indebtedness of any wholly-owned Subsidiary of Parent to Parent,
Company or to any other wholly-owned Subsidiary of Parent, or of Parent or
Company to any wholly-owned Subsidiary of Parent; provided, (i) all such
Indebtedness with respect to wholly-owned Foreign Subsidiaries shall be
unsecured and subordinated in right of payment to the payment in full of
the Obligations pursuant to the terms of the applicable promissory notes or
an intercompany subordination agreement that in any such case, is
reasonably satisfactory to Administrative Agent, and (ii) any payment by
any such Subsidiary under any guaranty of the Obligations shall result in a
pro tanto reduction of the amount of any Indebtedness owed by such
Subsidiary to Company or to any of its Subsidiaries for whose benefit such
payment is made;
(c) Subordinated Indebtedness of Company or Parent; provided, (i)
immediately prior to, and after giving effect to the incurrence of such
Subordinated Indebtedness and the application of the Net Issuance Proceeds
thereof, no Default or Event of Default shall have occurred and be
continuing or would result from such incurrence, and (ii) Parent and its
Subsidiaries shall be in compliance with, immediately prior to and after
giving pro forma effect to the incurrence of such Indebtedness as if such
Indebtedness and the application of the Net Issuance Proceeds thereof had
been incurred at the beginning of the measurement period for the most
recently completed Fiscal Quarter, Section 6.6;
(d) Indebtedness incurred by Parent or any of its Subsidiaries arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, or from guaranties or letters of credit, surety
bonds or performance bonds securing the performance of the Parent or any
such Subsidiary pursuant to such agreements, in connection with Permitted
Acquisitions or permitted dispositions of any business, assets or
Subsidiary of Parent or any of its Subsidiaries;
(e) Indebtedness which may be deemed to exist pursuant to any
guaranties, performance, surety, statutory, appeal or similar bonds or
obligations incurred in the ordinary course of business;
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(f) Indebtedness in respect of netting services, overdraft protections
and otherwise in connection with deposit accounts maintained in the
ordinary course of business;
(g) Indebtedness under Capital Leases arising out of Permitted
Sale-Leasebacks made in compliance with Section 6.9, in an aggregate amount
not to exceed $75,000,000.
(h) guaranties in the ordinary course of business of the obligations
of suppliers, customers, franchisees and licensees of Parent and its
Subsidiaries;
(i) Indebtedness described in Schedule 6.1, but not any extensions,
renewals or replacements of such Indebtedness except (i) renewals and
extensions expressly provided for in the agreements evidencing any such
Indebtedness as the same are in effect on the date of this Agreement and
(ii) refinancings and extensions of any such Indebtedness if the terms and
conditions thereof are not less favorable to the obligor thereon or to the
Lenders than the Indebtedness being refinanced or extended, the average
life to maturity thereof is greater than or equal to the remaining average
life to maturity of the Indebtedness being refinanced or extended;
provided, such Indebtedness permitted under the immediately preceding
clause (i) or (ii) above shall not (A) include Indebtedness of an obligor
that was not an obligor with respect to the Indebtedness being extended,
renewed or refinanced, (B) exceed in a principal amount the Indebtedness
being renewed, extended or refinanced or (C) incurred, created or assumed
if any Default or Event of Default has occurred and is continuing or would
result therefrom;
(j) Indebtedness in respect of Interest Rate Agreements entered into
to limit the Unadjusted Eurodollar Rate Component of the interest costs to
Company with respect to the Term Loans hereunder;
(k) Indebtedness in an aggregate amount not to exceed at any time
$10,000,000 in respect of Currency Agreements entered into to limit
Parent's and its Subsidiaries' exposure to currency exchange fluctuations
in the ordinary course of business and not for speculative purposes;
(l) other Indebtedness of Company's Subsidiaries in an aggregate
amount not to exceed at any time $35,000,000 in the aggregate less the
aggregate outstanding amount of Indebtedness of Parent or Company that was
incurred pursuant to Section 6.1(m) and is guaranteed by any Subsidiary of
Company; and
(m) other Indebtedness of Parent and Company, in an aggregate amount
not to exceed at any time $15,000,000; provided, however, that if such
Indebtedness is guaranteed by any Subsidiary of Company pursuant to, and in
compliance with, Section 6.1(l), such Indebtedness shall not be applied to
reduce the amount of Indebtedness permitted under this Section 6.1(m).
6.2. LIENS. No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Parent or any of its Subsidiaries, whether now owned or hereafter
acquired, or any income or
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profits therefrom, or file or permit the filing of, or permit to remain in
effect, any financing statement or other similar notice of any Lien with respect
to any such property, asset, income or profits under the UCC of any State or
under any similar recording or notice statute, except:
(a) Liens in favor of Administrative Agent for the benefit of Lenders
and Lender Counterparties granted pursuant to any Credit Document;
(b) Liens for Taxes, or claims the payment of which is not, at the
time, required thereby;
(c) statutory Liens of landlords, banks (and rights of set-off), of
carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and
other Liens imposed by law (other than any such Lien imposed pursuant to
Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA), in
each case incurred in the ordinary course of business (i) for amounts not
yet overdue or (ii) for amounts that are overdue and that (in the case of
any such amounts overdue for a period in excess of five days) are being
contested in good faith by appropriate proceedings, so long as such
reserves or other appropriate provisions, if any, as shall be required by
GAAP shall have been made for any such contested amounts;
(d) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money or other Indebtedness), so long as no foreclosure, sale or similar
proceedings have been commenced with respect to any portion of any property
on account thereof;
(e) easements, rights-of-way, restrictions, encroachments, and other
minor defects or irregularities in title, in each case which do not and
will not interfere in any material respect with the ordinary conduct of the
business of Parent or any of its Subsidiaries taken as a whole;
(f) any interest or title of a lessor or sublessor under any lease
permitted hereunder;
(g) Liens solely on any cash earnest money deposits made by Parent or
any of its Subsidiaries in connection with any letter of intent or purchase
agreement entered into by it;
(h) Liens incurred in connection with the purchase or shipping of
goods or assets on the related assets and proceeds thereof in favor of the
seller or shipper of such goods or assets;
(i) Liens arising from filing precautionary UCC financing statements
relating solely to operating leases entered into the ordinary course of
business;
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(j) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(k) any zoning or similar law or right reserved to or vested in any
governmental office or agency to control or regulate the use of any real
property;
(l) licenses of patents, trademarks and other intellectual property
rights granted by Parent or any of its Subsidiaries in the ordinary course
of business and not interfering in any respect with the ordinary conduct of
the business of Parent or such Subsidiary taken as a whole;
(m) Liens described in Schedule 6.2;
(n) Liens consisting of judgment or judicial attachment liens with
respect to judgements that do not constitute and Event of Default and in
the aggregate do not exceed $10,000,000; and
(o) other Liens on assets other than the Share Collateral securing
Indebtedness in an aggregate amount not to exceed $50,000,000 at any time
outstanding.
6.3. EQUITABLE LIEN; NO FURTHER NEGATIVE PLEDGES. If any Credit Party or
any of its Subsidiaries shall create or assume any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, other than
Permitted Liens, it shall make or cause to be made effective provision whereby
the Obligations will be secured by such Lien equally and ratably with any and
all other Indebtedness secured thereby as long as any such Indebtedness shall be
so secured; provided, notwithstanding the foregoing, this covenant shall not be
construed as a consent by Requisite Lenders to the creation or assumption of any
such Lien not otherwise permitted hereby. Except with respect to (a) specific
property encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to a permitted Asset Sale and (b)
restrictions by reason of customary provisions restricting assignments,
subletting or other transfers contained in leases, licenses and similar
agreements entered into in the ordinary course of business (provided that such
restrictions are limited to the property or assets secured by such Liens or the
property or assets subject to such leases, licenses or similar agreements, as
the case may be) no Credit Party nor any of its Subsidiaries shall enter into
any agreement prohibiting the creation or assumption of any Lien upon any of its
properties or assets, whether now owned or hereafter acquired.
6.4. RESTRICTED PAYMENTS; RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS.
(a) No Credit Party shall, nor shall it permit any of its Subsidiaries
to, directly or indirectly, declare, order, pay, make or set apart any sum
for any Restricted Payment except the following shall be permitted:
(i) Parent and Company may make regularly scheduled payments of
interest in respect of any of its respective Subordinated Indebtedness
in accordance with the
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terms of, and only to the extent required by, and subject to the
subordination provisions contained in, the indenture or other
agreement pursuant to which such Subordinated Indebtedness was issued;
(ii) any Subsidiary of Parent may pay ratable dividends and make
ratable distributions to its equity holders;
(iii) Parent shall be permitted to repurchase its shares of
Parent Common Stock in accordance with the terms of the Offer to
Purchase; provided that such shares of Parent Common Stock are
immediately retired in connection with such repurchase;
(iv) Parent shall be permitted to repurchase its shares of Parent
Common Stock within six months following the Closing Date; provided
that (x) such repurchases shall not in the aggregate exceed the excess
of $400,000,000 over the actual Tender Offer Consideration paid
pursuant to the Tender Offer and (y) any shares of Additional
Purchased Common Stock are immediately retired in connection with such
repurchases;
(v) Parent shall be permitted to repurchase the rights issued
pursuant to the Rights Agreement at a purchase price of no more than
$.01 for each issued and outstanding right; and
(vi) Parent may declare or pay cash dividends to its stockholders
and purchase, redeem or otherwise acquire shares of its Capital Stock;
provided that, (i) immediately after giving effect to such proposed
action (or, in the case of dividends declared not earlier than 45 days
prior to the payment thereof, at the time of such declaration) no
Default or Event of Default exists and (ii) in the case of any
purchase, redemption or other acquisition of its Capital Stock at any
time prior to the date on which Parent has received an Investment
Grade Status rating, the aggregate amount of such purchase, redemption
or other acquisition of its Capital Stock shall not exceed for any
Fiscal Year set forth below the amount set forth below opposite such
Fiscal Year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- -------
<S> <C>
February 3, 2001 $25,000,000
and each following Fiscal Year $50,000,000
===========
</TABLE>
(b) Except as provided herein, no Credit Party shall, nor shall it
permit any of its Subsidiaries to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Subsidiary of Parent to (i) pay dividends or
make any other distributions on any of such Subsidiary's Capital Stock
owned by Parent or any other Subsidiary of Parent, (ii) repay or prepay any
Indebtedness owed by such Subsidiary to Parent or any other Subsidiary of
Parent, (iii) make loans or advances to Parent or any other Subsidiary of
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Parent, or (iv) transfer any of its property or assets to Parent or any
other Subsidiary of Parent other than restrictions (1) in agreements
evidencing Indebtedness permitted by Section 6.1 that impose restrictions
on the property acquired with the proceeds of such Indebtedness or the
property subject to a Lien securing such Indebtedness, (2) by reason of
customary provisions restricting assignments, subletting or other transfers
contained in leases, licenses, joint venture agreements and similar
agreements entered into in the ordinary course of business, and (3) that
are or were created by virtue of any transfer of, agreement to transfer or
option or right with respect to any property, assets or Capital Stock not
otherwise prohibited under this Agreement.
6.5. INVESTMENTS. No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, make or own any Investment in any
Person, including without limitation any Joint Venture, except:
(a) Cash Equivalents;
(b) Interest Rate Agreements entered into to limit the Unadjusted
Eurodollar Rate Component of the interest costs to Company with respect to
the Term Loans hereunder;
(c) Currency Agreements entered into to limit Parent's and its
Subsidiaries' exposure to currency exchange fluctuations in the ordinary
course of business and not for speculative purposes;
(d) (i) equity Investments owned as of the Closing Date in any
Subsidiary, and (ii) Investments made after the Closing Date in any
wholly-owned Foreign Subsidiary of Parent;
(e) Consolidated Capital Expenditures permitted by Section 6.6(d);
(f) Investments (i) in accounts receivable arising and trade credit
granted in the ordinary course of business and in any Securities or other
assets received in satisfaction or partial satisfaction thereof from
financially troubled account debtors or in settlement of disputes with
account debtors and (ii) deposits, prepayments and other credits to
suppliers made in the ordinary course of business consistent with the past
practices of Parent and its Subsidiaries; (ii) deposits, prepayments and
other credits to suppliers made in the ordinary course of business
consistent with the past practices of Parent and its Subsidiaries;
(g) Investments in bonds issued by a Governmental Authority in
connection with the lease of property or equipment by the Parent or its
Subsidiaries from such Governmental Authority, provided that such bonds are
secured by the lease payments required to be made by the Parent or its
Subsidiaries with respect to such leased property and are issued in
transactions which are in form and substance substantially similar to those
in which the investments described on part II of Schedule 6.5 were made;
(h) Investments made in connection with Permitted Acquisitions
permitted pursuant to Section 6.7;
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(i) Investments described in Schedule 6.5; and
(j) other Investments in an aggregate amount not to exceed at any time
$75,000,000.
6.6. FINANCIAL COVENANTS.
(a) Minimum Fixed Charge Coverage Ratio. Parent shall not permit the
Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter, beginning
with the Fiscal Quarter ending April 29, 2000, to be less than the ratio of
1.75:1.00.
(b) Maximum Leverage Ratio. Parent shall not permit the Leverage Ratio
as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter
ending April 29, 2000, to exceed the ratio of 2.00:1.00.
(c) Maximum Consolidated Debt/Capitalization Ratio. Parent shall not
permit the Consolidated Debt/Capitalization Ratio as of the last day of any
Fiscal Quarter (which last day occurs in any period set forth below), beginning
with the Fiscal Quarter ending February 3, 2001, to exceed the correlative ratio
indicated:
<TABLE>
<CAPTION>
CONSOLIDATED
PERIOD DEBT/CAPITALIZATION RATIO
------ -------------------------
<S> <C>
February 3, 2001 - February 1, 2003 0.80:1.00
February 2, 2003 and thereafter 0.70:1.00
</TABLE>
(d) Maximum Consolidated Capital Expenditures. Until the date on which
Parent has received an Investment Grade Status rating, Parent shall not, and
shall not permit its Subsidiaries to, make or incur Consolidated Capital
Expenditures, in any Fiscal Year indicated below, in an aggregate amount for
Parent and its Subsidiaries in excess of the corresponding amount set forth
below opposite such Fiscal Year; provided, such amount for any Fiscal Year shall
be increased by an amount equal to the excess, if any, of such amount for the
previous Fiscal Year (as adjusted in accordance with this proviso) over the
actual amount of Consolidated Capital Expenditures for such previous Fiscal
Year:
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<TABLE>
<CAPTION>
CONSOLIDATED
FISCAL YEAR CAPITAL EXPENDITURES
----------- --------------------
<S> <C>
Fiscal Year ending February 3, 2001 $165,000,000
Thereafter $150,000,000
</TABLE>
(e) Certain Calculations. With respect to any period during which a
Permitted Acquisition or an Asset Sale has occurred (each, a "SUBJECT
TRANSACTION"), for purposes of determining compliance with the financial
covenants set forth in this Section 6.6 (but not for purposes of determining the
Applicable Margin or Applicable Commitment Fee Percentage), Consolidated
Adjusted EBITDA and the components of Consolidated Fixed Charges shall be
calculated with respect to such period on a pro forma basis (including pro forma
adjustments arising out of events which are directly attributable to a specific
transaction, are factually supportable and are expected to have a continuing
impact, in each case determined on a basis consistent with Article 11 of
Regulation S-X promulgated under the Securities Act and as interpreted by the
staff of the Securities and Exchange Commission, which would include cost
savings resulting from head count reduction, closure of facilities and similar
restructuring charges, which pro forma adjustments shall be certified by the
chief financial officer of Parent) using the historical audited financial
statements of any business so acquired or to be acquired or sold or to be sold
and the consolidated financial statements of Parent and its Subsidiaries which
shall be reformulated as if such Subject Transaction, and any Indebtedness
incurred or repaid in connection therewith, had been consummated or incurred or
repaid at the beginning of such period (and assuming that such Indebtedness
bears interest during any portion of the applicable measurement period prior to
the relevant acquisition at the weighted average of the interest rates
applicable to outstanding Loans incurred during such period).
6.7. FUNDAMENTAL CHANGES; DISPOSITION OF ASSETS; ACQUISITIONS. No Credit
Party shall, nor shall it permit, any of its Subsidiaries to, enter into any
transaction of merger or consolidation, or liquidate, wind-up or dissolve itself
(or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease
(as lessor or sublessor), transfer or otherwise dispose of, in one transaction
or a series of transactions, all or any part of its business, assets or property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible, whether now owned or hereafter acquired, or acquire by purchase or
otherwise (other than purchases or other acquisitions of inventory, materials
and equipment in the ordinary course of business) the business, property or
fixed assets of, or stock or other evidence of beneficial ownership of, any
Person or any division or line of business or other business unit of any Person,
except:
(a) any Subsidiary of Parent (other than Company) may be merged with
or into Parent, Company or any wholly-owned Guarantor Subsidiary, or be
liquidated, wound up or dissolved, or all or any part of its business, property
or assets may be conveyed, sold, leased, transferred or otherwise disposed of,
in one transaction or a series of transactions, to Parent, Company or any
wholly-owned Guarantor Subsidiary; provided, (i) at the time of any such merger,
no Event of Default shall exist or shall result from such merger, and (ii) in
the case of such a merger,
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Parent, Company or such wholly-owned Guarantor Subsidiary, as applicable, shall
be the continuing or surviving Person;
(b) sales or other dispositions of assets that do not constitute Asset
Sales;
(c) Asset Sales not otherwise permitted hereunder; provided that (i)
the consideration received for such assets shall be in an amount at least equal
to the fair market value thereof (determined in good faith by the Board of
Directors of Parent (or similar governing body)); (ii) at the time of any such
Asset Sale, no Event of Default shall exist or shall result from such Asset
Sale; (iii) no less than 80% of the consideration therefor shall be paid in
Cash; (iv) the Net Asset Sale Proceeds thereof shall be applied as required by
Section 2.14(a); and (v) at the time of such Asset Sale and after giving effect
thereto, the aggregate sales price of all assets or property so sold by Parent
and its Subsidiaries, together, since the Closing Date shall not exceed 5% of
the Consolidated Net Tangible Assets of Parent and its Subsidiaries determined
in accordance with GAAP.
(d) disposals of obsolete, worn out or surplus property in the
ordinary course of business; provided the Net Asset Sale Proceeds thereof, if
any, shall be applied as required by Section 2.14(a);
(e) disposals of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment;
(f) Permitted Acquisitions by Parent and its wholly-owned
Subsidiaries, the consideration of which constitutes less than $200,000,000 in
the aggregate from the Closing Date. Notwithstanding anything to the contrary,
the $200,000,000 limitation in this Section 6.7(f) shall not be applicable after
the date on which Parent has received an Investment Grade Status rating.
(g) Investments made in accordance with Section 6.5; and
(h) Asset Sales of stores developed by Parent or any of its
Subsidiaries in connection with Permitted Sale-Leasebacks, provided that (x) the
proceeds of any such Permitted Sale Leaseback shall be entirely in cash and
shall not be less than 100% of the fair market value of the equipment being sold
(determined in good faith by the board of directors of Parent) and (y) the Net
Asset Sale Proceeds thereof shall be applied as required by Section 2.14(a).
6.8. DISPOSAL OF SUBSIDIARY INTERESTS. Except for any sale of 100% of the
Capital Stock of any of its Subsidiaries in compliance with the provisions of
Section 6.7, no Credit Party shall, nor shall it permit any of its Subsidiaries
to, (a) directly or indirectly sell, assign, pledge or otherwise encumber or
dispose of any Capital Stock of any of its Subsidiaries, except to qualify
directors if required by applicable law; or (b) permit any of its Subsidiaries
directly or indirectly to sell, assign, pledge or otherwise encumber or dispose
of any Capital Stock of any of its Subsidiaries, except to another Credit Party
(subject to the restrictions on such disposition otherwise imposed herein
under), or to qualify directors if required by applicable law.
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6.9. SALES AND LEASE-BACKS. No Credit Party shall, nor shall it permit any
of its Subsidiaries to, directly or indirectly, become or remain liable as
lessee or as a guarantor or other surety with respect to any lease of any
property (whether real, personal or mixed), whether now owned or hereafter
acquired (a "SALE-LEASEBACK"), which such Credit Party (a) has sold or
transferred or is to sell or to transfer to any other Person (other than Parent
or any of its Subsidiaries), or (b) intends to use for substantially the same
purpose as any other property which has been or is to be sold or transferred by
such Credit Party to any Person (other than Parent or any of its Subsidiaries)
in connection with such lease; provided, however, that a Credit Party may enter
into Sale-Leasebacks at market rates and subject to compliance with Section
6.7(i) provided that the aggregate amount of such Sale-Leasebacks since the
Closing Date shall not exceed $75,000,000 ("PERMITTED SALE-LEASEBACKS"). For
avoidance of doubt, Sale-Leasebacks that result in Capital Leases shall be
treated as Indebtedness for all purposes of this Agreement.
6.10. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. No Credit Party shall,
nor shall it permit any of its Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any holder of 5%
or more of any class of Capital Stock of Parent or any of its Subsidiaries or
with any Affiliate of Parent or of any such holder, on terms that are less
favorable to Parent or that Subsidiary, as the case may be, than those that
might be obtained at the time in a comparable transaction from a Person who is
not such a holder or Affiliate; provided, the foregoing restriction shall not
apply to (a) any transaction between Parent and any wholly-owned Subsidiary of
Parent; (b) reasonable and customary fees paid to members of the board of
directors (or similar governing body) of Parent and its Subsidiaries; (c)
compensation arrangements for officers and other employees of Parent and its
Subsidiaries entered into in the ordinary course of business; and (d)
transactions described in Schedule 6.10.
6.11. CONDUCT OF BUSINESS. From and after the Closing Date, no Credit Party
shall, nor shall it permit any of its Subsidiaries to, engage in any business
other than (i) the businesses engaged in by such Credit Party on the Closing
Date and similar or related businesses and (ii) such other lines of business as
may be consented to by Requisite Lenders.
6.12. AMENDMENTS OR WAIVERS OF CERTAIN TRANSACTION DOCUMENTS.
(a) No Credit Party shall nor shall it permit any of its Subsidiaries
to, agree to any material amendment, restatement, supplement or other
modification to, or waiver of, any of its material rights under any Transaction
Document after the Closing Date without in each case obtaining the prior written
consent of Requisite Lenders to such amendment, restatement, supplement or other
modification or waiver.
(b) No Credit Party shall, nor shall it permit any of its Subsidiaries
to, amend or otherwise change the terms of any Subordinated Indebtedness, or
make any payment consistent with an amendment thereof or change thereto, if the
effect of such amendment or change is to increase the interest rate on such
Subordinated Indebtedness, change (to earlier dates) any dates upon which
payments of principal or interest are due thereon, change any event of default
or change any
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condition to an event of default with respect thereto (other than to eliminate
any such event of default or increase any grace period related thereto), change
the redemption, prepayment or defeasance provisions thereof, change the
subordination provisions of such Subordinated Indebtedness (or of any guaranty
thereof), or if the effect of any such amendment or change, together with all
other amendments or changes made, is to increase materially the obligations of
the obligor thereunder or to confer any additional rights on the holders of such
Subordinated Indebtedness (or a trustee or other representative on their behalf)
which would be adverse to any Credit Party or Lenders.
6.13. FISCAL YEAR. No Credit Party shall, nor shall it permit any of its
Subsidiaries to change its Fiscal Year-end from the Saturday which is the
closest to January 31.
SECTION 7. GUARANTY
7.1. GUARANTY OF THE OBLIGATIONS. Subject to the provisions of Section 7.2,
Guarantors jointly and severally hereby irrevocably and unconditionally guaranty
to Administrative Agent for the ratable benefit of the Beneficiaries the due and
punctual payment in full of all Obligations when the same shall become due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. Section 362(a)) (collectively, the "GUARANTEED OBLIGATIONS").
7.2. CONTRIBUTION BY GUARANTORS. All Guarantors desire to allocate among
themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and
equitable manner, their obligations arising under this Guaranty. Accordingly, in
the event any payment or distribution is made on any date by a Guarantor (a
"FUNDING GUARANTOR") under this Guaranty that exceeds its Fair Share as of such
date, such Funding Guarantor shall be entitled to a contribution from each of
the other Contributing Guarantors in the amount of such other Contributing
Guarantor's Fair Share Shortfall as of such date, with the result that all such
contributions will cause each Contributing Guarantor's Aggregate Payments to
equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (a)
the ratio of (i) the Fair Share Contribution Amount with respect to such
Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution
Amounts with respect to all Contributing Guarantors multiplied by (b) the
aggregate amount paid or distributed on or before such date by all Funding
Guarantors under this Guaranty in respect of the obligations Guaranteed. "FAIR
SHARE SHORTFALL" means, with respect to a Contributing Guarantor as of any date
of determination, the excess, if any, of the Fair Share of such Contributing
Guarantor over the Aggregate Payments of such Contributing Guarantor. "FAIR
SHARE CONTRIBUTION AMOUNT" means, with respect to a Contributing Guarantor as of
any date of determination, the maximum aggregate amount of the obligations of
such Contributing Guarantor under this Guaranty that would not render its
obligations hereunder or thereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any comparable applicable provisions of state law; provided, solely for
purposes of calculating the "FAIR SHARE CONTRIBUTION AMOUNT" with respect to any
Contributing Guarantor for purposes of this Section 7.2, any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations
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of contribution hereunder shall not be considered as assets or liabilities of
such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (1)
the aggregate amount of all payments and distributions made on or before such
date by such Contributing Guarantor in respect of this Guaranty (including,
without limitation, in respect of this Section 7.2), minus (2) the aggregate
amount of all payments received on or before such date by such Contributing
Guarantor from the other Contributing Guarantors as contributions under this
Section 7.2. The amounts payable as contributions hereunder shall be determined
as of the date on which the related payment or distribution is made by the
applicable Funding Guarantor. The allocation among Contributing Guarantors of
their obligations as set forth in this Section 7.2 shall not be construed in any
way to limit the liability of any Contributing Guarantor hereunder. Each
Guarantor is a third party beneficiary to the contribution agreement set forth
in this Section 7.2.
7.3. PAYMENT BY GUARANTORS. Subject to Section 7.2, Guarantors hereby
jointly and severally agree, in furtherance of the foregoing and not in
limitation of any other right which any Beneficiary may have at law or in equity
against any Guarantor by virtue hereof, that upon the failure of Company to pay
any of the Guaranteed Obligations when and as the same shall become due, whether
at stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section
362(a)), Guarantors will upon demand pay, or cause to be paid, in Cash, to
Administrative Agent for the ratable benefit of Beneficiaries, an amount equal
to the sum of the unpaid principal amount of all Guaranteed Obligations then due
as aforesaid, accrued and unpaid interest on such Guaranteed Obligations
(including interest which, but for Company's becoming the subject of a case
under the Bankruptcy Code, would have accrued on such Guaranteed Obligations,
whether or not a claim is allowed against Company for such interest in the
related bankruptcy case) and all other Guaranteed Obligations then owed to
Beneficiaries as aforesaid.
7.4. LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guaranteed Obligations. In furtherance of the foregoing and without limiting the
generality thereof, each Guarantor agrees as follows:
(a) this Guaranty is a guaranty of payment when due and not of
collectability. This Guaranty is a primary obligation of each Guarantor and not
merely a contract of surety;
(b) Administrative Agent may enforce this Guaranty upon the occurrence
of an Event of Default notwithstanding the existence of any dispute between
Company and any Beneficiary with respect to the existence of such Event of
Default;
(c) the obligations of each Guarantor hereunder are independent of the
obligations of Company and the obligations of any other guarantor (including any
other Guarantor) of the obligations of Company, and a separate action or actions
may be brought and prosecuted against
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such Guarantor whether or not any action is brought against Company or any of
such other guarantors and whether or not Company is joined in any such action or
actions;
(d) payment by any Guarantor of a portion, but not all, of the
Guaranteed Obligations shall in no way limit, affect, modify or abridge any
Guarantor's liability for any portion of the Guaranteed Obligations which has
not been paid. Without limiting the generality of the foregoing, if
Administrative Agent is awarded a judgment in any suit brought to enforce any
Guarantor's covenant to pay a portion of the Guaranteed Obligations, such
judgment shall not be deemed to release such Guarantor from its covenant to pay
the portion of the Guaranteed Obligations that is not the subject of such suit,
and such judgment shall not, except to the extent satisfied by such Guarantor,
limit, affect, modify or abridge any other Guarantor's liability hereunder in
respect of the Guaranteed Obligations;
(e) any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability hereof or
giving rise to any reduction, limitation, impairment, discharge or termination
of any Guarantor's liability hereunder, from time to time may (i) renew, extend,
accelerate, increase the rate of interest on, or otherwise change the time,
place, manner or terms of payment of the Guaranteed Obligations; (ii) settle,
compromise, release or discharge, or accept or refuse any offer of performance
with respect to, or substitutions for, the Guaranteed Obligations or any
agreement relating thereto and/or subordinate the payment of the same to the
payment of any other obligations; (iii) request and accept other guaranties of
the Guaranteed Obligations and take and hold security for the payment hereof or
the Guaranteed Obligations; (iv) release, surrender, exchange, substitute,
compromise, settle, rescind, waive, alter, subordinate or modify, with or
without consideration, any security for payment of the Guaranteed Obligations,
any other guaranties of the Guaranteed Obligations, or any other obligation of
any Person (including any other Guarantor) with respect to the Guaranteed
Obligations; (v) enforce and apply any security now or hereafter held by or for
the benefit of such Beneficiary in respect hereof or the Guaranteed Obligations
and direct the order or manner of sale thereof, or exercise any other right or
remedy that such Beneficiary may have against any such security, in each case as
such Beneficiary in its discretion may determine consistent herewith or the
applicable Hedge Agreement and any applicable security agreement, including
foreclosure on any such security pursuant to one or more judicial or nonjudicial
sales, whether or not every aspect of any such sale is commercially reasonable,
and even though such action operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of any Guarantor against
Company or any security for the Guaranteed Obligations; and (vi) exercise any
other rights available to it under the Credit Documents or the Hedge Agreements;
and
(f) this Guaranty and the obligations of Guarantors hereunder shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in full
of the Guaranteed Obligations), including the occurrence of any of the
following, whether or not any Guarantor shall have had notice or knowledge of
any of them: (i) any failure or omission to assert or enforce or agreement or
election not to assert or enforce, or the stay or enjoining, by order of court,
by operation of law or otherwise, of the exercise or enforcement of, any claim
or demand or any right, power or remedy (whether arising
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under the Credit Documents or the Hedge Agreements, at law, in equity or
otherwise) with respect to the Guaranteed Obligations or any agreement relating
thereto, or with respect to any other guaranty of or security for the payment of
the Guaranteed Obligations; (ii) any rescission, waiver, amendment or
modification of, or any consent to departure from, any of the terms or
provisions (including provisions relating to events of default) hereof, any of
the other Credit Documents, any of the Hedge Agreements or any agreement or
instrument executed pursuant thereto, or of any other guaranty or security for
the Guaranteed Obligations, in each case whether or not in accordance with the
terms hereof or such Credit Document, such Hedge Agreement or any agreement
relating to such other guaranty or security; (iii) the Guaranteed Obligations,
or any agreement relating thereto, at any time being found to be illegal,
invalid or unenforceable in any respect; (iv) the application of payments
received from any source (other than payments received pursuant to the other
Credit Documents or any of the Hedge Agreements or from the proceeds of any
security for the Guaranteed Obligations, except to the extent such security also
serves as collateral for indebtedness other than the Guaranteed Obligations) to
the payment of indebtedness other than the Guaranteed Obligations, even though
any Beneficiary might have elected to apply such payment to any part or all of
the Guaranteed Obligations; (v) any Beneficiary's consent to the change,
reorganization or termination of the corporate structure or existence of Parent
or any of its Subsidiaries and to any corresponding restructuring of the
Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a
security interest in any collateral which secures any of the Guaranteed
Obligations; (vii) any defenses, set-offs or counterclaims which Company may
allege or assert against any Beneficiary in respect of the Guaranteed
Obligations, including failure of consideration, breach of warranty, payment,
statute of frauds, statute of limitations, accord and satisfaction and usury;
and (viii) any other act or thing or omission, or delay to do any other act or
thing, which may or might in any manner or to any extent vary the risk of any
Guarantor as an obligor in respect of the Guaranteed Obligations.
7.5. WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the
benefit of Beneficiaries: (a) any right to require any Beneficiary, as a
condition of payment or performance by such Guarantor, to (i) proceed against
Company, any other guarantor (including any other Guarantor) of the Guaranteed
Obligations or any other Person, (ii) proceed against or exhaust any security
held from Company, any such other guarantor or any other Person, (iii) proceed
against or have resort to any balance of any Deposit Account or credit on the
books of any Beneficiary in favor of Company or any other Person, or (iv) pursue
any other remedy in the power of any Beneficiary whatsoever; (b) any defense
arising by reason of the incapacity, lack of authority or any disability or
other defense of Company or any other Guarantor including any defense based on
or arising out of the lack of validity or the unenforceability of the Guaranteed
Obligations or any agreement or instrument relating thereto or by reason of the
cessation of the liability of Company or any other Guarantor from any cause
other than payment in full of the Guaranteed Obligations; (c) any defense based
upon any statute or rule of law which provides that the obligation of a surety
must be neither larger in amount nor in other respects more burdensome than that
of the principal; (d) any defense based upon any Beneficiary's errors or
omissions in the administration of the Guaranteed Obligations, except behavior
which amounts to bad faith; (e) (i) any principles or provisions of law,
statutory or otherwise, which are or might be in conflict with the terms hereof
and any legal or equitable discharge of such Guarantor's obligations hereunder,
(ii) the benefit of any statute of limitations
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affecting such Guarantor's liability hereunder or the enforcement hereof, (iii)
any rights to set-offs, recoupments and counterclaims, and (iv) promptness,
diligence and any requirement that any Beneficiary protect, secure, perfect or
insure any security interest or lien or any property subject thereto; (f)
notices, demands, presentments, protests, notices of protest, notices of
dishonor and notices of any action or inaction, including acceptance hereof,
notices of default hereunder, the Hedge Agreements or any agreement or
instrument related thereto, notices of any renewal, extension or modification of
the Guaranteed Obligations or any agreement related thereto, notices of any
extension of credit to Company and notices of any of the matters referred to in
Section 7.4 and any right to consent to any thereof; and (g) any defenses or
benefits that may be derived from or afforded by law which limit the liability
of or exonerate guarantors or sureties, or which may conflict with the terms
hereof.
7.6. GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the
Guaranteed Obligations shall have been indefeasibly paid in full and the
Commitments shall have terminated and all Letters of Credit shall have expired
or been cancelled, each Guarantor hereby waives any claim, right or remedy,
direct or indirect, that such Guarantor now has or may hereafter have against
Company or any other Guarantor or any of its assets in connection with this
Guaranty or the performance by such Guarantor of its obligations hereunder, in
each case whether such claim, right or remedy arises in equity, under contract,
by statute, under common law or otherwise and including without limitation (a)
any right of subrogation, reimbursement or indemnification that such Guarantor
now has or may hereafter have against Company with respect to the Guaranteed
Obligations, (b) any right to enforce, or to participate in, any claim, right or
remedy that any Beneficiary now has or may hereafter have against Company, and
(c) any benefit of, and any right to participate in, any collateral or security
now or hereafter held by any Beneficiary. In addition, until the Guaranteed
Obligations shall have been indefeasibly paid in full and the Commitments shall
have terminated and all Letters of Credit shall have expired or been cancelled,
each Guarantor shall withhold exercise of any right of contribution such
Guarantor may have against any other guarantor (including any other Guarantor)
of the Guaranteed Obligations, including, without limitation, any such right of
contribution as contemplated by Section 7.2. Each Guarantor further agrees that,
to the extent the waiver or agreement to withhold the exercise of its rights of
subrogation, reimbursement, indemnification and contribution as set forth herein
is found by a court of competent jurisdiction to be void or voidable for any
reason, any rights of subrogation, reimbursement or indemnification such
Guarantor may have against Company or against any collateral or security, and
any rights of contribution such Guarantor may have against any such other
guarantor, shall be junior and subordinate to any rights any Beneficiary may
have against Company, to all right, title and interest any Beneficiary may have
in any such collateral or security, and to any right any Beneficiary may have
against such other guarantor. If any amount shall be paid to any Guarantor on
account of any such subrogation, reimbursement, indemnification or contribution
rights at any time when all Guaranteed Obligations shall not have been finally
and indefeasibly paid in full, such amount shall be held in trust for
Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over
to Administrative Agent for the benefit of Beneficiaries to be credited and
applied against the Guaranteed Obligations, whether matured or unmatured, in
accordance with the terms hereof.
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7.7. SUBORDINATION OF OTHER OBLIGATIONS. Any Indebtedness of Company or any
Guarantor now or hereafter held by any Guarantor (the "OBLIGEE GUARANTOR") is
hereby subordinated in right of payment to the Guaranteed Obligations, and any
such indebtedness collected or received by the Obligee Guarantor after an Event
of Default has occurred and is continuing shall be held in trust for
Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over
to Administrative Agent for the benefit of Beneficiaries to be credited and
applied against the Guaranteed Obligations but without affecting, impairing or
limiting in any manner the liability of the Obligee Guarantor under any other
provision hereof.
7.8. CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall
remain in effect until all of the Guaranteed Obligations shall have been finally
and indefeasibly paid in full and the Commitments shall have terminated and all
Letters of Credit shall have expired or been cancelled. Each Guarantor hereby
irrevocably waives any right to revoke this Guaranty as to future transactions
giving rise to any Guaranteed Obligations.
7.9. AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any
Beneficiary to inquire into the capacity or powers of any Guarantor or Company
or the officers, directors or any agents acting or purporting to act on behalf
of any of them.
7.10. FINANCIAL CONDITION OF COMPANY. Any Credit Extension may be made to
Company or continued from time to time, and any Hedge Agreements may be entered
into from time to time, in each case without notice to or authorization from any
Guarantor regardless of the financial or other condition of Company at the time
of any such grant or continuation or at the time such Hedge Agreement is entered
into, as the case may be. No Beneficiary shall have any obligation to disclose
or discuss with any Guarantor its assessment, or any Guarantor's assessment, of
the financial condition of Company. Each Guarantor has adequate means to obtain
information from Company on a continuing basis concerning the financial
condition of Company and its ability to perform its obligations under the Credit
Documents and the Hedge Agreements, and each Guarantor assumes the
responsibility for being and keeping informed of the financial condition of
Company and of all circumstances bearing upon the risk of nonpayment of the
Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty
on the part of any Beneficiary to disclose any matter, fact or thing relating to
the business, operations or conditions of Company now known or hereafter known
by any Beneficiary.
7.11. BANKRUPTCY, ETC. (a) So long as any Guaranteed Obligations remain
outstanding, no Guarantor shall, without the prior written consent of
Administrative Agent acting pursuant to the instructions of Requisite Lenders,
commence or join with any other Person in commencing any bankruptcy,
reorganization or insolvency case or proceeding of or against Company or any
other Guarantor. The obligations of Guarantors hereunder shall not be reduced,
limited, impaired, discharged, deferred, suspended or terminated by any case or
proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of Company or any other
Guarantor or by any defense which Company or any other Guarantor may have by
reason of the order, decree or decision of any court or administrative body
resulting from any such proceeding.
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(b) Each Guarantor acknowledges and agrees that any interest on any
portion of the Guaranteed Obligations which accrues after the commencement of
any case or proceeding referred to in clause (a) above (or, if interest on any
portion of the Guaranteed Obligations ceases to accrue by operation of law by
reason of the commencement of such case or proceeding, such interest as would
have accrued on such portion of the Guaranteed Obligations if such case or
proceeding had not been commenced) shall be included in the Guaranteed
Obligations because it is the intention of Guarantors and Beneficiaries that the
Guaranteed Obligations which are Guaranteed by Guarantors pursuant hereto should
be determined without regard to any rule of law or order which may relieve
Company of any portion of such Guaranteed Obligations. Guarantors will permit
any trustee in bankruptcy, receiver, debtor in possession, assignee for the
benefit of creditors or similar person to pay Administrative Agent, or allow the
claim of Administrative Agent in respect of, any such interest accruing after
the date on which such case or proceeding is commenced.
(c) In the event that all or any portion of the Guaranteed Obligations
are paid by Company, the obligations of Guarantors hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from any Beneficiary as a preference, fraudulent transfer
or otherwise, and any such payments which are so rescinded or recovered shall
constitute Guaranteed Obligations for all purposes hereunder.
7.12. NOTICE OF EVENTS. As soon as any Guarantor obtains knowledge thereof,
such Guarantor shall give Administrative Agent written notice of any condition
or event which has resulted in (i) a material adverse change in the financial
condition of any Guarantor or Company or (ii) a breach of or noncompliance with
any term, condition or covenant contained herein, any other Credit Document, any
Hedge Agreement or any other document delivered pursuant hereto or thereto.
7.13. DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the Capital
Stock of any Guarantor or any of its successors in interest hereunder shall be
sold or otherwise disposed of (including by merger or consolidation) in
accordance with the terms and conditions hereof, the Guaranty of such Guarantor
or such successor in interest, as the case may be, hereunder shall immediately
and automatically be discharged and released without any further action by any
Beneficiary or any other Person effective as of the time of such Asset Sale;
provided, as a condition precedent to such discharge and release, Administrative
Agent shall have received evidence satisfactory to it that arrangements
satisfactory to it have been made for delivery to Administrative Agent of the
applicable Net Asset Sale Proceeds of such disposition pursuant to Section
2.14(a).
SECTION 8. EVENTS OF DEFAULT
8.1. EVENTS OF DEFAULT. If any one or more of the following conditions or
events shall occur:
(a) Failure to Make Payments When Due. Failure by Company to pay (i)
when due any installment of principal of any Loan, whether at stated maturity,
by acceleration, by notice of voluntary prepayment, by mandatory prepayment or
otherwise; (ii) when due any amount payable
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to Issuing Bank in reimbursement of any drawing under a Letter of Credit; or
(iii) any interest on any Loan or any fee or any other amount due hereunder
within five (5) days after the date due; or
(b) Default in Other Agreements. (i) Failure of any Credit Party or
any of their respective Subsidiaries to pay when due any principal of or
interest on or any other amount payable in respect of one or more items of
Indebtedness (other than Indebtedness referred to in Section 8.1(a)) in an
individual or with an aggregate principal amount of $10,000,000 or more, in each
case beyond the grace period, if any, provided therefor; or (iii) breach or
default by any Credit Party with respect to any other material term of (1) one
or more items of Indebtedness in the individual or aggregate principal amounts
referred to in clause (i) above or (2) any loan agreement, mortgage, indenture
or other agreement relating to such item(s) of Indebtedness, in each case beyond
the grace period, if any, provided therefor, if the effect of such breach or
default is to cause, or to permit the holder or holders of that Indebtedness (or
a trustee on behalf of such holder or holders), to cause, that Indebtedness to
become or be declared due and payable (or redeemable) prior to its stated
maturity or the stated maturity of any underlying obligation, as the case may
be; or
(c) Breach of Certain Covenants. Failure of any Credit Party to
perform or comply with any term or condition contained in Section 2.6, Section
5.2 or Section 6; or
(d) Breach of Representations, etc. Any representation, warranty,
certification or other statement made or deemed made by any Credit Party in any
Credit Document or in any statement or certificate at any time given by any
Credit Party or any of its Subsidiaries in writing pursuant hereto or thereto or
in connection herewith or therewith shall be false in any material respect as of
the date made or deemed made; or
(e) Other Defaults Under Credit Documents. Any Credit Party shall
default in the performance of or compliance with any term contained herein or
any of the other Credit Documents, other than any such term referred to in any
other Section of this Section 8.1, and such default shall not have been remedied
or waived within thirty (30) days after the earlier of (i) an officer of such
Credit Party becoming aware of such default or (ii) receipt by Company of notice
from Administrative Agent or any Lender of such default; or
(f) Involuntary Bankruptcy; Appointment of Receiver, etc.. (i) A court
of competent jurisdiction shall enter a decree or order for relief in respect of
any Credit Party or any Material Subsidiary in an involuntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, which decree or order is not stayed; or any
other similar relief shall be granted under any applicable federal or state law;
or (ii) an involuntary case shall be commenced against any Credit Party or any
Material Subsidiary under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or
order of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer having
similar powers over any Credit Party or any Material Subsidiary, or over all or
a substantial part of its property, shall have been entered; or there shall have
occurred the involuntary appointment of an interim receiver, trustee or other
custodian of any Credit Party or any Material Subsidiary for all or
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a substantial part of its property; or a warrant of attachment, execution or
similar process shall have been issued against any substantial part of the
property of any Credit Party or any Material Subsidiary , and any such event
described in this clause (ii) shall continue for sixty (60) days without having
been dismissed, bonded or discharged; or
(g) Voluntary Bankruptcy; Appointment of Receiver, etc.. (i) any
Credit Party or any Material Subsidiary shall have an order for relief entered
with respect to it or shall commence a voluntary case under the Bankruptcy Code
or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property; or any Credit Party or any Material Subsidiary shall make
any assignment for the benefit of creditors; or (ii) any Credit Party or any
Material Subsidiary shall be unable, or shall fail generally, or shall admit in
writing its inability, to pay its debts as such debts become due; or the board
of directors (or similar governing body) of any Credit Party or any Material
Subsidiary (or any committee thereof) shall adopt any resolution or otherwise
authorize any action to approve any of the actions referred to herein or in
Section 8.1(f); or
(h) Judgments and Attachments. Any money judgments, writs or warrants
of attachment or similar processes involving in the aggregate at any time an
amount in excess of $10,000,000 (in any case to the extent not adequately
covered by insurance as to which a solvent and unaffiliated insurance company
has acknowledged coverage) shall be entered or filed against Parent or any of
its Subsidiaries or any of their respective assets and shall remain
undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days
(or in any event later than five days prior to the date of any proposed sale
thereunder); or
(i) Dissolution. Any order, judgment or decree shall be entered
against any Credit Party decreeing the dissolution or split up of Parent or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of thirty (30) days; or
(j) Employee Benefit Plans. There shall occur one or more ERISA Events
which individually or in the aggregate results in or might reasonably be
expected to result in liability of Parent, any of its Subsidiaries or any of
their respective ERISA Affiliates in excess of $10,000,000 during the term
hereof; or there shall exist an amount of unfunded benefit liabilities (as
defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for
all Pension Plans (excluding for purposes of such computation any Pension Plans
with respect to which assets exceed benefit liabilities), which exceeds
$10,000,000; or
(k) Change of Control. A Change of Control shall occur; or
(l) Guaranties, Collateral Documents and other Credit Documents. At
any time after the execution and delivery thereof, (i) the Guaranty for any
reason, other than the satisfaction in full of all Obligations, shall cease to
be in full force and effect (other than in accordance with its terms) or shall
be declared to be null and void or any Guarantor shall repudiate its obligations
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thereunder, (ii) this Agreement or any Collateral Document ceases to be in full
force and effect (other than by reason of a release of Share Collateral in
accordance with the terms hereof or thereof or the satisfaction in full of the
Obligations in accordance with the terms hereof) or shall be declared null and
void, or Administrative Agent shall not have or shall cease to have a valid and
perfected Lien in any Share Collateral (other than by reason of a release of
Share Collateral in accordance with the terms hereof or thereof) purported to be
covered by the Collateral Documents with the priority required by the relevant
Collateral Document, in each case for any reason other than the failure of
Administrative Agent or any Lender to take any action within its control, or
(iii) any Credit Party shall contest the validity or enforceability of any
Credit Document in writing or deny in writing that it has any further liability,
including with respect to future advances by Lenders, under any Credit Document
to which it is a party.
THEN, (1) upon the occurrence of any Event of Default described in Section
8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of any other Event
of Default, at the request of (or with the consent of) Requisite Lenders, upon
notice to Company by Administrative Agent, (A) the Commitments, if any, of each
Lender having such Commitments and the obligation of Issuing Bank to issue any
Letter of Credit shall immediately terminate; (B) each of the following shall
immediately become due and payable, in each case without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by each Credit Party: (I) the unpaid principal amount of and accrued
interest on the Loans, (II) an amount equal to the maximum amount that may at
any time be drawn under all Letters of Credit then outstanding (regardless of
whether any beneficiary under any such Letter of Credit shall have presented, or
shall be entitled at such time to present, the drafts or other documents or
certificates required to draw under such Letters of Credit), and (III) all other
Obligations; provided, the foregoing shall not affect in any way the obligations
of Lenders under Section 2.4(e); (C) the Administrative Agent may enforce any
and all Liens and security interests created pursuant to Collateral Documents;
and (D) Administrative Agent shall direct Company to pay (and Company hereby
agrees upon receipt of such notice, or upon the occurrence of any Event of
Default specified in Section 8.1(f) and (g) to pay) to Administrative Agent such
additional amounts of cash, to be held as security for Company's reimbursement
Obligations in respect of Letters of Credit then outstanding, equal to the
Letter of Credit Usage at such time.
SECTION 9. AGENTS
9.1. APPOINTMENT OF AGENTS. GSCP is hereby appointed Lead Arranger and
Syndication Agent hereunder, and each Lender hereby authorizes Lead Arranger and
Syndication Agent to act as its agents in accordance with the terms hereof and
the other Credit Documents. Bank One is hereby appointed Administrative Agent
(for purposes of this Section 9, the terms "Administrative Agent" and "Agent"
also shall include Bank One in its capacity as Collateral Agent pursuant to the
Collateral Documents) hereunder and under the other Credit Documents and each
Lender hereby authorizes Administrative Agent to act as its agent in accordance
with the terms hereof and the other Credit Documents. First Union is hereby
appointed Documentation Agent hereunder, and each Lender hereby authorizes
Documentation Agent to act as its agent in accordance with the terms hereof and
the other Credit Documents. Each Agent hereby agrees to act upon the express
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conditions contained herein and the other Credit Documents, as applicable. The
provisions of this Section 9 are solely for the benefit of Agents and Lenders
and no Credit Party shall have any rights as a third party beneficiary of any of
the provisions thereof. In performing its functions and duties hereunder, each
Agent shall act solely as an agent of Lenders and does not assume and shall not
be deemed to have assumed any obligation towards or relationship of agency or
trust with or for Parent or any of its Subsidiaries. Each of Syndication Agent
and Documentation Agent, without consent of or notice to any party hereto, may
assign any and all of its rights or obligations hereunder to any of its
Affiliates. As of the Closing Date, all the respective obligations of GSCP, in
its capacity as Lead Arranger, Syndication Agent, and First Union, in its
capacity as Documentation Agent, shall terminate.
9.2. POWERS AND DUTIES. Each Lender irrevocably authorizes each Agent to
take such action on such Lender's behalf and to exercise such powers, rights and
remedies hereunder and under the other Credit Documents as are specifically
delegated or granted to such Agent by the terms hereof and thereof, together
with such powers, rights and remedies as are reasonably incidental thereto. Each
Agent shall have only those duties and responsibilities that are expressly
specified herein and the other Credit Documents. Each Agent may exercise such
powers, rights and remedies and perform such duties by or through its agents or
employees. No Agent shall have, by reason hereof or any of the other Credit
Documents, a fiduciary relationship in respect of any Lender; and nothing herein
or any of the other Credit Documents, expressed or implied, is intended to or
shall be so construed as to impose upon any Agent any obligations in respect
hereof or any of the other Credit Documents except as expressly set forth herein
or therein.
9.3. GENERAL IMMUNITY.
(a) No Responsibility for Certain Matters. No Agent shall be
responsible to any Lender for the execution, effectiveness, genuineness,
validity, enforceability, collectability or sufficiency hereof or any other
Credit Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statements or in any
financial or other statements, instruments, reports or certificates or any other
documents furnished or made by any of Agent to Lenders or by or on behalf of any
Credit Party to any Agent or any Lender in connection with the Credit Documents
and the transactions contemplated thereby or for the financial condition or
business affairs of any Credit Party or any other Person liable for the payment
of any Obligations, nor shall any Agent be required to ascertain or inquire as
to the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained in any of the Credit Documents or as to the
use of the proceeds of the Loans or as to the existence or possible existence of
any Event of Default or Default. Anything contained herein to the contrary
notwithstanding, Administrative Agent shall not have any liability arising from
confirmations of the amount of outstanding Loans or the Letter of Credit Usage
or the component amounts thereof.
(b) Exculpatory Provisions. No Agent nor any of its officers,
partners, directors, employees or agents shall be liable to Lenders for any
action taken or omitted by any Agent under or in connection with any of the
Credit Documents except to the extent caused by such Agent's gross negligence or
willful misconduct. Each Agent shall be entitled to refrain from any act or the
taking
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of any action (including the failure to take an action) in connection herewith
or any of the other Credit Documents or from the exercise of any power,
discretion or authority vested in it hereunder or thereunder unless and until
such Agent shall have received instructions in respect thereof from Requisite
Lenders (or such other Lenders as may be required to give such instructions
under Section 10.5) and, upon receipt of such instructions from Requisite
Lenders (or such other Lenders, as the case may be), such Agent shall be
entitled to act or (where so instructed) refrain from acting, or to exercise
such power, discretion or authority, in accordance with such instructions.
Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
communication, instrument or document believed by it to be genuine and correct
and to have been signed or sent by the proper Person or Persons, and shall be
entitled to rely and shall be protected in relying on opinions and judgments of
attorneys (who may be attorneys for Parent and its Subsidiaries), accountants,
experts and other professional advisors selected by it; and (ii) no Lender shall
have any right of action whatsoever against any Agent as a result of such Agent
acting or (where so instructed) refraining from acting hereunder or any of the
other Credit Documents in accordance with the instructions of Requisite Lenders
(or such other Lenders as may be required to give such instructions under
Section 10.5).
9.4. AGENTS ENTITLED TO ACT AS LENDER. The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans and the Letters of Credit, each
Agent shall have the same rights and powers hereunder as any other Lender and
may exercise the same as if it were not performing the duties and functions
delegated to it hereunder, and the term "Lender" shall, unless the context
clearly otherwise indicates, include each Agent in its individual capacity. Any
Agent and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of banking, trust, financial advisory or other business with
Parent or any of its Affiliates as if it were not performing the duties
specified herein, and may accept fees and other consideration from Parent or
Company for services in connection herewith and otherwise without having to
account for the same to Lenders.
9.5. LENDERS' REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENT.
(a) Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Parent and
its Subsidiaries in connection with Credit Extensions hereunder and that it has
made and shall continue to make its own appraisal of the creditworthiness of
Parent and its Subsidiaries. No Agent shall have any duty or responsibility,
either initially or on a continuing basis, to make any such investigation or any
such appraisal on behalf of Lenders or to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the making of the Loans or at any time or times thereafter, and no Agent
shall have any responsibility with respect to the accuracy of or the
completeness of any information provided to Lenders.
(b) Each Lender, by delivering its signature page to this Agreement
and funding its Term Loan Amount and/or a Revolving Loan on the Closing Date,
shall be deemed to have acknowledged receipt of, and consented to and approved,
each Credit Document and each other
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document required to be approved by any Agent, Requisite Lenders or Lenders, as
applicable on the Closing Date.
9.6. RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata Share,
severally agrees to indemnify each Agent, to the extent that such Agent shall
not have been reimbursed by any Credit Party, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including counsel fees and disbursements) or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Agent in exercising its powers, rights and remedies or performing
its duties hereunder or under the other Credit Documents or otherwise in its
capacity as such Agent in any way relating to or arising out hereof or the other
Credit Documents; provided, no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. If any indemnity furnished to any Agent for any purpose
shall, in the opinion of such Agent, be insufficient or become impaired, such
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished; provided,
in no event shall this sentence require any Lender to indemnify any Agent
against any liability, obligation, loss, damage, penalty, action, judgment,
suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share
thereof; and provided further, this sentence shall not be deemed to require any
Lender to indemnify any Agent against any liability, obligation, loss, damage,
penalty, action, judgment, suit, cost, expense or disbursement described in the
proviso in the immediately preceding sentence.
9.7. SUCCESSOR ADMINISTRATIVE AGENT AND SWING LINE LENDER. Administrative
Agent may resign at any time by giving written notice thereof to the Lenders and
Company, such resignation to be effective upon the appointment of a successor
Administrative Agent or, if no successor Administrative Agent has been
appointed, forty-five days after the retiring Administrative Agent gives notice
of its intention to resign. Administrative Agent may be removed at any time with
or without cause by written notice received by Administrative Agent from the
Requisite Lenders, such removal to be effective on the date specified by the
Requisite Lenders. Upon any such resignation or removal, the Requisite Lenders
shall have the right to appoint, on behalf of Company and the Lenders, a
successor Administrative Agent; provided, that unless a Default or an Event of
Default has occurred and is continuing, such successor Administrative Agent
shall be reasonably acceptable to Company. If no successor Administrative Agent
shall have been so appointed by the Requisite Lenders within thirty days after
the resigning Administrative Agent's giving notice of its intention to resign,
then the resigning Administrative Agent may appoint, on behalf of Company and
the Lenders, a successor Administrative Agent; provided, that unless a Default
or an Event of Default has occurred and is continuing, such successor
Administrative Agent shall be reasonably acceptable to Company. Notwithstanding
the previous sentence, Administrative Agent may at any time without the consent
of Company or any Lender, appoint any of its Affiliates which is a commercial
bank as a successor Administrative Agent hereunder. If Administrative Agent has
resigned or been removed and no successor Administrative Agent has been
appointed, the Lenders may perform all the duties of Administrative Agent
hereunder and Company shall make all payments in respect of the Obligations to
the applicable Lender and for all other purposes shall deal directly with the
Lenders. No successor Administrative Agent shall be deemed to be appointed
hereunder until such successor
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Administrative Agent has accepted the appointment. Any successor Administrative
Agent shall be a commercial bank having capital and retained earnings of at
least $100,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning or removed Administrative
Agent. Upon the effectiveness of the resignation or removal of Administrative
Agent, the resigning or removed Administrative Agent shall be discharged from
its duties and obligations hereunder and under the Credit Documents. After the
effectiveness of the resignation or removal of an Administrative Agent, the
provisions of this Article 9 shall continue in effect for the benefit of such
Administrative Agent in respect of any actions taken or omitted to be taken by
it while it was acting as Administrative Agent hereunder and under the other
Credit Documents. Any resignation or removal of Administrative Agent pursuant to
this Section 9.7 shall also constitute the resignation or removal of Bank One or
its successor as Swing Line Lender, and any successor Administrative Agent
appointed pursuant to this Section 9.7 shall, upon its acceptance of such
appointment, become the successor Swing Line Lender for all purposes hereunder.
In such event (a) Company shall prepay any outstanding Swing Line Loans made by
the retiring or removed Administrative Agent in its capacity as Swing Line
Lender, (b) upon such prepayment, the retiring or removed Administrative Agent
and Swing Line Lender shall surrender any Swing Line Note held by it to Company
for cancellation, and (c) Company shall issue, if so requested by Successor
Administrative Agent and Swing Line Lender, a new Swing Line Note to the
successor Administrative Agent and Swing Line Lender, in the principal amount of
the Swing Line Sublimit then in effect and with other appropriate insertions. In
the event that there is a successor to Administrative Agent by merger or upon
the resignation or removal of Administrative Agent pursuant to this Section 9.7,
or Administrative Agent assigns its duties and obligations to an Affiliate
pursuant to this Section 9.7, then the term "Prime Rate" as used in this
Agreement shall mean the prime rate, base rate or other analogous rate of the
new Administrative Agent.
9.8. NOTICE OF DEFAULT. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless Administrative Agent has received written notice from a Lender
or Company referring to this Agreement describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
Administrative Agent receives such a notice, Administrative Agent shall give
prompt notice thereof to the Lenders.
9.9. COLLATERAL DOCUMENTS AND GUARANTY.
(a) Administrative Agent as Agent under Collateral Documents and
Guaranty. Each Lender hereby further authorizes Administrative Agent, on behalf
of and for the benefit of Lenders, to be the agent for and representative of
Lenders with respect to the Guaranty, the Share Collateral and the Collateral
Documents. Subject to Section 10.5, without further written consent or
authorization from Lenders, Administrative Agent may execute any documents or
instruments necessary to (i) release any Lien encumbering any item of Share
Collateral that is the subject of a sale or other disposition of assets
permitted hereby or to which Requisite Lenders (or such other Lenders as may be
required to give such consent under Section 10.5) have otherwise consented or
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(ii) release any Guarantor from the Guaranty pursuant to Section 7.13 or with
respect to which Requisite Lenders (or such other Lenders as may be required to
give such consent under Section 10.5) have otherwise consented.
(b) Administrative Agent's Right to Realize on Share Collateral and
Enforce Guaranty. Anything contained in any of the Credit Documents to the
contrary notwithstanding, Company, Administrative Agent and each Lender hereby
agree that (i) no Lender shall have any right individually to realize upon any
of the Share Collateral or to enforce the Guaranty, it being understood and
agreed that all powers, rights and remedies hereunder may be exercised solely by
Administrative Agent, on behalf of Lenders in accordance with the terms hereof,
and (ii) in the event of a foreclosure by Administrative Agent on any of the
Share Collateral pursuant to a public or private sale, Administrative Agent or
any Lender may be the purchaser of any or all of such Share Collateral at any
such sale and Administrative Agent, as agent for and representative of Lenders
(but not any Lender or Lenders in its or their respective individual capacities
unless Requisite Lenders shall otherwise agree in writing) shall be entitled,
for the purpose of bidding and making settlement or payment of the purchase
price for all or any portion of the Share Collateral sold at any such public
sale, to use and apply any of the Obligations as a credit on account of the
purchase price for any collateral payable by Administrative Agent at such sale.
SECTION 10. MISCELLANEOUS
10.1. NOTICES. Unless otherwise specifically provided herein, any notice or
other communication herein required or permitted to be given to a Credit Party,
Lead Arranger, Syndication Agent, Administrative Agent, Swing Line Lender,
Issuing Bank or Documentation Agent, shall be sent to such Person's address as
set forth on Appendix C or in the other relevant Credit Document, and in the
case of any Lender, the address as indicated on Appendix C or otherwise
indicated to Administrative Agent in writing. Each notice hereunder shall be in
writing and may be personally served, telexed or sent by telefacsimile or United
States mail or courier service and shall be deemed to have been given when
delivered in person or by courier service and signed for against receipt
thereof, upon receipt of telefacsimile or telex, or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided, no notice to any Agent shall be effective until received by
such Agent.
10.2. EXPENSES. Whether or not the transactions contemplated hereby shall
be consummated, Company agrees to pay promptly (a) all the actual and reasonable
costs and expenses of preparation of the Credit Documents and any consents,
amendments, waivers or other modifications thereto; (b) all the costs of
furnishing all opinions by counsel for Company and the other Credit Parties; (c)
the reasonable fees, expenses and disbursements of counsel to Agents (in each
case including allocated costs of internal counsel) in connection with the
negotiation, preparation, execution and administration of the Credit Documents
and any consents, amendments, waivers or other modifications thereto and any
other documents or matters requested by Company; (d) all the actual costs and
reasonable expenses of creating and perfecting Liens in favor of Administrative
Agent, for the benefit of Lenders pursuant hereto, including filing and
recording fees, expenses and taxes, stamp or documentary taxes, search fees,
title insurance premiums and reasonable fees,
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expenses and disbursements of counsel to each Agent and of counsel providing any
opinions that any Agent or Requisite Lenders may request in respect of the Share
Collateral or the Liens created pursuant the Collateral Documents; (e) all the
actual costs and reasonable fees, expenses and disbursements of any auditors,
accountants, consultants or appraisers; (f) all the actual costs and reasonable
expenses (including the reasonable fees, expenses and disbursements of any
appraisers, consultants, advisors and agents employed or retained by
Administrative Agent and its counsel) in connection with the custody or
preservation of any of the Share Collateral; (g) all other actual and reasonable
costs and expenses incurred by each Agent in connection with the syndication of
the Loans and Commitments and the negotiation, preparation and execution of the
Credit Documents and any consents, amendments, waivers or other modifications
thereto and the transactions contemplated thereby; and (h) after the occurrence
of an Event of Default and during the continuance thereof, all costs and
expenses, including reasonable attorneys' fees (including allocated costs of
internal counsel) and costs of settlement, incurred by any Agent and Lenders in
enforcing any Obligations of or in collecting any payments due from any Credit
Party hereunder or under the other Credit Documents by reason of such Default or
Event of Default (including in connection with the sale of, collection from, or
other realization upon any of the Share Collateral or the enforcement of the
Guaranty) or in connection with any refinancing or restructuring of the credit
arrangements provided hereunder in the nature of a "work-out" or pursuant to any
insolvency or bankruptcy cases or proceedings.
10.3. INDEMNITY. In addition to the payment of expenses pursuant to Section
10.2, whether or not the transactions contemplated hereby shall be consummated,
each Credit Party agrees to defend (subject to Indemnitees' selection of
counsel), indemnify, pay and hold harmless, each Agent and Lender and the
officers, partners, directors, trustees, employees, agents and Affiliates of
each Agent and each Lender (each, an "INDEMNITEE"), from and against any and all
Indemnified Liabilities; provided, no Credit Party shall have any obligation to
any Indemnitee hereunder with respect to any Indemnified Liabilities to the
extent such Indemnified Liabilities arise from the gross negligence or willful
misconduct of that Indemnitee. To the extent that the undertakings to defend,
indemnify, pay and hold harmless set forth in this Section 10.3 may be
unenforceable in whole or in part because they are violative of any law or
public policy, the applicable Credit Party shall contribute the maximum portion
that it is permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of
them.
10.4. SET-OFF. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default each Lender is hereby authorized by each
Credit Party at any time or from time to time subject to the consent of
Administrative Agent (such consent not to be unreasonably withheld or delayed),
without notice to any Credit Party or to any other Person (other than
Administrative Agent), any such notice being hereby expressly waived, to set off
and to appropriate and to apply any and all deposits (general or special,
including Indebtedness evidenced by certificates of deposit, whether matured or
unmatured, but not including trust accounts) and any other Indebtedness at any
time held or owing by such Lender to or for the credit or the account of any
Credit Party against and on account of the obligations and liabilities of any
Credit Party to such Lender hereunder, the Letters of Credit and participations
therein and under the other Credit Documents, including all claims of any nature
or
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description arising out of or connected hereto, the Letters of Credit and
participations therein or with any other Credit Document, irrespective of
whether or not (a) such Lender shall have made any demand hereunder or (b) the
principal of or the interest on the Loans or any amounts in respect of the
Letters of Credit or any other amounts due hereunder shall have become due and
payable pursuant to Section 2 and although such obligations and liabilities, or
any of them, may be contingent or unmatured. Each Credit Party hereby further
grants to Administrative Agent and each Lender a security interest in all
Deposit Accounts maintained with Administrative Agent or such Lender as security
for the Obligations.
10.5. AMENDMENTS AND WAIVERS. Requisite Lenders' Consent. (a) Subject to
Section 10.5(b) and 10.5(c), no amendment, modification, termination or waiver
of any provision of the Credit Documents, or consent to any departure by any
Credit Party therefrom, shall in any event be effective without the written
concurrence of the Requisite Lenders.
(b) Consent of Lenders Affected. Without the written consent of each
Lender that would be affected thereby, no amendment, modification, termination,
or consent shall be effective if the effect thereof would:
(i) extend the scheduled final maturity of any Loan or Note;
(ii) waive, reduce or postpone any scheduled repayment (but not
prepayment);
(iii) extend the expiration date of any Term Loan Commitment or
Revolving Credit Commitment;
(iv) extend the stated expiration date of any Letter of Credit
beyond the Revolving Credit Commitment Termination Date;
(v) reduce the rate of interest on any Loan (other than any
waiver of any increase in the interest rate applicable to any Loan
pursuant to Section 2.10) or any fee payable hereunder;
(vi) extend the time for payment of any such interest or fees;
(vii) reduce the principal amount of any Loan or any
reimbursement obligation in respect of any Letter of Credit;
(viii) amend, modify, terminate or waive any provision of this
Section 10.5(b), Section 10.5(c), Section 2.5(a) or Section 2.17;
(ix) amend the definition of "REQUISITE LENDERS" or "PRO RATA
SHARE"; provided, with the consent of Requisite Lenders, additional
extensions of credit pursuant hereto may be included in the determination
of "REQUISITE LENDERS" or "PRO RATA SHARE"
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on substantially the same basis as the Term LoanCommitments, the Term
Loans, the Revolving Credit Commitments and the Revolving Loans are
included on the Closing Date;
(x) release or otherwise subordinate all or substantially all of
the Share Collateral and the Collateral Account or all or substantially
all of the Guarantors from the Guaranty except as expressly provided
in the Credit Documents; or
(xi) consent to the assignment or transfer by any Credit Party of
any of its rights and obligations under any Credit Document.
(c) Other Consents. No amendment, modification, termination or waiver
of any provision of the Credit Documents, or consent to any departure by any
Credit Party therefrom, shall:
(i) increase any Commitment of any Lender over the amount thereof
then in effect without the consent of such Lender; provided, no amendment,
modification or waiver of any condition precedent, covenant, Default or
Event of Default shall constitute an increase in any Commitment of any
Lender;
(ii) amend, modify, terminate or waive any obligation of Lenders
relating to the purchase of participations in Letters of Credit as provided
in Section 2.4(e) without the written consent of Administrative Agent and
of Issuing Bank;
(iii) amend, modify, terminate or waive any provision of Section
9 as the same applies to any Agent, or any other provision hereof as the
same applies to the rights or obligations of any Agent, in each case
without the consent of such Agent; or
(iv) amend, modify, terminate or waive any provision hereof
relating specifically to the Swing Line Sublimit or the Swing Line Loans
without the consent of Swing Line Lender.
(d) Execution of Amendments, etc. Administrative Agent may, but shall
have no obligation to, with the concurrence of any Lender, execute amendments,
modifications, waivers or consents on behalf of such Lender. Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on any Credit Party in
any case shall entitle any Credit Party to any other or further notice or demand
in similar or other circumstances. Any amendment, modification, termination,
waiver or consent effected in accordance with this Section 10.5 shall be binding
upon each Lender at the time outstanding, each future Lender and, if signed by a
Credit Party, on such Credit Party.
10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and
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assigns of Lenders. No Credit Party's rights or obligations hereunder nor any
interest therein may be assigned or delegated by any Credit Party without the
prior written consent of all Lenders.
(b) Company, Administrative Agent and Lenders shall deem and treat the
Persons listed as Lenders in the Register as the holders and owners of the
corresponding Commitments and Loans listed therein for all purposes hereof, and
no assignment or transfer of any such Commitment or Loan shall be effective, in
each case, unless and until an Assignment Agreement effecting the assignment or
transfer thereof shall have been delivered to and accepted by Administrative
Agent and recorded in the Register as provided in Section 10.6(e). Prior to such
recordation, all amounts owed with respect to the applicable Commitment or Loan
shall be owed to the Lender listed in the Register as the owner thereof, and any
request, authority or consent of any Person who, at the time of making such
request or giving such authority or consent, is listed in the Register as a
Lender shall be conclusive and binding on any subsequent holder, assignee or
transferee of the corresponding Commitments or Loans.
(c) Each Lender shall have the right at any time to sell, assign or
transfer all or a portion of its rights and obligations under this Agreement,
including, without limitation, all or a portion of its Commitment or Loans owing
to it, Note or Notes held by it, or other Obligation (provided, however, that
each such assignment shall be of a uniform, and not varying, percentage of all
rights and obligations under and in respect of any Loan and its related
Commitments; provided, further, that each such assignment shall be of an equal
percentage of both the Term Loans and the Revolving Loans (and the related
Commitments) held by such Lender):
(i) to any Person meeting the criteria of clause (i) of the
definition of the term of "Eligible Assignee" upon the giving of notice to
Company and Administrative Agent; and
(ii) to any Person meeting the criteria of clause (ii) of the
definition of the term of "Eligible Assignee" and in the case of such
assignment to such Person (except in the case of assignments made by or
to GSCP), consented to by each of Company, Issuing Bank and Administrative
Agent (such consent not to be (x) unreasonably withheld or delayed or (y)
in the case of Company, required at any time an Event of Default shall
have occurred and then be continuing); provided, further each such
assignment pursuant to this Section 10.6(c)(ii) shall be in an aggregate
amount of not less than $5,000,000 (or such lesser amount as may be agreed
to by Company and Administrative Agent or as shall constitute the
aggregate amount of the Commitments and Loans of the assigning Lender)
with respect to the assignment of the Commitments and Loans.
(d) The assigning Lender and the assignee thereof shall execute and
deliver to Administrative Agent an Assignment Agreement, together with (i) a
processing and recordation fee of $3,000 and (ii) such forms, certificates or
other evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment Agreement may be
required to deliver to Administrative Agent pursuant to Section 2.20(c).
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(e) Upon its receipt of a duly executed and completed Assignment
Agreement, together with the processing and recordation fee referred to in
Section 10.6(d) (and any forms, certificates or other evidence required by this
Agreement in connection therewith), Administrative Agent shall record the
information contained in such Assignment Agreement in the Register, shall give
prompt notice thereof to Company and shall maintain a copy of such Assignment
Agreement.
(f) Each Lender, upon execution and delivery hereof or upon executing
and delivering an Assignment Agreement, as the case may be, represents and
warrants as of the Closing Date or as of the applicable Effective Date (as
defined in the applicable Assignment Agreement) that (i) it is an Eligible
Assignee; (ii) it has experience and expertise in the making of or investing in
commitments or loans such as the applicable Commitments or Loans, as the case
may be; and (iii) it will make or invest in, as the case may be, its Commitments
or Loans for its own account in the ordinary course of its business and without
a view to distribution of such Commitments or Loans within the meaning of the
Securities Act or the Exchange Act or other federal securities laws (it being
understood that, subject to the provisions of this Section 10.6, the disposition
of such Commitments or Loans or any interests therein shall at all times remain
within its exclusive control).
(g) Subject to the terms and conditions of this Section 10.6, as of
the "Effective Date" specified in the applicable Assignment Agreement: (i) the
assignee thereunder shall have the rights and obligations of a "Lender"
hereunder to the extent such rights and obligations hereunder have been assigned
to it pursuant to such Assignment Agreement and shall thereafter be a party
hereto and a "Lender" for all purposes hereof; (ii) the assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have been
assigned thereby pursuant to such Assignment Agreement, relinquish its rights
(other than any rights which survive the termination hereof under Section 10.8)
and be released from its obligations hereunder (and, in the case of an
Assignment Agreement covering all or the remaining portion of an assigning
Lender's rights and obligations hereunder, such Lender shall cease to be a party
hereto; provided, anything contained in any of the Credit Documents to the
contrary notwithstanding, (y) Issuing Bank shall continue to have all rights and
obligations thereof with respect to such Letters of Credit until the
cancellation or expiration of such Letters of Credit and the reimbursement of
any amounts drawn thereunder) and (z) such assigning Lender shall continue to be
entitled to the benefit of all indemnities hereunder as specified herein with
respect to matters arising out of the prior involvement of such assigning Lender
as a Lender hereunder; (iii) the Commitments shall be modified to reflect the
Commitment of such assignee and any remaining Commitment of such assigning
Lender, if any; and (iv) if any such assignment occurs after the issuance of any
Note hereunder, the assigning Lender shall, upon the effectiveness of such
assignment or as promptly thereafter as practicable, surrender its applicable
Notes to Administrative Agent for cancellation, and thereupon Company shall
issue and deliver new Notes, if so requested by the assignee and/or assigning
Lender, to such assignee and/or to such assigning Lender, with appropriate
insertions, to reflect the new Commitments and/or outstanding Loans of the
assignee and/or the assigning Lender.
(h) Each Lender shall have the right at any time to sell one or more
participations to any Person (other than Parent, any of its Subsidiaries or any
of its Affiliates) in all or any part of its Commitments, Loans or in any other
Obligation. The holder of any such participation, other than
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an Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except with
respect to any amendment modification or waiver that would (i) extend the final
scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of
Credit is not extended beyond the Revolving Credit Commitment Termination Date)
in which such participant is participating, or reduce the rate or extend the
time of payment of Interest or fees thereon (except in connection with a waiver
of applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the amount of the participant's
participation over the amount thereof then in effect (it being understood that a
waiver of any Default or Event of Default or of a mandatory reduction in the
Commitment shall not constitute a change in the terms of such participation, and
that an increase in any Commitment or Loan shall be permitted without the
consent of any participant if the participant's participation is not increased
as a result thereof), (ii) consent to the assignment or transfer by any Credit
Party of any of its rights and obligations under this Agreement or (iii) release
all or substantially all of the Share Collateral under the Collateral Documents
and the Collateral Account (except as expressly provided in the Credit
Documents) supporting the Loans hereunder in which such participant is
participating. All amounts payable by any Credit Party hereunder, including
amounts payable to such Lender pursuant to Section 2.18(c), 2.19 or 2.20, shall
be determined as if such Lender had not sold such participation. Each Credit
Party and each Lender hereby acknowledge and agree that, solely for purposes of
Sections 2.17 and 10.4, (1) any participation will give rise to a direct
obligation of each Credit Party to the participant and (2) the participant shall
be considered to be a "Lender."
(i) In addition to any other assignment permitted pursuant to this
Section 10.6, any Lender may assign and pledge all or any portion of its Loans,
the other Obligations owed to such Lender, and its Notes, if any, to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to any Federal Reserve Bank, and this Section 10.6 shall not apply
to any such pledge or assignment of a security interest; provided, (x) no
Lender, as between Company and such Lender, shall be relieved of any of its
obligations hereunder as a result of any such assignment and pledge and (y) in
no event shall the applicable pledgee or assignee be considered to be a "Lender"
or be entitled to require the assigning Lender to take or omit to take any
action hereunder, and (z) any transfer of the rights and obligations of a
"Lender" hereunder to any Person (other than any Federal Reserve Bank) upon the
foreclosure of any pledge or security interest referred to in this clause (i)
may only be made pursuant to the provisions of Sections 10.6(c) through (e)
governing assignments of interests in the Loans.
10.7. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or would otherwise be within the limitations of, another covenant shall not
avoid the occurrence of a Default or an Event of Default if such action is taken
or condition exists.
10.8. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made herein shall survive the
execution and delivery hereof and the making of any Credit Extension.
Notwithstanding anything herein or implied by law to the contrary, the
agreements of each Credit Party set forth in Sections 2.18(c), 2.19, 2.20, 10.2,
10.3 and 10.4 and
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the agreements of Lenders set forth in Sections 2.17 and 9.6 shall survive the
payment of the Loans, the cancellation or expiration of the Letters of Credit
and the reimbursement of any amounts drawn thereunder, and the termination
hereof.
10.9. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
Administrative Agent or any Lender in the exercise of any power, right or
privilege hereunder or under any other Credit Document shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other power,
right or privilege. The rights, powers and remedies given to each Agent and each
Lender hereby are cumulative and shall be in addition to and independent of all
rights, powers and remedies existing by virtue of any statute or rule of law or
in any of the other Credit Documents or any of the Hedge Agreements. Any
forbearance or failure to exercise, and any delay in exercising, any right,
power or remedy hereunder shall not impair any such right, power or remedy or be
construed to be a waiver thereof, nor shall it preclude the further exercise of
any such right, power or remedy.
10.10. MARSHALLING; PAYMENTS SET ASIDE. Neither Administrative Agent nor
any Lender shall be under any obligation to marshal any assets in favor of any
Credit Party or any other Person or against or in payment of any or all of the
Obligations. To the extent that any Credit Party makes a payment or payments to
Administrative Agent or Lenders (or to Administrative Agent, on behalf of
Lenders), or Administrative Agent or Lenders enforce any security interests or
exercise their rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, any
other state or federal law, common law or any equitable cause, then, to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor or related thereto,
shall be revived and continued in full force and effect as if such payment or
payments had not been made or such enforcement or setoff had not occurred.
10.11. SEVERABILITY. In case any provision in or obligation hereunder or
any Note shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
10.12. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The
obligations of Lenders hereunder are several and no Lender shall be responsible
for the obligations or Commitment of any other Lender hereunder. Nothing
contained herein or in any other Credit Document, and no action taken by Lenders
pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out hereof and it shall not be necessary for any other Lender to
be joined as an additional party in any proceeding for such purpose.
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10.13. HEADINGS. Section headings herein are included herein for
convenience of reference only and shall not constitute a part hereof for any
other purpose or be given any substantive effect.
10.14. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
10.15. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST
ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT,
OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE OF ILLINOIS OR IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY
AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (B)
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS
ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10.1; (D) AGREES THAT SERVICE AS
PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER
THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND
OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E)
AGREES SUCH LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS
OF ANY OTHER JURISDICTION.
10.16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO
WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN
TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND
ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT
EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH
PARTY HERETO FURTHER WAR-
111
<PAGE> 118
RANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND
THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SECTION 10.16 AND EXECUTED BY EACH OF THE
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER CREDIT
DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE
HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
10.17. CONFIDENTIALITY. Each Lender shall hold all non-public information
obtained pursuant to the requirements hereof which has been identified as
confidential by Company in accordance with such Lender's customary procedures
for handling confidential information of this nature and in accordance with
prudent lending or investing practices, it being understood and agreed by
Company that in any event a Lender may make disclosures to Affiliates of such
Lender (and to other persons authorized by a Lender or Agent to organize,
present or disseminate such information in connection with disclosures otherwise
made in accordance with this Section 10.17) or disclosures reasonably required
by any bona fide or potential assignee, transferee or participant in connection
with the contemplated assignment, transfer or participation by such Lender of
any Loans or any participations therein or by any direct or indirect contractual
counterparties (or the professional advisors thereto) in Hedge Agreements
(provided, such counterparties and advisors are advised of and agree to be bound
by the provisions of this Section 10.17) or disclosures required or requested by
any governmental agency or representative thereof or by the NAIC or pursuant to
legal process; provided, unless specifically prohibited by applicable law or
court order, each Lender shall make reasonable efforts to notify Company of any
request by any governmental agency or representative thereof (other than any
such request in connection with any examination of the financial condition or
other routine examination of such Lender by such governmental agency) for
disclosure of any such non-public information prior to disclosure of such
information.
10.18. USURY SAVINGS CLAUSE. Notwithstanding any other provision herein,
the aggregate interest rate charged with respect to any of the Obligations,
including all charges or fees in connection therewith deemed in the nature of
interest under applicable law shall not exceed the Highest Lawful Rate. If the
rate of interest (determined without regard to the preceding sentence) under
this Agreement at any time exceeds the Highest Lawful Rate, the outstanding
amount of the Loans made hereunder shall bear interest at the Highest Lawful
Rate until the total amount of interest due hereunder equals the amount of
interest which would have been due hereunder if the stated rates of interest set
forth in this Agreement had at all times been in effect. In addition, if when
the Loans made hereunder are repaid in full the total interest due hereunder
(taking into account the increase provided for above) is less than the total
amount of interest which would have been due hereunder if the stated rates of
interest set forth in this Agreement had at all times been in effect, then to
the extent permitted by law, Company shall pay to Administrative Agent an amount
equal to the
112
<PAGE> 119
difference between the amount of interest paid and the amount of interest which
would have been paid if the Highest Lawful Rate had at all times been in effect.
Notwithstanding the foregoing, it is the intention of Lenders and Company to
conform strictly to any applicable usury laws. Accordingly, if any Lender
contracts for, charges, or receives any consideration which constitutes interest
in excess of the Highest Lawful Rate, then any such excess shall be cancelled
automatically and, if previously paid, shall at such Lender=s option be applied
to the outstanding amount of the Loans made hereunder or be refunded to Company.
10.19. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto and receipt by
Company and Administrative Agent of written or telephonic notification of such
execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
<PAGE> 120
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
PAYLESS SHOESOURCE FINANCE, INC.,
as Borrower
By:
------------------------------------------------
Name:
Title:
PAYLESS SHOESOURCE, INC.,
as a Guarantor
By:
------------------------------------------------
Name:
Title:
PSS DELAWARE COMPANY 1, INC.
as a Guarantor
By:
------------------------------------------------
Name:
Title:
PSS DELAWARE COMPANY 2, INC.
as a Guarantor
By:
------------------------------------------------
Name:
Title:
PSS DELAWARE COMPANY 3, INC.
S-1
<PAGE> 121
as a Guarantor
By: ____________________________________
Name:
Title:
PSS DELAWARE COMPANY 4, INC.
as a Guarantor
By: ____________________________________
Name:
Title:
PAYLESS SHOESOURCE, INC.,
as a Guarantor
By: ____________________________________
Name:
Title:
EASTBOROUGH, INC.,
as a Guarantor
By: ____________________________________
Name:
Title:
PAYLESS SHOESOURCE WORLDWIDE, INC.,
as a Guarantor
By: ____________________________________
Name:
Title:
S-2
<PAGE> 122
PSS LABOR LEASING, INC.,
as a Guarantor
By: ____________________________________
Name:
Title:
PSS INVESTMENT I, INC.,
as a Guarantor
By: ____________________________________
Name:
Title:
PSS INVESTMENT III, INC.,
as a Guarantor
By: ____________________________________
Name:
Title:
PAYLESS SHOESOURCE DISTRIBUTION, INC,
as a Guarantor
By: ____________________________________
Name:
Title:
S-3
<PAGE> 123
PAYLESS SHOESOURCE MERCHANDISING, INC.,
as a Guarantor
By: ____________________________________
Name:
Title:
PSS CANADA, INC.,
as a Guarantor
By: ____________________________________
Name:
Title:
S-4
<PAGE> 124
AGENTS AND LENDERS: GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Lead Arranger, Syndication Agent and a Lender
By: _____________________________________________
Authorized Signatory
S-5
<PAGE> 125
BANK ONE, NA,
as Administrative Agent, Swing Line Lender, Issuing
Bank and a Lender
By: _______________________________________________
Name:
Title:
S-6
<PAGE> 126
FIRST UNION NATIONAL BANK,
as Documentation Agent and a Lender
By: ____________________________________
Name:
Title:
S-7
<PAGE> 127
ABN AMRO BANK N.V.
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
<PAGE> 128
BANCO POPULAR DE PUERTO RICO
By: ____________________________________
Name: Jorge Garcia
Title: Assistant Vice President
By:_____________________________________
Name: John Incandela
Title: Senior Vice President
<PAGE> 129
BANK OF HAWAII
By: ____________________________________
Name:
Title:
<PAGE> 130
THE BANK OF NEW YORK
BY: ____________________________________
NAME:
TITLE:
<PAGE> 131
COMMERCE BANK, N.A.
BY: ____________________________________
NAME:
TITLE:
<PAGE> 132
FIRSTAR BANK, N.A.
BY: ____________________________________
NAME: Barry P. Sullivan
TITLE: Vice President
<PAGE> 133
FLEET NATIONAL BANK
BY: ____________________________________
NAME:
TITLE:
<PAGE> 134
THE FUJI BANK, LIMITED
BY: ____________________________________
NAME:
TITLE:
<PAGE> 135
HIBERNIA NATIONAL BANK
BY: ____________________________________
NAME:
TITLE:
<PAGE> 136
HSBC BANK USA
BY: ____________________________________
NAME:
TITLE:
<PAGE> 137
IKB DEUTSCHE INDUSTRIEBANK AG,
LUXEMBOURG BRANCH
BY: ____________________________________
NAME:
TITLE:
<PAGE> 138
THE MITSUBISHI TRUST & BANKING
CORPORATION
BY: ____________________________________
NAME:
TITLE:
<PAGE> 139
ROYAL BANK OF CANADA
BY: ____________________________________
NAME:
TITLE:
<PAGE> 140
RZB FINANCE LLC
BY: ____________________________________
NAME:
TITLE:
BY: ____________________________________
NAME:
TITLE:
<PAGE> 141
SUMMIT BANK
BY: ____________________________________
NAME:
TITLE:
<PAGE> 142
UNION BANK OF CALIFORNIA, N.A.
BY: ____________________________________
NAME:
TITLE:
<PAGE> 143
UMB BANK, N.A.
BY: ____________________________________
NAME:
TITLE:
<PAGE> 144
CITIZENS BANK OF MASSACHUSETTS
BY: ____________________________________
NAME:
TITLE:
<PAGE> 145
WELLS FARGO BANK (TEXAS), N.A.
BY: ____________________________________
NAME: Juan J. Sanchez
TITLE: AVP
<PAGE> 146
APPENDIX A
TO CREDIT AND GUARANTY AGREEMENT
TERM LOAN COMMITMENTS
<TABLE>
<CAPTION>
PRO
LENDER TERM LOAN COMMITMENT RATA SHARE
<S> <C> <C>
Goldman Sachs Credit Partners L.P. $35,000,000.00 8.75%
Bank One, NA $33,333,333.33 8.33%
First Union National Bank $33,333,333.33 8.33%
The Bank of New York $30,000,000.00 7.5%
Summit Bank $30,000,000.00 7.5%
Firstar Bank N.A. $26,666,666.67 6.67%
HSBC Bank USA $26,666,666.67 6.67%
Wells Fargo (Texas), N.A. $20,000,000.00 5.00%
ABN AMRO Bank N.V. $16,666,666.67 4.17%
Fleet National Bank $16,666,666.67 4.17%
The Fuji Bank, Limited $16,666,666.67 4.17%
Royal Bank of Canada $16,666,666.67 4.17%
Union Bank of California, N.A. $16,666,666.67 4.17%
Citizens Bank of Massachusetts $13,333,333.33 3.33%
IKB Deutsche Industriebank AG, Luxembourg Branch $13,333,333.33 3.33%
Bank of Hawaii $10,000,000.00 2.50%
Banco Popular de Puerto Rico $10,000,000.00 2.50%
The Mitsubishi Trust and Banking Corporation $10,000,000.00 2.50%
UMB Bank, n.a. $10,000,000.00 2.50%
RZB Finance LLC $6,666,666.67 1.67%
</TABLE>
<PAGE> 147
<TABLE>
<S> <C> <C>
Commerce Bank, N.A. $5,000,000.00 1.25%
Hibernia National Bank $3,333,333.33 .83%
TOTAL $400,000,000 100%
</TABLE>
<PAGE> 148
APPENDIX B
TO CREDIT AND GUARANTY AGREEMENT
REVOLVING CREDIT COMMITMENTS
<TABLE>
<CAPTION>
LENDER REVOLVING CREDIT COMMITMENT PRO RATA SHARE
<S> <C> <C>
Goldman Sachs Credit Partners L.P. $17,500,000.00 8.75%
Bank One, NA $16,666,666.67 8.33%
First Union National Bank $16,666,666.67 8.33%
The Bank of New York $15,000,000.00 7.50%
Summit Bank $15,000,000.00 7.50%
Firstar Bank N.A. $13,333,333.33 6.67%
HSBC Bank USA $13,333,333.33 6.67%
Wells Fargo (Texas), N.A. $10,000,000.00 5.00%
ABN AMRO Bank N.V. $8,333,333.33 4.17%
Fleet National Bank $8,333,333.33 4.17%
The Fuji Bank, Limited $8,333,333.33 4.17%
Royal Bank of Canada $8,333,333.33 4.17%
Union Bank of California, N.A. $8,333,333.33 4.17%
Citizens Bank of Massachusetts $6,666,666.67 3.33%
IKB Deutsche Industriebank AG, Luxembourg $6,666,666.67 3.33%
Branch
Bank of Hawaii $5,000,000.00 2.50%
Banco Popular de Puerto Rico $5,000,000.00 2.50%
The Mitsubishi Trust and Banking Corporation $5,000,000.00 2.50%
UMB Bank, n.a. $5,000,000.00 2.50%
RZB Finance LLC $3,333,333.33 1.67%
Commerce Bank, N.A. $2,500,000.00 1.25%
</TABLE>
<PAGE> 149
<TABLE>
<S> <C> <C>
Hibernia National Bank $1,666,666.67 .83%
TOTAL $200,000,000 100%
</TABLE>
<PAGE> 150
APPENDIX C
TO CREDIT AND GUARANTY AGREEMENT
NOTICE ADDRESSES
PAYLESS SHOESOURCE FINANCE, INC.
3231 Southeast 6th Avenue
Topeka, KS 66607
Attention:
Telecopier:
PAYLESS SHOESOURCE, INC.
3231 Southeast 6th Avenue
Topeka, KS 66607
Attention:
Telecopier:
FOR EACH GUARANTOR SUBSIDIARY:
3231 Southeast 6th Avenue
Topeka, KS 66607
Attention:
Telecopier:
in each case, with a copy to:
- ------------------------------
- ------------------------------
- ------------------------------
Attention:
Telecopier:
<PAGE> 151
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Lead Arranger, Syndication Agent and a Lender
Goldman Sachs Credit Partners L.P.
85 Broad Street
New York, New York 10004
Attention: Elizabeth Fischer
Telecopier: (212) 357-0932
with a copy to:
Goldman Sachs Credit Partners L.P.
85 Broad Street
New York, New York 10004
Attention: Lisa Perrotto
Telecopier: (212) 357-2608
<PAGE> 152
BANK ONE, NA,
as Administrative Agent,
Swing Line Lender,
Issuing Bank and a Lender
Administrative Agent's Principal Office:
Bank One
1 Bank One Plaza
Suite Il1-0086
Chicago, IL 60670
Attention: Debora K.Oberling
Telecopier: 312-732-1117
Swing Line Lender's Principal Office:
Bank One
1 Bank One Plaza
Chicago, IL 60670
Attention: Maribel Lorenzo
Telecopier: 312-732-7271
Issuing Bank's Principal Office:
Bank One
1 Bank One Plaza
Suite Il1-0086
Chicago, IL 60670
Attention: Debora K.Oberling
Telecopier: 312-732-1117
<PAGE> 153
FIRST UNION NATIONAL BANK,
as Documentation Agent and a Lender
First Union National Bank
One South Penn Square
12th Floor - Widener Bldg PA 4843
Philadelphia, PA 19107
Attention: Bill Fox
Telecopier: 215-786-2877
<PAGE> 154
ABN AMRO BANK N.V.
ABN AMRO Bank N.V.
208 South LaSalle
Suite 1500
Chicago, IL 60604-1003
Attention: Credit Administration
Telecopier: 312-992-5111
with a copy to:
ABN AMRO Bank N.V.
208 South LaSalle
Suite 1500
Chicago, IL 60604-1003
Attention: Brian Sharpe
Telecopier: 312-904-1110
<PAGE> 155
BANCO POPULAR DE PUERTO RICO
Banco Popular de Puerto Rico
209 Ponce De Leon Avenue
Popular Center Building
6th Floor
San Juan, Puerto Rico 00918
Attention: Jorge Garcia
Telecopier: 787-756-3909
<PAGE> 156
BANK OF HAWAII
Bank of Hawaii
1850 North Central Avenue
Suite 400
Phoenix, AZ 85004
Attention: Donna Parker
Telecopier: 602-257-2444
<PAGE> 157
THE BANK OF NEW YORK
The Bank of New York
One Wall Street
8th Floor - Retailing Industry Division
New York, NY 10286
Attention: Charlotte Sohn
Telecopier: 212-635-1483
<PAGE> 158
COMMERCE BANK, N.A.
Commerce Bank, N.A.
1000 Walnut Street
17th Floor
Kansas City, MO 64106
Attention: David Emley
Telecopier: 816-234-7290
<PAGE> 159
FIRSTAR
Firstar Bank, N.A.,
1101 Walnut
7th Floor
Kansas City, MO 64106
Attention: Barry P. Sullivan
Telecopier: 816-871-2226
with a copy to:
Firstar Bank N.A.
1850 Osborn Avenue
Oshkosh, WI 54902
Attention: Connie Sweeney
Telecopier: 920-426-7655
<PAGE> 160
FLEET NATIONAL BANK
Fleet National Bank
100 Federal Street
9th Floor
Boston, MA 02110
Attention: Judith C.E. Kelly
Telecopier: 617-434-6685
with a copy to:
Fleet National Bank
100 Federal Street
9th Floor
Boston, MA 02110
Attention: Dwayne Nelson
Telecopier: 617-346-0595
<PAGE> 161
THE FUJI BANK, LIMITED
The Fuji Bank Limited
225 West Wacker Drive
Suite 2000
Chicago, IL 60606
Attention: James Fayen
Telecopier: 312-621-3387
<PAGE> 162
HIBERNIA NATIONAL BANK
Hibernia National Bank
313 Carondelet Street
12th Floor
New Orleans, Louisiana 70130
Attention: Laura K. Watts
Telecopier: 504-533-5344
with a copy to:
Hibernia National Bank
313 Carondelet Street
12th Floor
New Orleans, Louisiana 70130
Attention: Shelly Strada
Telecopier: 504-533-5344
<PAGE> 163
HSBC BANK USA
HSBC Bank USA
200 South Wacker Drive
Suite 770
Chicago, IL 60606-5829
Attention: Steve Trepiccione
Telecopier: 312-575-1331
<PAGE> 164
IKB DEUTSCHE INDUSTRIEBANK AG, LUXEMBOURG BRANCH
IKB Deutsche Industriebank AG, Luxembourg Branch
c/o Structured Finance
Wilhelm-Boetzkes-Strasse 1, 40474 Dusseldorf
P.O. Box 10 11 18
40002 DUSSELDORF
Germany
Attention: Andrea Schroeder
Telecopier: 011-49-211-8221-2181
<PAGE> 165
THE MITSUBISHI TRUST & BANKING CORPORATION
The Mitsubishi Trust & Banking Corporation
520 Madison Avenue
New York, NY 10022
Attention: Dan Chang
Telecopier: 212-644-6825
<PAGE> 166
ROYAL BANK OF CANADA
Royal Bank of Canada
One Liberty Plaza
New York, NY 10006 - 1404
Attention: Gordon MacArthur
Telecopier: 212-428-2319
with a copy to:
Royal Bank of Canada
One Liberty Plaza
New York, NY 10006 - 1404
Attention: John Crawford
Telecopier: 212-428-2319
<PAGE> 167
RZB FINANCE LLC
RZB Finance LLC
1133 Avenue of the Americas
New York, NY 10036
Attention: John Valiska
Telecopier: 212-845-4130
<PAGE> 168
SUMMIT BANK
Summit Bank
750 Walnut Avenue
Cranford, NJ 07016
Attention: Miguel Medida
Telecopier: 908-709-6433/4436
with a copy to:
Summit Bank
750 Walnut Avenue
Cranford, NJ 07016
Attention: Barbara Sesee
Telecopier: 908-709-6433/4436
<PAGE> 169
UNION BANK OF CALIFORNIA, N.A.
Union Bank of California, N.A.
350 California Street
6th Floor
San Francisco, CA 94104
Attention: J. William Bloore
Telecopier: 415-705-7085
<PAGE> 170
UMB BANK, N.A.
UMB Bank, n.a.
1010 Grand Boulevard
Kansas City, MO 64106
Attention: Douglas F. Page
Telecopier: 816-860-7143
<PAGE> 171
CITIZENS BANK OF MASSACHUSETTS
Citizens Bank of Massachusetts
40 Court Street
Boston, MA 02108
Attention: Tony Wilson
Telecopier: 617-695-4185
<PAGE> 172
WELLS FARGO BANK
Wells Fargo Bank
4975 Preston Park Blvd.
Suite 280
Plano, Texas 75093
Attention: Juan Sanchez
Telecopier: 972-867-5674
<PAGE> 173
CREDIT AGREEMENT
SCHEDULES
SCHEDULE 1.1(A)
REFINANCED INDEBTEDNESS
1. Letter of Credit for insurance claims ($O drawn) $11,445,510
Issued under the existing amended and restated (L/C only)
Multicurrency Credit Agreement dated as of May 22, 1998
2. Aggregate of Senior Notes due Series A, B & C 2003-2008 $67,000,000
3. Aggregate of Senior Notes due Series D, E & F 2004-2009 $55,000,000
<PAGE> 174
SCHEDULE 1.1(B)
IMMATERIAL FOREIGN SUBSIDIARIES
1. Payless ShoeSource International Servicos Tecnicos E Brazil
Inspetoria De Calcados S/C Ltda.
2. Payless Servicios, S.A. de C.V. (Inactive) Mexico
3. Payless Controladora, S.A. de C.V. Mexico
4. Payless ShoeSource, S.A. de C.V. (Inactive) Mexico
5. Dynamic Assets Limited Hong Kong
<PAGE> 175
SCHEDULE 4.1
ORGANIZATION AND CAPITAL STRUCTURE
<TABLE>
<CAPTION>
Name of Company Jurisdiction of Percentage of shares Percentage of shares
Organization of each class owned of each class owned
by the Parent by other Subsidiary
Payless ShoeSource, DE N/A N/A
Inc.
Payless ShoeSource NV 100% N/A
Finance, Inc.
<S> <C> <C> <C>
Payless ShoeSource, MO 0% 100% Payless
Inc. ShoeSource Finance,
Inc. (NV)
PSS of Puerto Rico, PR 0% 100% Payless
Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4150, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4152, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4153, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4154, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4157, Inc. ShoeSource, Inc.
(MO)
</TABLE>
<PAGE> 176
<TABLE>
<S> <C> <C> <C>
PSS of Puerto Rico PR 0% 100% Payless
No. 4158, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4162, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4163, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4164, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4166, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4167, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4168, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4204, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4206, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4207, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4208, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4219, Inc. ShoeSource, Inc.
(MO)
</TABLE>
<PAGE> 177
<TABLE>
<S> <C> <C> <C>
PSS of Puerto Rico PR 0% 100% Payless
No. 4220, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4221, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4238, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4242, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4940, Inc. ShoeSource, Inc.
(MO)
Payless ShoeSource KS 0% 100% Payless
Merchandising, Inc. ShoeSource, Inc.
(MO)
Payless ShoeSource KS 0% 100% Payless
Worldwide, Inc. ShoeSource, Inc.
(MO)
PSS Labor Leasing, KS 0% 100% Payless
Inc. ShoeSource
Worldwide, Inc.(MO)
Payless ShoeSource NMI 0% 100% Payless
Saipan, Inc. ShoeSource
Worldwide, Inc. (KS)
PSS Canada, Inc. KS 0% 100% Payless
ShoeSource
Worldwide, Inc. (KS)
Payless ShoeSource Canada 0% 100% PSS Canada,
Canada, Inc. Inc. (KS)
Payless ShoeSource KS 0% 100% Payless
Distribution, Inc. ShoeSource, Inc.
(MO)
</TABLE>
<PAGE> 178
<TABLE>
<S> <C> <C> <C>
Payless ShoeSource Brazil 0% 75% Payless
International ShoeSource, Inc.
Servicos Tecnicos E (MO), 25% PSS
Inspetoria De Investment I, Inc.
Calcados S/C Ltda. (NV)
Payless ShoeSource Hong Kong 0% 99.95% Payless
International Limited ShoeSource, Inc.
(MO), 0.05% PSS
Investment I, Inc.
(NV)
Payless ShoeSource Taiwan 0% 99.97% Payless
International, Inc. ShoeSource
International
Limited
(Hong
Kong),
0.03%
held
in
trust
by
six
individuals
for
Payless
ShoeSource
International
Limited.
100% Payless
PSS Investment I, NV 0% ShoeSource, Inc.
Inc. (MO)
100% Payless
PSS Investment III, KS 0% ShoeSource, Inc.
Inc. (MO)
99.998% Payless
Payless Servicios, Mexico 0% Controladora, S.A. de
S.A. de C.V. C.V. (Mexico),
(Inactive) 0.002% PSS
Investment I, Inc.
(NV)
50% PSS Investment
Payless Mexico 0% I, Inc. (NV), 50%
Controladora, S.A. de PSS Investment III,
C.V. Inc. (KS)
</TABLE>
<PAGE> 179
<TABLE>
<S> <C> <C> <C>
Eastborough, Inc. Kansas 0% 100% Payless
ShoeSource Finance
Inc. (NV)
PSS Delaware Delaware 0% 100% Payless
Company 1, Inc. ShoeSource Finance,
Inc. (NV)
PSS Delaware Delaware 0% 100% Payless
Company 2, Inc. ShoeSource Finance,
Inc. (NV)
PSS Delaware Delaware 0% 100% Payless
Company 3, Inc. ShoeSource Finance,
Inc. (NV)
PSS Delaware Delaware 0% 100% Payless
Company 4, Inc. ShoeSource Finance,
Inc. (NV)
Dynamic Assets Hong Kong 0% 1% Payless
Limited ShoeSource Finance,
Inc. (NV)
99% Payless
ShoeSource
Worldwide, Inc.
</TABLE>
<PAGE> 180
SCHEDULE 4.10
ORGANIZATION AND CAPITAL STRUCTURE
<TABLE>
<CAPTION>
Name of Company Jurisdiction of Percentage of shares Percentage of shares
Organization of each class owned of each class owned
by the Parent by other Subsidiary
<S> <C> <C> <C>
Payless ShoeSource, DE N/A N/A
Inc.
Payless ShoeSource NV 100% N/A
Finance, Inc.
Payless ShoeSource, MO 0% 100% Payless
Inc. ShoeSource Finance,
Inc. (NV)
PSS of Puerto Rico, PR 0% 100% Payless
Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4150, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4152, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4153, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4154, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4157, Inc. ShoeSource, Inc.
(MO)
</TABLE>
<PAGE> 181
<TABLE>
<S> <C> <C> <C>
PSS of Puerto Rico PR 0% 100% Payless
No. 4158, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4162, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4163, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4164, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4166, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4167, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4168, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4204, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4206, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4207, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4208, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4219, Inc. ShoeSource, Inc.
(MO)
</TABLE>
<PAGE> 182
<TABLE>
<S> <C> <C> <C>
PSS of Puerto Rico PR 0% 100% Payless
No. 4220, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4221, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4238, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4242, Inc. ShoeSource, Inc.
(MO)
PSS of Puerto Rico PR 0% 100% Payless
No. 4940, Inc. ShoeSource, Inc.
(MO)
Payless ShoeSource KS 0% 100% Payless
Merchandising, Inc. ShoeSource, Inc.
(MO)
Payless ShoeSource KS 0% 100% Payless
Worldwide, Inc. ShoeSource, Inc.
(MO)
Payless ShoeSource NMI 0% 100% Payless
Saipan, Inc. ShoeSource
Worldwide, Inc. (KS)
PSS Labor Leasing, KS 0% 100% Payless
Inc. ShoeSource
Worldwide, Inc.(MO)
PSS Canada, Inc. KS 0% 100% Payless
ShoeSource
Worldwide, Inc. (KS)
Payless ShoeSource Canada 0% 100% PSS Canada,
Canada, Inc. Inc. (KS)
Payless ShoeSource KS 0% 100% Payless
Distribution, Inc. ShoeSource, Inc.
(MO)
</TABLE>
<PAGE> 183
<TABLE>
<S> <C> <C> <C>
Payless ShoeSource Brazil 0% 75% Payless
International ShoeSource, Inc.
Servicos Tecnicos E (MO), 25% PSS
Inspetoria De Investment I, Inc.
Calcados S/C Ltda. (NV)
Payless ShoeSource Hong Kong 0% 99.95% Payless
International Limited ShoeSource, Inc.
(MO), 0.05% PSS
Investment I, Inc.
(NV)
Payless ShoeSource Taiwan 0% 99.97% Payless
International, Inc. ShoeSource
International
Limited
(Hong
Kong),
0.03%
held
in
trust
by
six
individuals
for
Payless
ShoeSource
International
Limited.
PSS Investment I, NV 0% 100% Payless
Inc. ShoeSource, Inc.
(MO)
PSS Investment III, KS 0% 100% Payless
Inc. ShoeSource, Inc.
(MO)
Payless Servicios, Mexico 0% 99.998% Payless
S.A. de C.V. Controladora, S.A. de
(Inactive) C.V. (Mexico),
0.002% PSS
Investment I, Inc.
(NV)
Payless Mexico 0% 50% PSS Investment
Controladora, S.A. de I, Inc. (NV), 50%
C.V. PSS Investment III,
Inc. (KS)
</TABLE>
<PAGE> 184
<TABLE>
<S> <C> <C> <C>
Payless ShoeSource, Mexico 0% 99.998% Payless
S.A. de C.V. Controladora, S.A. de
(Inactive) C.V. (Mexico),
0.002% PSS
Investment I, Inc.
(KS)
Eastborough, Inc. Kansas 0% 100% Payless
ShoeSource Finance,
Inc. (NV)
PSS Delaware Delaware 0% 100% Payless
Company 1, Inc. ShoeSource Finance,
Inc. (NV)
PSS Delaware Delaware 0% 100% Payless
Company 2, Inc. ShoeSource Finance,
Inc. (NV)
PSS Delaware Delaware 0% 100% Payless
Company 3, Inc. ShoeSource Finance,
Inc. (NV)
PSS Delaware Delaware 0% 100% Payless
Company 4, Inc. ShoeSource Finance,
Inc. (NV)
Dynamic Assets Hong Kong 0% 1% Payless
Limited ShoeSource Finance,
Inc. (NV)
99% Payless
ShoeSource
Worldwide, Inc.
</TABLE>
<PAGE> 185
PARENT CORPORATION'S DIRECTORS AND OFFICERS
Directors:
Daniel Boggan Jr.
Steven J. Douglass
Howard R. Fricke
Thomas A. Hays
Ken C. Hicks
Mylle B. Mangum
Michael E. Murphy
Robert L. Stark
Officers:
Steven J. Douglass Chairman of the Board and Chief Executive Officer
Duane L. Cantrell Executive Vice President - Operations
Bryan P. Collins Senior Vice President - Parade of Shoes
Ken C. Hicks President
John N. Haugh Senior Vice President - Marketing
Gerald F. Kelly, Jr. Senior Vice President - Logistics/Information Systems
and Technology
Harris Mustafa Senior Vice President - Worldwide Sourcing
Jed L. Norden Senior Vice President - Human Resources
JoAnn Ogee Senior Vice President - General Merchandise Manager -
Women's
Darrel J. Pavelka Senior Vice President - Merchandise Distribution
Ullrich E. Porzig Senior Vice President - Chief Financial Officer and
Treasurer
William J. Rainey Senior Vice President - General Counsel and Secretary
<PAGE> 186
Gary M. Stone Senior Vice President - Store Development
Larry M. Strecker Senior Vice President - Retail Operations
Jeffrey W. Wagner Senior Vice President - General Merchandise Manager -
Men's
Karolyn W. Wangstad Senior Vice President - Trend Merchandising
Michael S. Wilkes Senior Vice President - General Merchandise Manager -
Children's
<PAGE> 187
SCHEDULE 6.1(A)
EXISTING INDEBTEDNESS AS OF APRIL 17, 2000
1. Aggregate of various Capitalized Lease Obligations (short-term1) $748,767
2. Aggregate of various Capitalized Lease Obligations (long-term2) $3,956,916
- --------------------
1 Short-term obligations are those obligations which are expected to be paid
within the next 12 months.
2 Long-term obligations are those obligations which are expected to be paid more
than 12 months from now.
<PAGE> 188
SCHEDULE 6.2
LIENS
None
<PAGE> 189
SCHEDULE 6.5
INVESTMENTS
Securities in other publicly held U.S. corporations not exceeding $25,000
City of Topeka, KS Industrial Revenue Bonds Issued 1991 $5,640,000
City of Topeka, KS Industrial Revenue Bonds Issued 1997 $14,376,000
City of Topeka, KS Industrial Revenue Bonds Issued 1998 $11,880,000
City of Topeka, KS Industrial Revenue Bonds Issued 1999 $3,844,000
<PAGE> 190
SCHEDULE 6.10
CERTAIN TRANSACTIONS
NONE
<PAGE> 191
EXHIBIT A-1 TO
CREDIT AND GUARANTY AGREEMENT
FUNDING NOTICE
Reference is made to the Credit and Guaranty Agreement, dated as of April
_____, 2000 (as it may be amended, supplemented or otherwise modified, the
"CREDIT AGREEMENT"; the terms defined therein and not otherwise defined
herein being used herein as therein defined), by and among PAYLESS SHOESOURCE
FINANCE, INC., a Nevada corporation ("COMPANY"), PAYLESS SHOESOURCE,
INC., a Delaware corporation, and certain Subsidiaries of Company, as
Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT
PARTNERS L.P., as Lead Arranger and Syndication Agent, BANK ONE, N.A., as
Administrative Agent, and FIRST UNION NATIONAL BANK, as Documentation Agent.
Pursuant to Section 2.1, 2.2 and/or 2.3 of the Credit Agreement, Company
desires that Lenders make the following Loans to Company in accordance with the
applicable terms and conditions of the Credit Agreement on _____________, 200__
(the "CREDIT DATE"):
1. Revolving Loans
[ ] Base Rate Loans: $[___,___,___]
[ ] Eurodollar Rate Loans, with an
Initial Interest Period of ________
Month(s): $[___,___,___]
2. Term Loans
[ ] Base Rate Loans: $[___,___,___]
[ ] Eurodollar Rate Loans, with an
Initial Interest Period of ________
Month(s): $[___,___,___]
3. Swing Line Loans: $[___,___,___]
EXHIBIT A-1-1
<PAGE> 192
Company hereby certifies that:
(i) with respect to any Revolving Loan or Swing Line Loan, after
making any such Loan requested on such Credit Date, the Total Utilization
of Revolving Credit Commitments shall not exceed the Revolving Credit
Commitments then in effect;
(ii) with respect to any Term Loan, after making any such Loan
requested on such Credit Date, the sum of (i) the aggregate principal
amount of Term Loans made to the Company, plus (ii) the aggregate amount of
Cash (excluding the proceeds of any Term Loans and any Cash used to make
purchases of Parent Common Stock under and in compliance with Section
6.4(vi) of the Credit Agreement) used by the Company from the Closing Date
to the six-month anniversary of the Closing Date to consummate purchases of
Additional Purchased Common Stock, shall not exceed $400,000,000;
(iii) as of the Credit Date, the representations and warranties
contained in each of the Credit Documents are true, correct and complete in
all material respects on and as of such Credit Date to the same extent as
though made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case such representations and warranties are true, correct and
complete in all material respects on and as of such earlier date;
(iv) as of the Credit Date no injunction or other restraining order
shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect to
any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of,
the borrowing contemplated hereby; and
(v) as of such Credit Date, no event has occurred and is continuing or
would result from the consummation of the borrowing contemplated hereby
that would constitute an Event of Default or a Default.
Date: _________ __, 20__ PAYLESS SHOESOURCE FINANCE, INC.
By: ___________________________________
Title:
EXHIBIT A-1-2
<PAGE> 193
EXHIBIT A-2 TO
CREDIT AND GUARANTY AGREEMENT
CONVERSION/CONTINUATION NOTICE
Reference is made to the Credit and Guaranty Agreement, dated as of
April __, 2000 (as it may be amended, supplemented or otherwise modified, the
"CREDIT AGREEMENT"; the terms defined therein and not otherwise defined herein
being used herein as therein defined), by and among PAYLESS SHOESOURCE FINANCE,
INC., a Nevada corporation ("COMPANY"), PAYLESS SHOESOURCE, INC., a Delaware
corporation, and certain Subsidiaries of Company, as Guarantors, the Lenders
party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead
Arranger and Syndication Agent, BANK ONE, N.A., as Administrative Agent, and
FIRST UNION NATIONAL BANK, as Documentation Agent.
Pursuant to Section 2.9 of the Credit Agreement, Company desires to
convert or to continue the following Loans, each such conversion and/or
continuation to be effective as of ____________ __, 200__:
1. TERM LOANS:
<TABLE>
<S> <C> <C>
$[___,___,___] Eurodollar Rate Loans to Initial Interest Period of
be continued _______ month(s)
$[___,___,___] Base Rate Loans to be Initial Interest Period of
converted to Eurodollar _______ month(s)
Rate Loans
$[___,___,___] Eurodollar Rate Loans to
be converted to Base Rate
Loans
</TABLE>
2. REVOLVING LOANS:
<TABLE>
<S> <C> <C>
$[___,___,___] Eurodollar Rate Loans to Initial Interest Period of
be continued _______ month(s)
$[___,___,___] Base Rate Loans to be Initial Interest Period of
converted to Eurodollar _______ month(s)
Rate Loans
$[___,___,___] Eurodollar Rate Loans to
be converted to Base Rate
Loans
</TABLE>
EXHIBIT A-2-1
<PAGE> 194
Company hereby certifies that as of the date hereof, no event has
occurred and is continuing or would result from the consummation of the
conversion and/or continuation contemplated hereby that would constitute an
Event of Default or a Default.
Date: __________ __, 200__ PAYLESS SHOESOURCE FINANCE, INC.
By: __________________________
Title:
EXHIBIT A-2-2
<PAGE> 195
EXHIBIT A-3 TO
CREDIT AND GUARANTY AGREEMENT
ISSUANCE NOTICE
Reference is made to the Credit and Guaranty Agreement, dated as of April
__, 2000 (as it may be amended, supplemented or otherwise modified, the "CREDIT
AGREEMENT"; the terms defined therein and not otherwise defined herein being
used herein as therein defined), by and among PAYLESS SHOESOURCE FINANCE, INC.,
a Nevada corporation ("COMPANY"), PAYLESS SHOESOURCE, INC., a Delaware
corporation, and certain Subsidiaries of Company, as Guarantors, the Lenders
party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead
Arranger and Syndication Agent, BANK ONE, N.A., as Administrative Agent, and
FIRST UNION NATIONAL BANK, as Documentation Agent.
Pursuant to Section 2.4 of the Credit Agreement, Company desires Letters of
Credit to be issued in accordance with the terms and conditions of the Credit
Agreement on [_________ __, 200__] (the "CREDIT DATE") in an aggregate face
amount of $[___,___,___].
Attached hereto for each such Letter of Credit are the following:
(a) the stated amount of such Letter of Credit;
(b) the name and address of the beneficiary;
(c) the expiration date; and
(d) either (i) the verbatim text of such proposed Letter of Credit, or
(ii) a description of the proposed terms and conditions of such Letter of
Credit, including a precise description of any documents to be presented by
the beneficiary which, if presented by the beneficiary prior to the
expiration date of such Letter of Credit, would require the Issuing Lender
to make payment under such Letter of Credit.
Company hereby certifies that:
(i) after making any such Letter of Credit requested on such Credit
Date, the Total Utilization of Revolving Credit Commitments shall not
exceed the Revolving Credit Commitments then in effect;
(ii) as of the Credit Date, the representations and warranties
contained in each of the Credit Documents are true, correct and complete in
all material respects on and as of such Credit Date to the same extent as
though made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case such representations and warranties are true, correct and
complete in all
EXHIBIT A-3-1
<PAGE> 196
material respects on and as of such earlier date;
(iii) as of the Credit Date no injunction or other restraining order
shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect to
any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of,
the issuance contemplated hereby; and
(iv) as of such Credit Date, no event has occurred and is continuing
or would result from the consummation of the issuance contemplated hereby
that would constitute an Event of Default or a Default.
Date: [MM/DD/200_] PAYLESS SHOESOURCE FINANCE, INC.
By: __________________________
Title:
EXHIBIT A-3-2
<PAGE> 197
EXHIBIT B-1 TO
CREDIT AND GUARANTY AGREEMENT
TERM LOAN NOTE
$[1][___,___,___] [2][mm/dd/yy]
FOR VALUE RECEIVED, PAYLESS SHOESOURCE FINANCE, INC., a Nevada
corporation ("COMPANY"), promises to pay to the order of [NAME OF LENDER]
("PAYEE") or its permitted assigns the principal amount of [1][DOLLARS]
($[___,___,___][1]) in the installments referred to below.
Company also promises to pay interest on the unpaid principal amount
hereof, from the date hereof until paid in full, at the rates and at the times
which shall be determined in accordance with the provisions of that certain
Credit and Guaranty Agreement, dated as of April __, 2000 (as it may be amended,
supplemented or otherwise modified, the "CREDIT AGREEMENT"; the terms defined
therein and not otherwise defined herein being used herein as therein defined),
by and among Company, PAYLESS SHOESOURCE, INC., a Delaware corporation, and
certain Subsidiaries of Company, as Guarantors, the Lenders party thereto from
time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger and
Syndication Agent, BANK ONE, N.A., as Administrative Agent, FIRST UNION NATIONAL
BANK, as Documentation Agent.
Company shall make principal payments on this Note as set forth in
Section 2.12 of the Credit Agreement.
This Note is one of the "Term Notes" in the aggregate principal amount
of $[___,___,___] and is issued pursuant to and entitled to the benefits of the
Credit Agreement, to which reference is hereby made for a more complete
statement of the terms and conditions under which the Term Loan evidenced hereby
was made and is to be repaid.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
Principal Office of Administrative Agent or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the
Credit Agreement. Unless and until an Assignment Agreement effecting the
assignment or transfer of this Note shall have been accepted by Administrative
Agent and recorded in the Register, Company, each Agent and Lenders shall be
entitled to deem and treat Payee as the owner and holder of this Note and the
Loan evidenced hereby. Payee hereby agrees, by its acceptance hereof, that
before disposing of this Note or any part hereof it
- --------
[1] Lender's Term Loan Commitment
[2] Date of Issuance
EXHIBIT B-1-1
<PAGE> 198
will make a notation hereon of all principal payments previously made
hereunder and of the date to which interest hereon has been paid; provided, the
failure to make a notation of any payment made on this Note shall not limit or
otherwise affect the obligations of Company hereunder with respect to payments
of principal of or interest on this Note.
This Note is subject to mandatory prepayment and to prepayment at the
option of Company, each as provided in the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner
provided in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as
provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this
Note or the Credit Agreement shall alter or impair the obligations of Company,
which are absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
Company promises to pay all costs and expenses, including reasonable
attorneys' fees, all as provided in the Credit Agreement, incurred in the
collection and enforcement of this Note. Company and any endorsers of this Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest, demand
notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
EXHIBIT B-1-2
<PAGE> 199
IN WITNESS WHEREOF, Company has caused this Note to be duly executed
and delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
PAYLESS SHOESOURCE FINANCE, INC.
By: ______________________________
Title:
EXHIBIT B-1-3
<PAGE> 200
EXHIBIT B-2 TO
CREDIT AND GUARANTY AGREEMENT
REVOLVING LOAN NOTE
$[1][___,___,___] [2][mm/dd/yy]
FOR VALUE RECEIVED, PAYLESS SHOESOURCE FINANCE, INC., a Nevada
corporation ("COMPANY"), promises to pay to the order of [NAME OF LENDER]
("PAYEE") or its permitted assigns, on or before April __, 2005, the lesser of
(a) [1][DOLLARS] ($[1][___,___,___]) and (b) the unpaid principal amount of all
advances made by Payee to Company as Revolving Loans under the Credit Agreement
referred to below.
Company also promises to pay interest on the unpaid principal amount
hereof, from the date hereof until paid in full, at the rates and at the times
which shall be determined in accordance with the provisions of that certain
Credit and Guaranty Agreement, dated as of April __, 2000 (as it may be amended,
supplemented or otherwise modified, the "CREDIT AGREEMENT"; the terms defined
therein and not otherwise defined herein being used herein as therein defined),
by and among Company, PAYLESS SHOESOURCE, INC., a Delaware corporation, and
certain Subsidiaries of Company, as Guarantors, the Lenders party thereto from
time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger and
Syndication Agent, BANK ONE, N.A., as Administrative Agent, and FIRST UNION
NATIONAL BANK, as Documentation Agent.
This Note is one of the "Revolving Loan Notes" in the aggregate
principal amount of $[___,___,___] and is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the Loans evidenced
hereby were made and are to be repaid.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
Principal Office of Administrative Agent or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the
Credit Agreement. Unless and until an Assignment Agreement effecting the
assignment or transfer of this Note shall have been accepted by Administrative
Agent and recorded in the Register, Company, each Agent and Lenders shall be
entitled to deem and treat Payee as the owner and holder of this Note and the
Loans evidenced hereby. Payee hereby agrees, by its acceptance hereof, that
before disposing of this Note or any part hereof it will make a notation hereon
of all principal payments previously made hereunder and of the date to which
interest hereon has been paid; provided, the failure to make a notation of any
payment
- --------
[1] Lender's Revolving Credit Commitment
[2] Date of Issuance
EXHIBIT B-2-1
<PAGE> 201
made on this Note shall not limit or otherwise affect the obligations of
Company hereunder with respect to payments of principal of or interest on this
Note.
This Note is subject to mandatory prepayment and to prepayment at the
option of Company, each as provided in the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner
provided in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as
provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this
Note or the Credit Agreement shall alter or impair the obligations of Company,
which are absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
Company promises to pay all costs and expenses, including reasonable
attorneys' fees, all as provided in the Credit Agreement, incurred in the
collection and enforcement of this Note. Company and any endorsers of this Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest, demand
notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
EXHIBIT B-2-2
<PAGE> 202
IN WITNESS WHEREOF, Company has caused this Note to be duly executed
and delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
PAYLESS SHOESOURCE FINANCE, INC.
By: _____________________________
Title:
EXHIBIT B-2-3
<PAGE> 203
TRANSACTIONS
ON
REVOLVING LOAN NOTE
<TABLE>
<CAPTION>
Outstanding
Type of Amount of Amount of Principal
Loan Made Loan Made Principal Paid Balance Notation
Date This Date This Date This Date This Date Made By
<S> <C> <C> <C> <C> <C>
</TABLE>
EXHIBIT B-2-4
<PAGE> 204
EXHIBIT B-3 TO
CREDIT AND GUARANTY AGREEMENT
SWING LINE NOTE
$3,000,000 APRIL __, 2000
FOR VALUE RECEIVED, PAYLESS SHOESOURCE FINANCE, INC., a Nevada
corporation ("COMPANY"), promises to pay to to the order of BANK ONE, N.A., as
Swing Line Lender ("PAYEE"), on or before April __, 2005, the lesser of (a)
THREE MILLION DOLLARS ($3,000,000) and (b) the unpaid principal amount of all
advances made by Payee to Company as Swing Line Loans under the Credit Agreement
referred to below.
Company also promises to pay interest on the unpaid principal amount
hereof, from the date hereof until paid in full, at the rates and at the times
which shall be determined in accordance with the provisions of that certain
Credit and Guaranty Agreement, dated as of April __, 2000 (as it may be amended,
supplemented or otherwise modified, the "CREDIT AGREEMENT"; the terms defined
therein and not otherwise defined herein being used herein as therein defined),
by and among Company, PAYLESS SHOESOURCE, INC., a Delaware corporation, and
certain Subsidiaries of Company, as Guarantors, the Lenders party thereto from
time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger and
Syndication Agent, BANK ONE, N.A., as Administrative Agent, and FIRST UNION
NATIONAL BANK, as Documentation Agent.
This Note is the "Swing Line Note" and is issued pursuant to and
entitled to the benefits of the Credit Agreement, to which reference is hereby
made for a more complete statement of the terms and conditions under which the
Swing Line Loans evidenced hereby were made and are to be repaid.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
Principal Office of Swing Line Lender or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the
Credit Agreement.
This Note is subject to mandatory prepayment and to prepayment at the
option of Company, each as provided in the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be
EXHIBIT B-3-1
<PAGE> 205
declared to be, due and payable in the manner, upon the conditions and with the
effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner
provided in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as
provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this
Note or the Credit Agreement shall alter or impair the obligations of Company,
which are absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
Company promises to pay all costs and expenses, including reasonable
attorneys' fees, all as provided in the Credit Agreement, incurred in the
collection and enforcement of this Note. Company and any endorsers of this Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest, demand
notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
EXHIBIT B-3-2
<PAGE> 206
IN WITNESS WHEREOF, Company has caused this Note to be duly executed
and delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
PAYLESS SHOESOURCE FINANCE,
INC.
By: ____________________________
Name:
Title:
EXHIBIT B-3-3
<PAGE> 207
TRANSACTIONS
ON
SWING LINE NOTE
<TABLE>
<CAPTION>
Outstanding
Amount of Amount of Principal
Loan Made Principal Paid Balance Notation
Date This Date This Date This Date Made By
<S> <C> <C> <C> <C>
</TABLE>
EXHIBIT B-3-4
<PAGE> 208
EXHIBIT C TO
CREDIT AND GUARANTY AGREEMENT
COMPLIANCE CERTIFICATE
THE UNDERSIGNED HEREBY CERTIFIES AS FOLLOWS:
1. I am the Chief Financial Officer of PAYLESS SHOESOURCE FINANCE,
INC., a Nevada corporation ("COMPANY") and PAYLESS SHOESOURCE, INC., a Delaware
corporation ("PARENT").
2. I have reviewed the terms of that certain Credit and Guaranty
Agreement, dated as of April __, 2000 (as it may be amended, supplemented or
otherwise modified, the "CREDIT AGREEMENT"; the terms defined therein and not
otherwise defined herein being used herein as therein defined), by and among
Company, Parent, certain Subsidiaries of Company, as Guarantors, the Lenders
party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead
Arranger and Syndication Agent, BANK ONE, N.A., as Administrative Agent, and
FIRST UNION NATIONAL BANK, as Documentation Agent, and I have made, or have
caused to be made under my supervision, a review in reasonable detail of the
transactions and condition of Company and its Subsidiaries during the accounting
period covered by the attached financial statements.
3. The examination described in paragraph 2 above did not disclose, and
I have no knowledge of, the existence of any condition or event which
constitutes an Event of Default or Default during or at the end of the
accounting period covered by the attached financial statements or as of the date
of this Certificate, except as set forth in a separate attachment, if any, to
this Certificate, describing in detail, the nature of the condition or event,
the period during which it has existed and the action which Company has taken,
is taking, or proposes to take with respect to each such condition or event.
The foregoing certifications, together with the computations set forth
in the Annex A hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered [MM/DD/YY] pursuant to
Section 5.1(c) of the Credit Agreement.
PAYLESS SHOESOURCE FINANCE, INC.
By: ______________________________
Title: Chief Financial Officer
EXHIBIT C-1
<PAGE> 209
PAYLESS SHOESOURCE, INC.
By: ______________________________
Title: Chief Financial Officer
EXHIBIT C-2
<PAGE> 210
ANNEX A TO
COMPLIANCE CERTIFICATE
FOR THE FISCAL [QUARTER] [YEAR] ENDING [MM/DD/YY].
<TABLE>
<S> <C>
1. Consolidated Adjusted EBITDA: (I) - (II) = $[___,___,___]
(i) (a) Consolidated Net Income: $[___,___,___]
(b) Consolidated Interest Expense[*]: $[___,___,___]
(c) provisions for taxes based on income[*]: $[___,___,___]
(d) total depreciation expense [*]: $[___,___,___]
(e) total amortization expense [*]: $[___,___,___]
(f) actual Transaction Costs [*]: $[___,___,___]
(g) other non-cash items reducing
Consolidated Net Income[*][***]: $[___,___,___]
(ii) other non-cash items increasing
Consolidated Net Income[****]: $[___,___,___]
2. Consolidated Adjusted EBITDAR: (I) + (II) $[___,___,___]
(i) Consolidated Adjusted EBITDA: $[___,___,___]
(ii) Consolidated Rental Expense $[___,___,___]
3. Consolidated Capital Expenditures: $[___,___,___]
</TABLE>
- --------
[*] Only to the extent such amount was deducted in calculating
Consolidated Net Income.
[**] Plus any amounts referred to in Section 2.11(c) of the Credit Agreement
to the extent payable on or before the Closing Date
[***] Excluding any such non-Cash item to the extent that it represents an
accrual or reserve for potential Cash items in any future period or
amortization of a prepaid Cash item that was paid in a prior period.
[****] Excluding any such non-Cash item to the extent that it represents an
accrual or reserve for potential Cash items in any future period or
amortization of a prepaid Cash item that was paid in a prior period.
EXHIBIT C-3
<PAGE> 211
<TABLE>
<S> <C>
4. Consolidated Cash Interest Expense: $[___,___,___]
5. Consolidated Fixed Charges: (I) + (II) = $[___,___,___]
(i) Consolidated Cash Interest Expense $[___,___,___]
(ii) Consolidated Rental Expense $[___,___,___]
6. Consolidated Total Capitalization: (I) + (II) + (III) = $[___,___,___]
(i) Consolidated Total Debt: $[___,___,___]
(ii) Present Value of Operating Leases: $[___,___,___]
(iii) total stockholder's equity of Parent: $[___,___,___]
7. Consolidated Interest Expense: $[___,___,___]
8. Consolidated Net Income: (I) - (II) = $[___,___,___]
(i) the net income (or loss) of Parent and its Subsidiaries
on a consolidated basis for such period taken as a single
accounting period determined in conformity with GAAP: $[___,___,___]
(ii) (a) the income of any Person (other than a Subsidiary of
Parent) in which any other Person (other than Parent
or any of its Subsidiaries) has a joint interest,
except to the extent of the amount of dividends or
other distributions actually paid to Parent or any of
its Subsidiaries by such Person during such period: $[___,___,___]
(b) the income (or loss) of any Person accrued prior to
the date it becomes a Subsidiary of Parent or is
merged into or consolidated with Parent or any of its
Subsidiaries or that Person's assets are acquired by
Parent or any of its Subsidiaries: $[___,___,___]
</TABLE>
EXHIBIT C-4
<PAGE> 212
<TABLE>
<S> <C>
(c) the income of any Subsidiary of Parent to the extent
that the declaration or payment of dividends or
similar distributions by that Subsidiary of that
income is not at the time permitted by operation of
the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that
Subsidiary: $[___,___,___]
(d) any after-tax gains or losses attributable to Asset
Sales or returned surplus assets of any Pension Plan: $[___,___,___]
(e) to the extent not included in clauses (ii)(a)
through (d) above, any net extraordinary
gains or net non-cash extraordinary losses: $[___,___,___]
9. Consolidated Net Tangible Assets: $[___,___,___]
10. Consolidated Rental Expense: $[___,___,___]
11. Consolidated Total Debt: $[___,___,___]
12. Present Value of Operating Leases: the sum of the Present Value [*****] $[___,___,___]
</TABLE>
- --------
[*****] "PRESENT VALUE" means, with respect to each lease of Parent and its
Subsidiaries treated as an "operating" lease for purposes of external
financial reporting, the periodic minimum or base rental payments due
and payable during the primary term (giving effect to any extension
terms as to which Parent or its Subsidiaries have become contractually
obligated) of such lease on or after the date of determination
discounted to an equivalent value as of the date of determination. For
purposes of computing the Present Value: (a) the discount rate utilized
to calculate the Present Value of any Existing Lease (as defined below)
shall be the rate actually utilized by Parent prior to April 22, for
purposes of calculating the present value of such operating lease for
disclosure of the present value of all operating leases in the
consolidated external financial reports of Parent and its Affiliates;
(b) the discount rate utilized to calculate the Present Value of any
Additional Lease (as defined below) during the fiscal year in which the
term of such lease commences (its "FIRST LEASE YEAR") shall be the
Year-To-Date Rate (as defined below) as of the end of the Fiscal
Quarter for which the computation is made; and (c) the discount rate
for any Additional Lease during any Fiscal Year other than its First
Lease Year shall be the Year-To-Date Rate as of the end of its First
Lease Year. For purposes of this definition: (i) "EXISTING LEASE" means
any operating lease with a term commencing before February 4, 1996,;
(ii) "ADDITIONAL LEASE" means any operating lease with a term
commencing after February 3, 1996; and (iii) "YEAR-TO-DATE RATE" means
the weekly year-to-date average of the Friday rates of the [Merrill
Lynch Bond] Index for corporate issues of "medium" quality with terms
of 10 years or more ("INDEX") as published in The Wall Street Journal
(or similar publication). In the event that the Index ceases to be
published, the Index shall be replaced by a similar index reflecting
rates applicable to corporate issues with similar terms and credit
quality as the Index as jointly selected by Company and the
Administrative Agent. the discount rate applied to any extension of any
Existing Lease or Additional Lease shall be: (A) if the dollar amount
of base rent payable during such extension is prescribed in the
original operating lease, the discount rate originally applicable to
such Existing Lease or Additional Lease, as applicable; and (B) in all
other cases, the discount rate determined as if such extension period
constituted an Additional Lease.
EXHIBIT C-5
<PAGE> 213
of each operating lease of Parent and its Subsidiaries.
<TABLE>
<S> <C>
13. Fixed Charge Coverage Ratio: (I)/(II) =
(i) Consolidated Adjusted EBITDAR
for the four-Fiscal Quarter Period then ended: $[___,___,___]
(ii) Consolidated Fixed Charges
for such four-Fiscal Quarter Period[******]: $[___,___,___]
Actual: _.__:1.00
Required: 1.75:1.00
14. Leverage Ratio: (I)/(II) =
(i) Consolidated Total Debt $[___,___,___]
(ii) Consolidated Adjusted EBITDA
for the four-Fiscal Quarter period then ended: $[___,___,___]
Actual: _.__:1.00
Required: 2.00:1.00
</TABLE>
- --------
[******] For purposes of calculating Consolidated Fixed Charges for any period
prior to the first anniversary of the Closing Date, the Consolidated
Interest Expense for such period included in the determination of
Consolidated Fixed Charges shall be equal to the actual amount of
Consolidated Interest Expense for the period commencing on the Closing
Date and ending on the date of determination multiplied by the quotient
of (x) three hundred and sixty-five (365) divided by (y) the number of
days that have passed since the Closing Date.
EXHIBIT C-6
<PAGE> 214
<TABLE>
<S> <C>
15. Consolidated Debt/Capitalization Ratio: ((I) + (II))/(III) = $[___,___,___]
(i) Consolidated Total Debt: $[___,___,___]
(ii) Present Value of Operating Leases
(ii) Consolidated Total Capitalization $[___,___,___]
Actual: _.__:1.00
Required: _.__:1.00
16. Maximum Consolidated Capital Expenditures Actual: $[___,___,___]
Permitted amount of Consolidated Capital Expenditures: $[___,___,___]
plus, the excess, if any, the maximum amount of permitted Consolidated
Capital Expenditures for the pervious Fiscal Year (as adjusted in
accordance with this provision) over the actual amount of Consolidated
Capital Expenditures for such previous Fiscal Year: $[___,___,___]
</TABLE>
EXHIBIT C-7
<PAGE> 215
EXHIBIT D TO
CREDIT AND GUARANTY AGREEMENT
OPINIONS OF COUNSEL
[TO BE PROVIDED]
EXHIBIT D-1
<PAGE> 216
EXHIBIT E TO
CREDIT AND GUARANTY AGREEMENT
ASSIGNMENT AGREEMENT
This ASSIGNMENT AGREEMENT (this "AGREEMENT"), dated as of the Effective
Date as set forth on Schedule I annexed hereto (the "EFFECTIVE DATE"), by and
between the parties signatory hereto and designated as Assignor ("ASSIGNOR") and
Assignee ("ASSIGNEE").
RECITALS:
WHEREAS, Assignor is party to that certain Credit and Guaranty
Agreement, dated as of April __, 2000 (as it may be amended, supplemented or
otherwise modified, the "CREDIT AGREEMENT"; the terms defined therein and not
otherwise defined herein being used herein as therein defined), by and among
PAYLESS SHOESOURCE FINANCE, INC. ("COMPANY"), a Nevada corporation, PAYLESS
SHOESOURCE, INC., a Delaware corporation, and certain Subsidiaries of Company,
as Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT
PARTNERS L.P., as Lead Arranger and Syndication Agent, BANK ONE, N.A., as
Administrative Agent, and FIRST UNION NATIONAL BANK, as Documentation Agent; and
WHEREAS, Assignor desires to sell and assign to Assignee, and Assignee
desires to purchase and assume from Assignor, certain rights and obligations of
Assignor under the Credit Agreement.
NOW, THEREFORE, in consideration of the agreements and covenants herein
contained and for such other valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. ASSIGNMENT AND ASSUMPTION. (a) Subject to the terms and
conditions hereof, as of the Effective Date, Assignor sells and assigns to
Assignee, without recourse, representation or warranty (except as expressly set
forth herein), and Assignee purchases and assumes from Assignor, the percentage
interest specified on Schedule I in an equal percentage among the Term Loan
Commitments, Revolving Credit Commitments and the outstanding Loans, which is
determined as a percentage of the aggregate amount of all Term Loan Commitments,
Revolving Credit Commitments and outstanding Loans, in all of the rights and
obligations with respect to the Term Loan Commitments, Revolving Credit
Commitments and outstanding Loans arising under the Credit Agreement and the
other Credit Documents (the "ASSIGNED SHARE").
(b) Upon the occurrence of the Effective Date: (i) the
Assignee shall have the rights and obligations of a "Lender" to the extent of
the Assigned Share and shall thereafter be a party to the Credit Agreement and a
"Lender" for all purposes of the Credit Documents; (ii) Assignor shall, to the
extent of the Assigned Share, relinquish its rights (other than any rights
EXHIBIT E-2
<PAGE> 217
which survive the termination of the Credit Agreement under Section 10.8
thereof) and be released from its obligations under the Credit Agreement; and
(iii) the Commitments shall be modified to reflect the Commitments of Assignee
and the remaining Commitments of Assignor, if any.
(c) From and after the Effective Date, Administrative Agent
shall make all payments under the Credit Agreement in respect of the Assigned
Share (i) in the case of any interest and fees that shall have accrued prior to
the Settlement Date, to Assignor, and (ii) in all other cases, to Assignee;
provided, Assignor and Assignee shall make payments directly to each other to
the extent necessary to effect any appropriate adjustments in any amounts
distributed to Assignor and/or Assignee by Administrative Agent under the Credit
Documents in respect of the Assigned Share in the event that, for any reason
whatsoever, the payment of the applicable consideration for this Assignment (the
"PURCHASE PRICE") occurs on a date other than the Settlement Date as set forth
on Schedule I annexed hereto (the "SETTLEMENT DATE"). Without limiting the
generality of the foregoing, the parties hereto hereby expressly acknowledge and
agree that in the event Assignor is an Issuing Bank, any assignment of all or
any portion of Assignor's rights and obligations relating to Assignor's
Revolving Credit Commitment shall include, with respect to any outstanding
Letters of Credit, the sale to Assignee of a participation in such Letters of
Credit and any drawings thereunder as contemplated by Section 2.4 of the Credit
Agreement.
SECTION 2. EFFECTIVE DATE. Notwithstanding anything herein to the
contrary, the Effective Date shall not be deemed to have occurred until each of
the following conditions are satisfied, as determined in the reasonable judgment
of each of Assignor, Assignee and Administrative Agent: (a) the execution of a
counterpart hereof by each of Assignor and Assignee; (b) the payment of the
Purchase Price on the Settlement Date; (c) if applicable, the receipt by
Administrative Agent of the processing and recordation fee referred to in
Section 10.6 of the Credit Agreement; (d) in the event Assignee is a Non-US
Lender, the delivery by Assignee to Administrative Agent of such forms,
certificates or other evidence with respect to United States federal income tax
withholding matters as Assignee may be required to deliver to Administrative
Agent pursuant to Section 2.20(c) of the Credit Agreement; (e) the receipt by
Administrative Agent of originals or telefacsimiles of executed counterparts
hereof; and (f) the recordation by Administrative Agent in the Register of the
pertinent information regarding this Assignment pursuant to Section 10.6 of the
Credit Agreement.
SECTION 3. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) Assignor represents and warrants to Assignee that Assignor is the legal
and beneficial owner of the Assigned Share, free and clear of any adverse claim.
(b) Assignee represents and warrants to Assignor that (i)
Assignee is an Eligible Assignee and that it has experience and expertise in the
making or purchasing of loans such as the Loans; (ii) it has acquired the
Assigned Share for its own account in the ordinary course of its business and
without a view to distribution of the Loans within the meaning of the Securities
Act or the Exchange Act or other federal securities laws (it being understood
that,
EXHIBIT E-3
<PAGE> 218
subject to the provisions of Section 10.6 of the Credit Agreement, the
disposition of the Assigned Share or any interests therein shall at all times
remain within its exclusive control); (iii) it has received, reviewed and
approved a copy of the Credit Agreement (including all Appendices, Schedules and
Exhibits thereto); and (iv) it has received from Assignor such financial
information regarding Company and its Subsidiaries as is available to Assignor
and as Assignee has requested, that it has made its own independent
investigation of the financial condition and affairs of Company and its
Subsidiaries in connection with the assignment evidenced by this Agreement, and
that it has made and shall continue to make its own appraisal of the
creditworthiness of Company and its Subsidiaries. Assignor shall have no duty or
responsibility, either initially or on a continuing basis, to make any such
investigation or any such appraisal on behalf of Assignee or to provide Assignee
with any other credit or other information with respect thereto, whether coming
into its possession before the making of the initial Loans or at any time or
times thereafter, and Assignor shall not have any responsibility with respect to
the accuracy of or the completeness of any information provided to Assignee.
(c) Each party to this Agreement represents and warrants to
the other party hereto that it has full power and authority to enter into this
Agreement and to perform its obligations hereunder in accordance with the
provisions hereof, that this Agreement has been duly authorized, executed and
delivered by such party and that this Agreement constitutes a legal, valid and
binding obligation of such party, enforceable against such party in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity.
(d) Assignor shall not be responsible to Assignee for the
execution, effectiveness, genuineness, validity, enforceability, collectibility
or sufficiency of any of the Credit Documents or for any representations,
warranties, recitals or statements made therein or made in any written or oral
statements or in any financial or other statements, instruments, reports or
certificates or any other documents furnished or made by Assignor to Assignee or
by or on behalf of Company or any of its Subsidiaries to Assignor or Assignee in
connection with the Credit Documents and the transactions contemplated thereby
or for the financial condition or business affairs of Company or any other
Person liable for the payment of any Obligations, nor shall Assignor be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained in any of the Credit
Documents or as to the use of the proceeds of the Loans or the use of the
Letters of Credit or as to the existence or possible existence of any Event of
Default or Default.
SECTION 4. MISCELLANEOUS. Assignor and Assignee each agrees from time
to time, upon request of such other party, to take such additional actions and
to execute and deliver such additional documents and instruments as such other
party may reasonably request to effect the transactions contemplated by, and to
carry out the intent of, this Agreement. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated, except by an instrument
in writing signed by the party (including, if applicable, any party required to
evidence its consent to or acceptance of this Agreement) against whom
enforcement of such change,
EXHIBIT E-4
<PAGE> 219
waiver, discharge or termination is sought. Any notice or other communication
herein required or permitted to be given shall be given pursuant to Section 10.1
of the Credit Agreement, and all for purposes thereof, the notice address of
Assignor and Assignee shall be the addresses as set forth on Schedule I hereof.
In case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors and assigns. This
Agreement may be executed in one or more counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall constitute
but one and the same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all signature
pages are physically attached to the same document.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
[Remainder of page intentionally left blank]
EXHIBIT E-5
<PAGE> 220
IN WITNESS WHEREOF, the parties hereto have caused their respective
officers thereunto duly authorized to execute and deliver this Agreement as of
the Effective Date.
[NAME OF ASSIGNOR], [NAME OF ASSIGNEE],
Assignor Assignee
By: ____________________________ By: ____________________________
Name: Name:
Title: Title:
[*Consented to as of the [*Consented to as of the
Effective Date: Effective Date:
PAYLESS SHOESOURCE FINANCE, BANK ONE, N.A., as Administrative
INC., Agent and Issuing Bank
as Company
By: ____________________________ By: ____________________________
Name: Name:
Title: Title:
*Only if required pursuant to Section *Only if required pursuant to Section
10.6(c)(ii) of the Credit Agreement.] 10.6(c)(ii) of the Credit Agreement.]
EXHIBIT E-6
<PAGE> 221
SCHEDULE I TO ASSIGNMENT AGREEMENT
1. EFFECTIVE DATE: [_________ __, 200__]
2. SETTLEMENT DATE: [_________ __, 200__]
3. ASSIGNED SHARE:
PERCENTAGE PRINCIPAL AMOUNT
Term Loan Commitments: __._____% $
Term Loans: __._____% $
Revolving Credit Commitments: __._____% $
EXHIBIT E-7
<PAGE> 222
4. NOTICE AND WIRE INSTRUCTIONS:
[NAME OF ASSIGNOR] [NAME OF ASSIGNOR]
Notices: Notices:
- -------- --------
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
Attention: Attention:
Telecopier: Telecopier:
with a copy to: with a copy to:
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
Attention: Attention:
Telecopier: Telecopier:
Wire Instructions: Wire Instructions:
- ----------------- -----------------
EXHIBIT E-8
<PAGE> 223
EXHIBIT F TO
CREDIT AND GUARANTY AGREEMENT
CERTIFICATE RE NON-BANK STATUS
Reference is made to the Credit and Guaranty Agreement, dated as of April
__, 2000 (as it may be amended, supplemented or otherwise modified, the "CREDIT
AGREEMENT"; the terms defined therein and not otherwise defined herein being
used herein as therein defined), by and among PAYLESS SHOESOURCE FINANCE, INC.,
a Nevada corporation ("COMPANY"), PAYLESS SHOESOURCE, INC., a Delaware
corporation, and certain Subsidiaries of Company, as Guarantors, the Lenders
party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead
Arranger and Syndication Agent, BANK ONE, N.A., as Administrative Agent, and
FIRST UNION NATIONAL BANK, as Documentation Agent. Pursuant to Section 2.20(c)
of the Credit Agreement, the undersigned hereby certifies that it is not a
"bank" or other Person described in Section 881(c)(3) of the Internal Revenue
Code of 1986, as amended.
[NAME OF LENDER]
By: ____________________________
Title:
EXHIBIT F-1
<PAGE> 224
EXHIBIT G-1 TO
CREDIT AND GUARANTY AGREEMENT
CLOSING DATE CERTIFICATE
THE UNDERSIGNED HEREBY CERTIFY AS FOLLOWS:
1. We are, respectively, the chief executive officer and the chief
financial officer of PAYLESS SHOESOURCE FINANCE, INC., a Nevada corporation
("COMPANY") and PAYLESS SHOESOURCE, INC., a Delaware corporation ("PARENT").
2. Pursuant to Sections 2.1 and 2.2 of the Credit and Guaranty Agreement,
dated as of April __, 2000 (as it may be amended, supplemented or otherwise
modified, the "CREDIT AGREEMENT"; the terms defined therein and not otherwise
defined herein being used herein as therein defined), by and among Company,
Parent, certain Subsidiaries of Company, as Guarantors, the Lenders party
thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger
and Syndication Agent, BANK ONE, N.A., as Administrative Agent, and FIRST UNION
NATIONAL BANK, as Documentation Agent, Company requests that Lenders make the
following Loans to Company on the Closing Date in accordance with the provisions
of the Credit Agreement:
(a) Term Loans:
[ ] Base Rate Loans: $[___,___,___]
[ ] Eurodollar Rate Loans: $[___,___,___]
(b) Revolving Loans:
[ ] Base Rate Loans: $[___,___,___]
[ ] Eurodollar Rate Loans: $[___,___,___]
3. We have reviewed the terms of Sections 3 and 4 of the Credit Agreement
and the definitions and provisions contained in such Credit Agreement relating
thereto, and in our opinion we have made, or have caused to be made under our
supervision, such examination or investigation as is necessary to enable us to
express an informed opinion as to the matters referred to herein.
4. Based upon our review and examination described in paragraph (3) above,
we certify, on behalf of Company, that as of the date hereof:
(a) with respect to any Revolving Loan, after making any such Loan
requested on the Closing Date, the Total Utilization of Revolving Credit
Commitments shall not
EXHIBIT G-1-1
<PAGE> 225
exceed the Revolving Credit Commitments then in effect;
(b) as of the Closing Date, the representations and warranties
contained in each of the Credit Documents are true, correct and complete in
all respects on and as of the Closing Date to the same extent as though
made on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case such
representations and warranties are true, correct and complete in all
respects on and as of such earlier date;
(c) as of the Closing Date, no injunction or other restraining order
shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect to
any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of,
the borrowing contemplated hereby; and
(d) as of the Closing Date, no event has occurred and is continuing or
would result from the consummation of the borrowing contemplated hereby
that would constitute an Event of Default or a Default.
5. Attached as Annex A hereto are true and complete (and, where applicable,
executed and conformed) copies of each of the Transaction Documents, together
with copies of each of the opinions of counsel delivered to the parties under
the Transaction Documents.
6. Each Credit Party has requested each of (i) Wachtell, Lipton, Rosen &
Katz, (ii) Kummer, Kempf, Bonner & Renshaw and (iii) Michael Massey, Esquire to
deliver to Agents and Lenders on the Closing Date favorable written opinions
setting forth substantially the matters in the opinions designated in Exhibit D
annexed to the Credit Agreement, and as to such other matters as Syndication
Agent and Administrative Agent may reasonably request.
7. Attached hereto as Annex B are true, complete and correct copies of (a)
the Historical Financial Statements, (b) pro forma consolidated balance sheets
of Parent and its Subsidiaries as at January 31, and with respect to the Fiscal
Quarter ended September, 1999, prepared in accordance with GAAP and reflecting
the consummation of the Transactions, the related financings and the other
transactions contemplated by the Credit Documents and the Transaction Documents,
and (c) the Projections.
[Remainder of page intentionally left blank]
EXHIBIT G-1-2
<PAGE> 226
The foregoing certifications are made and delivered as of April __, 2000.
------------------------------
Title: Chief Executive Officer
------------------------------
Title: Chief Financial Officer
EXHIBIT G-1-3
<PAGE> 227
EXHIBIT G-2 TO
CREDIT AND GUARANTY AGREEMENT
SOLVENCY CERTIFICATE
THE UNDERSIGNED HEREBY CERTIFIES AS FOLLOWS:
1. I am the chief financial officer of PAYLESS SHOESOURCE FINANCE, INC., a
Nevada corporation ("COMPANY") and PAYLESS SHOESOURCE, INC., a Delaware
corporation ("PARENT").
2. Reference is made to that certain Credit and Guaranty Agreement, dated
as of April __, 2000 (as it may be amended, supplemented or otherwise modified,
the "CREDIT AGREEMENT"; the terms defined therein and not otherwise defined
herein being used herein as therein defined), by and among Company, Parent,
certain Subsidiaries of Company, as Guarantors, the Lenders party thereto from
time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger and
Syndication Agent, BANK ONE, N.A., as Administrative Agent, and FIRST UNION
NATIONAL BANK, as Documentation Agent.
3. I have reviewed the terms of Sections 3 and 4 of the Credit Agreement
and the definitions and provisions contained in the Credit Agreement relating
thereto, together with each of the Transaction Documents, and, in my opinion,
have made, or have caused to be made under my supervision, such examination or
investigation as is necessary to enable me to express an informed opinion as to
the matters referred to herein.
4. Based upon my review and examination described in paragraph (3) above, I
certify that as of the date hereof, after giving effect to the consummation of
the Transactions, the related financings and the other transactions contemplated
by the Credit Documents and the Transaction Documents, each Credit Party is
Solvent.
The foregoing certifications are made and delivered as of [MM/DD/YY].
------------------------------
Title: Chief Financial Officer
EXHIBIT G-2-1
<PAGE> 228
EXHIBIT H TO
CREDIT AND GUARANTY AGREEMENT
COUNTERPART AGREEMENT
This COUNTERPART AGREEMENT, dated [MM/DD/YY] (this "COUNTERPART AGREEMENT")
is delivered pursuant to that certain Credit and Guaranty Agreement, dated as of
April __, 2000 (as it may be amended, supplemented or otherwise modified, the
"CREDIT AGREEMENT"; the terms defined therein and not otherwise defined herein
being used herein as therein defined), by and among PAYLESS SHOESOURCE FINANCE,
INC., a Nevada corporation ("COMPANY") and PAYLESS SHOESOURCE, INC., a Delaware
corporation ("PARENT"), and certain Subsidiaries of Company, as Guarantors, the
Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as
Lead Arranger and Syndication Agent, BANK ONE, N.A., as Administrative Agent,
and FIRST UNION NATIONAL BANK, as Documentation Agent.
SECTION 1. Pursuant to Section 5.9 of the Credit Agreement, the undersigned
hereby:
(a) agrees that this Counterpart Agreement may be attached to the Credit
Agreement and that by the execution and delivery hereof, the undersigned becomes
a Guarantor under the Credit Agreement and agrees to be bound by all of the
terms thereof;
(b) represents and warrants that each of the representations and warranties
set forth in the Credit Agreement and each other Credit Document and applicable
to the undersigned is true and correct both before and after giving effect to
this Counterpart Agreement, except to the extent that any such representation
and warranty relates solely to any earlier date, in which case such
representation and warranty is true and correct as of such earlier date;
(c) no event has occurred or is continuing as of the date hereof, or will
result from the transactions contemplated hereby on the date hereof, that would
constitute an Event of Default or a Default;
(d) agrees, subject to the provisions of Section 7.2 of the Credit
Agreement, to irrevocably and unconditionally guaranty the due and punctual
payment in full of all Obligations when the same shall become due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss.
362(a)) and in accordance with Section 7 of the Credit Agreement; and
[(e) (i) agrees that this counterpart may be attached to the Pledge
Agreement, (ii) agrees that the undersigned will comply with all the terms and
conditions of the Pledge Agreement as if it were an original signatory thereto,
(iii) grants to the Collateral Agent (as such term is defined in the Pledge
Agreement) a security interest in all of the undersigned's right, title and
interest in and to all "Collateral" (as such term is defined in the Pledge
Agreement) of the
EXHIBIT H-1
<PAGE> 229
undersigned [, including, without limitation, the Investment Related Property
(as such term is defined in the Pledge Agreement) listed on supplemental
Schedule 1.1(a) attached hereto, in each case whether now or hereafter existing
or in which the undersigned now has or hereafter acquires an interest and
wherever the same may be located and (iv) represents and warrants that is has
duly completed and herewith delivers to Collateral Agent supplements to all
schedules to the Pledge Agreement. All Collateral of the undersigned shall be
deemed to be part of the "Collateral" and hereafter subject to each of the terms
and conditions of the Pledge Agreement.] [THIS CLAUSE (e) WILL BE INCLUDED IN
COUNTERPART AGREEMENTS UNTIL THE DATE ON WHICH PARENT HAS RECEIVED AN INVESTMENT
GRADE STATUS RATING.]
SECTION 2. The undersigned agrees from time to time, upon request of
Administrative Agent, to take such additional actions and to execute and deliver
such additional documents and instruments as Administrative Agent may request to
effect the transactions contemplated by, and to carry out the intent of, this
Agreement. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the party
(including, if applicable, any party required to evidence its consent to or
acceptance of this Agreement) against whom enforcement of such change, waiver,
discharge or termination is sought. Any notice or other communication herein
required or permitted to be given shall be given in pursuant to Section 10.1 of
the Credit Agreement, and all for purposes thereof, the notice address of the
undersigned shall be the address as set forth on the signature page hereof. In
case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
EXHIBIT H-2
<PAGE> 230
IN WITNESS WHEREOF, the undersigned has caused this Counterpart Agreement
to be duly executed and delivered by its duly authorized officer as of the date
above first written.
[NAME OF SUBSIDIARY]
By:______________________
Name:
Title:
Address for Notices:
--------------
--------------
--------------
Attention:
Telecopier
with a copy to:
--------------
--------------
--------------
Attention:
Telecopier
ACKNOWLEDGED AND ACCEPTED,
as of the date above first written:
BANK ONE, N.A.
as Administrative Agent
By:__________
Name:
Title:
EXHIBIT H-3
<PAGE> 231
EXHIBIT I
[FORM OF PLEDGE AGREEMENT]
PLEDGE AGREEMENT
DATED AS OF APRIL 17, 2000
BETWEEN
EACH OF THE PLEDGORS PARTY HERETO
AND
BANK ONE, NA,
AS THE COLLATERAL AGENT
<PAGE> 232
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. DEFINITIONS; GRANT OF SECURITY..........................................................................2
1.1. General Definitions.... ..............................................................................2
1.2. Definitions; Interpretation...........................................................................4
1.3. Grant of Security.....................................................................................5
1.4. Certain Limited Exclusions ...........................................................................5
SECTION 2. SECURITY FOR OBLIGATIONS; PLEDGORS REMAIN LIABLE........................................................5
2.1. Security for Obligations..............................................................................5
2.2. Pledgors Remain Liable................................................................................5
SECTION 3. REPRESENTATIONS AND WARRANTIES AND COVENANTS............................................................6
3.1. Generally.............................................................................................6
3.2. Investment Related Property...........................................................................8
SECTION 4. FURTHER ASSURANCES; ADDITIONAL PLEDGORS................................................................12
4.1. Further Assurances...................................................................................12
4.2. Additional Pledgors..................................................................................13
SECTION 5. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT............................................................14
5.1. Power of Attorney....................................................................................14
5.2. No Duty on the Part of Collateral Agent or Secured Parties...........................................15
SECTION 6. REMEDIES...............................................................................................15
6.1. Generally............................................................................................15
6.2. Investment Property..................................................................................17
6.3. Application of Proceeds..............................................................................17
SECTION 7. COLLATERAL AGENT.......................................................................................18
SECTION 8. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS........................................................19
SECTION 9. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM.........................................................19
SECTION 10. INDEMNITY AND EXPENSES.................................................................................20
SECTION 11. MISCELLANEOUS..........................................................................................20
</TABLE>
i
<PAGE> 233
This PLEDGE AGREEMENT, dated as of April 17, 2000 (this "Agreement"),
between EACH OF THE UNDERSIGNED, whether as an original signatory hereto or as
an Additional Pledgor (as herein defined) (each, a "Pledgor"), and BANK ONE, NA,
as collateral agent for the Secured Parties (as herein defined) (in such
capacity as collateral agent, the "Collateral Agent").
RECITALS:
WHEREAS, reference is made to that certain Credit and Guaranty Agreement,
dated as of the date hereof (as it may be amended, supplemented or otherwise
modified, the "Credit Agreement"), by and among PAYLESS SHOESOURCE FINANCE,
INC., a Nevada corporation ("Company"), PAYLESS SHOESOURCE, INC., a Delaware
corporation and certain of its Subsidiaries, as Guarantors, the Lenders party
thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger
and Sole Syndication Agent, BANK ONE, NA, as Administrative Agent, and FIRST
UNION NATIONAL BANK, as Documentation Agent;
WHEREAS, subject to the terms and conditions of the Credit Agreement,
certain Pledgors may enter into one or more Hedge Agreements with one or more
Lender Counterparties;
WHEREAS, in consideration of the extensions of credit and other
accommodations of Lenders and Lender Counterparties as set forth in the Credit
Agreement and the Hedge Agreements, respectively, each Pledgor has agreed,
subject to the terms and conditions hereof, each other Credit Document and each
of the Hedge Agreements, to secure such Pledgor's obligations under the Credit
Documents and the Hedge Agreements as set forth herein; and
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, each Pledgor and the Collateral Agent
agree as follows:
SECTION 1. DEFINITIONS; GRANT OF SECURITY.
1.1. General Definitions. In this Agreement, the following terms
shall have the following meanings:
"AGREEMENT" shall have the meaning set forth in the preamble.
"ADDITIONAL PLEDGORS" shall have the meaning assigned in Section 4.2.
"COLLATERAL" shall have the meaning assigned in Section 1.3.
"COLLATERAL ACCOUNT" shall mean an account maintained at Bank One, NA,
established pursuant to Section 2.4(h) of the Credit Agreement as the Collateral
Account and any successor account or accounts.
<PAGE> 234
"COLLATERAL AGENT" shall have the meaning set forth in the preamble.
"CONTROLLED FOREIGN CORPORATION" shall mean "controlled foreign
corporation" as defined in the United States Internal Revenue Code of 1986,
as amended.
"CREDIT AGREEMENT" shall have the meaning set forth in the preamble.
"INDEMNITEE" shall mean the Collateral Agent, and its officers,
partners, directors, trustees, employees, agents and Affiliates.
"INSTRUMENTS" shall mean all "instruments" as defined in Article 9 of
the UCC.
"INVESTMENT RELATED PROPERTY" shall mean: all of the following
(regardless of whether classified as investment property under the UCC):
all Pledged Equity Interests and the Collateral Account.
"PERMITTED SALE" shall mean those sales, transfers or assignments
permitted by the Credit Agreement.
"PLEDGED EQUITY INTERESTS" shall mean all Pledged Stock, Pledged LLC
Interests, Pledged Partnership Interests and Pledged Trust Interests.
"PLEDGED LLC INTERESTS" shall mean all interests owned by any Pledgor
in any limited liability company which is either a Domestic Subsidiary of
such Pledgor or, subject to Section 1.4, a Material Foreign Subsidiary of
such Pledgor, including without limitation, all limited liability company
interests described on Schedule 3.2 under the heading "Pledged LLC
Interests" (as such schedule may be amended or supplemented from time to
time), and the certificates, if any, representing such limited liability
company interests and any interest of such Pledgor on the books and records
of such limited liability company or on the books and records of any
securities intermediary pertaining to such interest.
"PLEDGED PARTNERSHIP INTERESTS" shall mean all interests owned by any
Pledgor in any general partnership, limited partnership, limited liability
partnership or other partnership which is either a Domestic Subsidiary of
such Pledgor or, subject to Section 1.4, a Material Foreign Subsidiary of
such Pledgor, including without limitation, all partnership interests
described on Schedule 3.2 under the heading "Pledged Partnership Interests"
(as such schedule may be amended or supplemented from time to time), and
the certificates, if any, representing such partnership interests and any
interest of such Pledgor on the books and records of such partnership or on
the books and records of any securities intermediary pertaining to such
interest.
"PLEDGED TRUST INTERESTS" shall mean all interests owned by any
Pledgor in a Delaware business trust or other trust which is either a
Domestic Subsidiary of such Pledgor or, subject to Section 1.4, a Material
Foreign Subsidiary of such Pledgor, including without limitation,
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<PAGE> 235
all trust interests described on Schedule 3.2 under the heading "Pledged Trust
Interests" (as such schedule may be amended or supplemented from time to time),
and the certificates, if any, representing such trust interests and any interest
of such Pledgor on the books and records of such trust or on the books and
records of any securities intermediary pertaining to such interest.
"PLEDGED STOCK" shall mean all shares of capital stock owned by any Pledgor
in any Domestic Subsidiary of such Pledgor or, subject to Section 1.4, Material
Foreign Subsidiary of such Pledgor, including without limitation, all shares of
capital stock described on Schedule 3.2 under the heading "Pledged Stock" (as
such schedule may be amended or supplemented from time to time), and the
certificates, if any, representing such shares and any interest of such Pledgor
in the entries on the books of the issuer of such shares or on the books of any
securities intermediary pertaining to such shares.
"PLEDGE SUPPLEMENT" shall mean any supplement to this agreement in
substantially the form of Exhibit A.
"PROCEEDS" shall mean: (i) all "proceeds" as defined in the UCC, (ii)
payments or distributions made with respect to any Investment Related Property
and (iii) whatever is receivable or received when Collateral or proceeds are
sold, exchanged, collected or otherwise disposed of, whether such disposition is
voluntary or involuntary.
"RECORD" shall have the meaning specified in Revised Article 9.
"REQUISITE OBLIGEES" shall have the meaning assigned in Section 7.
"REVISED ARTICLE 9" shall mean the 1999 Official Text of Article 9 of the
Uniform Commercial Code with conforming amendments to Articles 1, 2, 2a, 4, 5,
6, 7 and 8.
"SECURED OBLIGATIONS" shall have the meaning assigned in Section 2.1.
"SECURED PARTIES" means the Agents, the Lenders and the Lender
Counterparties and shall include, without limitation, all former Agents, Lenders
or Lender Counterparties to the extent that any Obligations owing to such
Persons were incurred while such Persons were Agents, Lenders or Lender
Counterparties and such Obligations have not been paid or satisfied in full.
"UCC" shall mean Uniform Commercial Code as in effect from time to time in
the State of New York or, when the context implies, the Uniform Commercial Code
as in effect from time to time in any other applicable jurisdiction.
1.2. DEFINITIONS; INTERPRETATION. The following capitalized terms are used
as defined in the Credit Agreement: Credit Documents, Counterpart Agreement,
Event of Default, Net Asset Sale Proceeds, Obligations and Permitted Lien. All
other capitalized terms used herein (including the preamble and recitals hereto)
and not otherwise defined herein shall have the meanings
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<PAGE> 236
ascribed thereto in the Credit Agreement or, if not defined therein, in the UCC.
References to "Sections", "Exhibits" and "Schedules" shall be to Sections,
Exhibits and Schedules, as the case may be, of this Agreement unless otherwise
specifically provided. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect. The rules of
construction set forth in Section 1.3 of the Credit Agreement shall be
applicable to this Agreement mutatis mutandis. If any conflict or inconsistency
exists between this Agreement and the Credit Agreement, the Credit Agreement
shall govern. All references herein to provisions of the UCC shall include all
successor provisions under any subsequent version or amendment to any Article of
the UCC.
1.3. GRANT OF SECURITY. Each Pledgor hereby grants to the Collateral Agent
a security interest and continuing lien on all of such Pledgor's right, title
and interest in, to and under the following, in each case whether now owned or
existing or hereafter acquired or arising and wherever located (all of which
being hereinafter collectively referred to as the "COLLATERAL"):
(a) Investment Related Property; and
(b) all Proceeds, products, accessions, rents and profits of or in
respect of any of the foregoing.
1.4. CERTAIN LIMITED EXCLUSIONS. Notwithstanding anything herein to the
contrary, in no event shall the Collateral include, and no Pledgor shall be
deemed to have granted a security interest in, any of such Pledgor's right,
title or interest in any of the outstanding capital stock of a Controlled
Foreign Corporation, in excess of 65% of the voting power of all classes of
capital stock of such Controlled Foreign Corporation entitled to vote.
SECTION 2. SECURITY FOR OBLIGATIONS; PLEDGORS REMAIN LIABLE.
2.1. SECURITY FOR OBLIGATIONS. This Agreement secures, and the Collateral
is collateral security for, the prompt and complete payment or performance in
full when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all Obligations with respect
to any Pledgor (the "SECURED OBLIGATIONS").
2.2. PLEDGORS REMAIN LIABLE. (a) Anything contained herein to the contrary
notwithstanding:
(i) each Pledgor shall remain liable under any partnership
agreement or limited liability company agreement relating to any
Pledged Partnership Interest or Pledged
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<PAGE> 237
LLC Interest, to the extent set forth therein, to perform all of
its duties and obligations thereunder to the same extent as if this
Agreement had not been executed;
(ii) the exercise by the Collateral Agent of any of its rights
hereunder shall not release any Pledgor from any of its duties or
obligations under the contracts and agreements included in the
Collateral; and
(iii) neither the Collateral Agent nor any Lender nor Lender
Counterparty shall have any obligation or liability under any
partnership agreement or limited liability company agreement relating
to any Pledged Partnership Interests or Pledged LLC Interests, nor
shall the Collateral Agent, any Lender or any Lender Counterparty be
obligated to perform any of the obligations or duties of any Pledgor
thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
(b) Neither the Collateral Agent, any Lender, any Lender Counterparty
nor any purchaser at a foreclosure sale under this Agreement shall be
obligated to assume any of any obligation or liability under any
partnership agreement or limited liability company agreement relating to
any Pledged Partnership Interests or Pledged LLC Interests unless the
Collateral Agent, any Lender, any Lender Counterparty or any such purchaser
otherwise expressly agrees in writing to assume any or all of said
obligations.
SECTION 3. REPRESENTATIONS AND WARRANTIES AND COVENANTS.
3.1. GENERALLY.
(a) Representations and Warranties. Each Pledgor hereby represents and
warrants, on the Closing Date and on each Credit Date, that:
(i) its chief executive office (or other office that serves as
the chief place of business) is, and has been for the four month
period preceding the date hereof, located at the place indicated on
Schedule 3.1(A) (as amended or supplemented from time to time), and
the jurisdiction of organization of such Pledgor is the jurisdiction
indicated on Schedule 3.1(B) (as amended or supplemented from time to
time). If the principal place of business of any Pledgor is located
outside of the United States, then Schedule 3.1(A) (as amended or
supplemented from time to time) shall also include the address of the
major executive office in the United States, if any, of such Pledgor;
(ii) the full legal name of such Pledgor is as set forth on
Schedule 3.1(A) and it has not in the last five (5) years and does not
do business under any other name (including any trade-name or
fictitious business name) except for those names set forth on Schedule
3.1(C) (as amended or supplemented from time to time);
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<PAGE> 238
(iii) all actions and consents on the part of such Pledgor,
including all filings, notices, registrations and recordings necessary
or desirable to create, perfect or insure the first priority (subject
only to Permitted Liens) of the security interests granted to the
Collateral Agent hereunder or for the exercise by the Collateral Agent
of the voting or other rights provided for in this Agreement or the
exercise of remedies in respect of the Collateral have been made or
obtained except for the filing of UCC financing statements naming each
Pledgor as "debtor" and the Collateral Agent as "secured party" and
describing the Collateral in the filing offices set forth opposite
such Pledgor's name on Schedule 3.1(D) hereof (as amended or
supplemented from time to time); and
(iv) other than the financing statements filed in favor of the
Collateral Agent as set forth on Schedule 3.1(D) (as amended or
supplemented from time to time), no effective UCC financing statement,
fixture filing or other instrument similar in effect under any
applicable law covering all or any part of the Collateral is on file
in any filing or recording office except for (x) financing statements
for which proper termination statements have been delivered to the
Collateral Agent for filing and (y) financing statements filed in
connection with Permitted Liens.
(b) Covenants and Agreements. Each Pledgor hereby covenants and agrees
that:
(i) it shall not change such Pledgor's name, identity, corporate
structure, chief place of business, chief executive office or
jurisdiction of organization or establish any trade names unless it
shall have (a) notified the Collateral Agent in writing, by executing
and delivering to the Collateral Agent a completed Pledge Supplement,
substantially in the form of Exhibit A attached hereto, together with
all Supplements to Schedules thereto, at least thirty (30) days prior
to any such change or establishment, identifying such new proposed
name, identity, corporate structure, chief place of business, chief
executive office, jurisdiction of organization or trade name and
providing such other information in connection therewith as the
Collateral Agent may reasonably request and (b) taken all actions
necessary or advisable to maintain the continuous validity, perfection
and the same or better priority of the Collateral Agent's security
interest in the Collateral intended to be granted and agreed to
hereby;
(ii) if the Collateral Agent or any Secured Party gives value to
enable Pledgor to acquire rights in or the use of any Collateral, it
shall use such value for such purposes and such Pledgor further agrees
that repayment of any Obligation shall apply on a "first-in,
first-out" basis so that the portion of the value used to acquire
rights in any Collateral shall be paid in the chronological order such
Pledgor acquired rights therein;
(iii) it shall not sell, transfer or assign (by operation of law
or otherwise) any Collateral except as permitted by the Credit
Agreement.
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<PAGE> 239
3.2. INVESTMENT RELATED PROPERTY.
(a) Representations and Warranties. Each Pledgor hereby represents and
warrants, on the Closing Date and on each Credit Date, that:
(i) Schedule 3.2 (as amended or supplemented from time to time)
sets forth under the headings "Pledged Stock," "Pledged LLC
Interests," "Pledged Partnership Interests" and "Pledged Trust
Interests," respectively, all of the Pledged Stock, Pledged LLC
Interests, Pledged Partnership Interests and Pledged Trust Interests
owned by any Pledgor and such Pledged Equity Interests constitute the
percentage of issued and outstanding shares of stock, percentage of
membership interests, percentage of partnership interests or
percentage of beneficial interest of the respective issuers thereof
indicated on such Schedule;
(ii) it is the record and beneficial owner of the Pledged Equity
Interests free of all Liens, rights or claims of other Persons other
than Permitted Liens and there are no outstanding warrants, options or
other rights to purchase, or shareholder, voting trust or similar
agreements outstanding with respect to, or property that is
convertible into, or that requires the issuance or sale of, any
Pledged Equity Interests;
(iii) without limiting the generality of Section 3.1(a)(v), no
consent of any Person including any other general or limited partner,
any other member of a limited liability company, any other shareholder
or any other trust beneficiary is necessary or desirable in connection
with the creation, perfection or first priority status of the security
interest of the Collateral Agent in any Pledged Equity Interests or
the exercise by the Collateral Agent of the voting or other rights
provided for in this Agreement or the exercise of remedies in respect
thereof;
(iv) none of the Pledged LLC Interests nor Pledged Partnership
Interests are or represent interests in issuers that are: (a)
registered as investment companies, (b) are dealt in or traded on
securities exchanges or markets or (c) have opted to be treated as
securities under the uniform commercial code of any jurisdiction;
(v) The Borrower is or shall be the sole account holder of the
Collateral Account and the Borrower has not consented, and shall not
consent, to, and is not otherwise aware of, any Person (other than the
Collateral Agent pursuant hereto) having either sole dominion and
control or "control" (within the meaning of Section 9-104 of Revised
Article 9) over, or any other interest in, the Collateral Account or
any funds or other property deposited therein; and
(vi) each Pledgor has taken all actions necessary or desirable,
including those specified in Section 3.2(c), to: (a) establish the
Collateral Agent's "control" (within the meaning of Section 9-115 of
the UCC) over any portion of the Investment Related
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<PAGE> 240
Property constituting Certificated Securities, Uncertificated
Securities, or Securities Entitlements; and (b) establish the
Collateral Agent's "control" (within the meaning of Section 9-115 of
the UCC) over the Collateral Account.
(b) Covenants and Agreements. Each Pledgor hereby covenants and agrees
that:
(i) without the prior written consent of the Collateral Agent, it
shall not vote to enable or take any other action to: (a) amend,
terminate or waive any default under or breach of any terms of any
partnership agreement, limited liability company agreement,
certificate of incorporation, by-laws or other organizational
documents in any way that materially adversely affects the validity,
perfection or priority of the Collateral Agent's security interest,
(b) unless permitted under the Credit Agreement, permit any issuer of
any Pledged Equity Interest to issue to any Person other than a
Pledgor any additional stock, partnership interests, limited liability
company interests or other equity interests of any nature or to issue
securities convertible into or granting the right of purchase or
exchange for any stock or other equity interest of any nature of such
issuer, (c) cause any issuer of any Pledged Partnership Interests or
Pledged LLC Interests which are not securities (for purposes of the
UCC) on the date hereof to elect or otherwise take any action to cause
such Pledged Partnership Interests or Pledged LLC Interests to be
treated as securities for purposes of the Uniform Commercial Code of
any jurisdiction; provided, however, notwithstanding the foregoing, if
any issuer of any Pledged Partnership Interests or Pledged LLC
Interests takes any such action in violation of the foregoing in this
clause (c), such Pledgor shall promptly notify the Collateral Agent in
writing of any such election or action and, in such event, shall take
all steps necessary or advisable to establish the Collateral Agent's
"control" thereof;
(ii) subject to Section 1.4, in the event it acquires rights in
any Investment Related Property after the date hereof, it shall
deliver to the Collateral Agent a completed Pledge Supplement,
substantially in the form of Exhibit A attached hereto, together with
all Supplements to Schedules thereto, reflecting such new Investment
Related Property and all other Investment Related Property.
Notwithstanding the foregoing, it is understood and agreed that the
security interest of the Collateral Agent shall attach to all
Investment Related Property, subject to Section 1.4, immediately upon
any Pledgor's acquisition of rights therein and shall not be affected
by the failure of any Pledgor to deliver a supplement to Schedule 3.2
as required hereby;
(iii) in the event such Pledgor receives any dividends, interest
or distributions on any Investment Related Property, then, so long as
no Event of Default shall have occurred and be continuing, the
Collateral Agent authorizes each Pledgor to retain and/or expend or
otherwise dispose of any such dividends, interest or distributions and
the security interest of the Collateral Agent shall immediately and
automatically be released so long as such Pledgor shall have complied
with any applicable provision of the Credit
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Agreement, including, without limitation, Section 2.14 of the Credit
Agreement; provided, however, that in no event shall the security
interest therein of the Collateral Agent be released to the extent
that such dividends, interest or distributions constitute Pledged
Equity Interests;
(iv) without the prior written consent of the Collateral Agent,
it shall not permit any issuer of any Pledged Equity Interest owned by
such Pledgor to merge or consolidate unless all the outstanding
capital stock or other equity interests of the surviving or resulting
corporation, limited liability company, partnership or other entity
is, upon such merger or consolidation, pledged hereunder to the extent
required by the Credit Agreement; and
(v) each Pledgor consents to the grant by each other Pledgor of a
security interest in all Investment Related Property to the Collateral
Agent and, without limiting the foregoing, consents to the transfer of
any Pledged Partnership Interest and any Pledged LLC Interest to the
Collateral Agent or its nominee following an Event of Default and to
the substitution of the Collateral Agent or its nominee as a partner
in any partnership or as a member in any limited liability company
with all the rights and powers related thereto.
(c) Delivery and Control. Each Pledgor agrees that with respect to any
Investment Related Property in which it currently has rights it shall
comply with the provisions of this Section 3.2(c) on or before the Closing
Date and with respect to any Investment Related Property hereafter acquired
by such Pledgor it shall comply with the provisions of this Section 3.2(c)
immediately upon acquiring rights therein, in each case in form and
substance satisfactory to the Collateral Agent. With respect to any
Investment Related Property that is represented by a certificate or that is
an "instrument" (other than any Investment Related Property credited to a
Securities Account) it shall cause such certificate or instrument to be
delivered to the Collateral Agent, indorsed in blank by an "effective
indorsement" (as defined in Section 8-107 of the UCC), regardless of
whether such certificate constitutes a "certificated security" for purposes
of the UCC. With respect to any Investment Related Property that is an
"uncertificated security" for purposes of the UCC (other than any
"uncertificated securities" credited to a Securities Account), it shall
cause the issuer of such uncertificated security to either (i) register the
Collateral Agent as the registered owner thereof on the books and records
of the issuer or (ii) execute an agreement substantially in the form of
Exhibit B hereto, pursuant to which such issuer agrees to comply with the
Collateral Agent's instructions with respect to such uncertificated
security without further consent by such Pledgor. With respect to the
Collateral Account, it shall cause the depositary institution maintaining
such account to enter into an agreement substantially in the form of
Exhibit C hereto or such other agreement reasonably satisfactory to the
Collateral Agent, pursuant to which the Collateral Agent shall have both
sole dominion and control over such Deposit Account (within the meaning of
the common law) and "control" (as defined in Section 9-104 of Revised
Article 9) over such Deposit Account. In addition to the foregoing, if any
issuer of any Investment Related Property is located in a jurisdiction
outside of the United States, each Pledgor shall take such additional
actions, including, without limitation, causing the issuer to register the
pledge on its books and records or making such filings or recordings, in
each case as may be necessary or
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reasonably advisable, under the laws of such issuer's jurisdiction to insure the
validity, perfection and priority of the security interest of the Collateral
Agent. Upon the occurrence of an Event of Default, the Collateral Agent shall
have the right, without notice to any Pledgor, to transfer all or any portion of
the Investment Related Property to its name or the name of its nominee or agent.
In addition, the Collateral Agent shall have the right at any time, without
notice to any Pledgor, to exchange any certificates or instruments representing
any Investment Related Property for certificates or instruments of smaller or
larger denominations.
(d) Voting and Distributions.
(i) So long as no Event of Default shall have occurred and be
continuing:
(A) except as otherwise provided in Section 3.2(b)(i) of this
Agreement or elsewhere herein or in the Credit Agreement, each Pledgor
shall be entitled to exercise or refrain from exercising any and all voting
and other consensual rights pertaining to the Investment Related Property
or any part thereof for any purpose not inconsistent with the terms of this
Agreement or the Credit Agreement; provided, no Pledgor shall exercise or
refrain from exercising any such right if such action would have a Material
Adverse Effect on the value of the Investment Related Property or any part
thereof unless such action is permitted under the Credit Agreement; it
being under stood, however, that neither the voting by such Pledgor of any
Pledged Stock for, or such Pledgor's consent to, the election of directors
at a regularly scheduled annual or other meeting of stockholders or with
respect to incidental matters at any such meeting, nor such Pledgor's
consent to or approval of any action otherwise permitted under this
Agreement and the Credit Agreement, shall be deemed inconsistent with the
terms of this Agreement or the Credit Agreement within the meaning of this
Section 3.2(d)(i)(A), and no notice of any such voting or consent need be
given to the Collateral Agent; and
(B) the Collateral Agent shall promptly execute and deliver (or cause
to be executed and delivered) to each Pledgor all proxies, and other
instruments as such Pledgor may from time to time reasonably request for
the purpose of enabling such Pledgor to exercise the voting and other
consensual rights when and to the extent which it is entitled to exercise
pursuant to clause (A) above;
(ii) Upon the occurrence and during the continuation of an Event of
Default:
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(A) all rights of each Pledgor to exercise or refrain from exercising
the voting and other consensual rights which it would otherwise be entitled
to exercise pursuant hereto shall cease and all such rights shall thereupon
become vested in the Collateral Agent who shall thereupon have the sole
right to exercise such voting and other consensual rights; and
(B) in order to permit the Collateral Agent to exercise the voting and
other consensual rights which it may be entitled to exercise pursuant
hereto and to receive all dividends and other distributions which it may be
entitled to receive hereunder: (1) each Pledgor shall promptly execute and
deliver (or cause to be executed and delivered) to the Collateral Agent all
proxies, dividend payment orders and other instruments as the Collateral
Agent may from time to time reasonably request and (2) each Pledgor
acknowledges that the Collateral Agent may utilize the power of attorney
set forth in Section 5.
SECTION 4. FURTHER ASSURANCES; ADDITIONAL PLEDGORS.
4.1. FURTHER ASSURANCES.
(a) Each Pledgor agrees that from time to time, at the expense of such
Pledgor, that it shall promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or
desirable, or that the Collateral Agent may reasonably request, in order to
create and/or maintain the validity, perfection or priority of and protect
any security interest granted or purported to be granted hereby or to
enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality
of the foregoing, each Pledgor shall:
(i) execute and file such financing or continuation statements,
or amendments thereto, and execute and deliver such other agreements,
instruments, endorsements, powers of attorney or notices, as may be
necessary or desirable, or as the Collateral Agent may reasonably
request, in order to perfect and preserve the security interests
granted or purported to be granted hereby;
(ii) (A) on July 1, 2001, with respect to the laws of the State
of New York, and (B) upon written request by the Collateral Agent, on
the date of effectiveness of Revised Article 9 in any other material
jurisdiction, furnish to the Collateral Agent an opinion of counsel
either (x) stating that, in the opinion of such counsel, such action
has been taken to maintain the validity, perfection and priority of
the lien and security interest granted hereby, including, without
limitation, with respect to the execution and filing of any financing
statements and continuation statements as is necessary and reciting
the details of such action or (y) stating that in the opinion of such
counsel no such action is
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necessary to maintain the validity, perfection and priority of such
lien and security interest under Revised 9;
(iii) at any reasonable time, upon request by the Collateral
Agent, exhibit the Collateral to and allow inspection of the
Collateral by the Collateral Agent, or persons designated by the
Collateral Agent; and
(iv) at the Collateral Agent's request, appear in and defend any
action or proceeding that may affect such Pledgor's title to or the
Collateral Agent's security interest in all or any part of the
Collateral.
(b) In addition, to the extent permitted by applicable law, each
Pledgor hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of such Pledgor.
Each Pledgor agrees that a carbon, photographic or other reproduction of
this Agreement or of a financing statement signed by such Pledgor shall be
sufficient as a financing statement and may be filed as a financing
statement in any and all jurisdictions. Each Pledgor shall furnish to the
Collateral Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Collateral Agent may reasonably
request, all in reasonable detail.
(c) Each Pledgor hereby authorizes the Collateral Agent to file a
record or records (as defined in Revised Article 9), including, without
limitation, financing statements, in all jurisdictions and with all filing
offices as the Collateral Agent may determine, in its sole discretion, are
necessary or advisable to perfect the security interest granted to the
Collateral Agent herein. Such financing statements may describe the
Collateral in the same manner as described herein or may contain an
indication or description of collateral that describes such property in any
other manner as the Collateral Agent may determine, in its sole discretion,
is necessary, advisable or prudent to ensure the perfection of the security
interest in the Collateral granted to the Collateral Agent herein,
including, without limitation, describing such property as "all assets" or
"all personal property."
4.2. ADDITIONAL PLEDGORS. From time to time subsequent to the date hereof,
additional Persons may become parties hereto as additional Pledgors (each, an
"Additional Pledgor"), by executing a Counterpart Agreement. Upon delivery of
any such Counterpart Agreement to the Collateral Agent, notice of which is
hereby waived by Pledgors, each Additional Pledgor shall be a Pledgor and shall
be as fully a party hereto as if Additional Pledgor were an original signatory
hereto. Each Pledgor expressly agrees that its obligations arising hereunder
shall not be affected or diminished by the addition or release of any other
Pledgor hereunder, nor by any election of Collateral Agent not to cause any
Subsidiary of Company to become an Additional Pledgor hereunder. This Agreement
shall be fully effective as to any Pledgor that is or becomes a party hereto
regardless of whether any other Person becomes or fails to become or ceases to
be a Pledgor hereunder.
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SECTION 5. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
5.1. POWER OF ATTORNEY. Each Pledgor hereby irrevocably appoints the
Collateral Agent (such appointment being coupled with an interest) as such
Pledgor's attorney-in-fact, with full authority in the place and stead of such
Pledgor and in the name of such Pledgor, the Collateral Agent or otherwise, from
time to time in the Collateral Agent's discretion, upon the occurrence and
during the continuance of an Event of Default, to take any action and to execute
any instrument that the Collateral Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation, the following:
(a) to obtain and adjust insurance required to be maintained by such
Pledgor or paid to the Collateral Agent pursuant to the Credit Agreement;
(b) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (b) above;
(d) to file any claims or take any action or institute any proceedings
that the Collateral Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Collateral Agent with respect to any of the Collateral;
(e) to prepare, sign and file any UCC financing statements in the name
of such Pledgor as debtor;
(f) to take or cause to be taken all actions necessary to perform or
comply or cause performance or compliance with the terms of this Agreement,
including, without limitation, access to pay or discharge taxes or Liens
(other than Liens permitted under this Agreement or the Credit Agreement)
levied or placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by the Collateral Agent in its sole discretion, any such
payments made by the Collateral Agent to become obligations of such Pledgor
to the Collateral Agent, due and payable immediately without demand; and
(g) generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Collateral Agent were the absolute owner thereof
for all purposes, and to do, at the Collateral Agent's option and such
Pledgor's expense, at any time or from time to time, all acts and things
that the Collateral Agent deems reasonably necessary to protect, preserve
or realize upon the Collateral and the
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Collateral Agent's security interest therein in order to effect the intent
of this Agreement, all as fully and effectively as such Pledgor might do.
5.2. NO DUTY ON THE PART OF COLLATERAL AGENT OR SECURED PARTIES. The powers
conferred on the Collateral Agent hereunder are solely to protect the interests
of the Secured Parties in the Collateral and shall not impose any duty upon the
Collateral Agent or any Secured Party to exercise any such powers. The
Collateral Agent and the Secured Parties shall be account able only for amounts
that they actually receive as a result of the exercise of such powers, and
neither they nor any of their officers, directors, employees or agents shall be
responsible to any Pledgor for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.
SECTION 6. REMEDIES.
6.1. GENERALLY.
(a) If any Event of Default shall have occurred and be continuing, the
Collateral Agent may exercise in respect of the Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to
it at law or in equity, all the rights and remedies of the Collateral Agent
on default under the UCC (whether or not the UCC applies to the affected
Collateral), and also may pursue any of the following separately,
successively or simultaneously:
(i) require any Pledgor to, and each Pledgor hereby agrees that
it shall at its expense and promptly upon request of the Collateral
Agent forthwith, assemble all or part of the Collateral as directed by
the Collateral Agent and make it available to the Collateral Agent at
a place to be designated by the Collateral Agent that is reasonably
convenient to both parties;
(ii) enter onto the property where any Collateral is located and
take possession thereof with or without judicial process;
(iii) prior to the disposition of the Collateral, store, process,
repair or recondition the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent the Collateral
Agent deems appropriate;
(iv) without notice except as specified below, sell, assign,
lease, license (on an exclusive or non-exclusive basis) or otherwise
dispose of the Collateral or any part thereof in one or more parcels
at public or private sale, at any of the Collateral Agent's offices or
elsewhere, for cash, on credit or for future delivery, at such time or
times and at such price or prices and upon such other terms as the
Collateral Agent may deem commercially reasonable; and
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(v) exercise dominion and control over, and refuse to permit
further withdrawals (whether of money, securities, instruments or
other property) from any deposit account maintained with the
Collateral Agent constituting part of the Collateral.
(b) The Collateral Agent or any Secured Party may be the purchaser of
any or all of the Collateral at any such sale and the Collateral Agent, as
collateral agent for and representative of the Secured Parties, shall be
entitled, for the purpose of bidding and making settlement or payment of
the purchase price for all or any portion of the Collateral sold at any
such public sale, to use and apply any of the Secured Obligations as a
credit on account of the purchase price for any Collateral payable by the
Collateral Agent at such sale. Each purchaser at any such sale shall hold
the property sold absolutely free from any claim or right on the part of
any Pledgor, and each Pledgor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it
now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Each Pledgor agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days
notice to such Pledgor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Collateral Agent shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. The
Collateral Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Each Pledgor hereby waives any claims against the Collateral
Agent arising by reason of the fact that the price at which any Collateral
may have been sold at such a private sale was less than the price which
might have been obtained at a public sale, even if the Collateral Agent
accepts the first offer received and does not offer such Collateral to more
than one offeree. If the proceeds of any sale or other disposition of the
Collateral are insufficient to pay all the Secured Obligations, Pledgors
shall be liable for the deficiency and the fees of any attorneys employed
by the Collateral Agent to collect such deficiency. Each Pledgor further
agrees that a breach of any of the covenants contained in this Section will
cause irreparable injury to the Collateral Agent, that the Collateral Agent
has no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section shall
be specifically enforceable against such Pledgor, and such Pledgor hereby
waives and agrees not to assert any defenses against an action for specific
performance of such covenants except for a defense that no default has
occurred giving rise to the Secured Obligations becoming due and payable
prior to their stated maturities. Nothing in this Section shall in any way
alter the rights of the Collateral Agent hereunder.
(c) The Collateral Agent may sell the Collateral without giving any
warranties as to the Collateral. The Collateral Agent may specifically
disclaim any warranties of title or the like. This procedure will not be
considered to adversely effect the commercial reasonableness of any sale of
the Collateral.
(d) If the Collateral Agent sells any of the Collateral on credit, the
Secured Obligations will be credited only with payments actually made by
the purchaser and received by
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the Collateral Agent and applied to the indebtedness of the purchaser. In
the event the purchaser fails to pay for the Collateral, the Collateral
Agent may resell the Collateral.
(e) The Collateral Agent shall have no obligation to marshall any of
the Collateral.
6.2. INVESTMENT PROPERTY. Each Pledgor recognizes that, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws, the Collateral Agent may be compelled, with respect to any sale
of all or any part of the Investment Property conducted without prior
registration or qualification of such Investment Property under the Securities
Act and/or such state securities laws, to limit purchasers to those who will
agree, among other things, to acquire the Investment Property for their own
account, for investment and not with a view to the distribution or resale
thereof. Each Pledgor acknowledges that any such private sale may be at prices
and on terms less favorable than those obtainable through a public sale without
such restrictions (including a public offering made pursuant to a registration
statement under the Securities Act) and, notwithstanding such circumstances,
each Pledgor agrees that any such private sale shall be deemed to have been made
in a commercially reasonable manner and that the Collateral Agent shall have no
obligation to engage in public sales and no obligation to delay the sale of any
Investment Property for the period of time necessary to permit the issuer
thereof to register it for a form of public sale requiring registration under
the Securities Act or under applicable state securities laws, even if such
issuer would, or should, agree to so register it. If the Collateral Agent
determines to exercise its right to sell any or all of the Investment Property,
upon written request, each Pledgor shall and shall cause each issuer of any
Pledged Stock to be sold hereunder, each partnership and each limited liability
company from time to time to furnish to the Collateral Agent all such
information as the Collateral Agent may request in order to determine the number
and nature of interest, shares or other instruments included in the Investment
Property which may be sold by the Collateral Agent in exempt transactions under
the Securities Act and the rules and regulations of the Securities and Exchange
Commission thereunder, as the same are from time to time in effect.
6.3. APPLICATION OF PROCEEDS. Except as expressly provided elsewhere in
this Agreement or as otherwise provided in Section 2.4(i) of the Credit
Agreement with respect to the Collateral Account, all proceeds received by the
Collateral Agent in respect of any sale, any collection from, or other
realization upon all or any part of the Collateral shall be applied in full or
in part by the Collateral Agent against, the Secured Obligations in the
following order of priority: first, to the payment of all costs and expenses of
such sale, collection or other realization, including reasonable compensation to
the Collateral Agent and its agents and counsel, and all other expenses,
liabilities and advances made or incurred by the Collateral Agent in connection
therewith, and all amounts for which the Collateral Agent is entitled to
indemnification hereunder (in its capacity as the Collateral Agent and not as a
Lender) and all advances made by the Collateral Agent hereunder for the account
of the applicable Pledgor, and to the payment of all costs and expenses paid or
incurred by the Collateral Agent in connection with the exercise of any right or
remedy hereunder or under the Credit Agreement, all in accordance with the terms
hereof or thereof; second, to the extent of
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any excess, to the payment of all other Secured Obligations for the ratable
benefit of the Lenders and the Lender Counterparties; and third, to the extent
of any excess such proceeds, to the payment to or upon the order of such Pledgor
or to whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct.
SECTION 7. COLLATERAL AGENT.
The Collateral Agent has been appointed to act as Collateral Agent
hereunder by Lenders and, by their acceptance of the benefits hereof, the other
Secured Parties. The Collateral Agent shall be obligated, and shall have the
right hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including,
without limitation, the release or substitution of Collateral), solely in
accordance with this Agreement and the Credit Agreement; provided, the
Collateral Agent shall, after payment in full of all Obligations under the
Credit Agreement and the other Credit Documents, exercise, or refrain from
exercising, any remedies provided for herein in accordance with the instructions
of the holders of a majority of the aggregate notional amount (or, with respect
to any Hedge Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Hedge Agreement)
under all Hedge Agreements (Requisite Lenders or, if applicable, such holders
being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the
foregoing provisions of this Section, each Lender Counterparty, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Collateral hereunder, it being
understood and agreed by such Lender Counterparty that all rights and remedies
hereunder may be exercised solely by the Collateral Agent for the benefit of
Lenders and Lender Counterparties in accordance with the terms of this Section.
The Collateral Agent shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to terms of the Credit Agreement shall also
constitute notice of resignation as the Collateral Agent under this Agreement;
removal of Administrative Agent pursuant to the terms of the Credit Agreement
shall also constitute removal as the Collateral Agent under this Agreement; and
appointment of a successor Administrative Agent pursuant to the terms of the
Credit Agreement shall also constitute appointment of a successor Collateral
Agent under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under the terms of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereby also be
deemed the successor Collateral Agent and such successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Collateral Agent under this Agreement, and
the retiring or removed Collateral Agent under this Agreement shall promptly
(i) transfer to such successor Collateral Agent all sums, Securities and other
items of Collateral held hereunder, together with all records and other
documents necessary or appropriate in connection with the performance of the
duties of the successor Collateral Agent under this Agreement, and (ii) execute
and deliver to such successor Collateral Agent such amendments to financing
statements, and take such other actions, as may be necessary or appropriate in
connection
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with the assignment to such successor Collateral Agent of the security interests
created hereunder, whereupon such retiring or removed Collateral Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring or removed Collateral Agent's resignation or removal hereunder as the
Collateral Agent, the provisions of this Agreement shall inure to its benefit as
to any actions taken or omitted to be taken by it under this Agreement while it
was the Collateral Agent hereunder.
SECTION 8. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
This Agreement shall create a continuing security interest in the
Collateral and shall remain in full force and effect until the payment in full
of all Secured Obligations, the cancellation or termination of the Commitments
and the cancellation or expiration of all outstanding Letters of Credit, be
binding upon each Pledgor, its successors and assigns, and inure, together with
the rights and remedies of the Collateral Agent hereunder, to the benefit of the
Collateral Agent and its successors, transferees and assigns. Without limiting
the generality of the foregoing, but subject to the terms of the Credit
Agreement, any Lender may assign or otherwise transfer any Loans held by it to
any other Person, and such other Person shall thereupon become vested with all
the benefits in respect thereof granted to Lenders herein or otherwise. Upon (i)
the payment in full of all Secured Obligations, the cancellation or termination
of the Commitments and the cancellation or expiration of all outstanding Letters
of Credit, or (ii) receipt by the Parent of an Investment Grade Status rating
and subject to the terms of Section 3.3 of the Credit Agreement, the security
interest granted hereby shall immediately and automatically terminate hereunder
and all rights to the Collateral shall revert to Pledgors. In addition, the
security interest granted hereby shall immediately and automatically be released
with respect to any Collateral sold, transferred or otherwise disposed of in
connection with a Permitted Sale. Upon any such termination the Collateral Agent
shall, at Pledgors' expense, execute and deliver to Pledgors such documents as
Pledgors shall reasonably request to evidence such termination.
SECTION 9. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM.
The powers conferred on the Collateral Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Collateral Agent shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Collateral Agent
accords its own property. Neither the Collateral Agent nor any of its directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the
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request of any Pledgor or otherwise. If any Pledgor fails to perform any
agreement contained herein, the Collateral Agent may itself perform, or cause
performance of, such agreement, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by each Pledgor under Section
10.2 of the Credit Agreement.
SECTION 10. INDEMNITY AND EXPENSES.
(a) Each Pledgor agrees:
(i) to defend (subject to Indemnitees' selection of counsel),
indemnify, pay and hold harmless each Indemnitee, from and against any and
all claims, losses and liabilities in any way relating to, growing out of
or resulting from this Agreement and the transactions contemplated hereby
(including without limitation enforcement of this Agreement), except to the
extent such claims, losses or liabilities result from such Indemnitee's
gross negligence or willful misconduct; and
(ii) to pay to the Collateral Agent promptly following written demand
the amount of any and all reasonable costs and reasonable expenses,
including the reasonable fees and expenses of its counsel and of any
experts and agents in accordance with the terms and conditions of the
Credit Agreement.
(b) The obligations of each Pledgor in this Section 10 shall survive the
termination of this Agreement and the discharge of such Pledgor's other
obligations under this Agreement, the Hedge Agreements, the Credit Agreement and
any other Credit Documents.
SECTION 11. MISCELLANEOUS.
Any notice required or permitted to be given under this Agreement shall be
given in accordance with Section 10.1 of the Credit Agreement. No failure or
delay on the part of the Collateral Agent in the exercise of any power, right or
privilege hereunder or under any other Credit Document shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other power,
right or privilege. All rights and remedies existing under this Agreement and
the other Credit Documents are cumulative to, and not exclusive of, any rights
or remedies otherwise available. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or would otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a
19
<PAGE> 252
Default or an Event of Default if such action is taken or condition exists. This
Agreement shall be binding upon and inure to the benefit of the Collateral Agent
and Pledgors and their respective successors and assigns. No Pledgor shall,
without the prior written consent of the Collateral Agent, assign any right,
duty or obligation hereunder. This Agreement and the other Credit Documents
embody the entire agreement and understanding between Pledgors and the
Collateral Agent and supersede all prior agreements and understandings between
such parties relating to the subject matter hereof and thereof. Accordingly, the
Credit Documents may not be contradicted by evidence of prior, contemporaneous
or subsequent oral agreements of the parties. There are no unwritten oral
agreements between the parties. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[Remainder of page intentionally left blank]
20
<PAGE> 253
IN WITNESS WHEREOF, each Pledgor and the Collateral Agent have caused
this Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
PAYLESS SHOESOURCE FINANCE, INC.
By:______________________________________
Name:
Title:
PAYLESS SHOESOURCE, INC.
By:______________________________________
Name:
Title:
PSS DELAWARE COMPANY 1, INC.
By:______________________________________
Name:
Title:
PSS DELAWARE COMPANY 2, INC.
By:______________________________________
Name:
Title:
21
<PAGE> 254
PSS DELAWARE COMPANY 3, INC.
By:______________________________________
Name:
Title:
PSS DELAWARE COMPANY 4, INC.
By:_____________________________________
Name:
Title:
PAYLESS SHOESOURCE, INC.
By:______________________________________
Name:
Title:
EASTBOROUGH, INC.
By:______________________________________
Name:
Title:
PAYLESS SHOESOURCE WORLDWIDE, INC.
By:______________________________________
Name:
Title:
22
<PAGE> 255
PSS LABOR LEASING, INC.
By:______________________________________
Name:
Title:
PSS INVESTMENT I, INC.
By:______________________________________
Name:
Title:
PSS INVESTMENT III, INC.
By:______________________________________
Name:
Title:
PAYLESS SHOESOURCE DISTRIBUTION, INC.
By:______________________________________
Name:
Title:
PAYLESS SHOESOURCE MERCHANDISING, INC.
By:______________________________________
Name:
Title:
23
<PAGE> 256
PSS CANADA, INC.
By:______________________________________
Name:
Title:
BANK ONE, NA,
as the Collateral Agent
By:______________________________________
Name:
Title:
24
<PAGE> 257
SCHEDULE 3.1
TO PLEDGE AGREEMENT
(L) Full Legal Name and Chief Executive Office of each Pledgor:
<TABLE>
<CAPTION>
Pledgor Chief Executive Office
- ------- ----------------------
<S> <C>
Payless ShoeSource, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
Payless ShoeSource Finance, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
PSS Delaware Company 1, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
PSS Delaware Company 2, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
PSS Delaware Company 3, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
Payless ShoeSource, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
PSS Delaware Company 4, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
Eastborough, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
Payless ShoeSource Worldwide, Inc. Jay Hawk Towers
700 S.W. Jackson St.
Suite 202
Topeka, KS 66603
PSS Labor Leasing, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
PSS Investment I, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
PSS Investment III, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
</TABLE>
SCHEDULE 3.1-1
<PAGE> 258
<TABLE>
<CAPTION>
Pledgor Chief Executive Office
- ------- ----------------------
<S> <C>
Payless ShoeSource Distribution, Inc. 5040 Northwest Highway #24
Topeka, KS 66618
Payless ShoeSource Merchandising, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
PSS Canada, Inc. 3231 Southeast 6th Avenue
Topeka, Kansas 66607
</TABLE>
(B) Jurisdiction of Organization of each Pledgor:
<TABLE>
<CAPTION>
Pledgor Jurisdiction of Organization
- ------- ----------------------------
<S> <C>
Payless ShoeSource, Inc. Delaware
Payless ShoeSource Finance, Inc. Nevada
PSS Delaware Company 1, Inc. Delaware
PSS Delaware Company 2, Inc. Delaware
PSS Delaware Company 3, Inc. Delaware
Payless ShoeSource, Inc. Missouri
PSS Delaware Company 4, Inc. Delaware
Eastborough, Inc. Kansas
Payless ShoeSource Worldwide, Inc. Kansas
PSS Labor Leasing, Inc. Kansas
PSS Investment I, Inc. Nevada
PSS Investment III, Inc. Kansas
Payless ShoeSource Distribution, Inc. Kansas
Payless ShoeSource Merchandising, Inc. Kansas
PSS Canada, Inc. Kansas
</TABLE>
(C) Other Names (including any Trade-Name or Fictitious Business Name) under
which each Pledgor has conducted Business for the past Five (5) Years:
SCHEDULE 3.1-2
<PAGE> 259
<TABLE>
<CAPTION>
Pledgor Other Names
- ------- -------------
<S> <C>
Payless ShoeSource, Inc. None
Payless ShoeSource Finance, Inc. None
PSS Delaware Company 1, Inc. None
PSS Delaware Company 2, Inc. None
PSS Delaware Company 3, Inc. None
Payless ShoeSource, Inc. Parade of Shoes
Parade
PSS Delaware Company 4, Inc. None
Eastborough, Inc. None
Payless ShoeSource Worldwide, Inc. None
PSS Labor Leasing, Inc. None
PSS Investment I, Inc. None
PSS Investment III, Inc. None
Payless ShoeSource Distribution, Inc. None
Payless ShoeSource Merchandising, Inc. None
PSS Canada, Inc. None
</TABLE>
(D) Financing Statements:
<TABLE>
<CAPTION>
Pledgor Filing Jurisdiction(s)
- ------- ----------------------
<S> <C>
Payless ShoeSource, Inc. Kansas; Delaware
Payless ShoeSource Finance, Inc. Kansas; Nevada
PSS Delaware Company 1, Inc. Kansas; Delaware
PSS Delaware Company 2, Inc. Kansas; Delaware
PSS Delaware Company 3, Inc. Kansas; Delaware
Payless ShoeSource, Inc. Kansas; Missouri
PSS Delaware Company 4, Inc. Kansas; Delaware
</TABLE>
SCHEDULE 3.1-3
<PAGE> 260
<TABLE>
<CAPTION>
Pledgor Filing Jurisdiction(s)
- ------- ----------------------
<S> <C>
Eastborough, Inc. Kansas
Payless ShoeSource Worldwide, Inc. Kansas
PSS Labor Leasing, Inc. Kansas
PSS Investment I, Inc. Kansas; Nevada
PSS Investment III, Inc. Kansas
Payless ShoeSource Distribution, Inc. Kansas
Payless ShoeSource Merchandising, Inc. Kansas
PSS Canada, Inc. Kansas
</TABLE>
SCHEDULE 3.1-4
<PAGE> 261
SCHEDULE 3.2
TO PLEDGE AGREEMENT
INVESTMENT RELATED PROPERTY
Pledged Stock:
<TABLE>
<CAPTION>
% OF
OUTSTANDING
STOCK CLASS OF CERTIFICATED STOCK PAR NO. OF STOCK OF THE
PLEDGOR ISSUER STOCK (Y/N) CERTIFICATE NO. VALUE PLEDGED STOCK STOCK ISSUER
- ------- ------ -------- ------------ --------------- ----- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Payless Payless Common Yes 5 1.00 99 100%
ShoeSource, ShoeSource
Inc. (DE) Finance, Inc
(NV)
Payless Payless
ShoeSource ShoeSource, Inc.
Finance, Inc. (MO) Common Yes Two 1.00 1 100%
(NV)
Payless PSS Delaware
ShoeSource Company 1, Inc.
Finance, Inc. (DE) Common Yes 1 .01 1,500 100%
(NV)
Payless PSS Delaware
ShoeSource Company 2, Inc.
Finance, Inc. (DE) Common Yes 1 .01 1,500 100%
(NV)
Payless PSS Delaware
ShoeSource Company 3, Inc.
Finance, Inc. (DE) Common Yes 1 .01 1,500 100%
(NV)
Payless PSS Delaware
ShoeSource Company 4, Inc.
Finance, Inc. (DE) Common Yes 1 .01 1,500 100%
(NV)
Payless Eastborough, Inc.
ShoeSource (KS)
Finance, Inc. Common Yes 1 .01 1,000 100%
(NV)
</TABLE>
SCHEDULE 3.2-1
<PAGE> 262
<TABLE>
<CAPTION>
% OF
OUTSTANDING
STOCK CLASS OF CERTIFICATED STOCK PAR NO. OF STOCK OF THE
PLEDGOR ISSUER STOCK (Y/N) CERTIFICATE NO. VALUE PLEDGED STOCK STOCK ISSUER
- ------- ------ -------- ------------ --------------- ----- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Payless Payless
ShoeSource, ShoeSource
Inc. (MO) Worldwide, Inc. Common Yes 1 1.00 100 100%
(KS)
Payless PSS Labor
ShoeSource, Leasing, Inc. (KS) Common Yes 1002 1.00 100 100%
Inc. (MO)
Payless Payless
ShoeSource, ShoeSource 100
Inc. (MO) International Common Yes 15 HK 1,300 65%
Limited (HK)
Payless PSS Investment I,
ShoeSource, Inc. (NV) Common Yes 2 1.00 100 100%
Inc. (MO)
Payless PSS Investment
ShoeSource, III, Inc. (KS) Common Yes 1 1.00 100 100%
Inc. (MO)
Payless Payless
ShoeSource, ShoeSource
Inc. (MO) Distribution, Inc. Common Yes 1 1.00 100 100%
(KS)
Payless Payless
ShoeSource, ShoeSource
Inc. (MO) Merchandising, Common Yes 1 1.00 100 100%
Inc. (KS)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4158, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4154, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4157, Inc. (PR)
</TABLE>
SCHEDULE 3.2-2
<PAGE> 263
<TABLE>
<CAPTION>
% OF
OUTSTANDING
STOCK CLASS OF CERTIFICATED STOCK PAR NO. OF STOCK OF THE
PLEDGOR ISSUER STOCK (Y/N) CERTIFICATE NO. VALUE PLEDGED STOCK STOCK ISSUER
- ------- ------ -------- ------------ --------------- ----- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4162, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4152, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4153, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4163, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4150, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4164, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4166, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4167, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4168, Inc. (PR)
</TABLE>
SCHEDULE 3.2-3
<PAGE> 264
<TABLE>
<CAPTION>
% OF
OUTSTANDING
STOCK CLASS OF CERTIFICATED STOCK PAR NO. OF STOCK OF THE
PLEDGOR ISSUER STOCK (Y/N) CERTIFICATE NO. VALUE PLEDGED STOCK STOCK ISSUER
- ------- ------ -------- ------------ --------------- ----- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4204, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4206, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4207, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4208, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4219, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4220, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4221, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4238, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4242, Inc. (PR)
</TABLE>
SCHEDULE 3.2-4
<PAGE> 265
<TABLE>
<CAPTION>
% OF
OUTSTANDING
STOCK CLASS OF CERTIFICATED STOCK PAR NO. OF STOCK OF THE
PLEDGOR ISSUER STOCK (Y/N) CERTIFICATE NO. VALUE PLEDGED STOCK STOCK ISSUER
- ------- ------ -------- ------------ --------------- ----- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico No. Common Yes 2 1.00 650 65%
4940, Inc. (PR)
Payless Payless
ShoeSource, ShoeSource of
Inc. (MO) Puerto Rico, Inc. Common Yes 2 1.00 650 65%
(PR)
Payless PSS Canada, Inc.
ShoeSource (KS)
Worldwide, Common Yes 1001 1.00 100 100%
Inc. (KS)
Payless Payless
ShoeSource ShoeSource
Worldwide, Saipan, Inc. Common Yes 1 1.00 4,875 65%
Inc. (KS) (NMI)
PSS Canada Payless Common Yes 1 n/a 65 65%
Inc. (KS) ShoeSource
Canada Inc.
(Canada)
</TABLE>
Pledged LLC Interests: None
Pledged Partnership Interests: None
Pledged Trust Interests: None
SCHEDULE 3.2-5
<PAGE> 266
EXHIBIT A
TO PLEDGE AGREEMENT
PLEDGE SUPPLEMENT
This PLEDGE SUPPLEMENT, dated [MM/DD/YY], is delivered pursuant to the
Pledge Agreement, dated as of [MM/DD/YY] (as it may be from time to time
amended, modified or supplemented, the "PLEDGE AGREEMENT"), among [NAME OF
COMPANY], the other Pledgors named therein, and [NAME OF COLLATERAL AGENT], as
the Collateral Agent. Capitalized terms used herein not otherwise defined herein
shall have the meanings ascribed thereto in the Pledge Agreement.
Pledgor hereby confirms the grant to the Collateral Agent set forth in
the Pledge Agreement of a security interest in all of Pledgor's right, title and
interest in and to all Collateral, in each case whether now or hereafter
existing or in which Pledgor now has or hereafter acquires an interest and
wherever the same may be located. Pledgor represents and warrants that the
attached Supplements to Schedules accurately and completely set forth all
additional information required pursuant to the Pledge Agreement and hereby
agrees that such Supplements to Schedules shall constitute part of the Schedules
to the Pledge Agreement.
IN WITNESS WHEREOF, Pledgor has caused this Pledge Supplement to be
duly executed and delivered by its duly authorized officer as of [MM/DD/YY].
[NAME OF PLEDGOR]
By:_______________________
Name:
Title:
EXHIBIT A-1
<PAGE> 267
SUPPLEMENT TO SCHEDULE 3.1
TO PLEDGE AGREEMENT
Additional Information:
(E) Full Legal Name and Chief Executive Office of each Pledgor(1):
(F) Jurisdiction of Organization of each Pledgor:
(G) Other Names (including any Trade-Name or Fictitious Business Name)
under which each Pledgor has conducted Business for the past Five (5)
Years:
(H) Financing Statements:
Name of Pledgor Filing
Jurisdiction(s)
- -------------
(1) If the principal place of business of any Pledgor is located
outside of the United States, include the address of the major
executive office in the United States, if any, of such
Pledgor.
EXHIBIT A-2
<PAGE> 268
SUPPLEMENT TO SCHEDULE 3.2
TO PLEDGE AGREEMENT
Additional Information:
Pledged Stock:
Pledged Partnership Interests:
Pledged LLC Interests:
Pledged Trust Interests:
EXHIBIT A-3
<PAGE> 269
EXHIBIT B
TO PLEDGE AGREEMENT
UNCERTIFICATED SECURITIES CONTROL AGREEMENT
This Uncertificated Securities Control Agreement dated as of
_________, 2000 among ________________ (the "Pledgor"), Bank One, NA, as
collateral agent for the Secured Parties, (the "Collateral Agent") and
____________, a ________corporation (the "Issuer"). Capitalized terms used but
not defined herein shall have the meaning assigned in the Pledge Agreement dated
as of April 17, 2000, among the Pledgor, the other Pledgors party thereto and
the Collateral Agent (the "Pledge Agreement"). All references herein to the
"UCC" shall mean the Uniform Commercial Code as in effect in the State of New
York.
1. REGISTERED OWNERSHIP OF SHARES. The Issuer hereby confirms
and agrees that as of the date hereof the Pledgor is the registered owner of
__________ shares of the Issuer's [common] stock (the "Pledged Shares") and the
Issuer shall not change the registered owner of the Pledged Shares without the
prior written consent of the Collateral Agent.
2. INSTRUCTIONS. If at any time the Issuer shall receive
instructions originated by the Collateral Agent relating to the Pledged Shares,
the Issuer shall comply with such instructions without further consent by the
Pledgor or any other person.
3. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE ISSUER.
The Issuer hereby represents and warrants to the Collateral Agent:
(a) It has not entered into, and until the
termination of the this agreement will not enter into, any agreement with any
other person relating the Pledged Shares pursuant to which it has agreed to
comply with instructions issued by such other person; and
(b) It has not entered into, and until the
termination of this agreement will not enter into, any agreement with the
Pledgor purporting to limit or condition the obligation of the Issuer to comply
with Instructions as set forth in Section 2 hereof.
(c) Except for the claims and interest of the
Collateral Agent and of the Pledgor in the Pledged Shares, the Issuer does not
know of any claim to, or interest in, the Pledged Shares. If any person asserts
any lien,
EXHIBIT B-1
<PAGE> 270
encumbrance or adverse claim (including any writ, garnishment, judgment, warrant
of attachment, execution or similar process) against the Pledged Shares, the
Issuer will promptly notify the Collateral Agent and the Pledgor thereof.
(d) This Uncertificated Securities Control
Agreement is the valid and legally binding obligation of the Issuer.
4. CHOICE OF LAW. This Agreement shall be governed by
the laws of the State of New York.
5. CONFLICT WITH OTHER AGREEMENTS. In the event of any
conflict between this Agreement (or any portion thereof) and any other agreement
now existing or hereafter entered into, the terms of this Agreement shall
prevail. No amendment or modification of this Agreement or waiver of any right
hereunder shall be binding on any party hereto unless it is in writing and is
signed by all of the parties hereto.
6. VOTING RIGHTS. Until such time as the Collateral
Agent shall otherwise instruct the Issuer in writing, the Pledgor shall have the
right to vote the Pledged Shares.
7. SUCCESSORS; ASSIGNMENT. The terms of this Agreement
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their respective corporate successors or heirs and personal representatives who
obtain such rights solely by operation of law. The Collateral Agent may assign
its rights hereunder only with the express written consent of the Issuer and by
sending written notice of such assignment to the Pledgor.
8. INDEMNIFICATION OF ISSUER. The Pledgor and the
Collateral Agent hereby agree that (a) the Issuer is released from any and all
liabilities to the Pledgor and the Collateral Agent arising from the terms of
this Agreement and the compliance of the Issuer with the terms hereof, except to
the extent that such liabilities arise from the Issuer's gross negligence or
willful misconduct and (b) the Pledgor, its successors and assigns shall at all
times indemnify and save harmless the Issuer from and against any and all
claims, actions and suits of others arising out of the terms of this Agreement
or the compliance of the Issuer with the terms hereof, except to the extent that
such arises from the Issuer's gross negligence or willful misconduct, and from
and against any and all liabilities, losses, damages, costs, charges, counsel
fees and other expenses of every nature and character arising by reason of the
same, until the termination of this Agreement.
9. NOTICES. Any notice or other communication herein
required or permitted to be given under this Agreement shall be sent to such
party's address as
EXHIBIT B-2
<PAGE> 271
set forth below unless otherwise indicated to each of the counterparties hereto
in writing. Each notice hereunder shall be in writing and may be personally
served, telexed or sent by telefacsimile or United States mail or courier
service and shall be deemed to have been given when delivered in person or by
courier service and signed for against receipt thereof, upon receipt of
telefacsimile or telex, or three Business Days after depositing it in the United
States mail with postage prepaid and properly addressed; provided, no notice to
any Agent shall be effective until received by such Agent.
<TABLE>
<S> <C>
Pledgor: [INSERT ADDRESS]
Attention:
Telecopier:
Collateral Agent: [INSERT ADDRESS]
Attention:
Telecopier:
Issuer: [INSERT ADDRESS]
Attention:
Telecopier:
</TABLE>
10. TERMINATION. The obligations of the Issuer to the
Collateral Agent pursuant to this Control Agreement shall continue in effect
until the security interests of the Collateral Agent in the Pledged Shares have
been terminated pursuant to the terms of the Pledge Agreement and the Collateral
Agent has notified the Issuer of such termination in writing. The Collateral
Agent agrees with Pledgor and Issuer to provide Notice of Termination in
substantially the form of Exhibit A hereto to the Issuer upon the request of the
Pledgor on or after the termination of the Collateral Agent's security interest
in the Pledged Shares pursuant to the terms of the Pledge Agreement. The
termination of this Control Agreement shall not terminate the Pledged Shares or
alter the obligations of the Issuer to the Pledgor pursuant to any other
agreement with respect to the Pledged Shares.
EXHIBIT B-3
<PAGE> 272
11. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing and
delivering one or more counterparts.
[NAME OF PLEDGOR]
By:________________________________
Name:
Title:
BANK ONE, NA,
as Collateral Agent
By:________________________________
Name:
Title:
[NAME OF ISSUER]
By:________________________________
Name:
Title:
EXHIBIT B-4
<PAGE> 273
Exhibit A
[Letterhead of Bank One, NA]
[Date]
[Name and Address of Issuer]
Attention: __________________
Re: Termination of Control Agreement
You are hereby notified that the Uncertificated Securities
Control Agreement between you, [THE PLEDGOR] and the undersigned (a copy of
which is attached) is terminated and you have no further obligations to the
undersigned pursuant to such Agreement. Notwithstanding any previous
instructions to you, you are hereby instructed to accept all future directions
with respect to Pledged Shares (as defined in the Uncertificated Control
Agreement) from [THE PLEDGOR]. This notice terminates any obligations you may
have to the undersigned with respect to the Pledged Shares, however nothing
contained in this notice shall alter any obligations which you may otherwise owe
to [THE PLEDGOR] pursuant to any other agreement.
You are instructed to deliver a copy of this notice by
facsimile transmission to [insert name of Pledgor].
Very truly yours,
BANK ONE, NA,
as Collateral Agent
By:________________
Title:
EXHIBIT B-A-1
<PAGE> 274
EXHIBIT C
TO PLEDGE AGREEMENT
DEPOSIT ACCOUNT CONTROL AGREEMENT
This Deposit Account Control Agreement dated as of _________, 2000 (this
"AGREEMENT") among ____________________________ (the "DEBTOR"), Bank One, NA, as
collateral agent for the Secured Parties (the "COLLATERAL AGENT") and
____________, in its capacity as a "bank" as defined in Section 9-102 of Revised
Article 9 (in such capacities, the "FINANCIAL INSTITUTION"). Capitalized terms
used but not defined herein shall have the meaning assigned thereto in the
Pledge Agreement, dated as of April 17, 2000, among the Debtor, the other
Grantors party thereto and the Collateral Agent (the "PLEDGE AGREEMENT"). All
references herein to the "UCC" shall mean the Uniform Commercial Code as in
effect in the State of New York.
1. ESTABLISHMENT OF DEPOSIT ACCOUNT. The Financial Institution hereby
confirms and agrees that:
(a) The Financial Institution has established account number [IDENTIFY
ACCOUNT NUMBER] in the name "[IDENTIFY EXACT TITLE OF ACCOUNT]" (such account
and any successor account, the "DEPOSIT ACCOUNT") and the Financial Institution
shall not change the name or account number of the Deposit Account without the
prior written consent of the Collateral Agent;
(b) The Deposit Account is a "deposit account" within the meaning of
Section 9-102(a)(29) of Revised Article 9; and
(c) The Deposit Account is the "Collateral Account" referred to in
Section 2.3(h) of the Credit Agreement.
2. CONTROL OF THE DEPOSIT ACCOUNT. If at any time the Financial Institution
shall receive any instructions originated by the Collateral Agent directing the
disposition of funds in the Deposit Account, the Financial Institution shall
comply with such instructions without further consent by the Debtor or any other
person. [The Financial Institution hereby acknowledges that for purposes of
Section 9-302 of the [California Uniform Commercial Code/Illinois Uniform
Commercial Code] it has received notice of the security interest of the
Collateral Agent in the Deposit Account and hereby acknowledges and consents to
such lien.]
3. SUBORDINATION OF LIEN; WAIVER OF SET-OFF. In the event that the
Financial Institution has or subsequently obtains by agreement, by operation of
EXHIBIT C-1
<PAGE> 275
law or otherwise a security interest in the Deposit Account or any funds
credited thereto, the Financial Institution hereby agrees that such security
interest shall be subordinate to the security interest of the Collateral Agent.
Money and other items credited to the Deposit Account will not be subject to
deduction, set-off, banker's lien, or any other right in favor of any person
other than the Collateral Agent (except that the Financial Institution may set
off (i) all amounts due to the Financial Institution in respect of customary
fees and expenses for the routine maintenance and operation of the Deposit
Account and (ii) the face amount of any checks which have been credited to such
Deposit Account but are subsequently returned unpaid because of uncollected or
insufficient funds).
4. CHOICE OF LAW. This Agreement and the Deposit Account shall each be
governed by the laws of the State of New York. Regardless of any provision in
any other agreement, for purposes of the UCC and Revised Article 9, New York
shall be deemed to be the Financial Institution's jurisdiction (within the
meaning of Section 9-304 of Revised Article 9 and the Deposit Account shall be
governed by the laws of the State of New York.
5. CONFLICT WITH OTHER AGREEMENTS.
(a) In the event of any conflict between this Agreement (or any
portion thereof) and any other agreement now existing or hereafter entered into,
the terms of this Agreement shall prevail;
(b) No amendment or modification of this Agreement or waiver of any
right hereunder shall be binding on any party hereto unless it is in writing and
is signed by all of the parties hereto; and
(c) The Financial Institution hereby confirms and agrees that:
(i) Other than the Credit Agreement and the Pledge Agreement,
there are no other agreements entered into between the Financial
Institution and the Debtor with respect to the Deposit Account; and
(ii) It has not entered into, and until the termination of this
Agreement, will not enter into, any agreement with any other person
relating the Deposit Account and/or any funds credited thereto
pursuant to which it has agreed to comply with instructions originated
by such persons as contemplated by Section 9-104 of Revised Article 9.
EXHIBIT C-2
<PAGE> 276
6. ADVERSE CLAIMS. The Financial Institution does not know of any liens,
claims or encumbrances relating to the Deposit Account. If any person asserts
any lien, encumbrance or adverse claim (including any writ, garnishment,
judgment, warrant of attachment, execution or similar process) against the
Deposit Account, the Financial Institution will promptly notify the Collateral
Agent and the Debtor thereof.
7. MAINTENANCE OF DEPOSIT ACCOUNT. In addition to, and not in lieu of, the
obligation of the Financial Institution to honor instructions as set forth in
Section 2 hereof, the Financial Institution agrees to maintain the Deposit
Account as follows:
(a) Statements and Confirmations. The Financial Institution will
promptly send copies of all statements, confirmations and other correspondence
concerning the Deposit Account simultaneously to each of the Debtor and the
Collateral Agent at the address for each set forth in Section 11 of this
Agreement; and
(b) Tax Reporting. All interest, if any, relating to the Deposit
Account, shall be reported to the Internal Revenue Service and all state and
local taxing authorities under the name and taxpayer identification number of
the Debtor.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FINANCIAL INSTITUTION.
The Financial Institution hereby makes the following representations, warranties
and covenants:
(a) The Deposit Account has been established as set forth in Section 1
and such Deposit Account will be maintained in the manner set forth herein until
termination of this Agreement; and
(b) This Agreement is the valid and legally binding obligations of the
Financial Institution.
9. INDEMNIFICATION OF FINANCIAL INSTITUTION. The Debtor and the Collateral
Agent hereby agree that (a) the Financial Institution is released from any and
all liabilities to the Debtor and the Collateral Agent arising from the terms of
this Agreement and the compliance of the Financial Institution with the terms
hereof, except to the extent that such liabilities arise from the Financial
Institution's gross negligence or willful misconduct and (b) the Debtor, its
successors and assigns shall at all times indemnify and save harmless the
Financial Institution from and against any and all claims, actions and suits of
others arising out of the terms of this Agreement or the compliance of the
Financial Institution with the terms hereof,
EXHIBIT C-3
<PAGE> 277
except to the extent that such arises from the Financial Institution's gross
negligence or willful misconduct, and from and against any and all liabilities,
losses, damages, costs, charges, counsel fees and other expenses of every nature
and character arising by reason of the same, until the termination of this
Agreement.
10. SUCCESSORS; ASSIGNMENT. The terms of this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
corporate successors or heirs and personal representatives who obtain such
rights solely by operation of law. The Collateral Agent may assign its rights
hereunder only with the express written consent of the Financial Institution and
in accordance with the terms of the Credit Agreement and upon written notice to
the Debtor.
11. NOTICES. Any notice or other communication herein required or permitted
to be given under this Agreement shall be sent to such party's address as set
forth below unless otherwise indicated to each of the counterparties hereto in
writing. Each notice hereunder shall be in writing and may be personally served,
telexed or sent by telefacsimile or United States mail or courier service and
shall be deemed to have been given when delivered in person or by courier
service and signed for against receipt thereof, upon receipt of telefacsimile or
telex, or three Business Days after depositing it in the United States mail with
postage prepaid and properly addressed; provided, no notice to any Agent shall
be effective until received by such Agent.
Debtor: [INSERT ADDRESS]
Attention:
Telecopier:
Collateral Agent: [INSERT ADDRESS]
Attention:
Telecopier:
Financial Institution: [INSERT ADDRESS]
Attention:
Telecopier:
12. TERMINATION. The obligations of the Financial Institution to the
Collateral Agent pursuant to this Agreement shall continue in effect until the
EXHIBIT C-4
<PAGE> 278
interest of the Collateral Agent in the Deposit Account has been terminated
pursuant to the terms of the Pledge Agreement and the Collateral Agent has
notified the Financial Institution of such termination in writing. The
Collateral Agent agrees to provide Notice of Termination in substantially the
form of Exhibit A hereto to the Financial Institution upon the request of the
Debtor on or after the termination of the Collateral Agent's interest in the
Deposit Account pursuant to the terms of the Pledge Agreement. The termination
of this Agreement shall not terminate the Deposit Account or alter the
obligations of the Financial Institution to the Debtor pursuant to any other
agreement with respect to the Deposit Account.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing and delivering one or more
counterparts.
EXHIBIT C-5
<PAGE> 279
IN WITNESS WHEREOF, the parties hereto have caused this Deposit Account
Control Agreement to be executed as of the date first above written by their
respective officers thereunto duly authorized.
[DEBTOR]
By:___________________________________
Name:
Title:
BANK ONE, NA,
as Collateral Agent
By:___________________________________
Name:
Title:
[NAME OF INSTITUTION SERVING AS
FINANCIAL INSTITUTION]
By:___________________________________
Name:
Title:
EXHIBIT C-6
<PAGE> 280
EXHIBIT A
TO DEPOSIT ACCOUNT CONTROL AGREEMENT
[Letterhead of the Collateral Agent]
[Date]
[Name and Address of Financial Institution]
Attention:
Re: Termination of Deposit Account Control Agreement
You are hereby notified that the Deposit Account Control Agreement dated as
of __________, 2000 among [NAME OF THE DEBTOR], you and the undersigned (a copy
of which is attached) is terminated and you have no further obligations to the
undersigned pursuant to such Agreement. Notwithstanding any previous
instructions to you, you are hereby instructed to accept all future directions
with respect to account number(s) __________________ from [NAME OF THE DEBTOR].
This notice terminates any obligations you may have to the undersigned with
respect to such account, however nothing contained in this notice shall alter
any obligations which you may otherwise owe to [NAME OF THE DEBTOR] pursuant to
any other agreement.
You are instructed to deliver a copy of this notice by facsimile
transmission to [NAME OF THE DEBTOR].
Very truly yours,
[NAME OF COLLATERAL AGENT],
as Collateral Agent
By:___________________________________
Name:
Title:
Exhibit C-A-1
<PAGE> 1
Exhibit 10.5
PAYLESS SHOESOURCE, INC.
1996 STOCK INCENTIVE PLAN
AMENDED MARCH 16, 2000
<PAGE> 2
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 "non-employee
directors" 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., a Delaware corporation.
(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.
<PAGE> 3
(g) "Incentive Stock Option" means an Option granted under the Plan
which constitutes and shall be treated as an "incentive stock option" as defined
in Section 422 of the Code.
(h) "Non-Qualified Stock Option" means an Option granted under the
Plan which shall not constitute or be treated as an Incentive Stock Option.
(i) "Non-Tandem Stock Appreciation Right" means a Right described in
Part III, Section 3.
(j) "Option" means a right or rights to purchase shares of Stock
described in Part II.
(k) "Option Agreement" means the agreement between the Company and a
Participant evidencing the grant of an Option and containing the terms and
conditions, not inconsistent with the Plan, that are applicable to such Option.
(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".
2
<PAGE> 4
(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.
With respect to Incentive Stock Options, the term "Subsidiary" shall have the
meaning set forth in Section 424(f) of the Code.
(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. Notwithstanding
anything in the Plan to the contrary, with respect to any employee who is a
resident outside the United States, the Committee may, in its sole discretion,
amend the terms of the Plan in order to conform such terms with the requirements
of local law or to meet the objectives of the Plan. The Committee may, where
appropriate, establish one or more sub-Plans for this purpose.
4. SHARES SUBJECT TO THE PLAN.
(a) Maximum Number of Shares. Stock issued under the Plan shall be
treasury shares or previously authorized but unissued 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
3
<PAGE> 5
against the limit. The maximum number of shares of Stock which may be
issued to each Participant free from restrictions pursuant to a grant of
Performance Restricted Stock is 50,000 per year. The maximum number of
shares of Stock which may be granted to each Participant pursuant to
Performance Units is 50,000 per year.
(b) Expired Options or Rights. If an Option or Right expires,
terminates, ceases to be exercisable or is surrendered without having been
exercised in full, then the shares relating to the Option or Right shall, unless
the Plan has been terminated, again become available under the Plan.
(c) Lapse of Restrictions on Restricted Stock. If any shares of Stock
shall be returned to the Company pursuant to the provisions of Sections 2 or 3
of Part IV or in the instruments evidencing the making of Restricted Stock
Grants, then such shares shall, unless the Plan has been terminated, again
become available under the Plan.
(d) Expired Performance Units. If a Performance Unit expires,
terminates, is surrendered or otherwise ceases to exist, so that no further
shares of Stock may be issued pursuant to such Performance Unit, then the shares
of Stock which could have been issued but were not issued pursuant thereto
shall, unless the Plan has been terminated, again become available under the
Plan.
5. PARTICIPANTS. Participants in the Plan shall be determined as follows:
(a) Eligibility. The individuals who are eligible to receive Options,
Rights, Performance Units or Restricted Stock Grants hereunder shall be limited
to management employees of the Company and its Subsidiaries (including employees
who are directors and/or officers).
(b) Determination. From time to time the Committee shall, in its sole
discretion, but subject to all of the provisions of the Plan, determine which of
those eligible employees shall receive Option(s), Stock Appreciation Right(s),
Performance Unit(s) or Restricted Stock Grant(s) under the Plan and the size,
terms, conditions and/or restrictions of the Option(s), Right(s), Performance
Unit(s) or Restricted Stock Grant(s).
(c) Differing Terms; Effect of Grant. The Committee may approve the
grant of Option(s) Right(s), or Performance Unit(s) or the making of Restricted
Stock Grant(s) subject to differing terms, conditions and/or restrictions to any
eligible employee in any year. The Committee's decision to approve the grant of
an Option, Right or Performance Unit or the making of a Restricted Stock Grant
to an eligible employee in any year shall not require the Committee to approve
the grant of an Option, Right or Performance Unit or the making of a Restricted
Stock Grant to that employee in any other year or to any other employee in any
year; nor shall the Committee's decision with respect to the size, terms,
conditions and/or restrictions of any Option, Right or Performance Unit to be
granted to an employee or any Restricted Stock Grant to be made
4
<PAGE> 6
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 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
5
<PAGE> 7
this paragraph (b). Subject to the foregoing, the Committee may provide
that any Option may be exercised, in whole or in part, at such time or
times as the Committee may in its discretion determine.
(ii) Termination of Employment. If the Participant ceases to be
an employee of the Company or a Subsidiary for any reason other than
Retirement, Disability, or death, all of such Participant's outstanding
Options shall immediately terminate.
(iii) Retirement or Disability. If a Participant's employment is
terminated by Retirement or Disability, the term of any then outstanding
Option held by the Participant shall extend for a period specified by the
Committee in the agreement pertaining to such Option, and the number of
shares in respect of which the Option may be exercised after the
Participant's Retirement or Disability shall be determined by the agreement
pertaining to such Option; provided, however, that such agreement shall
provide that the Committee may cancel the Participant's Option during such
period if the Participant's Retirement was without the consent of the
Company, or if the 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.
6
<PAGE> 8
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 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. In addition, if the
Committee approves, a Participant may elect to pay all or part of the purchase
price for shares through simultaneous sale through a broker of shares acquired
on exercise, as permitted under Regulation T of the Federal Reserve Board or, at
the discretion of the Committee and to the extent permitted by law, by such
other methods as the Committee may from time to time prescribe.
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.
7
<PAGE> 9
III. STOCK APPRECIATION RIGHTS
1. GENERAL. Each employee chosen to receive a Stock Appreciation
Right(s) may be granted a Tandem Stock Appreciation Right, a Non-Tandem Stock
Appreciation Right or both, subject to the following terms, conditions and
restrictions and subject to such additional terms, conditions and restrictions
as may be determined by the Committee from time to time hereafter; provided
however, that no Right shall be subject to additional terms, conditions or
restrictions which are more favorable to a Participant than the terms,
conditions and restrictions set forth in the Plan.
2. TANDEM STOCK APPRECIATION RIGHTS. Each Tandem Stock Appreciation
Right may be granted only with respect to a share(s) of Stock for which an
Option(s) has been granted under the Plan, and may be awarded concurrently with
the grant of such Option or at any time thereafter while the Option is
outstanding. If the Committee so determines, a Tandem Stock Appreciation Right
may also be granted with respect to a share(s) of Stock for which an option has
been granted and is outstanding under any other plan of the Company. A Stock
Appreciation Right shall be evidenced by a Stock Appreciation Right Agreement
which shall contain such terms and conditions (which may include limitations as
to the time when such Stock Appreciation Right becomes exercisable and when it
ceases to be exercisable that are more restrictive than the limitations
applicable to the Related Option(s)) not inconsistent with the Plan as the
Committee shall determine; provided, however, that each Tandem Stock
Appreciation Right shall satisfy the following requirements:
(a) Termination of a Right. If the Related Option is exercised, in
whole or in part, then the Right with respect to the shares of Stock purchased
pursuant to such exercise (but not with respect to any unpurchased shares of
Stock) shall terminate as of the date of the exercise. If an unexercised Right
is otherwise exercisable on the date that the Related Option expires, and if the
Fair Market Value of the shares of Stock with respect to which such Right was
granted, determined as of the date of such expiration, exceeds the Option price
of such shares, then, notwithstanding Section 2(b), the Right shall
automatically be deemed to have been exercised as of the date of such
expiration; otherwise, on the date that the Related Option expires, any
outstanding Right related thereto shall be terminated as of the date of such
expiration.
(b) Exercise. Tandem Stock Appreciation Rights may be
exercised (i) only at such time or times as, and to the extent that, the Related
Options shall be exercisable, (ii) only upon surrender of the Related Options
with respect to the shares for which the Rights are then being exercised, and
(iii) subject to the terms and conditions set forth in the Stock Appreciation
Right Agreement; provided that no Tandem Stock Appreciation Right may be
exercised prior to the expiration of six (6) months from the date of the grant
and can only be exercised during the ten-day period beginning on the third
business day following the release of the Company's quarterly or annual
statement of sales and earnings.
8
<PAGE> 10
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.
(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
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<PAGE> 11
Committee may determine in its sole and absolute judgment that any amount which
may become payable upon exercise of a Right shall be paid entirely in cash.
5. TERMINATION OF EMPLOYMENT.
(a) General. If a Participant ceases to be an employee of the
Company or of a Subsidiary for any reason other than Retirement, Disability or
death, all of such Participant's outstanding Rights shall immediately terminate.
(b) Retirement or Disability. If a Participant's employment is
terminated by Retirement or Disability, the Participant's right to exercise all
or any portion of any Right after the date of such Retirement or Disability
shall be determined by the provisions of the Stock Appreciation Right Agreement;
provided, however, that such Agreement shall provide that the Committee may
terminate the Participant's Right prior to the date on which the Right is
exercised if the Participant's Retirement was without the consent of the
Company, or if the Participant engages during such period of Retirement or
Disability in employment or activities contrary, in the opinion of the
Committee, to the best interests of the Company.
(c) Death. If a Participant's employment is terminated by death at a
time when the Participant has not fully exercised any then outstanding Rights,
or if a Participant dies after Retirement or Disability without having fully
exercised any then outstanding Rights, the beneficiary designated by the
Participant (or, in the absence of such designation, the executors or
administrators or legatees or distributees of the Participant's estate) shall
have the right to exercise such Right in whole or in part during such period
following the Participant's death as set forth in the Stock Appreciation Right
Agreement. The Company 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
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<PAGE> 12
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:
(a) shall not be sold, assigned, conveyed, transferred, pledged,
hypothecated, or otherwise disposed of, and
(b) 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
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<PAGE> 13
would otherwise lapse on such date shall lapse as to 100% of the shares of
such Performance Restricted Stock; and
(ii) if the Company meets or exceeds the Threshold Long-Term EPS
Growth Objective (after adjustment for Relative Performance Rank) but does
not meet or exceed the Target Long-Term Growth Objective (after adjustment
for Relative Performance Rank) for the most recently ended Long- Term
Performance Period, then the restrictions on the shares of Performance
Restricted Stock that would otherwise lapse on such date shall lapse as to
(i) 50% of such shares plus (ii) 50% of such shares multiplied by a
fraction (not less than zero and not greater than one), the numerator of
which is the Company's actual Long-Term EPS Growth for the most recently
ended Long- Term Performance Period less the Threshold Long-Term EPS Growth
Objective for such period and the denominator of which is the Target
Long-Term EPS Growth Objective for such period less the Threshold Long-Term
EPS Growth Objective for such period, and the remaining shares of
Performance Restricted Stock shall immediately forfeit to the Company; and
(iii) if the Company does not meet or exceed the Threshold
Long-Term EPS Objective (after adjustment for Relative Performance Rank)
for the most recently ended Long-Term Performance Period, then 100% of the
shares of such Performance Restricted Stock shall immediately forfeit to
the Company.
For purposes of this Section 3(b), the terms Long-Term Performance Period,
Relative Performance Rank, Target Long-Term EPS Objective and Threshold
Long-Term EPS Objective shall have the same meanings as in the Company's
Executive Incentive Compensation Plan for Payless Executives. No restrictions
shall lapse on any Performance Restricted Stock until the Committee certifies,
in writing, that the requirements set forth in this Section 3(b) have been
satisfied.
(c) Forfeiture. All shares of Stock forfeited under this Section 3
shall be returned to the Company forthwith, and all the rights of the
Participant to such shares shall immediately terminate without any payment or
consideration by the Company.
4. TERMINATION OF EMPLOYMENT BY REASON OF DEATH OR DISABILITY. If a
Participant who has been in the continuous employment of the Company or of a
Subsidiary since the date as of which a Restricted Stock Grant was made to such
Participant shall, while in such employment, die or become Disabled and such
Participant's death or Disability shall occur more than one year after the date
as of which the Restricted Stock Grant was made to such Participant, then the
restrictions set forth in Part IV, Section 2 shall lapse as to all shares of
Restricted Stock granted to such Participant pursuant to such Restricted Stock
Grant on the date of such event. A Participant may file a written designation of
beneficiary to receive, in the event of the Participant's death, any shares for
which restrictions lapse on the date of death. The Company shall prescribe
procedures and requirements for beneficiary designations not
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<PAGE> 14
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,
(a) 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
(b) the Company and its Subsidiaries shall, to the extent permitted
by law, have the right to deduct from any payment of any kind otherwise due to
the Participant any Federal, state or local taxes of any kind required by law to
be withheld with respect to the 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
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<PAGE> 15
disposition of any such shares of Stock by or on behalf of the employees
receiving such shares) may be necessary or desirable as a condition of or in
connection with such Restricted Stock Grants and if, in any such event, the
Board in its sole discretion so determines, delivery of the certificates for
such shares of Stock shall not be made until such listing, registration or
qualification shall have been completed. In such connection, the Company agrees
that it will use its best effort to effect any such listing, registration or
qualification; provided, however, the Company shall not be required to use its
best efforts to effect such registration under the Securities Act of 1933 other
than on Form S-8, as presently in effect, or such other forms as may be in
effect from time to time calling for information comparable to that presently
required to be furnished under Form S-8.
9. RESTRICTIONS UPON RESALE OF STOCK. If the shares of Stock that have
been granted to a Participant pursuant to the terms of the Plan are not
registered under the Securities Act of 1933, as amended, pursuant to an
effective registration statement, such Participant, if the Committee shall deem
it advisable, may be required to represent and agree in writing that (i) any
shares of Stock acquired by such employee pursuant to the Plan will not be sold
except pursuant to an effective registration statement under the Securities Act
of 1933, as amended, or pursuant to an exemption from registration under said
Act and (ii) such Participant is acquiring such shares of Stock for the
Participant's own account and not with a view to the distribution thereof.
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
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<PAGE> 16
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, 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
(i) cancel at any time any unexercised Option or Right; or
(ii) rescind any exercise of an Option or Right;
if the Participant is not in compliance with all other applicable
provisions of the Agreement or the Plan or if, prior to any such
exercise or within six months after such exercise, the Participant
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<PAGE> 17
(i) engages in a Competing Business, as such term is defined in
the Agreement; or
(ii) solicits for employment, hires or offers employment to, or
discloses information to or otherwise aids or assists any other person
or entity other than the Company in soliciting for employment, hiring
or offering employment to, any employee of the Company; or
(iii) takes any action which is intended to harm the Company or
its reputation, which the Company reasonably concludes could harm the
Company or its reputation or which the Company reasonably concludes
could lead to unwanted or unfavorable publicity to the Company; or
(iv) discloses to anyone outside the Company, or uses in other
than the Company's business, any "confidential information", as such
term is defined in the Agreement.
(b) Upon exercise of an Option or Right, the Participant shall
certify on a form acceptable to the Committee that the Participant is in
compliance with the terms and conditions of the Agreement and the Plan.
(c) The Company shall immediately notify the Participant in writing
of any cancellation of any unexercised Option or Right. Following receipt of
such notice, the Participant shall have no further rights with respect to such
Option or Right.
(d) The Company shall notify the Participant in writing of any
rescission of an exercise of an Option or Right within one year after the
activity referred to in Part VI, Section 1(a). Within ten days after receiving
such a notice from the Company, the Participant shall either (i) pay to the
Company the excess of the Fair Market Value of the Stock on the date of exercise
of an Option over the exercise price for the Option or the Fair Market Value of
the Stock and/or cash distributed to the Participant as a result of the exercise
of a Right or (ii) return the Stock received upon the exercise of an Option (in
which case the Company will return the exercise price to the Participant) or
return the Stock and/or cash distributed upon the exercise of a Right.
2. AGREEMENT BY PARTICIPANT REGARDING DEDUCTION. The Participant shall
agree and consent to a deduction from any amounts the Company owes to the
Participant from time to time (including amounts owed as wages or other
compensation, fringe benefits, or vacation pay, as well as any other amounts
owed to the Participant by the Company), to the extent of the amounts the
Participant owes the Company under this Article VI. Whether or not the Company
elects to make any set-off in whole or in part, if the Company does not recover
by means of set-off the full amount owed by the Participant, calculated as set
forth in this Article VI, then the Participant agrees to pay immediately the
unpaid balance to the Company.
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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 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:
(a) 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;
(b) the number of shares with respect to which Rights may be
exercised (both in the aggregate and with respect to each Participant); and
(c) 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:
(a) any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange
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Act")) (a "Person") acquires beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the
then-outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that, for purposes of this Section 4, none of the following shall constitute a
Change of Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any affiliated
company or (iv) any acquisition by any corporation pursuant to a transaction
that complies with Sections 4(c)(A), 4(c)(B) and 4(c)(C) or (v) any acquisition
by the Company which, by reducing the number of shares of Outstanding Company
Common Stock or Outstanding Company Voting Securities, increases the
proportionate number of shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities beneficially owned by any Person to 20% or
more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities; provided, however, that, if such Person shall thereafter become the
beneficial owner of any additional shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities and beneficially owns 20% or more of
either the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, then such additional acquisition shall constitute a Change of
Control; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a
"Business Combination") is consummated, in each case, unless, following such
Business Combination, (A) all or substantially all of the individuals and
entities that were the beneficial owners, respectively, of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50%, respectively, of the then-outstanding shares of common stock and
the combined voting power of the then-outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination, (including, without
limitation, a corporation that, as a result of such transaction, owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in
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substantially the same proportions as their ownership immediately prior to such
Business Combination of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (C) at least
a majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement or of the action of the Board
providing for such Business Combination; or
(d) the stockholders of the Company approve of a complete
liquidation or dissolution of the Company.
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
(a) 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
(b) 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
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<PAGE> 21
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.
6. 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.
7. GOVERNING LAW. The law of the State of Kansas shall apply to all
awards and interpretations under the Plan without regard to the application of
such state's conflict of laws principles.
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Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on the 22nd day of March, 2000, by
and between PAYLESS SHOESOURCE, INC., a Delaware corporation, ("Payless") and
__________________ ("Executive").
In consideration of mutual promises and agreements set forth in this Employment
Agreement, Payless and Executive agree as follows:
1. (a) Payless agrees to employ Executive, and Executive agrees to render
personal services to Payless, for the period commencing on the date of this
Employment Agreement through [May 31, 2002 or 2003] (the "Contract Term") as
________________________________ of Payless ShoeSource, Inc.
(b) Payless agrees to pay Executive basic compensation for such services
during the Contract Term at the annual rate of $____________, payable in equal
bi-weekly installments, and in accordance with Paragraph 5, which annual rate
will be subject to an annual review during Payless' regularly scheduled review
time.
(c) If Executive is eligible to participate in one of Payless' bonus
plans (the "Incentive Plan"), then Executive shall be entitled to such Awards,
if any, which may be payable under the Incentive Plan, determined in accordance
with and subject to all of the terms and provisions of the Incentive Plan.
(d) Payless shall reimburse Executive for all items of normal expense
incurred by Executive as an employee of Payless in accordance with Payless'
reimbursement policies in effect from time to time.
(e) The Executive Compensation Change Memorandum from time to time in
effect, as initialed on behalf of Payless and by Executive, is hereby
incorporated by reference herein and made a part hereof. In addition, Payless
has adopted certain employee benefit plans and has established certain
arrangements concerning executive perquisites which may, from time to time,
confer rights and benefits on the Executive in accordance with their terms, and
Payless may, in the future, adopt additional employee benefit plans and
establish additional arrangements concerning executive perquisites, and may in
the future amend, modify or terminate any of the aforesaid employee benefit
plans and arrangements, all in accordance with their terms and in accordance
with applicable law. Executive shall be entitled to whatever rights and
benefits may be conferred on Executive, from time to time in accordance with
the terms of such plans and arrangements, as they may be amended from time to
time, independent of this Agreement. All references to payment dates or
vesting dates in this Paragraph 1 or in such plans and arrangements, shall
require that Executive be employed by Payless on such date to receive such
payment or be vested in such benefit.
(f) Executive will be eligible for future grants of restricted stock and
stock options as may be made under the terms of the Stock Incentive Plan in
accordance with the levels established by the Compensation Committee of the
Board of Directors.
<PAGE> 2
2. (a) At all times during the Contract Term, Executive will:
(i) faithfully and diligently perform Executive's duties in
conformity with the directions of Payless and serve Payless to the best
of Executive's ability; and
(ii) devote Executive's undivided time and attention to the business
of Payless, subject to reasonable vacations in accordance with Payless'
vacation policy as it applies from time to time, to such extent as may be
reasonably necessary for the proper performance of the personal services
to be rendered by Executive under this Agreement; and
(iii) maintain Executive's residence in the Topeka, Kansas
metropolitan area or the environs thereof within reasonable access to the
business activities of Payless therein for the Contract Term.
(b) At all times during the Contract Term, Executive will not:
(i) engage in any activity which conflicts or interferes with or
adversely affects Executive's performance of Executive's duties
hereunder, or
(ii) accept any other employment, whether as an Executive or as a
consultant or in any other capacity, and whether or not compensated
therefor, or
(iii) violate the terms of any of the policies described in Payless'
Policy of Business Conduct distributed from time to time to Executive.
3. (a) At all times during the Contract Term and for a period of [one or two]
years from actual termination of employment or, if there are more than one year
remaining in the Contract Term at the time of termination of employment, for
the remainder of the Contract Term, Executive will not:
(i) directly or indirectly, own, manage, operate, finance, join,
control, or participate in the ownership, management, operation,
financing or control of, or be employed by or connected in any manner
with any Competing Business, or
(ii) solicit for employment, hire or offer employment to, or
disclose information to or otherwise aid or assist any other person or
entity other than Payless or any subsidiary of Payless in soliciting for
employment, hiring or offering employment to, any employee of Payless or
any subsidiary of Payless, or
(iii) take any action which is intended to harm Payless or its
reputation, which Payless reasonably concludes could harm Payless or its
reputation or which Payless reasonably concludes could lead to unwanted
or unfavorable publicity to Payless.
Ownership of an investment of less than the greater of $25,000 or 1% of any
class of equity or debt security of a Competing Business shall not constitute
ownership or participation in ownership in violation of Paragraph 3(a).
(b) The term "Competing Business" shall include, but not be limited to,
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<PAGE> 3
(i) any retail business with gross sales or revenue in the prior
fiscal year of more than $25 million (or which is a subsidiary, affiliate
or joint venture partner of a business with gross sales or revenue in the
prior fiscal year of more than $25 million) which sells footwear at
retail to consumers at price points competitive, or likely to be
competitive with Payless (e.g., including, without limitation, Wal-Mart,
K-Mart, Target, Ames, Mervyn's Pic-N-Pay, Foot Star, Inc., Edison, Aldo,
Genesco, Venator, Famous Footwear, Shoe Carnival, Jones Apparel Group,
Kohl's, Liz Claiborne, Big Five, J.C. Penney and Sears) within 20 miles
of any Payless store or the store of any wholesale customer of Payless in
the United States, or anywhere in any foreign country in which Payless
has retail stores, franchisees or wholesale customers;
(ii) any franchising or wholesaling business with gross sales or
revenue in the prior fiscal year of more than $25 million (or which is a
subsidiary, affiliate or joint venture partner of a business with gross
sales or revenue in the prior fiscal year of more than $25 million) which
sells footwear at wholesale to franchisees, retailers or other footwear
distributors located within 20 miles of any Payless store or the store of
any wholesale customer of Payless in the United States, or anywhere in
any foreign country in which Payless has retail stores, franchisees or
wholesale customers:
(iii) any footwear manufacturing business with gross sales or
revenue in the prior fiscal year of more than $25 million (or which is a
subsidiary, affiliate or joint venture partner of a business with gross
sales or revenue in the prior fiscal year of more than $25 million) which
sells footwear to retailers or other footwear distributors located within
20 miles of any Payless store or the store of any wholesale customer of
Payless in the United States, or anywhere in any foreign country in which
Payless has retail stores, franchisees, or wholesale customers; (e.g.,
including, without limitation, Jones Apparel Group, Dexter, Stride Rite,
Liz Claiborne, Wolverine Worldwide, Timberland, Nike, Reebok, K-Swiss,
Keds and Adidas); or
(iv) any business which provides buying office services to any store
or group of stores or businesses referred to in Paragraph 3.(b) (i), 3.
(b) (ii) and 3.(b)(iii).
(c) Background of non-compete restriction:
(i) Payless is one of the leading retail companies in North America,
with self-service shoe stores throughout the United States and its
territories and Canada; and
(ii) In connection with its business, Payless has expended a great
deal of time, money and effort to develop and maintain its confidential,
proprietary and trade secret information; this information, if misused or
disclosed, could be very harmful to Payless' business and its competitive
position in the marketplace; and
(iii) Executive desires to be employed by Payless, to be eligible
for opportunities for advancement within Payless, to be eligible for
potential compensation increases and to be given access to confidential
and proprietary information of Payless necessary for Executive to perform
Executive's job, but which Payless would not make available to Executive
but for
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<PAGE> 4
Executive's signing and agreeing to abide by the terms of this Agreement
as a condition of Executive's employment by Payless; and
(iv) Executive recognizes and acknowledges that Executive's position
with Payless provides Executive with access to Payless' confidential and
proprietary trade secret information and other confidential business
information; and
(v) Payless compensates its associates to, among other things,
develop and preserve goodwill and relationships on Payless' behalf and to
develop and preserve business information for Payless' exclusive
ownership and use; and
(vi) long-term customer and supplier relationships often can be
difficult to develop and require a significant investment of time, effort
and expense; and
(vii) Executive recognizes and acknowledges that if Executive's
employment with Payless were to cease, Payless needs certain protections
in order to ensure that Executive does not appropriate and use any
confidential information entrusted to Executive during the course of
Executive's employment by Payless or take any other action which could
result in a loss of Payless' goodwill that was generated on Payless'
behalf and at its expense, and, more generally, to prevent Executive from
having an unfair competitive advantage over Payless.
(d) Reasonableness of non-compete restriction. Executive acknowledges
and agrees that the restrictions in Paragraph 3(a) are reasonable and
enforceable in view of the background for the non-compete restriction set forth
in Paragraph 3(c) and in view of, among other things,
(i) the markets in which Payless and its subsidiaries operate their
business; and
(ii) the confidential information to which Executive has access; and
(iii) Executive's training and background, which are such that
neither Payless nor Executive believe that the restraint will pose
an undue hardship on Executive; and
(iv) the fact that a Competing Business could benefit greatly if it
were to obtain Payless' confidential information; and
(v) the fact that Payless would not have adequate protection if
Executive were permitted to work for any Competing Business since Payless
would be unable to verify whether its confidential information was being
disclosed or misused; and
(vi) the limited duration of, the limited scope of, and the limited
activities prohibited by, the restrictions in Paragraph 3(a); and
(vii) Payless' legitimate interests in protecting its confidential
information, goodwill and relationships.
(e) If Executive violates Executive's obligations under Paragraph 3(a),
then Payless shall be entitled to an injunction and other relief provided for
in this Agreement to prevent such violation,
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<PAGE> 5
and the time during which Executive violated the obligations shall not count
toward satisfying the time during which the restriction shall apply. For
example, if Executive were to join a competitor at the end of the Contract Term
in violation of the restrictions in Paragraph 3(a) and work for such competitor
for one month before a court enjoined such violation, then the two year time
period of the restriction would begin when such injunction were issued; the one
month during which Executive violated such restriction would not count toward
the time that the restriction applies.
4. If Executive becomes Totally Disabled and remains continuously so Totally
Disabled for a period of 180 days, then Payless' obligations under this
Employment Agreement, at Payless' option, may be terminated by notice in
writing to that effect given during the continuance of such Total Disability,
such termination to take effect the later of (a) the last day of the month
during which such notice is given or (b) the last day of such 180 day period.
If Executive has made a previous election to participate in Payless' Long Term
Disability Plan (subject to the terms and provisions of that plan), then the
terms of that plan shall apply. "Total Disability" or "Totally Disabled" shall
mean the inability of Executive to perform the normal duties of Executive's job
under this Agreement.
5. (a) If Executive's employment terminates during the Contract Term by
reason of Executive's death or Total Disability, by Executive's voluntary
termination of employment or by Payless for Cause,
(i) Executive's basic compensation and employee benefits shall cease
on the date of such termination, except as otherwise provided herein or
in any applicable employee benefit plan or program; and
(ii) Executive (or Executive's legal representative(s)) shall be
entitled to such portion of any incentive compensation as shall be
payable under the terms of the Incentive Plan.
(b) In addition, if Executive's employment is terminated by reason of
death, then Executive's obligations under Paragraphs 1 and 2 shall cease on the
effective date of such termination.
(c) In addition, if Executive's employment is terminated by reason of
Total Disability, by Executive voluntarily or by Payless for Cause, then
Executive's obligations under Paragraphs 1 and 2 shall cease on the effective
date of such termination and Executive's obligations under Paragraphs 3 and 6
remain in full force and effect, and Payless shall be entitled to all legal and
equitable rights and remedies under this Agreement, including all of its rights
and remedies referred to in Paragraph 8 of this Agreement, and Payless shall be
entitled to enjoin Executive from violating the provisions of Paragraphs 3 and
6 of this Agreement.
(d) If Executive's employment is terminated by Payless without Cause,
then
(i) Executive's employment (and status as an employee) shall cease
immediately; and
(ii) Executive shall be entitled, subject to the provisions of
Paragraph 5(d)(vi), to continue to receive for the remainder of the
Contract Term the higher of (x) Executive's
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<PAGE> 6
basic compensation specifically stated in Paragraph 1(b) as of the date
of this Agreement, and (y) Executive's basic compensation at the time
Executive employment terminates; and
(iii) Executive shall be entitled to such portion of any incentive
compensation as shall be payable under the terms of the Incentive Plan;
and
(iv) Executive shall be entitled to post-termination benefits that
are payable under Payless' employee benefit plans in accordance with
their terms based on Executive's service through, and termination of
employment on, the termination date, including any rights Executive may
have to continued participation in Payless' medical plans under COBRA;
and
(v) except as expressly provided in this Paragraph 5(d), Executive's
post-termination obligations under this Agreement, including, without
limitation, the provisions of Paragraphs 3 and 6, shall continue to apply
following such termination; and
(vi) Executive shall use Executive's best efforts to find other
employment which does not violate the provisions of Paragraph 3 hereof.
If Executive accepts such other employment, Executive shall promptly
notify Payless of such employment and of the compensation received, to be
received or receivable from Executive's subsequent employer attributable
to the remainder of the Contract Term, and all basic compensation
otherwise payable under Paragraph 5(d) for the remainder of the Contract
Term shall be reduced to the extent of Executive's similar compensation
received, to be received or receivable from such other employer or other
business.
(e) "Cause" means
(i) an intentional act of fraud, embezzlement, theft or any other
material violation of law in connection with Executive's duties or in the
course of Executive's employment with Payless; or
(ii) intentional damage to assets of Payless; or
(iii) intentional disclosure of confidential information of Payless
contrary to the policy of Payless; or
(iv) breach of Executive's obligations under this Agreement; or
(iv) intentional engagement in any competitive activity which would
constitute a breach of Executive's duty of loyalty or of Executive's
obligations under this Agreement; or
(v) intentional breach of any policy of Payless; or
(vi) the willful and continued failure by Executive to substantially
perform Executive's duties with Payless (other than any such failure
resulting from Executive's incapacity due to physical or mental illness);
or
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<PAGE> 7
(vii) the willful engaging by Executive in conduct which is
demonstrably and materially injurious to Payless, monetarily or
otherwise.
For purposes of this Paragraph 5(e), an act, or a failure to act, shall not be
deemed "willful" or "intentional" unless it is done, or omitted to be done, by
Executive in bad faith or without reasonable belief that Executive's action or
omission was in the best interest of Payless. Failure to meet performance
standards or objectives, by itself, will not constitute "Cause".
(f) Executive agrees that, in addition to any other remedies, Payless
shall be permitted, as part of the computation of any final amount or amounts
due to Executive as wages, compensation, bonus, deferred compensation or
otherwise, and before any such amount shall be due and owing, to reduce any
amount which Payless may otherwise owe to Executive by any unpaid amount which
Executive owes to Payless.
6. (a) Executive will not, at any time, directly or indirectly, use or
disclose any of Payless' Confidential Information except as authorized and
within the scope of Executive's employment with Payless.
(b) At Payless' request and/or termination of Executive's employment with
Payless, Executive will return to Payless all documents, records, notebooks,
computer diskettes and tapes and anything else containing Payless' Confidential
Information, including all copies thereof, as well as any other Payless
property, in Executive's possession, custody or control. Executive will also
delete from Executive's own computer or other electronic storage medium any of
Payless' proprietary or Confidential Information. Not later than 20 days after
Executive's employment is terminated, Executive will certify in writing to
Payless that Executive has complied with these obligations.
(c) During Executive's employment with Payless and thereafter, Executive
will
(i) notify and provide Payless immediately with the details of any
unauthorized possession, use or knowledge of any of Payless' Confidential
Information,
(ii) assist in preventing any reoccurrence of this possession, use or
knowledge, and
(iii) cooperate with Payless in any litigation or other action to
protect or retrieve Payless' Confidential information.
(d) "Confidential Information" means any non-public information
pertaining to Payless' business. Confidential Information includes information
disclosed by Payless to Executive, and information developed or learned by
Executive during the course of or as a result of Executive's employment with
Payless, which Executive also agrees is Payless' property. Executive further
agrees that any item of intellectual or artistic property generated or prepared
by Executive, for Executive or with others, in connection with Executive's
employment by Payless is Payless' sole property and shall remain so unless
Payless otherwise specifically agrees in writing. Confidential Information
includes, without limitation, information and documents concerning Payless'
processes; suppliers (including Payless' terms, conditions and other business
arrangements with suppliers); supplier and customer lists; advertising,
marketing plans and strategies; profit margins; seasonal plans, goals,
objectives and projections, compilations, analyses and projections regarding
Payless'
7
<PAGE> 8
divisions, businesses, product segments, product lines, suppliers, sales and
expenses; files; trade secrets and patent applications (prior to their being
public); salary, staffing and employment information (including information
about performance of other executives); and "know-how," techniques or any
technical information not of a published nature relating, for example, to how
Payless conducts its business.
(e) Executive agrees that Executive will not disclose to Payless or use,
or induce Payless to use, any proprietary information, trade secret or
confidential business information of any other person or entity, including any
previous employer of Executive. Executive also represents that Executive has
returned property, proprietary information, trade secret and confidential
business information belonging to any prior employer.
7. (a) If any court of competent jurisdiction determines that, but for the
provisions of this Paragraph 7, any provision of this Agreement is illegal, void
as against public policy or otherwise unenforceable because it is deemed to be
overbroad, then such provision shall automatically be amended to the extent (but
only to the extent) necessary to make it sufficiently narrow in scope, time and
geographic area that it is not illegal, void as against public policy or
overbroad. All other remaining terms and provisions shall remain in full force
and effect.
(b) If Executive raises any question regarding the enforceability of any
aspect of this Agreement, including, without limitation, Paragraphs 3 or 6,
Executive specifically agrees that Executive will abide fully by such
provisions unless and until a court of competent jurisdiction has rendered a
final judgment that such provisions are not fully enforceable. Following any
such final judgment, Executive and Payless will abide fully by such judgment.
8. (a) Payless and Executive shall each be entitled to pursue all legal and
equitable rights and remedies to secure performance of the obligations and
duties of the other under this Agreement, and enforcement of one or more of
such rights and remedies shall in no way preclude Payless or Executive from
pursuing any and all other rights and remedies available to each of them.
(b) Executive acknowledges and agrees that the individualized services
and capabilities that Executive will render and provide to Payless during the
Contract Term are of a personal, special, unique, unusual, extraordinary and
intellectual character.
(c) Executive acknowledges and agrees that the restrictions in this
Agreement on Executive are reasonable in order to protect Payless' expectations
and rights under this Agreement and to provide Payless with the protections
that Payless needs to, among other things, safeguard its confidential
information. Payless shall be entitled to injunctive relief in addition to any
other remedy it may have, and Executive expressly consents to injunctive and
such other equitable relief as Payless in good faith believes it may need.
Without limiting the generality of the foregoing, if Executive breaches or
threatens to breach Executive's obligations under Paragraphs 3 or 6 hereof,
Executive consents to entry of an order enjoining Executive from rendering
personal services to or in connection with a Competing Business and from using
or disclosing any confidential information.
(d) If Executive's employment is terminated by Executive voluntarily or
by Payless for Cause, Executive shall be liable for all attorneys' fees and
costs incurred by Payless in seeking to enforce its rights under this
Agreement.
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<PAGE> 9
9. Payless Work-Product, The Executive agrees to disclose fully to
Payless, and hereby assigns and transfers to Payless, and agrees to execute any
additional documentation Payless may reasonably request to evidence the
assignment and transfer, immediately upon the conception, development, making or
acquisition thereof, the right, title, and interest in and to any and all
inventions, discoveries, improvements, innovations, and/or designs (the "Work
Product") conceived, discovered, developed, acquired or secured by the
Executive, solely or jointly with others or otherwise, together with all
associated U.S. and foreign intellectual property rights (i.e. patents,
copyrights, trademarks or trade secrets) either:
(a) during the period of Executive's employment, if such Work Product
is related directly or indirectly, to the business of, or to the research or
development work of Payless;
(b) with the use of the time, materials, or facilities of Payless; or
(c) within one year after termination of such employment if conceived
as a result of and is attributable to work done during such employment and
relates to Work Product within the scope of the business of Payless, together
with rights to all intellectual property rights which may be granted thereon.
Upon discovery, development or acquisitions or any such Work Product, Executive
shall notify Payless and shall execute and deliver to Payless, without further
compensation, such documents prepared by Payless as may be reasonable or
necessary to prepare or prosecute applications for such Work Product and to
assign and transfer to Payless Executive's right, title and interest in and to
such Work Product and intellectual property rights thereof. Executive
acknowledges that Executive has carefully read and considered the provisions of
this paragraph and, having done so, agrees that the restrictions set forth
herein are fair and reasonable and are reasonably required for the protection of
the interests of Payless, its officers, directors, and other executives.
10. The entire understanding and agreement between the parties has been
incorporated into this Agreement, and this Agreement supersedes all other
agreements and understandings between the Executive and Payless and its parents
and subsidiaries, with respect to the employment of Executive by Payless and its
parents and subsidiaries. This Agreement shall inure to the benefit of, and
shall be binding upon, Payless, its successors and assigns and upon Executive
and Executive's heirs, successors and assigns; provided, however, that, since
this is an agreement for the rendering of personal services, Executive cannot
assign any of Executive's obligations under this Agreement to anyone else. This
Agreement may be executed in counterparts, in which case each of the two
counterparts shall be deemed to be an original and the final counterpart shall
be deemed to have been executed in Topeka, Kansas.
11. Executive agrees that this Agreement may be assigned by Payless to a
subsidiary of Payless; such assignment, however, shall not relieve Payless of
any of its obligations hereunder except to the extent that such obligations are
actually discharged by such subsidiary.
12. This Agreement has been executed by Payless at Payless' corporate
headquarters and principal executive offices in Topeka, Kansas. Any questions or
other matter arising under this Agreement, whether of validity, interpretation,
performance or otherwise, shall be governed by and
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construed in accordance with the laws of the State of Kansas applicable to
agreements made and to be performed in such state without regard to such state's
conflicts of law provision. All actions and proceedings arising out of or
relating directly or indirectly to this Agreement shall be filed and litigated
exclusively in any state court or federal court located in the City of Topeka,
Kansas or in Shawnee County, Kansas. The parties hereto expressly consent to the
jurisdiction of any such court and to venue therein and consent to service of
process if made upon Payless' registered agent or if made at Executive's last
known address on the records of Payless.
BY SIGNING THIS AGREEMENT, EXECUTIVE HEREBY CERTIFIES THAT EXECUTIVE (A) HAS
RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW AND STUDY BEFORE SIGNING IT; (B)
HAS READ THIS AGREEMENT CAREFULLY BEFORE SIGNING IT; (C) HAS HAD SUFFICIENT
OPPORTUNITY TO REVIEW THE AGREEMENT WITH ANY ADVISOR WHICH EXECUTIVE MAY DESIRE
TO CONSULT, INCLUDING LEGAL COUNSEL; (D) HAS HAD SUFFICIENT OPPORTUNITY BEFORE
SIGNING IT TO ASK ANY QUESTIONS EXECUTIVE HAS ABOUT THIS AGREEMENT AND HAS
RECEIVED SATISFACTORY ANSWERS TO ALL SUCH QUESTIONS; AND (E) UNDERSTANDS
EXECUTIVE'S RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT.
IN WITNESS WHEREOF, this Agreement has been executed by Executive, and then by
Payless in Topeka, Kansas, effective as of the date first above written.
----------------------------------
PAYLESS SHOESOURCE, INC.
By:
-------------------------------
Name:
Title:
10
<PAGE> 1
Exhibit 10.10
PAYLESS SHOESOURCE, INC.
SUPPLEMENTARY RETIREMENT PLAN
AMENDED MARCH 16, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Definitions......................................................................................1
1.1 Act............................................................................................1
1.2 Actuarial Equivalent...........................................................................1
1.3 Annual Compensation............................................................................1
1.4 Annual Estimated Social Security Benefits......................................................1
1.5 Annual Minimum Benefit Amount..................................................................2
1.6 Annual Retirement Income.......................................................................2
1.7 Annual Retirement Benefits Offset..............................................................3
1.8 Average Annual Compensation....................................................................3
1.9 Associate......................................................................................3
1.10 Committee......................................................................................3
1.11 Company........................................................................................3
1.12 Compensability.................................................................................3
1.13 Competing Business.............................................................................4
1.14 Effective Date.................................................................................4
1.15 Employer.......................................................................................4
1.16 Gender.........................................................................................4
1.17 May............................................................................................4
1.18 May Profit Sharing Plan........................................................................4
1.19 May Retirement Plan............................................................................4
1.20 Member.........................................................................................4
1.21 Payless........................................................................................4
1.22 Payless Profit Sharing Plan....................................................................5
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
1.23 Retirement Date................................................................................5
1.24 Plan Service...................................................................................5
Section 2. Membership.......................................................................................5
2.1 Eligibility for Membership.....................................................................5
2.2 Eligibility for Benefits.......................................................................5
Section 3. Benefits.........................................................................................5
3.1 Normal Retirement..............................................................................5
3.2 Early Retirement...............................................................................6
3.3 Cessation of Benefits..........................................................................9
3.4 Form of Benefit................................................................................9
3.5 Standard Payment Period.......................................................................10
3.6 Limitation on Payments........................................................................10
3.7 Indirect Payment of Benefits..................................................................12
3.8 Termination and Rehire........................................................................12
3.9 Withholding...................................................................................12
Section 4. Administration of the Plan......................................................................12
4.1 The Committee.................................................................................12
4.2 Delegation of Duties..........................................................................12
4.3 Authority.....................................................................................12
Section 5. Certain Rights and Obligations..................................................................13
5.1 Rights of Members, Members' Spouses and Beneficiaries.........................................13
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
5.2 Employer-Associate Relationship...............................................................13
5.3 Unfunded Nature of Plan.......................................................................13
Section 6. Non-Alienation of Benefits....................................................................13
6.1 Provisions with Respect to Assignment and Levy................................................13
6.2 Alternate Application.........................................................................13
Section 7. Amendment and Termination.....................................................................13
7.1 Company's Rights..............................................................................14
7.2 Rights to Terminate...........................................................................14
Section 8. Construction..................................................................................14
</TABLE>
<PAGE> 5
Payless ShoeSource, Inc. Supplementary Retirement Plan
This document constitutes and sets forth the terms of the Payless ShoeSource,
Inc. Supplementary Retirement Plan (hereinafter referred to as the "Plan"),
effective as of the date Payless ShoeSource, Inc. was "spun-off" from and ceased
to be a subsidiary of The May Department Stores Company, May 4, 1996 (the
"Effective Date"). Capitalized terms, not otherwise defined herein, which are
defined in the Payless Profit Sharing Plan shall have the meanings set forth in
such plan.
SECTION 1. DEFINITIONS.
1.1 Act means the Social Security Act as in effect from time to time.
1.2 Actuarial Equivalent means a benefit of equivalent value when computed on
the basis of the actuarial principles and tables adopted or otherwise approved
by the Committee.
1.3 Annual Compensation means an Associate's Compensation during a fiscal year
of the Company, on an accrual basis, and shall include all of the Associate's
Compensation accrued for services during such fiscal year, regardless of when
such Compensation is paid or credited.
1.4 Annual Estimated Social Security Benefits means:
(a) the estimated initial annual amount of the Primary Insurance Amount
or the Disability Insurance Benefit (as such terms are defined in the Act),
whichever is applicable, determined by the Committee from available records and
such other information as the Committee may request the Member to furnish, to
which the Member would be entitled under the Act as in effect at the beginning
of the calendar year in which cessation of employment occurs assuming the Member
is not thereafter in employment covered under the Act. The estimated Primary
Insurance Amount shall be applicable under this Plan in all cases except as
hereinafter provided in certain cases of Total Disability and shall be adjusted
in the manner provided in the Act as of the date of retirement if such
retirement occurs on or after the Member's 62nd birthday or as if the Member's
age at retirement were 62 if such retirement occurs before the Member's 62nd
birthday. The estimated Disability Insurance Benefit shall be applicable to a
Member who sustains Total Disability and qualifies for LTD Plan benefits which
are reduced on account of Disability Insurance Benefits under the Act; and
(b) the estimated initial annual amount of benefit to which the Member
would be entitled under any public pension or welfare system of any country
other than the United States of America which is similar to the Primary
Insurance Amount or the Disability Insurance benefit under the Act, as
determined by the Committee in its sole and absolute discretion.
<PAGE> 6
1.5 Annual Minimum Benefit Amount means:
(a) for all years in which the Member participated in the Payless
Profit Sharing Plan or the May Profit Sharing Plan, the amount of the Company
contribution and forfeitures which would have been allocated to the Member's
Company Accounts in the May and Payless Profit Sharing Plans but for the
limitation on annual additions imposed by Section 415(c)(1) and Section
415(c)(2) of the Internal Revenue Code (the "Code"), and the limitation under
Code Section 401(a)(17) on the amount of such Member's Compensation which may be
taken into account in determining 1) the Member's basic contributions under the
May Profit Sharing Plan and 2) the Member's Allocation Pay Amount under the
Payless Profit Sharing Plan. The Minimum Benefit Amount with respect to the
Payless Profit Sharing Plan shall be determined as if the Company Contribution
for the applicable year or years was invested in the investment fund(s) in which
the Company Contribution actually allocated for the Member was invested. (The
amount determined under this paragraph shall be converted to an annual benefit
which would be produced if the amount determined were paid in the form of an
Actuarially Equivalent immediate life annuity with appropriate adjustments to
the amount on account of investment experience actually experienced by the
Profit Sharing Plan); and
(b) the difference between the annual amount of Retirement Pension, if
any, to which the Member is entitled under the May Retirement Plan paid in the
form of an immediate life annuity and the annual amount of such Retirement
Pension which would be payable to the Member but for (i) the limitation on
benefits under Section 415(b) of the Code, (ii) the limitation under Code
Section 401(a) (17) on the amount of such Member's Compensation which may be
taken into account in determining such Member's annual amount of Retirement
Pension, and (iii) the limitation under Code Section 415(e) on the benefit
payable to a Member who participates in both a defined benefit plan and a
defined contribution plan, to the extent applicable.
1.6 Annual Retirement Income means the amount determined by multiplying two
percent (2%) of the Member's Average Annual Compensation by the number of years
and fractions thereof (to the closest one-twelfth) of Plan Service, up to a
maximum of twenty-five (25) years of Plan Service, completed by the Member on
his actual Retirement Date.
1.7 Annual Retirement Benefits Offset means the total of the following annual
amounts:
(a) the annual amount of Retirement Pension that would be produced if
the benefits payable under the May Retirement Plan were paid to the Member in
the form of an immediate life annuity,
(b) the annual amount of Retirement Pension that would be produced
under any other retirement plan to which the Company or a related entity
contributes and which
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<PAGE> 7
credits employment included in Plan Service if the benefits thereunder were
payable in the form of an Actuarially Equivalent immediate life annuity,
(c) the annual amount of benefits that would be produced if the amount
payable from the Member's Company Accounts under the Payless Profit Sharing Plan
(including Company Accounts which were Employer or Company Accounts under the
May Profit Sharing Plan or Plans merged into the May Profit Sharing Plan) were
paid in the form of an Actuarially Equivalent immediate life annuity, assuming
that:
(i) for each calendar year that the Member was eligible to
participate as a Member of the May Profit Sharing Plan and for
such period of time that the Member is eligible to share in
Company matching contributions under the Payless Profit
Sharing Plan, the Company Contribution and forfeitures
allocated to the Member's Company Accounts were and are deemed
to be in an amount equal to the product of the May or Company
matching rate (as applicable) actually applicable to such year
or period of time multiplied by the maximum basic
contributions under the May or Payless Profit Sharing Plan(s)
which could have been contributed by the Member for such
calendar year or other period of time;
(ii) appropriate adjustments on account of investment experience
were made to such amount based on the actual investment
experience of the May Profit Sharing Plan, as the Committee
shall determine,
(d) the May Retirement Plan and May Profit Sharing Plan offsets set
forth in this Section 1.7 shall apply only if the period of membership in those
Plans is included in Plan Service under this Plan.
1.8 Average Annual Compensation means the average of the three highest amounts
of Annual Compensation of the Member accrued with respect to three (not
necessarily consecutive) of the most recent five fiscal years of the Company
ending before the Member's actual Retirement Date.
1.9 Associate means any associate of an Employer under the Payless Profit
Sharing Plan.
1.10 Committee means the committee established by Section 4 of this Plan.
1.11 Company means Payless ShoeSource, Inc., a Delaware corporation, and any
other organization which may be a successor to it.
1.12 Compensation means the total compensation from an Employer (or, for the
period prior to the date Payless ceases to be a subsidiary of May, from an
Employer or from any member of the controlled group of corporations determined
in accordance with Section
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<PAGE> 8
414(b) of the Code or is a trade or business under common control in accordance
with Section 414(c) of the Code, which includes an Employer) with respect to an
Associate for services rendered prior to the Associate's actual Retirement Date,
including all regular pay commissions, overtime pay, cash incentives, prize
awards, amounts which an Associate elected to have the Employer contribute
directly to the May or Payless Profit Sharing Plans on the Associate's behalf in
accordance with Section 4.01(b) of each such Plan, amounts not otherwise
includable in the Associate's taxable income pursuant to Section 125 of the
Code, and amounts subject to the Deferred Compensation Plan of May or Payless.
Compensation shall not include a pension, retirement allowance, severance pay,
retainer or fee under contract, any special payments, cash or otherwise,
relating to the spinoff of Payless or distributions from the Profit Sharing
Plan.
1.13 Competing Business means any single (i) retail department store; (ii)
discount department store; (iii) catalog showroom store; (iv) specialty store;
(v) furniture store; (vi) shoe store; (vii) clothing store; or a group of any of
the type of stores referred to in (i) through (vii) hereof, which such store or
group of stores had, in its fiscal year ending within the twelve month period
immediately preceding the date of such Member's Retirement Date, a gross sales
volume, including sales in leased or licensed departments, in excess of
$25,000,000.
1.14 Effective Date means May 4, 1996. The effective date of this amendment and
restatement is the effective date of the Merger.
1.15 Employer means an employer designated as an Employer under the Payless
Profit Sharing Plan.
1.16 Gender. Wherever applicable, the masculine pronoun as used herein shall
include the feminine pronoun.
1.17 May means The May Department Stores Company.
1.18 May Profit Sharing Plan means The May Department Stores Company Profit
Sharing Plan.
1.19 May Retirement Plan means The May Department Stores Company Retirement
Plan.
1.20 (a) Member means any person included in the membership of the Plan as
provided in Section 2.
(b) Retired Member means a Member who retires after the Effective Date
and becomes entitled to a supplementary retirement benefit under this Plan in
accordance with its provisions.
1.21 Payless means Payless ShoeSource, Inc., a Delaware corporation.
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1.22 Payless Profit Sharing Plan means the Payless ShoeSource, Inc. 401(k)
Profit Sharing Plan, as amended from time to time, and any other successor
retirement plan which may be designated by the Committee, including the Payless
ShoeSource, Inc. Profit Sharing Plan for Puerto Rico Associates.
1.23 Plan Service means Years of Service determined using the elapsed time
method. Plan Members shall receive a Year of Plan Service on each anniversary
date of their commencement of employment with an Employer, subject to any
limitations or restrictions as may be imposed in connection with such Employer's
adoption of the Plan.
1.24 Retirement Date means the last day of the month in which a Member retires
under the Payless Profit Sharing Plan.
SECTION 2. MEMBERSHIP.
2.1 Eligibility for Membership. Each Associate who is a member of The May
Department Stores Company Supplementary Retirement Plan on the day Payless
ceased to be a subsidiary of May shall become a Member of the Plan as of that
date. Each other Associate of an Employer who has Compensation from an Employer
in any later calendar year completed prior to his Retirement Date equal to at
least twice the amount of "wages" which are subject to the payment of F.I.C.A.
tax by the Associate in such year shall become a Member as of the January 1
thereafter. The Committee, in its discretion, may permit any other Associate to
become a Member if the Committee determines that the Associate's Compensation
from an Employer in any calendar year does not adequately reflect the
Associate's full Compensation for such year.
2.2 Eligibility for Benefits. A Member shall become entitled to benefits under
the Plan only if, and to the extent that, the Plan so provides. The fact that an
Associate becomes a Member shall not, by itself, entitle the Associate to any
benefit under the Plan.
SECTION 3. BENEFITS.
3.1 Normal Retirement.
(a) Subject to the remaining provisions of this Section 3, the annual
supplementary retirement benefit payable to a Member who retires on or after
attaining age 65 shall be equal to the excess, if any, of:
(i) such Members Annual Retirement Income, over
(ii) the sum of:
o his Annual Estimated Social Security Benefits, and
o his Annual Retirement Benefits Offset.
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<PAGE> 10
(b) If the benefit payable under subsection (a) above is less than the
Annual Minimum Benefit Amount computed pursuant to Section 1.5, the Member shall
receive the Annual Minimum Benefit Amount.
3.2 Early Retirement.
(a) A Member may retire early under this Plan at any time after
attaining age 55 and completing 5 years of Plan Service. Subject to the
remaining provisions of this Section 3, the annual supplementary retirement
benefit determined under Sections 3.1(a) and 3.1(b) above, payable to a Member
who retires prior to attaining age 65 shall be first computed on the basis
provided by Section 3.1(a), taking into account only years of Plan Service and
Average Annual Compensation to the Member's Retirement Date or, if applicable,
on the basis provided by Section 3.1(b), which amount shall be reduced as
follows:
Age at Retirement Reduction in Payment
- ----------------- --------------------
65 or older No reduction
64 2.0% of Average Annual Compensation
63 4.0% of Average Annual Compensation
62 6.0% of Average Annual Compensation
61 6.5% of Average Annual Compensation
60 7.0% of Average Annual Compensation
59 7.5% of Average Annual Compensation
58 8.0% of Average Annual Compensation
57 8.5% of Average Annual Compensation
56 9.0% of Average Annual Compensation
55 9.5% of Average Annual Compensation
(b) Notwithstanding the other provisions of this Section 3.2, if a
Member's retirement occurs prior to his 62nd birthday, then during the period
between his Retirement Date and the Member's 62nd birthday only, in the
calculation of the Member's supplementary retirement benefit, such Member's
supplementary retirement benefit shall not be reduced by his Annual Estimated
Social Security Benefits.
(c) Notwithstanding anything to the contrary provided in this Section
3.2 or otherwise in the Plan, if, during the five-year period following the
occurrence of a Change in Control of the Company, the Company or an Employer
terminates a Member's employment other than for cause and such Member had
attained age 50 on the date on which the Change in Control occurred, then such
Member's annual supplementary retirement benefit shall be computed and paid to
such Member as if such Member had retired at age 55 with at least five years of
service on the date of termination with benefits to be determined as if such
Member had been employed through age 55 at a level of Compensation equal to the
Member's Average Annual Compensation. For this purpose,
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<PAGE> 11
the Average Annual Compensation of such Member shall be deemed to be the greater
of his Average Annual Compensation determined (i) as of the date of the Change
in Control or (ii) as of the date of termination of employment.
(d) A "Change in Control of the Company" shall be deemed to have
occurred if:
(i) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") acquires beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then- outstanding
shares of common stock of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that, for
purposes of this Section 3.2(d), none of the following shall
constitute a Change of Control: (i) any acquisition directly from
the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any affiliated company
or (iv) any acquisition by any corporation pursuant to a
transaction that complies with Sections 3.2(d)(iii)(A),
3.2(d)(iii)(B) and 3.2(d)(iii)(C) or (v) any acquisition by the
Company which, by reducing the number of shares of Outstanding
Company Common Stock or Outstanding Company Voting Securities,
increases the proportionate number of shares of Outstanding
Company Common Stock or Outstanding Company Voting Securities
beneficially owned by any Person to 20% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities; provided, however, that, if such Person shall
thereafter become the beneficial owner of any additional shares
of Outstanding Company Common Stock or Outstanding Company Voting
Securities and beneficially owns 20% or more of either the
Outstanding Company Common Sock or the Outstanding Company Voting
Securities, then such additional acquisition shall constitute a
Change of Control; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
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such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the
Board; or
(iii) a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the
Company (a "Business Combination") is consummated, in each case,
unless, following such Business Combination, (A) all or
substantially all of the individuals and entities that were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50%, respectively, of the
then-outstanding shares of common stock and the combined voting
power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination
(including, without limitation, a corporation that, as a result
of such transaction, owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding
any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination or the
combined voting power of the then- outstanding voting securities
of such corporation, except to the extent that such ownership
existed prior to the Business Combination, and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the
initial agreement or of the action of the Board providing for
such Business Combination; or
(iv) the stockholders of the Company approve of a complete liquidation
or dissolution of the Company.
(e) "Termination by the Company or by an Employer of employment for
cause" means termination upon:
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(i) the willful and continued failure by the Member to substantially
perform his duties with the Company or an Employer (other than
any such failure resulting from disability or any such actual or
anticipated failure after the Member notifies the Company or an
Employer of termination for good reason) after a written demand
for substantial performance is delivered to the Member by the
Company or Employer, which demand specifically identifies the
manner in which the Company or Employer believes the Member has
not substantially performed his duties, or
(ii) the willful engaging by the Member in conduct that is
demonstrably and materially injurious to the Company or Employer,
monetarily or otherwise.
For the purposes of this subparagraph, "good reason" means, without the Member's
express written consent, the occurrence of any of the following circumstances
during the one-year period following a Change in Control of the Company, unless
such circumstances are fully corrected (effective retroactive to and including
the date the circumstances first occurred) within 30 days of the Company or
Employer receiving notice of the Member's termination:
(i) a reduction by the Company or Employer or a subsidiary, as
appropriate, in the Member's annual base salary, bonus
opportunity or benefits as the same may be increased from time to
time except for across-the-board salary, bonus opportunity or
benefit reductions similarly affecting all management personnel
of the Company, Employer and/or subsidiaries (and all management
personnel of any person in control of the Company or Employer and
of all persons, firms, corporations and partnerships and other
entities controlled by such person); or
(ii) the relocation of the Company's or Employer's (or subsidiary's)
offices at which the Member is principally employed to a location
more than 35 miles from such location. or the Company's or
Employer's (or subsidiary's) requiring the Member to be based
anywhere other than the Company's or Employer's (or subsidiary's)
offices at such location.
3.3 Cessation of Benefits. Subject to the provisions of Sections 3.4, 3.5 and
3.6, all payments of supplementary retirement benefits hereunder shall cease
upon the death of the Member.
3.4 Form of Benefit. Subject to subsection (b) below, the standard form of the
supplementary retirement benefit payable hereunder shall be an immediate life
annuity; provided, however, that one of the following optional forms of payment
may also be elected:
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<PAGE> 14
(a) 100% Joint Annuity. This option is an actuarially reduced benefit
payable to a Member during his life and, after his death, payable
for life to such person he shall have designated as his
contingent annuitant.
(b) 50% Joint and Survivor Annuity. This option is an actuarially
reduced benefit payable to a Member during his life and, after
his death, a benefit at one-half the rate of such actuarially
reduced benefit payable for life to such person as he shall have
designated as his contingent annuitant. Unless the Member's
spouse consents to another optional form of payment, this will be
the standard form of payment for a Member who is married at
Retirement Date. The Member's spouse will be the contingent
annuitant.
(c) Period Certain Annuity (10 years). This option is an actuarially
reduced benefit payable to a Member during his life with periodic
payments certain terminating at the end of ten years, with
provision that if the Member dies before receiving all the
periodic payments for such ten year period, (i) periodic payments
for the remainder of such period shall be paid to a designated
beneficiary, and (ii) if there is no such designated beneficiary,
to his estate.
(d) Period Certain Annuity. (15 years). This option is an actuarially
reduced benefit payable to a Member during his life with periodic
payments certain terminating at the end of fifteen years, with
provision that if the Member dies before receiving all the
periodic payments for such fifteen year period, (i) periodic
payments for the remainder of such period shall be paid to a
designated beneficiary, and (ii) if there is no such designated
beneficiary, to his estate.
The supplementary retirement benefit payable under an optional form shall be the
Actuarial Equivalent of the supplementary retirement benefit otherwise payable
in the form of an immediate life annuity.
3.5 Standard Payment Period. Supplementary retirement benefit payments shall be
made in monthly installments, except that the Committee may, in its discretion
at any time and from time to time prior or subsequent to retirement, direct that
such payments be made other than at monthly intervals, or direct that either a
lump sum settlement or a different form of payment be made equal to the
Actuarial Equivalent of the benefit or remainder thereof otherwise payable.
3.6 Limitation on Payments.
(a) It is recognized that a Member's duties during the period of
employment with the Company or an Employer entail the receipt of confidential
information concerning not
10
<PAGE> 15
only the current operations and procedures of the Company or an Employer but
also its short-range and long-range plans. If (A) the Member during any portion
of the period of two (2) years following his retirement (1) has an aggregate
investment (as determined from time to time) in a Competing Business equal to at
least the greater of (i) $100,000, (ii) 1% in value of such Competing Business
or (iii) such greater amount as the Committee may establish on a case by case
basis or (2) personally renders services to a Competing Business in any manner,
including without limitation, as owner, partner, director, trustee, officer,
employee, consultant or advisor thereof, and (B) the Committee determines, in
its discretion, that such investment or rendering of personal services is
contrary to the best interests of the Company, then all rights to receive any
benefits under the Plan shall immediately cease if the Member does not reduce
such aggregate investment to an amount permitted hereunder or cease rendering
such personal services, within 60 days of receipt of written notice of such
determination from the Committee. The term "value" as used herein shall mean the
net worth of such Competing Business, as disclosed by the balance sheet of such
Competing Business, as of the close of the last preceding fiscal year; provided,
however. that with respect to an investment in stock or other securities of a
Competing Business, if such stock or other securities are part of a class of
stock or other securities listed on any stock exchange, the term "value" shall
mean the market value of such class of stock or other securities of such
Competing Business, as of the date of any such determination by the Committee.
(b) Any and all rights to benefits payable to or for the account of a
Member shall at all times be subject to termination (i) if the Committee shall
find such Member guilty of dishonesty or any other unlawful act causing injury
or harm to the Company or an Employer or their employees or customers, or (ii)
if such Member voluntarily terminates his employment without the written consent
of the Company or his Employer or in violation of a written contract of
employment.
(c) Notwithstanding any other provisions of the Plan, in the event that
the aggregate amount of benefits paid under this Plan in any benefit year (the
period commencing on July 1 of any year and ending on the following June 30),
after taking into account the tax effect on the Company or an Employer, shall
exceed five percent (5%) of the average consolidated net earnings of the Company
as shown in the Company's annual report to shareowners for the three (3) most
recent consecutive fiscal years, ending prior to the conclusion of the benefit
year, then all benefits otherwise payable hereunder during the next following
benefit year shall be reduced or if necessary terminated. Such reduction shall
be made by reducing the benefits otherwise payable during such next following
benefit year in the same proportion that the benefits for the immediately
preceding benefit year (before the imposition of the limitations provided for by
this paragraph) would have had to have been reduced so that no excess would have
occurred during such immediately preceding benefit year.
(d) Notwithstanding anything provided in this Section 3.6 or otherwise
in the Plan, to the contrary, the terms of subsections (a), (b) and (c) of this
Section 3.6 shall cease to apply and shall be null and void immediately upon the
occurrence of a Change in Control of the Company, as defined in Section 3.2(d)
of the Plan.
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3.7 Indirect Payment of Benefits. If any retired Member or his beneficiary is,
in the judgment of the Committee, legally, physically or mentally incapable or
incompetent, payment may be made to the guardian or other legal representative
of such retired Member or beneficiary or, if there be none, to such other person
or institution who or which, in the opinion of the Committee, based on
information furnished to the Committee, is then maintaining or has custody of
such retired Member or beneficiary. Such payment shall constitute a full
discharge with respect thereto.
3.8 Termination and Rehire. In the event a Member's employment is terminated
prior to eligibility for early retirement, as described in Section 3.2, (for any
reason other than Total Disability), or in the event that a Member dies prior to
the date as of which supplementary retirement benefits hereunder would otherwise
commence, then no benefits shall be payable under this Plan. If a terminated
Member is rehired under circumstances which result in reinstatement of
membership under the Payless Profit Sharing Plan, reinstatement of membership
under this Plan will occur at the same time. Such reinstatement will result in
cessation of payment of benefits under this Plan. Upon the subsequent retirement
of a Member whose benefits had ceased by reason of this Section 3.8,
supplementary retirement benefits shall again be payable based upon such
adjustments in amounts as the Committee may deem equitable.
3.9 Withholding. The Employer shall withhold from amounts otherwise payable
under this Plan any amounts required to be withheld under federal, state or
local law or regulations, such amounts to be remitted on a timely basis to the
appropriate governmental authorities.
SECTION 4. ADMINISTRATION OF THE PLAN.
4.1 The Committee. Except as otherwise provided herein, the Plan shall be
administered by the Committee constituted under the Payless Profit Sharing Plan.
4.2 Delegation of Duties. In the administration of the Plan, the Committee may,
from time to time, appoint agents and delegate to such agents and to the
Administrative Subcommittee such duties as it considers appropriate and to the
extent that such duties have been so delegated, the Administrative Subcommittee
or agent, as the case may be, shall be exclusively responsible for the proper
discharge of such duties. The Committee, the Administrative Subcommittee or any
agent may from time to time consult with counsel who may be counsel to the
Company.
4.3 Authority. Any decision or action of the Committee (or, with respect to any
duty delegated to it, any decision or action of the Administrative Subcommittee
or of a duly appointed agent) in respect of any question arising out of or in
connection with the administration, interpretation and application of the Plan
and the rules and regulations thereunder shall be in its absolute discretion and
shall be final, conclusive and binding upon all persons having any interest in
the Plan.
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SECTION 5. CERTAIN RIGHTS AND OBLIGATIONS.
5.1 Rights of Members, Members' Spouses and Beneficiaries. The rights of the
Members, their spouses, their beneficiaries and other persons are hereby
expressly limited as set forth herein and shall be determined solely in
accordance with the provisions of the Plan.
5.2 Employer-Associate Relationship. The establishment of the Plan shall not be
construed as conferring any legal or other rights upon any Associate or any
other person for a continuation of employment or as interfering with or
affecting in any manner the right of the Company or any Employer to discharge
any Associate or otherwise act with relation to such Associate. The Company or
an Employer may take action (including discharge) with respect to any Associate
or other person and may treat him without regard to the effect which such action
or treatment might have upon him under the Plan.
5.3 Unfunded Nature of Plan. The Plan shall be unfunded. Neither an Employer nor
the Committee shall be required to segregate any assets in connection with
benefits provided by the Plan. Neither the Company, an Employer nor the
Committee shall be deemed to be a trustee of any amounts to be paid under the
Plan. Any liability of the Company or an Employer to any person with respect to
benefits payable under the Plan shall be based solely upon such contractual
obligations, if any, as shall be created by the Plan and shall be only a claim
against the general assets of the Company or the Employer, and no such liability
shall be deemed to be secured by any pledge or any other encumbrance on any
specific property of the Company or any Employer.
SECTION 6. NON-ALIENATION OF BENEFITS.
6.1 Provisions with Respect to Assignment and Levy. No benefit payable under the
Plan shall be subject in any manner to anticipation, alienation. sale, transfer,
assignment, pledge, encumbrance, levy or charge, and any attempt so to
anticipate, alienate, sell, transfer, assign, pledge, encumber, levy upon or
charge the same shall be void; nor shall any such benefit be in any manner
liable for or, subject to the debts, contracts, liabilities, engagements or
torts of the person entitled to such benefit, except as specifically provided
herein.
6.2 Alternate Application. If any Member, Member's spouse or beneficiary under
the Plan becomes bankrupt or attempts to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge any benefit under the Plan, except as
specifically provided herein, or any benefit shall be levied upon, garnished or
attached, then such benefit shall, in the discretion of the Committee, cease,
and in that event the Committee may hold or apply the same or any part thereof
to or for the benefit of such Member, Member's spouse or beneficiary, children
or other dependents, or any of them, or in such other manner and in such
proportion as the Committee may deem proper.
SECTION 7. AMENDMENT AND TERMINATION.
7.1 Company's Rights. The Company reserves the right at any time and from time
to time in its sole discretion to modify or amend in whole or in part any or all
of the provisions
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of the Plan, provided that no amendment shall reduce any supplementary
retirement benefit with respect to a Member who had already retired and no
amendment shall reduce the amount of any supplementary retirement benefit with
respect to a Member who, at the time of amendment, was eligible for retirement
under the terms of the Plan, to a level below that determined as if retirement
were effective at the time of amendment.
Notwithstanding anything provided to the contrary in this Section 7.1 or the
next Section 7.2, following a Change in Control of the Company the Plan may not
be amended or terminated in a manner that would adversely affect the rights of
any Member to his vested annual supplementary retirement benefits. Without
limiting the generality of the foregoing, Section 3.2(c) through (e) may not be
amended or deleted following a Change of Control of the Company.
7.2 Rights to Terminate. Except as provided in the previous Section 7.1, the
Company reserves the right at any time and from time to time in its sole
discretion to terminate the Plan, in whole or in part. In the event the Plan is
terminated, the Employer shall be under no further obligation to provide
benefits under the Plan, except to the extent of any supplementary retirement
benefit with respect to a Member who had already retired and to the extent of
any supplementary retirement benefit with respect to a Member who, at the time
of termination, was eligible for retirement under the terms of the Plan,
determined as if retirement were effective at the time of Plan termination. If
the Plan is partially terminated, the preceding sentence shall apply to Members
in the class with respect to which the Plan is terminated.
SECTION 8. CONSTRUCTION.
The provisions of the Plan shall be construed, regulated, administered and
enforced according to the laws of the State of Kansas.
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<PAGE> 1
Exhibit 10.11
PAYLESS SHOESOURCE, INC. 401(K)
PROFIT SHARING PLAN
As Amended March 16, 2000, or as otherwise specified
<PAGE> 2
TABLE OF CONTENTS
PAGE
SECTION 1......................................................................2
DEFINITIONS.................................................................2
1.01 ACCOUNTS.............................................................2
1.02 ADMINISTRATIVE DELEGATE..............................................2
1.03 AFTER-TAX CONTRIBUTIONS..............................................2
1.04 ALLOCATION PAY AMOUNT................................................2
1.05 ASSOCIATE............................................................2
1.06 AUTHORIZED LEAVE OF ABSENCE..........................................3
1.07 BEFORE-TAX CONTRIBUTIONS.............................................3
1.08 BENEFICIARY..........................................................3
1.09 BOARD................................................................3
1.10 CODE.................................................................3
1.11 COMMITTEE............................................................3
1.12 COMPANY..............................................................3
1.13 COMPANY ACCOUNTS.....................................................3
1.14 COMPANY MATCHING CONTRIBUTIONS.......................................3
1.15 COMPANY PROFIT SHARING CONTRIBUTIONS.................................3
1.16 EFFECTIVE DATE.......................................................3
1.17 EMPLOYER.............................................................3
1.18 ERISA................................................................3
1.19 FIDUCIARY............................................................4
1.20 FISCAL YEAR..........................................................4
1.21 GROUP................................................................4
1.22 HOUR OF SERVICE......................................................4
1.23 INVESTMENT FUND......................................................4
1.24 MAY PLAN.............................................................4
1.25 MEMBER...............................................................4
1.26 MEMBER ACCOUNTS......................................................4
1.27 MEMBER AFTER-TAX ACCOUNTS............................................5
1.28 MEMBER BEFORE-TAX ACCOUNTS...........................................5
1.29 MEMBER CONTRIBUTIONS.................................................5
1.30 MEMBER ROLLOVER CONTRIBUTION ACCOUNTS................................5
1.31 MILITARY SERVICE.....................................................5
1.32 NET PROFITS..........................................................5
1.33 PAY..................................................................5
1.34 POOLED INVESTMENT ACCOUNT............................................5
1.35 PLAN.................................................................6
1.36 PLAN YEAR............................................................6
1.37 PRIOR PLAN...........................................................6
1.38 QUALIFIED DOMESTIC RELATIONS ORDER...................................6
1.39 RETIREMENT...........................................................6
1.40 ROLLOVER CONTRIBUTIONS...............................................6
1.41 SOCIAL SECURITY WAGE BASE............................................6
1.42 TOTAL AND PERMANENT DISABILITY OR DISABILITY.........................6
1.43 TRANSFERRED ACCOUNTS.................................................6
1.44 TRUST AGREEMENT......................................................6
1.45 TRUST FUND...........................................................6
1.46 TRUSTEE..............................................................6
1.47 UNIT.................................................................6
1.48 UNIT VALUE...........................................................7
1.49 VALUATION DATE.......................................................7
1.50 YEAR OF SERVICE......................................................7
1.51 VESTING SERVICE......................................................7
i
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SECTION 2......................................................................9
MEMBERSHIP..................................................................9
2.01 CONDITIONS OF ELIGIBILITY............................................9
2.02 RE-EMPLOYMENT.......................................................10
SECTION 3.....................................................................11
COMPANY CONTRIBUTIONS......................................................11
3.01 AMOUNT OF COMPANY PROFIT SHARING CONTRIBUTION.......................11
3.02 AMOUNT OF COMPANY MATCHING CONTRIBUTION.............................11
3.03 ALLOCATION OF COMPANY CONTRIBUTIONS.................................11
3.04 PROFIT SHARING ALLOCATION FORMULA...................................11
3.05 INVESTMENT OF THE COMPANY CONTRIBUTION..............................11
3.06 RETURN OF COMPANY CONTRIBUTIONS.....................................12
SECTION 4.....................................................................13
MEMBER CONTRIBUTIONS.......................................................13
4.01 PROCEDURE FOR MAKING CONTRIBUTIONS..................................13
4.02 LIMITATIONS ON AND DISTRIBUTIONS ON BEFORE-TAX CONTRIBUTIONS FOR
HIGHLY COMPENSATED EMPLOYEES........................................15
4.03 DISTRIBUTIONS OF EXCESS DEFERRALS...................................15
4.04 LIMITATIONS ON AND DISTRIBUTIONS OF AFTER-TAX EMPLOYEE
CONTRIBUTIONS AND MATCHING CONTRIBUTIONS FOR HIGHLY COMPENSATED
EMPLOYEES...........................................................16
4.05 LIMITATIONS ON MULTIPLE USE OF ALTERNATIVE LIMITATION...............17
SECTION 5.....................................................................18
INVESTMENT PROVISIONS......................................................18
5.01 INVESTMENT FUNDS....................................................18
5.02 INVESTMENT DIRECTION................................................18
SECTION 6.....................................................................20
ACCOUNTS...................................................................20
6.01 MEMBER ACCOUNTS.....................................................20
6.02 COMPANY ACCOUNTS....................................................20
6.03 MAINTENANCE OF ACCOUNTS.............................................20
6.04 VALUATION OF ACCOUNTS...............................................20
6.05 MEMBER STATEMENTS...................................................20
6.06 SHARES OF PAYLESS SHOESOURCE, INC. (................................20
6.07 VESTING IN MEMBER AND COMPANY ACCOUNTS..............................21
SECTION 7.....................................................................25
EXPENSES...................................................................25
7.01 ADMINISTRATIVE EXPENSES.............................................25
SECTION 8.....................................................................26
WITHDRAWALS DURING EMPLOYMENT..............................................26
8.01 WITHDRAWALS PROHIBITED UNLESS SPECIFICALLY AUTHORIZED...............26
8.02 AUTHORIZED WITHDRAWALS..............................................26
SECTION 9.....................................................................28
BENEFITS UPON RETIREMENT, DEATH, DISABILITY OR TERMINATION OF EMPLOYMENT...28
9.01 BENEFITS............................................................28
9.02 BENEFICIARY.........................................................28
SECTION 10....................................................................29
PAYMENT OF BENEFITS........................................................29
10.01 TIME OF PAYMENT....................................................29
10.02 FORM OF PAYMENT....................................................30
10.03 INDIRECT PAYMENT OF BENEFITS.......................................30
10.04 INABILITY TO FIND MEMBER...........................................30
10.05 COMMENCEMENT OF BENEFIT DISTRIBUTION TO MEMBERS....................30
10.06 COMMENCEMENT OF BENEFIT DISTRIBUTION TO BENEFICIARY................30
10.07 COMMENCEMENT OF BENEFIT DISTRIBUTION TO ALTERNATE PAYEE............30
SECTION 11....................................................................32
PERMITTED ROLLOVER OF PLAN DISTRIBUTIONS...................................32
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<PAGE> 4
11.01 ROLLOVER TO OTHER PLANS............................................32
11.02 ROLLOVER FROM OTHER PLANS..........................................32
11.03 DEFINITIONS........................................................33
SECTION 12....................................................................34
LOANS......................................................................34
12.01 AVAILABILITY OF LOANS..............................................34
12.02 AMOUNT OF LOANS....................................................34
12.03 TERMS OF LOANS.....................................................34
SECTION 13....................................................................36
LIMIT ON CONTRIBUTIONS TO THE PLAN.......................................36
13.01 LIMIT ON CONTRIBUTIONS.............................................36
13.02 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS..........................36
SECTION 14....................................................................38
ADMINISTRATION OF THE PLAN.................................................38
14.01 PLAN ADMINISTRATOR.................................................38
14.02 DELEGATION OF AUTHORITY............................................38
14.03 COMMITTEE AND SUBCOMMITTEES........................................38
14.04 ACCOUNTS AND REPORTS...............................................39
14.05 NON-DISCRIMINATION.................................................40
SECTION 15....................................................................41
MANAGEMENT OF THE TRUST FUND...............................................41
15.01 USE OF THE TRUST FUND..............................................41
15.02 TRUSTEES...........................................................41
15.03 INVESTMENTS AND REINVESTMENTS......................................41
SECTION 16....................................................................43
CERTAIN RIGHTS AND OBLIGATIONS OF EMPLOYERS AND MEMBERS....................43
16.01 DISCLAIMER OF EMPLOYER LIABILITY...................................43
16.02 EMPLOYER-ASSOCIATE RELATIONSHIP....................................43
16.03 BINDING EFFECT.....................................................43
16.04 CORPORATE ACTION...................................................43
16.05 CLAIM AND APPEAL PROCEDURE.........................................43
SECTION 17....................................................................45
NON-ALIENATION OF BENEFITS.................................................45
17.01 PROVISIONS WITH RESPECT TO ASSIGNMENT AND LEVY.....................45
17.02 ALTERNATE APPLICATION..............................................45
SECTION 18....................................................................46
AMENDMENTS.................................................................46
18.01 COMPANY'S RIGHTS...................................................46
18.02 PROCEDURE TO AMEND.................................................46
18.03 PROVISION AGAINST DIVERSION........................................46
SECTION 19....................................................................47
TERMINATION................................................................47
19.01 RIGHT TO TERMINATE.................................................47
19.02 WITHDRAWAL OF AN EMPLOYER..........................................47
19.03 DISTRIBUTION IN EVENT OF TERMINATION OF TRUST......................47
19.04 ADMINISTRATION IN EVENT OF CONTINUANCE OF TRUST....................47
19.05 MERGER, CONSOLIDATION OR TRANSFER..................................47
SECTION 20....................................................................48
CONSTRUCTION...............................................................48
20.01 APPLICABLE LAW.....................................................48
20.02 GENDER AND NUMBER..................................................48
SECTION 21....................................................................49
TOP-HEAVY REQUIREMENTS.....................................................49
21.01 GENERALLY..........................................................49
21.02 MINIMUM ALLOCATIONS................................................49
21.03 PARTICIPANTS UNDER DEFINED BENEFIT PLANS...........................49
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21.04 DETERMINATION OF TOP HEAVINESS.................................50
21.05 CALCULATION OF TOP-HEAVY RATIOS................................50
21.06 CUMULATIVE ACCOUNTS AND CUMULATIVE ACCRUED BENEFITS............50
21.07 OTHER DEFINITIONS..............................................51
iv
<PAGE> 6
PAYLESS SHOESOURCE, INC.
401(K) PROFIT SHARING PLAN
INTRODUCTION
Effective April 1, 1996, Payless ShoeSource, Inc. withdrew from and ceased
to be a participating Employer in The May Department Stores Company Profit
Sharing Plan (the "May Plan"), and established the Payless ShoeSource, Inc.
Profit Sharing Plan (the "Plan"). Effective January 1, 1997, a portion of the
Plan covering Associates of Payless ShoeSource of Puerto Rico, Inc. was spun
off. As of August 1, 1997, Payless amended and restated the Plan, primarily to
establish a company matching contribution based on Members' contributions
effective January 1, 1998, to institute automatic enrollment in before-tax
contributions by Members, and to comply with certain changes in the law. On June
1, 1998, Payless restructured its corporate organization into a holding company
structure with Payless ShoeSource, Inc., a Delaware corporation, as the parent
corporation and the named Company for this Plan.
Now, effective March 20, 2000, or as otherwise specified, the Company is
amending and restating the Plan, primarily to include provisions for loans and
the acceptance of rollover contributions from other qualified plans, a change to
daily valuation and other miscellaneous changes. Such amendment and restatement
applies only to Associates or former Associates who were employed by an Employer
on or after the effective date(s) of the respective amended provisions, and the
rights and benefits of persons thereunder are to be determined solely in
accordance with the provisions of the Plan in effect on the date an Associate's
employment was or is terminated. Notwithstanding the preceding sentence, the
change in valuation date shall be effective for all Associates and former
Associates, without regard to employment after the effective date.
The terms and provisions of this new plan are as follows:
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SECTION 1
DEFINITIONS
1.01 ACCOUNTS means the Company Accounts and Member Accounts established
under Section 6.
1.02 ADMINISTRATIVE DELEGATE means one or more persons or institutions to
which the Committee has delegated certain administrative functions pursuant to a
written agreement.
1.03 AFTER-TAX CONTRIBUTIONS means Member Contributions which are not
Before-Tax Contributions and which are made by the Member in accordance with
Section 4.01(a).
1.04 ALLOCATION PAY AMOUNT means with respect to each eligible Member, (a)
one (1) times the amount of Pay as defined in Section 1.33 up to the Social
Security Wage Base ("SSWB") for the Plan Year, plus (b) two (2) times the amount
of such Pay in excess of the SSWB for the Plan Year. Notwithstanding any
provision of this Section 1.04 or of Section 3.03 to the contrary, in no event
shall the percentage of Members' Pay to be allocated for any year below the SSWB
be less than fifty percent (50%) of the percentage of Pay allocated with respect
to Members' Pay in excess of the SSWB, nor may the latter percentage of Pay
(above the SSWB) exceed the former percentage of Pay (below the SSWB) by more
than 5.7% (or such other percentage as may be the maximum permitted differential
under Code Section 401(1) from time to time).
In determining each eligible Member's Allocation Pay Amount, only Pay
received during the part of the Plan Year the Member is eligible for the Company
Contribution feature of the Plan, pursuant to Section 2, shall be considered,
and the SSWB to be applied for such Member shall be proportionally prorated if
such eligibility is for less than a full Plan Year.
Notwithstanding the foregoing, with respect to any Plan Year for which
applying the definition of Allocation Pay Amount set forth above would cause the
allocation made pursuant to Section 3.03 to violate the permitted disparity
limitations of Treas. Reg. Section 1.401(l)-2, Allocation Pay Amount shall be
adjusted to permit Section 3.03 to operate in compliance with the limitations of
Treas. Reg. Section 1.401(l)-2.
1.05 ASSOCIATE means any person who is classified as an employee by an
Employer and who receives Pay from an Employer. The term Associate also may
include, based upon the express written determination of the Company or the
Committee, a U.S. citizen employed, at the request of the Company, by a member
of the Group (defined in Section 1.21) to the extent such employee otherwise
qualifies for membership under Section 2, in which case such Group member shall
be deemed to be an "Employer" hereunder, as to such person or persons only. The
term "Associate" shall not include (i) any person covered under a collective
bargaining agreement unless and until the Employer and the collective bargaining
representatives so agree, (ii) any non-resident alien, and (iii) any "leased
employee" within the meaning of Code Section 414(n)(2).
2
<PAGE> 8
1.06 AUTHORIZED LEAVE OF ABSENCE means any leave of absence authorized by
the Employer under rules established by the Employer.
1.07 BEFORE-TAX CONTRIBUTIONS means contributions which the Member elects
(in accordance with Section 4.01(b)) to have the Employer make directly to the
Plan on behalf of the Member, which election shall constitute an election under
Code Section 401(k)(2)(A). The "Member's Before-Tax Contributions" shall refer
to Before-Tax Contributions made to the Plan by the Employer on behalf of the
Member.
1.08 BENEFICIARY means the person or persons entitled under Section 9.02 to
receive any payments payable under this Plan on account of a Member's death.
1.09 BOARD means the Board of Directors of the Company.
1.10 CODE means the Internal Revenue Code of 1986, as amended from time to
time.
1.11 COMMITTEE means the Profit Sharing Committee comprised of three or
more members as determined and appointed from time to time by the Board.
1.12 COMPANY means Payless ShoeSource, Inc., a Delaware corporation, and
any other organization which may be a successor to it.
1.13 COMPANY ACCOUNTS means accounts reflecting the portion of each
Member's interest in the Investment Funds which are attributable to Company
Matching Contributions ("Company Matching Accounts") and to Company Profit
Sharing Contributions ("Company Profit Sharing Accounts") and to any
contributions made by an Employer under prior plans, as well as to any income
and/or earnings attributable to such Company Contributions and prior plan
contributions.
1.14 COMPANY MATCHING CONTRIBUTIONS means contributions made by the Company
or an Employer, based on a Member's Before-Tax and/or After-Tax Contributions,
pursuant to Section 3.02.
1.15 COMPANY PROFIT SHARING CONTRIBUTIONS means discretionary contributions
made by the Company or an Employer, based on Net Profits, pursuant to Section
3.03.
1.16 EFFECTIVE DATE originally meant April 1, 1996. However, the effective
date of this amendment and restatement of the Plan shall be March 20, 2000,
unless otherwise specified herein.
1.17 EMPLOYER means the Company and, if authorized by the Company to
participate herein, any subsidiary of the Company or any affiliated corporation,
partnership or sole proprietorship which elects to participate herein.
1.18 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
3
<PAGE> 9
1.19 FIDUCIARY means the Employer, the Trustee, each of the members of
the Committee described in Section 14, and any investment manager designated
pursuant to Section 15.
1.20 FISCAL YEAR means the Company's Fiscal Year.
1.21 GROUP means the Company and any other company which is related to the
Company as a member of a controlled group of corporations in accordance with
Code Section 414(b), as a trade or business under common control in accordance
with Code Section 414(c) or as an affiliated service group in accordance with
Code Section 414(m) or the regulations under Code Section 414(o). For the
purposes of the Plan, for determining whether or not a person is an employee of
the Group and the period of employment of such person, each such other company
shall be included in the "Group" only for such period or periods during which
such other company is a member with the Company of a controlled group or under
common control.
1.22 HOUR OF SERVICE means any hour for which an Associate (including a
leased employee) is directly or indirectly compensated, or entitled to
compensation, by the Employer or by any member of the Group, whether or not such
Group member has adopted the Plan, for any of the following:
(a) the performance of duties during the applicable computation period;
(b) a period during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, Military
Service, or Authorized Leave of Absence;
(c) a period for which back pay is awarded or agreed to, provided that no
Hour of Service has been credited under subsection (a) or (b) with respect
to the same period.
Hours of Service and applicable computation periods shall be determined in
accordance with the requirements of 29 C.F.R. Section 2530.200b.
1.23 INVESTMENT FUND means any fund for investment of contributions as
described in Section 5.01.
1.24 MAY PLAN means The May Department Stores Company Profit Sharing Plan.
1.25 MEMBER means any person included in the membership of this Plan as
provided in Section 2.
1.26 MEMBER ACCOUNTS means the Member Before-Tax Accounts, the Member
After-Tax Accounts and the Member Rollover Contribution Accounts. To the extent
an Associate makes a Rollover Contribution pursuant to Section 11.02 and the
Associate is otherwise eligible but has not yet completed the participation
requirements of Section 2.01, such contribution shall also be a Member Account.
4
<PAGE> 10
1.27 MEMBER AFTER-TAX ACCOUNTS means the Member Accounts with respect to a
Member's After-Tax Contributions.
1.28 MEMBER BEFORE-TAX ACCOUNTS means the Member Accounts with respect to a
Member's Before-Tax Contributions.
1.29 MEMBER CONTRIBUTIONS means the Member's Before-Tax Contributions and
After-Tax Contributions.
1.30 MEMBER ROLLOVER CONTRIBUTION ACCOUNTS means the Member Accounts with
respect to an Associate's or Member's Rollover Contributions.
1.31 MILITARY SERVICE means effective December 13, 1996, any period of
obligatory military service with the Armed Forces of the United States of
America, or voluntary service in lieu of such obligatory service, provided that
the Associate returns to active employment with the Employer within the period
during which the Employer would be required to re-employ the Associate under
Federal law. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits, loan repayment and service credit with respect to
qualified Military Service will be provided in accordance with Code Section
414(u).
1.32 NET PROFITS means the consolidated net profits of the Company for any
given Fiscal Year, determined by generally accepted accounting principles except
that (i) no deduction or provision shall be made for any federal, state or other
taxes measured by net income, nor for any contributions to the Trust or to any
other pension or profit sharing plan, and (ii) there shall be excluded any
proceeds from life insurance of which the Company is beneficiary (whether paid
in a single sum or otherwise) and any gains or losses on the sale of capital
assets. Such term shall also mean any accumulated and undistributed Net Profits
(as defined in the preceding sentence) earned in prior Fiscal Years to the
extent that such accumulated and undistributed Net Profits constitute surplus of
the Company and its subsidiaries available for contributions hereunder.
1.33 PAY means the aggregate of (i) all regular pay, commissions, overtime
pay, cash incentives, prizes and cash awards, plus (ii) amounts which the
Associate elects to have the Employer contribute directly to the Plan on the
Associate's behalf in accordance with Section 4.01(b). Pay shall include any
amounts not otherwise includable in the Member's taxable income pursuant to Code
Section 125. Pay shall not include amounts for a pension, a retirement
allowance, a retainer or a fee under contract, deferred compensation (including
amounts deferred under the Deferred Compensation Plan of The May Department
Stores Company and the Deferred Compensation Plan of Payless ShoeSource, Inc.),
severance pay, distributions from this Plan or items of extraordinary income
including but not limited to amounts resulting from the exercise of stock
options, spinoff cash, spinoff stock and restricted stock awards. Pay in excess
of $170,000 shall be disregarded, although such amount shall be adjusted at the
same time and in such manner as permitted under Code Section 415(d).
1.34 POOLED INVESTMENT ACCOUNT means an account established pursuant to an
administrative services agreement between the Company and the Trustee.
5
<PAGE> 11
1.35 PLAN means this Payless ShoeSource Inc. 401(k) Profit Sharing Plan.
1.36 PLAN YEAR means a calendar year ending each December 31.
1.37 PRIOR PLAN means either The May Department Stores Company Profit
Sharing Plan, the Volume Shoe Corporation Profit Sharing Plan, or such other
qualified plan as may be so designated by the Committee.
1.38 QUALIFIED DOMESTIC RELATIONS ORDER means a "qualified domestic
relations order" as that term is defined in Code Section 414(p), provided that
such order was entered on or after January 1, 1985.
1.39 RETIREMENT means a Member's termination of employment on or after age
55 and after completing at least five (5) Years of Service or attaining the
fifth anniversary of participation, as of which date the Member's benefit shall
be nonforfeitable.
1.40 ROLLOVER CONTRIBUTIONS means contributions which the Associate or
Member, as applicable, elects to make in accordance with Section 11.02.
1.41 SOCIAL SECURITY WAGE BASE means, with respect to each Plan Year, the
maximum amount of wages which are subject to tax in such year under the Federal
Old Age, Survivors and Disability Insurance System.
1.42 TOTAL AND PERMANENT DISABILITY OR DISABILITY means the total
incapacity of a Member for the continued performance of regular active
employment with an Employer, which disability is expected to be permanent, as
determined by the Committee, provided that a Member shall not be considered
totally and permanently disabled for purposes of this Plan unless he qualifies
for disability benefits under Title 11 of the Federal Social Security Act.
1.43 TRANSFERRED ACCOUNTS means Member and Company Accounts transferred
from the May Plan.
1.44 TRUST AGREEMENT means the agreement or agreements provided for in
Section 14, as amended from time to time.
1.45 TRUST FUND means all the assets of the Investment Funds and any other
assets which are held in one or more trusts by the Trustee or Trustees for the
purposes of this Plan.
1.46 TRUSTEE means the corporation(s), person or persons which may at any
time be acting as Trustee or Trustees under the Trust Agreement.
1.47 UNIT means one of the units representing an interest in an Investment
Fund as provided in Section 6.03.
6
<PAGE> 12
1.48 UNIT VALUE means the value of each Unit in an Investment Fund as of
the Valuation Date as determined pursuant to Section 6.04.
1.49 VALUATION DATE means any day that the New York Stock Exchange is open
for business or any other date chosen by the Committee. Prior to March 31, 2000,
Valuation Date means the last business day of each calendar month and any other
date chosen to perform a valuation.
1.50 YEAR OF SERVICE for purposes of determining eligibility under Section
2 means a year of employment during which the Associate has been paid for not
less than 1,000 Hours of Service for an Employer or any other member of the
Group. An Associate shall be credited with a year of employment on each
anniversary date of his commencement of employment with an Employer during which
he earns not less than 1,000 Hours of Service for an Employer or any other
member of the Group. Periods of temporary illness, temporary layoff, Military
Service, and Authorized Leaves of Absence shall not be deemed as breaking
continuity of employment and shall be counted in determining Years of Service.
The term "Year of Service" shall also include an employment year during which,
except to the extent otherwise provided in Treasury Regulations, a "leased
employee" within the meaning of Code Section 414(n) has been paid for not less
than 1,000 Hours of Service for the Employer even though during such period the
leased employee was not an Associate as defined in Section 1.05. The term "Year
of Service" shall include any period required to be included by the Family and
Medical Leave Act of 1993.
The extent to which service with another organization, part or all of whose
business operations are acquired by the Company (or by an Employer), shall be
credited as "Years of Service" hereunder or as "Vesting Service" under Section
1.51 shall be determined by the Company or by the Committee on a case-by-case
basis.
1.51 VESTING SERVICE for purposes of determining a Member's vested interest
under Section 6.07 is based on "elapsed time" and is to be determined in
accordance with the following definitions:
(a) "EMPLOYMENT COMMENCEMENT DATE" means the date upon which an
Associate first performs an Hour of Service.
(b) "HOUR OF SERVICE" means an hour for which an Associate is paid or
entitled to payment for the performance of duties for the Employer or
any other member of the Group.
(c) "PERIOD OF SERVICE" means a period beginning on the Associate's
Employment Commencement Date (or Reemployment Commencement Date, as
the case may be) and ending on his Severance from Service Date.
(d) "SEVERANCE FROM SERVICE DATE" means the earlier to occur of:
7
<PAGE> 13
(i) the last date upon which an Associate terminates employment
with the Employer or any other member of the Group (either
voluntarily or involuntarily), retires or dies; or
(ii) the first anniversary of the date upon which the Associate
was first absent from service with the Employer (with or without
pay) for any other reason (i.e., vacation, sickness, disability,
leave of absence or layoff).
Notwithstanding the foregoing, the Severance from Service Date of an
Associate who is absent from service with the Employer beyond the first
anniversary of the first day of such absence on account of maternity or
paternity (as described in Code Sections 410(a)(5)(E) or 411(a)(6)(E)) shall be
the second anniversary of the first day of such absence; and the period of time
between such first and second anniversaries shall not be treated as a Period of
Service or as a Period of Severance.
(e) "PERIOD OF SEVERANCE" means a period beginning on an Associate's
Severance from Service Date and ending upon the Associate's
Reemployment Commencement Date.
(f) "REEMPLOYMENT COMMENCEMENT DATE" means the first date, following a
Severance from Service Date, upon which the Associate performs an Hour
of Service for the Employer or any other member of the Group.
(g) "SERVICE SPANNING RULES." In determining whether or not an
Associate has completed a twelve month Period of Service for purposes
of vesting, the following Periods of Severance shall be treated as
Periods of Service:
(i) If an Associate terminates employment with the Employer
(either voluntarily or involuntarily) or retires, and then
performs an Hour of Service within the twelve month period
beginning on the Severance from Service Date, such Period of
Severance shall be treated as a Period of Service; and
(ii) If an Associate terminates employment with the Employer
(either voluntarily or involuntarily) or retires during an
absence from service of twelve months or less for any reason
other than a termination or retirement, and then performs an Hour
of Service within a period of twelve months from the date the
Employee was first absent from service, the Period of Severance
shall be treated as a Period of Service.
8
<PAGE> 14
SECTION 2
MEMBERSHIP
2.01 CONDITIONS OF ELIGIBILITY.
(a) Each Associate who on March 19, 2000 was a Member of or is
eligible to be a Member of the Plan shall continue to be a Member of
this Plan entitled to make Member Contributions pursuant to Section 4
and eligible to share in Company Contributions pursuant to Section 3.
(b) Each other Associate shall be eligible to become a Member of the
Plan when the Associate has completed one Year of Service and attained
age 21, with membership to commence as of the first day of the month
coincident with or following the date he has met these eligibility
requirements. Such Associate shall be eligible:
(i) to make Member Contributions pursuant to Section 4;
(ii) to share in Company Matching Contributions pursuant to
Section 3.02;
(iii) to share in Company Profit Sharing Contributions, if any,
pursuant to Section 3.01.
(c) Each Member shall be deemed to have elected to make a three
percent (3%) Before-Tax Contribution pursuant to Section 4.01(b),
commencing with the first paycheck issued with respect to the first
payroll period beginning on or after the first day of the month
coincident with or following the date the Employer determines he met
the foregoing eligibility requirements. Notwithstanding this "deemed"
election, an Associate or Member may elect pursuant to procedures
established by the Committee to not make, or to suspend making, said
three percent (3%) automatic Before-Tax Contribution, or pursuant to
Section 4.01(a) or (b) to make an After-Tax or a Before-Tax
Contribution of an amount other than three percent (3%).
(d) All Years of Service with an Employer and Years of Service with
The May Department Stores Company ("May") while the Employer was part
of the Group which included May are counted toward eligibility,
provided that, if an Associate has a 1-year break in service before a
Year of Service, service with an Employer or May before such break
will not be taken into account. For the purposes of this Section 2.01,
"break in service" means a 12 consecutive month employment year as
used in Section 1.50 during which the Associate does not complete more
than 500 Hours of Service with the Employer and/or May while part of
the Group.
(e) Associates employed by the Company's Puerto Rican Subsidiaries are
not eligible for membership hereunder. If any such Associate has
Accounts in this Plan, such Accounts shall continue to be revalued as
of each succeeding Valuation Date pursuant to Section 6.04.
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<PAGE> 15
2.02 RE-EMPLOYMENT. A former Member who has retired or has otherwise
terminated employment and is rehired shall become a Member on the first day of
the calendar month after the Employer becomes aware of his rehire.
10
<PAGE> 16
SECTION 3
COMPANY CONTRIBUTIONS
3.01 AMOUNT OF COMPANY PROFIT SHARING CONTRIBUTION. The Company or an
Employer may contribute to the Trust, as of the end of each Plan Year, a
percentage of the Company's Net Profits as a Company Profit Sharing
Contribution. The amount of such contribution, if any, shall be determined by
the Board of Directors in its discretion. Any such contribution shall be made as
soon as practicable after the close of the Company's Fiscal Year. All such
contributions advanced to the Plan by the Company shall be reimbursed to the
Company by the Employer.
3.02 AMOUNT OF COMPANY MATCHING CONTRIBUTION. The Company shall, in its
discretion, contribute to the Trust, as of the end of each Plan Year, a total
combined amount as to this Plan and the Payless ShoeSource, Inc. Profit Sharing
Plan for Puerto Rico Associates ("Puerto Rico Plan") equal to 2 1/2% of its Net
Profits, until determined otherwise by the Board of Directors, in the form of a
Company Matching Contribution. Such contribution may be made by an Employer,
rather than by the Company, as to that Employer's participating Associates. The
total amount of such contribution shall be allocated in proportion to the amount
that each Member's Contributions under Sections 4.01(a) and (b) for such Plan
Year, up to a total of 5% of such Member's Pay, bears to the total amount of all
Member Contributions up to 5% of such Members' Pay. Such Company Matching
Contribution shall be determined and paid to the Trustee as soon as practicable
after the close of each Fiscal Year.
3.03 ALLOCATION OF COMPANY CONTRIBUTIONS. The Company Contributions shall
be allocated only to the Company Accounts of Members who are employed by the
Employer on the last day of the Plan Year and on behalf of Members whose
employment has terminated during the Plan Year by reason of Retirement, death or
Disability. Company Profit Sharing Contributions shall be credited to eligible
Members' Company Profit Sharing Contribution Accounts. Company Profit Sharing
Contributions allocated prior to or as of July 31, 1997 shall be fully vested;
Company Profit Sharing Contributions allocated thereafter shall be subject to
the vesting provisions of Section 6.07. Company Matching Contributions shall be
subject to the vesting provisions of Section 6.07 and to the withdrawal penalty
provisions of Section 8.02(a). No Company Matching Contribution shall be made
with respect to a Member Before-Tax Contribution in excess of the Code Section
402(g) limit, as revised from time to time.
3.04 PROFIT SHARING ALLOCATION FORMULA. The Company Profit Sharing
Contribution, if any, shall be allocated to all Members eligible to share in the
contribution according to the ratio that each Member's Allocation Pay Amount for
the Plan Year bears to the total Allocation Pay Amount for all eligible Members
for the Plan Year. For this purpose the term eligible Members includes Members
in both the Puerto Rico Plan and this Plan.
3.05 INVESTMENT OF THE COMPANY CONTRIBUTION. The amounts allocated to each
Member pursuant to Section 3.03 shall be credited to his Company Accounts and
invested in one or more of the Investment Funds described in Section 5.01 and in
the percentages designated by
11
<PAGE> 17
the Member in the investment election filed pursuant to Section 5.02 effective
at the time the amount is allocated.
3.06 RETURN OF COMPANY CONTRIBUTIONS.
(a) If, after the Company Contribution has been made and allocated, it
should appear that, through oversight or a mistake of fact or law, a
Member (or an Associate who should have been considered a Member) who
should have been entitled to share in such contribution, receives no
allocation or receives an allocation which was less than he should
have received, the Company may, at its election and in lieu of
reallocating such contribution, make a special make-up contribution
for the Company Account of such Member in an amount sufficient to
provide for him the same addition to his Company Account as he should
have received. Similarly, if a Member received an allocation which was
more than he should have received (or an Associate was inappropriately
included in the Plan), the Company, at its election, may reallocate
such contribution, offset other Company contributions against such
allocation, or use such allocation to pay Plan expenses.
(b) Each contribution made to the Trust shall be made on the condition
that it is currently deductible by the Company or Employer under Code
Section 404 for the taxable year with respect to which the
contribution is made. If a contribution subsequently is determined,
whether in whole or in part, not to be currently deductible as
provided in the preceding sentence, then, within one year of the date
of disallowance of the deduction of such Company Contribution, an
amount equal to the disallowed deduction shall be returned to the
Company or Employer.
(c) Earnings attributable to a contribution that is returned pursuant
to Subsection (a) or (b) above shall not be withdrawn, but losses
attributable thereto shall reduce the amount returned to the Company
and/or Employer.
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<PAGE> 18
SECTION 4
MEMBER CONTRIBUTIONS
4.01 PROCEDURE FOR MAKING CONTRIBUTIONS.
(a) AFTER-TAX CONTRIBUTIONS. Subject to the limitations set forth in
Sections 4.02, 4.03 and 4.04, each Member may contribute to the Plan
an amount equal to not less than 1% nor more than 15% (in whole
percentage points) of his Pay as he shall have designated pursuant to
procedures established by the Company (which may establish lower
permissible After-Tax Contributions for Highly Compensated Employees);
provided, however, that a Member shall not contribute, or elect to
have contributed on his behalf, amounts with respect to Pay received
by him after the close of the calendar year during which his
employment terminates and further provided that any Before-Tax
Contributions made on behalf of the Member shall reduce, by the
percentage which he elects to have contributed pursuant to Section
4.01(b)(i), the percentage of Pay that the Member may contribute
pursuant to this Section 4.01(a).
(b) BEFORE-TAX CONTRIBUTIONS.
(i) Subject to the limitations set forth below, each Member may
elect that his Employer shall contribute directly to the Trust
Fund an amount equal to a whole percentage of his Pay, not less
than 1% nor greater than such percentage as may be determined
from time to time by the Company which amount shall be his
Before-Tax Contribution. The maximum Before-Tax Contribution by a
Member determined to be a Highly Compensated Employee under
Section 4.02, for the Plan Year in question, may be further
restricted or limited by the Company or Committee from time to
time.
(ii) Pursuant to Section 2.01(c), each eligible Member shall be
deemed to have elected to make a three percent (3%) Before-Tax
Contribution, unless the Member elects otherwise in accordance
with procedures established by the Committee.
(c) Notwithstanding any election in accordance with Section 4.01(b),
if the Committee at any time determines that all or any portion of the
Member's Before-Tax Contributions should be treated as After-Tax
Contributions in order for the Before-Tax Contribution provisions of
the Plan to qualify as a "qualified cash or deferred arrangement" for
purposes of Code Section 401(k), or if the Actual Deferral Percentage
standards set forth in Code Section 401(k)(3) are not met at the end
of the Plan Year, then the Committee, in its sole and absolute
discretion,
(i) may, in accordance with Section 4.02 below, limit the amount
which shall be contributed by the Employer as Before-Tax
Contributions after the date of such determination on behalf of
all or any portion of the Members and,
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<PAGE> 19
(ii) may, except with respect to situations in which Section
4.01(h) applies, (and prior to March 15 of the calendar year
following the Plan Year in which such contributions are made)
declare all or such portion of the Before-Tax Contributions
theretofore or thereafter made on behalf of all or a portion of
the Members to be After-Tax Contributions.
(d) The Employer shall (i) deduct a Member's After-Tax Contributions
from the Pay of the Member in such installments as the Employer may
deem appropriate, (ii) contribute a Member's Before-Tax Contributions
on behalf of the Member, and (iii) reduce the Pay that is paid to the
Member directly in cash by an amount equal to the Member's Before-Tax
Contributions in such installments as the Employer shall deem
appropriate. The amounts so deducted and so contributed shall be paid
by the Employer to the Trustee not later than 15 days following the
end of the month with respect to which such amounts are to be so
deducted and contributed or within such shorter period of time as may
be designated under the Code, ERISA or related regulations. The
Employer may, from time to time, make estimated contribution payments
to the Trustee during each month.
(e) Effective with the first payroll period beginning in any calendar
month, or as of such other effective time as may be determined by the
Committee, a Member may elect to change the rate of his After-Tax
Contributions to any other rate permitted by Subsection (a) of this
Section 4.01 and may elect to change the amount to be contributed by
the Employer directly to the Trust Fund as Before-Tax Contributions to
an amount equal to an amount permitted by Subsection (b) of this
Section 4.01 with respect to such contributions to be made after the
effective date of the election, pursuant to procedures established by
the Committee.
(f) Not later than 15 days prior to the beginning of a payroll period
of a Member, or not later than such other date as may be determined by
the Committee, such Member may elect, pursuant to procedures
established by the Committee, (i) to suspend making After-Tax
Contributions and (ii) that the Employer should suspend making
Before-Tax Contributions on his behalf, all as of the beginning of
such payroll period. Not later than 15 days prior to the beginning of
a payroll period of a Member, or not later than such other date as may
be determined by the Committee, such Member may elect (i) to resume
making After-Tax Contributions and, (ii) that the Employer shall
resume making Before-Tax Contributions on his behalf, by indicating
any amount of contributions permitted under Subsection (a) and
designating an amount equal to any amount of Pay as Before-Tax
Contributions that is permitted under Subsection (b) hereof.
(g) Contributions pursuant to this Section 4.01 shall be credited to
Member Accounts.
(h) Notwithstanding any election in accordance with Subsection (b),
the total amount of a Member's Before-Tax Contributions and other
contributions made by the Member under Code Section 401(k) to another
plan qualified under Code Section 401(a) for any calendar year shall
not exceed $10,500 (as adjusted from time to time by the Secretary of
the Treasury or his delegate, pursuant to Code Section 415(d)). If any
Member may reach the $10,500 limit (as adjusted) the Committee can
direct that all or any portion of such
14
<PAGE> 20
Member's Contributions during such year shall be After-Tax
Contributions regardless of such Member's elections pursuant to
Sections 4.01(a) and 4.01(b).
(i) As of April 1, 2000, all then currently existing flat dollar
Member Contributions shall be converted to Member Contributions based
on 1% increments calculated by dividing such flat dollar amount by the
Member's Pay for the prior year and rounding the product to the
nearest whole percent; provided that no flat dollar contribution shall
be converted to a percent contribution of less than 1%.
(j) Notwithstanding this Section 4.01, effective March 20, 2000,
during the black out period as determined by the Committee and the
Trustee established to change to daily valuation or a change in
recordkeepers, no contribution rate changes or suspensions may be made
by a Member except as provided by the Committee.
4.02 LIMITATIONS ON AND DISTRIBUTIONS OF BEFORE-TAX CONTRIBUTIONS FOR
HIGHLY COMPENSATED EMPLOYEES.
The Committee is authorized to reduce to the extent necessary the
maximum contributions under Section 4.01(b) for Highly Compensated
Employees prior to the close of the Plan Year if the Committee
reasonably believes that the reduction is necessary to prevent the
Plan from failing Code Section 401(k)(3). Such adjustments shall be
made in accordance with rules prescribed by the Employer.
If the Plan fails to satisfy Code Section 401(k)(3), the Plan
shall correct the failure within 12 months after the last day of such
Plan Year under any method of combination of methods allowed under
Code Section 401(k)(8) or Treasury Regulation Section 1.401(k)-1(f),
taking into account any adjustments necessary due to changes to Code
Section 401(k)(8)(C) that are reflected in the regulations. For
purposes of this Section 4.01, the actual deferral percentage of
Non-Highly Compensated Employees shall be determined as of the
Plan Year for which the Plan must satisfy one of the tests in Code
Section 401(k)(3), unless the Employer elects to determine such actual
deferral percentage as of the Plan Year preceding the Plan Year for
which the Plan must satisfy one of the tests in Code Section
401(k)(3). Any such election shall not be changed except as provided
by the Secretary of the Treasury.
4.03 DISTRIBUTIONS OF EXCESS DEFERRALS.
(a) Notwithstanding any other provision of the Plan, Excess Before-Tax
Deferrals (as hereinafter defined) and earnings allocable thereto as
determined pursuant to such rules and regulations as are prescribed by
the Internal Revenue Service, shall be distributed no later than April
15 to Members who claim such allocable Excess Before-Tax Amounts
(which shall be the "Excess Before-Tax Deferrals" plus earnings, if
any) for the preceding calendar year.
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<PAGE> 21
(b) For purposes of this Section 4.03, "Excess Before-Tax Deferral"
means the amount of elective deferrals (within the meaning of Code
Section 402(g)(3)) which is a Member Contribution under Section 4.01
for a calendar year that the Member allocates to this Plan pursuant to
the claim procedure set forth in subsection 4.03(c) hereof.
(c) The Member's claim shall be in writing; shall be submitted to the
Committee no later than March 1; shall specify the amount of the
Member's Excess Before-Tax Deferral for the preceding calendar year;
and shall be accompanied by the Member's written statement that if
such amounts are not distributed, the Excess Before-Tax Deferrals,
when added to amounts deferred under other plans or arrangements
described in Code Sections 401(k), 408(k) or 403(b), exceeds the limit
imposed on the Member in accordance with the applicable provisions of
the Code for the year in which the deferral occurred.
(d) Notwithstanding any provision of Sections 3 or 4 to the contrary,
any Company Matching Allocation which would have been attributable to
an Excess Before-Tax Deferral distributed to a Member under Section
4.02(a) shall not be retained or distributed, but shall be held
unallocated in a suspense account and, as of the end of the Plan Year,
forfeited and added to and allocated with Company Contributions in the
next following Plan Year.
4.04 LIMITATIONS ON AND DISTRIBUTIONS OF AFTER-TAX EMPLOYEE CONTRIBUTIONS
AND MATCHING CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES .
The Committee is authorized to reduce to the extent necessary the maximum
amount of Employee After-Tax Contributions and Employer Matching Contributions
under Sections 4.01(a) and 3.02 contributed on behalf of any Highly Compensated
Employee prior to the close of the Plan Year if the Committee reasonably
believes that such adjustment is necessary to prevent the Plan from failing Code
Section 401(m)(2). Such reduction shall be made in accordance with rules
prescribed by the Employer.
If the Plan fails to satisfy Code Section 401(m)(2), the Plan shall correct
the failure within 12 months after the last day of such Plan Year under any
method or combination of methods allowed under Treasury Regulation
1.401(m)-1(e), taking into account any adjustments necessary due to changes to
Code Section 401(m)(6)(c) that are not reflected in the regulations. For
purposes of this Section 4.04, the actual contribution percentage of Non-Highly
Compensated Employees shall be determined as of the Plan Year for which the Plan
must satisfy one of the tests in Code Section 401(m)(2), unless the Employer
elects to determine such actual contribution percentage as of the Plan Year
preceding the Plan Year for which the Plan must satisfy one of the tests in Code
Section 401(m)(2). Any such election shall not be changed except as provided by
the Secretary of the Treasury.
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<PAGE> 22
4.05 LIMITATIONS ON MULTIPLE USE OF ALTERNATIVE LIMITATION.
(a) Determination of Multiple Use.
The Committee will determine whether or not multiple use of
the alternative limitation has occurred. Such determination will
be made in accordance with Section 401(m)(9) of the Code.
(b) Correction Of Multiple Use.
If a multiple use of the alternative limitation occurs, the
Committee shall correct such multiple use by reducing the actual
contribution percentages of Highly Compensated Employees in the
manner set forth in Section 4 so that there is no multiple use of
the alternative limitation.
(c) Special Definitions.
All terms used in this Section 4 shall have the meaning
given such terms in Code Sections 401(k) and 401(m) and the
regulations thereunder.
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<PAGE> 23
SECTION 5
INVESTMENT PROVISIONS
5.01 INVESTMENT FUNDS.
(a) There shall be established as part of the Trust Fund a reasonable range
of investment options. The Committee may from time to time, in its
discretion, change, delete or add Investment Funds available within the
Trust Fund; provided that unless and until the Plan is amended accordingly,
the Plan shall continue to provide a Payless Common Stock Fund as an
investment option.
(b) Income from and proceeds of sales of investments in each Investment
Fund shall be reinvested in the same Investment Fund. Any income or other
taxes payable with respect to a Fund shall be charged to such Fund.
(c) A Trustee may, from time to time, make temporary investments in short
term obligations of the United States Government, commercial paper, or
other investments of a short term nature, pending investment in an
Investment Fund.
5.02 INVESTMENT DIRECTION.
(a) A Member may elect that his Member Contributions be invested in 1%
increments totaling 100% in one or more of the Investment Funds. Such
election must be made pursuant to procedures prescribed by the Committee.
Such election shall be effective until and unless a Member makes a
different election for any period, but only as provided for under
Subsection 5.02(b) and Subsection 5.02(c). If the Member fails to file a
timely initial investment election, he shall be deemed to have elected to
have 100% of his Member Contributions invested in the stable, fixed income
investment as may be determined by the Committee. Until such time as the
Committee determines otherwise and so notifies Members, a Member's share of
any Company Contributions, when allocated as of Plan Year-end, shall be
invested in the same Investment Funds in the same proportions as the Member
has elected in connection with investment of his Member Contributions at
the time the Company Contribution is contributed to the Trust.
(b) A Member may change his election with respect to future Member and
Company Contributions effective pursuant to procedures prescribed by the
Committee and may not change his election in any other manner except as
provided in Subsection 5.02(c).
(c) Effective as of the date determined by the Committee, and pursuant to
procedures prescribed by the Committee, a Member may elect to have any or
all of the value in any of the Investment Funds which are credited to his
Member and/or Company Accounts transferred and invested in any one or more
of the Investment Funds.
(d) Notwithstanding this Section 5.02, effective March 20, 2000, during the
black out period as determined by the Committee and the Trustee established
to change to daily
18
<PAGE> 24
valuation or a change in recordkeepers, no investment transfers or changes
may be made by a Member unless provided in Section 6.06. Notwithstanding
anything to the contrary, no loans, withdrawals or distributions shall be
made during any such blackout period except as provided by the Committee.
19
<PAGE> 25
SECTION 6
ACCOUNTS
6.01 MEMBER ACCOUNTS. The Committee shall maintain or cause to be
maintained for each Member under each Investment Fund in which his Member
Contributions are invested separate Member Accounts which shall reflect the
portion of his interest in such Investment Fund which is attributable to his
contributions. The Member's After-Tax Contributions shall be credited to a
separate Member After-Tax Account. The Member's Before-Tax Contributions shall
be credited to a separate Member Before-Tax Account. The Member's or Associate's
Rollover Contribution shall be credited to a separate Member Rollover
Contribution Account.
6.02 COMPANY ACCOUNTS. The Committee shall maintain or cause to be
maintained for each Member under each Investment Fund in which his Company
Contributions are invested separate Company Accounts which shall reflect the
portion of his interest in such Investment Fund which is attributable to Company
Contributions, as well as to contributions made by an Employer under prior plans
and to any income or earnings attributable to such Company Contributions and
prior plan contributions. The Member's Company Matching Contributions shall be
credited to a separate Company Matching Contribution Account. The Member's
Company Profit Sharing Contribution, if any, shall be credited to a separate
Company Profit Sharing Contribution Account.
6.03 MAINTENANCE OF ACCOUNTS. For the purposes of maintaining Accounts
pursuant to this Section 6, each Investment Fund shall be divided into Units,
and the Interest of each Member in such Investment Fund shall be evidenced by
the number of Units in such Investment Fund credited to his Accounts.
6.04 VALUATION OF ACCOUNTS. As of each Valuation Date the Committee
shall determine the value of a Unit in each Account by dividing the current
market value of all property in each such Account as of such Valuation Date
(after deducting any expenses or other amounts including withdrawals properly
chargeable against such Account) by the number of Units then outstanding to the
credit of all Members in each such Account.
6.05 MEMBER STATEMENTS. The Committee shall furnish or cause to be
furnished to each Member a statement of his Company and Member Accounts, at
least once each year, or more frequently if required by applicable law.
6.06 SHARES OF PAYLESS SHOESOURCE, INC. ("PAYLESS STOCK") IN THE PAYLESS
COMMON STOCK FUND.
(a) Each Member (or beneficiary of a deceased Member) who has Accounts
invested in the Payless Common Stock Fund shall, as a named fiduciary
within the meaning of Section 403(a)(1) of ERISA, have the right to direct
the Trustee with respect to the vote of the number of shares of Payless
Stock attributable to Units credited to him in the Payless Common Stock
Fund as of the latest practicable Valuation Date prior to or
contemporaneous with the record date set by the Company for each meeting of
20
<PAGE> 26
shareowners of the Company. For such purpose the Trustee shall furnish to
each such Member prior to each such meeting the proxy statement for such
meeting, together with a form to be returned to the Trustee on which may be
set forth the Member's instructions as to the manner of voting such shares
of stock. Upon receipt of such instructions, the Trustee shall vote such
shares in accordance therewith. If a Member's instructions are not received
by the Trustee in a timely manner, the Trustee shall vote such Member's
shares in the same proportion as the shares of Common Stock for which
instructions were actually timely received from Members. The Trustee shall
not divulge the instructions of any Member.
(b) Each Member (or beneficiary of a deceased Member) who has Accounts
invested in the Payless Common Stock Fund shall, as a named fiduciary
within the meaning of Section 403(a)(1) of ERISA, have the right with
respect to the number of shares of Payless Stock attributable to Units
credited to him in the Payless Common Stock Fund as of the latest
practicable Valuation Date, to direct the Trustee in writing as to the
manner in which to respond to a tender or exchange offer with respect to
Payless Stock, and the Trustee shall respond in accordance with the
instructions so received. The Trustee shall utilize its best efforts to
timely distribute or cause to be distributed to each Member such
information as will be distributed to shareowners of the Company in
connection with any such tender or exchange offer, together with a form
requesting instructions on whether or not such shares will be tendered or
exchanged. If the Trustee shall not receive timely direction from a Member
as to the manner in which to respond to such a tender or exchange offer,
the Trustee shall not tender or exchange any shares of Payless Stock with
respect to which such Member has the right of direction. Tenders as a
result of a self-tender offer by the Company shall continue notwithstanding
any investment change blackout. The Trustee shall not divulge the
instructions of any member. The proceeds from the tender or exchange of
shares attributable to Units in Payless Common Stock Investment Fund
accounts of Members shall be transferred to one of the Investment Funds
described in Section 5.01 pursuant to a procedure established by the
Committee.
6.07 VESTING IN MEMBER AND COMPANY ACCOUNTS.
(a) VESTING SCHEDULE. A Member shall have a fully vested interest at all
times (i) in his Member Accounts and (ii) in his Company Profit Sharing
Contribution Account balance determined as of July 31, 1997. A Member who
has completed at least two full Years of Service as of August 1, 1997 also
shall be fully vested at all times (i) in his Company Matching Contribution
Account and (ii) in his Company Profit Sharing Contribution Account
determined at any time after July 31, 1997. The Company Matching
Contribution Account of a Member who is not or was not credited with at
least two Years of Service as of August 1, 1997 and his Company Profit
Sharing Contribution Account attributable to Company Profit Sharing
Contributions, if any, based on such Member's eligibility for such
contributions after August 1, 1997, shall vest according to the following
schedule:
21
<PAGE> 27
<TABLE>
<CAPTION>
Vesting Service Vested Interest
<S> <C> <C>
Fewer than 2 years 0%
2 years 25%
3 years 50%
4 years 75%
5 years or more 100%
</TABLE>
Notwithstanding the foregoing, a Member's interest in his Company
Matching Contribution Account and his Company Profit Sharing Contribution
Account shall become fully vested if the Member terminates employment on
account of Retirement, death or Disability.
(b) CASH-OUT DISTRIBUTIONS TO PARTIALLY VESTED MEMBERS AND RESTORATION OF
FORFEITURES. If, pursuant to Section 10.01, a partially-vested Member
receives a cash-out distribution before he incurs a Forfeiture Break in
Service (as defined in Subsection (e) below), the cash-out distribution
will result in an immediate forfeiture of the nonvested portion(s) of the
Member's Company Matching and Company Profit Sharing Contribution
Account(s). See Subsection (e) below. A partially-vested Member is a Member
whose Vested Interest, determined under Section 6.07(a), in either his
Company Matching Contribution Account or his Company Profit Sharing
Contribution Account, or both, is less than 100%. A cash-out distribution
is a distribution of the entire vested portion of the Member's Account(s).
(i) A partially-vested Member who is reemployed by an Employer after
receiving a cash-out distribution of the vested portion of his
Account(s) shall have such forfeited amount restored, unless the
Member no longer has a right to restoration under this subparagraph
(i). The amount restored by the Plan Administrator shall be the same
dollar amount as the dollar amount of his Account(s) on the Valuation
Date immediately preceding the date of the cash-out distribution,
unadjusted for any gains or losses occurring subsequent to that
Valuation Date but reduced by the amount of the prior cash-out
distribution. Restoration of the Member's Account balance(s) includes
restoration of all Code Section 411(d)(6) protected benefits with
respect to the restored Account(s) in accordance with applicable
Treasury regulations. The Plan Administrator will not restore a
reemployed Member's Account balance(s) under this subparagraph (i) if
the Member has incurred a Forfeiture Break in Service (as defined in
Subsection (d) below).
(ii) If restoration of the Member's Account(s) is permitted under
subparagraph (i) above, the Plan Administrator will restore the
Member's Account(s) on the same day as the date of allocation of the
Company Contribution for the Plan Year during which such Member was
reemployed by an Employer. To restore the Member's Account(s), the
Plan Administrator, to the extent necessary, will allocate to the
Member's Account(s):
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<PAGE> 28
(A) first, the amount, if any, of Member forfeitures otherwise
available for allocation under Subsection (f) below;
(B) second, deductible Employer contributions for the Plan Year
to the extent made under a discretionary formula; and
(C) third, as otherwise permitted by law.
The Plan Administrator will not take into account any allocation under this
Subsection (b) in applying the limitation on allocations under Section 13.
(iii) The deemed cash-out rule applies to a 0% vested Member. A 0%
vested Member is a Member whose Account(s) derived from Employer
contributions is (are) entirely forfeitable at the time of his
termination of employment. Under the deemed cash-out rule, the Plan
Administrator will treat the 0% vested Member as having received a
cash-out distribution on the date of the Member's termination of
employment or, if the Member's Account(s) is (are) entitled to an
allocation of Employer contributions for the Plan Year in which he
terminates employment, on the last day of that Plan Year.
(c) DETERMINATION OF VESTING SERVICE. For purposes of determining a
Member's Vested Interest in his Company Contributions Account(s) under
Subsection (a) above, a Member shall be credited with that number of years
of Vesting Service determined by adding together all of the Associates's
Periods of Service, whether or not consecutive. Notwithstanding the
foregoing, Vesting Service shall not include any Period of Service before
the Plan Year in which an Associate attains age eighteen (18). Only whole
years of service shall be taken into account for purposes of applying the
schedule set forth in Subsection (a) above, and, for purposes of
determining a Member's number of whole years of service, non-successive
Periods of Service must be aggregated, with 365 days of service being
deemed to constitute one year. For purposes of determining a Member's
Period of Service, the Service Spanning rules described in Section 1.51(g)
shall apply.
(d) FORFEITURE BREAK IN SERVICE. For purposes of this Section 6.07, a
"Break in Service" is a Period of Severance of at least 365 consecutive
days. A "Forfeiture Break in Service" occurs when a Member or former Member
incurs 5 consecutive Breaks in Service.
(e) FORFEITURE OCCURS. A Member's forfeiture, if any, of his Account
balance(s) derived from Company contributions occurs under the Plan on the
earlier of:
(i) the last day of the last pay period ending within the Plan Year in
which the Member first incurs a Forfeiture Break in Service; or
(ii) the date the Member receives a cash-out distribution.
The Plan Administrator shall determine the percentage of a Member's
Account(s) forfeiture, if any, under this Subsection (e) solely by
reference to the vesting schedule of
23
<PAGE> 29
Section 6.07(a). As of the last day of each Plan Year, the total amount of
forfeitures which occurred during such Plan Year shall be calculated and
such amount shall be applied (i) to restore under (b) above any amounts
previously forfeited from rehired Members' Accounts, (ii) to pay
Administrative Expenses under Section 7.01 and (iii) the balance, if any,
shall be added to and allocated with the Company Matching Contribution for
that Plan Year.
(f) FORMER MAY PLAN MEMBERS. The provisions of this Subsection (f) apply to
a Member who previously was employed by the Employer, when it was part of
the Group which included The May Department Stores Company, and who at the
termination of his employment had Company Accounts in the May Plan which
were forfeited as a result of termination of employment. If such Member has
not incurred five consecutive Breaks in Service as defined in Section
6.07(b), the value of the Member's Company Account forfeited under the May
Plan will be restored under this Plan (in the manner described in
Subsection (b) above) and will be 100% vested.
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SECTION 7
EXPENSES
7.01 ADMINISTRATIVE EXPENSES. To the extent permitted by applicable law,
the costs and expenses for administering this Plan, consisting of Trustee fees
and expenses, Investment Manager fees and expenses, fees and expenses of outside
experts, expenses of maintaining records under Section 6 of the Plan, and all
other administrative expenses of the Plan, shall be paid out of the Trust Fund
unless the Company elects to pay them with its own funds. Costs incident to the
purchase and sale of securities, such as brokerage fees, commissions and stock
transfer fees, are not regarded as administrative expenses and shall be borne by
the appropriate Investment Fund as determined by the Trustee or Committee.
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SECTION 8
WITHDRAWALS DURING EMPLOYMENT
8.01 WITHDRAWALS PROHIBITED UNLESS SPECIFICALLY AUTHORIZED. No withdrawal
from the Plan shall be permitted prior to a Member's termination of employment,
except as provided in Section 8.02.
8.02 AUTHORIZED WITHDRAWALS.
(a) Prior to his termination of employment, a Member may elect to withdraw,
in cash, any or all of the value in his Member After-Tax Accounts. However, in
the event a Member elects to withdraw all or a portion of his After-Tax
Contributions made after August 1, 1997, such Member shall forfeit his right to
fifty percent (50%) of the Company Matching Contribution, if any, otherwise
allocable in connection with his Member Contributions for the Plan Year in which
the withdrawal occurs.
(b) Prior to his termination of employment, a Member may elect to withdraw,
in the event of a "hardship", an amount in cash up to (i) the total amount of
the Before-Tax Contributions made to the Trust on his behalf, or (ii) the value
in his Member Before-Tax Account, whichever is less. In any event the amount
withdrawn may not be greater than the amount determined by the Committee as
being required to meet the immediate financial need created by the "hardship"
and not reasonably available from other resources of the Member, whichever
amount is less. The term "hardship" means a heavy financial hardship in light of
immediate and heavy financial needs as determined by the Committee in accordance
with Internal Revenue Service regulations. The amount of an immediate and heavy
financial need may include any amounts necessary to pay any federal, state or
local taxes or penalties reasonably anticipated to result from the distribution.
The determination shall be made in a nondiscriminatory manner. Hardship shall
include but not be limited to the following:
(i) Medical expenses described in Code Section 213(d) previously
incurred by the Member, the Member's spouse, or any of the Member's
dependents (as defined in Code Section 125) or necessary for these
persons to obtain medical care described in Section 213(d);
(ii) Purchase (excluding mortgage payments) of a principal residence
for the Member;
(iii) Payment of tuition, related educational fees, and room and board
expenses for the next 12 months of post-secondary education for the
Member, his or her spouse, children, or dependents (as defined in Code
Section 152);
(iv) The need to prevent the eviction of the Member from his or her
principal residence or foreclosure on the mortgage of the Member's
principal residence.
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The Committee may adopt written guidelines which identify additional
circumstances constituting hardship and which provide procedures to be followed
in the administration of hardship withdrawal requests, which guidelines are
hereby incorporated herein.
In addition, such hardship must be one which in the judgment of the
Committee, based on the Member's representations, cannot be relieved (1) through
reimbursement or compensation by insurance or otherwise, (2) by reasonable
liquidation of the Member's assets to the extent such liquidation would not
itself cause an immediate and heavy financial need, (3) by cessation of Member
Contributions under the Plan, (4) by other distributions or loans from employee
benefit plans, including this Plan, maintained by the Company or any other
employer or (5) by borrowing from commercial sources on reasonable commercial
terms. The Member shall be required to submit documentation, to be determined by
the Committee, with his hardship withdrawal request to enable the Committee to
make a judgment regarding the validity of such hardship withdrawal request. For
any Member who has attained age 59 1/2, the "hardship" requirement shall be
deemed waived.
(c) A Member who was a Participant in or eligible to be a Participant in
the Volume Shoe Corporation Profit Sharing Plan (the "Volume Plan") as of
December 31, 1988 and who had an account balance in the Volume Plan attributable
to Employer Contributions made to the Volume Plan before July 31, 1976 and which
account became a Company Account under The May Department Stores Company Profit
Sharing Plan and which has been transferred to this Plan, shall be entitled to
withdraw the market value of such account balance determined (and frozen) as of
December 31, 1988.
(d) Associates with Member Rollover Contribution Accounts may elect to
withdraw their Member Rollover Contribution Accounts prior to termination of
employment.
(e) A withdrawal election shall be made pursuant to application procedures
established by the Committee. For any withdrawal under this Section 8.02, if the
amount which may be withdrawn exceeds $100, the Member may not withdraw less
than $100, and if the amount which may be withdrawn is less than $100, the
Member shall be required to withdraw all of such amount. Contribution totals and
Account values shall be determined as of the Valuation Date coinciding with or
next following the filing of the withdrawal election. If the Member Accounts
from which withdrawal is made are in more than one Investment Fund, the
withdrawal shall be pro rata from each such Investment Fund except in the case
the Member is subject to Section 16 of the Securities Exchange Act of 1934 or
has been designated as a "Designated Insider," in which case such Member's
withdrawal will be taken first from such Member's Investment Funds other than
the Payless Common Stock Fund.
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SECTION 9
BENEFITS UPON RETIREMENT, DEATH, DISABILITY OR TERMINATION OF EMPLOYMENT
9.01 BENEFITS. Upon a Member's Retirement, death, Disability, or other
termination of employment, the value of his Member Accounts and of his vested
Company Accounts shall be determined as of the Valuation Date prior to the date
the distribution is calculated. A temporary Authorized Leave of Absence for
Military Service or for other purposes approved by the Employer shall not, while
any such Authorized Leave of Absence is validly in effect, be regarded as a
termination of employment.
9.02 BENEFICIARY. Any benefits payable on account of a Member's death shall
be paid to such Member's spouse. If such Member has no spouse or if such
Member's spouse shall have consented to the naming of another beneficiary, such
benefits shall be paid to the person or persons (including, without limitation,
estates, trust, or other entities) last named as beneficiary by such Member on
an appropriate form filed with the Committee. A spouse's consent shall
acknowledge the effect of the consent and be in writing, witnessed by a Plan
representative or notary public. A spouse's consent shall be irrevocable. If no
beneficiary has been so named or the named beneficiary does not survive the
Member, any payment to be made under this Plan on account of a Member's death
shall be paid to such Member's spouse, or, if he has no spouse, to such Member's
estate. Whenever permitted by the Code or regulations thereunder, the Committee
may waive the requirements that a spouse's consent be obtained. Such waiver may
be on a case by case basis or by categories.
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SECTION 10
PAYMENT OF BENEFITS
10.01 TIME OF PAYMENT.
(a) All amounts distributable to a Member or Beneficiary pursuant to
Section 9 shall, unless the Member makes an approved election pursuant to
Section 10.01(b) or 10.01(c), be paid in a lump sum payment to be made as
soon as practicable after the Valuation Date as of which the Account values
are determined pursuant to Section 9.01; provided, however, that any
additional amounts which may be allocated to a Member's Company Accounts
resulting from a Company Contribution in respect of the calendar year in
which employment terminates shall be paid as soon as practicable after such
contribution.
Notwithstanding any provision of this Section 10 to the contrary, if
the present value of the nonforfeitable accrued benefit of a Member,
including Company and Member Contributions (but excluding accumulated
deductible employee contribution, if any) exceeds (or for distributions
made prior to March 22, 1999, ever has exceeded) $5,000, no partial or
total distribution shall be made unless the Member has consented thereto in
writing in the manner required by law.
(b) A Member who was a Member of the May Plan as of June 30, 1990 may elect
that all Transferred Accounts distributable to him pursuant to Section 9
shall be paid in annual installments over a period not to exceed ten years
beginning with the Valuation Date as of which the lump sum payment would
otherwise be made. In the event of the death of a Member prior to the
expiration of such period, all amounts which have not been distributed to
him shall be paid in a lump sum to his designated Beneficiary or his estate
if there is no designated Beneficiary. Subject to the foregoing, each such
installment shall be paid as of a Valuation Date and, until all the
Accounts of the Member have been fully distributed, they shall continue to
be revalued as of each succeeding Valuation Date pursuant to Section 6.04.
Notwithstanding the paragraph above, a Member who as of December 31,
1988 was or was entitled to be a Participant in the Volume Shoe Corporation
Profit Sharing Plan may elect that all Transferred Accounts distributable
to him pursuant to Section 9 be paid in the form of equal monthly
installments over a period not to exceed 120 months. Such payments shall
otherwise be made in accordance with the foregoing portion of this
Subsection 10.01(b).
(c) A Member who is entitled to receive a distribution in excess of $5,000
may elect to defer such distribution to age 65. An election to defer
distribution shall conform to such requirements as to form, content,
manner, and timing as shall be determined by the Committee and which
requirements shall be applied in a manner which does not discriminate in
favor of Members who are highly compensated employees (within the meaning
of Code Section 414(q)). All Accounts of a Member who elects to defer his
distribution shall continue to be revalued as of each succeeding Valuation
Date pursuant to
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Section 6.04. A deferred distribution shall be paid when such Member
attains the age of 65 years or at such earlier or later time as shall be
determined by the Committee as permitted by law. In the event of the death
of a Member prior to distribution of the deferred amounts, all amounts
shall be distributed in a lump sum to his designated Beneficiary or to his
estate if there is no designated Beneficiary. The value for payment shall
be determined as of the Valuation Date coincident with or next following
such Member's 65th birthday or such other payment date determined by the
Committee.
10.02 FORM OF PAYMENT. All distributions shall be made in the form of cash,
except that distributions from the Payless Common Stock Fund shall be made in
the form of full shares of Payless Common Stock, as applicable (with payment in
cash for a fraction of a share) or in cash if elected by the Member or
Beneficiary. The rights extended to a Member hereunder shall also apply to any
Beneficiary or alternate payee of such Member.
10.03 INDIRECT PAYMENT OF BENEFITS. If any Member or Beneficiary has been
adjudged to be legally, physically or mentally incapable or incompetent, payment
may be made to the legal guardian or other legal representative of such Member
or Beneficiary as determined by the Committee. Such payments shall constitute a
full discharge with respect thereto.
10.04 INABILITY TO FIND MEMBER. If a Member or Beneficiary or other person
to whom a benefit payment is due cannot be found during the three years
subsequent to the date a distribution was required to be made under this Plan,
the Accounts shall be forfeited at the end of such three-year period. The value
of such Accounts as of the date the distribution was required to be made shall
be restored if such Member or Beneficiary or other person makes a claim.
10.05 COMMENCEMENT OF BENEFIT DISTRIBUTION TO MEMBERS. In accordance with
Code Section 401(a)(9) and Treasury Regulations promulgated thereunder,
distributions to a Member must commence not later than the first day of April
following the calendar year in which the Member attains age 70 1/2.
Notwithstanding the foregoing, distribution to a Member who is not a "five
percent owner" as defined in Section 20.10(f)(3) shall commence not later than
April 1 following the calendar year in which the Member attains age 70 1/2 or,
if later, the calendar year in which the Member retires.
10.06 COMMENCEMENT OF BENEFIT DISTRIBUTION TO BENEFICIARY. Distributions to
the Beneficiary entitled under Section 9.02 to receive any payments payable
under this Plan on account of a Member's death shall be made in a lump sum
payment not later than December 31 of the calendar year following the calendar
year in which the Member died.
10.07 COMMENCEMENT OF BENEFIT DISTRIBUTION TO ALTERNATE PAYEE.
Distributions to an alternate payee entitled under Section 16.01 to receive any
payments payable under this Plan pursuant to the terms of a Qualified Domestic
Relations Order shall be made in accordance with the terms of such Qualified
Domestic Relations Order and this Plan on or after the date on which the Member
has attained his "earliest retirement age" (as defined under Code Section
414(p)) under the Plan. Notwithstanding the foregoing, distribution to an
alternate payee may be made prior to the Member's attainment of his earliest
retirement age if, but only if: (1) the Qualified Domestic Relations Order
specifies distribution at that time or permits an agreement between the
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Plan and the alternate payee to authorize an earlier distribution; (2) the
distribution is a single sum distribution of the alternate payee's entire
benefit entitlement under the Plan; and (3) in the event the present value of
the alternate payee's benefits under the Plan exceeds $5,000, the alternate
payee consents to any distribution occurring prior to the Member's attainment of
earliest retirement age.
Nothing in this Section 10.07 shall be construed to permit a Member to (1)
receive a distribution at a time not otherwise permitted under the Plan, (2)
permit the alternate payee to receive a form of payment not otherwise permitted
under the Plan, or (3) cause his Plan accounts to be valued or otherwise
determined in a manner not otherwise permitted under the Plan.
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SECTION 11
PERMITTED ROLLOVER OF PLAN DISTRIBUTIONS
11.01 ROLLOVER TO OTHER PLANS. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and pursuant to procedures
prescribed by the Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. Such distribution may commence no less than
thirty (30) days nor more than ninety (90) after any notice required under
Treas. Reg. Section 1.411(a)-11(c) (or its successor) and explanation of his
right to rollover his distribution and tax explanation in accordance with
Internal Revenue Rules are given to a Member or other distributee, provided that
the Member has been clearly informed that he has a right to a period of at least
thirty (30) days after receiving said notice to consider the decision as to
whether to elect a distribution or, if applicable, a distribution option, and
the Member nevertheless affirmatively elects distribution preceding the
expiration of thirty (30) days.
11.02 ROLLOVER FROM OTHER PLANS. An Associate eligible to participate in
the Plan, regardless of whether he has satisfied the participation requirements
of Section 2.01, may transfer to the Plan an Eligible Rollover Distribution
provided that such distribution is from an Eligible Retirement Plan. If such
transfer is not a direct transfer, such a transfer may be made only if the
following conditions are met:
(a) the transfer occurs on or before the 60th day following the
Associate's receipt of the distribution from the Eligible Retirement
Plan; and
(b) The amount transferred is equal to any portion of the distribution
the Associate received from the Eligible Retirement Plan, not in
excess of the fair market value of all property received in such a
distribution reduced by employee contributions, as defined in Code
Section 402(a)(5)(E).
The Committee shall develop such procedures, and may require such
information, from a Member desiring to make such a transfer, as it
deems necessary or desirable to determine that the proposed transfer
will meet the requirements of the Section. Upon approval by the
Committee or its Administrative Delegate, the amount transferred shall
be deposited in the Trust Fund and shall be credited to the Member's
account. Such rollover amount shall be one hundred percent (100%)
vested in the Member, shall share in the income allocations in
accordance with Section 5, but shall not share in the Company Profit
Sharing Contributions, the Company Matching Contributions or the
forfeiture allocations. Upon termination of employment, the total
amount of the rollover contribution shall be distributed in accordance
with the terms of the Plan.
Upon such a transfer by an Associate who is otherwise eligible to
participate in the Plan but who has not yet completed the
participation requirement of Section 2.01,
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his rollover amount shall represent his sole interest in the Plan
until he becomes a Member.
11.03 DEFINITIONS. The following definitions shall apply for the purposes
of this Section 11:
(a) ELIGIBLE ROLLOVER DISTRIBUTION. An eligible rollover distribution is
any distribution of all or any portion of the balance to the credit of the
distributee as defined in Code Section 402(c), except that an eligible
rollover distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee and the
distributee's beneficiary or for a specified period of ten years or more;
any distribution to the extent such distribution is required under Code
Section 401(a)(9); the portion of any distribution that is not includable
in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities); and any
hardship distribution attributable to Before-Tax Contributions.
(b) ELIGIBLE RETIREMENT PLAN. An eligible retirement plan is an individual
retirement account described in Code Section 408(u), an individual
retirement annuity described in Code Section 408(b), an annuity plan
described in Code Section 403(a), or a qualified trust described in Code
Section 401(a), which accepts or will make, as applicable, an Eligible
Rollover Distribution. However, in the case of an Eligible Rollover
Distribution to a Member's surviving spouse, an eligible retirement plan is
an individual retirement account or individual retirement annuity.
(c) DISTRIBUTEE. A distributee includes a Member or former Member. In
addition, the Member or former Member's surviving spouse and the Member's
or former Member's spouse or former spouse who is the alternate payee under
a qualified domestic relations order, as defined in Code Section 414(p),
are distributees with regard to the interest of the spouse or former
spouse.
(d) DIRECT TRANSFER. A direct transfer is a payment by the Plan to the
eligible retirement plan specified by the distributee as described in Code
Section 401(a)(31).
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SECTION 12
LOANS
12.01 AVAILABILITY OF LOANS. Loans shall be permitted under this Plan as
established by the policy of the Committee. Any such loan shall be subject to
such conditions and limitations as the Committee deems necessary for
administrative convenience and to preserve the tax-qualified status of the Plan.
Loans are available to Associates who have a Member Rollover Contribution
Account.
12.02 AMOUNT OF LOANS. No loan to any Associate, Member or Beneficiary may
be made to the extent that such loan, when added to the outstanding balance of
all other loans to the Associate, Member or Beneficiary, would exceed the lesser
of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance
of loans during the one-year period ending on the day before the loan is made,
over the outstanding balance of loans from the Plan on the date the loan is
made, or (b) one-half the present value of the nonforfeitable accrued benefit of
the Participant. For the purpose of the above limitation, all loans from all
plans of the Employer and other members of a group of employers described in
Code Sections 414(b), 414(c), 414(m) and 414(o) are aggregated. Furthermore, any
loan shall by its terms require that repayment (principal and interest) be
amortized in level payments, not less frequently than quarterly, over a period
not extending beyond four and one-half years from the date of the loan. If such
loan is used to acquire a dwelling unit which within a reasonable time
(determined at the time the loan is made) will be used as the principal
residence of the Participant, the repayment period shall not extend beyond
twenty nine and one-half years from the date of the loan. An assignment or
pledge of any portion of the Participant's interest in the Plan and a loan,
pledge, or assignment with respect to any insurance contract purchased under the
Plan will be treated as a loan under this paragraph.
12.03 TERMS OF LOANS.
(a) Loans shall be made available to all Associates, Members and
Beneficiaries on a reasonably equivalent basis.
(b) Loans shall not be made available to Highly Compensated Employees (as
defined in Code Section 414(q)) in an amount greater than the amount made
available to other Employees.
(c) Loans must be adequately secured using not more than fifty percent
(50%) of the Member's Vested Account balance, and bear a reasonable
interest rate as determined from time to time by the Committee.
(d) An Associate or Member loan for less than $1,000 is not permitted;
provided, however, that if such Associate or Member also receives a loan
from the Puerto Rico Plan, such minimum amount limitation shall not apply.
(e) In the event of a default, foreclosure on the note and attachment of
security will not occur until a distributable event occurs under the Plan
with respect to the Member.
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(f) No loans will be made to any Associate or Member who on any day during
the Company's applicable fiscal year is a beneficial owner of more than
five percent (5%) of the outstanding stock of the Company.
(g) All loans shall be made pursuant to a written Member loan program
incorporated herein by reference.
(h) Loans are available from the following accounts, and will be withdrawn
from the Members accounts in the following hierarchy:
(a) Member Accounts
(b) Vested Company Accounts
(c) Member Rollover Contribution Accounts
(i) Loans will be taken and repaid from and to the Investment Funds on a
pro rata basis, except in the case the Member is subject to Section 16 of
the Securities Exchange Act of 1934 or has been designated as a "Designated
Insider," in which case such Member's loan will be taken first from such
Member's Investment Funds other than the Payless Common Stock Fund.
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SECTION 13
LIMIT ON CONTRIBUTIONS TO THE PLAN
This Section 13 is intended to conform the Plan to the requirements of Code
Section 415 and limits the contributions that can be made by and for an
individual under the Plan.
13.01 LIMIT ON CONTRIBUTIONS. Notwithstanding any provision of the Plan to
the contrary:
(a) The amounts allocated to a Participant during the Limitation Year under
the Plan and allocated to the Participant under any other defined
contribution plan to which the Employer or any other member of the Group
has contributed shall be proportionately reduced, to the extent necessary,
so that the Annual Addition does not exceed the least of:
(1) $30,000; or
(2) 25% of the Participant's remuneration from the Employer or any
member of the Group during the Limitation Year; or
(3) such other limits set forth in Code Section 415.
The amount set forth in subparagraph (1) above shall automatically be adjusted
to reflect adjustments made by applicable law. Remuneration for purposes of this
Section means remuneration as defined in Treasury Regulation Section 1.415-2(d)
and shall also include the deferrals described in Code Section 415(c)(3)(D).
(b) For purposes of this Section, Limitation Year means the 12 month
period commencing on January 1 and ending on December 31.
(c) For purposes of this Section, Annual Additions means the sum for
the Limitation Year of Employer contributions, Employee contributions
(determined without regard to any rollover contributions as defined in
Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3) and
without regard to Employee contributions to a simplified employee
pension plan which are excludible from gross income under 408(k)(6) of
the Code) and forfeitures.
13.02 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS.
(a) If, as a result of the allocation of forfeitures, a reasonable
error in estimating a Member's Pay or other facts and circumstances to
which Treasury Regulation Section 1.415-6(b)(6) shall be applicable,
the "annual additions" under this Plan would cause the maximum "annual
additions" to be exceeded for any Member, the Committee shall (1)
return any Member Contributions credited for the "limitation year" to
the extent that the return would reduce the "excess amount" in the
Member's Accounts, (2) hold any "excess amount" remaining after the
return of any member Contributions in a "Section 415 suspense
account", (3) use the "Section 415 suspense account" in the next
"limitation
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year" (and succeeding "limitation years" if necessary) to reduce
either Company Contributions for that Member if that Member is covered
by the Plan as of the end of the "limitation year" or if such Member
is not covered by the Plan at the end of the "limitation year" to
reduce Company Contributions for all Members in the Plan, before any
Company Contributions or Member Contributions which would constitute
"annual additions" are made to the Plan for such "limitation year,"
(4) reduce Company Contributions for such "limitation year" by the
amount of the "Section 415 suspense account" allocated and reallocated
during such "limitation year." For purposes of (3) above, the Plan may
not distribute "excess amounts" to Members or former Members.
(b) For purposes of this Section, "EXCESS AMOUNT" for any Member for a
"limitation year" shall mean the excess, if any, of (1) the "annual
additions" which would be credited to his account under the terms of
the Plan without regard to the limitations of Code Section 415 over
(2) the maximum "annual additions" determined pursuant to Section
13.01(a).
(c) For purposes of this Section, "SECTION 415 SUSPENSE ACCOUNT" shall
mean an unallocated account equal to the sum of "excess amount" for
all Members in the Plan during the "limitation year." The "Section 415
suspense account" shall not share in any earnings or losses of the
Trust Fund.
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SECTION 14
ADMINISTRATION OF THE PLAN
14.01 PLAN ADMINISTRATOR. The Company shall be the Plan Administrator of
the Plan for purposes of ERISA and shall be a "named fiduciary" as determined in
ERISA Section 402(a)(2).
14.02 DELEGATION OF AUTHORITY.
(a) Authority to administer the Plan has been delegated to the Committee
and the Administrative Subcommittee, if any, in accordance with Sections 1.42
(Total and Permanent Disability), 4.01 (Member Contributions), 6.01 (Member
Accounts), 6.02 (Company Accounts), 6.05 (Member Statements), 8.02 (Authorized
Withdrawals), 13.02 (Adjustment for Excessive Annual Additions), 20.02
(Withdrawal of an Employer) and this Section 14.
(b) Authority with respect to the Investment Funds of the Plan has been
delegated to the Trustee in accordance with Sections 7.01 (Administrative
Expenses), 5.01(c) (Investment Funds), 15 (Management of the Trust Fund) and
6.06 (shares of Payless ShoeSource, Inc. (Payless Stock) in the Payless Common
Stock Fund).
(c) Authority to direct the investment of the Plan's funds has been
delegated to the Investment Subcommittee, if any, in accordance with Section
15.03(b), (c) and (d) (Investments and Reinvestments).
(d) The Committee shall also have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary authority or
control, administrative functions within the frame work of policies,
interpretations, rules practices and procedures made by the Committee or other
Plan Fiduciary. Any action made or taken by the Administrative Delegate may be
appealed by an affected Member to the Committee in accordance with the claims
review procedure in Section 16.05. Any decisions which call for interpretations
of the Plan provisions not previously made by the Committee shall be made only
by the Committee. The Administrative Delegate shall not be considered a
fiduciary with respect to the services it provides.
14.03 COMMITTEE AND SUBCOMMITTEES.
(a) The Committee may appoint two subcommittees (an "Administrative
Subcommittee" and an "Investment Subcommittee"), each Subcommittee to consist of
at least three persons, who need not be members of the Board. The Committee and
each Subcommittee, if appointed, shall elect from its members a Chairman and a
Secretary, and may appoint one or more Assistant Secretaries who may, but need
not be, members of the Committee or such Subcommittee, and may employ such
agents, such legal counsel and such clerical, medical, accounting, actuarial and
other services as it may from time to time deem advisable to assist in the
administration of the Plan. The Committee and each Subcommittee may, from time
to time, appoint agents and delegate to such agents such duties as it considers
appropriate and to the extent
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that such duties have been so delegated, the agent shall be exclusively
responsible for the proper discharge of such duties.
(b) The Administrative Subcommittee shall have the general responsibility
for the administration of the Plan and the carrying out of its provisions, and
shall have general powers with respect to Plan administration, including, but
not limited to, the powers listed in this Section 14.03. The Administrative
Subcommittee shall have the discretionary authority to interpret and construe
the Plan, the power to establish rules for the administration of the Plan and
the transaction of its business, the power to remedy and resolve inconsistencies
and omissions, and the power to determine all questions which arise in the
administration, interpretation, or application of the Plan, including but not
limited to questions regarding the eligibility, status, Account value and any
rights of any Member, Beneficiary, and any other person hereunder.
(c) The Investment Subcommittee shall have the powers provided for in
Section 15.03(b).
(d) The Committee and each Subcommittee shall act by a majority of its
members and the action of such majority expressed by a vote at a meeting, or in
writing without a meeting, shall constitute the action of the Committee or such
Subcommittee. All decisions, determinations, actions or interpretations with
respect to the Plan by the Committee or either Subcommittee and the individual
committee or subcommittee members shall be in the Committee's, Subcommittee's or
individual member's sole discretion. The decision, determination, action or
interpretation of the Committee or either Subcommittee and the respective
individual members of the Committee or Subcommittee in respect to all matters
within the scope of its authority shall be conclusive and binding on all
persons. No member of the Committee or either Subcommittee shall have any
liability to any person for any action or omission except each for his own
individual willful misconduct. If a Subcommittee is not appointed, the Committee
shall exercise such Subcommittee's authority and perform its duties as described
herein.
(e) Nothing in this Section 14 or in any other provision of the Plan shall
be deemed to relieve any person who is a fiduciary under the Plan for purposes
of ERISA from any responsibility or liability for any responsibility, obligation
or duty which Part 4 of Title I of ERISA shall impose upon such person with
respect to this Plan.
14.04 ACCOUNTS AND REPORTS. The Committee shall maintain or cause to be
maintained accounts reflecting the fiscal transactions of the Plan and shall
keep in convenient form such data as may be necessary for the administration of
the Plan. The Committee shall prepare annually a report showing in reasonable
detail the assets and liabilities of the Plan and setting forth a brief account
of the operation of the Plan for the preceding year.
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14.05 NON-DISCRIMINATION. Neither the Committee nor either Subcommittee
shall exercise its discretion in such a way as to result in discrimination in
favor of officers, shareholders or highly compensated employees (within the
meaning of Code Section 414(q)).
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SECTION 15
MANAGEMENT OF THE TRUST FUND
15.01 USE OF THE TRUST FUND. All assets of the Plan shall be held as a
Trust Fund in one or more trusts and shall be used to provide the benefits of
this Plan. No part of the corpus or income shall be used for, or diverted to,
purposes other than for the exclusive benefit of Members and their Beneficiaries
under this Plan and administrative expenses of this Plan.
15.02 TRUSTEES. The Trust Fund may, at the direction of the Company, be
divided into one or more separate trusts, each of which may have a separate
Trustee appointed from time to time by the Company and subject to removal by the
Company. The Trustee or Trustees of each trust shall have complete authority and
discretion with respect to the investment and reinvestment of the assets of each
trust, subject, however, to (i) the provisions in the Trust Agreements between
the Trustee or Trustees and the Company, and (ii) the provisions of this Plan.
Any or all of such separate trusts shall be referred to collectively from time
to time as the Trust Fund. Any division of the Trust Fund into one or more
separate trusts shall be at the direction of the Company.
15.03 INVESTMENTS AND REINVESTMENTS. The investment and reinvestment of the
assets of the Trust Fund shall be in accordance with the following:
(a) The Company shall have the authority to instruct the Trustee or
Trustees to accept and follow the instructions of any designated investment
manager (within the meaning of ERISA Section 3(38)) with respect to the
investment and reinvestment of the assets constituting a money market or stable
value fund, a fixed income fund, a common stock fund, or any other Investment
Funds the Company may designate.
(b) The Investment Subcommittee shall have the powers, with respect to
investment and reinvestment of the assets constituting the Investment Funds, to
promulgate limitations, restrictions, rules or guidelines with respect to the
investment policies and classes of investments in which the assets of the
Investment Funds may be invested or reinvested by the Trustee or Trustees,
including any such investments made pursuant to the instructions of any
investment manager. In the event an investment manager designated pursuant to
Section 15.03(a) resigns or otherwise is unable to act, the Investment
Subcommittee shall have such power and authority as otherwise would be
exercisable by such Investment Manager.
(c) In the event that the assets of the Trust Fund shall be divided into
one or more separate trusts pursuant to the authority provided for in Section
15.02, then the powers of the Investment Subcommittee as provided for in Section
15.03(b) may be exercised with respect to one or more of such trusts within the
discretion of the Investment Subcommittee.
(d) The powers of the Investment Subcommittee as provided in Section
15.03(b) may be exercised at any time or from time to time by the Investment
Subcommittee within the discretion of the Investment Subcommittee and shall be
pursuant to a written agreement between
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the Investment Subcommittee and the Trustee or Trustees or, if an investment
manager has been appointed, between the Investment Subcommittee and the
investment manager.
(e) The Trust Agreement between the Company and the Trustee or Trustees
implementing the Plan shall contain provisions effectuating the provisions of
this Section 15 of the Plan.
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SECTION 16
CERTAIN RIGHTS AND OBLIGATIONS OF EMPLOYERS AND MEMBERS
16.01 DISCLAIMER OF EMPLOYER LIABILITY.
(a) No liability shall attach to any Employer with respect to a benefit or
claim hereunder and Members and their Beneficiaries, and all persons claiming
under or through them, shall have recourse only to the Trust Fund for payment of
any benefit hereunder.
(b) The rights of the Members, their Beneficiaries and other persons are
hereby expressly limited and shall be only in accordance with the provisions of
the Plan. Nothing contained herein shall be deemed to give a Member any interest
in any specific property of the Trust or any interest other than a right to
receive payments pursuant to the provisions of the Plan.
16.02 EMPLOYER-ASSOCIATE RELATIONSHIP. Neither the establishment of this
Plan nor its communication through a Summary Plan Description (or otherwise)
shall be construed as conferring any legal or other rights upon any Associate or
any other person to continue in employment or as interfering with or affecting
in any manner the right of an Employer to discharge any Associate or otherwise
act with relation to him. Each Employer may take any action (including
discharge) with respect to any Associate or other person and may treat him
without regard to the effect which such action or treatment might have upon him
as a Member of this Plan.
16.03 BINDING EFFECT. Each Member, by executing an enrollment form,
beneficiary designation and otherwise agreeing to participate in the Plan agrees
for himself, his beneficiary(ies), heirs, successors and assigns to be bound by
all of the provisions of the Plan.
16.04 CORPORATE ACTION. With respect to any action permitted or required by
the Plan, the Company may act through its appropriate officers.
16.05 CLAIM AND APPEAL PROCEDURE. A Member or beneficiary may file with the
Committee or its designee at any time a written claim in connection either with
a benefit payable hereunder or otherwise. The Committee or its designee,
normally within 90 days after receipt of a written claim, shall render a written
decision on the claim, unless an additional 90 days is required by special
circumstances which shall be explained to the claimant. If the claim is denied,
either in whole or in part, the decision shall include the reason or reasons for
the denial; a specific reference to the Plan provision or provisions which are
the basis for the denial; a description of any additional material or
information necessary for the claimant to perfect the claim; an explanation as
to why the information or material is necessary; and an explanation of the
Plan's entire claim procedure. The claimant may file with the Committee, within
60 days after receiving the written decision from the Committee, a written
notice of request for review of the Committee's decision. The review shall be
made by a committee of up to three individuals (which may include members of the
Committee) appointed by the Company or by the Committee. Said committee shall
render a written decision on the claim containing the specific reasons for their
decision, including a reference to the Plan's provisions, normally within 60
days after receipt of the request
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for review, unless an additional 60 days is required by special circumstances
which shall be explained to the claimant. If a Member or beneficiary does not
file written notice of a claim with the Committee or its designee at the times
set forth above, he shall have waived any right to a benefit other than as
originally proposed by the Company or the Committee.
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SECTION 17
NON-ALIENATION OF BENEFITS
17.01 PROVISIONS WITH RESPECT TO ASSIGNMENT AND LEVY. No benefit payable
under this Plan shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, levy or charge, and any attempt
so to anticipate, alienate, sell, transfer, assign, encumber, levy upon or
charge the same shall be void; nor shall any such benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled to such benefit, except as specifically provided herein.
Notwithstanding the foregoing, the creation, assignment, or recognition of a
right to any benefit payable to an alternate payee with respect to a Qualified
Domestic Relations Order shall not be treated as an assignment or alienation
prohibited by this Section. Any other provision of the Plan to the contrary
notwithstanding, if a Qualified Domestic Relations order requires the
distribution of all or part of a Member's benefits under the Plan, the
establishment or acknowledgment of the alternate payee's right to benefits under
the Plan in accordance with the terms of such Qualified Domestic Relations Order
shall in all events be deemed to be consistent with the terms of the Plan.
Notwithstanding the above a Member's benefit will be offset against any
amount he or she is ordered or required to pay to the Plan pursuant to an order
or requirement which arises under a judgment of conviction for a crime involving
the Plan, under a civil judgment entered by a court in an action involving a
fiduciary breach, or pursuant to a settlement agreement between the Participant
and the Department of Labor or the Pension Benefit Guaranty Corporation. Any
such offset shall be made pursuant to Section 206(d) of ERISA.
17.02 ALTERNATE APPLICATION. If a Member or Beneficiary under this Plan
becomes bankrupt or attempts to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge any benefit under this Plan, except as specifically
provided herein, or if any benefit shall, in the discretion of the Committee,
cease, and in that event the Committee may hold or apply the same or any part
thereof to or for the benefit of such Member or Beneficiary, his spouse,
children or other dependents, or any of them, or in such other manner and in
such proportion as the Committee may deem proper.
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SECTION 18
AMENDMENTS
18.01 COMPANY'S RIGHTS. The Company reserves the right at any time and from
time to time in its sole discretion to alter, amend, or modify, in whole or in
part, any or all of the provisions of this Plan, provided, however, no such
alteration, amendment or modification shall be made which shall decrease the
accrued benefit of any Member. Anything in this Plan to the contrary
notwithstanding, the Company in its sole discretion may make any modifications
or amendments, additions or deletions in or to this Plan as to benefits or
otherwise and retroactively if necessary, and regardless of the effect thereof
on the rights of any particular Member or Beneficiary, which it deems
appropriate and/or necessary in order to comply with or satisfy any conditions
of any law or regulation relating to the qualification of this Plan and the
trust or trusts created pursuant hereto and to keep this Plan and said trusts
qualified under Code Section 401(a) and to have the trust or trusts declared
exempt from taxation under Code Section 501(a).
18.02 PROCEDURE TO AMEND. This Plan may be amended by action of the
Company's Board of Directors and evidenced by a written amendment signed by the
Company's Secretary or by any other person so authorized by or pursuant to
authority of the Board of Directors.
18.03 PROVISION AGAINST DIVERSION. No part of the assets of the Trust Fund
shall, by reason of any modification or amendment or otherwise, be used for, or
diverted to, purposes other than for the exclusive benefit of Members and their
Beneficiaries under this Plan and administrative expenses of this Plan.
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SECTION 19
TERMINATION
19.01 RIGHT TO TERMINATE. The Company reserves the right to terminate
this Plan, in whole or in part, at any time and, if this Plan shall be
terminated, the provisions of Section 19.03 shall apply and the Accounts of
affected Members shall become (or remain) fully vested and nonforfeitable.
19.02 WITHDRAWAL OF AN EMPLOYER. If an Employer shall cease to be a
participating Employer in this Plan, the Trust Fund and the Accounts of the
Members of the withdrawing Employer and their Beneficiaries shall be revalued as
if such withdrawal date were a Valuation Date. The Committee shall then direct
the Trustee either to distribute the Accounts of the Members of the withdrawing
Employer as of the date of such withdrawal on the same basis as if the Plan had
been terminated pursuant to Section 19.03 or to deposit in a trust established
by the withdrawing Employer pursuant to a plan substantially similar to this
Plan assets equal in value to the assets of the Trust Fund allocable to the
Accounts of the Members of the withdrawing Employer.
19.03 DISTRIBUTION IN EVENT OF TERMINATION OF TRUST. If this Plan is
terminated at any time including a partial termination as defined in US Code
Section 411(d)(3), or if contributions are completely discontinued and the
Company determines that the trust shall be terminated, in whole or in part, the
Trust Fund and all Accounts shall be revalued as if the termination date were a
Valuation Date and the affected Members' Accounts shall be distributed in
accordance with Section 10.
19.04 ADMINISTRATION IN EVENT OF CONTINUANCE OF TRUST. If this Plan
shall be terminated in whole or in part or contributions completely discontinued
but the Company determines that the trust shall be continued pursuant to the
terms of the Trust Agreement, the trust shall continue to be administered as
though the Plan were otherwise in effect. Upon the subsequent termination of the
trust, in whole or in part, the provisions of Section 19.03 shall apply.
19.05 MERGER, CONSOLIDATION OR TRANSFER. In the case of any merger or
consolidation with, or transfer of Plan assets or liabilities to, any other plan
each Member shall be entitled to receive a benefit immediately after the merger,
consolidation or transfer (if the transferee plan then terminated) which is
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
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SECTION 20
CONSTRUCTION
20.01 APPLICABLE LAW. The provisions of this Plan except as otherwise
governed by ERISA shall be construed, regulated, administered and enforced
according to the laws of Puerto Rico and, whenever possible, to be in conformity
with the applicable requirements of ERISA, of the US Code to the extent
applicable and of the PR Code of 1994.
20.02 GENDER AND NUMBER. Wherever applicable, the masculine pronoun as
used herein shall include the feminine pronoun and the singular pronoun shall
include the plural.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
a duly authorized officer this ______ day of _____________, 2000.
PAYLESS SHOESOURCE, INC.
By:________________________
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<PAGE> 54
Ex.10.11.doc
SECTION 21
TOP-HEAVY REQUIREMENTS
21.01 GENERALLY. For any Plan Year in which the Plan is a Top-Heavy
Plan, the provisions of Sections 21.02 and 21.03 shall automatically take effect
in accordance with Code Section 416.
21.02 MINIMUM ALLOCATIONS.
(a) Minimum Employer Allocations and allocations of Plan forfeitures for
a Member who is not a Key Employee shall be required under the Plan for
the Plan Year as set forth in Section 21.02 (b) and(c).
(b) The amount of the minimum allocation shall be the lesser of the
following, percentages of Pay: (i) four percent (4%) or, (ii) the
highest percentage at which such allocations are made under the Plan for
the Plan Year on behalf of a Key Employee. For purposes of this
paragraph (b), all defined contribution plans required to be included in
an Aggregation Group shall be treated as one plan. This paragraph (b)
shall not apply if the Plan is required to be included in an Aggregation
Group and the Plan enables a defined benefit plan required to be
included in the Aggregation Group to meet the requirement of Code
Sections 401(a)(4) or 410. For purposes of this paragraph (b), the
calculation of the percentage at which allocations are made for a Key
Employee shall be based only on his Pay not in excess of $170,000, such
amount to be adjusted periodically for increases in the cost of living
in accordance with Code Section 401(a)(17). The minimum allocation
described in this paragraph (b) shall be in addition to (and shall not
be reduced by) any Member Contributions under Section 4 (whether
Before-Tax or After-Tax) and any allocation of forfeitures, if any, to
which a Member may be entitled.
(c) For purposes of this Section 21.02, the term "Member" shall be
deemed to refer to all Members who have not separated from service at
the end of the Plan Year including, without limitation, individuals who
declined to make contributions to the Plan.
21.03 PARTICIPANTS UNDER DEFINED BENEFIT PLANS. If any Member other
than a Key Employee is also a participant under a defined benefit plan of an
Employer which is a Top-Heavy Plan, then Section 21.03(a) shall not apply and
the required minimum annual contribution for such Member under this Plan shall
be 7 percent (7 %) of such Member's Pay. Such contribution shall be made without
regard to the amount of contribution, if any, made to the Plan on behalf of
Employees.
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21.04 DETERMINATION OF TOP HEAVINESS.
(a) The determination of whether a plan is Top-Heavy shall be made in
accordance with paragraphs (b) through (d) of this Section 21.04.
(b) If the Plan is not required to be included in an Aggregated Group
with other plans, then it shall be Top-Heavy only if when considered by
itself, it is a Top-Heavy Plan and it is not included in a permissive
Aggregation Group that is not a Top-Heavy Group.
(c) If the Plan is required to be included in an Aggregation Group with
other plans, it shall be Top-Heavy only if the Aggregation Group,
including any permissively aggregated plans, is Top-Heavy.
(d) If a plan is not a Top-Heavy Plan and is not required to be included
in an Aggregation Group, then it shall not be Top-Heavy even if it is
permissively aggregated in an Aggregation Group which is a Top-Heavy
Group.
21.05 CALCULATION OF TOP-HEAVY RATIOS. A plan shall be Top-Heavy and an
Aggregation Group shall be a Top-Heavy Group with respect to any Plan Year as of
the Determination Date if the sum as of the Determination Date of the Cumulative
Accrued Benefits and the Cumulative Accounts of Employees who are Key Employees
for the Plan Year exceeds 60 percent (60%) of a similar sum determined for all
Employees, excluding former Key Employees.
21.06 CUMULATIVE ACCOUNTS AND CUMULATIVE ACCRUED BENEFITS.
(a) The Cumulative Accounts and Cumulative Accrued Benefits for any
Employee shall be determined in accordance with paragraphs (b) through
(e) of this Section 21.06.
(b) Cumulative Account shall mean the sum of the amount of an Employee's
accounts under a defined contribution plan (for an unaggregated plan) or
under all defined contribution plans included in an Aggregation Group
(for aggregated plans) determined as of the most recent plan Valuation
Date within a 12-month period ending on the Determination Date,
increased by any allocations due after such Valuation Date and before
the Determination Date.
(c) Cumulative Accrued Benefit means the sum of the present value of an
Employee's accrued benefits under a defined benefit plan (for an
unaggregated plan) or under all defined benefit plans included in an
Aggregation Group (for aggregated plans), determined under the actuarial
assumptions set forth in such plan or plans, as of the most recent plan
Valuation Date within a 12-month period ending on the Determination Date
as if the Employee voluntarily terminated service as of such Valuation
Date.
(d) Accounts and benefits shall be calculated to include all amounts
attributable to both Matching Allocations and Employee contributions but
excluding amounts attributable to voluntary deductible Employee
contributions.
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(e) Accounts and benefits shall be increased by the aggregate
distributions during the five-year period ending on the Determination
Date made with respect to an Employee under the plan or plans as the
case may be or under a terminated plan which, if it had not been
terminated, would have been required to be included in the Aggregation
Group.
(f) Rollovers and direct plan-to-plan transfers shall be handled
as follows:
(i) If the transfer is initiated by the Employee and made from
a plan maintained by one Employer to a plan maintained by
another Employer, the transferring plan continues to count the
amount transferred under the rules for counting distributions.
The receiving plan does not count the amount if accepted after
December 31, 1983, but does count it if accepted prior to
December 31, 1983.
(ii) If the transfer is not initiated by the Employee or is
made between plans maintained by the Employers, the
transferring plan shall no longer count the amount transferred
and the receiving plan shall count the amount transferred.
(iii) For purposes of this subsection (f), all Employers
aggregated under the rules of Code Sections 414(b), (c) and (m)
shall be considered a single employer.
21.07 OTHER DEFINITIONS.
(a) Solely for purposes of this Section 21, the definitions in
paragraphs (b) through (i) of this Section 21.07 shall apply, to be
interpreted in accordance with the provisions of Code Section 416 and
the regulations thereunder.
(b) AGGREGATION GROUP means a plan or group of plans which included all
plans maintained by the Employer in which a Key Employee is a
participant or which enables any plan in which a Key Employee is a
participant to meet the requirements of Code Section 401(a)(4) or Code
Section 410, as well as all other plans selected by the Company for
permissive aggregation, the inclusion of which would not prevent the
group of plans from continuing to meet the requirements of such Code
sections.
(c) DETERMINATION DATE means, with respect to any Plan Year, the last
day of the preceding Plan Year.
(d) EMPLOYEE means any person employed by an Employer and shall also
include any Beneficiary of such persons, provided that the requirements
of Sections 21.02 and 21.03 shall not apply to any person included in a
unit of Employees covered by an agreement which the Secretary of Labor
finds to be a collective bargaining agreement between Employee
representatives and one or more Employers if there is evidence that
retirement benefits were the subject of good faith bargaining between
such Employee representatives and such Employer or Employers.
(e) EMPLOYER means any corporation which is a member of a controlled
group of corporations (as defined in Code Section 414(b)) which includes
the Company or any
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trades or businesses (whether or not incorporated) which are under
common control (as defined in Code Section 414(c)) with the Company, or
a member of an affiliated service group (as defined in Code Section
414(m)) which includes the Company,
(f) KEY EMPLOYEE means any Employee or former Employee who is, at any
time during the Plan Year, or was, during any one of the four preceding
Plan Years any one or more of the following: (1) an officer of an
Employer who has annual Pay of more than 50% of the amount in effect
under Code Section 415(b)(1)(A) for such Plan Year, unless fifty (50)
other such officers have higher annual Pay; (2) one of the 10 persons
employed by an Employer having annual Pay greater than the limitation in
effect under Code Section 415(c)(1)(A), and owning (or considered as
owning within the meaning of Code Section 318) the largest interests in
the Employers (if two Employees have the same interest, the one with the
greater Compensation shall be treated as owning the larger interest);
(3) any person owning (or considered as owning within the meaning of the
Code Section 318) more than five percent of the outstanding stock of an
Employer or stock possessing more than five percent of the total
combined voting power of such stock; (4) a person who would be described
in subsection (3) above if "one percent" were substituted for "five
percent" each place it appears in subsection (3) above, and who has
annual Pay of more than $150,000 (for purposes of determining ownership
under this subsection, Code Section 318(a)(2)(C) shall be applied by
substituting "five percent" for "50 percent" and the rules of
subsections (b), (c) and (m) of Code Section 414 shall not apply).
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by a duly authorized officer this ____________ day of
__________________, 2000.
PAYLESS SHOESOURCE, INC.
By:______________________________
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<PAGE> 1
Exhibit 10.12
PAYLESS SHOESOURCE, INC.
DEFERRED COMPENSATION PLAN
Amended March 16, 2000
SECTION 1. PURPOSE.
The purpose of this Plan is to provide an additional incentive to the key
employees of Payless ShoeSource, Inc. to achieve superior performance.
SECTION 2. DEFINITIONS.
(a) Board means the Board of Directors of Payless, as hereinafter defined.
(b) Committee means the Committee appointed to administer the Plan, as
hereinafter defined, as provided in Section 8 hereof.
(c) Common Stock means the Common Stock of Payless, as hereinafter defined.
(d) Corporation means Payless, as hereinafter defined, or any subsidiary of
Payless which is an employer of an Executive, as hereinafter defined, who is a
Participant, as hereinafter defined, in the Plan, as hereinafter defined.
(e) Executive means any individual employed by the Corporation in an
executive capacity who receives regular stated compensation in respect of such
employer-employee relationship other than a pension, retainer or fee under a
contract.
(f) Fiscal Year means the fiscal year of the Corporation as established
from time to time.
(g) Payless means Payless ShoeSource, Inc., a Delaware corporation.
(h) Participant means an Executive who has been designated by the Committee
as eligible, and who has elected to participate in the Plan, as hereinafter
defined.
(i) Plan means the Deferred Compensation Plan of the Corporation, as
described herein.
(j) Stock Unit means an accounting equivalent of one share of Common Stock.
(k) Stock Unit Account means an account on the records of the Corporation
in respect of Stock Units which have been and/or may be allocated to a
Participant in the manner hereinafter set forth.
<PAGE> 2
SECTION 3. METHODS OF PAYMENT.
(a) Except as hereinafter provided, prior to the commencement of the
calendar year that includes the first day of a Fiscal Year, each Participant
shall be afforded the opportunity of making an election to have any one or more
of the following alternative methods of payment applied to all or a part of any
portion (which such portion shall not exceed one-half, unless specifically
provided for to the contrary in the participant's written contract of
employment) of any compensation of which such Participant shall be the recipient
in respect of his performance during such Fiscal Year:
(i) Alternative (i): Payment of any such compensation that is paid in
the form of a bonus on the first day of April next following the close of such
Fiscal Year or on such subsequent date as the amount thereof is ascertainable.
(ii) Alternative (ii): Payment thereof at a deferred date or dates
either in a lump sum or in annual installments, as may be determined by the
Committee, such payment when made to include interest, as hereinafter provided,
from the first day of April next following the Fiscal Year in respect of which
the compensation was payable to the date of payment.
(iii) Alternative (iii): Payment thereof at a deferred date or dates
either in a lump sum or in annual installments, as may be determined by the
Committee, and either in cash or in Common Stock or in both cash and Common
Stock, as may be determined by the Committee, in respect of Stock Units to be
allocated to the Participant as hereinafter provided.
If any Participant shall fail to make an election with respect to any year, he
shall be deemed to have elected not to defer any portion of his compensation for
such year. Notwithstanding the requirements imposed by this paragraph (a) with
respect to the time by which an election must be made, an employee who is
designated by the Committee as a Participant for the first time may, within 60
days of such designation, make any election otherwise permitted under this
paragraph (a) with respect to the Participant's compensation in respect of
employment subsequent to the date on which the election is made.
(b) In connection with all determinations to be made by the Committee as
respects Alternative (ii) and, except for the determination of whether payment
thereunder is to be made in cash or in Common Stock or in both cash and Common
Stock (which determination shall be in the absolute discretion to the
Committee), Alternative (iii), the Participant shall be given an opportunity at
the time he makes his election of indicating his preferences, which preferences
shall be taken into account by the Committee in making its determinations.
Except as provided in Section 12 and Section 13 in no event shall payments under
Alternative (ii) or (iii) commence prior to the earliest of the Participant's
retirement, termination of employment or death (or prior to the occurrence of a
severe financial hardship, as provided below).
The Committee shall make its determination with respect to the payment schedule
(i.e., a lump sum payment or payments in annual installments) under Alternative
(ii) or (iii) prior to the commencement of the calendar year that includes the
first day of the Fiscal Year for which such
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<PAGE> 3
alternative is elected. Except in the event of a severe financial hardship, as
provided below, the Committee's determination with respect to a payment schedule
shall become irrevocable as of the first day of the calendar year that includes
the first day of the Fiscal Year for which the determination is made. However,
upon the written request of the Participant (or if applicable, the beneficiary
or distributee) the payment schedule may be revised by the Committee, in its
absolute discretion, in the event that the Participant (or if applicable, the
beneficiary or distributee) incurs a severe financial hardship. Such severe
financial hardship must have been caused by an accident, illness or other event
which was beyond the control of the Participant (or, if applicable, the
beneficiary or distributee); and the Committee shall revise the payment schedule
that it had previously established only to the extent that the Committee
considers necessary to eliminate the severe financial hardship. Notwithstanding
the requirements imposed by this paragraph (b) regarding the date by which the
Committee must make a determination with respect to the payment schedule under
Alternative (ii) or (iii) and the date as of which such determination shall
become irrevocable (except in the event of a severe financial hardship), when a
Participant makes an election pursuant to the last sentence of paragraph (a) of
this Section 3, the Committee shall make its determination with respect to the
payment schedule at any time prior to the date as of which the Participant's
election becomes effective, and its determination shall become irrevocable
(except in the event of a severe financial hardship) as of such effective date.
(c) In the case of a Participant who elects to have all or any part of his
compensation for a particular Fiscal Year paid under Alternative (iii), Stock
Units shall be allocated to such Participant by crediting the same to his Stock
Unit Account, and the number of Stock Units to be so credited for such Fiscal
Year shall be the sum of the following:
(i) the quotient, disregarding fractions, resulting from dividing the
dollar amount of such portion of the Participant's compensation as is to be so
applied to Alternative (iii) by the average closing price of the Common Stock on
the New York Stock Exchange during the month of February ending in the Fiscal
Year next following the Fiscal Year in respect of which such compensation was
payable; plus
(ii) the quotient, disregarding fractions, resulting from dividing the
aggregate dollar amount of cash dividends which would have been paid to the
Participant during such Fiscal Year had the Stock Units standing in his Stock
Unit Account from time to time during such Fiscal Year been shares of Common
Stock by the average dosing price of the Common Stock on the New York Stock
Exchange during the month of February ending in the year next following such
Fiscal Year; plus
(iii) the number of shares of Common Stock, disregarding fractions,
which would have been received by the Participant as stock dividends during such
Fiscal Year had the Stock Units standing in his Stock Unit Account at the date
or dates of payment of such stock dividend(s) been shares of Common Stock.
Any allocation of Stock Units to a Participant's Stock Unit Account required to
be made pursuant to this paragraph (c) shall be made as of the first day of
April next following the Fiscal
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Year in respect of which such compensation was payable or such dividends were
paid, as the case may be. The aggregate value of the fraction or fractions
remaining after making the applicable calculations referred to in subparagraphs
(c)(i), (c)(ii) and (c)(iii) of this Section 3 (based upon the average closing
price of Common Stock on the New York Stock Exchange during the month of
February next preceding such month of April), shall not be converted into Stock
Units but shall be allocated and added to the amount elected by the Participant
to be paid to him under Alternative (ii) above, or, if the Participant shall
have made no such election under Alternative (ii), then such remaining amount
shall be paid to the Participant as if he had made an election under Alternative
(i) above to be so paid.
(d) Notwithstanding the provisions of Section 3(c) to the contrary, in the
event of a recapitalization of Payless pursuant to which the outstanding shares
of Common Stock shall be changed into a greater or smaller number of shares
(including, without limitation, a stock split or a stock dividend of 25% or more
of the number of outstanding shares of Common Stock), the number of Stock Units
credited to a Participant's Stock Unit Account shall be appropriately adjusted
as of the effective date of such recapitalization.
(e) Interest to be paid under Alternative (ii) shall be credited annually
as of April 1 of each year and shall be at a rate shall be equal to the average
yield on long-term United States Government Bonds (as determined by the Board of
Governors of the Federal Reserve Board and published in the Federal Reserve
Bulletin) for the calendar year prior to said April 1, compounded annually,
provided, however, that if the method of calculation of such average yield shall
be changed, or if the determination and/or the publication thereof be
discontinued, then the Committee shall substitute therefor such alternative
method of determining such interest rate as it, in its discretion, shall deem
appropriate.
SECTION 4. LIMITATION OF STOCK UNITS.
In no event shall the aggregate number of Stock Units allocated under this
Plan in respect of compensation for any Fiscal Year exceed a number equal to 1/2
of 1% of the total number of shares of Common Stock outstanding at the close of
such Fiscal Year.
SECTION 5. DISTRIBUTION FROM THE STOCK UNIT ACCOUNT.
(a) Distribution from a Participant's Stock Unit Account shall be made in
accordance with the determinations made by the Committee, as provided in this
Plan. Stock Units shall be adjusted from time to time in accordance with this
Plan until all distributions to which a Participant is entitled hereunder shall
have been made.
(b) If the Committee determines that distribution to a Participant is to be
made in annual installments, the Committee may determine from time to time
whether each particular installment shall be distributed in cash or in Common
Stock or in both cash and Common Stock.
(c) If the Committee determines that a distribution to a Participant is to
be made in a lump sum in Common Stock, the number of shares of Common Stock to
be so distributed to such
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Participant shall equal the number of Stock Units then in his Stock Unit
Account. For the purpose of determining the number of shares of Common Stock to
be distributed on a particular annual installment distribution date, the
Committee shall make its calculations as if that annual installment and all
subsequent annual installments were in fact to be made in shares of Common
Stock, as follows: the number of shares of Common Stock which would be then so
distributable, except in the case of the last distribution, shall be equal to
the product, disregarding fractions, of the total number of Stock Units then
credited to the Participant's Stock Unit Account, multiplied by a fraction, the
numerator of which shall be one and the denominator of which shall be the number
of remaining installments; and in the case of the last distribution, shall be
the number of shares of Common Stock equal to the Stock Units then remaining in
the Participant's Stock Unit Account. The Participant's Stock Unit Account shall
be decreased by one Stock Unit for each share of Common Stock distributed to a
Participant.
(d) If the Committee determines that a particular distribution to a
Participant is to be made in cash, a computation shall first be made of the
number of shares of Common Stock which would then be distributable pursuant to
paragraph (c) of this Section 5 if such distribution were to be made in shares
of Common Stock. The number of shares thus determined shall then be converted
into cash in respect of each such distribution by valuing such shares at the
average dosing price of the Common Stock on the New York Stock Exchange during
the month of February next preceding the date of such distribution, and the
resulting amount of cash shall be distributed to the Participant. The
Participant's Stock Unit Account shall then be decreased by one Stock Unit for
each share of Common Stock which would have been distributed to the Participant
had such cash distribution been made in shares of Common Stock.
(e) If the Committee determines that a distribution is to be made in part
in Common Stock and in part in cash, paragraphs (c) and (d) of this Section 5
shall be applied separately to the respective parts of such distribution and to
the respective parts of the Stock Unit Account with respect to which the
distribution is to be made.
SECTION 6. DEATH OF PARTICIPANT.
In the event of the death of a Participant prior to complete distribution
under Alternatives (ii) and/or (iii) hereof, all cash and/or Stock Units then
remaining undistributed, or which shall thereafter become distributable to him
pursuant to such Alternatives, shall be distributed to such beneficiary as the
Participant shall have designated in writing to the Corporation, or, in the
absence of such designation, to his personal representative. Such distribution
shall be made at such date or dates either in a lump sum or in annual
installments, as may be determined by the Committee prior to the beginning of
the calendar year that includes the first day of the Fiscal Year for which such
alternative is elected (or, where applicable, the date specified by the last
sentence of Section 3(b)); provided, however, that in the event of a severe
financial hardship, the Committee may subsequently revise its determination in
accordance with the applicable provisions of Section 3(b).
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SECTION 7. PARTICIPANT'S RIGHT UNSECURED; INVESTMENTS.
The right of a Participant to receive any distribution hereunder shall be
an unsecured claim against the general assets of the Corporation. Nothing in
this Agreement shall require the Corporation to invest any amount, the payment
of which has been deferred under Alternative (ii) or (iii), in Common Stock or
in any other medium.
SECTION 8. ADMINISTRATION OF THE PLAN COMMITTEE.
(a) The Plan shall be administered by a Committee of not less than two nor
more than five persons designated by the Board (which may, but need not, be the
compensation committee of the Board), all of whom shall be directors of the
Corporation and shall serve at the pleasure of the Board. In no event shall any
member of the Committee be a Participant. The Committee shall act by vote or
written consent of a majority of its members (except in the case of a two person
Committee in which case any vote or written consent must be unanimous). The Plan
may be amended, modified or terminated by the Board, except that no change may
be made without the approval of the Common Shareowners of Payless (i) the
maximum number of shares or Stock Units deliverable or allocable in respect of
any Fiscal Year under the plan or (ii) in the provisions of subparagraphs (c)(i)
and (c)(ii) of Section 3 of this Plan relating to the method of determining the
number of Stock Units allocable to a Participant.
(b) The Committee shall prescribe such forms as it considers appropriate
for the administration of the Plan. The forms shall set forth such terms and
conditions not inconsistent with the terms of the Plan as the Committee may
determine and shall designate:
(i) the alternative or alternatives elected by the Participant
pursuant to Section 3(a);
(ii) the Committee's determination of the time or times when payment
of such compensation will be made to the Participant pursuant to Section 3(b)(in
the absence of a severe financial hardship);
(iii) the beneficiary (if any) designated by the Participant pursuant
to Section 6; and
(iv) the Committee's determination of the time or times when payment
of such compensation will be made after the Participant's death pursuant to
Section 6 (in the absence of a severe financial hardship).
SECTION 9. SUCCESSORS.
The provisions of the Plan with respect to each Participant shall bind the
legatees, heirs, executors, administrators or other successors in interest of
such Participant.
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SECTION 10. ALIENATION.
(a) Subject to the provisions of Section 6 and paragraph (b) of this
Section 10, no amount, the payment of which as been deferred under Alternative
(ii) or (iii), shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, levy or charge, and any attempt to so
anticipate, alienate, sell, transfer, assign, pledge, encumber, levy or charge
the same shall be void; nor shall any such amount be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the person
entitled to such benefit.
(b) Nothing in this Section 10 shall prohibit the personal representative
of a Participant from designating that any amount be distributed in accordance
with the terms of the Participant's will or pursuant to the laws of descent and
distribution.
SECTION 11. WITHHOLDING.
There shall be deducted from all amounts paid under this Plan any taxes
required to be withheld by any federal, state or local government. The
Participants and their beneficiaries, distributees and personal representatives
will bear any and all federal, foreign, state, local or other income or other
taxes imposed on amounts paid under this Plan as to which no amounts are
withheld, irrespective of whether withholding is required.
SECTION 12. DISCRETIONARY PAYMENT.
(a) Notwithstanding any other provision in any other Section of the Plan to
be contrary, the Committee may, in its sole and absolute discretion, direct an
immediate payment of cash and/or distribution of Stock with respect to amounts
(except those referred to in the next proviso) previously deferred under this
Plan if the Committee determines that such action is in the best interests of
Payless, the Participants and their beneficiaries.
(b) In the event that the Committee shall so direct an immediate payment,
distribution and/or release in accordance with Section 12(a), then
(i) the amounts of cash and the numbers of shares of Stock to be so
paid and/or distributed shall be determined by the Committee so as to reflect
fairly and equitably appropriate interest and dividends since the preceding
April 1 and so as to reflect fairly and equitably such other facts and
circumstances as the Committee deems appropriate, including, without limitation,
recent price of the Stock;
(ii) amounts which were otherwise deferred or to be deferred with
respect to the Fiscal Year or long-term period in which such payment or
distribution occurs shall be paid when otherwise payable (such amounts which
would otherwise have been payable prior to the date of such payment or
distribution shall be paid as soon as practicable thereafter);
(iii) in the event that cash is not paid or made available to a
Participant when otherwise due or that shares of Stock are not distributed or
otherwise made available to a
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Participant when otherwise due, then such Participant may file a claim for such
payment or distribution and, if such Participant is successful, then the
Corporation shall reimburse such Participant for reasonable attorneys' fees
actually paid by the Participant in enforcing such Participant's rights to such
payment or distribution; and
(iv) in the event that cash is not paid or made available to a
Participant when otherwise due, then interest will accrue with respect to such
unpaid amount from the date it was otherwise due until the date it is actually
paid at a rate equal to two percentage points over the prime rate as in effect
from time to time, as determined in good faith the Committee based on the prime
rate charged from time to time by major banks in the City of New York.
SECTION 13. CHANGE IN CONTROL.
Notwithstanding any other provision in any other Section of this Plan to
the contrary, (i) the value of all amounts deferred by a Participant which have
not yet been credited to the Participant's accounts under this Plan and (u) the
value of all of a Participant's accounts under this Plan shall be paid to such
Participant in each case in a lump sum cash payment on the occurrence of a
Change in Control of the Corporation or as soon thereafter as practicable, but
in no event later than five days after the Change in Control of the Corporation.
The amounts of cash credited to each Participant's accounts prior to determining
the amount of cash to be paid from these accounts shall be determined by the
Committee (which, for this purpose, shall be comprised of members of the Board
prior to the Change in Control of the Corporation) so as to reflect fairly and
equitably appropriate interest and dividends since the preceding April 1 and so
as to reflect fairly and equitably such other facts and circumstances as the
Committee deems appropriate, including, without limitation, recent price of the
stock. For purposes of payments under this Section 13, the value of Stock Unit
shall be computed as the greater of (a) the closing price of shares of Common
Stock as reported on the New York Stock Exchange on or nearest the date on which
the Change in Control is deemed to occur (or, if not listed on such exchange, on
a nationally recognized exchange or quotation system on which trading volume in
the Common Stock is highest) or (b) the highest per share price for shares of
Common Stock actually paid in connection with any Change in Control.
For the purposes of this Plan, a "Change in Control" shall be deemed to
have occurred if:
(a) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (a "Person") acquires beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A)
the then-outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that, for purposes of this Section 13, none of the following shall constitute a
Change of Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any affiliated
company or (iv) any acquisition by any corporation pursuant to a transaction
that
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complies with Sections 13(c)(A), 13(c)(B) and 13(c)(C) or (v) any acquisition by
the Company which, by reducing the number of shares of Outstanding Company
Common Stock or Outstanding Company Voting Securities, increases the
proportionate number of shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities beneficially owned by any Person to 20% or
more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities; provided, however, that, if such Person shall thereafter become the
beneficial owner of any additional shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities and beneficially owns 20% or more of
either the Outstanding Company Common Sock or the Outstanding Company Voting
Securities, then such additional acquisition shall constitute a Change of
Control; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board;
(c) a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a
"Business Combination") is consummated, in each case, unless, following such
Business Combination, (A) all or substantially all of the individuals and
entities that were the beneficial owners, respectively, of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50%, respectively, of the then-outstanding shares of common stock and
the combined voting power of the then- outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination, (including, without
limitation, a corporation that, as a result of such transaction, owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities, as the case
may be, (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then-outstanding voting
securities of such corporation, except to the extent that such ownership existed
prior to the Business Combination, and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement or of the action of the Board providing for such Business
Combination; or
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(d) the stockholders of the Company approve of a complete liquidation
or dissolution of the Company.
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Exhibit 10.14
CHANGE OF CONTROL AGREEMENT
AGREEMENT, dated as of the 10th day of March, 2000 (this "Agreement"), by
and between Payless ShoeSource, Inc., a Delaware corporation (the "Company"),
and _________________________ (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined herein). The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the current Company and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
that ensure that the compensation and benefits expectations of the Executive
will be satisfied and that are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first date
during the Change of Control Period (as defined herein) on which a Change of
Control occurs. Notwithstanding anything in this Agreement to the contrary, if
a Change of Control occurs and if the Executive's employment with the Company
is terminated prior to the date on which the Change of Control occurs, and if
it is reasonably demonstrated by the Executive that such termination of
employment (1) was at the request of a third party that has taken steps
reasonably calculated to effect a Change of Control or (2) otherwise arose in
connection with or anticipation of a Change of Control, then "Effective Date"
means the date immediately prior to the date of such termination of employment.
Further, notwithstanding anything in this Agreement to the contrary, if a
Potential Change of Control occurs and if the Executive's employment with the
Company is terminated as provided in Section 5(e), then "Effective Date" means
the date immediately prior to the date of such termination of employment.
(b) "Change of Control Period" means the period commencing on the date
hereof and ending on the third anniversary of the date hereof; provided,
however, that, commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof, the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
(c) "affiliated company" means any company controlled by, controlling or
under common control with the Company.
<PAGE> 2
(d) "Change of Control" means:
(1) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that, for purposes of this Section 1(d), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any affiliated company or (iv) any acquisition by
any corporation pursuant to a transaction that complies with Sections
1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C); or
(2) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(3) Consummation of a reorganization, merger, consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities that
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50%,
respectively, of the then-outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that, as a result of such transaction, owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may be,
(B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such Business
Combination or the
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combined voting power of the then-outstanding voting securities of such
corporation, except to the extent that such ownership existed prior to the
Business Combination, and (C) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement or of the action of the Board providing for such Business
Combination; or
(4) Approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
(e) "Potential Change of Control" means:
(1) At least two directors of a particular class of directors, as of the
date hereof, are replaced for any reason by directors who are not members of
the Incumbent Board at the time of such replacement; provided, however, that
any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(2) The Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change of Control has occurred.
SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company, subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of the Effective Date (the "Employment Period").
SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During
the Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the office where the Executive was employed
immediately preceding the Effective Date or at any other location less than 35
miles from such office.
(2) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, it shall not be a violation of
this
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Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that, to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION. (1) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary (the "Annual Base Salary"), which
Annual Base Salary shall be paid at a monthly rate at least equal to 12 times
the highest monthly base salary paid or payable, including any base salary that
has been earned but deferred, to the Executive by the Company and the
affiliated companies in respect of the 12-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period,
the Annual Base Salary shall be reviewed at least annually, beginning no more
than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date. Any increase in the Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
The Annual Base Salary shall not be reduced after any such increase and the
term "Annual Base Salary" shall refer to the Annual Base Salary as so
increased.
(2) ANNUAL BONUS. In addition to the Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period, an
annual bonus (the "Annual Bonus") in cash at least equal to the Executive's
highest bonus under the Company's annual and long-term incentive plans, or any
comparable bonus under any predecessor or successor plan, for the last three
full fiscal years prior to the Effective Date (annualized, in the event that
the Executive was not employed by the Company for the whole of such fiscal
year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies, and programs applicable
generally to other peer executives of the Company and the affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and the affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at
any time during the 120-day period immediately preceding the Effective Date or,
if
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more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and the affiliated
companies.
(4) WELFARE BENEFIT PLANS. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and the affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and the affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with
benefits that are less favorable, in the aggregate, than the most favorable of
such plans, practices, policies and programs in effect for the Executive at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and the affiliated
companies.
(5) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices and
procedures of the Company and the affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company and
the affiliated companies.
(6) FRINGE BENEFITS. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and the
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and the affiliated companies.
(7) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to exclusive personal secretarial and other assistance,
at least equal to the most favorable of the foregoing provided to the Executive
by the Company and the affiliated companies at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect to other
peer executives of the Company and the affiliated companies.
(8) VACATION. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and the affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to
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the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and the affiliated companies.
SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically if the Executive dies
during the Employment Period. If the Company determines in good faith that the
Disability (as defined herein) of the Executive has occurred during the
Employment Period (pursuant to the definition of "Disability"), it may give to
the Executive written notice in accordance with Section 11(b) of its intention
to terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive shall not
have returned to full-time performance of the Executive's duties. "Disability"
means the absence of the Executive from the Executive's duties with the Company
on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness that is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. "Cause" means:
(1) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or any affiliated
company (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company that specifically identifies the manner
in which the Board or the Chief Executive Officer of the Company believes
that the Executive has not substantially performed the Executive's
duties, or
(2) the willful engaging by the Executive in illegal conduct or
gross misconduct that is materially and demonstrably injurious to the
Company.
For purposes of this Section 4(b), no act, or failure to act, on the part of
the Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer of the Company or a senior officer of the Company or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company. The cessation of employment of the Executive shall not be deemed
to be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice is provided
to the Executive and the Executive is given an opportunity, together with
counsel for the Executive, to be heard before the Board), finding that, in the
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good faith opinion of the Board, the Executive is guilty of the conduct
described in Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof
in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. "Good Reason" means:
(1) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by Section 3(a), or any other action by the Company that
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and that is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(2) any failure by the Company to comply with any of the provisions
of Section 3(b), other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and that is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(3) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 3(a)(1)(B) or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(4) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(5) any failure by the Company to comply with and satisfy Section
10(c).
For purposes of this Section 4(c), any good faith determination of Good
Reason made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of a
Change of Control shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b).
"Notice of Termination" means a written notice that (1) indicates the specific
termination provision in this Agreement relied upon, (2) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, and (3) if the Date of Termination (as defined herein)
is other than the date of receipt of such notice, specifies the Date of
Termination (which Date of Termination shall be not more than 30 days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance that contributes to
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a showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's respective rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (1) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified in the Notice of Termination, as the case may be, (2)
if the Executive's employment is terminated by the Company other than for Cause
or Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination, and (3) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (A) GOOD REASON;
OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period,
the Company terminates the Executive's employment other than for Cause or
Disability or the Executive terminates employment for Good Reason:
(1) the Company shall pay to the Executive, in a lump sum in cash
within 30 days after the Date of Termination, the aggregate of the
following amounts:
(A) the sum of (i) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (ii)
the product of (x) the higher of (I) the Recent Annual Bonus and
(II) the Annual Bonus paid or payable, including any bonus or
portion thereof that has been earned but deferred (and annualized
for any fiscal year consisting of less than 12 full months or
during which the Executive was employed for less than 12 full
months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount, the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of Termination and
the denominator of which is 365, and (iii) any compensation
previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each
case, to the extent not theretofore paid (the sum of the amounts
described in subclauses (i), (ii) and (iii), the "Accrued
Obligations"); and
(B) the amount equal to the product of (i) three and (ii) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
(C) an amount equal to the excess of (i) the actuarial
equivalent of the benefit under the Company's qualified defined
benefit retirement plan (the "Retirement Plan") (utilizing
actuarial assumptions no less favorable to the Executive than those
in effect under the Retirement Plan immediately prior to the
Effective Date) and the any excess or supplemental retirement plan
in which
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the Executive participates (collectively, the "SERP") that the
Executive would receive if the Executive's employment continued for
three years after the Date of Termination, assuming for this
purpose that all accrued benefits are fully vested and assuming
that the Executive's compensation in each of the three years is
that required by Sections 3(b)(1) and 3(b)(2), over (ii) the
actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the
Date of Termination; and
(D) in lieu of the receipt of shares of common stock of the
Company ("Common Stock") issuable upon the exercise of outstanding
options (other than stock options qualifying as incentive stock
options ("ISOs") under Section 422A of the Internal Revenue Code of
1986, as amended (the "Code") which ISOs were granted on or prior
to [SET FORTH DATE OF PRIOR AGREEMENT]) ("Options"), stock
appreciation rights ("SARs") and performance units ("Units"), if
any (the Options, SARs and Units shall be referred to herein
collectively as the "Awards"), granted to the Executive under the
Company's 1996 Stock Incentive Plan or any successor or substitute
plans thereto, an amount equal to the product of (i) the excess of
(x) in the case of an ISO granted after [SET FORTH DATE OF PRIOR
AGREEMENT], the closing price of Common Stock as reported on the
New York Stock Exchange on the Date of Termination or the last full
trading day immediately prior to the Date of Termination (or, if
not listed on such exchange, on a nationally recognized exchange or
quotation system on which trading value in the Common Stock is
highest) (the "Closing Price") and, in the case of all other
Awards, the higher of the Closing Price and the highest per share
price for Common Stock actually paid in connection with any Change
of Control, over (y) the per share exercise price (if any) of each
Award, and (2) the number of shares of Common Stock covered by each
such Award, whether or not such Award is exercisable on the Date of
Termination; and
(2) for three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits to
the Executive and/or the Executive's family at least equal to those that
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 3(b)(4) if the Executive's
employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and the affiliated companies and
their families, provided, however, that, if the Executive becomes
reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the medical
and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of
eligibility. If the Executive has attained age 50 on the Date of
Termination and if, with five additional years of age and service beyond
the Executive's age and years of service as of the Date of Termination,
the Executive would have been entitled to receive post-retirement medical
and life benefits under the Company's post-retirement programs as in
effect immediately prior to the Effective Date, then the Executive shall
be entitled to such benefits as if the
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Executive had attained those five additional years of age and been
employed by the Company for those five additional years of service, as of
the Date of Termination, and such post-retirement medical and life
benefits shall [COMMENCE IMMEDIATELY AND] be determined and provided
under the terms of such plans as in effect immediately prior to the
Effective Date, without regard to any amendments subsequent to the
Effective Date that adversely affect the rights of participants
thereunder; and
(3) if the Executive has attained age 50 but has not attained age 55
on the Date of Termination, then for purposes of determining benefits
under Section 3.2(c) of the Company's Supplementary Retirement Plan or
any successor plan, as in effect immediately prior to the Effective Date
(the "Supplemental Plan"), the Executive shall be deemed to be entitled
to the benefits under Section 3.2(c) of the Supplemental Plan if, during
the five-year period following the Effective Date, the Company terminates
the Executive's employment other than for Cause or the Executive
terminates his employment for Good Reason (it being expressly agreed
that, notwithstanding anything to the contrary contained herein, the
rights under this Section 5(a)(3) shall survive for the five-year period
following the Effective Date); the benefits under this Section 5(a)(3)
shall not be in duplication of the benefits set forth in Section
5(a)(1)(C); and
(4) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which
shall be selected by the Executive in the Executive's sole discretion;
and
(5) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or that the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and the affiliated companies (such
other amounts and benefits, the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of the Other Benefits. The Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of the Other
Benefits, the term "Other Benefits" as utilized in this Section 5(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and the affiliated companies to the estates and
beneficiaries of peer executives of the Company and the affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and the affiliated
companies and their beneficiaries.
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(c) DISABILITY. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of the Other
Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the
provision of the Other Benefits, the term "Other Benefits" as utilized in this
Section 5(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and the
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with respect to other
peer executives of the Company and the affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment is
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (1) the Executive's Annual Base Salary
through the Date of Termination, (2) the amount of any compensation previously
deferred by the Executive, and (3) the Other Benefits, in each case, to the
extent theretofore unpaid. If the Executive voluntarily terminates employment
during the Employment Period, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for the Accrued Obligations and the timely payment or provision of the
Other Benefits. In such case, all the Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
(e) OBLIGATIONS OF THE COMPANY AND THE EXECUTIVE UPON A POTENTIAL CHANGE
OF CONTROL. If, during the Change of Control Period, a Potential Change of
Control occurs, the Executive hereby agrees to remain in the employ of the
Company, on the same basis and terms and conditions as the Executive is
employed by the Company immediately prior to the Potential Change of Control,
for the 12-month period following such Potential Change of Control. If the
Executive's employment is terminated by the Company other than for Cause, death
or Disability, or the Executive terminates his employment for Good Reason,
during the 12-month period following the occurrence of a Potential Change of
Control, without regard to whether a Change of Control has actually occurred or
is likely to occur, the Executive's employment shall be deemed to have been
terminated by the Company in anticipation of a Change of Control, and the
Executive shall be entitled to receive the payments and benefits provided in
Section 5(a) hereof.
SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or the affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such
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rights as the Executive may have under any contract or agreement with the
Company or the affiliated companies. Amounts that are vested benefits or that
the Executive is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or the affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement, except as explicitly modified by this Agreement.
SECTION 7. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense, or other claim, right or action that the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement, and
such amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses that the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus, in each
case, interest on any delayed payment at the applicable federal rate provided
for in Section 7872(f)(2)(A) of the Code.
SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company or the affiliated companies to or for the benefit
of the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise but determined without
regard to any additional payments required under this Section 8) (the
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Code, or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, collectively, the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (the "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 8(a), if it shall be determined that the Executive is entitled to the
Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount that could be paid to the Executive such that the receipt of the
Payments would not give rise to any Excise Tax (the "Reduced Amount"), then no
Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
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(b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Arthur Anderson,
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") that shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by the Company should have been
made (the "Underpayment"), consistent with the calculations required to be made
hereunder. In the event the Company exhausts its remedies pursuant to Section
8(c) and the Executive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which the Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that the Company desires to contest such claim,
the Executive shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim,
(2) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to
contest such claim, and
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(4) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 8(c), the Company shall control all proceedings taken in
connection with such contest, and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
applicable taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that, if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and provided, further, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which the Gross-Up
Payment would be payable hereunder, and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 8(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or the affiliated
companies, and their respective businesses, which information, knowledge or
data shall have been obtained by the Executive during the Executive's
employment by the Company or the affiliated companies and which
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information, knowledge or data shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those persons designated by the Company. In no event shall an
asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
SECTION 10. SUCCESSORS. (a) This Agreement is personal to the Executive,
and, without the prior written consent of the Company, shall not be assignable
by the Executive other than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
"Company" means the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid that assumes and agrees to perform this
Agreement by operation of law or otherwise.
SECTION 11. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified other than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
if to the Executive:
_________________________
_________________________
_________________________
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<PAGE> 16
if to the Company:
Payless ShoeSource, Inc.,
3231 SE Sixth Avenue
Topeka, Kansas 66607
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such United States federal, state or local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) From and after the Effective Date, this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof;
provided, however, in no event shall this Agreement supersede or replace the
Indemnification Agreement between the Executive and the Company, dated as of
March 10, 2000.
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<PAGE> 17
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from the Board, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
_________________________
PAYLESS SHOESOURCE, INC.
By_______________________
Name:
Title:
17
<PAGE> 1
Exhibit 10.15
INDEMNIFICATION AGREEMENT
AGREEMENT, dated as of the 22nd day of March, 2000, between Payless
ShoeSource, Inc., a Delaware corporation (the "Company") and ____________(the
"Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available; and
WHEREAS, Indemnitee is a director or officer of the Company; and
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, basic protection against undue risk of personal liability of
directors and officers heretofore has been provided through insurance coverage
providing reasonable protection at reasonable cost, and Indemnitee has relied on
the availability of such coverage; but as a result of substantial changes in the
marketplace for such insurance it generally has become more difficult to obtain
such insurance on terms providing reasonable protection at reasonable cost; and
WHEREAS, the Delaware legislature, in recognition of the need to
secure the continued service of competent and experienced people in senior
corporate positions and to assure that they will be able to exercise judgment
without fear of personal liability so long as they fulfill the basic duties of
honesty, care and good faith, has so enacted Section 145 of The Delaware General
Corporation Law (the "DGCL"), which empowers the Company to indemnify its
officers, directors, employees and agents and expressly provides that the
indemnification provided by the statute is not exclusive; and
WHEREAS, the Certificate of Incorporation of the Company requires the
Company to indemnify and advance expenses to its directors and officers to the
fullest extent now or hereafter authorized or permitted by law and authorizes
the Company to enter into agreements providing for such indemnification and
advancement of expenses; and
WHEREAS, in recognition of the fact that the Indemnitee continues to
serve as a director or officer of the Company, in part in reliance on the
aforesaid By-laws, and of the fact of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's continued
service to the Company in an effective manner, and in part to provide Indemnitee
with specific contractual assurance that the protection promised by such
Certificate of Incorporation will be available to Indemnitee (regardless of,
among other things, any amendment to or revocation of such Certificate of
Incorporation or any change in the composition of the Company's Board of
Directors or any acquisition transaction relating to the Company), and due to
the possibility that the Company's directors' and officers' liability insurance
coverage could at some future time become inadequate, the Company wishes to
provide in this Agreement for the
<PAGE> 2
indemnification of, and the advancing of expenses to, Indemnitee to the fullest
extent (whether partial or complete) now or hereafter authorized or permitted by
law and as set forth in this Agreement, and, to the extent insurance is
maintained, for the continued coverage of Indemnitee under the Company's
directors' and officers' liability insurance policies,
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. CERTAIN DEFINITIONS:
(1) "Approved Law Firm" shall mean any law firm (i) located in New
York or Delaware, (ii) having 50 or more attorneys and (iii) rated "av" by
Martindale-Hubbell Law Directory; provided, however, that such law firm shall
not, for a five- year period prior to the Indemnifiable Event, have been engaged
by the Company, an Acquiring Person or the Indemnitee.
(2) "Applicable Standard of Conduct" shall mean the standard
established by Section 145(a)-(b) of the DGCL.
(3) "Board of Directors" shall mean the Board of Directors of the
Company.
(4) A "Change of Control" shall be deemed to have occurred upon:
(A) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either
(A) the then-outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (B) the combined
voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities"); provided, however,
that, for purposes of this Section 1(d), none of the following
shall constitute a Change of Control: (i) any acquisition directly
from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any affiliated company,
(iv) any acquisition by any corporation pursuant to a transaction
that complies with Sections 1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C)
or (v) any acquisition by the Company which, by reducing the
number of shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities, increases the proportionate
number of shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities beneficially owned by any
Person to 20% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; provided, however, that, if
such Person shall thereafter become the beneficial owner of any
additional shares of Outstanding Company Common
2
<PAGE> 3
Stock or Outstanding Company Voting Securities and beneficially
owns 20% or more of either the Outstanding Company Common Sock or
the Outstanding Company Voting Securities, then such additional
acquisition shall constitute a Change of Control; or
(B) The cessation, for any reason, of individuals who, as of
the date hereof, constitute the Board (the "Incumbent Board") to
constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(C) The consummation of a reorganization, merger, consolidation
or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or
substantially all of the individuals and entities that were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50%, respectively, of the then-outstanding
shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation that, as a result of such transaction,
owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership immediately
prior to such Business Combination of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the
case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to
the extent that such ownership existed prior to the Business
Combination, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of
3
<PAGE> 4
the initial agreement or of the action of the Board providing for
such Business Combination; or
(D) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(5) "Claim" shall mean any threatened, pending or completed action,
suit or proceeding, or any inquiry or investigation, whether conducted by the
Company or any other party, that Indemnitee in good faith believes might lead to
the institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(6) "Expenses" shall include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any Claim relating to
any Indemnifiable Event, together with interest, computed at the Company's
average cost of funds for short-term borrowings, accrued from the date of
payment of such expense to the date Indemnitee receives reimbursement therefor.
(7) "Indemnifiable Event" shall mean any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee, agent or fiduciary of another
corporation of any type or kind, domestic or foreign, partnership, joint
venture, trust, employee benefit plan or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity. Without limitation
of any indemnification provided hereunder, an Indemnitee serving (i) another
corporation, partnership, joint venture or trust of which 20 percent or more of
the voting power or residual economic interest is held, directly or indirectly,
by the Company, or (ii) any employee benefit plan of the Company or any entity
referred to in clause (i), in any capacity shall be deemed to be doing so at the
request of the Company.
(8) "Reviewing Party" shall be (i) the Board of Directors acting by
majority vote of directors who are not parties to the particular Claim with
respect to which Indemnitee is seeking indemnification, even through less than a
quorum, or (ii) by a committee of such directors designated by a majority vote
of such directors, even though less than a quorum, or (iii) if there are no such
directors, or if such directors so direct, (A) by independent legal counsel in a
written opinion that indemnification is proper in the circumstances because the
indemnification is not precluded by circumstances described in the last sentence
of Section 2 of this Agreement and the Applicable Standard of Conduct set forth
in Section 145 of the DGCL has been met by the Indemnitee or (B) the
shareholders upon a finding that the Indemnitee has met the Applicable Standard
of Conduct referred to in clause (iii)(A) of this definition.
(9) "Voting Securities" shall mean any securities of the Company which
vote generally in the election of directors.
4
<PAGE> 5
2. BASIC INDEMNIFICATION ARRANGEMENT. If Indemnitee was, is or becomes at
any time a party to, or witness or other participant in, or is threatened to be
made a party to, or witness or other participant in, a Claim by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee to the fullest extent now or hereafter authorized or permitted by law
as soon as practicable but in any event no later than 30 days after written
demand is presented to the Company, against any and all Expenses, judgments,
fines (including excise taxes assessed against an Indemnitee with respect to an
employee benefit plan), penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with, or
in respect of, such Expenses, judgments, fines, penalties or amounts paid in
settlement) of such Claim. If so requested by Indemnitee, the Company shall
advance (within two business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"). Notwithstanding anything in this Agreement to
the contrary, (i) Indemnitee shall not be entitled to indemnification pursuant
to this Agreement in any action in which the Indemnitee's conduct has been
finally adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct; (ii) in any derivative action in which Indemnitee has been
finally adjudged to be liable to the Company, unless and only to the extent that
the Court of Chancery or the court in which the proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper, and (iii) prior to a Change in Control Indemnitee shall not be entitled
to indemnification pursuant to this Agreement in connection with any Claim
initiated by Indemnitee against the Company or any director or officer of the
Company unless the Company has joined in or consented to the initiation of such
Claim.
3. PAYMENT. Notwithstanding the provisions of Section 2, the obligations of
the Company under Section 2 (which shall in no event be deemed to preclude any
right to indemnification to which Indemnitee may be entitled under Section
145(c) of the DGCL) shall be subject to the condition that the Reviewing Party
shall have authorized such indemnification in the specific case by having
determined that the indemnification is not precluded by circumstances described
in the last sentence of Section 2 of this Agreement and Indemnitee is permitted
to be indemnified under the Applicable Standard of Conduct set forth in Section
145(a)-(b) of the DGCL. The Company shall promptly call a meeting of the Board
of Directors with respect to a Claim and agrees to use its best efforts to
facilitate a prompt determination by the Reviewing Party with respect to the
Claim. Indemnitee shall be afforded the opportunity to make submissions to the
Reviewing Party with respect to the Claim. The obligation of the Company to make
an Expense Advance pursuant to Section 2 shall be subject to the condition that,
if, when and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under Section 2 and applicable law,
the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees
and undertakes to the full extent required by Section 145(e) of the DGCL to
reimburse the Company) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under
5
<PAGE> 6
applicable law, any determination made by the Reviewing Party that Indemnitee
would not be permitted to be indemnified under applicable law shall not be
binding and Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation in any court in the State of Delaware
having subject matter jurisdiction thereof and in which venue is proper seeking
an initial determination by the court or challenging any such determination by
the Reviewing Party or any aspect thereof, and the Company hereby consents to
service of process and to appear in any such proceeding. Any determination by
the Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
4. CHANGE IN CONTROL. If there is a Change in Control (other than a Change
in Control which has been approved by a majority of the Board of Directors who
were directors immediately prior to such Change in Control) then (i) all
determinations by the Company pursuant to the first sentence of Section 3 hereof
and Section 145(d) of the DGCL shall be made by independent legal counsel in a
written opinion pursuant to Section 145(d) of the DGCL and (ii) with respect to
all matters thereafter arising concerning the rights of Indemnitee to indemnity
payments and Expense Advances under this Agreement or any other agreement or
By-law of the Company now or hereafter in effect relating to Claims for
Indemnifiable Events (including, but not limited to, any such legal opinion
provided under Section 145 (d) of the DGCL) the Company (including the Board of
Directors) shall seek legal advice from (and only from) special, independent
counsel selected by Indemnitee and approved by the Company (which approval shall
not be unreasonably withheld), and who has not otherwise performed services for
the Company (or any subsidiary of the Company) or an Acquiring Person (or any
affiliate or associate of such Acquiring Person) or Indemnitee within the last
five years (other than in connection with such matters). Unless Indemnitee has
theretofore selected counsel pursuant to this Section 4 and such counsel has
been approved by the Company, any Approved Law Firm selected by Indemnitee shall
be deemed to be approved by the Company. Such counsel, among other things, shall
render its written opinion to the Company, the Board of Directors and Indemnitee
as to whether and to what extent the Indemnitee would be permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable fees
of the special, independent counsel referred to above and to fully indemnify
such counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto. As used in this Agreement, the terms "affiliate" and
"associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the Act and in effect on the
date of this Agreement.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee, which are reasonably incurred by Indemnitee
in connection with any claim asserted or action brought by Indemnitee for (i)
indemnification or advance payment of Expenses by the
6
<PAGE> 7
Company under this Agreement or any other agreement or By-law of the Company now
or hereafter in effect relating to Claims for Indemnifiable Events and/or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
6. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for a portion of the Expenses,
judgments, fines, penalties and amounts paid in settlement of a Claim but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
Moreover, notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been successful on the merits or otherwise in defense of any
or all Claims relating in whole or in part to an Indemnifiable Event or in
defense of any issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified, to the extent permitted by law, against all
Expenses incurred in connection with such Indemnifiable Event.
7. BURDEN OF PROOF. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
8. NO PRESUMPTION. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, whether civil or criminal, by judgment,
order, settlement (whether with or without court approval) or conviction, or
upon a plea of nolo contendere, or its equivalent, shall not create a
presumption that Indemnitee did not meet any particular standard of conduct or
have any particular belief or that a court has determined that indemnification
is not permitted by applicable law.
9. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Certificate of
Incorporation of the Company, the DGCL, or otherwise. To the extent that a
change in the DGCL (whether by statute or judicial decision) permits greater
indemnification by agreement than would be afforded currently under the
Certificate of Incorporation of the Company and this Agreement, it is the intent
of the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
10. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any director
or officer of the Company.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of
action shall be asserted by or on behalf of the Company or any affiliate of the
Company
7
<PAGE> 8
against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company or any
affiliate shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two-year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such
cause of action, such shorter period shall govern.
12. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be effective
unless in writing and no written waiver shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
13. SUBROGATION. In the event of payment under the Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.
15. SPECIFIC PERFORMANCE. The parties recognize that if any provision of
this Agreement is violated by the Company, Indemnitee may be without an adequate
remedy at law. Accordingly, in the event of any such violation, the Indemnitee
shall be entitled, if Indemnitee so elects, to institute proceedings, either in
law or at equity, to obtain damages, to enforce specific performance, to enjoin
such violation, or to obtain any relief or any combination of the foregoing as
Indemnitee may elect to pursue.
16. BINDING EFFECT, ETC. This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business and/or
assets of the Company), assigns, spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or of any
other enterprise at the Company's request.
17. SEVERABILITY. The provisions of this Agreement shall be severable if
any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise
8
<PAGE> 9
unenforceable, and the remaining provisions shall remain enforceable to the
fullest extent permitted by law.
18. GOVERNING LAW. This Agreement shall be governed by, and be construed
and enforced in accordance with, the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
19. EFFECTIVE TIME. This Agreement shall become effective as of the date
first above written. The contractual rights of Indemnitee with respect to
Indemnifiable Events occurring before the Effective Time are governed by the
Indemnification Agreement between Indemnitee and Payless ShoeSource, Inc., a
Missouri corporation or Payless ShoeSource, Inc., a Delaware corporation, if
any, (the "Prior Agreements") and Indemnitee shall have no rights under this
Agreement with respect to such Indemnifiable Events. The contractual rights of
Indemnitee with respect to Indemnifiable Events occurring after the Effective
Time are governed by this Agreement, and Indemnitee shall have no rights against
Payless ShoeSource, Inc., a Missouri corporation or Payless ShoeSource, Inc., a
Delaware corporation, under any Prior Agreements with respect to such
Indemnifiable Events.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement
as of the date first above written.
------------------------------------
PAYLESS SHOESOURCE, INC.
By:
---------------------------------
Name: Steven J. Douglass
Title: Chairman and Chief Executive Officer
9
<PAGE> 1
Exhibit 10.16
PAYLESS SHOESOURCE, INC.
DEFERRED COMPENSATION PLAN
FOR NON-MANAGEMENT DIRECTORS
EFFECTIVE JULY 17, 1997
Amended March 16, 2000
<PAGE> 2
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 Delaware corporation.
(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.
<PAGE> 3
(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 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
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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 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> 5
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 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.
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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
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).
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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.
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(a) Subject to the provisions of Section 6 and paragraph (b) of this
Section 10, no amount, the payment of which has been deferred under Alternative
(ii) or (iii), shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, levy or charge, and any attempt to so
anticipate, alienate, sell, transfer, assign, pledge, encumber, levy or charge
the same shall be void; nor shall any such amount be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the person
entitled to such benefit.
(b) Nothing in this Section 10 shall prohibit the personal representative
of a Participant from designating that any amount be distributed in accordance
with the terms of the Participant's will or pursuant to the laws of descent and
distribution.
SECTION 11. WITHHOLDING.
There shall be deducted from all amounts paid under this Plan any taxes
required to be withheld by any federal, state or local government. The
Participants and their beneficiaries, distributees and personal representatives
will bear any and all federal, foreign, state, local or other income or other
taxes imposed on amounts paid under this Plan as to which no amounts are
withheld, irrespective of whether withholding is required.
SECTION 12. DISCRETIONARY PAYMENT.
(a) Notwithstanding any other provision in any other Section of the Plan to
be contrary, the 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);
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(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 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 the purposes of this Plan, a "Change in Control" shall be deemed to
have occurred if:
(a) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") acquires beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A)
the then-outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding
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Company Voting Securities"); provided, however, that, for purposes of this
Section 13, none of the following shall constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any affiliated company or (iv) any acquisition
by any corporation pursuant to a transaction that complies with Sections
13(c)(A), 13(c)(B) and 13(c)(C) or (v) any acquisition by the Company which, by
reducing the number of shares of Outstanding Company Common Stock or Outstanding
Company Voting Securities, increases the proportionate number of shares of
Outstanding Company Common Stock or Outstanding Company Voting Securities
beneficially owned by any Person to 20% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; provided, however, that,
if such Person shall thereafter become the beneficial owner of any additional
shares of Outstanding Company Common Stock or Outstanding Company Voting
Securities and beneficially owns 20% or more of either the Outstanding Company
Common Sock or the Outstanding Company Voting Securities, then such additional
acquisition shall constitute a Change of Control; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a
"Business Combination") is consummated, in each case, unless, following such
Business Combination, (A) all or substantially all of the individuals and
entities that were the beneficial owners, respectively, of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50%, respectively, of the then-outstanding shares of common stock and
the combined voting power of the then- outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination, (including, without
limitation, a corporation that, as a result of such transaction, owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities, as the case
may be, (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business
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Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then- outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (C) at least
a majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement or of the action of the Board
providing for such Business Combination; or
(d) the stockholders of the Company approve of a complete liquidation
or dissolution of the Company.
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Exhibit 10.18
THE STOCK APPRECIATION AND PHANTOM STOCK UNIT PLAN
OF
PAYLESS SHOESOURCE, INC. AND ITS SUBSIDIARIES
FOR
PAYLESS SHOESOURCE INTERNATIONAL EMPLOYEES
Amended March 16, 2000
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) "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.
(d) "Board" means the Board of Directors of Payless ShoeSource,
Inc., a Delaware corporation.
(e) "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.
(f) "Company" means Payless ShoeSource, Inc., a Delaware
corporation.
(g) "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 in the country in
which the Participant resides.
<PAGE> 2
(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 owned, 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 the difference, if
positive, between the Fair Market Value of a share of stock on the date the
Unit is exercised and the
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<PAGE> 3
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
citizens of the United States of America and who are employed and reside out of
the boundaries 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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(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.
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.
5
<PAGE> 6
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 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.
(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.
6
<PAGE> 7
(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 Article 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 Article 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.
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
7
<PAGE> 8
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
under Section 162(m) of the Code without regard to the foregoing proviso 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 individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") acquires beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that, for purposes of this Section 7, none of the following
shall constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any affiliated company or (iv) any acquisition by any corporation pursuant to
a transaction that complies with Sections 7(c)(A), 7(c)(B) and 7(c)(C) or (v)
any acquisition by the Company which, by reducing the number of shares of
Outstanding Company Common Stock or Outstanding Company Voting Securities,
increases the proportionate number of shares of Outstanding Company Common Stock
or Outstanding Company Voting Securities beneficially owned by any Person to 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities; provided, however, that, if such Person shall thereafter become the
beneficial owner of any additional shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities and beneficially owns 20% or more of
either the Outstanding Company Common Sock or the Outstanding Company Voting
Securities, then such additional acquisition shall constitute a Change of
Control; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was
8
<PAGE> 9
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a
"Business Combination") is consummated, in each case, unless, following such
Business Combination, (A) all or substantially all of the individuals and
entities that were the beneficial owners, respectively, of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50%, respectively, of the then-outstanding shares of common stock and
the combined voting power of the then-outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination, (including, without
limitation, a corporation that, as a result of such transaction, owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities, as the case
may be, (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then-outstanding voting
securities of such corporation, except to the extent that such ownership existed
prior to the Business Combination, and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement or of the action of the Board providing for such Business
Combination; or
(d) the stockholders of the Company approve of a complete
liquidation or dissolution of the Company.
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 exercised 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.
9
<PAGE> 1
Exhibit 10.19
PAYLESS SHOESOURCE, INC.
PROFIT SHARING PLAN
FOR PUERTO RICO ASSOCIATES
Amended March 16, 2000 or as otherwise specified.
Exhibit_10_19_ Payless ShoeSource, Inc. Profit Sharing Plan for
Puerto Rico Assocites.WPD
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1
DEFINITIONS.............................................................................2
1.01 ACCOUNTS.......................................................................2
1.02 ADMINISTRATIVE DELEGATE........................................................2
1.03 AFTER-TAX CONTRIBUTIONS .......................................................2
1.04 ALLOCATION PAY AMOUNT..........................................................2
1.05 ASSOCIATE......................................................................2
1.06 AUTHORIZED LEAVE OF ABSENCE....................................................3
1.07 BEFORE-TAX CONTRIBUTIONS.......................................................3
1.08 BENEFICIARY ...................................................................3
1.09 BOARD..........................................................................3
1.10 COMMITTEE......................................................................3
1.11 COMPANY OR PAYLESS.............................................................3
1.12 COMPANY ACCOUNTS...............................................................3
1.13 COMPANY MATCHING CONTRIBUTIONS.................................................3
1.14 COMPANY PROFIT SHARING CONTRIBUTIONS ..........................................3
1.15 EFFECTIVE DATE.................................................................4
1.16 EMPLOYER OR PAYLESS PR.........................................................4
1.17 ERISA..........................................................................4
1.18 FIDUCIARY .....................................................................4
1.19 FISCAL YEAR....................................................................4
1.20 GROUP..........................................................................4
1.21 HOUR OF SERVICE................................................................4
1.22 INVESTMENT FUND................................................................5
1.23 MAY PLAN ......................................................................5
1.24 MEMBER.........................................................................5
1.25 MEMBER ACCOUNTS................................................................5
1.26 MEMBER AFTER-TAX ACCOUNTS......................................................5
1.27 MEMBER BEFORE-TAX ACCOUNTS ....................................................5
1.28 MEMBER CONTRIBUTIONS ..........................................................5
1.29 MEMBER ROLLOVER CONTRIBUTION ACCOUNTS..........................................5
1.30 MILITARY SERVICE...............................................................5
1.31 NET PROFITS....................................................................5
1.32 PAY............................................................................6
1.33 PLAN...........................................................................6
1.34 PLAN YEAR .....................................................................6
1.35 POOLED INVESTMENT ACCOUNT......................................................6
1.36 PR CODE........................................................................6
1.37 PRIOR PLAN.....................................................................6
1.38 QUALIFIED DOMESTIC RELATIONS ORDER.............................................6
1.39 RETIREMENT.....................................................................6
1.40 ROLLOVER CONTRIBUTIONS.........................................................6
1.41 SOCIAL SECURITY WAGE BASE......................................................6
</TABLE>
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<TABLE>
<CAPTION>
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1.42 TOTAL AND PERMANENT DISABILITY.................................................6
1.43 TRANSFERRED ACCOUNTS...........................................................7
1.44 TRUST AGREEMENT................................................................7
1.45 TRUST FUND.....................................................................7
1.46 TRUSTEE........................................................................7
1.47 UNIT...........................................................................7
1.48 UNIT VALUE.....................................................................7
1.49 US CODE........................................................................7
1.50 VALUATION DATE.................................................................7
1.51 YEAR OF SERVICE................................................................7
1.52 VESTING SERVICE................................................................8
SECTION 2
MEMBERSHIP.............................................................................10
2.01 CONDITIONS OF ELIGIBILITY.....................................................10
2.02 RE-EMPLOYMENT.................................................................11
SECTION 3
COMPANY CONTRIBUTIONS..................................................................12
3.01 AMOUNT OF COMPANY PROFIT SHARING CONTRIBUTION.................................12
3.02 AMOUNT OF COMPANY MATCHING CONTRIBUTION.......................................12
3.03 ALLOCATION OF COMPANY CONTRIBUTIONS...........................................12
3.04 PROFIT SHARING ALLOCATION FORMULA.............................................12
3.05 INVESTMENT OF THE COMPANY.....................................................12
3.06 RETURN OF COMPANY CONTRIBUTIONS...............................................13
SECTION 4
MEMBER CONTRIBUTIONS...................................................................14
4.01 PROCEDURE FOR MAKING CONTRIBUTIONS............................................14
4.02 LIMITATIONS ON BEFORE-TAX CONTRIBUTIONS.......................................16
4.03 DISTRIBUTIONS OF EXCESS DEFERRALS.............................................18
4.04 LIMITATIONS ON AFTER-TAX CONTRIBUTIONS........................................19
4.05 LIMITATIONS ON COMPANY MATCHING CONTRIBUTIONS.................................19
4.06 AGGREGATE LIMITATIONS.........................................................19
SECTION 5
INVESTMENT PROVISIONS..................................................................20
5.01 INVESTMENT FUNDS..............................................................20
5.02 INVESTMENT DIRECTION..........................................................20
SECTION 6
ACCOUNTS...............................................................................22
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
6.01 MEMBER ACCOUNTS...............................................................22
6.02 COMPANY ACCOUNTS..............................................................22
6.03 MAINTENANCE OF ACCOUNTS.......................................................22
6.04 VALUATION OF ACCOUNTS.........................................................22
6.05 MEMBER STATEMENTS.............................................................22
6.06 SHARES OF PAYLESS SHOESOURCE, INC.............................................22
6.07 VESTING IN MEMBER AND COMPANY ACCOUNTS .......................................23
SECTION 7
EXPENSES...............................................................................27
7.01 ADMINISTRATIVE EXPENSES.......................................................27
SECTION 8
WITHDRAWALS DURING EMPLOYMENT..........................................................28
8.01 WITHDRAWALS PROHIBITED UNLESS SPECIFICALLY AUTHORIZED.........................28
8.02 AUTHORIZED WITHDRAWALS........................................................28
SECTION 9
BENEFITS UPON RETIREMENT, DEATH, DISABILITY, OR TERMINATION OF
EMPLOYMENT.............................................................................30
9.01 BENEFITS......................................................................30
9.02 BENEFICIARY...................................................................30
SECTION 10
PAYMENT OF BENEFITS...........................................................31
10.01 TIME OF PAYMENT...............................................................31
10.02 FORM OF PAYMENT...............................................................32
10.03 INDIRECT PAYMENT OF BENEFITS..................................................32
10.04 INABILITY TO FIND MEMBER......................................................32
10.05 COMMENCEMENT OF BENEFIT DISTRIBUTION TO MEMBER................................32
10.06 COMMENCEMENT OF BENEFIT DISTRIBUTION TO BENEFICIARY...........................32
10.07 COMMENCEMENT OF BENEFIT DISTRIBUTION TO ALTERNATE PAYEE. .....................32
SECTION 11
PERMITTED ROLLOVER OF PLAN DISTRIBUTIONS......................................34
11.01 ROLLOVER AMOUNT TO OTHER PLANS. .............................................34
11.02 ROLLOVER AMOUNT FROM OTHER PLANS..............................................34
11.03 DEFINITIONS...................................................................34
SECTION 12
LOANS.........................................................................36
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
12.01 AVAILABILITY OF LOANS.........................................................36
12.02 AMOUNTS OF LOANS..............................................................36
12.03 TERMS OF LOANS................................................................36
SECTION 13
LIMIT ON CONTRIBUTIONS TO THE PLAN............................................38
13.01 LIMIT ON CONTRIBUTIONS........................................................38
13.02 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS.....................................39
SECTION 14
ADMINISTRATION OF THE PLAN....................................................40
14.01 PLAN ADMINISTRATOR............................................................40
14.02 DELEGATION OF AUTHORITY.......................................................40
14.03 COMMITTEE AND SUBCOMMITTEES...................................................40
14.04 ACCOUNTS AND REPORTS..........................................................41
14.05 NON-DISCRIMINATION. .........................................................41
SECTION 15
MANAGEMENT OF THE TRUST FUND..................................................43
15.01 USE OF THE TRUST FUND.........................................................43
15.02 TRUSTEES......................................................................43
15.03 INVESTMENTS AND REINVESTMENTS.................................................43
SECTION 16
CERTAIN RIGHTS AND OBLIGATIONS OF EMPLOYERS AND MEMBERS.......................45
16.01 DISCLAIMER OF EMPLOYER LIABILITY..............................................45
16.02 EMPLOYER-ASSOCIATE RELATIONSHIP...............................................45
16.03 BINDING EFFECT................................................................45
16.04 CORPORATE ACTION..............................................................45
16.05 CLAIM AND APPEAL PROCEDURE....................................................45
SECTION 17
NON-ALIENATION OF BENEFITS....................................................47
17.01 PROVISIONS WITH RESPECT TO ASSIGNMENT AND LEVY................................47
17.02 ALTERNATE APPLICATION.........................................................47
SECTION 18
AMENDMENTS....................................................................48
18.01 COMPANY'S RIGHTS..............................................................48
18.02 PROCEDURE TO AMEND............................................................48
18.03 PROVISION AGAINST DIVERSION...................................................48
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
SECTION 19
TERMINATION...................................................................49
19.01 RIGHT TO TERMINATE. .........................................................49
19.02 WITHDRAWAL OF AN EMPLOYER.....................................................49
19.03 DISTRIBUTION IN EVENT OF TERMINATION OF TRUST.................................49
19.04 ADMINISTRATION IN EVENT OF CONTINUANCE OF TRUST. ............................49
19.05 MERGER, CONSOLIDATION OR TRANSFER.............................................49
SECTION 20
CONSTRUCTION..................................................................50
20.01 APPLICABLE LAW................................................................50
20.02 GENDER AND NUMBER.............................................................50
</TABLE>
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PAYLESS SHOESOURCE, INC.
PROFIT SHARING PLAN FOR PUERTO RICO ASSOCIATES
INTRODUCTION
Effective April 1, 1996, Payless ShoeSource, Inc. ("Payless") withdrew
from and ceased to be a participating Employer in The May Department Stores
Company Profit Sharing Plan (the "May Plan") and established the Payless
ShoeSource, Inc. Profit Sharing Plan (the "Payless Plan"). The Payless Plan, as
adopted, covered eligible Associates employed in Puerto Rico by Payless
ShoeSource of Puerto Rico, Inc. ("Payless PR"). Effective January 1, 1997, a
portion of the Payless Plan covering Associates employed by Payless PR was spun
off and established a new plan, Payless ShoeSource, Inc. Profit Sharing Plan for
Puerto Rico Associates (the "Plan"), which was adopted by Payless PR as an
adopting Employer.
Now, effective March 20, 2000, or as otherwise specified, Payless is
amending and restating the Plan primarily to include provisions for loans, the
acceptance of rollover contributions from other qualified plans, a change to
daily valuation, other miscellaneous changes and to comply with the tax laws of
Puerto Rico. Such amendment and restatement applies only to Associates or former
Associates who were employed by an Employer on or after the effective date(s) of
the respective amended provisions, and the rights and benefits of persons
thereunder are to be determined solely in accordance with the provisions of the
Plan in effect on the date an Associate's employment was or is terminated.
Notwithstanding the preceding sentence, the change in valuation date shall be
effective for all Associates after the effective date.
The terms and provisions of this new Plan are as follows:
1
<PAGE> 8
SECTION 1
DEFINITIONS
1.01 ACCOUNTS means the Company Accounts and Member Accounts
established under Section 6.
1.02 ADMINISTRATIVE DELEGATE means one or more persons or institutions
to which the Committee has delegated certain administrative functions pursuant
to a written agreement.
1.03 AFTER-TAX CONTRIBUTIONS means Member Contributions which are not
Before-Tax Contributions and which are made by the Member in accordance with
Section 4.01(a).
1.04 ALLOCATION PAY AMOUNT means with respect to each eligible Member,
(a) one (1) times the amount of Pay as defined in Section 1.33 up to the Social
Security Wage Base ("SSWB") for the Plan Year, plus (b) two (2) times the amount
of such Pay in excess of the SSWB for the Plan Year. Notwithstanding any
provision of this Section 1.04 or of Section 3.03 to the contrary, in no event
shall the percentage of Members' Pay to be allocated for any year below the SSWB
be less than fifty percent (50%) of the percentage of Pay allocated with respect
to Members' Pay in excess of the SSWB, nor may the latter percentage of Pay
(above the SSWB) exceed the former percentage of Pay (below the SSWB) by more
than 5.7% (or such other percentage as may be the maximum permitted differential
under US Code Section 401(1) from time to time).
In determining each eligible Member's Allocation Pay Amount, only Pay
received during the part of the Plan Year the Member is eligible for the Company
Contribution feature of the Plan, pursuant to Section 2, shall be considered,
and the SSWB to be applied for such Member shall be proportionally prorated if
such eligibility is for less than a full Plan Year.
Notwithstanding the foregoing, with respect to any Plan Year for which
applying the definition of Allocation Pay Amount set forth above would cause the
allocation made pursuant to Section 3.03 to violate the permitted disparity
limitations of US Treas. Reg. Section 1.401(l)-2, Allocation Pay Amount shall be
adjusted to permit Section 3.03 to operate in compliance with the limitations of
US Treas. Reg. Section 1.401(l)-2.
1.05 ASSOCIATE means any person employed by Payless PR who receives Pay
from Payless PR. The term Associate also may include, based upon the express
written determination of the Company or the Committee, a person who receives Pay
from sources within Puerto Rico and who is employed, at the request of the
Company or the Employer, by a member of the Group (defined in Section 1.21) to
the extent such employee otherwise qualifies for membership under Section 2, in
which case such Group member shall be deemed to be an "Employer" hereunder, as
to such person or persons only. The term "Associate" shall not include (i) any
person covered under a collective bargaining agreement unless and until the
Employer and the collective bargaining representatives so
2
<PAGE> 9
agree, (ii) any non-resident alien who received no earned income from the
Employer from sources within Puerto Rico, and (iii) any "leased employee" within
the meaning of US Code Section 414(n)(2). The term "Associate" may include,
where appropriate, Associates of Payless or other related Employers who are
transferred to the Employer or as otherwise may be necessary or appropriate in
construing the Plan under applicable law. In the event that an individual who
was not classified as an employee or a common-law employee is legally
reclassified as an employee or a common-law employee of the Employer, such
employee shall only be considered to be an employee at the time of such
reclassification, or, if later, at the time that such individual is initially
treated as an employee or common-law employee on the payroll records of the
Company.
1.06 AUTHORIZED LEAVE OF ABSENCE means any leave of absence authorized
by the Employer under rules established by the Employer.
1.07 BEFORE-TAX CONTRIBUTIONS means contributions which the Member
elects (in accordance with Section 4.01(b)) to have the Employer make directly
to the Plan on behalf of the Member, which election shall constitute an election
under PR Code Section 1165(e)(2)(A). The "Member's Before-Tax Contributions"
shall refer to Before-Tax Contributions made to the Plan by the Employer on
behalf of the Member.
1.08 BENEFICIARY means the person or persons entitled under Section
9.02 to receive any payments payable under this Plan on account of a Member's
death.
1.09 BOARD means the Board of Directors of the Company.
1.10 COMMITTEE means the Profit Sharing Committee comprised of three or
more members as determined and appointed from time to time by the Board. Unless
determined otherwise by the Board, the Committee shall constitute the Profit
Sharing Committee of the Payless ShoeSource, Inc. 401(k) Profit Sharing Plan
from time to time.
1.11 COMPANY OR PAYLESS means Payless ShoeSource, Inc., a Delaware
corporation, and any other organization which may be a successor to it.
1.12 COMPANY ACCOUNTS means accounts reflecting the portion of each
Member's interest in the Investment Funds which are attributable to Company
Matching Contributions ("Company Matching Accounts") and to Company Profit
Sharing Contributions ("Company Profit Sharing Accounts") and to any
contributions made by an Employer under Prior Plans, as well as to any income
and/or earnings attributable to such Company Contributions and Prior Plan
contributions.
1.13 COMPANY MATCHING CONTRIBUTIONS means contributions made by the
Company, based on a Member's Before-Tax and/or After-Tax Contributions, pursuant
to Section 3.02.
1.14 COMPANY PROFIT SHARING CONTRIBUTIONS means discretionary
contributions made by the Company, based on Net Profits, pursuant to Section
3.01.
3
<PAGE> 10
1.15 EFFECTIVE DATE means March 20, 2000 or as otherwise specified
herein.
1.16 EMPLOYER OR PAYLESS PR means Payless ShoeSource of Puerto Rico,
Inc. and any other entity affiliated with the Company which elects, with the
consent of the Company, to participate herein.
1.17 ERISA means the Employee Retirement Income Security Act of 1974,
as amended from time to time, to the extent applicable to the Plan.
1.18 FIDUCIARY means the Employer, the Trustee, each of the members of
the Committee described in Section 14, and any investment manager designated
pursuant to Section 15.
1.19 FISCAL YEAR means the Company's Fiscal Year.
1.20 GROUP means the Company, the Employer, and any other company which
is related to the Company or Employer as a member of a controlled group of
corporations in accordance with ERISA Section 210(c), or as a trade or business
under common control in accordance with ERISA Section 210(d). For the purposes
of the Plan, for determining whether or not a person is an employee of the Group
and the period of employment of such person, each such other company shall be
included in the "Group" only for such period or periods during which such other
company is a member with the Company or Employer of a controlled group or under
common control. In determining Hours of Service, Years of Service and Vesting
Service for all purposes hereunder, employment with any member of the Group
shall be included. Members of an affiliated service group under US Code Section
414(m) will also be part of the Group.
1.21 HOUR OF SERVICE means any hour for which an Associate (including a
leased employee) is directly or indirectly compensated, or entitled to
compensation, by the Company, the Employer or any other member of the Group,
whether or not such Group member has adopted the Plan, for any of the following:
(a) the performance of duties during the applicable
computation period;
(b) a period during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including disability), layoff, jury
duty, Military Service, or Authorized Leave of Absence;
(c) a period for which back pay is awarded or agreed to,
provided that no Hour of Service has been credited under subsection (a) or (b)
with respect to the same period.
Hours of Service and applicable computation periods shall be determined
in accordance with the requirements of 29 C.F.R. Section 2530.200b.
4
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1.22 INVESTMENT FUND means any fund for investment of contributions as
described in Section 5.01.
1.23 MAY PLAN means The May Department Stores Company Profit Sharing
Plan.
1.24 MEMBER means any person included in the membership of this Plan as
provided in Section 2.
1.25 MEMBER ACCOUNTS means the Member Before-Tax Accounts, the Member
After-Tax Accounts and the Member Rollover Contribution Accounts. To the extent
an Associate makes a Rollover Contribution pursuant to Section 11.02 and the
Associate is otherwise eligible but has not yet completed the participation
requirements of Section 2.01, such contribution shall also be a Member Account.
1.26 MEMBER AFTER-TAX ACCOUNTS means the Member Accounts with respect
to a Member's After-Tax Contributions.
1.27 MEMBER BEFORE-TAX ACCOUNTS means the Member Accounts with respect
to a Member's Before-Tax Contributions.
1.28 MEMBER CONTRIBUTIONS means the Member's Before-Tax Contributions
and After-Tax Contributions.
1.29 MEMBER ROLLOVER CONTRIBUTION ACCOUNTS means the Member Accounts
with respect to an Associate's or Member's Rollover Contributions.
1.30 MILITARY SERVICE means effective December 13, 1996, any period of
obligatory military service with the Armed Forces of the United States of
America, or voluntary service in lieu of such obligatory service, provided that
the Associate returns to active employment with the Employer within the period
during which the Employer would be required to re-employ the Associate under
Federal law. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified Military
Service will be provided in accordance with the Uniform Services Employment and
Reemployment Rights Act and US Code Section 414(u).
1.31 NET PROFITS means the consolidated net profits of the Company for
any given Fiscal Year, determined by generally accepted accounting principles
except that (i) no deduction or provision shall be made for any federal, state
or other taxes measured by net income nor for any contributions to the Trust or
to any other pension or profit sharing plan, and (ii) there shall be excluded
any proceeds from life insurance of which the Company or the Employer is
beneficiary (whether paid in a single sum or otherwise) and any gains or losses
on the sale of capital assets. Such term shall also mean any accumulated and
undistributed Net Profits (as defined in the preceding sentence) earned in prior
Fiscal Years to the extent that such accumulated and undistributed Net Profits
constitute surplus of the Company and its subsidiaries available for
contributions hereunder.
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1.32 PAY means the aggregate of (i) all regular pay, commissions,
overtime pay, cash incentives, and prizes and cash awards, plus (ii) amounts
which the Associate elects to have the Employer contribute directly to the Plan
on the Associate's behalf in accordance with Section 4.01(b). Pay shall include
any amounts not otherwise includable in the Member's taxable income pursuant to
US Code Section 125. Pay shall not include amounts for a pension, a retirement
allowance, a retainer or a fee under contract, deferred compensation (including
amounts deferred under the Deferred Compensation Plan of Payless ShoeSource,
Inc.), severance pay, distributions from this Plan or items of extraordinary
income including but not limited to amounts resulting from the exercise of stock
options, spinoff cash, spinoff stock and restricted stock awards. Pay in excess
of $170,000 shall be disregarded, although such amount shall be adjusted at the
same time and in such manner as permitted under US Code Section 415(d).
1.33 PLAN means this Payless ShoeSource, Inc. Profit Sharing Plan for
Puerto Rico Associates, as amended from time to time.
1.34 PLAN YEAR means a calendar year ending each December 31.
1.35 POOLED INVESTMENT ACCOUNT means an account established pursuant to
an administrative services agreement between the Company and the Trustee.
1.36 PR CODE means the Puerto Rico Internal Revenue Code of 1994, as
amended from time to time.
1.37 PRIOR PLAN means The May Department Stores Company Profit Sharing
Plan, the Volume Shoe Corporation Profit Sharing Plan, the Payless ShoeSource,
Inc. Profit Sharing Plan and such other qualified plan as may be so designated
by the Committee.
1.38 QUALIFIED DOMESTIC RELATIONS ORDER means a "qualified domestic
relations order" as that term is defined in ERISA Section 206(d)(3), provided
that such order was entered on or after January 1, 1985.
1.39 RETIREMENT means a Member's termination of employment on or after
age 55 and after completing at least five (5) Years of Service or attaining the
fifth anniversary of participation, as of which date the Member's benefit shall
be nonforfeitable.
1.40 ROLLOVER CONTRIBUTIONS means contributions which the Associate or
Member, as applicable, elects to make in accordance with Section 11.02.
1.41 SOCIAL SECURITY WAGE BASE means, with respect to each Plan Year,
the maximum amount of wages which are subject to tax in such year under the
Federal Old Age, Survivors and Disability Insurance System.
1.42 TOTAL AND PERMANENT DISABILITY or DISABILITY means the total
incapacity of a Member for the continued performance of regular active
employment with
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an Employer, which disability is expected to be permanent, as determined by the
Committee, provided that a Member shall not be considered totally and
permanently disabled for purposes of this Plan unless he qualifies for
disability benefits under Title 11 of the Federal Social Security Act.
1.43 TRANSFERRED ACCOUNTS means Member and Company Accounts transferred
from a Prior Plan.
1.44 TRUST AGREEMENT means the agreement or agreements provided for in
Section 15, as amended from time to time.
1.45 TRUST FUND means all the assets of the Investment Funds, including
assets transferred from a Prior Plan, which are held in one or more trusts by
the Trustee or Trustees for the purposes of this Plan.
1.46 TRUSTEE means the corporation(s), person or persons which may at
any time be acting as Trustee or Trustees under the Trust Agreement.
1.47 UNIT means one of the units representing an interest in an
Investment Fund as provided in Section 6.03.
1.48 UNIT VALUE means the value of each Unit in an Investment Fund as
of the Valuation Date as determined pursuant to Section 6.04.
1.49 US CODE means the U.S. Internal Revenue Code of 1986, as amended
from time to time.
1.50 VALUATION DATE means any day that the New York Stock Exchange is
open for business or any other date chosen by the Committee. Prior to March 31,
2000, Valuation Date means the last business day of each calendar month and any
other date chosen to perform a valuation.
1.51 YEAR OF SERVICE for purposes of determining eligibility under
Section 2 means a year of employment during which the Associate has been paid
for not less than 1,000 Hours of Service for an Employer or any other member of
the Group. An Associate shall be credited with a year of employment on each
anniversary date of his commencement of employment with an Employer. Periods of
temporary illness, temporary layoff, Military Service, and Authorized Leaves of
Absence shall not be deemed as breaking continuity of employment and shall be
counted in determining Years of Service. The term "Year of Service" shall also
include an employment year during which, except to the extent otherwise provided
in the US Treasury Regulations, a "leased employee" within the meaning of US
Code Section 414(n) has been paid for not less than 1,000 Hours of Service for
the Employer even though during such period the leased employee was not an
Associate as defined in Section 1.05. The term "Year of Service" shall include
any period required to be included by the Family and Medical Leave Act of 1993.
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<PAGE> 14
The extent to which service with another organization, part or all of whose
business operations are acquired by the Company (or by an Employer), shall be
credited as "Years of Service" hereunder or as "Vesting Service" under Section
1.52 shall be determined by the Company or by the Committee on a case-by-case
basis.
1.52 Vesting Service for purposes of determining a Member's vested
interest under Section 6.07 is based on "elapsed time" and is to be determined
in accordance with the following definitions:
(a) "EMPLOYMENT COMMENCEMENT DATE" means the date upon which
an Associate first performs an Hour of Service.
(b) "HOUR OF SERVICE" means an hour for which an Associate is
paid or entitled to payment for the performance of duties for the Employer or
any other member of the Group.
(c) "PERIOD OF SERVICE" means a period beginning on the
Associate's Employment Commencement Date (or Reemployment Commencement Date, as
the case may be) and ending on his Severance from Service Date.
(d) "SEVERANCE FROM SERVICE DATE" means the earlier to occur
of:
(i) the last date upon which an Associate terminates
employment with the Employer or any other member of the Group (either
voluntarily or involuntarily), retires or dies; or
(ii) the first anniversary of the date upon which the
Associate was first absent from service with the Employer (with or
without pay) for any other reason (i.e., vacation, sickness,
disability, leave of absence or layoff).
Notwithstanding the foregoing, the Severance from Service Date of an Associate
who is absent from service with the Employer beyond the first anniversary of the
first day of such absence on account of maternity or paternity (as described in
ERISA Sections 202(b)(5)(A) or 203(b)(3)(E)) shall be the second anniversary of
the first day of such absence; and the period of time between such first and
second anniversaries shall not be treated as a Period of Service or as a Period
of Severance.
(e) "PERIOD OF SEVERANCE" means a period beginning on an
Associate's Severance from Service Date and ending upon the Associate's
Reemployment Commencement Date.
(f) "REEMPLOYMENT COMMENCEMENT DATE" means the first date,
following a Severance from Service Date, upon which the Associate performs an
Hour of Service for the Employer or any other member of the Group.
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<PAGE> 15
(g) "SERVICE SPANNING RULES" In determining whether or not an
Associate has completed a twelve month Period of Service for purposes of
vesting, the following Periods of Severance shall be treated as Periods of
Service:
(i) If an Associate terminates employment with the
Employer (either voluntarily or involuntarily) or retires, and then
performs an Hour of Service within the twelve month period beginning on
the Severance from Service Date, such Period of Severance shall be
treated as a Period of Service; and
(ii) If an Associate terminates employment with the
Employer (either voluntarily or involuntarily) or retires during an
absence from service of twelve months or less for any reason other than
a termination or retirement, and then performs an Hour of Service
within a period of twelve months from the date the Employee was first
absent from service, the Period of Severance shall be treated as a
Period of Service.
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SECTION 2
MEMBERSHIP
2.01 CONDITIONS OF ELIGIBILITY.
(a) Each Associate who on March 19, 2000, was a Member of or
is eligible to be a Member of the Plan shall continue to be a Member of the Plan
entitled to make Member Contributions pursuant to Section 4 and eligible to
share in Company Contributions pursuant to Section 3.
(b) Each other Associate shall be eligible to become a Member
of the Plan when the Associate has completed one Year of Service and attained
age 21, with membership to commence as of the first day of the month coincident
with or following the date he has met these eligibility requirements. Such
Associate shall be eligible:
(i) to make Member Contributions pursuant to
Section 4;
(ii) to share in Company Matching Contributions
pursuant to Section 3.02;
(iii) to share in Company Profit Sharing
Contributions, if any, pursuant to Section 3.01.
(c) Each Member shall be deemed to have elected to make a
three percent (3%) Before-Tax Contribution pursuant to Section 4.01(b),
commencing with the paycheck issued with respect to the first payroll period
beginning on or after the first day of the month coincident with or following
the date he met the foregoing eligibility requirements. Notwithstanding this
"deemed" election, an Associate or Member may elect pursuant to procedures
established by the Committee to not make, or to suspend making, said three
percent (3%) automatic Before-Tax Contribution, or pursuant to Section 4.01(a)
or (b) to make an After-Tax or a Before-Tax Contribution of an amount other than
three percent (3%).
(d) All Years of Service with an Employer including the
Company and Years of Service with The May Department Stores Company ("May")
while the Employer was part of the Group which included May are counted toward
eligibility, provided that, if an Associate has a 1-year break in service before
a Year of Service, service with an Employer or May before such break will not be
taken into account. For the purposes of this Section 2.01, "break in service"
means a 12 consecutive month employment year as used in Section 1.51 during
which the Associate does not complete more than 500 Hours of Service with the
Employer, and/or May while part of the Group.
(e) Only Associates employed by the Company's Puerto Rican
subsidiaries are eligible for membership hereunder. Any other Associate who has
Accounts in this Plan, such Accounts shall continue to be revalued as of each
succeeding Valuation Date pursuant to Section 6.04.
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<PAGE> 17
2.02 RE-EMPLOYMENT. A former Member who has retired or has otherwise
terminated employment and is rehired shall become a Member on the first day of
the calendar month coinciding with or next following the date of his rehire.
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SECTION 3
COMPANY CONTRIBUTIONS
3.01 AMOUNT OF COMPANY PROFIT SHARING CONTRIBUTION. The Company or an
Employer may contribute to the Trust, as of the end of each Plan Year, a
percentage of the Company's Net Profits as a Company Profit Sharing
Contribution. The amount of such contribution, if any, shall be determined by
the Board of Directors in its discretion. Any such contribution shall be made as
soon as practicable after the close of the Company's Fiscal Year. All such
contributions advanced to the Plan by the Company shall be reimbursed to the
Company by the Employer.
3.02 AMOUNT OF COMPANY MATCHING CONTRIBUTION. The Company, in its
discretion, shall contribute to the Trust, as of the end of each Plan Year, such
that the amount contributed to this Plan and to the Payless ShoeSource, Inc.
Profit Sharing Plan shall be equal to 2 1/2% of Net Profits, until determined
otherwise by the Board of Directors, in the form of a Company Matching
Contribution. The total amount of such contribution shall be allocated in
proportion to the amount that each Member's Contributions under Sections 4.01(a)
and (b), up to a total of 5% of such Member's Pay for a Plan Year, bears to the
total amount of all Member Contributions up to 5% of such Members' Pay for a
Plan Year. Such Company Matching Contribution shall be determined and paid to
the Trustee as soon as practicable after the close of each Fiscal Year and shall
be reimbursed to the Company by the Employer when paid.
3.03 ALLOCATION OF COMPANY CONTRIBUTIONS. The Company Contributions
shall be allocated only to the Company Accounts of Members who are employed by
the Employer on the last day of the Plan Year and on behalf of Members whose
employment has terminated during the Plan Year by reason of Retirement, death or
Disability. Company Profit Sharing Contributions shall be credited to eligible
Members' Company Profit Sharing Contribution Accounts. Company Profit Sharing
Contributions allocated prior to or as of July 31, 1997 shall be fully vested;
Company Profit Sharing Contributions allocated thereafter shall be subject to
the vesting provisions of Section 6.07. Company Matching Contributions shall be
subject to the vesting provisions of Section 6.07 and to the withdrawal penalty
provisions of Section 8.02(a). No Company Matching Contribution shall be made
with respect to a Member Before-Tax Contribution in excess of the PR Code
Section 1165(e)(7)(A) limit, as referred to in Section 4.01(h) and as revised
from time to time.
3.04 PROFIT SHARING ALLOCATION FORMULA. The Company Profit Sharing
Contribution, if any, shall be allocated to all Members eligible to share in the
contribution according to the ratio that each Member's Allocation Pay Amount for
the Plan Year bears to the total Allocation Pay Amount for all eligible Members
for the Plan Year. For this purpose the term "eligible Members" includes Members
in both the Payless ShoeSource, Inc. 401(k) Profit Sharing Plan and this Plan.
3.05 INVESTMENT OF THE COMPANY. The amounts allocated to each Member
pursuant to Section 3.03 shall be credited to his Company Accounts and invested
in one or
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more of the Investment Funds described in Section 5.01 and in the percentages
designated by the Member in the investment election filed pursuant to
Section 5.02 effective at the time the amount is allocated.
3.06 RETURN OF COMPANY CONTRIBUTIONS.
(a) If, after the Company Contribution has been made and
allocated, it should appear that, through oversight or a mistake of fact or law,
a Member (or an Associate who should have been considered a Member) who should
have been entitled to share in such contribution, receives no allocation or
received an allocation which was less than he should have received, the Company
may, at its election and in lieu of reallocating such contribution, make a
special make-up contribution for the Company Account of such Member in an amount
sufficient to provide for him the same addition to his Company Account as he
should have received. Similarly, if a Member received an allocation which was
more than he should have received (or a Member was inappropriately included in
the Plan), the Company, at its election, may reallocate such contribution,
offset other Company contributions against such allocation, or use such
allocation to pay Plan expenses.
(b) To the extent permitted by ERISA, each contribution made
to the Trust shall be made on the condition that it is currently deductible by
the Employer under PR Code Section 1023(n) for the taxable year with respect to
which the contribution is made. If a contribution subsequently is determined,
whether in whole or in part, not to be currently deductible as provided in the
preceding sentence, then, within one year of the date of disallowance of the
deduction of such Company Contribution, an amount equal to the disallowed
deduction shall be returned to the Company and/or Employer, as applicable.
(c) Earnings attributable to a contribution that is returned
pursuant to Subsection (a) or (b) above shall not be withdrawn, but losses
attributable thereto shall reduce the amount returned to the Company and/or
Employer.
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SECTION 4
MEMBER CONTRIBUTIONS
4.01 PROCEDURE FOR MAKING CONTRIBUTIONS.
(a) After-Tax Contributions. Subject to any limitations set
forth in the PR Code from time to time, each Member may designate, pursuant to
procedures established by the Company, and contribute to the Plan an amount
equal to not less than 1% nor more than 15% (in whole percentage points) of his
Pay as he shall have designated pursuant to procedures established by the
Company (which may establish lower permissible After-Tax Contributions for
Highly Compensated Employees); provided, however, that a Member shall not
contribute, or elect to have contributed on his behalf, amounts with respect to
Pay received by him after the close of the calendar year during which his
employment terminated and further provided that any Before-Tax Contributions
made on behalf of the Member shall reduce by the percentage which he elects to
have contributed pursuant to Section 4.01(b)(i), the percentage of Pay that the
Member may contribute pursuant to this Section 4.01(a). Notwithstanding any
provision in the Plan to the contrary, in no event may After-Tax Contributions
exceed 10% of the Members accumulated Pay since he or she became a Member in the
Plan without taking into consideration any Member's After-Tax Contribution
subject to Company Matching Contributions.
(b) Before-Tax Contributions.
(i) Subject to the limitations set forth below, each
Member may elect that his Employer shall contribute directly
to the Trust Fund an amount equal to a whole percentage of his
Pay, not less than 1% nor greater than such percentage as may
be determined from time to time by the Company which amount
shall be his Before-Tax Contribution. The maximum Before-Tax
Contribution by a Member who is determined to be a Highly
Compensated Employee under Section 4.02, for the Plan Year in
question, may be further restricted or limited by the Company
or the Committee from time to time.
(ii) Pursuant to Section 2.01(c), each eligible
Member shall be deemed to have elected to make a three percent (3%)
Before-Tax Contribution, unless the Member elects otherwise in
accordance with procedures established by the Committee.
(c) Notwithstanding any election in accordance with Section
4.01 (b), if the Committee at any time determines that all or any portion of the
Member's Before- Tax Contributions should be treated as After-Tax Contributions
in order for the Before- Tax Contribution provisions of the Plan to quality as a
"qualified cash or deferred arrangement" for purposes of Section 1165(e) of
the PR Code, or if the Actual Deferral Percentage standards set forth in the PR
Code are not met at the end of the Plan Year; then
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<PAGE> 21
the Committee, in its sole and absolute discretion, (i) may, in accordance
with Section 4.02(b) below, limit the amount which shall be contributed by the
Employer as Before-Tax Contributions after the date of such determination on
behalf of all or any portion of the Members and (ii) shall distribute any excess
Before-Tax Contributions made with respect to the Plan Year to the affected
Members as soon as practicable after the end of the Plan Year.
(d) The Employer shall (i) deduct a Member's After-Tax
Contributions from the Pay of the Member in such installments as the Employer
may deem appropriate, (ii) contribute a Member's Before-Tax Contributions on
behalf of the Member, and (iii) reduce the Pay that is paid to the Member
directly in cash by an amount equal to the Member's Before-Tax Contributions in
such installments as the Employer shall deem appropriate. The amounts so
deducted and so contributed shall be paid by the Employer to the Trustee not
later than 15 days following the end of the month with respect to which such
amounts are to be so deducted and contributed or within such shorter period of
time as may be designated under the Code, ERISA or related regulations. The
Employer may, from time to time, make estimated contribution payments to the
Trustee during each month.
(e) Effective with the paycheck issued with respect to the
first payroll period beginning in any calendar month, or as of such other
effective time as may be determined by the Committee, a Member may elect to
change the rate of his After-Tax Contributions to any other rate permitted by
Subsection (a) of this Section 4.01 and may elect to change the amount to be
contributed by the Employer directly to the Trust Fund as Before-Tax
Contributions to an amount equal to an amount permitted by Subsection (b) of
this Section 4.01 with respect to such contributions to be made after the
effective date of the election, pursuant to procedures established by the
Committee.
(f) Not later than 15 days prior to the beginning of a payroll
period of a Member, or not later than such other date as may be determined by
the Committee, such Member may elect, pursuant to procedures established by the
Committee, (i) to suspend making After-Tax Contributions and (ii) that the
Employer should suspend making Before-Tax Contributions on his behalf, all as of
the beginning of such payroll period. Not later than 15 days prior to the
beginning of a payroll period of a Member, or not later than such other date as
may be determined by the Committee, such Member may elect (i) to resume making
After-Tax Contributions and (ii) that the Employer shall resume making
Before-Tax Contributions on his behalf, by indicating any amount of
contributions permitted under Subsection (a) and designating an amount equal to
any amount of Pay as Before-Tax Contributions that is permitted under Subsection
(b) hereof.
(g) Contributions pursuant to this Section 4.01 shall be
credited to Member Accounts.
(h) Notwithstanding any election in accordance with paragraph
(b) of this Section 4.01, the total amount of a Member's Before-Tax
Contributions for any calendar year shall not exceed $8,000 or 10% of the
Member's annual Pay or such other amount as may be adjusted from time to time
under applicable Puerto Rico law (the
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<PAGE> 22
"Deferral Limit"). In addition, Before-Tax Contributions by a Member will
be further limited by contributions to an individual retirement account as
described in PR Code Section 1169. If a Member reaches the Deferral Limit, the
Committee can direct that all or any portion of such Member's Contributions
during such year shall be After-Tax Contributions regardless of such Member's
elections pursuant to Sections 4.01(a) and 4.01(b).
(i) As of the Effective Date, all then currently existing flat
dollar Member Contributions shall be converted to Member Contributions based on
1% increments calculated by dividing such flat dollar amount by the Member's Pay
for the prior year and rounding the product to the nearest whole percent;
provided, that no flat dollar contribution shall be converted to a percent
contribution of less than 1%.
4.02 LIMITATIONS ON BEFORE-TAX CONTRIBUTIONS.
(a) Notwithstanding the foregoing provisions of this Section
4, the Committee shall limit the amount of Before-Tax Contributions made on
behalf of each "Highly Compensated Employee" (as hereinafter defined) to the
extent necessary to ensure that either of the following tests is satisfied:
(i) The "Actual Deferral Percentage" (as hereinafter
defined) of the group of eligible Highly Compensated Employees for the
Plan Year is not more than the Actual Deferral Percentage of all other
eligible Associates ("non-Highly Compensated Employees") multiplied by
1.25; or
(ii) The excess of the Actual Deferral Percentage for
the group of eligible Highly Compensated Employees over that of all
other eligible Associates for the Plan Year is not more than two
percentage points, and the Actual Deferral Percentage for the group of
eligible Highly Compensated Employees for the Plan Year is not more
than the Actual Deferral Percentage of all other eligible Associates
multiplied by 2.0.
(iii) To the extent permitted by the PR Code, the
Actual Deferral Percentage for non-Highly Compensated Employees used in
satisfying the tests set forth in (i) and/or (ii) above may be, for any
Plan Year, the Actual Deferral Percentage for non-Highly Compensated
Employees for the immediately preceding Plan Year, as determined by the
Company in the manner permitted by law.
For the purposes of this Section 4.02, Section 4.04 and Section 4.05,
"eligible" means eligible to be a Member of this Plan pursuant to Section
2.01(b)(1).
For purposes of Sections 4.02, 4.04 and 4.05, the term "Highly
Compensated Employee" shall mean any employee whose Pay is greater than the Pay
of two-thirds of all eligible employees, taking into account only Pay which is
considered for the purpose of Section 4.01. To the extent permitted by the PR
Code and its regulations, the Committee
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<PAGE> 23
may elect to include all other non-eligible employees for the purposes of
determining compliance by the Plan with the actual deferral percentage test of
PR Code Section 1165.
For purposes of this Section 4.02, the term "Actual Deferral
Percentage" shall mean, for a specified group of Associates for a Plan Year, the
average of the ratios (calculated separately for each person in such group) of
(i) The aggregate of the Before-Tax Contributions
(and such other contributions which, in accordance with applicable
rules and regulations promulgated under the PR Code, may be aggregated
with such Before-Tax Contributions for purposes of demonstrating
compliance with the requirements of the PR Code) which are actually
payable to the Trust on behalf of each such Associate, to
(ii) Such Associate's Pay for such Plan Year.
In the event it is determined prior to any payroll period that the
amount of Before- Tax Contributions elected to be made thereafter would cause
the limitation prescribed in this Section 4.02 to be exceeded, the amount of
Before-Tax Contributions allowed to be made on behalf of Highly Compensated
Employees (and/or such other Members as the Committee may prescribe) shall be
reduced to a rate determined by the Committee, and any elections of future
Before-Tax Contributions which exceed the rate determined by the Committee shall
be deemed to be After-Tax Contributions for the remainder of the Plan Year,
notwithstanding the limitations on contribution rate changes in Section 4.01(e).
Except as is hereinafter provided, the Members to whom such reduction is
applicable and the amount of such reduction shall be determined pursuant to such
uniform and nondiscriminatory rules as the Committee shall prescribe.
(b) Notwithstanding the provisions of the foregoing paragraph,
with respect to any Plan Year in which Before-Tax Contributions on behalf of
Highly Compensated Employees exceed the applicable limit set forth in this
Section 4.02, the Committee shall reduce the amount of the excess Before-Tax
Contributions made on behalf of the Highly Compensated Employees (by reducing
such contributions in order of Actual Deferral Percentages beginning with the
highest), and shall distribute such excess Before-Tax Contributions (along with
earnings attributable to such excess Before-Tax Contributions, as determined
pursuant to such rules and regulations as shall be prescribed by the Puerto Rico
Department of the Treasury) to the affected Highly Compensated Employees as soon
as practicable after the end of such Plan Year, and in all events prior to the
end of the next following Plan Year. Any excess Before-Tax Contributions to be
returned to Highly Compensated Employees shall be calculated (i.e., reduced) and
distributed using the methods allowed under the PR Code and its regulation with
preference given to the method using the largest dollar amount deferred by the
Highly Compensated Employees rather than the highest percentage. In lieu of such
distribution of excess Before-Tax Contributions, the Committee may, to the
extent permitted by applicable rules and regulations (and (i) except with
respect to situations in which Section 4.01 (h) applies, and (ii) prior to March
15 of the calendar year following the Plan Year in which such contributions are
made or such later date as may be permitted under the PR
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<PAGE> 24
Code), recharacterize as After-Tax Contributions for such Plan Year all or
a portion of the Before-Tax Contributions for Members who are Highly Compensated
Employees to the extent necessary to comply with the applicable limit set forth
in this Section 4.02.
In lieu of either distributing or recharacterizing excess Before-Tax
Contributions, the Company may, to the extent permitted by applicable rules and
regulations, make a qualified nonelective contribution on behalf of non-Highly
Compensated Employees in an amount sufficient to satisfy one of the
non-discrimination tests set forth above, which Company contribution (if any)
shall be reimbursed by the Employer. Allocation of any such qualified
non-elective contribution would be to the Member Before-Tax Accounts of each
non-Highly Compensated Employee in the same proportion that such Member's
Before-Tax Contributions for the year bears to the total Member Before-Tax
Contributions for the year for all non-Highly Compensated Employees of the
Employer. However, the maximum annual addition credited to a Member's Account
shall be limited by Section 4.06.
(c) Notwithstanding any provision of Sections 4.02(c) to the
contrary, if Before-Tax Contributions on behalf of Highly Compensated Employees
in excess of the applicable limit set forth in Section 4.02 either are
distributed or are recharacterized, any Company Matching Allocation which would
have been attributable to the amounts distributed or recharacterized shall be
held unallocated in a suspense account and, as of the end of the Plan Year,
forfeited and added to and allocated with Company Contributions in the next
following Plan Year.
4.03 DISTRIBUTIONS OF EXCESS DEFERRALS
(a) Notwithstanding any other provision of the Plan, Excess
Before-Tax Deferrals (as hereinafter defined) and earnings allocable thereto as
determined pursuant to such rules and regulations as are prescribed by the
Puerto Rico Department of the Treasury, may be distributed no later than April
15 (or such later date as may be permitted under the PR Code) to Members who
claim such allocable Excess Before-Tax Amounts (which shall be the "Excess
Before-Tax Deferrals" plus earnings, if any) for the preceding calendar year.
(b) For purposes of this Section 4.03, "Excess Before-Tax
Deferral" means the amount of Pay which a Member has elected to have the
Employer contribute to the Trust rather than receive it in cash, which is a
Member Contribution under Section 4.01 for a calendar year that the Member
allocates to this Plan pursuant to the claim procedure set forth in
subsection 4.03(c) hereof.
(c) The Member's claim shall be in writing; shall be submitted
to the Committee no later than March 1 (or such other date as the Committee may
specify); shall specify the amount of the Member's Excess Before-Tax Deferral
for the preceding calendar year; and shall be accompanied by the Member's
written statement that if such amounts are not distributed, the Excess
Before-Tax Deferrals, when added to amounts deferred under other plans or
arrangements described in PR Code Section 1165(e) exceeds
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<PAGE> 25
the limit imposed on the Member in accordance with the applicable provisions of
the PR Code for the year in which the deferral occurred.
(d) Notwithstanding any provision of Sections 3 or 4 to the
contrary, any Company Matching Allocation which would have been attributable to
an Excess Before-Tax Deferral distributed to a Member under Section 4.02(a)
shall not be retained or distributed (unless and to the extent permitted under
the PR Code and so determined by the Company in a uniform, nondiscriminatory
manner), but shall be held unallocated in a suspense account and, as of the end
of the Plan Year, forfeited and added to and allocated with Company
Contributions in the next following Plan Year.
4.04 LIMITATIONS ON AFTER-TAX CONTRIBUTIONS. Notwithstanding the
foregoing provisions of this Section 4, the Company or the Committee, in their
respective discretion, may limit the amount of After-Tax Contributions made by
or on behalf of each eligible Member to the extent determined appropriate.
4.05 LIMITATIONS ON COMPANY MATCHING CONTRIBUTIONS. Notwithstanding the
foregoing provisions of Sections 3.02 or this Section 4, the Company or the
Committee, in their respective discretion, may limit the amount of Company
Matching Contributions allocated on behalf of each eligible Member to the extent
determined appropriate.
4.06 AGGREGATE LIMITATIONS. To the extent required under the PR Code or
as so determined by the Company or the Committee, in their respective
discretion, Company Matching Contributions and Member After-Tax Contributions
may be aggregated on a Member by Member basis and limited, as determined
appropriate.
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SECTION 5
INVESTMENT PROVISIONS
5.01 INVESTMENT FUNDS.
(a) There shall be established as part of the Trust Fund a
reasonable range of investment options. The Committee may from time to time, in
its discretion, change, delete or add Investment Funds available within the
Trust Fund; provided that unless and until the Plan is amended accordingly, the
Plan shall provide a Payless Common Stock Fund as an investment option.
(b) Income from and proceeds of sales of investments in each
Investment Fund shall be reinvested in the same Investment Fund. Any income or
other taxes payable with respect to a Fund shall be charged to such Fund.
(c) A Trustee may, from time to time, make temporary
investments in short term obligations of the United States Government,
commercial paper, or other investments of a short term nature, pending
investment in an Investment Fund.
5.02 INVESTMENT DIRECTION.
(a) A Member may elect that his Member Contributions for each
Payroll period be invested in 1% increments totaling 100% in one or more of the
Investment Funds. Such election must be made pursuant to procedures prescribed
by the Committee. Such election shall be effective until and unless a Member
makes a different election for any period, but only as provided for under
Subsection 5.02(b) and Subsection 5.02(c). If the Member fails to file a timely
initial investment election, he shall be deemed to have elected to have 100% of
his Member Contributions and his Company Profit Sharing Contributions invested
in the stable, fixed income investment as may be determined by the Committee and
100% of his Company Matching Contributions in the Payless Common Stock Fund.
Until such time as the Committee determines otherwise and so notifies Members, a
Member's share of any Company Contributions, when allocated as of Plan Year-end,
shall be invested in the same Investment Funds in the same proportions as the
Member has elected in connection with investment of his Member Contributions at
the time the amount is allocated.
(b) A Member may change his election with respect to future
Member and Company Contributions effective pursuant to procedures prescribed by
the Committee, and may not change his election in any other manner except as
provided in Subsection 5.02(c).
(c) Effective as of the date determined by the Committee and
pursuant to procedures prescribed by the Committee, a Member may elect to have
any or all of the value in any of the Investment Funds which are credited to
his Member and/or Company Accounts transferred and invested in any one or
more of the Investment Funds.
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<PAGE> 27
(d) Notwithstanding this Section 5.02, effective March 12,
2000, during the black out period as determined by the Committee and the
Trustee, no investment transfers or changes may be made by any Member unless
provided by Section 6.06.
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<PAGE> 28
SECTION 6
ACCOUNTS
6.01 MEMBER ACCOUNTS. The Committee shall maintain or cause to be
maintained for each Member under each Investment Fund in which his Member
Contributions are invested separate Member Accounts which shall reflect the
portion of his interest in such Investment Fund which is attributable to his
contributions. The Member's After-Tax Contributions shall be credited to a
separate Member After-Tax Account. The Member's Before-Tax Contributions shall
be credited to a separate Member Before-Tax Account. The Member's or Associate's
Rollover Contribution shall be credited to a separate Member Rollover
Contribution Account.
6.02 COMPANY ACCOUNTS. The Committee shall maintain or cause to be
maintained for each Member under each Investment Fund in which his Company
Contributions are invested separate Company Accounts which shall reflect the
portion of his interest in such Investment Fund which is attributable to Company
Contributions, as well as to contributions made by an Employer under Prior Plans
and to any income or earnings attributable to such Company Contributions and
Prior Plan contributions. The Member's Company Matching Contributions shall be
credited to a separate Company Matching Contribution Account. The Member's
Company Profit Sharing Contribution, if any, shall be credited to a separate
Company Profit Sharing Contribution Account.
6.03 MAINTENANCE OF ACCOUNTS. For the purposes of maintaining Accounts
pursuant to this Section 6, each Investment Fund, shall be divided into Units,
and the Interest of each Member in such Investment Fund shall be evidenced by
the number of Units in such Investment Fund credited to his Accounts.
6.04 VALUATION OF ACCOUNTS. As of each Valuation Date the Committee
shall determine the value of a Unit in each Account by dividing the current
market value of all property in each such Account as of such Valuation Date
(after deducting any expenses or other amounts including withdrawals property
chargeable against such Account) by the number of Units then outstanding to the
credit of all Members in each such Account.
6.05 MEMBER STATEMENTS. The Committee shall furnish or cause to be
furnished to each Member a statement of his Company and Member Accounts, at
least once each year, or more frequently if required by applicable law.
6.06 Shares of Payless ShoeSource, Inc. ("Payless Stock") in the
Payless Common Stock Fund.
(a) Each Member (or beneficiary of a deceased Member) who has
Accounts invested in the Payless Common Stock Fund shall, as a named fiduciary
within the meaning of Section 403(a)(1) of ERISA, have the right to direct the
Trustee with respect to the vote of the number of shares of Payless Stock
attributable to Units credited to him in the Payless Common Stock Fund as of
the latest practicable Valuation Date prior to or contemporaneous with the
record date set by the Company for each meeting of
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<PAGE> 29
shareowners of the Company. For such purpose the Trustee shall furnish to
each such Member prior to each such meeting the proxy statement for such
meeting, together with a form to be returned to the Trustee on which may be set
forth the Member's instructions as to the manner of voting such shares of stock.
Upon receipt of such instructions, the Trustee shall vote such shares in
accordance therewith. If Member's instructions are not received by the Trustee
in a timely manner, the Trustee shall vote such Member's shares in the same
proportion as the shares of Common Stock for which instructions were actually
received from Members. The Trustee shall not divulge the instructions of any
Member.
(b) Each Member (or beneficiary of a deceased Member) who has
Accounts invested in the Payless Common Stock Fund shall, as a named fiduciary
within the meaning of Section 403(a)(1) of ERISA, have the right with respect to
the number of shares of Payless Stock attributable to Units credited to him in
the Payless Common Stock Fund as of the latest practicable Valuation Date, to
direct the Trustee in writing as to the manner in which to respond to a tender
or exchange offer with respect to Payless Stock, and the Trustee shall respond
in accordance with the instructions so received. The Trustee shall utilize its
best efforts to timely distribute or cause to be distributed to each Member such
information as will be distributed to shareowners of the Company in connection
with any such tender or exchange offer, together with a form requesting
instructions on whether or not such shares will be tendered or exchanged. If the
Trustee shall not receive timely direction from a Member as to the manner in
which to respond to such a tender or exchange offer, the Trustee shall not
tender or exchange any shares of Payless Stock with respect to which such Member
has the right of direction. Tenders as a result of a self-tender offer by the
Company shall continue notwithstanding any investment change blackout. The
Trustee shall not divulge the instructions of any member. The proceeds from the
tender or exchange of shares attributable to Units in Payless Common Stock
Investment Fund accounts of Members shall be transferred to one of the
Investment Funds described in Section 5.01 and pursuant to a procedure
established by the Committee.
6.07 VESTING IN MEMBER AND COMPANY ACCOUNTS
(a) Vesting Schedule. A Member shall have a fully vested
interest at all times (i) in his Member Accounts and (ii) in his Company Profit
Sharing Contribution Account balance determined as of July 31, 1997. A Member
who has completed at least two full Years of Service as of August 1, 1997 also
shall be fully vested at all times (i) in his Company Matching Contributions
Account and (ii) in his Company Profit Sharing Contribution Account determined
at any time after July 31, 1997. The Company Matching Contribution Account of a
Member who is not or was not credited with at least two Years of Service as of
August 1, 1997 and his Company Profit Sharing Contribution Account attributable
to Company Profit Sharing Contributions, if any, based on such Member's
eligibility for such contributions after August 1, 1997, shall vest according to
the following schedule:
<TABLE>
<CAPTION>
Vesting Service Vested Interest
------------------- ---------------
<S> <C>
Fewer than 2 years 0%
</TABLE>
23
<PAGE> 30
<TABLE>
<CAPTION>
Vesting Service Vested Interest
--------------- ---------------
<S> <C>
2 years 25%
3 years 50%
4 years 75%
5 years or more 100%
</TABLE>
Notwithstanding the foregoing, a Member's interest in his Company Matching
Contribution Account and his Company Profit Sharing Contribution Account shall
become fully vested upon the Member's Retirement, death or Disability.
(b) Cash-Out Distributions to Partially Vested Members and
Restoration of Forfeitures. If, pursuant to Section 10.01, a partially-vested
Member receives a cash-out distribution before he incurs a Forfeiture Break in
Service (as defined in Subsection (e) below), the cash-out distribution will
result in an immediate forfeiture of the nonvested portion(s) of the Member's
Company Matching and Company Profit Sharing Contribution Account(s). See
Subsection (e) below. A partially-vested Member is a Member whose Vested
Interest, determined under Section 6.07(a), in either his Company Matching
Contribution Account or his Company Profit Sharing Contribution Account, or
both, is less than 100%. A cash-out distribution is a distribution of the entire
vested portion of the Member's Account(s).
(i) A partially-vested Member who is reemployed by an
Employer after receiving a cash-out distribution of the vested portion
of his Account(s) shall have such forfeited amount restored, unless the
Member no longer has a right to restoration under this subparagraph
(i). The amount restored by the Plan Administrator shall be the same
dollar amount as the dollar amount of his Account(s) on the Valuation
Date immediately preceding the date of the cash- out distribution,
unadjusted for any gains or losses occurring subsequent to that
Valuation Date but reduced by the amount of the prior cash-out
distribution. Restoration of the Member's Account balance(s) includes
restoration of all US Code Section 411(d)(6) protected benefits with
respect to the restored Account(s) in accordance with applicable
Treasury regulations. The Plan Administrator will not restore a
reemployed Member's Account balance(s) under this subparagraph (i) if
the Member has incurred a Forfeiture Break in Service (as defined in
Subsection (d) below).
(ii) If restoration of the Member's Account(s) is
permitted under subparagraph (i) above, the Plan Administrator will
restore the Member's Account(s) as of the last day of the Plan Year
during which such Member was reemployed by an Employer. To restore the
Member's Account(s), the Plan Administrator, to the extent necessary,
will allocate to the Member's Account(s):
(A) first, the amount, if any, of
Member forfeitures otherwise available for allocation under
Subsection (e) below;
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<PAGE> 31
(B) second, deductible Employer
contributions for the Plan Year to the extent made under a
discretionary formula; and
(C) third, as otherwise permitted by law.
The Plan Administrator will not take into account any allocation under
this subsection (b) in applying the limitation on allocations under
Section 13.
(iii) The deemed cash-out rule applies to a 0% vested
Member. A 0% vested Member is a Member whose Account(s) derived from
Employer contributions is (are) entirely forfeitable at the time of his
termination of employment. Under the deemed cash-out rule, the Plan
Administrator will treat the 0% vested Member as having received a
cash-out distribution on the date of the Member's termination of
employment or, if the Member's Account(s) is (are) entitled to an
allocation of Employer contributions for the Plan Year in which he
terminates employment, on the last day of that Plan Year.
(c) Determination of Vesting Service. For purposes of
determining a Member's Vested Interest in his Company Contributions Account(s)
under subsection (a) above, a Member shall be credited with that number of years
of Vesting Service determined by adding together all of the Associate's Periods
of Service, whether or not consecutive. Notwithstanding the foregoing, Vesting
Service shall not include any Period of Service before the Plan Year in which an
Associate attains age eighteen (18). Only whole years of service shall be taken
into account for purposes of applying the schedule set forth in subsection (a)
above, and, for purposes of determining a Member's number of whole years of
service, non-successive Periods of Service must be aggregated, with 365 days of
service being deemed to constitute one year. For purposes of determining a
Member's Period of Service, the Service Spanning rules described in Section
1.52(g) shall apply.
(d) Forfeiture Break in Service. For purposes of this Section
6.07, a "Break in Service" is a Period of Severance of at least 365 consecutive
days. A "Forfeiture Break in Service" occurs when a Member of former Member
incurs 5 consecutive Breaks in Service.
(e) Forfeiture Occurs. A Member's forfeiture, if any, of his
Account balance(s) derived from Company contributions occurs under the Plan on
the earlier of:
(i) the last day of the last pay period ending
within the Plan Year in which the Member first incurs a Forfeiture
Break in Service; or
(ii) the date the Member receives a cash-out
distribution.
The Plan Administrator shall determine the percentage of a Member's
Account(s) forfeiture, if any, under this Subsection (e) solely by reference to
the vesting schedule of Section 6.07(a). As of the last day of each Plan Year,
the total amount of forfeitures which occurred during such Plan Year shall be
calculated and such amount shall be
25
<PAGE> 32
applied (i) to restore under (b) above any amounts previously forfeited
from rehired Members' Accounts and (ii) the balance, if any, shall be added to
and allocated with the Company Matching Contribution for that Plan Year.
(f) Former May Plan Members. The provisions of this subsection
(g) apply to a Member who previously was employed by the Employer, when it was
part of the Group which included The May Department Stores Company, and who at
the termination of his employment had Company Accounts in the May Plan which
were forfeited as a result of termination of employment. If such Member has not
incurred five consecutive one-year Breaks in Service as defined in Section
6.07(d), the value of the Member's Company Account forfeited under the May Plan
will be restored under this Plan (in the manner described in Subsection (b)
above) and will be 100% vested.
26
<PAGE> 33
SECTION 7
EXPENSES
7.01 ADMINISTRATIVE EXPENSES. To the extent permitted by applicable
law, the costs and expenses for administering this Plan, consisting of Trustee
fees and expenses, Investment Manager fees and expenses, fees and expenses of
outside experts, expenses of maintaining records under Section 6 of the Plan,
and all other administrative expenses of the Plan, shall be paid out of the
Trust Fund unless the Company or the Employer elects to pay them with its own
funds. Costs incident to the purchase and sale of securities, such as brokerage
fees, commissions and stock transfer fees, are not regarded as administrative
expenses and shall be borne by the appropriate Investment Fund as determined by
the Trustee or Committee.
27
<PAGE> 34
SECTION 8
WITHDRAWALS DURING EMPLOYMENT
8.01 WITHDRAWALS PROHIBITED UNLESS SPECIFICALLY AUTHORIZED. No
withdrawal from the Plan shall be permitted prior to a Member's termination of
employment, except as provided in Section 8.02.
8.02 AUTHORIZED WITHDRAWALS.
(a) Prior to his termination of employment, a Member may elect
to withdraw, in cash, any or all of the value in his Member After-Tax Accounts.
However, in the event a Member elects to withdraw all or a portion of his
After-Tax Contributions made after August 1, 1997, such Member shall forfeit his
right to fifty percent (50%) of the Company Matching Contribution, if any,
otherwise allocable in connection with his Member Contributions for the Plan
Year in which the withdrawal occurs.
(b) Prior to his termination of employment, a Member may elect
to withdraw, in the event of a "hardship", an amount in cash equal to (i) the
total amount of the Before-Tax Contributions made to the Trust on his behalf, or
(ii) the value in his Member Before-Tax Account whichever is less provided,
however, that no withdrawal will be permitted to the extent that loans from the
Plan are available to the Member. In any event the amount withdrawn may not be
greater than the amount determined by the Committee as being required to meet
the immediate financial need created by the "hardship" and not reasonably
available from other resources of the Member, whichever amount is less. The term
"hardship" means a heavy financial hardship in light of immediate and heavy
financial needs as determined by the Committee in accordance with the PR Code
regulations. The amount of an immediate and heavy financial need may include any
amounts necessary to pay any federal, state or local taxes or penalties
reasonably anticipated to result from the distribution. The determination shall
be made in a nondiscriminatory manner. Hardship shall include but not be limited
to the following:
(i) Medical expenses described in PR Code Section
1023(aa)(2)(P), previously incurred by the Member, the Member's spouse,
or any of the Member's dependents (as defined in PR Code Section 1025);
(ii) Purchase (excluding mortgage payments) of a
principal residence for the Member;
(iii) Payment of tuition, related educational fees,
and room and board expenses for the next 12 months of post-secondary
education for the Member, his or her spouse, children, or dependents
(as defined in PR Code Section 1025);
(iv) The need to prevent the eviction of the Member
from his or her principal residence or foreclosure on the mortgage of
the Member's principal residence.
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<PAGE> 35
The Committee may adopt written guidelines which identify additional
circumstances constituting hardship and which provide procedures to be followed
in the administration of hardship withdrawal requests, which guidelines are
hereby incorporated herein.
In addition, such hardship must be one which in the judgment of the
Committee, based on the Member's representations, cannot be relieved (1) through
reimbursement or compensation by insurance or otherwise, (2) by reasonable
liquidation of the Member's assets to the extent such liquidation would not
itself cause an immediate and heavy financial need, (3) by cessation of Member
Contributions under the Plan or (4) by other distributions from employee benefit
plans maintained by the Company or any other employer or by borrowing from
commercial sources on reasonable commercial terms. The Member shall be required
to submit documentation, to be determined by the Committee, with his hardship
withdrawal request to enable the Committee to make a judgment regarding the
validity of such hardship withdrawal request. For any Member who has attained
age 59 1/2, the "hardship" requirement shall be deemed waived.
(c) A withdrawal election shall be made pursuant to
application procedures established by the Committee. For any withdrawal under
paragraph (a) or (b), if the amount which may be withdrawn exceeds $100, the
Member may not withdraw less than $100, and if the amount which may be withdrawn
is less than $100, the Member shall be required to withdraw all of such amount.
Contribution totals and Account values shall be determined as of the Valuation
Date coinciding with or next following the filing of the withdrawal election. If
the Member Accounts from which withdrawal is made are in more than one
Investment Fund, the withdrawal shall be pro rata from each such Investment
Fund, except in the case the Member is subject to Section 16 of the Securities
Exchange Act of 1934 or has been designated as a "Designated Insider," in which
case such Member's withdrawal will be taken first from such Member's Investment
Funds other than the Payless Common Stock Fund.
(d) Any Member who was a Participant in or eligible to be a
Participant in the Volume Shoe Corporation Profit Sharing Plan (the "Volume
Plan") as of December 31, 1988 and who had an account balance in the Volume Plan
attributable to Employer Contributions made to the Volume Plan before July 31,
1976 and which account became a Company Account under The May Department Stores
Company Profit Sharing Plan and which has been transferred to this Plan from the
Payless Plan, shall be entitled to withdraw the market value of such account
balance determined (and frozen) as of December 31, 1988. If the Member Accounts
from which withdrawal is made are in more than one Investment Fund, the
withdrawal shall be pro rata from each such Investment Fund.
(e) Associates with Member Rollover Contribution Accounts may
elect to withdraw their Member Rollover Contribution Accounts prior to
termination of employment.
29
<PAGE> 36
SECTION 9
BENEFITS UPON RETIREMENT, DEATH, DISABILITY, OR TERMINATION OF EMPLOYMENT
9.01 BENEFITS. Upon a Member's Retirement, Death, Disability, or other
termination of employment, the value of his Member Accounts and of his vested
Company Accounts shall be determined as of the Valuation Date prior to the date
the distribution is calculated. A temporary Authorized Leave of Absence for
Military Service or for other purposes approved by the Company and/or the
Employer shall not, while any such Authorized Leave of Absence is validly in
effect be regarded as a termination of employment.
9.02 BENEFICIARY. Any benefits payable on account of a Member's death
shall be paid to such Member's spouse. If such Member has no spouse or if such
Member's spouse shall have consented to the naming of another beneficiary, such
benefits shall be paid to the person or persons (including, without limitation,
estates, trust, or other entities) last named as beneficiary by such Member on
an appropriate form filed with the Committee. A spouse's consent shall designate
a beneficiary, acknowledge the effect of the consent and be in writing,
witnessed by a Plan representative or notary public. A spouse's consent shall be
irrevocable. If no beneficiary has been so named or the named beneficiary does
not survive the Member, any payment to be made under this Plan on account of a
Member's death shall be paid to such Member's spouse, or, if he has no spouse,
to such Member's estate. Whenever permitted by ERISA or regulations thereunder,
the Committee may waive the requirements that a spouse's consent be obtained.
Such waiver may be on a case by case basis or by categories.
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<PAGE> 37
SECTION 10
PAYMENT OF BENEFITS
10.01 TIME OF PAYMENT.
(a) All amounts distributable to a Member or Beneficiary
pursuant to Section 9 shall, unless the Member makes an approved election
pursuant to Section 10.01 (b) or 10.01 (c), be paid in a lump sum payment to be
made as soon as practicable after the request is received, provided however,
that any additional amounts which may be allocated to a Member's Company
Accounts resulting from a Company Contribution in respect of the calendar year
in which employment terminates shall be paid as soon as practicable after such
contribution.
Notwithstanding any provision of this Section 10 to the contrary, if
the present value of the nonforfeitable accrued benefit of a Member, including
Company and Member Contributions (but excluding accumulated deductible employee
contribution, if any) exceeds (or for distributions prior to March 22, 1999,
ever has exceeded) $5,000, no partial or total distribution shall be made unless
the Member has consented thereto in writing in the manner required by law.
(b) Any Member who was a Member of the May Plan as of June 30,
1990 may elect that all Transferred Accounts distributable to him pursuant to
Section 9 shall be paid in annual installments over a period not to exceed ten
years beginning with the Valuation Date as of which the lump sum payment would
otherwise be made. In the event of the death of a Member prior to the expiration
of such period, all amounts which have not been distributed to him shall be paid
in a lump sum to his designated Beneficiary or his estate if there is no
designated Beneficiary. Subject to the foregoing, each such installment shall be
paid as of a Valuation Date and, until all the Accounts of the Member have been
fully distributed, they shall continue to be revalued as of each succeeding
Valuation Date pursuant to Section 6.04.
Notwithstanding the paragraph above, any Member who as of December 31,
1988 was or was entitled to be a Participant in the Volume Shoe Corporation
Profit Sharing Plan may elect that all Transferred Accounts distributable to him
pursuant to Section 9 be paid in the form of equal monthly installments over a
period not to exceed 120 months. Such payments shall otherwise be made in
accordance with the foregoing portion of this Subsection 10.01 (b).
(c) A Member who is entitled to receive a distribution in
excess of $5,000 may elect to defer such distribution to age 65. An election to
defer distribution shall conform to such requirements as to form, content,
manner, and timing as shall be determined by the Committee and which
requirements shall be applied in a manner which does not discriminate in favor
of Members who are highly compensated employees (within the meaning of Code
Section 414(q)). All Accounts of a Member who elects to defer his distribution
shall continue to be revalued as of each succeeding Valuation Date pursuant
to Section 6.04. A deferred distribution shall be paid when such Member attains
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<PAGE> 38
the age of 65 years or at such earlier or later time as shall be
determined by the Committee as permitted by law. In the event of the death of a
Member prior to distribution of the deferred amounts, all amounts shall be
distributed in a lump sum to his designated Beneficiary or to his estate if
there is no designated Beneficiary. The value for payment shall be determined as
of the Valuation Date coincident with or next following such Member's 65th
birthday or such other payment date determined by the Committee.
10.02 FORM OF PAYMENT. All distributions shall be made in the form of
cash, except that distributions from the Payless Common Stock Fund shall be made
in the form of full shares of Payless Common Stock, as applicable (with payment
in cash for a fraction of a share) or in cash if elected by the Member or
Beneficiary. The rights extended to a Member hereunder shall also apply to any
Beneficiary or alternate payee of such Member.
10.03 INDIRECT PAYMENT OF BENEFITS. If any Member or Beneficiary has
been adjudged to be legally, physically or mentally incapable or incompetent,
payment may be made to the legal guardian or other legal representative of such
Member or Beneficiary as determined by the Committee. Such payments shall
constitute a full discharge with respect thereto.
10.04 INABILITY TO FIND MEMBER. If a Member or Beneficiary or other
person to whom a benefit payment is due cannot be found during the three years
subsequent to the date a distribution was required to be made under this Plan,
the Accounts shall be forfeited at the end of such three-year period. The value
of such Accounts as of the date the distribution was required to be made shall
be restored if such Member or Beneficiary or other person makes a claim.
10.05 COMMENCEMENT OF BENEFIT DISTRIBUTION TO MEMBER. In accordance
with US Code Section 401 (a)(9) and Treasury Regulations promulgated thereunder,
distributions to a Member must commence not later than the first day of April
following the calendar year in which the Member attains age 70 1/2.
Notwithstanding the foregoing, distribution to a Member who is not a "five
percent owner" as defined in Section 20.10(f)(3) shall commence not later than
April 1 following the calendar year in which the Member attains age 70 1/2 or,
if later, the calendar year in which the Member retires.
10.06 COMMENCEMENT OF BENEFIT DISTRIBUTION TO BENEFICIARY.
Distributions to the Beneficiary entitled under Section 10.02 to receive any
payments payable under this Plan on account of a Member's death shall be made in
a lump sum payment not later than December 31 of the calendar year following the
calendar year in which the Member died.
10.07 COMMENCEMENT OF BENEFIT DISTRIBUTION TO ALTERNATE PAYEE.
Distributions to an alternate payee entitled under Section 16.01 to receive any
payments payable under this Plan pursuant to the terms of a Qualified Domestic
Relations Order shall be made in accordance with the terms of such Qualified
Domestic Relations Order and this Plan on or after the date on which the Member
has attained his "earliest retirement age" (as defined under ERISA Section
206(d)(3)) under the Plan. Notwithstanding the foregoing, distribution to an
alternate payee may be made prior to the Member's attainment of his earliest
retirement age if, but only if: (1) the Qualified Domestic
32
<PAGE> 39
Relations Order specifies distribution at that time or permits an agreement
between the Plan and the alternate payee to authorize an earlier distribution;
(2) the distribution is a single sum distribution of the alternate payee's
entire benefit entitlement under the Plan; and (3) in the event the present
value of the alternate payee's benefits under the Plan exceeds $5,000, the
alternate payee consents to any distribution occurring prior to the Member's
attainment of earliest retirement age.
Nothing in this Section 10.07 shall be construed to permit a Member to
(1) receive a distribution at a time not otherwise permitted under the Plan, (2)
permit the alternate payee to receive a form of payment not otherwise permitted
under the Plan, or (3) cause his Plan accounts to be valued or otherwise
determined in a manner not otherwise permitted under the Plan.
33
<PAGE> 40
SECTION 11
PERMITTED ROLLOVER OF PLAN DISTRIBUTIONS
11.01 ROLLOVER AMOUNT TO OTHER PLANS. Notwithstanding any provision of
the Plan to the contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and pursuant to
procedures prescribed by the Committee, to have his entire Plan distribution
paid directly to a qualified retirement plan described in the PR Code Section
1165(a) or to an individual retirement account as described in PR Code Section
1165(b)(2) specified by him.
11.02 ROLLOVER AMOUNT FROM OTHER PLANS. An Associate eligible to
participate in the Plan, regardless of whether he has satisfied the
participation requirements of Section 2.01, may transfer to the Plan an Eligible
Rollover Distribution provided that such distribution is from an Eligible
Retirement Plan. If such transfer is not a direct transfer, such a transfer may
be made only if the following conditions are met:
(a) the transfer occurs on or before the 60th day following
the Associate's receipt of the distribution from the Eligible Retirement Plan;
and
(b) the amount transferred is equal to any portion of the
distribution the Associate received from the Eligible Retirement Plan, not in
excess of the fair market value of all property received in such a distribution
reduced by employee contributions, as defined in US Code Section 402 (a)(5)(E).
The Committee shall develop such procedures, and may require such information,
from a Member desiring to make such a transfer, as it deems necessary or
desirable to determine that the proposed transfer will meet the requirements of
the Section. Upon approval by the Committee or its Administrative Delegate, the
amount transferred shall be deposited in the Trust Fund and shall be credited to
the Member's account. Such rollover amount shall be one hundred percent (100%)
vested in the Member, shall share in the income allocations in accordance with
Section 5, but shall not share in the Company Profit Sharing Contributions, the
Company Matching Contributions or the forfeiture allocations. Upon termination
of employment, the total amount of the rollover contribution shall be
distributed in accordance with the terms of the Plan.
Upon such a transfer by an Associate who is otherwise eligible to participate in
the Plan but who has not yet completed the participation requirements of Section
2.01, his rollover amount shall represent his sole interest in the Plan until he
becomes a Member.
11.03 DEFINITIONS. The following definitions shall apply for the
purposes of this Section 11:
(a) ELIGIBLE ROLLOVER DISTRIBUTION. An eligible rollover
distribution is any distribution of all or any portion of the balance
of the credit of the distributee from a qualified trust as described
in PR Code Section 1165(b)(2).
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<PAGE> 41
(b) ELIGIBLE RETIREMENT PLAN. An eligible retirement plan is an
individual retirement account described in PR Code Section 1169(a), an
individual retirement annuity described in PR Code Section 1169(b), or
a qualified trust described in PR Code Section 1165(a), which accepts
or will make, as applicable, an Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to a Member's
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity, as described
above.
(c) DISTRIBUTEE. A distributee includes a Member or former Member. In
addition, the Member or former Member's surviving spouse and the
Member's or former Member's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined
in ERISA Section 206(d)(3), are distributees with regard to the
interest of the spouse or former spouse.
(d) DIRECT TRANSFER. A direct rollover is a payment by the Plan to
the eligible retirement plan specified by the distributee as described
in Article 1165-6(5) of the regulations issued under the PR Code.
35
<PAGE> 42
SECTION 12
LOANS
12.01 AVAILABILITY OF LOANS. Loans shall be permitted under this Plan
as established by the policy of the Committee. Any such loan shall be subject to
such conditions and limitations as the Committee deems necessary for
administrative convenience and to preserve the tax-qualified status of the Plan.
12.02 AMOUNTS OF LOANS. No loan to any Member or Beneficiary may be
made to the extent that such loan, when added to the outstanding balance of all
other loans to the Member or Beneficiary, would exceed the lesser of (a) $50,000
reduced by the excess (if any) of the highest outstanding balance of loans
during the one-year period ending on the day before the loan is made, over the
outstanding balance of loans from the Plan on the date the loan is made, or (b)
one-half the present value of the nonforfeitable accrued benefit of the Member.
For the purpose of the above limitation, all loans from all plans of the
Employer and other member of a group of employers described in US Code Sections
414(b), 414(c), 414(m), and 414(o) are aggregated. Furthermore, any loan shall
by its terms require that repayment (principal and interest) be amortized in
level payments, not less frequently than quarterly, over a period not extending
beyond five years from the date of the loan. If such loan is used to acquire a
dwelling unit which within a reasonable time (determined at the time the loan is
made) will be used as the principal residence of the Member, the repayment
period shall not extend beyond twenty nine and one-half years from the date of
the loan. An assignment or pledge of any portion of the Member's interest in the
Plan and a loan, pledge, or assignment with respect to any insurance contract
purchased under the Plan, will be treated as a loan under this paragraph.
12.03 TERMS OF LOANS.
(a) Loans shall be made available to all Members and
Beneficiaries on a reasonably equivalent basis.
(b) Loans shall not be made available to Highly Compensated
Employees (as defined in US Code Section 414(q)) in an amount greater than the
amount made available to other Employees.
(c) Loans must be adequately secured using not more than fifty
percent (50%) of the Member's Vested Account balance, and bear a reasonable
interest rate as determined from time to time by the Committee.
(d) A Member loan for less than $1,000 is not permitted;
provided, however, that if such Member also receives a loan from the Payless
ShoeSource, Inc. 401(k) Profit Sharing Plan, such minimum amount limitation
shall not apply.
(e) In the event of default, foreclosure on the note and
attachment of security will not occur until a distributable event occurs in the
Plan.
36
<PAGE> 43
(f) No loans will be made to any Member who on any day during
the Company's applicable fiscal year is a beneficial owner of more than five
percent (5%) of the outstanding stock of the Company.
(g) All loans shall be made pursuant to a written Member loan
program incorporated herein by reference.
(h) Loans are available from the following accounts, and
will be withdrawn from the Member's accounts in the following hierarchy:
(1) Member Accounts
(2) Vested Company Accounts
(3) Member Rollover Contribution
(i) Loans will be taken and repaid from and to the Investment
Funds on a pro rata basis, except in the case the Member is subject to Section
16 of the Securities Exchange Act of 1934 or has been designated as a
"Designated Insider," in which case such Member's loan will be taken first from
such Member's Investment Funds other than the Payless Common Stock Fund.
37
<PAGE> 44
SECTION 13
LIMIT ON CONTRIBUTIONS TO THE PLAN
This Section 13 is intended to conform the Plan to the requirements of
US Code Section 415 and limits the contributions that can be made by and for an
individual under the Plan.
13.01 LIMIT ON CONTRIBUTIONS. Notwithstanding any provision of the
Plan to the contrary:
(a) The amounts allocated to a Participant during the Limitation Year
under the Plan and allocated to the Participant under any other defined
contribution plan to which the Employer or any other member of the
Group has contributed shall be proportionately reduced, to the extent
necessary, so that the Annual Addition does not exceed the least of:
(1) $30,000; or
(2) 25% of the Participant's remuneration from the
Employer or any member of the Group during the Limitation Year; or
(3) such other limits set forth in US Code Section 415.
The amount set forth in subparagraph (1) above shall automatically be
adjusted to reflect adjustments made by applicable law. Remuneration
for purposes of this Section means remuneration as defined in US
Treasury Regulation Section 1.415- 2(d) and shall also include the
deferrals described in US Code Section 415(c)(3)(D).
(b) For purposes of this Section, Limitation Year means the 12
month period commencing on January 1 and ending on December 31.
(c) For purposes of this Section, Annual Additions means the
sum for the Limitation Year of Employer contributions, Employee
contributions (determined without regard to any rollover contributions
as defined in US Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and
408(d)(3) and without regard to Employee contributions to a simplified
employee pension plan which are excludible from gross income under US
Code Section 408(k)(6)) and forfeitures.
38
<PAGE> 45
13.02 Adjustment for Excessive Annual Additions
(a) If, as a result of the allocation of forfeitures, a
reasonable error in estimating a Member's Pay or other facts and circumstances
to which US Treasury Regulation Section 1.415-6(b)(6) shall be applicable, the
"annual additions" under this Plan would cause the maximum "annual additions" to
be exceeded for any Member, the Committee shall (1) return any Member
Contributions credited for the "limitation year" to the extent that the return
would reduce the "excess amount" in the Member's Accounts, (2) hold any "excess
amount" remaining after the return of any Member Contributions in a "Section 415
suspense account", (3) use the "Section 415 suspense account" in the next
"limitation year" (and succeeding "limitation years" if necessary) to reduce
either Company Contributions for that Member if that Member is covered by the
Plan as of the end of the "limitation year" or if such Member is not covered by
the Plan at the end of the "limitation year" to reduce Company Contributions for
all Members in the Plan, before any Company Contributions or Member
Contributions which would constitute "annual additions" are made to the Plan for
such "limitation year," (4) reduce Company Contributions for such "limitation
year" by the amount of the "Section 415 suspense account" allocated and
reallocated during such "limitation year." For purposes of (3) above, the Plan
may not distribute "excess amounts" to Members or former Members.
(b) For purposes of this Section, "excess amount" for any
Member for a "limitation year" shall mean the excess, if any, of (1) the "annual
additions" which would be credited to his account under the terms of the Plan
without regard to the limitations of US Code Section 415 over (2) the maximum
"annual additions" determined pursuant to Section 13.01(a).
(c) For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the sum of "excess amount"
for all Members in the Plan during the "limitation year." The "Section 415
suspense account" shall not share in any earnings or losses of the Trust Fund.
39
<PAGE> 46
SECTION 14
ADMINISTRATION OF THE PLAN
14.01 PLAN ADMINISTRATOR. The Company shall be the Plan
Administrator of the Plan for purposes of ERISA and shall be a "named fiduciary"
as determined in ERISA Section 402(a)(2).
14.02 DELEGATION OF AUTHORITY.
(a) Authority to administer the Plan has been delegated to the
Committee and the Administrative Subcommittee, if any, in accordance with
Sections 1.43 (Total and Permanent Disability), 4.01 (Member Contributions),
6.01 (Member Accounts), 6.02 (Company Accounts), 6.05 (Member Statements), 8.02
(Authorized Withdrawals), 13.02 (Adjustment for Excessive Annual Additions),
20.02 (Withdrawal of an Employer) and this Section 14.
(b) Authority with respect to the Investment Funds of the Plan
has been delegated to the Trustee in accordance with Sections 5.01(c)
(Investment Funds), 6.06 (shares of Payless ShoeSource, Inc. ("Payless Stock")
in the Payless Common Stock Fund), 7.01 (Administrative Expenses) and 15
(Management of the Trust Fund).
(c) Authority to direct the investment of the Plan's funds has
been delegated to the Investment Subcommittee, if any, in accordance with
Section 15.03(b), (c) and (d) (Investments and Reinvestments).
(d) The Committee shall also have the authority and discretion
to engage on Administrative Delegate who shall perform, without discretionary
authority or control, administrative functions within the frame work of
policies, interpretations, rules practices and procedures made by the Committee
or other Plan Fiduciary. Any action made or taken by the Administrative Delegate
may be appealed by an affected Member to the Committee in accordance with the
claims review procedure in Section 16.05. Any decisions which call for
interpretations of the Plan provisions not previously made by the Committee
shall be made only by the Committee. The Administrative Delegate shall not be
considered a fiduciary with respect to the services it provides.
14.03 COMMITTEE AND SUBCOMMITTEES.
(a) The Committee may appoint two subcommittees (an
Administrative Subcommittee" and an "Investment Subcommittee"), each
Subcommittee to consist of at least three persons, who need not be members of
the Board. The Committee and each Subcommittee, if appointed, shall elect from
its members a Chairman and a Secretary, and may appoint one or more Assistant
Secretaries who may, but need not be, members of the Committee or such
Subcommittee, and may employ such agents, such legal counsel and such clerical,
medical, accounting, actuarial and other services as it may from time to time
deem advisable to assist in the administration of the Plan. The Committee and
each Subcommittee may, from time to time, appoint agents and delegate to such
agents such
40
<PAGE> 47
duties as it considers appropriate and to the extent that such
duties have been so delegated, the agent shall be exclusively responsible for
the proper discharge of such duties.
(b) The Administrative Subcommittee shall have the general
responsibility for the administration of the Plan and the carrying out of its
provisions, and shall have general powers with respect to Plan administration,
including, but not limited to, the powers listed in this Section 14.03. The
Administrative Subcommittee shall have the power to interpret and construe the
Plan, the power to establish rules for the administration of the Plan and the
transaction of its business, the power to remedy and resolve inconsistencies and
omissions, and the power to determine all questions which arise in the
administration, interpretation, or application of the Plan, including but not
limited to questions regarding the eligibility, status, Account value and any
rights of any Member, Beneficiary, and any other person hereunder.
(c) The Investment Subcommittee shall have the powers provided
for in Section 15.03(b).
(d) The Committee and each Subcommittee shall act by a
majority of its members and the action of such majority expressed by a vote at a
meeting, or in writing without a meeting, shall constitute the action of the
Committee or such Subcommittee. All decisions, determinations, actions or
interpretations with respect to the Plan by the Committee or either Subcommittee
and the individual committee or subcommittee members shall be in the
Committee's, Subcommittee's or individual member's sole discretion. The
decision, determination, action or interpretation of the Committee or either
Subcommittee and the respective individual members of the Committee or
Subcommittee in respect to all matters within the scope of its authority shall
be conclusive and binding on all persons. No member of the Committee or either
Subcommittee shall have any liability to any person for any action or omission
except each for his own individual willful misconduct. If a Subcommittee is not
appointed, the Committee shall exercise such Subcommittee's authority and
perform its duties as described herein.
(e) Nothing in this Section 14 or in any other provision of
the Plan shall be deemed to relieve any person who is a fiduciary under the Plan
for purposes of ERISA from any responsibility or liability for any
responsibility, obligation or duty which Part 4 of Title I of ERISA shall impose
upon such person with respect to this Plan.
14.04 ACCOUNTS AND REPORTS. The Committee shall maintain or cause to be
maintained accounts reflecting the fiscal transactions of the Plan and shall
keep in convenient form such data as may be necessary for the administration of
the Plan. The Committee shall prepare annually a report showing in reasonable
detail the assets and liabilities of the Plan and setting forth a brief account
of the operation of the Plan for the preceding year.
14.05 NON-DISCRIMINATION. Neither the Committee nor either Subcommittee
shall exercise its discretion in such a way as to result in discrimination in
favor of officers, shareholders or highly compensated employees (within the
meaning of US Code Section 414(q)).
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SECTION 15
MANAGEMENT OF THE TRUST FUND
15.01 USE OF THE TRUST FUND. All assets of the Plan shall be held as a
Trust Fund in one or more trusts and shall be used to provide the benefits of
this Plan. No part of the corpus or income shall be used for, or diverted to,
purposes other than for the exclusive benefit of Members and their Beneficiaries
under this Plan and administrative expenses of this Plan.
15.02 TRUSTEES. The Trust Fund may, at the direction of the Company, be
divided into one or more separate trusts, each of which may have a separate
Trustee appointed from time to time by the Company and subject to removal by the
Company. The Trustee or Trustees of each trust shall have complete authority and
discretion with respect to the investment and reinvestment of the assets of each
trust, subject, however, to (i) the provisions in the Trust Agreements between
the Trustee or Trustees and the Company, and (ii) the provisions of this Plan.
Any or all of such separate trusts shall be referred to collectively from time
to time as the Trust Fund. Any division of the Trust Fund into one or more
separate trusts shall be at the direction of the Company.
15.03 INVESTMENTS AND REINVESTMENTS. The investment and reinvestment of
the assets of the Trust Fund shall be in accordance with the following:
(a) The Company shall have the authority to instruct the
Trustee or Trustees to accept and follow the instructions of any designated
investment manager (within the meaning of ERISA Section 3(38)) with respect to
the investment and reinvestment of the assets in any Investment Funds the
Company may designate.
(b) The Investment Subcommittee shall have the powers, with
respect to investment and reinvestment of the assets constituting the Investment
Funds, to promulgate limitations, restrictions, rules or guidelines with respect
to the investment policies and classes of investments in which the assets of the
Funds may be invested or reinvested by the Trustee or Trustees, including any
such investments made pursuant to the instructions of any investment manager. In
the event an investment manager designated pursuant to Section 15.03(a) resigns
or otherwise is unable to act, the Investment Subcommittee shall have such power
and authority as otherwise would be exercisable by such Investment Manager.
(c) In the event that the assets of the Trust Fund shall be
divided into one or more separate trusts pursuant to the authority provided for
in Section 15.02, then the powers of the Investment Subcommittee as provided for
in Section 15.03(b) may be exercised with respect to one or more of such trusts
within the discretion of the Investment Subcommittee.
(d) The powers of the Investment Subcommittee as provided in
Section 14.03(b), may be exercised at any time or from time to time by the
Investment Subcommittee within the discretion of the Investment Subcommittee and
shall be pursuant
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<PAGE> 49
to a written agreement between the Investment Subcommittee and the Trustee or
Trustees or, if an investment manager has been appointed, between the Investment
Subcommittee and the investment manager.
(e) The Trust Agreement between the Company (and/or the
Employer) and the Trustee or Trustees implementing the Plan shall contain
provisions effectuating the provisions of this Section 15 of the Plan.
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SECTION 16
CERTAIN RIGHTS AND OBLIGATIONS OF EMPLOYERS AND MEMBERS
16.01 DISCLAIMER OF EMPLOYER LIABILITY.
(a) No liability shall attach to the Company or any Employer
with respect to a benefit or claim hereunder and Members and their
Beneficiaries, and all persons claiming under or through them, shall have
recourse only to the Trust Fund for payment of any benefit hereunder.
(b) The rights of the Members, their Beneficiaries and other
persons are hereby expressly limited and shall be only in accordance with the
provisions of the Plan. Nothing contained herein shall be deemed to give a
Member any interest in any specific property of the Trust or any interest other
than a right to receive payments pursuant to the provisions of the Plan.
16.02 EMPLOYER-ASSOCIATE RELATIONSHIP. Neither the establishment of
this Plan nor its communication through a Summary Plan Description (or
otherwise) shall be construed as conferring any legal or other rights upon any
Associate or any other person to continue in employment or as interfering with
or affecting in any manner the right of the Company or the Employer to discharge
any Associate or otherwise act with relation to him. The Company and the
Employer may take any action (including discharge) with respect to any Associate
or other person and may treat him without regard to the effect which such action
or treatment might have upon him as a Member of this Plan.
16.03 BINDING EFFECT. Each Member, by executing an enrollment form,
beneficiary designation and otherwise agreeing to participate in the Plan agrees
for himself, his beneficiary(ies), heirs, successors and assigns to be bound by
all of the provisions of the Plan.
16.04 CORPORATE ACTION. With respect to any action permitted or
required by the Plan, the Company and/or the Employer may act through its
appropriate officers:
16.05 CLAIM AND APPEAL PROCEDURE. A Member or beneficiary may file with
the Committee or its designee at any time a written claim in connection either
with a benefit payable hereunder or otherwise. The Committee or its designee,
normally within 90 days after receipt of a written claim, shall render a written
decision on the claim, unless an additional 90 days is required by special
circumstances which shall be explained to the claimant. If the claim is denied,
either in whole or in part, the decision shall include the reason or reasons for
the denial; a specific reference to the Plan provision or provisions which are
the basis for the denial; a description of any additional material or
information necessary for the claimant to perfect the claim; an explanation as
to why the information or material is necessary; and an explanation of the
Plan's entire claim procedure. The claimant may file with the Committee, within
60 days after receiving the written decision from the Committee, a written
notice of request for review of the Committee's decision. The review shall be
made by a committee of up to three individuals (which may include
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<PAGE> 51
members of the Committee) appointed by the Company or by the Committee. Said
committee shall render a written decision on the claim containing the specific
reasons for their decision, including a reference to the Plan's provisions,
normally within 60 days after receipt of the request for review, unless an
additional 60 days is required by special circumstances which shall be explained
to the claimant. If a Member or beneficiary does not file written notice of a
claim with the Committee or its designee at the times set forth above, he shall
have waived any right to a benefit other than as originally proposed by the
Company or the Committee.
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SECTION 17
NON-ALIENATION OF BENEFITS
17.01 PROVISIONS WITH RESPECT TO ASSIGNMENT AND LEVY. No benefit
payable under this Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, levy or charge, and
any attempt so to anticipate, alienate, sell, transfer, assign, encumber, levy
upon or charge the same shall be void; nor shall any such benefit be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the person entitled to such benefit, except as specifically provided
herein. Notwithstanding the foregoing, the creation, assignment, or recognition
of a right to any benefit payable to an alternate payee with respect to a
Qualified Domestic Relations Order shall not be treated as an assignment or
alienation prohibited by this Section. Any other provision of the Plan to the
contrary notwithstanding, if a Qualified Domestic Relations order requires the
distribution of all or part of a Member's benefits under the Plan, the
establishment or acknowledgment of the alternate payee's right to benefits under
the Plan in accordance with the terms of such Qualified Domestic Relations Order
shall in all events be deemed to be consistent with the terms of the Plan.
Notwithstanding the above a Member's benefit will be offset
against any amount he or she is ordered or required to pay to the Plan pursuant
to an order or requirement which arises under a judgment of conviction for a
crime involving the Plan, under a civil judgment entered by a court in an action
involving a fiduciary breach, or pursuant to a settlement agreement between the
Participant and the Department of Labor or the Pension Benefit Guaranty
Corporation. Any such offset shall be made pursuant to Section 206(d) of ERISA.
17.02 ALTERNATE APPLICATION. If a Member or Beneficiary under this Plan
becomes bankrupt or attempts to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge any benefit under this Plan, except as specifically
provided herein, or if any benefit shall, in the discretion of the Committee,
cease, and in that event the Committee may hold or apply the same or any part
thereof to or for the benefit of such Member or Beneficiary, his spouse,
children or other dependents, or any of them, or in such other manner and in
such proportion as the Committee may deem proper.
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SECTION 18
AMENDMENTS
18.01 COMPANY'S RIGHTS. The Company reserves the right at any time and
from time to time in its sole discretion to alter, amend, or modify, in whole or
in part, any or all of the provisions of this Plan, provided, however, no such
alteration, amendment or modification shall be made which shall decrease the
accrued benefit of any Member. Anything in this Plan to the contrary
notwithstanding, the Company in its sole discretion may make any modifications
or amendments, additions or deletions in or to this Plan as to benefits or
otherwise and retroactively if necessary, and regardless of the effect thereof
on the rights of any particular Member or Beneficiary, which it deems
appropriate and/or necessary in order to comply with or satisfy any conditions
of any law or regulation relating to the qualification of this Plan and the
trust or trusts created pursuant hereto and to keep this Plan and said trusts
qualified under US Code Section 401(a) and the applicable PR Code section(s) and
to have the trust or trusts declared exempt from taxation under US Code Section
501(a) and the applicable PR Code section(s).
18.02 PROCEDURE TO AMEND. This Plan may be amended by action of the
Company's Board of Directors and evidenced by a written amendment signed by the
Company's Secretary or by any other person so authorized by or pursuant to
authority of the Board of Directors.
18.03 PROVISION AGAINST DIVERSION. No part of the assets of the Trust
Fund shall, by reason of any modification or amendment or otherwise, be used
for, or diverted to, purposes other than for the exclusive benefit of Members
and their Beneficiaries under this Plan and administrative expenses of this
Plan.
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<PAGE> 54
SECTION 19
TERMINATION
19.01 RIGHT TO TERMINATE. The Company reserves the right to terminate
this Plan, in whole or in part, at any time and, if this Plan shall be
terminated, the provisions of Section 19.03 shall apply and the Accounts of
affected Members shall become (or remain) fully vested and nonforfeitable.
19.02 WITHDRAWAL OF AN EMPLOYER. If an Employer shall cease to be a
participating Employer in this Plan, the Trust Fund and the Accounts of the
Members of the withdrawing Employer and their Beneficiaries shall be revalued as
if such withdrawal date were a Valuation Date. The Committee shall then direct
the Trustee either to distribute the Accounts of the Members of the withdrawing
Employer as of the date of such withdrawal on the same basis as if the Plan had
been terminated pursuant to Section 19.03 or to deposit in a trust established
by the withdrawing Employer pursuant to a plan substantially similar to this
Plan assets equal in value to the assets of the Trust Fund allocable to the
Accounts of the Members of the withdrawing Employer.
19.03 DISTRIBUTION IN EVENT OF TERMINATION OF TRUST. If this Plan is
terminated at any time including a partial termination as defined in US Code
Section 411(d)(3), or if contributions are completely discontinued and the
Company determines that the trust shall be terminated, in whole or in part, the
Trust Fund and all Accounts shall be revalued as if the termination date were a
Valuation Date and the affected Members' Accounts shall be distributed in
accordance with Section 10.
19.04 ADMINISTRATION IN EVENT OF CONTINUANCE OF TRUST. If this Plan
shall be terminated in whole or in part or contributions completely discontinued
but the Company determines that the trust shall be continued pursuant to the
terms of the Trust Agreement, the trust shall continue to be administered as
though the Plan were otherwise in effect. Upon the subsequent termination of the
trust, in whole or in part, the provisions of Section 19.03 shall apply.
19.05 MERGER, CONSOLIDATION OR TRANSFER. In the case of any merger or
consolidation with, or transfer of Plan assets or liabilities to, any other plan
each Member shall be entitled to receive a benefit immediately after the merger,
consolidation or transfer (if the transferee plan then terminated) which is
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
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SECTION 20
CONSTRUCTION
20.01 APPLICABLE LAW. The provisions of this Plan except as otherwise
governed by ERISA shall be construed, regulated, administered and enforced
according to the laws of Puerto Rico and, whenever possible, to be in conformity
with the applicable requirements of ERISA, of the US Code to the extent
applicable and of the PR Code of 1994.
20.02 GENDER AND NUMBER. Wherever applicable, the masculine pronoun as
used herein shall include the feminine pronoun and the singular pronoun shall
include the plural.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
a duly authorized officer this ______ day of _____________, 2000.
PAYLESS SHOESOURCE, INC.
By: ___________________________
EXHIBIT 10 19 Payless ShoeSource, Inc. Profit Sharing Plan for Puerto Rico
Assocites. WPD
50
<PAGE> 1
Exhibit 11.1
PAYLESS SHOESOURCE, INC.
COMPUTATION OF NET EARNINGS PER SHARE
FOR THE LAST THREE FISCAL YEARS
<TABLE>
<CAPTION>
Jan. 29, Jan. 30, Jan. 31,
(Thousands, except per share) 2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Basic Computation:
- -----------------
Net earnings $136,479 $134,959 $128,869
Weighted average common
shares outstanding 31,221 35,412 38,443
-------- -------- --------
Basic earnings per share $ 4.37 $ 3.81 $ 3.35
======== ======== ========
Diluted Computation:
- -------------------
Net earnings $136,479 $134,959 $128,869
Weighted average common
shares outstanding 31,221 35,412 38,443
Net effect of dilutive stock
options based on the treasury
stock method 144 320 487
-------- -------- --------
Outstanding shares for diluted
earnings per share 31,365 35,732 38,930
======== ======== ========
Diluted earnings per share $ 4.35 $ 3.78 $ 3.31
======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 12.1
PAYLESS SHOESOURCE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE LAST THREE FISCAL YEARS
<TABLE>
<CAPTION>
Jan. 29, Jan. 30, Jan. 31,
(Thousands, except per share) 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Earnings Available for Fixed Charges:
- -------------------------------------
Pretax earnings $226,991 $224,467 $214,348
Fixed Charges (Interest expense plus
interest component of rent) 81,501 72,234 85,345
-------- -------- --------
$308,492 $296,701 $299,693
======== ======== ========
Fixed Charges:
- --------------
Gross interest expense $ 8,412 $ 1,876 $ 1,246
Interest factor attributable
to rent expense 73,089 70,358 84,099
-------- -------- --------
81,501 72,234 85,345
======== ======== ========
Ratio of Earnings
to Fixed Charges $ 3.8 $ 4.1 $ 3.5
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
PAYLESS SHOESOURCE, INC., A DELAWARE
CORPORATION (THE "COMPANY"), ACHIEVED ITS
FOURTH CONSECUTIVE YEAR OF RECORD SALES,
NET EARNINGS AND EARNINGS PER SHARE SINCE
OPERATING AS AN INDEPENDENT PUBLIC COMPANY.
THE THREE-YEAR DILUTED EARNINGS PER SHARE
COMPOUND GROWTH RATE IS 17.7 PERCENT.
- --------------------------------------------------------------------------------
Sales for the Company increased to $2.73 billion in fiscal 1999, from $2.62
billion in 1998, an increase of 4.4 percent. Same-store sales for 1999 increased
0.9 percent. Diluted earnings per share for 1999 increased 15.1 percent to $4.35
from $3.78 last year. Net earnings totaled $136.5 million compared with $135.0
million in 1998, an increase of 1.1 percent. Return on sales was 5.0 percent in
1999, down from 5.2 percent in 1998. Return on equity improved to 19.4 percent
in 1999 from 16.1 percent in 1998. Return on net assets increased to 18.4
percent in 1999 from 17.2 percent in 1998.
During 1999 the Company had a net increase of 135 Payless ShoeSource stores
(269 openings and 134 closings) and 7 Parade stores (21 openings and 14
closings). Year-end 1999 store count was 4,492 Payless ShoeSource stores and 220
Parade stores.
The Company's expansion plans for 2000 include a net increase of
approximately 288 stores, which includes both Payless ShoeSource and Parade
stores. The expansion plans for 2000 through 2004 would add 430 net Payless
ShoeSource stores and 450 net Parade stores. During this five-year period, the
Company plans to invest $304 million for new stores and to spend an additional
$112 million to remodel existing stores. These are the major components of a
projected $670 million capital improvement plan.
During 1999, the Company repurchased $142 million of common stock, with $235
million remaining of the $500 million stock repurchase program announced in
October 1998. In March 2000, the Company announced a self-tender for up to
7,547,170 shares of common stock, or approximately 25 percent of the 29.6
million shares outstanding at the end of fiscal 1999. The self-tender will be
financed with the Company's existing cash and additional borrowings.
The following discussion summarizes the significant factors affecting
operating results for the fiscal years ended January 29, 2000 (1999), January
30, 1999 (1998), and January 31, 1998 (1997). This discussion and analysis
should be read in conjunction with the consolidated financial statements and
notes to the consolidated financial statements included in this annual
report. References to years relate to fiscal years rather than calendar years
unless otherwise designated.
12
<PAGE> 2
REVIEW OF OPERATIONS
Diluted earnings per share reached $4.35 in 1999, compared with $3.78 in 1998
and $3.31 in 1997. Net earnings totaled $136.5 million in 1999 compared with
$135.0 million in 1998 and $128.9 million in 1997. The 1999 and 1998 diluted
earnings per share growth rates were 15.1 percent and 14.2 percent,
respectively. Return on sales was 5.0 percent, 5.2 percent and 5.0 percent for
1999, 1998 and 1997, respectively.
Results for the past three years were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(dollars in millions, 1999 1998 1997
except per share) $ % of Sales $ % of Sales $ % of Sales
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net retail sales $2,730.1 100.0% $2,615.5 100.0% $2,566.9 100.0%
Cost of sales 1,868.3 68.4 1,798.9 68.8 1,799.4 70.1
Selling, general and
administrative expenses 635.7 23.3 599.2 22.9 562.1 21.9
Interest (income)
expense, net (0.9) (0.0) (7.1) (0.3) (8.9) (0.3)
- -------------------------------------------------------------------------------------------------------------------
Earnings before
income taxes 227.0 8.3 224.5 8.6 214.3 8.3
- -------------------------------------------------------------------------------------------------------------------
Provision for
income taxes(1) 90.5 39.9 89.5 39.9 85.4 39.9
Net earnings $ 136.5 5.0% $ 135.0 5.2% $ 128.9 5.0%
- -------------------------------------------------------------------------------------------------------------------
Diluted earnings
per share $ 4.35 $ 3.78 $ 3.31
- -------------------------------------------------------------------------------------------------------------------
Basic earnings
per share $ 4.37 $ 3.81 $ 3.35
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Percent of sales columns represent effective income tax rates.
- - NET RETAIL SALES Net retail sales represent the sales of stores operated
during the period. Same-store sales represent sales of those stores open during
both comparable periods. In 1999 net retail sales increased 4.4 percent from
1998, consisting of a 7.1 percent increase in unit volume and a 2.6 percent
decrease in average selling prices. Same-store sales increased 0.9 percent in
1999. In 1998 net retail sales increased 1.9 percent from 1997, consisting of a
1.8 percent decrease in unit volume and a 3.7 percent increase in average
selling prices. Same-store sales decreased 0.8 percent in 1998.
In 1997 net retail sales increased 10.0 percent from 1996, consisting of a
9.5 percent increase in unit volume and a 0.5 percent increase in average
selling prices. Same-store sales increased 5.6 percent in 1997.
The net retail sales increase in 1999 over 1998 was driven principally by
growth in store count due primarily to the Company's continued expansion in the
Canadian market. The moderate same-store sales increase in 1999 compared with
1998 reflected general softness in the footwear market, particularly in the
first half of the year; weakness in certain geographic areas, especially the
Southeast; and declines in sales of certain categories, such as women's plain
pumps and flats, athletic shoes and boots. Within the dress shoe business,
traditional pumps and flats continue to decline with the shift towards casual.
The net retail sales increase in 1998 over 1997 was driven principally by
growth in store count and the Company's successful entry into the Canadian
market. The same-store sales decrease in 1998 compared with 1997 reflected
general softness in the footwear market, particularly in the second half of the
year; weakness in certain geographic areas, especially the West Coast and
Northwest; declines in sales of certain categories, such as men's and children's
athletic shoes, women's dress shoes, boots and sandals, due to changes in
- --------------------------------------------------------------------------------
$142 MILLION DURING 1999, THE COMPANY REPURCHASED $142 MILLION
OF COMMON STOCK. SHARE REPURCHASES REPRESENTED 59
PERCENT OF THE COMPANY'S CAPITAL ALLOCATION IN 1999.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
consumer preferences and weather conditions; and pressure from close-out sales
and inventory liquidation programs by competitors with excess inventories.
- - COST OF SALES Cost of sales includes cost of merchandise sold, and the
Company's buying and occupancy costs. Cost of sales was $1.87 billion in 1999
which was essentially flat compared with $1.80 billion in 1998. As a percent
of net retail sales, cost of sales was 68.4 percent in 1999 compared with 68.8
percent in 1998. Higher gross margins in 1999 reflect continued improvements in
the merchandising mix, control of freight costs and improvements in product
costs.
Cost of sales was $1.80 billion in 1998 which was flat compared with $1.80
billion in 1997. As a percent of net retail sales, cost of sales was 68.8
percent in 1998 compared with 70.1 percent in 1997. Higher gross margins in 1998
reflect improvements in the merchandise mix, control of freight costs and
improvements in product costs.
- - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses were $635.7 million in 1999 compared with $599.2 million
in 1998,a 6.1 percent increase. As a percent of net retail sales, selling,
general and administrative expenses were 23.3 percent for 1999 compared with
22.9 percent in 1998. The increase was primarily due to increases in store
payroll and advertising expense.
Selling, general and administrative expenses were $599.2 million in 1998
compared with $562.1 million in 1997, a 6.6 percent increase. As a percent of
net retail sales, selling, general and administrative expenses were 22.9 percent
for 1998 compared with 21.9 percent in 1997. The increase was primarily due to
an increase in advertising expense; negative leverage due to same-store sales
below last year; and investments in systems to support future growth, enhance
distribution capabilities and implement the Company's Year 2000 program, as
discussed under "Year 2000 Readiness Disclosure."
- - Interest (Income) Expense
Interest income and expense components were:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(dollars in millions) 1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
Interest income $(9.3) $(9.0) $(10.1)
Interest expense 8.4 1.9 1.2
- --------------------------------------------------------
Interest (income)
expense, net $(0.9) $(7.1) $ (8.9)
- --------------------------------------------------------
</TABLE>
The increase in 1999 interest expense was due to the issuance of $55.0 million
of unsecured notes in June 1999 and the issuance of $67.0 million of unsecured
notes in November 1998. Interest expense also relates to capitalized lease
obligations. Interest income is from the short-term investment of available cash
balances.
The increase in 1998 interest expense was due to the issuance of $67.0
million of unsecured notes in November 1998.
- - INCOME TAXES The effective income tax rates were 39.9 percent for 1999, 1998
and 1997.
- - IMPACT OF INFLATION Inflation did not have a material impact on the Company's
1999 sales growth or earnings.
- --------------------------------------------------------------------------------
31.6% THE COMPANY ACHIEVED GROSS
MARGINS OF 31.6 PERCENT
COMPARED WITH 31.2 PERCENT
IN 1998. HIGHER GROSS
MARGINS IN 1999 REFLECT
CONTINUED IMPROVEMENTS IN
THE MERCHANDISING
MIX, CONTROL OF FREIGHT COSTS, AND
IMPROVEMENTS IN PRODUCT COSTS.
<PAGE> 4
REVIEW OF FINANCIAL CONDITION
- - CASH FLOW Cash flow from operations (net earnings plus depreciation and
amortization) was $233.9 million, 8.6 percent of net sales in 1999 compared with
8.8 percent in 1998 and 8.6 percent in 1997. Internally generated funds will
continue to provide the Company with significant capital resources to enhance
shareowners' value. Sources and (uses) of cash flows are summarized below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(dollars in millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings and depreciation / amortization $233.9 $228.8 $219.5
Working capital (increases) decreases (28.8) (5.4) 24.0
Other operating activities 8.8 (2.7) (0.7)
Capital expenditures and other investing activities (87.5) (99.9) (74.8)
Net purchases of common stock (139.0) (272.9) (150.0)
Net long-term debt issuances (repayments) 53.3 65.6 (1.6)
- ----------------------------------------------------------------------------------------------
Increase (Decrease) in cash
and cash equivalents $ 40.7 $(86.5) $ 16.4
- ----------------------------------------------------------------------------------------------
</TABLE>
- - CAPITAL EXPENDITURES In 1999 the Company's capital expenditures totaled
$100.4 million, including $48.0 million for new stores, $16.6 million to remodel
existing stores and $35.8 million for other necessary improvements. The Company
expects that 2000 capital expenditures will be approximately $150 million.
Capital expenditures for the period 2000 through 2004 are planned at $670
million. The Company intends to use internal cash flow to finance substantially
all of these expenditures.
- - FINANCING ACTIVITIES During 1999 the Company issued $55 million of unsecured
notes. Maturities range from 2004 to 2009, with interest rates ranging from
7.34% to 7.78% and principal payments starting in 2003. The proceeds were added
to the Company's general funds and are available for stock repurchases and other
general corporate purposes. In conjunction with the self-tender, the Company
expects to issue indebtedness of up to $400 million including the refinancing of
its existing notes.
- - AVAILABLE CREDIT The Company has a $200 million revolving credit agreement.
While no amounts had been drawn at January 29, 2000, the balance available to
the Company was reduced by $11.4 million outstanding under a letter of credit.
- - FINANCIAL CONDITION RATIOS
Return on equity and return on net assets are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------
1999 1998 1997
- -------------------------------------------------
<S> <C> <C> <C>
Return on equity(1) 19.4% 16.1% 15.1%
- -------------------------------------------------
Return on net assets(2) 18.4% 17.2% 17.3%
- -------------------------------------------------
</TABLE>
(1) Return on equity is computed as net earnings divided by beginning
shareowners' equity and measures the Company's ability to invest
shareowners' funds profitably. The 1999 increase results from the net
earnings growth and 1998 share repurchases. The 1998 increase results from
the net earnings growth and the 1997 share repurchases.
(2) Return on net assets is computed as pretax earnings before net interest
expense and the interest component of operating leases, divided by beginning
of year net assets, including present value of operating leases (PVOL) and
represents performance independent of capital structure. The 1999 increase
results from the decrease in beginning of year net assets including PVOL.
The debt-to-capitalization ratio was 15.3 percent, 9.5 percent and 1.0 percent
for 1999, 1998 and 1997, respectively. The 1999 debt-to-capitalization ratio
increase results from the issuance of $55 million of unsecured debt in June
1999. The 1998 debt-to-capitalization ratio increase results from the issuance
of $67 million of unsecured debt in November 1998. For purposes of the
debt-to-capitalization ratio, total debt is long-term debt. Capitalization is
defined as total debt, noncurrent deferred income taxes and shareowners' equity.
The debt-to-capitalization ratio, including the present value of future minimum
rental payments under operating leases as debt and as capitalization, would be
58.1 percent, 56.8 percent and 50.1 percent in 1999, 1998 and 1997,
respectively.
The fixed charge coverage was 3.8x, 4.1x and 3.5x in 1999, 1998 and 1997,
respectively. Fixed charges are defined as gross interest expense and the
interest component of rent expense. Fixed charge coverage measures the Company's
ability to meet debt obligations from earnings.
15
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- - COMMON STOCK AND MARKET PRICES
The Company's common stock is listed on the New York Stock Exchange under the
trading symbol PSS. The Company has not paid a dividend on its shares of common
stock and has no present intention to commence dividend payments. The quarterly
intraday price ranges of the common stock in 1999 and 1998 were:
1999 1998
Market Price Market Price
Fiscal Quarter High Low High Low
- -------------------------------------------------------------
First $59 1/4 $44 3/8 $77 $65 1/8
Second 59 13/16 48 7/16 74 3/8 56 3/8
Third 54 1/8 44 3/4 57 11/16 37
Fourth 47 3/4 40 53 41 5/8
- --------------------------------------------------------------
Year $59 13/16 $40 $77 $37
- --------------------------------------------------------------
As of January 29, 2000, there were approximately 18,514 registered holders of
the Company's common stock compared to approximately 19,931 registered holders
as of January 30, 1999.
YEAR 2000 READINESS DISCLOSURE
During 1999, management completed the process of preparing for the Year 2000
date change. This process involved identifying and remediating date recognition
problems in computer systems, software and other operating equipment, working
with third parties to address their Year 2000 issues and developing contingency
plans to address potential risks in the event of Year 2000 failures. To date,
the Company has successfully managed the transition.
Although considered unlikely, unanticipated problems in the Company's core
business processes, including problems associated with non-compliant third
parties, leap year and disruptions to the economy in general, could still occur
despite efforts to date to remediate affected systems and develop contingency
plans. Management will continue to monitor all business processes, including
interaction with the Company's customers, vendors and other third parties,
throughout 2000 to address any issues and ensure all processes continue to
function properly.
Through 1999, the Company expended approximately $9.9 million on its Year
2000 readiness efforts. While the foregoing cost does include internal costs,
the Company did not separately track all of the internal costs incurred by it
for its Year 2000 program, such as the payroll-related costs for the Company's
Year 2000 Program Management Office and other internal resources who also
contributed to the Year 2000 program. The Company's Year 2000 efforts included
replacing some outdated, noncompliant hardware and noncompliant software as well
as identifying and remediating Year 2000 problems. The Company anticipates that
the costs for ongoing monitoring and support activities throughout 2000 will not
be significant.
FORWARD-LOOKING STATEMENTS
This report contains, and 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, possible strategic alternatives and similar
matters. Also, statements including the words "expects," "anticipates,"
"intends," "plans," "believes," "seeks," or variations of such words and similar
expressions are forward-looking statements. The Company notes that a variety
of factors could cause its actual results and experience to differ materially
from the anticipated results or other expectations expressed in its
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; changes in consumer preferences and overall economic conditions; the
impact of competition and pricing; changes in weather patterns; Year 2000
matters as discussed herein; the financial condition of the suppliers and
manufacturers from whom the Company sources its merchandise; changes in existing
or potential duties, tariffs or quotas; changes in relationships between the
United States and foreign countries, economic and political instability in
foreign countries or restrictive actions by the governments of foreign countries
in which suppliers and manufacturers from whom the Company sources are
located; changes in trade and foreign tax laws; fluctuations in currency
exchange rates; availability of suitable store locations and appropriate terms;
the ability to hire and train associates; and general economic, business and
social conditions. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by these cautionary statements. The Company does not
undertake any obligation to release publicly any revisions to such forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
16
<PAGE> 6
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION
The following table presents selected historical financial information of the
Company. The information presented below reflects periods during which the
Company did not operate as an independent public company and, accordingly,
certain assumptions were made in preparing this financial information.
Therefore, this information may not necessarily reflect the consolidated results
of operations or financial position that would have existed if the Company had
been an independent public company during the periods shown or the future
performance of the Company as an independent public company. The financial
information below should be read in conjunction with the consolidated financial
statements and the notes in this annual report.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per Fiscal Year(1)
share; shares in thousands) 1999 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net retail sales $2,730.1 $ 2,615.5 $ 2,566.9 $ 2,333.7 $ 2,330.3 $ 2,116.4 $ 1,966.5
Cost of sales(2) 1,868.3 1,798.9 1,799.4 1,663.5 1,696.2 1,494.9 1,369.9
Selling, general and
administrative expenses(2) 635.7 598.4 557.4 484.7 472.4 403.3 374.9
Special and nonrecurring items(3) - 0.8 4.7 12.6 71.8 - -
Interest (income) expense, net (0.9) (7.1) (8.9) (6.2) 1.0 1.1 0.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total cost of sales and expenses 2,503.1 2,391.0 2,352.6 2,154.6 2,241.4 1,899.3 1,745.7
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 227.0 224.5 214.3 179.1 88.9 217.1 220.8
Provision for income taxes 90.5 89.5 85.4 71.4 34.9 85.6 88.0
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 136.5 $ 135.0 $ 128.9 $ 107.7 $ 54.0 $ 131.5 $ 132.8
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share(4) $ 4.35 $ 3.78 $ 3.31 $ 2.67 - - -
Average shares outstanding-diluted(4) 31,365 35,732 38,930 40,307 - - -
BALANCE SHEET DATA:
Working capital $ 369.1 $ 300.9 $ 384.8 $ 392.2 $ 232.0 $ 242.8 $ 253.5
Property and equipment, net 482.9 492.8 486.7 502.5 560.0 590.6 433.9
Total assets 1,075.5 1,036.7 1,073.0 1,091.8 1,014.3 1,019.8 840.8
Total debt 126.8 73.5 7.9 9.5 11.5 13.1 14.5
Total equity 703.8 702.8 836.4 853.0 752.9(5) 793.9(5) 661.0(5)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA:
Capital expenditures $ 100.4 $ 108.6 $ 85.4 $ 73.4 $ 95.4 $ 255.2 $ 139.8
Present value of operating leases 849.5 851.4 832.5 817.9 885.5 952.1 779.9
Earnings before interest,
income taxes, depreciation
and amortization (EBITDA)(6) 326.1 315.5 300.5 272.1 185.2 295.2 288.7
Net retail sales growth 4.4% 1.9% 10.0% 1.4%(7) 10.1% 7.6% 10.0%
Same-store sales growth 0.9% (0.8)% 5.6% 3.6% (3.7)% (0.2)% 1.7%
Return on equity 19.4% 16.1% 15.1% 14.3% 6.8% 19.8% 23.3%
Return on net assets 18.4% 17.2% 17.3% 15.5% 13.9% 20.9% 22.7%
Stores open (at year-end) 4,712 4,570 4,431 4,236 4,549 4,435 3,779
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All years include 52 weeks, except 1995, which includes 53 weeks.
(2) Certain expenses related to occupancy costs and asset disposals have been
reclassified from selling, general and administrative expense to cost of
sales.
(3) Special and nonrecurring items are included in selling, general and
administrative expenses in the accompanying Consolidated Statement of
Earnings. During the fourth quarter of 1995, the Company committed to close
or relocate underperforming stores and restructure its central office. The
Company also incurred executive retention costs associated with the spin-off
that established the Company as an independent public company.
(4) Calculations only shown since being an independent public company.
(5) Prior to 1996, total equity was the equity investment by May Company.
(6) EBITDA should not be considered in isolation or as a substitute for measures
of performance or cash generation prepared in accordance with generally
accepted accounting principles.
(7) Growth percentage based on a 52-week comparison with 1995.
17
<PAGE> 7
CONSOLIDATED STATEMENT OF EARNINGS
(dollars in millions, except per share)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET RETAIL SALES $2,730.1 $2,615.5 $2,566.9
Cost of sales 1,868.3 1,798.9 1,799.4
Selling, general and administrative expenses 635.7 599.2 562.1
Interest (income) expense, net (0.9) (7.1) (8.9)
- ------------------------------------------------------------------------------------------------
Total cost of sales and expenses 2,503.1 2,391.0 2,352.6
- ------------------------------------------------------------------------------------------------
Earnings before income taxes 227.0 224.5 214.3
Provision for income taxes 90.5 89.5 85.4
- ------------------------------------------------------------------------------------------------
NET EARNINGS $ 136.5 $ 135.0 $ 128.9
- ------------------------------------------------------------------------------------------------
Diluted earnings per share $ 4.35 $ 3.78 $ 3.31
- ------------------------------------------------------------------------------------------------
Basic earnings per share $ 4.37 $ 3.81 $ 3.35
- ------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
19.4% In 1999, Payless ShoeSource, Inc.
achieved 19.4 percent return on
shareowners' equity, an increase from
the 16.1 percent return on equity
achieved in 1998.
19
<PAGE> 8
CONSOLIDATED BALANCE SHEET
(dollars in millions, except per share)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
January 29, January 30,
2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 164.2 $ 123.5
Merchandise inventories 349.7 342.1
Current deferred income taxes 12.1 14.2
Other current assets 40.9 34.8
- ------------------------------------------------------------------------------
Total current assets 566.9 514.6
Property and equipment:
Land 7.5 6.3
Buildings and leasehold improvements 713.9 652.5
Furniture, fixtures and equipment 309.1 293.6
Property under capital leases 7.3 7.6
- ------------------------------------------------------------------------------
Total property and equipment 1,037.8 960.0
Accumulated depreciation and amortization (554.9) (467.2)
- ------------------------------------------------------------------------------
Property and equipment, net 482.9 492.8
Deferred income taxes 21.3 25.8
Other assets 4.4 3.5
- ------------------------------------------------------------------------------
Total assets $1,075.5 $1,036.7
- ------------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 0.7 $ 1.5
Accounts payable 81.2 95.4
Accrued expenses 115.9 116.8
- ------------------------------------------------------------------------------
Total current liabilities 197.8 213.7
Long-term debt 126.1 72.0
Other liabilities 47.8 48.2
Shareowners' Equity:
Preferred stock, $.01 par value; 25,000,000
shares authorized; none issued
Common stock, $.01 par value; 240,000,000
shares authorized; 36,924,127 and 36,924,127
issued; 29,601,939 and 32,453,406
shares outstanding in 1999 and 1998,
respectively 0.3 0.3
Additional paid-in capital 40.1 35.0
Unearned restricted stock (0.8) (3.3)
Retained earnings 663.2 670.8
Accumulated other comprehensive income 1.0 -
- ------------------------------------------------------------------------------
Total shareowners' equity 703.8 702.8
- ------------------------------------------------------------------------------
Total liabilities and shareowners' equity $1,075.5 $1,036.7
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE> 9
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(dollars in millions, shares in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Outstanding Additional Unearned Other Total
Common Stock Paid-in Restricted Retained Comprehensive Shareowners' Comprehensive
Shares Dollars Capital Stock Earnings Income Equity Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1997 39,920 $0.4 $12.0 $(3.1) $843.7 - $853.0
====================================================================================================================================
Net earnings - - - - 128.9 - 128.9 $128.9
Issuances of common stock 197 - 9.0 (9.0) - - -
Purchases of common stock (2,785) - - - (150.0) - (150.0)
Amortization of unearned
restricted stock - - - 4.5 - - 4.5
Comprehensive income 128.9
====================================================================================================================================
Balance at January 31, 1998 37,332 0.4 21.0 (7.6) 822.6 - 836.4
====================================================================================================================================
Net earnings - - - - 135.0 - 135.0 135.0
Issuances of common stock 227 - 14.0 - - - 14.0
Purchases of common stock (5,106) (0.1) - - (286.8) - (286.8)
Amortization of unearned
restricted stock - - - 4.3 - - 4.3
Comprehensive income 135.0
====================================================================================================================================
Balance at January 30, 1999 32,453 0.3 35.0 (3.3) 670.8 - 702.8
====================================================================================================================================
Net earnings - - - - 136.5 - 136.5 136.5
Translation adjustments - - - - - 1.0 1.0 1.0
Issuances of common stock 85 - 5.1 - - - 5.1
Purchases of common stock (2,936) - - - (144.1) - (144.1)
Amortization of unearned
restricted stock - - - 2.5 - - 2.5
Comprehensive income $137.5
====================================================================================================================================
Balance at January 29, 2000 29,602 $0.3 $40.1 $(0.8) $663.2 $1.0 $703.8
====================================================================================================================================
</TABLE>
Outstanding common stock excludes shares held in treasury. Treasury share
activity for the last three years is summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, Beginning of Year 4,471 3,668 1,080
Issuances of common stock:
Exercise of stock options (102) (214) (38)
Deferred compensation plan (1) (1) -
Restricted stock grants, net of forfeitures 18 (12) (159)
- --------------------------------------------------------------------------------
Total issuances of common stock (85) (227) (197)
Purchases of common stock 2,936 5,106 2,785
Retirement of common stock - (4,076) -
- --------------------------------------------------------------------------------
Balance End of Year 7,322 4,471 3,668
================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE> 10
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 136.5 $ 135.0 $ 128.9
Adjustments for noncash items included in net earnings:
Depreciation and amortization 97.4 93.8 90.6
Amortization of unearned restricted stock 2.5 4.3 4.5
Deferred income taxes 6.6 (3.2) (8.9)
Changes in working capital:
Merchandise inventories (7.6) (17.5) 30.2
Other current assets (6.1) (4.6) (1.6)
Accounts payable (14.2) 11.7 (19.1)
Accrued expenses (0.9) 5.0 14.5
Other assets and liabilities, net (0.3) (3.8) 3.7
- -------------------------------------------------------------------------------------------------
Total operating activities 213.9 220.7 242.8
- -------------------------------------------------------------------------------------------------
Investing activities:
Capital expenditures (100.4) (108.6) (85.4)
Dispositions of property and equipment 12.9 8.7 10.6
- -------------------------------------------------------------------------------------------------
Total investing activities (87.5) (99.9) (74.8)
- -------------------------------------------------------------------------------------------------
Financing activities:
Issuance of long-term debt 55.0 67.0 --
Repayments of long-term debt (1.7) (1.4) (1.6)
Purchases of common stock:
Stock repurchase program (142.4) (272.9) (150.0)
Compensation plans (1.7) (14.0) --
Issuances of common stock 5.1 14.0 --
- -------------------------------------------------------------------------------------------------
Total financing activities (85.7) (207.3) (151.6)
- -------------------------------------------------------------------------------------------------
Increase (Decrease) in cash and cash equivalents 40.7 (86.5) 16.4
Cash and cash equivalents, beginning of year 123.5 210.0 193.6
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 164.2 $ 123.5 $ 210.0
=================================================================================================
Cash paid during the year:
Interest $ 8.4 $ 1.9 $ 2.0
Income taxes 77.5 79.6 85.8
- -------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - Description of Business and Basis of Presentation Payless ShoeSource, Inc., a
Delaware corporation, together with its subsidiaries, (the "Company"), is the
largest family footwear retailer in North America.
As of January 29, 2000, the Company operated 4,492 Payless ShoeSource family
shoe stores in all 50 states, the District of Columbia, Puerto Rico, Guam,
Saipan, the U.S. Virgin Islands and Canada. The Company also operates Parade, a
220-store division offering fashionable women's footwear at moderate prices.
The Company utilizes a network of agents with factories in 10 foreign
countries and the United States to source its products, which are manufactured
to meet the Company's specifications and standards. Factories in the People's
Republic of China are a source of approximately 84 percent of the Company's
merchandise.
Payless ShoeSource, Inc., a Missouri corporation, and its subsidiaries
("Payless Missouri") was a subsidiary of The May Department Stores Company ("May
Company") until its spin-off in May 1996. Effective June 1, 1998, Payless
Missouri and its subsidiaries were reorganized into a Delaware holding company
structure. The consolidated financial statements include results for the entire
fiscal year for all years presented and the accounts of the Company, all wholly
owned subsidiaries and one subsidiary, of which less than 0.1 percent of its
shares are minority owned.
- - FISCAL YEAR The Company's fiscal year ends on the Saturday closest to January
31. Fiscal years 1999, 1998 and 1997 ended on January 29, 2000 January 30, 1999,
and January 31, 1998, respectively. Each of these fiscal years included 52
weeks. References to years in these financial statements and notes relate to
fiscal years rather than calendar years.
- - USE OF ESTIMATES Management makes estimates and assumptions that affect the
amounts reported within the consolidated statement of earnings, shareowners'
equity and cash flows, the consolidated balance sheet and notes to consolidated
financial statements. Actual results could differ from these estimates.
- - NET RETAIL SALES Net retail sales ("sales") represent the sales, net of
returns and excluding sales tax, of all stores operated during the
period. Same-store sales represent sales of those stores open during both
comparable periods.
- - COST OF SALES Cost of sales includes the cost of merchandise sold and the
Company's buying and occupancy costs.
- - PRE-OPENING EXPENSES Costs associated with the opening of new stores are
expensed as incurred.
- - ADVERTISING COSTS Advertising costs and sales promotion costs are expensed at
the time the advertising takes place. Selling, general and administrative
expenses include advertising and sales promotion costs of $87.2 million, $84.8
million and $76.0 million in 1999, 1998 and 1997, respectively.
- - INCOME TAXES Income taxes are accounted for using a balance sheet approach
known as the liability method. The liability method accounts for deferred income
taxes by applying the statutory tax rates in effect at the date of the balance
sheet to differences between the book basis and the tax basis of assets and
liabilities.
- - STOCK-BASED COMPENSATION The Company accounts for stock-based compensation by
applying APB Opinion No. 25, as allowed under Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-based Compensation."
- - CASH AND CASH EQUIVALENTS Cash equivalents consist of liquid investments with
an original maturity of three months or less. Cash equivalents are stated at
cost, which approximates fair value.
- - MERCHANDISE INVENTORIES Merchandise inventories are valued by the retail
method and are stated at the lower of cost, determined using the
first-in, first-out (FIFO) basis, or market.
- - PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and are
depreciated on a straight-line basis over their estimated useful
lives. Investments in properties under capital leases and leasehold improvements
are amortized over the shorter of their useful lives or their related lease
terms. Property and equipment are reviewed regularly to determine whether the
carrying amount of the assets is recoverable.
- - INSURANCE PROGRAMS The Company retains its normal expected losses related
primarily to workers' compensation, physical loss to property and business
interruption resulting from such loss and comprehensive general, product, and
22
<PAGE> 12
vehicle liability. The Company purchases third party coverage for losses in
excess of the normal expected level. Provisions for losses expected under these
programs are recorded based upon the Company's estimates of the aggregate
liability for claims incurred utilizing independent actuarial assumptions.
- - FOREIGN CURRENCY TRANSLATION Local currencies are the functional currencies
for all subsidiaries. Accordingly, assets and liabilities of foreign
subsidiaries are translated at the rate of exchange at the balance sheet
date. Income and expense items of these subsidiaries are translated at average
rates of exchange.
- - FINANCIAL DERIVATIVES Financial derivatives are used to reduce foreign
exchange and interest rate risk. Gains and losses related to forward foreign
exchange contracts used to hedge firm commitments are deferred and recognized in
operating results or included in balance sheet amounts when the transactions are
settled. As of January 29, 2000, January 30, 1999 and January 31, 1998, there
were no derivative financial instruments in place.
The Company intends to adopt SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities in fiscal 2001. The
Company believes that SFAS No. 133 will not have a material impact on its
results of operations or financial position.
- - SEGMENTS In 1998 the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Segments have been
identified based upon management responsibility. The Company's two segments,
Payless ShoeSource stores and Parade stores, have been aggregated for reporting
purposes based upon the similarity of their operations and economic
characteristics.
- - RECLASSIFICATION Certain prior-year amounts have been reclassified to conform
with the current-year presentation.
QUARTERLY RESULTS (UNAUDITED)
Quarterly results are determined in accordance with annual accounting
policies. They include certain items based upon estimates for the entire
year. Summarized quarterly results for the last two years were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in millions,
except per share) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter First Second Third Fourth Year First Second Third Fourth Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net retail sales $ 689.2 $767.6 $ 669.4 $ 604.0 $ 2,730.1 $ 681.0 $ 723.1 $ 643.1 $ 568.4 $ 2,615.5
Cost of sales 468.6 514.2 455.5 430.0 1,868.3 465.4 489.4 441.0 403.2 1,798.9
Net earnings $ 35.3 $ 51.3 $ 34.6 $ 15.3 $ 136.5 $ 37.8 $ 49.3 $ 33.7 $ 14.2 $ 135.0
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings
per share(1) $ 1.09 $ 1.61 $ 1.11 $ 0.51 $ 4.35 $ 1.00 $ 1.33 $ 0.98 $ 0.42 $ 3.78
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings
per share(1) $ 1.09 $ 1.62 $ 1.12 $ 0.51 $ 4.37 $ 1.01 $ 1.35 $ 0.98 $ 0.43 $ 3.81
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Earnings per share were computed independently for each of the quarters
presented. The sum of the quarters may not equal the total year amount due to
the impact of changes in average quarterly shares outstanding.
- --------------------------------------------------------------------------------
PROFIT SHARING PLAN
The Company has a qualified profit sharing plan ("Payless Profit Sharing Plan")
that covers associates who work 1,000 hours or more in a year and have attained
age 21. On January 1, 1997, the Payless ShoeSource Profit Sharing Plan for
Puerto Rico Associates ("Puerto Rico Profit Sharing Plan") was established by
the Company. All associates of the Company, as of January 1, 1997, who were
previously participating in the Payless Profit Sharing Plan and employed in
Puerto Rico, had their account balances transferred to the Puerto Rico Profit
Sharing Plan.
The Company's profit sharing plans are defined contribution plans that
provide for Company contributions related to the Company's annual performance
and are at the discretion of the Board of Directors. The Company expects to
contribute 2.5 percent of its pretax earnings to the Company's profit sharing
plans. Associates may voluntarily contribute to the Company's profit sharing
plans on both a before-tax and after-tax basis. Total profit sharing
contributions made by the Company were $5.7 million, $5.6 million and $5.5
million in 1999, 1998 and 1997, respectively.
23
<PAGE> 13
INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal $ 68.5 $ 75.7 $ 76.6
State and local 15.4 17.0 17.7
- --------------------------------------------------------------------------------
Taxes currently payable 83.9 92.7 94.3
- --------------------------------------------------------------------------------
Federal 5.0 (3.0) (7.3)
State and local 1.6 (0.2) (1.6)
- --------------------------------------------------------------------------------
Deferred taxes 6.6 (3.2) (8.9)
- --------------------------------------------------------------------------------
Total provision $ 90.5 $ 89.5 $ 85.4
================================================================================
</TABLE>
The reconciliation between the statutory federal income tax rate and the
effective income tax rate was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes
(net of federal tax benefit) 4.9 4.9 4.9
- --------------------------------------------------------------------------------
Effective income tax rate 39.9% 39.9% 39.9%
================================================================================
</TABLE>
Major components of deferred income tax assets and (liabilities) were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Jan. 29, Jan. 30,
(dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Accrued expenses and reserves $ 21.7 $ 26.5
Depreciation/amortization
and basis differences 11.7 14.0
Other deferred income taxes, net -- (0.5)
- --------------------------------------------------------------------------------
Net deferred income taxes 33.4 40.0
Less: Net current deferred income taxes 12.1 14.2
- --------------------------------------------------------------------------------
Noncurrent deferred income taxes $ 21.3 $ 25.8
================================================================================
</TABLE>
EARNINGS PER SHARE
Basic earnings per share were $4.37, $3.81 and $3.35 in 1999, 1998 and
1997, respectively. The per share amounts have been computed on the basis of the
weighted average number of shares outstanding.
The calculation of diluted earnings per share for 1999 and 1998 excludes the
impact of 312,103 and 188,583 stock options, respectively, because to include
them would have been antidilutive. Diluted earnings per share have been computed
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(dollars in millions, except per
share; shares in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $136.5 $135.0 $128.9
Weighted average
shares outstanding - basic 31,221 35,412 38,443
Stock options 144 320 487
- --------------------------------------------------------------------------------
Weighted average
shares outstanding - diluted 31,365 35,732 38,930
- --------------------------------------------------------------------------------
Diluted earnings per share $ 4.35 $ 3.78 $ 3.31
================================================================================
</TABLE>
ACCRUED EXPENSES
Major components of accrued expenses included:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Jan. 29, Jan. 30,
(dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Profit sharing, bonus and retention $ 25.1 $ 20.9
Sales, use and other taxes 21.2 14.0
Store closings and real estate related 16.6 14.9
Construction costs 14.9 22.0
Insurance costs 2.6 6.3
================================================================================
</TABLE>
LINE OF CREDIT
The Company has in place a $200 million unsecured revolving credit facility with
a bank syndication group. While no amounts had been drawn as of January
29,2000,the balance available to the Company was reduced by $11.4 million
outstanding under a letter of credit.
LONG-TERM DEBT
During 1999 and 1998 the Company issued $55 million and $67 million of unsecured
notes, respectively, The fair value of long-term debt (excluding capital lease
obligations) was approximately $106.4 million at January 29, 2000 and $66.8
million at January 30, 1999. The fair values were determined using borrowing
rates for debt instruments with similar terms and maturities.
Long-term debt and capital lease obligations were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Jan. 29, Jan. 30,
(dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
6.55% unsecured notes due 2003 $ 15.0 $ 15.0
7.34% unsecured notes due 2004 20.0 -
6.88% unsecured notes due 2005 22.0 22.0
7.35% unsecured notes due 2008 30.0 30.0
7.67% unsecured notes due 2009 15.0 -
7.78% unsecured notes due 2009 20.0 -
Total unsecured notes $ 122.0 $ 67.0
Capital lease obligations 4.8 6.5
- --------------------------------------------------------------------------------
Total debt 126.8 73.5
Less current maturities (0.7) (1.5)
- --------------------------------------------------------------------------------
Total long-term debt $ 126.1 $ 72.0
================================================================================
</TABLE>
Principal payments of unsecured notes are $17.0 million in 2003,$22.0 million in
2004 and $83.0 million thereafter.
LEASE OBLIGATIONS
The Company leases substantially all of its stores. Rental expense for the
Company's operating leases consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $251.7 $235.5 $227.1
Contingent rentals based on sales 3.4 3.3 3.3
- --------------------------------------------------------------------------------
Real property rentals 255.1 238.8 230.4
Equipment rentals 0.9 0.9 0.8
- --------------------------------------------------------------------------------
Total $256.0 $239.7 $231.2
================================================================================
</TABLE>
24
<PAGE> 14
Certain lease agreements include escalating rents over the lease
terms. Cumulative expense recognized on the straight-line basis in excess
of cumulative payments is included in accrued expenses ($4.4 million) and other
liabilities ($19.4 million) in the accompanying balance sheet.
Future minimum lease payments at January 29, 2000, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Capital Operating
(dollars in millions) Leases Leases Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 1.3 $ 232.8 $ 234.1
2001 1.3 204.6 205.9
2002 1.2 170.9 172.1
2003 0.8 133.4 134.2
2004 0.7 93.6 94.3
After 2004 1.7 225.4 227.1
- --------------------------------------------------------------------------------
Minimum lease payments $ 7.0 $ 1,060.7 $ 1,067.7
================================================================================
</TABLE>
Less imputed interest component 2.2
- ----------------------------------------
Present value of net minimum
lease payments of which $0.7 million
is included in current liabilities $4.8
- ----------------------------------------
At January 29, 2000, the present value of operating leases was $849.5 million.
OTHER LIABILITIES
Major components of other liabilities included:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Jan. 29, Jan. 30,
(dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Rent expense $19.4 $22.1
Insurance costs 18.3 18.2
- --------------------------------------------------------------------------------
</TABLE>
COMMON STOCK REPURCHASE PROGRAMS
During 1999, the Company repurchased $142 million of common stock (2.9 million
shares) with $235 million remaining of the $500 million stock repurchase program
announced in October 1998. During 1998,the Company completed the $150 million
stock repurchase program (2.2 million shares) announced in September 1997.
During 1997, the Company completed the $150 million stock repurchase program
(2.8 million shares) announced in January 1997.
STOCK OPTION AND STOCK-RELATED COMPENSATION PLANS
Under the Company's common stock option plans, options are granted at the
average of the high and low trading price on the date of grant. Options to
purchase may extend for up to 10 years, may be exercised in installments only
after stated intervals of time, and are conditional upon continued employment
with the Company. The options may be exercised during certain periods following
retirement, disability or death.
A summary of the status of the various stock option plans at the end of 1999,
1998 and 1997, and the changes within years are presented below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Range of Average Range of Average Range of Average
Exercise Exercise Exercise Exercise Exercise Exercise
(shares in thousands) Shares Prices Price Shares Prices Prices Shares Prices Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,137 $27-72 $ 45 2,164 $27-59 $ 39 499 $27-38 $ 28
Granted 93 52-53 53 233 48-72 64 1,751 45-59 46
Exercised 102 27-59 37 214 27-59 42 38 27-46 30
Forfeited or expired 202 27-72 46 52 27-72 46 48 27-46 42
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,920 $27-72 $ 45 2,131 $27-72 $ 45 2,164 $27-59 $ 39
- ----------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 860 $27-59 $ 40 925 $27-59 $ 41 986 $27-59 $ 44
Shares available for
additional grants 2,719 2,873 2,830
Fair value of options granted $32 $ 40 $ 24
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
January 29, 2000:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(shares in thousands)
- --------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Average
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Life
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$27-38 315 6 years $28 262 6 years
45-59 1,307 7 years 46 598 7 years
48-72 298 8 years 62 0 8 years
================================================================================
</TABLE>
25
<PAGE> 15
$126 MILLION
IN 1999, PAYLESS GENERATED $126 MILLION OF FREE CASH FLOW IN EXCESS OF
INVESTMENT NEEDS. THIS CASH IS AVAILABLE TO ENHANCE SHAREOWNER VALUE THROUGH
EXPANSION OF THE BUSINESS AND CONTINUED SHARE REPURCHASES.
Under the 1996 Stock Incentive Plan, the Company is authorized to grant a
maximum of 400,000 shares of restricted stock to management associates. No
monetary consideration is paid by associates who receive restricted
stock. Restricted stock can be granted with or without performance restrictions.
Restrictions, including performance restrictions, lapse over periods of up to
four years, as determined at the date of grant. In 1999 and 1998, the Company
granted 8,488 and 19,917 shares of restricted stock, respectively, under the
1996 Stock Incentive Plan.
The Company's plans are accounted for as provided by APB Opinion No. 25. For
stock options, no compensation cost has been recognized because the option
exercise price is fixed at the average market price on the date of grant. For
restricted stock grants, compensation expense is based upon the grant date
average market price; it is recorded over the lapsing period. For
performance-based restricted stock, compensation expense is recorded over the
performance period based on estimates of performance levels.
SFAS No. 123, "Accounting for Stock-based Compensation," provides an
alternative method of accounting for stock based compensation, which establishes
a fair value method of accounting for employee stock options or similar equity
instruments. The Company uses the Black-Scholes option pricing model to estimate
the grant date fair value of its 1996 and later option grants. The fair value is
recognized over the option vesting period. As the fair value represents only
1996 and later option grants, the pro forma impact shown below may not be
representative of future years. Had compensation cost for these plans been
determined in accordance with SFAS No. 123, the Company's net earnings and
earnings per share would have been as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(dollars in millions,
except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET EARNINGS:
As reported $ 136.5 $ 135.0 $ 128.9
Pro forma $ 130.3 $ 128.7 $ 110.8
DILUTED EARNINGS PER SHARE:
As reported $ 4.35 $ 3.78 $ 3.31
Pro forma $ 4.15 $ 3.60 $ 2.84
BASIC EARNINGS PER SHARE:
As reported $ 4.37 $ 3.81 $ 3.35
Pro forma $ 4.17 $ 3.63 $ 2.88
- --------------------------------------------------------------------------------
</TABLE>
The following assumptions were used in the Black-Scholes calculations above:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.71% 5.70% 6.66%
Expected dividend yield 0% 0% 0%
Option life 10 yrs. 10 yrs. 10 yrs.
Expected volatility 36% 38% 30%
- --------------------------------------------------------------------------------
</TABLE>
SHAREOWNER RIGHTS PLAN
The Company has a shareowner rights plan under which one right is attached to
each share of the Company's common stock. The rights become exercisable only
under certain circumstances involving actual or potential acquisitions of the
Company's common stock by a person or persons affiliated with such persons.
Depending on the circumstances, if the rights become exercisable, the holder may
be entitled to purchase units of the Company's preferred stock, shares of the
Company's common stock or shares of the common stock of the acquiring person.
The rights will remain in existence until April 20, 2008, unless they are
terminated, extended, exercised or redeemed.
ACQUISITION
In March 1997 the Company purchased inventory, property and trademarks, and
assumed leases on 186 stores of the Parade division from J. Baker, Inc. The
purchase price was approximately $28 million in cash. The acquisition of the
Parade division 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 the acquisition date.
SUBSEQUENT EVENT (UNAUDITED)
In March 2000, the Company announced a self-tender for up to 7,547,170 shares of
common stock, or approximately 25 percent of the 29.6 million shares outstanding
at the end of 1999.
26
<PAGE> 16
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and objectivity of the
financial information included in this annual report. The financial statements
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts. Although the financial statements reflect all
available information and management's judgment and estimates of current
conditions and circumstances, and are prepared with the assistance of
specialists within and outside the Company, actual results could differ from
those estimates.
Management has established and maintains an internal control structure to
provide reasonable assurance that assets are safeguarded against loss from
unauthorized use or disposition, that the accounting records provide a reliable
basis for the preparation of financial statements, and that such financial
statements are not misstated due to material fraud or error. Internal controls
include the careful selection of associates, the proper segregation of duties
and the communication and application of formal policies and procedures that are
consistent with high standards of accounting and administrative practices. An
important element of this system is a comprehensive internal audit program.
Management continually reviews, modifies and improves its systems of
accounting and controls in response to changes in business conditions and
operations and in response to recommendations in the reports prepared by the
independent public accountants and internal auditors.
Management believes that it is essential for the Company to conduct its
business affairs in accordance with the highest ethical standards and in
conformity with the law. This standard is described in the Company's policies on
business conduct, which are publicized throughout the Company.
AUDIT AND FINANCE
COMMITTEE OF THE BOARD OF DIRECTORS
The Board of Directors, through the activities of its Audit and Finance
Committee, participates in the reporting of financial information by the
Company. The committee meets regularly with management, the internal auditors
and the independent public accountants. The committee reviewed the scope, timing
and fees for the annual audit and the results of the audit examinations
completed by the internal auditors and independent public accountants, including
the recommendations to improve certain internal controls and the follow-up
reports prepared by management. The independent public accountants and internal
auditors have free access to the committee and the Board of Directors and attend
each Audit and Finance Committee meeting.
The Audit and Finance Committee consists of three outside directors, all of
whom have accounting or financial management expertise. The members of the Audit
and Finance Committee are Howard R. Fricke, Michael E. Murphy and Robert L.
Stark. The Audit and Finance Committee reports the results of its activities to
the full Board of Directors.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareowners of Payless
ShoeSource, Inc.:
We have audited the accompanying consolidated balance sheet of Payless
ShoeSource, Inc. (a Delaware corporation) and subsidiaries as of January
29, 2000, and January 30, 1999, and the related consolidated statements of
earnings, shareowners' equity and cash flows for each of the three fiscal years
in the period ended January 29, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Payless ShoeSource, Inc. and
subsidiaries as of January 29, 2000, and January 30, 1999 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 29, 2000, in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
St. Louis, Missouri
February 18, 2000
27
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
The corporations listed below are subsidiaries of Registrant, and all are
included in the consolidated financial statements of Registrant as subsidiaries
(unnamed subsidiaries, considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary):
<TABLE>
<CAPTION>
Jurisdiction
in which
Name organized
---- ------------
<S> <C>
Payless ShoeSource Finance, Inc. Nevada
Payless ShoeSource, Inc. Missouri
Payless ShoeSource Distribution, Inc. Kansas
Payless ShoeSource Merchandising, Inc. Kansas
Payless ShoeSource Worldwide, Inc. Kansas
PSS Canada, Inc. Kansas
Payless ShoeSource Canada, Inc. Canada
</TABLE>
<PAGE> 1
EXHIBIT 23.1
[ARTHUR ANDERSEN LOGO]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (SEC File Nos. 333-25877,
333-28483, 333-30371 and 333-50671).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
April 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PAYLESS
SHOESOURCE, INC. CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE 52 WEEKS
ENDED JANUARY 29, 2000, AND CONDENSED CONSOLIDATED BALANCE SHEET AS OF JANUARY
29, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 164,200<F1>
<SECURITIES> 0<F2>
<RECEIVABLES> 6,900<F3>
<ALLOWANCES> 0<F3>
<INVENTORY> 349,700
<CURRENT-ASSETS> 566,900
<PP&E> 1,037,800
<DEPRECIATION> 554,900
<TOTAL-ASSETS> 1,075,500
<CURRENT-LIABILITIES> 197,800
<BONDS> 126,100<F4>
0
0
<COMMON> 300
<OTHER-SE> 703,500<F5>
<TOTAL-LIABILITY-AND-EQUITY> 1,075,500
<SALES> 2,730,100<F6>
<TOTAL-REVENUES> 2,730,100
<CGS> 1,868,300
<TOTAL-COSTS> 1,868,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (900)
<INCOME-PRETAX> 227,000
<INCOME-TAX> 90,500
<INCOME-CONTINUING> 136,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,500
<EPS-BASIC> 4.37<F7>
<EPS-DILUTED> 4.35<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 plus Long-Term Debt.
<F5>Reflects Retained Earnings and Additional Paid In Capital.
<F6>Reflects net sales.
<F7>Expressed in dollars.
</FN>
</TABLE>
