EXHIBIT 10.1
PERSONAL AND CONFIDENTIAL
PAYLESS SHOESOURCE, INC.
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EXECUTIVE OFFICES
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SENIOR VICE PRESIDENT
HUMAN RESOURCES
May 20, 2005
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Re: Employment Agreement
Dear Matt:
This is your EMPLOYMENT AGREEMENT with PAYLESS SHOESOURCE, INC., a Delaware
corporation (the "Company"). It sets forth the terms of your employment with the
Company and its affiliates from time to time (together, the "Group").
1. YOUR POSITION, PERFORMANCE AND OTHER ACTIVITIES
(a) Position. You will be employed in the position of Chief Executive
Officer of the Company. You will be appointed to the Company's Board of
Directors (the "Board") as of your Start Date (as defined in Section 2) and the
Company will use reasonable efforts to cause you to be nominated for re-election
each time your term expires during your employment. You agree to serve as a
member of the Board, as well as a member of any Board committee to which you may
be elected or appointed.
(b) Authority, Responsibilities and Reporting. You shall be the most
senior officer of the Company and you shall be responsible for the oversight and
management of all operations and activities of the Group. Each employee of the
Group shall report, directly or indirectly, to you provided that such reporting
relationship is in compliance with the charter and bylaws of the Company and all
applicable laws and regulations, including the rules of the stock exchange on
which the Company is listed. You shall report directly and exclusively to the
Board in its entirety (and not to any individual member thereof).
(c) Performance. During your employment, you will devote substantially all
of your business time and attention to the Group and will use good faith efforts
to discharge your responsibilities under this Agreement to the best of your
ability. During your employment, your place of performance will be Topeka,
Kansas or such other place as the Board determines to locate the Company's
headquarters, subject to your right to resign for "Good Reason" (as defined in
Section 5(c)) upon certain relocations of the Company's headquarters as
described in Section 5(c)(1)G).
(d) Other Activities. During your employment, you will not render any
business, commercial or professional services to any non-member of the Group.
However, you may (1) serve on corporate, civic or charitable boards, (2) manage
personal investments, and (3) deliver lectures, fulfill speaking engagements or
teach at educational institutions, so long as (A) these activities do not
interfere in more
than a de minimis manner with your performance of your responsibilities under
this Agreement and (B) any service on a corporate board, and any service on more
than two civic and/or charitable boards, is approved by the Board. The boards on
which you expect to serve are: American Apparel & Footwear Association and
Portland Museum of Arts.
2. TERM OF YOUR EMPLOYMENT
Your employment under this Agreement will (a) begin on August 1, 2005 or such
earlier date that is mutually agreed by you and the Company (the "Start Date" of
this Agreement) provided that the condition set forth in Section 10(c) is
satisfied on or prior to June 30, 2005 and (b) end at the close of business on
the earlier of (1) the end of the Compensation Period or (2) the effective date
of early termination of your employment. Your "Compensation Period" begins on
your Start Date and is initially scheduled to end on May 31, 2008 (the "Initial
End Date"). Beginning on May 31, 2008 and on each following anniversary, your
Compensation Period will automatically extend for one year unless either you or
the Company gives at least 90 days' prior notice of non-extension. References in
this Agreement to "your employment" are to your employment under this Agreement.
This Agreement will only become effective on the Start Date and will
automatically terminate if you do not accept and agree to this Agreement by June
30, 2005.
3. YOUR COMPENSATION
(a) Salary. During your employment, you will receive an annual base salary
(as increased from time to time, your "Salary"). The starting amount of your
Salary is $1,000,000. The Company will review your Salary at least annually and
may increase it at any time for any reason and your Salary may not be decreased
at any time (including after any increase) without your consent; references in
this Agreement to Salary shall mean your annual base salary as so increased or
decreased. Any increase in your Salary will not reduce or limit any other
obligation to you under this Agreement. Your Salary will be paid in accordance
with the Company's practices for senior executives of the Company.
(b) Bonus. You will be eligible to receive an annual cash bonus (your
"Bonus") for each fiscal year of the Company ending during your employment. The
amount of your Bonus will be determined by the Board (or the Board's
Compensation Committee) based on the achievement of performance goals
established by the Board (or the Board's Compensation Committee) in consultation
with you. Your minimum annual cash bonus target will be equal to 75% of your
Salary (the "Target Annual Bonus") and, in the discretion of the Board (or the
Board's Compensation Committee), you will have the opportunity to earn a Bonus
in excess of the Target Annual Bonus for achievement of performance in excess of
the established performance goals. Your Bonus will be paid in accordance with
the Company's practices for senior executives of the Company. For the Company's
fiscal year ending January 28, 2006, you are guaranteed to receive a Bonus of at
least $750,000 multiplied by the number of elapsed days from your Start Date
through January 28, 2006 divided by 365, provided you are in the employ of the
Company on the date the Bonus is paid.
(c) Initial Equity Incentive Awards.
(1) In addition to your Salary and Bonus, on your Start Date you
will be awarded
(A) stock options to purchase 720,000 shares of the Company's
common stock (your "Sign-On Stock Options") and
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(B) 214,250 restricted shares of the Company's common stock
(your "Sign-On Stock").
(2) Your Sign-On Options will have the terms and conditions set
forth in an award agreement between the Company and you that is
substantially in the form attached as Exhibit 1. Your Sign-On Stock
Options will have an exercise price equal to the closing price of the
Company's common stock on your Start Date. Subject to the terms of the
award agreement, one-half of your Sign-On Options (i.e., options on
360,000 shares) will vest and first become exercisable in equal one-third
installments on the first, second and third anniversaries, respectively,
of your Start Date and the balance of your Sign-On Options (i.e., the
remaining options on 360,000 shares) will vest and first become
exercisable in equal one-third installments on the second, third and
fourth anniversaries, respectively, of your Start Date.
(3) Your Sign-On Stock will have the terms and conditions set forth
in an award agreement between the Company and you that is substantially in
the form attached as Exhibit 2. Subject to the terms of the award
agreement, your Sign-On Stock will vest on the third anniversary of your
Start Date.
(4) You will be eligible to receive equity-based compensation awards
following your Start Date in the sole discretion of the Compensation
Committee of the Board.
(d) Long-Term Cash Awards. During your employment, you will be eligible to
participate in the Company's Incentive Compensation Plan (and any successor
plan) for each performance period starting with and after the Company's fiscal
year beginning January 29, 2006 (your"Long-Term Cash Award"). However, on your
Start Date you will be deemed to participate in each of the 2004-2006 and
2005-2007 performance cycles that are already in progress under such plan (1)
subject to the achievement of the performance goals that are already established
for each cycle and (2) based on a target cash award of $450,000 for the
2004-2006 cycle and a target cash award $450,000 for the 2005-2007 cycle, in
each case multiplied by the number of elapsed days between your Start Date and
the last day of the applicable cycle (or if earlier the effective date of early
termination of your employment) divided by 1095. In addition, your minimum
target cash award for the 2006-2008 performance cycle established by the Board
(or the Board's Compensation Committee) will be $450,000.
(e) Special Cash Award. You will receive a one-time cash award equal to
the amount of profit sharing and annual bonus you forfeit from your prior
employer by virtue of resigning to accept your position with the Company, to be
paid promptly following the later of (i) your Start Date and (ii) the date on
which you advise the Company of the fact of such forfeiture. However, this
one-time cash award is subject to a maximum of $640,000.
(f) Other Executive Compensation Plans and Additional Compensation. During
your employment, you will be eligible to participate in all of the Group's
executive compensation plans, including any management incentive plans, deferred
compensation plans, supplemental retirement plans and equity plans, in which
senior executives of the Company participate.
4. OTHER EMPLOYEE BENEFITS
(a) Employee Benefit Plans. During your employment, you will be eligible
to participate in the Group's employee benefit and welfare plans, including
plans providing retirement benefits, medical, dental, hospitalization, life or
disability insurance, on a basis that is at least as favorable as that provided
to senior executives of the Company. However, for purposes of determining your
benefits under the
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Payless ShoeSource, Inc. Supplementary Retirement Plan (the "SRP"), your
"Compensation" as defined in Section 1.13 of the SRP shall include only the
amounts paid to (or earned by) you pursuant to Sections 3(a) and 3(b) of this
Agreement.
(b) Vacation. You will be entitled to paid annual vacation during your
employment on a basis that is at least as favorable as that provided under the
Company's vacation policy (but in no event less than four weeks annually).
(c) Business Expenses. You will be reimbursed for business and
entertainment expenses incurred by you in performing your responsibilities under
this Agreement. However, your reimbursement will be subject to the Company's
normal practices for senior executives of the Company.
(d) Relocation Benefit. You will be reimbursed for the reasonable costs
incurred in connection with your relocation to the Topeka or Kansas City, Kansas
metropolitan area in a manner no less generous in any aspect than as in
accordance with the Company's Executive Relocation Policy (in the form provided
to you prior to the date hereof) and consistent with applicable law. In
addition, you will be reimbursed for otherwise unreimbursed expenses incurred in
connection with the purchase, preparation and decoration of your new home in
Kansas, subject to a maximum of $75,000.
(e) Perquisites. During your Compensation Period, you will be entitled to
(1) personal use of the corporate aircraft in accordance with the Company's
proposed standard practice instructions for such use (in the form provided to
you prior to the date hereof), (2) reimbursement of up to $16,000 per year for
payment of annual club dues and an automobile, (3) reimbursement of up to $2,900
per year for income tax preparation and $5,000 per year for the purchase of
excess medical insurance, (4) access to a Company-paid driver up to four days a
week who can drive you to and from your principal residence in the Topeka or
Kansas City, Kansas metropolitan area to the Company's headquarters in Topeka,
Kansas, and (5) reimbursement of up to $7,500 per year for payment of the Young
Presidents Organization local and international chapter fees.
5. EARLY TERMINATION OF YOUR EMPLOYMENT
(a) No Reason Required. You or the Company may terminate your employment
early at any time for any reason, or for no reason, subject to compliance with
Section 5(e).
(b) Termination by the Company for Cause.
(1) "Cause" means any of the following:
(A) Your failure, either due to willful action or as a result
of gross neglect, to substantially perform your duties and
responsibilities to the Group under this Agreement (other than any
such failure resulting from your incapacity due to physical or
mental illness) that has not been cured within thirty (30) days
after written notice is delivered to you by the Board, which notice
specifies in reasonable detail the manner in which the Company
believes you have not substantially performed your duties and
responsibilities.
(B) Your engagement in conduct which is demonstrably and
materially injurious to the Group, or that materially ▇▇▇▇▇ the
reputation or financial position of the Group, unless the conduct in
question was undertaken in good faith and with a rational business
purpose and based upon the honest belief that such conduct was in
the best interest of the Group.
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(C) Your indictment or conviction of, or plea of guilty or
nolo contendere to, a felony or any other crime involving
dishonesty, fraud or moral turpitude. However, if after your
indictment the Company terminates your employment "for Cause" but
the charges are dropped or you are acquitted of the charges, you
will be entitled to the benefits set forth in Section 6(b).
(D) Your being found liable in any SEC or other civil or
criminal securities law action or entering any cease and desist
order with respect to such action (regardless of whether or not you
admit or deny liability).
(E) Your breach of your fiduciary duties to the Group which
has a material adverse effect on the Group. However, to the extent
the breach is curable, the Company must give you notice and a
reasonable opportunity to cure.
(F) Your (i) obstructing or impeding, (ii) endeavoring to
obstruct or impede or (iii) failing to materially cooperate with,
any investigation authorized by the Board or any governmental or
self-regulatory entity.
(G) Your unauthorized use or disclosure of confidential or
proprietary information, or related materials, or the violation of
any of the terms of the Company's standard confidentiality policies
and procedures, in the case of any item identified in this clause
(G) which may reasonably be expected to have a material adverse
effect on the Group and that, if capable of being cured, has not
been cured within thirty (30) days after written notice is delivered
to you by the Company, which notice specifies in reasonable detail
the alleged unauthorized use or disclosure or violation.
(H) Your material breach of a material provision of the
Group's Policy on Business Conduct (and any successor code of
conduct and ethics).
For this definition, no act or omission by you will be "willful" unless it is
made by you in bad faith or without a reasonable belief that your act or
omission was in the best interests of the Group. Any act, or failure to act,
based on authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel to the Company shall be presumed to be done, or
omitted to be done, by you in good faith and in the best interests of the Group.
(2) To terminate your employment "for Cause", the Board must
determine in good faith that Cause has occurred, the Company must comply
with Section 5(e) and the Company must deliver to you a copy of a
resolution duly adopted by a majority of the entire Board (excluding you)
at a meeting of the Board called and held for such purpose (after
reasonable notice to you and a reasonable opportunity for you, with your
legal counsel, to be heard) that finds that in the good faith opinion of
the Board, Cause has occurred and states the basis for that belief
("Notice of Cause").
(3) If the Board does not give Notice of Cause within 90 days after
any member of the Board (other than you and any other member of the Board
involved in the event) has actual knowledge that an event constituting
Cause has occurred, the Board cannot assert that event as a basis to
terminate your employment "for Cause". For the avoidance of doubt, the
waiver or non-assertion by the Board of a particular Cause event does not
preclude the Board from providing in accordance with this Section a Notice
of Cause with respect to a subsequent Cause event.
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(c) Termination by You for Good Reason.
(1) "Good Reason" means any of the following:
(A) Any material and adverse change in your position with the
Group for any reason other than your termination of employment by
the Company for Cause or by reason of your Disability. However, a
reduction in your responsibilities as a result of the appointment of
a President of the Company and, to the extent you are named
President, the removal of such title shall not be a material and
adverse change so long as you retain all of the authority,
responsibilities and reporting relationships as provided in Section
1(b).
(B) Your not being appointed to the Board on your Start Date
or the Company's failure to cause you to be nominated to the Board
for any reason other than your termination of employment by the
Company for Cause or by reason of your Disability.
(C) Failure by the Company to provide you with authority,
responsibilities and reporting relationships as provided in Section
1(b) or any material and adverse reduction in your authority,
responsibility or reporting relationships or the assignment of any
duties inconsistent in any material and adverse respect with your
position, authority, duties or responsibilities, for any reason
other than your termination of employment by the Company for Cause
or by reason of your Disability.
(D) Any failure by the Company to comply with Section 3.
(E) Any purported termination by the Company of your
employment that is in breach of this Agreement.
(F) The Company notifies you that it will not extend your
Compensation Period for a period that ends prior to your Retirement
for any reason other than Cause or your Disability. References in
this Agreement to "your Retirement" means the date of the Company's
annual meeting of shareholders occurring in the year of your 65th
birthday.
(G) Any failure by the Company to comply with Section 11(c).
(H) The relocation of the Company's headquarters or your
principal office more than 35 miles from its location on the Start
Date if such relocation increases your one-way commute from your
principal residence by more than 35 miles, unless such relocation is
to the New York City metropolitan area.
(2) The Company's placing you on paid leave for up to 90 consecutive
days while it is determining whether there is a basis to terminate your
employment for Cause will not constitute Good Reason.
(3) To terminate your employment "for Good Reason," Good Reason must
have occurred and you must comply with Section 5(e). However, prior to
complying with Section 5(e), (A) you must first give the Company notice
and a 30-day period to cure the event constituting Good Reason under
Section 5(c) ("Notice of Good Reason") and (B) if you do not give Notice
of Good Reason within 90 days after you have knowledge that an event
constituting Good Reason has occurred, the event will no longer constitute
Good Reason. For the avoidance of doubt, Good Reason will not include any
isolated, insubstantial and inadvertent failure by the Company that is
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not in bad faith and is cured promptly on your giving the Company notice
and an event will not constitute Good Reason if you have consented to it
in accordance with Section 13(e).
(d) Termination on Disability or Death.
(1) The term "Disability" means your absence from your
responsibilities with the Company on a full-time basis for 130 business
days in any consecutive 12 months as a result of incapacity due to mental
or physical illness or injury. If the Company determines in good faith
that your Disability has occurred, it may give you a Termination Notice.
If within 30 days following the Termination Notice you do not return to
full-time performance of your responsibilities, your employment will
terminate. If you do return to full-time performance in that 30-day
period, the Termination Notice will be cancelled for all purposes of this
Agreement. Except as provided in this Section 5(d), your incapacity due to
mental or physical illness or injury will not affect the Company's
obligations under this Agreement.
(2) Your employment will terminate automatically on your death.
(e) Advance Notice Generally Required.
(1) To terminate your employment before the end of your Compensation
Period, either you or the Company must provide a Termination Notice to the
other. A "Termination Notice" is a written notice that states the specific
provision of this Agreement on which termination is based, including, if
applicable, the specific clause of the definition of Cause or Good Reason
and a reasonably detailed description of the facts that permit termination
under that clause. (The failure to include any fact in a Termination
Notice that contributes to a showing of Cause or Good Reason does not
preclude either party from asserting that fact in enforcing its rights
under this Agreement.)
(2) You and the Company agree to provide 90 days' advance
Termination Notice of any early termination (although the Company may
accelerate the end of your employment by providing you with notice),
unless your employment is terminated by the Company for Cause or because
of your Disability or death. Accordingly, the effective date of early
termination of your employment will be 90 days after Termination Notice is
given (unless the Company elects to accelerate the end of your employment)
except that
(A) the effective date will be the date of the Company's
Termination Notice if your employment is terminated by the Company
for Cause, although the Company may provide a later effective date
in the Termination Notice,
(B) the effective date will be 30 days after Termination
Notice is given if your employment is terminated because of your
Disability, and
(C) the effective date will be the time of your death if your
employment is terminated because of your death.
The Company may elect to place you on paid leave for all or part of
the advance notice period.
(3) The effective date of termination of your employment is referred
to herein as the "Termination Date".
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6. THE COMPANY'S OBLIGATIONS IN CONNECTION WITH YOUR EARLY TERMINATION
(a) General Effect. On termination in accordance with Sections 2 and 5,
your employment will end and the Group will have no further obligations to you
except as provided in this Section 6.
(b) For Good Reason or Without Cause. If, during your Compensation Period,
the Company terminates your employment without Cause or you terminate your
employment for Good Reason in accordance with Section 5:
(1) The Company will pay you the following as of the end of your
employment: (A) your unpaid Salary, (B) your Salary for any accrued but
unused vacation and (C) any accrued expense reimbursements (together, your
"Accrued Compensation"). In addition, the Company will timely pay you any
other amounts and provide to you any benefits that are required, or to
which you are entitled on or after your Termination Date, under any plan,
contract or arrangement of the Group (together, the "Other Benefits").
(2) The Company will pay you your Accrued Bonus. Your "Accrued
Bonus" means the sum of (A) any unpaid Bonus for the fiscal year ending
before the Termination Date and (B) any excess of (i) your Target Annual
Bonus for the fiscal year in which the Termination Date occurs multiplied
by the number of days of your employment since the fiscal year ending
before the Termination Date divided by 365 over (ii) any Bonus paid to you
for a fiscal year ending after the Termination Date.
(3) The Company will pay you your Accrued Long-Term Cash Award. Your
"Accrued Long-Term Cash Award" means the sum of (A) any unpaid Long-Term
Cash Award for the performance cycle(s) ending in the fiscal year before
the Termination Date and (B) any excess of (i) your target Long-Term Cash
Award for each performance cycle ending in or in progress during the
fiscal year in which the Termination Date occurs multiplied by the number
of days of your employment during the applicable performance cycle divided
by the total number of days in the applicable performance cycle over (ii)
any Long-Term Cash Award(s) paid to you in respect of such performance
cycle(s).
(4) The Company will pay you ratably over 24 months, on a bi-weekly
basis, an amount equal to two (2) times the sum of your (A) Salary and (B)
Target Annual Bonus for the fiscal year in which the Termination Notice is
given.
(5) The unvested stock options issued by the Group to you (including
the Sign-On Options), that, absent the end of your employment, would have
vested and become exercisable in the 24-month period following the
Termination Date, will immediately vest and become exercisable and remain
exercisable until the earlier of (x) three years following the Termination
Date and (y) the final expiration date of such options. The Sign-On Stock
(if not previously vested) will immediately vest and any other restricted
stock or equity-based compensation awarded by the Group to you, that,
absent the end of your employment, would have vested in the 24-month
period following the Termination Date, will vest and become immediately
payable in accordance with the terms of the applicable award agreement(s).
(6) You, your spouse and your dependents will continue to be
entitled to participate in each of the Group's employee welfare plans
providing for medical, dental or other health insurance on a basis
(including costs) that is at least as favorable as that provided to senior
officers of the Company (the "Medical Benefits"). However, if the Group's
plans do not permit
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you, your spouse or your dependents to participate on this basis, the
Company will provide Medical Benefits (with the same after-tax effect for
you) outside of the plans. Each Medical Benefit will be provided until the
earlier of (A) your becoming employed by another employer and being
eligible for coverage from your new employer in respect of such Medical
Benefit and (B) the expiration of the 24-month period following the
Termination Date.
(7) You will be credited with two (2) additional years of age and
"Plan Service" under the SRP (but not for any purpose relating to
satisfying the "age 50" requirement under Section 3.2(c) of the SRP in
connection with a change in control of the Company).
(8) You will be entitled to an allowance of up to $15,000 for your
reasonable outplacement expenses.
(c) For Cause or Without Good Reason. If, during your Compensation Period,
the Company terminates your employment for Cause or you terminate your
employment without Good Reason, the Company will pay your Accrued Compensation
and provide you your Other Benefits.
(d) Retirement, Disability or Death. If, during your Compensation Period,
your employment terminates as a result of your Retirement, death or Disability,
the Company will pay your Accrued Compensation and Accrued Bonus and will
provide your Other Benefits.
(e) Change of Control. On your Start Date, you and the Company will enter
into a Change of Control Agreement in the form attached as Exhibit 3. If there
is a "Change of Control" as defined in your Change of Control Agreement, your
Change of Control Agreement will supersede this Agreement (except as set forth
therein). However, to the extent there is a change of control of the Company
that does not qualify as a "Change of Control" under the Change of Control
Agreement but nevertheless causes any payments under this Agreement to become
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code,
you shall be entitled to the additional payments and benefits of Section 8 of
your Change of Control Agreement with respect to such payments.
(f) Indemnification. On your Start Date, you and the Company will enter
into an Indemnification Agreement in the form attached as Exhibit 4.
(g) Condition. As a condition to making the payments and providing the
benefits stated in this Section 6, the Company may require you to execute and
deliver a general release in which you (i) release all claims that you may have
in respect of your employment against any member of the Group and any of their
respective past or present officers, directors or employees other than your
rights under this Agreement or any other agreement reflecting any payment or
benefit described in this Agreement or another agreement into which you and the
Company subsequently enter and (ii) covenant that you have not filed and will
not file any civil action, suit, arbitration, administrative charge, or legal
proceeding against any of the released parties in respect of the released claims
(and such release shall contain no other covenant or obligation on your part).
(h) Timing. The benefits provided in this Section 6 will begin on your
Termination Date, and unless otherwise specified, any cash payments owed you
under this Section 6 will be paid in a lump sum within 15 business days
following the effective date of your termination. If the Company determines that
you are a "key employee" within the meaning of Section 409A of the Internal
Revenue Code and that, as a result of such status, any portion of the payments
under this Agreement (without regard to any other plan of deferred compensation)
would be subject to additional or accelerated taxation, the Company will delay
paying such portion of the payment until the earliest permissible date on which
payments may
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commence without triggering such additional taxation (with such delay not to
exceed six months), with the first such payment to include the amounts that
would have been paid earlier but for the above delay plus simple interest on any
unpaid amounts equal to 6-month LIBOR on the Termination Date plus 450 basis
points.
(i) Resignation from Directorships and Officerships. Unless the Group
waives this requirement, the termination of your employment for any reason will
constitute your resignation from (1) any director, officer or employee position
you then have with any member of the Group and (2) all fiduciary positions
(including as trustee) you hold with respect to any pension plans or trusts
established by any member of the Group. You agree that this Agreement will serve
as your written notice of resignation in this circumstance.
7. PROPRIETARY INFORMATION AND WORK PRODUCT
(a) Definition. "Proprietary Information" means confidential or
proprietary information, knowledge or data concerning (1) the Group's
businesses, strategies, operations, financial affairs, organizational matters,
personnel matters, budgets, profit margins, seasonal plans, goals, objectives
and projections, compilations, analyses and projections regarding the Group's
divisions, businesses, product segments, product lines, suppliers, sales and
expenses, supplier and customer list, advertising and business plans, marketing
plans, studies, policies, procedures, products, ideas, processes, software
systems, trade secrets and technical know-how, (2) any other matter relating to
the Group and (3) any matter relating to suppliers of the Group (including the
Group's terms, conditions and other business arrangements with suppliers) or
other third parties having relationships with the Group. Proprietary Information
includes (A) information regarding any aspect of your tenure as an employee of
the Group or the termination of your employment, (B) the names, addresses, and
phone numbers and other information concerning clients and prospective clients
of the Group, and (C) information and materials concerning personnel information
of the Group. In addition, Proprietary Information may include information
furnished to you orally or in writing (whatever the form or storage medium) or
gathered by inspection, in each case before or after the date of this Agreement.
However, Proprietary Information does not include information (i) that was or
becomes generally available to the public, other than as a result of a
disclosure by you, directly or indirectly, or as a result of the violation by a
third party of the Group's confidentiality rights, (ii) that you can establish
was independently developed by you without reference to any Proprietary
Information or (iii) your personal contact information.
(b) Use and Disclosure. You will obtain or create Proprietary Information
in the course of your involvement in the Group's activities and may already have
Proprietary Information. You agree that the Proprietary Information is the
exclusive property of the Group, and that, during your employment, you will use
and disclose Proprietary Information only for the Group's benefit and in
accordance with any restrictions placed on its use or disclosure by the Group.
After your employment, you will not use or disclose any Proprietary Information.
In addition, nothing in this Agreement will operate to weaken or waive any
rights that the Group may have under statutory or common law, or any other
agreement, to the protection of trade secrets, confidential business information
and other confidential information.
(c) Return of Proprietary Information. At the Company's request and/or
upon termination of your employment, you will return to the Company all
documents, records, notebooks, computer diskettes and tapes and anything else
containing Proprietary Information, including all copies thereof, as well as any
other property of the Group, in your possession, custody or control. You will
also delete from your own computer or other electronic storage medium any
Proprietary Information. Not later than 20 days after termination of your
employment, you will certify in writing to the Group that you have complied with
these obligations.
10
(d) Work Product. You agree to disclose fully to the Group, and hereby
assign and transfer to the Group, and agree to execute any additional
documentation the Group 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 you, 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:
(1) during the period of your employment, if such Work Product is
related directly or indirectly, to the business of, or to the research or
development work of the Group;
(2) with the use of the time, materials, or facilities of the Group;
or
(3) within one year after termination of your 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
the Group, together with rights to all intellectual property rights which
may be granted thereon.
Upon discovery, development or acquisitions or any such Work Product, you shall
notify the Group and shall execute and deliver to the Group, without further
compensation, such documents prepared by the Group as may be reasonable or
necessary to prepare or prosecute applications for such Work Product and to
assign and transfer to the Group your right, title and interest in and to such
Work Product and intellectual property rights thereof. You acknowledge that you
have carefully read and considered the provisions of this paragraph and, having
done so, agree that the restrictions set forth herein are fair and reasonable
and are reasonably required for the protection of the interests of the Group,
its officers, directors, and other executives.
(e) Limitations. Nothing in this Agreement prohibits (i) you or any member
of the Group from providing truthful testimony or information to governmental,
regulatory or self-regulatory authorities, (ii) you or any member of the Group
from having discussions with legal counsel for the purpose of asserting or
defending the party's legal rights or (iii) you from having discussions with
your financial and tax advisors for purposes of personal financial and tax
planning, provided that in the case of your disclosure to any financial or tax
advisor (other than your legal counsel), such advisor(s) agree in writing to be
bound by Sections 7(b) and 7(c) to the same extent that you are bound.
8. ONGOING RESTRICTIONS ON YOUR ACTIVITIES
(a) General Effect. This Section 8 applies during your employment and for
the 24-month period after your employment ends. This Section uses the following
defined terms:
"Competitive Enterprise" shall include, but not be limited to:
(1) 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
the Group (e.g., including, without limitation, Wal-Mart, K-Mart, Target,
▇▇▇▇, Mervyn's Pic-N-Pay, Foot Star, Inc., ▇▇▇▇▇▇, ▇▇▇▇, Genesco, Venator,
Famous Footwear, Shoe Carnival, ▇▇▇▇▇ Apparel Group, ▇▇▇▇'▇, ▇▇▇
Claiborne, Big Five, ▇.▇. ▇▇▇▇▇▇ and Sears) within 20 miles of any store
of the Group
11
or the store of any wholesale customer of the Group in the United States,
or anywhere in any foreign country in which the Group has retail stores,
franchisees or wholesale customers;
(2) 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 store of the Group or the
store of any wholesale customer of the Group in the United States, or
anywhere in any foreign country in which the Group has retail stores,
franchisees or wholesale customers;
(3) 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 store of the Group or the store of any wholesale customer
of the Group in the United States, or anywhere in any foreign country in
which the Group has retail stores, franchisees, or wholesale customers;
(e.g., including, without limitation, ▇▇▇▇▇ Apparel Group, Dexter, Stride
Rite, Liz Claiborne, Wolverine Worldwide, Timberland, Nike, Reebok,
K-Swiss, Keds and Adidas); or
(4) any business which provides buying office services to any store
or group of stores or businesses referred to in paragraphs (1), (2) or (3)
above.
"Client" means any client or prospective client of the Group to whom
you provided services, or for whom you transacted business, or whose
identity became known to you in connection with your relationship with or
employment by the Group.
"Solicit" means any direct or indirect communication of any kind,
regardless of who initiates it, that in any way invites, advises,
encourages or requests any person to take or refrain from taking any
action.
(b) Your Importance to the Group and the Effect of this Section 8. You
acknowledge that:
(1) In the course of your involvement in the Group's activities, you
will have access to Proprietary Information and the Group's client base
and will profit from the goodwill associated with the Group. On the other
hand, in view of your access to Proprietary Information and your
importance to the Group, if you compete with the Group for some time after
your employment, the Group will likely suffer significant harm. In return
for the benefits you will receive from the Group and to induce the Group
to enter into this Agreement, and in light of the potential harm you could
cause the Group, you agree to the provisions of this Section 8. The
Company would not have entered into this Agreement if you did not agree to
this Section 8.
(2) In light of Section 8(b)(1), if you breach any provision of this
Section 8, the loss to the Company would be material but the amount of
loss would be uncertain and not readily ascertainable.
(3) This Section 8 limits your ability to earn a livelihood in a
Competitive Enterprise and your relationships with Clients. You
acknowledge, however, that complying with this Section 8 will not result
in severe economic hardship for you or your family.
12
(c) Your Payment Obligations.
(1) If you fail to comply with this Section 8 during the
Compensation Period and for a 24-month period thereafter, other than any
isolated, insubstantial and inadvertent failure that is not in bad faith,
you will forfeit all remaining payments owed to you under Section 6.
(2) With respect to any equity-based compensation awarded to you by
the Company from time to time (including Exhibits 1 and 2 hereto),
notwithstanding Section 6.1 of the Company's 1996 Stock Incentive Plan,
the Company shall not be entitled to cancel or rescind or demand repayment
in respect of or as a remedy for any purported violation of this Section 8
or any similar covenants in any other plan, policy, arrangement or
agreement applicable to you.
(d) Non-Competition. During your Compensation Period and for a 24-month
period after termination of your employment, you will not directly or
indirectly:
(1) hold more than or equal to the greater of $25,000 or 1% of any
equity, debt, voting or profit participation interest in a Competitive
Enterprise; or
(2) associate (including as a director, officer, employee, partner,
consultant, agent or advisor) with a Competitive Enterprise and in
connection with your association engage, or directly or indirectly manage
or supervise personnel engaged, in any activity:
(A) that is substantially related to any activity that you
were engaged in,
(B) that is substantially related to any activity for which
you had direct or indirect managerial or supervisory responsibility,
or
(C) that calls for the application of specialized knowledge or
skills substantially related to those used by you in your
activities;
in each case, for the Group at any time during the year before the
end of your employment (or, if earlier, the year before the date of
determination).
(e) Non-Solicitation of Clients. During your Compensation Period and for a
24-month period after termination of your employment, you will not attempt to:
(1) Solicit any Client to transact business with a Competitive
Enterprise or to reduce or refrain from doing any business with the Group,
(2) transact business with any Client that would cause you to be a
Competitive Enterprise or that would cause any Client to reduce or refrain
from doing any business with the Group, or
(3) interfere with or damage any relationship between the Group and
a Client.
(f) Non-Solicitation of Group Employees. During your Compensation Period
and for a 24-month period after termination of your employment, you will not
attempt to Solicit anyone who is then an employee of the Group (or who was an
employee of the group within the prior six months) to resign from the Group or
to apply for or accept employment with any Competitive Enterprise.
13
(g) Notice to New Employers. Before you accept employment with any other
person or entity while any of Section 8(d), (e) or (f) is in effect, you will
provide the prospective employer with written notice of the provisions of this
Section 8 and you will deliver a copy of the notice to the Group no later than
your first day of employment with such employer.
9. NO PUBLIC STATEMENTS OR UNFAVORABLE PUBLICITY
After your employment, you agree not to take any action that is intended to harm
the Group or its reputation or which leads to unwanted or unfavorable publicity
to the Group and you agree that you will not make any public statement that
would libel, slander or disparage any member of the Group or any of their
respective past or present executive officers or directors. After your
employment, the Company agrees, on behalf of the members of the Board and the
executives who are your direct reports on the Termination Date, that neither
such Board member nor such direct reports (in each case, during their tenure as
director or employee, respectively) will make any public statement that is
intended to libel, slander or disparage you. This Section 9 is subject to
Section 7(e). This Section 9 shall not prevent you from making good faith
comparative claims regarding the goods and services of the Company and those of
an entity by which you are subsequently employed or in which you obtain a
financial interest, so long as such activity does not violate Section 8. Nothing
in the preceding sentence shall have any impact on the interpretation of Section
8.
10. ENTIRE AGREEMENT; NO CONFLICT; WRITTEN WAIVER
(a) Entire Agreement. This Agreement (including the Exhibits hereto), the
Change of Control Agreement and the Indemnification Agreement (the "Signing
Agreements") are the entire agreement between you and the Company with respect
to the relationship contemplated by the Signing Agreements and supersede any
earlier agreement, written or oral, with respect to the subject matter of the
Signing Agreements. In entering into the Signing Agreements, no party has relied
on or made any representation, warranty, inducement, promise or understanding
that is not in the Signing Agreements.
(b) No Conflicts. Your execution of this Agreement and performance of the
obligations under this Agreement by you do not and will not conflict with,
violate the terms of, or constitute a default under, and will be in compliance
with any agreement or instrument to which you are a party or by which you are
bound, or to which you are subject. You are not party to any employment
contract, confidentiality agreement or other agreement that contains any
restriction that will affect the performance of your duties hereunder. You
represent that (A) your negotiations with the Group have not interfered with
your duties as an employee, partner or member of another entity, (B) you have
not and will not solicit or encourage any employee of another entity to leave
such entity's employment in violation of any agreement between such entity and
you and (C) you have not, and will not, use, retain or disclose to the Group any
confidential information of another entity.
(c) Written Waiver. In order for this Agreement to become valid and
binding, you must deliver to the Company prior to June 30, 2005 a valid written
waiver from your prior employer confirming the agreement of such employer not to
enforce its post-employment non-competition restrictions against you during your
employment with the Group.
11. SUCCESSORS
(a) Payments on Your Death. If you die and any amounts become payable
under this Agreement, we will pay those amounts to your estate.
14
(b) Assignment by You. You may not assign this Agreement without the
Company's consent. Also, except as required by law, your right to receive
payments or benefits under this Agreement may not be subject to execution,
attachment, levy or similar process. Any attempt to effect any of the preceding
in violation of this Section 11(b), whether voluntary or involuntary, will be
void.
(c) Assumption by any Surviving Company. Before the effectiveness of any
merger, consolidation, statutory share exchange or similar transaction
(including an exchange offer combined with a merger or consolidation) involving
the Company (a "Reorganization") or any sale, lease or other disposition
(including by way of a series of transactions or by way of merger,
consolidation, stock sale or similar transaction involving one or more
subsidiaries) of all or substantially all of the Company's consolidated assets
(a "Sale"), the Company will cause (1) the Surviving Company to unconditionally
assume this Agreement in writing and (2) a copy of the assumption to be provided
to you. After the Reorganization or Sale, the Surviving Company will be treated
for all purposes as the Company under this Agreement. The "Surviving Company"
means (A) in a Reorganization, the entity resulting from the Reorganization or
(B) in a Sale, the entity that has acquired all or substantially all of the
assets of the Company.
12. DISPUTES
(a) Employment Matter. This Section 12 applies to any controversy or claim
between you and the Group arising out of or relating to or concerning this
Agreement or any aspect of your employment with the Group or the Seller or the
termination of that employment (together, an "Employment Matter").
(b) Mandatory Arbitration. SUBJECT TO THE PROVISIONS OF THIS SECTION 12,
ANY EMPLOYMENT MATTER WILL BE FINALLY SETTLED BY ARBITRATION IN SHAWNEE COUNTY,
KANSAS ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION UNDER ITS COMMERCIAL
ARBITRATION RULES THEN IN EFFECT. However, the rules will be modified in the
following ways: (1) the decision must not be a compromise but must be the
adoption of the submission by one of the parties, (2) each arbitrator will agree
to treat as confidential evidence and other information presented to the same
extent as the information is required to be kept confidential under Section 7,
(3) there will be no authority to amend or modify the terms of this Agreement
except as provided in Section 13(c) (and you and the Group agree not to request
any such amendment or modification), (4) a decision must be rendered within 10
business days of the parties' closing statements or submission of post-hearing
briefs and (5) the arbitration will be conducted before a panel of three
arbitrators, one selected by you within 10 days of the commencement of the
notice of arbitration, one selected by the Company in the same period and the
third selected jointly by these arbitrators (or, if they are unable to agree on
an arbitrator within 30 days of the commencement of arbitration, the third
arbitrator will be appointed by the American Arbitration Association; provided
that the arbitrator shall be a partner or former partner at a nationally
recognized law firm who is experienced in employment matters).
(c) Limitation on Damages. You and the Group agree that there will be no
punitive damages payable as a result of any Employment Matter and agree not to
request punitive damages.
(d) Injunctions and Enforcement of Arbitration Awards. You or the Group
may bring an action or special proceeding in a state or federal court of
competent jurisdiction sitting in the City of Topeka or Shawnee County, Kansas
to enforce any arbitration award under Section 12(b). ALSO, NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS AGREEMENT, THE GROUP MAY BRING AN ACTION OR
PROCEEDING, IN ADDITION TO ITS RIGHTS UNDER SECTION 12(b) AND WHETHER OR NOT AN
ARBITRATION PROCEEDING HAS BEEN OR IS EVER INITIATED, TO TEMPORARILY,
PRELIMINARILY OR PERMANENTLY ENFORCE ANY PART OF SECTIONS 7 AND 8 IN STATE OR
FEDERAL COURT . You agree that (1) your violating any part of Sections 7 and 8
would cause
15
damage to the Group that cannot be measured or repaired and (2) the Group
therefore is entitled to an injunction, restraining order or other equitable
relief restraining any actual or threatened violation of any of those Sections.
(e) Jurisdiction and Choice of Forum. You and the Group irrevocably submit
to the exclusive jurisdiction of any state or federal court located in the City
of Topeka or Shawnee County, Kansas over any Employment Matter that is not
otherwise arbitrated or resolved according to Section 12(b). This includes any
action or proceeding to compel arbitration or to enforce an arbitration award.
Both you and the Group (1) acknowledge that the forum stated in this Section
12(e) has a reasonable relation to this Agreement and to the relationship
between you and the Group and that the submission to the forum will apply even
if the forum chooses to apply non-forum law, (2) waive, to the extent permitted
by law, any objection to personal jurisdiction or to the laying of venue of any
action or proceeding covered by this Section 12(e) in the forum stated in this
Section, (3) agree not to commence any such action or proceeding in any forum
other than the forum stated in this Section 12(e) and (4) agree that, to the
extent permitted by law, a final and non-appealable judgment in any such action
or proceeding in any such court will be conclusive and binding on you and the
Group. However, nothing in this Agreement precludes you or the Group from
bringing any action or proceeding in any court for the purpose of enforcing the
provisions of Sections 12(b) and this 12(e).
(f) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY LAW, YOU AND THE
GROUP WAIVE ANY AND ALL RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY EMPLOYMENT
MATTER.
(g) Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF KANSAS APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN THAT STATE.
(h) Costs. To the extent permitted by law, the Company will pay as
incurred on a quarterly basis any reasonable expenses, including reasonable
attorney's fees (and such fees incurred at your attorney's normal hourly rates
will be presumed reasonable), you incur as a result of any Employment Matter,
provided that you make satisfactory arrangements to repay such expenses if you
ultimately do not prevail on one material issue in such dispute. Additionally,
the Company will reimburse your reasonable attorney's fees, not to exceed
$35,000, incurred by you in entering into this Employment Agreement.
13. GENERAL PROVISIONS
(a) Construction. (1) References (A) to Sections are to sections of this
Agreement unless otherwise stated; (B) to any contract (including this
Agreement) are to the contract as amended, modified, supplemented or replaced
from time to time; (C) to any statute, rule or regulation are to the statute,
rule or regulation as amended, modified, supplemented or replaced from time to
time (and, in the case of statutes, include any rules and regulations
promulgated under the statute) and to any section of any statute, rule or
regulation include any successor to the section; (D) to any governmental
authority include any successor to the governmental authority; (E) to any plan
include any programs, practices and policies; (F) to any entity include any
corporation, limited liability company, partnership, association, business trust
and similar organization and include any governmental authority; and (G) to any
affiliate of any entity are to any person or other entity directly or indirectly
controlling, controlled by or under common control with the first entity.
(2) The various headings in this Agreement are for convenience of
reference only and in no way define, limit or describe the scope or intent
of any provisions or Sections of this Agreement.
16
(3) Unless the context requires otherwise, (A) words describing the
singular number include the plural and vice versa, (B) words denoting any
gender include all genders and (C) the words "include", "includes" and
"including" will be deemed to be followed by the words "without
limitation."
(4) It is your and the Group's intention that this Agreement not be
construed more strictly with regard to you or the Group.
(b) Withholding. You and the Group will treat all payments to you under
this Agreement as compensation for services. Accordingly, the Group may withhold
from any payment any taxes that are required to be withheld under any law, rule
or regulation.
(c) Severability. If any provision of this Agreement is found by any court
of competent jurisdiction (or legally empowered agency) to be illegal, invalid
or unenforceable for any reason, then (1) the provision will be amended
automatically to the minimum extent necessary to cure the illegality or
invalidity and permit enforcement and (2) the remainder of this Agreement will
not be affected. In particular, if any provision of Section 8 is so found to
violate law or be unenforceable because it applies for longer than a maximum
permitted period or to greater than a maximum permitted area, it will be
automatically amended to apply for the maximum permitted period and maximum
permitted area.
(d) No Set-off or Mitigation. Except as provided in Section 6(b)(9) or if
your employment is terminated by the Company for Cause, your and the Company's
respective obligations under this Agreement will not be affected by any set-off,
counterclaim, recoupment or other right you or any member of the Group may have
against each other or anyone else. You do not need to seek other employment or
take any other action to mitigate any amounts owed to you under this Agreement.
(e) Notices. All notices, requests, demands and other communications under
this Agreement must be in writing and will be deemed given (1) on the business
day sent, when delivered by hand or facsimile transmission (with confirmation)
during normal business hours, (2) on the business day after the business day
sent, if delivered by a nationally recognized overnight courier or (3) on the
third business day after the business day sent if delivered by registered or
certified mail, return receipt requested, in each case to the following address
or number (or to such other addresses or numbers as may be specified by notice
that conforms to this Section 13(e)):
If to you, to your address then on file with the Company's payroll department.
If to the Company or any other member of the Group, to:
Payless Shoe Source Inc.
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(f) Consideration. This Agreement is in consideration of the mutual
covenants contained in it. You and the Group acknowledge the receipt and
sufficiency of the consideration to this Agreement and intend this Agreement to
be legally binding.
(g) Amendments and Waivers. Any provision of this Agreement may be amended
or waived but only if the amendment or waiver is in writing and signed, in the
case of an amendment, by you and the
17
Company or, in the case of a waiver, by the party that would have benefited from
the provision waived. Except as this Agreement otherwise provides, no failure or
delay by you or the Group to exercise any right or remedy under this Agreement
will operate as a waiver, and no partial exercise of any right or remedy will
preclude any further exercise.
(h) Third Party Beneficiaries. Subject to Section 11, this Agreement will
be binding on, inure to the benefit of and be enforceable by the parties and
their respective heirs, personal representatives, successors and assigns. This
Agreement does not confer any rights, remedies, obligations or liabilities to
any entity or person other than you and the Company and your and the Company's
permitted successors and assigns, although (1) this Agreement will inure to the
benefit of the Group and (2) Section 11(a) will inure to the benefit of the most
recent persons named in a notice under that Section.
(i) Counterparts. This Agreement may be executed in counterparts, each of
which will constitute an original and all of which, when taken together, will
constitute one agreement. However, this Agreement will not be effective until
the date both parties have executed this Agreement.
Very truly yours,
/s/ ▇▇▇ ▇. ▇▇▇▇▇
BY SIGNING THIS AGREEMENT, I HEREBY CERTIFY THAT I (A) HAVE RECEIVED A COPY OF
THIS AGREEMENT FOR REVIEW AND STUDY BEFORE SIGNING IT, (B) HAVE READ THIS
AGREEMENT CAREFULLY BEFORE SIGNING IT, (C) HAVE HAD SUFFICIENT OPPORTUNITY TO
REVIEW THE AGREEMENT WITH ANY ADVISOR I DESIRED TO CONSULT, INCLUDING LEGAL
COUNSEL, (D) HAVE HAD SUFFICIENT OPPORTUNITY BEFORE SIGNING IT TO ASK ANY
QUESTIONS ABOUT THIS AGREEMENT AND HAVE RECEIVED SATISFACTORY ANSWERS TO ALL
SUCH QUESTIONS, AND (E) UNDERSTAND MY RIGHTS AND OBLIGATIONS UNDER THIS
AGREEMENT.
Accepted and agreed to:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
June 17, 2005
18
Exhibit 1
PAYLESS SHOESOURCE INC.
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
EXECUTIVE OFFICES
[Start Date]
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
[Address]
[City, State, ZIP]
Dear ▇▇. ▇▇▇▇▇:
In connection with the commencement of your employment with Payless ShoeSource,
Inc. (the "Company"), you have been granted a non-qualified stock option (the
"Option") to purchase 720,000 shares of the Company's common stock as set forth
below and subject to the terms and conditions attached hereto:
EXECUTIVE: ▇▇▇▇▇▇▇ ▇▇▇▇▇
GRANT DATE: [START DATE]
OPTIONS GRANTED: 720,000
OPTION PRICE PER SHARE: $[PRICE][CLOSING PRICE ON START DATE]
EXPIRATION DATE: [7TH YEAR ANNIVERSARY OF GRANT DATE]
VESTING SCHEDULE: Options on 120,000 shares vest on [1ST ANNIVERSARY OF
(Subject to the attached GRANT DATE]
terms and conditions) Options on 240,000 shares vest on [2ND ANNIVERSARY OF
GRANT DATE]
Options on 240,000 shares vest on [3RD ANNIVERSARY OF
GRANT DATE]
Options on 120,000 shares vest on [4TH ANNIVERSARY OF
GRANT DATE]
Payless ShoeSource, Inc. has caused this Agreement, which includes the terms and
conditions attached hereto and incorporated herein by this reference, to be
executed in its corporate name and Executive has executed the same in evidence
of Executive's acceptance hereof upon the terms and conditions herein set forth
as of the grant date shown above. Prior to the earliest date on which any
portion of the Option vests, the Company will use its reasonable best efforts to
cause the shares of stock subject to the Option to (i) be registered on Form S-8
under the Securities Act of 1933, as amended and similarly registered, or exempt
from registration, under any applicable state securities laws and (ii) be listed
for trading on the New York Stock Exchange or such other exchange or quotation
system that serves as the primary trading market for the Company's common stock.
By signing below, Executive agrees to conform to all of the terms and conditions
of this Agreement.
PAYLESS SHOESOURCE, INC.
BY: ___________________________________
EXECUTIVE SIGNATURE: ___________________________________ DATE: _________________
[Name]
PAYLESS SHOESOURCE, INC. NON-QUALIFIED STOCK OPTION AGREEMENT
TERMS AND CONDITIONS
The Compensation, Nominating and Governance Committee (the "Committee") of the
Board of Directors of Payless ShoeSource, Inc. (the "Company") has approved
granting Executive non-qualified options (referred to in this Agreement as
"options") to purchase shares of common stock of the Company ("Stock") on the
terms and subject to the conditions set forth in this Agreement.
Therefore, the Company and Executive hereby agree as follows:
1. The Company hereby grants to Executive options to purchase, in the aggregate,
the number of shares of the presently authorized Stock of the Company shown on
the first page of this Agreement, at the option price per share also shown on
the first page of this Agreement. Subject to all other terms and conditions in
this Agreement, the options shall be irrevocable.
2. Subject to all the other terms and conditions in this Agreement, the options
may be exercised by Executive on and after the dates and for the corresponding
number of shares shown in the vesting schedule on the first page of this
Agreement; provided, however, that the options may be exercised only on or
before the expiration date shown on the first page.
3. Executive may exercise options on and after the appropriate vesting dates
(and before a date or event of termination or cancellation) in whole at any
time, or in part from time to time, in each case to the extent vested and in
blocks at least equal to the lesser of one hundred (100) shares or the total
number of shares which are then exercisable. Executive shall give the Company
(i) a written notice ("Notice") to exercise such options in whole or in a
specified part which certifies that Executive is in compliance with the terms
and conditions of this Agreement and (ii) full payment for the shares then being
purchased ("Payment"). Payment may be made by (a) a cashier's or certified check
payable to the order of the Company, (b) a wire transfer to the Company's
account listed on the notice of exercise, (c) delivery of certificates
representing shares of Stock owned by Executive for at least six months with a
"Fair Market Value" (as defined in the Company's 1996 Stock Incentive Plan (the
"1996 Plan")) on the date of exercise equal to 100% of the aggregate Option
Price, (d) subject to the consent of the Committee, making an election in the
Notice to have withheld Stock otherwise issuable upon exercise with a Fair
Market Value on the date of exercise equal to the aggregate Option Price or (e)
in any other manner approved by the Committee. Options will be considered
exercised on the date (the "Exercise Date") when the Notice is properly
delivered to the Company and payment is complete. The Notice is considered
properly delivered on the earliest of (i) the date received in the Compensation
and Benefits Department of the Company, (ii) the date received by a courier, if
sent via independent courier service, or (iii) the date postmarked (by the
United States Post Office), if mailed in the United States mail. Payment under
clauses 3(ii) (a), (b) and (c) is considered complete when received in the
Compensation and Benefits Department of the Company; payment under clause
3(ii)(d), if consented to by the Committee, is considered completed when the
Notice is actually received in the Compensation and Benefits Department of the
Company.
4. A. (i) In no event may any option be exercised after the seventh
anniversary of the grant date shown on the first page of this Agreement, and any
option may be sooner terminated in accordance with the provisions of this
Section 4.
(ii) If Executive's employment is terminated by the Company for "Cause"
(as defined in that certain Employment Agreement dated [DATE] between Executive
and the Company) or by Executive without "Good Reason" (as defined in the
Employment Agreement), then all of the outstanding options shall immediately
terminate regardless of any notice period or period of pay in lieu of such
notice required under local statute or at common law, on the earlier of (a) the
date Executive receives notice of termination of employment from the Company and
(b) the date of termination of employment by Executive.
(iii) If Executive's employment is terminated by the Company without Cause
or by Executive for Good Reason, then the unvested options that, absent the
termination of Executive's employment, would have vested and become exercisable
in the 24-month period following the date of termination, shall immediately vest
and become exercisable and all vested options shall remain exercisable for a
period ending on the earlier of (a) the date upon which the options would
otherwise expire and (b) three years after the date of termination.
(iv) If Executive's employment terminates by reason of "Retirement" or
"Disability" (each as defined in the Employment Agreement), the term of any then
outstanding options shall extend for a period ending on the earliest of (a) the
date upon which the options would otherwise expire, (b) three years after such
Retirement (for a reason other than Disability) or (c) twelve months after such
Disability. In that event, the number of shares for which options may be
exercised after that Retirement or Disability shall be the number of shares for
which options were exercisable as of the date of that Retirement or Disability,
subject to the other terms and conditions of this Section 4. Options which were
not exercisable as of the date of that Retirement or Disability will no longer
be deemed to be outstanding thereafter.
(v) (a) If Executive dies while in the employment of the Company without
having fully exercised any then outstanding option, the beneficiary designated
by Executive (or, in the absence of such designation, the executors or
administrators or legatees or distributees of Executive's estate) shall have the
right to exercise such option, in whole or in part during the period ending on
the earlier of (1) the date upon which the options would
otherwise expire or (2) three years after the date of death. In that event, the
number of shares for which options may be exercised after such death shall be
the number of shares for which options were outstanding on the date of death
(whether or not the options were already exercisable on the date of death).
(b) If Executive dies during any period following Executive's Retirement or
Disability, without having fully exercised any then outstanding option, the
executors or administrators or legatees or distributees of Executive's estate
shall have the right to exercise such option, in whole or in part during the
period ending on the earlier of (1) the date upon which the options would
otherwise expire or (2) three years after the date of death. In that event, the
number of shares for which options may be exercised after such death shall be
the number of shares for which options were exercisable as of the date of the
Retirement or Disability and remain outstanding on the date of Executive's
death.
(vi) If (a) one of the events described in Section 4 of Part VII of the
1996 Plan occurs and (b) Executive is actively employed on the date of such
event, then from and after such date all options outstanding under this
Agreement shall be exercisable in full without regard to the provisions of
Section 2 of this Agreement.
B. Promptly following each exercise of an option, shares shall be delivered to
Executive by the Company.
C. Each option is personal to Executive, is not transferable by Executive (other
than, upon the death of Executive, by last will and testament or by laws of
descent and distribution) and, during Executive's lifetime, is exercisable only
by Executive.
D. 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 applicable U.S.
Federal, state or foreign law ("Withholding Obligation"), or that the consent or
approval of any regulatory body, is necessary as a condition of, or in
connection with, the exercise or the delivery or purchase of shares hereunder,
then in any of those events, the exercise shall not be effective unless that
withholding, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Company. Executive shall pay any
Withholding Obligation to the Company at the time of the option exercise by one
of the following methods or by such other mode of payment as the Committee may
from time to time authorize: (i) cashier's or certified check, (ii) a personal
check, (iii) wire transfer or (iv) by electing to have withheld a number of the
shares of Stock payable to Executive in connection with the option exercise with
a Fair Market Value on the applicable exercise date equal to the Withholding
Obligation (with any fractional share rounded up to the nearest whole share).
E. If there is (i) any change in the capital structure of the Company through
merger, consolidation, reorganization, recapitalization, spin off or otherwise,
(ii) any dividend on the Stock payable in such Stock or (iii) a stock split, or
a combination of shares, the Board shall make appropriate adjustments in the
number and price of shares relating to options under agreement as it deems
equitable, in its absolute discretion.
F. Nothing in this Agreement shall be deemed by implication or otherwise to
impose any limitation on any right of the Company or subsidiary to terminate
Executive's employment at any time, in the absence of a specific agreement to
the contrary.
G. Any notice to be given under this Agreement by Executive shall be sent by
mail addressed to the Company for the attention of the Compensation and Benefits
Department, ▇▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and any notice by the
Company to Executive shall be sent by mail addressed to Executive at the address
then on file with the Company's Compensation and Benefits Department. Either
party may, by notice given to the other in accordance with the provisions of
this Section, change the address to which subsequent notices shall be sent.
H. This Agreement shall be governed by the laws of the State of Kansas. It may
not be modified except in writing signed by both parties.
I. The options are not being granted under the 1996 Plan. However, for ease of
reference, certain sections in this Agreement incorporate specified provisions
of the 1996 Plan. Executive acknowledges that he has received a copy of the 1996
Plan, as the Plan is in effect on the date of this Agreement, and has read and
understands the applicable terms of the 1996 Plan that are incorporated by
reference in this Agreement.
Exhibit 2
PAYLESS SHOESOURCE INC.
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
Executive Offices
[Start Date]
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
[Address]
[City, State, ZIP]
Dear ▇▇. ▇▇▇▇▇:
In connection with the commencement of your employment with Payless ShoeSource,
Inc., you have been granted a restricted stock award of 214,250 shares of the
Company's common stock (the "Restricted Stock") as set forth below and subject
to the terms and conditions attached hereto:
EXECUTIVE: ▇▇▇▇▇▇▇ ▇▇▇▇▇
GRANT DATE: [START DATE]
RESTRICTED SHARES GRANTED: 214,250
VESTING DATE: [3rd ANNIVERSARY OF GRANT DATE]
(Subject to the attached terms and conditions)
Payless ShoeSource, Inc. has caused this Agreement, which includes the terms and
conditions attached hereto and incorporated herein by this reference, to be
executed in its corporate name and Executive has executed the same in evidence
of Executive's acceptance hereof upon the terms and conditions herein set forth
as of the grant date shown above. The securities offered under this Agreement
have not been registered under the Securities Act of 1933, as amended. On the
Grant Date or as promptly as practicable thereafter, the Company will use its
reasonable best efforts to register the Restricted Stock on a Form S-3 under the
Securities Act of 1933, as amended, and similarly register, or exempt from
registration, the Restricted Stock under any applicable state securities laws.
On or prior to the earliest date on which the restrictions on the Restricted
Stock lapse, the Company will use its reasonable best efforts to list the
Restricted Stock for trading on the New York Stock Exchange or such other
exchange or quotation system that serves as the primary trading market for the
Company's common stock. By signing below, Executive agrees to conform to all of
the terms and conditions of this Agreement.
PAYLESS SHOESOURCE, INC.
BY: ___________________________________
EXECUTIVE SIGNATURE: _______________________________ DATE: _________________
[Name]
PAYLESS SHOE SOURCE, INC. RESTRICTED STOCK AGREEMENT
TERMS AND CONDITIONS
The Compensation, Nominating and Governance Committee of the Board of Directors
of Payless ShoeSource, Inc. (the "Company") has approved granting Executive
restricted stock on the terms and subject to the conditions set forth in this
Agreement. Therefore, the Company and Executive hereby agree as follows:
1. The Company hereby grants to Executive, in the aggregate, the number of
shares of the presently authorized common stock of the Company shown on the
first page of this Agreement ("Restricted Stock"), which shall be subject to the
restrictions and conditions set forth in this Agreement.
2. The Company shall hold the certificates for the Restricted Stock in custody
until the restrictions thereon shall lapse, at which time the Company shall
deliver the certificates for such shares to Executive, less any required
withholding.
3. The restrictions on the Restricted Stock are that, before the Vesting Date
(specified on the first page of this Agreement), the shares (i) may not be sold,
assigned, conveyed, transferred, pledged, hypothecated or otherwise disposed of,
and (ii) shall be returned to the Company forthwith, and all of Executive's
rights to such shares shall immediately terminate without any payment or
consideration by the Company regardless of any notice period or period of pay in
lieu of such notice required under local statute or at common law, on the
earlier of (a) the date Executive receives notice of termination of employment
for "Cause" (as defined in that certain Employment Agreement dated [DATE]
between Executive and the Company) from the Company and (b) the date Executive
terminates his employment without "Good Reason" (as defined in the Employment
Agreement). However, if before the Vesting Date, Executive's employment with the
Company is involuntarily terminated by the Company without Cause or voluntarily
terminated by Executive for Good Reason, then the restrictions shall lapse as to
all shares of Restricted Stock on the date of termination of employment.
4. Executive agrees that, subject to Section 5 of this Agreement, (a) no later
than the date(s) as of which the restrictions on the Restricted Stock shall
lapse with respect to all or any of the shares of Restricted Stock covered by
this Agreement, Executive shall pay to the Company (in cash or shares of Company
common stock whose fair market value on the date the Restricted Stock vests is
equal to the amount of Executive's tax withholding liability) 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 Restricted Stock for which the restrictions shall lapse; and (b)
notwithstanding the preceding clause (a), the Company shall, to the extent
permitted by law, withhold the applicable number of shares of Restricted Stock
or deduct from any payment of any kind otherwise due to Executive, the amount of
any Federal, state or local taxes of any kind required by law to be withheld
with respect to the Restricted Stock.
5. If Executive properly elects, within thirty (30) days of the Grant Date
(specified on the first page of this Agreement), to include in gross income for
Federal income tax purposes an amount equal to the fair market value of the
shares of Restricted Stock granted on the Grant Date, Executive shall pay to the
Company, or make other 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 Executive fails to make such
payments, the Company shall, to the extent permitted by law, have the right to
deduct from any payment of any kind otherwise due to Executive any Federal,
state or local taxes of any kind required by law to be withheld with respect to
such shares.
6. Subject to Sections 3 and 7 and the other terms and conditions of this
Agreement, the restrictions on the Restricted Stock shall lapse on the Vesting
Date.
7. Notwithstanding the foregoing, if (i) Executive ceases to be an employee of
the Company by reason of "Disability" (as defined in the Employment Agreement)
or death, (ii) Executive has been in the continuous employment of the Company
from the Grant Date through the date of such event, and (iii) such Disability or
death occurs more than one year after the Grant Date, then the restrictions
shall lapse as to all shares of Restricted Stock on the date of Executive's
Disability or death.
8. If there is (i) any change in the capital structure of the Company through
merger, consolidations, reorganization, recapitalization, spin-off or otherwise,
(ii) any dividend on the Restricted Stock, payable in common stock of the
Company, or (iii) a stock split or a combination of shares, the Board shall make
appropriate adjustments in the number of shares relating to Restricted Stock as
it deems equitable, in its absolute discretion.
9. If (a) one of the events described in Section 4 of Part VII of the Company's
1996 Stock Incentive Plan (the "1996 Plan") occurs and (b) Executive is actively
employed on the date of such event, then from and after such date, the
restrictions on all Restricted Stock covered by this Agreement shall immediately
lapse.
10. Nothing in this Agreement shall be deemed by implication or otherwise to
impose any limitation on any right of the Company to terminate Executive's
employment at any time, in the absence of a specific agreement to the contrary.
11. This Agreement shall be governed by the laws of the State of Kansas. It may
not be modified except in writing signed by both parties.
12. Any notice to be given under this Agreement by Executive shall be sent by
mail addressed to the Company for the attention of the Compensation and Benefits
Department, ▇▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and any notice by the
Company to Executive shall be sent by mail addressed to Executive at the address
then on file with the Company's Compensation and Benefits Department. Either
party may, by notice given to the other in accordance with the provisions of
this Section, change the address to which subsequent notices shall be sent.
13. The Restricted Stock is not being granted under the 1996 Plan. However, for
ease of reference, certain sections in this Agreement incorporate specified
provisions of the 1996 Plan. Executive acknowledges that Executive has received
a copy of the 1996 Plan, as the Plan is in effect on the date of this Agreement,
and has read and understands the applicable terms of the 1996 Plan that are
incorporated by reference into this Agreement.
Page 3
Exhibit 3
CHANGE OF CONTROL AGREEMENT
This CHANGE OF CONTROL AGREEMENT (this "AGREEMENT"), is entered into
as of the __ day of _________, 200__ (the "AGREEMENT DATE"), 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 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 without Cause or for Good Reason within one year prior to the date on
which the Change of Control occurs then "Effective Date" means the date
immediately prior to the date of such termination of employment unless such
termination did not occur at the request of a third party that has taken steps
reasonably calculated to effect a Change of Control. 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
Effective Date and ending on the third anniversary thereof.
(c) "AFFILIATED COMPANY" means any company controlled by,
controlling or under common control with the Company.
(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), none of the following shall
constitute a Change of Control: (i) any acquisition directly from the Company of
30% or less of Outstanding Company Common Stock or Outstanding Company Voting
Securities provided that at least a majority of the members of the board of
directors of the Company following such acquisition were members of the
Incumbent Board at the time of the Board's approval of such acquisition, (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 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
(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, immediately following such
Business Combination, (A) 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 (x) the corporation resulting from such Business
Combination, or (y) 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, is represented by the Outstanding Company
Common Stock and the Outstanding Company Voting Securities (or, if applicable,
is represented by shares into which Outstanding Company Common Stock or
Outstanding Company Voting Securities were converted pursuant to such Business
Combination) 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
(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. TERM OF AGREEMENT AND COVERED EMPLOYMENT. (a) TERM OF
AGREEMENT. This Agreement shall be in effect from the Agreement Date and shall
terminate on the third anniversary thereof; provided, however, that, commencing
on the date one year after the Agreement Date, and on each annual anniversary of
such date (such date and each annual anniversary thereof, the "RENEWAL DATE"),
unless previously terminated, this Agreement 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 (a "NONRENEWAL NOTICE").
Notwithstanding the delivery of any such Nonrenewal Notice, this Agreement shall
continue in effect for the Change of Control Period if a Change of Control
occurs during the term of this Agreement. Notwithstanding anything in this
Section to the contrary, this Agreement shall terminate if (i) the Executive or
the Company terminates the Executive's employment prior to a Change of Control
(except as provided in Section 1(a)), or (ii) the Executive's employment
terminates in accordance with Sections 1(a), 4 or 5 and the Company has
fulfilled all of its obligations to the Executive under this Agreement.
(b) COVERED EMPLOYMENT. 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
Change of Control Period.
SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During
the Change of Control 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 Change of Control 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 Change of Control Period, it shall not be a
violation of this 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 Change of Control
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 Change of
Control 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 Change of
Control 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 Change of
Control 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
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 Change of Control 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 Change of Control 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 Change of Control 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, airplane 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 Change of Control 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 Change of Control 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 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 Change of Control Period. If the Company determines in good faith
that the Disability (as defined herein) of the Executive has occurred during the
Change of Control 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 Change of Control Period for Cause. "CAUSE" means:
(A) 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
(B) 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
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 in the absence of a written
consent by the Executive:
(A) 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;
(B) 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;
(C) 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;
(D) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement;
(E) any failure by the Company to comply with and satisfy
Section 10(c); or
(F) any failure of the Executive to be a member of the Board
of Directors of the Company, or of any successor to the Company, or
the ultimate parent of the Company or any such successor (as
applicable), other than by reason of your voluntary resignation,
Cause, death or Disability.
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 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 Change of
Control Period, the Company terminates the Executive's employment other than for
Cause or Disability or the Executive terminates employment for Good Reason:
(A) 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:
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 Change of Control
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
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
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
April 29, 1996) ("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, or otherwise not under
any such plan, an amount equal to the product of (i) the excess of
(x) in the case of an ISO granted after April 29, 1996, 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
(B) 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 any other 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 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
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
(C) 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); and
(D) Notwithstanding any provision in any equity or
equity-based grant agreement or any other agreement or plan covering
the Executive, all of the non-competition restrictions imposed on
the Executive under such equity or equity-based grant agreement
shall cease to apply for all purposes of such equity or equity-based
grant agreement, including but not limited to all options, stock
appreciation rights, and performance units granted to the Executive
at any time;
(E) the Company shall, at its sole expense as incurred, and
subject to a maximum limit equal to three (3) times the Executive's
monthly compensation, 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
(F) 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 Change of Control 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.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Change of Control 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 Change of Control 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 Change of Control 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, prior to 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 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.
(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 Deloitte &
Touche 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, is not able to make the determinations required
hereunder for any reason, or the Company determines that the Accounting Firm is
precluded from performing such services under applicable independence standards
or otherwise, 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 or as a result of a permitted or required
redetermination of the Excise Tax, it is possible that Gross-Up Payments that
will not have been made by the Company should have been made (the
"UNDERPAYMENT") or that Gross-Up Payments that were initially made by the
Company exceeded the amount necessary to reimburse the Executive as contemplated
in the first sentence of Section 8(a) or were not due pursuant to the
application of the last sentence of Section 8(a) ("OVERPAYMENT"). 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. The Accounting Firm shall determine the amount of any Overpayment
that has been made and whether any permitted redetermination of the Excise Tax
would result in an Overpayment and such Overpayment shall be promptly paid to
the Company by the Executive to the extent he is entitled to a refund on account
of such Overpayment (together with interest at the rate provided in Section
1274(b)(2) of the Code from the date of such entitlement). It is the intent of
this provision that the Gross-Up Payment reflect the Excise Tax liability, if
any, actually incurred by the Executive in the opinion of the Accounting Firm.
(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:
(A) give the Company any information reasonably requested by
the Company relating to such claim,
(B) 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,
(C) cooperate with the Company in good faith in order
effectively to contest such claim, and
(D) 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 ▇▇▇ 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 ▇▇▇ 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 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:
to the address then on file with the Company's payroll department
if to the Company:
Payless ShoeSource, Inc.
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
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) If the Company determines that the Executive is a "key employee"
within the meaning of Section 409A of the Internal Revenue Code and that, as a
result of such status, any portion of the payments under this Agreement (without
regard to any other plan of deferred compensation) would be subject to
additional or accelerated taxation, the Company will delay paying such portion
of the payment until the earliest permissible date on which payments may
commence without triggering such additional taxation (with such delay not to
exceed six months), with the first such payment to include the amounts that
would have been paid earlier but for the above delay plus simple interest on any
unpaid amounts equal to 6-month LIBOR on the date of termination of employment
plus 450 basis points.
(g) From and after the Effective Date or the date that a Potential
Change of Control occurs, and except as expressly set forth herein, this
Agreement shall supersede any other agreement between the parties with respect
to the subject matter hereof, including the Employment Agreement, dated as of
[DATE] (the "EMPLOYMENT AGREEMENT"); provided, however, in no event shall this
Agreement supersede or replace the Indemnification Agreement between the
Executive and the Company, dated as of [DATE] as from time to time amended prior
to the Effective Date; and provided further that, to the extent not inconsistent
with any provision hereof, the following provisions of the Employment Agreement
shall remain in effect during the Change of Control Period: Sections 6(b)(7)
(relating to an additional two (2) years of age and service credit under the
Supplementary Retirement Plan but such credit shall not applicable for the
purpose of satisfying any "age 50" requirements under this Agreement), Section 7
(relating to proprietary information), Section 8 (relating to certain covenants)
and Section 12(d) (relating to certain remedies that the Company and the
Executive shall have).
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.
____________________________________________
Name of Executive: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
PAYLESS SHOESOURCE, INC.
By: ________________________________________
Name:
Title:
Exhibit 4
INDEMNIFICATION AGREEMENT
AGREEMENT, dated as of the_______ day of ____________, 2005, 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 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
▇▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ 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) "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 of
30% or less of Outstanding Company Common Stock or Outstanding
Company Voting Securities provided that at least a majority of the
members of the board of directors of the Company following such
acquisition were members of the Incumbent Board at the time of the
Board's approval of such acquisition, (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 (v) any acquisition by the Company
which, by reducing the number of shares of Outstanding Company
2
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) 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, immediately following such Business Combination, 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 (x) the corporation resulting from such
Business Combination, or, (y) 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, is represented by the Outstanding Company Common Stock
and the Outstanding Company Voting Securities (or, if applicable, is
represented by shares into which Outstanding Company Common Stock or
Outstanding Company Voting Securities were converted pursuant to
such Business Combination) 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
3
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 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.
4
(9) "Voting Securities" shall mean any securities of the Company
which vote generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT. If Indemnitee was, is or
becomes at any time a party to, or witness or other participant in, or is
threatened to be made a party to, or witness or other participant in, a Claim by
reason of (or arising in part out of) an Indemnifiable Event, the Company shall
indemnify Indemnitee to the fullest extent now or hereafter authorized or
permitted by law as soon as practicable but in any event no later than 30 days
after written demand is presented to the Company, against any and all Expenses,
judgments, fines (including excise taxes assessed against an Indemnitee with
respect to an employee benefit plan), penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with, or in respect of, such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim. If so requested by Indemnitee, the
Company shall advance (within two business days of such request) any and all
Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in this
Agreement to the contrary, (i) Indemnitee shall not be entitled to
indemnification pursuant to this Agreement in any action in which the
Indemnitee's conduct has been finally adjudged to have been knowingly
fraudulent, deliberately dishonest or willful misconduct; (ii) in any derivative
action in which Indemnitee has been finally adjudged to be liable to the
Company, 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,
5
that if Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation in any court in the State of 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
6
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee, which are reasonably incurred by Indemnitee
in connection with any claim asserted or action brought by Indemnitee for (i)
indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or By-law of the Company now or hereafter in
effect relating to Claims for Indemnifiable Events and/or (ii) recovery under
any directors' and officers' liability insurance policies maintained by the
Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.
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.
7
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 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.
8
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 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: ▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice President - Human Resources
9