THE EXCHANGE OFFER

On ~~October 7, 1996, the Company completed the sale of its Private Notes in the~~July 27, 2015, we issued $200,000,000 aggregate principal amount of ~~$100 million. The net proceeds~~6.250% Senior Notes due 2023, the original notes to which the exchange offer applies, to a group of initial purchasers in reliance on exemptions from, or in transactions not subject to, the ~~Company from~~registration requirements of the Securities Act and applicable securities laws. In connection with the sale of the ~~Private Notes of approximately $97 million were used~~original notes to ~~pay down~~ the ~~Company's revolving credit facility. As~~initial purchasers, we entered into a ~~result~~registration rights agreement pursuant to which we agreed, among other things, to deliver this prospectus to you, to commence this exchange offer and to use our commercially reasonable efforts to complete the exchange offer within 210 days of the ~~completion~~issuance of the ~~sale~~original notes. The summary below describes the principal terms and conditions of ~~its Private Notes, on October 16, 1996,~~ the ~~Company elected~~exchange offer. Some of the terms and conditions described below are subject to ~~reduce~~important limitations and exceptions. See “The Exchange Offer” for a more detailed description of the ~~lenders' commitment under its revolving credit facility to $150 million from $200 million pursuant to~~terms and conditions of the exchange offer and “Description of Exchange Notes” for a more detailed description of the terms of the revolving credit facility. Also, on October 21, 1996, the Company borrowed $5 million against its revolving credit facility and repurchased $5 million of its outstanding long-term debt bearing interest at 7 1/8%. See ``Description of Certain Indebtedness.'' 5 ~~7 Set forth below~~exchange notes.

The Exchange Offer

We are certain results of operations for the months ended August 26, 1995 and August 31, 1996 and certain pro forma results of operations for the twelve months ended August 31, 1996, after giving effect to the offering of the Private Notes, the application of the net proceeds therefrom and the repurchase of $5 million of its long-term debt bearing interest at 7 1/8%. Management believes that August is generally the most profitable month of the year, driven by the back-to-school season.

PRO FORMA MONTH MONTH TWELVE ENDED ENDED MONTHS AUGUST AUGUST ENDED 26, 31, AUGUST 31, 1995 1996 1996 ~~------ ------ ---------- (4 WEEKS) (4 WEEKS) (53 WEEKS)~~ ~~STATEMENT OF OPERATIONS DATA: Net sales............................... $ 147,739 $ 159,701 $ 1,513,323 Gross profit, excluding restructuring expenses.......................... 50,964 59,342 548,551 Selling and administrative expenses, excluding restructuring expenses.. 43,455 46,808 513,580 Restructuring expenses (income)~~...................... (1,700) -- (9,442) Interest expense........................ 1,175 1,251 20,356 Other (income) expense, excluding restructuring expenses............ 26 (694) (2,002) Earnings (loss) from continuing operations before income taxes and cumulative effect of accounting changes............................... 8,008 11,977 26,059 Income tax (provision) benefit.......... (2,942) (3,673) (5,111) Discontinued operations and effect of accounting changes, net of income taxes~~............................. -- -- 2,600 Net earnings (loss)..................... 5,066 8,304 23,548 OTHER DATA: EBITDA.............................. 11,054 15,275 71,232 EBITDA, as adjusted~~................. 9,354 15,275 61,790 Total capital expenditures.............. 2,123 1,203 16,675 Total debt.............................. 209,116 211,023 214,023 Ratio of EBITDA, as adjusted, to ~~interest expense.................. n/a n/a 3.04x Ratio of total debt~~exchange up to ~~EBITDA, as adjusted.......................... n/a n/a 3.46x Ratio of total debt to capitalization... 48% 47% 47% Ratio of net debt to capitalization. 44% 44% 45%~~ ~~n/a--not applicable~~ ~~The pro forma financial data reflects the impact of borrowing $100 million~~$200,000,000 aggregate principal amount of ~~Private~~our new 6.250% Senior Notes ~~at an annual rate~~due 2023, which have been registered under the Securities Act, in exchange for your original notes. The form and terms of ~~9 1/2% as~~these exchange notes are identical in all material respects to the original notes. The exchange notes, however, will not contain transfer restrictions and registration rights applicable to the original notes.
To exchange your original notes, you must properly tender them, and we must accept them. We will accept and exchange all original notes that you validly tender and do not validly withdraw. We will issue registered exchange notes promptly after the expiration of the ~~beginning~~exchange offer.
Resale of ~~the period presented, using $97 million of the net proceeds therefrom to repay short-term~~exchange notes payable which had carried an average interest rate of approximately 6-7% during the period presented, and drawing $5 million against the revolving credit facility and using the $5 million to repurchase long-term debt which had carried an interest rate of 7 1/8%. Approximately $3 million of issuance costs related to the Private Notes is reflected based on an amortization period of 10 years. ~~See the notes to Summary Consolidated Financial Data for explanations.~~ ~~For the month ended August 26, 1995, restructuring related income represented the LIFO liquidation effect of footwear manufactured in closed domestic facilities.~~

Performance improvements have been achieved at the Company's Brown Shoe Company, Pagoda and Famous Footwear divisions versus the prior year periods. The Company's backlog as of August 31, 1996 was approximately $176 million, an increase of approximately 5% over the prior year's backlog. In addition, both Famous Footwear and Naturalizer retail stores have posted positive comparable store sales gains year to date. As of August 31, 1996, the Company had 17,965,952 shares of Common Stock outstanding and the closing price of the Company's Common Stock as reported on the New York Stock Exchange was $19.00, thus the Company's ``equity market capitalization'' as of August 31, 1996 was over $340 million. The price of the Company's Common Stock on the date any Private Notes are tendered for exchange may vary widely from the price of the Company's Common Stock on August 31, 1996, and thus the Company's equity market capitalization may also be significantly different. 6 8 SUMMARY CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE, RATIOS AND OPERATING DATA) The following table sets forth Summary Consolidated Financial Data for Brown Group, Inc. for each of the five fiscal years in the period ended February 3, 1996, for the six months ended July 29, 1995 and August 3, 1996, and for the twelve months ended August 3, 1996, and, on a pro forma basis (after giving effect to the sale of the Private Notes, the application of the net proceeds therefrom and the repurchase of $5 million of its long-term debt bearing interest of 7 1/8%) financial data for the twelve months ended August 3, 1996, for the six months ended August 3, 1996, and for fiscal 1995. Such information should be read in conjunction with the historical Consolidated Financial Statements of the Company and the Notes thereto which are included elsewhere herein and incorporated herein by reference. Summary Consolidated Financial Data for the Company as of and for the six months ended July 29, 1995 and for the six and twelve months ended August 3, 1996 has been derived from the unaudited historical Consolidated Financial Statements and, in the opinion of management, includes all adjustments that are considered necessary for a fair presentation of the financial position and results of operations for such interim periods. Results for the interim periods are not necessarily indicative of results for full fiscal years.

9 11 ~~THE EXCHANGE OFFER~~ THE EXCHANGE OFFER...................... The Company is hereby offering to exchange $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Private Notes that are properly tendered and accepted. The Company will issue Exchange Notes on or as promptly as practicable after the Expiration Date. As of the date hereof, there is $100,000,000 aggregate principal amount of Private Notes outstanding. See ``The Exchange Offer.''

Based on interpretations by the staff of the ~~Commission set forth~~SEC as detailed in a series of no-action letters issued to third parties, we believe that, as long as you are not a broker-dealer, the ~~Company believes that~~exchange notes offered in the ~~Exchange Notes issued pursuant to the Exchange Offer in~~ exchange ~~for Private Notes~~offer may be offered for resale, resold ~~and~~or otherwise transferred by ~~a holder thereof~~you without compliance with the registration and prospectus delivery ~~provisions~~requirements of the Securities Act ~~provided~~as long as: ● you are acquiring the exchange notes in the ordinary course of your business; ● you are not participating, do not intend to participate in and have no arrangement or understanding with any person to participate in a “distribution” of the exchange notes; and ● you are not an “affiliate” of ours within the meaning of Rule 405 of the Securities Act. If any of these conditions is not satisfied and you transfer any exchange notes issued to you in the exchange offer without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. Moreover, our belief that transfers of exchange notes would be permitted without registration or prospectus delivery under the conditions described above is based on SEC interpretations given to other, unrelated issuers in similar exchange offers. We cannot assure you that the SEC would make a similar interpretation with respect to our exchange offer. We will not be responsible for or indemnify you against any liability you may incur under the Securities Act.
	Any broker-dealer that acquires exchange notes for its own account in exchange for original notes must represent that the original notes to be exchanged for the exchange notes were acquired by it as a result of market-making activities or other trading activities and acknowledge that it will deliver a prospectus (or, to the extent permitted by law, make available a Prospectus) meeting the requirements of the Securities Act in connection with any offer to resell, resale or other retransfer of the exchange notes. However, by so acknowledging and by delivering a prospectus, such participating broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. During the period ending 180 days after the consummation of the exchange offer, subject to extension in limited circumstances, a participating broker-dealer may use this prospectus for an offer to sell, a resale or other retransfer of exchange notes received in exchange for original notes which it acquired through market-making activities or other trading activities.
Expiration Date	The exchange offer will expire at 5:00 p.m., New York City time, on , 2015, unless we extend the expiration date.

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Accrued Interest on the Exchange Notes and the Original Notes The exchange notes will bear interest from the most recent date to which interest has been paid on the original notes or, if no interest has been paid, from the date of original issuance of the original notes. If your original notes are accepted for exchange, then you will receive interest on the exchange notes and not on the original notes. Any original notes not tendered will remain outstanding and continue to accrue interest according to their terms.
Conditions The exchange offer is subject to customary conditions. We may assert or waive these conditions in our sole discretion. If we materially change the terms of the exchange offer, we will re-solicit tenders of the original notes. See “The Exchange Offer-Conditions to the Exchange Offer” for more information regarding conditions to the exchange offer.
Procedures for Tendering Original Notes
Each holder of original notes that wishes to tender their original notes must either:
●     complete, sign and date the accompanying letter of transmittal or a facsimile copy of the letter of transmittal, have the signatures on the letter of transmittal guaranteed, if required, and deliver the letter of transmittal, together with any other required documents (including the original notes), to the exchange agent; or
●     if original notes are tendered pursuant to book-entry procedures, the tendering holder must deliver a completed and duly executed letter of transmittal or arrange with The Depository Trust Company, or DTC, to cause an agent’s message to be transmitted with the required information (including a book-entry confirmation) to the exchange agent; or
●     comply with the procedures set forth below under “-Guaranteed Delivery Procedures.”

Holders of original notes that tender original notes in the exchange offer must represent that the following are true:
●     the holder is acquiring ~~Exchange Notes~~the exchange notes in the ordinary course of its ~~business,~~business;
●     the holder is not participating in, does not intend to participate in, and has no arrangement or understanding with any person to participate in ~~the distribution~~a “distribution” of the ~~Exchange Notes~~exchange notes; and
●     the holder is not an ~~``affiliate''~~“affiliate” of ~~the Company~~us within the meaning of Rule 405 under the Securities Act. Each broker-dealer who holds Private Notes acquired for its own account as a result of market-making or other trading activities and who receives Exchange Notes pursuant to the Exchange Offer for its own account in exchange therefor must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes acquired by such broker-dealer as a result of market-making activities or other trading activities. The Letter of Transmittal that accompanies this Prospectus states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an ``underwriter'' within the meaning of the Securities Act. ~~Any holder~~

Do not send letters of ~~Private Notes who tenders~~transmittal, certificates representing original notes or other documents to us or DTC. Send these documents only to the exchange agent at the appropriate address given in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes could not rely on the above-referenced position of the staff of the Commissionthis prospectus and in the ~~absence~~letter of ~~an exemption therefrom, would have to~~transmittal. We could reject your tender of original notes if you tender them in a manner that does not comply with the ~~registration and~~instructions provided in this prospectus delivery requirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance could result in such holder incurring liability under the Securities Act for which the holder is not indemnified by the Company. See ``The Exchange Offer--Resale of the Exchange Notes.'' REGISTRATION RIGHTS AGREEMENT........... The Private Notes were sold by the Company on October 7, 1996 to Smith Barney Inc., First Chicago Capital Markets, Inc. and Dillon, Read & Co. Inc. (collectively, the ``Initial Purchasers'') pursuant to a Purchase Agreement, dated October 1, 1996, by and among the Company and the ~~Initial Purchasers (the ``Purchase Agreement''). Pursuant~~accompanying letter of transmittal. See “Risk Factors-There are significant consequences if you fail to the Purchase Agreement, the Company and the Initial Purchasers entered into a Registration Rights Agreement, dated asexchange your original notes” for further information.
Special Procedures for Tenders by Beneficial Owners of ~~October 7, 1996 (the ``Registration Rights Agreement''), which grants 10~~ ~~12 the holders of the Private~~Original Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such rights, which will terminate upon the consummation of the Exchange Offer. The holders of the Exchange Notes will not be entitled to any exchange or registration rights with respect to the Exchange Notes. See ``The Exchange Offer--Termination of Certain Rights.'' The Company will not receive any proceeds from, and has agreed to bear the expenses of, the Exchange Offer. EXPIRATION DATE......................... The Exchange Offer will expire at 5:00 p.m., New York City time, on December 10, 1996, unless the Exchange Offer is extended by the Company in its sole discretion, in which case the term ``Expiration Date'' shall mean the latest date and time to which the Exchange Offer is extended. See ``The Exchange Offer--Expiration Date; Extensions; Amendments.'' PROCEDURES FOR TENDERING PRIVATE NOTES......................... Each holder of Private Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Private Notes and any other required documentation to State Street Bank and Trust Company, as exchange agent (the ``Exchange Agent''), at the address set forth herein. By executing the Letter of Transmittal, the holder will represent to and agree with the Company that, among other things, (i) the Exchange Notes to be acquired by such holder of Private Notes in connection with the Exchange Offer are being acquired by such holder in the ordinary course of its business, (ii) such holder has no arrangement or understanding with any person to participate in a distribution of the Exchange Notes, and (iii) such holder is not an ``affiliate,'' as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for its
If:
●     you beneficially own account in exchange for Private Notes that were acquired as a result of market-making or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an ``underwriter'' within the meaning of the Securities Act. See ``The Exchange Offer--Procedures for Tendering.'' SPECIAL PROCEDURES FOR BENEFICIAL OWNERS..................... Any beneficial owner whose Private Notesoriginal notes;
●     those notes are registered in the name of a broker, dealer, commercial bank, trust company or other ~~nominee~~nominee; and ~~who wishes~~
●     you wish to tender ~~such Private Notes~~your original notes in the ~~Exchange Offer should~~exchange offer,

please contact ~~such~~the registered holder ~~promptly~~as soon as possible and instruct ~~such registered holder~~it to tender on ~~such beneficial owner's behalf.~~ your behalf and comply with the instructions set forth in this prospectus and the letter of transmittal.
Guaranteed Delivery Procedures
If ~~such beneficial owner wishes to tender on such owner's~~you hold original notes in certificated form or if you own ~~behalf, such owner must, prior to completing~~original notes in the form of a book-entry interest in a global note deposited with the trustee, as custodian for DTC, and executing the Letter of Transmittal and delivering such owner's Private Notes, either make appropriate arrangements to register ownership of the Private Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to 11 13 the Expiration Date. See ``The Exchange Offer--Procedures for Tendering.'' GUARANTEED DELIVERY PROCEDURES.......... Holders of Private Notes whoyou wish to tender ~~their Private Notes and whose Private Notes~~those original notes but:
●     your original notes are not immediately ~~available or who cannot~~available;
●     time will not permit you to deliver ~~their Private Notes,~~ the ~~Letter of Transmittal or any other documentation~~ required documents to the exchange agent by the ~~Letter of Transmittal~~expiration date; or
●     you cannot complete the procedure for book-entry transfer on time,

you may tender your original notes pursuant to the procedures described in “The Exchange ~~Agent prior~~Offer-Procedures for Tendering Original Notes-Guaranteed Delivery.”
Withdrawal Rights You may withdraw your tender of original notes under the exchange offer at any time before the exchange offer expires. Any withdrawal must be in accordance with the procedures described in “The Exchange Offer-Withdrawal Rights.”

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Effect on Holders of Outstanding Original Notes
As a result of making this exchange offer, and upon acceptance for exchange of all validly tendered original notes, we will have fulfilled our obligations under the registration rights agreement. Accordingly, there will be no liquidated or other damages payable under the registration rights agreement if original notes were eligible for exchange, but not exchanged, in the exchange offer.
If you do not tender your original notes or we reject your tender, your original notes will remain outstanding and will be entitled to the ~~Expiration Date must tender their Private Notes according~~benefits of the indenture governing the Notes. Under such circumstances, you would not be entitled to any further registration rights under the registration rights agreement, except under limited circumstances. Existing transfer restrictions would continue to apply to the guaranteed delivery procedures set forth under ``The Exchange Offer--Guaranteed Delivery Procedures.'' ACCEPTANCE OF THE PRIVATE NOTES AND DELIVERY OF THE EXCHANGE NOTES........ Subject tooriginal notes.
Any trading market for the ~~satisfaction or waiver~~original notes could be adversely affected if some but not all of the ~~conditions to~~original notes are tendered and accepted in the ~~Exchange Offer,~~exchange offer.
Material United States Federal Income Tax Consequences Your exchange of original notes for exchange notes should not be treated as a taxable event for U.S. federal income tax purposes. See “Material United States Federal Income Tax Consequences.”
Use of Proceeds We will not receive any proceeds from the ~~Company~~issuance of the exchange notes under the exchange offer.
Acceptance of Original Notes and Delivery of Original Notes We will accept for exchange any and all ~~Private Notes that are~~original notes properly tendered ~~in the Exchange Offer~~ prior to the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered on the earliest practicable date following the Expiration Date. See ``The Exchange Offer--Termsexpiration of the Exchange Offer.'' WITHDRAWAL RIGHTS....................... Tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. See ``The Exchange Offer--Withdrawal of Tenders.'' CERTAIN FEDERAL INCOME TAX CONSIDERATIONS........................ For a discussion of certain federal income tax considerations relating toexchange offer. We will complete the exchange ofoffer and issue the exchange notes promptly after the expiration date.
Exchange ~~Notes for the Private Notes, see ``Certain Federal Income Tax Considerations.'' EXCHANGE AGENT.......................... State Street~~Agent Wells Fargo Bank, ~~and Trust Company~~National Association is serving as exchange agent for the exchange offer. The address and telephone number of the exchange agent are provided in this prospectus under “The Exchange ~~Agent~~Offer-Exchange Agent” and in ~~connection with~~ the ~~Exchange Offer. State Street Bank and Trust Company also serves as trustee under the Indenture.~~ letter of transmittal.
~~THE NOTES The~~

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Summary of Terms of Exchange ~~Offer applies to $100,000,000 aggregate principal amount of the Private Notes.~~ Notes
The form and terms of the ~~Exchange Notes are~~exchange notes will be identical in all material respects to the form and terms of the ~~Private Notes~~original notes, except that the ~~Exchange Notes~~ exchange notes:
•will have been registered under the Securities Act;
•will not bear restrictive legends restricting their transfer under the ~~transfer thereof and holders of the Exchange Notes~~ Securities Act;
•will not be entitled to ~~any of~~ the registration rights ~~of holders~~that apply to the original notes; and
will not contain provisions relating to an increase in the interest rate borne by the original notes under circumstances related to the timing of the ~~Private Notes under~~exchange offer.
The exchange notes represent the ~~Registration Rights Agreement,~~same debt as the original notes and are governed by the same indenture, which ~~rights will terminate upon consummation~~is governed by New York law. A brief description of the ~~Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be issued under, and be entitled to the benefits~~material terms of the ~~Indenture. For further information and for definitions of certain capitalized terms used below, see ``Description of the Notes.''~~ exchange notes follows:
~~NOTES................................... $100,000,000~~
Issuer Caleres, Inc.
Securities $200.0 million in principal amount of ~~9 1/2% Senior Notes~~6.250% senior notes due ~~October~~2023
Maturity August 15, ~~2006. MATURITY DATE........................... October 15, 2006. INTEREST PAYMENT DATES.................. April~~2023
Interest Annual rate: 6.250%
Payment frequency: every six months on February 15 and ~~October~~August 15
First payment: February 15, 2016
Denominations Minimum denominations of ~~each year, commencing April 15, 1997. RANKING.................................~~ $2,000 and integral multiples of $1,000 in excess thereof
Ranking
The exchange notes will be our general unsecured unsubordinated obligations. Accordingly, they will rank:
●     equally with all of our existing and future unsecured unsubordinated debt;
●     effectively subordinated to our existing and future secured debt to the extent of the assets securing such debt, including all borrowings under our existing revolving credit agreement;
●     senior to any of our existing or future subordinated debt; and
●     structurally subordinated to all of the liabilities of our subsidiaries that are not guarantors, including trade payables.

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Assuming we had completed the offering of the original notes, the Tender Offer and the redemption of all of the 7⅛% Notes ~~are~~described in this prospectus, all as of August 1, 2015, we would have had $200.0 million of debt outstanding, consisting of the original notes, as well as $6.3 million in letters of credit outstanding under our secured revolving credit facility. As of August 1, 2015, our non-guarantor subsidiaries had third-party liabilities (exclusive of intercompany debt) of approximately $56.4 million.
Guarantees
The exchange notes will be initially guaranteed on a senior unsecured basis by each of our restricted subsidiaries that is a borrower or guarantor under our existing revolving credit facility.

The guarantees will be general unsecured unsubordinated obligations of the ~~Company,~~guarantors. Accordingly, they will rank ~~pari passu in right~~equally with all unsecured unsubordinated debt of ~~payment with~~the guarantors, effectively subordinated to all secured debt of the guarantors to the extent of the assets securing such debt (including the guarantees by the guarantors of obligations under our existing revolving credit agreement), and senior to all existing and future ~~senior unsecured indebtedness~~subordinated debt of the ~~Company and senior~~guarantors.
Optional Redemption Prior to ~~all future indebtedness of the Company that is expressly subordinated in right of payment to the Notes. As of~~ August 3, 1996, the Company had approximately $227 million of outstanding indebtedness, all of which was senior indebtedness. In addition, the Company had available $79 million of undrawn borrowings under its short-term revolving credit facility. 12 ~~14 OPTIONAL REDEMPTION..................... The Notes are not redeemable at the Company's option prior to October~~ 15, ~~2001. Thereafter, the Notes will be redeemable, in whole~~2018, we may redeem some or in part, at the option of the Company, at the redemption prices set forth herein plus accrued interest to the date of redemption. See ``Description of the Notes--Optional Redemption.'' CHANGE OF CONTROL....................... In the event of a Change of Control (as defined under ``Description of the Notes''), the Company will be obligated to make an offer to purchase all of the ~~outstanding Notes~~exchange notes at any time at a redemption price of 101% of the principal amount thereof plus accrued interest to the date of purchase. See ``Description of the Notes--Certain Covenants--Change of Control.'' OFFER TO PURCHASE....................... The Company will be required in certain circumstances to make an offer to purchase Notes, at a purchase price equal to 100% of the principal amount thereof plus a “make-whole” premium described in “Description of Exchange Notes-Optional Redemption” and accrued and unpaid interest to the ~~date~~redemption date. We may redeem some or all of ~~purchase~~the exchange notes at any time on or after August 15, 2018 at the redemption prices described in this prospectus under the caption “Description of Exchange Notes-Optional Redemption.”
In addition, any time prior to August 15, 2018 we may redeem up to 40% of the exchange notes with the net cash proceeds from certain equity offerings at the redemption price listed in “Description of ~~certain asset sales. See ``Description~~Exchange Notes-Optional Redemption.” However, we may only make such redemptions if at least 60% of the ~~Notes--Certain Covenants--Disposition~~aggregate principal amount of ~~Proceeds~~notes issued under the indenture remains outstanding immediately after the occurrence of ~~Asset Sales.'' CERTAIN COVENANTS.......................~~ such redemption.
Change of Control If we experience specific kinds of changes in control, we must offer to purchase the exchange notes at 101% of their face amount, plus accrued and unpaid interest.
Certain Covenants
The ~~Indenture contains covenants including, but not limited to, covenants with respect to limitations~~indenture governing the Notes will, among other things, limit our ability and the ability of our restricted subsidiaries to:
●     borrow money or sell preferred stock;
●     create liens;
●     pay dividends on ~~the following matters: (i) the incurrence~~or redeem or repurchase stock;
●     make certain types of ~~additional indebtedness, (ii)~~investments;
●     sell stock in our restricted subsidiaries;
●     restrict dividends or other payments (iii) the creation of liens, (iv) mergers and consolidations, (v) the sale of assets and subsidiary stock, (vi) the issuance of preferred stock by subsidiaries, (vii)from subsidiaries;
●     enter into transactions with ~~affiliates, (viii) payment restrictions affecting subsidiaries~~affiliates;
●     issue guarantees of debt; and ~~(ix) sales and leaseback transactions. See ``Description~~
●     sell assets or merge with other companies.

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Certain of these covenants will be suspended if the ~~Notes--Certain Covenants.'' The Indenture also provides that during any period of time (i) the ratings~~exchange notes are assigned ~~to the Notes~~an investment grade rating by both ~~Moody's~~S&P and ~~S&P (each as defined under ``Description of the Notes'') are equal to or higher than Baa3~~Moody’s and ~~BBB or the equivalents thereof, respectively, and (ii)~~ no ~~Event of Default or Default (each as defined under ``Description of the Notes'')~~default has occurred and is ~~continuing,~~continuing. If either rating on the ~~Company~~exchange notes should subsequently decline to below investment grade, the suspended covenants will be reinstated. These covenants contain important exceptions, limitations and ~~its Subsidiaries (as defined under ``Description~~qualifications. For more details, see “Description of Exchange Notes.”
Absence of an Established Public Market for the Exchange Notes The exchange notes will be new securities for which there is currently no market. We do not intend to apply for a listing of the ~~Notes'')~~exchange notes on any securities exchange. Accordingly, we cannot assure you that a liquid market for the exchange notes will ~~not~~develop or be subject to certain of the above-referenced covenants. BOOK-ENTRY, DELIVERY AND FORM........... It is expected that delivery of the Exchange Notes will be made in book-entry or certificated form. maintained.
Trustee Wells Fargo Bank, National Association
Governing Law The Company expects that the Exchange Notes exchanged for Private Notes currently represented by the Global Notes (as defined under "Description of the Notes") deposited with, or on behalf of, The Depository Trust Company (the ``Depository'')indenture and registered in its name or in the name of Cede & Co., its nominee, will be represented by Global Notes and deposited upon issuance with the Depository and registered in its name or the name of its nominee. Beneficial interests in the Global Note(s) representing the Notes will be ~~shown~~governed by, and construed in accordance with, the laws of the State of New York.
Risk Factors See “Risk Factors,” beginning on page 12 of this prospectus and ~~transfers thereof will be effected through, records maintained~~the other information in or incorporated by ~~the Depository and its participants.~~ reference in this prospectus for a discussion of factors you should consider carefully before deciding to exchange your original notes for exchange notes.
~~For additional~~

Summary Financial Data
The following tables set forth certain summary historical financial and operating data as of and for the three fiscal years ended January 31, 2015, as of and for the twenty-six weeks ended August 2, 2014 and August 1, 2015. This information ~~regarding~~is only a summary and should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the ~~Notes, see ``Description~~fiscal year ended January 31, 2015 and our Quarterly Report on Form 10-Q for the fiscal quarters ended August 1, 2015, and our audited and unaudited historical consolidated financial statements and related notes thereto, in each case, included or incorporated by reference in this prospectus.
Our summary financial data presented below for and as of the Notes'' and ``Certain United States Federal Income Tax Considerations.'' RISK FACTORS Prospective investors should carefully consider the matters set forth under ``Risk Factors'' on pages 14 through 17. 13 15 RISK FACTORS In addition to the other information contained in this Prospectus, the following risk factors should be carefully considered in evaluating the Company and its businesses before deciding to surrender Private Notes in exchange for Exchange Notes pursuant to the Exchange Offer. In particular, note that this Prospectus contains forward-looking statements within the meaningend of each of the ~~Private Securities Litigation Reform Act~~last three fiscal years are derived from our audited consolidated financial statements. Our summary historical financial data as of ~~1995~~ and ~~that actual~~for the twenty-six weeks ended August 2, 2014 and August 1, 2015 are derived from our unaudited interim financial statements. Operating results ~~could differ materially from those contemplated by such statements. The considerations listed below represent certain important factors~~for the ~~Company believes could cause such results to differ. These considerations~~interim periods are not ~~intended to represent a complete list~~necessarily indicative of the general or specific risks that may affect the Company. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect the Company to a greater extent than indicated. SHIFT OF FOCUS IN BUSINESS STRATEGY; IMPACT OF RESTRUCTURING During 1995, the Company completed a series of restructuring programs which resulted in a shift in its retail focus from leased footwear departments in department stores to branded footwear stores in strip centers, regional malls and outlet centers and a shift in its wholesaling focus from manufacturing to marketing and foreign sourcing. During the restructuring process, the Company closed a number of retail stores and all of its domestic manufacturing facilities, divested itself of a number of non-core businesses and reduced staff levels throughout the Company. The Company also invested substantially in the Famous Footwear chain of retail stores and expanded the Company's worldwide footwear sourcing and marketing organization. The Company has not completedresults for a full fiscal year, ~~since the conclusion~~or any other periods. The unaudited interim financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the ~~restructuring, and there can be no assurance that~~financial position or the Company's restructuring programs will have a favorable impact on the Company's long term business, financial condition or results of operations. COMPETITION; CHANGES IN CONSUMER PREFERENCES Competition is intense in the footwear industry. Certain of the Company's competitors are larger and have substantially greater resources than the Company. The Company's success depends upon its ability to remain competitive in the areas of style, price and quality, among others. The Company's success also depends in part on its ability to anticipate and respond to changing merchandise trends and consumer preferences and demands in a timely manner. Accordingly, any failure by the Company to anticipate and respond to changing merchandise trends could materially adversely affect consumer acceptance of the Company's brand names and product lines, which in turn could materially adversely affect the Company's business, financial condition or results of operations. Furthermore, consumer preferences and purchasing patterns may be influenced by consumers' disposable income. Consequently, the success of the Company's operations may depend to a significant extent upon a number of factors affecting disposable income, including economic conditions and factors such as employment, business conditions, interest rates and taxation. There can be no assurance that the Company's business, financial condition or results of operations ~~will not be materially adversely affected~~for such period.

Fiscal Year Ended⁽¹⁾
    Twenty-six Weeks Ended

February 2,
2013
February 1,
2014
January 31,
2015

August 2,
2014
August 1,
2015
(dollars in millions) (unaudited)
Statement of Earnings Data:
Net sales $ 2,477.8
$ 2,513.1
$ 2,571.7
$ 1,227.0
$ 1,240.1
Cost of goods sold 1,489.2
1,498.8
1,531.6
725.1
728.8

Gross profit 988.6
1,014.3
1,040.1
502.0
511.3
Selling and administrative expenses 891.7
909.7
910.7
442.0
445.3
Restructuring and other special charges, net 22.4
1.3
3.5
—
—
Impairment of assets held for sale —
4.7
—
—
—

Operating earnings 74.5
98.6
125.9
60.0
66.1
Interest expense (23.0 ) (21.3 ) (20.5 ) (10.4 ) (8.8 )
Loss on early extinguishment of debt —
—
(0.4 ) —
(8.7 )

9

Fiscal Year Ended⁽¹⁾
    Twenty-six Weeks Ended

February 2,
2013
February 1,
2014
January 31,
2015

August 2,
2014
August 1,
2015
(dollars in millions) (unaudited)
Interest income 0.3
0.4
0.4
0.2
0.5
Gain on sale of subsidiary —
—
4.7
—
—

Earnings before income taxes from continuing operations 51.8
77.7
110.1
49.8
49.1
Income tax provision (16.6 ) (23.7 ) (27.2 ) (16.3 ) (12.9 )

Net earnings from continuing operations 35.2
54.0
82.9
33.5
36.3

Discontinued operations:
Loss from discontinued operations, net of tax (4.5 ) (4.6 ) —
—
—
Disposition/impairment of discontinued operations, net of tax (3.5 ) (11.5 ) —
—
—

Net loss from discontinued operations (8.0 ) (16.1 ) —
—
—

Net earnings 27.2
37.9
82.9
33.5
36.3
Net (loss) earnings attributable to noncontrolling interests (0.3 ) (0.2 ) 0.1
—
0.2

Net earnings attributable to Caleres, Inc. $ 27.5
$ 38.1
$ 82.8
$ 33.5
$ 36.1

Other Financial Data:

Net cash provided by (used for)

Operating activities $ 197.9
$ 104.0
$ 118.8
$ 66.5
$ 101.3
Investing activities (68.7 ) 20.1
(112.0 ) (91.3 ) (20.5 )
Financing activities (108.8 ) (105.8 ) (20.5 ) (11.5 ) (18.5 )
Depreciation and amortization 54.8
55.3
51.6
25.5
25.5
Purchases of property and equipment 55.8
44.0
45.0
23.5
24.9
Capitalized software 7.9
5.2
5.1
2.7
2.7

Balance Sheet Data (at end of period):

Cash and cash equivalents $ 68.2
$ 82.5
$ 67.4
$ 46.9
$ 129.3
Working capital 303.3
405.7
393.8
368.3
419.3
Total assets 1,174.0
1,149.4
1,216.8
1,289.1
1,427.5
Total debt 303.8
206.0
199.2
199.1
239.2
Total shareholders’ equity 425.9
477.4
541.6
509.3
569.2
Total net debt⁽²⁾
235.6
123.5
131.8
152.2
109.9

Operating Data:

Number of stores (at end of period):

Famous Footwear 1,055.0
1,044.0
1,038.0
1,035.0
1,044.0
Brand Portfolio 222.0
179.0
171.0
170.0
163.0
Same store sales change⁽³⁾:

Famous Footwear 4.5 % 2.9 % 1.5 % 1.5 % 1.5 %
Brand Portfolio 0.6 % 1.6 % (3.6 )% (1.5 )% (3.9 )%

(1) All fiscal years include 52 weeks; except for fiscal year ended February 2, 2013, which included 53 weeks.
(2) Total net debt is defined as total debt less cash and cash equivalents.

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(3) Same store sales changes are calculated by comparing the sales in stores that have been open at least 13 months. This method avoids the distorting effect that grand opening sales have in the first month of operation. Relocated stores are treated as new stores. Closed stores are excluded from the calculation. E-commerce sales for those websites that function as an extension of a retail chain are included in the same store sales calculation. Same store sales is not a measure of financial performance under GAAP. Same store sales is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.

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RISK FACTORS
You should carefully consider each of the following risks and all of the other information included or incorporated by ~~changes~~reference in consumer spending or economic conditions. RELIANCE ON FOREIGN SOURCES OF PRODUCTION The Company relies entirely on broad-based foreign sourcing for its footwear products. The Company sources footwear products from independent third-party manufacturing facilities located in China, Indonesia, Brazil, andthis prospectus before deciding to a lesser extent from Italy, Taiwan and two Company-owned manufacturing facilities in Canada. Typically, the Company is a major, and in some cases the exclusive, customer of these third-party manufacturing facilities. The Company believes that its relationships with such third-party manufacturing facilities provide it with a competitive advantage; thus the Company's future results will partly depend on maintaining its close working relationships with its principal manufacturers. If the Company's relationship with any of its principal manufacturers materially deteriorate, there can be no assurance that such deterioration will not have a material adverse effect on the Company's business, financial condition or results of operations. The Company relies heavily on independent third-party manufacturing facilities located in China. In 1995, the Company sourced approximately 45 million pairs of shoes from China, which represented approximately 65% of total footwear sourced by the Company. Historically, the trade relationship between the United States and China has not had a material adverse effect on the Company's business, financial condition or results of operations. There have 14 ~~16 been, however, and may~~participate in the ~~future be, threats~~exchange offer described in this prospectus. Some of the following risks relate principally to ~~the trade relationship between the United States and China, including past and future threats by the United States~~your participation or failure to deny Most Favored Nation trade status to China. There can be no assurance that the trade relationship between the United States and China will not worsen, and if it does worsen, there can be no assurance that the Company's business, financial condition or results of operations will not be materially adversely affected thereby. Further, the Company cannot predict the effect that changesparticipate in the ~~economic~~exchange offer and ~~political conditions~~ownership of our exchange notes. Other risks relate principally to our business in China could have on the economics of doing business with Chinese manufacturers, particularly in light of the return of Hong Kong to China on July 1, 1997. Although the Company believes that it could find alternative manufacturing sources for those products it currently sources from China through its existing relationships with independent third-party manufacturing facilities, the loss of a substantial portion of its Chinese manufacturing capacity could have a material adverse effect on the Company's business, financial condition or results of operations while transitioning to alternative independent third-party manufacturing facilities. As is common ingeneral and the industry the Company does not have any long-term contracts with its independent third-party foreign manufacturers. There can be no assurance that the Company will not experience difficulties with such manufacturers, including reduction in the availability of production capacity, failure to meet production deadlines, or increases in manufacturing costs. Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, expropriation, nationalization, foreign currency fluctuations, changing economic conditions, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Any of these events could have a material adverse effect on the Company's business, financial condition or results of operations. Although the Company purchases products from certain foreign manufacturers in United States dollars and otherwise engages in foreign currency hedging transactions, there can be no assurance that the Company will not experience foreign currency losses. The Company cannot predict whether additional United States or foreign customs quotas, duties, taxes or other charges or restrictions will be imposed upon the importation of non-domestically produced products in the future or what effect such actions could have on its business, financial condition or results of operations. CUSTOMER CONCENTRATION The customers of the Company's wholesaling business include department stores and mass merchandisers. The Company's eight largest customers accounted for approximately 20% of the Company's net sales in 1995, with the largest customer accounting for approximately 7%. Several of the Company's customers control more than one department store and/or mass merchandiser chain. While the Company believes that purchasing decisions in many cases are made independently by each department store or mass merchandiser chain under such common ownership, the trend may be towards more centralized purchasing decisions. A decision by the controlling owner of a group of department stores and/or mass merchandisers, or any other significant customer, to decrease the amount of footwear products purchased from the Company could have a material adverse effect on the Company's business, financial condition or results of operations. The retail industry has periodically experienced consolidation and other ownership changes, and in the future the Company's wholesale customers may consolidate, restructure, reorganize or realign, any of which could decrease the number of stores that carry the Company's products and could have a material adverse effect on the Company's business, financial condition or results of operations. DEPENDENCE ON LICENSES The success of the Company's Pagoda division has to date been due, in part, to the Company's ability to attract licensors which have strong, well-recognized characters and trademarks. The Company's license agreements are generally for an initial term of two to three years, subject to renewal, but even where the Company has longer term licenses or has an option to renew a license, such license is dependent upon the Company achieving certain results in marketing the licensed material. In 1995, the Company had approximately 20 licensors and approximately 13% of the Company's net sales were of licensed products. The largest licensor accounted for approximately 5% of the Company's net sales in 1995, and the five largest licensors accounted for approximately 11% of net sales. While the Company believes that its relationships with its existing licensors are good and it believes that it will be able to renew its existing licenses and obtain new licenses in the future, there can be no assurance that the Company will be able to renew its current licenses or obtain new licenses to replace lost licenses. To the extent that the Company cannot renew existing or obtain new licenses, the Company's business, financial condition or results of operations could be 15 17 materially adversely affected. In addition, certain of the Company's license agreements are not exclusive and new or existing competitors may obtain similar licenses. DEPENDENCE ON MAJOR BRANDED SUPPLIERS The Company's Famous Footwear retail business purchased a substantial portion of its footwear products in 1995 from its ten largest suppliers, and in 1995 approximately 45% of the Company's net sales were from products purchased from independent branded suppliers. While the Company believes that its relationship with its existing suppliers is good, the loss of any of its major suppliers could have a material adverse effect on the Company's business, financial condition or results of operations. As is common in the industry, the Company does not have any long-term contracts with its suppliers. In addition, the Company's financial performance is in part dependent on the ability of Famous Footwear to obtain product from its suppliers on a timely basis and on acceptable terms. If Famous Footwear is unable to maintain acceptable terms with its suppliers, itswe operate. Our business, financial condition or results of operations could be materially adversely ~~affected. SEASONALITY The Company's business has been and is expected to be seasonal,~~affected due to ~~consumer spending patterns and higher back-to-school, Easter and holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion~~any of ~~the Company's operating profits for the year. Due~~these risks.
Risks Relating to the ~~seasonality of~~Exchange Offer
There are significant consequences if you fail to exchange your original notes.
We did not register the ~~Company's business,~~original notes under the ~~Company's results for interim periods are not necessarily indicative of its results for~~Securities Act or any state securities laws, nor do we intend to do so after the ~~year. STRUCTURAL SUBORDINATION The Company conducts a portion of its business through subsidiaries.~~exchange offer. As a result, ~~of this structure,~~ the creditors of the Company, including any holders of Notes, will effectively rank junior to all creditors of the Company's subsidiaries, notwithstanding that the Notes are senior obligations of the Company. As of August 3, 1996, the aggregate amount of obligations of the Company's subsidiaries to which the holders of the Notes wouldoriginal notes may only be structurally subordinated was approximately $200 million and the aggregate assets of these subsidiaries totalled approximately $550 million. These obligations consisted of trade payables and accrued expenses and no Indebtedness (as definedtransferred in ``Description of the Notes''). LEVERAGE As of October 25, 1996, the Company had approximately $247.1 million of senior debt outstanding, including $100.0 million aggregate principal amount of Private Notes. In addition, the Company had available approximately $104.0 million of undrawn borrowings under its short-term revolving credit facility and no outstanding subordinated indebtedness. The Company's trailing twelve month ratio of total debt to earnings before interest expense, income taxes, depreciation and amortization, restructuring related expenses, and the effect of accounting changes and discontinued operations (EBITDA, as adjusted), as of August 3, 1996, on a pro forma basis, after giving effect to the offering of the Private Notes and the application of the net proceeds therefrom, was 4.12-to-1. The Company's pre-tax earnings, before fixed charges, were insufficient to cover fixed charges by approximately $15.2 million. $4.7 million and $7.7 million for the years 1993, 1995 and pro forma 1995, respectively, when extensive restructuring activities were carried out. A portion of the Company's cash flow from operations will be dedicated to debt service, thereby reducing funds available for operations, and the indebtedness and the restrictive covenants to which the Company is subjectlimited circumstances under the ~~terms of its indebtedness may make~~securities laws. If you do not exchange your original notes in the ~~Company more vulnerable~~exchange offer, you will lose your right to ~~economic downturns, may hinder its ability~~have the original notes registered under the Securities Act, subject to ~~execute its growth strategy, may reduce its flexibility~~certain limitations. If you continue to respond to changing business conditions and may limit its ability to withstand competitive pressures. The Company's ability to generate sufficient cash to meet its debt service obligations, including interest payments onhold original notes after the Notes, will depend on its future operating performance, which will be subject, in part, to factors beyond its control, including prevailing economic conditions and financial, business and other factors. While the Company believes that cash flow from operations will be adequate to meet its debt service obligations for the foreseeable future, there can be no assurance that the Company will generate cash in sufficient amounts. In the event the Company's operating cash flow is not sufficient to fund the Company's expenditures or service its debt, including 16 ~~18 the Notes, the Company~~exchange offer, you may be ~~required~~unable to ~~raise additional financing. There can be no assurance that~~sell the Company will be able to obtain any such additional financing. In order to support its importing operations, the Company maintains uncommitted bank letter of credit facilities with financial institutions with whom the Company has had longstanding relationships. The Company has maintained a similar financing structure for over 20 years. While the Company does not anticipate that its banks would adversely modify or withdraw the existing letter of credit structure, there can be no assurance that the banks will not do so. To the extent that such facilities are withdrawn or otherwise modified in a manner adverse to the Company, there could be a materially adverse effect on the Company's business, financial condition or results of operations. NO PRIOR PUBLIC MARKET FOR EXCHANGE NOTES; POSSIBLE VOLATILITY OF MARKET PRICE OF EXCHANGE NOTES The NASD has designated the Private Notes as securities eligible for trading in the PORTAL market of the NASD. However, the Exchange Notes are new securities for which there is currently no market. While the Company intends to apply for listing of the Exchange Notes on the New York Stock Exchange, there can be no assurance that an active trading market for the Exchange Notes will develop or if such market develops, as to the liquidity or sustainability of any such market. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Exchange Notes. There can be no assurance that, if a market for the Exchange Notes were to develop, such a market would not be subject to similar disruptions. FAILURE TO EXCHANGE PRIVATE NOTES The Exchange Notes will be issued in exchange for Private Notes only after timely receipt by the Exchange Agent of such Private Notes, a properly completed and duly executed Letter of Transmittal and all other required documentation. Therefore, holders of Private Notes desiring to tender such Private Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor the Company is under any duty to give notification of defects or irregularities with respect to tenders of Private Notes for exchange. Private Notesoriginal notes. Original notes that are not tendered or are tendered but not accepted will, following ~~consummation~~the exchange offer, continue to be subject to existing restrictions.
You cannot be sure that an active trading market for the exchange notes will develop.
There is no existing market for the exchange notes. We do not intend to apply for a listing of the ~~Exchange Offer,~~exchange notes on any securities exchange. We do not know if an active public market for the exchange notes will develop or, if developed, will continue. If an active public market does not develop or is not maintained, the market price and liquidity of the exchange notes may be adversely affected. We cannot make any assurances regarding the liquidity of the market for the exchange notes, the ability of holders to sell their exchange notes or the price at which holders may sell their exchange notes. In addition, the liquidity and the market price of the exchange notes may be adversely affected by changes in the overall market for securities similar to the exchange notes, by changes in our financial performance or prospects and by changes in conditions in our industry.
You must follow the appropriate procedures to tender your original notes or they will not be exchanged.
The exchange notes will be issued in exchange for the original notes only after timely receipt by the exchange agent of the original notes or a book-entry confirmation related thereto, a properly completed and executed letter of transmittal or an agent’s message and all other required documentation. If you want to tender your original notes in exchange for exchange notes, you should allow sufficient time to ensure timely delivery. Neither we nor the exchange agent are under any duty to give you notification of defects or irregularities with respect to tenders of original notes for exchange. Original notes that are not tendered or are tendered but not accepted will, following the exchange offer, continue to be subject to the existing ~~restrictions upon~~ transfer ~~thereof.~~restrictions. In addition, ~~any holder of Private Notes who tenders~~if you tender the original notes in the ~~Exchange Offer for the purpose of participating~~exchange offer to participate in a distribution of the ~~Exchange Notes~~exchange notes, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. ~~Each broker-dealer who holds Private~~For additional information, please refer to the sections entitled “The Exchange Offer” and “Plan of Distribution” later in this prospectus.
Risks Relating to the Notes ~~acquired~~
We will be able to incur substantially more debt, which could adversely affect our cash flow and prevent us from fulfilling our obligations under the Notes.
We may be able to incur additional debt in the future. The terms of our existing revolving credit agreement and the indenture governing the Notes will allow us to incur substantial amounts of additional debt, subject to certain limitations. As of August 1, 2015, assuming we had completed the offering of the original notes, and the repurchase or redemption of all of the 7⅛% Notes described in this prospectus as of such date, we would have had $200.0 million of total debt, as well as $6.3 million of secured letters of credit under our revolving credit facility, and our existing revolving credit agreement would have permitted additional borrowings of up to $593.7 million. In addition, the revolving credit agreement provides for up to an additional $150.0 million of optional availability pursuant to a provision commonly referred to as an “accordion feature,” subject to the satisfaction of certain conditions.

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If substantial new debt is added to our current levels, it could have important consequences to you. For example, it could:
make it more difficult for us to satisfy our obligations under the Notes;
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future capital expenditures, working capital and other general corporate requirements;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
place us at a competitive disadvantage compared with competitors that have less debt; and
limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity.
In addition, borrowings under our existing revolving credit agreement bear interest at variable rates. If market interest rates increase, we will have higher debt service requirements, which could adversely affect our cash flow. While we may enter into agreements limiting our exposure to higher interest rates, any such agreements may not offer complete protection from this risk.
Although the Notes are referred to as “senior notes,” they will be effectively subordinated to our and the subsidiary guarantors’ secured debt.
The Notes, and each guarantee of the Notes, are unsecured and therefore will be effectively subordinated to any secured debt we, or the relevant guarantor, may incur to the extent of the assets securing such debt. In the event of a bankruptcy or similar proceeding involving us or a guarantor, the assets which serve as collateral for any secured debt will be available to satisfy the obligations under the secured debt before any payments are made on the Notes. As of August 1, 2015, assuming we had completed the offering of the original notes, and the repurchase or redemption of all of the 7⅛% Notes described in this prospectus as of such date, we would have had no borrowings and $6.3 million in letters of credit outstanding under our secured revolving credit facility, and up to $593.7 million of additional availability under that facility. The Notes will be effectively subordinated to any borrowings under our existing revolving credit agreement and future secured debt. See “Description of Certain Indebtedness.” The indenture governing the Notes will allow us to incur a substantial amount of additional secured debt.
Not all of our subsidiaries will guarantee the Notes, and the assets of our non-guarantor subsidiaries may not be available to make payments on the Notes.
The guarantors of the Notes will not include all of our subsidiaries. On the issue date of the Notes, only Sidney Rich Associates, Inc. and BG Retail, LLC will guarantee the Notes. Thereafter, the indenture governing the Notes will only require our restricted subsidiaries that guarantee other indebtedness of the Company or our domestic subsidiaries to provide a guarantee of the Notes. Under certain circumstances, including release under our revolving credit facility, the indenture governing the Notes will permit release of the guarantees of the Notes. Payments on the Notes are only required to be made by us and the subsidiary guarantors. As a result, no payments are required to be made from assets of subsidiaries that do not guarantee the Notes, unless those assets are transferred by dividend or otherwise to us or a subsidiary guarantor. In fiscal year 2014, our non-guarantor subsidiaries had net sales of $329.8 million, or 12.8% of our consolidated net sales for such period, and earnings before income taxes of $46.6 million, or 42.3% of our consolidated earnings before income taxes for such period. At August 1, 2015, our non-guarantor subsidiaries had total assets of $694.1 million (or $165.2 million excluding intercompany receivables and investment in subsidiaries).
In the event that any non-guarantor subsidiary becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of its ~~own account~~debt and its trade creditors generally will be entitled to payment on their claims from the assets of that subsidiary before any of those assets are made available to us. Consequently, your claims in respect of the Notes will be effectively subordinated to all of the liabilities of our non-guarantor subsidiaries, including trade payables. As of August 1, 2015, our non-guarantor subsidiaries had approximately $56.4 million of third-party liabilities (exclusive of intercompany debt).

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To service our debt, we will require a significant amount of cash, which may not be available to us.
Our ability to make payments on, or repay or refinance, our debt, including the Notes, and to fund our operations and our planned capital expenditures, will depend largely upon our future operating performance. Our future performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on the satisfaction of the covenants in our existing revolving credit agreement and our other debt agreements, including the indenture governing the Notes, and other agreements we may enter into in the future. Specifically, our ability to borrow under our existing revolving credit agreement is limited to the lesser of the total commitments and the borrowing base, which is based on stated percentages of the sum of eligible accounts receivable and inventory, as defined, less applicable reserves. In addition, if excess availability under this facility falls below the greater of (i) 10.0% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $50.0 million, we will be subject to minimum fixed charge coverage ratio requirements. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our existing revolving credit agreement or from other sources in an amount sufficient to enable us to pay our debt, including the Notes, or to fund our other liquidity needs.
In addition, prior to the repayment of the Notes, we will be required to refinance our existing revolving credit facility. We cannot assure you that we will be able to refinance any of our debt, including our existing revolving credit facility, on commercially reasonable terms or at all. If we were unable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as:
sales of assets;
sales of equity; and/or
negotiations with our lenders to restructure the applicable debt.
Our existing revolving credit agreement, any future credit agreements we may enter into from time to time and the indenture governing the Notes may restrict, or market or business conditions may limit, our ability to do some of these things.
If we are unable to meet our debt service obligations under the Notes or our revolving credit facility, the holders of the Notes and the lenders under our revolving credit facility would have the right, following the applicable cure periods, to cause the entire principal amount of such obligations to become immediately due and payable. If the amounts outstanding under these instruments are accelerated, we cannot assure you that our assets will be sufficient to repay in full the money owed to the lenders under our revolving credit facility or holders of the Notes.
The agreements governing our debt, including the Notes and our existing revolving credit agreement, contain various covenants that impose restrictions on us that may affect our ability to operate our business and to make payments on the Notes.
Our existing agreements impose and future financing agreements are likely to impose, operating and financial restrictions on our activities. These restrictions require us, under certain circumstances, to maintain a minimum fixed charge coverage ratio, and limit or prohibit our ability to, among other things:
incur additional debt and issue preferred stock;
create liens;
redeem and/or prepay certain debt;
pay dividends on our stock or repurchase stock;
make certain investments;
engage in specified sales of assets;
enter into transactions with affiliates;

14

enter new lines of business;
engage in consolidations, mergers and acquisitions;
make certain capital expenditures; and
restrict our subsidiaries’ ability to pay dividends and make other distributions.

These restrictions on our ability to operate our business could seriously harm our business by, among other things, limiting our ability to take advantage of financing, mergers and acquisitions and other corporate opportunities.
Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and maintain these financial ratios. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity for the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under the Notes. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing.
The guarantees may not be enforceable because of fraudulent conveyance laws.
The guarantors’ guarantees of the Notes may be subject to review under federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy lawsuit is commenced by or on behalf of our or the guarantors’ unpaid creditors. Under these laws, if in such a lawsuit a court were to find that, at the time a guarantor incurred debt (including debt represented by the guarantee), such guarantor:
incurred this debt with the intent of hindering, delaying or defrauding current or future creditors; or
received less than reasonably equivalent value or fair consideration for incurring this debt and the guarantor:
was insolvent or was rendered insolvent by reason of the related financing transactions;
was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business; or
intended to incur, or believed that it would incur, debts beyond its ability to pay these debts as they mature, as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes,
then the court could void the guarantee or subordinate the amounts owing under the guarantee to the guarantor’s presently existing or future debt or take other actions detrimental to you.
The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, an entity would be considered insolvent if, at the time it incurred the debt or issued the guarantee:
it could not pay its debts or contingent liabilities as they become due;
the sum of its debts, including contingent liabilities, is greater than its assets, at fair valuation; or
the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities, including contingent liabilities, as they become absolute and mature.
If a guarantee is voided as a fraudulent conveyance or found to be unenforceable for any other reason, you will not have a claim against that obligor and will only be our creditor or that of any guarantor whose obligation was not set aside or found to be

15

unenforceable. In addition, the loss of a guarantee will constitute a default under the indenture, which default would cause all outstanding Notes to become immediately due and payable.

We believe that, at the time the guarantors initially incur the debt represented by the guarantees, the guarantors:
will not be insolvent or rendered insolvent by the incurrence;
will have sufficient capital to run our or their businesses effectively; and
will be able to pay obligations on the Notes and the guarantees as they mature or become due.
In reaching the foregoing conclusions we have relied upon our analyses of internal cash flow projections and estimated values of the assets and liabilities of the guarantors. In addition, we have relied on a limitation to be contained in the guarantors’ guarantees that limits each guarantee as necessary to prevent it from constituting a fraudulent conveyance under applicable law. However, a court passing on these questions might not reach the same conclusions. For example, a bankruptcy court decision in Florida recently questioned the validity of such a savings clause in a guarantee.
We may be unable to make a change of control offer required by the indenture governing the Notes, which would cause defaults under the indenture governing the Notes, our existing revolving credit agreement and our other financing arrangements.
The terms of the Notes will require us to make an offer to repurchase the Notes upon the occurrence of a change of control at a purchase price equal to 101% of the principal amount of the Notes, plus accrued interest to the date of the purchase. The terms of our existing revolving credit agreement will require, and other financing arrangements may require, repayment of amounts outstanding in the event of a change of control and limit our ability to fund the repurchase of your Notes in certain circumstances. It is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of Notes or that restrictions in our existing revolving credit agreement and other financing agreements will not allow the repurchases. See “Description of Exchange Notes-Repurchase at the Option of Holders-Change of Control.”
Holders of the Notes may not be able to determine when a change of control giving rise to their right to have the Notes repurchased has occurred following a sale of “substantially all” of our properties and assets.
The definition of change of control in the indenture will include a phrase relating to the sale of “all or substantially all” of our properties and assets. There is no precise established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of Notes to require us to repurchase its Notes as a result of ~~market-making~~a sale of less than all our properties and assets to another person may be uncertain.
An active public market may not develop for the Notes, which may hinder your ability to liquidate your investment.
The Notes are a new issue of securities with no established trading market, and we do not intend to list them on any securities exchange. The liquidity of the trading market in the Notes, and the market price quoted for the Notes, may be adversely affected by changes in the overall market for fixed income securities and by changes in our financial performance or prospects or in the prospects for companies in our industry in general. As a result, we cannot assure you that an active trading market will develop for the Notes. If no active trading market develops, you may not be able to resell your Notes at their fair market value or at all.
If the Notes are rated investment grade certain covenants contained in the indenture will be suspended and you will lose the protection of these covenants unless or until the Notes subsequently are rated below investment grade.
The indenture contains certain covenants that will be suspended for so long as the Notes are rated investment grade. These covenants restrict, among other things, our and our restricted subsidiaries’ ability to, among other things:
make restricted payments;
incur debt;
engage in transactions with affiliates; and

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engage in certain sales of assets and make offers to repurchase Notes.
Because these restrictions will not apply when the Notes are rated investment grade, we may be able to incur additional debt and consummate transactions that may impair our ability to satisfy our obligations with respect to the Notes. In addition, we would not be required to make an offer to repurchase the Notes with the excess proceeds of any asset sales during the suspension of the covenant restricting our ability to engage in certain asset sales. These covenants will only be restored if the credit ratings assigned to the Notes later fall below investment grade and actions taken while the Notes were rated investment grade will remain in effect. See “Description of Exchange Notes-Certain Covenants-Limitation of Applicability of Certain Covenants if Notes Rated Investment Grade.”
Risks Relating to Our Business
Consumer demand for our products may be adversely impacted by economic conditions and other factors.
Worldwide economic conditions continue to be uncertain. Consumer confidence and spending are strongly influenced by general economic conditions and other factors, including fiscal policy, changing tax and regulatory environment, interest rates, inflation, consumer debt levels, the availability of consumer credit, the liquidity of consumers’ assets, health care costs, currency exchange rates, taxation, energy costs, real estate values, foreclosure rates, unemployment trends, weather conditions, and the economic consequences of military action or terrorist activities. Negative economic conditions generally decrease disposable income and, consequently, consumer purchases of discretionary items like our products. Negative trends in economic conditions also drive up the cost of our products, which may require us to increase our product prices. These increases in our product costs, and possibly prices, may not be offset by comparable increases in consumer disposable income. As a result, our customers may choose to purchase fewer of our products or purchase the lower-priced products of our competitors, and our business, results of operations, financial condition and cash flows could be adversely affected.

If we are unable to anticipate and respond to consumer preferences and fashion trends and successfully apply new technology, we may not be able to maintain or increase our net sales and earnings.
The footwear industry is subject to rapidly changing consumer demands and fashion trends. Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. Accordingly, the success of both our wholesale and retail operations depends largely on our ability to anticipate, understand and react to changing consumer demands and preferences. If we fail to successfully anticipate and respond to changes in consumer demand and fashion trends, develop new products and designs, and implement effective, responsive merchandising and marketing strategies and programs, we could experience lower sales, excess inventories and lower gross margins, any of which could have an adverse effect on our results of operations and financial condition.
We operate in a highly competitive industry.
Competition is intense in the footwear industry. Certain of our competitors are larger and have greater financial, marketing and technological resources than we do; others are able to offer footwear on a lateral basis alongside their apparel products; and others have successfully branded their trademarks as lifestyle brands, resulting in greater competitive advantages. Low barriers to entry into this industry further intensify competition by allowing new companies to easily enter the markets in which we compete. Some of our suppliers further compound these competitive pressures by allowing consumers to purchase their products directly through supplier-maintained Internet sites and retail stores. In addition, retailers aggressively compete on the basis of price, which puts competitive pressure on us to keep our wholesale prices low.
We believe that our ability to compete successfully in the footwear industry depends on a number of factors, including style, price, performance, quality, location and service, as well as the strength of our brand names. We remain competitive by increasing awareness of our brands, improving the efficiency of our supply chain and enhancing the style, comfort, fashion and perceived value of our products. However, our competitors may implement more effective marketing campaigns, adopt more aggressive pricing policies, make more attractive offers to potential employees, distribution partners and manufacturers, or respond more quickly to changes in consumer preferences than us. As a result, we may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced gross margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand the development and marketing of our products, which could adversely impact our financial results.

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We rely on foreign sources of production, which subjects our business to risks associated with international trade.
We rely on foreign sourcing for our footwear products through third-party manufacturing facilities primarily located in China. As is common in the industry, we do not have any long-term contracts with our third-party foreign manufacturers. Foreign sourcing is subject to numerous risks, including trade relations, work stoppages, disease outbreaks, transportation delays (including delays at foreign and domestic ports) and costs (including customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions or other ~~trading activities~~trade restrictions), political instability, foreign currency fluctuations, variable economic conditions, expropriation, nationalization, natural disasters, terrorist acts and ~~who receives Exchange Notes for its own account~~military conflict and changes in ~~exchange for such Private Notes pursuant~~governmental regulations (including the U.S. Foreign Corrupt Practices Act and climate change legislation). At the same time, potential changes in Chinese manufacturing preferences, including, but not limited to the ~~Exchange Offer, must acknowledge~~following, pose additional risk and uncertainty:
Manufacturing capacity in China may shift from footwear to other industries with manufacturing margins that are perceived to be higher.
Growth in domestic footwear consumption in China could lead to a significant decrease in factory space available for the manufacture of footwear to be exported.
Some footwear manufacturers in China continue to face labor shortages as migrant workers seek better wages and working conditions in other industries and locations.

As a result of these risks, there can be no assurance that we will not experience reductions in the available production capacity, increases in our manufacturing costs, late deliveries or terminations of our supplier relationships. Furthermore these risks are compounded by the lack of diversification in the geographic location of our foreign sourcing and manufacturing. With almost all of our supply originating in China, a substantial portion of our supply could be at risk in the event of any significant negative development related to China.
Although we believe we could find alternative manufacturing sources for the products that we currently source from China through other third-party manufacturing facilities in China or other countries, we may not be able to locate alternative manufacturers on terms as favorable as our current terms, including pricing, payment terms, manufacturing capacity, quality standards and lead times for delivery. In addition, there is substantial competition in the footwear industry for quality footwear manufacturers. Accordingly, our future results will partly depend on our ability to maintain positive working relationships with, and offer competitive terms to, our foreign manufacturers. If supply issues cause us to be unable to provide products consistent with our standards or manufacture our footwear in a cost and time efficient manner, our customers may cancel orders, refuse to accept deliveries or demand reductions in purchase prices, any of which could have a material adverse effect on our business and results of operations.
Our operating results depend on preparing accurate sales forecasts and properly managing our inventory levels.
Using sales forecasts, we place orders with manufacturers for some of our products prior to the time we receive all of our customers’ orders to minimize purchasing costs, the time necessary to fill customer orders and the risk of non-delivery. We also maintain an inventory of certain products that we anticipate will be in greater demand. At the retail level, we place orders for product many months in advance of our key selling seasons. Adverse economic conditions and rapidly changing consumer preferences can make it difficult for us and our retail customers to accurately forecast product trends in order to match production with demand. If we fail to accurately assess consumer fashion tastes and the impact of economic factors on consumer spending or to effectively differentiate our retail and wholesale offerings, our inventory levels may exceed customer demand, resulting in inventory write-downs, higher carrying costs, lower gross margins or the sale of excess inventory at discounted prices, which could significantly impair our financial results. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply the quality products that we require in a timely manner, we may experience inventory shortages. Inventory shortages may delay shipments to customers (and possibly require us to offer discounts or costly expedited shipping), negatively impact retailer and distributor relationships, adversely impact our sales results and diminish brand awareness and loyalty.
A cybersecurity breach may adversely affect our sales and reputation.
We routinely possess sensitive consumer and associate information. We also provide certain customer and employee data to third parties for analysis, benefit distribution or compliance purposes. While we believe we have taken reasonable and appropriate steps to protect that information, hackers and data thieves operate sophisticated, large scale attacks that could breach our information systems, despite ongoing security measures. In addition, we are required to comply with increasingly complex regulations designed to protect our

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business and personal data. Any breach of our network security, a third-party’s network security or failure to comply with applicable regulations may result in (a) the loss of valuable business data and/or our consumers’ or associates’ personal information, (b) increased costs associated with implementing additional protections and processes, (c) a disruption of our business and a loss of sales, (d) negative media attention, (e) damage to our consumer and associate relationships and reputation, and (f) fines or lawsuits.
We are reliant upon our information technology systems, and any major disruption of these systems could adversely impact our ability to effectively operate our business.
Our computer network and systems are essential to all aspects of our operations, including design, pricing, production, forecasting, ordering, manufacturing, transportation, sales and distribution. Our ability to manage and maintain our inventory and to deliver products in a timely manner depends on these systems. If any of these systems fails to operate as expected, we experience problems with transitioning to upgraded or replacement systems, a breach in security occurs or a natural disaster interrupts system functions, we may experience delays in product fulfillment and reduced efficiency in our operations or be required to expend significant capital to correct the problem, which may have an adverse effect on our results of operations and financial condition.
Customer concentration and other trends in customer behavior may lead to a reduction in or loss of sales.
Our wholesale customers include national chains, department stores, mass merchandisers, independent retailers, e-commerce retailers and catalogs. Several of our customers operate multiple department store divisions. Furthermore, we often sell multiple types of branded, licensed and private-label footwear to these same customers. While we believe purchasing decisions in many cases are made independently by the buyers and merchandisers of each of the customers, a decision by a significant customer to decrease the amount of footwear products purchased from us could have a material adverse effect on our business, financial condition or results of operations.
In addition, with the growing trend toward retail trade consolidation, we and our wholesale customers increasingly depend upon a reduced number of key retailers whose bargaining strength is growing. This consolidation may result in the following adverse consequences:
Our wholesale customers may seek more favorable terms for their purchases of our products, which could limit our ability to raise prices, recoup cost increases or achieve our profit goals.
The number of stores that carry our products could decline, thereby exposing us to a greater concentration of accounts receivable risk and negatively impacting our brand visibility.
We also face the following risks with respect to our customers:
Our customers could develop in-house brands or utilize a higher mix of private-label footwear products, which would negatively impact our sales.
As we sell our products to customers and extend credit based on an evaluation of each customer’s financial condition, the financial difficulties of a customer could cause us to stop doing business with that customer, reduce our business with that customer or be unable to collect from that customer.
If any of our major wholesale customers experiences a significant downturn in its business or fails to remain committed to our products or brands, then these customers may reduce or discontinue purchases from us.
Retailers are sourcing more of their products directly from manufacturers overseas and reducing their reliance on wholesalers, which could have a material adverse effect on our business and results of operations.
A disruption in the effective functioning of our distribution centers could adversely affect our ability to deliver inventory on a timely basis.
We currently use several distribution centers, which are leased or third-party managed. These distribution centers serve as the source of replenishment of inventory for our footwear stores operated by our Famous Footwear and Brand Portfolio segments and serve the wholesale operations of our Brand Portfolio segment. We may be unable to successfully manage, negotiate or renew our third-party distribution center agreements, or we may experience complications with respect to our distribution centers, such as substantial damage to, or destruction of, such facilities due to natural disasters or ineffective information technology systems. In such an event, our other

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distribution centers may not be able to support the resulting additional distribution demands and we may be unable to locate alternative persons or entities capable of fulfilling our distribution needs, resulting in an adverse effect on our ability to deliver inventory on a timely basis.
Our success depends on our ability to retain senior management and recruit and retain other key associates.
Our success depends on our ability to attract, retain and motivate qualified management, administrative, product development and sales personnel to support existing operations and future growth. In addition, our ability to successfully integrate acquired businesses often depends on our ability to retain incumbent personnel, many of whom possess valuable institutional knowledge and operating experience. Competition for qualified personnel in the footwear industry is intense and we compete for these individuals with other companies that in many cases have superior financial and other resources. The loss of the services of any member of our senior management, the inability to attract and retain other qualified personnel or the inability to effectively transition senior management positions could adversely affect the sales, design and production of our products as well as the implementation of our strategic initiatives.
Foreign currency fluctuations may result in higher costs and decreased gross profits.
Although we purchase most of our products from foreign manufacturers in United States dollars and otherwise engage in foreign currency hedging transactions, we cannot ensure that we will ~~deliver~~not experience cost variations with respect to exchange rate changes. Currency exchange rate fluctuations may also adversely impact third parties who manufacture the Company’s products by making their purchases of raw materials or other production costs more expensive and more difficult to finance, resulting in higher prices and lower margins for the Company, its distributors and licensees.
Our business, sales and brand value could be harmed by violations of labor, trade or other laws.
We focus on doing business with those suppliers who share our commitment to responsible business practices and the principles set forth in our Production Code of Conduct (the “PCOC”). By requiring our suppliers to comply with the PCOC, we encourage our suppliers to promote best practices and work toward continual improvement throughout their production operations. The PCOC sets forth standards for working conditions and other matters, including compliance with applicable labor practices, workplace environment and compliance with laws. Although we promote ethical business practices, we do not control our suppliers or their labor practices. A failure by any of our suppliers to adhere to these standards or laws could cause us to incur additional costs for our products, could cause negative publicity and harm our business and reputation. We also require our suppliers to meet our standards for product safety, including compliance with applicable laws and standards with respect to safety issues, including lead content in paint. Failure by any of our suppliers to adhere to product safety standards could lead to a ~~prospectus~~product recall, which could result in critical media coverage, harm our business and reputation, and cause us to incur additional costs.
In addition, if we, or our suppliers or foreign manufacturers, violate United States or foreign trade laws or regulations, we may be subject to additional duties, significant monetary penalties, the seizure and forfeiture of the products we are attempting to import or the loss of our import privileges. Possible violations of United States or foreign laws or regulations could include inadequate record keeping of our imported products, misstatements or errors as to the origin, classification, marketing or valuation of our imported products, fraudulent visas or labor violations. The effects of these factors could render our conduct of business in a particular country undesirable or impractical and have a negative impact on our operating results.
Our retail business depends on our ability to secure affordable and desirable leased locations without creating a competitive concentration of stores.
The success of the retail business within our Famous Footwear and Brand Portfolio segments depends, in part, on our ability to secure affordable, long-term leases in desirable locations for our leased retail footwear stores and to secure renewals of such leases. No assurance can be given that we will be able to successfully negotiate lease renewals for existing stores or obtain acceptable terms for new stores in desirable locations. In addition, opening new Famous Footwear stores in our existing markets may result in reduced net sales in existing stores as our stores become more concentrated in the markets we serve. As a result, the number of consumers and financial performance of individual stores may decline and the average sales per square foot at our stores may be reduced.

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Our reputation and competitive position are dependent on our ability to license well-recognized brands, license our own brands under successful licensing arrangements and protect our intellectual property rights.
Licenses—Company as Licensee
Although we own most of our wholesale brands, we also rely on our ability to attract, retain and maintain good relationships with licensors that have strong, well-recognized brands and trademarks. Our license agreements are generally for an initial term of two to four years, subject to renewal, and there can be no assurance that we will be able to renew these licenses. Even our longer-term or renewable licenses are typically dependent upon our ability to market and sell the licensed products at specified levels, and the failure to meet such levels may result in the termination or non-renewal of such licenses. Furthermore, many of our license agreements require minimum royalty payments, and if we are unable to generate sufficient sales and profitability to cover these minimum royalty requirements, we may be required to make additional payments to the licensors that could have a material adverse effect on our business and results of operations. In addition, because certain of our license agreements are non-exclusive, new or existing competitors may obtain licenses with overlapping product or geographic terms, resulting in increased competition for a particular market.
Licenses—Company as Licensor
We have entered into numerous license agreements with respect to the brands and trademarks that we own. While we have significant control over our licensees’ products and advertising, we generally cannot control their operational and financial issues. If our licensees are not able to meet annual sales and royalty goals, obtain financing, manage their supply chain, control quality and maintain positive relationships with their customers, our business, results of operations and financial position may be adversely affected. While we would likely have the ability to terminate an underperforming license, it may be difficult and costly to locate an acceptable substitute distributor or licensee, and we may experience a disruption in our sales and brand visibility. In addition, although many of our license agreements prohibit the licensees from entering into licensing arrangements with certain of our competitors, they are generally not prohibited from offering, under other brands, the types of products covered by their license agreements with us.
Trademarks
We believe that our trademarks and trade names are important to our success and competitive position because our distinctive marks create a market for our products and distinguish our products from other products. We cannot, however, guarantee that we will be able to secure protection for our intellectual property in the future or that such protection will be adequate for future operations. Furthermore, we face the risk of ineffective protection of intellectual property rights in jurisdictions where we source and distribute our products, some of which do not protect intellectual property rights to the same extent as the United States. If we are unsuccessful in challenging a party’s products on the basis of infringement of our intellectual property rights, continued sales of these products could adversely affect our sales, devalue our brands and result in a shift in consumer preference away from our products. We may face significant expenses and liability in connection with ~~any resale~~the protection of ~~such Exchange Notes. To the extent that Private Notes~~our intellectual property rights, and if we are ~~tendered~~unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition could be adversely affected.

If we are unable to maintain working relationships with our major branded suppliers, our business, results of operations, financial condition and ~~accepted~~cash flows may be adversely impacted.
Our Famous Footwear segment purchases a substantial portion of its footwear products from major branded suppliers. As is common in the ~~Exchange Offer,~~industry, we do not have any long-term contracts with our suppliers. In addition, the success of our financial performance is dependent on the ability of our Famous Footwear segment to obtain products from our suppliers on a timely basis and on acceptable terms. While we believe our relationships with our current suppliers are good, the loss of any of our major suppliers or product developed exclusively for our Famous Footwear stores could have a material adverse effect on our business, financial condition and results of operations. In addition, negative trends in global economic conditions may adversely impact our suppliers. If these third parties do not perform their obligations or are unable to provide us with the materials and services we need at prices and terms that are acceptable to us, our ability to meet our consumers’ demand could be adversely affected.

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Our quarterly sales and earnings may fluctuate, and securities analysts may not accurately estimate our financial results, which may result in volatility in, or a decline in, the trading price of our securities.
Our quarterly sales and earnings can vary due to a number of factors, many of which are beyond our control, including the following:
Our Famous Footwear retail business is seasonally weighted to the back-to-school season, which falls in our third fiscal quarter. As a result, the success of our back-to-school offering, which is affected by our ability to anticipate consumer demand and fashion trends, could have a disproportionate impact on our full year results.
In our wholesale business, sales of footwear are dependent on orders from our major customers, and they may change delivery schedules, change the mix of products they order or cancel orders without penalty.
Our wholesale customers set the delivery schedule for shipments of our products, which could cause shifts of sales between quarters.
Our estimated annual tax rate is based on projections of our domestic and international operating results for the year, which we review and revise as necessary each quarter.
Our earnings are also sensitive to a number of factors that are beyond our control, including manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, consumer sentiment and currency exchange rate fluctuations.
As a result of these specific and other general factors, our operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of our common stock.
In addition, various securities analysts follow our financial results and issue reports on us. These reports include information about our historical financial results as well as the analysts’ estimates of our future performance. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and investors, the trading price of our securities could decline.
Changes in tax laws, policies and treaties could result in higher taxes, lower profitability, and increased volatility in our financial results.
Our financial results are significantly impacted by our effective tax rates, for ~~untendered~~both domestic and ~~tendered but unaccepted Private Notes~~international operations. Our effective income tax rate could be adversely affected ~~due to~~by factors such as changes in the ~~limited amount,~~mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in permitted deductions, changes in tax laws, interpretations, policies and treaties, the outcome of income tax audits in various jurisdictions and any repatriation of earnings from our international operations. The occurrence of such events may result in higher taxes, lower profitability and increased volatility in our financial results.
Transitional challenges with business acquisitions or ~~``float,'' of the Private Notes that are expected to remain outstanding following the Exchange Offer. Generally, a lower ``float'' of a security~~divestitures could result in ~~less demand~~the inability to ~~purchase~~achieve our strategic and operating goals.
Periodically, we pursue acquisitions of other companies or businesses and divestitures of businesses. In either case, we may not achieve our strategic and operating goals through such ~~security~~activity. For example, although we review the records of acquisition candidates, the review may not reveal all existing or potential problems. As a result, we may not accurately assess the value of the business and may, accordingly, ultimately assume unknown adverse operating conditions and/or unanticipated liabilities. In addition, the acquired business may not perform as well as expected. We face the risk that the returns on acquisitions will not support the expenditures or indebtedness incurred to acquire or launch such businesses. We also face the risk that we will not be able to integrate acquisitions into our existing operations effectively. Integration of new businesses may be hindered by, among other things, differing procedures, including internal controls, business practices and technology systems. We may need to allocate more management resources to integration than we planned, which may adversely affect our ability to pursue other profitable activities. In addition, divesting a business may impede progress toward strategic and operating goals. In connection with a divestiture, we may not successfully divest a business

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without substantial interruption, expense, delay or other operational or financial problems, which may adversely affect our financial condition and results of operations.
We are subject to periodic litigation and other regulatory proceedings, which could ~~therefore,~~ result in ~~lower prices for such security. For~~ the ~~same reason,~~unexpected expenditure of time and resources.
We are a defendant from time to time in lawsuits and regulatory actions (including environmental matters) relating to our business and to our past operations. Due to the ~~extent~~inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse impact on our business, financial condition and results of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and will require that ~~a large amount~~we devote substantial resources and executive time to defend, thereby diverting management’s attention and resources that are needed to successfully run our business. See Item 3, Legal Proceedings, of ~~Private Notes are not tendered or are tendered and not accepted in the Exchange Offer, the trading market~~our Annual Report on Form 10-K for the ~~Exchange Notes~~fiscal year ended January 31, 2015, which is incorporated by reference herein, for further discussion of pending matters.
Our business, results of operations, financial condition and cash flows could be adversely ~~affected. See ``Plan~~affected by the failure of ~~Distribution'' and ``The Exchange Offer.'' 17~~ ~~19 NO CASH PROCEEDS TO THE COMPANY This Exchange Offer~~financial institutions to fulfill their commitments under our credit agreement.
Our Credit Agreement (as defined in “Description of Other Indebtedness”), which matures on December 18, 2019, is ~~intended~~provided by a syndicate of financial institutions, with each institution agreeing severally (and not jointly) to ~~satisfy certain obligations~~make revolving credit loans to us in an aggregate amount of up to $600.0 million in accordance with the terms of the ~~Company~~Credit Agreement. In addition, the Credit Agreement provides for up to an additional $150.0 million of optional availability pursuant to a provision commonly referred to as an “accordion feature.” As of August 1, 2015, after giving effect to the offering of the original notes, and the repurchase or redemption of all of the 7⅛% Notes described in this prospectus, we would have had no borrowings, $6.3 million of letters of credit outstanding under our revolving credit facility and $593.7 million available for borrowing thereunder. If one or more of the financial institutions participating in the senior secured revolving credit facility were to default on its obligation to fund its commitment, the portion of the facility provided by such defaulting financial institution might not be available to us.
If we are unable to maintain our credit rating, our ability to access capital and interest rates may be negatively impacted.
The credit rating agencies periodically review our capital structure and the quality and stability of our earnings. Any negative ratings actions could constrain the capital available to our company or our industry and could limit our access to long-term funding or cause such access to be available at a higher borrowing cost for our operations. We are dependent upon our ability to access capital at rates and on terms we determine to be attractive. If our ability to access capital becomes constrained, our interest expense will likely increase, which could adversely affect our financial condition and results of operations.

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THE TRANSACTIONS
The Tender Offer and Subsequent Redemption of the 7⅛% Notes
We have used the net proceeds from the private placement of the original notes, together with cash on hand, to fund the repurchase of all of our then existing 7⅛% Notes, of which approximately $200 million principal amount was outstanding prior to the launch of the Tender Offer.
In the Tender Offer, we paid $1,039.50 per $1,000 principal amount of the $160,704,000 aggregate principal amount of the 7⅛% Notes that were validly tendered at or prior to 5:00 p.m., New York City time, on July 24, 2015 (the “Expiration Time”). On August 26, 2015, we redeemed the remaining $39,296,000 aggregate principal amount7⅛% Notes that were not tendered and accepted as part of the Tender Offer.
The Offering of the Original Notes and the Exchange Offer
In connection with the Tender Offer and subsequent redemption of the 7⅛% Notes described above, we completed the private placement of $200 million of our 6.250% Senior Notes due 2023 on July 27, 2015. The original notes are, and the exchange notes we are offering in the exchange offer will be, initially guaranteed by each of our subsidiaries that is an obligor or guarantor under our existing revolving credit facility. Simultaneously with the private placement of the original notes, the subsidiary guarantors and Caleres entered into a registration rights agreement on July 27, 2015 with the initial purchasers of the original notes. Under the registration rights agreement, we were obligated to file the registration statement (of which this prospectus is a part) on or before November 24, 2015, use our commercially reasonable efforts to cause such registration statement to become effective no later than February 22, 2016, and, when such registration statement is effective, deliver this prospectus to the holders of the original notes. We must use our commercially reasonable efforts to complete the exchange offer on or before the date that is 30 business days after the effective date of such registration statement. If we do not meet our obligations under the ~~Registration Rights Agreement. The Company~~registration rights agreement, we must pay liquidated damages to the holders of the original notes until we have cured our default. Pursuant to the exchange offer, you may exchange your original notes for exchange notes, which have substantially the same terms as the original notes. You should read the discussion under the heading “Prospectus Summary-Summary of Terms of Exchange Notes” and “Description of Exchange Notes” for further information regarding the exchange notes.

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USE OF PROCEEDS

We will not receive ~~any~~cash proceeds from the issuance of the ~~Exchange Notes offered hereby and has agreed to pay~~exchange notes under the ~~expenses of the Exchange Offer.~~exchange offer. In consideration for issuing the ~~Exchange Notes~~exchange notes in exchange for the original notes as ~~contemplated~~described in this ~~Prospectus, the Company~~prospectus, we will receive notes of equal principal amount. The original notes surrendered in exchange ~~Private Notes~~for the exchange notes will be retired and cancelled.

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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges and for the periods indicated.
Fiscal Year Ended Twenty-six Weeks Ended
January 29,
2011
January 28,
2012
February 2,
2013
February 1,
2014
January 31,
2015
August 2,
2014
August 1,
2015
Ratio of earnings to fixed charges⁽¹⁾
1.98x
1.08x
2.00x
2.55x
3.25x
3.02x
3.12x
(1)    For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before income taxes and fixed charges, and fixed charges consist of interest expense, capitalized interest, amortization of debt issuance costs and the portion of operating lease rentals deemed representative of the interest factor.

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DESCRIPTION OF CERTAIN INDEBTEDNESS
Existing Revolving Credit Agreement
General
On December 18, 2014, we and certain of our subsidiaries (the “Loan Parties”) entered into a Fourth Amended and Restated Credit Agreement, which was further amended on July 20, 2015 to release all of our subsidiaries that were borrowers under or that guaranteed the Credit Agreement other than Sidney Rich Associates, Inc. and BG Retail, LLC (as so amended, the “Credit Agreement”). After giving effect to the amendment, Caleres, Inc. is the lead borrower, and Sidney Rich Associates, Inc. and BG Retail, LLC are each co-borrowers and guarantors under the Credit Agreement. The Credit Agreement matures on December 18, 2019 and provides for a revolving credit facility in ~~like principal amount.~~ an aggregate amount of up to $600.0 million, subject to the calculated borrowing base restrictions, and provides for an increase at the Company’s option by up to $150.0 million from time to time during the term of the Credit Agreement, subject to satisfaction of certain conditions and the willingness of existing or new lenders to assume the increase.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base, which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
At August 1, 2015, we had no borrowings outstanding and $6.3 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $593.7 million at August 1, 2015.
Interest
Interest on borrowings is at variable rates based on the London Inter-Bank Offered Rate (“LIBOR”) or the prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit varies based upon the level of excess availability under the Credit Agreement. There is a 25 basis point per annum unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.
Maturity
Our Credit Agreement matures on December 18, 2019.
Security and Guarantees
Our and the co-borrower subsidiaries’ obligations under our Credit Agreement are guaranteed by Caleres, Inc. and each of the co-borrowers, which will be Sidney Rich Associates, Inc. and BG Retail, LLC. The obligations of Caleres, Inc. and of the co-borrowers and guarantors under the Credit Agreement are secured by a first priority security interest in all of their respective accounts receivable, inventory and certain other collateral (including cash), including all proceeds of such collateral.
Covenants
The Credit Agreement limits our ability to incur additional indebtedness, create liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, certain additional covenants would be triggered if excess availability were to fall below specified levels, including fixed charge coverage ratio requirements. Furthermore, if excess availability falls below the 12.5% of the lesser of (i) the borrowing base or (ii) the total commitments for three consecutive business days, or an event of default occurs, the lenders may assume dominion and control over our cash (a “cash dominion event”) until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days.
Events of Default
The Credit Agreement contains customary events of default including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, judgment defaults in excess of a certain threshold, the failure of any guaranty or security document supporting the agreement

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to be in full force and effect and the occurrence of change of control. In addition, if the excess availability falls below the greater of (i) 10.0% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $50.0 million and the fixed charge coverage ratio is less than 1.0 to 1.0, we would be in default under the Credit Agreement. The Credit Agreement also contains certain other covenants and restrictions. We were in compliance with all covenants and restrictions under the Credit Agreement as of August 1, 2015.

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THE EXCHANGE OFFER
Purpose of the Exchange Offer
Simultaneously with the sale of the original notes, we entered into a registration rights agreement with the initial purchasers of the original notes - Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers. Under the registration rights agreement, we agreed, among other things, to:
file a registration statement relating to a registered exchange offer for the original notes with the SEC no later than 120 days after the date of the issuance of the original notes;
use our commercially reasonable efforts to cause the SEC to declare the registration statement effective under the Securities Act no later than 210 days after the date of the issuance of the original notes; and
commence and use our commercially reasonable efforts to consummate the exchange offer no later than the 30th business day after the registration statement was declared effective by the SEC.

We are conducting the exchange offer to satisfy our obligations under the registration rights agreement. If we fail to meet certain specified deadlines under the registration rights agreement, we will be obligated to pay liquidated damages to the holders of the original notes. A copy of the registration rights agreement has been filed with the SEC as Exhibit 10.1 to our Current Report on Form 8-K dated and filed July 27, 2015, and is incorporated by reference as an exhibit to the registration statement of which this prospectus is a part.
The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Private Notes, except as otherwise described herein under ``The Exchange Offer--Terms of the Exchange Offer.'' The Private Notes surrendered in exchange for the Exchange Notes will be retired and cancelled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any increase in the outstanding debt of the Company. DIVIDEND POLICY The Company has paid quarterly dividends on its Common Stock since 1922. In September 1995, the Company reduced its regular quarterly dividend from $0.40 per share (which had been paid since the first quarter of 1989) to $0.25 per share. The Company paid higher dividends in the past to return capital to the Company's shareholders as the Company was divesting businesses and closing manufacturing facilities. Although the Company intends to continue to pay regular quarterly dividends, the payment of any future dividends will depend upon, among other things, future earnings, operations, capital requirements, the general financial condition of the Company and general business conditions. The Indenture will contain, and certain of the Company's other debt instruments contain, restrictions on the ability of the Company to pay dividends. See ``Description of Certain Indebtedness'' and ``Description of the Notes.'' CAPITALIZATION The following table sets forth the cash and cash equivalents, short-term debt and capitalization of the Company as of August 3, 1996 and as adjusted to give effect to the offering of the Private Notes, the application of the net proceeds therefrom, and the repurchase of its long-term debt bearing interest at 7 1/8%. This table should be read in conjunction with ``Management's Discussion and Analysis of Financial Condition and Results of Operations'' and the Consolidated Financial Statements, including the Notes thereto, included elsewhere in this Prospectus.
AUGUST 3, 1996 -------------- (IN THOUSANDS) ACTUAL AS ADJUSTED ------ ----------- Cash and cash equivalents......................... $ 35,120 $ 35,120 ========= ========= Short-term debt: Notes payable................................. $ 121,000 $ 29,000 ========= ========= Long-term debt including capitalized lease obligations and current maturities: 9.50% Senior Notes due 2006................... $ -- $ 100,000 7.36% Sinking Fund Debentures, payments of $10,000,000 due annually beginning 1999..... 50,000 50,000 8.45%-8.6% Debentures due 1999................ 15,000 15,000 7.07%-8.83% Debentures due 2002............... 18,541 18,541 7.125% Debentures due 2003.................... 15,000 10,000 7.375% Sinking Fund Debentures, payments of $2,000,000 due annually to 1998............. 3,999 3,999 Capitalized lease obligations................. 3,482 3,482 --------- --------- Total long-term debt.......................... 106,022 201,022 Total shareholders' equity........................ 230,120 230,120 --------- --------- Total Capitalization.............................. $ 336,142 $ 431,142 ========= =========
18 20 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The Private Notes were sold by the Company on October 7, 1996 (the ``Closing Date'') to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers subsequently sold the Private Notes to (i) ``qualified institutional buyers'' (``QIBs''), as defined in Rule 144A under the Securities Act (``Rule 144A''), in reliance on Rule 144A and (ii) a limited number of institutional ``accredited investors'' (``Accredited Institutions''), as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. As a condition to the sale of the Private Notes, the Company and the Initial Purchasers entered into the Registration Rights Agreement on October 7, 1996. Pursuant to the Registration Rights Agreement, the Company agreed that it would (i) file with the Commission within 45 days after the Closing Date a registration statement under the Securities Act with respect to the Exchange Notes and (ii) use its reasonable best efforts to cause such Registration Statement to become effective under the Securities Act within 90 days after the Closing Date. The Company agreed to issue and exchange Exchange Notes for all Private Notes validly tendered and not withdrawn before the expiration of the Exchange Offer. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Registration Statement is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement and the Purchase Agreement. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Private Notes validly tendered and not withdrawn prior to the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Private Notes validly tendered pursuant to the Exchange Offer and not withdrawn prior to the Expiration Date. Private Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notesnotes are the same as the form and terms of the ~~Private Notes~~original notes, except that ~~(i)~~ the exchange notes:
will be registered under the Securities ~~Act and, therefore, the Exchange Notes~~ Act;
will not bear restrictive legends restricting their transfer under the ~~transfer thereof and (ii) holders of the Exchange Notes~~ Securities Act;
will not be entitled to ~~any of~~ the registration rights that apply to the original notes; and
will not contain provisions relating to liquidated damages in connection with the original notes under circumstances related to the timing of the exchange offer.

The exchange offer is not extended to original note holders in any jurisdiction where the exchange offer does not comply with the securities or blue sky laws of ~~Private Notes under the Registration Rights Agreement, which rights will terminate upon the consummation~~that jurisdiction.
Terms of the Exchange ~~Offer.~~Offer
We are offering to exchange up to $200,000,000 aggregate principal amount of exchange notes for a like aggregate principal amount of original notes. The original notes must be tendered properly in accordance with the conditions set forth in this prospectus and the accompanying letter of transmittal on or prior to the expiration date and not withdrawn as permitted below. In exchange for original notes properly tendered and accepted, we will issue a like total principal amount of up to $200,000,000 in exchange notes. This prospectus, together with the letter of transmittal, is first being sent on or about , 2015, to all holders of original notes known to us. Our obligation to accept original notes for exchange in the exchange offer is subject to the conditions described below under the heading “-Conditions to the Exchange ~~Notes~~Offer.” The exchange offer is not conditioned upon holders tendering a minimum principal amount of original notes. As of the date of this prospectus, $200,000,000 aggregate principal amount of original notes are outstanding.
Original notes tendered in the exchange offer must be in denominations of the principal amount of $2,000 and any integral multiple of $1,000 in excess thereof.
Holders of the original notes do not have any appraisal or dissenters’ rights in connection with the exchange offer. If you do not tender your original notes or if you tender original notes that we do not accept, your original notes will ~~evidence the same indebtedness as the Private Notes (which they replace) and~~remain outstanding. Any original notes will ~~be issued under, and~~ be entitled to the benefits of the ~~Indenture, which also authorized the issuance of the Private Notes, such that both series of Notes~~indenture but will not be treated as a single class of debt securities under the Indenture. As of the date of this Prospectus, $100,000,000 in aggregate principal amount of the Private Notes was outstanding. Approximately $99 million principal amount of Private Notes are registered in the name of Cede & Co., as nominee for The Depository Trust Company (the ``Depository'') and the remainder of the Private Notes are registered in the name of Smith Barney Inc. Only a registered holder of the Private Notes (or such holder's legal representative or attorney-in-fact) as reflected on the records of the Trustee under the Indenture may participate in the Exchange Offer. Solely for reasons of administration, the Company has fixed the close of business on October 31, 1996 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. There will be no fixed record date for determining registered holders of the Private Notes entitled to ~~participate in the Exchange Offer. Holders of the Private Notes do not have~~ any ~~appraisal or dissenters'~~further registration rights under the ~~New York Business Corporation Law~~registration rights agreement, except under limited circumstances. Existing transfer restrictions would continue to apply to such original notes. See “Risk Factors-There are significant consequences if you fail to exchange your original notes” for more information regarding original notes outstanding after the exchange offer.
After the expiration date, we will return to the holder any tendered original notes that we did not accept for exchange.
None of us, our board of directors or ~~Indenture~~our management recommends that you tender or not tender original notes in ~~connection with~~ the ~~Exchange Offer. The Company intends~~exchange offer or has authorized anyone to ~~conduct~~make any recommendation. You must decide whether to tender in the Exchange Offer in accordance with the provisions of the Registration Rights Agreement and the applicable requirements of the Securities Act and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Private Notes when,exchange offer and, if you decide to tender, the ~~Company has given oral or written notice thereof~~aggregate amount of original notes to ~~the Exchange Agent.~~ tender.
The Exchange Agent will act as agent for the tendering holders of Private Notes for the purposes of receiving the Exchange Notes from the Company. Holders who tender Private Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Private Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See ``--Fees and Expenses.'' 19 ~~21 EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term ``Expiration Date'' shall mean~~expiration date is 5:00 p.m., New York City time, on        ~~December 10, 1996, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term ``Expiration Date'' shall mean the latest~~, 2015, or such later date and time to which we extend the ~~Exchange Offer is extended. In order~~ exchange offer.
We have the right, in accordance with applicable law, at any time:

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to delay the acceptance of the original notes;
to terminate the exchange offer and not accept any original notes for exchange if we determine that any of the conditions to the exchange offer have not occurred or have not been satisfied;
to extend the ~~Exchange Offer,~~expiration date of the ~~Company~~exchange offer and retain all original notes tendered in the exchange offer other than those notes properly withdrawn; and
to waive any condition or amend the terms of the exchange offer in any manner.

If we materially amend the exchange offer, we will ~~notify~~as promptly as practicable distribute a prospectus supplement to the ~~Exchange Agent~~holders of the original notes disclosing the change and extend the exchange offer.
If we exercise any ~~extension by~~of the rights listed above, we will as promptly as practicable give oral or written notice ~~and mail~~of the action to the ~~registered holders~~exchange agent and will make a public announcement of such action. In the case of an extension, an announcement ~~thereof, each prior to~~will be made no later than 9:00 a.m., New York City time on the next business day after the previously scheduled ~~Expiration Date.~~expiration date.
Acceptance of Original Notes for Exchange and Issuance of Original Notes
As promptly as practicable after the expiration date, we will accept all original notes validly tendered and not withdrawn, and we will issue exchange notes registered under the Securities Act to the exchange agent. The ~~Company reserves~~exchange agent might not deliver the ~~right, in its sole discretion, (i)~~exchange notes to ~~delay accepting any Private Notes, (ii)~~all tendering holders at the same time. The timing of delivery depends upon when the exchange agent receives and processes the required documents.
We will be deemed to extend the Exchange Offer or (iii) if, in the opinion of counsel for the Company, the consummation of the Exchange Offer would violate any applicable law, rule or regulation or any applicable interpretation of the staff of the Commission, to terminate or amend the Exchange Offer by givinghave exchanged original notes validly tendered and not withdrawn when we give oral or written notice ~~of such delay, extension, termination or amendment~~ to the ~~Exchange Agent. Any such delay~~exchange agent of our acceptance of the tendered original notes, with written confirmation of any oral notice to be given promptly thereafter. The exchange agent is our agent for receiving tenders of original notes, letters of transmittal and related documents.
In tendering original notes, you must warrant in ~~acceptance, extension, termination~~the letter of transmittal or ~~amendment~~in an agent’s message (described below) that:
you have full power and authority to tender, exchange, sell, assign and transfer original notes;
we will ~~be followed as promptly as practicable by oral or written notice thereof~~acquire good, marketable and unencumbered title to the ~~registered holders. If~~ tendered original notes, free and clear of all liens, restrictions, charges and other encumbrances; and
the ~~Exchange Offer~~original notes tendered for exchange are not subject to any adverse claims or proxies.

You also must warrant and agree that you will, upon request, execute and deliver any additional documents requested by us or the exchange agent to complete the exchange, sale, assignment and transfer of the original notes.
Procedures for Tendering Original Notes
Valid Tender
When the holder of original notes tenders, and we accept, original notes for exchange, a binding agreement between us, on the one hand, and the tendering holder, on the other hand, is ~~amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed~~created, subject to the ~~registered holders,~~terms and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. Without limiting the manner in which the Company may choose to make a public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency. INTEREST ON THE EXCHANGE NOTES The Private Notes bear interest and the Exchange Notes will bear interest at the rate of 9 1/2% per annum, payable semi-annually on April 15 and October 15 of each year, commencing April 15, 1997, to holders of record on the immediately preceding April 1 and October 1, respectively. Holders of the Exchange Notes will receive interest on April 15, 1997 from the date of the initial issuance of the Private Notes. Interest on the Private Notes accepted for exchange will cease to accrue upon issuance of the respective Exchange Notes. RESALE OF THE EXCHANGE NOTES With respect to the Exchange Notes, based upon interpretations by the staff of the Commissionconditions set forth in ~~certain no-action~~this prospectus and the accompanying letter of transmittal. Except as set forth below, a holder of original notes who wishes to tender original notes for exchange must, on or prior to the expiration date:
transmit a properly completed and duly executed letter of transmittal, including all other documents required by such letter of transmittal (including original notes), to the exchange agent, Wells Fargo Bank, National Association at the address set forth below under the heading “-Exchange Agent”;
if original notes are tendered pursuant to the book-entry procedures set forth below, the tendering holder must deliver a completed and duly executed letter of transmittal or arrange with DTC to cause an agent’s message to be transmitted with the required information (including a book-entry confirmation), to the exchange agent at the address set forth below under the heading “-Exchange Agent,” or
comply with the provisions set forth below under “-Guaranteed Delivery.”

In addition, on or prior to the expiration date:
the exchange agent must receive the certificates for the original notes and the letter of transmittal;
the exchange agent must receive a timely confirmation of the book-entry transfer of the original notes being tendered into the exchange agent’s account at DTC, along with the letter of transmittal or an agent’s message; or
the holder must comply with the guaranteed delivery procedures described below.

The letter of transmittal or agent’s message may be delivered by mail, facsimile, hand delivery or overnight carrier, to the exchange agent.

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The term “agent’s message” means a message transmitted to the exchange agent by DTC which states that DTC has received an express acknowledgment that the tendering holder agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such holder.
If you beneficially own original notes and those notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian and you wish to tender your original notes in the exchange offer, you should contact the registered holder as soon as possible and instruct it to tender the original notes on your behalf and comply with the instructions set forth in this prospectus and the letter of transmittal.
If you tender fewer than all of your original notes, you should fill in the amount of notes tendered in the appropriate box on the letter of transmittal. If you do not indicate the amount tendered in the appropriate box, we will assume you are tendering all original notes that you hold.
The method of delivery of the certificates for the original notes, the letter of transmittal and all other required documents is at the election and sole risk of the holders. If delivery is by mail, we recommend registered mail with return receipt requested, properly insured, or overnight delivery service. In all cases, you should allow sufficient time to assure timely delivery. No letters of transmittal or original notes should be sent directly to us. Delivery is complete when the exchange agent actually receives the items to be delivered. Delivery of documents to DTC in accordance with DTC’s procedures does not constitute delivery to the exchange agent.
Signature Guarantees
Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the original notes surrendered for exchange are tendered:
by a registered holder of original notes who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or
for the account of an eligible institution.

An “eligible institution” is a firm or other entity which is identified as an “Eligible Guarantor Institution” in Rule 17Ad-15 under the Exchange Act, including:
a bank;
a broker, dealer, municipal securities broker or dealer or government securities broker or dealer;
a credit union;
a national securities exchange, registered securities association or clearing agency; or
a savings association.

If signatures on a letter of transmittal or notice of withdrawal are required to be guaranteed, the guarantor must be an eligible institution.
If original notes are registered in the name of a person other than the signer of the letter of transmittal, the original notes surrendered for exchange must be endorsed or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder with the holder’s signature guaranteed by an eligible institution.
Book-Entry Transfers
For tenders by book-entry transfer of original notes cleared through DTC, the exchange agent will make a request to establish an account at DTC for purposes of the exchange offer. Any financial institution that is a DTC participant may make book-entry delivery of original notes by causing DTC to transfer the original notes into the exchange agent’s account at DTC in accordance with DTC’s procedures for transfer. The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC may use the Automated Tender Offer Program, or ATOP, procedures to tender original notes. Accordingly, any participant in DTC may make book-entry delivery of original notes by causing DTC to transfer those original notes into the exchange agent’s account in accordance with its ATOP procedures for transfer.
Notwithstanding the ability of holders of original notes to effect delivery of original notes through book-entry transfer at DTC, either:
the letter of transmittal or a facsimile thereof, or an agent’s message in lieu of the letter of transmittal, with any required signature guarantees and any other required documents must be transmitted to and received by the exchange agent prior to the expiration date at the address given below under “-Exchange Agent”; or

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•the guaranteed delivery procedures described below must be complied with.
Guaranteed Delivery
If a holder wants to tender original notes in the exchange offer and (1) the certificates for the original notes are not immediately available or all required documents are unlikely to reach the exchange agent on or prior to the expiration date, or (2) a book-entry transfer cannot be completed on a timely basis, the original notes may be tendered if the holder complies with the following guaranteed delivery procedures:
the tender is made by or through an eligible institution;
the eligible institution delivers a properly completed and duly executed notice of guaranteed delivery, substantially in the form provided, to the exchange agent on or prior to the expiration date:

◦ setting forth the name and address of the holder of the original notes being tendered and the amount of the original notes being tendered;
◦ stating that the tender is being made; and
◦ guaranteeing that, within three (3) New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered original notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal, or an agent’s message, with any required signature guarantees and any other documents required by the letter of transmittal, will be deposited by the eligible institution with the exchange agent; and

the exchange agent receives the certificates for the original notes, or a confirmation of book-entry transfer, and a properly completed and duly executed letter of transmittal, or an agent’s message in lieu thereof, with any required signature guarantees and any other documents required by the letter of transmittal within three (3) New York Stock Exchange trading days after the notice of guaranteed delivery is executed for all such tendered original notes.

You may deliver the notice of guaranteed delivery by hand, facsimile, mail or overnight delivery to the exchange agent and you must include a guarantee by an eligible institution in the form described above in such notice.
Our acceptance of properly tendered original notes is a binding agreement between the tendering holder and us upon the terms and subject to the conditions of the exchange offer.
Determination of Validity
We, in our sole discretion, will resolve all questions regarding the form of documents, validity, eligibility, including time of receipt, and acceptance for exchange of any tendered original notes. Our determination of these questions as well as our interpretation of the terms and conditions of the exchange offer, including the letter of transmittal, will be final and binding on all parties. A tender of original notes is invalid until all defects and irregularities have been cured or waived. Holders must cure any defects and irregularities in connection with tenders of original notes for exchange within such reasonable period of time as we will determine, unless we waive the defects or irregularities. Neither us, any of our affiliates or assigns, the exchange agent nor any other person is under any obligation to give notice of any defects or irregularities in tenders nor will they be liable for failing to give any such notice.
We reserve the absolute right, in our sole and absolute discretion:
to reject any tenders determined to be in improper form or unlawful;
to waive any of the conditions of the exchange offer; and
to waive any condition or irregularity in the tender of original notes by any holder, whether or not we waive similar conditions or irregularities in the case of other holders.

If any letter of transmittal, endorsement, bond power, power of attorney, or any other document required by the letter of transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person must indicate such capacity when signing. In addition, unless waived by us, the person must submit proper evidence satisfactory to us, in our sole discretion, of his or her authority to so act.
Resales of Exchange Notes
Based on interpretive letters issued by the SEC staff to third parties in transactions similar to the ~~Company believes~~exchange offer, we believe that a holder ~~who exchanges Private Notes~~of exchange notes, other than a broker-dealer, may offer exchange notes for ~~Exchange Notes~~resale, resell and otherwise transfer the exchange notes without delivering a prospectus to prospective purchasers, if the holder acquired the exchange notes in the ordinary course of business, ~~who~~has no intention of engaging in a “distribution” (as defined under the Securities Act) of the exchange notes and is not an

32

“affiliate” (as defined under the Securities Act) of Caleres. We will not seek our own interpretive letter. As a result, we cannot assure you that the staff will take the same position on this exchange offer as it did in interpretive letters to other parties in similar transactions.
By tendering original notes, the holder, other than participating ~~does~~broker-dealers, as defined below, of those original notes will represent to us that, among other things:
the exchange notes acquired in the exchange offer are being obtained in the ordinary course of business of the person receiving the exchange notes, whether or not ~~intend~~that person is the holder;
neither the holder nor any other person receiving the exchange notes is engaged in, intends to ~~participate, and~~engage in or has noan arrangement or understanding with any person to participate in a distribution of the Exchange Notes, and who is not an ``affiliate'' of the Company within the meaning of Rule 405 of the Securities Act, will be allowed to resell Exchange Notes to the public without further registration“distribution” (as defined under the Securities ~~Act and without delivering to the purchasers~~Act) of the ~~Exchange Notes~~exchange notes; and
neither the holder nor any other person receiving the exchange notes is an “affiliate” (as defined under the Securities Act) of Caleres.

If any holder or any such other person is an “affiliate” of Caleres or is engaged in, intends to engage in or has an arrangement or understanding with any person to participate in a ~~prospectus that satisfies the requirements of Section 10~~“distribution” of the ~~Securities Act. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in the distribution of the Exchange Notes,~~exchange notes, such holder ~~cannot~~or other person:
may not rely on the ~~position~~applicable interpretations of the staff of the ~~Commission enumerated in certain no-action letters issued~~SEC referred to ~~third parties~~above; and
must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale ~~transaction, unless an exemption from registration is otherwise available.~~ transaction.

Each broker-dealer that receives ~~Exchange Notes~~exchange notes for its own account in exchange for ~~Private Notes~~original notes must represent that the original notes to be exchanged for the exchange notes were acquired by ~~such broker-dealer~~it as a result of market-making activities or other trading activities ~~must~~and acknowledge that it will deliver a prospectus (or, to the extent permitted by law, make available a prospectus) meeting the requirements of the Securities Act in connection with any offer to resell, resale or other retransfer of the exchange notes pursuant to the exchange offer. Any such ~~Exchange Notes. The Letter of Transmittal states that~~broker-dealer is referred to as a participating broker-dealer. However, by so acknowledging and by delivering a prospectus, athe participating broker-dealer will not be deemed to admit that it is an ~~``underwriter'' within the meaning of~~“underwriter” (as defined under the Securities ~~Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by~~Act). If a broker-dealer ~~in connection with resales of any Exchange Notes received in exchange for Private Notes~~ acquired ~~by such broker-dealer~~original notes as a result of market-making or other trading ~~activities. Pursuant to the Registration Rights Agreement, the Company has agreed to make this Prospectus, as~~activities, it may beuse this prospectus, as amended or supplemented, ~~from time~~in connection with offers to ~~time,~~resell, resales or retransfers of exchange notes received in exchange for the original notes pursuant to the exchange offer. We have agreed that, during the period ending 210 days after the consummation of the exchange offer, subject to extension in limited circumstances, we will use all commercially reasonable efforts to keep the exchange offer registration statement effective and make this prospectus available to any ~~such~~ broker-dealer ~~that requests copies of such Prospectus in the Letter of Transmittal~~ for use in connection with any such ~~resale~~resale. See “Plan of Distribution” for a ~~period~~discussion of upthe exchange and resale obligations of broker-dealers in connection with the exchange offer.
Withdrawal Rights
You can withdraw tenders of original notes at any time prior to ~~90 days after~~5:00 p.m., New York City time, on the ~~Expiration Date. See ``Plan~~expiration date.
For a withdrawal to be effective, you must deliver a written notice of ~~Distribution.'' 20~~ ~~22 PROCEDURES FOR TENDERING Only a~~withdrawal to the exchange agent. The notice of withdrawal must:
specify the name of the person tendering the original notes to be withdrawn;
identify the original notes to be withdrawn, including the total principal amount of original notes to be withdrawn;
where certificates for original notes are transmitted, list the name of the registered holder of ~~Private Notes may tender such Private Notes~~the original notes if different from the person withdrawing the original notes;
contain a statement that the holder is withdrawing his election to have the original notes exchanged; and
be signed by the holder in the ~~Exchange Offer. To tender~~same manner as the original signature on the letter of transmittal by which the original notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer to have the trustee with respect to the original notes register the transfer of the original notes in the ~~Exchange Offer, a holder~~name of ~~Private Notes must complete, sign and date~~ the ~~Letter of Transmittal, or a facsimile thereof, have~~person withdrawing the ~~signatures thereon guaranteed if required by the Letter of Transmittal, and mail~~tender.

If you delivered or otherwise deliver such Letter of Transmittal or such facsimile to the Exchange Agent at the address set forth below under ``--Exchange Agent'' for receipt prior to the Expiration Date. In addition, either (i) certificates for such Private Notes must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry transfer (a ``Book-Entry Confirmation'') of such Private Notes, if such procedure is available, into the Exchange Agent's account at the Depositoryidentified pursuant to ~~the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with~~ the guaranteed delivery procedures ~~described below. The tender by a holder that is not withdrawn prior~~original notes to the ~~Expiration Date will constitute an agreement between such holder~~exchange agent, you must submit the serial numbers of the original notes to be withdrawn and the ~~Company in accordance with~~signature on the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. DO NOT SEND THE LETTER OF TRANSMITTAL OR ANY PRIVATE NOTES TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner(s) of the Private Notes whose Private Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Private Notes, either make appropriate arrangements to register ownership of the Private Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal ~~described below (see ``--Withdrawal of Tenders''), as the case may be,~~ must be guaranteed by an ~~Eligible Institution (as defined below) unless~~eligible institution, except in the ~~Private Notes~~case of original notes tendered ~~pursuant thereto are tendered (i) by a registered holder who has not completed the box titled ``Special Delivery Instructions'' on the Letter of Transmittal or (ii)~~ for the account of an ~~Eligible Institution. In~~eligible institution. If you tendered original notes as a book-entry transfer, the ~~event that signatures on a Letter of Transmittal or a~~ notice of withdrawal asmust specify the ~~case may be, are required~~name and number of the account at DTC to be ~~guaranteed, such guarantee~~credited with the withdrawn original notes and you must ~~be made by a member firm~~deliver the notice of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an ``eligible guarantor institution'' within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the recognized signature guarantee programs identified in the Letter of Transmittal (an ``Eligible Institution''). If the Letter of Transmittal is signed by a person other than the registered holder of any Private Notes listed therein, such Private Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder exactly as such registered holder's name appears on such Private Notes. If the Letter of Transmittal or any Private Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, evidence satisfactorywithdrawal to the ~~Company~~exchange agent. You may not rescind withdrawals of ~~their authority~~tender; however, original notes properly withdrawn may again be tendered at any time on or prior to ~~so act must be submitted with~~ the ~~Letter~~expiration date.
We will determine all questions regarding the form of ~~Transmittal. The Exchange Agent~~withdrawal, validity, eligibility, including time of receipt, and the Depository have confirmed that any financial institution that is a participant in the Depository's system may utilize the Depository's Automated Tender Offer Program to tender Private Notes. Allacceptance of withdrawal notices. Our determination of these questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Private Notes will be determined by the Company in its sole discretion, which determination will be final 21 23 and binding. The Company reserves the absolute right to reject any and all Private Notes not properly tendered or any Private Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tenderwell as ~~to particular Private Notes. The Company's~~our interpretation of the terms and conditions of the ~~Exchange Offer~~exchange offer (including the ~~instructions in the Letter~~letter of ~~Transmittal)~~transmittal) will be final and binding on all parties. ~~Unless~~Neither us, any of our affiliates or assigns, the exchange agent

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nor any other person is under any obligation to give notice of any irregularities in any notice of withdrawal, nor will they be liable for failing to give any such notice.
In the case of original notes tendered by book-entry transfer through DTC, the original notes withdrawn or not exchanged will be credited to an account maintained with DTC. Withdrawn original notes will be returned to the holder after withdrawal. The original notes will be returned or credited to the account maintained with DTC as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Any original notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to the holder.
Properly withdrawn original notes may again be tendered by following one of the procedures described under “-Procedures for Tendering Original Notes” above at any time prior to 5:00 p.m., New York City time, on the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we are not required to accept for exchange, or to issue exchange notes in exchange for, any original notes, and we may terminate or amend the exchange offer, if at any time prior to 5:00 p.m., New York City time, on the expiration date, we determine that the exchange offer violates applicable law or SEC policy.
The foregoing conditions are for our sole benefit, and we may assert them regardless of the circumstances giving rise to any such condition, or we may waive the conditions, completely or partially, whenever or as many times as we choose, in our reasonable discretion. The foregoing rights are not deemed waived because we fail to exercise them, but continue in effect, and we may still assert them whenever or as many times as we choose. If we determine that a waiver of conditions materially changes the exchange offer, the prospectus will be amended or supplemented, and the exchange offer extended, if appropriate, as described under “-Terms of the Exchange Offer.”
In addition, at a time when any ~~defects~~stop order is threatened or ~~irregularities~~in effect with respect to the registration statement of which this prospectus constitutes a part or with respect to the qualification of the indenture under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), we will not accept for exchange any original notes tendered, and no exchange notes will be issued in exchange for any such original notes.
If we terminate or suspend the exchange offer based on a determination that the exchange offer violates applicable law or SEC policy, the registration rights agreement requires that we, as soon as practicable after such determination, use our commercially reasonable efforts to cause a shelf registration statement covering the resale of the original notes to be filed and declared effective by the SEC.
Exchange Agent
We appointed Wells Fargo Bank, National Association as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery to the exchange agent at the address and phone number as follows:
Registered & Certified Mail: Regular Mail or Courier: In Person by Hand Only:
Wells Fargo Bank, National Association
Corporate Trust Operations
MAC N9303-121
P.O. Box 1517
Minneapolis, MN 55480
Wells Fargo Bank, National Association
Corporate Trust Operations
MAC N9303-121
6th St & Marquette Avenue
Minneapolis, MN 55479
Wells Fargo Bank, National Association
Corporate Trust Services
Northstar East Building - 12th Floor
608 Second Avenue South
Minneapolis, MN 55402
Or By Facsimile Transmission: (612) 667-6282
Telephone:(800) 344-5128

If you deliver letters of transmittal and any other required documents to an address or facsimile number other than those listed above, your tender is invalid.
Fees and Expenses
The registration rights agreement provides that we will bear all expenses in connection with the performance of our obligations relating to the registration of the exchange notes and the conduct of the exchange offer. These expenses include registration and filing fees, accounting and legal fees and printing costs, among others. We will pay the exchange agent reasonable and customary fees for its services and reasonable out-of-pocket expenses. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for customary mailing and handling expenses incurred by them in forwarding this prospectus and related documents to their clients that are holders of original notes and for handling or tendering for such clients.

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We have not retained any dealer-manager in connection with the exchange offer and will not pay any fee or commission to any broker, dealer, nominee or other person, other than the exchange agent, for soliciting tenders of ~~Private Notes~~original notes pursuant to the exchange offer.
Transfer Taxes
Holders who tender their original notes for exchange will not be obligated to pay any transfer taxes in connection with the exchange. If, however, exchange notes issued in the exchange offer are to be delivered to, or are to be issued in the name of, any person other than the holder of the original notes tendered, or if a transfer tax is imposed for any reason other than the exchange of original notes in connection with the exchange offer, then the holder must pay any such transfer taxes, whether imposed on the registered holder or on any other person. If satisfactory evidence of payment of, or exemption from, such taxes is not submitted with the letter of transmittal, the amount of such transfer taxes will be ~~cured within such time~~billed directly to the tendering holder.
Accounting Treatment
We will record the exchange notes at the same carrying value as the ~~Company shall determine. Although~~original notes as reflected in our accounting records on the ~~Company intends~~date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes upon completion of the exchange offer.
Consequences of Failure to ~~notify holders~~Exchange Original Notes
Holders who desire to tender their original notes in exchange for exchange notes should allow sufficient time to ensure timely delivery. Neither the exchange agent nor Caleres is under any duty to give notification of defects or irregularities with respect to the tenders of ~~Private Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability~~notes for failure to give such notification. Tenders of Private Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. While the Company has no present plan to acquire any Private Notesexchange.
Original notes that are not tendered or are tendered but not accepted will, following the consummation of the exchange offer, continue to be subject to the provisions in the ~~Exchange Offer~~indenture regarding the transfer and exchange of the original notes and the existing restrictions on transfer set forth in the legend on the original notes and in the confidential offering memorandum dated July 21, 2015 relating to the original notes. Except in limited circumstances with respect to specific types of holders of original notes, we will have no further obligation to provide for the registration under the Securities Act of such original notes. In general, original notes, unless registered under the Securities Act, may not be offered or ~~to file a registration statement to permit resales of any Private Notes that are not tendered~~sold except pursuant to an exemption from, or in a transaction not subject to, the ~~Exchange Offer,~~Securities Act and applicable state securities laws. We do not currently anticipate that we will take any action to register the ~~Company reserves~~original notes under the ~~right in its sole discretion~~Securities Act or under any state securities laws.
Upon completion of the exchange offer, holders of the original notes will not be entitled to ~~purchase or make offers for~~ any ~~Private Notes that~~further registration rights under the registration rights agreement, except under limited circumstances. Holders of the exchange notes and any original notes which remain outstanding subsequent to the Expiration Date and, to the extent permitted by applicable law, purchase Private Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the termsafter consummation of the ~~Exchange Offer. By tendering, each~~exchange offer will vote together as a single class for purposes of determining whether holders of the requisite percentage of the class have taken certain actions or exercised certain rights under the indenture.
Consequences of Exchanging Original Notes
Under existing interpretations of the Securities Act by the SEC’s staff contained in several no-action letters to third parties, we believe that the exchange notes may be offered for resale, resold or otherwise transferred by holders after the exchange offer other than by any holder who is an “affiliates” (as defined in Rule 405 under the Securities Act) of ~~Private Notes will represent to~~Caleres or the ~~Company that, among other things, (i) the Exchange Notes to~~subsidiary guarantors. Such notes may be ~~acquired by such holder of Private Notes in connection~~offered for resale, resold or otherwise transferred without compliance with the ~~Exchange Offer~~registration and prospectus delivery provisions of the Securities Act, if:
such exchange notes are ~~being~~ acquired ~~by such holder~~ in the ordinary course of ~~business of~~ such holder’s business; and
such holder, ~~(ii) such holder~~other than broker-dealers, has no arrangement or understanding with any person to participate in the distribution of the ~~Exchange Notes, (iii) such holder acknowledges and agrees that any person who is a broker-dealer registered under~~exchange notes.

However, the ~~Exchange Act or is participating~~SEC has not considered the exchange offer in the ~~Exchange Offer for the purposes~~context of ~~distributing the Exchange Notes must comply with the registration~~a no-action letter and ~~prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and~~we cannot ~~rely on the position of~~guarantee that the staff of the ~~Commission set forth~~SEC would make a similar determination with respect to the exchange offer as in ~~certain no-action letters, (iv)~~ such other circumstances. Each holder, ~~understands that~~other than a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by such holder in exchange for Private Notes acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) such holderbroker-dealer, must furnish a written representation, at our request, that:
it is not an ``affiliate~~'' as defined~~ of Caleres or the subsidiary guarantors;
it is not engaged in, ~~Rule 405 under the Securities Act,~~and does not intend to engage in, a distribution of the ~~Company. If~~exchange notes and has no arrangement or understanding to participate in a distribution of exchange notes; and
it is acquiring the ~~holder is a~~exchange notes in the ordinary course of its business.

Each broker-dealer that ~~will receive Exchange Notes~~receives exchange notes for ~~such holder's~~its own account in exchange for ~~Private Notes~~original notes must acknowledge that such original notes were acquired by such broker-dealer as a result of market-making ~~activities~~ or other trading activities ~~such holder will be required to acknowledge in the Letter of Transmittal~~and that ~~such holder~~it will deliver a

35

prospectus in connection with any resale of such ~~Exchange Notes; however, by so acknowledging and by delivering~~exchange notes. See “Plan of Distribution” for a ~~prospectus, such holder will not be deemed to admit that it is an ``underwriter'' within the meaning~~discussion of the ~~Securities Act. RETURN OF PRIVATE NOTES If any tendered Private Notes are not accepted for any reason set forth in the terms~~exchange and ~~conditions~~resale obligations of the Exchange Offer or if Private Notes are withdrawn or are submitted for a greater principal amount than the holders desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be returned without expense to the tendering holder thereof (or, in the case of Private Notes tendered by book-entry transfer into the Exchange Agent's account at the Depository pursuant to the book-entry transfer procedures described below, such Private Notes will be credited to an account maintained with the Depository) as promptly as practicable. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Private Notes at the Depository for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Depository's systems may make book-entry delivery of Private Notes by causing the Depository to transfer such Private Notes into the Exchange Agent's account at the Depository in accordance with the Depository's procedures for transfer. However, although delivery of Private Notes may be effected through book-entry transfer at the Depository, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address set forth below under ``--Exchange Agent'' on or prior to the Expiration Date or pursuant to the guaranteed delivery procedures described below. 22 24 GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Private Notes and (i) whose Private Notes are not immediately available or (ii) who cannot deliver their Private Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Private Notes and the principal amount of Private Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or a facsimile thereof), together with the certificate(s) representing the Private Notes in proper form for transfer or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) Such properly executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Private Notes in proper form for transfer and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Private Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. To withdraw a tender of Private Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Private Notes to be withdrawn (the ``Depositor''), (ii) identify the Private Notes to be withdrawn (including the certificate number or numbers and principal amount of such Private Notes) and (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Private Notes were tendered (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, in its sole discretion, whose determination shall be final and binding on all parties. Any Private Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer, and no Exchange Notes will be issued with respect thereto unless the Private Notes so withdrawn are validly retendered. Properly withdrawn Private Notes may be retendered by following one of the procedures described above under ``The Exchange Offer--Procedures for Tendering'' at any time prior to the Expiration Date. TERMINATION OF CERTAIN RIGHTS All registration rights under the Registration Rights Agreement accorded to holders of the Private Notes (and all rights to receive additional interest in the event of a Registration Default as defined therein) will terminate upon consummation of the Exchange Offer except with respect to the Company's continuing obligation for a period of up to 90 days after the Expiration Date to keep the Registration Statement effective and to provide copies of the latest version of the Prospectus to any broker-dealer that requests copies of such Prospectus in the Letter of Transmittal for use in connection with any resale by such broker-dealer of Exchange Notes received for its own account pursuant to the Exchange Offer in exchange for Private Notes acquired for its own account as a result of market-making or other trading activities. EXCHANGE AGENT State Street Bank and Trust Company has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: 23 25 By Mail: By Facsimile Transmission: By Hand: State Street Bank and (For Eligible Institutions Only) State Street Bank and Trust Company (617) 664-5784 Trust Company P.O. Box 778 Confirm by Telephone: Two International Place--4th Floor Boston, Massachusetts 02102 (617) 664-5539 Boston, Massachusetts 02110 Attention: Nancy Bowker Attention: Corporate Trust Window Corporate Trust Department or By Overnight Delivery: State Street Bank and State Street Bank and Trust Trust Company Company, National Association Two International Place-- 61 Broadway 4th Floor New York, New York 10006 Boston, Massachusetts 02110 Attention: Corporate Trust Attention: Nancy Bowker Window--Concourse Level Corporate Trust Department
State Street Bank and Trust Company also serves as Trustee under the Indenture. FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, facsimile transmission, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-managerbroker-dealers in connection with the ~~Exchange Offer~~exchange offer.

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DESCRIPTION OF EXCHANGE NOTES
The Company issued the original notes, and will ~~not make any payments to brokers, dealers or others soliciting acceptances~~issue the exchange notes, under an indenture dated as of July 27, 2015 (the “Indenture”) among itself, the Guarantors and Wells Fargo Bank, National Association, as trustee (the “Trustee”). The terms of the ~~Exchange Offer. The Company, however,~~Notes will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable, out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimatedinclude those stated in the ~~aggregate to be approximately $100,000. Such expenses include registration fees, fees~~Indenture and expenses of the Exchange Agent and the Trustee, accounting and legal fees and printing costs, among others. The Company will pay all transfer taxes, if any, applicable to the exchange of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Private Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. CONSEQUENCE OF FAILURE TO EXCHANGE Participation in the Exchange Offer is voluntary. Holders of the Private Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. Private Notes that are not exchanged for the Exchange Notes pursuant to the Exchange Offer will remain ``restricted securities'' within the meaning of Rule 144(a)(3)(iv) of the Securities Act. Accordingly, such Private Notes may not be offered, sold, pledged or otherwise transferred except (i) to a person whom the seller reasonably believes is a ``qualified institutional buyer'' within the meaning of Rule 144A under the Securities Act purchasing for its own account or for the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, (ii) in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S under the Securities Act, (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), (iv) pursuant to an effective registration statement under the Securities Act or (v) to institutional accredited investors in a transaction exempt from the registration requirements of the Securities Act, and, in each case, in accordance with all other applicable securities laws. ACCOUNTING TREATMENT For accounting purposes, the Company will recognize no gain or loss as a result of the Exchange Offer. The expenses of the Exchange Offer will be amortized over the remaining term of the Notes. 24 26 SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE AND RATIOS) The following table sets forth Selected Consolidated Financial Data for Brown Group, Inc. for each of the five fiscal years in the period ended February 3, 1996, for the six months ended July 29, 1995 and August 3, 1996. Such information should be read in conjunction with the historical Consolidated Financial Statements of the Company and the Notes thereto which are included elsewhere herein and incorporated herein by reference. Selected Consolidated Financial Data for the Company as of and for the six months ended July 29, 1995 and August 3, 1996 has been derived from the unaudited historical Consolidated Financial Statements and, in the opinion of management, includes all adjustments that are considered necessary for a fair presentation of the financial position and results of operations for such interim periods. Results for the interim periods are not necessarily indicative of results for full years. SIX MONTHS ENDED FISCAL YEARS ------------------ ------------------------------------------------------- JULY 29, AUG. 3, 1991 1992 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- -------- ------- (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) (26 WEEKS) (26 WEEKS) STATEMENT OF OPERATIONS DATA: Net sales................................ $1,191,591 $1,243,842 $1,361,039 $1,461,637 $1,455,896 $700,303 $745,768 Earnings (loss) from continuing operations before cumulative effect of accounting changes..................... 8,262 3,239 (9,296) 33,566 697 (12,792) 6,041 Discontinued operations and effect of accounting changes, net of income taxes ................................... (4,498) 1,425 (22,316) 5,832 2,600 -- -- Net earnings (loss)...................... 3,764 4,664 (31,612) 39,398 3,297 (12,792) 6,041 Dividends paid per common share.......... 1.60 1.60 1.60 1.60 1.30 0.80 0.50 Earnings (loss) per share from continuing operations before accounting changes... 0.48 0.19 (0.54) 1.91 0.04 (0.73) 0.34 Ratio of earnings to fixed charges ................................... 1.28x 1.07x .65x 2.38x .90x .21x 1.37x OTHER DATA: Charges related to restructuring: Cost of goods sold................... $ -- $ 5,760 $ 16,446 $ -- $ 10,068 $ 10,068 $ -- Selling and administrative expenses........................... -- 3,000 13,000 -- 500 500 -- Other expenses....................... -- 13,600 21,400 -- 3,600 4,250 -- LIFO liquidation..................... -- -- (5,400) -- (10,158) (3,696) (4,030) ---------- ---------- ---------- ---------- ---------- -------- -------- Restructuring charges, net....... -- 22,360 45,446 -- 4,010 11,122 (4,030) Capital expenditures: New stores........................... 6,283 5,569 9,004 12,338 13,285 8,914 2,707 Remodels............................. 2,634 2,739 5,158 4,193 5,336 2,743 3,611 Other ........................... 10,985 9,188 13,045 16,000 8,318 5,502 1,497 ---------- ---------- ---------- ---------- ---------- -------- -------- Total............................ 19,902 17,496 27,207 32,531 26,939 17,159 7,815 Depreciation and amortization............ 22,086 20,916 19,852 22,095 23,827 11,997 12,811 BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents................ $ 18,683 $ 21,625 $ 16,892 $ 18,922 $ 35,058 $ 23,016 $ 35,120 Working capital.......................... 297,239 262,611 240,554 259,178 209,399 161,855 206,429 Total assets............................. 654,696 705,165 739,930 636,515 661,056 679,701 718,913 Long-term debt (including current maturities)............................ 158,809 219,889 143,033 135,276 107,470 110,230 106,022 Shareholders' equity..................... 313,387 288,988 233,863 249,727 231,636 224,418 230,120 ~~- ----------~~ Net amounts presented consist of earnings from discontinued operations, cumulative effect of changes in accounting for postemployment benefits in 1993 and postretirement benefits and income taxes in 1991, and disposal of discontinued operations. See Consolidated Financial Statements. The ratio of earnings to fixed charges is computed by dividing fixed charges into earnings from continuing operations before income taxes and the effect of accounting changes and discontinued operations plus fixed charges. Fixed charges include interest, expensed or capitalized, amortization of debt issuance costs and the estimated interest component of rent expense. For fiscal years 1993 and 1995, and for the six months ended July 29, 1995, pre-tax earnings, before fixed charges, were insufficient to cover fixed charges by $15.2 million, $4.7 million, and $19.9 million, respectively. ~~``Other'' capital expenditures include expenditures for the Company's warehouses and distribution centers, manufacturing plants, offices, and computers and related equipment.~~
25 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in such forward looking statements as a result of, among other things, the factors set forth in the section entitled ``Risk Factors.'' In particular, note the Risk Factors captioned ``Shift of Focus in Business Strategy; Impact of Restructuring,'' ``Competition; Changes in Consumer Preferences,'' ``Reliance on Foreign Sources of Production,'' ``Customer Concentration,'' ``Dependence on Licenses,'' ``Dependence on Major Branded Suppliers'' and ``Seasonality.'' GENERAL The Company, founded in 1878, is one of the nation's leading footwear retailers and wholesalers, providing a broad offering of branded and private label casual, athletic and dress footwear products to men, women and children at a variety of price points through multiple distribution channels both domestically and internationally. The Company currently operates over 1,200 retail shoe stores in the United States and Canada under the Famous Footwear, Naturalizer(R) and F.X. LaSalle(R) names. In addition, through its Brown Shoe Company and Pagoda divisions, the Company designs, sources and markets footwear to over 8,000 retail stores worldwide, including department stores, mass merchandisers and specialty shoe stores. Beginning in the early 1980's, the Company began restructuring its operations in response to fundamental structural changes in the footwear industry. These restructuring programs have resulted in a shift in the Company's retail focus from leased footwear departments in department stores to branded footwear stores in regional malls, strip centers and outlet centers and a shift in its wholesaling focus from manufacturing to marketing and foreign sourcing. In the course of its restructurings, the Company has exited from businesses which generated an aggregate of over $1.2 billion in annualized net sales and had over $400 million of assets. These actions included: (i) the closure of 30 footwear manufacturing facilities, representing all of the Company's United States based manufacturing capability and sourcing substantially all of its footwear internationally; (ii) the sale of its Recreational Products division; (iii) the sale of its Cloth World chain of retail fabric stores and other specialty retailing operations; (iv) the closure of over 650 non-performing footwear retail stores operating primarily under the Connie(R) and Regal(R) names; (v) the sale of Brown Shoe Company's men's shoe division; (vi) the exit from the leased shoe department and footwear catalog businesses; and (vii) the aggressive reduction of its corporate and divisional overhead. During the same period, the Company (i) aggressively expanded its Famous Footwear retailing operations; (ii) introduced its NaturalSport(R) brand; (iii) built its international sourcing capabilities through the establishment of the Brown Group International sourcing division and the acquisition of Pagoda; (iv) acquired and grew Canadian retail footwear chains; (v) established Pagoda International to develop international marketing capability; and (vi) added to its core operations through selective acquisitions, including the acquisition of the Larry Stuart Collection(R) and Le Coq Sportif(R) brands in 1995. Management believes that is has completed its restructuring. Management continues to focus on increasing sales, improving gross margins and controlling corporate and divisional expenses to increase operating profitability. Corporate overhead and divisional expenses are actively monitored to continue to streamline infrastructure without sacrificing the capability to achieve future revenue growth. Management believes that the Company will reduce product costs by approximately $10-$12 million in 1996 through more efficient sourcing, specifically through the elimination of the Company's remaining domestic manufacturing facilities combined with certain other divisional cost savings. Management continues to pursue opportunities to further leverage its existing infrastructure through improved expense controls and better distribution logistics. The foregoing has contributed to the Company's net earnings increasing to approximately $6.0 million for the first six months of 1996, including an aftertax credit of $2.6 million relating to the LIFO liquidation of footwear manufactured in closed domestic facilities, from a loss of approximately $12.8 million, including an aftertax net charge of $7.2 million relating to the closing of the remaining domestic manufacturing facilities in the prior year period. Management believes there are further opportunities for improving operating performance, including benefits to be gained from: (i) store maturation and concentrated operational focus at Famous Footwear; (ii) the ongoing repositioning of the Company's Naturalizer(R) and certain other brands to higher quality and moderately higher price points; (iii) the continued development of new licensed footwear brands; (iv) increased international penetration of the Company's Pagoda marketing operations; and (v) improved expense controls and distribution logistics. 26 28 RESULTS OF OPERATIONS Six Months ended August 3, 1996 compared to the Six Months ended July 29, 1995 Consolidated net sales for the first half of 1996 were $745.8 million, an increase of 6.5% from the first six months of 1995 total of $700.3 million. Net earnings of $6.0 million for the first half of 1996 compare to a loss of $12.8 million for the first half of 1995. 1995 results include the aftertax charge of $9.6 million for plant closures, which was partially offset by an aftertax credit of $2.4 million from liquidation of LIFO inventories. The year-to-date earnings improvement, excluding the factory closing charge in 1995, reflects higher operating earnings at each of the Company's operating divisions. Famous Footwear's 1996 year-to-date operating earnings improved 53.8% to $12.2 million from $7.9 million for the first six months of 1995, primarily reflecting management's focus on execution, and better leveraging of expenses, as well as store maturation resulting in higher profitability. Brown Shoe Company's and Pagoda's operating earnings improved by almost $17 million over the first six months of 1995 primarily due to higher margins from more efficient sourcing of Brown Shoe Company's branded products offshore, as well as the repositioning of the Naturalizer(R) brand to moderately higher price points and Pagoda's increased sales of licensed products. Sales from the footwear retailing operations increased 9.7% to $476.3 million from the first half of 1995. Famous Footwear's total sales for the first six months of 1996 increased 11.1% to $384.2 million, reflecting a 0.1% increase in same-store sales, with the balance of increased sales attributable to more units in operation. Naturalizer(R) stores' total sales increased 1.3% to $68.3 million in the first half of 1996 and 2.1% on a same-store basis. Sales from the Canadian retailing operation, which consists of 96 Naturalizer(R) and 16 F.X. LaSalle(R) stores, during the first half of 1996 increased 14.5% to $23.7 million, with a same-store sales increase of 8.8% and four more units than in the six-month period ended July 29, 1995. Sales from footwear wholesaling businesses for the first six months of 1996 increased 1.2% to $269.5 million from the same period last year. Higher shipments of Brown Shoe Company's and Pagoda's branded and licensed footwear during the first half of 1996 were offset by lower shipments of private label product. The sales from the Canadian wholesale division, which consists of the Company's Canadian marketing and manufacturing operations, during the first six months of 1996 increased 20% to $14.5 million from $12.1 million for the first six months of 1995, in part due to higher sales of children's footwear. Gross profit as a percent of sales increased to 37.6% for the six-month period ended August 3, 1996 from 33.8% for the six-month period ended July 29, 1995. This improvement reflects more efficient sourcing resulting from the shift to foreign sourcing following the closure of the Company's remaining domestic manufacturing facilities, a pretax LIFO credit of $4.0 million from the liquidation of footwear manufactured in closed domestic facilities, and the effect in 1995 of inventory writedowns as a result of the charge to close the domestic factories. Selling and administrative expenses as a percent of sales increased to 35.1% for the first six months of 1996 from 35.0% for the first six months of 1995, reflecting higher advertising and marketing expenses at Brown Shoe Company and a higher percentage of the Company's sales occurring at Famous Footwear which carries higher expenses as a percent of net sales than the wholesaling divisions. The selling and administrative expenses as a percent of sales at Famous Footwear decreased during the six-month period ended August 3, 1996 from the six-month period ended July 29, 1995, as there was better leveraging of the expense base as newer stores matured. Other Income was $.1 million in the first half of 1996 compared to Other Expense of $3.4 million in the first half of 1995, which included plant closing charges of $4.2 million. 1995 Compared to 1994 The Company's 1995 results were adversely affected by the extremely difficult apparel and footwear retail environment, which persisted throughout the year. In the fourth quarter of fiscal 1995 Brown Shoe Company's five remaining domestic factories were closed, ending an extended period of restructuring for the Company and its divisions. 27 29 The Company's sales of $1.456 billion for the 53-week fiscal 1995 were down slightly from the $1.462 billion in fiscal 1994, which had 52 weeks. The decrease in sales between years reflect substantially higher sales at Famous Footwear more than offset by decreased sales at the Company's wholesale operations and by the closing of under-performing Naturalizer(R) stores. Earnings from continuing operations of $.7 million in 1995 compare to $33.6 million in fiscal 1994. Earnings from continuing operations in fiscal 1995 include nonrecurring after-tax charges of $1.4 million for the early adoption of Statement of Financial Accounting Standards (SFAS) No. 121, ``Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,'' a $2.7 million provision for a valuation reserve related to the Company's deferred tax assets and $9.2 million for the cost of closing the Company's last five domestic manufacturing plants. These charges were substantially offset by an after-tax LIFO recovery of $6.6 million related to the liquidation of manufacturing inventories and plant closings, and a reversal of a reserve of $5.8 million resulting from an Appeals Court ruling overturning a Tax Court decision supporting an Internal Revenue Service assessment against the Company. Net earnings for fiscal 1995 of $3.3 million compare to $39.4 million for fiscal 1994. Included in net earnings for 1995 and 1994 are gains of $2.6 million and $4.5 million, respectively, from the reversal of a portion of the provision for discontinued businesses. Famous Footwear's sales increased 20% in 1995 to $741.1 million, but same-store sales declined 3.0% for the year on a comparable 52-week basis. This was the first same-store sales decline recorded by Famous Footwear in nine years. Operating earnings declined 51% to $19.6 million as a result of lower same-store sales, reduced margins and increased expenses. The decrease in same-store sales and margins was primarily the result of a very difficult retail market. Increased expenses primarily were related to new stores, the opening of a second distribution center in Tennessee and the addition of infrastructure to support the expanded business. Early in 1995, Famous Footwear's planned rate of expansion was reduced. During the year 92 net stores were added, down from the 155 added in fiscal 1994. There were 814 stores in operation at the end of fiscal 1995. Naturalizer(R) stores' domestic sales decreased 7% and same-store sales decreased 4.0% on a comparable 52-week basis. Further improvement was made in gross margins, although not enough to offset the sales decline, additional under-performing stores were closed and the writedown of assets of stores still being operated was recorded with the implementation of SFAS No. 121. There was a net decrease of 14 stores during the year, reducing the total number of stores to 313. During 1996, the operations of 12 Brown Shoe Company Outlet stores and 28 Naturalizer(R) Outlet stores in outlet malls were transferred to the Naturalizer(R) Retail division from Famous Footwear. The Canadian retail operation's sales increased 5%, but same-store sales declined .6% for the year on a comparable 52-week basis. Operating profit increased 3% during fiscal 1995 with lower margins and slightly higher expenses. The Canadian wholesale operation's sales were flat in fiscal 1995. Operating earnings decreased 10% as improved margins were more than offset by an increase in royalty expense. Sales from footwear wholesale operations--Brown Shoe Company and Pagoda--declined 17% in fiscal 1995 to $530.9 million. Increased sales in Latin America and Europe and sales of the new Larry Stuart Collection(R) brand in the United States were more than offset by decreases in Naturalizer(R) and Connie(R) branded sales, Dr. Scholl's(R) and The Lion King(R) licensed products and lower first-cost sales from the Far East and Latin America. As a result, an operating loss of $4.1 million was reported in fiscal 1995 compared to a profit of $32.8 million in fiscal 1994. Operating earnings of the Company's Brazilian and European wholesale operations increased substantially in 1995 due to higher sales. These gains were partially offset by a reduction in lower-margin, first-cost sales from Latin America and the Far East. Domestic operating earnings decreased as a result of lower sales and margins and increased expenses, primarily related to brand development and marketing. The 1995 loss included a pretax charge of $14.1 million for the costs of closing the remaining five domestic manufacturing plants, which was partially offset by a pretax LIFO gain of $10.1 million from the liquidation of related inventories. Results for fiscal 1994 included a pretax LIFO gain of $9.8 million from the liquidation of inventories. In addition, Pagoda has secured the license for Walt Disney's ``Hunchback of Notre Dame(R)'' movie and the acquisition of the Le Coq Sportif(R) brand is expected to provide further growth in the foreign wholesaling operations. The 1% increase in the Company's interest expense in fiscal 1995 reflects an increase in the average short-term borrowing rate from 4.5% in fiscal 1994 to 7.0% in fiscal 1995 partially offset by lower average borrowings. The 28 30 Company's borrowing level increased throughout fiscal 1995 as cash flow, adversely affected by depressed earnings, was insufficient to fund cash needs. Other Expense of $1.6 million in 1995 primarily comprises $3.0 million of royalty income offset by a $3.6 million charge related to factory closings and a $2.1 million charge from SFAS No. 121. In 1994, Other Income of $12.3 million reflects a $9.8 million gain from the settlement of Brazilian countervailing duties and $3.0 million of royalty income. The Company's tax benefit recorded in fiscal 1995 of $5.4 million, on a pretax loss of $4.7 million, includes the recovery of $5.8 million, including interest, resulting from a court ruling overturning an Internal Revenue Service assessment on a portion of the Company's unremitted foreign earnings. See Note 5 to the Consolidated Financial Statements for a further explanation and a reconciliation of the effective tax rates to the statutory rates. The Company had an overall net deferred tax asset of $19.2 million at February 3, 1996, which relates primarily to differences in book and taxable income and net operating loss carry forwards. At February 3, 1996, the Company carried a valuation reserve related to this asset of $3.3 million, of which $2.7 million was provided in fiscal 1995. Management believes that the deferred tax asset will be realized through the offset of the deductions against taxable income produced in the normal course of business in subsequent periods. Management also has available certain tax planning strategies, which, if implemented, could fully consume the net deferred tax asset, net of the valuation reserve. Management will continue to evaluate the realizability of deferred tax assets. 1994 Compared to 1993 During 1994, the Company completed its program to concentrate in the footwear industry by selling the Cloth World chain of fabric stores. In addition to this sale, the Company also adopted a plan to close the Maryland Square catalog operation, completed its withdrawal from the Wohl Leased Shoe Department business and made substantial progress on restructuring initiatives announced at the end of fiscal 1993. The Company's sales of $1.462 billion in fiscal 1994 were 7% higher than the $1.361 billion in fiscal 1993. Earnings from continuing operations of $33.6 million in 1994 compare to a loss from continuing operations in 1993 of $9.3 million. Net earnings for 1994 of $39.4 million included earnings from discontinued operations of $1.3 million from Cloth World and Maryland Square prior to discontinuance and $4.5 million from the reversal of a portion of the provision for disposal of Wohl Leased Shoe Departments. Earnings for 1993 from continuing operations reflected the impact of an after-tax charge of $29.5 million for restructuring initiatives which included plant, office and store closures; consolidation of Brown Shoe Company and Pagoda; and provided for additional environmental monitoring costs at the Company's closed tannery. Net earnings for 1993 included earnings from discontinued operations of $4.3 million; an after-tax provision of $24.4 million for withdrawal from the Wohl Leased Shoe Department business; and an after-tax charge of $2.2 million for the implementation of the Statement of Financial Accounting Standards (SFAS) No. 112, ``Employers' Accounting for Postemployment Benefits.'' Famous Footwear's sales increased 26% in 1994 and 3.3% on a same-store basis. Operating earnings declined 7% to $39.9 million as a result of lower margins and increased expenses. Substantial investment spending was incurred in 1994 in building the infrastructure at Famous, particularly systems and distribution capabilities. During 1994, there was a net addition of 155 stores, bringing the total number of stores to 722. Naturalizer(R) Stores' domestic sales decreased 2% and were flat on a same-store basis. This business was unprofitable again in 1994, but a number of poorly performing stores were closed and gross margins improved. There was a net decrease of 40 stores during the year, bringing the total number of stores to 327. The Canadian retail operation's sales increased 10% and were up 11.2% on a same-store basis. Operating earnings more than doubled in 1994 as a result of increased sales, improved gross margins and leveraging of expenses. With the net addition of seven stores in 1994, this business operated 109 stores at year-end. The Canadian wholesale operation also had a significant increase in operating earnings as a result of strong sales of Naturalizer(R) footwear and reduced expenses. Sales from footwear wholesale and manufacturing operations--Brown Shoe Company and Pagoda--were slightly higher than 1993 at $641.6 million. Increased sales of NaturalSport(R), Life Stride(R), Dr. Scholl's(R) and The Lion King(R) licensed product were offset by lower sales of Connie(R) and Buster Brown(R), and by the midyear sale of Brown 29 31 Shoe Company's men's business. Naturalizer's(R) branded sales in 1994 were flat with 1993. Combined operating earnings for these two businesses were $32.8 million in 1994 compared to a loss of $2.4 million in 1993. Results for 1994 included a pretax LIFO gain of $9.8 million and improved gross margins, partially offset by higher expenses as a percentage of sales. Only a partial year effect of overhead reduction was realized and higher costs were incurred for brand development and marketing which is expected to continue. Included in 1993 results is a pretax restructuring charge of $24.9 million for plant closures, the consolidation of Brown Shoe Company and Pagoda and environmental monitoring costs. The 9% decrease in the Company's interest expense in 1994 reflects higher interest rates which were more than offset by reduced borrowing levels throughout most of the year. This was due to the withdrawal from the Wohl Leased Shoe Department business and the sale of Cloth World stores for $65.7 million, of which $61.0 million was received at the beginning of October and the balance in fiscal 1995. Other Income of $12.3 million in 1994 primarily comprises $9.8 million of income from the settlement of Brazilian countervailing duties and $3.0 million of royalty income. In 1993, Other Expense of $21.2 million primarily reflected restructuring charges of $21.4 million, royalty income of $2.7 million, and other offsetting items. The nonrecurring gain from settlement of the Brazilian countervailing duties of $9.8 million ($6.4 million after-tax) was offset by the provision of $5.8 million for an Internal Revenue Service tax assessment, including interest, on a portion of the Company's unremitted foreign earnings, which was in the process of being appealed by the Company. As a result of this nonrecurring provision, the Company's effective tax rate in 1994 increased to 44.0% compared to 38.7% in 1993. For a reconciliation of the effective tax rates to the statutory rates, see Note 5 to the Consolidated Financial Statements. Restructuring and Factory Closings In the second quarter of 1995 the Company made a decision to close Brown Shoe Company's five remaining domestic manufacturing plants and related facilities. A pretax charge of $14.1 million was recorded to cover the cost of these closings. This charge included provisions for asset writeoffs, inventory writedowns, and severance and benefit costs for terminated employees. In addition to the charge recorded in 1995, $2.6 million of the reserves established in 1993 were redesignated to cover additional costs associated with the final factory closings in 1995. The restructuring initiatives and additional environmental provisions, which were announced in January 1994, resulted in pretax charges of $45.4 million. These charges consisted of provisions for asset writeoffs associated with the disposal of manufacturing facilities of Brown Shoe Company and over 150 Connie(R), Regal(R) and Naturalizer(R) shoe stores, lease buyouts and termination costs for retail store closures and leased machinery from closed manufacturing facilities, inventory writedowns to liquidate store inventories, severance and benefit costs for those employees terminated due to plant and store closures, consolidation of Pagoda and Brown Shoe Company and reduction of headquarters staffing, and additional environmental monitoring costs at the Company's closed tannery. The restructuring reserve activity had a $12.8 million and $20.8 million negative cash flow impact on 1995 and 1994, respectively. In 1995 this usage was partially offset and in 1994 this usage was more than offset by positive cash flow generated from reduced inventories and sales of facilities. As of February 3, 1996, all of the planned 150 retail store closures were completed and all domestic manufacturing facilities had been closed. The majority of the planned employee terminations occurred in 1994 with the remainder occurring in 1995 as part of the final phases of the consolidation of Pagoda, Brown Shoe Company and headquarters staffs and the exit from domestic manufacturing. The remaining reserve balance at January, 1996 relates primarily to personnel severance and benefit costs for 1995 factory closings. These costs will have a modest negative impact on cash flow throughout 1996. 30 ~~32 FINANCIAL CONDITION Liquidity and Capital Resources A summary of key financial data and ratios at the dates indicated is as follows:~~
PRO FORMA AUGUST 3, AUGUST 3, 1991 1992 1993 1994 1995 1996 1996 ---- ---- ---- ---- ---- --------- --------- Working Capital (millions)..................... $297.2 $262.6 $240.6 $259.2 $209.4 $206.4 $298.4 Current Ratio.................................. 2.8:1 2.0:1 1.7:1 2.2:1 1.7:1 1.6:1 2.1:1 Total Debt as a Percentage of Total Capitalization............................... 36% 44% 55% 41% 49% 50% 50% Net Debt (Total Debt less Cash and Cash Equivalents) as a Percentage of Total Capitalization............................... 33% 42% 54% 39% 44% 45% 46%
The Company's primary source of liquidity is funds provided from operations. In addition, the Company maintained a $200 million revolving Bank Credit Agreement until October 16, 1996, when the Company elected to reduce its availability under the Bank Credit Agreement to $150 million as a result of the sale of the Private Notes. At October 25, 1996, $46.0 million was borrowed under the Bank Credit Agreement. The Company has no committed bank term loan facilities. In October 1995, the Company refinanced $50 million of 6.47% unsecured senior notes due in February 1996 with $50 million of 7.36% unsecured senior notes (the ``Senior Notes''). The Senior Notes require annual principal payments of $10 million in 1999 through 2003. The Senior Notes and the Bank Credit Agreement contain covenants which, among other things, require the maintenance of certain financial ratios related to fixed charge coverage and long-term debt-to-capital, establish minimum levels of net worth and working capital, and limit the sale of assets and the level of liens and certain investments. The Company was in compliance with all of these covenants at August 3, 1996 and management believes the Company will continue to be in compliance in 1996 based on current estimates. The Company believes that cash flow from operations combined with current borrowing capacity under the Bank Credit Agreement will be adequate to fund its current operational needs. Capital expenditures were $7.8 million and $17.2 million for the first six months of 1996 and 1995, respectively, and were $26.9 million, $32.5 million, and $27.2 million in 1995, 1994 and 1993, respectively. The Company estimates that capital expenditures will total approximately $22 million in 1996 and $24 million in 1997 and will be primarily spent on new retail stores and the remodeling of existing retail stores. There may be an increase in borrowings in 1996 to fund capital expenditures and provide for other obligations. The ability of the Company to satisfy its outstanding debt at maturity and to reduce its ratio of debt to total capitalization will be primarily dependent upon the future financial and operating performance of the Company and upon its ability to renew or refinance its borrowings or to raise additional equity capital. As of August 3, 1996, after giving effect to the offering of the Private Notes and the application of the net proceeds therefrom and the repurchase of $5 million of its long-term debt bearing interest at 7 1/8%, the Company would have had $230 million of senior indebtedness outstanding including $100 million aggregate principal amount of the Notes. In addition, the Company would have had available $176 million of undrawn borrowing under its short-term revolving credit facility ($121 million after giving effect to the Company's election to reduce the availability under such facility as of October 16, 1996 and the repurchase of $5 million of long-term debt on October 21, 1996) and no outstanding subordinated indebtedness. Cash flow provided from operating activities for the first six months of 1996 was $8.4 million compared to $10.5 million in the first six months of 1995. The decrease in cash provided by operations resulted from higher inventory and other working capital requirements partially offset by higher net earnings. Cash used by investing activities was lower in the first six months of 1996 than the same period of 1995 reflecting lower capital expenditures primarily at Famous Footwear due to opening fewer stores in 1996. 31 33 Operating activities generated cash of $15.7 million in 1995 and $48.4 million in 1994, and used cash of $12.7 million in 1993. The decrease in cash provided from operating activities in 1995 compared to 1994 was primarily due to lower earnings in 1995 and the proceeds realized in 1994 from the liquidation of assets from discontinued operations. The improvement in 1994 compared to 1993 was primarily due to higher earnings. In order to support its importing operations, the Company maintains uncommitted bank letter of credit facilities with financial institutions with whom the Company has had longstanding relationships. The Company has maintained a similar financing structure for over 20 years. While the Company does not anticipate that its banks would adversely modify or withdraw the existing letter of credit structure, there can be no assurance that the banks will not do so. To the extent that such facilities are withdrawn or otherwise modified in a manner adverse to the Company, there could be a materially adverse effect on the Company's business, financial condition or results of operations. A portion of the Company's cash and cash equivalents are held by financial institutions outside of the United States, and represent a portion of the accumulated unremitted earnings from the Company's foreign operations. It is the Company's current intention to reinvest such earnings in its foreign operations and not remit it to the United States. In the event that the cash and cash equivalents were remitted to the United States, United States income taxes would be incurred, which have not been provided. See Note 5 to the Consolidated Financial Statements. FINANCIAL INSTRUMENTS The Company has assets, liabilities, and inventory purchase commitments outside the United States which are subject to fluctuations in foreign currency exchange rates. A substantial portion of inventory sourced from foreign countries, for ultimate sale in the United States, is purchased in United States dollars and is accordingly not subject to exchange rate fluctuations. However, where the purchase price is to be paid in the foreign currency, the Company enters into forward foreign exchange contracts to reduce its economic exposure to changes in exchange rates. The level of outstanding contracts during the year is dependent on the seasonality of the Company's business and on the demand for footwear from various locations throughout the world. Although the Company purchases products from certain foreign manufacturers in United States dollars and otherwise engages in foreign currency hedging transactions, there can be no assurance that the Company will not experience foreign currency losses. Assets and liabilities outside the United States are primarily located in Canada, France, Hong Kong, Brazil, and Mexico. The Company's investments in foreign subsidiaries with a functional currency other than the United States dollar are generally considered long-term. As a result, the Company generally does not hedge these net investments. In Brazil, where the economy is deemed to be hyperinflationary, the Company hedges the local currency denominated assets and liabilities and in 1996 entered into a forward exchange contract that is designed to protect inventory values in the event of a major devaluation. The effectiveness of this latter hedge will depend on a number of factors, including the extent and timing of a devaluation and its impact on the Brazilian economy. The Company periodically enters into interest rate options and swaps to reduce its exposure to changing interest rates and to reduce interest costs. In the future the Company may enter into interest rate swaps to convert floating rate debt to fixed or fixed rate debt to floating. See Note 11 to the Consolidated Financial Statements. 32 34 BUSINESS This section contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in such forward looking statements as a result of, among other things, the factors set forth in the section entitled ``Risk Factors.'' In particular, note the Risk Factors captioned ``Shift of Focus in Business Strategy; Impact of Restructuring,'' ``Competition; Changes in Consumer Preferences,'' ``Reliance on Foreign Sources of Production,'' ``Customer Concentration,'' ``Dependence on Licenses,'' ``Dependence on Major Branded Suppliers'' and ``Seasonality.'' GENERAL The Company, founded in 1878, is one of the nation's leading footwear retailers and wholesalers providing a broad offering of branded and private label casual, athletic and dress footwear to men, women and children at a variety of price points through multiple distribution channels both domestically and internationally. The Company currently operates over 1,200 retail shoe stores in the United States and Canada and through its wholesale operations designs, sources and markets footwear to over 8,000 retail stores worldwide, including department stores, mass merchandisers and specialty shoe stores. The Company, through its Pagoda division, sourced approximately 70 million pairs of shoes in 1995 and believes that it is among the largest suppliers of footwear in the United States. The Company believes that it distinguishes itself from its competitors by providing consistent style, comfort, quality and value in its broad base of footwear offerings. The Company's net sales and EBITDA, as adjusted, for the twelve-month period ended August 3, 1996 were approximately $1.5 billion and $55.9 million, respectively. The Company's net sales for the first six months of 1996 were $745.8 million compared to $700.3 million for the same period in 1995, while EBITDA, as adjusted, was $27.8 million and $11.1 million for the same periods, respectively. Over the past decade, the Company has managed its transition from a predominantly manufacturing driven concern with multiple specialty retail concepts into a focused, marketing-oriented footwear company. The Company's retail operations represented approximately 63% of its net sales for the twelve-month period ended August 3, 1996. The Company's retail operations are conducted primarily through the Famous Footwear and Naturalizer(R) chains. The Company's net sales attributable to its retail operations increased to $476.3 million for the six-month period ended August 3, 1996 from $434.1 for the six-month period ended July 29, 1995. The Company's operating profit from its retail operations increased to $14.4 million for the six-month period ended August 3, 1996 from $9.0 million for the six-month period ended July 29, 1995. * Famous Footwear is America's largest retailer of branded footwear for the entire family, operating through approximately 780 stores in the United States. Famous Footwear stores feature a wide selection of ``brand names for less'' and offer a broad assortment of athletic, casual and dress shoes for men, women and children typically at 10% to 50% off manufacturers' suggested retail prices. Famous Footwear stores average approximately 5,000 square feet in size and are primarily located in strip centers and regional and outlet malls in the United States. Famous Footwear's branded, full line product offering at discounted prices is positioned to appeal to the needs of its target customers: value oriented families. * The Company's Naturalizer(R) stores are showcases for the Company's flagship brand of women's shoes. The Company owns and operates through approximately 450 Naturalizer(R) stores located in regional malls and shopping centers in the United States and Canada. Naturalizer(R) stores average approximately 1,300 square feet in size and feature the Company's Naturalizer(R), NaturalSport(R) and Penaljo(R) brands. These stores are designed and merchandised to appeal to the Naturalizer(R) target customer who is a style and comfort conscious woman between 40-60 years old, who seeks quality and value in her footwear selections. The Company's wholesale operations represented approximately 37% of its net sales for the twelve-month period ended August 3, 1996. The Company's wholesale operations are conducted primarily through its Brown Shoe Company and Pagoda divisions. The wholesale operations' sales and operating earnings increased to $269.5 million and $7.4 million, excluding the LIFO recovery related to liquidation of footwear manufactured in closed domestic facilities, respectively, for the first six months of 1996 from $266.2 million and a loss of $5.8 million, excluding the factory closing charges, respectively, for the same period in 1995. 33 35 * Brown Shoe Company is one of the nation's leading marketers of women's footwear products. Brown Shoe Company designs and markets the Company's Naturalizer(R), NaturalSport(R), Life Stride(R), LS Studio(TM), Night Life(R), Penaljo(R) and Larry Stuart Collection(R) brands. Each of the Company's distinct brands is targeted to a specific customer segment representing different footwear styles and taste levels at different price points. The keystone of the Company's brand portfolio is the Naturalizer(R) brand, which has a tradition of combining style and comfort. Introduced over 65 years ago, Naturalizer(R) is one of the nation's leading women's footwear brands. * The Company's Pagoda division is one of the nation's leading sourcers and marketers of footwear. Pagoda consists of (i) Pagoda USA, which markets branded, licensed and private label footwear to an extensive network of mass merchandisers, mid-tier and department stores in the United States; (ii) Pagoda International, which markets the Company's branded and licensed products for men, women and children to better specialty retailers in Europe, Latin America and the Far East; and (iii) Pagoda Trading, which sources footwear globally for Brown Shoe Company, Pagoda USA and Pagoda International through its offices in China, Taiwan, Hong Kong, Indonesia, Brazil and Italy. RESPONSES TO CHANGES IN FOOTWEAR INDUSTRY According to Footwear Industries of America, the domestic, nonrubber footwear industry had approximately $32.5 billion in annual revenues with sales of over 970 million pairs of shoes in 1995. Although the size of the industry has remained relatively flat over the past several years, the market share of the discount and self-service shoe segments grew approximately 3.5% between 1991 and 1995. The industry is highly competitive with advantages accruing to companies which can achieve significant economies of scale in their operations. The Company is one of the nation's largest retailers and sourcers of footwear and provided approximately 9% of all nonrubber footwear sold in the United States in 1995. Over the past decade the footwear industry has undergone fundamental structural changes. Primary among these changes have been: (i) the continuing migration from domestic manufacturing to international sourcing for footwear products; (ii) the ongoing consolidation of department stores and independent footwear retailers; and (iii) the shift in consumer preferences favoring athletic and casual footwear products. The Company has responded to these fundamental structural changes by: (i) eliminating all domestic manufacturing facilities and further developing its global design and sourcing capabilities; (ii) maintaining diversity in distribution through its retail formats and expanding its domestic and international wholesale operations; (iii) improving management's responsiveness to shifting consumer preferences for updated footwear styles; and (iv) improving its position as one of the nation's leading retailers and wholesalers of athletic and casual footwear products. As a result, over the past decade the Company has managed its transition from a predominantly manufacturing driven concern with multiple specialty retail concepts into a focused marketing-oriented footwear company. Beginning in the early 1980's, the Company began restructuring its operations in response to fundamental structural changes in the footwear industry. These restructuring programs have resulted in a shift in the Company's retail focus from leased footwear departments in department stores to branded footwear stores in regional malls, strip centers and outlet centers and a shift in its wholesaling focus from manufacturing to marketing and foreign sourcing. In the course of its restructuring, the Company has exited from businesses which generated an aggregate of over $1.2 billion in annualized net sales and had over $400 million of assets. These actions included: (i) the closure of 30 footwear manufacturing facilities, representing all of the Company's United States based manufacturing capability and sourcing substantially all of its footwear overseas; (ii) the sale of its Recreational Products division; (iii) the sale of its Cloth World chain of fabric stores and other specialty retailing operations; (iv) the closure of over 650 non- performing retail stores operating primarily under the Connie(R) and Regal(R) names; (v) the sale of Brown Shoe Company's men's shoe division; (vi) the exit from the leased shoe department and footwear catalog businesses; and (vii) the aggressive reduction of its corporate and divisional overhead. During the same period, the Company (i) aggressively expanded its Famous Footwear retailing operations; (ii) introduced its NaturalSport(R) brand; (iii) built its international sourcing capabilities through the acquisition of Pagoda; (iv) acquired and grew Canadian retail footwear chains; (v) established Pagoda International to develop international marketing capability; and (vi) added to its core operations through selective acquisitions, including the acquisition of the Larry Stuart Collection(R) and Le Coq Sportif(R) brands in 1995. Management believes that it has completed its restructuring and is now focused on increasing the sales and profitability of its core operations. The Company's restructuring and retail focus have contributed to an 34 36 increase in the Company's net sales and EBITDA, as adjusted, to $745.8 million and $27.8 million, respectively, in the first six months of 1996, from $700.3 million and $11.1 million, respectively, in the same prior year period. CORPORATE OPERATING STRATEGIES Focus on Style, Comfort, Quality and Value in Footwear--The Company offers a broad range of branded and private label products for men, women and children at various price points through multiple distribution channels both domestically and internationally. The Company believes that it distinguishes itself from its competitors by providing consistent style, comfort, quality and value in its broad base of footwear offerings that appeal to a broad demographic cross-section of customers. Management believes that the Company's design, global sourcing and marketing capabilities will continue to allow the Company to differentiate itself from its competitors. Marketing-Driven Footwear Product Offerings--Over the past decade, the Company has managed its transition from a predominantly manufacturing driven concern with multiple specialty retail concepts into a focused marketing- oriented footwear company. The Company has continued to respond to changes in consumer footwear preferences by changing its distribution, sourcing and footwear styles. * Distribution--The Company has exited its operation of leased footwear departments within department stores and closed numerous underperforming mall-based, full-priced retail stores. Famous Footwear, the Company's largest retail operation, operates primarily in strip centers, and regional and outlet malls in the United States. Famous Footwear's positioning is consistent with recent changes in shopping patterns, value orientation and demographics that have characterized the Company's target customer, the value oriented family. * Sourcing--The Company has closed all of its domestic manufacturing facilities and has moved substantially all of its product sourcing off-shore. Management believes that the Company has built the global sourcing capability required to meet the quality, style, price and time responsiveness demanded by its customers. Currently, the Company has sourcing arrangements with independent footwear manufacturers in over 20 countries, and has continued to diversify and strengthen its relations with independent footwear manufacturers worldwide. * Style--The Company's design efforts are intended to capture longer term style trends to create a more consistent brand image and longer lasting relationship with its customers. Recently, the Company has augmented its design capabilities to develop and update the styles comprising its broad product offerings. The Company's augmented design capabilities, combined with specific attention to consumer feedback have resulted in the alignment of established styles with current consumer preferences as well as the introduction of successful new styles. Improvements in Operating Profitability--Management continues to focus on increasing sales, improving gross margin and controlling corporate and divisional expenses to increase operating profitability. In 1996, gross margins have improved primarily through better product positioning and sourcing cost savings. Corporate overhead and divisional expenses are actively monitored to continue to streamline infrastructure without sacrificing the ability to achieve future revenue growth. For example, in 1996, the elimination of the Company's remaining domestic manufacturing facilities combined with certain other divisional cost savings are expected to reduce product costs and increase annual operating earnings by approximately $10-12 million. Management continues to pursue opportunities to further leverage its existing infrastructure through expense controls and distribution logistics. OPPORTUNITIES FOR IMPROVED DIVISIONAL PERFORMANCE RETAIL OPERATIONS Famous Footwear Focus on Execution--During 1994 and 1995, the Company opened 320 new Famous Footwear stores on a base of 567 stores, in an effort to capture market share rapidly. In mid-1995, the Company slowed the pace of its store expansion to concentrate more intensively on store level execution and in response to a more competitive retail environment. The Company intends to add approximately 20 net new stores in each of 1996 and 1997 in existing markets to further increase penetration in those markets. The slowing of new store openings has enabled management to concentrate better on improving operational efficiency and profitability at Famous Footwear. Management 35 37 believes that a number of recently implemented programs designed to better manage inventory and product selection have contributed to a 3% increase in sales per square foot, 7% increase in average price per pair and a 4% increase in average transaction size during the first six months of 1996 compared to the same period in 1995. In addition, the Company believes it will be able to continue to improve the efficiency of Famous Footwear's operations by leveraging centralized infrastructure and controlling costs. Store Maturation--The Company's strategy of slower expansion will result in increasing maturation of the Famous Footwear store base. The Company has opened more than 350 Famous Footwear stores in the last 30 months and for the first six months of 1996, sales and operating profitability for these stores averaged $75 per square foot and 1.4% of sales, respectively. Alternatively, the average annual sales per square foot and operating profitability for the approximately 450 stores over 30 months old for the same time period was $94 and 5.1%, respectively. Individual Famous Footwear stores have historically experienced increased sales and profitability with increasing maturity. Management attributes the growth in sales with store maturation to increasing familiarity of customers with: (i) the value and quality delivered by Famous Footwear's ``brand names for less'' concept; and (ii) the specific store location as customers incorporate Famous Footwear into their routine shopping patterns. Management attributes the growth in profitability with store maturation to the seasoning of store management which results in the more efficient utilization of more experienced, productive employees. Naturalizer(R) Retail Brand Repositioning--Selected Naturalizer(R) stores are participating in a repositioning program for the Naturalizer brand designed to communicate and enhance the brand's competitive advantage: style with comfort. This store program has included ``updated'' design and environment, new signage and display, improved visual merchandising and training and sales incentives for store managers and sales associates. Management believes that these store programs have contributed to the first six months of 1996 domestic same-store sales increases of 2.1% and to the ability to maintain an increase in average selling prices. WHOLESALE OPERATIONS Brown Shoe Company Product Improvements--The closure of the Company's remaining domestic manufacturing facilities in 1995 enabled Brown Shoe Company to fully utilize the broad flexibility of the Company's global sourcing capabilities. Through the Company's global sourcing, management believes that Brown Shoe Company is able to secure a wide range of quality footwear products at competitive prices. In addition, the Company recently augmented its design department to enhance its capabilities for developing and updating the styles comprising its broad offering of footwear products. The Company's augmented design capabilities, combined with specific attention to consumer feedback have resulted in the alignment of established styles with current consumer preferences as well as the introduction of successful new styles increasing the breadth of the Company's product offerings. Intensified Marketing--The Company continues to build on its strong heritage and consumer recognition of its Company-owned brands such as the Naturalizer(R) brand, one of the nation's leading women's footwear brands. In addition, the Company is strengthening and more clearly defining the independent brand images of its Naturalizer(R), NaturalSport(R), Life Stride(R), LS Studio(TM), Night Life(R) and Larry Stuart Collection(R) brands. As part of its marketing program, the Company continues to conduct consumer research designed to identify opportunities to strengthen each of the Company's brands. The Company estimates it will invest $17 million in 1996 in market research, product development and marketing communications, compared to $14 million in 1995. Recently, in conjunction with the Company's consumer-oriented marketing programs, the Company has repositioned certain of its brands with improved styling and better quality, thereby enabling the Company to realize modestly higher price points. Profitability Improvement--Management believes that it has the opportunity to continue to increase its profitability by increasing Brown Shoe Company's sales as a result of its intensified marketing and product improvements, while maintaining its recently improved gross profit margins. In addition, management believes it can maintain Brown Shoe Company's improved gross profits which management attributes to more efficient sourcing and the repositioning of certain brands. Management believes it can sustain the 8% increase in the average selling price per pair achieved through the first six months of 1996 as compared to the prior year period which management attributes to the strengthening and repositioning of its brands. 36 38 Pagoda Division Develop New and Existing Licenses--Management believes that branded wholesale footwear provides the Company with opportunities to achieve better margins than the highly competitive private label wholesale footwear business. Over the past four years, the Company has been successful in increasing the proportion of branded net sales to total wholesale net sales. In 1995, Company-owned or licensed brand net sales represented approximately 56% of Pagoda's domestic wholesale sales, up from approximately 14% in 1991. Company-owned or licensed brands represent substantially all of the Company's international wholesale net sales. Management intends to continue to increase the proportion of branded to total wholesale sales primarily through: (i) the ongoing enhancement and repositioning of Company-owned brands; (ii) the continued development of existing footwear licenses; and (iii) the selective acquisition of additional footwear licenses and brands. Management has recently entered into license agreements enabling the Company to offer Penn(R), Russell(R) and additional Disney footwear. International Growth--Management believes that there are significant opportunities for the Company to increase its sales to the large and growing international market for footwear. The Company plans to increase its penetration of existing international markets, which include Latin America, Europe, and the Far East. Management believes that the Company is well positioned to increase international footwear sales because of: (i) the strength of its internationally recognized brands and licenses including Naturalizer(R), Le Coq Sportif(R), Dr. Scholl's(R), Buster Brown(R) and Disney; (ii) its extensive experience in selling footwear in international markets; and (iii) its specific knowledge of international patterns of footwear supply and demand as a result of its global sourcing expertise. In 1995, the Company acquired Le Coq Sportif(R), which has significant brand awareness in Latin America and Europe, as part of its continuing efforts to increase its international sales. Over the past five years, the Company has been successful in increasing international net sales at a faster rate than total wholesale sales. As a result, for the first six months of 1996, international net sales represented approximately 14% of the Company's aggregate wholesale net sales, up from 12% in 1995. RETAIL OPERATIONS OVERVIEW Famous Footwear Famous Footwear is America's largest retailer of branded footwear for the entire family. Founded over 30 years ago, Famous Footwear was purchased by the Company in 1981 as a 32 store chain, and has grown to include over 780 family footwear stores located primarily in strip centers and regional and outlet malls in the United States. Famous Footwear stores offer a broad assortment of athletic, casual and dress shoes for men, women and children typically at 10% to 50% off manufacturers' suggested retail prices. Famous Footwear's branded, full-line product offering at discounted prices is positioned to appeal to the needs of its target customers: value-oriented families. Famous Footwear stores average approximately 5,000 square feet in size and feature a wide selection of ``brand names for less.'' Management attributes the recent increase in operating productivity at Famous Footwear in part to leveraging expenses as well as store maturity. 37 39 The following is an overview of the locations of the Company's Famous Footwear stores: [MAP OF FAMOUS FOOTWEAR STORES] Naturalizer Retail(R) The Company operates over 450 Naturalizer(R) stores, averaging approximately 1,300 square feet in size, located in regional malls and shopping centers in the United States and Canada. The stores offer a complete selection of women's footwear styles, including dress, casual and athletic shoes, through the Naturalizer(R), NaturalSport(R) and Penaljo(R) brands in a wide array of sizes and widths. As a result of its recent repositioning of the Naturalizer(R) brand, which includes the upgrading of certain of its store locations, domestic same-store annual sales increased 2.1% for the six-month period ended August 3, 1996. The Company also operates 16 F.X. LaSalle(R) stores, primarily in the Montreal, Canada market, which sell better-grade men's and women's footwear brands. The following is an overview of the locations of the Company's Naturalizer stores: [MAP OF NATURALIZER STORES] 38 40 PRODUCTS Famous Footwear Famous Footwear's product offering is crafted to satisfy the footwear needs of the entire family, by offering an extensive selection of athletic, casual and dress merchandise for women, men and children at competitive prices. Footwear brands include Nike, Reebok, Dexter, Naturalizer(R), Keds, Rockport, Nunn Bush, Converse, Adidas, Vans, KSwiss and Buster Brown(R). The Company continually works with its suppliers to expand its brand mix and product offerings to ensure that consumers' favorite brand names and styles are available at Famous Footwear. Famous Footwear has grown to become one of the nation's leading footwear retailers. As such, Famous Footwear has become an increasingly meaningful customer for the leading branded footwear suppliers. Management believes Famous Footwear's size and reputation enable it to benefit from strong brand buying power with its large vendor base. The Company has developed mutually beneficial relationships with many of its largest suppliers, which enable Famous Footwear to receive its product selections on a timely basis, to continually expand its brand and product mix to best serve its customers' changing needs and to ensure that its customers can find their favorite brands and styles and sizes in its stores. Management believes that Famous Footwear will be able to continue to provide competitively priced branded footwear while maintaining its gross margins. Management continues to be focused on improving inventory management to maximize Famous Footwear's in-stock position. Specifically, Famous Footwear continually refines its store model stock to replenish the stores to reflect more accurately consumer demand and historical preferences for brands, styles and sizes and to account for store location and promotional opportunities. Concurrently, management has focused on managing its product mix, particularly promotional products, to optimize its gross margins. As part of its efforts to improve inventory management, and as a result of its growth in 1995, Famous Footwear opened an additional regional distribution center to augment its distribution capabilities in the southern United States. Famous Footwear's advanced distribution systems allow for fresh merchandise to be delivered every week. In addition to the delivery of new styles, these systems provide item replenishment of the prior week's sales as well as redistribution of product to stores demonstrating the greatest item sell-through from stores with lower item sell-through. Management believes that these systems of replenishment and distribution result in lower markdowns and increased gross margins and profitability. This capability also ensures greater integrity of the product offering to the customer and assists in the effort to ensure that the right product is at the right place at the right time. Naturalizer Retail(R) The Company's Naturalizer(R) stores are showcases for the Company's flagship brand of women's shoes. Naturalizer(R) stores offer a complete selection of women's footwear styles, including dress, casual and athletic shoes, primarily under the Naturalizer(R) brand, but also under the NaturalSport brand walking and casual shoes and the Penaljo brand. The Naturalizer(R) brand is one of the nation's leading women's footwear brands providing comfort and quality in a variety of styles and sizes. Management believes that the repositioning of the Company's brands combined with the upgrading of the shopping environment of its Naturalizer(R) stores has increased the appeal of the product offering with its target customer who is a style and comfort conscious woman between 40-60 years old, who seeks quality and value in her footwear selections. SALES AND MARKETING Famous Footwear Famous Footwear stores feature a wide selection of ``brand names for less,'' by offering brand name footwear at prices which typically represent 10% to 50% savings off of manufacturers' suggested retail prices. Famous Footwear supports its competitive prices on brand name footwear with excellent service and a strong marketing campaign reinforcing Famous Footwear's value image with its target customer base of value-oriented families. In 1995, management invested over $25 million to communicate Famous Footwear's ``brand names for less'' image to target consumers, typically, on a weekly basis. Famous Footwear's marketing program includes television and newspaper advertising, in-store signage and database marketing, all of which are designed to further develop and reinforce the Famous Footwear concept with the target customer. In addition, the Company continues to invest in training to produce a knowledgeable and motivated salesforce. 39 41 Naturalizer(R) Retail The Naturalizer(R) brand and stores have been repositioned to appeal to style and comfort conscious women. Marketing programs for the Naturalizer(R) stores have complemented the Company's Naturalizer(R) brand advertising, building on the brand's strong consumer recognition and reinforcing the brand's added focus on style and quality. Similarly, the Company is in the process of upgrading its Naturalizer(R) stores to produce an inviting and comfortable shopping environment featuring new signage and displays as well as a renewed focus on visual presentation and the training and motivation of store managers and sales associates. In addition, the Company has invested in additional Naturalizer(R) salesforce training commensurate with the repositioned brand image of style, quality and comfort. Management believes that the repositioning of the Company's brands combined with the upgrading of the shopping environment of its Naturalizer(R) stores has increased the appeal of the product offering with its target customer. The Company plans to continue to remodel selected Naturalizer(R) stores. The Naturalizer(R) store product offering is typically priced between $50 and $85 per pair. Management believes these price points, which were increased concurrently with the repositioning of the Naturalizer(R) brand, reflect significant value for the style, quality and comfort which the Naturalizer(R) brand conveys. To support the Company's repositioning of its Naturalizer(R) brand, the Company has implemented a database marketing program which targets and rewards frequent customers. WHOLESALE OPERATIONS OVERVIEW Brown Shoe Company Brown Shoe Company is one of the nation's leading marketers of women's footwear products. Brown Shoe Company designs and markets the Company's NaturalSport(R), Life Stride(R), LS Studio(TM), Night Life(R), Penaljo(R) and Larry Stuart Collection(R) brands. Each of the Company's distinct brands is targeted to a specific customer segment representing different footwear styles at different price points. The keystone of the Company's brand portfolio is the Naturalizer(R) brand, which has a tradition of combining style and comfort. Introduced over 65 years ago, Naturalizer(R) is one of the nation's leading women's footwear brands. Recently, the Company believes it has achieved improved customer acceptance by repositioning certain of the Brown Shoe Company brands with improved styling and better quality, thereby enabling the Company to realize modestly higher price points. Management believes that Brown Shoe Company is successfully positioned as a supplier of premium footwear brands to department and specialty stores nationwide as well as the Company's Naturalizer(R) retail stores. Pagoda Division The Pagoda division is one of the nation's leading sourcers and marketers of footwear. Pagoda's operations consist of: (i) Pagoda USA, which markets branded, licensed and private label athletic, casual and dress footwear products to men, women and children at a variety of price points to an extensive network of mass merchandisers, mid-tier and department stores in the United States; (ii) Pagoda International, which markets the Company's branded and licensed athletic, casual and dress footwear for men, women and children, typically at moderate price points primarily to better specialty retailers in Europe, Latin America and the Far East; and (iii) Pagoda Trading, which sources footwear globally for Brown Shoe Company, Pagoda USA and Pagoda International through offices in China, Taiwan, Hong Kong, Indonesia, Brazil and Italy. Pagoda USA, which is a leading private label footwear resource for many of the nation's leading mass merchandisers, including WalMart, Kmart and Target, provided its wholesale customers with over 48 million pairs of shoes in 1995. Pagoda International, which commenced operations in 1989, has rapidly grown to sales of approximately $83 million in 1995, as the Company continues to increase its penetration of international footwear markets. Pagoda Trading, which sourced over 70 million pairs of shoes in 1995, has developed a flexible, diversified global sourcing capability through its strong, established relationships with multiple third-party independent footwear manufacturers. 40 42 PRODUCTS Brown Shoe Company Brown Shoe Company designs, sources and markets products for women under the Company's well-recognized Naturalizer(R), NaturalSport(R), Life Stride(R), LS Studio(TM), Night Life(R), Penaljo(R) and Larry Stuart Collection(R) brands. The following table provides an overview of the Brown Shoe Company products by brand:
NATURALIZER GROUP LIFE STRIDE GROUP ------------------------------------------- ----------------------------------- LIFE NIGHT LARRY STUART NATURALIZER(R) NATURALSPORT(R) PENALJO(R) STRIDE(R) LIFE(R) LS STUDIO(TM) COLLECTION(R) -------------- -------------- ---------- --------- ------- ------------- ------------- Dress & Walking & Dress & Dress & Special Sophisticated European Type of Footwear.............. Casual Active Casual Casual Occasion Contemporary Inspired Retail Price Range Per Pair... $50-65 $55-85 $50-65 $30-40 $40-50 $35-50 $80-100
Naturalizer(R), NaturalSport(R) and Penaljo(R) products emphasize style, comfort, quality and value. These brands provide a wide range of quality casual and dress footwear products which combine comfort and fit with classic, relevant and up-to-date styling. Naturalizer(R) is one of the nation's most recognized women's footwear brands. NaturalSport(R) provides functional walking shoes, sandals and clogs. The Life Stride Group, anchored by the Life Stride(R) brand, is the nation's leading, entry-level price point, women's brand in department stores, offering fashion-right styling. The Larry Stuart Collection(R) brand offers stylish, sophisticated European-inspired footwear for women. Pagoda Division Pagoda USA and Pagoda International design and market a broad offering of branded footwear for department stores, specialty footwear stores and other retailers, domestically and internationally, respectively. Pagoda USA is one of the nation's leading suppliers of children's footwear, with popular brands including Buster Brown(R), Playskool(R) and assorted Disney characters. Although the Company owns the rights to many of its brands, the Company does license certain brand names. The following summarizes Pagoda USA and Pagoda International's brands:
ADULT BRANDS CHILDREN'S BRANDS - ---------------------------- ---------------------------- COMPANY-OWNED LICENSED COMPANY-OWNED LICENSED - ------------- -------- ------------- -------- Air Step(R) Brittania(R) Buster Brown(R) Barbie(R) Connie(R) Dr. Scholl's(R) Wildcats(R) Candies(R) DeLiso(R) Mickey Unlimited(R) Casper(R) Fanfares(R) Penn(R) Disney Le Coq Sportif(R) Remington(R) Hello Kitty(R) Maserati(R) Union Bay(R) Kazaam(R) Nature Sole(R) Nerf(R) Regal(R) Playskool(R) Revelations(R) Sailor Moon(R) U.S. 101(R) Tonka(R) ~~- --------~~ ~~Disney children's licenses include 101 Dalmatians(R), Disney Babies(R), The Hunchback of Notre Dame(R), The Lion King(R) and Mickey's Stuff for Kids(R).~~
Management believes that branded and licensed footwear provides the Company with opportunities to achieve better margins than private label footwear. Over the past several years, Pagoda USA and Pagoda International have been successful in increasing their proportion of branded and licensed wholesale sales. In 1995, branded and licensed footwear represented approximately 56% of Pagoda USA's sales, up from approximately 14% in 1991. Company-owned or licensed brands represent substantially all of Pagoda International's sales. Pagoda USA and Pagoda International continuously seek opportunities to develop additional brands through selective acquisitions or licenses. Recently, the Company acquired the Le Coq Sportif(R) brand, which has significant consumer recognition in Europe and Latin America, as part of its continuing efforts to increase international sales. 41 43 Similarly, Pagoda USA and Pagoda International recently entered into a long term licensing agreement which is renewable through 2014 to market the popular Dr. Scholl's(R) brand of affordable, high quality casual and work shoes for men and women both domestically and internationally. Recently, management has entered into additional license agreements enabling Pagoda USA and Pagoda International to offer Penn(R), Russell(R) and additional Disney footwear. In addition to its branded and licensed footwear marketing, Pagoda USA executes private label programs for many of the nation's leading mass merchandisers, including Kmart, Payless ShoeSource, Target and WalMart, typically for children's shoes. The majority of this private label footwear is designed to provide these retailers with entry level price point footwear. SALES AND MARKETING Brown Shoe Company The Brown Shoe Company brands are sold in department stores, multi-line shoe stores and branded specialty stores. Consistent with the repositioning of certain of the brands to higher style and quality levels and modestly higher price points, the Company has been selectively upgrading its wholesale customer base, with particular focus on expanding its penetration of the major department stores. Currently the Company sells footwear products to substantially all the nation's major department store companies, including Dayton-Hudson, Dillard's, Federated, the May Company, Mercantile and Nordstrom. Brown Shoe Company maintains an independent sales force to market its Naturalizer(R), NaturalSport(R), Life Stride(R), LS Studio(TM), Night Life(R) and Larry Stuart Collection(R) brands primarily to department and specialty footwear stores domestically. The Brown Shoe Company sales force is responsible for developing and implementing marketing programs for each brand, planning promotional events, assisting in product development and managing the Company's relationships with its wholesale customers. Recently, the Company has intensified its marketing efforts by augmenting its market research, product development and marketing communications. The Company continues to build on and take advantage of the strong heritage and consumer recognition of its traditional brands, and it also is more clearly defining the independent brand images of certain other brands. Guided by market research, during 1995, Brown Shoe Company invested over $14 million in direct to consumer advertising in support of the repositioning of certain of its brands. Management estimates it will invest an additional $17 million in Brown Shoe Company's marketing programs in 1996. Management attributes the strong consumer recognition of its brands in part to the continued success of its marketing programs. Pagoda Division Pagoda USA and Pagoda International maintain independent sales forces to market their branded and private label products. Domestically, Pagoda USA markets branded, licensed and private label footwear to an extensive network of mass merchandisers, mid-tier and department stores in the United States. In 1995, Pagoda USA sold over 48 million pairs of shoes to its domestic wholesale customers. Internationally, Pagoda International markets branded and licensed footwear to better specialty footwear retailers. Pagoda International maintains sales offices in Brazil, France and Hong Kong. In 1995, Pagoda International's sales to its wholesale customers were approximately $83 million. Both sales forces are responsible for developing and implementing marketing programs, planning promotional events, assisting in product development and managing the Company's relationships with its wholesale customers. During 1995, Pagoda USA and Pagoda International invested over $6 million in direct to consumer marketing. Management estimates it will invest $7 million in Pagoda USA and Pagoda International's marketing programs in 1996. SOURCING The Company obtains footwear products from leading branded footwear suppliers, primarily for its Famous Footwear retail operations, as well as from its Pagoda Trading operations. Through its Famous Footwear retail operations, the Company is a meaningful customer for many leading branded footwear manufacturers. Management believes that the scale of its purchases from these leading branded footwear manufacturers typically enables the Company to secure competitive purchasing terms. 42 44 Pagoda Trading sources essentially all of the footwear for the Company's Brown Shoe Company, Pagoda USA, Pagoda International and Naturalizer(R) retail operations. In addition, Pagoda Trading sources a limited amount of footwear for Famous Footwear. Management believes that Pagoda Trading has developed a flexible, diversified global sourcing capability through its strong, established relationships with multiple third-party independent footwear manufacturers. Management attributes its ability to achieve consistent quality, competitive prices and on-time delivery to the breadth of its established relationships. The Company currently maintains sourcing offices in Brazil, Italy, China, Hong Kong, Taiwan and Indonesia. Management believes this diverse structure enables the Company to source footwear at virtually any price level from any significant shoe manufacturing region of the world. The following table provides an overview of the Company's foreign sourcing activities in 1995:
~~MILLIONS COUNTRY OF PAIRS - ------- --------~~ China........................................ 45.5 Indonesia.................................... 12.6 Brazil....................................... 5.6 Italy........................................ 2.9 Taiwan....................................... 1.1 All Other.................................... 2.3 ---- Total........................................ 70.0 ====
The Company maintains two Company-owned manufacturing facilities in Canada which have the capacity to produce approximately one million pairs annually, primarily serving the Canadian market. QUALITY CONTROL The Company monitors the quality components of its footwear products prior to production and inspects prototypes of each footwear product before production runs are commenced. The Company also performs random in-line quality control checks during and after production before footwear leaves the manufacturing facility. Final quality control inspections take place at the Company's distribution centers. The Company has approximately 40 full-time personnel engaged in quality control in the Far East, Brazil and Italy. DESIGN The Company recently augmented its design capabilities for developing and updating the styles comprising its broad footwear offering. The Company maintains separate design teams for each of its brands and the Company maintains a staff of approximately 30 footwear designers which are responsible for the creation and development of new product styles. The Company's augmented design capabilities, combined with specific attention to consumer feedback have resulted in the alignment of established styles with current consumer preferences as well as the introduction of successful new styles increasing the breadth of the Company's product offerings. The Company's designers constantly monitor trends in apparel and footwear fashion and work closely with retailers to identify consumer footwear preferences. Once a new style is created, the Company's designers work closely with independent footwear manufacturers to translate their designs into new footwear styles. DISTRIBUTION The Company operates an efficient, sophisticated distribution system which provides for the timely delivery of footwear products to the Company's retail stores and wholesale customers. The Company's distribution systems consist of four separate distribution centers located strategically in the United States. The Company's distribution centers are linked by computer to the Company's executive offices, enabling management to maintain up-to-date information on the availability of inventory at all locations. A majority of the Company's footwear products are shipped from independent manufacturers to one of the Company's distribution centers, except for footwear sourced for domestic mass merchandisers and some international wholesale customers which may be shipped direct to the customer. At the Company's distribution centers, the Company processes and ships its products by contract and common carriers and, to a lesser extent Company-owned 43 45 vehicles, to its retail stores and wholesale customers. The Company's retail stores typically receive shipments once per week under the Company's auto- replenishment program. In aggregate, the Company maintains approximately a one to two month supply of footwear product at its distribution centers. In 1995, the Company opened a new 800,000 square foot leased distribution center for its Famous Footwear retail operation in Lebanon, Tennessee. Management believes the Tennessee facility will improve the efficiency of inventory management at Famous Footwear. Management believes that its current distribution system will enable it to continue to serve its retail stores and wholesale customers for the foreseeable future. INFORMATION SYSTEMS The Company continues to invest in its computer hardware, software and network systems to: (i) enhance the speed and efficiency of certain areas of its business such as product design, order entry, distribution and financial reporting; (ii) improve the efficiency and coordination of its international sourcing operations; and (iii) provide timely inventory and retail sales information. Over the last five years, the Company has invested over $10 million to purchase computer equipment and software. The Company's retail stores use electronic point-of-sale registers to capture sales transactions and transmit daily activity each night to the Company's central computer systems in St. Louis, Missouri and Madison, Wisconsin. This system enables management to track daily sales by store by stock keeping unit. An automated reordering system is used to track retail store inventories and generate distribution center orders to keep the stores supplied with model stock inventories. The Company's wholesale businesses use sophisticated systems to support the sales, merchandising and global sourcing operations. These systems provide timely information to support selling activities, order flow, inventory receipt and distribution, and customer service. Electronic data interchange (EDI) is used with a large number of customers to process customer orders, shifting notifications and invoices. The Company is in the process of implementing a comprehensive global system which will track the flow of footwear from the source of supply at independent manufacturers to the customers. Other new system development includes a sales force automation system which will allow salesmen access to current order and product information as well as the ability to plan and enter customer orders from remote locations. BACKLOG The Company generally receives orders for the next season's footwear products three to six months prior to the time the products are delivered to wholesale customers. In addition, the Company carries certain footwear in inventory which is available for immediate shipment to fill retail customers reorders during the current selling season. At August 3, 1996, the Company's backlog, excluding intercompany orders, was approximately $186 million, as compared to approximately $187 million at July 29, 1995. All such orders are subject to cancellation. The Company's backlog depends on a number of factors, including the timing of order receipt, which may vary in any year depending on the Company's marketing programs and selling strategies and other factors beyond the Company's control. As a consequence, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual shipments. See ``Risk Factors--Seasonality.'' 44 ~~46 INTELLECTUAL PROPERTY The principal trademarks used by the Company to distinguish its brands are:~~
~~OWNED LICENSED ----- --------~~ Air Step(R) Barbie(R) Buster Brown(R) Dr. Scholl's(R) Connie(R) Kazaam(R) Larry Stuart Collection(R) Mickey Unlimited(R) and numerous other trademarks under license from Le Coq Sportif(R) The Walt Disney Company Life Stride(R) Penn(R) LS Studioe Playskool(R) Naturalizer(R) Russell(R) NaturalSport(R) Union Bay(R) Night Life(R) Penaljo(R) Revelations(R)
These trademarks are the subject of registrations and pending applications throughout the world filed by the Company (or its licensors) for use on footwear. The Company continues to expand its worldwide usage and registration of related trademarks. The Company regards the licenses to use the trademarks and its other proprietary rights in and to the trademarks as valuable assets in the marketing of its products and, on a worldwide basis, vigorously seeks to protect them against infringement. COMPETITION Competition is intense in the footwear industry. Certain of the Company's competitors are larger and have substantially greater resources than the Company. The Company's success depends upon its ability to remain competitive in the areas of style, price and quality, among others. The Company's success depends in part on its ability to anticipate and respond to changing merchandise trends and consumer preferences and demands in a timely manner. Accordingly, any failure by the Company to anticipate and respond to changing merchandise trends could adversely affect consumer acceptance of the Company's brand names and product lines, which in turn could adversely affect the Company's business, financial condition or results of operations. EMPLOYEES The Company has approximately 11,000 full and part-time employees. Approximately 130 employees engaged in one of the Company's domestic distribution centers are employed under a union contract, which expires in September 1999. In Canada, approximately 300 factory and warehouse employees are employed under union contracts which expire in October, 1996 and October, 1997. The Company considers its relations with its employees to be satisfactory. 45 ~~47 PROPERTIES Certain information concerning the Company's principal facilities is set forth below:~~
~~LOCATION USE APPROX. SQ. FEET OWNERSHIP -------- --- ---------------- ---------~~ St. Louis, MO Principal Executive, Sales and 265,000 Owned Administrative Offices Sikeston, MO Brown Shoe Company Distribution Center 710,000 Owned Fredericktown, MO Brown Shoe Company Distribution Center 385,000 Owned Ontario, Canada Canadian Operations 257,000 Owned Madison, WI Famous Footwear Executive, Sales and 135,000 Leased Administrative Offices Madison, WI Famous Footwear Distribution Center 750,000 Leased Lebanon, TN Famous Footwear Distribution Center 800,000 Leased
ENVIRONMENTAL The Company is involved in environmental remediation and ongoing compliance at several sites. The Company has completed remediation efforts at its closed New York tannery and two associated landfills. As such, in September 1995, state environmental authorities reclassified the status of the site to one that has been properly closed and that requires only continued maintenance and monitoring, which includes certain limited groundwater sampling at the tannery site. This change in status has allowed the Company to estimate more reliably the future liability for monitoring and maintenance, which is required over the next 28 years, based on a specific site plan. Accordingly, in the third quarter of 1995, the estimated liability of $5.3 million related to this site was discounted, using a 6.4% rate, resulting in a $2.0 million reduction in the previously recorded liability of $4.7 million. The expected payments for the next five years are approximately $0.2 million per year with the balance due thereafter. In 1994, the Company became aware of potential exposure at an owned factory that is currently leased to another party. Preliminary testing was completed in late 1994, and remediation work began in 1995. In addition, various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain landfills from disposal of solvents and other by-products from the closed tannery and shoe manufacturing facilities. Management expects that the remaining costs related to the owned, but leased, factory and the various landfills will total approximately $0.8 - $1.0 million. While the Company currently operates no domestic manufacturing facilities, prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. At February 3, 1996, the total accrued environmental liabilities of the Company for all sites, including the above discounted liability, total approximately $3.1 million. LEGAL PROCEEDINGS The Company is a party to various claims, complaints and other legal actions that have arisen in the ordinary course of business from time to time. Management believes that the outcome of all pending legal proceedings, in the aggregate, will not have a material adverse effect on the Company's business, results of operations or financial condition. 46 ~~48 MANAGEMENT The executive officers of Brown Group, Inc. are as follows:~~
~~NAME AGE POSITION ---- --- --------~~ B. A. Bridgewater, Jr..................... 62 Chairman of the Board, President and Chief Executive Officer; Chairman of the Executive Committee Brian C. Cook............................. 57 Vice President, and President, Famous Footwear Ronald N. Durchfort....................... 43 President, Pagoda International Ronald A. Fromm........................... 45 Executive Vice President, Famous Footwear Robert D. Pickle.......................... 59 Vice President, General Counsel and Corporate Secretary Gary M. Rich.............................. 45 President, Pagoda U.S.A. Harry E. Rich............................. 56 Director, Executive Vice President, Chief Financial Officer; Member of the Executive Committee James M. Roe.............................. 50 Senior Vice President, Sales and Operations, Famous Footwear Andrew M. Rosen........................... 45 Vice President and Treasurer Richard C. Schumacher..................... 48 Vice President and Controller David H. Schwartz......................... 50 President, Pagoda Trading Mary S. Siverts........................... 36 Vice President, Public Affairs Thomas A. Williams........................ 47 Vice President, and President, Brown Shoe Company E. Lee Wyatt, Jr.......................... 43 Senior Vice President, Finance and Administration, Brown Shoe Company George J. Zelinsky........................ 48 Senior Vice President and General Merchandise Manager, Famous Footwear
B. A. BRIDGEWATER, JR. has served as Chief Executive Officer of the Company since 1982 and Chairman of the Company's Board of Directors since 1985. In addition to his current positions with the Company, Mr. Bridgewater serves as a director of Boatmen's Bancshares, Inc., ENSERCH Corporation and Enserch Exploration, Inc., FMC Corporation and McDonnell Douglas Corporation. Mr. Bridgewater served as President of the Company from 1979 to 1987 and was again named President in 1990. Prior to his election as President of the Company in 1979, Mr. Bridgewater served as Executive Vice President and a director of Baxter Travenol Laboratories, Inc. (``Baxter'') from 1975 to 1979. Prior to his employment with Baxter, Mr. Bridgewater held the position of Director (Senior Partner) of McKinsey and Company (``McKinsey''), a management consulting firm, where he was employed from 1964 to 1975. From 1973 to 1974, on leave from McKinsey, Mr. Bridgewater served as Associate Director, National Security and International Affairs, of the Office of Management and Budget in the Executive Office of the President of the United States. BRIAN C. COOK has served as President of Famous Footwear since 1981 and as a Vice President of the Company since 1992. Mr. Cook started his career with Famous Footwear on a full-time basis in 1965. He has held a variety of positions with Famous Footwear over the years. RONALD N. DURCHFORT has served as President of Pagoda International since March 1993. Prior to his current position, he served as General Manager of Operations of the Paris office of Pagoda International, a position which he held from 1988 through March 1993. Mr. Durchfort joined Pagoda International in 1986 as its European Sales Coordinator. Prior to joining Pagoda International, he was self-employed in international trade. Prior to being self-employed, Mr. Durchfort had held a position in international finance with the Brazilian government for five years. RONALD A. FROMM has served as Executive Vice President of Famous Footwear since September 1992. Prior to his current position, he served as Vice President and Chief Financial Officer of Famous Footwear, a position which he held from 1988 to 1992. Mr. Fromm joined Famous Footwear in 1986 as Chief Financial Director. Prior to joining Famous Footwear, he served as Vice President of Heath Corporation, where he was employed from 1974 until 1986. ROBERT D. PICKLE has served as Vice President, General Counsel and Corporate Secretary of the Company since 1985. He was elected General Counsel and Corporate Secretary of the Company in 1974. Mr. Pickle joined the 47 49 Company in 1963, as an attorney. Prior to joining the Company, he served on active military duty in the United States Army Judge Advocate General's Corps, as Assistant Staff Judge Advocate of the United States Army Aviation and Surface Materiel Command. GARY M. RICH has served as President of Pagoda U.S.A. since March 1993. Prior to his current position, he served as President of Pagoda Trading Company, Inc., a position which he held from June 1989 to March 1993. Mr. Rich held the position of Executive Vice President of Sidney Rich Associates, Inc., a subsidiary of the Company, from 1980 to 1989. HARRY E. RICH has served as Executive Vice President and Chief Financial Officer of the Company since 1988. He has served on the Company's Board of Directors since 1985. In addition to being a member of the Company's Board of Directors, Mr. Rich serves as a director of The Boatmen's National Bank of St. Louis, General American Capital Company, a registered investment company, and Walnut Street Funds, Inc. Mr. Rich joined the Company in 1983 as Senior Vice President and was named Senior Vice President and Chief Financial Officer of the Company in 1984. Prior to joining the Company in 1983, Mr. Rich held the position of Group Vice President--Medical Products with Mallinckrodt, Inc. (``Mallinckrodt''). Before joining Mallinckrodt, Mr. Rich had been employed by Baxter Laboratories, Inc. (``Baxter'') for 11 years. His last position with Baxter was President--American Instrument Company. JAMES M. ROE has served as Senior Vice President of Sales and Operations of Famous Footwear since 1994. Prior to his current position, he served as Vice President of Real Estate of Famous Footwear (1992-1994) and as Director of Strip Center Real Estate of the Company (1987-1992). He was employed by Wohl Shoe Company from 1963 to 1987. ANDREW M. ROSEN has served as Vice President and Treasurer of the Company since January 1992. Mr. Rosen has held a variety of positions since joining the Company in 1974, including the positions of Manager--Pension Benefits and Corporate Cash Manager. He was elected Treasurer of the Company in 1983. RICHARD C. SCHUMACHER has served as Vice President and Controller of the Company since June 1994. From November 1992 to June 1994, Mr. Schumacher served as Vice President and Chief Financial Officer of Wohl Shoe Company. In 1985, he was named Assistant Controller of the Company, a position which he held from 1985 through 1992. Mr. Schumacher joined the Company in 1982 as its Director of Corporate Accounting. Prior to joining the Company, he had been employed by Arthur Andersen & Co. for ten years. DAVID H. SCHWARTZ has served as President of Pagoda Trading since February 1996. Prior to his current position, he served as President of the Men's, Athletic and Children's Divisions of Pagoda Trading (March 1995 to February 1996) and as President of the Marathon Division of Pagoda Trading (March 1981 to March 1995). Mr. Schwartz joined Pagoda Trading in 1978. MARY S. SIVERTS has served as Vice President of Public Affairs of the Company since September 1993. Ms. Siverts joined the Company in 1985 as a financial analyst and was promoted to Manager of Public Relations in 1987. From 1988 to 1993, she served as Director of Public Relations of the Company. THOMAS A. WILLIAMS has served as a Vice President of the Company and as President of Brown Shoe Company since January 1994. He served as Chairman of Pagoda Trading Company, Inc. from January 1990 to May 1996. Prior to his current positions, he served as Vice President of International Operations of the Company and Chairman of Brown Group International, Inc. (March 1993 to January 1994) and Vice Chairman of Pagoda Trading Company, Inc. (June 1989 to December 1989). From 1982 to 1990, he held various management positions at Pagoda Trading Company, Inc. From 1980 through 1982, Mr. Williams was Vice President of Product Development at Cherokee, Inc. Mr. Williams was employed by Brown Shoe Company from 1972 to 1980, during which period he worked in product and sales management positions in the Naturalizer(R) division. E. LEE WYATT, JR. has served as Senior Vice President of Finance and Administration of Brown Shoe Company since May 1994. Mr. Wyatt joined the Company in 1983, after serving as a Tax Manager for Deloitte, Haskins & Sells. Since joining the Company, he has served as Vice President of Planning and Controller (March 1994 to May 1994); Vice President of Planning and Taxes (November 1992 to March 1994); Director of Corporate Planning and Taxes and Assistant Secretary (June 1990 to November 1992); and Director of Corporate Planning and Tax (October 1989 to June 1990). Mr. Wyatt held various management positions with the Company from 1986 to 1989. 48 50 GEORGE J. ZELINSKY has served as Senior Vice President and General Merchandise Manager of Famous Footwear since June 1989. He served as Vice President of the Women's Better Grade Division of Wohl Shoe Company from 1986 to 1989. Mr. Zelinsky joined the Wohl Shoe Company in 1967 and held a variety of positions at the Company from 1967 through 1986. PRINCIPAL SHAREHOLDERS The following table sets forth certain information with respect to each person known by the Company, as of April 3, 1996, to beneficially own more than 5% of the Common Stock of the Company:
NUMBER OF PERCENT OF SHARES OF OUTSTANDING NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK ------------------------------------ ------------ ------------ ~~John Hancock Mutual Life Insurance Company, through its indirect, wholly owned Subsidiaries......................... 1,681,698~~ ~~9.4%~~ ~~John Hancock Place P.O. Box 111 Boston, Massachusetts 02117 Manning & Napier Advisors, Inc................................ 1,912,312~~ ~~10.7%~~ ~~1100 Chase Square Rochester, New York 14604 The State Teachers Retirement Board of Ohio................... 1,081,100~~ ~~6.0%~~ ~~275 East Broad Street Columbus, Ohio 43215~~ ~~- --------~~ Based on written representations made to the Company by such Shareholder, the named Shareholder, acting in various fiduciary capacities, possessed sole voting authority over 769,141 shares and sole investment authority over 1,681,698 shares. Based on written representations made to the Company by such Shareholder, the named Shareholder, acting in various fiduciary capacities, possessed sole voting authority over 1,850,662 shares and sole investment authority over 1,912,312 shares. Based on written representations made to the Company by such Shareholder, the named Shareholder, acting in various fiduciary capacities, possessed sole voting authority over 1,081,100 shares and sole investment authority over 1,081,100 shares.
DESCRIPTION OF THE NOTES The Private Notes were, and the Exchange Notes will be, issued under that certain indenture (the ``Indenture'') dated as of October 1, 1996 between the Company and State Street Bank and Trust Company, as Trustee (the ``Trustee''). The following summary of certain provisions of the Indenture ~~does not purport to be complete and is subject to, and is qualified in its entirety~~ by reference to the Trust Indenture Act of 1939, as amended (the ~~``TIA''~~“Trust Indenture Act”),. The terms of the exchange notes are the same as the terms of the original notes, except that (i) the exchange notes will be registered under the Securities Act, (ii) the exchange notes will not bear restrictive legends restricting their transfer under the Securities Act, (iii) holders of the exchange notes are not entitled to certain rights under the registration rights agreement and (iv) the exchange notes will not contain provisions relating to ~~all~~liquidated damages in connection with the original notes under circumstances related to the timing of the exchange offer.
The following description is a summary of the material provisions of the Indenture. It does not restate that agreement in its entirety. We urge you to read the Indenture ~~including the definitions of certain terms therein~~because it, and ~~those terms made a part~~not this description, defines your rights as holders of the ~~Indenture by reference to the TIA as in effect on the date of the Indenture. The Indenture is by its terms subject to and governed by the TIA. Unless otherwise indicated, references under~~Notes. Anyone who receives this ~~caption to ``Section'' are references to the Indenture. A~~Prospectus may obtain a copy of the Indenture ~~may be obtained from~~without charge by writing to Caleres, Inc. at 8300 Maryland Avenue, St. Louis, Missouri 63105, Attention: Treasurer.
You can find the ~~Company. The~~ definitions of ~~certain capitalized~~some terms used in ~~the following summary are set forth~~this description below under ~~``--Certain Definitions''. GENERAL~~ the caption “-Certain Definitions.” Some defined terms used in this “Description of Exchange Notes” but not defined below under the caption “-Certain Definitions” have the meanings assigned to them in the Indenture. In this “Description of Exchange Notes,” the word “Company” refers only to Caleres, Inc. and not to any of its subsidiaries, and “the Notes” refers to the exchange notes.
~~Brief Description of the Notes~~
~~The Notes will be:~~
~~general unsecured obligations of the Company;~~
effectively subordinated to all existing and future secured obligations of the Company, including the obligations of the Company under the Credit Agreement, to the extent of the assets securing such obligations, and to all existing and future liabilities of the Company’s subsidiaries that are not Guarantors, to the extent of the assets of such subsidiaries;
~~pari passu in right of payment with all existing and future unsecured, unsubordinated obligations of the Company;~~
~~senior in right of payment to any future unsecured obligations of the Company that are, by their terms, expressly subordinated in right of payment to the Notes; and~~
~~guaranteed by the Guarantors.~~
~~Assuming the offering of the Notes and the repurchase or redemption of all of the 7⅛% Notes described in this prospectus had been completed as of August 1, 2015:~~
the Company would have had $200.0 million of consolidated indebtedness outstanding, consisting of the Notes, as well as $6.3 million in letters of credit outstanding under our secured revolving credit facility; and
~~the Company’s Subsidiaries that are not Guarantors would have had approximately $56.4 million of third-party liabilities (exclusive of intercompany debt).~~
As of the date of the Indenture, all of our subsidiaries will be “Restricted Subsidiaries.” However, under the circumstances described below under the caption “-Certain Covenants-Designation of Restricted and Unrestricted Subsidiaries,” we will be permitted to designate certain of our subsidiaries as “Unrestricted Subsidiaries.” Any Unrestricted Subsidiaries will not be subject to any of the restrictive covenants in the Indenture and will not guarantee the Notes.
~~Principal, Maturity and Interest~~
The Indenture provides for the issuance by the Company of Notes with an unlimited principal amount, of which $200.0 million will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof and will mature on October 15, 2006. Initially, the Trustee will act as paying agent and registrar for the Notes. The Notes may be presented for registration of transfer andthis exchange ~~at the offices of the registrar, which initially will be the Trustee's corporate trust office.~~offer. The Company may ~~change any paying agent and registrar~~issue additional notes (the “Additional Notes”) from time to

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time after this exchange offer under the Indenture without ~~notice~~the consent of the Holders. Any offering of Additional Notes is subject to the ~~holders~~covenant described below under the caption “-Certain Covenants-Incurrence of Indebtedness.” The Notes and any Additional Notes subsequently issued under the Notes. The Company will pay principal (and premium, if any) on the Notes at the Trustee's corporate office in New York, New York. At the Company's option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered 49 ~~51 addresses of holders of the Notes. Any notes that remain outstanding after the completion of the Exchange Offer, together with the Exchange Notes issued in connection with the Exchange Offer, will~~Indenture would be treated as a single class ~~of securities~~for all purposes under the ~~Indenture. (Sections 2.01, 2.03~~Indenture, including, without limitation, waivers, amendments, redemptions and ~~4.01) PRINCIPAL AMOUNT, MATURITY AND INTEREST The~~offers to purchase; provided that if any Additional Notes are ~~limited~~not fungible with the Notes issued on the Issue Date for U.S. federal income tax purposes, such Additional Notes will be issued with a separate CUSIP and ISIN number from the Notes issued on the Issue Date. The Company will issue Notes in ~~aggregate principal amount to $150,000,000~~denominations of $2,000 and integral multiples of $1,000 in excess thereof. The Notes will mature on ~~October~~August 15, ~~2006.~~ 2023.
Interest on the Notes will accrue at the rate of ~~9 1/2%~~6.250% per annum and will be payable semi-annually in arrears on ~~each April~~February 15 and ~~October~~August 15, commencing on ~~April~~February 15, ~~1997,~~2016. The Company will make each interest payment to the ~~persons who are registered holders~~Holders of ~~Notes at the close of business~~record on the ~~April~~immediately preceding February 1 and ~~October 1, respectively, immediately preceding the applicable interest payment date.~~ August 1.
Interest on the Notes will accrue from ~~and including~~ the ~~most recent~~ date ~~to which~~of original issuance or, if interest has ~~been paid or, if no interest has~~already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Company, the Company will pay all principal, interest and premium and Additional Interest, if any, on that Holder’s Notes in accordance with those instructions. All other payments on Notes will be made at the office or agency of the Paying Agent and Registrar unless the Company elects to make interest payments by check mailed to the Holders at their addresses set forth in the register of Holders.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without prior notice to the Holders, and the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all purposes.
Note Guarantees
The Notes will be initially guaranteed, jointly and severally, by all our Subsidiaries that Incur or Guarantee Obligations under the Credit Agreement. Each Note Guarantee will be:
a general unsecured obligation of the Guarantor;
effectively subordinated to all existing and future secured obligations of the Guarantor, including the Guarantee of the Guarantor under the Credit Agreement;
pari passu in right of payment with all existing and future unsecured, unsubordinated obligations of the Guarantor; and
senior in right of payment to any future unsecured obligations of the Guarantor that are, by their terms, expressly subordinated in right of payment to the Note Guarantee.
The obligations of each Guarantor under its Note Guarantee will be limited as necessary to prevent that Note Guarantee from constituting a fraudulent conveyance under applicable law. See “Risk Factors-The guarantees may not be enforceable because of fraudulent conveyance laws.” Assuming the offering of the original notes and subsequent redemption of the 7¹⁄₈% Notes had been completed as of August 1, 2015, the Guarantors would have had no indebtedness outstanding (other than guarantees of the Notes).

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See “-Certain Covenants-Guarantees.”
Optional Redemption
Prior to August 15, 2018, the Company may redeem some or all of the Notes at any time, on not less than 30 nor more than 60 days prior notice, in amounts of $2,000 and integral multiples of $1,000, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium, as of, and accrued and unpaid interest and Additional Interest, if any, to, the redemption date. “Applicable Premium” means, with respect to any note on any redemption date, the greater of:
(i) 1.0% of the principal amount of such note and
(ii) the excess of (A) the present value at such redemption date of (1) the redemption price of such note at August 15, 2018 (such redemption price being set forth in the table below) plus (2) all required interest payments due on such note through August 15, 2018 (excluding accrued and unpaid interest and Additional Interest, if any, to the redemption date), computed using a discount rate equal to the Adjusted Treasury Rate on such redemption date plus 50 basis points over (B) the principal amount of such note.
However, if a redemption date is after an interest record date but on or prior to the corresponding interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to a Holder of record as of the relevant record date and the redemption price shall not include such interest payment. Calculation of the redemption price will be made by us or on our behalf by such person as we will designate; provided that such calculation or the correctness thereof will not be a duty or obligation of the Trustee.
For purposes of calculating the redemption price, the following terms have the meanings set forth below:
“Adjusted Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of the principal amount) equal to the Comparable Treasury Price for the redemption date.
“ Comparable Treasury Issue” means the U.S. treasury security selected by an Independent Investment Banker that would be used, at the time of selection and in accordance with customary financial practice, in pricing issues of corporate debt securities of comparable maturity to the remaining term of the Notes (assuming the Notes mature on August 15, 2018).
“Comparable Treasury Price” means either (1) the average of the Reference Treasury Dealer Quotations for the redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations or (2) if the Company obtains fewer than three such Reference Treasury Dealer Quotations, the average of all quotations obtained.
“Independent Investment Banker” means one of the Reference Treasury Dealers that the Company appoints.
“Reference Treasury Dealer” means each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Securities, LLC and J.P. Morgan Securities LLC (and each of their respective successors) and any other additionally recognized investment banking firm that is a primary U.S. government securities dealer specified from time to time by the Company.
“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Company by such Reference Treasury Dealer as of 3:30 p.m., New York time, on the third business day preceding the redemption date.
In addition, at any time prior to August 15, 2018, the Company may redeem up to 40% of the aggregate principal amount of Notes issued under the Indenture (including any Additional Notes) at a redemption price of 106.250% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, thereon to, but not including, the redemption date (subject to the rights of Holders of record on a record date to receive payments of interest on the relevant interest payment date), with the net cash proceeds of one or more Equity Offerings; provided that:
(1) at least 60% of the aggregate principal amount of Notes issued under the Indenture (including any Additional Notes) remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company or its Subsidiaries); and

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(2) the redemption must occur within 45 days of the date of the closing of such Equity Offering.
On or after August 15, 2018, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Additional Interest, if any, thereon, to, but not including, the applicable redemption date (subject to the rights of Holders of record on a record date to receive payments of interest on the relevant interest payment date), if redeemed during the twelve-month period beginning on August 15 of the years indicated below:

Year
Percentage
2018 104.688%
2019 103.125%
2020 101.563%
2021 and thereafter 100.000%
If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes (subject to applicable procedures of DTC if the Notes are Global Notes) for redemption as follows:
(1) if the Notes are listed on any national securities exchange, in compliance with the requirements of such principal national securities exchange; or
(2) if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate.
No Notes of $2,000 or less shall be redeemed in part. Notices of redemption shall, in the case of Global Notes, be sent in accordance with applicable DTC procedures or regulations, and in the case of Notes that are not Global Notes, be mailed by first class mail to each Holder of Notes to be redeemed at its registered address, in each case at least 30 but not more than 60 days before the redemption date, except that redemption notices may be mailed or sent more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the indenture.
Any notice of redemption may, at the Company’s discretion, be subject to one or more conditions precedent, including, but not limited to, completion of an Equity Offering or other transaction. If a redemption is subject to satisfaction of one or more conditions precedent, such notice shall describe each such condition, and if applicable, shall state that, in the Company’s discretion, the redemption date may be delayed until such time as any or all such conditions shall be satisfied, without the requirement of an additional notice period to the Holders or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the redemption date, or by the redemption date as so delayed. If any such condition precedent has not been satisfied, the Company will provide written notice to the Trustee prior to the close of business two Business Days prior to the redemption date. Upon receipt of such notice, the notice of redemption will be rescinded and the redemption of the Notes will not occur. Upon receipt, the Trustee will provide such notice to each Holder in the same manner in which the notice of redemption was given. The Company may provide in such notice that payment of the redemption price and the performance of the Company’s obligations with respect to such redemption may be performed by another person.
If any Note is to be redeemed in part only, the notice of redemption that relates to that Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder thereof upon cancellation of the original Note (or if the Note is a Global Note, an adjustment shall be made to the schedule attached thereto). Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption as long as the Company has deposited or caused to be deposited with the Paying Agent funds in satisfaction of the redemption price of such Notes pursuant to the Indenture.
Mandatory Redemption; Open Market Purchases
The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. The Company is not prohibited, however, from acquiring Notes by means other than redemption, whether pursuant to a tender offer, open market transactions or otherwise, assuming such acquisition does not otherwise violate the terms of the Indenture or any other agreement to which the Company is a party.

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Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder will have the right to require the Company to repurchase all or any part (equal to $2,000 and integral multiples of $1,000 in excess thereof) of that Holder’s Notes pursuant toan offer (a “Change of Control Offer”) on the terms set forth in the Indenture. In the Change of Control Offer, the Company will offer payment (a “Change of Control Payment”) in cash equal to not less than 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest and Additional Interest, if any,thereon, to, but not including, the date of ~~issuance. (Sections 2.01, 4.01)~~repurchase (the “Change of Control Payment Date,” which date will beno earlier than the date of such Change of Control), provided, however, that notwithstanding the occurrence of a Change of Control, the Company shall not be obligated to purchase the Notes pursuant to this section in the event that it has mailed or sent the notice to exercise its right to redeem all the Notes under the terms of the section titled “-Optional Redemption” at any time prior to the requirement to consummate the Change of Control and redeems the Notes in accordance with such notice. No later than 30 days following any Change of Control, the Company will mail (or with respect to Global Notes, to the extent permitted or required by applicable DTC procedures or regulations, send electronically) a notice to each Holder, with a copy to the Trustee, describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the Change of Control Payment Date specified in such notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed or sent, pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of such compliance.
On the Change of Control Payment Date, the Company will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail or wire transfer to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof.
The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
The Credit Agreement prohibits the Company from purchasing any Notes unless certain conditions are satisfied, and also provides that certain change of control events with respect to the Company would constitute a default under the Credit Agreement. Any future credit agreements or other similar agreements to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or refinance such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company’s failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such other agreements.
The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable regardless of whether any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.

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The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require the Company to repurchase such Notes as a result of a sale, transfer, conveyance or other disposition of less than all of the assets of the Company and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and
(2) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash, Cash Equivalents or Replacement Assets or a combination of the foregoing. For purposes of this provision, each of the following shall be deemed to be cash:
(a)
any liabilities (as shown on the Company’s or such Restricted Subsidiary’s most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities, Indebtedness that is by its terms pari passu with, or subordinated to, the Notes or any Note Guarantee and liabilities to the extent owed to the Company or any Affiliate of the Company) that are assumed by the transferee of any such assets or Equity Interests pursuant to a written assignment and assumption agreement that releases the Company or such Restricted Subsidiary from further liability therefor;
(b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash within 180 days after the date of such Asset Sale (to the extent of the cash received in that conversion); and
(c) any Designated Non-cash Consideration received by the Company or any of its Restricted Subsidiaries in such Asset Sale having an aggregate Fair Market Value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed the greater of (x) 2.0% of the Company’s Consolidated Net Tangible Assets on the date of the receipt thereof and (y) $75.0 million (with the Fair Market Value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds at its option:
(1) to repay Indebtedness secured by such assets;
(2)
to purchase Replacement Assets (or enter into a binding agreement to purchase such Replacement Assets; provided that (x) such purchase is consummated within 60 days after the date of such binding agreement and (y) if such purchase is not consummated within the period set forth in subclause (x), the Net Proceeds not so applied will be deemed to be Excess Proceeds (as defined below)); or
(3) any combination of the foregoing clauses (1) and (2).
Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture.

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On the 366th day after the receipt by the Company of Net Proceeds from an Asset Sale or such earlier date, if any, as the Company determines not to apply the Net Proceeds relating to such Asset Sale as set forth in preceding paragraph (each such date being referred as an “Excess Proceeds Trigger Date”), such aggregate amount of Net Proceeds that has not been applied on or before the Excess Proceeds Trigger Date as permitted in the preceding paragraph (“Excess Proceeds”) will be applied by the Company to make an offer (an “Asset Sale Offer”) to all Holders and all holders of other Indebtedness that is pari passu with the Notes or any Note Guarantee containing provisions similar to those set forth in the Indenture with respect to offers to purchase with the proceeds of sales of assets, with a copy to the Trustee, to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount of the Notes and such other pari passu Indebtedness plus accrued and unpaid interest and Additional Interest, if any, to, but not including, the date of purchase, and will be payable in cash.
The Company may defer the Asset Sale Offer until there are aggregate unutilized Excess Proceeds equal to or in excess of $50.0 million resulting from one or more Asset Sales, at which time the entire unutilized amount of Excess Proceeds (not only the amount in excess of $50.0 million) will be applied as provided in the preceding paragraph. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Notes and such other pari passu Indebtedness will be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the Excess Proceeds subject to such Asset Sale will no longer be deemed to be Excess Proceeds.
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such compliance.
The Credit Agreement prohibits the Company from purchasing any Notes unless certain conditions are satisfied, and also provides that certain asset sale events with respect to the Company constitute a default under the Credit Agreement. Any future credit agreements or other similar agreements to which the Company becomes a party may contain similar restrictions and provisions. In the event an Asset Sale occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or refinance such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company’s failure to purchase tendered Notes would constitute an Event of Default under the Indenture which may, in turn, constitute a default under such other agreements.
Certain Covenants
Limitation of Applicability of Certain Covenants if Notes Rated Investment Grade
Following the first day:
(a) the Notes have been rated Investment Grade; and
(b) no Default or Event of Default has occurred and is continuing under the Indenture,
then, beginning on that day and continuing until the Reversion Date (as defined below), the Company and its Restricted Subsidiaries will not be subject to the provisions of the Indenture summarized under the following headings (collectively, the “Suspended Covenants”):
‘‘—Repurchase at the Option of Holders-Asset Sales”,
“—Restricted Payments”,
“—Incurrence of Indebtedness”,
“—Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries”,

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the provisions of clause (3) of the first paragraph of “-Merger, Consolidation or Sale of Assets”,
“—Transactions with Affiliates”,
“—Designation of Restricted and Unrestricted Subsidiaries” and
“—Limitation on Issuances and Sales of Equity Interests in Restricted Subsidiaries”
If at any time the Notes cease to be rated Investment Grade or if a Default or Event of Default occurs and is continuing, then the Suspended Covenants will thereafter be reinstated as if such covenants had never been suspended (the “Reversion Date”) and be applicable pursuant to the terms of the Indenture (including in connection with performing any calculation or assessment to determine compliance with the terms of the Indenture), unless and until the Notes are subsequently rated Investment Grade and no Default or Event of Default is in existence (in which event the Suspended Covenants shall no longer be in effect for such time that the Notes continue to be rated Investment Grade and no Default or Event of Default is in existence); provided, however, that no Default, Event of Default or breach of any kind shall be deemed to exist under the Indenture, the Notes or the Note Guarantees with respect to the Suspended Covenants based on, and none of the Company or any of its Subsidiaries shall bear any liability for, any actions taken or events occurring during the Suspension Period (as defined below), or any actions taken at any time pursuant to any contractual obligation arising prior to the Reversion Date, regardless of whether such actions or events would have been permitted if the applicable Suspended Covenants remained in effect during such period. The period of time between the date of suspension of the covenants and the Reversion Date is referred to as the “Suspension Period.” The Company will promptly notify the Trustee of the occurrence of any Suspension Period or Reversion Date.
On the Reversion Date, all Indebtedness Incurred during the Suspension Period will be classified to have been Incurred pursuant to the first paragraph of “-Incurrence of Indebtedness” or one of the clauses set forth in the second paragraph of “-Incurrence of Indebtedness” (to the extent such Indebtedness would be permitted to be Incurred thereunder as of the Reversion Date and after giving effect to the Indebtedness Incurred prior to the Suspension Period and outstanding on the Reinstatement Date). To the extent such Indebtedness would not be so permitted to be Incurred pursuant to the first and second paragraphs of “-Incurrence of Indebtedness,” such Indebtedness will be deemed to have been outstanding on the Issue Date, so that it is classified as permitted under clause (2) of the second paragraph of “-Incurrence of Indebtedness”. Calculations made after the Reversion Date of the amount available to be made as Restricted Payments under “-Restricted Payments” will be made as though the covenants described under “-Restricted Payments” had been in effect since the Issue Date and throughout the Suspension Period. Accordingly, Restricted Payments made during the Suspension Period will reduce the amount available to be made as Restricted Payments under paragraph (A) of “-Restricted Payments”. In addition, during the Suspension Period the Company will not be permitted to designate any Subsidiary as an Unrestricted Subsidiary.
There can be no assurance that the Notes will ever be rated Investment Grade or maintain such rating if achieved.
Restricted Payments
(A) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay (without duplication) any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends, payments or distributions (x) payable in Equity Interests (other than Disqualified Stock) of the Company or (y) to the Company or a Restricted Subsidiary of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any Restricted Subsidiary thereof held by Persons other than the Company or any of its Wholly Owned Restricted Subsidiaries;
(iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or the Note Guarantees, except (a) a payment of interest or principal at the Stated Maturity thereof or (b) the purchase, repurchase, redemption, defeasance or other acquisition or retirement of any such Indebtedness in anticipation of satisfying a sinking fund obligation,

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principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase, redemption, defeasance or other acquisition or retirement; or
(iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iii) above and this clause (iv) being collectively referred to as “Restricted Payments”),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “-Incurrence of Indebtedness”; and
(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries commencing on and after January 30, 2011 (excluding Restricted Payments permitted by clauses (2), (3), (4), (5) and (6) of the next succeeding paragraph (B)), is less than the sum, without duplication, of:
(a)
50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) commencing on and after January 30, 2011 to the end of the Company’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus
(b)
100% of the aggregate net cash proceeds or the Fair Market Value of property other than cash received by the Company since January 30, 2011 as a contribution to its common equity capital or from the issue or sale of Equity Interests (other than Disqualified Stock) of the Company or from the Incurrence of Indebtedness of the Company that has been converted into or exchanged for such Equity Interests (other than Equity Interests sold to, or Indebtedness held by, a Subsidiary of the Company), plus
(c) with respect to Restricted Investments made by the Company and its Restricted Subsidiaries commencing on and after January 30, 2011, an amount equal to the net reduction in such Restricted Investments in any Person resulting from repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary or from the net cash proceeds from the sale of any such Restricted Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Consolidated Net Income), from the release of any Guarantee (except to the extent any amounts are paid under such Guarantee) or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, not to exceed, in each case, the amount of Restricted Investments previously made by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary commencing on and after January 30, 2011.
As of August 1, 2015, the amount available for Restricted Payments pursuant to clause (3) above would have been approximately $44.8 million.
(B) The preceding provisions will not prohibit, so long as, in the case of clauses (7), (8), (9) and (11) below, no Default has occurred and is continuing or would be caused thereby:
(1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture;
(2) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its Common Stock on a pro rata basis;
(3) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company or any Restricted Subsidiary in exchange for, or out of the net cash proceeds of a contribution to the common equity of the Company or a substantially

45

concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests (other than Disqualified Stock) of the Company; provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (3)(b) of the preceding paragraph (A);(4) the repayment, defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from an Incurrence of Permitted Refinancing Indebtedness;
(5)
Investments acquired as a capital contribution to, or in exchange for, or out of the net cash proceeds of a substantially concurrent offering of, Equity Interests (other than Disqualified Stock) of the Company; provided that the amount of any such net cash proceeds that are utilized for any such acquisition or exchange shall be excluded from clause (3)(b) of the preceding paragraph (A);
(6)
the purchase, repurchase, redemption, acquisition or retirement for value of any Capital Stock of the Company upon the exercise of warrants, options or similar rights if such Capital Stock constitutes all or a portion of the exercise price or is surrendered in connection with satisfying any federal or state income tax obligation incurred in connection with such exercise; provided that no cash payment in respect of such purchase, repurchase, redemption, acquisition, retirement or exercise shall be made by the Company or any Restricted Subsidiary thereof;
(7)
the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company held by any current or former employee, officer, director or consultant of the Company (or any of its Restricted Subsidiaries) or their respective estates, spouses, former spouses or family members pursuant to the terms of any employee equity subscription agreement, stock option agreement or similar agreement entered into in the ordinary course of business; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests in any fiscal year will not exceed $5.0 million;
(8)
the declaration and payment of cash dividends on the Company’s issued and outstanding Common Stock in an amount not to exceed $0.56 per share (as adjusted for stock splits and similar transactions after the Issue Date) per fiscal year; provided that the aggregate amount of all dividends declared or paid pursuant to this clause (8) shall not exceed $25.0 million in any fiscal year;
(9) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company (including, without limitation, open market purchases) in an aggregate amount not to exceed $30.0 million in any fiscal year;
(10)
the payment of cash in lieu of the issuance of fractional shares of Equity Interests upon conversion or exchange of securities convertible into or exchangeable for Equity Interests of the Company; provided that any such cash payment shall not be for the purpose of evading the limitations of this covenant (as determined in good faith by the Board of Directors of the Company); and
(11) other Restricted Payments not otherwise permitted pursuant to this covenant in an aggregate principal amount since the Issue Date not to exceed $100.0 million.
The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Incurrence of Indebtedness
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness; provided, however, that the Company or any of its Restricted Subsidiaries may Incur Indebtedness if the Fixed Charge Coverage Ratio for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been Incurred at the beginning of such four-quarter period.

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The first paragraph of this covenant will not prohibit the Incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”):
(1) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness under Credit Facilities (and the Incurrence of Guarantees thereof) in an aggregate principal amount at any one time outstanding pursuant to this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed the greater of (x) $750.0 million, and (y) the Borrowing Base on such date of Incurrence;
(2) the Incurrence of Existing Indebtedness;
(3) the Incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees to be issued on the Issue Date;
(4) the Incurrence by the Company or any Restricted Subsidiary of the Company of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, Incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness Incurred to refund, refinance or replace any Indebtedness Incurred pursuant to this clause (4), not to exceed at any time outstanding the greater of (x) $40.0 million and (y) 7.5% of the Company’s Consolidated Net Tangible Assets on such date of Incurrence;
(5) the Incurrence by the Company or any Restricted Subsidiary of the Company of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be Incurred under the first paragraph of this covenant or clauses (2), (3), (4), (5) or (15) of this paragraph;
(6)
the Incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness owing to and held by the Company or any of its Restricted Subsidiaries; provided, however, that:
(a) if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Company, or the Note Guarantee, in the case of a Guarantor;
(b) Indebtedness owed to the Company or any Guarantor must be evidenced by an unsubordinated promissory note, unless the obligor under such Indebtedness is the Company or a Guarantor;
(c) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary thereof and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary thereof, will be deemed, in each case, to constitute an Incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);
(7) the Guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be Incurred by another provision of this covenant;
(8) the Incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are Incurred for the purpose of fixing, hedging or swapping interest rate, commodity price or foreign currency exchange rate risk (or to reverse or amend any such agreements previously made for such purposes), and not for speculative purposes, and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates, commodity prices or foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;
(9) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such

47

agreements, in any case Incurred in connection with the disposition of any business, assets or Capital Stock of any Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Capital Stock of such Restricted Subsidiary for the purpose of financing such acquisition), so long as the principal amount does not exceed the gross proceeds actually received by the Company or any Restricted Subsidiary thereof in connection with such disposition;
(10)
the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided, however, that such Indebtedness is extinguished within five Business Days of its Incurrence;
(11) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness constituting reimbursement obligations with respect to letters of credit in respect of workers’ compensation claims or self-insurance obligations or bid, performance or surety bonds (in each case other than for an obligation for borrowed money);
(12)
the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business; provided that, upon the drawing of such letters of credit or the Incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or Incurrence;
(13) the Incurrence by the Company of Indebtedness to the extent that the net proceeds thereof are promptly deposited to defease or to satisfy and discharge the Notes;
(14) the incurrence of any Indebtedness by a Receivables Subsidiary that is not recourse to the Company or any other Restricted Subsidiary of the Company (other than Standard Securitization Undertakings) incurred in connection with a Qualified Receivables Transaction; or
(15) the Incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness Incurred to refund, refinance or replace any Indebtedness Incurred pursuant to this clause (15), not to exceed the greater of (x) $40.0 million and (y) 7.5% of the Company’s Consolidated Net Tangible Assets on such date of Incurrence.
For purposes of determining compliance with this covenant, in the event that any proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (15) above, or is entitled to be Incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify such item of Indebtedness at the time of its Incurrence in any manner that complies with this covenant. In addition, any Indebtedness originally classified as Incurred pursuant to clauses (1) through (15) above may later be reclassified by the Company such that it will be deemed as having been Incurred pursuant to another of such clauses to the extent that such reclassified Indebtedness could be incurred pursuant to such new clause at the time of such reclassification. Notwithstanding the foregoing, Indebtedness under the Credit Agreement outstanding on the Issue Date shall be deemed to have been Incurred on such date in reliance on the exception provided by clause (1) of the definition of “Permitted Debt”.
Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that may be Incurred pursuant to this covenant will not be deemed to be exceeded with respect to any outstanding Indebtedness due solely to the result of fluctuations in the exchange rates of currencies.
The Company will not Incur any Indebtedness that is subordinate in right of payment to any other Indebtedness of the Company unless it is subordinate in right of payment to the Notes to the same extent. No Guarantor will Incur any Indebtedness that is subordinate in right of payment to any other Indebtedness of such Guarantor unless it is subordinate in right of payment to such Guarantor’s Note Guarantee to the same extent. For purposes of the foregoing, no Indebtedness will be deemed to be subordinated in right of payment to any other Indebtedness of the Company or any Guarantor, as applicable, solely by reason of any Liens or Guarantees arising or created in respect thereof or by virtue of the fact that the holders of any secured Indebtedness have entered into intercreditor agreements giving one or more of such holders priority over the other holders in the collateral held by them.

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Liens
The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured (or, in the case of Indebtedness subordinated to the Notes or the related Note Guarantees, prior or senior thereto, with the same relative priority as the Notes will have with respect to such subordinated Indebtedness) until such time as such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock (or with respect to any other interest or participation in, or measured by, its profits) to the Company or any of its Restricted Subsidiaries or pay any liabilities owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or restrictions:
(1)
existing under, by reason of or with respect to the Credit Agreement, Existing Indebtedness or any other agreements in effect on the Issue Date and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof, provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, than those contained in the Credit Agreement, Existing Indebtedness or such other agreements, as the case may be, as in effect on the Issue Date;
(2) set forth in the Indenture, the Notes and the Note Guarantees;
(3) existing under, by reason of or with respect to applicable law;
(4) with respect to any Person or the property or assets of a Person acquired by the Company or any of its Restricted Subsidiaries existing at the time of such acquisition and not incurred in connection with or in contemplation of such acquisition, which encumbrance or restriction is not applicable to any Person or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof, provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, than those in effect on the date of the acquisition;
(5) in the case of clause (3) of the first paragraph of this covenant:
(A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary thereof not otherwise prohibited by the Indenture, or
(C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary thereof in any manner material to the Company or any Restricted Subsidiary thereof;

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(6) existing under, by reason of or with respect to any agreement for the sale or other disposition of all or substantially all of the Capital Stock of, or property and assets of, a Restricted Subsidiary that restrict distributions by that Restricted Subsidiary pending such sale or other disposition;
(7) restrictions on cash or other deposits or net worth imposed by customers or required by insurance, surety or bonding companies, in each case, under contracts entered into in the ordinary course of business; and
(8)
any Purchase Money Note, or other Indebtedness or contractual requirements of a Receivables Subsidiary in connection with a Qualified Securitization Transaction; provided that such restrictions only apply to such Receivables Subsidiary.
Merger, Consolidation or Sale of Assets
The Company will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation) or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person, unless:
(1) either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition will have been made (i) is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and (ii) assumes all the obligations of the Company under the Notes, the Indenture and the Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee;
(2) immediately after giving effect to such transaction, no Default or Event of Default exists;
(3) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made, will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “-Incurrence of Indebtedness”;
(4) each Guarantor, unless such Guarantor is the Person with which the Company has entered into a transaction under this covenant, will have by supplemental indenture confirmed its obligations under the Notes and the Indenture; and
(5) the Company delivers to the Trustee an Officers’ Certificate (attaching the arithmetic computation to demonstrate compliance with clause (3) above) and an Opinion of Counsel stating that such transaction and such agreement complies with this covenant and that all conditions precedent provided for herein relating to such transaction have been complied with.
Clauses (2), (3) and (5) above will not apply to any merger, consolidation or sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Restricted Subsidiaries if, in the good faith determination of the Board of Directors of the Company, the sole purpose of the transaction is to reincorporate the Company in another state of the United States. Upon any consolidation or merger, or any sale, assignment, transfer, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with this covenant, the successor Person formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, conveyance or other disposition is made will succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, conveyance or other disposition, the provisions of the Indenture referring to the “Company” will refer instead to the successor Person and not to the Company), and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor Person had been named as the Company in the Indenture. In any such event (other than any transfer by way of lease), the predecessor Company will be released and discharged from all liabilities and obligations in respect of the Notes and the Indenture and the predecessor Company may be dissolved, wound up or liquidated at any time thereafter.
In addition, the Company and its Restricted Subsidiaries may not, directly or indirectly, lease all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries considered as one enterprise, in one or more related transactions, to

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any other Person. Clause (3) above will not apply to any merger, consolidation or sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Restricted Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into, make, amend, renew or extend any transaction, contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any ~~mandatory sinking fund. FORM, DENOMINATION AND BOOK-ENTRY PROCEDURES Exchange Notes~~Affiliate (each, an “Affiliate Transaction”), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable arm’s-length transaction by the Company or such Restricted Subsidiary with a Person that is not an Affiliate of the Company or any of its Restricted Subsidiaries; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an Officers’ Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this covenant; and
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, either (x) a Board Resolution set forth in an Officers’ Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this covenant and that such Affiliate Transaction or series of related Affiliate Transactions has been approved by a majority of the disinterested members of the Board of Directors of the Company or (y), an opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an independent accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
(1) transactions between or among the Company and/or its Restricted Subsidiaries;
(2) payment of reasonable fees to, and reasonable indemnification and similar payments on behalf of, directors of the Company or any of its Restricted Subsidiaries;
(3) Restricted Payments that are permitted by the provisions of the Indenture described above under the caption “-Restricted Payments”;
(4) any sale of Capital Stock (other than Disqualified Stock) of the Company;
(5) transactions pursuant to agreements or arrangements in effect on the Issue Date and described in this prospectus, or any amendment, modification, or supplement thereto or replacement thereof, as long as such agreement or arrangement, as so amended, modified, supplemented or replaced, taken as a whole, is not more disadvantageous to the Company and its Restricted Subsidiaries than the original agreement or arrangement in existence on the Issue Date;
(6) any employment, consulting, service or termination agreement, or reasonable indemnification arrangements, entered into by the Company or any of its Restricted Subsidiaries with officers and employees of the Company or any of its Restricted Subsidiaries that are Affiliates of the Company and the payment of compensation to such officers and employees (including amounts paid pursuant to employee benefit plans, employee stock option or similar plans), so long as such agreement, arrangement or payment has been approved by a majority of the disinterested members of the Board of Directors of the Company (or by the Company’s Compensation Committee so long as such committee satisfies applicable independence tests under federal securities laws and the primary exchange on which the Company’s Common Stock is listed);

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(7) transactions with a Person that is an Affiliate of the Company solely because the Company, directly or indirectly, owns Equity Interests in, or controls, such Person; and
(8) commission, payroll, travel and similar advances to officers and employees of the Company or any of its Restricted Subsidiaries made consistent with past practices.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of the Company may designate any Restricted Subsidiary of the Company to be an Unrestricted Subsidiary; provided that:
(1) any Guarantee by the Company or any Restricted Subsidiary thereof of any Indebtedness of the Subsidiary being so designated will be deemed to be an Incurrence of Indebtedness by the Company or such Restricted Subsidiary (or both, if applicable) at the time of such designation, and such designation will be permitted only if such Incurrence of Indebtedness would be permitted under the covenant described above under the caption “-Incurrence of Indebtedness”;
(2) the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary being so designated (including any Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of such Subsidiary) will be deemed to be a Restricted Investment made as of the time of such designation and such designation will be permitted only if such Investment would be permitted under the covenant described above under the caption “-Restricted Payments”;
(3) such Subsidiary does not hold any Liens on any property of the Company or any Restricted Subsidiary thereof;
(4) the Subsidiary being so designated:
(a) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company;
(b) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (i) to subscribe for additional Equity Interests or (ii) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and
(c) has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries, except to the extent such Guarantee or credit support would be released upon such designation; and
(5) no Default or Event of Default would be in existence following such designation.
Any designation of a Restricted Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee the Board Resolution giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by the Indenture. If, at any time, any Unrestricted Subsidiary would fail to meet any of the preceding requirements, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness, Investments, or Liens on the property, of such Subsidiary will be deemed to be Incurred or made by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness, Investments or Liens are not permitted to be Incurred or made as of such date under the Indenture, the Company will be in ~~exchange~~default under the Indenture.
The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that:
(1) such designation will be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if such Indebtedness is permitted under the covenant described under the caption “-Incurrence of Indebtedness,” calculated on a pro forma basis as if such designation had occurred at the beginning of the applicable four-quarter reference period;

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(2) all outstanding Investments owned by such Unrestricted Subsidiary will be deemed to be made as of the time of such designation and such designation will only be permitted if such Investments would be permitted under the covenant described above under the caption “-Restricted Payments;”
(3) all Liens upon property or assets of such Unrestricted Subsidiary existing at the time of such designation would be permitted under the caption “-Liens”; and
(4) no Default or Event of Default would be in existence following such designation.
Limitation on Issuances and Sales of Equity Interests in Restricted Subsidiaries
The Company will not transfer, convey, sell or otherwise dispose of, and will not permit any of its Restricted Subsidiaries to, issue, transfer, convey, sell or otherwise dispose of any Equity Interests in any Restricted Subsidiary of the Company to any Person (other than the Company or a Restricted Subsidiary of the Company or, if necessary, shares of its Capital Stock constituting directors’ qualifying shares or issuances of shares of Capital Stock of foreign Restricted Subsidiaries to foreign nationals, to the extent required by applicable law), except sales of Equity Interests of a Restricted Subsidiary of the Company by the Company or a Restricted Subsidiary thereof; provided that (x) the Company or such Restricted Subsidiary selling such Equity Interests complies with the covenant described above under the caption “-Repurchase at the Option of Holders-Asset Sales,” (y) any sales of Preferred Stock of a Restricted Subsidiary that result in such Preferred Stock being held by a Person other than the Company or a Restricted Subsidiary thereof will be deemed to be an Incurrence of Indebtedness and must comply with the covenant described above under the caption “-Incurrence of Indebtedness” and (z) if, immediately after giving effect to such issuance, transfer, conveyance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary, any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under the covenant described above under the caption “-Restricted Payments” if made on the date of such issuance or sale.
Guarantees
The Company will not permit any of its Restricted Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company or any Domestic Subsidiary unless such Restricted Subsidiary is a Guarantor or simultaneously executes and delivers to the Trustee an Opinion of Counsel and a supplemental indenture providing for the ~~Private~~Guarantee of the payment of the Notes ~~currently represented~~ by such Restricted Subsidiary, which Guarantee shall be senior (in the case of subordinated Indebtedness) to or pari passu with such Subsidiary’s Guarantee of such other Indebtedness.
A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) is organized or existing under the laws of the United States, any state thereof or the District of Columbia and assumes all the obligations of that Guarantor under the Indenture, its Note Guarantee and the Registration Rights Agreement pursuant to agreements satisfactory to the Trustee; or
(b) such sale or other disposition or consolidation or merger complies with the covenant described above under the caption “-Repurchase at the Option of Holders-Asset Sales.”
The Note Guarantee of a Guarantor will be automatically released:
(1) in connection with any sale or other disposition of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) a Restricted Subsidiary of the Company, if after giving effect to such sale or other disposition such Guarantor is no longer a Restricted Subsidiary of the Company and such sale of such Capital Stock of that Guarantor complies with the covenant described above under the caption “-Repurchase at the Option of Holders-Asset Sales”;

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(2) if the Company properly designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in compliance with the Indenture;
(3) (x) to the extent such Guarantor is also a guarantor under the Credit Agreement, upon the discharge or release of the Guarantee under the Credit Agreement, and (y) otherwise, solely in the case of a Note Guarantee created after the Issue Date pursuant to the first paragraph of this covenant, upon the release or discharge of the Guarantee which resulted in the creation of such Note Guarantee pursuant to this covenant, except, in each case a discharge or release by or as a result of payment under such Guarantee; or
(4) upon the legal defeasance or covenant defeasance or the satisfaction and discharge of the Indenture, in each case, in compliance with the terms of the terms of the Indenture.
At the request of the Company, and upon delivery to the Trustee of an Officers’ Certificate and an Opinion of Counsel that such release complies with the Indenture, the Trustee shall execute and deliver an appropriate instrument evidencing such release.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary thereof to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole.
Payments for Consent
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Notwithstanding the foregoing, in any offer or payment of consideration for any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes in connection with an exchange offer, the Company and any of its Subsidiaries may exclude (i) Holders or beneficial owners of the Notes that are not “qualified institutional buyers” within the meaning of Rule 144A, or non-U.S. persons outside of the United States in compliance with Regulation S, and (ii) Holders or beneficial owners of the Notes in any jurisdiction where the inclusion of such Holders or beneficial owners would require the Company or any such Restricted Subsidiaries to comply with the registration requirements or other similar requirements under any securities laws of such jurisdiction, or the solicitation of such consent, waiver or amendment from, or the granting of such consent or waiver, or the approval of such amendment by, Holders or beneficial owners in such jurisdiction would be unlawful, in each case as determined by the Company in its sole discretion.
Reports
The Company will furnish to the Trustee and, upon request, to beneficial owners of, and prospective investors in, the Notes a copy of all of the information and reports referred to in clauses (1) and (2) below within the time periods specified in the Commission’s rules and regulations:
(1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by the Company’s certified independent accountants; and
(2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports;
provided that, if the Commission has accepted any of the Company’s reports as provided in the immediately succeeding paragraph and such reports have been made available to the public on the Commission’s EDGAR system (or any similar successor system), the Company will have no obligations to furnish such report to the Trustee, beneficial owners of, or prospective investors in, the Notes.
Whether or not required by the Commission, the Company will comply with the periodic reporting requirements of the Exchange Act and will file the reports specified in the preceding paragraph with the Commission within the time periods specified above unless the Commission will not accept such a filing. The Company agrees that it will not take any action for the purpose of causing the

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Commission not to accept any such filings. If, notwithstanding the foregoing, the Commission will not accept the Company’s filings for any reason, the Company will post the reports referred to in the preceding paragraph on its website within the time periods that would apply if the Company were required to file those reports with the Commission.
If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by this covenant shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
Delivery of reports, information and documents to the Trustee is for informational purposes only and its receipt of such reports will not constitute constructive notice of any information contained therein or determinable from information contained therein, including our compliance with any of the Company’s covenants under the Indenture or the Notes (as to which the Trustee is entitled to rely exclusively on one or more ~~fully~~Officers’ Certificates). The Trustee will not be obligated to monitor or confirm, on a continuing basis or otherwise, our compliance with the covenants or with respect to any reports or other documents filed with the SEC or EDGAR or any website under the Indenture, or participate in any earnings, analyst or similar conference calls.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or Additional Interest with respect to, the Notes;
(2) default in payment when due (whether at maturity, upon acceleration, redemption, required repurchase or otherwise) of the principal of, or premium, if any, on the Notes;
(3) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under the captions “-Repurchase at the Option of Holders-Change of Control,” “-Repurchase at the Option of Holders-Asset Sales” or “-Certain Covenants-Merger, Consolidation or Sale of Assets”;
(4) failure by the Company or any of its Restricted Subsidiaries for 45 days after written notice by the Trustee or Holders representing 25% or more of the aggregate principal amount of Notes outstanding to the Company and the Trustee to comply with any of the other agreements in the Indenture;
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, if that default:
(a) is caused by a failure to make any payment when due at the final maturity of such Indebtedness (a “Payment Default”); or
(b) results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or more;
(6) failure by the Company or any of its Restricted Subsidiaries to pay final judgments (to the extent such judgments are not paid or covered by insurance provided by a reputable carrier that has the ability to perform and has acknowledged coverage in writing) aggregating in excess of $25.0 million, which judgments are not paid, discharged or stayed for a period of 60 days after such judgments have become final and non-appealable;
(7) except as permitted by the Indenture, any Note Guarantee of a Guarantor that is a Significant Subsidiary, or the Note Guarantees of any group of Guarantors that, taken together, would constitute a Significant Subsidiary, shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any

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Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the Company, any Guarantor or any Significant Subsidiary of the Company (or any Restricted Subsidiaries that together would constitute a Significant Subsidiary).
In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately by notice in writing to the Company specifying the Event of Default(s).
Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or Additional Interest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or Additional Interest on, or the principal of, the Notes. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders not joining in the giving of such direction (it being understood that the Trustee does not have an affirmative duty to ascertain whether or not any such directions are unduly prejudicial to such Holders) and may take any other action it deems proper that is not inconsistent with any such direction received from Holders. A Holder may not pursue any remedy with respect to the Indenture or the Notes unless:
(1) the Holder gives the Trustee written notice of a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of outstanding Notes make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes do not give the Trustee a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any Holder of a Note to receive payment of the principal of, premium or Additional Interest, if any, or interest on, such Note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, which right shall not be impaired or affected without the consent of the Holder.
The Company is required to deliver to the Trustee annually within 120 days after the end of each fiscal year a statement regarding compliance with the Indenture. Upon becoming aware of any Default or Event of Default, the Company is required to deliver to the Trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator, stockholder, member, manager or partner of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.

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Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of the Guarantors discharged with respect to their Note Guarantees (“Legal Defeasance”) except for:
(1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium and Additional Interest, if any, on such Notes when such payments are due from the trust referred to below;
(2) the Company’s obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and the Company’s and the Guarantors’ obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors released with respect to certain covenants that are described in the Indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under “Events of Default” will no longer constitute Events of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient in the opinion of a nationally recognized firm of independent public accountants, investment bank or appraisal firm expressed in a written certificate of such firm of independent public accountants, investment bank or appraisal firm to the Trustee, to pay the principal of, or interest and premium and Additional Interest, if any, on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; provided that no such opinion shall be required in the event that the deposit is solely in U.S. dollars;
(2) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing either: (a) on the date of such deposit; or (b) insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 123rd day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;

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(6) the Company must have delivered to the Trustee an Opinion of Counsel to the effect that, (1) assuming no intervening bankruptcy of the Company or any Guarantor between the date of deposit and the 123rd day following the deposit and assuming that no Holder is an “insider” of the Company under applicable bankruptcy law, after the 123rd day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, including Section 547 of the United States Bankruptcy Code and Section 15 of the New York Debtor and Creditor Law and (2) the creation of the defeasance trust does not violate the Investment Company Act of 1940;
(7) the Company must deliver to the Trustee an Officers’ Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others;
(8) if the Notes are to be redeemed prior to their Stated Maturity, the Company must deliver to the Trustee irrevocable instructions to redeem all of the Notes on the specified redemption date; and
(9) the Company must deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the Notes or the Note Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture, the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed as described under “-Optional Redemption” (excluding for greater certainty any notice periods with respect to Notes that are otherwise redeemable);
(3) reduce the rate of or change the time for payment of interest on any Note;
(4) waive a Default or Event of Default in the payment of principal of, or interest, or premium or Additional Interest, if any, on, the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than U.S. dollars;
(6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders to receive payments of principal of, or interest or premium or Additional Interest, if any, on, the Notes;
(7) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture;
(8) impair the right to institute suit for the enforcement of any payment on or with respect to the Notes or the Note Guarantees;
(9) amend, change or modify the obligation of the Company to make and consummate an Asset Sale Offer with respect to any Asset Sale in accordance with the covenant described under the caption “Repurchase at the Option of Holders-Asset Sales” after the obligation to make such Asset Sale Offer has arisen, or the obligation of the Company to make

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and consummate a Change of Control Offer in the event of a Change of Control in accordance with the covenant described under the caption “Repurchase at the Option of Holders-Change of Control” after such Change of Control has occurred, including, in each case, amending, changing or modifying any definition relating thereto;
(10) except as otherwise permitted under the covenants described under the captions “-Certain Covenants-Merger, Consolidation and Sale of Assets” and “-Certain Covenants- Guarantees,” consent to the assignment or transfer by the Company or any Guarantor of any of their rights or obligations under the Indenture;
(11) amend or modify any of the provisions of the Indenture or the related definitions affecting the ranking of the Notes or any Note Guarantee in any manner adverse to the Holders; or
(12) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder, the Company, the Guarantors and the Trustee may amend or supplement the Indenture, the Notes or the Note Guarantees to:
(1) cure any ambiguity, defect or inconsistency, as set forth in an Officers’ Certificate;
(2) provide for uncertificated Notes in addition to or in place of certificated Notes;
(3) provide for the assumption of the Company’s or any Guarantor’s obligations to Holders in the case of a merger or consolidation or sale of all or substantially all of the Company’s or such Guarantor’s assets;
(4) make any change that would provide any additional rights or benefits to the Holders or that does not materially adversely affect the legal rights under the Indenture of any such Holder, as set forth in an Officers’ Certificate;
(5) comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act;
(6) comply with the provisions described under “-Certain Covenants-Guarantees”;
(7) comply with the rules of any applicable securities depositary;
(8) evidence and provide for the acceptance of appointment by a successor Trustee;
(9) provide for the issuance of Additional Notes in accordance with the Indenture;
(10) secure the Notes and the Note Guarantees; or
(11) conform the text of the Indenture, the Note Guarantees, or the Notes to any provision of this Description of Exchange Notes to the extent that such provision in this Description of Exchange Notes was intended to be a verbatim recitation of a provision of the Indenture, the Note Guarantees or the Notes, as set forth in an Officers’ Certificate.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when:
(1) either:
(a) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing or sending of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust

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funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Additional Interest, if any, and accrued and unpaid interest to the date of maturity or redemption; provided, that upon any redemption before August 15, 2018 that requires calculation of the Adjusted Treasury Rate, the amount deposited shall be sufficient for purposes of the Indenture to the extent that an amount is deposited with the Trustee that is calculated using the Adjusted Treasury Rate as of the date of the notice of redemption, with any deficit as of the date of redemption (any such amount, the “Makewhole Deficit”) only required to be deposited with the Trustee on or prior to the date of redemption. Any Makewhole Deficit shall be set forth in an Officers’ Certificate delivered to the Trustee simultaneously with the deposit of such Makewhole Deficit that confirms that such Makewhole Deficit shall be applied toward such redemption);
(2) no Default or Event of Default shall have occurred and be continuing on the date of such deposit referred to in clause (1)(b) above or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound;
(3) the Company or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money referred to in clause (1)(b) above toward the payment of the Notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an Officers’ Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Concerning the Trustee
If the Trustee or any of its Affiliates becomes a creditor of the Company or any Guarantor, the Indenture and the Trust Indenture Act limit its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the Trust Indenture Act) it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign in accordance with the Indenture and the Trust Indenture Act.
The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of the rights and powers vested in it by the Indenture, to use the degree of care of a prudent man in the conduct of his own affairs under the circumstances. Subject to certain restrictions, the Holders of at least a majority in aggregate principal amount of the Notes outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any Holder, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
Book-Entry, Delivery and Form
Except as set forth below, Notes will be issued in registered, global form in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. Notes will be issued at the closing of this offering only upon surrender of original notes.
The exchange notes initially will be represented by one or more ~~fully~~notes in registered, global ~~notes~~form without interest coupons (collectively, the ``“Global Notes”). On the date of the closing of the exchange offer, the Global ~~Note''), and~~Notes will be deposited upon issuance with the Trustee as custodian for The Depository ~~or an agent of the Depository~~Trust Company (“DTC”), and registered in the name of ~~the Depository~~DTC or its nominee, in each case for credit to an account of a ~~nominee of the Depository (the ``Global Note Registered Owner'').~~ direct or indirect participant in DTC as described below.

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Except as set forth below, the Global ~~Note~~Notes may be transferred, in whole and not in part, only to another nominee of ~~the Depository~~DTC or to a successor of ~~the Depository~~DTC or its nominee. ~~(Section 2.15) Exchange~~Beneficial interests in the Global Notes ~~issued~~may be exchanged for Notes in ~~exchange~~certificated form. See “-Exchange of Global Notes for ~~other Private~~Certificated Notes.”
Transfers of beneficial interests in the Global Notes will be ~~issued in registered, certificated form without interest coupons.~~ subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear Bank, S.A./N.V. as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, S.A. (“Clearstream”)), which may change from time to time.
Depository Procedures
The ~~Depository~~following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. The Company takes no responsibility for these operations and procedures and urges investors to contact the system or their participants directly to discuss these matters.
DTC has advised the Company that ~~the Depository~~DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the ~~``Participants''~~“Participants”) and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in ~~the~~ accounts of its Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to ~~the Depository's~~DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the ~~``Indirect Participants''~~“Indirect Participants”). Persons who are not ~~Participants or Indirect~~ Participants may beneficially own securities held by or on behalf of ~~the Depository~~DTC only through the Participants or the Indirect Participants. The ownership interests in, and ~~transfer~~transfers of ownership interests ~~of such persons~~in, each security held by or on behalf of ~~the Depository~~DTC are recorded on the records of the Participants and Indirect Participants. ~~The Depository~~
DTC has also advised the Company that, pursuant to procedures established by it, (i) upon deposit of the Global Note, the Depository will credit the accounts of its Participants with portions of the principal amount of the Global Note representing the Exchange Notes issued in exchange for the Private Notes which each such Participant has instructed the Depository to surrender for exchange and (ii) ownership of such interests in the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depository (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Note). it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes).
Except as described below, owners of interests in the Global ~~Note~~Notes will not have Notes registered in their names, will not receive physical delivery of Notes in ~~definitive~~certificated form and will not be considered the registered owners or ~~holders~~“Holders” thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium and Additional Interest, if any, on a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the ~~persons~~Persons in whose names the Notes, including the Global ~~Note,~~Notes, are registered as the owners thereof for the purpose of receiving payments, ~~in respect of the principal of and premium, if any, and interest on any Notes~~notices, and for ~~any and~~ all other purposes whatsoever. Payments on any Notes registered in the name of the Global Note Registered Owner will be payable by the Trustee to the Global Note Registered Owner in its capacity as the registered holder under the Indenture.purposes. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect of the Depository's records or the records of any Participant or Indirect Participant relating to or payments made on account of beneficial ownership interests in the Global Note, or for maintaining, supervising or 50 52 reviewing any of the Depository's records or records of any Participant or Indirect Participant relating to the beneficial ownership interests in the Global Note or (ii) any other matter relating to the actions and practices of the Depository or any of its Participants or Indirect Participants. The Depositoryfor:
(1) any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date ~~in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security as shown on the records of the Depository~~ unless ~~the Depository~~DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of Notes will be governed by standing instructions

61

and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of ~~the Depository,~~DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by ~~the Depository~~DTC or any of its ~~Participants or Indirect~~ Participants in identifying the beneficial owners of the Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from ~~the Global Note Registered Owner~~DTC or its nominee for all purposes. ~~The~~
Transfers between Participants in DTC will be effected in accordance with DTC’s procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures.
Cross- market transfers between the Participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC’s rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositories for Euroclear or Clearstream.
DTC has advised the Company that it will take any action permitted to be taken by a Holder only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the Notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the Notes, DTC reserves the right to exchange the Global Notes for legended Notes in certificated form, and to distribute such Notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. Neither the Company nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered certificated form ~~if (i) the Depository (x) notifies the Company that it is unwilling or unable to continue as Depository~~(“Certificated Notes”) if:
(1) DTC (a) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act, and in each case the Company fails to appoint a successor depositary;
(2) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Certificated Notes (DTC has advised the Company that, in such event, under current DTC practices, DTC would notify its participants of the Company’s request, but will only withdraw beneficial interests from a Global Note at the request of each DTC participant); or
(3) there shall have occurred and be continuing a Default or Event of Default with respect to the Notes and DTC requests Certificated Notes.
In all cases, Certificated Notes delivered in exchange for any Global Note ~~and fails to appoint a successor Depository~~ or ~~(y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, at its option, notifies the Trustee~~beneficial interests in ~~writing that it elects to cause the issuance of the~~Global Notes in definitive registered certificated form, (iii) there shall have occurred and be continuing an Event of Default or any event which after notice or lapse of time or both would be an Event of Default with respect to the Notes or (iv) as provided in the following paragraph. Such definitive Notes shallwill be registered in the names, ~~of the owners of the beneficial interests in the Global Note as provided by the Participants. Notes~~and issued in definitive registered certificated form will be in fully registered form, without coupons, in integral multiples of $1,000. Upon issuance of Notes in definitive registered certificated form, the Trustee is required to register the Notes in the name of, and cause the Notes to be delivered to, the personany approved denominations, requested by or persons (or the nominee(s) thereof) identified as beneficial owners as the Depository shall direct. A Note in definitive registered certificated form will be issued upon the resale, pledge or other transfer of any Note or interest therein to any person or entity that does not participate in the Depository. The information in this section concerning the Depository and the Depository's book-entry system has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. OPTIONAL REDEMPTION The Notes will be redeemable at the Company's option in whole at any time or in part from time to time, on and after October 15, 2001 and prior to maturity, upon not less than 30 nor more than 60 days' notice to each holder of Notes, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on October 15 of the years set forth below, plus, in each case, accrued and unpaid interest, if any, thereon to but excluding the date of redemption:
~~YEAR PERCENTAGE ---- ----------~~ 2001.................................................. 104.750% 2002.................................................. 102.375% 2003.................................................. 101.188% 2004 and thereafter................................... 100.000%
(Sections 3.01, 3.03 and 3.04) RANKING The Notes will be senior unsecured obligations of the Company that will rank senior in right of payment to all future Indebtedness of the Company that is expressly by its terms subordinated in right of payment to the Notes. The Notes will rank pari passu in right of payment with all other Indebtedness of the Company, including Indebtedness 51 53 incurred pursuant to the Credit Agreement. As of August 3, 1996, after giving effect to the offering of the Private Notes and the application of the net proceeds therefrom, the Company would have had approximately $230 million of outstanding indebtedness, all of which would have been senior indebtedness. See ``Risk Factors--Structural Subordination.'' SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national securities exchange on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the paying agent for the Notes funds in satisfaction of the applicable redemption price pursuant to the Indenture. (Sections 3.02, 3.03, 3.05 and 3.06) HOLDING COMPANY STRUCTURE The Company conducts a portion of its business through subsidiaries. As a result of this structure, the creditors of the Company, including any holders of Notes, will effectively rank junior to all creditors of the Company's subsidiaries, including trade creditors, notwithstanding that the Notes will be senior obligations of the Company. There can be no assurance that, after providing for all prior claims, there would be sufficient assets available from the Company and its Subsidiaries to satisfy the claims of the holders of Notes. See ``Risk Factors--Structural Subordination.'' CERTAIN COVENANTS The Indenture will provide that the covenants set forth herein will be applicable to the Company, except that during any period of time that (i) the ratings assigned to the Notes by both Moody's and S&P (collectively the ``Rating Agencies'') are equal to or higher than Baa3 and BBB- or the equivalents thereof, respectively (the ``Investment Grade Ratings'') and (ii) no Event of Default or Default has occurred and is continuing, the Company and its Subsidiaries will not be subject to the provisions of the Indenture described under ``Limitation on Indebtedness'', ``Limitation on Restricted Payments'', ``Disposition of Proceeds of Asset Sales'', and clauses (c) and (d) of ``Merger, Sale of Assets, Etc.'' (collectively, the ``Suspended Covenants''). In the event that the Company is not subject to the Suspended Covenants for any period of time as a result of the preceding sentence and, subsequently, one or both Rating Agencies withdraws its ratings or downgrades the ratings assigned to the Notes below the required Investment Grade Ratings, then the Company and its Subsidiaries will again be subject to the Suspended Covenants and compliance with the Suspended Covenants with respect to Restricted Payments made after the time of such withdrawal or downgrade will be calculated in accordance with the terms of the ``Limitation on Restricted Payments'' covenant as if such covenant had been in effect during the entire period of time from the date of the Indenture. Limitation on Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise, for the payment of (in each case, to ``incur'') any Indebtedness (including, without limitation, any Acquired Indebtedness); provided, however, that the Company will be permitted to incur Indebtedness (including, without limitation, Acquired Indebtedness) if at the time of such incurrence, and after giving pro forma effect thereto, the Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2.25 to 1 on or prior to the date which is two years from the Issue Date and 2.50 to 1 thereafter. Notwithstanding the foregoing, the Company and its Subsidiaries may, to the extent specifically set forth below, incur each and all of the following: (a) Indebtedness of the Company evidenced by the Notes; 52 54 (b) Indebtedness of the Company and its Subsidiaries outstanding on the Issue Date; (c) Indebtedness of the Company under any Credit Agreement in an aggregate principal amount at any one time outstanding not to exceed $200,000,000 less any permanent repayment thereof made in accordance with the provisions of the first paragraph of ``Disposition of Proceeds of Asset Sales"; (d) (i) Interest Rate Protection Obligations of the Company covering Indebtedness of the Company or a Subsidiary of the Company and (ii) Interest Rate Protection Obligations of any Subsidiary of the Company covering Indebtedness of such Subsidiary; provided, however, that, in the case of either clause (i) or (ii), the notional principal amount of any such Interest Rate Protection Obligations does not exceed the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate; (e) Indebtedness of a Wholly-Owned Subsidiary owed to and held by the Company or another Wholly-Owned Subsidiary, in each case which is not subordinated in right of payment to any Indebtedness of such Subsidiary, except that (i) any transfer of such Indebtedness by the Company or a Wholly-Owned Subsidiary (other than to the Company or to a Wholly-Owned Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Subsidiary of the Company of Capital Stock of a Wholly-Owned Subsidiary which is owed Indebtedness of another Wholly-Owned Subsidiary such that it ceases to be a Wholly-Owned Subsidiary of the Company shall, in each case, be an incurrence of Indebtedness by such Subsidiary subject to the other provisions of this covenant; (f) Indebtedness of the Company owed to and held by a Wholly-Owned Subsidiary of the Company which is unsecured and subordinated in right of payment to the payment and performance of the Company's obligations under the Indenture and the Notes except that (i) any transfer of such Indebtedness by a Wholly-Owned Subsidiary of the Company (other than to another Wholly-Owned Subsidiary of the Company) and (ii) the sale, transfer or other disposition by the Company or any Subsidiary of the Company of Capital Stock of a Wholly-Owned Subsidiary which holds Indebtedness of the Company such that it ceases to be a Wholly-Owned Subsidiary shall, in each case, be an incurrence of Indebtedness by the Company, subject to the other provisions of this covenant; (g) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (h) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of the Company's obtaining knowledge of the incurrence thereof; (i) Indebtedness of the Company or any of its Subsidiaries represented by (x) letters of credit for the account of the Company or such Subsidiary, as the case may be, or (y) other obligations to reimburse third parties pursuant to any surety bond or other similar arrangement, which letters of credit or other obligations, as the case may be, are intended to provide security for workers' compensation claims, payment obligations in connection with self-insurance or other similar requirements in the ordinary course of business; (j) Indebtedness of the Company in addition to that described in clauses (a) through (i) above, in an aggregate principal amount outstanding at any time not exceeding $15,000,000; and (k) (i) Indebtedness of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of the Company or any of its Subsidiaries and (ii) Indebtedness of any Subsidiary of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of such Subsidiary, in each case other than Indebtedness, if any, refinanced, redeemed or retired with net proceeds from the issuance of the Notes or incurred under clause (c), (d), (e), (f), (g), (h), (i) or (j) of this covenant; provided, however, that (x) the principal amount of Indebtedness incurred pursuant to this clause (k) (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of the principal amount of Indebtedness so 53 55 refinanced, plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of such Indebtedness or the amount of any premium reasonably determined by the Board of Directors of the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated purchase, plus the amount of expenses in connection therewith, (y) in the case of Indebtedness incurred by the Company pursuant to this clause (k) to refinance Subordinated Indebtedness, such Indebtedness (A) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Notes and (B) is subordinated to the Notes in the same manner and to the same extent that the Subordinated Indebtedness being refinanced is subordinated to the Notes and (z) in the case of Indebtedness incurred by the Company pursuant to this clause (k) to refinance Pari Passu Indebtedness, such Indebtedness (A) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Notes and (B) constitutes Pari Passu Indebtedness or Subordinated Indebtedness. (Section 4.08) Limitation on Restricted Payments. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock of the Company or any of its Subsidiaries or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any of its Subsidiaries (other than (x) dividends or distributions payable solely in Capital Stock of the Company (other than Redeemable Capital Stock) or in options, warrants or other rights to purchase Capital Stock of the Company (other than Redeemable Capital Stock), (y) the declaration or payment of dividends or other distributions to the extent declared or paid to the Company or any Subsidiary of the Company and (z) the declaration or payment of dividends or other distributions by any Subsidiary of the Company to all holders of Common Stock of such Subsidiary on a pro rata basis), (b) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any of its Subsidiaries (other than any such Capital Stock owned by the Company or a Wholly-Owned Subsidiary of the Company), (c) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Subordinated Indebtedness (other than any such Indebtedness owned by the Company or a Wholly-Owned Subsidiary of the Company), or (d) make any Investment (other than any Permitted Investment) in any person (such payments or Investments described in the preceding clauses (a), (b), (c) and (d) are collectively referred to as ``Restricted Payments''), unless, subject to the last sentence of this paragraph, at the time of and after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the Fair Market Value on the date of such Restricted Payment of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to such Restricted Payment), (A) no Default or Event of Default shall have occurred and be continuing, (B) immediately prior to and after giving effect to such Restricted Payment, the Company would be able to incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under ``--Limitation on Indebtedness'' above (assuming a market rate of interest with respect to such additional Indebtedness) and (C) the aggregate amount of all Restricted Payments declared or made from and after the Issue Date would not exceed the sum of (1) 50% of the aggregate Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on the first day of the fiscal quarter of the Company during which the Issue Date occurs and ending on the last day of the fiscal quarter of the Company immediately preceding the date of such proposed Restricted Payment, which period shall be treated as a single accounting period (or, if such aggregate cumulative Consolidated Net Income of the Company for such period shall be a deficit, minus 100% of such deficit) plus (2) the aggregate net cash proceeds received by the Company either (x) as capital contributions to the Company after the Issue Date from any person (other than a Subsidiary of the Company) or (y) from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock, but including Capital Stock issued upon the conversion of convertible Indebtedness or from the exercise of options, warrants or rights to purchase Capital Stock (other than Redeemable Capital Stock)) of the Company to any person (other than to a Subsidiary of the Company) after the Issue Date plus (3) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date (excluding any Investment described in clause (iv) of the following paragraph), an amount 54 56 equal to the lesser of the return of capital with respect to such Investment and the cost of such Investment, in either case, less the cost of the disposition of such Investment plus (4) $20,000,000. For purposes of the preceding clause (C)(2), the value of the aggregate net proceeds received by the Company upon the issuance of Capital Stock upon the conversion of convertible Indebtedness or upon the exercise of options, warrants or rights will be the net cash proceeds received upon the issuance of such Indebtedness, options, warrants or rights plus the incremental cash amount received by the Company upon the conversion or exercise thereof. Notwithstanding the foregoing, with respect to any Restricted Payment consisting solely of a dividend on the Company's Common Stock, the Company need not comply with the restrictions contained in the foregoing clause (B). None of the foregoing provisions will prohibit (i) the payment of any dividend within 60 days after the date of its declaration, if at the date of declaration such payment would be permitted by the foregoing paragraph; (ii) so long as no Default or Event of Default shall have occurred and be continuing, the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company or any Subsidiary of the Company in exchange for, or out of the net cash proceeds of, a substantially concurrent (x) capital contribution to the Company from any person (other than a Subsidiary of the Company) or (y) issue and sale of other shares of Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company); provided, however, that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase or other acquisition or retirement shall be excluded from clause (C)(2) of the preceding paragraph; (iii) so long as no Default or Event of Default shall have occurred and be continuing, any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness by exchange for, or out of the net cash proceeds of, a substantially concurrent (x) capital contribution to the Company from any person (other than a Subsidiary of the Company) or (y) issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company); provided, however, that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase or other acquisition or retirement shall be excluded from clause (C)(2) of the preceding paragraph; or (2) Indebtedness of the Company issued to any person (other than a Subsidiary of the Company), so long as such Indebtedness is Subordinated Indebtedness which (x) has no Stated Maturity earlier than the 91st day after the Final Maturity Date, (y) has an Average Life to Stated Maturity equal to or greater than the remaining Average Life to Stated Maturity of the Notes and (z) is subordinated to the Notes in the same manner and at least to the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or retired; (iv) Investments constituting Restricted Payments made as a result of the receipt of non-cash consideration from any Asset Sale made pursuant to and in compliance with the covenant described under ``--Disposition of Proceeds of Asset Sales'' below; (v) so long as no Default or Event of Default shall have occurred and be continuing, repurchases by the Company of Common Stock of the Company from employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such employees, in an aggregate amount not exceeding $2,000,000 in any calendar year; and (vi) so long as no Default or Event of Default shall have occurred and be continuing, Investments in joint ventures, partnerships or other persons that are not Wholly-Owned Subsidiaries and that are engaged in a business similar or complementary to the business of the Company on the Issue Date; provided, however, that the aggregate amount of such net Investments outstanding at any such time shall not exceed $8,000,000 and the aggregate amount of any such Investments made during any consecutive twelve month period shall not exceed $4,000,000. In computing the amount of Restricted Payments previously made for purposes of clause (C) of the preceding paragraph, Restricted Payments made under the preceding clauses (i) and (v) shall be included and clauses (ii), (iii), (iv) and (vi) shall not be so included. (Section 4.09) Limitation on Liens. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind against or upon any of its property or assets, or any proceeds therefrom unless (x) in the case of Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (y) in all other cases, the Company or any of its Subsidiaries, as the case may be, secures the Notes on an equal and ratable basis, except for (a) Liens existing as of the Issue Date; (b) Liens securing the Notes; (c) Liens in favor of the Company; (d) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of its Subsidiaries not securing the Indebtedness so refinanced and (e) Permitted Liens. (Section 4.11) 55 57 Change of Control. Upon the occurrence of a Change of Control, the Company shall be obligated to make an offer to purchase (a ``Change of Control Offer''), and shall purchase, on a business day (the ``Change of Control Purchase Date'') not more than 60 nor less than 30 days following the occurrence of the Change of Control, all of the then outstanding Notes at a purchase price (the ``Change of Control Purchase Price'') equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. The Company shall be required to purchase all Notes properly tendered into the Change of Control Offer and not withdrawn. The Change of Control Offer is required to remain open for at least 20 business days and until the close of business on the Change of Control Purchase Date. In order to effect such Change of Control Offer, the Company shall, not later than the 30th day after the occurrence of the Change of Control, mail to each holder of Notes notice of the Change of Control Offer, which notice shall govern the terms of the Change of Control Offer and shall state, among other things, the procedures that holders of Notes must follow to accept the Change of Control Offer. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that a Change of Control occurs and the Company is required to purchase Notes as described above. (Section 4.12) Disposition of Proceeds of Asset Sales. The Company will not, and will not permit any of its Subsidiaries to, make any Asset Sale unless (a) the Company or such Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the shares or assets sold or otherwise disposed of and (b) at least 75% of such consideration consists of cash or Cash Equivalents. To the extent the Net Cash Proceeds of any Asset Sale are not required to be applied to repay, and permanently reduce the commitments under, the Credit Agreement (as required by the terms thereof), or are not so applied, the Company or such Subsidiary, as the case may be, may, within 180 days of such Asset Sale, apply such Net Cash Proceeds to an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the business of the Company and its Subsidiaries existing on the Issue Date or in businesses reasonably related thereto (``Replacement Assets''). Any Net Cash Proceeds from any Asset Sale that are neither used to repay, and permanently reduce the commitments under, the Credit Agreement nor invested in Replacement Assets within the 180 day period described above constitute ``Excess Proceeds'' subject to disposition as provided below. When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000, the Company shall make an offer to purchase (an ``Asset Sale Offer''), from all holders of the Notes, not more than 40 Business Days thereafter, an aggregate principal amount of Notes equal to such Excess Proceeds, at a price in cash equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the purchase date; provided, however, that the Company may, at the time that it makes any such Asset Sale Offer, also offer to purchase, at a price in cash equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the purchase date, any Pari Passu Indebtedness which was outstanding on the Issue Date (a ``Pari Passu Asset Sale Offer.'') and to the extent the Company so elects to make a Pari Passu Asset Sale Offer, Notes and Pari Passu Indebtedness shall be purchased pursuant to such Asset Sale Offer and Pari Passu Asset Sale Offer, respectively, on a pro rata basis based on the aggregate principal amount of such Notes and Pari Passu Indebtedness then outstanding. To the extent that the aggregate principal amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds or, to the extent the Company elects to make a Pari Passu Asset Sale Offer, the Notes' pro rata share of such Excess Proceeds, the Company may use such deficiency for general corporate purposes. To the extent that the aggregate principal amount of Pari Passu Indebtedness tendered pursuant to a Pari Passu Asset Sale Offer is less than such Pari Passu Indebtedness' pro rata share of such Excess Proceeds, the Company shall use such remaining Excess Proceeds to purchase any Notes validly tendered and not withdrawn pursuant to such Asset Sale Offer. If the aggregate principal amount of Notes validly tendered and not withdrawn by holders thereof exceeds the Excess Proceeds or, to the extent the Company elects to make a Pari Passu Asset Sale Offer, the Notes' pro rata share of such Excess Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset to zero. 56 58 The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that an Asset Sale occurs and the Company is required to purchase Notes as described above. (Section 4.13) Limitation on Issuances and Sale of Preferred Stock by Subsidiaries. The Company (a) will not permit any of its Subsidiaries to issue any Preferred Stock (other than to the Company or a Wholly-Owned Subsidiary of the Company) and (b) will not permit any person (other than the Company or a Wholly-Owned Subsidiary of the Company) to own any Preferred Stock of any Subsidiary of the Company; provided, however, that this covenant shall not prohibit the issuance and sale of (x) all, but not less than all, of the issued and outstanding Capital Stock of any Subsidiary of the Company owned by the Company or any of its Subsidiaries in compliance with the other provisions of the Indenture or (y) directors' qualifying shares or investments by foreign nationals mandated by applicable law. (Section 4.10) Limitation on Transactions with Interested Persons. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, transfer, disposition, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any Affiliate of the Company or any beneficial owner (determined in accordance with the Indenture) of 5% or more of the Company's outstanding Common Stock (``Interested Persons''), unless (a) such transaction or series of related transactions is on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those which could have been obtained in a comparable transaction at such time from persons who are not Affiliates of the Company or Interested Persons, (b) with respect to a transaction or series of transactions involving aggregate payments or value equal to or greater than $5,000,000, the Company has obtained a written opinion from an Independent Financial Advisor stating that the terms of such transaction or series of transactions are fair to the Company or its Subsidiary, as the case may be, from a financial point of view and (c) with respect to a transaction or series of transactions involving aggregate payments or value equal to or greater than $1,000,000, the Company shall have delivered an officer's certificate to the Trustee certifying that such transaction or series of transactions complies with the preceding clause (a) and, if applicable, certifying that the opinion referred to in the preceding clause (b) has been delivered and that such transaction or series of transactions has been approved by a majority of the Board of Directors of the Company; provided, however, that this covenant will not restrict the Company from (i) paying dividends in respect of its Capital Stock permitted under the covenant described under ``--Limitation on Restricted Payments'' above, (ii) paying reasonable and customary fees to directors of the Company who are not employees of the Company, (iii) making loans or advances to officers, employees or consultants of the Company and its Subsidiaries (including travel and moving expenses) in the ordinary course of business for bona fide business purposes of the Company or such Subsidiary not in excess of $2,000,000 in the aggregate at any one time outstanding or (iv) making loans to Wholly-Owned Subsidiaries in the ordinary course of business and consistent with past business practices and making loans to joint ventures, partnerships or other persons that are not Wholly-Owned Subsidiaries pursuant to and in accordance with the ``Limitation on Restricted Payments'' covenant. (Section 4.14) Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any subsidiary of the Company to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock or any other interests or participation in, or measured by, its profits, (b) pay any Indebtedness owed to the company or any other Subsidiary of the Company, (c) make loans or advances to, or any investment in, the Company or any other Subsidiary of the Company, (d) transfer any of its properties or assets to the Company or any other Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) customary non-assignment provisions of any contract or any lease governing a leasehold interest of the Company or any Subsidiary of the company, (iii) customary restrictions on transfers of property subject to a Lien permitted under the Indenture which could not materially adversely affect the company's ability to satisfy its obligations under the Indenture and the Notes, (iv) any agreement or other instrument of a person acquired by the company or any Subsidiary of the Company (or a Subsidiary of such person) in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance of restriction is not applicable to any person, or the properties or assets of any person, other than the person, or the properties or assets of the person so acquired, (v) provisions contained in agreements or instruments relating to 57 59 Indebtedness which prohibit the transfer of all or substantially all of the assets of the obligor thereunder unless the transferee shall assume the obligations of the obligor under such agreement or instrument and (vi) encumbrances and restrictions under the Credit Agreement or the Note Agreement between the Company and The Prudential Insurance Company of America (the ``Note Agreement''), each as in effect on the Issue Date, and encumbrances and restrictions in permitted refinancings or replacements thereof which are no less favorable to the holders of the Notes than those contained in the Credit Agreement or the Note Agreement, each as in effect on the Issue Date. (Section 4.15) Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any of its Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to any property of the Company or any of its Subsidiaries (whether such property is owned on, or acquired or constructed after, the Issue Date) provided that the Company or any of its Subsidiaries may enter a Sale-Leaseback Transaction if (i) the Company could have (A) incurred Indebtedness in an amount equal to the Attributable Value relating to such Sale-Leaseback Transaction pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in the covenant entitled ``Limitation on Indebtedness'' and (B) secured a Lien on such Indebtedness pursuant to the covenant entitled ``Limitation on Liens,'' (ii) the value (considering the proceeds therefrom and any other benefits or options granted to the Company in connection therewith) of such Sale-Leaseback Transaction is at least equal to the Fair Market Value of the property that is the subject of such Sale-Leaseback Transaction and (iii) the Company shall apply or cause to be applied the Net Cash Proceeds of such transaction in compliance with the covenant entitled ``Disposition of Proceeds of Asset Sales.'' (Section 4.16) Limitation on Guarantees by Subsidiaries. The Indenture will provide that the Company will not permit any Subsidiary, directly or indirectly, to assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company unless such Subsidiary simultaneously executes and delivers a supplemental indenture providing for the guarantee of payment of the Notes by such Subsidiary on the same terms as such Subsidiary's assumption or guarantee of such Indebtedness. Notwithstanding the foregoing, upon any sale or disposition (by merger or otherwise) of any Subsidiary that has guaranteed (a ``Guarantee'') the Indebtedness of the Company hereunder (a ``Guarantor'') by the Company or a Subsidiary of the Company to any person that is not an Affiliate of the Company or any of its Subsidiaries which is otherwise in compliance with the terms of the Indenture, such Guarantor will be deemed to be released from all obligations under its Guarantee; provided, however, that each such Guarantor is sold or disposed of in accordance with the Indenture and the guarantee by such Guarantor of such other Indebtedness of the Company is simultaneously released; and provided, further, that the foregoing proviso shall not apply to the sale or disposition of a Guarantor in a foreclosure to the extent that such proviso will be inconsistent with the requirements of the Uniform Commercial Code. (Section 4.17) Reporting Requirements. The Company will file with the Commission the annual reports, quarterly reports and other documents required to be filed with the Commission pursuant to Sections 13 and 15 of the Exchange Act, whether or not the Company has a class of securities registered under the Exchange Act. The Company will be required to file with the Trustee within 15 days after it files them with the Commission (or if any such filing is not permitted under the Exchange Act, 15 days after the Company would have been required to make such filing) copies of such reports and documents. To the extent the Company is not permitted to file such reports or other documents with the Commission it shall provide or cause the Trustee to provide them to each registered holder of Notes within 15 days after the Company would have been required to file such reports or other documents with the Commission. In addition, the Company shall provide any such report or document to any holder or prospective purchaser of Notes who so requests. (Section 4.07) MERGER, SALE OF ASSETS, ETC. The Company will not, in any transaction or series of transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to, any person or persons, and the Company will not permit any of its Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Subsidiaries, taken as a whole, to any other person or persons, unless at the time of and after giving effect thereto (a) either (i) if the transaction or series of transactions is a merger or consolidation, the 58 60 Company shall be the surviving person of such merger or consolidation, or (ii) the person formed by such consolidation or into which the Company or such Subsidiary is merged or to which the properties and assets of the Company or such Subsidiary, as the case may be, are transferred (any such surviving person or transferee person being the ``Surviving Entity'') shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture, and in each case, the Indenture shall remain in full force and effect; (b) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; (c) the Company or the Surviving Entity, as the case may be, after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), could incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under ``--Certain Covenants - --Limitation on Indebtedness'' above (assuming a market rate of interest with respect to such additional Indebtedness); and (d) immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), the Consolidated Net Worth of the Company or the Surviving Entity, as the case may be, is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of transactions. In connection with any consolidation, merger, transfer, lease, assignment or other disposition contemplated hereby, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an officer's certificate and an opinion of counsel, each stating that such consolidation, merger, transfer, lease, assignment or other disposition and the supplemental indenture in respect thereof comply with the requirements under the Indenture; provided, however, that solely for purposes of computing amounts described in subclause (C) of the covenant described under ``--Limitation on Restricted Payments'' above, any such successor person shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor corporation formed by such a consolidation or into which the Company is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor corporation had been named as the Company therein. (Section 5.01) EVENTS OF DEFAULT The following will be ``Events of Default'' under the Indenture: (i) default in the payment of the principal of or premium, if any, on any of the Notes when the same becomes due and payable (upon Stated Maturity, acceleration, optional redemption, required purchase, scheduled principal payment or otherwise); or (ii) default in the payment of an installment of interest on any of the Notes, when the same becomes due and payable, which default continues for a period of 30 days; or (iii) failure to perform or observe any other term, covenant or agreement contained in the Notes or the Indenture (other than a default specified in clause (i) or (ii) above) and such default continues for a period of 30 days after written notice of such default requiring the Company to remedy the same shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by holders of 25% in aggregate principal amount of the Notes then outstanding; or (iv) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Company or any Subsidiary of the Company then has outstanding Indebtedness in excess of $10,000,000, individually or in the aggregate, and either (a) such Indebtedness is 59 61 already due and payable in full or (b) such default or defaults have resulted in the acceleration of the maturity of such Indebtedness; or (v) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $10,000,000, either individually or in the aggregate, shall be entered against the Company or any Subsidiary of the Company or any of their respective properties and shall not be discharged or fully bonded and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree shall not be in effect; or (vi) certain events of bankruptcy, insolvency or reorganization with respect to the Company or any Significant Subsidiary of the Company shall have occurred. (Section 6.01) If an Event of Default (other than as specified in clause (vi) above) shall occur and be continuing, the Trustee, by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding, by notice to the Trustee and the Company, may declare the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Notes due and payable immediately, upon which declaration, all amounts payable in respect of the Notes shall be immediately due and payable. If an Event of Default specified in clause (vi) above occurs and is continuing, then the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of Notes. (Section 6.03) After a declaration of acceleration under the Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind such declaration if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and premium, if any, on any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Notes which has become due otherwise than by such declaration of acceleration; (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (c) all Events of Default, other than the non-payment of principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived. (Section 6.02) The holders of not less than a majority in aggregate principal amount of the outstanding Notes may on behalf of the ~~holders~~depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend unless that legend is not required by applicable law.
Exchange of ~~all the~~Certificated Notes ~~waive~~for Global Notes
Certificated Notes may not be exchanged for beneficial interests in any past defaults. under the Indenture, except a default in the payment of the principal of, premium, if any, or interest on any of the Notes, or in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each of the Notes outstanding. (Section 6.04) No holder of any of the Notes has any right to institute any proceeding with respect to the Indenture or the Notes or any remedy thereunder,Global Note unless the ~~holders of at least 25% in aggregate principal amount of the outstanding Notes have made written request, and offered reasonable indemnity,~~transferor first delivers to the Trustee ~~to institute such proceeding as Trustee under~~a written certificate (in the Notes and the Indenture, the Trustee has failed to institute such proceeding within 30 days after receipt of such notice and the Trustee, within such 30-day period, has not received directions inconsistent with such written request by holders of a majority in aggregate principal amount of the outstanding Notes. Such limitations do not apply, however, to a suit instituted by a holder of any of the Notes for the enforcement of the payment of the principal of, premium, if any, or interest on any of such Notes on or after the respective due dates expressed in such Note. (Section 6.06) During the existence of an Event of Default, the Trustee is required to exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise under the circumstancesform provided in the ~~conduct of such person's own affairs. Subject~~Indenture) to the ~~provisions of~~effect that such transfer will comply with the ~~Indenture relating~~appropriate transfer restrictions applicable to ~~the duties of the Trustee, whether or not an Event of Default shall occur~~such Notes.

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Same Day Settlement and be continuing, the Trustee under the Indenture is not under any obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders unless such holders shall have offered to the Trustee reasonable security or indemnity. Subject to certain provisions concerning the rights of the Trustee, the holders of not less than a majority 60 62 in aggregate principal amount of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under the Indenture. (Sections 6.05, 7.01) If a Default or an Event of Default occurs and is continuing and is known to the Trustee, the Trustee shall mail to each holder of the Notes notice of the Default or Event of Default within 30 days after obtaining knowledge thereof. Except in the case of a Default or an Event of Default in payment of principal of premium, if any, or interest on any Notes, the Trustee may withhold the notice to the holders of such Notes if a committee of its trust officers in good faith determines that withholding the notice is in the interest of the holders of the Notes. (Section 7.05) Payment
The Company is required to furnish to the Trustee annual and quarterly statements as to the performance by the Company of its obligations under the Indenture and as to any default in such performance. The Company is also required to notify the Trustee within five days of any event which is, or after notice or lapse of time or both would become, an Event of Default. (Section 4.06) DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE The Company may, at its option and at any time, terminate the obligations of the Company with respect to the outstanding Notes (``defeasance''). Such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, except for (i) the rights of holders of outstanding Notes to receive payment in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency forwill make payments in respect of the Notes ~~(iii)~~represented by the ~~rights, powers, trusts, duties~~Global Notes (including principal, premium, if any, interest and ~~immunities~~Additional Interest, if any) by wire transfer of immediately available funds to the ~~Trustee,~~accounts specified by the Global Note Holder. The Company will make all payments of principal, interest and ~~(iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option~~premium and atAdditional Interest, if any, ~~time, elect to terminate the obligations of the Company~~ with respect to ~~certain covenants that~~Certificated Notes by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder’s registered address. The Notes represented by the Global Notes are ~~set forth~~expected to be eligible to trade in ~~the Indenture, some of which are described under ``--Certain Covenants'' above (including the covenant described under ``--Certain Covenants--Change of Control'' above)~~DTC’s Same-Day Funds Settlement System, and any ~~subsequent failure~~permitted secondary market trading activity in such Notes will, therefore, be required by DTC to ~~comply with~~be settled in immediately available funds. The Company expects that secondary trading in any Certificated Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such ~~obligations shall not constitute a Default or Event of Default with respect~~crediting will be reported to the ~~Notes (``covenant defeasance''). In order to exercise either defeasance~~relevant Euroclear or ~~covenant defeasance, (i)~~Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised the Company ~~must irrevocably deposit with the Trustee,~~that cash received in ~~trust, for the benefit of the holders of the Notes, cash in United States dollars, U.S. Government Obligations (as defined in the Indenture),~~Euroclear or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes to redemption or maturity (except lost; stolen or destroyed Notes which have been replaced or paid); (ii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposesClearstream as a result of ~~such defeasance~~sales of interests in a Global Note by or ~~covenant defeasance and~~through a Euroclear or Clearstream participant to a Participant in DTC will be ~~subject to federal income tax~~received with value on the ~~same amounts,~~settlement date of DTC but will be available in the ~~same manner and at the same times~~relevant Euroclear or Clearstream cash account only as ~~would have been the case if such defeasance or covenant defeasance had not occurred (in the case of defeasance, such opinion must refer to and be based upon a ruling~~ of the ~~Internal Revenue Service~~business day for Euroclear or Clearstream following DTC’s settlement date.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a ~~change in applicable federal income tax laws); (iii)~~full disclosure of all such terms, as well as any other capitalized terms used herein for which no ~~Default or Event of Default shall have occurred and be continuing~~definition is provided.
“Additional Interest” means all additional interest owing on the date of such deposit; (iv) such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to any securities of the Company; (v) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company is a party or by which it is bound; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights and (vii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent under the Indenture to either defeasance or covenant defeasance, as the case may be, have been complied with. (Section 8.02) SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes 61 63 which have been replaced or repaid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation (except lost, stolen or destroyed Notes which have been replaced or paid) have been called for redemption pursuant to the terms of the Notes or have otherwise become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; (iii) there exists no Default or Event of Default under the Indenture; and (iv) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. AMENDMENTS AND WAIVERS From time to time, the Company, when authorized by a resolution of its Board of Directors, and the Trustee may, without the consent of the holdersRegistration Rights Agreement.
“Affiliate” of any ~~outstanding Notes, amend, waive or supplement the Indenture or the Notes for certain~~ specified ~~purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act of 1939 or making~~Person means (1) any other change that does not adversely affect the rights of any holder of Notes; provided, however, that the Company has delivered to the Trustee an opinion of counsel stating that such change does not adversely affect the rights of any holder of Notes. Other amendments and modifications of the Indenture or the Notes may be made by the Company and the Trustee with the consent of the holders of not less than a majority of the aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note affected thereby, (i) reduce the principal amount of, extend the fixed maturity of or alter the redemption provisions of, the Notes, (ii) change the currency in which any Notes or any premium or the interest thereon is payable or make the principal of, premium, if any, or interest on any Note payable in money other than that stated in the Note, (iii) reduce the percentage in principal amount of outstanding Notes that must consent to an amendment, supplement or waiver or consent to take any action under the Indenture or the Notes, (iv) impair the right to institute suit for the enforcement of any payment on or with respect to the Notes, (v) waive a default in payment with respect to the Notes, (vi) amend, change or modify the obligations of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate the offer with respect to any Asset Sale or modify any of the provisions or definitions with respect thereto, (vii) reduce or change the rate or time for payment of interest on the Notes, (viii) modify or change any provision of the Indenture to affect the ranking of the Notes in a manner adverse to the holders of the Notes or (ix) release any Guarantor from any of its obligations under its Guarantee other than in compliance with the Indenture. (Sections 9.01, 9.02) THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee thereunder will perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. (Section 7.01) The Indenture and provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference therein contain limitations on the rights of the Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in such Act) it must eliminate such conflict or resign. (Sections 7.03, 7.12) GOVERNING LAW The Indenture and the Notes will be governed by the laws of the State of New York, without regard to the principles of conflicts of law. (Section 10.07) 62 64 CERTAIN DEFINITIONS (SECTION 1.01) ``Acquired Indebtedness'' means Indebtedness of a person (a) assumed in connection with an Asset Acquisition from such person or (b) existing at the time such person becomes a Subsidiary of any other person. ``Affiliate'' means, with respect to any specified person, any other personPerson directly or indirectly controlling or controlled by or under direct or indirect common control with such specified ~~person. ``Asset Acquisition'' means (a) an Investment by~~Person or (2) any executive officer or director of such specified Person. For purposes of this definition, “control,” as used with respect to any Person,shall mean the ~~Company~~possession, directly or ~~any Subsidiary~~indirectly, of the ~~Company in any other person pursuant~~power to ~~which such person shall become a Subsidiary~~direct or cause the direction of the ~~Company,~~management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be merged with or into the Company or any Subsidiary of the Company, (b) the acquisition by the Company or any Subsidiary of the Company of the assets of any person (other than a Subsidiary of the Company) which constitute all or substantially all of the assets of such person or (c) the acquisition by the Company or any Subsidiary of the Company of any division or line of business of any person (other than a Subsidiary of the Company). ``Asset Sale'' means any direct or indirect sale, issuance, conveyance, transfer, lease or other dispositiondeemed to any person other than the Company or a Wholly-Owned Subsidiary of the Company, in one or a series of related transactions, of (a) any Capital Stock of any Subsidiary of the Company (other than in respect of director's qualifying shares or investments by foreign nationals mandated by applicable law); (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Subsidiary of the Company; or (c) any other properties or assets of the Company or any Subsidiary of the Company other than in the ordinary course of business and consistent with past business practices.be control. For ~~the~~ purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” shall have correlative meanings.
“Asset Sale” means:
(1) the sale, lease, conveyance or other disposition of any property or assets of the Company or any Restricted Subsidiary thereof other than a transaction governed by the provisions of the Indenture described above under the caption “-Repurchase at the Option of Holders-Change of Control” and/or the provisions described above under the caption “-Certain Covenants-Merger, Consolidation or Sale of Assets”; and
(2) the issuance of Equity Interests by any of the Company’s Restricted Subsidiaries or the sale by the Company or any Restricted Subsidiary thereof of Equity Interests in any of its Subsidiaries (other than directors’ qualifying shares and shares issued to foreign nationals to the extent required by applicable law).
Notwithstanding the preceding, the following items shall be deemed not to be Asset Sales:
(1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $10.0 million;
(2) a sale, lease, conveyance or other disposition of assets between or among the Company and its Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary of the Company to the Company or to another Restricted Subsidiary;

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(4) the sale, lease, sublease, license or sublicense or consignment of equipment, inventory, accounts receivable or other assets (including real property) in the ordinary course of business;
(5) any sale of accounts receivable, or participations therein, in connection with any Qualified Receivables Transaction;
(6)
the licensing of intellectual property to third Persons in the ordinary course of business consistent with past practice; provided that such licensing does not materially interfere with the business of the Company or any of its Restricted Subsidiaries;
(7) the sale or other disposition of Cash Equivalents;
(8) dispositions of accounts receivable in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings;
(9) a Restricted Payment that is permitted by the covenant described above under the caption “-Certain Covenants-Restricted Payments” and any Permitted Investment;
(10) any sale or disposition of any property or equipment that has become damaged, worn out, obsolete or otherwise unsuitable for use in connection with the business of the Company or its Restricted Subsidiaries; and
(11) the creation of, or transfer of pursuant to any foreclosure of assets or other remedy provided by applicable law by a creditor of the Company or any Restricted Subsidiary with respect to, a Lien not prohibited by the Indenture.
“Beneficial Owner” has the meaning assigned to such term ~~``Asset Sale'' shall not include (i) any sale, transfer or other disposition of equipment, tools or other assets (including Capital Stock~~in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any ~~Subsidiary~~particular “person” (as that term is usedin Section 13(d)(3) of the ~~Company)~~Exchange Act), such “person” shall be deemed to have beneficial ownership of allsecurities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms “Beneficially Owns” and “Beneficially Owned” shall have a corresponding meaning.
“Board of Directors” means:
(1) with respect to a corporation, the board of directors of the corporation or, except in the context of the definitions of “Change of Control” and “Continuing Directors,” a duly authorized committee thereof;
(2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person serving a similar function.
“Board Resolution” means a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors of the Company and to be in full force and effect on the date of such certification.
“Borrowing Base” means, as of any date, an amount equal to the sum of (i) 80% of the book value of all accounts receivable owned by the Company or any of its Restricted Subsidiaries ~~in one or a series~~(excluding any accounts receivable (x) more than 90 days past due, (y) due from Affiliates of ~~related transactions in respect of which~~ the Company or ~~such~~(z) in which any Receivables Subsidiary ~~receives cash or property with an aggregate Fair Market Value~~has any interest) as of ~~$5,000,000 or less;~~the most recent fiscal quarter for which internal financial statements are available and (ii) ~~any sale, issuance, conveyance, transfer, lease or other disposition~~65% of ~~properties or assets that is governed~~the net book value of all inventory owned by the ~~provisions described under ``--Merger, Sale~~Company or any of ~~Assets, Etc.'' above. ``Attributable Value''~~its Restricted Subsidiaries as of the most recent fiscal quarter for which internal financial statements are available, all calculated on a consolidated basis and in accordance with GAAP.
“Business Day” means asany day other than a Saturday, a Sunday or a day on which the Trustee or banking institutions in The City of New York or at a place of payment are authorized or required by law, regulation or executive order to ~~any particular lease under which any person is~~remain closed.
“Capital Lease Obligation” means, at the time ~~liable other than a Capitalized Lease Obligation, and at~~ any ~~date as of which the amount~~determination thereof is to be ~~determined,~~made, the ~~total net~~ amount of ~~rent~~the liability in respect of a capital lease that would at that time be required to be ~~paid by such person under such lease during the initial term thereof as determined in accordance with GAAP, discounted from the last date of such initial term to the date of determination at~~capitalized on a ~~rate per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with a like term~~balance sheet in accordance with GAAP. ~~The net amount of rent required to be paid under any such~~For greater certainty, a lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. ``Attributable Value'' means, as to a Capitalized Lease Obligation under which any person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such person in accordance with GAAP. ``Average Life to Stated Maturity'' means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years (or any fraction thereof) from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness multiplied by (b) the amount of each such principal payment by (ii) the sum of all such principal payments. ``Capital Stock'' means, with respect to any person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such person's capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. ``Capitalized Lease Obligation'' means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to benot have been classified ~~and accounted for~~ as a capital lease ~~obligation under GAAP, and, for~~had it been in place on the ~~purpose of the Indenture, the amount of such obligation at any date~~Issue Date, shall not be ~~the capitalized amount thereof at such date, determined in accordance with GAAP. 63~~ ~~65 ``Cash Equivalents'' means, at any time, (i) any evidence of Indebtedness with~~considered a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit, acceptances or time deposits with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000; (iii) certificates of deposit or time deposits with a maturity of 180 days or less of any financial institution that is not organizedCapital Lease Obligation under the laws of the United States, any state thereof or the District of Columbia that are rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category of another nationally recognized securities rating agency; (iv) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the government of the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within 180 days from the date of acquisition; provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions With Securities Dealers, and Others, as adopted by the Comptroller of the Currency on October 31, 1985 and (v) commercial paper with a maturity of 180 days or less that is rated at least A-1 by S&P or at least P-1 by Moody's. ``Indenture.

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“Capital Stock” means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
“Cash Equivalents” means:
(1) United States dollars or, in the case of any Restricted Subsidiary organized under the laws of any jurisdiction outside the United States, such local currencies held by such Restricted Subsidiary from time to time in the ordinary course of business;
(2)
securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof), maturing, unless such securities are deposited to defease any Indebtedness, not more than one year from the date of acquisition;
(3) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P and in each case maturing within 90 days after the date of acquisition;
(4) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case (x) with any commercial bank organized under the laws of the United States, Canada or the United Kingdom (or any state, province or territory thereof) or any foreign branch thereof having capital and surplus aggregating at least $100.0 million or (y) insured by any nation or government, any state, province, municipality or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing, and any department, agency, board, commission, tribunal, committee or instrumentality of any of the foregoing;
(5) mutual funds substantially all of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (4) of this definition;
(6) deposit accounts in the ordinary course of business with financial institutions (A) located in the United States of America, Canada or the United Kingdom and (B) located in a jurisdiction other than the United States of America, Canada or the United Kingdom in an amount not in excess of $20.0 million in the aggregate; and
(7) fully collateralized repurchase obligations of any commercial bank organized under the laws of the United States of America or any state thereof, having capital and surplus aggregating at least $100.0 million, having a term of not more than 30 days, with respect to securities issued or fully guaranteed by the government of the United States of America.
“Change of ~~Control''~~Control” means the occurrence of any of the following events: (a) any ``person'' or ``group'' (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the ``beneficial owner'' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have ``beneficial ownership'' of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 35% of the total Voting Stock of the Company; (b) the Company consolidates with, or merges with or into, another person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any personfollowing:
(1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries, taken as a whole, to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution of the Company;

65

(3) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the Beneficial Owner, directly or indirectly, of 50% or more of the voting power of the Voting Stock of the Company;
(4) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors; or
(5) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where (A) the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance) and (B) immediately after such transaction, no “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) becomes, directly or indirectly, the Beneficial Owner of 50% or more of the voting power of the Voting Stock of the surviving or transferee Person.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means, with respect to any Person, any Capital Stock (other than Preferred Stock) of such Person, whether outstanding on the Issue Date or issued thereafter.
“Consolidated Cash Flow” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus:
(1)
provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(2)
Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that any such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(3)
depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period), non-cash asset impairment charges and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus
(4) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue consistent with past practice;
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or profits of, the Fixed Charges of and the depreciation and amortization and other non-cash expenses of, a Restricted Subsidiary of the Company ~~is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock~~shall be added to Consolidated Net Income to compute Consolidated Cash Flow of the Company ~~is converted into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of~~(A) in the ~~surviving or transferee corporation or (2) cash, securities and other property in an amount which could then be paid by~~same proportion that the Company as a Restricted Payment under the Indenture, or a combination thereof, and (ii) immediately after such transaction no ``person'' or ``group'' (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), is the ``beneficial owner'' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have ``beneficial ownership'' of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 35% of the total Voting Stock of the surviving or transferee corporation; (c) at any time during any consecutive two-year period, individuals who at the beginningNet Income of such ~~period constituted the Board of Directors~~Restricted Subsidiary was added to compute such Consolidated Net Income of the Company ~~(together with any new directors whose election~~and (B) only to the extent that a corresponding amount would be permitted at the date of determination to be dividended or distributed to the Company by such ~~Board~~Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of ~~Directors~~its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or ~~whose nomination~~its stockholders.
“Consolidated Net Income” means, with respect to any specified Person for ~~election by~~any period, the ~~stockholders~~aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

66

(1) the Net Income or loss of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its equity holders;
(3) the Net Income of any Person acquired during the specified period for any period prior to the date of such acquisition shall be excluded;
(4) the cumulative effect of a change in accounting principles shall be excluded; and
(5) notwithstanding clause (1) above, the Net Income or loss of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries.
“Consolidated Net Tangible Assets” of any Person means, as of any date, the amount which, in accordance with GAAP, would be set forth under the caption “Total Assets” (or any like caption) on a consolidated balance sheet of such Person and its Restricted Subsidiaries, as of the end of the most recently ended fiscal quarter for which internal financial statements are available, less (1) all intangible assets, including, without limitation, goodwill, trade names, trademarks, patents, purchased technology, unamortized debt discount and other like intangible assets, as shown on the most recent balance sheet of the Company ~~was approved by a vote~~prepared in conformity with GAAP and (2) current liabilities.
“Continuing Directors” means, as of ~~66 2/3%~~any date of ~~the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for~~determination, any ~~reason to constitute a majority~~member of the Board of Directors of the Company ~~then in office; or (d)~~who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.
“Credit Agreement” means that certain Fourth Amended and Restated Credit Agreement, dated as of December 18, 2014, by and among the Company, the other loan parties party thereto, Bank of America, N.A., as Lead Issuing Bank, Lead Arranger, Administrative Agent and Collateral Agent, and the other lenders named therein, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced from time to time, regardless of whether such amendment, restatement, modification, renewal, refunding, replacement or refinancing is ~~liquidated~~with the same financial institutions or ~~dissolved~~otherwise.
“Credit Facilities” means, one or ~~adopts~~more debt facilities (including, without limitation, the Credit Agreement), indentures, commercial paper facilities or other arrangements, in each case with banks or other financial institutions or investors, providing for revolving credit loans, term loans, notes, receivables financing (including through the sale of receivables to such institutions or to special purpose entities formed to borrow from such institutions against such receivables), letters of credit or other Indebtedness, in each case, as amended, restated, modified, renewed, refunded, replaced, restructured, refinanced, repaid, increased or extended in whole or in part from time to time.
“Default” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
“Designated Non-cash Consideration” means the Fair Market Value of non-cash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers’ Certificate, setting forth the basis of such valuation, less the amount of Cash Equivalents received in connection with a subsequent sale of such Designated Non-cash Consideration.
“Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole

67

or in part, on or prior to the date that is one year after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption “-Certain Covenants-Restricted Payments.” The term “Disqualified Stock” shall also include any options, warrants or other rights that are convertible into Disqualified Stock or that are redeemable at the option of the holder, or required to be redeemed, prior to the date that is one year after the date on which the Notes mature.
“Domestic Subsidiary” means any Restricted Subsidiary of the Company other than a Restricted Subsidiary that is (1) a “controlled foreign corporation” under Section 957 of the Internal Revenue Code (a) whose primary operating assets are located outside the United States and (b) that is not subject to tax under Section 882(a) of the Internal Revenue Code because of a trade or business within the United States (other than any entity under this clause (1) that Guarantees Indebtedness of the Company or any of its other Domestic Subsidiaries) or (2) a Subsidiary of an entity described in the preceding clause (1).
“Earn-out Obligation” means any contingent consideration based on future operating performance of the acquired Person or assets or other purchase price adjustment or indemnification obligation payable following the consummation of an acquisition based on criteria set forth in the documentation governing or relating to such acquisition.
“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
“Equity Offering” means (i) an offer and sale of Capital Stock (other than Disqualified Stock) of the Company pursuant to a registration statement that has been declared effective by the Commission pursuant to the Securities Act (other than a registration statement on Form S-8 or otherwise relating to equity securities issuable under any employee benefit plan of ~~liquidation. ``Common Stock''~~the Company) or (ii) any private placement of Capital Stock (other than Disqualified Stock) of the Company to any Person other than an Affiliate of the Company.
“Existing Indebtedness” means the aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Credit Agreement or under the Notes and the related Note Guarantees) in existence on the Issue Date.
“Fair Market Value” means the price that would be paid in an arm’s-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by an executive officer of the Company. Notwithstanding the foregoing, (1) if the Fair Market Value exceeds $10.0 million, the determination of Fair Market Value must be made by the Board of Directors of the Company and be evidenced by a Board Resolution attached to an Officers’ Certificate delivered to the Trustee and (2) if the Fair Market Value exceeds $25.0 million, the determination of Fair MarketValue must be made by the Board of Directors of the Company and such determination of Fair Market Valuemust be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing.
“Fixed Charges” means, with respect to any person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of, such person's common stock, whether outstanding at the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. ``Consolidated Cash Flow Available for Fixed Charges'' means, with respect to any personspecified Person for any period, the sum, ~~of,~~ without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense, and (d) Consolidated Income Tax Expense less (B) any non-cash items increasing Consolidated Net Income for such period. ``Consolidated Fixed Charge Coverage Ratio'' means, with respect to any person, the ratio of:
(1)
the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit (other than trade letters of credit in the ordinary course of business) or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus
(2)
the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
(3)
any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Stock or Preferred Stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary

68

of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such person for the four full fiscal quarters immediately preceding the date of the transaction (the ``Transaction Date'') giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the ``Four Quarter Period'') to the aggregate amount of Consolidated Fixed Charges of such person for the Four Quarter 64 66 Period. In addition to and without limitation of the foregoing, for purposes of this definition, ``Consolidated Cash Flow Available for Fixed Charges'' and ``Consolidated Fixed Charges'' shall be calculated after giving effect on a pro forma basis for the period of such calculation to, without duplication, (a) the incurrence of any Indebtedness of such person or any of its Subsidiaries (and the application of the net proceeds thereof) during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the ``Reference Period''), including, without limitation, the incurrence of the Indebtedness giving rise to the need to make such calculation (and the application of the net proceeds thereof), as if such incurrence (and application) occurred on the first day of the Reference Period, and (b) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such person or one of its Subsidiaries (including any person who becomes a Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if such Asset Sale or Asset Acquisition occurred on the first day of the Reference Period. Furthermore, in calculating ``Consolidated Fixed Charges'' for purposes of determining the denominator (but not the numerator) of this ``Consolidated Fixed Charge Coverage Ratio'' (i) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (ii) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Reference Period. If such person or any of its Subsidiaries directly or indirectly guarantees Indebtedness of a third person, the above clause shall give effect to the incurrence of such guaranteed Indebtedness as if such person or such Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. ``Consolidated Fixed Charges'' means, with respect to any person for any period, the sum of, without duplication, the amounts for such period of (i) Consolidated Interest Expense and (ii) the product of (a) the aggregate amount of dividends and other distributions paid or accrued during such period in respect of Preferred Stock and Redeemable Capital Stock of such person and its Subsidiaries on a consolidated basis andCompany, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such ~~person. ``Consolidated Income Tax Expense''~~Person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with GAAP.
“Fixed Charge Coverage Ratio” means with respect to any ~~person~~specified Person for any period, the ~~provision for federal, state, local and foreign income taxes~~ratio of the Consolidated Cash Flow of such ~~person and its Subsidiaries~~Person for such period ~~as determined on a consolidated basis in accordance with GAAP. ``Consolidated Interest Expense'' means, with respect~~ to ~~any person for any period, without duplication,~~ the ~~sum of (i) the interest expense~~Fixed Charges of such ~~person and its Subsidiaries~~Person for such ~~period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a)~~period. In the event that the specified Person or any ~~amortization~~ of ~~debt discount, (b) the net cost under Interest Rate Protection Obligations, (c) the interest portion of~~its Restricted Subsidiaries Incurs, repays, repurchases or redeems any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (e) all accrued interest and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/Indebtedness or ~~scheduled to be paid~~issues, repurchases or accrued by such person and its Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. ``Consolidated Net Income'' means, with respect to any person, for any period, the consolidated net income (or loss) of such person and its Subsidiaries for such period as determined in accordance with GAAP, adjusted,redeems Preferred Stock subsequent to the ~~extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary gains~~commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or losses, (ii) the portion of net income (but not losses) of such person and its Subsidiaries allocable to minority interests in unconsolidated persons to the extent that cash dividends or distributions have not actually been received by such person or one of its Subsidiaries, (iii) net income (or loss) of any person combined with such person or one of its Subsidiaries on a ``pooling of interests'' basis attributable to any period prior to the date on which the event for which the calculation of ~~combination, (iv) any gain~~the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such Incurrence, repayment, repurchase or ~~loss realized upon~~redemption of Indebtedness, or such issuance, repurchase or redemption of Preferred Stock, and the ~~termination~~use of ~~any employee pension benefit plan, on an after-tax basis, (v) gains or losses in respect of any Asset Sales by such person or one of its Subsidiaries and (vi)~~ the ~~net income of any Subsidiary~~proceeds therefrom as if the same had occurred at the beginning of such ~~person to~~period.
In addition, for purposes of calculating the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders. 65 67 ``Consolidated Net Tangible Assets'' means the book value of the assets of the Company and its Subsidiaries (other than patents, patent rights, trademarks, trade names, franchises, copyrights, licenses, permits, goodwill and other intangible assets classified as such in accordance with GAAP) after all applicable deductionsFixed Charge Coverage Ratio:
(1) acquisitions and dispositions of business entities or property and assets constituting a division or line of business of any Person that have been made by the specified Person or any of its Restricted Subsidiaries (or any entity that subsequently becomes a Restricted Subsidiary of the Company), including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act, but without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, shall be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; and
(4)
consolidated interest expense attributable to interest on any Indebtedness (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the Calculation Date (taking into account any interest rate option, swap, cap or similar agreement applicable to such Indebtedness if such agreement has a remaining term in excess of 12 months or, if shorter, at least equal to the remaining term of such Indebtedness) had been the applicable rate for the entire period.
“GAAP (including, without limitation, reserves for doubtful receivables, obsolescence, depreciation and amortization) less all liabilities of the Company and its Subsidiaries determined in accordance with GAAP. ``Consolidated Net Worth'' means, with respect to any person at any date, the consolidated stockholders' equity of such person less the amount of such stockholders' equity attributable to Redeemable Capital Stock of such person and its Subsidiaries, as determined in accordance with GAAP. ``Consolidated Non-cash Charges'' means, with respect to any person for any period, the aggregate depreciation, amortization and other non-cash expenses of such person and its Subsidiaries reducing Consolidated Net Income of such person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which required an accrual of or a reserve for cash charges for any future period). ``Credit Agreement'' means one or more credit agreements as any such credit agreement may be amended, supplemented or otherwise modified from time to time, including all exhibits and schedules thereto. ``Currency Agreement'' means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values. ``Default'' means any event that is, or after notice or passage of time or both would be, an Event of Default. ``Event of Default'' has the meaning set forth under ``Events of Default'' herein. ``Exchange Act'' means the Securities Exchange Act of 1934, as amended. ``Fair Market Value'' means, with respect to any assets, the price, as determined by the Board of Directors of the Company, acting in good faith which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction; provided, however, that, with respect to any transaction which involves an asset or assets in excess of $5,000,000, such determination shall be evidenced by resolutions of the Board of Directors of the Company delivered to the Trustee. ``Final Maturity Date'' shall be the date fixed in the Indenture for the final payment of principal on the Notes. ``GAAP''” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the opinions and pronouncements of the Public Company Accounting Oversight Board and in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as ~~may be~~have been approved by a significant segment of the accounting profession, which are in effect on the Issue Date.
“Government Securities” means securities that are direct obligations of the United States of America for the timely payment of which ~~are applicable from time to time~~its full faith and ~~are consistently applied. ``Guarantee''~~credit is pledged.
“Guarantee” means, as ~~applied~~ to any ~~obligation, (i)~~Person, a guarantee ~~(other~~other than by endorsement of negotiable instruments for collection in the ordinary course of ~~business),~~business, direct or indirect, in any manner including, without limitation, by way of ~~any part~~a pledge of assets or ~~all~~through letters of ~~such obligation and (ii) an agreement, direct~~credit or ~~indirect, contingent or otherwise, the practical effect of which is to assure~~reimbursement agreements in ~~any way the payment or performance (or payment of damages in the event of non-performance)~~respect thereof, of all or any part of ~~such obligation, including, without limiting~~any Indebtedness of another Person.
“Guarantors” means:
(1) each of our Subsidiaries that Incurs or Guarantees Obligations under the ~~foregoing,~~Credit Agreement; and
(2) any other Subsidiary that executes a Note Guarantee in accordance with the ~~payment~~provisions of ~~amounts drawn down by letters~~the Indenture;

69

and their respective successors and assigns until released from their obligations under their Note Guarantees and the Indenture in accordance with the terms of ~~credit. ``Indebtedness''~~the Indenture.
“Hedging Obligations” means, with respect to any ~~person, without duplication, (a) all liabilities of such person for borrowed money or for~~specified Person, the deferred purchase price of property or services, including, without limitation, all obligations, contingent or otherwise, of such person in connection with any letters of credit, banker's acceptance or other similar credit transaction, excluding any trade payables and other accrued current liabilities incurred in the ordinary course of business and which are not overdue by more than 90 days, any trade letters of credit incurred in the ordinary course of business provided that the reimbursement obligations with respect thereto are extinguished within 30 days of the incurrence thereof and any obligation to pay for utilities incurred in the ordinary course of business, (b) all obligations of such ~~person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreement~~Person under:
(1) interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and other agreements or arrangements with respect to interest rates;
(2) commodity swap agreements, commodity option agreements, forward contracts and other agreements or arrangements with respect to commodity prices; and
(3) foreign exchange contracts, currency swap agreements and other agreements or arrangements with respect to foreign currency exchange rates.
“Holder ” means a Person in whose name a Note is registered.
“Incur” means, with respect to ~~property acquired by 66~~ ~~68 such person (even if the rights and remedies of the seller~~any Indebtedness, to incur (by merger, conversion, exchange or ~~lender under such agreement in the event of default are limited to repossession or sale of such property)~~otherwise), but excluding trade accounts payable arising in the ordinary course of business, (d) all Capitalized Lease Obligations and Operating Lease Obligations of such person, (e) all Indebtedness referred to in the preceding clauses of other persons and all dividends of other persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingentcreate, issue, assume, Guarantee or otherwise become directly or indirectly liable for or with respect to, ~~be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such person, even though such person has not assumed~~ or become ~~liable~~responsible for, the payment of, contingently or otherwise, such Indebtedness ~~(the~~(and “Incurrence” and “Incurred” shall have meanings correlative to the foregoing); provided that (1) any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary of the Company will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary of the Company and (2) neither the accrual of interest nor the accretion of original issue discount nor the payment of interest in the form of additional Indebtedness with the same terms and the payment of dividends on Disqualified Stock or Preferred Stock in the form of additional shares of the same class of Disqualified Stock or Preferred Stock (to the extent provided for when the Indebtedness or Disqualified Stock or Preferred Stock on which such interest or dividend is paid was originally issued) shall be considered an Incurrence of Indebtedness; provided that in each case the amount thereof is for all other purposes included in the Fixed Charges and Indebtedness of the Company or its Restricted Subsidiary as accrued.
“Indebtedness” means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker’s acceptances;
(4) in respect of Capital Lease Obligations;
(5)
in respect of the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable; provided that Indebtedness will not include any Earn-out Obligation, except to the extent that the contingent consideration relating thereto is not paid within 30 days after the amount due is finally determined;
(6) representing Hedging Obligations;
(7) representing Disqualified Stock valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends; or
(8) in the case of a Subsidiary of such Person, representing Preferred Stock valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends.
In addition, the term “Indebtedness” includes (x) all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person), provided that the amount of such ~~obligation being deemed to~~Indebtedness shall be the lesser of (A) the ~~value~~Fair Market Value of such ~~property or~~ asset orat such date of determination and (B) the amount of such Indebtedness, and (y) to the ~~obligation so secured), (f) all guarantees of Indebtedness referred to in this definition~~extent not otherwise included, the Guarantee by ~~such person, (g) all Redeemable Capital Stock of such person valued at~~ the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends, (h) all obligations under or in respect of Currency Agreements and Interest Rate Protection Obligations of such person, (i) any Preferred Stockspecified Person of any Subsidiary of such person valued at the sum of (without duplication) (A) the liquidation preference thereof, (B) any mandatory redemption payment obligations in respect thereof and (C) accrued dividends thereon, and (j) any amendment, supplement, modification, deferral, renewal, extension or refundingIndebtedness of any ~~liability of the types referred to in clauses (a) through (i) above.~~other Person. For purposes hereof, the ``

70

“maximum fixed repurchase ~~price''~~price” of any ~~Redeemable Capital~~Disqualified Stock or Preferred Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such ~~Redeemable Capital~~Disqualified Stock or Preferred Stock, as applicable, as if such ~~Redeemable Capital~~Disqualified Stock or Preferred Stock were ~~purchased~~repurchased on any date on which Indebtedness shall be required to be determined pursuant to the ~~Indenture,~~Indenture.
The amount of the Indebtedness in respect of any Hedging Obligations at any time shall be equal to the amount payable as a result of the termination of such Hedging Obligations at such time. The amount of any Indebtedness outstanding as of any date shall be the outstanding balance at such date of all unconditional obligations as described above and, ~~if such price is based~~with respect to contingent obligations, the maximum liability upon ~~or measured~~the occurrence of the contingency giving rise to the obligation, and shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and
(2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness.
Notwithstanding the foregoing, Indebtedness will not include any guarantee by the ~~fair market value~~Company or any of its Restricted Subsidiaries of operating lease obligations that are not Indebtedness.
“Investment Grade” means, with respect to a debt rating of the Notes, a rating of Baa3 or higher by Moody’s together with a rating of BBB- or higher by S&P or, in the event S&P or Moody’s or both shall cease rating the Notes (for reasons outside the control of the Company) and the Company shall select any other Rating Agency, the equivalent of such Redeemable Capital Stock, such fair market value shall be determined in good faith by the board of directors of the issuer of such Redeemable Capital Stock. ``Independent Financial Advisor'' means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. ``Interest Rate Protection Agreement'' means any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments maderatings by such person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include without limitation, interest rate swaps, caps, floors, collars and similar agreements. ``Interest Rate Protection Obligations'' means the obligations of any person pursuant to an Interest Rate Protection Agreement. ``Investment''other Rating Agency.
“Investments” means, with respect to any ~~person, any~~Person, all direct or indirect ~~loan~~investments by such Person in other Persons (including Affiliates) in the form of loans or other ~~extension~~extensions of credit or(including Guarantees), advances, capital ~~contribution to~~contributions (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of ~~others and including, without limitation, a guarantee)~~others), purchases or ~~any purchase or acquisition by such person~~other acquisitions for consideration of ~~any Capital Stock, bonds, notes, debentures~~Indebtedness, Equity Interests or other securities, together with all items that are or ~~evidences~~would be classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of ~~Indebtedness issued by,~~the Company sells or otherwise disposes of any ~~other person. In addition,~~Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the ~~assets of~~Investment in such Subsidiary not sold or disposed of. The acquisition by the Company or any Restricted Subsidiary of the Company ~~at the time~~of a Person that ~~such Subsidiary is designated as~~holds an ~~Unrestricted Subsidiary~~Investment in a third Person shall be deemed to be an Investment ~~made~~ by the Company in such Unrestricted Subsidiary at such time. ``Investments'' shall exclude extensions of trade credit by the Company and its Subsidiaries in the ordinary course of business in accordance with normal trade practices of the Company or such Restricted Subsidiary asin such third Person in an amount equal to the ~~case may be. ``~~Fair Market Value of the Investment held by the acquired Person in such third Person.
“Issue ~~Date''~~Date” means the ~~original issue~~ date of original issuance of the Notes. ``Lien'' means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind. A person shall be deemed to own subject to a Lien any property which such person has acquired or holds subject toNotes under the ~~interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. ``Maturity Date''~~Indenture.
“Lien” means, with respect to any ~~Note, the date on which~~asset, any ~~principal~~mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such ~~Note becomes due~~asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and ~~payable as therein~~any filing of or ~~herein provided, whether at~~agreement to give any financing statement under the ~~Stated Maturity with respect to such principal or by declaration~~Uniform Commercial Code (or equivalent statutes) of ~~acceleration, call or redemption or purchase or otherwise. 67~~ ~~69 ``Moody's''~~any jurisdiction.
“Moody’s ” means ~~Moody's~~Moody’s Investors Service, Inc. ~~and~~or any successor to its ~~successors. ``~~debt rating business.
“Net ~~Cash Proceeds''~~Income” means, with respect to any ~~Asset Sale,~~specified Person, the ~~proceeds thereof~~net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however:
(1) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with: (a) any sale of assets outside the ordinary course of business of such Person; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries;
(2) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss;
(3) any non-cash goodwill or intangible asset impairment charges resulting from the application of FAS 142;

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(4) any non-cash charges related to restructuring, debt retirement and/or store closings; and
(5) all non-cash expenses related to stock-based compensation plans, including stock option non-cash expenses.
“Net Proceeds” means the ~~form of~~aggregate cash ~~or Cash Equivalents~~proceeds, including payments in respect of deferred payment obligations ~~when~~(to the extent corresponding to the principal, but not the interest component, thereof) received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of (1) the ~~form~~direct costs relating to such Asset Sale, including, without limitation, legal, accounting, investment banking and brokerage fees, and sales commissions, and any relocation expenses incurred as a result thereof, (2) taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, (3) amounts required to be applied to the repayment of ~~cash~~Indebtedness or ~~Cash Equivalents (except~~other liabilities secured by a Lien on the asset or assets that were the subject of such Asset Sale or required to be paid as a result of such sale, (4) any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP, (5) in the case of any Asset Sale by a Restricted Subsidiary of the Company, payments to holders of Equity Interests in such Restricted Subsidiary in such capacity (other than such Equity Interests held by the Company or any Restricted Subsidiary thereof) to the extent that such ~~obligations are financed or sold with recourse~~payment is required to permit the distribution of such proceeds in respect of the Equity Interests in such Restricted Subsidiary held by the Company or any Restricted Subsidiary ~~of the Company) net of (i) brokerage commissions~~thereof and other fees and expenses (including, without limitation, fees and expenses of legal counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (ii) amounts required to be paid to any person (other than the Company or any Subsidiary of the Company) owning a beneficial interest in the assets subject to the Asset Sale and (iv)(6) appropriate amounts to be provided by the Company or ~~any Subsidiary of the Company, as the case may be,~~its Restricted Subsidiaries as a reserve ~~required in accordance with GAAP~~ against ~~any~~ liabilities associated with ~~such Asset Sale and retained by the Company or any Subsidiary of the Company, as the case may be, after~~ such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as ~~reflected~~determined in ~~an officers' certificate delivered~~accordance with GAAP; provided that (a) excess amounts set aside for payment of taxes pursuant to clause (2) above remaining after such taxes have been paid in full or the statute of limitations therefor has expired and (b) amounts initially held in reserve pursuant to clause (6) no longer so held, will, in the case of each of subclause (a) and (b), at that time become Net Proceeds.
“Note Guarantee” means a Guarantee of the Notes pursuant to the ~~Trustee. ``Operating Lease Obligation''~~Indenture.
“ Obligations” means any ~~obligation~~principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.
“ Officer” means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.
“Officers’ Certificate” means a ~~lease~~certificate signed on behalf of ~~(or~~the Company by at least two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of the Indenture.
“Opinion of Counsel” means an opinion from legal counsel, who may be counsel to or an employee of the Company, or other ~~agreement conveying~~counsel reasonably acceptable to the ~~right to use)~~Trustee, that meets the requirements of the Indenture.
“Permitted Business” means any ~~property (whether real, personal~~business conducted or ~~mixed) that is not required~~proposed to be ~~classified~~conducted (as described in this prospectus) by the Company and ~~accounted for as a capital lease obligation under GAAP, and, for~~its Restricted Subsidiaries on the ~~purpose~~date of the Indenture and other businesses reasonably related or ancillary thereto.
“Permitted Investments” means:
(1) any Investment in the Company or in a Restricted Subsidiary of the Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company;

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(4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption “-Repurchase at the Option of Holders-Asset Sales”;
(5) Investments to the extent acquired in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(6) Hedging Obligations that are Incurred for the purpose of fixing, hedging or swapping interest rate, commodity price or foreign currency exchange rate risk (or to reverse or amend any such agreements previously made for such purposes), and not for speculative purposes;
(7) stock, obligations or securities received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business or received in satisfaction of judgment;
(8) advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits on the balance sheet of the Company or its Restricted Subsidiaries and endorsements for collection or deposit arising in the ordinary course of business;
(9) commission, payroll, travel and similar advances to officers and employees of the Company or any of its Restricted Subsidiaries made consistent with past practices;
(10) Investments by the Company or a Restricted Subsidiary of the Company in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person, in each case, in connection with a Qualified Receivables Transaction;
(11) Investments consisting of the licensing or contribution of intellectual property in the ordinary course of business;
(12) Loans or advances to employees of the Company or any of its Restricted Subsidiaries that are approved in good faith by a majority of the disinterested members of the Board of Directors of the Company in an aggregate amount outstanding not to exceed $2.0 million at any time; and
(13) other Investments in any Person other than an Unrestricted Subsidiary (provided that any such corporation, partnership, joint venture or other entity is not an Affiliate of the Company or is an Affiliate of the Company solely because the Company, directly or indirectly, owns Equity Interests in, or controls, such corporation, partnership, joint venture or other entity) having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (13) since the date of the Indenture, not to exceed $50.0 million.
“Permitted Liens” means:
(1) Liens securing obligations in an amount when created or Incurred, together with the amount of all other obligations and Indebtedness secured by a Lien under this clause (1) at that time outstanding, not to exceed the greater of (a) the aggregate amount of Indebtedness permitted to be Incurred pursuant to clause (1) of the second paragraph under the caption “-Certain Covenants-Incurrence of Indebtedness”; and (b) the maximum principal amount of Indebtedness that, as of the date such Indebtedness could be incurred and after giving effect to the incurrence of such Indebtedness, would not cause the Secured Leverage Ratio of the Company and the Restricted Subsidiaries to exceed 3.5 to 1.0;
(2) Liens on the assets of the Company or any Restricted Subsidiary thereof securing Indebtedness Incurred under clause (15) of the second paragraph of the covenant described under the caption “-Certain Covenants-Incurrence of Indebtedness;”
(3) Liens in favor of the Company or any Restricted Subsidiary that is a Guarantor;
(4)
Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the

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contemplation of such ~~obligation at~~merger or consolidation and do not extend to any ~~date shall be the Attributable Value with respect to such lease at such date. ``Pari Passu Indebtedness'' means Indebtedness~~assets other than those of the Company which ranks pari passu in right of payment with the Notes. ``Permitted Investments'' means any of the following: (i) Investments in any Wholly-Owned Subsidiary of the Company (including any person that pursuant to such Investment becomes a Wholly-Owned Subsidiary of the Company) and any person that isPerson merged into or consolidated with ~~or into, or transfers or conveys all or substantially all of its assets to,~~ the Company or the Restricted Subsidiary;
(5)
Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any property other than the property so acquired by the Company or the Restricted Subsidiary;
(6) Liens securing the Notes and the Note Guarantees;
(7) Liens existing on the date of the Indenture (excluding Liens securing obligations under the Credit Agreement);
(8)
Liens securing Permitted Refinancing Indebtedness; provided that such Liens do not extend to any property or assets other than the property or assets that secure the Indebtedness being refinanced;
(9)
Liens on property or assets used to defease or to satisfy and discharge Indebtedness; provided that (a) the Incurrence of such Indebtedness was not prohibited by the Indenture and (b) such defeasance or satisfaction and discharge is not prohibited by the Indenture;
(10)
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant described under the caption “-Certain Covenants- Incurrence of Indebtedness;” provided that any such Lien (i) covers only the assets acquired, constructed or improved with such Indebtedness and (ii) is created within 180 days of such acquisition, construction or improvement;
(11) Liens to secure Indebtedness Incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of any warehouse facility used in the business of the Company or any Restricted Subsidiary of the Company, in an aggregate principal amount not to exceed at any time outstanding $35.0 million;
(12) Liens on cash or Cash Equivalents securing Hedging Obligations of the Company or any of its Restricted Subsidiaries (a) that are Incurred for the purpose of fixing, hedging or swapping interest rate, commodity price or foreign currency exchange rate risk (or to reverse or amend any such agreements previously made for such purposes), and not for speculative purposes, or (b) securing letters of credit that support such Hedging Obligations;
(13) Liens incurred or deposits made in the ordinary course of business in connection with worker’s compensation, unemployment insurance or other social security obligations;
(14) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of Indebtedness), leases, or other similar obligations arising in the ordinary course of business;
(15) survey exceptions, encumbrances, easements or reservations of, or rights of other for, rights of way, zoning or other restrictions as to the use of properties, and defects in title which, in the case of any of the foregoing, were not incurred or created to secure the payment of Indebtedness, and which in the aggregate do not materially adversely affect the value of such properties or materially impair the use for the purposes of which such properties are held by the Company or any of its Restricted Subsidiaries;
(16) judgment and attachment Liens not giving rise to an Event of Default and notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made;
(17) Liens, deposits or pledges to secure public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds or obligations; and Liens, deposits or pledges in lieu of such bonds or obligations, or to secure such bonds or obligations, or to secure letters of credit in lieu of or supporting the payment of such bonds or obligations;
(18) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of the Company or any Subsidiary thereof on deposit with or in possession of such bank;

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(19) any interest or title of a lessor, licensor or sublicensor in the property subject to any lease, license or sublicense;
(20) Liens arising from precautionary UCC financing statements regarding operating leases or consignments;
(21) Liens of franchisors in the ordinary course of business not securing Indebtedness;
(22) Liens for taxes, assessments and governmental charges not yet delinquent or being contested in good faith and for which adequate reserves have been established to the extent required by GAAP;
(23)
Liens on cash and Cash Equivalents to secure letters of credit for the account of any Person that were in existence prior to, and not in contemplation of, the acquisition of such Person by the Company or any Restricted Subsidiary of the Company pending the replacement thereof with letters of credit issued under the Credit Agreement; provided that the aggregate Fair Market Value of all cash and Cash Equivalents subject to such Liens pursuant to this clause (23) shall not at any time exceed $5.0 million;
(24) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in good faith by appropriate proceedings and for which adequate reserves have been made; and

(25) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed at any time outstanding the greater of (x) $35.0 million and (y) 5.0% of the Company’s Consolidated Net Tangible Assets on such date of Incurrence.
“Permitted Refinancing Indebtedness” means:
(A)
any Indebtedness of the Company or any of its Restricted Subsidiaries (other than Disqualified Stock) issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than Disqualified Stock and intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued and unpaid interest thereon and the amount of any reasonably determined premium necessary to accomplish such refinancing and such reasonable expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or the Note Guarantees, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of the Notes and is subordinated in right of payment to the Notes or the Note Guarantees, as applicable, on terms at least as favorable, taken as a whole, to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(4)
if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is pari passu in right of payment with the Notes or any Note Guarantees, such Permitted Refinancing Indebtedness is pari passu with, or subordinated in right of payment to, the Notes or such Note Guarantees; and
(5) such Indebtedness is Incurred by either (a) the Restricted Subsidiary that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded or (b) the Company; and
(B) any Disqualified Stock of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace or refund Indebtedness or other Disqualified Stock of the

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Company or any ~~Wholly-Owned Subsidiary~~ of ~~the Company at the time such Investment is made; (ii) Investments in Cash Equivalents; (iii) Investments in deposits with respect to leases~~its Restricted Subsidiaries (other than Indebtedness or ~~utilities provided to third parties in the ordinary course of business; (iv) Investments in the Notes; (v) Investments in Currency Agreements on commercially reasonable terms entered into~~Disqualified Stock held by the Company or any of its ~~Subsidiaries~~Restricted Subsidiaries); provided that:
(1) the liquidation or face value of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness, or the liquidation or face value of the Disqualified Stock, as applicable, so extended, refinanced, renewed, replaced or refunded (plus all accrued and unpaid interest or dividends thereon and the amount of any reasonably determined premium necessary to accomplish such refinancing and such reasonable expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final redemption date later than the final maturity or redemption date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness or Disqualified Stock being extended, refinanced, renewed, replaced or refunded;
(3) such Permitted Refinancing Indebtedness has a final redemption date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable, taken as a whole, to the Holders as those contained in the documentation governing the Indebtedness or Disqualified Stock being extended, refinanced, renewed, replaced or refunded;
(4) such Permitted Refinancing Indebtedness is not redeemable at the option of the holder thereof or mandatorily redeemable prior to the final maturity or redemption date of the Indebtedness or Disqualified Stock being extended, refinanced, renewed, replaced or refunded; and
(5) such Disqualified Stock is issued by either (a) the Restricted Subsidiary that is the issuer of the Indebtedness or Disqualified Stock being extended, refinanced, renewed, replaced or refunded or (b) the Company.
“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
“Preferred Stock” means, with respect to any Person, any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions upon liquidation.
“Purchase Money Note” means a promissory note evidencing a line of credit, or evidencing other Indebtedness, owed to the Company or any Restricted Subsidiary of the Company in connection with a Qualified Receivables Transaction, which note shall be repaid from cash available to the maker of such note, other than amounts required to be established as reserves pursuant to agreement, amounts paid to investors in respect of interest, principal and other amounts owing to such investors and amounts paid in connection with the purchase of newly generated receivables.
“Qualified Receivables Transaction” means any transaction or series of transactions that may be entered into by the Company or by any Restricted Subsidiary of the Company pursuant to which the Company or any Restricted Subsidiary of the Company may sell, convey or otherwise transfer to a Receivables Subsidiary, any accounts receivable (whether now existing or arising in the future) of the Company or any Restricted Subsidiary of the Company and any asset related thereto, including, without limitation, all collateral securing such accounts receivable, and all Guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets that are customarily transferred, or in respect of which security interests are customarily granted, in connection with an asset securitization transaction involving accounts receivable.
“Rating Agency” means a statistical rating agency or agencies, as the case may be, nationally recognized in the United States and selected by the Company (as certified by a resolution of the Board of Directors of the Company) which shall be substituted for S&P or Moody’s, or both, as the case may be.
“Receivables Subsidiary” means a Subsidiary of the Company (other than a Guarantor) that engages in no activities other than in connection with the financing of accounts receivables and that is designated by the Board of Directors of the Company (as provided below) as a Receivables Subsidiary (a) no portion of the Indebtedness or any other Obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any other Restricted Subsidiary of the Company (excluding Guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to orobligates the Company or any other Restricted Subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of the Company or any other Restricted Subsidiary of the Company, directly or indirectly,

76

contingently or otherwise to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (b) with which neither the Company nor any other Restricted Subsidiary of the Company has any material contract, agreement, arrangement or understanding (except in connection with a Purchase Money Note or Qualified Receivables Transaction) other than on terms no less favorable to the Company or such other Restricted Subsidiary of the Company than those that might be obtained at the time from Persons that are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing accounts receivable, and (c) to which neither the ~~operations of the business~~Company nor any other Restricted Subsidiary of the Company has any obligation to maintain or ~~its Subsidiaries~~preserve such entity’s financial condition or cause such entity to ~~hedge against fluctuations in foreign exchange rates; (vi) loans or advances to officers, employees or consultants~~achieve a certain level of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers’ Certificate certifying, to the best of such officer’s knowledge and belief after consulting with counsel, that such designation complied with the foregoing conditions.
“Registration Rights Agreement” means the Registration Rights Agreement, to be dated the date of the Indenture, among the Company, the Guarantors and Merrill Lynch, Pierce, Fenner & Smith Incorporated as representative of the several initial purchasers.
“Replacement Assets” means (1) non-current assets that will be used or useful in a Permitted Business or (2) substantially all the assets of a Permitted Business or a majority of the Voting Stock of any Person engaged in a Permitted Business that will become on the date of acquisition thereof a Restricted Subsidiary of such Person.
“Restricted Investment” means an Investment other than a Permitted Investment.
“Restricted Subsidiary” of a Person means any Subsidiary of such Person that is not an Unrestricted Subsidiary.
“S&P” means Standard & Poor’s Ratings Services, a division of McGraw Hill, Inc., a New York corporation or any successor to its debt rating business.
“Secured Indebtedness” means any Indebtedness secured by a Lien.
“Secured Leverage Ratio” means, as of any date of determination with respect to any Person, the ratio of (1) Secured Indebtedness of such Person and its Restricted Subsidiaries as of such date of calculation (determined on a consolidated basis in ~~the ordinary course of business for bona fide business purposes~~accordance with GAAP), less any Indebtedness Incurred pursuant to clause (1) of the ~~Company~~second paragraph under the caption “-Certain Covenants-Incurrence of Indebtedness”, plus $750.0 million to (2) Consolidated Cash Flow of such Person and its Restricted Subsidiaries ~~(including travel and moving expenses) not~~for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which financial statements prepared on a consolidated basis in ~~excess of $2,000,000 in~~accordance with GAAP are available. In the ~~aggregate at any one time outstanding; (vii) Investments in evidences of Indebtedness, securities or other property received from another person by~~event that the Company or any of its Restricted Subsidiaries ~~in connection with~~Incurs or redeems any ~~bankruptcy proceeding~~Secured Indebtedness subsequent to the commencement of the period for which the Secured Leverage Ratio is being calculated but prior to the event for which the calculation of the Secured Leverage Ratio is made, then the Secured Leverage Ratio shall be calculated giving pro forma effect to such Incurrence or ~~by reason of a composition or readjustment of debt or a reorganization of such person or as a result of foreclosure, perfection or enforcement of any Lien in exchange for evidences~~redemption of Indebtedness ~~securities or other property~~as if the same had occurred at the beginning of ~~such person held by~~ the ~~Company or any of its Subsidiaries, or for other liabilities or obligations of such other person to the Company or any of its Subsidiaries that were created,~~applicable four fiscal quarter period. The Secured Leverage Ratio shall be calculated in ~~accordance~~a manner consistent with the ~~terms~~definition of “Fixed Charge Coverage Ratio,” including any pro forma adjustments to Consolidated Cash Flow as set forth therein (including for acquisitions).
“Significant Subsidiary” means any Subsidiary that would constitute a “significant subsidiary” within the meaning of Article 1 of Regulation S-X of the ~~Indenture; (viii) Investments in Interest Rate Protection Agreements on commercially reasonably terms~~Securities Act.
“Standard Securitization Undertaking” means representations, warranties, covenants and indemnities entered into by the Company or any ~~of its Subsidiaries in the ordinary course of business in connection with the operations of the business~~Restricted Subsidiary of the Company, ~~or its Subsidiaries to hedge against fluctuations in interest rates and (ix) loans or advances made to customers~~which in the ~~ordinary course~~good faith judgment of ~~business; provided, however, that~~ the ~~net proceeds~~Board of ~~such loans or advances are used to purchase footwear products from~~Directors of the Company, ~~and~~are reasonably customary in an accounts receivable transaction.
“Stated Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness, the ~~aggregate~~date on which such payment of interest or principal ~~amount of~~was scheduled to be paid in the original documentation governing such ~~loans~~Indebtedness, and ~~advances outstanding at any time~~ shall not ~~exceed $8,000,000. ``Permitted Liens'' means~~include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the following types of Liens: (a) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or any of its Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (b) statutory or other similar Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law and incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; 68 70 (c) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, governmental contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligationsdate originally scheduled for the payment thereof. The Stated Maturity of ~~borrowed money); (d) judgment Liens not giving rise~~any intercompany Indebtedness payable upon demand shall be the date of demand of payment under such Indebtedness.

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“Subsidiary” means, with respect to ~~an Event of Default so long as such Lien is adequately bonded and~~ any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (e) Easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Subsidiaries; (f) any interest or title of a lessor under any Capitalized Lease Obligation or operating lease; (g) purchase money Liens to finance the acquisition or construction of property or assets of the Companyspecified Person:
(1) any corporation, association, limited liability company or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof).
“Unrestricted Subsidiary” means any Subsidiary of the Company ~~acquired or constructed in the ordinary course of business; provided, however,~~ that (i) the related purchase money Indebtedness shall not be secured by any property or assets of the Company or any Subsidiary of the Company other than the property and assets so acquired or constructed and (ii) the Lien securing such Indebtedness either (x) exists at the time of such acquisition or construction or (y) shall be created within 90 days of such acquisition or construction; (h) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (i) Liens on inventory securing the Company's reimbursement obligations under a trade letter of credit entered into to finance the purchase of such inventory; provided, however, that such Liens are released no later than fifteen days after the draw down on such trade letter of credit used to finance the purchase of such inventory; and (j) Liens on tangible assets securing Indebtedness representing the Attributable Value of a Sale-Leaseback Transaction provided that the aggregate fair market value (valued in good faithis designated by the Board of Directors of the ~~Company)~~Company as an Unrestricted Subsidiary pursuant to a Board Resolution in compliance with the covenant described under the caption “-Certain Covenants-Designation of Restricted and Unrestricted Subsidiaries,” and any Subsidiary of such ~~tangible assets subject to such Liens shall not exceed on the date of creation~~Subsidiary.
“Voting Stock” of any ~~such Lien 5%~~Person as of any date means the Consolidated Net Tangible Assets of the Company. ``Person'' means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, charitable foundation, unincorporated organization, government or any agency or political subdivision thereof or any other entity. ``Preferred Stock'' means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated)Capital Stock of such person's preferred or preference stock, whether now outstanding or issued after the date of the Indenture, and including, without limitation, all classes and series of preferred or preference stock of such person. ``Redeemable Capital Stock'' means any shares of any class or series of Capital Stock,Person that either by the terms thereof, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to the Stated Maturity with respect to the principal of any Note or is redeemable at the option of the holder thereof at any time prior to any such Stated Maturity date, or is convertible into or exchangeable for Notes at any time prior to any such Stated Maturity. ``Sale-Leaseback Transaction'' of any person means an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such person of any property or asset of such person which has been or is being sold or transferred by such person after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The stated maturity of such arrangement shall be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangement may be terminated by the lessee without payment of a penalty. ``Significant Subsidiary'' shall have the same meaning as in Rule 1.02(v) of Regulation S-X under the Securities Act. 69 71 ``S & P'' means Standard & Poor's Corporation, and its successors. ``Stated Maturity'' means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. ``Subordinated Indebtedness'' means Indebtedness of the Company which is expressly subordinated in right of payment to the Notes. ``Subsidiary'' means, with respect to any person, (i) a corporation a majority of whose Voting Stock is at the time directly or indirectly, owned by such person, by one or more Subsidiaries of such person or by such person and one or more Subsidiaries thereof and (ii) any other person (other than a corporation), including, without limitation, a joint venture, in which such person, one or more Subsidiaries thereof or such person and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, has at least majority ownership interest entitled to vote in the election of ~~directors, managers~~the Board of Directors of such Person.
“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
“Wholly Owned Restricted Subsidiary” of any specified Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or ~~trustees thereof (or~~ other ~~person performing similar functions). For purposes~~ownership interests of ~~this definition, any directors'~~which (other than directors’ qualifying shares or ~~investments~~Investments by foreign nationals mandated by applicable ~~law~~law) shall be disregarded in determining the ownership of a Subsidiary. Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be deemed a Subsidiary of the Company under the Indenture, other than for purposes of the definition of an Unrestricted Subsidiary, unless the Company shall have designated an Unrestricted Subsidiary as a ``Subsidiary'' by written notice to the Trustee under the Indenture, accompanied by an Officers' Certificate as to compliance with the Indenture; provided, however, that the Company shall not be permitted to designate any Unrestricted Subsidiary as a Subsidiary unless, after giving pro forma effect to such designation, (i) the Company would be permitted to incur $1.00 of additional Indebtedness under the first paragraph of the covenant described under ``--Limitation on Indebtedness'' above (assuming a market rate of interest with respect to such Indebtedness) and (ii) all Indebtedness and Liens of such Unrestricted Subsidiary would be permitted to be incurred by a Subsidiary of the Company under the Indenture. A designation of an Unrestricted Subsidiary as a Subsidiary may not thereafter be rescinded. ``Unrestricted Subsidiary'' means a Subsidiary of the Company other than a Guarantor (i) none of whose properties or assets were owned by the Company or any of its Subsidiaries prior to the Issue Date, other than any such assets as are transferred to such Unrestricted Subsidiary in accordance with the covenant described under ``--Limitation on Restricted Payments", (ii) whose properties and assets, to the extent that they secure Indebtedness, secure only Non-Recourse Indebtedness and (iii) which has no Indebtedness other than Non-Recourse Indebtedness. As used above, ``Non-Recourse Indebtedness'' means Indebtedness as to which (i) neither the Company nor any of its Subsidiaries (other than the relevant Unrestricted Subsidiary or another Unrestricted Subsidiary) (1) provides credit support (including any undertaking, agreement, or instrument which would constitute Indebtedness), (2) guarantees or is otherwise directly or indirectly liable or (3) constitutes the lender (in each case, other than pursuant to and in compliance with the covenant described under ``--Limitation on Restricted Payments'') and (ii) no default with respect to such Indebtedness (including any rights which the holders thereof may have to take enforcement action against the relevant Unrestricted Subsidiary or its assets) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or its Subsidiaries (other than Unrestricted Subsidiaries) to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. ``Voting Stock'' means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any person (irrespective of whether or not, at the time Capital Stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). ``Wholly-Owned Subsidiary'' means any Subsidiary of the Company of which 100% of the outstanding Capital Stock isbe owned by ~~the Company,~~such Person or by one or more ~~Wholly-Owned~~Wholly Owned Restricted Subsidiaries of the Company or by the Company and one or more Wholly-Owned Subsidiaries of the Company. For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. 70 ~~72 DESCRIPTION OF CERTAIN INDEBTEDNESS The following descriptions are summaries of the Company's material debt agreements, and all~~ such descriptions are qualified by reference to the complete copies of such agreements which are incorporated by reference into this Prospectus. Capitalized terms not defined herein shall have the meanings set forth in the applicable debt agreement. THE BANK CREDIT AGREEMENT On December 22, 1993, the Company entered into a credit agreement with The First National Bank of Chicago, as Agent for certain Lenders and The Boatmen's National Bank of St. Louis and Citibank, N.A., as Co-Agents of such Lenders (as amended to date, the ``Bank Credit Agreement''). The Bank Credit Agreement provided the Company an unsecured $200 million revolving line of credit with a termination date of December 31, 1999, which the Company elected to reduce to $150 million effective October 16, 1996 as a result of the sale of the Private Notes. The Company's availability under the Bank Credit Agreement is not subject to a borrowing base. Interest on borrowings under the Bank Credit Agreement is at varying rates based on one of the following: a Eurodollar Rate with a margin of up to 1.25% over the Eurodollar Base Rate, a Competitive Bid Loan rate offered by any Lender, the Corporate Base Rate of The First National Bank of Chicago or the Federal Funds rate plus 0.50%. The Company may elect which rate shall apply to a borrowing. The Company must pay administration fees to the Agent, a commitment fee of up to 0.25% on the unused portion of the Bank Credit Agreement, and certain other fees as described in the Bank Credit Agreement. The Bank Credit Agreement contains covenants that, among other things, place restrictions on the Company's ability to (i) incur subsidiary debt, (ii) merge or consolidate with another entity, (iii) engage in certain sales of assets, (iv) engage in certain sales of account, (v) make certain investments, (vi) enter into guarantees or incur other contingent obligations, (vii) incur liens on its property, (viii) become obligated under letters of credit and (ix) engage in certain transactions with its affiliates. In addition, the Bank Credit Agreement contains the following financial covenants: (a) maximum Ratio of Long Term Debt to Consolidated Capitalization, (b) minimum Consolidated Tangible Net Worth and (c) minimum Fixed Charge Coverage. The Bank Credit Agreement contains events of default, including, without limitation, (i) failure to pay principal or interest when due, (ii) material inaccuracy of any representation or warranty, (iii) breach of covenants, (iv) a cross default to indebtedness of $10 million or more, (v) certain events of bankruptcy or insolvency, (vi) loss or seizure of a material part of its assets, (vii) any judgment in excess of $5 million if not paid, bonded, stayed or discharged within 30 days after entry thereof, (viii) certain ERISA related events, (ix) certain events or proceedings related to hazardous waste, (x) a Change in Control and (xi) default under a Rate Hedging Obligation. The Bank Credit Agreement ranks pari passu in right of payment with the Senior Notes, the Sinking Fund Debentures and the Medium-Term Notes discussed below. As of August 3, 1996, $121.0 million principal indebtedness was outstanding under the Bank Credit Agreement, and after application of the net proceeds of the sale of Private Notes and the repurchase of $5 million of its 7 1/8% Medium-Term Notes, $29.0 million would have been outstanding under the Bank Credit Agreement. SENIOR NOTES On January 28, 1993, the Company entered into an agreement (the ``Note Agreement'') with the Prudential Insurance Company of America (``Prudential'') pursuant to which Prudential purchased the Company's 6.47% unsecured senior notes due February 8, 1996 in the original principal amount of $50 million (the ``Senior Notes''). On October 24, 1995, the Company refinanced the Senior Notes with $50 million of 7.36% unsecured Senior Notes due October 15, 2003. The Senior Notes, as amended, require annual principal payments of $10 million beginning in 1999. The Senior Notes may be prepaid, but such prepayment is subject to payment of a Yield-Maintenance Amount to the then noteholder. The Senior Notes rank pari passu in right of payment with the Bank Credit Agreement, the Sinking Fund Debentures and the Medium-Term Notes discussed below. Under certain circumstances described in the Note Agreement, if the Company incurs indebtedness secured by assets of the Company or its subsidiaries, it must cause the Senior Notes to be secured equally and ratably with such other secured debt. The Note Agreement contains covenants that, among other things, place restrictions on the Company's ability to (i) incur liens on its property, (ii) enter into guarantees or incur other contingent liabilities, (iii) make certain 71 73 investments, loans or advances, (iv) issue or sell stock or debt, (v) merge or consolidate with another entity, and (vi) sell a material part of its assets. In addition, the Note Agreement contains the following financial covenants: (a) maximum ratio of Long Term Debt to Consolidated Capitalization, (b) minimum Fixed Charge Coverage, (c) minimum Working Capital and (d) minimum Tangible Net Worth. Furthermore, the Company is prohibited from incurring indebtedness in excess of $5 million under an agreement that contains financial covenants more restrictive than those in the Note Agreement, unless the Company first offers to amend the financial covenants in the Note Agreement to make them at least as restrictive as those under the other agreement. The Note Agreement contains events of default, including, without limitation, (i) failure to pay any principal, interest or Yield-Maintenance Amount when due, (ii) a cross default to indebtedness of $10 million or more, (iii) material inaccuracy of any representation or warranty, (iv) breach of covenants, (v) certain events of bankruptcy or insolvency, (vi) final judgments in excess of $10 million in the aggregate are not stayed or discharged within 60 days after entry thereof, and (vii) certain ERISA related events. SINKING FUND DEBENTURES Under an Indenture dated as of January 15, 1973 (the ``Sinking Fund Indenture''), the Company issued 7 3/8% unsecured sinking fund debentures in the aggregate principal amount of $40 million (the ``Sinking Fund Debentures''). Annual Sinking Fund payments of $2 million, which began on January 15, 1979, are applied to the annual redemption of at least $2 million, but not more than $4 million, principal amount of the Sinking Fund Debentures, plus interest. The Sinking Fund Debentures are also subject to redemption in whole or in part at any time, at a price of 100% of the principal amount, plus interest accrued to the date fixed for redemption. As of August 3, 1996, the total principal amount of the Sinking Fund Debentures outstanding was $4 million. Of the $4 million of principal outstanding, $2 million is a short-term obligation of the Company and $2 million is a long-term obligation of the Company. Pursuant to the Sinking Fund Indenture, if the Company incurs indebtedness secured by certain assets of the Company or a Domestic Subsidiary, the Company must cause the Sinking Fund Debentures to be secured equally and ratably with (or prior to) such indebtedness by such assets. The Sinking Fund Indenture contains covenants, including, without limitation, restrictions on the Company's ability to (i) incur liens on its property and (ii) engage in sale and leaseback transactions. The Sinking Fund Indenture also contains events of default, including, without limitation, (a) failure to pay principal, interest or a Sinking Fund payment when due, (b) breach of covenants, (c) a cross default to other indebtedness of the Company without a threshold dollar amount and (d) certain events of bankruptcy and insolvency. The Sinking Fund Debentures rank pari passu in right of payment with the Bank Credit Agreement, the Senior Notes and the Medium-Term Notes discussed below. MEDIUM-TERM NOTES Pursuant to an Indenture dated as of April 2, 1986, as supplemented by a First Supplemental Indenture dated as of April 25, 1988, between the Company and Citibank, N.A., as Trustee (collectively, the ``MTN Indenture''), the Company is authorized to offer from time to time an unlimited amount of its Medium-Term Notes (the ``Medium-Term Notes''). The Company may set the terms of the Medium-Term Notes at the time of issuance, including, without limitation, terms with respect to (i) any limit on the aggregate principal amount of the Medium-Term Notes to be issued, (ii) the date or dates principal will be payable, (iii) the rate of interest to be paid and the interest payment dates, (iv) redemption and sinking fund provisions, and (v) any other terms. The Medium-Term notes rank pari passu in right of payment with the Bank Credit Agreement, the Sinking Fund Debentures and the Senior Notes. Pursuant to the MTN Indenture, if the Company incurs indebtedness secured by certain assets of the Company or a Domestic Subsidiary, the Company must cause the Medium-Term Notes to be secured equally and ratably with (or prior to) such indebtedness by such assets. The MTN Indenture also contains covenants, including, without limitation, restrictions on the Company's ability to (i) incur liens on its property and (ii) engage in sale and leaseback transactions. The MTN Indenture also contains events of default, including, without limitation, (a) failure to pay principal, interest or a Sinking Fund payment when due, (b) breach of covenants, (c) a cross default to other indebtedness of the Company in an aggregate amount 72 74 exceeding $5 million, (d) certain events of bankruptcy and insolvency and (e) any other event of default in connection with any particular series of Medium-Term Notes. The Company has filed a registration statement with the Commission under which the Company may issue from time to time its Medium-Term Notes due from nine months to thirty years from the date of issue at an aggregate initial public offering price not to exceed $100 million. As of August 3, 1996, the Company has issued an aggregate principal amount of $70 million of its Medium-Term Notes pursuant to the MTN Indenture. Of the Medium-Term Notes issued, $20 million of the Medium-Term Notes have matured and been paid. In April 1996, the Company repurchased Medium-Term Notes with a face value of $1.45 million and in October 1996, the Company repurchased Medium-Term Notes with a face value of $5.0 million. The following table reflects the principal amount, the interest rate per annum and the maturity date of the Medium-Term Notes outstanding that have not yet matured:
~~PRINCIPAL AMOUNT INTEREST RATE PER ANNUM YEAR OF MATURITY --------- ----------------------- ----------------~~ $15 million 8.45%-8.60% 1999 $18.54 million 7.07%-8.83% 2002 $10 million 7.125% 2003
73 ~~75 CERTAIN~~Person.

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary ~~describes~~of certain ~~United States~~U.S. federal income tax consequences ~~associated with~~relevant to the exchange of original notes for exchange notes pursuant to the ~~Private Notes for Exchange Notes~~exchange offer, and ~~with~~ the ownership and disposition of ~~Notes~~exchange notes acquired by U.S. holders and non-U.S. holders (collectively referred to as “holders”) pursuant to the exchange offer. This discussion does not describe all of the ~~date hereof. Except where noted, it deals only with Notes held as capital assets by United States Holders and does not deal with~~U.S. federal income tax consequences that may be relevant to a holder in light of its particular circumstances or to holders subject to special ~~situations, such as those of~~rules, including, without limitation, tax-exempt organizations, holders subject to the U.S. federal alternative minimum tax, dealers in securities or currencies, financial institutions, ~~life~~ insurance companies, ~~persons holding Notes as part~~banks, real estate investment trusts, retirement plans, individual retirement or other tax-deferred accounts, brokers, traders that mark-to-market their securities, controlled foreign corporations, passive foreign investment companies, regulated investment companies, expatriates and former long-term residents of ~~a hedging~~the U.S., partnerships, S corporations or ~~conversion transaction or a straddle or United States Holders~~other pass-through entities and investors in such entities, U.S. holders (as defined below) whose ``functional ~~currency''~~currency is not the U.S. ~~dollar. Furthermore,~~dollar and persons that hold the notes in connection with a straddle, hedging, conversion or other risk-reduction transaction. Further, this discussion does not address alternative minimum tax consequences, tax consequences arising under any state, local or foreign law, or the effect of non-income U.S. tax laws, such as U.S. federal estate or gift tax laws.
The U.S. federal income tax consequences set forth below isare based ~~on the provisions of~~upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder, court decisions, and ~~regulations,~~ rulings and ~~judicial decisions thereunder as~~pronouncements of the IRS all as in effect on the date ~~hereof~~of this prospectus and, all of which are subject to change or differing interpretations at any time with possible retroactive effect. There can be no assurance that the IRS will not challenge one or more of the tax consequences described herein, and we have not sought any ruling from the IRS with respect to statements made and conclusions reached in this discussion. Furthermore, there can be no assurance that the IRS will agree with such ~~authorities may be repealed, revoked, or modified so as to result in~~statements and conclusions.
As used herein, the term “U.S. holder” means a beneficial owner of a note that is for U.S. federal income tax consequences different from those discussed below. The discussion below is also based on there not being original issue discount with respect to the original issuance of the Notes. PERSONS CONSIDERING THE EXCHANGE OF PRIVATE NOTES FOR EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. THE EXCHANGE The exchange of Private Notes for Exchange Notes should not be treated as a taxable transaction for federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Private Notes. Rather, the Exchange Notes received by a holder of Private Notes should be treated as a continuation of the Private Notes in the hands of such holder. As a result, there should be no material federal income tax consequences to holders exchanging Private Notes for Exchange Notes. PAYMENTS OF INTEREST Interest on a Note will generally be taxable to a United States Holder as ordinary income from domestic sources at the time it is paid or accrued in accordance with the United States Holder's method of accounting for tax purposes. As used herein, a ``United States Holder'' of a Note means a holder thatpurposes:
an individual who is a citizen or resident of the ~~United States,~~ U.S.;
a corporation, ~~partnership~~ or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized ~~in or~~ under the laws of the ~~United States~~U.S. or of any ~~political subdivision~~state thereof or the District of Columbia;
an estate ~~or trust~~ the income of which is subject to ~~United States~~U.S. federal income taxation regardless of its ~~source. MARKET DISCOUNT~~ source; or
a trust if (1) a court within the U.S. is able to exercise primary jurisdiction over its administration and one or more U.S. persons have authority to control all of its substantial decisions, or (2) if the trust has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.
As used herein, the term “non-U.S. holder” means a beneficial owner of a note that is neither a U.S. holder nor a partnership or an entity treated as a partnership for U.S. federal income tax purposes.
If any entity treated as a partnership for U.S. federal income tax purposes is a beneficial owner of a note, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A beneficial owner that is an entity treaty as a partnership for U.S. federal income tax purposes and partners in such entity should consult their tax advisors about the U.S. federal income tax consequences of the exchange of original notes for exchange notes pursuant to the exchange offer and the ownership and disposition of exchange notes acquired pursuant to the exchange offer.
Investors should consult their own tax advisors with respect to the application of the U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the U.S. federal estate or gift tax rules or under the laws of any state, local or foreign taxing jurisdiction or under any applicable tax treaty.
Treatment of the Notes
In certain circumstances, we may be obligated to pay amounts in excess of the stated interest or principal on the exchange notes, including as described under “Description of Exchange Notes-Optional Redemption,” “Description of Exchange Notes-Repurchase at the Option of Holders-Change of Control,” and “Description of Exchange Notes-Registration Rights; Additional Interest.” Our obligation to pay such excess amounts may cause the IRS to take the position that the exchange notes are “contingent payment debt instruments” for U.S. federal income tax purposes. If the IRS is successful in such an assertion, the timing and amount of income included and the character of gain recognized with respect to the exchange notes may be different from the consequences described

79

herein. Notwithstanding this possibility, we do not believe that the exchange notes are contingent payment debt instruments, and consequently, we do not intend to treat the exchange notes as contingent payment debt instruments for U.S. federal income tax purposes. Such determination by us is binding on all holders unless a holder discloses its differing position in a statement attached to its timely filed U.S. federal income tax return for the taxable year during which an exchange note was acquired. Our determination, however, is not binding on the IRS, and the IRS could challenge this determination. The remainder of this discussion assumes that the exchange notes will not be treated as contingent payment debt instruments for U.S. federal income tax purposes.
U.S. Holders
Exchange Offer
The exchange of an original note for an exchange note pursuant to the exchange offer will not be treated as a taxable exchange for U.S. federal income tax purposes. Consequently, U.S. holders will not recognize gain or loss upon receipt of an exchange note. The holding period for an exchange note will include the holding period for the original note and the initial basis in the exchange note will be the same as the adjusted basis in the original note.
Payments of Interest
A U.S. holder will be required to recognize as ordinary income any interest received or accrued on the exchange notes, in accordance with the U.S. holder’s regular method of tax accounting for U.S. federal income tax purposes.
Market Discount
If a ~~United States Holder purchases a Note~~U.S. holder purchased an original note (which will be exchanged for an exchange note pursuant to the exchange offer) for an amount that is less than its ~~principal amount (generally other than at its original issue),~~adjusted issue price, the amount of such difference should be treated as “market discount” for U.S. federal income tax purposes. Subject to a de minimis exception, gain realized on the ~~difference~~maturity, sale, exchange, redemption, retirement or other taxable disposition of a market discount note will be treated as ``market discount'' for federal income tax purposes, unless such difference is less than a specified de minimis amount. Under the market discount rules, a United States Holder will be required to treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition of, a Note as ordinary income to the extent of ~~the~~any accrued market discount ~~which has~~ not previously ~~been included~~recognized (including, in ~~income at~~ the ~~time~~case of an exchange note, any market discount accrued on the original note for which such ~~payment or disposition. In addition, the United States Holder may be required~~exchange note was exchanged). Unless a U.S. holder elects to ~~defer, until the maturity of the Note or its earlier disposition in~~accrue market discount under a ~~taxable transaction, the deduction of all or a portion of the interest expense of~~constant yield method, any ~~indebtedness incurred or continued to purchase or carry such Note. Any~~ market discount will be considered to accrue ratably during the period from the date of acquisition of a note (including, in the case of an exchange note exchanged for an original note, the date of the acquisition of the original note) to the maturity ~~date of the Note, unless the United States Holder elects to accrue the market discount on a constant interest method.~~ date.
A ~~United States Holder of a Note~~U.S. holder may elect to include market discount in income currently as it accrues, ~~(on~~ either ratably or on a ~~ratable or~~ constant ~~interest method)~~yield method. In that case, such holder’s tax basis in ~~which case the rule described above regarding deferral of interest deductions~~its notes will ~~not apply. This~~increase by such income inclusions. An election to include market discount in income currently, once made, ~~applies~~will apply to all market discount obligations acquired ~~on or after~~by such holder during the ~~first~~ taxable year ~~to which~~of the election ~~applies~~and thereafter, and may not be revoked without ~~the~~ consent of the ~~Internal Revenue Service. AMORTIZABLE PREMIUM A United States Holder who purchases~~IRS.
If a Note for an amount in excess of its stated redemption price at maturity will be considered to have purchased the Note at a ``premium.'' A United States Holder generally may elect to amortize the premium on the constant yield to maturity method. The amount amortized in any year will be treated as 74 ~~76 a reduction of the United States Holder's interest income from the Note. The premium on a Note held by a United States Holder that~~U.S. holder does not make such an election, in general, all or a portion of its interest expense on any indebtedness incurred or continued in order to purchase or carry notes (including, in the case of an exchange note, the interest expense of any indebtedness incurred or continued in order to purchase or carry the original note for which such exchange note was exchanged) may be deferred until maturity or certain earlier dispositions.
The rules regarding market discount are complex. U.S. Holders should consult their own tax advisors regarding the market discount rules.
Amortizable Bond Premium
If a U.S. holder purchased the original notes for an amount greater than their face value, such holder will ~~decrease~~have purchased such notes with amortizable bond premium. Such holder generally may elect to amortize that premium from the ~~gain or increase~~purchase date to the ~~loss otherwise recognized on disposition or retirement~~maturity date of the ~~Note. The~~notes under the constant yield method. Amortizable bond premium generally may be deducted against interest income on the original note or the exchange note (including, in the case of an exchange note, the income on the original note for which such exchange note was exchanged) and generally may not be deducted against other income. A U.S. holder’s basis in a note will be reduced by any premium amortization deductions. An election to amortize ~~the~~ premium on a constant yield ~~to maturity~~ method, once made, generally applies to all debt obligations held or subsequently acquired by such holder during the ~~electing holder on or after the first day~~taxable year of the ~~first taxable year to which the~~ election ~~applies~~and thereafter, and may not be revoked without IRS consent.

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The rules regarding amortizable bond premium are complex. U.S. Holders should consult their own tax advisors regarding the ~~consent~~amortizable bond premium rules.
Sale, Redemption, Retirement, Exchange or Other Taxable Disposition of Exchange Notes
A U.S. holder generally will recognize capital gain or loss on the ~~Internal Revenue Service. SALE, EXCHANGE AND RETIREMENT OF NOTES A United States Holder's~~sale, redemption, retirement, exchange or other taxable disposition of an exchange note. The U.S. holder’s gain or loss will equal the difference between the proceeds received by the holder (other than redemption proceeds attributable to accrued interest) and the holder’s adjusted tax basis in the exchange note. The proceeds received by a ~~Note~~U.S. holder will include the amount of any cash and the fair market value of any other property received for the exchange note. In general, a U.S. holder’s adjusted tax basis in ~~general, be~~an exchange note will equal the ~~United States Holder's cost thereof,~~adjusted basis in the original note at the time of the exchange increased by any market discount previously included in income and decreased by ~~the United States Holder and reduced by any~~ amortized bond premium and the amount of any ~~cash~~ payments ~~on the Note~~ other than qualified stated ~~interest. Upon~~interest payments received with respect to the ~~sale,~~ exchange note.The portion of any redemption proceeds that is attributable to accrued interest will not be taken into account in computing a U.S. holder’s capital gain or ~~retirement of a Note, a United States Holder~~loss. Instead, that portion will ~~recognize~~be recognized as ordinary interest income to the extent that the U.S. holder has not previously included the accrued interest in income. The gain or loss ~~equal to the difference between the amount realized upon the~~recognized by a U.S. holder on a sale, redemption, retirement, exchange or ~~retirement (less any accrued qualified stated interest, which will be~~other taxable ~~as such) and the adjusted tax basis~~disposition of the ~~Note. Except with respect to market discount, such gain or loss~~exchange note will be capital gain or loss and will be long-term capital gain or loss if at the ~~time of~~holder held the ~~sale,~~original note and the exchange ~~or retirement the Note has been held~~note for more than one year. Under current U.S. federal income tax law, net long-term capital gains of ~~individuals~~non-corporate U.S. holders (including individuals) are ~~under certain circumstances, taxed~~eligible for taxation at ~~lower rates than items of ordinary income.~~preferential rates. The deductibility of capital losses is subject to ~~limitations. BACKUP WITHHOLDING AND INFORMATION REPORTING~~ limitation.
Medicare Tax
A 3.8% Medicare tax will be imposed on a portion or all of the net investment income of certain individuals with a modified adjusted gross income of over $200,000 ($250,000 in the case of joint filers or $125,000 in the case of married individuals filing separately) and on the undistributed net investment income of certain estates and trusts. For these purposes, “net investment income” generally will include interest (including interest paid with respect to an exchange note), dividends, annuities, royalties, rents, net gain attributable to the disposition of property not held in a trade or business (including net gain from the sale, exchange, redemption, retirement or other taxable disposition of an exchange note) and certain other income, but will be reduced by any deductions properly allocable to such income or net gain. If you are a U.S. holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in the exchange notes.
Information Reporting and Backup Withholding
In general, information reporting ~~requirements~~ will apply to ~~certain~~interest payments made to U.S. holders (including payments of ~~principal, interest and premium paid on Notes~~accrued interest) and to the proceeds of a sale, redemption, retirement, exchange or other taxable disposition of an exchange note. In addition, a ~~Note made~~U.S. holder may be subject to ~~United States Holders other than certain exempt recipients (such as corporations). A 31%~~ backup withholding ~~tax will apply~~(at the rate of 28%) with respect to the foregoing amounts unless such ~~payments if~~U.S. holder provides the ~~United States Holder fails to provide a~~withholding agent with certain certifications and information, including such U.S. holder’s correct taxpayer identification number (“TIN”), which, in the case of a U.S. holder who is an individual, is generally his or ~~certification of foreign~~her social security number, or ~~other exempt status or fails~~the U.S. holder otherwise establishes a basis for exemption from backup withholding. Exempt U.S. holders (including, among others, corporations) are not subject to ~~report in full dividend and interest income. The amount of any~~these backup withholding and information reporting requirements. A U.S. holder who does not provide the withholding agent with its correct TIN may be subject to penalties imposed by the IRS.
Backup withholding is not an additional tax. Any amount withheld from ~~a payment to a United States Holder~~you under the backup withholding rules generally will be allowed as a refund or a credit against ~~the holder's~~your U.S. federal income tax ~~liability. 75~~ 77 liability, provided the required information is furnished timely to the IRS.
Non-U.S. Holders
Exchange Offer
The exchange of an original note for an exchange note pursuant to the exchange offer will not be treated as a taxable exchange for U.S. federal income tax purposes. Consequently, Non-U.S. holders will not recognize gain or loss upon receipt of an exchange note. The holding period for an exchange note will include the holding period for the original note and the initial basis in the exchange note will be the same as the adjusted basis in the original note.
Payments of Interest

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Subject to the discussion of backup withholding and FATCA below, interest paid on an exchange note by us or our agent to a non-U.S. holder will qualify for the “portfolio interest exemption” and will not be subject to U.S. federal income or withholding tax, provided that such interest income is not effectively connected with a U.S. trade or business of the non-U.S. holder (and, if a tax treaty applies, is not attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. holder within the U.S.) and provided that the non-U.S. holder:
does not actually or by attribution own 10% or more of the combined voting power of all classes of our stock entitled to vote;
is not a controlled foreign corporation for U.S. federal income tax purposes that is related to us actually or by attribution through stock ownership;
is not a bank that acquired the exchange notes in consideration for an extension of credit made pursuant to a loan agreement entered into in the ordinary course of business; and
either (a) provides an appropriate IRS Form W-8BEN or IRS Form W-8BEN-E (or appropriate successor form) signed under penalties of perjury that includes the non-U.S. holder’s name and address, and certifies as to the holder’s non-U.S. status in compliance with applicable law and regulations; or (b) is a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and provides a statement to us or our agent under penalties of perjury in which it certifies that such an IRS Form W-8BEN or IRS Form W-8BEN-E (or appropriate successor form) has been received by it from the non-U.S. holder or qualifying intermediary and furnishes us or our agent with a copy. The Treasury regulations provide special certification rules for exchange notes held by a foreign partnership and other intermediaries.
If such non-U.S. holder cannot satisfy the requirements described above, payments of interest made to the non-U.S. holder that are not effectively connected with a trade or business of such non-U.S. holder will be subject to withholding of 30% U.S. federal withholding tax unless such holder provides us with the appropriate, properly executed, IRS Form W-8BEN or IRS Form W-8BEN-E claiming an exemption from (or reduction of) withholding under the benefit of a treaty.
If interest on an exchange note is effectively connected with a U.S. trade or business by a non-U.S. holder and, if a tax treaty applies, is attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. holder within the U.S., the non-U.S. holder generally will not be subject to withholding if the non-U.S. holder complies with applicable IRS certification requirements (i.e., by delivering a properly executed IRS Form W-8ECI or other form) and generally will be subject to U.S. federal income tax in the same manner as if the holder were a U.S. holder. In the case of a non-U.S. holder that is a corporation, such effectively connected income also may be subject to the additional branch profits tax, which generally is imposed on a foreign corporation on the deemed repatriation from the U.S. of effectively connected earnings and profits at a 30% rate (or such lower rate as may be prescribed by an applicable tax treaty).
Sale, Redemption, Retirement, Exchange or Other Taxable Disposition of the Exchange Notes
Subject to the discussion of backup withholding and FATCA below, any gain recognized by a non-U.S. holder on the sale, redemption, retirement, exchange or other taxable disposition of an exchange note (other than amounts attributable to accrued and unpaid interest, which are described under “Payments of Interest” above) will not be subject to U.S. federal income and withholding tax unless:
the gain is effectively connected with the conduct of a U.S. trade or business by the non-U.S. holder (and, if required by an applicable tax treaty, the gain is attributable to a permanent establishment or fixed base maintained in the U.S. by the non-U.S. holder); or
the non-U.S. holder is an individual who is present in the U.S. for 183 days or more during the taxable year of that disposition, and certain other conditions are met.
A non-U.S. holder described in the first bullet point above generally will be required to pay U.S. federal income tax on the net gain derived from the sale, redemption, retirement, exchange or other taxable disposition of the exchange note in the same manner as a U.S. holder and, if such non-U.S. holder is a foreign corporation, it may also be required to pay a branch profits tax at a 30% rate (or a lower rate if so specified by an applicable income tax treaty) on its effectively connected earnings and profits, subject to adjustments. A non-U.S. holder described in the second bullet point above generally will be subject to U.S. federal income tax at a flat rate of 30% (or a

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lower applicable treaty rate) on the gain derived from the sale, redemption, retirement, exchange or other taxable disposition of the exchange note (which may be offset by certain capital losses from U.S. sources). A non-U.S. holder should consult his or her tax advisor regarding the tax consequences of the purchase, ownership and disposition of the exchange notes.
Information Reporting and Backup Withholding
In general, backup withholding will not apply to interest payments made to a non-U.S holder. if, among other conditions, such non-U.S. holder certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption. A non-U.S. holder generally may establish such an exemption by providing a properly executed IRS Form W-8BEN or IRS Form W- 8BEN-E (or successor form) to the withholding agent. In addition to the foregoing, amounts paid on or with respect to the exchange notes and the amount of tax, if any, withheld from such payments must be reported to such non-U.S. holder and the IRS.
Backup withholding is not an additional tax. Any amount withheld from you under the backup withholding rules generally will be allowed as a refund or a credit against your U.S. federal income tax liability, provided the required information is furnished timely to the IRS.
Non-U.S. holders should consult their tax advisors regarding the application of information reporting and backup withholding in their particular situations, the availability of an exemption therefrom, and the procedures for obtaining such an exemption, if available.
FATCA
The Foreign Account Tax Compliance Act (“FATCA”) generally imposes a withholding tax of 30% on interest income on a debt obligation issued by a U.S. corporation after June 30, 2014 and on the gross proceeds of a sale or other taxable disposition (including a retirement or redemption) of such a debt obligation after December 31, 2016, in each case, if paid to (i) a foreign financial institution (including, in some cases, where the institution is acting as an intermediary), unless such institution enters into an agreement with the U.S. government to withhold certain payments and to collect and provide to the U.S. tax authorities certain information regarding U.S. account holders of such institution or (ii) a foreign entity that is not a financial institution (including, in some cases, where the entity is acting as an intermediary), unless such entity provides the applicable withholding agent with a certification identifying the substantial U.S. owners of the entity, which generally includes any U.S. person who, directly, indirectly or constructively, owns more than 10% of the entity. Foreign financial institutions and foreign entities located in jurisdictions that have an intergovernmental agreement with the United States with respect to FATCA may be subject to different rules. If FATCA withholding were to apply, neither we nor any paying agent would be required to pay additional amounts as a result of such withholding. Prospective non-U.S. holders of the exchange notes should consult with their own tax advisors regarding the implications of FATCA on their investment in the exchange notes.

THE U.S. FEDERAL INCOME TAX SUMMARY SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON YOUR PARTICULAR SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO YOU OF THE EXCHANGE OF THE ORIGINAL NOTES FOR THE EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE OFFER, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND U.S. FEDERAL NON-INCOME TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.

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CERTAIN ERISA CONSIDERATIONS
The U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes certain requirements on employee benefit plans subject to Title I of ERISA (“ERISA Plans”), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA Plan’s investments be made in accordance with the documents governing the plan.
Section 406 of ERISA and Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as plans, individual retirement accounts or other arrangements (together with ERISA Plans, “Plans”)) and certain persons (referred to as “parties in interest” or “disqualified persons”) having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. Such parties in interest or disqualified persons could include, without limitation, the Company, the initial purchasers, the guarantors, the agents and any of their respective affiliates.
Any Plan fiduciary that proposes to cause a Plan to exchange original notes for exchange notes should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such exchange and holding will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA.
Non-U.S. plans, governmental plans and certain church plans, while not subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to non-US, state, local or other federal laws or regulations that are substantially similar to the foregoing provisions of ERISA and the Code (“Similar Law”). Fiduciaries of any such plans should consult with their counsel before exchanging the notes to determine the need for, and the availability, if necessary, of any exemptive relief under any such law or regulations.
Each holder of original notes tendering for exchange notes that submits a Letter of Transmittal, or agrees to the terms of the Letter of Transmittal pursuant to an agent’s message, and by its purchase of any exchange note, each purchaser or subsequent transferee thereof will be deemed to have represented and warranted that either: (A) no portion of the assets used by such purchaser or subsequent transferee to acquire or hold the notes (or exchange notes) constitutes the assets of any (i) employee benefit plan that is subject to Title I of ERISA, (ii) plan, individual retirement account or other arrangement that is subject to Section 4975 of the Code, or provisions under any similar laws or (iii) entity whose underlying assets are considered to include “plan assets” of any such employee benefit plan, plan, account or arrangement or (B) the acquisition and holding of the notes (and exchange notes) by such purchaser or transferee will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or a similar violation under any applicable Similar Law.

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PLAN OF DISTRIBUTION ~~This Prospectus, as it~~
The exchange offer is not being made to, nor will we accept surrenders of original notes for exchange from, holders of original notes in any jurisdiction in which the exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction.
The distribution of this prospectus and the offer and sale of the exchange notes may be ~~amended~~restricted by law in certain jurisdictions. Persons who come into possession of this prospectus or ~~supplemented from time~~any of the exchange notes must inform themselves about and observe any such restrictions. You must comply with all applicable laws and regulations in force in any jurisdiction in which you purchase, offer or sell the exchange notes or possess or distribute this prospectus and, in connection with any purchase, offer or sale by you of the exchange notes, must obtain any consent, approval or permission required under the laws and regulations in force in any jurisdiction to ~~time,~~which you are subject or in which you make such purchase, offer or sale.
In reliance on interpretations of the staff of the SEC set forth in no-action letters issued to third parties in similar transactions, we believe that the exchange notes issued in the exchange offer in exchange for the original notes may be ~~used~~offered for resale, resold and otherwise transferred by holders without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the exchange notes are acquired in the ordinary course of each such holder’s business and the holders are not engaged in and do not intend to engage in and have no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of exchange notes. This position does not apply to any holder that is:
an “affiliate” of Caleres within the meaning of Rule 405 under the Securities Act; or
a broker-dealer.
All broker-dealers receiving exchange notes in the exchange offer are subject to a prospectus delivery requirement with respect to resales of the exchange notes. Each broker-dealer receiving exchange notes for its own account in the exchange offer must represent that the original notes to be exchanged for the exchange notes were acquired by it as a result of market-making activities or other trading activities and acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any offer to resell, resale or other retransfer of the exchange notes pursuant to the exchange offer. However, by so acknowledging and by delivering a prospectus, the participating broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. We have agreed that, for a period ending upon the earlier of (i) 180 days after the date of this prospectus or (ii) the date broker-dealers are no longer required to deliver a prospectus in connection with resales, subject to extension under limited circumstances, we will use all commercially reasonable efforts to keep the exchange offer registration statement effective and make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with such resales. To date, the SEC has taken the position that broker-dealers may use a prospectus such as this one to fulfill their prospectus delivery requirements with respect to resales of ~~any Exchange Notes~~exchange notes received in an exchange such as the exchange pursuant to the exchange offer, if the original notes for ~~Private Notes~~which the exchange notes were received in the exchange were acquired ~~by such broker-dealer~~for their own accounts as a result of market-making or other trading activities. Each broker-dealer that receives Exchange Notes for its own account in exchange for such Private Notes pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Company has agreed that for a period of up to 90 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any such broker-dealer that requests copies of this Prospectus in the Letter of Transmittal for use in connection with any such resale. The Company
We will not receive any proceeds from any sale of ~~Exchange Notes~~the exchange notes by ~~broker-dealers or any other persons. Exchange Notes received by broker-dealers~~broker-dealers. Broker-dealers acquiring exchange notes for their own ~~account pursuant to~~accounts may sell the ~~Exchange Offer may be sold from time to time~~notes in one or more transactions in the over-the-counter market, in negotiated transactions, or through ~~the~~ writing of options on the ~~Exchange Notes,~~exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of ~~any~~ such ~~Exchange Notes.~~ exchange notes.
Any broker-dealer that ~~resells Exchange Notes that were received by it~~held original notes acquired for its own account ~~pursuant to the Exchange Offer in exchange for Private Notes acquired by such broker-dealer~~ as a result of market-making activities or other trading activities, that received exchange notes in the exchange offer, and ~~any broker-dealer~~ that participates in a distribution of ~~such Exchange Notes~~exchange notes may be deemed to be an ~~``underwriter''~~“underwriter” within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the exchange notes. Any profit on ~~any such resale~~these resales of ~~Exchange Notes~~exchange notes and any commissions or concessions received by ~~any such persons~~a broker-dealer in connection with these resales may be deemed to be underwriting compensation under the Securities Act. The ~~Letter~~letter of ~~Transmittal~~transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not ~~be deemed to~~ admit that it is an ~~``underwriter''~~“underwriter” within the meaning of the Securities Act. ~~The Company has~~
We have agreed to pay all expenses incident to our participation in the ~~Company's performance~~exchange offer, including the reasonable fees and expenses of one counsel for the holders of original notes and the initial purchasers, other than commissions or ~~compliance with, the Registration Rights Agreement~~concessions of any broker-dealers and will indemnify ~~the~~ holders of ~~Private Notes (including~~the original notes, including any ~~broker-dealers), and certain parties related to such holders,~~broker-dealers, against ~~certain~~specified types of liabilities,

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including liabilities under the Securities Act. We note, however, that in the opinion of the SEC, indemnification against liabilities under federal securities laws is against public policy and may be unenforceable.

LEGAL MATTERS
The validity of the ~~Exchange Notes~~exchange notes and guarantees and certain legal matters in connection with this exchange offer will be passed upon for ~~the Company~~us by Bryan Cave LLP, St. Louis, Missouri. ~~EXPERTS~~

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The ~~Consolidated Financial Statements~~consolidated financial statements of ~~the~~Caleres, Inc. (formerly Brown Shoe Company, ~~and its subsidiaries~~Inc.) as of January 31, 2015 and February ~~3, 1996 and January 28, 1995~~1, 2014 and for each of the three years in the period ended ~~February 3, 1996,~~January 31, 2015 appearing ~~in and incorporated by reference (including the Financial Statement Schedule)~~ in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent ~~auditors,~~registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and ~~incorporated by reference herein, and~~ are included in reliance upon such report given ~~upon~~on the authority of such firm as experts in accounting and auditing. 76 78

WHERE YOU CAN FIND MORE INFORMATION
Our Internet address is www.caleres.com. The information contained on our website is not incorporated by reference into this prospectus and should not be considered part of this prospectus.
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read and copy any materials we file with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can also obtain information about the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site that contains information, and Caleres files electronically with the SEC, which you can access over the Internet at http://www.sec.gov.
We are “incorporating by reference” into this prospectus information that we file with the SEC. This permits us to disclose important information to you by referencing these filed documents. Any information referenced this way is considered to be a part of this prospectus and any information filed by us with the SEC subsequent to the date of this prospectus automatically will be deemed to update and supersede this information. We incorporate by reference the following documents which we have filed with the SEC:
our Annual Report on Form 10-K for the fiscal year ended January 31, 2015, which we filed with the SEC on April 1, 2015;
our Quarterly Reports on Form 10-Q for the quarterly periods ended May 2, 2015 and August 1, 2015, which we filed with the SEC on June 10, 2015 and September 9, 2015, respectively;
our Definitive Proxy Statement for the 2015 Annual Meeting of Shareholders on Schedule 14A filed with the SEC on April 17, 2015 (with respect to information contained in such proxy statement that is incorporated into Part III of our Annual Report on Form 10-K for the fiscal year ended January 31, 2015); and
our Current Reports on Form 8-K filed with the SEC on February 6, 2015, March 4, 2015, March 24, 2015, June 1, 2015, July 20, 2015, and July 27, 2015.
We incorporate by reference any filings made with the SEC in accordance with Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this prospectus and before the closing of the offering. We are not, however, incorporating by reference any documents or portions thereof, whether specifically listed above or filed in the future, that are not deemed “filed” with the SEC, including any information furnished pursuant to Items 2.02 or 7.01 of Form 8-K or certain exhibits furnished pursuant to Item 9.01 of Form 8-K. In addition, we are not incorporating by reference any information of the foregoing documents appearing under the captions “Outlook for 2015” or “Outlook for the Remainder of 2015.” Any statement or information included in that Annual Report or

86

definitive Proxy Statement shall be deemed to be modified or superseded only to the extent a statement or information included in this prospectus modifies or supersedes such statement or information. Documents incorporated by reference into this prospectus speak only as of the dates stated in such documents. Any such statement or information so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
Descriptions in this prospectus, including those contained in the documents incorporated by reference, of contracts and other documents are not necessarily complete and, in each instance, reference is made to the copies of these contracts and documents filed as exhibits to the documents incorporated by reference in this prospectus. We will provide to each person, including any beneficial owner, to whom an prospectus is delivered, without charge, upon written or oral request, a copy of any or all of the documents that are incorporated by reference into this prospectus, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit in this prospectus. You should direct requests for documents to:
Caleres, Inc.
8300 Maryland Avenue
St. Louis, Missouri 63105
Attention: Michael I. Oberlander, Senior Vice President, General Counsel and Corporate Secretary
Telephone: (314) 854-4000

87

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

~~INDEX TO FINANCIAL STATEMENTS~~
~~PAGE ----~~ ~~Annual Financial Statements~~
Report of Independent ~~Auditors................................................... F-2~~ Registered Public Accounting Firm
F- 2
Consolidated Financial Statements as of January 31, 2015 and February 1, 2014, and for each of the three years in the period ended January 31, 2015
Consolidated Balance Sheets ~~as of February~~
F- 3 1996 and January 28, 1995.......... F-3 Consolidated Earnings for the years ended February 3, 1996, January 28, 1995 and January 29, 1994............................................................... F-4 Consolidated Cash Flows for the years ended February 3, 1996, January 28, 1995 and January 29, 1994............................................................ F-5 Consolidated Shareholders' Equity for the years ended February 3, 1996, January 28, 1995 and January 29, 1994................................................... F-6 Notes to Consolidated Financial Statements....................................... F-7 Interim Financial Statements (unaudited) Condensed Consolidated Balance Sheets as of August 3, 1996 and July 29, 1995 (unaudited) and February 3, 1996................................................ F-22 Condensed
Consolidated Statements of Earnings for the three months ended August 3, 1996 and July 29, 1995 and the six months ended August 3, 1996 and July 29, 1995 (unaudited)................................................................ F-23 Condensed
F- 4
Consolidated Statements of Comprehensive Income
F- 5
Consolidated Statements of Cash Flows ~~for the six months ended August 3, 1996 and July 29, 1995 (unaudited)........................................... F-24~~
F- 6
Consolidated Statements of Shareholders’ Equity
F- 6
Notes to ~~Condensed~~ Consolidated Financial ~~Statements............................. F-25~~ Statements
F- 7
~~F-1~~ ~~79 REPORT OF INDEPENDENT AUDITORS Shareholders and~~

F- 1

Report of Independent Registered Public Accounting Firm

The Board of Directors ~~Brown Group,~~and Shareholders
Caleres, Inc.

We have audited the accompanying consolidated balance sheets of Caleres, Inc. (formerly Brown ~~Group,~~Shoe Company, Inc.) (the Company) as of January 31, 2015 and February ~~3, 1996 and January 28, 1995,~~1, 2014, and the related consolidated statements of ~~consolidated~~ earnings, ~~shareholders' equity, and~~comprehensive income, cash flows and shareholders’ equity for each of the three years in the period ended ~~February 3, 1996.~~January 31, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the ~~company's~~Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with ~~generally accepted auditing standards.~~the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ~~Brown Group,~~Caleres, Inc. at January 31, 2015 and February ~~3, 1996 and January 28, 1995,~~1, 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended ~~February 3, 1996~~January 31, 2015, in conformity with U.S. generally accepted accounting principles. ~~As discussed~~Also, in ~~Note 8~~our opinion, the related financial statement schedule, when considered in relation to the ~~consolidated~~basic financial statements taken as a whole, presents fairly, in ~~1995~~all material respects, the ~~company changed its method~~information set forth therein.

We also have audited, in accordance with the standards of ~~accounting for~~ the ~~impairment~~Public Company Accounting Oversight Board (United States), Caleres, Inc.’s internal control over financial reporting as of ~~long-lived assets~~January 31, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), and ~~in 1993, as discussed in Note 4, changed its method of accounting for postemployment benefits. /s/~~our report dated March 31, 2015, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP ~~Ernst & Young LLP~~

St. Louis, Missouri
March 31, 2015, except for Note 18 as to which the date is October 9, 2015

F- 2

Consolidated Balance Sheets

($ thousands, except number of shares and per share amounts) January 31, 2015
February 1, 2014
ASSETS
Current assets:
Cash and cash equivalents $ 67,403
$ 82,546
Receivables, net of allowances of $25,393 in 2014 and $21,470 in 2013 136,646
129,217
Inventories, net of adjustment to last-in, first-out cost of $3,668 in 2014 and $3,965 in 2013 543,103
547,531
Income taxes 620
2,919
Deferred income taxes 748
471
Prepaid expenses and other current assets 42,376
29,746
Current assets - discontinued operations —
119
Total current assets 790,896
792,549
Prepaid pension costs 73,324
85,516
Property and equipment, net 149,743
143,560
Deferred income taxes 6,956
1,093
Goodwill 13,954
13,954
Intangible assets, net 120,633
59,719
Other assets 61,306
53,012
Total assets $ 1,216,812
$ 1,149,403

LIABILITIES AND EQUITY

Current liabilities:

Borrowings under revolving credit agreement $ —
$ 7,000
Trade accounts payable 215,921
226,602
Employee compensation and benefits 58,593
47,080
Income taxes 6,285
4,350
Deferred income taxes 27,544
15,512
Other accrued expenses 88,740
85,603
Current liabilities - discontinued operations —
708
Total current liabilities 397,083
386,855
Other liabilities:

Long-term debt 199,197
199,010
Deferred rent 39,742
38,593
Deferred income taxes —
9,371
Other liabilities 39,168
38,212
Total other liabilities 278,107
285,186
Equity:

Preferred stock, $1.00 par value, 1,000,000 shares authorized; no shares outstanding —
—
Common stock, $0.01 par value, 100,000,000 shares authorized; 43,752,031 and 43,378,279 shares outstanding, net of 2,334,764 and 2,708,516 treasury shares in 2014 and 2013, respectively 437
434
Additional paid-in capital 138,957
131,398
Accumulated other comprehensive income 2,712
16,676
Retained earnings 398,804
328,191
Total Caleres, Inc. shareholders’ equity 540,910
476,699
Noncontrolling interests 712
663
Total equity 541,622
477,362
Total liabilities and equity $ 1,216,812
$ 1,149,403
See notes to consolidated financial statements.

F- 3

Consolidated Statements of Earnings

($ thousands, except per share amounts) 2014
2013
2012
Net sales $ 2,571,709
$ 2,513,113
$ 2,477,796
Cost of goods sold 1,531,609
1,498,825
1,489,221
Gross profit 1,040,100
1,014,288
988,575
Selling and administrative expenses 910,682
909,749
891,666
Restructuring and other special charges, net 3,484
1,262
22,431
Impairment of assets held for sale —
4,660
—
Operating earnings 125,934
98,617
74,478
Interest expense (20,445 ) (21,254 ) (22,973 )
Loss on early extinguishment of debt (420 ) —
—
Interest income 379
377
322
Gain on sale of subsidiary 4,679
—
—
Earnings before income taxes from continuing operations 110,127
77,740
51,827
Income tax provision (27,184 ) (23,758 ) (16,656 )
Net earnings from continuing operations 82,943
53,982
35,171
Discontinued operations:

Loss from discontinued operations, net of tax of $0, $5,922 and $3,066, respectively —
(4,574 ) (4,437 )
Disposition/impairment of discontinued operations, net of tax of $0, $0 and $2,247, respectively —
(11,512 ) (3,530 )
Net loss from discontinued operations —
(16,086 ) (7,967 )
Net earnings 82,943
37,896
27,204
Net earnings (loss) attributable to noncontrolling interests 93
(177 ) (287 )
Net earnings attributable to Caleres, Inc. $ 82,850
38,073
27,491

Basic earnings (loss) per common share:

From continuing operations $ 1.90
$ 1.25
$ 0.83
From discontinued operations —
(0.37 ) (0.19 )
Basic earnings per common share attributable to Caleres, Inc. shareholders $ 1.90
$ 0.88
$ 0.64

Diluted earnings (loss) per common share:

From continuing operations $ 1.89
$ 1.25
$ 0.83
From discontinued operations —
(0.37 ) (0.19 )
Diluted earnings per common share attributable to Caleres, Inc. shareholders $ 1.89
$ 0.88
$ 0.64
See notes to consolidated financial statements.

F- 4

Consolidated Statements of Comprehensive Income

($ thousands) 2014
2013
2012
Net earnings $ 82,943
$ 37,896
$ 27,204
Other comprehensive (loss) income ("OCI"), net of tax:

Foreign currency translation adjustment (3,145 ) (4,538 ) 475
Pension and other postretirement benefits adjustments (10,349 ) 19,529
(9,061 )
Derivative financial instruments (514 ) 819
(155 )
Other comprehensive (loss) income, net of tax (14,008 ) 15,810
(8,741 )
Comprehensive income 68,935
53,706
18,463
Comprehensive income (loss) attributable to noncontrolling interests 49
(109 ) (275 )
Comprehensive income attributable to Caleres, Inc. $ 68,886
$ 53,815
$ 18,738
See notes to consolidated financial statements.

F- 5

Consolidated Statements of Cash Flows

($ thousands) 2014
2013
2012
Operating Activities

Net earnings $ 82,943
$ 37,896
$ 27,204
Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation 35,002
36,033
34,179
Amortization of capitalized software 12,662
13,047
13,420
Amortization of intangibles 3,951
6,249
7,184
Amortization of debt issuance costs and debt discount 2,400
2,513
2,561
Loss on early extinguishment of debt 420
—
—
Share-based compensation expense 6,190
5,567
6,489
Tax benefit related to share-based plans (929 ) (3,439 ) (944 )
Loss on disposal of facilities and equipment 1,610
1,697
3,103
Impairment charges for facilities and equipment 1,982
1,636
4,132
Impairment of assets held for sale —
4,660
—
Disposition/impairment of discontinued operations —
11,512
3,530
Net (gain) loss on sale of subsidiaries (4,679 ) 576
—
Deferred rent 1,149
4,882
1,350
Deferred income taxes (benefit) provision (3,416 ) 18,061
(3,555 )
Provision for doubtful accounts 1,716
551
360
Changes in operating assets and liabilities:

Receivables (9,175 ) (17,570 ) 27,984
Inventories (7,651 ) (44,852 ) 28,623
Prepaid expenses and other current and noncurrent assets (20,053 ) 3,798
(4,867 )
Trade accounts payable (8,204 ) 12,951
32,091
Accrued expenses and other liabilities 20,142
4,389
10,436
Income taxes 2,411
2,335
4,323
Other, net 341
1,540
334
Net cash provided by operating activities 118,812
104,032
197,937

Investing Activities

Purchases of property and equipment (44,952 ) (43,968 ) (55,801 )
Capitalized software (5,086 ) (5,235 ) (7,928 )
Acquisition of trademarks (65,065 ) —
(5,000 )
Investment in nonconsolidated affiliate (7,000 ) —
—
Net proceeds from sale of subsidiaries, inclusive of note receivable 10,120
69,347
—
Net cash (used for) provided by investing activities (111,983 ) 20,144
(68,729 )

Financing Activities

Borrowings under revolving credit agreement 867,000
1,129,000
805,000
Repayments under revolving credit agreement (874,000 ) (1,227,000 ) (901,000 )
Dividends paid (12,237 ) (12,105 ) (12,011 )
Debt issuance costs (2,618 ) —
—
Issuance of common stock under share-based plans, net 443
804
(1,700 )
Tax benefit related to share-based plans 929
3,439
944
Contributions by noncontrolling interests —
50
—
Net cash used for financing activities (20,483 ) (105,812 ) (108,767 )
Effect of exchange rate changes on cash and cash equivalents (1,489 ) (4,041 ) 100
(Decrease) increase in cash and cash equivalents (15,143 ) 14,323
20,541
Cash and cash equivalents at beginning of year 82,546
68,223
47,682
Cash and cash equivalents at end of year $ 67,403
$ 82,546
$ 68,223
See notes to consolidated financial statements.

F- 6 ~~1996 F-2~~ 80

Consolidated Statements of Shareholders’ Equity

Additional Paid-In Capital
Accumulated Other Comprehensive Income
Retained Earnings
Total Caleres, Inc. Shareholders’ Equity
Non-controlling Interests

Common Stock

($ thousands, except number of shares and per share amounts) Shares Dollars Total Equity
BALANCE JANUARY 28, 2012 41,970,687
$ 420
$ 115,869
$ 9,637
$ 286,743
$ 412,669
$ 1,047
$ 413,716
Net earnings

27,491
27,491
(287 ) 27,204
Foreign currency translation adjustment

463

463
12
475
Unrealized loss on derivative financial instruments, net of tax of $33

(155 )
(155 )
(155 )
Pension and other postretirement benefits adjustments, net of tax of $5,777

(9,061 )
(9,061 )
(9,061 )
Comprehensive income

18,738
(275 ) 18,463
Dividends ($0.28 per share)

(12,011 ) (12,011 )
(12,011 )
Stock issued under employee and director benefit and restricted stock plans 925,676
9
(1,709 )

(1,700 )
(1,700 )
Tax benefit related to share-based plans

944

944

944
Share-based compensation expense

6,489

6,489

6,489
BALANCE FEBRUARY 2, 2013 42,896,363
$ 429
$ 121,593
$ 884
$ 302,223
$ 425,129
$ 772
$ 425,901
Net earnings

38,073
38,073
(177 ) 37,896
Foreign currency translation adjustment

(4,556 )
(4,556 ) 18
(4,538 )
Unrealized gain on derivative financial instruments, net of tax of $289

819

819

819
Pension and other postretirement benefits adjustments, net of tax of $12,319

19,529

19,529

19,529
Comprehensive income

53,865
(159 ) 53,706
Dividends ($0.28 per share)

(12,105 ) (12,105 )
(12,105 )
Contributions by noncontrolling interests

50
50
Stock issued under employee and director benefit and restricted stock plans 481,916
5
799

804

804
Tax benefit related to share-based plans

3,439

3,439

3,439
Share-based compensation expense

5,567

5,567

5,567
BALANCE FEBRUARY 1, 2014 43,378,279
$ 434
$ 131,398
$ 16,676
$ 328,191
$ 476,699
$ 663
$ 477,362
Net earnings

82,850
82,850
93
82,943
Foreign currency translation adjustment

(3,101 )
(3,101 ) (44 ) (3,145 )
Unrealized loss on derivative financial instruments, net of tax of $408

(514 )
(514 )
(514 )
Pension and other postretirement benefits adjustments, net of tax of $6,494

(10,349 )
(10,349 )
(10,349 )
Comprehensive income

68,886
49
68,935
Dividends ($0.28 per share)

(12,237 ) (12,237 )
(12,237 )
Stock issued under employee and director benefit and restricted stock plans 373,752
3
440

443

443
Tax benefit related to share-based plans

929

929

929
Share-based compensation expense

6,190

6,190

6,190
BALANCE JANUARY 31, 2015 43,752,031
$ 437
$ 138,957
$ 2,712
$ 398,804
$ 540,910
$ 712
$ 541,622

See notes to consolidated financial statements.

F- 7

~~BROWN GROUP, INC. CONSOLIDATED BALANCE SHEETS~~
FEBRUARY 3, 1996 JANUARY 28, 1995 ---------------- ---------------- (THOUSANDS, EXCEPT NUMBER OF SHARES) ASSETS Current Assets Cash and cash equivalents............................................................. $ 35,058 $ 18,922 Receivables, net of allowance of $11,267 in 1995 and $11,664 in 1994.................. 86,417 98,079 Inventories, net of adjustment

Notes to last-in, first-out cost of $27,672 in 1995 and $37,286 in 1994...................................................................... 342,282 322,029 Deferred income taxes................................................................. 26,734 23,350 Prepaid expenses and other current assets............................................. 14,847 16,580 -------- -------- Total Current Assets.............................................................. 505,338 478,960 Other Assets Prepaid pension costs................................................................. 33,077 34,793 Other assets.......................................................................... 34,921 29,858 Property and equipment, net........................................................... 87,720 92,904 -------- -------- $661,056 $636,515 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable......................................................................... $112,000 $ 41,085 Trade accounts payable................................................................ 106,113 85,045 Employee compensation and benefits.................................................... 28,448 37,394 Other accrued expenses................................................................ 43,043 54,837 Income taxes.......................................................................... 4,335 (642) Current maturities of long-term debt.................................................. 2,000 2,063 -------- -------- Total Current Liabilities......................................................... 295,939 219,782 Other Liabilities Long-term debt, including capitalized lease obligations............................... 105,470 133,213 Deferred income taxes................................................................. 10,806 12,734 Other liabilities..................................................................... 17,205 21,059 -------- -------- Total Other Liabilities........................................................... 133,481 167,006 SHAREHOLDERS' EQUITY Preferred stock, $1.00 par value, 1,000,000 shares authorized; no shares outstanding.. -- -- Common stock, $3.75 par value, 100,000,000 shares authorized; 17,930,977 and 17,969,892 shares outstanding........................................................ 67,242 67,388 Additional capital.................................................................... 46,015 46,957 Cumulative translation adjustment..................................................... (4,913) (5,556) Unamortized value of restricted stock................................................. (7,822) (10,878) Retained earnings..................................................................... 131,114 151,816 -------- -------- Total Shareholders' Equity........................................................ 231,636 249,727 -------- -------- $661,056 $636,515 ======== ======== See notes to consolidated financial statements. Consolidated Financial Statements
~~F-3~~ 81 ~~BROWN GROUP, INC. CONSOLIDATED EARNINGS~~
1995 1994 1993 ---- ---- ---- (THOUSANDS, EXCEPT PER SHARE) Net Sales............................................................................ $1,455,896 $1,461,637 $1,361,039 Cost of goods sold................................................................... 948,925 949,374 915,443 ---------- ---------- ---------- Gross profit......................................................................... 506,971 512,263 445,596 ---------- ---------- ---------- Selling and administrative expenses.................................................. 494,098 448,827 422,248 Interest expense..................................................................... 15,969 15,785 17,334 Other expense (income)--net.......................................................... 1,630 (12,320) 21,191 ---------- ---------- ---------- Earnings (Loss) From Continuing Operations Before Income Taxes and Cumulative Effect of Accounting Change............................................................... (4,726) 59,971 (15,177) Income tax (provision) benefit....................................................... 5,423 (26,405) 5,881 ---------- ---------- ---------- Earnings (Loss) From Continuing Operations Before Cumulative Effect of Accounting Change........................................................ 697 33,566 (9,296) Cumulative effect of change in accounting for postemployment benefits........................................................................... -- -- (2,214) Discontinued operations: Earnings from operations, net of taxes........................................... -- 1,282 4,298 (Provision) credit for disposal, net of taxes.................................... 2,600 4,550 (24,400) ---------- ---------- ---------- Net Earnings (Loss).................................................................. $ 3,297 $ 39,398 $ (31,612) ========== ========== ========== Earnings (Loss) Per Common Share: Continuing operations before cumulative effect of accounting change.................. $ .04 $ 1.91 $ (.54) Cumulative effect of change in accounting for postemployment benefits........................................................................... -- -- (.13) Discontinued operations: Earnings from operations......................................................... -- .07 .25 (Provision) credit for disposal.................................................. .15 .26 (1.41) ---------- ---------- ---------- Net Earnings (Loss).................................................................. $ .19 $ 2.24 $ (1.83) ========== ========== ========== See notes to consolidated financial statements.
~~F-4~~ 82 ~~BROWN GROUP, INC. CONSOLIDATED CASH FLOWS~~
1995 1994 1993 ---- ---- ---- (THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss)................................................................... $ 3,297 $ 39,398 $(31,612) Adjustments to reconcile net earnings (loss) to net cash provided (used) by continuing operating activities: Cumulative effect of change in accounting for postemployment benefits............. -- -- 2,214 Discontinued operations........................................................... (2,600) (5,832) 20,102 Depreciation and amortization..................................................... 23,827 22,095 19,852 Loss on disposal or impairment of facilities and equipment........................ 6,477 103 12,236 Provision for losses on accounts receivable....................................... 5,101 6,442 5,043 Changes in operating assets and liabilities: Receivables................................................................... 6,561 5,304 (826) Inventories................................................................... (20,253) (35,037) (33,406) Prepaid expenses and other current assets..................................... (3,051) 26,212 (30,880) Trade accounts payable and accrued expenses................................... 2,672 (7,972) 27,082 Income taxes.................................................................. 4,977 (4,430) (1,285) Other, net.................................................................... (8,548) (6,577) (1,397) -------- --------- -------- Net Cash Provided (Used) by Operating Activities of: Continuing operations................................................................. 18,460 39,706 (12,877) Discontinued operations............................................................... (2,755) 8,677 180 -------- --------- -------- Net Cash Provided (Used) by Operating Activities...................................... 15,705 48,383 (12,697) -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.................................................................. (26,939) (32,531) (27,207) Proceeds from sales of fixed assets................................................... 5,408 4,226 1,407 Proceeds from sales of assets of discontinued operations.............................. 2,444 118,532 -- -------- --------- -------- Net Cash Provided (Used) by Investing Activities...................................... (19,087) 90,227 (25,800) -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term notes payable....................................... 45,915 (105,005) 134,445 Principal payments of long-term debt and capitalized leases........................... (2,812) (7,764) (97,102) Additions to long-term debt........................................................... -- -- 20,000 Proceeds from issuance of common stock................................................ 564 5,901 4,400 Payments for purchases of treasury stock.............................................. (824) (1,102) -- Dividends paid........................................................................ (23,325) (28,610) (27,979) -------- --------- -------- Net Cash Provided (Used) by Financing Activities...................................... 19,518 (136,580) 33,764 -------- --------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................................... 16,136 2,030 (4,733) Cash and Cash Equivalents at Beginning of Year........................................ 18,922 16,892 21,625 -------- --------- -------- Cash and Cash Equivalents at End of Year.............................................. $ 35,058 $ 18,922 $ 16,892 ======== ========= ======== See notes to consolidated financial statements.
~~F-5~~ 83 ~~BROWN GROUP, INC. CONSOLIDATED SHAREHOLDERS' EQUITY~~
UNAMORTIZED COMMON STOCK CUMULATIVE VALUE OF ------------------- ADDITIONAL TRANSLATION RESTRICTED RETAINED SHARES DOLLARS CAPITAL ADJUSTMENT STOCK EARNINGS ------ ------- ---------- ----------- ----------- -------- (THOUSANDS, EXCEPT NUMBER OF SHARES) Balance January 30, 1993.......................... 17,318,883 $64,947 $28,264 $(1,571) $ (4,166) $201,514 Net loss.......................................... (31,612) Dividends ($1.60 per share)....................... (27,979) Stock issued under employee benefit plans......... 168,385 631 3,769 Currency translation adjustment................... (1,716) Stock issued under restricted stock plan, net..... 132,500 497 3,946 (4,443) Amortization of deferred compensation under restricted stock plan........................... 1,782 ---------- ------- ------- ------- -------- -------- Balance January 29, 1994.......................... 17,619,768 66,075 35,979 (3,287) (6,827) 141,923 Net earnings...................................... 39,398 Dividends ($1.60 per share)....................... (28,610) Stock issued under employee benefit plans......... 217,924 817 5,084 Purchase of common stock for treasury............. (35,800) (134) (73) (895) Currency translation adjustment................... (2,269) Stock issued under restricted stock plan, net..... 168,000 630 5,967 (6,597) Amortization of deferred compensation under restricted stock plan........................... 2,546 ---------- ------- ------- ------- -------- -------- Balance January 28, 1995.......................... 17,969,892 67,388 46,957 (5,556) (10,878) 151,816 Net earnings...................................... 3,297 Dividends ($1.30 per share)....................... (23,325) Stock issued under employee benefit plans......... 23,760 89 475 Purchase of common stock for treasury............. (25,800) (97) (53) (674) Currency translation adjustment................... 643 Stock issued under restricted stock plan, net..... (36,875) (138) (1,364) 1,502 Amortization of deferred compensation under restricted stock plan........................... 1,554 ---------- ------- ------- ------- -------- -------- Balance February 3, 1996 17,930,977 $67,242 $46,015 $(4,913) $ (7,822) $131,114 ========== ======= ======= ======= ======== ======== See notes to consolidated financial statements.
~~F-6~~ ~~84 BROWN GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1:~~

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ~~ORGANIZATION~~

Organization
Brown Shoe Company, Inc., founded in 1878 and incorporated in 1913, is a global footwear retailer and wholesaler. The ~~corporation~~Company’s shares traded under the “BWS” symbol on the New York Stock Exchange. On May 28, 2015, the shareholders of Brown Shoe Company, Inc. approved a rebranding initiative that changed the name of the company to Caleres, Inc. (the "Company"). The Company's stock trades on the New York Stock Exchange under the ticker symbol "CAL".

The Company provides a broad offering of licensed, branded and private-label casual, dress and athletic footwear products to women, men and children. Footwear is sold at a variety of price points through multiple distribution channels both domestically and internationally. The Company currently operates ~~in the Footwear industry. Current activities include the operation of~~1,209 retail shoe ~~stores and the importing, foreign sourcing, and wholesaling of women's, men's and children's footwear. The corporation's retail operations comprise 1,241 retail footwear~~ stores in the United States, Canada and ~~Canada.~~Guam primarily under the Famous Footwear ~~is distributed by~~and Naturalizer names. In addition, through its Brand Portfolio segment, the ~~corporation's wholesaling operations~~Company designs, sources and markets footwear to retail stores domestically and internationally, including national chains, department stores, mass merchandisers, ~~and~~ independent retailers and online retailers. In 2014, approximately 67% of the Company’s net sales were at retail, compared to 70% in ~~the United States, Canada, Europe, South America~~2013 and the Far East and to affiliates. Wholesale footwear sales carry corporate brand names, brand names licensed by the corporation, and private label footwear. Through the sourcing activities of its Pagoda organization, the corporation sources a wide variety of footwear from a number of independently owned and operated factories primarily71% in ~~China and other Far Eastern countries and to a lesser extent Brazil and Italy, for affiliates and for outside customers, which primarily consist of large discount store operations.~~2012. See Note 67 for additional information regarding the ~~corporation's~~Company’s business ~~segment~~segments.

The Company’s business is seasonal in nature due to consumer spending patterns with higher back-to-school and ~~operations by geographic area. CONSOLIDATION~~ Christmas season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year.

Consolidation
The consolidated financial statements include the accounts of ~~Brown Group, Inc.~~the Company and its wholly-owned and majority-owned ~~subsidiaries. Significant~~subsidiaries, after the elimination of intercompany accounts and ~~transactions~~transactions.

Noncontrolling Interests
Noncontrolling interests in the Company’s consolidated financial statements result from the accounting for noncontrolling interests in partially-owned consolidated subsidiaries or affiliates. Noncontrolling interests represent partially-owned subsidiaries’ or consolidated affiliates’ losses and components of other comprehensive income that are attributable to the noncontrolling parties’ equity interests. The Company consolidates B&H Footwear Company Limited (“B&H Footwear”), a joint venture, into its consolidated financial statements. Net earnings (loss) attributable to noncontrolling interests represent the share of net earnings or losses that are attributable to the equity that is owned by the Company’s partners. Transactions between the Company and B&H Footwear have been eliminated in ~~consolidation. ACCOUNTING PERIOD~~ the consolidated financial statements.

Accounting Period
The ~~corporation's~~Company’s fiscal year is the 5252- or 53-week period ending the Saturday nearest to January 31. Fiscal years ~~1995, 1994~~2014, 2013 and ~~1993~~2012 ended on January 31, 2015, February ~~3, 1996, January 28, 1995~~1, 2014 and ~~January 29, 1994,~~February 2, 2013, respectively. Fiscal ~~year 1995 included 53 weeks~~years 2014 and ~~fiscal years 1994 and 1993~~2013 each included 52 weeks, while fiscal year 2012 included 53 weeks. ~~USE OF ESTIMATES~~ The impact of the 53^rd week in 2012 was an increase to our retail net sales of approximately $21.2 million. The net earnings impact of the 53^rd week was immaterial to 2012.

Basis of Presentation
Certain prior period amounts on the consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Caleres, Inc.

The consolidated statement of cash flows includes the cash flows from operating, financing and investing activities of both continuing operations and discontinued operations. All other financial information is reported on a continuing operations basis, unless otherwise noted. Refer to Note 2 to the consolidated financial statements for discussion regarding discontinued operations.

Use of Estimates
The preparation of ~~the~~ financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. ~~INVENTORIES~~

F- 8

Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Receivables
The Company evaluates the collectibility of selected accounts receivable on a case-by-case basis and makes adjustments to the bad debt reserve for expected losses. The Company considers factors such as ability to pay, bankruptcy, credit ratings and payment history. For all other accounts, the Company estimates reserves for bad debts based on experience and past due status of the accounts. If circumstances related to customers change, estimates of recoverability would be further adjusted. The Company recognized a provision for doubtful accounts of $1.7 million in 2014, $0.6 million in 2013 and $1.3 million in 2012.

Customer allowances represent reserves against our wholesale customers’ accounts receivable for margin assistance, product returns, customer deductions and co-op advertising allowances. We estimate the reserves needed for margin assistance by reviewing inventory levels on the retail floors, sell-through rates, historical dilution, current gross margin levels and other performance indicators of our major retail customers. Product returns and customer deductions are estimated using historical experience and anticipated future trends. Co-op advertising allowances are estimated based on customer agreements. The Company recognized a provision for customer allowances of $46.9 million in 2014, $45.1 million in 2013 and $44.8 million in 2012.

Customer discounts represent reserves against our accounts receivable for discounts that our wholesale customers may take based on meeting certain order, payment, or return guidelines. We estimate the reserves needed for customer discounts based upon customer net sales and respective agreement terms. The Company recognized a provision for customer discounts of $3.5 million in 2014, $4.8 million in 2013 and $4.3 million in 2012.

Inventories
All inventories are valued at the lower of cost or market with ~~86%~~95% of consolidated inventories using the last-in, first-out ~~(LIFO)~~(“LIFO”) method. ~~PROPERTY AND EQUIPMENT~~ An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. If the first-in, first-out (“FIFO”) method had been used, consolidated inventories would have been $3.7 million and $4.0 million higher at January 31, 2015 and February 1, 2014, respectively. Substantially all inventory is finished goods.

The costs of inventory, inbound freight and duties, markdowns, shrinkage and royalty expense are classified in cost of goods sold. Costs of warehousing and distribution are classified in selling and administrative expenses and are expensed as incurred. Such warehousing and distribution costs totaled $71.1 million, $75.1 million and $72.0 million in 2014, 2013 and 2012, respectively. Costs of overseas sourcing offices and other inventory procurement costs are reflected in selling and administrative expenses and are expensed as incurred. Such sourcing and procurement costs totaled $20.8 million, $20.2 million and $21.9 million in 2014, 2013 and 2012, respectively.

The Company applies judgment in valuing inventories by assessing the net realizable value of inventories based on current selling prices. At the Famous Footwear segment, markdowns are recognized when it becomes evident that inventory items will be sold at retail prices less than cost, plus the cost to sell the product. This policy causes the gross profit rate at Famous Footwear to be lower than the initial markup during periods when permanent price reductions are taken to clear product. At the Brand Portfolio segment, markdown reserves generally reduce the carrying values of inventories to a level where, upon sale of the product, the Company will realize its normal gross profit rate. The Company believes these policies reflect the difference in operating models between the Famous Footwear and Brand Portfolio segments. Famous Footwear periodically runs promotional events to drive sales to clear seasonal inventories. The Brand Portfolio segment relies on permanent price reductions to clear slower-moving inventory.

Markdowns are recorded to reflect expected adjustments to sales prices. In determining markdowns, management considers current and recently recorded sales prices, the length of time the product is held in inventory and quantities of various product styles contained in inventory, among other factors. The ultimate amount realized from the sale of certain products could differ from management estimates. The Company performs physical inventory counts or cycle counts on all merchandise inventory on hand throughout the year and adjusts the recorded balance to reflect the results. The Company records estimated shrinkage between physical inventory counts based on historical results.

Computer Software Costs
The Company capitalizes certain costs in other assets, including internal payroll costs incurred in connection with the development or acquisition of software for internal use. Other assets on the consolidated balance sheets include $37.9 million and $45.6 million of computer

F- 9

software costs as of January 31, 2015 and February 1, 2014, respectively, which are net of accumulated amortization of $90.1 million and $79.9 million as of the end of the respective periods.

Property and Equipment
Property and equipment are stated at cost. Depreciation ~~and amortization~~ of property and equipment ~~are~~is provided over the estimated useful lives of the assets or the remaining ~~term of leases~~lease terms, where applicable, using the straight-line method. ~~INCOME TAXES Provision is made~~

Interest Expense
Interest expense includes interest for borrowings under both the Company’s short-term and long-term debt. Interest expense includes fees paid under the short-term revolving credit agreement for the unused portion of its line of credit. Interest expense also includes the amortization of deferred debt issuance costs and debt discount as well as the accretion of certain discounted noncurrent liabilities.

Goodwill and Intangible Assets
Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. The Company adopted the provisions of Accounting Standards Codification (“ASC”), Intangibles-Goodwill and Other (ASC Topic 350) Testing Goodwill for Impairment, which permits, but does not require, a company to qualitatively assess indicators of a reporting unit’s fair value when it is unlikely that a reporting unit is impaired. If, after completing the qualitative assessment, a company believes it is likely that a reporting unit is impaired, a discounted cash flow analysis is prepared to estimate fair value. If the recorded values of these assets are not recoverable, based on either the assessment screen or discounted cash flow analysis, management performs the next step, which compares the fair value of the reporting unit to the recorded value of the tangible and intangible assets of the reporting units. Goodwill is considered impaired if the fair value of the tangible and intangible assets exceeds the fair value of the reporting unit.

The Company elected to bypass the optional qualitative assessment for the goodwill impairment test performed as of the first day of the fourth quarter of 2014 and therefore, reviewed goodwill for impairment utilizing a discounted cash flow analysis. A fair value-based test is applied at the reporting unit level, which is generally at or one level below the operating segment level. The test compares the fair value of the Company’s reporting units to the carrying value of those reporting units. This test requires significant assumptions, estimates and judgments by management, and is subject to inherent uncertainties and subjectivity. The fair value of goodwill is determined using an estimate of future cash flows of the reporting units and a risk-adjusted discount rate to compute a net present value of future cash flows. Projected net sales, gross profit, selling and administrative expense, capital expenditures, depreciation, amortization and working capital requirements are based on the Company's internal projections. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the reporting units directly resulting from the use of its assets in its operations. The Company also considered assumptions that market participants may use. Both the estimates of the fair value of the Company's reporting units and the allocation of the estimated fair value of the reporting units are based on the best information available to the Company's management as of the date of the assessment. As of January 31, 2015, the Company had two reporting units, Famous Footwear and Brand Portfolio, for goodwill impairment testing. Based on the results of the Company’s most recent goodwill impairment test, the fair value of the Brand Portfolio reporting unit exceeded its carrying value and therefore, no impairment was recognized. As of January 31, 2015, the goodwill allocated to the Brand Portfolio reporting unit was $14.0 million.

The Company performs impairment tests as of the first day of the fourth quarter of each fiscal year unless events indicate an interim test is required. The indefinite-lived intangible asset impairment reviews performed as of the first day of the Company’s fourth fiscal quarter resulted in no impairment charges. Definite-lived intangible assets, other than goodwill, are amortized over their useful lives and are reviewed for impairment if and when impairment indicators are present.

Investment in Nonconsolidated Affiliate
The Company has an investment in a nonconsolidated affiliate that is accounted for using the cost method. The investment's carrying value of $7.0 million and zero as of January 31, 2015 and February 1, 2014, respectively, is included in other assets on the consolidated balance sheets. The Company monitors the investment for indicators that a decrease in investment value has occurred that is other than temporary. If the Company determined that a decline in the fair value of the investment below its carrying value is other than temporary, an impairment loss would be recognized. As of January 31, 2015, there have been no impairment losses recognized on this investment.

Self-Insurance Reserves
The Company is self-insured and/or retains high deductibles for a significant portion of its workers’ compensation, health, disability, cyber risk, general liability, automobile and property programs, among others. Liabilities associated with the risks that are retained by the Company are estimated by considering historical claims experience, trends of the Company and the industry, and other actuarial assumptions. The estimated accruals for these liabilities could be affected if development of costs on claims differ from these assumptions and historical

F- 10

trends. Based on available information as of January 31, 2015, the Company believes it has provided adequate reserves for its self-insurance exposure. As of January 31, 2015 and February 1, 2014, self-insurance reserves were $9.3 million and $10.9 million, respectively.

Revenue Recognition
Retail sales, recognized at the point of sale, are recorded net of returns and exclude sales tax. Wholesale sales and sales through the Company’s Internet sites are recorded, net of returns, allowances and discounts, generally when the merchandise has been shipped and title and risk of loss have passed to the customer. Retail items sold through the Company’s Internet sites are made pursuant to a sales agreement that provides for transfer of both title and risk of loss upon delivery to the carrier. Reserves for projected merchandise returns, discounts and allowances are determined based on historical experience and current expectations. Revenue is recognized on license fees related to Company-owned brand-names, where the Company is the licensor, when the related sales of the licensee are made.

Gift Cards
The Company sells gift cards to its consumers in its retail stores and through its Internet sites. The Company’s gift cards do not have expiration dates or inactivity fees. The Company recognizes revenue from gift cards when (i) the gift card is redeemed by the consumer or (ii) the likelihood of the gift card being redeemed by the consumer is remote (“gift card breakage”) and the Company determines that it does not have a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions. The Company determines its gift card breakage rate based upon historical redemption patterns. The Company recognizes gift card breakage during the 24-month period following the sale of the gift card, according to the Company’s historical redemption pattern. Gift card breakage income is included in net sales in the consolidated statements of earnings and the liability established upon the sale of a gift card is included in other accrued expenses within the consolidated balance sheets. The Company recognized $0.4 million of gift card breakage in 2014 and $0.5 million in both 2013 and 2012.

Loyalty Program
The Company maintains a loyalty program (“Rewards”) for Famous Footwear stores in which consumers earn points toward savings certificates for qualifying purchases. Upon reaching specified point values, consumers are issued a savings certificate, which they may redeem for purchases at Famous Footwear stores. In addition to the savings certificates, the Company also offers exclusive member mailings that offer additional incentives to purchase. Savings certificates earned must be redeemed within stated expiration dates. The value of points and rewards earned by Famous Footwear’s Rewards program members are recorded as a reduction of net sales and a liability is established within other accrued expenses at the time the points are earned based on historical conversion and redemption rates. Approximately 73% of net sales in the Company’s Famous Footwear segment were made to its Rewards members in 2014, compared to 70% in 2013 and 66% in 2012. As of January 31, 2015 and February 1, 2014, the Company had a Rewards program liability of $7.2 million and $7.5 million, respectively, which is included in other accrued expenses on the consolidated balance sheets.

Store Closing and Impairment Charges
The costs of closing stores, including lease termination costs, property and equipment write-offs and severance, as applicable, are recorded when the store is closed or when a binding agreement is reached with the landlord to close the store.

The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be recoverable. After allowing for an appropriate start-up period, unusual nonrecurring events or favorable trends, property and equipment at stores indicated as impaired are written down to fair value using primarily a discounted cash flow method. The Company recorded asset impairment charges, primarily related to underperforming retail stores, of $2.0 million in 2014, $1.6 million in 2013 and $4.1 million in 2012.

Advertising and Marketing Expense
Advertising and marketing costs are expensed as incurred, except for the costs of direct response advertising that relate primarily to the production and distribution of the Company's catalogs and coupon mailers. Direct response advertising costs are capitalized and amortized over the expected future revenue stream, which is generally one to three months from the date the materials are mailed. External production costs of advertising are expensed when the advertising first appears in the media or in the store.

In addition, the Company participates in co-op advertising programs with certain of its wholesale customers. For those co-op advertising programs where the Company has validated the fair value of the advertising received, co-op advertising costs are reflected as advertising expense within selling and administrative expenses. Otherwise, co-op advertising costs are reflected as a reduction of net sales.

Total advertising and marketing expense was $83.6 million, $82.2 million and $83.0 million in 2014, 2013 and 2012, respectively. In 2014, 2013 and 2012, these costs were offset by co-op advertising allowances recovered by the Company’s retail business of $6.2 million, $7.8

F- 11

million and $7.1 million, respectively. Total co-op advertising costs reflected as a reduction of net sales were $10.0 million in 2014, $8.3 million in 2013 and $8.1 million in 2012. Total advertising costs attributable to future periods that are deferred and recognized as a component of prepaid expenses and other current assets were $2.6 million and $2.0 million at January 31, 2015 and February 1, 2014, respectively.

Income Taxes
The Company recognizes deferred tax ~~effects~~assets and liabilities for the expected future tax consequences of ~~timing~~temporary differences between the consolidated financial statement carrying amounts and the tax ~~reporting. These differences relate principally~~bases of its assets and liabilities. The Company establishes valuation allowances if it believes that it is more-likely-than-not that some or all of its deferred tax assets will not be realized. The Company does not recognize a tax benefit unless it concludes that it is more-likely-than-not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in its judgment, is greater than 50% likely to ~~depreciation, employee benefit plans,~~be realized. The Company records interest and penalties related to unrecognized tax positions within the income tax provision on the consolidated statements of earnings.

Operating Leases
The Company leases its store premises and certain office locations, distribution centers and equipment under operating leases. Approximately one-half of the leases entered into by the Company include options that allows the Company to extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception. Some leases also include early termination options that can be exercised under specific conditions.

Contingent Rentals
Many of the leases covering retail stores require contingent rentals in addition to the minimum monthly rental charge based on retail sales volume. The Company records expense for contingent rentals during the period in which the retail sales volume exceeds the respective targets.

Construction Allowances Received From Landlords
At the time its retail facilities are initially leased, the Company often receives consideration from landlords to be applied against the cost of leasehold improvements necessary to open the store. The Company treats these construction allowances as a lease incentive. The allowances are recorded as a deferred rent obligation and amortized to income over the lease term as a reduction of rent expense. The allowances are reflected as a component of other accrued expenses and deferred rent on the consolidated balance sheets.

Straight-Line Rents and Rent Holidays
The Company records rent expense on a straight-line basis over the lease term for all of its leased facilities. For leases that have predetermined fixed escalations of the minimum rentals, the Company recognizes the related rental expense on a straight-line basis and records the difference between the recognized rental expense and amounts payable under the lease as deferred rent. At the time its retail facilities are leased, the Company is frequently not charged rent for a specified period of time, typically 30 to 60 days, while the store is being prepared for opening. This rent-free period is referred to as a rent holiday. The Company recognizes rent expense over the lease term, including any rent holiday, within selling and administrative expenses on the consolidated statements of earnings.

Preopening Costs
Preopening costs associated with opening retail stores, including payroll, supplies and facility ~~closing~~costs, are expensed as incurred.

Earnings Per Common Share Attributable to Caleres, Inc. Shareholders
The Company uses the two-class method to calculate basic and ~~restructuring reserves, bad debt reserves and inventory. EARNINGS PER SHARE Earnings~~diluted earnings per common share ~~of Common Stock~~attributable to Caleres, Inc. shareholders. Unvested restricted stock awards are considered participating units because they entitle holders to non-forfeitable rights to dividends or dividend equivalents during the vesting term. Under the two-class method, basic earnings per common share attributable to Caleres, Inc. shareholders is computed by dividing the net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities by the ~~weighted average~~weighted-average number of common shares outstanding during the year. Diluted earnings per common share attributable to Caleres, Inc. shareholders is computed by dividing the net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities by the weighted-average number of common shares and potential dilutive securities outstanding during the year. Potential dilutive securities consist of outstanding stock options. See Note 3 to the consolidated financial statements for additional information related to the calculation of earnings per common share attributable to Caleres, Inc. shareholders.

Comprehensive Income
Comprehensive income includes the effect of foreign currency translation adjustments, unrealized gains or losses from derivatives used for hedging activities and pension and other postretirement benefits adjustments.

F- 12

Foreign Currency Translation
For certain of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into United States dollars at the period-end exchange rate or historical rates as appropriate. Consolidated statements of earnings amounts are translated at average exchange rates for the period. The ~~dilutive effect~~cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income in total Caleres, Inc. shareholders’ equity. Transaction gains and losses are included in the consolidated statements of earnings.

Pension and Other Postretirement Benefits Adjustments
The Company determines the expense and obligations for retirement and other benefit plans using assumptions related to discount rates, expected long-term rates of return on invested plan assets, expected salary increases and certain employee-related factors. The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other comprehensive income in total Caleres, Inc. shareholders’ equity. The gain or loss is recognized into the plans’ expense over time. See additional information related to pension and other postretirement benefits in Note 5 and Note 14 to the consolidated financial statements.

Derivative Financial Instruments
The Company recognizes all derivative financial instruments as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. The Company evaluates its exposure to volatility in foreign currency rates and may enter into derivative transactions as it deems necessary. These derivative financial instruments are viewed as risk management tools and are not used for trading or speculative purposes. See additional information related to derivative financial instruments in Note 12, Note 13 and Note 14 to the consolidated financial statements.

Business Combination Accounting
The Company allocates the purchase price of an acquired entity to the assets and liabilities acquired based upon their estimated fair values at the business combination date. The Company also identifies and estimates the fair values of intangible assets that should be recognized as assets apart from goodwill. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company has historically relied in part upon the use of reports from third-party valuation specialists to assist in the estimation of fair values for intangible assets other than goodwill. The carrying values of acquired receivables and trade accounts payable have historically approximated their fair values at the business combination date. With respect to other acquired assets and liabilities, the Company uses all available information to make the best estimates of their fair values at the business combination date.

The Company’s purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows. Unanticipated events or circumstances may occur which could affect the accuracy of the Company’s estimates, including assumptions regarding industry economic factors and business strategies.

Share-based Compensation
The Company has share-based incentive compensation plans under which certain officers, employees, and members of the Board of Directors are participants and may be granted stock option, restricted stock, and stock performance awards. Additionally, share-based grants may be made to non-employee members of the Board of Directors in the form of cash-equivalent restricted stock units (“RSUs”) at no cost to the non-employee member of the Board of Directors. The Company accounts for share-based compensation in accordance with the fair value recognition provisions of ASC 718, Compensation – Stock Compensation, and ASC 505, Equity, which require all share-based payments to employees and members of the Board of Directors, including grants of employee stock options, to be recognized as expense in the consolidated financial statements based on their fair values. The fair value of stock options is ~~not significant~~calculated using the Black-Scholes option pricing formula that requires estimates for expected volatility, expected dividends, the risk-free interest rate, and the expected term of the option. Stock options generally vest over four years, with 25% vesting annually, and expense is recognized on a straight-line basis separately for each vesting portion of the stock option award. Expense for restricted stock is based on the fair value of the restricted stock on the date of grant and is ~~therefore excluded from the calculation. F-7~~ 85 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PRE-OPENING AND CLOSING EXPENSES Pre-opening expenses of new facilities are charged to operations when incurred. Costs of closing facilities, including capital asset disposition losses, lease termination costs, and inventory liquidation costs, are accrued when management makes the decision to close such facilities. STOCK BASED COMPENSATION The corporation accountsrecognized on a straight-line basis generally over a four-year vesting period. Expense for stock performance awards is recognized based upon the fair value of the awards on the date of grant and the anticipated number of shares or units to be awarded on a straight-line basis over the respective term of the award, or individual vesting portion of an award. Expense for the initial grant of RSUs is recognized ratably over the one-year vesting period based upon the fair value of the RSUs, as remeasured at the end of each period. If any of the assumptions used in the Black-Scholes model or the anticipated number of shares to be awarded change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period. See additional information related to share-based compensation in Note 15 to the consolidated financial statements.

F- 13

Impact of New Accounting Pronouncements
In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The ASU amends the definition of a discontinued operation by raising the threshold for disposals to qualify as discontinued operations and requires new disclosures for disposals of individually significant components that do not meet the new definition of a discontinued operation. Under the new standard, discontinued operations treatment is required for disposals of a component or group of components that represent a strategic shift that has or will have a major impact on an entity’s operations or financial results. The standard is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption permitted. As the Company adopted this ASU during the third quarter of 2014, the sale of Shoes.com is not considered a discontinued operation as the disposal did not represent a strategic shift that will have a major impact on the Company's operations or financial results. Refer to Note 2 to the consolidated financial statements for further discussion.

Impact of Prospective Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption prohibited. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

2.    DISCONTINUED OPERATIONS AND OTHER DISPOSITIONS

Discontinued Operations
The Company’s discontinued operations include the Avia and Nevados brands of American Sporting Goods Corporation, the Etienne Aigner brand and the Vera Wang brand. The Company applied discontinued operations accounting in accordance with ~~APB Opinion No. 25, ``Accounting~~ASC Topic 205-20, Presentation of Financial Statements –Discontinued Operations.

The Company had no discontinued operations in 2014. Discontinued operations included net sales of $26.3 million and $120.3 million in 2013 and 2012, respectively, and a loss before income taxes of $10.5 million and $7.5 million in 2013 and 2012, respectively. Discontinued operations also included a net loss on disposition/impairment of $11.5 million and $3.5 million in 2013 and 2012, respectively.

American Sporting Goods Corporation
The Company purchased American Sporting Goods Corporation, comprised of Avia, Nevados, Ryka, AND 1 and other businesses, on February 17, 2011 and subsequently sold AND 1 during fiscal 2011. On May 14, 2013, Caleres International Corp. (“CI”) (formerly known as Brown Shoe International Corp.), the sole shareholder of American Sporting Goods Corporation, entered into and simultaneously closed a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among the Company, CI and Galaxy Brand Holdings, Inc. (“the Buyer”), pursuant to which the Buyer acquired all of the outstanding capital stock of American Sporting Goods Corporation from CI and the Company agreed to provide certain transition services. Under the Stock Purchase Agreement, the Avia and Nevados businesses were sold and the Company retained, and is operating, Ryka and other businesses. In connection with the transaction, American Sporting Goods Corporation sold inventory to a third party unaffiliated with the Buyer and distributed certain assets to CI. The aggregate purchase price for ~~Stock Issued~~the stock of American Sporting Goods Corporation and the provision of such transition services was $74.0 million, subject to ~~Employees,''~~working capital adjustments, minus the amount of the pre-closing cash dividend declared by American Sporting Goods Corporation and ~~accordingly recognizes compensation expense related~~paid to CI, representing proceeds from American Sporting Goods Corporation’s sale of inventory. In this document, “ASG” refers to the subsidiary disposed on May 14, 2013, including the Avia and Nevados brands and excluding the Ryka brand and other retained businesses.

The Company received $60.3 million in cash and a promissory note of $12.0 million at closing, from the sale of stock, ~~appreciation units~~the sale of inventory, and ~~restricted stock grants. No compensation expense is~~for the provision of transitional services, less working capital adjustments. The promissory note was due November 14, 2013, earned interest at a 3% annual rate, and was secured by a guarantee by American Sporting Goods Corporation and a lien on certain assets of ASG. In accordance with the terms of the promissory note, the Company received a payment of $12.2 million on November 14, 2013, representing the note principal and accrued interest.

As a result of the sale of ASG, the Company recorded ~~for stock options granted at market value. CASH AND EQUIVALENTS The corporation considers all short-term investments with maturities~~an impairment charge in the first quarter of ~~three months or~~2013 of $12.6 million ($12.6 million after-tax, $0.30 per diluted share), representing the difference in the fair value less costs to sell as compared to the carrying value of the net

F- 14

assets to be ~~cash equivalents. TRANSLATION OF FOREIGN CURRENCIES~~ sold. During the second quarter of 2013, the Company recognized a gain upon disposition of the ASG subsidiary of $1.0 million ($1.0 million after tax, $0.02 per diluted share).

ASG was previously included in the Brand Portfolio segment. Discontinued operations include net sales of $20.3 million and $77.6 million in 2013 and 2012, respectively. Discontinued operations include losses before income taxes of $1.6 million and $7.1 million in 2013 and 2012, respectively.

Vera Wang
During the first quarter of 2013, the Company communicated its intention not to renew the Vera Wang license agreement. The results of Vera Wang were previously included in the Brand Portfolio segment. Discontinued operations include net sales of $5.7 million and $14.8 million in 2013 and 2012, respectively. Discontinued operations include losses before income taxes of $1.9 million and $1.8 million in 2013 and 2012, respectively.

Etienne Aigner
During the second quarter of 2012, the Company terminated the Etienne Aigner license agreement due to a dispute with the licensor. On April 29, 2013, an agreement to resolve the dispute was reached, pursuant to which the Company agreed to pay Etienne Aigner $6.5 million. The results of Etienne Aigner were previously included in the Brand Portfolio segment. Discontinued operations included net sales of $0.3 million and $27.9 million in 2013 and 2012, respectively. It also included losses before income taxes of $7.0 million in 2013 and earnings before income taxes of $1.4 million in 2012. As a result of the termination of the license agreement in 2012, the Company recorded an impairment charge of $5.8 million ($3.5 million on an after-tax basis, or $0.08 per diluted share) to reduce the value of the license intangible asset to zero.

Assets and liabilities of ~~subsidiaries,~~discontinued operations at February 1, 2014 were as follows:

($ thousands) February 1, 2014

Assets of Discontinued Operations
Current assets
Inventories, net $ 111
Prepaid expenses and other current assets 8
Current assets - discontinued operations 119
Total assets - discontinued operations $ 119

Liabilities of Discontinued Operations
Current liabilities
Trade accounts payable $ 139
Other accrued expenses 569
Current liabilities - discontinued operations 708
Total liabilities - discontinued operations $ 708

(

F- 15

Loss from discontinued operations for 2013 and 2012 was as follows:

($ thousands)
2013
2012
Net sales
$ 26,318

$ 120,269
Cost of goods sold

19,927

98,485
Gross profit

6,391

21,784
Selling and administrative expenses

6,103

27,291
Restructuring and other special charges, net

10,768

1,587
Operating loss

(10,480 )

(7,094 )
Interest expense

16

409
Loss before income taxes from discontinued operations

(10,496 )

(7,503 )
Income tax benefit

5,922

3,066
Loss from discontinued operations, net of tax
$ (4,574 )
$ (4,437 )

Other Dispositions
On December 12, 2014, Caleres Investment Company, Inc. ("CIC"), the sole shareholder of Shoes.com, Inc., simultaneously entered into and closed a Stock Purchase Agreement by and among CIC and an affiliate of ShoeMe Technologies Limited ("the Purchaser"), pursuant to which the Purchaser acquired all of the outstanding capital stock, inventory and other ~~than those located~~assets of Shoes.com from CIC and the Company agreed to provide certain transition services. The aggregate purchase price of the sale was $15.0 million, subject to working capital and other adjustments. The Company received $4.4 million in ~~highly inflationary countries, are translated~~cash and a $7.5 million face value secured convertible note ("convertible note") at closing, from the sale of stock, the sale of inventory and other assets, and the provision of transitional services, less working capital adjustments. The convertible note requires installments over four years with the first payment of $1.25 million due on July 1, 2017 and quarterly installments of $0.6 million thereafter, plus accrued interest, until it matures on December 12, 2019. Interest accrues at an annual rate of 6% until December 11, 2016, 7% until December 11, 2017, 8% until December 11, 2018, and 9% until the maturity date. The principal and outstanding accrued interest is convertible into common stock of the Purchaser at a conversion price of CAD 21.50 per share, at the ~~rate~~Company's option, or automatically upon a qualified initial public offering ("IPO") by the Purchaser at the IPO price. The Company recorded the note receivable at its fair value of ~~exchange~~$7.0 million, which is included in ~~effect~~other assets on the consolidated balance ~~sheet date; income~~sheets.

After consideration of working capital adjustments and ~~expenses are translated at~~performance obligations related to our transition services, the ~~average rates~~net purchase price was $10.1 million. The Company recognized a pre-tax gain on the sale of ~~exchange prevailing~~the subsidiary of $4.7 million, representing the difference in the fair value of proceeds less costs to sell, as compared to the carrying value of the net assets. In response to the sale, the Company incurred restructuring and other special charges of $1.5 million, primarily for severance, to eliminate certain positions supporting the Company's e-commerce platforms as well as positions in other administrative functions. These charges include $0.8 million within the Famous Footwear segment, $0.3 million within the Brand Portfolio segment and $0.4 million within the Other category. The Company also recognized tax benefits of $6.6 million associated with the disposition. These tax benefits were driven in part by the utilization of operating and capital loss carryforwards that previously were not anticipated to be utilized, and therefore, fully reserved on the Company's consolidated balance sheet.
The operating results of Shoes.com were included in the Famous Footwear segment in continuing operations through December 12, 2014. The operations of Shoes.com were not significant to the Famous Footwear segment or the Company's financial results. In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which the Company adopted during the ~~year.~~ third quarter of 2014, the financial position and operating results of Shoes.com have not been classified as a discontinued operation as the disposition did not represent a strategic shift resulting in a major impact on the Company's operations or financial results.

3.    EARNINGS PER SHARE

The ~~related translation adjustments~~Company uses the two-class method to compute basic and diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company.The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders:

F- 16

(in thousands, except per share amounts) 2014
2013
2012

NUMERATOR

Net earnings from continuing operations $ 82,943

$ 53,982

$ 35,171
Net (earnings) loss attributable to noncontrolling interests (93)

177

287
Net earnings allocated to participating securities (3,068)

(2,304)

(1,757)
Net earnings from continuing operations 79,782

51,855

33,701

Net loss from discontinued operations —

(16,086)

(7,967)
Net loss allocated to participating securities —

687

392
Net loss from discontinued operations —

(15,399)

(7,575)
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities $ 79,782

$ 36,456

$ 26,126

DENOMINATOR

Denominator for basic continuing and discontinued earnings per common share attributable to Caleres, Inc. shareholders 42,071

41,356

40,659
Dilutive effect of share-based awards for continuing operations and discontinued operations 203

297

135
Denominator for diluted continuing and discontinued earnings per common share attributable to Caleres, Inc. shareholders 42,274

41,653

40,794

Basic earnings (loss) per common share:

From continuing operations $ 1.90

$ 1.25

$ 0.83
From discontinued operations —

(0.37)

(0.19)
Basic earnings per common share attributable to Caleres, Inc. shareholders $ 1.90

$ 0.88

$ 0.64

Diluted earnings (loss) per common share:

From continuing operations $ 1.89

$ 1.25

$ 0.83
From discontinued operations —

(0.37)

(0.19)
Diluted earnings per common share attributable to Caleres, Inc. shareholders $ 1.89

$ 0.88

$ 0.64

Options to purchase 64,497, 86,247 and 998,701 shares of common stock in 2014, 2013 and 2012, respectively, were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be antidilutive.

4.    RESTRUCTURING AND OTHER INITIATIVES

Portfolio Realignment
The Company's portfolio realignment efforts included the sale of ASG; the sale and closure of sourcing and supply chain assets; closing or relocating numerous underperforming or poorly aligned retail stores; the termination of the Etienne Aigner license agreement; the election not to renew the Vera Wang license in accordance with agreement terms, and other infrastructure changes. These portfolio realignment efforts began in 2011 and were completed in 2013. Expenses for these initiatives are reflected in ~~the cumulative translation adjustment section~~both continuing operations and discontinued operations.

The following is a summary of the ~~Consolidated Statement~~Company’s portfolio realignment expense for our continuing and discontinued operations for 2013 and 2012:

F- 17

2013
2012
($ millions, except per share data)
Pre-tax Expense
After-tax Expense
Loss Per Diluted Share

Pre-tax Expense
After-tax Expense
Loss Per Diluted Share
Continuing Operations

Business exits and cost reductions
$ 1.2
$ 0.8
$ 0.02

$ 21.9
$ 14.3
$ 0.33
Non-cash impairments/dispositions
4.7
4.7
0.11

—
—
—
Total Continuing Operations
5.9
5.5
0.13

21.9
14.3
0.33
Discontinued Operations

Business exits and cost reductions
13.3
6.4
0.13

2.2
1.5
0.04
Non-cash impairments/dispositions
11.5
11.5
0.27

5.8
3.5
0.08
Total Discontinued Operations
24.8
17.9
0.40

8.0
5.0
0.12
Total
$ 30.7
$ 23.4
$ 0.53

$ 29.9
$ 19.3
$ 0.45

The business exits and cost reductions associated with continuing operations were recorded within restructuring and other special charges, net and cost of ~~Shareholders' Equity. Foreign currency gains and losses resulting from transactions and~~goods sold in the ~~translation of financial~~consolidated statements of ~~subsidiaries~~earnings. The business exits and cost reductions associated with discontinued operations were recorded within loss from discontinued operations, net of tax, in ~~highly inflationary countries~~the consolidated statements of earnings. The non-cash impairments/dispositions of the Company’s continuing operations were recorded within impairment of assets held for sale in the consolidated statements of earnings. The non-cash impairments/dispositions of the Company’s discontinued operations were recorded within disposition/impairment of discontinued operations, net of tax in the consolidated statements of earnings. The non-cash impairments/dispositions are included in ~~results of operations. FINANCIAL INSTRUMENTS The corporation's policy is to use financial derivatives only to manage exposure to fluctuations~~Other in ~~interest and foreign currency exchange rates. Gains and losses realized and premiums paid on interest rate hedges, are deferred and amortized to interest expense over~~ the ~~life~~following table.

All of the ~~underlying hedged instrument,~~$5.9 million of expenses for portfolio realignment that were recorded in continuing operations during 2013 were included in the Brand Portfolio segment. Of the $21.9 million incurred during 2012, $13.3 million was included in the Brand Portfolio segment, $7.8 million was included in the Famous Footwear segment and $0.8 million was included in the Other category.

The following is a summary of the charges and settlements by category of costs:

Total by Classification
($ millions) Employee
Markdowns and Royalty Shortfalls
Facility
Other
Total
Continuing Operations
Discontinued Operations
Reserve balance at January 28, 2012 $ 5.8
$ 1.6
$ 1.3
$ 1.3
$ 10.0
$ 10.0
$ —
Additional charges in 2012 6.0
3.1
11.4
9.4
29.9
21.9
8.0
Amounts settled in 2012 (10.1 ) (4.5 ) (9.4 ) (10.4 ) (34.4 ) (26.6 ) (7.8 )
Reserve balance at February 2, 2013 $ 1.7
$ 0.2
$ 3.3
$ 0.3
$ 5.5
$ 5.3
$ 0.2
Additional charges in 2013 2.6
2.7
0.1
25.3
30.7
5.9
24.8
Amounts settled in 2013 (3.3 ) (2.9 ) (2.0 ) (25.6 ) (33.8 ) (9.7 ) (24.1 )
Reserve balance at February 1, 2014 $ 1.0
$ —
$ 1.4
$ —
$ 2.4
$ 1.5
$ 0.9
Amounts settled in 2014 (0.9 ) —
(0.4 ) —
(1.3 ) (0.4 ) (0.9 )
Reserve balance at January 31, 2015 $ 0.1
$ —
$ 1.0
$ —
$ 1.1
$ 1.1
$ —

Sale of Sourcing and Supply Chain Assets
On April 30, 2013, the Company entered into an agreement to sell certain of its supply chain and sourcing assets (“Sale Agreement”) for $9.0 million, including $1.5 million in cash and a $7.5 million promissory note, subject to working capital adjustments. The sale closed during the second quarter of 2013. In anticipation of this transaction, the Company recognized an impairment charge in the first quarter of 2013 of $4.7 million ($4.7 million after tax, or ~~immediately if~~$0.11 per diluted share) to adjust the ~~underlying hedged instrument is settled. Gains~~assets to their estimated fair value. The promissory note requires installments over two years with the first payment of $3.0 million due no later than 45 days from the closing date and ~~losses~~the remaining balance payable in eight quarterly payments of $0.6 million, subject to working capital adjustments, plus accrued interest of 5%, compounded monthly, starting no later than three months after the closing date. In accordance with the terms of the promissory note, as of January 31, 2015, the Company has received aggregate installment payments of $6.3 million. As part of the Sale Agreement, the Company

F- 18

agreed to purchase, under specific performance criteria, a minimum of four million pairs of shoes each year for the next two years at market pricing, which can be fulfilled from a defined group of facilities owned by the purchaser.

Organizational Change
During 2014, the Company incurred costs of $1.9 million ($1.2 million on ~~contracts that hedge specific foreign currency commitments, which are primarily for inventory purchases, are deferred~~an after-tax basis, or $0.03 per diluted share) related to a management change at the corporate headquarters, with no corresponding charges in 2013. During 2012, the Company recorded costs of $2.3 million ($1.4 million on an after-tax basis, or $0.03 per diluted share) related to a management change. These costs were recognized as restructuring and other special charges, net and included in the ~~basis~~Other category.

Disposition of Shoes.com
As further discussed in Note 2 to the ~~transaction when it is consummated. Material gains~~consolidated financial statements, in response to the sale of Shoes.com, the Company incurred restructuring and ~~losses on forecasted inventory purchases are recorded in income in the period the value~~other special charges of ~~the contract changes. Gains and losses on contracts which hedge foreign currency assets or liabilities in highly inflationary economies are recognized in income~~$1.5 million. The reserve balance of $1.5 million as incurred. Such amounts effectively offset gains and losses on the assets or liabilities that are hedged. NOTE 2: RESTRUCTURING CHARGES Included in results from continuing operations for fiscal 1995 is a pretax charge of $14.1 million to provide for the cost of closing the corporation's five remaining United States footwear manufacturing plants and several related facilities. Approximately 2,400 factory positions were eliminated and the corporation's headquarters support staff was reduced by 60 positions. The cost of termination benefits included in cost of sales is $8.0 million and an additional $.5 million of termination benefitsJanuary 31, 2015 is included in ~~selling~~employee compensation and ~~administrative expense. Costs to liquidate raw material inventories of $2.0 million also were included in cost of sales. The estimated asset writeoffs of $3.6 million associated with~~benefits on the closings are included in other expense. The total charge, net of the related tax benefit, resulted in a reduction in earnings from continuing operations of $9.2 million, or $.52 per share for fiscal 1995. At February 3, 1996, $4.0 million remains from the manufacturing plant closing charges recorded in fiscal 1995 and includes $2.6 million redesignated from the 1993 restructuring reserve. The remaining liability relates primarily to F-8 86 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) personnel severance and pension settlement costs. To date, $12.7 million of the factory closing reserves have been utilized: $2.2 million for asset writeoffs, $5.9 million for inventory liquidation costs, and $4.6 million for personnel severance costs. Included in results from continuing operations for fiscal 1993 is a pretax restructuring charge of $45.4 million, of which $11.0 million was charged to cost of goods sold and an additional $13.0 million was charged to selling and administrative expenses with the remaining $21.4 million charged to other expense. This charge covered the closing of five shoe factories, the closing of over 150 shoe stores, personnel severance costs associated with a reduction in headquarters administrative staffing and consolidation of the corporation's Brown Shoe and Pagoda divisions, and a provision for additional environmental monitoring costs related to the corporation's closed tannery. The restructuring charge, net of the related tax benefit, resulted in a reduction of $29.5 million, or $1.71 per share, in earnings from continuing operations for fiscal 1993. At February 3, 1996, noconsolidated balance remains from restructuring charges recorded in fiscal 1993 excluding environmental reserves discussed in Note 14. To date, $40.4 million of the reserves which were established by the 1993 restructuring charges have been utilized: $12.2 million for asset writeoffs, $11.6 million for lease termination costs, $6.9 million for inventory liquidation costs, $7.1 million for personnel severance costs, net of pension and postretirement gains of $3.6 million, and $2.6 million was utilized in the closing of all remaining factories in 1995. The balance of the 1993 restructuring reserve at January 28, 1995 was $10.7 million excluding environmental reserves discussed in Note 14. NOTE 3: DISCONTINUED OPERATIONS During the third quarter of fiscal 1994, the corporation announced the sale of its Cloth World chain of fabric stores to Fabri-Centers of America, Inc. The sale was completed on October 2, 1994 for $65.7 million in cash. In addition, as of the end of the third quarter of 1994, the corporation adopted a plan to close the Maryland Square catalog operation. The closure of this business was substantially completed in the fourth quarter of fiscal 1994. In 1993, the corporation adopted a formal plan to withdraw from the Wohl Leased Shoe Department business, which involved the management of shoe departments in department stores. The corporation completed its withdrawal from the last Wohl Leased Shoe Department at the end of October 1994. The corporation established reserves of $34.8 million in fiscal 1993 for the costs associated with the withdrawal from the Wohl Leased Shoe Department business. Due to earlier-than-expected withdrawals from leased departments at better-than-expected terms, $9.8 million of this reserve was redesignated to cover the exit costs associated with the Cloth World sale and the closure of the Maryland Square catalog operation, previously discussed, and an additional $7.0 and $4.0 million of the reserve was reversed to income in the fourth quarter of 1994 and 1995, respectively. Summarized results of these businesses are shown separately as Discontinued Operations in the accompanying consolidated financial statements. Operating results of these businesses are as follows (in thousands):
~~1994 1993 ---- ----~~ Net sales................................................................ $148,980 $529,617 ======== ======== Earnings before income taxes............................................. $ 1,650 $ 6,253 Income taxes............................................................. 368 1,955 -------- -------- Earnings from operations................................................. $ 1,282 $ 4,298 ======== ========
~~NOTE 4:~~sheets.

5.    RETIREMENT AND OTHER BENEFIT PLANS

The ~~corporation's~~Company sponsors pension ~~plan covers~~plans in both the United States and Canada. The Company’s domestic pension plans cover substantially all ~~full-time~~ United States employees. Under the ~~plan,~~domestic plans, salaried, management and ~~management employees'~~certain hourly employees’ pension benefits are based on the ~~employee's~~employee’s highest consecutive five years of compensation during the ~~ten~~10 years before ~~retirement; hourly employees' and union members'~~retirement. The Company’s Canadian pension plans cover certain employees based on plan specifications. Under the Canadian plans, employees’ pension benefits are based on ~~stated amounts for each year~~the employee’s highest consecutive five years of ~~service.~~compensation during the 10 years before retirement. The ~~corporation's~~Company’s funding policy for all plans is to make the minimum annual ~~F-9~~ ~~87 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~ contributions required by applicable regulations. The ~~corporation~~Company also ~~participates in a multiemployer plan, which provides~~maintains an unfunded Supplemental Executive Retirement Plan (“SERP”).

In addition to providing pension benefits, the Company sponsors unfunded defined benefit postretirement life insurance plans that cover both salaried and hourly employees who became eligible for benefits by January 1, 1995. The life insurance plans provide coverage of up to ~~certain of the corporation's union~~twenty-thousand dollars for qualifying retired employees.

Benefit Obligations
The following table sets forth changes in benefit obligations, including all domestic and Canadian plans:

Pension Benefits
Other Postretirement Benefits
($ thousands)
2014
2013

2014
2013
Benefit obligation at beginning of year
$ 279,964
$ 290,534

$ 1,119
$ 3,207
Service cost
9,650
10,638

—
—
Interest cost
14,230
13,241

49
55
Plan participants’ contribution
12
12

4
19
Plan amendments
(11,671 ) 99

—
—
Actuarial loss (gain)
83,105
(23,442 )
483
(2,055 )
Benefits paid
(11,814 ) (11,107 )
(143 ) (107 )
Foreign exchange rate changes
(1,136 ) (11 )
—
—
Benefit obligation at end of year
$ 362,340
$ 279,964

$ 1,512
$ 1,119

The accumulated benefit obligation for the ~~plan's funded~~United States pension plans was $342.6 million and $256.0 million as of January 31, 2015 and February 1, 2014, respectively. The accumulated benefit obligation for the Canadian pension plans was $4.3 million and $4.7 million as of January 31, 2015 and February 1, 2014, respectively.

Pension Benefits
Other Postretirement Benefits
Weighted–average assumptions used to determine benefit obligations, end of year
2014
2013

2014
2013
Discount rate
3.90 % 5.00 %
3.90 % 5.00 %
Rate of compensation increase
3.00 % 3.00 %
N/A
N/A

F- 19

At February 1, 2014, the domestic pension plan and other postretirement benefits mortality assumptions were based on the RP-2000 mortality table using mortality improvement scale AA. In October 2014, the Society of Actuaries issued an updated set of mortality tables and improvement scale collectively known as RP-2014 and MP-2014, respectively. The Company has reviewed the findings and recommendations of these reports with its actuary and its actuary performed a mortality study based on the Company's plan participant population. Based on the results of that study, the Company has elected to use the Society of Actuaries' RP-2014 Bottom Quartile tables, projected using generational scale MP-2014 to better reflect anticipated future experience. Actuarial losses, related to the change in mortality tables, increased the pension plan liability by approximately $18.4 million as of January 31, 2015.

During 2014, the Company announced amendments to the domestic qualified pension plan and the SERP, including certain changes to eligibility and service period requirements as well as changes to the benefit formula, including the calculation of participants' final average compensation. Certain changes became effective in January 2015, while other changes will be effective in January 2016. These plan amendments decreased the pension liability by $11.7 million as of January 31, 2015.

Plan Assets
Pension assets are managed in accordance with the prudent investor standards of the Employee Retirement Income Security Act (“ERISA”). The plan’s investment objective is to earn a competitive total return on assets, while also ensuring plan assets are adequately managed to provide for future pension obligations. This results in the protection of plan surplus and is accomplished by matching the duration of the projected benefit obligation using leveraged fixed income instruments and, while maintaining an equity commitment, managing an equity overlay strategy. The overlay strategy is intended to protect the managed equity portfolios against adverse stock market environments. The Company delegates investment management of the plan assets to specialists in each asset class and regularly monitors manager performance and compliance with investment guidelines. The Company’s overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for near-term benefit payments with a wide diversification of asset types, fund strategies and fund managers. The target allocations for plan assets for 2014 were 70% equities and 30% debt securities. Allocations may change periodically based upon changing market conditions. Equities did not include any Company stock at January 31, 2015 or February 1, 2014.

Assets of the Canadian pension plans, which total approximately $4.5 million at January 31, 2015, were invested 58% in equity funds, 37% in bond funds and 5% in money market funds. The Canadian pension plans did not include any Company stock as of January 31, 2015 or February 1, 2014.

A financial instrument’s level within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Refer to further discussion on the fair value hierarchy in Note 13 to the consolidated financial statements. Following is a description of the pension plan investments measured at fair value, including the general classification of such investments pursuant to the valuation hierarchy.

Cash and cash equivalents include cash collateral and margin as well as money market funds. The fair values are based on unadjusted quoted market prices in active markets with sufficient volume and frequency and therefore are classified within Level 1 of the fair value hierarchy.
Investments in corporate stocks – common, U.S. government securities, mutual funds, preferred securities, real estate investment trusts and S&P 500 Index put and call options (traded on security exchanges) are classified within Level 1 of the fair value hierarchy because the fair values are based on unadjusted quoted market prices in active markets with sufficient volume and frequency.
Corporate debt instruments and interest rate swap agreements are valued at fair value based on vendor-quoted pricing for which inputs are observable and can be corroborated; therefore, these are classified within Level 2 of the fair value hierarchy.
The unallocated insurance contract is valued at contract value, which approximates fair value; therefore, this contract is classified within Level 3 of the fair value hierarchy. The unallocated insurance contract fair value was $0.1 million as of both January 31, 2015 and February 1, 2014.
The alternative investment fund, with a fair value of $10.7 million as of January 31, 2015, is an investment in a pool of long-duration domestic investment grade assets. This investment is valued at fair value based on prices supplied by the company or industry source of the investment grade assets and therefore, are classified within Level 3 of the fair value hierarchy.
The other pension plan assets, with a fair value of $0.4 million as of February 1, 2014, were not priced and therefore were classified within Level 3 of the fair value hierarchy.

F- 20

The fair values of the Company’s pension plan assets at January 31, 2015 by asset category are as follows:

Fair Value Measurements at January 31, 2015
($ thousands)
Total

Level 1

Level 2

Level 3
Asset

Cash and cash equivalents
$ 95,560

$ 95,560

$ —

$ —
U.S. government securities
84,141

84,141

—

—
Mutual fund
29,240

29,240

—

—
Corporate stocks – common
184,486

184,486

—

—
S&P 500 Index options
11,731

11,731

—

—
Preferred securities 286
286
—
—
Interest rate swap agreements
7,268

—

7,268

—
Alternative investment fund 10,733
—
10,733
—
Unallocated insurance contract
89

—

—

89
Total
$ 423,534

$ 405,444

$ 18,001

$ 89

The fair values of the Company’s pension plan assets at February 1, 2014 by asset category are as follows:

Fair Value Measurements at February 1, 2014
($ thousands) Total

Level 1

Level 2

Level 3
Asset

Cash and cash equivalents $ 14,038

$ 14,038

$ —

$ —
U.S. government securities 73,813

73,813

—

—
Mutual fund 27,376

27,376

—

—
Real estate investment trusts 105

105

—

—
Corporate debt instruments 29,783

—

29,783

—
Corporate stocks – common 212,211

212,211

—

—
S&P 500 Index options (1,343 )
(1,343 )
—

—
Interest rate swap agreements (131 )
—

(131 )
—
Unallocated insurance contract 82

—

—

82
Other 386

—

—

386
Total $ 356,320

$ 326,200

$ 29,652

$ 468

The following table sets forth changes in the fair value of plan assets, including all domestic and Canadian plans:

Pension Benefits
Other Postretirement Benefits
($ thousands) 2014

2013

2014

2013
Fair value of plan assets at beginning of year $ 356,320

$ 336,445

$ —

$ —
Actual return on plan assets 79,986

30,628

—

—
Employer contributions 206

331

139

88
Plan participants’ contributions 12

12

4

19
Benefits paid (11,814 )
(11,107 )
(143 )
(107 )
Foreign exchange rate changes (1,176 )
11

—

—
Fair value of plan assets at end of year $ 423,534

$ 356,320

$ —

$ —

Funded Status
The over-funded status ~~at the December~~as of January 31, ~~1995~~2015 and ~~1994 measurement dates,~~February 1, 2014 for pension benefits was $61.2 million and ~~amounts~~$76.4 million, respectively. The under-funded status as of January 31, 2015 and February 1, 2014 for other postretirement benefits was $1.5 million and $1.1 million, respectively.

Amounts recognized in the ~~corporation's Consolidated Balance Sheet at February 3, 1996~~consolidated balance sheets consist of:

F- 21

Pension Benefits
Other Postretirement Benefits
($ thousands) 2014

2013

2014

2013
Prepaid pension costs (noncurrent assets) $ 73,324

$ 85,561

$ —

$ —
Accrued benefit liabilities (current liability) (2,675 )
(1,002 )
(142 )
(105 )
Accrued benefit liabilities (noncurrent liability) (9,455 )
(8,203 )
(1,370 )
(1,014 )
Net amount recognized at end of year $ 61,194

$ 76,356

$ (1,512 )
$ (1,119 )

The projected benefit obligation, the accumulated benefit obligation and ~~January 28, 1995 (in thousands):~~
~~1995 1994 ---- ----~~ ~~Actuarial present~~the fair value of benefit obligations: Vested benefit obligation...................................................... $109,461 $ 90,514 ======== ======== Accumulated benefit obligation................................................. $110,646 $ 92,336 ======== ======== Projected benefit obligation................................................... $118,635 $100,526 Plan assets at fair value...................................................... 154,026 132,266 -------- -------- Excess of plan assets over projected benefit obligation........................ 35,391 31,740 Unrecognized net loss.......................................................... 905 2,540 Unrecognized prior service costs............................................... (782) 3,864 Unrecognized net transition asset.............................................. (2,437) (3,351) -------- -------- Prepaid pension cost recognized in the balance sheet........................... $ 33,077 $ 34,793 ======== ========
~~Pension~~ plan assets ~~are invested primarily~~for pension plans with a projected benefit obligation in ~~listed stocks and bonds. The~~excess of plan assets and for pension plans with an accumulated benefit obligation in excess of plan assets, which includes only the Company’s SERP, were as follows:

Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets

($ thousands) 2014

2013

2014

2013
End of Year

Projected benefit obligation $ 12,130

$ 9,205

$ 12,130

$ 9,205
Accumulated benefit obligation 10,770

7,180

10,770

7,180
Fair value of plan assets —

—

—

—

The accumulated postretirement benefit obligation exceeds assets for all of the Company’s other postretirement benefit plans.

The amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit (income) cost at January 31, 2015 and February 1, 2014, and the expected amortization of the January 31, 2015 amounts as components of net periodic benefit (income) cost for the year ended January 31, 2015, are ~~valued using~~as follows:

Pension Benefits
Other Postretirement Benefits
($ thousands) 2014

2013

2014

2013
Components of accumulated other comprehensive income, net of tax:

Net actuarial loss (gain) $ 4,872

$ (12,065 )
$ (1,068 )
$ (1,628 )
Net prior service (credit) cost (7,037 )
111

—

—

$ (2,165 )
$ (11,954 )
$ (1,068 )
$ (1,628 )

Pension Benefits
Other Postretirement Benefits
($ thousands)

2015

2015
Expected amortization, net of tax:

Amortization of net actuarial loss (gain)

$ 140

$ (190 )
Amortization of net prior service cost

16

—

$ 156

$ (190 )

Net Periodic Benefit (Income) Cost
Net periodic benefit (income) cost for 2014, 2013 and 2012 for all domestic and Canadian plans included the ~~current market value for bonds and~~following components:

F- 22

Pension Benefits Other Postretirement Benefits
($ thousands) 2014
2013
2012
2014
2013
2012
Service cost $ 9,650
$ 10,638
$ 11,523
$ —
$ —
$ —
Interest cost 14,230
13,241
12,727
49
55
148
Expected return on assets (24,757 ) (24,773 ) (25,073 ) —
—
—
Amortization of:

Actuarial loss (gain) 201
954
204
(432 ) (351 ) (82 )
Prior service cost 27
13
13
—
—
—
Net transition asset —
—
(43 ) —
—
—
Total net periodic benefit (income) cost $ (649 ) $ 73
$ (649 ) $ (383 ) $ (296 ) $ 66

Weighted-average assumptions used to determine net periodic benefit (income) cost:

Pension Benefits Other Postretirement Benefits

2014
2013
2012
2014
2013
2012
Discount rate 5.00 % 4.50 % 4.75 % 5.00 % 4.50 % 4.75 %
Rate of compensation increase 3.00 % 3.50 % 3.50 % N/A
N/A
N/A
Expected return on plan assets 8.25 % 8.25 % 8.25 % N/A
N/A
N/A

The net actuarial loss (gain) subject to amortization is amortized on a ~~five-year moving~~straight-line basis over the average ~~for equities. Prior~~future service ~~costs are~~of active plan participants as of the measurement date. The prior service cost is amortized on a straight-line basis over the average future service of active plan participants benefiting under the plan at the time of each plan amendment. The net transition asset was amortized over the ~~average remaining~~estimated service ~~period~~life.

The expected long-term rate of ~~employees expected to receive benefits under~~return on plan assets is based on historical and projected rates of return for current and planned asset classes in the ~~plan. Pension costs included the following components (in thousands):~~
~~1995 1994 1993 ---- ---- ----~~ Service cost............................................................................ $ 4,306 $ 5,828 $ 6,180 Interest cost........................................................................... 8,638 9,957 9,532 Actual return on plan assets............................................................ (41,055) 20,269 (30,847) Net amortization and deferral........................................................... 28,207 (37,823) 12,864 Multiemployer plan...................................................................... 23 78 143 -------- -------- -------- Total pension (income) expense.......................................................... $ 119 $ (1,691) $ (2,128) ======== ======== ======== Actuarial assumptions used were: Discount rate....................................................................... 7.00% 8.75% 7.25% Expected return on plan assets...................................................... 9.50% 9.50% 9.50% Compensation increase............................................................... 4.50% 5.00% 5.00%
~~In addition, the corporation recognized net curtailment/settlement gains (losses) in fiscal 1995~~plan’s investment portfolio. Assumed projected rates of return for each asset class were selected after analyzing experience and ~~1994 of ($1.8) million and $3.4 million, respectively, related to employee terminations due to personnel reductions as part~~future expectations of the ~~corporation's restructuring, factory closures~~returns. The overall expected rate of return for the portfolio was developed based on the target allocation for each asset class.

Expected Cash Flows
Information about expected cash flows for all pension and ~~discontinued operations. These net gains (losses) affected restructuring, factory closure and discontinued operations reserves originally established in fiscal 1995 and 1993.~~ postretirement benefit plans follows:

Pension Benefits

($ thousands)
Funded Plan
SERP
Total

Other Postretirement Benefits
Employer Contributions

2015 expected contributions to plan trusts
$ 79
$ —
$ 79
$ —
2015 expected contributions to plan participants
—
2,675
2,675
142
Expected Benefit Payments

2015
$ 11,109
$ 2,675
$ 13,784

$ 142
2016
11,807
408
12,215

134
2017
12,457
3,628
16,085

127
2018
13,201
542
13,743

120
2019
13,886
917
14,803

113
2020 – 2024
77,058
5,313
82,371

462

Defined-Contribution Plans
The ~~corporation's defined contribution~~Company’s domestic defined-contribution 401(k) plan covers salaried ~~management~~ and certain hourly ~~employees who have at least one year of service and who are at least 21 years of age.~~employees. Company contributions represent a partial matching of employee contributions, generally up to a maximum of 3.5% of the ~~employee's salary.~~employee’s salary and bonus. The ~~corporation's~~Company’s expense for this plan was ~~$2.3~~$3.0 million in ~~1995, $2.5 million in 1994~~2014 and $3.4 million in ~~1993. In addition to providing pension benefits, the corporation sponsors unfunded~~both 2013 and 2012.

F- 23

The Company’s Canadian defined ~~benefit postretirement health and life insurance plans that cover both~~contribution plan covers certain salaried ~~employees who had become eligible for benefits by January 1, 1995,~~ and hourly employees. The ~~postretirement health care plans~~Company makes contributions for all eligible employees, ranging from 3% to 5% of the employee’s salary. In addition, eligible employees may voluntarily contribute to the plan. The Company’s expense for this plan was $0.2 million in both 2014 and 2013 and $0.3 million in 2012.

Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to 50% of base salary and 100% of compensation received under the Company’s annual incentive plan. The deferrals are ~~offered~~held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan of $2.9 million and $2.2 million as of January 31, 2015 and February 1, 2014, respectively, are presented in employee compensation and benefits in the accompanying consolidated balance sheets. The assets held by the trust of $2.9 million as of January 31, 2015 and $2.2 million as of February 1, 2014 are classified as trading securities within prepaid expenses and other current assets in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to selling and administrative expenses in the accompanying consolidated statements of earnings.

Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan, whereby deferred compensation amounts are valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the fair value (as determined based on ~~a shared-cost basis only to employees electing early retirement. This coverage ceases~~the average of the high and low prices) of the Company’s common stock on the last trading day of the fiscal quarter when the ~~employee reaches age 65~~cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and ~~becomes eligible for F-10~~ ~~88 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Medicare.~~are re-invested in additional PSUs at the next fiscal quarter-end. The ~~retirees' contributions~~PSUs are ~~adjusted annually~~payable in cash based on the number of PSUs credited to the participating director’s account, valued on the basis of the fair value at fiscal quarter-end on or following termination of the director’s service. The liabilities of the plan of $2.1 million as of January 31, 2015 and ~~the corporation intends to continue to increase retiree contributions~~$1.7 million as of February 1, 2014 are based on 67,488 and 67,263 outstanding PSUs, respectively, and are presented in other liabilities in the ~~future. The life insurance plans provide coverage ranging~~accompanying consolidated balance sheets. Gains and losses resulting from ~~$1,000 to $38,000 for qualifying retired employees. The following tables set forth the plans' funded status reconciled with the amounts~~changes in the ~~corporation's Consolidated Balance Sheet at February 3, 1996~~fair value of the PSUs are charged to selling and ~~January 28, 1995 (in thousands):~~
1995 1994 ------------------- -------------------- LIFE LIFE HEALTH INSURANCE HEALTH INSURANCE PLANS PLANS PLANS PLANS ------ --------- ------- --------- Accumulated postretirement benefit obligations: Retirees........................................................ $3,604 $5,071 $ 3,379 $4,850 Active participants............................................. 472 100 1,861 165 ------ ------ ------- ------ 4,076 5,171 5,240 5,015 Plan assets..................................................... -- -- -- -- ------ ------ ------- ------ Accumulated obligation in excess of plan assets................. 4,076 5,171 5,240 5,015 Unrecognized net gain (loss).................................... 4,640 (211) 4,804 (23) ------ ------ ------- ------ Accrued postretirement benefit cost............................. $8,716 $4,960 $10,044 $4,992 ====== ====== ======= ======
~~Net postretirement benefit cost for 1995, 1994,~~administrative expenses in the accompanying consolidated statements of earnings.

6.    INCOME TAXES

The components of earnings before income taxes from continuing operations consisted of domestic earnings before income taxes from continuing operations of $70.8 million, $40.9 million and ~~1993 included the following components (in thousands):~~
LIFE HEALTH INSURANCE PLANS PLANS ------ --------- 1995 Service cost............................................................... $ 162 $ 5 Interest cost.............................................................. 407 385 Net amortization cost...................................................... (878) -- ------- ---- Postretirement benefit cost (income)....................................... $ (309) $390 ======= ==== 1994 Service cost............................................................... $ 266 $ 15 Interest cost.............................................................. 443 397 Net amortization cost...................................................... (845) 7 ------- ---- Postretirement benefit cost (income)....................................... $ (136) $419 ======= ==== 1993 Service cost............................................................... $ 534 $ 25 Interest cost.............................................................. 667 387 Net amortization cost...................................................... (2,088) -- ------- ---- Postretirement benefit cost (income)....................................... $ (887) $412 ======= ====
$23.8 million in 2014, 2013 and 2012, respectively, and foreign earnings before income taxes from continuing operations of $39.3 million, $36.8 million and $28.0 million in 2014, 2013 and 2012, respectively. In addition to the ~~net postretirement benefit~~income tax expense associated with continuing operations, we also recorded income tax benefits associated with the ~~corporation recognized net curtailment gains in fiscal 1995 and 1994~~loss from discontinued operations of ~~$.7~~$5.9 million and $.6 million, respectively, related to employee terminations due to personnel reductions as part of the corporation's restructuring, plant closures and discontinued operations. These net gains increased the restructuring, factory closure and discontinued operations reserves originally established in fiscal 1995 and 1993. In the fourth quarter of 1993, the corporation terminated postretirement health care coverage for salaried employees who were not eligible by January 1, 1995. The effect of this change was the recognition of a pretax gain of $1.8 million. F-11 ~~89 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Actuarial assumptions used were (in thousands):~~
~~1995 1994 1993 ---- ---- ----~~ ~~Projected health care cost trend rate~~ ~~............................................................ 7.50% 8.75% 9.00% Ultimate trend rate~~ .............................................................................. 5.00% 5.75% 5.00% Year ultimate trend rate is achieved.................................................................. 2001 2001 2001 Effect of a 1% point increase in the health care cost trend rate on the postretirement benefit obligation.......................................................................................... $132 $193 $309 Effect of a 1% point increase in the health care cost trend rate on the aggregate of service and interest cost....................................................................................... $ 26 $ 34 $ 84 Discount rate......................................................................................... 7.00% 8.75% 7.25% ~~- --------~~ The health care cost trend rate assumption has a significant effect on the amounts reported. Rates listed above represent assumed increases in per capita cost of covered health care benefits for 1995, 1994 and 1993, respectively. For future years the rate was assumed to decrease gradually and remain at the ultimate trend rate thereafter.
In the fourth quarter of 1993, the corporation adopted, retroactive to January 31, 1993, the Statement of Financial Accounting Standards (SFAS) No. 112, ``Employers' Accounting for Postemployment Benefits.'' Prior to 1993, expenses related to postemployment medical benefits were recognized on a pay-as-you-go basis. The corporation elected to immediately recognize the cumulative effect of the change in accounting for postemployment benefits of $3.4 million. On an aftertax basis, this charge was $2.2 million or $.13 per share. The effect of this change on 1993 operating results was not material. NOTE 5: INCOME TAXES The components of earnings from continuing operations before income taxes and cumulative effect of accounting change consisted of Domestic earnings (loss) before taxes of ($18.6) million, $46.5 million, and ($29.1)$5.3 million in ~~1995, 1994,~~2013 and ~~1993, respectively, and Foreign earnings before taxes of $13.9 million, $13.5 million, and $13.9 million in 1995, 1994, and 1993,~~2012, respectively.

The components of income tax ~~(income) expense are~~provision (benefit) on earnings from continuing operations were as ~~follows (in thousands):~~
~~1995 1994 1993 ---- ---- ----~~ Federal Currently payable........................................................................... $(7,220) $(8,389) $ 2,777 Deferred.................................................................................... (2,485) 29,732 (14,215) ------- ------- -------- (9,705) 21,343 (11,438) State....................................................................................... (399) 355 3,390 Foreign..................................................................................... 4,681 4,707 2,167 ------- ------- -------- Total income tax expense (benefit) on earnings (loss) from continuing operations before cumulative effect of accounting changes................................................... (5,423) 26,405 (5,881) Tax benefit of cumulative effect of accounting changes...................................... -- -- (1,192) Tax expense (benefit) of discontinued operations: Results of operations................................................................... -- 368 1,955 (Provision) credit for disposal......................................................... 1,400 2,450 (10,454) ------- ------- -------- Total income tax expense (benefit).......................................................... $(4,023) $29,223 $(15,572) ======= ======= ========
follows:

($ thousands)
2014

2013

2012
Federal

Current
$ 27,311

$ 14,621

$ 2,803
Deferred
(9,502 )
260

5,803

17,809

14,881

8,606
State

Current
5,501

5,770

1,560
Deferred
(642 )
(1,210 )
1,899

4,859

4,560

3,459
Foreign
4,516

4,317

4,591
Total income tax provision
$ 27,184

$ 23,758

$ 16,656

The ~~corporation received income~~Company made federal, state and foreign tax ~~refunds,~~payments, net of ~~payments,~~refunds, of ~~$9.8~~$20.1 million, $5.0 million and ~~$1.2~~$5.7 million in ~~fiscal 1995~~2014, 2013 and ~~1994. Cash payments of income taxes for fiscal 1993 were $12.9 million. F-12~~ ~~90 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~ 2012, respectively.

F- 24

The differences between the income tax ~~expense (benefit) from continuing operations~~provision reflected in the consolidated financial statements and the amounts calculated at the federal statutory income tax rate of 35% were as follows:

($ thousands)
2014

2013

2012
Income taxes at statutory rate
$ 38,544

$ 27,208

$ 18,139
State income taxes, net of federal tax benefit
3,159

2,964

2,248
Foreign earnings taxed at lower rates
(8,882 )
(8,090 )
(5,206 )
Non-deductibility of impairment of assets held for sale
—

1,631

—
Tax on international subsidiary dividend 1,040
—
—
Disposal of Shoes.com (7,428 ) —
—
Other
751

45

1,475
Total income tax provision
$ 27,184

$ 23,758

$ 16,656

In 2014, our effective tax rate was impacted by several factors. In connection with the disposition of Shoes.com, the Company recognized a pre-tax gain, net of related restructuring, of $3.1 million, while recognizing an associated tax benefit of $6.6 million. This tax benefit was driven in part by the utilization of operating and capital loss carryforwards that were previously not anticipated to be utilized and were therefore fully reserved on the Company's consolidated balance sheet. The Company also recognized a tax expense of $1.0 million related to foreign exchange gains on a dividend received from an international subsidiary. Domestic income taxes had been previously provided on the foreign earnings of this subsidiary.

The other category of income tax provision principally represents the impact of expenses that are ~~as follows (in thousands):~~
~~1995 1994 1993 ---- ---- ----~~ Income taxes at statutory rate.................................................. $(1,654) $20,990 $(5,312) State income taxes, net of federal tax benefit.................................. (259) 231 2,203 Foreign tax in excess of (less than) domestic rate.............................. 337 55 (2,056) Effect of revaluation of net deferred tax assets due to 1993 increase in federal tax rate from 34% to 35%...................................................... -- -- (422) Provision for (recovery of) tax assessment ................................. (5,837) 5,837 -- Valuation of temporary differences.............................................. 2,700 -- -- Other........................................................................... (710) (708) (294) ------- ------- ------- $(5,423) $26,405 $(5,881) ======= ======= ======= ~~- --------~~ Represents tax and interest (net of tax) related to an Internal Revenue Service assessment on a portion of the corporation's unremitted foreign earnings. In January 1995, the U.S. Tax Court issued a judgment in favor of the Internal Revenue Service; however, this judgment was reversed by an Appeals Court ruling in fiscal 1995. The IRS has appealed the most recent ruling, but the corporation believes it will prevail.
not deductible or partially deductible for federal income tax purposes and adjustments in the amounts of deferred tax assets that are anticipated to be realized.

Significant components of the ~~corporation's~~Company’s deferred income tax assets and liabilities ~~are~~were as ~~follows (in thousands):~~
~~1995 1994 ---- ----~~ Deferred tax assets Employee benefits, compensation, and insurance.......................... $ 8,667 $ 8,589 Allowance for doubtful accounts......................................... 3,818 3,484 Inventory capitalization and inventory reserves......................... 4,456 1,940 Discontinued operations, restructuring, and store closing reserves...... 3,511 6,669 Postretirement and postemployment benefit plans......................... 5,581 5,991 Tax loss carryforward................................................... 14,037 8,631 Other................................................................... 8,840 6,856 -------- -------- Total deferred tax assets........................................... 48,910 42,160 Deferred tax liabilities Excess depreciation..................................................... (7,347) (9,633) Retirement plans........................................................ (11,626) (11,481) LIFO inventory valuation................................................ (7,753) (8,807) Other................................................................... (2,956) (1,623) -------- -------- Total deferred tax liabilities...................................... (29,682) (31,544) Valuation allowance..................................................... (3,300) -- -------- -------- Net deferred income tax asset........................................... $ 15,928 $ 10,616 ======== ========
~~The corporation provided a deferred tax asset valuation allowance~~follows:

($ thousands)
January 31, 2015

February 1, 2014
Deferred Tax Assets

Employee benefits, compensation and insurance
$ 26,430

$ 15,264
Accrued expenses
16,539

17,235
Postretirement and postemployment benefit plans
862

746
Deferred rent
6,285

6,255
Accounts receivable reserves
7,563

7,052
Net operating loss (“NOL”) carryforward/carryback
9,483

14,917
Capital loss carryforward
5,188

5,145
Foreign tax credit carryforward
1,098

4,236
Other tax credit carryforward
—

3,591
Inventory capitalization and inventory reserves
1,683

5,317
Intangible assets
4,865

6,924
Depreciation 3,957
—
Other
1,907

4,923
Total deferred tax assets, before valuation allowance
85,860

91,605
Valuation allowance
(11,514 )
(13,949 )
Total deferred tax assets, net of valuation allowance
74,346

77,656

Deferred Tax Liabilities

Retirement plans
(23,822 )
(29,608 )
LIFO inventory valuation
(56,525 )
(51,460 )
Capitalized software
(12,721 )
(15,729 )
Other
(1,118 )
(1,966 )
Depreciation
—

(2,212 )
Total deferred tax liabilities
(94,186 )
(100,975 )
Net deferred tax liability
$ (19,840 )
$ (23,319 )

F- 25

As of ~~$2.7 million in fiscal 1995, bringing~~January 31, 2015, the total valuation reserve balance to $3.3 million. The valuation provision in fiscal 1995 was the result of decreased domestic earnings of the corporation. Based on management's assessment, it is more likely than not that all the net deferred tax assets will be realized through future taxable earnings or alternative tax strategies. At February 3, 1996, the corporation hasCompany had various state net operating loss carryforwards ~~for federal income~~with tax ~~purposes~~values totaling $9.3 million. A valuation allowance of ~~$40.1~~$4.7 million ~~which are available~~has been established related to ~~offset~~these operating loss carryforwards. The remaining net operating loss will be carried forward to future ~~federal taxable income through fiscal 2010. F-13~~ ~~91 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~ tax years. The Company also has valuation allowances of $4.6 million related to capital loss carryforwards, $0.9 million related to share-based compensation, $0.6 million related to foreign tax credits and $0.7 million related to charitable contributions and other carryforwards.

As of ~~February 3, 1996, there are approximately $37.0 million of~~January 31, 2015, no deferred taxes have been provided on the accumulated unremitted earnings ~~from~~of the ~~corporation's~~Company’s foreign subsidiaries that are not subject to United States income tax. The Company periodically evaluates its foreign investment opportunities and plans, as well as its foreign working capital needs, to determine the level of investment required and, accordingly, determine the level of foreign earnings that is considered indefinitely reinvested. Based upon that evaluation, earnings of the Company’s foreign subsidiaries that are not otherwise subject to United States taxation, except for the Company’s Canadian subsidiary, are considered to be indefinitely reinvested, and ~~approximately $62.0 million from other foreign entities on which~~accordingly, deferred taxes have not been provided. ~~Based~~If changes occur in future investment opportunities and plans, those changes will be reflected when known and may result in providing residual United States deferred taxes on unremitted foreign earnings. If the ~~current~~Company’s unremitted foreign earnings were not considered indefinitely reinvested as of January 31, 2015, additional deferred taxes of approximately $34.6 million would have been provided.

Uncertain Tax Positions
ASC 740, Income Taxes, establishes a single model to address accounting for uncertain tax positions. The standard clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The standard also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
($ thousands)

Balance at January 28, 2012
$ 209
Additions for tax positions of prior years
1,015
Reductions for tax positions of prior years due to a lapse in the statute of limitations
(75 )
Balance at February 2, 2013
$ 1,149
Reductions for tax positions of prior years due to a lapse in the statute of limitations
(134 )
Balance at February 1, 2014
$ 1,015
Reductions for tax positions of prior years due to a lapse in the statute of limitations
—
Balance at January 31, 2015
$ 1,015

If the unrecognized tax benefits were to be recognized in full, the net amount that would be reflected in the income tax provision, thereby impacting the effective tax rate, would be $1.1 million at January 31, 2015 and February 1, 2014, and $0.8 million at February 2, 2013.
Estimated interest related to the underpayment of income taxes was classified as a component of the income tax provision in the consolidated statements of earnings and was insignificant in 2014, 2013 and 2012. Accrued interest was $0.2 million at January 31, 3015 and $0.1 million at February 1, 2014.

For federal purposes, the Company’s tax years 2011 to 2013 (fiscal years ending January 28, 2012, February 2, 2013 and February 1, 2014) remain open to examination. The Company also files tax returns in various foreign jurisdictions and numerous states for which various tax years are subject to examination. The Company does not expect any significant changes to its liability for unrecognized tax benefits during the next 12 months.

7.    BUSINESS SEGMENT INFORMATION

During the fourth quarter of 2014, following the sale of the Company's e-commerce subsidiary, Shoes.com, the Company revised its reportable segments. This change reflects the Company’s omni-channel approach to managing its branded footwear business across all distribution channels. The two new reportable segments are Famous Footwear and Brand Portfolio.

The Famous Footwear segment is comprised of Famous Footwear, on a historical and continuing basis, and Shoes.com through December 12, 2014 (the date of sale). Famous Footwear operated 1,038 stores at the end of 2014, primarily selling branded footwear for the entire family.

F- 26

The Brand Portfolio segment is comprised of our branded footwear, our branded retail stores and e-commerce sites associated with those brands. This segment sources and markets licensed, branded and private-label footwear primarily to national chains, department stores, independent retailers, mass merchandisers, online retailers and catalogs as well as Company-owned Famous Footwear, Naturalizer and Sam Edelman stores, and e-commerce businesses. The Brand Portfolio segment included 82 branded retail stores in the United States and ~~Canadian income tax rates, it~~89 branded retail stores in Canada at the end of 2014, selling primarily Naturalizer brand footwear in regional malls and outlet centers.

The Company’s Famous Footwear and Brand Portfolio reportable segments are operating units that are managed separately. An operating segment’s performance is ~~anticipated~~evaluated and resources are allocated based on operating earnings (loss). Operating earnings (loss) represent gross profit, less selling and administrative expenses, restructuring and other special charges, net and impairment of assets held for sale. The accounting policies of the reportable segments are the same as those described in Note 1 to the consolidated financial statements. Intersegment sales are generally recorded at a profit to the selling segment. All intersegment earnings related to inventory on hand at the purchasing segment are eliminated against the earnings of the selling segment.

Corporate assets, administrative expenses, and other costs and recoveries that ~~no additional United States tax would be incurred if~~are not allocated to the accumulated Canadian earnings were distributed. In the event that the other foreign entities' earnings were distributed, it is estimated that U.S. taxes, net of foreign tax credits, of approximately $21.0 million would be due. NOTE 6: BUSINESS SEGMENT INFORMATION The corporation operatesoperating units are reported in the ~~Footwear industry throughout~~Other category.

Following is a summary of certain key financial measures for the ~~world. Operations~~respective periods. External sales, intersegment sales and operating earnings (loss) exclude discontinued operations. Segment assets, depreciation and amortization, amortization of debt issuance costs and debt discount, purchases of property and equipment and capitalized software include both continuing operations and discontinued operations.

F- 27

($ thousands) Famous Footwear
Brand Portfolio
Other
Total
Fiscal 2014
External sales $ 1,589,258
$ 982,451
$ —
$ 2,571,709
Intersegment sales —
114,408
—
114,408
Depreciation and amortization 26,581
8,974
16,060
51,615
Amortization of debt issuance costs and debt discount —
—
2,400
2,400
Operating earnings (loss) 104,581
73,403
(52,050 ) 125,934
Segment assets 458,847
518,099
239,866
1,216,812
Purchases of property and equipment 33,001
6,105
5,846
44,952
Capitalized software 198
58
4,830
5,086

Fiscal 2013
External sales $ 1,588,552
$ 924,561
$ —
$ 2,513,113
Intersegment sales —
132,596
—
132,596
Depreciation and amortization 25,917
13,440
15,972
55,329
Amortization of debt issuance costs and debt discount —
—
2,513
2,513
Operating earnings (loss) 105,382
39,909
(46,674 ) 98,617
Segment assets 448,549
514,902
185,952
1,149,403
Purchases of property and equipment 32,728
6,026
5,214
43,968
Capitalized software 193
122
4,920
5,235

Fiscal 2012
External sales $ 1,583,242
$ 894,554
$ —
$ 2,477,796
Intersegment sales —
141,634
—
141,634
Depreciation and amortization 22,827
16,671
15,285
54,783
Amortization of debt issuance costs and debt discount —
—
2,561
2,561
Operating earnings (loss) 94,234
21,259
(41,015 ) 74,478
Segment assets 488,464
552,428
133,081
1,173,973
Purchases of property and equipment 34,931
15,685
5,185
55,801
Capitalized software —
3
7,925
7,928

F- 28

Following is a reconciliation of operating earnings to earnings before income taxes from continuing operations:

($ thousands) 2014
2013
2012
Operating earnings $ 125,934
$ 98,617
$ 74,478
Interest expense (20,445 ) (21,254 ) (22,973 )
Loss on early extinguishment of debt (420 ) —
—
Interest income 379
377
322
Gain on sale of subsidiary 4,679
—
—
Earnings before income taxes from continuing operations $ 110,127
$ 77,740
$ 51,827

For geographic purposes, the domestic operations include the ~~sourcing,~~ wholesale distribution of licensed, branded and ~~retailing~~private-label footwear to a variety of ~~women's, men's~~retail customers, including the Company’s Famous Footwear and ~~children's foot-wear. In 1995, approximately 62%~~Brand Portfolio stores and e-commerce businesses, as well as the Company's domestic retail operations.

The Company’s foreign operations primarily consist of ~~the corporation's sales were at retail, compared to 54% in 1994 and 52% in 1993. The corporation conducts foreign~~wholesale operations in the Far East ~~South America~~ and ~~Europe~~Canada and retail operations in Canada and the Far East. The Far East operations include first-cost transactions, where footwear is ~~sourced for sale primarily~~sold at foreign ports to customers who then import the footwear into the United States ~~customers~~ and ~~to a lesser extent European, Latin American and Asian Pacific customers, and in Canada, where there are both manufacturing and retailing operations.~~ other countries.

A summary of the ~~corporation's operations~~Company’s net sales and long-lived assets by geographic area ~~follows (in thousands):~~
~~1995 1994 1993 ---- ---- ----~~ Net Sales United States................................................................... $1,065,143 $1,030,315 $ 965,423 Far East........................................................................ 282,580 310,902 291,106 Canada.......................................................................... 69,244 67,225 66,107 Latin America, Europe and Other................................................. 78,697 90,417 71,082 Inter-Area Transfers............................................................ (39,768) (37,222) (32,679) ---------- ---------- ---------- $1,455,896 $1,461,637 $1,361,039 ========== ========== ========== Operating Income United States........................................................... $ 8,741 $ 64,472 $ (1,283) Far East........................................................................ 748 5,972 9,992 Canada.......................................................................... 6,358 6,565 3,330 Latin America, Europe and Other................................................. 8,251 1,621 1,516 Less corporate, interest and other (expense).................................... (28,824) (18,659) (28,732) ---------- ---------- ---------- $ (4,726) $ 59,971 $ (15,177) ========== ========== ========== Identifiable Assets United States................................................................... $ 511,435 $ 504,026 $ 607,138 Far East........................................................................ 55,754 59,660 70,097 Canada.......................................................................... 45,674 41,909 39,487 Latin America, Europe and Other................................................. 48,193 30,920 23,208 ---------- ---------- ---------- $ 661,056 $ 636,515 $ 739,930 ========== ========== ========== ~~- -------- Inter-area transfers to affiliates are generally priced to recover cost plus an appropriate margin for profit. Identifiable foreign assets consist~~were as follows:

($ thousands)
2014

2013

2012
Net Sales

United States
$ 2,318,530

$ 2,258,605

$ 2,251,094
Far East
194,296

193,725

158,261
Canada
58,883

60,783

68,441
Total net sales
$ 2,571,709

$ 2,513,113

$ 2,477,796

Long-Lived Assets

United States
$ 414,559

$ 347,005

$ 381,459
Far East
2,336

2,454

9,478
Canada
8,773

7,159

7,824
Latin America, Europe and other
248

236

70
Total long-lived assets
$ 425,916

$ 356,854

$ 398,831

Long-lived assets consisted primarily ~~of cash items, receivables and inventories.~~ 1995 includes a charge of $14.1 million for the costs of closing the remaining five Brown Shoe Company domestic manufacturing plants, partially offset by a LIFO recovery of $10.1 million from the liquidation of related inventories. 1993 includes charges totaling $45.4 million to establish reserves for the closing of retail stores, factory closings, inventory liquidation associated with the store closings and additional costs for environmental monitoring related to U.S. footwear operations.
~~F-14~~ ~~92 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: INVENTORIES Inventories are valued at the lower~~ of ~~cost or market determined principally by the last-in, first-out (LIFO) method~~property and ~~consist of the following (in thousands):~~
FEBRUARY 3, JANUARY 28, 1996 1995 ----------- ----------- Finished goods......................................................... $329,184 $298,235 Work-in-progress....................................................... 1,843 4,193 Raw materials and supplies............................................. 11,255 19,601 -------- -------- $342,282 $322,029 ======== ========
If the first-in, first-out (FIFO) cost method had been used, inventories would have been $27.7 million and $37.3 million higher at February 3, 1996 and January 28, 1995, respectively. During fiscal 1995 and 1994, certain inventories were reduced at Brown Shoe Companyequipment, intangible assets, prepaid pension costs, goodwill and other of the corporation's divisions, which resulted in a liquidation of LIFO inventory layers carried at lower costs which prevailed in prior years. On an aftertax basis, the effect of this liquidation was to increase 1995 and 1994 net income by $6.6 and $6.7 million, respectively. NOTE 8:noncurrent assets.

8.    PROPERTY AND EQUIPMENT

Property and equipment ~~consist~~consisted of the ~~following (in thousands):~~ following:

($ thousands)
January 31, 2015

February 1, 2014
Land and buildings
$ 40,078

$ 37,206
Leasehold improvements
183,466

183,266
Technology equipment
53,406

51,074
Machinery and equipment
35,988

36,029
Furniture and fixtures
117,254

116,501
Construction in progress
8,504

4,464
Property and equipment
438,696

428,540
Allowances for depreciation
(288,953 )
(284,980 )
Property and equipment, net
$ 149,743

$ 143,560

F- 29

Useful lives of property and equipment are as follows:

FEBRUARY 3, JANUARY 28, 1996 1995 ----------- ----------- ~~Land~~
Buildings 5-30 years
Leasehold improvements 5-20 years
Technology equipment 2-10 years
Machinery and ~~buildings..................................................... $ 29,721 $ 35,528 Leasehold improvements................................................. 41,903 35,829~~ equipment 8-20 years
Furniture ~~fixtures,~~ and equipment..................................... 119,833 131,870 --------- --------- 191,457 203,227 Allowances for depreciation and amortization........................... (103,737) (110,323) --------- --------- $ 87,720 $ 92,904 ========= ========= fixtures 3-10 years
~~In fiscal 1995,~~

The Company recorded charges for impairment, primarily for leasehold improvements and furniture and fixtures in the ~~corporation adopted the provisions~~Company’s retail stores, of ~~Statement of Financial Accounting Standards (SFAS) No. 121, ``Accounting for the Impairment of Long-Lived Assets~~$2.0 million, $1.6 million and ~~for Long-Lived Assets to Be Disposed Of.'' SFAS No. 121 requires impairment losses to be recorded on long-lived assets used~~$4.1 million in ~~operations when indicators of impairment are present~~2014, 2013 and ~~the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. An evaluation~~2012, respectively. All of the ~~fair value of~~impairment charges in 2014 and 2013 are included in selling and administrative expenses. Of the ~~assets associated with the corporation's retail store operations resulted~~$4.1 million impairment charges in ~~the determination that certain store assets were impaired. The impaired assets were written down by $2.1 million.~~2012, $3.6 million is included in restructuring and other special charges, net and $0.5 million is included in selling and administrative expenses. Fair value was based on estimated future cash flows to be generated by ~~these~~ retail stores, discounted at a market rate of interest. ~~This writedown is~~

9.    GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets were as follows:

($ thousands) January 31, 2015

February 1, 2014

Intangible Assets

Famous Footwear $ 2,800

$ 3,000
Brand Portfolio 183,068

118,003
Total intangible assets 185,868

121,003
Accumulated amortization (65,235 )
(61,284 )
Total intangible assets, net 120,633

59,719
Goodwill

Brand Portfolio 13,954

13,954
Total goodwill 13,954

13,954
Goodwill and intangible assets, net $ 134,587

$ 73,673

On February 3, 2014, the Company entered into and simultaneously closed an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which the Company acquired the Franco Sarto trademarks. As consideration, the Company paid a cash purchase price of $65.0 million at the time of closing. As a result of entering into and closing the Asset Purchase Agreement, the Company’s license agreement, granting the Company the right to sell footwear and other products using the Franco Sarto trademarks through 2019, was terminated. The purchase price of $65.0 million, as well as transaction costs of $0.1 million, are being amortized over a useful life of 40 years.

In December 2014, in conjunction with the disposition of Shoes.com as further described in Note 2 to the consolidated financial statements, the Company sold intangible assets of $0.2 million. The intangible assets were previously included in the ~~``Other Expense (Income)'' amount~~Famous Footwear segment.

Intangible assets consist primarily of owned and licensed trademarks, of which $20.8 million and $21.0 million as of January 31, 2015 and February 1, 2014, respectively, are not subject to amortization. All remaining intangible assets are subject to amortization and have useful lives ranging from four to 40 years. Amortization expense for ~~fiscal 1995 on~~continuing operations related to intangible assets was $4.0 million, $6.0 million and $6.3 million in 2014, 2013 and 2012, respectively. The Company estimates $3.7 million of amortization expense related to intangible assets in each of the ~~Statement~~years from 2015 through 2019. As a result of ~~Consolidated Earnings. Due~~its annual impairment testing, the Company did not record any other impairment charges during 2014, 2013 and 2012 related to intangible assets.

Goodwill is tested for impairment at least annually, or more frequently if events or circumstances indicate it might be impaired. A fair-value-based test is applied at the ~~large number~~reporting unit level and compares the fair value of ~~new retail stores opened by~~ the ~~corporation in~~reporting unit, with attributable goodwill, to the ~~last several years, it~~

F- 30

carrying value of such reporting unit. This test requires various judgments and estimates. The fair value of goodwill is ~~possible that the~~determined using an estimate of ~~undiscounted~~future cash flows ~~may change~~of the reporting unit and a risk-adjusted discount rate to compute a net present value of future cash flows. An adjustment will be recorded for any goodwill that is determined to be impaired. Impairment of goodwill is measured as ~~these stores mature, potentially~~the excess of the carrying amount of goodwill over the fair values of recognized and unrecognized assets and liabilities of the reporting unit. The Company performed a goodwill impairment test as of the first day of the Company’s fourth fiscal quarter, resulting in ~~the need to write-down those assets to fair value. F-15~~ ~~93 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9:~~no impairment charges.

10.    LONG-TERM AND SHORT-TERM FINANCING ARRANGEMENTS ~~Long-term debt, including capitalized lease obligations, net~~

Credit Agreement
On December 18, 2014, the Company and certain of ~~unamortized discounts~~its subsidiaries (the “Loan Parties”) entered into a Fourth Amended and ~~current maturities, consists~~Restated Credit Agreement (“Credit Agreement”). The Credit Agreement matures on December 18, 2019 and provides for a revolving credit facility in an aggregate amount of up to $600.0 million, subject to the calculated borrowing base restrictions, and provides for an increase at the Company’s option by up to $150.0 million from time to time during the term of the ~~following (in thousands):~~
FEBRUARY 3, JANUARY 28, 1996 1995 ----------- ----------- 7.36% Sinking Fund Debentures, payments of $10,000 due annually beginning 1999....................................................... $ 50,000 $ -- 8.45%-8.6% Debentures due 1999......................................... 15,000 15,000 7.07%-8.83% Debentures due 2002........................................ 19,990 19,988 7.125% Debentures due 2003............................................. 15,000 15,000 7.375% Sinking Fund Debentures, payments of $2,000 due annually to 1998................................................................. 1,999 3,997 Capitalized lease obligations.......................................... 3,481 3,479 Commercial paper....................................................... -- 25,000 6.47% Senior notes due 1996............................................ -- 50,000 Other.................................................................. -- 749 -------- -------- $105,470 $133,213 ======== ========
Maturities of long-term debt and capitalized lease obligations for 1996 through 2000 are: 1996--$2.0 million; 1997--$2.0 million; 1998--$0; 1999--$25.0 million; and 2000--$10.0 million. In 1995, the corporation refinanced $50.0 million of 6.47% unsecured Senior notes due in February 1996 with $50.0 million of 7.36% unsecured Senior notes. The agreement requires annual payments of $10.0 million beginning in 1999. Additionally in 1995, the corporation amended certain terms of its $200.0 million revolving bank Credit Agreement, subject to satisfaction of certain conditions and the willingness of existing or new lenders to assume the increase. The Credit Agreement amended and restated the Third Amended and Restated Credit Agreement, dated as of January 7, 2011 (the "Former Credit Agreement").

Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which ~~will now expire~~is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in ~~December 1999.~~ all accounts receivable, inventory and certain other collateral.

Interest on borrowings ~~under this agreement~~ is at ~~varying~~variable rates ~~and at the corporation's option,~~ based on ~~one of~~ the ~~following: the Eurodollar rate, the competitive bid rate, the First National Bank of Chicago's corporate base rate~~London Interbank Offered Rate (“LIBOR”) or the ~~Federal funds rate. A commitment~~prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement. There is an unused line fee ~~of .25% is~~ payable on the unused portion under the facility and a letter of credit fee payable on the ~~agreement.~~ outstanding face amount under letters of credit.
The ~~Senior notes and~~ Credit Agreement ~~contain~~limits the Company’s ability to create, incur, assume or permit to exist additional indebtedness and liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, certain additional covenants ~~which, among other things, require the maintenance of certain financial ratios related~~would be triggered if excess availability were to fall below specified levels, including fixed charge coverage ratio requirements. Furthermore, if excess availability falls below 12.5% of the Loan Cap for three consecutive business days or an event of default occurs, the lenders may assume dominion and ~~long-term debt-to-capital, establish minimum levels~~control over the Company’s cash (a “cash dominion event”) until such event of ~~net worth~~default is cured or waived or the excess availability exceeds such amount for 30 consecutive days, provided that a cash dominion event shall be deemed continuing (even if an event of default is no longer continuing and/or excess availability exceeds the required amount for 30 consecutive business days) after a cash dominion event has occurred and ~~working capital,~~been discontinued on two occasions in any twelve month period.
The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and ~~limit~~warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, judgment defaults in excess of a certain threshold, the ~~sale~~failure of ~~assets~~any guaranty or security document supporting the agreement to be in full force and effect, and a change of control event. In addition, if the excess availability falls below the greater of (i) 10.0% of the lesser of the Loan Cap and (ii) $50.0 million, and the ~~level~~fixed charge coverage ratio is less than 1.0 to 1.0, the Company would be in default under the Credit Agreement. The Credit Agreement also contains certain other covenants and restrictions. The Company was in compliance with all covenants and restrictions under the Credit Agreement as of ~~liens and certain investments. The corporation maintains short-term lines of credit (including the revolving bank Credit Agreement) which total approximately $207.8 million at February 3, 1996.~~ January 31, 2015.

The maximum amount of ~~short-term~~ borrowings ~~(under these arrangements and in~~under the ~~form of commercial paper)~~Credit Agreement at the end of any month was ~~$121.5~~$74.0 million in ~~1995~~2014 and ~~$190.3~~$159.0 million in ~~1994.~~2013. The average ~~short-term~~daily borrowings during the year were ~~$92.4~~$37.6 million in ~~1995~~2014 and ~~$130.5~~$69.3 million in ~~1994.~~2013. The ~~weighted average~~weighted-average interest rates approximated ~~7.0%~~2.9% in 2014 and ~~4.5%~~2.8% in ~~1995~~2013.

At January 31, 2015, the Company had no borrowings outstanding and ~~1994, respectively. In December 1992,~~$6.3 million in letters of credit outstanding under the ~~corporation entered into~~Credit Agreement. Total additional borrowing availability was $525.6 million at January 31, 2015.

Loss on Early Extinguishment of Debt
During 2014, we incurred a ~~three-year interest rate swap agreement,~~loss of $0.4 million on the early extinguishment of the Former Credit Agreement prior to maturity.

$200 Million Senior Notes Due 2019

F- 31

On May 11, 2011, the Company closed on an offering (the “Offering”) of $200.0 million aggregate principal amount of 7.125% Senior Notes due 2019 (the “2019 Senior Notes”). The Company used a portion of the net proceeds to call and redeem the outstanding 8.75% senior notes due in 2012 (the “2012 Senior Notes”). The Company used the remaining net proceeds for ~~which cash consideration of $3.2 million was received in 1992. Under~~general corporate purposes, including repaying amounts outstanding under the ~~agreement, the corporation is paying a fixed rate of 8 1/8%~~Former Credit Agreement.

The 2019 Senior Notes are guaranteed on a ~~notional amount~~senior unsecured basis by each of ~~$75.0 million and~~the subsidiaries of the Company that is ~~receiving a fixed rate of 6.47% on a notional amount of $50.0 million and a floating rate based on LIBOR~~an obligor under the Credit Agreement. Interest on the ~~remaining notional amount~~2019 Senior Notes is payable on May 15 and November 15 of ~~$25.0 million.~~each year. The ~~cash consideration received~~2019 Senior Notes mature on ~~the swap has been deferred and is being amortized as an offset to interest expense over the life~~May 15, 2019. The Company may redeem all or a part of the ~~agreement, which expires~~2019 Senior Notes at the redemption prices (expressed as a percentage of principal) set forth below plus accrued and unpaid interest, if redeemed during the 12-month period beginning on May 15 of the years indicated below:

Year Percentage
2015 103.563 %
2016 101.781 %
2017 and thereafter 100.000 %

The 2019 Senior Notes also contain certain other covenants and restrictions that limit certain activities, including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of January 31, 2015, the Company was in ~~April 1996.~~ compliance with all covenants and restrictions relating to the 2019 Senior Notes.

Cash payments of interest for ~~fiscal 1995, 1994,~~these financing arrangements during 2014, 2013 and ~~1993~~2012 were ~~$16.0~~$17.9 million, ~~$15.8~~$18.7 million and ~~$18.4~~$20.3 million, respectively. ~~F-16~~ ~~94 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10:~~

11.    LEASES

The ~~corporation~~Company leases ~~substantially~~ all of its retail locations and certain ~~other equipment~~office locations, distribution centers and ~~facilities. More than half~~equipment. The minimum lease terms for the Company’s retail stores generally range from five to 10 years. Approximately 54% of the retail store leases are subject to renewal options for varying periods. The term of the leases for office facilities and distribution centers averages approximately 10 years with renewal options of five to 20 years.

At the time its retail facilities are initially leased, the Company often receives consideration from landlords for a portion of the cost of leasehold improvements necessary to open the store, which are recorded as a deferred rent obligation and amortized to income over the lease term as a reduction of rent expense. In addition to minimum rental payments, certain of the retail store leases require contingent payments based on sales levels. ~~Rent~~A majority of the Company’s retail operating leases contain provisions that allow it to modify amounts payable under the lease or terminate the lease in certain circumstances, such as experiencing actual sales volume below a defined threshold and/or co-tenancy provisions associated with the facility.

The following is a summary of rent expense ~~from continuing operations~~ for operating ~~leases amounted to (in thousands):~~
~~1995 1994 1993 ---- ---- ----~~ Minimum payments............................................ $77,814 $67,199 $63,644 Contingent payments......................................... 3,303 2,871 2,194 ------- ------- ------- $81,117 $70,070 $65,838 ======= ======= =======
leases:

($ thousands)
2014

2013

2012
Minimum rent
$ 143,050

$ 143,958

$ 145,788
Contingent rent
971

942

567
Sublease income
(1,197 )
(1,170 )
(1,145 )
Total
$ 142,824

$ 143,730

$ 145,210

Future minimum payments under noncancelable operating leases with an initial term of one year or more were as follows at ~~February 3, 1996 (in thousands):~~
~~OPERATING LEASES ---------~~ 1996................................................... $ 83,091 1997................................................... 76,049 1998................................................... 63,707 1999................................................... 50,241 2000................................................... 35,598 Thereafter............................................. 116,120 -------- Total minimum lease payments........................... $424,806 ========
January 31, 2015:

F- 32

($ thousands)

2015
$ 153,334
2016
127,184
2017
97,447
2018
74,236
2019
53,686
Thereafter
169,981
Total minimum operating lease payments
$ 675,868

12.    RISK MANAGEMENT AND DERIVATIVES

General Risk Management
The corporation is contingently liable for lease commitments of approximately $77.9 million which primarily relate to the Cloth World and Meis specialty retailing chains which were sold. NOTE 11: FINANCIAL INSTRUMENTS The corporation utilizes derivative financial instruments only to reduce its exposure to market risks from changes in interest rates and foreign exchange rates. The instruments primarily used are interest rate swaps, interest rate futures, options on interest rate futures, and foreign exchange contracts. The corporation is exposed to credit related losses in the event of nonperformance by counterparties to these financial instruments. Counterparties to these agreements generally are major international financial institutions, and the risk of loss due to nonperformance is believed to be minimal. The corporation does not hold or issue financial instruments for trading purposes. The corporation enters into foreign exchange contracts to hedge foreign currency transactions on a continuous basis for periods consistent with its committed exposures. The terms of these exchange contracts are generally less than a year. The primary purpose of the foreign currency hedging activities is to protect the corporation from the risk that the eventual cash outflows resulting from the purchases of inventory from foreign suppliers will be adversely affected by changes in exchange rates. In addition, the corporation also hedges certain foreign currency assets and liabilities through the use of non-deliverable foreign exchange contracts. F-17 95 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The United States dollar equivalent of contractual amounts of the corporation's forward exchange contracts consist of the following (in thousands):
FEBRUARY 3, JANUARY 28, 1996 1995 ----------- ----------- Deliverable Contracts Italian Lira....................................................... $12,600 $10,500 French Francs...................................................... 8,600 2,000 Canadian Dollars................................................... 4,400 2,600 Other Currencies................................................... 2,000 2,600 Non-Deliverable Contracts New Taiwanese Dollars.............................................. 6,900 -- Brazilian Real..................................................... 4,900 -- Other Currencies................................................... 1,500 -- ------- ------- $40,900 $17,700 ======= =======
The unrealized gains related to these contracts, based on dealer-quoted prices, were $535,000 at February 3, 1996 and $114,000 at January 28, 1995. Realized gains and losses on foreign exchange contracts used as hedges of inventory purchases are included in the basis of the inventory and are recognized in income as a component of cost of goods sold in the period in which the related inventory is sold. Material gains and losses on foreign exchange contracts hedging forecasted purchases are recorded in income in the period the value of the contracts change. Gains and losses on foreign exchange contracts which hedge foreign currency assets or liabilities in highly inflationary economies are recognized in income as incurred. The corporation periodically purchases interest rate futures and options on interest rate futures, which effectively serve as interest rate caps, to reduce the impact of potential increases in interest rates on its floating-rate debt. At January 28, 1995, the corporation had several options on interest rate futures, which entitled the corporation to receive from a counterparty the amount, if any, by which the interest payments on up to $35 million of floating-rate debt exceeds 7 percent for the period ending December 1995. The premium paid for these options is included in other assets and is being amortized to interest expense over the term of the underlying hedged instrument. The amount of unamortized premium included in other assets and the unrealized gain on these options at January 28, 1995, was not material. Amounts received under these options are recognized as adjustments to interest expense over the life of the related debt. At February 3, 1996, the corporation held no interest rate futures or options. In 1992, the corporation entered into a three-year interest rate swap agreement which is discussed in Note 9. The purpose of entering into this agreement was to reduce the interest cost of $75 million of long-term debt. NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts and fair values of the company's financial instruments at February 3, 1996 and January 28, 1995 are as follows (in thousands):
1995 1994 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ----- --------- ----- Liabilities Long-Term Debt....................................................... $107,470 $109,626 $135,276 $132,374 Interest Rate Swap................................................... 202 635 1,272 1,491
~~F-18~~ 96 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Carrying amounts reported on the balance sheet for Cash, Cash Equivalents, Receivables and Notes Payable approximate fair value due to the short-term maturity of these instruments. The fair value of the corporation's long-term debt and interest rate swap was based upon the borrowing rates currently available to the corporation for financing arrangements with similar terms and maturities. NOTE 13: CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the company to significant concentration of credit risk consist primarily of cash, cash equivalents and trade accounts receivable. The corporationCompany maintains cash and cash equivalents and certain other financial instruments with various financial institutions. The financial institutions are located throughout the world and the ~~corporation's~~Company’s policy is designed to limit exposure to any one institution or geographic region. The ~~corporation's~~Company’s periodic ~~valuations~~evaluations of the relative credit standing of these financial institutions are considered in the ~~corporation's~~Company’s investment strategy.

The ~~corporation's footwear wholesaling businesses sell primarily~~Company’s Brand Portfolio segment sells to national chains, department stores, mass merchandisers, ~~and~~ independent retailers, ~~across~~online retailers and catalogs primarily in the United States, Canada and ~~throughout the world.~~China. Receivables arising from these sales are not ~~collateralized,~~collateralized; however, a portion ~~are~~is covered by documentary letters of credit. Credit risk is affected by conditions or occurrences within the economy and the retail industry. The ~~corporation establishes~~Company maintains an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers and historical ~~trends~~trends.

Derivatives
In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign-currency-denominated assets, liabilities and ~~other information. NOTE 14: COMMITMENTS AND CONTINGENCIES~~cash flows as it makes a portion of its purchases and sales in local currencies. The ~~corporation is involved in environmental remediation~~Company has established policies and ongoing compliance at several sites. The corporation has completed remediation efforts at its closed New York tannery and two associated landfills. As such, in September 1995, state environmental authorities reclassified the statusbusiness practices that are intended to mitigate a portion of the ~~site~~effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to ~~one~~manage its currency exposures. These derivative financial instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions.

Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major international financial institutions and have varying maturities through January 2016. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

The Company principally uses foreign currency forward contracts as cash flow hedges to offset a portion of the effects of exchange rate fluctuations. The Company’s cash flow exposures include anticipated foreign currency transactions, such as foreign currency denominated sales, costs, expenses and intercompany charges, as well as collections and payments. The Company performs a quarterly assessment of the effectiveness of the hedge relationship and measures and recognizes any hedge ineffectiveness in the consolidated statement of earnings. Hedge ineffectiveness is evaluated using the hypothetical derivative method. The amount of hedge ineffectiveness for 2014, 2013 and 2012 was not material.

The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company’s consolidated balance sheets at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive income and reclassified to earnings in the period that ~~has been properly closed~~the hedged transaction is recognized in earnings.

As of January 31, 2015 and ~~that requires only continued maintenance~~February 1, 2014, the Company had forward contracts maturing at various dates through January 2016 and ~~monitoring. This change~~January 2015, respectively. The contract amount represents the net amount of all purchase and sale contracts of a foreign currency.

F- 33

(U.S. $ equivalent in thousands) January 31, 2015
February 1, 2014
Financial Instruments

U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars) $ 19,633
$ 20,197
Chinese yuan 14,512
15,278
Euro 16,152
11,270
Japanese yen 1,523
1,586
New Taiwanese dollars 599
553
Other currencies 970
792
Total financial instruments $ 53,389
$ 49,676

The classification and fair values of derivative instruments designated as hedging instruments included within the consolidated balance sheet as of January 31, 2015 and February 1, 2014 are as follows:

Asset Derivatives Liability Derivatives
($ in thousands) Balance Sheet Location Fair Value Balance Sheet Location Fair Value ��
Foreign exchange forwards contracts:

January 31, 2015 Prepaid expenses and other current assets $ 1,863
Other accrued expenses $ 1,784
February 1, 2014 Prepaid expenses and other current assets $ 1,056
Other accrued expenses $ 222

During 2014 and 2013, the effect of derivative instruments in ~~status has allowed~~cash flow hedging relationships on the ~~corporation~~consolidated statement of earnings was as follows:

2014
2013
Foreign exchange forward contracts:
Income Statement Classification
Gains (Losses) - Realized
Gain (Loss)
Recognized in
OCI on
Derivatives

Gain (Loss) Reclassified
from Accumulated
OCI into Earnings

Gain
Recognized in
OCI on
Derivatives

Gain Reclassified
from Accumulated
OCI into Earnings
Net sales
$ 166

$ 93

$ 321

$ 244
Cost of goods sold
(693 )
113

762

71
Selling and administrative expenses
(271 )
(64 )
675

355
Interest expense
18

—

20

—

All of the gains and losses currently included within accumulated other comprehensive income associated with the Company’s foreign exchange forward contracts are expected to ~~reliably estimate the future liability for monitoring and maintenance, which is required over~~be reclassified into net earnings within the next 28 years, based on a specific site plan. Accordingly, in the third quarter of 1995, the estimated liability of $5.3 million related to this site was discounted, using a 6.4% rate, resulting in a $2.0 million reduction in the previously recorded liability of $4.7 million. This increase in earnings was included in ``Other Expense (Income)'' on the Consolidated Statements of Earnings. Charges12 months. Additional information related to the ~~New York tannery site were $1.7 million~~Company’s derivative financial instruments are disclosed within Note 1 and Note 13 to the consolidated financial statements.

13.    FAIR VALUE MEASUREMENTS

Fair Value Hierarchy
Fair value measurement disclosures specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the hierarchy is broken down into three levels based on the reliability of the inputs as follows:

Level 1 – Quoted prices in ~~fiscal 1992~~active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and

F- 34

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Measurement of Fair Value
The Company measures fair value as an ~~additional $6.6 million~~exit price, the price to sell an asset or transfer a liability in ~~fiscal 1993 due~~an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.

Money Market Funds
The Company has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve its capital for the purpose of funding operations and it does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).

Deferred Compensation Plan Assets and Liabilities
The Company maintains a ~~change~~Deferred Compensation Plan for the benefit of certain management employees. The investment funds offered to the participant generally correspond to the funds offered in the ~~expected holding period~~Company’s 401(k) plan and the account balance fluctuates with the investment returns on those funds. The fair value of the ~~property. The 1993 charge included $5.0 million recorded in conjunction with restructuring charges in January 1994. The expected payments~~assets and corresponding liabilities are based on unadjusted quoted market prices for the ~~next five years are approximately $.2 million per year~~funds in active markets with the balance due thereafter. In 1994, the corporation became aware of potential exposure at an owned factory that is currently leased to another party. Preliminary testing was completed in late 1994,sufficient volume and remediation work began in 1995. In addition, various federal and state authorities have identified the corporation as a potentially responsible party for remediation at certain landfills from disposal of solvents and other by-products from the closed tannery and shoe manufacturing facilities. The expected remaining costsfrequency (Level 1). Additional information related to the ~~owned, but leased, factory and~~Company’s Deferred Compensation Plan is disclosed in Note 5 to the ~~various landfills total $.8 - $1.0 million. At February 3, 1996,~~consolidated financial statements.

Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan, whereby deferred compensation amounts are valued as if invested in the ~~total accrued environmental liabilities for all sites, including~~Company’s common stock through the ~~above discounted liability, total $3.1 million. NOTE 15: CAPITAL STOCK COMMON STOCK The corporation's Common Stock has a par value~~use of $3.75 per share and 100,000,000 shares are authorized. At February 3, 1996 and January 28, 1995, there were 17,930,977 shares and 17,969,892 shares, net of 4,074,920 shares and F-19 97 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4,036,005 shares held in treasury, outstanding, respectively. The stock is listed and traded on the New York and Chicago Stock Exchanges (symbol BG). There were approximately 6,000 shareholders of record at March 1, 1996. In March 1996, the corporation replaced its previous Shareholder Rights Plan, which had expired, with a comparable plan.PSUs. Under the plan, each ~~outstanding share~~participating director’s account is credited with the number of PSUs equal to the ~~corporation's common stock carries one Common Stock Purchase Right. The rights may only become exercisable under certain circumstances involving acquisition~~number of the corporation's common stock by a person or group of persons without the prior written consent of the corporation. Depending on the circumstances, if the rights become exercisable, the holder may be entitled to purchase shares of the ~~corporation's~~Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the fair value (as determined based on the average of the high and low prices) of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. The PSUs are payable in cash based on the number of PSUs credited to the participating director’s account, valued on the basis of the fair value at fiscal quarter-end on or following termination of the director’s service. The fair value of the liabilities is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency (Level 1). Additional information related to the Company’s deferred compensation plan for non-employee directors is disclosed in Note 5 to the consolidated financial statements.

Restricted Stock Units for Non-Employee Directors
Under the Company’s incentive compensation plans, cash-equivalent restricted stock units of the Company may be granted at no cost to directors. Plan participants are entitled to cash dividends for their respective units. The fair value of a restricted stock unit is the quoted market price for the Company’s common stock on the date of grant (Level 1). Additional information related to restricted stock units for non-employee directors is disclosed in Note 15 to the consolidated financial statements.

Performance Share Units
Under the Company’s incentive compensation plans, common stock or cash may be awarded at the end of the performance period at no cost to certain officers and key employees if certain financial goals are met. Under the plan, employees are granted performance share awards at a target number of shares or units, which vest generally over a three-year service period. At the end of the three-year period, the employee will be given an amount of shares between 0% and 200% of the targeted award, depending on the achievement of specified financial goals for the three-year period. The fair value of the performance share awards is the quoted market price for the Company’s common stock on the date of grant (Level 1). Additional information related to performance share units is disclosed in Note 15 to the consolidated financial statements.

Derivative Financial Instruments
The Company uses derivative financial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward foreign exchange

F- 35

prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to the Company’s derivative financial instruments is disclosed in Note 1 and Note 12 to the consolidated financial statements.

Secured Convertible Note
The Companyreceived a secured convertible note as partial consideration for the disposition of Shoes.com, as further described in Note 2 to the consolidated financial statements. The convertible note is measured at fair value using unobservable inputs (Level 3).

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at January 31, 2015 and February 1, 2014. The Company did not have any transfers between Level 1 and Level 2 during 2014 or 2013.

Fair Value Measurements
($ thousands) Total
Level 1
Level 2
Level 3
Asset (Liability)

As of January 31, 2015:

Cash equivalents – money market funds $ 35,533
$ 35,533
$ —
$ —
Non-qualified deferred compensation plan assets 2,904
2,904
—
—
Non-qualified deferred compensation plan liabilities (2,904 ) (2,904 ) —
—
Deferred compensation plan liabilities for non-employee directors (2,066 ) (2,066 ) —
—
Restricted stock units for non-employee directors (8,857 ) (8,857 ) —
—
Performance share units (5,147 ) (5,147 ) —
—
Derivative financial instruments, net 79
—
79
—
Secured convertible note 6,957
—
—
6,957

As of February 1, 2014:

Cash equivalents – money market funds $ 41,236
$ 41,236
$ —
$ —
Non-qualified deferred compensation plan assets 2,191
2,191
—
—
Non-qualified deferred compensation plan liabilities (2,191 ) (2,191 ) —
—
Deferred compensation plan liabilities for non-employee directors (1,668 ) (1,668 ) —
—
Restricted stock units for non-employee directors (7,769 ) (7,769 ) —
—
Performance share units (2,300 ) (2,300 ) —
—
Derivative financial instruments, net 834
—
834
—

Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to expected historical or projected future operating results, a significant change in the manner of the use of the asset or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors, such as estimated store sales and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs. Long-lived assets held and used with a carrying amount of $87.8 million were written down to their fair value, resulting in impairment charges included in selling and administrative expenses of $2.0 million in 2014. Of the $2.0 million impairment charges, $1.0 million related to the Famous Footwear segment and $1.0 million related to the Brand Portfolio segment.

In 2013, long-lived assets held and used with a carrying amount of $81.4 million were written down to their fair value, resulting in impairment charges of $1.4 million included in selling and administrative expenses, of which $0.7 million related to the Famous Footwear segment and $0.7 million related to the Brand Portfolio segment.

In 2012, long-lived assets held and used with a carrying amount of $61.5 million were written down to their fair value, resulting in impairment charges of $4.1 million, including $2.5 million related to the Brand Portfolio segment and $1.6 million related to the Famous Footwear

F- 36

segment. Of the $2.5 million related to the Brand Portfolio segment, $2.3 million is included in restructuring and other special charges, net and $0.2 million is included in selling and administrative expenses. Of the $1.6 million related to the Famous Footwear segment, $1.3 million is included in restructuring and other special charges, net and $0.3 million is included in selling and administrative expenses.

During the first quarter of 2013, the Company recognized an impairment charge of $4.7 million ($4.7 million after tax, $0.11 per diluted
share) related to certain supply chain and sourcing assets, which represented the excess net asset value over the estimated fair value of the assets less costs to sell. The fair value of net assets was estimated based on the anticipated sales proceeds. This is considered a Level 2 input as the assets were not sold on an active market. The impairment charge was recorded as impairment of assets held for sale in the consolidated statement of earnings and was included in the Brand Portfolio segment. These assets were sold in the second quarter of 2013 and the Company recognized an additional loss on sale of $0.6 million. See Note 4 to the consolidated financial statements for additional information.

During the second quarter of 2013, the Company sold ASG. In anticipation of this transaction, the assets of ASG were determined to be held for sale at May 4, 2013, and an impairment charge of $12.6 million was recorded in the first quarter of 2013 within the discontinued operations section of the consolidated statement of earnings. The Company recognized a gain on disposition of $1.0 million in the second quarter of 2013. ASG was previously included within the Brand Portfolio segment. The fair value of assets was estimated based on the anticipated sales proceeds less costs to sell. This is considered a Level 2 input as the assets were not sold on an active market. See Note 2 to the consolidated financial statements for additional information.

During 2012, the Company terminated the Etienne Aigner license agreement due to a dispute with the licensor and recognized an impairment charge of $5.8 million ($3.5 million on an after-tax basis, or $0.08 per diluted share), to reduce the remaining unamortized value of the licensed trademark intangible asset to zero.

The Company performed its annual impairment tests of indefinite lived intangible assets, which involves estimating the fair value using significant unobservable inputs (Level 3). As a result of its annual impairment testing, the Company did not record any impairment charges during 2014 or 2013 related to intangible assets.

The Company performed its annual impairment test of goodwill, which involves estimating the fair value of its reporting units using significant unobservable inputs (Level 3). The impairment test, performed as of the first day of the Company’s fourth fiscal quarter of 2014 and 2013, resulted in no impairment charges. See Note 1 and Note 9 for additional information related to the goodwill impairment test.

Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables, trade accounts payable and borrowing under the revolving credit agreement approximate their carrying values due to the short-term nature of these instruments.

The carrying amounts and fair values of the Company’s other financial instruments subject to fair value disclosures are as follows:

January 31, 2015 February 1, 2014
Carrying Value
Fair Value
Carrying Value
Fair Value
($ thousands)
Long-term debt - Senior Notes $ 199,197
$ 208,000
$ 199,010
$ 210,500

The fair value of the Company’s Senior Notes was based upon quoted prices in an inactive market as of the end of the respective periods (Level 2).

14. SHAREHOLDERS' EQUITY

Stock Repurchase Program
On August 25, 2011, the Board of Directors approved a stock repurchase program (“2011 Program”) authorizing the repurchase of up to 2.5 million shares of the Company’s outstanding common stock. The Company can utilize the repurchase program to repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase program does not have an expiration date. Repurchases of common stock are limited under the Company’s debt agreements. There have been no shares repurchased under the 2011 Program.

F- 37

Repurchases Related to Employee Share-based Awards
During 2014 and 2013, 172,471 shares and 327,276 shares, respectively, were tendered by employees related to certain share-based awards. These shares were tendered in satisfaction of the ~~acquiring person at discounted prices. The rights will expire on March 18, 2006 unless they are earlier exercised, redeemed~~ exercise price of stock options and/or exchanged. PREFERRED STOCK The corporation has 1,000,000 authorized shares of $1 par value Preferred Stock. None has been issued. NOTE 16: STOCK OPTION AND STOCK RELATED PLANS The corporation hasto satisfy minimum tax withholding amounts for non-qualified stock ~~option, stock appreciation and~~options, restricted stock and stock performance awards. Accordingly, these share repurchases are not considered a part of the Company’s publicly announced stock repurchase programs.

Accumulated Other Comprehensive Income
The following table sets forth the changes in accumulated other comprehensive income, net of tax, by component for 2014, 2013 and 2012:
($ thousands) Foreign Currency Translation
Pension and Other Postretirement Transactions
Derivative Transactions
Accumulated Other Comprehensive Income (Loss)
Balance at January 28, 2012 $ 6,449
$ 3,114
$ 74
$ 9,637
Other comprehensive income (loss) before reclassifications 463
(9,122 ) (402 ) (9,061 )
Amounts reclassified from accumulated other comprehensive income —
61
247
308
Other comprehensive income (loss) 463
(9,061 ) (155 ) (8,753 )
Balance at February 2, 2013 $ 6,912
$ (5,947 ) $ (81 ) $ 884
Other comprehensive (loss) income before reclassifications (4,556 ) 19,136
1,260
15,840
Amounts reclassified from accumulated other comprehensive income —
393
(441 ) (48 )
Other comprehensive (loss) income (4,556 ) 19,529
819
15,792
Balance at February 1, 2014 $ 2,356
$ 13,582
$ 738
$ 16,676
Other comprehensive loss before reclassifications (3,101 ) (10,235 ) (411 ) (13,747 )
Amounts reclassified from accumulated other comprehensive income —
(114 ) (103 ) (217 )
Other comprehensive loss (3,101 ) (10,349 ) (514 ) (13,964 )
Balance at January 31, 2015 $ (745 ) $ 3,233
$ 224
$ 2,712

The following table sets forth the reclassifications out of accumulated other comprehensive income and the related tax effect by component for 2014 and 2013:

F- 38

Amounts Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the Consolidated Statements of Earnings

($ thousands)

2014
2013

Net gains from derivative financial instruments ⁽¹⁾
(142 ) (670 ) Costs of goods sold and selling and administrative expenses
Tax provision 39
229
Income tax provision
Net gains from derivative financial instruments, net of tax (103 ) (441 )

Pension and other postretirement benefits actuarial (gain) loss ⁽²⁾
(231 ) 604
Selling and administrative expenses
Pension benefits prior service expense ⁽²⁾
27
13
Selling and administrative expenses
Pension and other postretirement benefits adjustments (204 ) 617

Tax provision (benefit) 90
(224 ) Income tax provision
Pension and other postretirement benefits adjustments, net of tax (114 ) 393

Amounts reclassified from accumulated other comprehensive income (217 ) (48 )

^{(1)    See Note 12 and Note 13 to the consolidated financial statements for additional information related to derivative financial instruments.}
^{(2)    See Note 5 to the consolidated financial statements for additional information related to pension and other postretirement benefits.}

15.    SHARE-BASED COMPENSATION

The Company has share-based incentive compensation plans under which certain officers, employees and ~~employees~~members of the Board of Directors are ~~participants. All~~participants and may be granted stock options, ~~are granted at market value.~~restricted stock and stock performance awards.

ASC 718, Compensation – Stock ~~appreciation units may also be granted~~Compensation, and ASC 505, Equity, require companies to recognize compensation expense in ~~tandem with options. Such units entitle the participant to receive~~ an amount ~~in cash and/or stock,~~ equal to the ~~difference between the current market~~fair value of all share-based payments granted to employees over the requisite service period for each award. In certain limited circumstances, the Company’s incentive compensation plan provides for accelerated vesting of the awards, such as in the event of a ~~share~~change in control, qualified retirement, death or disability. The Company has a policy of ~~stock at~~issuing treasury shares in satisfaction of share-based awards.

Share-based compensation expense of $6.2 million, $5.6 million and $6.5 million was recognized in 2014, 2013 and 2012, respectively, as a component of selling and administrative expenses. The following table details the ~~exercise date~~share-based compensation expense by plan and the ~~option price of such~~total related income tax benefit for 2014, 2013 and 2012:

($ thousands)
2014

2013

2012
(Income) expense for share-based compensation plans, net of forfeitures:

Stock options
$ (46 )
$ 248

$ 215
Stock performance awards
—

—

328
Restricted stock grants
6,236

5,319

5,946
Total share-based compensation expense
6,190

5,567

6,489
Less: Income tax benefit
2,397

2,136

2,507
Total share-based compensation expense, net of income tax benefit
$ 3,793

$ 3,431

$ 3,982

In addition to the share-based compensation expense disclosed above, the Company also recognized cash-based expense related to performance share ~~of stock.~~units and cash awards granted under the performance share plans. The ~~options~~Company recognized $6.6 million, $3.7 million and ~~appreciation units become exercisable one year from~~$1.8 million in 2014, 2013 and 2012, respectively, in expense for cash-based awards under the ~~date of the grant at a rate of 25% per year~~performance share plans.

F- 39

The Company issued 373,752, 481,916 and are exercisable for up to 10 years from date of grant. Since the stock appreciation rights are issued in tandem with stock options, the exercise of either cancels the other. Options for 427,797 and 575,560 shares were exercisable as of February 3, 1996 and January 28, 1995, respectively, at prices ranging from $23 to $39. Under the plan 42,950 and 484,500 additional925,676 shares of common stock ~~were available to be granted~~ in ~~the form of options or~~2014, 2013 and 2012, respectively, for restricted stock ~~as of February 3, 1996~~grants, stock options exercised and ~~January 28, 1995, respectively. The following summary sets forth the activity for the three years ended February 3, 1996:~~
NUMBER OF --------------------------- OPTION APPRECIATION GRANT SHARES UNITS PRICES ------ ------------ ------ Outstanding January 30, 1993....................... 1,210,353 63,893 $23 to $41 Granted............................................ 10,000 -- 32 to 34 Exercised.......................................... (208,054) -- 23 to 33 Terminated......................................... (101,781) (8,748) 23 to 41 --------- ------- Outstanding January 29, 1994....................... 910,518 55,145 23 to 39 Granted............................................ 48,500 -- 30 to 38 Exercised.......................................... (265,893) (14,548) 23 to 35 Terminated......................................... (59,815) -- 23 to 39 --------- ------- Outstanding January 28, 1995....................... 633,310 40,597 23 to 39 Granted............................................ 413,000 30,158 14 to 24 Exercised.......................................... (18,225) -- 23 to 26 Terminated......................................... (154,663) (3,059) 23 to 39 --------- ------- Outstanding February 3, 1996....................... 873,422 67,696 $14 to $39 ========= =======
~~F-20~~ ~~98 BROWN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~ stock performance awards issued to employees and common and restricted stock grants issued to directors. There were no significant modifications to any share-based awards in 2014, 2013 or 2012.

Restricted Stock
Under the ~~corporation's~~Company’s incentive compensation plans, restricted ~~stock program, common~~ stock of the ~~corporation~~Company may be granted at no cost to certain officers, key employees and ~~key employees.~~directors. Plan participants are entitled to cash dividends and ~~to vote~~voting rights for their respective shares. Restrictions limit the sale or transfer of these shares during the requisite service period, which generally ranges from one toeight years. Expense for restricted stock grants is recognized on a straight-line basis separately for each vesting portion of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock grants is the quoted market price for the Company’s common stock on the date of grant.

The following table summarizes restricted stock activity for the year ended January 31, 2015:

Number of Nonvested
Restricted Shares

Weighted-Average
Grant Date Fair Value
Nonvested at February 1, 2014
1,700,098

$13.25
Granted
281,710

28.17
Vested
(364,238 )
14.21
Forfeited
(55,100 )
15.89
Nonvested at January 31, 2015
1,562,470

$15.61

For the years ended January 31, 2015, February 1, 2014 and February 2, 2013, restricted shares granted were 281,710, 411,735 and 759,400 respectively. Restricted shares forfeited during 2014, 2013 and 2012 were 55,100, 163,250, and 169,300, respectively. The weighted-average fair value of restricted stock awards granted for the years ended January 31, 2015, February 1, 2014 and February 2, 2013, was $28.17, $17.47 and $9.71, respectively. The total grant date fair value of restricted stock awards vested during the years ended January 31, 2015, February 1, 2014 and February 2, 2013, was $5.2 million, $4.1 million and $4.8 million, respectively. As of January 31, 2015, the total remaining unrecognized compensation cost related to nonvested restricted stock grants amounted to $11.1 million, which will be amortized over the weighted-average remaining requisite service period of 2.5 years.

The Company recognized $0.8 million, $2.9 million and $0.9 million in 2014, 2013 and 2012, respectively, of excess tax benefits related to restricted stock vesting and dividends, which was reflected as an ~~eight-year~~increase to additional paid-in capital.

Performance Share Awards
Under the Company’s incentive compensation plans, common stock or cash may be awarded at the end of the performance period ~~whereby~~at no cost to certain officers and key employees if certain financial goals are met. Under the ~~restrictions lapse~~plan, employees are granted performance share awards at a target number of shares or units, which vest generally over a three-year service period. At the end of the three-year period, the employee will be given an amount of shares between 0% and 200% of the targeted award, depending on ~~50%~~the achievement of ~~these shares after 4 years, 25% after 6 years~~specified financial goals for the three-year period. If the awards are granted in units, the employee will be given an amount of cash ranging from 0% to 200% of the equivalent market value of the targeted award.

Expense for performance share awards is recognized based upon the fair value of the awards on the date of grant and the ~~remaining 25% after 8 years. Upon issuance~~anticipated number of shares or cash to be awarded on a straight-line basis for each vesting portion of the stock ~~under~~award. The fair value of the ~~plan, unearned compensation equivalent~~performance share awards is the quoted market price for the Company’s common stock on the date of grant. The Company had nonvested outstanding performance share awards for 148,535 units at various target levels as of January 31, 2015, which may result in the payment of up to 297,070 units at the end of the service periods.

The following table summarizes performance share activity for the year ended January 31, 2015:

F- 40

Number of
Nonvested Stock
Performance Awards
at Target Level

Number of
Nonvested Stock
Performance Awards
at Maximum Level

Weighted-Average
Grant Date
Fair Value
Nonvested at February 1, 2014
164,525

329,050

$12.69
Granted
88,185

176,370

28.18
Vested
(84,275 )
(168,550 )
9.27
Expired
—

—

—
Forfeited
(19,900 )
(39,800 )
15.96
Nonvested at January 31, 2015
148,535

297,070

$23.39

The weighted-average grant-date fair value of performance share awards granted for 2014, 2013 and 2012 was $28.18, $17.00 and $9.46, respectively. Performance share awards of 84,275, 117,250 and 140,000 vested in 2014, 2013 and 2012, respectively. In addition to the units granted, $2.4 million of performance share awards were granted in cash during 2014. As of January 31, 2015, the remaining unrecognized compensation cost related to nonvested performance share awards was $9.3 million, which will be recognized over the weighted-average remaining service period of 1.4 years.

Stock Options
Stock options are granted to employees at exercise prices equal to the quoted market ~~value~~price of the Company’s stock at the date of ~~grant~~grant. Stock options generally vest over four years and have a term of 10 years. Compensation cost for all stock options is ~~charged to shareholders' equity and subsequently amortized to expense~~recognized over the ~~eight-year restriction period. Restricted shares forfeited exceeded net grants by 36,875 shares~~requisite service period for each award. No dividends are paid on unexercised options. Expense for stock options is recognized on a straight-line basis separately for each vesting portion of the stock option award.

The Company granted no stock options in ~~1995. Net shares~~2014 and 4,000 and 26,000 stock options during 2013 and 2012, respectively. Fair values of options granted in ~~1994~~2013 and ~~1993~~2012 were ~~168,000~~estimated using the Black-Scholes option-pricing model based on the following assumptions:

2013

2012
Dividend yield
1.7 %
3.1 %
Expected volatility
67.7 %
66.5 %
Risk-free interest rate
1.3 %
1.4 %
Expected term (in years)
7

7

Dividend yields are based on historical dividend yields. Expected volatilities are based on historical volatilities of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected term of the options. The expected term of options represents the weighted-average period of time that options granted are expected to be outstanding, giving consideration to vesting schedules and ~~132,500,~~the Company’s historical exercise patterns.

Summarized information about stock options outstanding and exercisable at January 31, 2015 is as follows:

Outstanding
Exercisable
Exercise Price Range
Number of
Options

Weighted-
Average
Remaining
Life (Years)
Weighted-
Average
Exercise
Price
Number of
Options

Weighted-
Average
Exercise
Price
$3.33 - $11.54
82,725

5
$6.23
50,350

$6.71
$11.55 - $14.45
66,000

5
13.95
66,000

13.95
$14.46 - $15.35
101,110

1
15.00
96,860

14.99
$15.36 - $22.44
91,221

1
20.94
91,221

20.94
$22.45 - $35.25
75,747

2
33.50
75,747

33.50

416,803

3
$17.75
380,178

$18.83

The weighted-average remaining contractual term of stock options outstanding and currently exercisable at January 31, 2015 was 2.9 years and 2.6 years, respectively. ~~NOTE 17: SUPPLEMENTARY INFORMATION BALANCE SHEET Cash equivalents~~The aggregate intrinsic value of ~~$22.3~~stock options outstanding and currently exercisable at January 31, 2015 was

F- 41

$4.9 million and ~~$17.4~~$4.1 million, respectively. Intrinsic value for stock options is calculated based on the exercise price of the underlying awards as compared to the quoted price of the Company’s common stock as of the reporting date.

The following table summarizes stock option activity for 2014 under the current and prior plans:

Number of
Options

Weighted-Average
Exercise Price
Outstanding at February 1, 2014
751,638

$16.88
Granted
—

—
Exercised
(316,835 )
15.21
Forfeited
(18,000 )
24.36
Canceled or expired
—

—
Outstanding at January 31, 2015
416,803

$17.75
Exercisable at January 31, 2015
380,178

$18.83

The intrinsic value of stock options exercised was $3.8 million, $4.0 million and $0.5 million for 2014, 2013 and 2012, respectively. The amount of cash received from the exercise of stock options was $3.2 million in 2014, $4.9 million in 2013 and $0.9 million in 2012. In addition, 60,624, 91,157 and 33,033 shares were tendered by employees in satisfaction of the exercise price of stock options during 2014, 2013 and 2012, respectively.

The Company recognized $0.1 million in 2014, $0.5 million in 2013 and less than $0.1 million in 2012 of excess tax benefits related to stock option exercises, which was reflected as an increase to additional paid-in capital.

The following table summarizes nonvested stock option activity for 2014 under the current and prior plans:

Number of
Nonvested
Options

Weighted-Average
Grant Date
Fair Value
Nonvested at February 1, 2014
87,750

$ 5.08
Granted
—

—
Vested
(46,875 )
6.42
Forfeited
(4,250 )
7.60
Nonvested at January 31, 2015
36,625

$ 3.28

The weighted-average grant date fair value of stock options granted for 2013 and 2012 was $9.46 and $5.46, respectively. The total grant date fair value of stock options vested during 2014, 2013 and 2012 was $0.3 million, $0.4 million and $0.5 million, respectively. As of January 31, 2015, the total remaining unrecognized compensation cost related to nonvested stock options amounted to less than $0.1 million, which will be amortized over the weighted-average remaining requisite service period of 1.1 years.

Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of cash-equivalent restricted stock units (“RSUs”) at no cost to the non-employee director. The RSUs are subject to a vesting requirement (usually one year), earn dividend equivalent units, and are payable in cash on the date the director terminates service or such earlier date as a director may elect, subject to restrictions, based on the then current fair value of the Company’s common stock. Dividend equivalents are paid on outstanding RSUs at the same rate as dividends on the Company’s common stock, are automatically re-invested in additional RSUs, and vest immediately as of the payment date for the dividend. Expense related to the initial grant of RSUs is recognized ratably over the vesting period based upon the fair value of the RSUs, as remeasured at the end of each period. Expense for the dividend equivalents is recognized at fair value immediately. Gains and losses resulting from changes in the fair value of the RSUs subsequent to the vesting period and through the settlement date are reported in the Company’s consolidated statements of earnings. See Note 5 and Note 13 to the consolidated financial statements for information regarding the deferred compensation plan for non-employee directors.

The following table summarizes restricted stock unit activity for the year ended January 31, 2015:

F- 42

Outstanding
Accrued ⁽¹⁾

Nonvested RSUs

Number of
Vested RSUs

Number of
Nonvested RSUs

Total Number
of RSUs

Total Number
of RSUs

Weighted-Average
Grant Date
Fair Value
February 1, 2014
291,855

54,450

346,305

328,155

$21.30
Granted ⁽²⁾

2,826

39,123

41,949

29,049

28.71
Vested
54,873

(54,873 )
—

18,150

21.35
Settled
(57,260 )
—

(57,260 )
(57,260 )
26.23
January 31, 2015
292,294

38,700

330,994

318,094

$28.72
(1) Accrued RSUs include all fully vested awards and a pro-rata portion of nonvested awards based on the elapsed portion of the vesting period.
(2) Granted RSUs include 3,249 RSUs resulting from dividend equivalents paid on outstanding RSUs, of which 2,826 related to outstanding vested RSUs and 423 to outstanding nonvested RSUs.

Information about RSUs granted, vested and settled during 2014, 2013 and 2012 is as follows:

($ thousands, except per unit amounts)
2014

2013

2012
Weighted-average grant date fair value of RSUs granted ⁽¹⁾

$ 28.69

$ 21.33

$ 12.04
Fair value of RSUs vested
1,558

1,600

1,156
RSUs settled
57,260

9,905

6,432
(1) Includes dividend equivalents granted on outstanding RSUs, which vest immediately.

The following table details the RSU compensation expense and the total related income tax benefit for 2014, 2013 and 2012:

($ thousands)
2014

2013

2012
Compensation expense
$ 2,707

$ 3,258

$ 2,769
Income tax benefit
(1,053 )
(1,267 )
(1,077 )
Compensation expense, net of income tax benefit
$ 1,654

$ 1,991

$ 1,692

The aggregate intrinsic value of RSUs outstanding and currently vested at January 31, 2015 is $9.4 million and $8.3 million, respectively. Aggregate intrinsic value for RSUs is calculated based on the average of the high and low prices of the Company’s common stock as of the reporting date. As of January 31, 2015 and February 1, 2014, the liabilities associated with the accrued RSUs totaled $8.9 million and $7.8 million, respectively.

16.    RELATED PARTY TRANSACTIONS

C. banner International Holdings Limited
The Company has a joint venture agreement with a subsidiary of C. banner International Holdings Limited (“CBI”) to market Naturalizer footwear in China. The Company is a 51% owner of the joint venture (“B&H Footwear”), with CBI owning the other 49%. B&H Footwear sells Naturalizer footwear to a retail affiliate of CBI on a wholesale basis, which in turn sells the Naturalizer products through department store shops and free-standing stores in China. During 2013, B&H Footwear transferred the operation of the retail stores in China to CBI. B&H Footwear continues to sell footwear to CBI on a wholesale basis. During 2014, 2013 and 2012, the Company, through its consolidated subsidiary, B&H Footwear, sold $8.6 million, $8.3 million, and $6.9 million, respectively, of Naturalizer footwear on a wholesale basis to CBI.

17.    COMMITMENTS AND CONTINGENCIES

Environmental Remediation
Prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. The Company is involved in environmental

F- 43

remediation and ongoing compliance activities at several sites and has been notified that it is or may be a potentially responsible party at several other sites.

Redfield
The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (the “Redfield site” or, when referring to remediation activities at or under the facility, the “on-site remediation”) and residential neighborhoods adjacent to and near the property (the “off-site remediation”) that have been affected by solvents previously used at the facility. The on-site remediation calls for the operation of a pump and treat system (which prevents migration of contaminated groundwater off the property) as the final remedy for the site, subject to monitoring and periodic review of the on-site conditions and other remedial technologies that may be developed in the future. Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified workplan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the workplan, a pilot test was conducted of certain groundwater remediation methods and the results of that test were used to develop more detailed plans for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. The Company submitted a proposed expanded remedy workplan and is awaiting public comment and feedback from the oversight authorities. The liability for the on-site remediation was discounted at 4.8%. On an undiscounted basis, the on-site remediation liability would be $15.4 million as of January 31, 2015. The Company expects to spend approximately $0.2 million in each of the next five years and $14.4 million in the aggregate thereafter related to the on-site remediation.

The cumulative expenditures for both on-site and off-site remediation through January 31, 2015 were $26.9 million. The Company has recovered a portion of these expenditures from insurers and other third parties. The reserve for the anticipated future remediation activities at January 31, 2015 is $9.8 million, of which $9.1 million is recorded within other liabilities and $0.7 million is recorded within other accrued expenses. Of the total $9.8 million reserve, $5.2 million is for on-site remediation and $4.6 million is for off-site remediation.

Other
The Company has completed its remediation efforts at its closed New York tannery and two associated landfills. In 1995, state environmental authorities reclassified the status of these sites as being properly closed and requiring only continued maintenance and monitoring through 2024. The Company has an accrued liability of $1.3 million at ~~February 3, 1996 and~~ January ~~28, 1995, respectively, are stated~~31, 2015 related to these sites, which has been discounted at ~~cost which approximates fair value. STATEMENT OF CONSOLIDATED EARNINGS Advertising costs totaled $51.8 million, $44.2 million, and $42.6~~6.4%. On an undiscounted basis, this liability would be $1.8 million. The Company expects to spend approximately $0.2 million in ~~1995, 1994, and 1993, respectively. Other expense (income) consisted~~each of the next five years and $0.8 million in the aggregate thereafter related to these sites. In addition, various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites. However, the Company does not currently believe that its liability for such sites, if any, would be material.

The Company continues to evaluate its estimated costs in conjunction with its environmental consultants and records its best estimate of such liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.

Litigation
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are generally expensed as incurred.

During 2014, the Company signed a settlement agreement to resolve a putative class action lawsuit involving wage and hour claims in California for an amount not to exceed $1.5 million. If approved by the court, under the settlement the Company will pay a minimum of $1.0 million in attorneys' fees, costs of administering the settlement and settlement payments to class members who submit claims. The ultimate amount paid to resolve the case may exceed that amount depending on the number of valid claims submitted. In the event that the settlement is not consummated, the parties will continue to litigate whether the action should proceed as a class action with a hearing scheduled for the second quarter of 2015. The reserve for this matter as of January 31, 2015 is $1.5 million.

18.    FINANCIAL INFORMATION FOR THE COMPANY AND ITS SUBSIDIARIES

In July 2015, the Company commenced a cash tender offer to purchase any and all of the outstanding aggregate principal amount of its 2019 Senior Notes. Pursuant to the cash tender offer, $160.7 million of the $200.0 million aggregate principal amount was redeemed during

F- 44

the second quarter of 2015. The remaining $39.3 million of 2019 Senior Notes was redeemed on August 26, 2015. On July 27, 2015, the Company issued $200.0 million aggregate principal amount of 6.25% Senior Notes due 2023 (the "2023 Senior Notes") in a private placement. The 2023 Senior Notes are fully and unconditionally and jointly and severally guaranteed by all of its existing and future subsidiaries that are guarantors under its existing agreement. The following ~~(in thousands):~~
~~1995 1994 1993 ---- ---- ----~~ Interest income............................................ $(1,762) $ (1,521) $(1,499) Restructuring charges...................................... 3,600 -- 21,400 Royalty income............................................. (2,996) (3,003) (2,711) Countervailing duty........................................ -- (9,819) -- Other, net................................................. 2,788 2,023 4,001 ------- -------- ------- Total...................................................... $ 1,630 $(12,320) $21,191 ======= ======== =======
~~F-21~~ 99 ~~BROWN GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS~~
(UNAUDITED) ------------------------ AUGUST 3, JULY 29, FEBRUARY 3, 1996 1995 1996 --------- -------- ----------- (THOUSANDS) ASSETS Current Assets Cash and Cash Equivalents.......................................................... $ 35,120 $ 23,016 $ 35,058 Receivables, net of allowances of $10,723 at August 3, 1996, $11,582 at July 29, 1995, and $11,267 at February 3, 1996............................................ 77,760 86,250 86,417 Inventories, net of adjustment to last-in, first-out cost of $22,835 at August 3, 1996, $32,824 at July 29, 1995, and $27,672 at February 3, 1996.............................................................. 410,282 368,981 342,282 Other Current Assets............................................................... 41,724 48,177 41,581 --------- --------- --------- Total Current Assets........................................................... 564,886 526,424 505,338 Property and Equipment................................................................. 199,279 211,634 191,457 Less allowances for depreciation and amortization.................................. (114,981) (118,066) (103,737) --------- --------- --------- 84,298 93,568 87,720 Other Assets........................................................................... 69,729 59,709 67,998 --------- --------- --------- $ 718,913 $ 679,701 $ 661,056 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes Payable...................................................................... $ 121,000 $ 91,571 $ 112,000 Accounts Payable................................................................... 157,015 135,080 106,113 Accrued Expenses................................................................... 72,739 80,046 71,491 Income Taxes....................................................................... 5,703 5,109 4,335 Current Maturities of Long-Term Debt............................................... 2,000 52,763 2,000 --------- --------- --------- Total Current Liabilities...................................................... 358,457 364,569 295,939 Long-Term Debt and Capitalized Lease Obligations.................................................................. 104,022 57,467 105,470 Other Liabilities...................................................................... 26,314 33,247 28,011 Shareholders' Equity Common Stock....................................................................... 67,376 67,286 67,242 Additional Capital................................................................. 46,467 46,519 46,015 Cumulative Translation Adjustment.................................................. (4,829) (4,710) (4,913) Unamortized Value of Restricted Stock.............................................. (7,075) (8,668) (7,822) Retained Earnings.................................................................. 128,181 123,991 131,114 --------- --------- --------- 230,120 224,418 231,636 --------- --------- --------- $ 718,913 $ 679,701 $ 661,056 ========= ========= ========= See notes to condensed consolidated financial statements.
~~F-22~~ ~~100~~ ~~BROWN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)~~
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------- ---------------------- AUGUST 3, JULY 29, AUGUST 3, JULY 29, 1996 1995 1996 1995 --------- -------- --------- -------- (THOUSANDS, EXCEPT PER SHARE) Net Sales..................................................................... $389,983 $342,861 $745,768 $700,303 Cost of Goods Sold............................................................ 245,462 226,352 465,370 463,599 -------- -------- -------- -------- Gross Profit.................................................................. 144,521 116,509 280,398 236,704 -------- -------- -------- -------- Selling and Administrative Expenses........................................... 130,786 121,425 261,470 245,341 Interest Expense.............................................................. 4,522 3,964 9,255 7,880 Other (Income) Expense........................................................ 261 4,030 (140) 3,422 -------- -------- -------- -------- Earnings (Loss) Before Income Taxes........................................... 8,952 (12,910) 9,813 (19,939) Income Tax (Provision) Benefit................................................ (3,438) 4,529 (3,772) 7,147 -------- -------- -------- -------- Net Earnings (Loss)........................................................... $ 5,514 $ (8,381) $ 6,041 $(12,792) ======== ======== ======== ======== Net Earnings (Loss) Per Common Share.......................................... $ .31 $ (.48) $ .34 $ (.73) ======== ======== ======== ======== Weighted Average Number of Outstanding Shares of Common Stock............................................................. 17,367 17,578 17,626 17,593 Dividends Per Common Share.................................................... $ .25 $ .40 $ .50 $ .80 ======== ======== ======== ======== See notes to condensed consolidated financial statements.
~~F-23~~ ~~101~~ ~~BROWN GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)~~
SIX MONTHS ENDED ----------------------- AUGUST 3, JULY 29, 1996 1995 --------- -------- (THOUSANDS) Net Cash Provided by Operating Activities........................... $ 8,357 $10,484 Investing Activities: Capital expenditures............................................ (7,815) (17,159) Other........................................................... 944 88 ------- ------- Net Cash (Used) by Investing Activities............................. (6,871) (17,071) Financing Activities: Increase in short-term notes payable............................ 9,000 25,486 Principal payments of long-term debt............................ (1,450) (49) Dividends paid.................................................. (8,974) (14,359) Payments for purchase of treasury stock......................... -- (824) Proceeds from issuance of common stock.......................... -- 427 ------- ------- Net Cash Provided (Used) by Financing Activities.................... (1,424) 10,681 ------- ------- Increase in Cash and Cash Equivalents............................... 62 4,094 Cash and Cash Equivalents at Beginning of Period.................... 35,058 18,922 ------- ------- Cash and Cash Equivalents at End of Period.......................... $35,120 $23,016 ======= ======= See notes to condensed consolidated financial statements.
~~F-24~~ ~~102 BROWN GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A: BASIS OF PRESENTATION~~table presents the condensed consolidating financial information for each of Caleres, Inc. (“Parent”), the Guarantors, and subsidiaries of the Parent that are not Guarantors (the “Non-Guarantors”) of the 2023 Senior Notes, together with consolidating eliminations, as of and for the periods indicated. The ~~accompanying~~Guarantors are 100% owned by the Parent.
The condensed ~~consolidated~~consolidating financial statements have been prepared using the equity method of accounting in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which include only normal recurring accruals and the effect on LIFO inventory valuation of estimated annual inflationary cost increases and year-end inventory levels) to present fairly the results of operations. These statements, however, do not include all information and footnotes necessaryrequirements for ~~a complete~~ presentation of such information. Management believes that the information, presented in lieu of complete financial ~~position, results~~statements for each of the Guarantors, provides meaningful information to allow investors to determine the nature of the assets held by, and operations and cash ~~flow in conformity with generally accepted accounting principles. The Corporation's business is subject to seasonal influences,~~flows of, each of the consolidated groups.

F- 45

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 31, 2015

Non-Guarantors

($ thousands) Parent
Guarantors
Eliminations
Total
Assets

Current assets:

Cash and cash equivalents $ 13,891
$ —
$ 53,512
$ —
$ 67,403
Receivables, net 89,030
5,398
42,218
—
136,646
Inventories, net 148,082
376,254
18,767
—
543,103
Prepaid expenses and other current assets 41,494
20,777
8,964
(27,491 ) 43,744
Intercompany receivable - current 1,194
—
8,750
(9,944 ) —
Total current assets 293,691
402,429
132,211
(37,435 ) 790,896
Property and equipment, net 29,237
109,720
10,786
—
149,743
Goodwill and intangible assets, net 117,792
2,800
13,995
—
134,587
Other assets 113,922
13,733
13,931
—
141,586
Investment in subsidiaries 956,831
—
(18,909 ) (937,922 ) —
Intercompany receivable - noncurrent 459,774
306,871
539,396
(1,306,041 ) —
Total assets $ 1,971,247
$ 835,553
$ 691,410
$ (2,281,398 ) $ 1,216,812

Liabilities and Equity

Current liabilities:

Trade accounts payable $ 60,377
$ 114,208
$ 41,336
$ —
$ 215,921
Other accrued expenses 110,714
85,638
12,301
(27,491 ) 181,162
Intercompany payable - current 4,948
—
4,996
(9,944 ) —
Total current liabilities 176,039
199,846
58,633
(37,435 ) 397,083
Other liabilities:

Long-term debt 199,197
—
—
—
199,197
Other liabilities 41,847
32,574
4,489
—
78,910
Intercompany payable - noncurrent 1,013,254
21,078
271,709
(1,306,041 ) —
Total other liabilities 1,254,298
53,652
276,198
(1,306,041 ) 278,107
Equity:

Caleres, Inc. shareholders’ equity 540,910
582,055
355,867
(937,922 ) 540,910
Noncontrolling interests —
—
712
—
712
Total equity 540,910
582,055
356,579
(937,922 ) 541,622
Total liabilities and equity $ 1,971,247
$ 835,553
$ 691,410
$ (2,281,398 ) $ 1,216,812

F- 46

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE FISCAL YEAR ENDED JANUARY 31, 2015

($ thousands) Parent
Guarantors
Non-Guarantors
Eliminations
Total
Net sales $ 788,708
$ 1,634,375
$ 329,765
$ (181,139 ) $ 2,571,709
Cost of goods sold 570,343
899,968
213,716
(152,418 ) 1,531,609
Gross profit 218,365
734,407
116,049
(28,721 ) 1,040,100
Selling and administrative expenses 231,141
633,073
75,189
(28,721 ) 910,682
Restructuring and other special charges, net 3,484
—
—
—
3,484
Operating (loss) earnings (16,260 ) 101,334
40,860
—
125,934
Interest expense (20,444 ) (1 ) —
—
(20,445 )
Loss on early extinguishment of debt (420 ) —
—
—
(420 )
Interest income 31
—
348
—
379
Intercompany interest income (expense) 12,115
(12,826 ) 711
—
—
Gain on sale of subsidiary —
—
4,679
—
4,679
(Loss) earnings before income taxes (24,978 ) 88,507
46,598
—
110,127
Income tax benefit (provision) 10,599
(34,710 ) (3,073 ) —
(27,184 )
Equity in earnings of subsidiaries, net of tax 97,229
—
37
(97,266 ) —
Net earnings 82,850
53,797
43,562
(97,266 ) 82,943
Less: Net earnings attributable to noncontrolling interests —
—
93
—
93
Net earnings attributable to Caleres, Inc. $ 82,850
$ 53,797
$ 43,469
$ (97,266 ) $ 82,850

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE FISCAL YEAR ENDED JANUARY 31, 2015

Non-Guarantors

($ thousands) Parent
Guarantors

Eliminations
Total
Net earnings $ 82,850

$ 53,797

$ 43,562

$ (97,266 )
$ 82,943
Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment —

—

(3,145 )
—

(3,145 )
Pension and other postretirement benefits adjustments (10,003 )
—

(346 )
—

(10,349 )
Derivative financial instruments (1,250 )
—

736

—

(514 )
Other comprehensive (loss) income from investment in subsidiaries (2,711 )
—

—

2,711

—
Other comprehensive (loss) income, net of tax (13,964 )
—

(2,755 )
2,711

(14,008 )
Comprehensive income 68,886

53,797

40,807

(94,555 )
68,935
Comprehensive income attributable to noncontrolling interests —

—

49

—

49
Comprehensive income attributable to Caleres, Inc. $ 68,886

$ 53,797

$ 40,758

$ (94,555 )
$ 68,886

F- 47

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED JANUARY 31, 2015

Non-Guarantors

($ thousands) Parent
Guarantors
Eliminations
Total
Net cash (used for) provided by operating activities $ (11,728 ) $ 99,709
$ 30,831
—
$ 118,812
Investing activities

Purchases of property and equipment (7,129 ) (33,067 ) (4,756 ) —
(44,952 )
Capitalized software (4,834 ) (194 ) (58 ) —
(5,086 )
Acquisition of trademarks (65,065 ) —
—
—
(65,065 )
Investment in nonconsolidated affiliate —
—
(7,000 ) —
(7,000 )
Net proceeds from sale of subsidiaries, inclusive of note receivable —
—
10,120
—
10,120
Intercompany investing (2,314 ) (124 ) 2,438
—
—
Net cash used for investing activities (79,342 ) (33,385 ) 744
—
(111,983 )
Financing activities

Borrowings under revolving credit agreement 867,000
—
—
—
867,000
Repayments under revolving credit agreement (874,000 ) —
—
—
(874,000 )
Dividends paid (12,237 ) —
—
—
(12,237 )
Debt issuance costs (2,618 ) —
—
—
(2,618 )
Issuance of common stock under share-based plans, net 443
—
—
—
443
Tax benefit related to share-based plans 929
—
—
—
929
Intercompany financing 125,444
(66,324 ) (59,120 ) —
—
Net cash provided by (used for) financing activities 104,961
(66,324 ) (59,120 ) —
(20,483 )
Effect of exchange rate changes on cash and cash equivalents —
—
(1,489 ) —
(1,489 )
Increase (decrease) in cash and cash equivalents 13,891
—
(29,034 ) —
(15,143 )
Cash and cash equivalents at beginning of year —
—
82,546
—
82,546
Cash and cash equivalents at end of year $ 13,891
$ —
$ 53,512
$ —
$ 67,403

F- 48

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 1, 2014

Non- Guarantors

($ thousands) Parent

Guarantors

Eliminations

Total
Assets

Current assets:

Cash and cash equivalents $ —

$ —

$ 82,546

$ —

$ 82,546
Receivables, net 84,428

2,349

42,440

—

129,217
Inventories, net 119,131

401,570

26,830

—

547,531
Prepaid expenses and other current assets 38,029

9,796

10,212

(24,901 )
33,136
Current assets - discontinued operations 119

—

—

—

119
Intercompany receivable - current 602

191

8,860

(9,653 )
—
Total current assets 242,309

413,906

170,888

(34,554 )
792,549
Property and equipment, net 27,201

107,163

9,196

—

143,560
Goodwill and intangible assets, net 55,225

2,800

15,648

—

73,673
Other assets 123,066

13,958

2,597

—

139,621
Investment in subsidiaries 844,570

—

(18,947 )
(825,623 )
—
Intercompany receivable - noncurrent 457,507

240,592

472,160

(1,170,259 )
—
Total assets $ 1,749,878

$ 778,419

$ 651,542

$ (2,030,436 )
$ 1,149,403

Liabilities and Equity

Current liabilities:

Borrowings under revolving credit agreement $ 7,000

$ —

$ —

$ —

$ 7,000
Trade accounts payable 72,487

111,670

42,445

—

226,602
Other accrued expenses 82,403

77,552

17,491

(24,901 )
152,545
Current liabilities - discontinued operations 708

—

—

—

708
Intercompany payable - current 4,689

—

4,964

(9,653 )
—
Total current liabilities 167,287

189,222

64,900

(34,554 )
386,855
Other liabilities:

Long-term debt 199,010

—

—

—

199,010
Other liabilities 38,457

39,941

7,778

—

86,176
Intercompany payable - noncurrent 868,425

38,236

263,598

(1,170,259 )
—
Total other liabilities 1,105,892

78,177

271,376

(1,170,259 )
285,186
Equity:

Caleres, Inc. shareholders’ equity 476,699

511,020

314,603

(825,623 )
476,699
Noncontrolling interests —

—

663

—

663
Total equity 476,699

511,020

315,266

(825,623 )
477,362
Total liabilities and equity $ 1,749,878

$ 778,419

$ 651,542

$ (2,030,436 )
$ 1,149,403

F- 49

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2014

Non-Guarantors

($ thousands) Parent

Guarantors

Eliminations

Total
Net sales $ 733,996

$ 1,631,755

$ 361,277

$ (213,915 )
$ 2,513,113
Cost of goods sold 549,281

900,043

236,113

(186,612 )
1,498,825
Gross profit 184,715

731,712

125,164

(27,303 )
1,014,288
Selling and administrative expenses 217,902

629,405

89,745

(27,303 )
909,749
Restructuring and other special charges, net 686

—

576

—

1,262
Impairment of assets held for sale —

—

4,660

—

4,660
Operating (loss) earnings (33,873 )
102,307

30,183

—

98,617
Interest expense (21,163 )
(1 )
(90 )
—

(21,254 )
Interest income 23

—

354

—

377
Intercompany interest income (expense) 13,414

(13,060 )
(354 )
—

—
(Loss) earnings before income taxes from continuing operations (41,599 )
89,246

30,093

—

77,740
Income tax benefit (provision) 20,427

(35,727 )
(8,458 )
—

(23,758 )
Equity in earnings from continuing operations of subsidiaries, net of tax 75,331

—

(168 )
(75,163 )
—
Net earnings from continuing operations 54,159

53,519

21,467

(75,163 )
53,982
Discontinued operations:

(Loss) earnings from discontinued operations, net of tax (5,296 )
—

722

—

(4,574 )
Disposition/impairment of discontinued operations, net of tax —

—

(11,512 )
—

(11,512 )
Equity in loss from discontinued operations of subsidiaries, net of tax (10,790 )
—

—

10,790

—
Net loss from discontinued operations (16,086 )
—

(10,790 )
10,790

(16,086 )
Net earnings 38,073

53,519

10,677

(64,373 )
37,896
Plus: Net loss attributable to noncontrolling interests —

—

(177 )
—

(177 )
Net earnings attributable to Caleres, Inc. $ 38,073

$ 53,519

$ 10,854

$ (64,373 )
$ 38,073

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2014

Non-Guarantors

($ thousands) Parent

Guarantors

Eliminations

Total
Net earnings $ 38,073

$ 53,519

$ 10,677

$ (64,373 )
$ 37,896
Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment —

—

(4,538 )
—

(4,538 )
Pension and other postretirement benefits adjustments 19,114

—

415

—

19,529
Derivative financial instruments (55 )
—

874

—

819
Other comprehensive loss from investment in subsidiaries (3,317 )
—

—

3,317

—
Other comprehensive income (loss), net of tax 15,742

—

(3,249 )
3,317

15,810
Comprehensive income 53,815

53,519

7,428

(61,056 )
53,706
Comprehensive loss attributable to noncontrolling interests —

—

(109 )
—

(109 )
Comprehensive income attributable to Caleres, Inc. $ 53,815

$ 53,519

$ 7,537

$ (61,056 )
$ 53,815

F- 50

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2014

Non-Guarantors

($ thousands) Parent

Guarantors

Eliminations

Total
Net cash provided by (used for) operating activities $ 60,886

$ 62,603

$ (19,457 )
$ —

$ 104,032
Investing activities

Purchases of property and equipment (5,595 )
(34,606 )
(3,767 )
—

(43,968 )
Capitalized software (4,920 )
(193 )
(122 )
—

(5,235 )
Net proceeds from sale of subsidiaries —

—

69,347

—

69,347
Intercompany investing (1,128 )
(247 )
1,375

—

—
Net cash (used for) provided by investing activities (11,643 )
(35,046 )
66,833

—

20,144
Financing activities

Borrowings under revolving credit agreement 1,129,000

—

—

—

1,129,000
Repayments under revolving credit agreement (1,227,000 )
—

—

—

(1,227,000 )
Dividends paid (12,105 )
—

—

—

(12,105 )
Issuance of common stock under share-based plans, net 804

—

—

—

804
Tax benefit related to share-based plans 3,439

—

—

—

3,439
Contributions by noncontrolling interest —

—

50

—

50
Intercompany financing 56,619

(27,557 )
(29,062 )
—

—
Net cash used for financing activities (49,243 )
(27,557 )
(29,012 )
—

(105,812 )
Effect of exchange rate changes on cash and cash equivalents —

—

(4,041 )
—

(4,041 )
Increase in cash and cash equivalents —

—

14,323

—

14,323
Cash and cash equivalents at beginning of year —

—

68,223

—

68,223
Cash and cash equivalents at end of year $ —

$ —

$ 82,546

$ —

$ 82,546

F- 51

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2013

Non-Guarantors

($ thousands) Parent

Guarantors

Eliminations

Total
Net sales $ 689,630

$ 1,620,861

$ 401,953

$ (234,648 )
$ 2,477,796
Cost of goods sold 528,925

903,987

265,397

(209,088 )
1,489,221
Gross profit 160,705

716,874

136,556

(25,560 )
988,575
Selling and administrative expenses 189,648

631,644

95,934

(25,560 )
891,666
Restructuring and other special charges, net 12,261

—

10,170

—

22,431
Operating (loss) earnings (41,204 )
85,230

30,452

—

74,478
Interest expense (22,584 )
(3 )
(386 )
—

(22,973 )
Interest income 10

—

312

—

322
Intercompany interest income (expense) 13,073

(13,289 )
216

—

—
(Loss) earnings before income taxes from continuing operations (50,705 )
71,938

30,594

—

51,827
Income tax benefit (provision) 15,892

(28,492 )
(4,056 )
—

(16,656 )
Equity in earnings from continuing operations of subsidiaries, net of tax 70,271

—

(680 )
(69,591 )
—
Net earnings from continuing operations 35,458

43,446

25,858

(69,591 )
35,171
Discontinued operations:

Earnings (loss) from discontinued operations, net of tax 802

—

(5,239 )
—

(4,437 )
Disposition/impairment of discontinued operations, net of tax (3,530 )
—

—

—

(3,530 )
Equity in loss from discontinued operations of subsidiaries, net of tax (5,239 )
—

—

5,239

—
Net loss from discontinued operations (7,967 )
—

(5,239 )
5,239

(7,967 )
Net earnings 27,491

43,446

20,619

(64,352 )
27,204
Plus: Net loss attributable to noncontrolling interests —

—

(287 )
—

(287 )
Net earnings attributable to Caleres, Inc. $ 27,491

$ 43,446

$ 20,906

$ (64,352 )
$ 27,491

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2013

Non-Guarantors

($ thousands) Parent

Guarantors

Eliminations

Total
Net earnings $ 27,491

$ 43,446

$ 20,619

$ (64,352 )
$ 27,204
Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment —

—

475

—

475
Pension and other postretirement benefits adjustments (8,871 )
—

(190 )
—

(9,061 )
Derivative financial instruments 134

—

(289 )
—

(155 )
Other comprehensive loss from investment in subsidiaries (16 )
—

—

16

—
Other comprehensive loss, net of tax (8,753 )
—

(4 )
16

(8,741 )
Comprehensive income 18,738

43,446

20,615

(64,336 )
18,463
Comprehensive loss attributable to noncontrolling interests —

—

(275 )
—

(275 )
Comprehensive income attributable to Caleres, Inc. $ 18,738

$ 43,446

$ 20,890

$ (64,336 )
$ 18,738

F- 52

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2013

Non-Guarantors

($ thousands) Parent

Guarantors

Eliminations

Total
Net cash provided by operating activities $ 54,388

$ 92,634

$ 50,915

$ —

$ 197,937
Investing activities

Purchases of property and equipment (10,132 )
(38,767 )
(6,902 )
—

(55,801 )
Capitalized software (7,925 )
—

(3 )
—

(7,928 )
Acquisition cost —

—

(5,000 )
—

(5,000 )
Intercompany investing (5,043 ) 3,814
1,229
—
—
Net cash used for investing activities (23,100 )
(34,953 )
(10,676 )
—

(68,729 )
Financing activities

Borrowings under revolving credit agreement 805,000

—

—

—

805,000
Repayments under revolving credit agreement (901,000 )
—

—

—

(901,000 )
Intercompany financing 77,479

(58,459 )
(19,020 )
—

—
Dividend paid (12,011 )
—

—

—

(12,011 )
Issuance of common stock under share-based plans, net (1,700 )
—

—

—

(1,700 )
Tax benefit related to share-based plans 944

—

—

—

944
Net cash used for financing activities (31,288 )
(58,459 )
(19,020 )
—

(108,767 )
Effect of exchange rate changes on cash and cash equivalents —

—

100

—

100
(Decrease) increase in cash and cash equivalents —

(778 )
21,319

—

20,541
Cash and cash equivalents at beginning of year —

778

46,904

—

47,682
Cash and cash equivalents at end of year $ —

$ —

$ 68,223

$ —

$ 68,223

19.    QUARTERLY FINANCIAL DATA (Unaudited)

Quarterly financial results (unaudited) for 2014 and ~~interim results~~2013 are as follows:

Quarters

First Quarter

Second Quarter

Third Quarter

Fourth Quarter
($ thousands, except per share amounts) (13 weeks)

(13 weeks)

(13 weeks)

(13 Weeks)
2014

Net sales $ 591,162

$ 635,877

$ 729,277

$ 615,393
Gross profit 242,341

259,642

290,730

247,387
Net earnings 15,476

18,039

33,237

16,191
Net earnings attributable to Caleres, Inc. 15,429

18,064

33,113

16,244
Per share of common stock:

Basic earnings per common share attributable to Caleres, Inc. shareholders ⁽¹⁾
0.35

0.41

0.76

0.37
Diluted earnings per common share attributable to Caleres, Inc. shareholders ⁽¹⁾
0.35

0.41

0.75

0.37
Dividends paid 0.07

0.07

0.07

0.07
Market value:

High 28.73

29.65

32.31

33.67
Low 22.30

23.14

25.30

26.39
(1) EPS for the quarters may not ~~necessarily be indicative of results which may be expected for any other interim~~sum to the annual amount as each period oris computed on a discrete period basis.

F- 53

Quarters
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
($ thousands, except per share amounts) (13 weeks)
(13 weeks)
(13 weeks)
(13 Weeks)
2013

Net sales
$ 588,656

$ 621,706

$ 702,788

$ 599,962
Gross profit
240,016

254,626

278,240

241,407
Net (loss) earnings
(10,832 )
15,283

27,284

6,161
Net (loss) earnings attributable to Caleres, Inc.
(10,762 )
15,357

27,314

6,164
Per share of common stock:

Basic (loss) earnings per common share attributable to Caleres, Inc. shareholders ⁽¹⁾

(0.26 )
0.36

0.63

0.14
Diluted (loss) earnings per common share attributable to Caleres, Inc. shareholders ⁽¹⁾

(0.26 )
0.35

0.63

0.14
Dividends paid
0.07

0.07

0.07

0.07
Market value:

High
18.48

24.78

24.25

28.70
Low
15.24

16.62

21.26

22.23
(1) EPS for the ~~year as a whole. For further information refer~~quarters may not sum to the ~~consolidated financial statements and footnotes included in the Corporation's Annual Report and Form 10-K for the~~annual amount as each period ~~ended February 3, 1996. NOTE B: EARNINGS PER SHARE Net earnings per share of Common Stock~~ is computed by dividing net earnings by the weighted average number of shares outstanding. The dilutive effect of stock options is not significant and is therefore excluded from the calculation. NOTE C: INVENTORIES The components of inventory are as follows ($000):
AUGUST 3, JULY 29, FEBRUARY 3, 1996 1995 1996 --------- -------- ----------- Finished Goods........................... $402,955 $353,586 $329,184 Work in Process.......................... 1,762 2,354 1,843 Raw Materials and Supplies............... 5,565 13,041 11,255 -------- -------- -------- $410,282 $368,981 $342,282 ======== ======== ========
During fiscal 1995 and 1996, the remaining domestically manufactured footwear at Brown Shoe Company is being sold resulting in a liquidation of LIFO inventory layers. The effect of this liquidation was to increase pretax income in the second quarter 1995 by $3.7 million, first quarter 1996 by $3.1 million and second quarter 1996 by $.9 million. NOTE D: INCOME TAXES In July 1996, the Internal Revenue Service declined to appeal an Appeals Court ruling overturning a Tax Court decision supporting an Internal Revenue Service assessment against the Corporation on a portion of its unremitted foreign earnings and accordingly has no further right of appeal. The Corporation had recorded the recovery of the related $5.8 million reserve in fiscal 1995. Accordingly, no adjustment to the tax accounts or income tax expense will result from the resolution of this matter which now has become final. NOTE E: FINANCIAL INSTRUMENTS In the second quarter of fiscal 1996, the Corporation placed a nondeliverable forward exchange contract maturing in June 1997 to purchase notional $17 million in Brazilian Real. This contract is designed to protect inventory values of the Corporation's Brazilian subsidiary in the event of a major devaluation in the Brazilian currency. Many complex factors, in addition to currency devaluation, may impact the effectiveness of this contract, including the extent and timing of a devaluation, a devaluation's impact on the Brazilian economy, inflationary factors, and footwear market conditions. This forward contract does not qualify as a hedge for financial reporting purposes; therefore, gains and losses on this contract are included in income. At August 3, 1996, the Corporation had an immaterial gain on this contract. The counterparty to this agreement is a major financial institution; therefore, management believes the risk of incurring losses related to credit risk is remote. F-25 103 ================================================================================ NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,discrete period basis.

SCHEDULE II — VALUATION AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE MAKING OF THE EXCHANGE OFFER PURSUANT TO THIS PROSPECTUS NOR THE ACCEPTANCE OF PRIVATE NOTES FOR SURRENDER FOR EXCHANGE PURSUANT THERETO SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ---------------- QUALIFYING ACCOUNTS

F- 54

Col. A Col. B Col. C Col. D Col. E

Additions

Balance at Beginning of Period
Charged to Costs and Expenses
Charged to Other Accounts - Describe
Deductions - Describe
Balance at End of Period

Description
($ thousands)

YEAR ENDED JANUARY 31, 2015

Deducted from assets or accounts:

Doubtful accounts and allowances
$ 832

$ 1,716

$ —

$ 313
(A) $ 2,235
Customer allowances
19,862

46,878

—

44,834
(B) 21,906
Customer discounts
776

3,519

—

3,043
(B) 1,252
Inventory valuation allowances
17,739

50,781

—

52,469
(C) 16,051
Deferred tax asset valuation allowance
13,949

714

—

3,149
(D) 11,514
YEAR ENDED FEBRUARY 1, 2014

Deducted from assets or accounts:

Doubtful accounts and allowances
$ 973

$ 602

$ —

$ 743
(A) $ 832
Customer allowances
19,080

45,099

—

44,317
(B) 19,862
Customer discounts
489

4,809

—

4,522
(B) 776
Inventory valuation allowances
19,080

53,881

—

55,222
(C) 17,739
Deferred tax asset valuation allowance
8,014

6,490

—

555
(D) 13,949
YEAR ENDED FEBRUARY 2, 2013

Deducted from assets or accounts:

Doubtful accounts and allowances
$ 1,352

$ 1,329

$ —

$ 1,708
(A) $ 973
Customer allowances
19,465

44,759

—

45,144
(B) 19,080
Customer discounts
350

4,284

—

4,145
(B) 489
Inventory valuation allowances
17,105

56,797

—

54,822
(C) 19,080
Deferred tax asset valuation allowance
6,465

1,815

—

266
(D) 8,014
~~TABLE OF CONTENTS~~
~~PAGE ----~~ ~~Available Information...................................... 2 Incorporation~~
(A) Accounts written off, net of ~~Certain Documents by Reference............ 3 Prospectus Summary......................................... 4 Risk Factors............................................... 14 No Cash Proceeds~~recoveries.
(B) Discounts and allowances granted to the Company............................ 18 Dividend Policy............................................ 18 Capitalization............................................. 18 The Exchange Offer......................................... 19 Selected Consolidated Financial Data....................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operation................................. 26 Business................................................... 33 Management................................................. 47 Principal Shareholders..................................... 49 Descriptionwholesale customers of the ~~Notes................................... 49 Description~~Brand Portfolio segment.
(C) Adjustment upon disposal of ~~Certain Indebtedness........................ 71 Certain United States Federal Income Tax Consequences............................................. 74 Plan~~related inventories.
(D) Reflects reductions to valuation allowance for the net operating loss carryforwards for certain states based on the Company’s expectations for utilization of Distribution....................................... 76 Legal Matters.............................................. 76 Experts.................................................... 76 Index to Financial Statements.............................. F-1 net operating loss carryforwards.
================================================================================ ================================================================================ [LOGO] BROWN GROUP, INC. --------------------------- OFFER TO EXCHANGE --------------------------- 9 1/2% Senior Notes due October 15, 2006 for all outstanding 9 1/2% Senior Notes due October 15, 2006 NOVEMBER 12, 1996 ================================================================================ ~~104~~
F- 55

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS ~~ITEM~~
Item 20. ~~INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Certificate~~Indemnification of ~~Incorporation, as amended, provides that a director~~Directors and Officers.
Indemnification of Directors and Officers of the ~~Company shall not be personally liable~~Issuer
The following summary is qualified in its entirety by reference to the ~~Company or its stockholders for monetary damages for breach~~complete text of fiduciary duty as a director. Also, Article V, Section 2, of the Company's Bylaws, as amended, provides that the Company shall indemnify a director or officer of the Company against any claim, liability or expense incurred as a result of the director's or officer's service to the Company, to the maximum extent permitted by law. Sections 715, 717 and 721 through ~~726~~725 of the New York Business Corporation Law and the certificate of incorporation and the bylaws of Caleres, Inc. (the ~~``NYBCL''~~“Company”) ~~provide for indemnification~~.
New York law authorizes a corporation to indemnify any person made, or threatened to be made, a party to any action or proceeding, civil or criminal, other than a shareholders’ derivative action, by reason of ~~directors and officers. Section 723 provides that~~being a director or officer ~~who is successful on~~of the ~~merits~~corporation or ~~otherwise~~serving any other entity in ~~a legal proceeding must be indemnified to~~any capacity (at the ~~extent~~request of the corporation), against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, in connection therewith, if such ~~director or officer was successful. Also, indemnification is generally permitted in both third-party and derivative suits provided a~~ director or officer acted in good faith, or for a purpose he or she reasonably believed ~~was~~to be in, or, in the case of service to any other entity, not opposed to, the best ~~interest~~interests of the ~~corporation. With respect to any~~corporation and, in criminal ~~action, indemnification is permitted only if the director or officer~~proceedings, had no reasonable cause to believe his or her conduct was unlawful. ~~Section 721 expressly~~A corporation may indemnify any person made, or threatened to be made, a party to a shareholders' derivative action, in the circumstances and to the extent described in the preceding sentence, except that in such case no indemnification shall be made for a threatened action, or a pending action which is settled or otherwise disposed of, or any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent the court finds that such person is fairly and reasonably entitled to such indemnification. Any person who has been successful, on the merits or otherwise, in the defense of a civil or criminal proceeding as described above in this paragraph, shall be entitled to indemnification under New York law.
New York law provides that its statutory provisions relating to indemnification shall not be exclusive of any other indemnification to which a director or officer may be entitled by reason of the ~~power~~certificate of incorporation, bylaws, or, if authorized by the certificate or bylaws, by reason of a resolution of the stockholders or the directors as of an agreement with the corporation, provided that no indemnification may be made to or on behalf of an officer or director if a final adjudication adverse to the director or officer establishes that his or her acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action adjudicated, or that such officer or director personally gained a financial profit or other advantage to which he or she was not legally entitled.
The bylaws of the Company provide that the Company shall indemnify ~~authorized under~~any director and officer, and may indemnify any employee or agent, of the ~~NYBCL~~Company, or of any other entity if requested by the Company to serve as such, against any claim, liability or expense incurred as a result of such service, to the maximum extent permitted by law. To the extent that such employee or agent has been successful in the defense of a civil or criminal proceeding arising out of such service, such employee or agent shall be entitled to such indemnification. The bylaws also provide that such indemnification is not exclusive of any other indemnification to which such director, officer, employee or agent might be entitled, and authorize the Company to enter into agreements with any such director, officer, employee or agent, providing such rights ~~granted~~of indemnification as the Board of Directors deems appropriate, provided that any such agreement shall not provide for indemnification of such a director or officer if a judgment or other final adjudication adverse to such director or officer establishes that his or her acts were committed in bad faith or were the result of active or deliberate dishonesty and were material to the cause of action adjudicated, or that he or she personally gained a financial profit or other advantage to which such director or officer was not legally entitled. Finally, the Company may purchase and maintain insurance to indemnify any such director, officer, employee or agent, to the maximum extent allowed by law, whether or not the Company would otherwise have the power to indemnify such person.
The directors and officers of the Company are insured under a ~~corporation's certificate~~policy of ~~incorporation or bylaws. Section 726 of the NYBCL authorizes the purchase of indemnification insurance for directors and officers. The Company currently maintains~~ directors' and officers' liability ~~insurance policies.~~ insurance.
Indemnification of Directors and Officers of Guarantors
The ~~preceding discussion~~following summaries are qualified in their entirety by reference to the complete text of ~~Sections 721 through 726~~any statutes referred to below and the certificate of incorporation and the bylaws or similar organizational documents of the ~~NYBCL~~applicable guarantor of the exchange notes.
Missouri Corporate Guarantors
Sidney Rich Associates, Inc. (“Sidney Rich”) is a Missouri corporation. Section 351.355(1) of the Revised Statutes of Missouri provides that a corporation may indemnify a director, officer, employee or agent of the corporation in any action, suit or proceeding other than an action by or in the right of the corporation, against expenses (including attorneys’ fees), judgments, fines and ~~the Company's Certificate of Incorporation~~settlement amounts actually and ~~Bylaws is not intended~~reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be ~~exhaustive~~in or not opposed to the best interests of the corporation and, ~~is qualified~~with respect to any criminal action, had no reasonable cause to believe his conduct was unlawful. Section 351.355(2) provides that the corporation may indemnify any such

II- 1

person in ~~its entirety~~any action or suit by or in the right of the corporation against expenses (including attorneys’ fees) and settlement amounts actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that he may not be indemnified in respect of any matter in which he has been adjudged liable for negligence or misconduct in the performance of his duty to the corporation, unless authorized by the ~~NYBCL~~court. Section 351.355(3) provides that a corporation may indemnify any such person against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the ~~Company's Certificate~~action, suit or proceeding if he has been successful in defense of ~~Incorporation~~such action, suit or proceeding and ~~Bylaws. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES See Index~~if such action, suit or proceeding is one for which the corporation may indemnify him under Section 351.355(1) or (2). Section 351.355(7) provides that a corporation shall have the power to ~~Exhibits. ITEM 22. UNDERTAKINGS~~ give any further indemnity to any such person, in addition to the indemnity otherwise authorized under Section 351.355, provided such further indemnity is either (i) authorized, directed or provided for in the articles of incorporation of the corporation or any duly adopted amendment thereof or (ii) is authorized, directed or provided for in any by-law or agreement of the corporation which has been adopted by a vote of the stockholders of the corporation, provided that no such indemnity shall indemnify any person from or on account of such person’s conduct which was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct.
The ~~undersigned Registrant hereby undertakes~~bylaws of Sidney Rich states that ~~for~~it shall indemnify any director, officer, employee or agent against any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to the ~~purposes~~fullest extent provided by law. Further, the bylaws of ~~determining~~Sidney Rich states that the board of directors of Sidney Rich shall have the power to cause Sidney Rich to purchase and maintain insurance on behalf of any director, officer, employee or agent against any liability incurred in any such capacity, arising out of his/her status as such, whether or not Sidney Rich would have the power to indemnify him against such liability under the ~~Securities Act~~provisions of ~~1933, each filing~~their bylaws.
Directors or officers of Sidney Rich who are directors or officers of Caleres, Inc. or its affiliates may also be entitled to indemnification pursuant to the charter documents of such companies or under the provisions of agreements with such companies providing indemnification to them since they serve as directors or officers of Sidney Rich at the request of Caleres, Inc. or its affiliates, as the case may be. Caleres, Inc. maintains a policy of insurance under which the directors and officers of Sidney Rich are insured, subject to the limits of the ~~Company's annual report~~policy, against certain losses, as defined in the policy, arising from claims made against such directors and officers by reason of any wrongful acts, as defined in the policy, in their respective capacities as directors or officers.
Delaware Limited Liability Company Guarantors
BG Retail, LLC (“BG Retail”) is a Delaware limited liability company. Section 18-108 of the Delaware Limited Liability Company Act provides that, subject to specified standards and restrictions, if any, as are set forth in the limited liability company agreement, a limited liability company shall have the power to indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.
The limited liability company agreement of BG Retail provides that, the limited liability company, its receiver or its trustee shall indemnify, save harmless, and pay all judgments and claims against the officers, if any, relating to any liability or damage incurred by reason of any act performed or omitted to be performed by such officer in connection with the business of the limited liability company, including attorneys’ fees incurred in connection with the defense of any action based upon such action or omission, as permitted by law. The attorneys’ fees may be paid as incurred.
Officers of BG Retail who are directors or officers of Caleres, Inc. or its affiliates may also be entitled to indemnification pursuant to ~~Section 13(a)~~the charter documents of such companies or ~~15(d)~~under the provisions of agreements with such companies providing indemnification to them since they serve as officers of BG Retail at the request of Caleres, Inc. or its affiliates, as the case may be. Caleres, Inc. maintains a policy of insurance under which the officers of BG Retail are insured, subject to the limits of the ~~Securities Exchange Act~~policy, against certain losses, as defined in the policy, arising from claims made against such officers by reason of ~~1934 that~~any wrongful acts, as defined in the policy, in their respective capacities as officers.
Item 21. Exhibits.
(a) Exhibits. See Exhibit Index which is incorporated by reference ~~in this Registration Statement~~herein.
Item 22. Undertakings.
The following undertakings are made by each of the undersigned registrants:
(a)    The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

II- 2

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements.

(5) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration

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statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes that insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim of indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

II- 4 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. II-1 105 The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions described under Item 15 above or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted against the Company by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-2 ~~106~~

SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of St. Louis, State of Missouri, on November 12, 1996. BROWN GROUP, INC. By: /s/ HARRY E. RICH --------------------------------- Name: Harry E. Rich Title: ExecutiveOctober 9, 2015.
Caleres, Inc.
By: /s/ Kenneth H. Hannah
Name:Kenneth H. Hannah
Title:Senior Vice President and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and ~~Chief Financial Officer~~ appoints Diane M. Sullivan, Kenneth H. Hannah and Michael I. Oberlander, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution, to sign any amendments (including post-effective amendments) and supplements to this registration statement (and any additional registration statement related thereto permitted by Rule 462(b) promulgated under the Securities Act of 1933), and to file such amendments and any related documents with the Securities and Exchange Commission, and ratifies and confirms the actions that any such attorney-in-fact and agents, or their substitutes, may lawfully do or cause to be done under this power of attorney.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities ~~indicated on November 12, 1996.~~ indicated:
~~SIGNATURE TITLE --------- -----~~
Signatures Title Date
/s/ ~~B. A. BRIDGEWATER, JR.~~Diane M. Sullivan
Chief Executive Officer, President and Chairman of the Board of Directors
(Principal Executive Officer)
October 9, 2015
Diane M. Sullivan
/s/ Kenneth H. Hannah Senior Vice President and ~~- ------------------------------------------------~~Chief Financial Officer (Principal Financial Officer) October 9, 2015
Kenneth H. Hannah
/s/ Daniel L. Karpel Senior Vice President, Chief Accounting Officer and Assistant Secretary (Principal Accounting Officer) October 9, 2015
Daniel L. Karpel
/s/ Mario L. Baeza Director October 9, 2015
Mario L. Baeza
/s/ W. Lee Capps Director October 9, 2015
W. Lee Capps

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/s/ Lori H. Greeley Director October 9, 2015
Lori H. Greeley
/s/ Mahendra R. Gupta Director October 1, 2015
Mahendra R. Gupta
/s/ Carla C. Hendra Director October 7, 2015
Carla C. Hendra
/s/ Ward M. Klein Director October 1, 2015
Ward M. Klein
/s/ Steven W. Korn Director October 9, 2015
Steven W. Korn
/s/ Patricia G. McGinnis Director October 7, 2015
Patricia G. McGinnis
/s/ W. Patrick McGinnis Director October 1, 2015
W. Patrick McGinnis

II- 6

SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of St. Louis, State of Missouri, on October 9, 2015.
Sidney Rich Associates, Inc.
By: /s/ Kenneth H. Hannah
Name:Kenneth H. Hannah
Title:Senior Vice President and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Diane M. Sullivan, Kenneth H. Hannah and Michael I. Oberlander, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution, to sign any amendments (including post-effective amendments) and supplements to this registration statement (and any additional registration statement related thereto permitted by Rule 462(b) promulgated under the Securities Act of 1933), and to file such amendments and any related documents with the Securities and Exchange Commission, and ratifies and confirms the actions that any such attorney-in-fact and agents, or their substitutes, may lawfully do or cause to be done under this power of attorney.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated:
Signatures Title Date
/s/ Diane M. Sullivan President and Chief Executive Officer (Principal Executive Officer) ~~B. A. Bridgewater, Jr. /s/ HARRY E. RICH~~ October 9, 2015
Diane M. Sullivan
/s/ Kenneth H. Hannah Director, ~~Executive~~Senior Vice President and Chief ~~- ------------------------------------------------~~ Financial Officer (Principal Financial Officer) ~~Harry E. Rich~~ October 9, 2015
Kenneth H. Hannah
/s/ ~~RICHARD C. SCHUMACHER~~Daniel L. Karpel Senior Vice President, Chief Accounting Officer and Assistant Secretary (Principal Accounting Officer) October 9, 2015
Daniel L. Karpel
/s/ William Berberich, Jr. Director October 9, 2015
William Berberich, Jr.
/s/ Michael I. Oberlander Director October 9, 2015
Michael I. Oberlander

II- 7

SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of St. Louis, State of Missouri, on October 9, 2015.
BG Retail, LLC
By: /s/ Kenneth H. Hannah
Name:Kenneth H. Hannah
Title:Senior Vice President and ~~Controller - ------------------------------------------------~~Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Diane M. Sullivan, Kenneth H. Hannah and Michael I. Oberlander, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution, to sign any amendments (including post-effective amendments) and supplements to this registration statement (and any additional registration statement related thereto permitted by Rule 462(b) promulgated under the Securities Act of 1933), and to file such amendments and any related documents with the Securities and Exchange Commission, and ratifies and confirms the actions that any such attorney-in-fact and agents, or their substitutes, may lawfully do or cause to be done under this power of attorney.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated:
Signatures Title Date
/s/ Diane M. Sullivan President and Chief Executive Officer (Principal Executive Officer) October 9, 2015
Diane M. Sullivan
/s/ Kenneth H. Hannah Manager, Senior Vice President and Chief Financial Officer (Principal Financial Officer) October 9, 2015
Kenneth H. Hannah
/s/ Daniel L. Karpel Senior Vice President, Finance and Assistant Secretary (Principal Accounting Officer) ~~Richard C. Schumacher~~ October 9, 2015
Daniel L. Karpel
/s/ ~~JOSEPH L. BOWER Director - ------------------------------------------------ Joseph L. Bower~~ William Berberich, Jr. Manager October 9, 2015
William Berberich, Jr.
/s/ ~~JULIE C. ESREY Director - ------------------------------------------------ Julie C. Esrey~~ ~~/s/ RICHARD A. LIDDY Director - ------------------------------------------------ Richard A. Liddy II-3~~ ~~107~~
~~SIGNATURE TITLE --------- -----~~ ~~/s/ JOHN PETERS MACCARTHY Director - ------------------------------------------------ John Peters MacCarthy~~ ~~/s/ JOHN D. MACOMBER Director - ------------------------------------------------ John D. Macomber~~ ~~/s/ WILLIAM E. MARITZ Director - ------------------------------------------------ William E. Maritz~~ ~~/s/ GENERAL EDWARD C. MEYER, RETIRED Director - ------------------------------------------------ General Edward C. Meyer, Retired~~ ~~/s/ JERRY E. RITTER Director - ------------------------------------------------ Jerry E. Ritter~~ ~~/s/ DANIEL R. TOLL Director - ------------------------------------------------ Daniel R. Toll~~ ~~By: /s/ HARRY E. RICH ----------------------------------------- Harry E.~~Michael I. Oberlander
Manager October 9, 2015
Michael I. Oberlander

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INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
3.1 Restated Certificate of Incorporation of Caleres, Inc. (the “Company”) incorporated herein by reference to Exhibit 3.1 to the Company's Form 8-K filed June 1, 2015.
3.2 Bylaws of the Company as amended through May 28, 2015, incorporated herein by reference to Exhibit 3.2 to the Company’s Form 8-K filed June 1, 2015.
3.3 Articles of Incorporation of Sidney Rich ~~Attorney-In-Fact~~
~~II-4~~ ~~108~~ ~~INDEX TO EXHIBITS~~
~~EXHIBIT NUMBER -------~~ ~~~~4.1~~Associates, Inc., as amended, incorporated herein by reference to Exhibit 3.5 to the Company’s Form S-4 filed May 16, 2005.~~
3.4 Bylaws of ~~Exchange Note (included in~~Sidney Rich Associates, Inc., incorporated herein by reference to Exhibit ~~4.2). 4.2~~ 3.6 to the Company’s Form S-4 filed May 16, 2005.
3.5 Certificate of Formation of BG Retail, LLC.
3.6 Limited Liability Company Agreement of BG Retail, LLC.
4.1 Indenture for the 7.125% Senior Notes due 2019 dated as of ~~October 1, 1996 between~~May 11, 2011, among the Company, the subsidiary guarantors set forth therein, and ~~State Street~~Wells Fargo Bank, ~~and Trust Company,~~National Association, as ~~Trustee (incorporated~~trustee, including the form of Global Note attached thereto, incorporated herein by reference to Exhibit 4.1 to the ~~Company's Report on~~Company’s Form 8-K ~~(File No. 1-2191)~~dated May 11, 2011 and filed byMay 13, 2011.
4.2 Indenture for the 6.250% Senior Notes due 2023, dated July 27, 2015 among the Company, ~~with~~ the ~~Commission on October 21, 1996). 4.3 Registration Rights Agreement dated~~subsidiary guarantors set forth therein, and Wells Fargo Bank, National Association, as of October 7, 1996 between the Company and Smith Barney Inc., First Chicago Capital Markets, Inc. and Dillon, Read & Co. Inc., as Initial Purchasers (incorpo- ratedtrustee, incorporated herein by reference to Exhibit ~~4.2~~4.1 to the ~~Company's Report on~~Company’s Form 8-K ~~(File No. 1-2191)~~dated and filed byJuly 27, 2015.
4.3 Form of 6.250% Senior Notes due 2023 (included in Exhibit 4.2).
4.4 Registration Rights Agreement for the ~~Company with the Commission on October 21, 1996). 4.4 Indenture~~6.250% Senior Notes due 2023 dated as of ~~January 15, 1973 between~~July 27, 2015, among the Company, the Guarantors and ~~First National City Bank (incorporated~~Merrill Lynch, Pierce, Fenner & Smith Incorporated as representative of the several initial purchasers set forth therein, incorporated by reference to Exhibit ~~2 of Amendment No. 1~~10.1 to the ~~Company's Registration Statement on~~Company’s Form ~~S-7 (No. 2-46627) originally~~8-K dated and filed by the Company with the Commission on January 16, 1973). 4.5 First Supplemental Indenture dated as of April 25, 1988 between the Company and Citibank, N.A., as Trustee (incorporated by reference to Exhibit 4(b) of the Company's Registration Statement on Form S-3 (No. 33-21477) originally filed by the Company with the Commission on April 26, 1988). 4.7 Senior Note Agreement dated as of October 24, 1995 between the Company and Prudential Insurance Company of America (incorporated by reference to Exhibit 4(a) of the Form 10-Q for the quarter ended August 3, 1996 of the Company (File No. 1-2191)). 4.8 Bank Credit Agreement, as amended, dated as of December 22, 1993 between the Company and The First National Bank of Chicago, as Agent for certain Lenders and The Boatmen's National Bank of St. Louis and Citibank, N.A., as Co-Agents of such Lenders (incorporated by reference to Exhibit 4(b) of the Form 10-Q for the quarter ended August 3, 1996 of the Company (File No. 1-2191)). July 27, 2015.
5.1 Opinion of Bryan Cave ~~LLP regarding the validity of the Exchange Notes 8.1 Tax Opinion of Bryan Cave LLP (included in Exhibit 5.1)~~ LLP.
12.1 ~~Statement Re Computation~~ Calculation of Ratio of Earnings to Fixed ~~Charges~~ Charges.
23.1 Consent of Ernst & Young LLP, Independent Registered Public Accountants of the Company.
23.5 Consent of Bryan Cave LLP (included in Exhibit 5.1) ~~23.2 Consent of Ernst & Young LLP~~ .
24.1 ~~Power~~ Powers of Attorney executed by certain of the officers and directors of the registrants (included onin signature ~~page)~~ pages).
25.1 Form T-1, Statement of Eligibility under the Trust Indenture Act of ~~State Street~~1939, as amended, of Wells Fargo Bank, ~~and Trust Company,~~National Association, as Trustee under the Indenture.
99.1 Form of Letter of ~~Transmittal~~ Transmittal.
99.2 Form of Notice of Guaranteed ~~Delivery~~ Delivery.
99.3 Form of ~~Exchange Agent Agreement~~ ~~- --------~~ ~~Previously filed.~~ Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.4 Form of Letter to Clients.
~~II-5~~

II- 9



New York	5661	43-0197190
(State or other jurisdiction of incorporation or organization)	(Primary standard industrial classification code number)	(I.R.S. employer identification number)



Large accelerated filer ý	Accelerated filer ¨	Non‑accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨



Exact name of each registrant as specified in its respective charter	State or other jurisdiction of incorporation or organization	Primary standard industrial classification code number	I.R.S. employer identification number
Sidney Rich Associates, Inc.*	Missouri	5139	43-0910619
BG Retail, LLC*	Delaware	5661	25-1323027



Title of each class of securities to be registered	Amount to be registered	Proposed Maximum Offering Price Per Unit(1)	Proposed maximum aggregate offering price(1)	Amount of registration fee
6.250% Senior Notes due 2023	$200,000,000	100%	$200,000,000	$20,140
Guarantees of the 6.250% Senior Notes due 2023	—	—	—	(2)


*	Address, including zip code, and telephone number, including area code, of principal executive offices are the same as those of Caleres, Inc., a New York corporation.




	Page
Terms Used in this Prospectus	iii
Forward-Looking Statements	iv
Prospectus Summary	1
Risk Factors	12
The Transactions	24
Use of Proceeds	25
Ratio of Earnings to Fixed Charges	26
Description of Certain Indebtedness	27
The Exchange Offer	29
Description of Exchange Notes	37
Material United States Federal Income Tax Consequences	79
Certain ERISA Considerations	84
Plan of Distribution	85
Legal Matters	86
Independent Registered Public Accounting Firm	86
Where You Can Find More Information	86


•	the term “7¹⁄₈% Notes” refers to our 7¹⁄₈% Senior Notes due 2019, all of which were either repurchased by us in the Tender Offer or redeemed by us on August 26, 2015;


•	the term “Tender Offer” refers to the cash tender offer for any and all of our outstanding 7¹⁄₈% Notes, which we launched on July 20, 2015 and which expired at 5:00 p.m., New York City time on July 24, 2015;