EXHIBIT 10.24
CHANGE OF CONTROL AGREEMENT
This AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENT (this
"Agreement"), is restated as of the 1st day of October, 2003, (the "Restatement
Effective Date") by and between Payless ShoeSource, Inc., a Delaware corporation
(the "Company"), and Steven J. Douglass (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined herein). The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the current Company and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
that ensure that the compensation and benefits expectations of the Executive
will be satisfied and that are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first
date on which a Change of Control occurs. Notwithstanding anything in this
Agreement to the contrary, if a Change of Control occurs and if the Executive's
employment with the Company is terminated without Cause or for Good Reason
within one year prior to the date on which the Change of Control occurs then
"Effective Date" means the date immediately prior to the date of such
termination of employment unless such termination did not occur at the request
of a third party that has taken steps reasonably calculated to effect a Change
of Control. Further, notwithstanding anything in this Agreement to the contrary,
if a Potential Change of Control occurs and if the Executive's employment with
the Company is terminated as provided in Section 5(e), then "Effective Date"
means the date immediately prior to the date of such termination of employment.
(b) "Change of Control Period" means the period commencing on the
Effective Date and ending on the third anniversary thereof.
(c) "affiliated company" means any company controlled by,
controlling or under common control with the Company.
(d) "Change of Control" means:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that, for purposes of this Section 1(d), none of the
following shall constitute a Change of Control: (i) any acquisition directly
from the Company of 30% or less of Outstanding Company Common Stock or
Outstanding Company Voting Securities provided that at least a majority of the
members of the board of directors of the Company following such acquisition were
members of the Incumbent Board at the time of the Board's approval of such
acquisition, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any affiliated company, or (iv) any acquisition by the Company which, by
reducing the number of shares of Outstanding Company Common Stock or Outstanding
Company Voting Securities, increases the proportionate number of shares of
Outstanding Company Common Stock or Outstanding Company Voting Securities
beneficially owned by any Person to 20% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; provided, however, that,
if such Person shall thereafter become the beneficial owner of any additional
shares of Outstanding Company Common Stock or Outstanding Company Voting
Securities and beneficially owns 20% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting Securities, then such additional
acquisition shall constitute a Change of Control; or
(2) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(3) Consummation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, immediately following
such Business Combination, (A) more than 50%, respectively, of the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of (x) the corporation resulting from such
Business Combination, or (y) a corporation that, as a result of such
transaction, owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries, is represented by
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities (or, if applicable, is represented by shares into which Outstanding
Company Common Stock or Outstanding Company
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Voting Securities were converted pursuant to such Business Combination) in
substantially the same proportions as their ownership immediately prior to such
Business Combination of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (C) at least
a majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement or of the action of the Board
providing for such Business Combination; or
(4) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(e) "Potential Change of Control" means:
(1) At least two directors of a particular class of directors, as
of the date hereof, are replaced for any reason by directors who are not members
of the Incumbent Board at the time of such replacement; provided, however, that
any individual becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's stockholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(2) The Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change of Control has occurred.
SECTION 2. TERM OF AGREEMENT AND COVERED EMPLOYMENT. (a) TERM OF
AGREEMENT. This Agreement shall be in effect from the Restatement Effective Date
and shall terminate on the third anniversary thereof; provided, however, that,
commencing on the date one year after the Restatement Effective Date, and on
each annual anniversary of such date (such date and each annual anniversary
thereof, the "Renewal Date"), unless previously terminated, this Agreement shall
be automatically extended so as to terminate three years from such Renewal Date,
unless, at least 60 days prior to the Renewal Date, the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended (a "Nonrenewal Notice"). Notwithstanding the delivery of any such
Nonrenewal Notice, this Agreement shall
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continue in effect for the Change of Control Period if a Change of Control
occurs during the term of this Agreement.
(b) COVERED EMPLOYMENT. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, subject to the terms and conditions of this Agreement, for the
Change of Control Period.
SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During the
Change of Control Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the office where the Executive was
employed immediately preceding the Effective Date or at any other location less
than 35 miles from such office.
(2) During the Change of Control Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Change of Control Period, it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that, to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) COMPENSATION. (1) BASE SALARY. During the Change of Control
Period, the Executive shall receive an annual base salary (the "Annual Base
Salary"), which Annual Base Salary shall be paid at a monthly rate at least
equal to 12 times the highest monthly base salary paid or payable, including any
base salary that has been earned but deferred, to the Executive by the Company
and the affiliated companies in respect of the 12-month period immediately
preceding the month in which the Effective Date occurs. During the Change of
Control Period, the Annual Base Salary shall be reviewed at least annually,
beginning no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date. Any increase in the Annual Base Salary
shall not serve to limit or reduce any other obligation to the Executive under
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this Agreement. The Annual Base Salary shall not be reduced after any such
increase and the term "Annual Base Salary" shall refer to the Annual Base Salary
as so increased.
(2) ANNUAL BONUS. In addition to the Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Change of
Control Period, an annual bonus (the "Annual Bonus") in cash at least equal to
the Executive's highest bonus under the Company's annual and long-term incentive
plans, or any comparable bonus under any predecessor or successor plan, for the
last three full fiscal years prior to the Effective Date (annualized, in the
event that the Executive was not employed by the Company for the whole of such
fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid
no later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Change of
Control Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies, and programs applicable
generally to other peer executives of the Company and the affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and the affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and the affiliated
companies.
(4) WELFARE BENEFIT PLANS. During the Change of Control Period,
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and the
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and the affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits that are less favorable, in the aggregate, than the most favorable
of such plans, practices, policies and programs in effect for the Executive at
any time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and the affiliated
companies.
(5) EXPENSES. During the Change of Control Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of
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the Company and the affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and the affiliated companies.
(6) FRINGE BENEFITS. During the Change of Control Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and the
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and the affiliated companies.
(7) OFFICE AND SUPPORT STAFF. During the Change of Control Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and the affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and the affiliated companies.
(8) VACATION. During the Change of Control Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and the affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and the affiliated companies.
SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically if the Executive dies
during the Change of Control Period. If the Company determines in good faith
that the Disability (as defined herein) of the Executive has occurred during the
Change of Control Period (pursuant to the definition of "Disability"), it may
give to the Executive written notice in accordance with Section 11(b) of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
"Disability" means the absence of the Executive from the Executive's duties with
the Company on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness that is determined to be total
and permanent by a physician selected by the
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Company or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) CAUSE. The Company may terminate the Executive's
employment during the Change of Control Period for Cause. "Cause" means:
(1) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or any
affiliated company (other than any such failure resulting from
incapacity due to physical or mental illness), after a written demand
for substantial performance is delivered to the Executive by the Board
or the Chief Executive Officer of the Company that specifically
identifies the manner in which the Board or the Chief Executive Officer
of the Company believes that the Executive has not substantially
performed the Executive's duties, or
(2) the willful engaging by the Executive in illegal
conduct or gross misconduct that is materially and demonstrably
injurious to the Company.
For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel for
the Executive, to be heard before the Board finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be
terminated by the Executive for Good Reason. "Good Reason" means in the absence
of a written consent by the Executive:
(1) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 3(a), or any other
action by the Company that results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith
and that is
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remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(2) any failure by the Company to comply with any of the
provisions of Section 3(b), other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and that is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
(3) the Company's requiring the Executive to be based at
any office or location other than as provided in Section 3(a)(1)(B) or
the Company's requiring the Executive to travel on Company business to
a substantially greater extent than required immediately prior to the
Effective Date;
(4) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(5) any failure by the Company to comply with and satisfy
Section 10(c).
For purposes of this Section 4(c), any good faith
determination of Good Reason made by the Executive shall be conclusive. Anything
in this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following the
first anniversary of a Change of Control shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section 11(b).
"Notice of Termination" means a written notice that (1) indicates the specific
termination provision in this Agreement relied upon, (2) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, and (3) if the Date of Termination (as defined herein)
is other than the date of receipt of such notice, specifies the Date of
Termination (which Date of Termination shall be not more than 30 days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance that contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's respective rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (1)
if the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified in the Notice of Termination, as the case may be, (2)
if the Executive's employment is terminated by the Company other than for Cause
or Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such
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termination, and (3) if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a)
GOOD REASON; OTHER THAN FOR CAUSE; DEATH OR DISABILITY. If, during the Change of
Control Period, the Company terminates the Executive's employment other than for
Cause or Disability or the Executive terminates employment for Good Reason:
(1) the Company shall pay to the Executive, in a lump sum
in cash within 30 days after the Date of Termination, the aggregate of
the following amounts:
(A) the sum of (i) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (ii) the product of (x) the higher of (I)
the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof that has been
earned but deferred (and annualized for any fiscal year
consisting of less than 12 full months or during which the
Executive was employed for less than 12 full months), for the
most recently completed fiscal year during the Change of
Control Period, if any (such higher amount, the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination and the denominator of which is 365, and (iii)
any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case, to the extent not
theretofore paid (the sum of the amounts described in
subclauses (i), (ii) and (iii), the "Accrued Obligations");
and
(B) the amount equal to the product of (i) three
and (ii) the sum of (x) the Executive's Annual Base Salary and
(y) the Highest Annual Bonus; and
(C) in lieu of the receipt of shares of common
stock of the Company ("Common Stock") issuable upon the
exercise of outstanding options (other than stock options
qualifying as incentive stock options ("ISOs") under Section
422A of the Internal Revenue Code of 1986, as amended (the
"Code") which ISOs were granted on or prior to April 15, 1996)
("Options"), stock appreciation rights ("SARs") and
performance units ("Units"), if any (the Options, SARs and
Units shall be referred to herein collectively as the
"Awards"), granted to the Executive under the Company's 1996
Stock Incentive Plan or any successor or substitute plans
thereto, an amount equal to the product of (i) the excess of
(x) in the case of an ISO granted after April 15, 1996, the
closing price of Common Stock as reported on the New York
Stock Exchange on the Date of
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Termination or the last full trading day immediately prior to
the Date of Termination (or, if not listed on such exchange,
on a nationally recognized exchange or quotation system on
which trading value in the Common Stock is highest) (the
"Closing Price") and, in the case of all other Awards, the
higher of the Closing Price and the highest per share price
for Common Stock actually paid in connection with any Change
of Control, over (y) the per share exercise price (if any) of
each Award, and (2) the number of shares of Common Stock
covered by each such Award, whether or not such Award is
exercisable on the Date of Termination; and
(2) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those that would have been provided to them in
accordance with the plans, programs, practices and policies described
in Section 3(b)(4) if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives
of the Company and the affiliated companies and their families,
provided, however, that, if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. If
the Executive has attained age 50 on the Date of Termination and if,
with five additional years of age and service beyond the Executive's
age and years of service as of the Date of Termination, the Executive
would have been entitled to receive post-retirement medical and life
benefits under the Company's post-retirement programs as in effect
immediately prior to the Effective Date, then the Executive shall be
entitled to such benefits as if the Executive had attained those five
additional years of age and been employed by the Company for those five
additional years of service, as of the Date of Termination, and such
post-retirement medical and life benefits shall commence immediately
and be determined and provided under the terms of such plans as in
effect immediately prior to the Effective Date, without regard to any
amendments subsequent to the Effective Date that adversely affect the
rights of participants thereunder; and
(3) if the Executive has attained age 50 but has not
attained age 55 on the Date of Termination, then for purposes of
determining benefits under Section 3.2(c) of the Company's
Supplementary Retirement Plan or any successor plan, as in effect
immediately prior to the Effective Date (the "Supplemental Plan"), the
Executive shall be deemed to be entitled to the benefits under Section
3.2(c) of the Supplemental Plan if, during the five-year period
following the Effective Date, the Company terminates the Executive's
employment other than for Cause or the Executive terminates his
employment for Good Reason (it being expressly agreed that,
notwithstanding anything to the contrary contained herein, the rights
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under this Section 5(a)(3) shall survive for the five-year period
following the Effective Date); and
(4) Notwithstanding any provision in any equity or
equity-based grant agreement or any other agreement or plan covering
the Executive, all of the non-competition restrictions imposed on the
Executive under such equity or equity-based grant agreement shall cease
to apply for all purposes of such equity or equity-based grant
agreement, including but not limited to all options, stock appreciation
rights, and performance units granted to the Executive at any time;
(5) the Company shall, at its sole expense as incurred,
and subject to a maximum limit equal to three (3) times the Executive's
monthly compensation, provide the Executive with outplacement services
the scope and provider of which shall be selected by the Executive in
the Executive's sole discretion; and
(6) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or that the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and the affiliated companies (such
other amounts and benefits, the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Change of Control Period, this
Agreement shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of the Other Benefits. The
Accrued Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of the Other Benefits, the term "Other Benefits"
as utilized in this Section 5(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and the
affiliated companies to the estates and beneficiaries of peer executives of the
Company and the affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and the affiliated companies and their beneficiaries.
(c) DISABILITY. If the Executive's employment is
terminated by reason of the Executive's Disability during the Change of Control
Period, this Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations and the timely payment
or provision of the Other Benefits. The Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination. With
respect to the provision of the Other Benefits, the term "Other
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Benefits" as utilized in this Section 5(c) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and the affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and the affiliated
companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment is terminated for Cause during the Change of Control Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (1) the Executive's Annual Base
Salary through the Date of Termination, (2) the amount of any compensation
previously deferred by the Executive, and (3) the Other Benefits, in each case,
to the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Change of Control Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than for the Accrued Obligations and the timely payment or
provision of the Other Benefits. In such case, all the Accrued Obligations shall
be paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
(e) OBLIGATIONS OF THE COMPANY AND THE EXECUTIVE UPON A
POTENTIAL CHANGE OF CONTROL. If, prior to the Change of Control Period, a
Potential Change of Control occurs, the Executive hereby agrees to remain in the
employ of the Company, on the same basis and terms and conditions as the
Executive is employed by the Company immediately prior to the Potential Change
of Control, for the 12-month period following such Potential Change of Control.
If the Executive's employment is terminated by the Company other than for Cause,
death or Disability, or the Executive terminates his employment for Good Reason,
during the 12-month period following the occurrence of a Potential Change of
Control, without regard to whether a Change of Control has actually occurred or
is likely to occur, the Executive's employment shall be deemed to have been
terminated by the Company in anticipation of a Change of Control, and the
Executive shall be entitled to receive the payments and benefits provided in
Section 5(a) hereof.
SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or the affiliated companies and for which the Executive may qualify, nor,
subject to Section 11(f), shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or the affiliated companies. Amounts that are vested benefits or that
the Executive is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or the affiliated
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companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or agreement,
except as explicitly modified by this Agreement.
SECTION 7. FULL SETTLEMENT. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense, or other claim, right or action that the Company may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement,
and such amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay as incurred, to the full extent permitted
by law, all legal fees and expenses that the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus, in each case, interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of
the Code.
SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company or the affiliated
companies to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise but determined without regard to any additional payments required
under this Section 8) (the "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code, or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, collectively, the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (the "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if
it shall be determined that the Executive is entitled to the Gross-Up Payment,
but that the Payments do not exceed 110% of the greatest amount that could be
paid to the Executive such that the receipt of the Payments would not give rise
to any Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made
to the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up
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Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") that shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, is not able to make the determinations required
hereunder for any reason, or the Company determines that the Accounting Firm is
precluded from performing such services under applicable independence standards
or otherwise, the Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder or as a result of a permitted or required
redetermination of the Excise Tax, it is possible that Gross-Up Payments that
will not have been made by the Company should have been made (the
"Underpayment") or that Gross-up Payments that were initially made by the
Company exceeded the amount necessary to reimburse the Executive as contemplated
in the first sentence of Section 8(a) or were not due pursuant to the
application of the last sentence of Section 8(a) ("Overpayment"). In the event
the Company exhausts its remedies pursuant to Section 8(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive. The Accounting Firm shall determine the amount of any Overpayment
that has been made and whether any permitted redetermination of the Excise Tax
would result in an Overpayment and such Overpayment shall be promptly paid to
the Company by the Executive to the extent he is entitled to a refund on account
of such Overpayment (together with interest at the rate provided in Section
1274(b)(2) of the Code from the date of such entitlement). It is the intent of
this provision that the Gross-Up Payment reflect the Excise Tax liability, if
any, actually incurred by the Executive in the opinion of the Accounting Firm.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of
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taxes with respect to such claim is due). If the Company notifies the Executive
in writing prior to the expiration of such period that the Company desires to
contest such claim, the Executive shall:
(1) give the Company any information reasonably requested
by the Company relating to such claim,
(2) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest, and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
applicable taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that, if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and provided, further, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which the Gross-Up
Payment would be payable hereunder, and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), the Executive becomes entitled
to receive any refund
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with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold
in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or the
affiliated companies, and their respective businesses, which information,
knowledge or data shall have been obtained by the Executive during the
Executive's employment by the Company or the affiliated companies and which
information, knowledge or data shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those persons designated by the Company. In no event shall an asserted
violation of the provisions of this Section 9 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.
SECTION 10. SUCCESSORS. (a) This Agreement is personal to the
Executive, and, without the prior written consent of the Company, shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. "Company" means the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid that assumes and agrees to
perform this Agreement by operation of law or otherwise.
-16-
SECTION 11. MISCELLANEOUS. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified other than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(a) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Steven J. Douglass
Payless ShoeSource, Inc.
3231 SE Sixth Avenue
Topeka, Kansas 66607
If to the Company:
Payless ShoeSource, Inc.
3231 SE Sixth Avenue
Topeka, Kansas 66607
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such United States federal, state or local or foreign taxes
as shall be required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) From and after the Effective Date or the date that a
Potential Change of Control occurs, and except as expressly set forth herein,
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof, including the Amended and Restated
Employment Agreement, dated October 1,
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2003 (the "Employment Agreement"); provided, however, in no event shall this
Agreement supersede or replace the Indemnification Agreement between the
Executive and the Company, dated as of March 22, 2000 as from time to time
amended prior to the Effective Date; and provided further that, to the extent
not inconsistent with any provision hereof, the following provisions of the
Employment Agreement shall remain in effect during the Change of Control Period:
Paragraphs 1(g)(ii) (relating to the grant of certain equity-based awards),
1(g)(iii) (relating to the Executive's benefit under the SRP (as defined in the
Employment Agreement)), 1(g)(iv) (relating to the Executive's entitlement under
the Retiree Medical Plan (as defined in the Employment Agreement)), 3 (relating
to non-competition), 5(d) and 5(e)(iv) (relating to vesting and exercisability
of certain equity awards), and 8(a) (relating to certain remedies that the
Company and the Executive shall have).
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IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from the Board, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
/s/ Steven J. Douglass
---------------------------------------------------
Steven J. Douglass
PAYLESS SHOESOURCE, INC.
By /s/ Jay A. Lentz
-----------------------------------------------
Name: Jay A. Lentz
Title: Senior Vice President -- Human Resources