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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Payless ShoeSource, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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[Payless ShoeSource Logo]
3231 SOUTH EAST SIXTH AVENUE
TOPEKA, KANSAS 66607
April 19, 2001
Dear Fellow Shareowner,
On behalf of the Board of Directors and Management of Payless ShoeSource,
Inc., I cordially invite you to attend the Annual Meeting of Shareowners at the
Washburn University Bradbury Thompson Center, on the corner of 17th Street and
Jewell Avenue, Topeka, Kansas on Friday, May 25, 2001, at 10:00 a.m., Central
Daylight Saving Time. At the meeting, you will hear a report on the Company's
progress in 2001, our strategies for the future, and you will have a chance to
meet the Company's directors and executives. In addition, we will conduct the
following business:
I. Elect two directors, each for a three-year term
II. Ratify the appointment of Arthur Andersen LLP as independent
accountants for fiscal year 2001
III. Approve the performance goals for the Payless ShoeSource, Inc.
Executive Incentive Compensation Plan
IV. Approve the Amendment of the Payless ShoeSource, Inc. Deferred
Compensation 401(k) Mirror Plan
V. Conduct other business, if properly raised
In the following pages you will find the formal notice of the meeting and
the proxy statement. The proxy statement provides more detail about the agenda
and procedures for the meeting and includes biographical information about the
director candidates.
Even if you only own a few shares, we want your shares to be represented at
the meeting. I urge you to complete, sign, date and return your proxy card
promptly in the enclosed envelope or vote via the Internet as indicated on the
proxy card and instructions. To attend the meeting in person, please follow the
instructions on page 1.
Thank you for your investment in Payless ShoeSource.
Sincerely,
/s/ Steven J. Douglass
Steven J. Douglass
Chairman of the Board and Chief
Executive Officer
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DIRECTIONS TO WASHBURN UNIVERSITY BRADBURY THOMPSON CENTER
The Bradbury Thompson Center is located on the Washburn University Campus
on the southwest corner of 17th Street and Jewell Avenue. The Annual Meeting
will be held in the Ruth Garvey Fink Room, First Floor of the Bradbury Thompson
Center.
Parking is available for you in Parking Lots 10 and 11. From the parking
lot, you may enter the Bradbury Thompson Center from the south or east
entrances.
[MAP]
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[Payless ShoeSource Logo]
NOTICE OF PAYLESS SHOESOURCE, INC., ANNUAL MEETING OF SHAREOWNERS
DATE:
May 25, 2001
TIME:
10:00 a.m., Central Daylight Saving Time
PLACE:
Washburn University Bradbury Thompson Center
Corner of 17th Street and Jewell Avenue
Topeka, Kansas
PURPOSES:
I. Elect two directors, each for a three-year term
II. Ratify the appointment of Arthur Andersen LLP as independent
accountants for fiscal year 2001
III. Approve the performance goals for the Payless ShoeSource, Inc.
Executive Incentive Compensation Plan
IV. Approve the Amendment of the Payless ShoeSource, Inc. Deferred
Compensation 401(k) Mirror Plan
V. Conduct other business, if properly raised
WHO MAY VOTE?
Only shareowners of record on April 9, 2001, may vote at the meeting.
Your vote is important. Please promptly complete, sign, date and return
your proxy card in the enclosed envelope. You may also vote via the Internet at
HTTP://WWW.UMB.COM/PROXY. If you attend the meeting, you may revoke your proxy
and vote in person, if you wish to do so.
/s/ WILLIAM J. RAINEY
William J. Rainey
Secretary
April 19, 2001
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[Payless ShoeSource Logo]
PROXY STATEMENT
WHAT ARE THE PURPOSES OF THIS MEETING?
The purposes of this meeting are to (i) elect two directors, each for a
three-year term; (ii) ratify the appointment of Arthur Andersen LLP as the
Company's independent accountants for fiscal year 2001; (iii) approve the
performance goals for the Payless ShoeSource, Inc. Executive Incentive
Compensation Plan (the "EICP"); (iv) approve the amendment of the Payless
ShoeSource, Inc. Deferred Compensation 401(k) Mirror Plan (the "Mirror Plan");
and (v) conduct other business, if properly raised.
WHO MAY VOTE?
Shareowners of Payless ShoeSource, Inc., a Delaware corporation ("Payless"
or the "Company"), as recorded in our stock register on April 9, 2001, may vote
at the meeting.
HOW TO VOTE?
You may vote in person at the meeting or by proxy. Proxies may be submitted
either via United States Mail or the Internet at HTTP://WWW.UMB.COM/PROXY. We
recommend you vote by proxy even if you plan to attend the meeting. If you
attend the meeting, you may revoke your proxy and vote in person, if you wish to
do so.
HOW DO PROXIES WORK?
The Board of Directors is asking for your proxy. Giving us your proxy means
you authorize us to vote your shares at the meeting in the manner you direct.
You may vote for all, some or none of our director candidates. You also may vote
for or against the other proposals or abstain from voting. If you sign and
return the enclosed proxy card but do not specify how to vote, we will vote your
shares in favor of our director candidates and in favor of the Management
proposals.
WHY DID I RECEIVE MULTIPLE PROXY CARDS?
You may receive more than one proxy or voting instruction card depending on
how you hold your shares. You will receive a proxy card for shares registered in
your name. Payless employees will receive voting instruction cards for the
aggregate number of shares they hold in the Company's profit sharing plan and
for shares held by the employee stock purchase plan. If you hold shares through
someone else, such as a stockbroker, you may also get material from them asking
how you want to vote.
HOW DO I REVOKE MY PROXY?
You may revoke your proxy before it is voted by submitting a new proxy card
with a later date or subsequently voting via the Internet. Record holders may
also revoke their proxy by voting in person at the meeting or by notifying the
Company's Secretary in writing at the address listed under "Questions" on page
26.
WHAT IS A QUORUM?
In order to carry on the business of the meeting, we must have a quorum.
This means at least a majority of the outstanding shares eligible to vote must
be represented at the meeting, either in person or by proxy. Shares owned by
Payless' affiliates are not voted and do not count for this purpose.
HOW MANY VOTES ARE NEEDED?
The director candidates receiving the most votes will be elected to fill
the seats on the Board. The other Management proposals will pass if a majority
of the votes cast on each proposal are in favor of it. We count abstentions and
broker non-votes to determine if a quorum is present, but not to determine if a
proposal passes. When a broker returns a proxy, but does not have authority to
vote on a particular proposal, we call it a "broker non-vote."
WHO MAY ATTEND THE MEETING?
Only shareowners, their proxy holders and the Company's guests may attend
the meeting. The lower half of your proxy or voting instruction card is your
admission ticket. Please bring the admission ticket with you to the meeting.
If you hold your shares through someone else, such as a stockbroker, send
proof of your ownership to the Secretary at the address listed under "Questions"
on page 26, and we will send you an admission ticket. Alternatively, you may
bring proof of ownership with you to the meeting. Acceptable proof could include
an account statement showing that you owned Payless shares on April 9, 2001.
-------------------------
This Proxy Statement and the enclosed form of proxy are being mailed to
shareowners
on or about April 19, 2001.
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PROPOSAL I: ELECTION OF DIRECTORS
PROPOSAL I ON THE ACCOMPANYING PROXY CARD.
DIRECTORS AND NOMINEES FOR DIRECTORS
The Board currently consists of nine Directors divided into three classes
serving staggered terms. However, concurrent with the retirement of Mr. Hays,
the Board decreased its size to eight directors. Six of the Company's current
Directors are serving in two classes with terms that continue beyond the Annual
Meeting, and they are not subject to election at the Annual Meeting. Three
Directors, Messrs. Daniel Boggan Jr., Thomas A. Hays and Michael E. Murphy,
serve in a class with a term that expires at the Annual Meeting. Messrs. Boggan
and Murphy are nominees of the Board for reelection at the Annual Meeting. In
accordance with the Board of Directors' Charter, Mr. Hays will not stand for
reelection. If elected at the Annual Meeting, each of Messrs. Boggan and Murphy
will serve a term of three years to expire at the Annual Meeting of Shareowners
to be held in the year 2004 or until his successor is elected and qualifies.
Messrs. Steven J. Douglass, Howard R. Fricke and Ken C. Hicks have terms
expiring at the 2002 Annual Meeting of Shareowners and Ms. Mylle B. Mangum, and
Messrs. Robert L. Stark and Irwin Zazulia have terms expiring at the 2003 Annual
Meeting of Shareowners.
Each nominee has consented to being named as a nominee and to serve, if
elected. If any nominee should subsequently become unavailable for election, the
holders of proxies may, in their discretion, vote for a substitute or the Board
may reduce the number of Directors to be elected.
Further information concerning the nominees for election as Directors at
the Annual Meeting, Continuing Directors and the Retiring Director, including
their employment during at least the past five years, appears below.
DIRECTORS SUBJECT TO ELECTION:
DANIEL BOGGAN JR. is 55 years old and has served as Senior Vice President
of The National Collegiate Athletic Association (the "NCAA") since August 1998.
He joined the NCAA in 1994 as Group Executive Director for Education Services
and served as Chief Operating Officer from January 1996 to August 1998. Prior to
his tenure with the NCAA, Mr. Boggan was Vice Chancellor of the University of
California from 1986 to 1994, and City Manager of Berkeley, California from 1982
to 1986. Mr. Boggan is a director of The Clorox Company and Administar Federal.
Mr. Boggan has served as a Director of Payless since September 18, 1997.
MICHAEL E. MURPHY is 64 years old and is the former Vice Chairman and Chief
Administrative Officer of Sara Lee Corporation ("Sara Lee"). He served in such
capacity from 1994 through 1997. In addition, he served as a director of Sara
Lee from 1979 through October 1997. Mr. Murphy joined Sara Lee in 1979, serving
as Executive Vice President and Chief Financial and Administrative Officer from
1979 to 1993 and as Vice Chairman and Chief Financial and Administrative Officer
from 1993 to 1994. Mr. Murphy is a member of the Chicago Committee of the
Chicago Council on Foreign Relations, and a director of American General
Corporation, Bassett Furniture Industries, Inc., True North Communications,
Inc., Coach, Inc., Civic Federation, Big Shoulders Fund, Chicago Cultural Center
Foundation, Chicago's Lyric Opera and GATX Corporation. Mr. Murphy is also a
member of the Board of Trustees of Northern Funds (a family of mutual funds).
Mr. Murphy has served as a Director of Payless since April 30, 1996.
THE BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PAYLESS COMMON STOCK VOTE IN
FAVOR OF ALL OF THE ABOVE NOMINEES.
CONTINUING DIRECTORS:
STEVEN J. DOUGLASS is 51 years old and has served as Chairman of the Board
and Chief Executive Officer of Payless since May 4, 1996, the date on which the
Payless Common Stock was distributed in a spin-off by The May Department Stores
Company ("May") to its shareowners (the "Spin-off "). Mr. Douglass served as
Chairman and Chief Executive Officer of Payless from April 1995 to the Spin-off.
He joined Payless
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in 1993 and served as Senior Vice President/Director of Retail Operations from
1993 to January 1995 and as Executive Vice President/Director of Retail
Operations from January 1995 to April 1995. Prior to his association with
Payless, Mr. Douglass held several positions at divisions of May, serving as
Chairman of May Company, Ohio (1990-1993) and Senior Vice President and Chief
Financial Officer of J.W. Robinsons (1986-1990). Mr. Douglass is a director of
The Security Benefit Group of Companies. Mr. Douglass has served as a Director
of Payless since April 30, 1996.
KEN C. HICKS is 48 years old and has served as President of Payless since
January 28, 1999. Before joining Payless, he was Executive Vice President and
General Merchandise Manager for Home Shopping Network, Inc. Prior to his
association with Home Shopping Network, Inc., Mr. Hicks held several positions
with May serving as Senior Vice President and General Merchandise Manager of
Foley's Department Stores (1995-1998), Senior Vice President and General
Merchandise Manager for May Merchandising Company (1990-1995) and as Senior Vice
President of Strategic Planning for May (1987-1990). Mr. Hicks has served as a
Director of Payless since January 28, 1999.
HOWARD R. FRICKE is 65 years old and has been Chairman of the Board of The
Security Benefit Group of Companies since 1988. He also served as Chief
Executive Officer from 1998 through January 2001. Mr. Fricke also serves as a
director of The Security Benefit Group of Companies and ONEOK, Inc. Mr. Fricke
has served as a Director of Payless since April 30, 1996.
MYLLE B. MANGUM is 52 years old and has served as Chief Executive Officer
of MMS Incentives LLC since June 1999. Prior to her association with MMS
Incentives LLC, she served as President-Global Payment Systems and Senior Vice
President-Expense Management and Strategic Planning for CWT Holdings, Inc. from
1997 to 1999. She was previously Executive Vice President-Strategic Management
for Holiday Inn Worldwide from 1992 to 1997. Ms. Mangum was previously employed
with BellSouth Corporation as Director-Corporate Planning and Development from
1986 to 1992. She is a director of Scientific-Atlanta, Inc. and Haverty
Furniture Companies, Inc. Ms. Mangum has served as a Director of Payless since
November 20, 1997.
ROBERT L. STARK is 68 years old and was Dean of the Edwards Campus at the
University of Kansas from 1993 until his retirement in August 1997. Prior to his
becoming Dean, Mr. Stark was employed by Hallmark Cards, Inc. ("Hallmark") for
35 years in various capacities, including: Executive Vice President and
President of the Personal Communication Group; Senior Vice President and Group
Vice President of Hallmark; and President of Hallmark Canada. Mr. Stark
previously served as a director of Hallmark (1976-1993) and as a director of
four other New York Stock Exchange listed companies. Mr. Stark has served as a
Director of Payless since April 30, 1996.
IRWIN ZAZULIA is 59 years old and was the President and Chief Executive
Officer of Hecht's, a division of May, from 1980 until his retirement in July
2000. From 1971 to 1979, he served in a number of positions for Hecht's,
including Vice Chairman, Executive Vice President, responsible for
merchandising, Vice President and General Merchandise Manager for apparel and
accessories, and Divisional Merchandise Manager of Ready-to-Wear. Mr. Zazulia is
also a director of the Federal Reserve Bank of Richmond, VA, and serves on
Georgetown University's Board of Regents Career Committee and the Wish Friends
Board of Directors in support of the Make-A-Wish Foundation. Mr. Zazulia has
served as a Director of Payless since November 16, 2000.
RETIRING DIRECTOR:
THOMAS A. HAYS is 68 years old and is the former Deputy Chairman of May. He
had served in such capacity from 1993 through April 1996. He served as a
director of May from 1983 through 1996. Mr. Hays joined May in 1969 in the
finance and operations areas. From 1972 to 1984, he served as Chairman,
President or Chief Executive Officer of several operating divisions of May. Mr.
Hays was named Vice Chairman of May in 1982 and President in 1985. Mr. Hays is
also a director of Ameren Corporation and Leggett & Platt, Incorporated. Mr.
Hays has served as a Director of Payless since April 30, 1996.
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THE BOARD AND COMMITTEES OF THE BOARD
The Board of Directors of the Company held a total of eight meetings during
fiscal 2000. No Director attended less than 75% of the aggregate of (i) the
total number of board meetings held during the period for which such director
held such office and (ii) the total number of meetings held by all Board
committees on which such director served during the periods that such director
served.
The Board has two committees: an Audit and Finance Committee (the "Audit
and Finance Committee") and a Compensation and Nominating Committee (the
"Compensation Committee").
Compensation of Directors. Management directors are not entitled to
additional compensation for their service as a Director, attendance at Board or
committee meetings or at meetings of the shareowners. Under the Company's
Restricted Stock Plan for Non-Management Directors, each Director who is not an
officer of Payless receives 1,000 shares of Payless Common Stock upon joining
the Board. As of the date of each annual meeting, non-management directors also
are awarded an annual fee of $35,000 payable in Payless Common Stock and cash
compensation of $15,000. All such shares of Payless Common Stock are subject to
restrictions on transferability and to forfeiture. For 2000, the annual fee of
$35,000 was paid as 679 shares of Payless Common Stock per non-management
director, as determined based upon the arithmetic average of the high and low
trading prices of the shares on the date of the annual meeting, May 26, 2000.
The cash portion of the annual fee vests one-fifth on the date of each regular
meeting of the Board following the annual meeting. Non-management directors may
elect to defer all or any portion of their compensation under the Deferred
Compensation Plan for Non-Management Directors of Payless.
The Restricted Stock Plan for Non-Management Directors referred to above
provides for the issuance of not more than 300,000 shares of Payless Common
Stock, subject to adjustment for changes in the Company's capital structure. The
initial grant of shares vest 20% per year over a five year period following the
date of the grant. The annual retainer shares vest one-half on November 1
following the date of the grant (annual meeting date), and one-half on May 1
following the date of the grant. Shares awarded under the plan may not be sold
during a person's tenure as a Director. The Restricted Stock Plan for
Non-Management Directors may not be amended in a manner that would increase the
number of shares of Payless Common Stock issuable thereunder, change the class
of persons eligible to participate thereunder or otherwise materially increase
benefits or modify eligibility requirements without shareowner approval.
The Deferred Compensation Plan for Non-Management Directors referred to
above allows each Director to defer receipt of any fee received for services as
a Director, whether payable as restricted stock or cash, until after the
calendar year in which the person ceases to serve as a Director.
Audit and Finance Committee. The Audit and Finance Committee recommends to
the Board the firm of independent public accountants to audit the Company's
financial statements, the proposed engagement arrangements for the independent
public accountants for each fiscal year and the advisability of having the
independent public accountants perform consulting or other special projects and
make specified studies and reports regarding auditing matters, accounting
procedures, tax or other matters. The Audit and Finance Committee reviews
results of the audit for each fiscal year, such accounting policies of the
Company as are deemed appropriate for review by the Audit and Finance Committee,
the coordination between the independent public accountants and the Company's
internal auditing group, the scope and procedures of the Company's internal
audit work and the quality and composition of the Company's internal audit
staff. The Audit and Finance Committee is responsible for reviewing and making
recommendations to the Board with respect to matters such as the following: the
financial policies of the Company; debt ratings; short-term versus long-term
debt positions; debt-to-capitalization ratios; fixed charge coverage; working
capital and bank lines; dividend policy; the long-range financial plans of the
Company; the Company's capital expenditure program, including rate of return
standards and evaluation methods; specific debt and/or equity placement
activities; external financial relationships with investment bankers, commercial
bankers, insurance companies, etc.; financial public relations and communication
programs; profit sharing plan investments; financial aspects of proposed
acquisitions and/or divestitures; and the Company's insurance and risk
management program. The members of the Audit and Finance Committee, during the
2000 fiscal year, were Messrs. Murphy (Chairman), Fricke and Stark, each of whom
was an independent director as required by the rules of the New
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York Stock Exchange, Inc. (the "NYSE"). During the 2000 fiscal year, the Audit
and Finance Committee met four times.
Compensation and Nominating Committee. The functions of the Compensation
Committee include such matters as considering and recommending to the Board and
the Company's management the overall compensation programs of the Company,
reviewing and approving the compensation payable to the senior management
personnel of the Company and reviewing and monitoring the executive development
efforts of the Company to assure development of a pool of management and
executive personnel adequate for orderly management succession. The Compensation
Committee reviews significant changes in employee benefit plans and stock
related plans; serves as the "Committee" under the Company's stock incentive
plan, stock appreciation and phantom stock plan for international employees,
executive incentive compensation plans for the Company executives, supplementary
retirement plan and a deferred compensation plan; and identifies and recommends
candidates for Directors of the Board, members of committees and the successor
to the chief executive officer. The Compensation Committee considers suggestions
as to nominees for Directors from any source, including any shareowner. To
potentially be brought before the 2002 Annual Meeting, the recommendation must
be in writing, submitted to the Corporate Secretary of Payless at 3231 South
East Sixth Avenue, Topeka, Kansas, 66607, at least 75 and not more than 90 days
prior to the 2002 Annual Meeting, and otherwise comply with the terms of the
Company's Bylaws. The members of the Compensation Committee during the last
fiscal year were Messrs. Hays (Chairman), Boggan and Zazulia and Ms. Mangum,
each of whom was a "non-employee director" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934 (the "Exchange Act"), and an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). During the 2000 fiscal year, the Compensation
Committee met five times.
The Board may, from time to time, establish certain other committees to act
on behalf of the Board of Directors.
AUDIT AND FINANCE COMMITTEE REPORT
The following Report of the Audit and Finance Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other Company filing under the Securities Act of 1933 or the Exchange
Act, except to the extent the Company specifically incorporates this Report by
reference therein.
During fiscal 2000, the Audit and Finance Committee of the Board of
Directors developed an updated charter for the Committee, which was approved by
the full Board on March 16, 2000. The complete text of the new charter, which
reflects standards set forth in new Securities and Exchange Commission ("SEC")
regulations and New York Stock Exchange rules, is reproduced in Appendix A to
this proxy statement.
The Committee has implemented procedures to ensure that during the course
of each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under the Committee's charter.
To carry out its responsibilities, the Committee met four times during fiscal
2000.
The Audit and Finance Committee reviews the Company's financial reporting
process on behalf of the Board of Directors. Management has the primary
responsibility for the financial statements and the reporting process. The
Company's independent public accountants are responsible for expressing an
opinion on the conformity of our audited financial statements to generally
accepted accounting principles.
In this context, the Audit and Finance Committee has reviewed and discussed
with management and the independent public accountants the audited financial
statements. The Audit and Finance Committee has discussed with the independent
public accountants the matters required to be discussed by the Statement on
Auditing Standards No. 61 (Communication with Audit Committees). In addition,
the Audit and Finance Committee has received from the Company's independent
public accountants the written disclosures required by Independence Standards
Board No. 1 (Independence Discussions with Audit Committees) and discussed with
them their independence from the Company and its management. The Audit and
Finance Committee
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has also considered whether the independent public accountants provision of
information technology services and other non-audit services to the Company is
compatible with their independence.
In reliance on the reviews and discussions referred to above, the Audit and
Finance Committee recommended to the Board of Directors, and the Board has
approved, that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the fiscal year ended February 3, 2001, for
filing with the SEC.
Audit and Finance Committee:
Michael E. Murphy -- Chairman
Howard R. Fricke
Robert L. Stark
COMPENSATION AND NOMINATING COMMITTEE REPORT
The Compensation Committee (the "Committee") reviews and approves, among
other things, the compensation payable to each of the executive officers named
in the Summary Compensation Table on page 12.
Compensation Philosophy. The Company's basic compensation philosophy is
that the compensation program should:
1) attract, retain and motivate highly qualified executives;
2) be competitive;
3) align the executive's compensation with the Company's objectives; and
4) be related to the value created for shareowners.
Compensation for executive officers is comprised of a base salary, bonus
opportunities and long-term stock incentives. The Committee regularly reviews
compensation based on the Company's compensation philosophy, the performance of
Payless and competitive practices. As part of its review of competitive pay
levels, the Committee looks at the base salary levels, annual bonus levels and
long-term incentives of a broad group of companies, including some of the
companies in the peer group represented in the Stock Price Performance graph on
page 11, and other retail companies of similar size to Payless (the "survey
companies").
Base Salary. Base salaries are targeted at approximately the 50th
percentile of base salaries for comparable executive officer positions at the
survey companies. The Committee annually reviews and adjusts base salaries based
on the Committee's discretionary assessment of each individual executive's
performance and competitive pay levels. Base salaries for all executive officers
with the Company more than one year increased an average of 7.3% percent during
fiscal 2000.
Bonus Opportunities. The Executive Incentive Compensation Plan for Payless
Executives (the "EICP") and the Executive Incentive Compensation Plan for Annual
Awards for Merchandising and Retail Operations Functions (the "Retail EICP")
provide an opportunity for all executive officers to earn bonuses based on both
annual and long-term results. Both the annual and long-term bonus opportunities
are targeted at approximately the 65th percentile of the bonus opportunities for
comparable positions at the survey companies for targeted above-market
performance. Executive officers are eligible to receive annual cash awards for
individual fiscal years and long-term cash awards for long-term performance
periods of three years. The long-term performance period covers fiscal
1998-2000, except for executive officers who have been eligible to participate
in the EICP for less than the three year performance period. For the first year
of eligibility to participate in the EICP, the long-term performance period is
the then current fiscal year; for the second year of eligibility, the long-term
performance period will consist of the then current fiscal year plus the prior
year; and for the third year of eligibility, the long-term performance period
will be the full three-year period.
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EICP. The annual and long-term awards are based upon attaining earnings
per share ("EPS") targets and return on net assets ("RONA") performance
standards relating to Payless as a whole. Awards are subject to automatic upward
or downward adjustment to reflect the Company's performance in EPS growth and
RONA as compared to a group of peer companies designated in advance by the
Committee. The relative rank adjustment varies depending on the number of peer
companies designated by the Committee. For long-term performance periods
beginning prior to fiscal 1999, the Committee designated 17 peer companies (the
"Prior Peer Group") consisting of Charming Shoppes, Inc., Circuit City Stores,
Inc., Target Corporation, The Gap, Inc., The Home Depot, Inc., Kmart
Corporation, The Limited, Inc., Lowe's Companies, Inc., The Pep Boys-Manny, Moe
& Jack, Costco Wholesale Corporation (formerly known as Price/Costco, Inc.),
Sears, Roebuck and Co., The TJX Companies, Inc., Tandy Corporation, Toys "R" Us,
Inc., Wal-Mart Stores, Inc., Venator Group, Inc., and Footstar, Inc. For the
Prior Peer Group, if Payless ranks first through fifth, the award for that
measure is not less than the target level; if Payless ranks sixth through ninth,
the award for that measure is not less than threshold level; and if Payless
ranks fourteenth through eighteenth, the award for that measure is not more than
threshold level.
For annual and long-term performance periods beginning on or after fiscal
1999, the group of peer companies consists of the following 14 companies (the
"Peer Group"): The Gap, Inc., The Limited, Inc., Ross Stores, Inc., The TJX
Companies, Inc., Brown Shoe Company, Inc., Footstar, Inc., Genesco Inc., Shoe
Carnival, Inc., The Finish Line, Inc., Venator Group, Inc., Target Corporation,
Dollar General Corporation, Family Dollar Stores, Inc., and Wal-Mart Stores,
Inc. For the Peer Group, if Payless ranks first through fourth, the award for
that measure is not less than the target level; if Payless ranks fifth through
seventh, the award for that measure is not less than threshold level; and if
Payless ranks twelfth through fifteenth, the award for that measure is not more
than threshold level. In each case, the Company's relative rank is determined
based on data reviewed by the Company's independent public accountants.
The long-term award is also subject to an automatic upward (up to 50%) or
downward (up to 25%) adjustment based on the performance of the Company's Common
Stock price over the long-term performance periods. For this purpose, the
performance of the Company's Common Stock is based on the difference between the
average closing price of the Company's Common Stock on the NYSE during the month
of February of the calendar year in which a long-term performance period begins
and the average closing price of the Company's Common Stock during the month of
February of the calendar year in which such long-term performance period ends.
The annual award for fiscal 2000 could have ranged between 0% and 75% of
base salary for the CEO, between 0% and 62.5% of base salary for the President
and between 0% and 45% of base salary for the other executive officers named in
the Summary Compensation Table. For fiscal 2000, the threshold annual award was
25% of base salary for the CEO, 20.83% of base salary for the President and 15%
of base salary for the other executive officers named in the Summary
Compensation Table. The target annual award for fiscal 2000 was 50% of base
salary for the CEO, 41.67% of base salary for the President and 30% of base
salary for the other executive officers named in the Summary Compensation Table.
The long-term award for fiscal 2000 could have ranged between 0% and 50% of
average base salary over the long-term performance period for the CEO, between
0% and 41.67% of average base salary over the long-term performance period for
the President and between 0% and 30% of average base salary over the long-term
performance period for the other executive officers named in the Summary
Compensation Table. For fiscal 2000, the threshold long-term award was 16.67% of
average base salary over the long-term performance period for the CEO, 13.89% of
average base salary over the long-term performance period for the President and
10% of average base salary over the long-term performance period for the other
executive officers named in the Summary Compensation Table, and the target
long-term award was 33.33% of average base salary over the long-term performance
period for the CEO, 27.78% of average base salary over the long-term performance
period for the President and 20% of average base salary over the long-term
performance period for the other executive officers named in the Summary
Compensation Table. All long-term awards are subject to the adjustment described
above regarding stock price performance over the long-term period. The awards
for the executive officers named in the Summary Compensation Table may also be
adjusted downward on a discretionary basis by the Committee.
7
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For the annual performance period, the Company's performance was between
the threshold and the target performance levels for both EPS and RONA. The
Company's rank relative to the companies comprising the Peer Group was 10th with
respect to annual RONA, and 8th with respect to annual EPS growth. Therefore, no
adjustment was made to the payout for either annual EPS growth or annual RONA
based on the Company's relative rank. For the three-year "long-term" performance
period, fiscal 1998 to 2000, the Company's performance was below the threshold
performance level for EPS and between the threshold and the target performance
levels for RONA. The Company's rank relative to the companies comprising the
Prior Peer Group was 11th with respect to long-term RONA and 12th with respect
to long-term EPS growth. Therefore, no adjustment was made for either long-term
EPS growth or long-term RONA based on the Company's relative rank to the
companies comprising the Prior Peer Group. The price of the Company's Common
Stock increased $6.86 for the three-year "long-term" performance period above,
resulting in a 10.23% increase in long-term bonuses.
For Messrs. Hicks and Haugh and other officers with a two-year long-term
performance period, the Company's performance was below the threshold
performance levels set by the Committee for both EPS and RONA. The Company's
rank relative to the companies comprising the Peer Group was 10th with respect
to RONA and 10th with respect to EPS growth. Therefore, if there had been a
payout for long-term EPS growth or long-term RONA, no adjustment would have been
made based on the Company's relative rank. For the two-year long-term
performance period, the price of the Company's Common Stock increased $20.04
which would have resulted in a 37.18% increase in long-term bonuses, if any were
being paid.
Retail EICP. The Retail EICP is modeled after the EICP and provides an
opportunity for management employees selected by the Committee to earn annual
bonus awards based upon their annual performance as compared to certain
predetermined performance targets set by the Committee for gross margin rate,
inventory turnover, sales, return on sales or gross margin contribution based
upon the executive's area of responsibility. Executives that participate in the
Retail EICP with respect to annual awards participate in the EICP with respect
to the long-term awards. The annual awards under the Retail EICP are subject to
upwards or downwards adjustment based upon the Committee's determination, in its
sole discretion. In reviewing Mr. Haugh's award under the Retail EICP, the
Committee determined that the award under the Retail EICP did not appropriately
reward him for his contributions to the Company during the year. Consistent with
the Company's compensation philosophy, the Committee adjusted Mr. Haugh's annual
award from 7.33% to 19.83% of base salary.
The above performance resulted in the following annual and long-term bonus
awards before any adjustments by the Committee:
ANNUAL BONUS AWARD LONG-TERM BONUS AWARD
(PERCENTAGE OF BASE SALARY) (PERCENTAGE OF BASE SALARY)
--------------------------- ---------------------------
CEO............................................... 38.39% 16.07%
President......................................... 31.99% 0.0%
Each other Executive Officer participating in the
EICP............................................ 23.04% 9.65%
Each other Executive Officer participating in the
Retail EICP with a two-year long-term
performance period in the EICP.................. 7.33% 0.0%
Long-Term Stock Incentives. Payless may provide for long-term stock
incentives with stock options, restricted stock, stock appreciation rights,
phantom stock and performance units, which are designed to attract, retain and
motivate management employees and relate their compensation directly to the
performance of the Company's Common Stock. The mix of such awards is determined
by the Committee, in its sole discretion. The Committee has adopted a program
for long-term stock incentives with the goals of retaining and motivating
executives, providing rewards commensurate with the growth in the value of
Payless and aligning management interests more closely with those of Payless'
shareowners. As part of this policy, the Committee believes that the long-term
incentives provided to the executives of Payless should be targeted at
approximately the 50th percentile of the long-term incentive opportunities for
comparable positions at the survey companies. For 2000, the long-term stock
incentives consisted of grants of stock options and restricted
8
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stock to employees, including executive officers, in amounts as determined by
the Compensation Committee, in its sole discretion.
In 2000, the Committee authorized grants of stock options and restricted
stock to employees, including executive officers. The awards are intended to
serve as the long-term stock incentives for the period 2000-2002. This practice
is consistent with the grants of options on shares of the Company's Common Stock
and restricted stock made in 1997, which served as the long-term stock incentive
for the period 1997-1999. Under the 2000 grant, the CEO received a grant of
11,000 shares of restricted Payless Common Stock and options on 175,000 shares
of the Company's Common Stock; the President of Payless received a grant of
7,500 shares of restricted Payless Common Stock and options on 82,500 shares of
the Company's Common Stock; the Executive Vice President of Payless received a
grant of 9,000 shares of restricted Payless Common Stock and options on 52,000
shares of the Company's Common Stock; and each other executive officer received
2,800 shares of restricted Payless Common Stock and options on 19,500 shares of
the Company's Common Stock. The restricted stock awards will vest one-third on
each of the second, third and fourth anniversaries of the date of the grant. The
stock option awards will vest one-fourth on each of the first four anniversaries
of the respective grant dates.
Consistent with the Company's compensation philosophy, the Committee
evaluated the current market for hiring and retaining chief executive officers,
compensation for comparable positions at other retail companies of similar size
to the Company and the performance of the Company. On March 15, 2001, the
Committee authorized the Company granting options on 120,000 shares of the
Company's Common Stock to Mr. Douglass. The options will have an exercise price
equal to the average of the high and low stock price for the Company's Common
Stock on May 25, 2001. The options will vest on 15,000 shares on each of the
first two anniversaries of the grant date, on 20,000 shares on each of the third
and fourth anniversaries of the grant date, and on 25,000 shares on the fifth
and sixth anniversaries of the grant date. In addition, the Committee authorized
the grant of options on 280,000 shares of the Company's Common Stock at such
time as the 1996 Stock Incentive Plan is amended to permit such a grant or
another plan is approved that would permit the grant. The options on 280,000
shares of the Company's Common Stock are to be granted at the average of the
high and low trading price on the date of the grant and will vest in equal
annual installments on each anniversary of the date of grant through 2007.
CEO Pay. Based on the Company's compensation philosophy, effective April
30, 2000, the CEO's base salary increased to $800,000. The Committee noted that
Mr. Douglass' compensation was below targeted levels.
The CEO's bonus (both annual and long-term) for 2000 of $423,628 was
determined entirely by the quantitative criteria set forth above.
Executive Stock Ownership. Payless believes that it is important for every
executive of Payless to establish and maintain an equity ownership interest in
Payless that is significant relative to his or her base salary. Accordingly, in
1997, the Company adopted the following minimum stock ownership guidelines for
senior management, including executive officers.
OWNERSHIP GUIDELINES
VALUE OF SHARES OF PAYLESS
COMMON STOCK OWNED AS
POSITION A MULTIPLE OF BASE SALARY
- -------- --------------------------
CEO.................................................... 5.0 Times
President.............................................. 3.5 Times
Executive Vice President............................... 2.0 Times
Senior Vice President.................................. 1.5 Times
Vice President......................................... 1.0 Times
These guidelines are expected to be attained by the later of 2004 or within
seven years of appointment to one of the above positions. The stock ownership
guidelines may be satisfied through direct ownership of shares
9
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of Payless Common Stock, including share equivalents under the profit sharing
plan and phantom stock under the Deferred Compensation Plan. Restricted shares
of Payless Common Stock, however, are not taken into account until they vest.
Deductibility of Compensation. Section 162(m) of the Internal Revenue Code
generally disallows a tax deduction to public corporations for compensation over
$1,000,000 paid for any fiscal year to the corporation's chief executive officer
and four other most highly compensated executive officers as of the end of any
fiscal year. However, the statute exempts qualifying performance-based
compensation from the deduction limit if certain requirements are met. The
Committee currently intends to structure performance-based compensation,
including stock option grants and annual bonuses, to executive officers who may
be subject to Section 162(m) in a manner that satisfies those requirements. The
Committee, however, may award non-deductible compensation in circumstances as it
deems appropriate. Further, because of ambiguities and uncertainties as to the
application and interpretation of Section 162(m) and the regulations issued
thereunder, and other uncertainties including but not limited to the Company's
stock price, no assurance can be given, notwithstanding the Company's efforts,
that compensation intended by the Company to satisfy the requirements for
deductibility under Section 162(m) will do so.
Compensation and Nominating Committee:
Thomas A. Hays -- Chairman
Daniel Boggan Jr.
Mylle B. Mangum
Irwin Zazulia
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STOCK PRICE PERFORMANCE
The graph below compares the cumulative total shareowner return on Payless
Common Stock against the cumulative returns of the Standard and Poor's
Corporation Composite Index (the "S&P 500 Index") and the Peer Group, some of
which are competitors and all of which were used in determining bonuses under
the Company's performance based bonus plans.
[LINE GRAPH]
PAYLESS SHOESOURCE
INC S&P 500 INDEX PEER GROUP
------------------ ------------- ----------
5/6/96 100.00 100.00 100.00
8/3/96 112.78 96.99 104.29
11/2/96 120.26 111.31 109.80
2/1/97 132.16 124.70 103.30
5/3/97 151.54 130.01 121.37
8/2/97 211.45 149.83 158.68
11/1/97 196.48 144.59 156.92
1/30/98 229.30 155.58 177.53
5/2/98 252.86 177.11 226.69
8/1/98 199.12 177.26 263.79
10/31/98 165.42 174.47 271.09
1/30/99 183.48 203.89 353.48
5/1/99 170.71 232.10 383.45
7/31/99 190.31 231.73 363.77
10/30/99 161.46 238.46 429.53
1/29/00 145.16 244.69 415.90
4/29/00 194.27 255.61 421.15
7/29/00 182.82 250.60 435.60
10/28/00 203.96 242.17 329.95
2/3/01 245.50 237.61 423.81
COMPARISON OF 55-MONTH CUMULATIVE RETURNS
OF THE COMPANY, THE S&P 500 INDEX AND THE PEER GROUP
MAY 4, FEBRUARY 3,
1996 2001
------- -----------
Payless........................................... $100.00 $245.50
S&P 500........................................... 100.00 237.61
Peer Group........................................ 100.00 423.81
The graph assumes $100 was invested on May 4, 1996, (the date of the
Spin-Off) in Payless Common Stock, in the S&P 500 Index, and in the Peer Group,
and assumes the reinvestment of dividends.
Companies comprising the Peer Group are: The Gap, Inc., The Limited, Inc.,
Ross Stores, Inc., The TJX Companies, Inc., Brown Shoe Company, Inc., Footstar,
Inc., Genesco Inc., Shoe Carnival, Inc., The Finish Line, Inc., Venator Group,
Inc., Target Corporation, Dollar General Corporation, Family Dollar Stores,
Inc., and Wal-Mart Stores, Inc.
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EXECUTIVE COMPENSATION
The table below shows the compensation paid or accrued by the Company on
behalf of the CEO and the Company's five other most highly compensated executive
officers (determined as of the end of the last fiscal year) for the last three
fiscal years ended February 3, 2001, January 29, 2000, and January 30, 1999,
respectively or such shorter time as they were employed by Payless.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------------- -------------------------------------
PAYOUTS
SECURITIES ----------
OTHER RESTRICTED UNDERLYING LONG-TERM
NAME AND ANNUAL ANNUAL STOCK STOCK INCENTIVE ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) AWARDS(4) OPTIONS (#) PAYOUTS(5) COMPENSATION(6)
------------------ ---- --------- -------- --------------- ---------- ----------- ---------- ---------------
Steven J. Douglass......... 2000 $787,500 $307,120 $ 56,140 $528,688 175,000 $116,508 $ 4,932
Chairman of the Board 1999 731,250 234,375 71,179 0 0 284,453 4,969
and Chief Executive 1998 656,250 173,003 53,458 0 0 506,250 5,132
Officer
Ken C. Hicks............... 2000 537,500 175,945 96,318 360,469 82,500 0 4,932
President 1999 480,769 130,250 105,774 319,500 65,000 65,710 62,575
Duane L. Cantrell.......... 2000 383,475 89,004 0 463,188 52,000 34,423 4,932
Executive Vice President 1999 365,385 70,313 0 0 0 84,863 4,969
Operations 1998 320,000 49,985 0 0 0 146,250 5,132
John N. Haugh.............. 2000 325,000 64,447 0 134,575 19,500 0 197,031
Senior Vice President 1999 56,250 15,235 0 0 0 7,693 0
Marketing (7)
Ullrich E. Porzig.......... 2000 299,600 69,535 0 134,575 19,500 27,834 4,932
Senior Vice President 1999 289,500 54,938 0 0 0 71,586 4,969
Chief Financial Officer 1998 276,200 42,910 0 0 0 125,550 5,132
and Treasurer
Jed L. Norden.............. 2000 299,600 69,535 0 134,575 19,500 27,834 401,528
Senior Vice President 1999 289,500 54,938 0 0 0 71,586 4,969
Human Resources (8) 1998 276,200 42,910 0 0 0 125,550 5,132
- -------------------------
(1) "Salary" reflects amounts paid to or deferred by the named executive
officers during each fiscal year. Annual salary changes for each of the
named executive officers normally occur on May 1 of each year.
(2) "Annual Bonus" reflects the annual portion of the bonus paid under the
Company's EICP or Retail EICP. It also includes amounts deferred by the
particular officer.
(3) "Other Annual Compensation" includes forms of compensation required to be
reported under applicable SEC rules. For 2000, it includes for Mr. Douglass
$25,912 of imputed income due to life insurance and long-term disability
insurance coverage paid by Payless, $14,198 of automobile allowance, $13,130
of imputed income due to personal use of an airplane owned by Payless and
$2,900 for tax form preparation fees paid by Payless; and for Mr. Hicks
$2,135 of imputed income due to life insurance and long-term disability
coverage paid by Payless, $15,307 of automobile allowance, $7,436 of imputed
income due to personal use of an airplane owned by Payless, $70,000 signing
bonus and $1,440 for tax form preparation fees paid by Payless. For 1999, it
includes for Mr. Douglass $21,536 of imputed income due to life insurance
and long-term disability insurance coverage paid by Payless, $14,661 of
automobile allowance, $32,082 of imputed income due to personal use of an
airplane owned by Payless and $2,900 for tax form preparation fees paid by
Payless; and for Mr. Hicks $268 of imputed income due to life insurance and
long-term disability coverage paid by Payless, $11,468 of automobile
allowance, $22,718 of imputed income due to personal use of an airplane
owned by Payless, $70,000 signing bonus and $1,320 for tax form preparation
fees paid by Payless. For 1998, it includes for Mr. Douglass $14,156 of
imputed income due to life insurance and long-term disability insurance
coverage paid by Payless, $15,475 of automobile allowance, $20,927 of
imputed income due to personal use of an airplane owned by Payless and
$2,900 for tax form preparation fees paid by Payless.
(4) The dollar value of restricted stock awards is equal to the average of the
high and low prices of Payless Common Stock on the date of the grant,
multiplied by the total number of shares granted to the named executive
officer. Awards of restricted Payless Common Stock were made to all of the
named executive officers on March 10, 2000. Mr. Cantrell received an
additional award on August 14, 2000. One-third of the shares awarded during
fiscal 2000 will vest on each of the second, third and fourth anniversaries
of the respective grant dates. For Mr. Haugh, one-third of the shares
awarded during fiscal 2000 will vest on each of the first, second and third
anniversaries of the grant date. Messrs. Douglass, Cantrell, Porzig and
Norden vested on May 14, 2000 in the second one-third of the shares of
restricted Common Stock awarded to them in 1997 and all but Mr. Norden will
vest in the remaining one-third on May 14, 2001. Mr. Hicks vested on
February 11, 2000 in one-half of the restricted Common Stock awarded to him
in 1999 and vested in the remaining half on February 11, 2001. The aggregate
number of shares of restricted stock on which the restrictions have not
lapsed and the value of such restricted stock owned by each of the named
executive officers as of the end of fiscal year 2000 (at $70.405 per share,
the average of the high and low price) was $1,067,762 for Mr. Douglass,
representing 15,166 shares; $739,253 for Mr. Hicks, representing 10,500
shares; $736,859 for Mr. Cantrell, representing 10,466 shares; $197,134 for
Mr. Haugh, representing
12
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2,800 shares; $270,426 for Mr. Porzig, representing 3,841 shares; and
$270,426 for Mr. Norden, representing 3,841 shares. Dividends will be paid
on restricted shares at the same rate paid to all shareowners, if and when
dividends are paid.
(5) "Long-Term Incentive Payouts" represents the long-term portion of the bonus
paid under the Company's EICP. It includes amounts deferred by the
particular officer. For all executive officers except Messrs. Hicks and
Haugh, the long-term performance period is fiscal 1998-2000. For Messrs.
Hicks and Haugh, the long-term performance period of the EICP is being
phased in and for fiscal 2000 consisted of fiscal 1999 and 2000.
(6) "All Other Compensation" represents the Company's contribution to the named
executive officer's account in the Company's profit sharing plan. In
addition, "All Other Compensation" includes payments in 2000 to relocate Mr.
Haugh ($192,317) and payments in connection with the resignation of Mr.
Norden ($396,596), and in 1999 to relocate Mr. Hicks ($57,606).
(7) Mr. Haugh joined the Company on November 29, 1999.
(8) Mr. Norden served as Senior Vice President Human Resources until December
22, 2000. Mr. Norden resigned from the Company effective February 9, 2001.
Stock Option Awards. The following table provides certain information
concerning individual grants of stock options made to the named executive
officers during the last fiscal year under the Company's 1996 Stock Incentive
Plan.
STOCK OPTION GRANTS IN FISCAL 2000
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR PER SHARE DATE FAIR VALUE(4)
- ---- ---------- ------------- -------------- ---------- -------------
Steven J. Douglass......... 75,000(1) 3.07 $48.0625 3/10/2010 $2,254,050
50,000(2) 2.05 54.1875 8/14/2010 1,654,500
50,000(3) 2.05 61.84375 11/13/2010 1,882,850
Ken C. Hicks............... 52,500(1) 2.15 48.0625 3/10/2010 1,577,835
15,000(2) 0.61 54.1875 8/14/2010 496,350
15,000(3) 0.61 61.84375 11/13/2010 564,855
Duane L. Cantrell.......... 27,000(1) 1.11 48.0625 3/10/2010 811,458
12,500(2) 0.51 54.1875 8/14/2010 413,625
12,500(3) 0.51 61.84375 11/13/2010 470,713
John N. Haugh.............. 19,500(1) 0.80 48.0625 3/10/2010 586,053
Ullrich E. Porzig.......... 19,500(1) 0.80 48.0625 3/10/2010 586,053
Jed L. Norden.............. 19,500(1) 0.80 48.0625 3/10/2010 586,053
- ---------------
(1) These options, granted on March 10, 2000, under the 1996 Stock Incentive
Plan, have a term of 10 years. One-fourth of the options will become
exercisable on the first through fourth anniversaries of March 10, 2000.
These options have an exercise price equal to the average of the high and
low trading prices of the Company's stock on the date granted.
(2) These options, granted on August 14, 2000, under the 1996 Stock Incentive
Plan, have a term of 10 years. One-fourth of the options will become
exercisable on the first through fourth anniversaries of August 14, 2000.
These options have an exercise price equal to the average of the high and
low trading prices of the Company's stock on the date granted.
(3) These options, granted on November 13, 2000, under the 1996 Stock Incentive
Plan, have a term of 10 years. One-fourth of the options will become
exercisable on the first through fourth anniversaries of November 13, 2000.
These options have an exercise price equal to the average of the high and
low trading prices of the Company's stock on the date granted.
(4) The grant date fair values were determined using the Black-Scholes option
pricing model. The estimated values under the model are based on assumptions
as to variables such as option term, risk-free interest rates, stock price
volatility and dividend yield. The actual value, if any, the option holder
may realize will depend on the excess of the actual market price of the
stock over the exercise price on the date the option is exercised. The grant
date fair value calculation is presented in accordance with SEC proxy
disclosure requirements. There is no assurance that the value that may be
realized by the option holder will be at or near the value estimated by the
Black-Scholes model. The model assumes: (a) an option term of 10 years,
which represents the length of time between the grant date of options and
the latest possible exercise date by the named executive officers; (b) a
risk-free interest rate that represents the interest rate on a U.S. Treasury
Bond with a maturity date corresponding to that of the option's term; (c)
stock price volatility calculated based on the historic volatility of the
Company's stock price since April 1996; and (d) dividends at the rate of $0
per share, the annual dividend rate with respect to a share of stock on the
grant date.
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The following table presents information with respect to options exercised
in fiscal 2000 and unexercised and exercised options held by the named executive
officers on February 3, 2001:
AGGREGATED STOCK OPTION EXERCISES IN FISCAL 2000
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES OF PAYLESS
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL-YEAR END AT FISCAL-YEAR END(1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---- ----------- -------- ------------- ----------- ------------- -----------
Steven J. Douglass.............. 0 $ 0 221,000 154,125 $4,060,253 $5,808,080
Ken C. Hicks.................... 0 0 147,500 0 2,659,738 0
Duane L. Cantrell............... 0 0 68,500 31,438 1,323,915 1,053,356
John N. Haugh................... 0 0 19,500 0 435,679 0
Ullrich E. Porzig............... 0 0 31,375 19,375 731,426 499,489
Jed L. Norden................... 10,175 380,312 31,375 16,700 731,426 499,489
- ---------------
(1) "In-The-Money Options" are options outstanding at the end of the 2000 fiscal
year for which the fair market value of Payless Common Stock at the end of
the 2000 fiscal year ($70.405 per share) exceeded the exercise price of the
options. Value is determined based on the difference between fair market
value at the end of the 2000 fiscal year and the exercise price.
Long-Term Awards. During the 2000 fiscal year, each of the named executive
officers became eligible to receive a potential long-term cash award for the
three fiscal years 2000, 2001 and 2002. The following table shows the maximum
long-term cash awards payable to each of them for these long-term periods.
LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL 2000
ESTIMATED MAXIMUM FUTURE
PERFORMANCE OR OTHER PERIOD PAYOUTS UNDER NON-STOCK
NAME UNTIL MATURATION OF PAYOUT PRICE BASED PLAN(1)
- ---- ------------------------------------- ------------------------
Steven J. Douglass................... Three Fiscal Year Period $600,000
(2000-2002) Ending 2/1/03
Ken C. Hicks......................... Three Fiscal Year Period 343,750
(2000-2002) Ending 2/1/03
Duane L. Cantrell.................... Three Fiscal Year Period 173,835
(2000-2002) Ending 2/1/03
John N. Haugh........................ Three Fiscal Year Period 146,250
(2000-2002) Ending 2/1/03
Ullrich E. Porzig.................... Three Fiscal Year Period 135,810
(2000-2002) Ending 2/1/03
Jed L. Norden (2).................... Three Fiscal Year Period 105,630
(2000-2002) Ending 2/1/03
- ---------------
(1) Estimates are based on annual salaries as of February 3, 2001. Payouts may
range from $0 to the "maximum" award value. The estimate above assumes that
the individual remains eligible to participate throughout the long-term
performance period, the maximum performance goals have been met, the
Company's performance compared to the Peer Group is such that no downward
adjustment is required for any award and that the stock price has increased
sufficiently to result in the maximum stock price adjustment (all as
described in the Compensation and Nominating Committee report on pages
6-10). Actual payouts will be based on performance and the executive's
average annual salary rate during the applicable performance period. The
maximum dollar amount of any such award for any executive for any long-term
performance period is $1,850,000 (increased from $1,500,000 as discussed in
Proposal III).
(2) Estimate was pro-rated based upon the May 31, 2002, termination date of Mr.
Norden's employment agreement in effect when he resigned from the Company.
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Profit Sharing Plans and Supplementary Retirement Plan. The Company's
executive officers may participate in the Payless ShoeSource, Inc. 401(k) Profit
Sharing Plan. Contributions to this plan are related to the Company's
performance each year. Subject to Management's discretion each year, the Company
expects to contribute 2.5% of its pretax net profits to this plan annually.
Eligible employees are able to voluntarily contribute to the profit sharing
plans on both a before-tax and after-tax basis under Section 40l(k) of the Code.
Eligible employees are also able to direct that the Company's contribution to
their accounts and/or their voluntary contributions be invested in a Payless
Common Stock fund or in one of several other investment funds.
The Company does not have a broad-based, defined benefit retirement plan.
The Company does, however, have a supplementary retirement plan (the
"Supplementary Plan") covering employees who have had compensation in a calendar
year equal to at least twice the amount of "wages" then subject to the payment
of old age, survivor and disability insurance Social Security taxes.
Under the Supplementary Plan, covered employees become entitled to a single
life annuity retirement benefit equal to (i) 2% of the average of the highest
three out of the last five fiscal years of total annual salary and bonuses
(reported as salary and annual and long-term bonus in the Summary Compensation
Table) multiplied by their years of service, up to a maximum of 25 years,
reduced by (ii) primary Social Security benefits, benefits provided under the
Company's profit sharing plan and, benefits under retirement plans operated by
May which may be payable to the employee and, if appropriate, by amounts to
reflect early retirement. Benefits are payable upon retirement after reaching
age 55 and completing at least 5 years of service. The Supplementary Plan also
provides that the current CEO is entitled to benefits before reaching age 55 if
his employment is terminated without cause (as defined in the Supplementary
Plan), due to disability or due to a "Change in Control of the Company" (as
defined in the Supplementary Plan). The minimum benefit under the Supplementary
Plan is the amount of benefits provided by the Company which would have been
payable under the Company's profit sharing plan and employer provided benefits
under the May Profit Sharing Plan and May Retirement Plan, determined without
regard to any statutory limits, less the amount of benefits actually payable
under those plans.
The Supplementary Plan provides that, in the event of a "Change in Control
of the Company," vesting would be accelerated in limited circumstances and
benefits would not be forfeitable.
The following table shows the estimated aggregate annual benefits payable
upon retirement (assuming a retirement in 2000 at age 65) for persons in
specified compensation and years of service classifications covered by the
Company's profit sharing plan and, if eligible, the Supplementary Plan. The
individuals named in the Summary Compensation Table had, as of December 31,
2000, the following years of service, respectively: Mr. Douglass, 25 years; Mr.
Hicks, 12 years; Mr. Cantrell, 22 years; Mr. Haugh, 1 year; and Mr. Porzig, 16
years. Mr. Norden resigned from the Company before becoming eligible for
benefits under the Supplementary Plan.
YEARS OF SERVICE
----------------------
AVERAGE ANNUAL EARNINGS 20 25 OR MORE
- ----------------------- -------- ----------
$ 500,000....................................... $200,000 $250,000
600,000....................................... 240,000 300,000
700,000....................................... 280,000 350,000
800,000....................................... 320,000 400,000
900,000....................................... 360,000 450,000
1,000,000....................................... 400,000 500,000
1,100,000....................................... 440,000 550,000
1,200,000....................................... 480,000 600,000
1,300,000....................................... 520,000 650,000
1,400,000....................................... 560,000 700,000
1,500,000....................................... 600,000 750,000
15
20
Employment Contracts, Termination of Employment and Change of Control
Arrangements. Other than Mr. Norden, each of the executive officers named in
the Summary Compensation Table have individual contracts of employment with the
Company which expire at various dates on or before May 31, 2007, and which
provide for annual base salaries at rates not less than the amounts reported in
the Summary Compensation Table, annual and long-term bonuses of up to 187.5
percent of their base salary, restricted stock grants and other benefits
generally available to the Company's executive officers. In addition, each of
the agreements prohibit each of the executives from entering into competing
activities.
Payless has also entered into Change of Control agreements with the
executive officers named in the Summary Compensation Table. Mr. Norden's
agreement terminated concurrent with his resignation. The agreements generally
provide that the executive is entitled to benefits if the executive is
terminated for other than cause, death, or disability or if the executive
terminates for "Good Reason" (as defined in the agreement) (i) within three
years of a "Change of Control" (as defined in the agreement) occurring; or (ii)
within twelve months of a "Potential Change of Control" (as defined in the
agreement). A termination by an executive within 30 days after the first
anniversary of a Change of Control will be deemed a termination for Good Reason.
Under the agreements, a Change of Control would include any of the following
events: (i) any "person," as defined in the Exchange Act, acquires 20% or more
of the Company's voting securities; (ii) a majority of the Company's Directors
are replaced and not approved by the "Incumbent Board" (as defined in the
agreement); (iii) consummation of certain mergers or a sale of all or
substantially all of the Company's assets; or (iv) shareowners approve a
liquidation of the Company. Upon a covered termination of employment, the
agreements provide a lump sum payment equal to the aggregate of (i) three times
the sum of (x) base salary at termination or, if greater, base salary
immediately prior to the change of control plus (y) highest bonus in previous
three years or the bonus paid in the most recently completed fiscal year
following a Change of Control and (ii) a cash payment for cancellation of stock
options or stock appreciation rights. Each agreement also provides that the
executive shall receive (i) three years of continued participation (or such
longer period as is provided in such plan) in the Company's welfare benefit
plans plus any benefit the executive would receive with an additional five years
of age and service under the Company's post retirement programs; (ii) unreduced
benefits under the Company's Supplementary Retirement Plan if the executive is
between 50 and 55 and is terminated within five years of a Change of Control;
and (iii) outplacement benefits. The agreements also provide a "tax gross-up"
payment if such payment would result in the executive receiving at least 110
percent of the safe harbor amount and in the event that any payment does not
meet the 110 percent threshold, the payments are reduced so that no excise tax
is imposed.
In addition, in the event of a Change in Control, (i) amounts deferred
under the Company's deferred compensation plan will be immediately distributed
to participants in a lump sum cash payment, (ii) all options and stock
appreciation rights outstanding on that date will become immediately and fully
exercisable, (iii) all restrictions on any restricted or phantom stock units
will lapse and such shares and units will become fully vested and (iv) any
performance units will be earned and become fully payable.
Consulting Contract with Jed L. Norden. On December 22, 2000, the Company
entered into a one-year consulting contract with Jed L. Norden. Mr. Norden will
provide up to 40 days of consulting services during the contract for which he
will be paid $100,000 at the end of each fiscal quarter. Mr. Norden has also
agreed not to enter into certain competing activities during the term of his
consulting contract and for a period of one year from the earlier of February 9,
2002, or the actual termination of his consulting contract.
BENEFICIAL STOCK OWNERSHIP OF DIRECTORS, NOMINEES, EXECUTIVE OFFICERS AND
PERSONS OWNING MORE THAN FIVE PERCENT OF COMMON STOCK
The following table sets forth certain information known to the Company
regarding beneficial ownership of Payless Common Stock as of April 9, 2001,
(including shares of the Company's Common Stock held in the Payless profit
sharing plan account for executive officers) by (a) each person known by Payless
to own beneficially more than 5% of the Payless Common Stock, (b) each Director
and nominee for election as a Director of Payless and each of the executive
officers named in the Summary Compensation Table on page 12, and all current
Directors, nominees and executive officers as a group. The shares allocated to
the accounts of participants named below in the Payless profit sharing plan
constitute less than one percent of Payless
16
21
Common Stock (see note (4) below). On April 9, 2001, there were 22,174,647
shares of Payless Common Stock outstanding.
SHARES BENEFICIALLY
OWNED AS OF PERCENT
NAME APRIL 9, 2001 OF CLASS
- ---- ------------------- --------
HOLDERS OF MORE THAN FIVE PERCENT OF COMMON STOCK
ESL (1)..................................................... 2,733,100 12.3%
Barclays Global Investors (2)............................... 1,345,387 6.1%
Franklin Mutual Advisors, LLC (3)........................... 1,166,626 5.3%
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS (4)
Daniel Boggan Jr. (5)....................................... 0 *
Howard R. Fricke (5)(6)..................................... 7,070 *
Thomas A. Hays (5)(7)....................................... 24,575 *
Mylle B. Mangum (5)......................................... 100 *
Michael E. Murphy........................................... 5,933 *
Robert L. Stark (5)......................................... 3,166 *
Irwin Zazulia (5)........................................... 277 *
Steven J. Douglass (8)...................................... 231,414 1.0%
Ken C. Hicks (8)(9)......................................... 36,373 *
Duane L. Cantrell (8)(9).................................... 60,223 *
John N. Haugh (8)........................................... 7,700 *
Jed L. Norden (10).......................................... 79 *
Ullrich E. Porzig (8)(11)................................... 42,227 *
All directors, nominees and Executive officers as a group (8
Persons) (5)(8)(9)........................................ 475,348 2.1%
- ---------------
* Less than one percent.
(1) Information based on Form 4 filed on April 10, 2001. Includes 1,786,951
shares owned by ESL Partners, L.P., 65,655 shares owned by ESL
Institutional Partners, L.P. and 484,978 shares owned by ESL Investors,
L.L.C., each at One Lafayette Place, Greenwich, CT 06830 and 395,516 shares
owned by ESL Limited, Hemisphere House, 9 Church Street, Hamilton, Bermuda.
(2) Information based on Form 13G filed on February 14, 2001. Includes
1,231,442 shares owed by Barclays Global Investors, N.A., and 79,095 shares
owned by Barclays Global Fund Advisors, each at 45 Freemont Street, San
Francisco, CA 94105, 2,691 shares owned by Barclays Funds Limited, Gredley
House, 11 The Broadway, Stratford, England E15 4BJ, and 32,159 shares owned
by Barclays Global Investors, LTD., Murray House, 1 Royal Mint Court,
London, England EC3 NHH.
(3) Information based on Amendment 2 to Schedule 13G filed on January 24, 2001.
The address of Franklin Mutual Advisers, LLC is 51 John F. Kennedy Parkway,
Short Hills, NJ 07078.
(4) The Payless profit sharing plans provide for an investment fund which is
invested in shares of Payless Common Stock (the "Payless Profit Sharing
Plan Common Stock Fund"). As of April 9, 2001, the trusts under the Payless
profit sharing plans owned approximately 571,870 shares of Payless Common
Stock (approximately 2.6% of the shares of Payless Common Stock
outstanding) in the Payless Profit Sharing Plan Common Stock Fund. Shares
shown as beneficially owned by the persons referred to in the table include
any shares allocated to their accounts under the Payless profit sharing
plans.
(5) Does not include units credited to non-employee Director's accounts under
the Deferred Compensation Plan for Non-Management Directors. As of April 9,
2001, the following Directors had the indicated units credited to their
account under the plan: Mr. Boggan -- 3,236 units; Mr. Fricke -- 1,863
units; Mr. Hays -- 1,863 units; Ms. Mangum -- 3,145 units; Mr. Stark --
1,863 units; and Mr. Zazulia -- 1,000 units. At the end of the deferral
period, the units will be paid out in an equivalent number of shares of
Payless Common Stock.
(6) Includes 4,000 shares owned by Mr. Fricke's spouse.
(7) Includes 21,505 shares held by a limited partnership of which Mr. Hays is a
general and limited partner. Mr. Hays disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein.
(8) Shares shown as beneficially owned include shares subject to options which
are presently exercisable or which will become exercisable on or before
June 8, 2001, as follows: Steven J. Douglass -- 172,875 shares; Ken C.
Hicks -- 13,125 shares; Duane L. Cantrell -- 38,188 shares; John N.
Haugh -- 4,875 shares; Ullrich E. Porzig -- 24,250 shares; all Directors,
nominees and executive officers as a group -- 294,313 shares.
(9) Does not include units credited to accounts under the Company's Deferred
Compensation Plan. As of April 9, 2001, the following officers had the
indicated units credited to their accounts under the plan: Mr. Hicks--3,053
units and Mr. Cantrell -- 6,165 units. At the end of the deferral period,
the units will be paid out in an equivalent number of shares of Payless
Common Stock.
(10) Mr. Norden resigned from the Company effective February 9, 2001.
(11) Mr. Porzig's ownership includes 12,029 shares held by family trusts and 128
shares owned by his children.
17
22
PROPOSAL II: RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR 2001
PROPOSAL II ON THE ACCOMPANYING PROXY CARD.
Upon recommendation of the Audit and Finance Committee, the Board appointed
Arthur Andersen LLP ("AA"), independent public accountants, as auditors of
Payless and its subsidiaries for the fiscal year ending February 2, 2002,
subject to ratification by the shareowners at the Annual Meeting.
A member of the firm of Arthur Andersen LLP will be present at the meeting
to make such statements as that firm may desire and to answer any questions by
shareowners.
FEES BILLED TO COMPANY BY AA DURING FISCAL 2000:
Audit Fees:
Audit fees billed or expected to be billed to the Company by AA for audit
of the Company's annual financial statements for the fiscal year ended February
3, 2001 and for the review of the Company's quarterly financial statements
included in the Company's quarterly reports on Form 10-Q totaled $265,000.
All Other Fees:
Fees billed to the Company by AA (including services rendered by Andersen
Consulting, now known as Accenture, for the period February 2, 2000 through
August 7, 2000) for all other non-audit services rendered to the Company,
including tax related services performed during fiscal 2000 totaled $2,480,000,
of which $1,150,000 was billed by AA and $1,330,000 was billed by Accenture.
Shareowner ratification of the selection of AA as the Company's independent
public accountants is not required by the Company's Bylaws or other applicable
legal requirement. However, the Board is submitting the selection of AA to the
shareowners for ratification as a matter of good corporate practice. If
shareowners fail to ratify the selection, the Audit and Finance Committee and
the Board will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Board at its discretion may direct the appointment of
a different independent accounting firm at any time during the year if it
determines that such a change would be in the best interests of the Company and
its shareowners.
The affirmative vote of the holders of a majority of the shares represented
and entitled to vote at the meeting will be required to ratify the selection of
AA as the Company's independent public accountants for the fiscal year ending
February 2, 2002. Abstentions will be counted toward the tabulation of votes
cast on this proposal and will have the same effect as a vote against this
proposal. Broker non-votes are counted towards a quorum, but are not counted in
determining whether this proposal has been approved.
THE BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
PAYLESS COMMON STOCK VOTE IN FAVOR OF PROPOSAL II, AND YOUR PROXY
WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
* * * * * * * * *
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23
PROPOSAL III: APPROVE THE PERFORMANCE GOALS FOR THE
PAYLESS SHOESOURCE, INC. EXECUTIVE INCENTIVE COMPENSATION PLAN
PROPOSAL III ON THE ACCOMPANYING PROXY CARD.
The Executive Incentive Compensation Plan for Payless Executives (the
"EICP") is a performance-based bonus plan for management employees of the
Company. It provides opportunities for designated management employees to earn
substantial rewards for superior performance. The EICP was adopted in 1996 and
approved by the shareowners in 1997 to comply with the performance-based
compensation standards of Section 162(m) of the Code so that awards under the
EICP would be deductible compensation.
The Company's basic compensation philosophy is that its compensation
program should (1) attract, retain and motivate highly qualified executives, (2)
be competitive, (3) align the executive's compensation with the Company's
objectives; and (4) be related to the value created for shareowners. Following
this compensation philosophy, and considering the current market for hiring and
retaining CEOs, and the compensation for CEOs at other retail companies of
similar size to the Company, the Compensation and Nominating Committee of the
Board of Directors amended the EICP on November 16, 2000, to increase the
maximum Annual Award that can be achieved by the Chairman of the Board and Chief
Executive Officer from 75% to 112.5% of base salary beginning with fiscal year
2001, and to increase the maximum dollar amount of any Annual Award for any
participant for any fiscal year from $1,500,000 to $1,850,000.
This Proposal III seeks to approve the performance goals under the EICP, as
recently amended, to comply with Section 162(m) of the Code which requires that
shareowners approve the material terms of the performance goals of the EICP at
least every five years or upon their change to preserve the tax deductibility of
awards under the EICP. If approved, the material terms of the performance goals
are intended to be in force for the next five years unless, where required,
prior shareowner approval is obtained to amend these terms. Following is a
summary of the primary features of the EICP and is qualified in its entirety by
the complete text of the EICP, attached to this proxy statement as Appendix B.
Capitalized terms used, but not defined in this summary, have the meaning
contained in the EICP.
SUMMARY OF THE PRIMARY FEATURES OF THE EICP.
General. The EICP provides for Annual and Long-Term Awards based on (i)
actual results as compared to pre-established financial performance targets,
(ii) the Company's performance relative to certain peer companies (the Peer
Group described in the Compensation and Nominating Committee Report), and (iii)
for Long-Term Awards only, changes in the Company's stock price. The EICP is
administered by the Compensation and Nominating Committee of the Board of
Directors ("Committee"), whose members are "outside directors" under Section
162(m) of the Code.
EICP Benefits. The Summary Compensation Table on page 12 sets forth the
compensation paid for fiscal 2000 pursuant to the EICP to the named executives
officers. Eight individuals (including all of the named executive officers
except Mr. Haugh) were eligible to receive Annual Awards under the EICP for
fiscal 2000 and 16 individuals (including all of the named executive officers)
were eligible to receive Long-Term awards under the EICP for fiscal 2000. Those
individuals received $905,255 in Annual Awards and $382,484 in Long-Term Awards.
There are no other participants in the EICP. The benefits that will be received
by individual persons for future periods are not currently determinable (since
they are dependent on performance). However, the following table shows the
estimated target payments with respect to the Fiscal Year 2001 Annual and
Long-Term Award Periods.
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24
EXECUTIVE INCENTIVE COMPENSATION PLAN
FOR PAYLESS EXECUTIVES
TARGET VALUE OF AWARD(1)
----------------------------------------------------------
ANNUAL LONG-TERM
--------------------- ---------------------
EPS RONA EPS RONA
NAME AND POSITION FACTOR(2) FACTOR(2) FACTOR(3) FACTOR(3) TOTAL
- ----------------- --------- --------- --------- --------- ----------
Steven J. Douglass........................ $300,000 $300,000 $133,360 $133,360 $ 866,720
Chairman of the Board
and Chief Executive Officer
Ken C. Hicks.............................. 114,583 114,583 76,395 76,395 381,956
President
Duane L. Cantrell......................... 57,945 57,945 38,630 38,630 193,150
Executive Vice President Operations
John N. Haugh............................. (4) (4) 32,500 32,500 65,000
Senior Vice President Marketing
Ullrich E. Porzig......................... 45,270 45,270 30,180 30,180 150,900
Senior Vice President
Chief Financial Officer
All Executive Officers as a Group (7
people)................................. 601,978 601,978 405,373 405,373 2,014,702
- ---------------
(1) Depending upon the extent that performance goals are achieved, actual awards
with respect to each factor, before adjustment as described below, may range
from 50% of target value for threshold performance to 150% of the target
value for maximum performance. No awards are payable for below threshold
performance. The long-term awards otherwise payable may be increased by 50%
or decreased by up to 25% based on changes in the market price of the
Company's stock over the performance period. The target levels do not
reflect any adjustment for changes in the market price of the Company's
stock over the performance period.
(2) See "Annual Awards and Performance Goals" below for a discussion of these
factors.
(3) See "Long-Term Awards and Performance Goals" below for a discussion of these
factors.
(4) The Annual Awards for Mr. Haugh are determined under the Retail EICP rather
than under the EICP. While the performance criteria are different under the
Retail EICP than under the EICP, the size of the opportunity for an Annual
Award is the same.
Eligibility. Management employees of the Company and its subsidiaries are
eligible to participate in the EICP. For 2001 seven individuals (including all
of the named executive officers except Mr. Haugh) are eligible to participate in
the EICP with respect to Annual Awards and 14 individuals (including all of the
named executive officers) are eligible to participate in the EICP with respect
to Long-Term Awards. The Compensation Committee designates participants for a
particular Annual and/or Long-Term Performance Period. Performance periods are
measured on a Fiscal Year basis.
Annual Awards and Performance Goals. Annual Awards are calculated as a
percentage of the Participant's base salary on November 1 of the Fiscal Year.
The EICP requires the Committee to establish a maximum percentage that a
Participant may earn under the EICP as an Annual Award for any annual
performance period. Initially, the maximum percentage was 30%. Under the EICP,
the Committee has the discretion to increase the maximum percentage for any
annual performance period to 75% for the CEO, 62.5% for the President and 45%
for the other executive officers. Pursuant to such authority, beginning with
Fiscal Year 1997, the Committee increased the maximum percentages to 75% for the
CEO, 62.5% for the President and 45% for the other executive officers. As noted
above, the Committee has amended the EICP beginning with Fiscal Year 2001 to
increase the maximum percentage for the CEO to 112.5%. The maximum dollar amount
of any Annual Award is $1,850,000 (increased from $1,500,000).
The financial performance measures for Annual Awards are EPS Growth and
RONA as disclosed in the Company's annual report and as may be adjusted by the
Committee and certified by the Company's independent certified public
accountants to exclude non-recurring or extraordinary items that the Committee
determines are not representative of the Company's ongoing operations. The
Committee establishes threshold, target and maximum performance objectives with
respect to EPS Growth and RONA for each Participant for
20
25
each annual performance period. Initially, for each of EPS Growth and RONA the
percentages of base salary which a participant could earn were 5% for
performance equal to the threshold objective; 10% for performance equal to the
target objective; and 15% for performance equal to or exceeding the maximum
objective. Pursuant to authority granted the Committee under the EICP, beginning
with the Fiscal Year 1997 performance period, the percentages of base salary
which a Participant may earn for each of EPS Growth and RONA was increased as
follows: for performance equal to the threshold objective, 12.5% for the CEO,
10.42% for the President and 7.5% for the other executive officers; for
performance equal to the target objective, 25% for the CEO, 20.83% for the
President and 15% for the other executive officers; and for performance equal to
or exceeding the maximum objective, 37.5% for the CEO, 31.25% for the President
and 22.5% for the other executive officers. With the amendment to the EICP on
November 16, 2000, beginning with Fiscal Year 2001, the CEO may earn 17.5% of
base salary for each of EPS Growth and RONA for performance equal to the
threshold objective, 37.5% for performance equal to the target objective and
56.25% for performance equal to or exceeding the maximum objective. For actual
performance that falls between the threshold and maximum annual objective, the
percentage of base salary earned is prorated.
Annual Awards are subject to an automatic upward or downward adjustment to
reflect the Company's performance as compared to peer companies. Each financial
measure is ranked with the comparable financial measure of a group of peer
companies designated in advance by the Committee. The Company's relative rank is
determined based on data reviewed by the Company's independent public
accountants. The relative rank adjustment varies depending on the number of peer
companies designated by the Committee. Beginning with Fiscal Year 1999, the
Committee designated 14 peer companies (the Peer Group described in the
Compensation and Nominating Committee Report). If the Company were to rank first
through fourth in comparison with peer companies, the award for that measure is
not less than target level; if the Company ranks fifth through seventh, the
award for that measure is not less than threshold level; and if the Company
ranks twelfth through fifteenth, the award for that measure is not more than
threshold level. In each case, the Company's relative rank is determined based
on data reviewed by the Company's independent public accountants.
Long-Term Awards and Performance Goals. Generally, each Long-Term
Performance Period consists of three consecutive Fiscal Years. Long-Term
Performance Periods operate concurrently (that is, a new performance period
commences annually). Long-Term Awards are calculated as a percentage of the
Participant's average base salary over the performance period.
The financial performance measures for Long-Term Awards are EPS Growth and
RONA. EPS Growth is measured by the compound annual growth rate over the
performance period. RONA is measured by averaging the returns for each Fiscal
Year of the performance period.
As with the Annual Award portion of the EICP, the Committee establishes a
maximum percentage of Participant's average base salary for Long-Term Awards
that may be earned for such Long-Term Performance Period. Generally, the maximum
percentage that a Participant may earn under the EICP as a Long-Term Award for
any Long-Term Performance Period (before any share price adjustment) is 30%.
Under the EICP, the Committee has the discretion to increase the maximum
percentage for any Long-Term Performance Period (before any price adjustment) to
75% for the CEO and 62.5% for the President. Pursuant to such authority, the
Committee increased the maximum percentages for Fiscal Year 1997 and beyond to
50% for the CEO and 41.66% for the President (before any share price
adjustment). The maximum dollar amount of any Long-Term Award is $1,500,000.
The Committee establishes threshold, target and maximum performance
objectives with respect to the EPS Growth and RONA for each Participant for each
Long-Term Performance Period. Generally, for each of EPS Growth and RONA, the
percentages of average base salary which a Participant may earn (before any
share price adjustment) are 5% for performance equal to the threshold objective;
10% for performance equal to the target objective; and 15% for performance equal
to or exceeding the maximum objective. Pursuant to authority granted the
Committee under the EICP, beginning with Long-Term performance periods ending in
Fiscal Year 1997 and beyond, the percentages of average base salary which the
CEO and President may earn for each of EPS Growth and RONA (before any share
price adjustment) are: for performance equal to the
21
26
threshold objective, 8.33% for the CEO and 6.94% for the President; for
performance equal to the target objective, 16.67% for the CEO and 13.89% for the
President; and for performance equal to or exceeding the maximum objective, 25%
for the CEO and 20.83% for the President.
As with the Annual Award portion of the EICP, Long-Term Awards are subject
to adjustment based on the Company's relative ranking compared to a group of
peer companies designated by the Committee (the Peer Group described in the
Committee Report). Long-Term Awards are also adjusted to reflect changes in the
market value of the Company's Common Stock over the performance period. The
award earned is increased or decreased in direct proportion to the percentage
increase or decrease in the market price, subject to a maximum increase of 50%
of such award and maximum decrease of 25% of such award.
Discretionary Adjustments of Awards and Percentages. The Committee may
adjust the Annual and Long-Term Awards of any Participant upward or downward in
its sole discretion. The Committee may not, however, make discretionary upward
adjustments in awards of a Covered Employee (as defined in Section 162(m) of the
Code, the CEO and the four highest compensated officers (other than the CEO)
included in the Summary Compensation Table). No awards will be paid to a Covered
Employee until the Committee certifies in writing that the terms of the EICP
have been satisfied.
Amendment and Termination. The Committee may amend or terminate the EICP
at any time, subject to the rights of Participants to awards for performance
periods which have been commenced prior to such amendment or termination, except
that shareholder approval shall be sought for any change requiring such approval
under Section 162(m) of the Code.
The Board recommends a vote for approval of the performance goals. If the
foregoing proposal is not approved by shareowners, the Committee retains the
right to pay each affected Participant otherwise eligible for such Annual and
Long-Term Awards based on the criteria established by the Committee, and the
Committee may consider alternative ways to structure cash incentive compensation
so as to be deductible under Section 162(m) of the Code, however, there can be
no assurance that the Committee will be able to do so.
The affirmative vote of the holders of a majority of shares represented and
entitled to vote at the meeting will be required to approve this proposal.
Abstentions will have the same effect as a vote against this proposal. Broker
non-votes are counted towards a quorum, but are not counted in determining
whether this proposal has been approved.
THE BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
PAYLESS COMMON STOCK VOTE IN FAVOR OF PROPOSAL III, AND YOUR PROXY
WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
* * * * * * * * *
22
27
PROPOSAL IV: APPROVE THE AMENDMENT OF THE PAYLESS SHOESOURCE, INC.
DEFERRED COMPENSATION 401(K) MIRROR PLAN
PROPOSAL IV ON THE ACCOMPANYING PROXY CARD.
Under the Company's Deferred Compensation 401(k) Mirror Plan, (the "Mirror
Plan"), participation is limited to "highly compensated" management employees
determined by the Committee (as hereinafter defined).
Currently the Mirror Plan offers eight investment options. Because of the
Company's strong belief that it is important for employees to have a significant
stake in the Company, the Company is seeking approval to amend the Mirror Plan
to allow employees the option of investing in a fund consisting primarily of the
Company's Common Stock. Any Common Stock of the Company to be acquired by the
Mirror Plan will be acquired through market transactions. The Company will not
receive any proceeds from acquisitions of Common Stock by the Mirror Plan and no
additional shares will be issued by the Company as a result of the Mirror Plan.
Because this amendment merely provides an additional investment option and
investments in the Mirror Plan are made from deferred salary and bonuses, there
are no monetary benefits to be paid by the Company or received by employees as a
result of an employee's participation in the Plan.
The complete text of the Mirror Plan is set forth Appendix C. The following
summary of the Mirror Plan does not purport to be complete and is qualified by
reference to the Mirror Plan.
General. The Mirror Plan permits employees at the director level and above
who are considered to be "highly compensated executives" to defer up to 50% of
their annual salary and up to 100% of their bonus. The Mirror Plan is unfunded
and unsecured. No cash or other property is put in trust, pledged or otherwise
set aside to secure payment of benefits under the Mirror Plan. Benefits of the
Mirror Plan are general obligations of Payless ShoeSource, Inc.
Administration and Eligible Employees. The Mirror Plan Committee is
comprised of the Senior Vice President-Chief Financial Officer, Senior Vice
President for Human Resources, Senior Vice President-General Counsel and
Secretary, Vice President and Controller and Vice President of Compensation and
Benefits. Responsibility for the day-to-day administration of the Plan has been
delegated by the Committee to the Payless Vice President of Compensation and
Benefits. American Express Trust Company has been retained to provide
administrative services related to the Mirror Plan. Participation in the Mirror
Plan is limited to "highly compensated" management employees determined by the
Committee. As of February 4, 2001, approximately 190 management employees,
including executive officers named in the Summary Compensation Table, were
eligible to participate in the Mirror Plan.
Change in Control. In the event of a change in control of Payless, all
accounts will be distributed in a lump sum cash payment to the participants.
Amendment or Termination. Although it is anticipated that the Mirror Plan
will continue for an indefinite period of time, prior to a change in control,
the Company has the right to discontinue its sponsorship of the Mirror Plan at
any time. If the Company discontinues its sponsorship of the Mirror Plan for all
participants, account balances will be treated as if the employee terminated or
if eligible, retired, except that the Company will determine whether to pay the
distributions in a lump sum or annual installments. If the Company terminates
its sponsorship of the Mirror Plan for less than all participants, then the
Company can choose to make distributions to those participants in a lump sum.
Federal Tax Consequences. Because of the nature of the Mirror Plan the tax
consequences may vary by participant. Annual salary and bonus deferrals made
under the Mirror Plan are generally not subject to current income taxation.
Instead, deferrals are generally not taxed until employees receive a
distribution or deferrals are otherwise made available to them. The tax
treatment, which prevents deferrals from being subject to current income
taxation until distributed, is possible because deferrals under the Mirror Plan
remain subject to the claims of the Company's creditors. In rare circumstances,
current payment of compensation may be required so that the Company can comply
with the law regarding the withholding of taxes. Notwithstanding
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any election to defer, the Committee or its delegate may direct the current
payment of any portion of compensation in those circumstances
If shareowners do not vote for approval of this proposal, the Mirror Plan
will not be amended to allow for participants to invest in a fund which
primarily invests in Payless Common Stock.
The affirmative vote of the holders of a majority of shares represented and
entitled to vote at the meeting will be required to approve this proposal.
Abstentions will have the same effect as a vote against this proposal. Broker
non-votes are counted towards a quorum, but are not counted in determining
whether this proposal has been approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
PAYLESS COMMON STOCK VOTE IN FAVOR OF PROPOSAL IV, AND YOUR PROXY
WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
* * * * * * * * * * *
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ADDITIONAL INFORMATION
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE:
Section 16(a) of the Exchange Act requires the Company's Directors,
executive officers and greater than ten percent beneficial owners ("Reporting
Persons") to file with the SEC initial reports of ownership and reports of
changes in ownership of Payless Common Stock. Specific due dates for these
reports have been established and the Company is required to report in this
Proxy Statement any failure by the Reporting Persons to file by these dates.
During the fiscal year that ended February 3, 2001, to the Company's knowledge,
all Section 16(a) filing requirements applicable to Reporting Persons were
timely met, except that Mr. Ullrich E. Porzig inadvertently did not file timely
six reports covering eight transactions transferring shares from direct
ownership to indirect ownership through trusts and a custodial account, and Mr.
Gary M. Stone inadvertently did not file timely one report covering a
transaction transferring shares from direct ownership to indirect ownership
through a trust. Each of the transactions has since been reported to the
Securities Exchange Commission.
OTHER BUSINESS:
Under the laws of the State of Delaware, where Payless is incorporated, no
business other than procedural matters may be raised at the annual meeting
unless proper notice to the shareowners has been given. We do not expect any
business to come up for shareowner vote at the meeting other than the items
described in this booklet. If other business is properly raised, your proxy card
authorizes the people named as proxies to vote as they think best.
PERSONS WITH DISABILITIES:
We can provide reasonable assistance to help you participate in the meeting
if you tell us about your disability and your plans to attend. Please call or
write the Secretary at least two weeks before the meeting at the number or
address under "Questions" on page 26.
OUTSTANDING SHARES:
On April 9, 2001, the record date, 22,174,647 shares of Common Stock were
outstanding. Each share of common stock has one vote.
HOW WE SOLICIT PROXIES:
In addition to this mailing, Payless employees may solicit proxies
personally, electronically or by telephone. The Company pays the costs of
soliciting this proxy. We are paying D.F. King & Co., Inc. a fee of $9,000.00
plus expenses to help with the solicitation. We also reimburse brokers and other
nominees for their expenses in sending these materials to you and getting your
voting instructions.
SHAREOWNER PROPOSALS FOR NEXT YEAR:
The deadline for shareowner proposals for next year's meeting is December
20, 2001. On written request, the Secretary will provide detailed instructions
for submitting proposals.
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QUESTIONS:
If you have questions or need more information about the Annual Meeting of
Shareowners, write to:
Secretary
Payless ShoeSource, Inc.
3231 South East Sixth Avenue
Topeka, KS 66607-6182
or call us at (785) 233-5171.
For information about your record holdings you may call Payless Shareowner
Services at 1-800-884-4225. For information about your holdings in the Payless
Stock Ownership Plan you may call 1-888-744-7463. We also invite you to visit
the Company's Internet site at HTTP://WWW.PAYLESS.COM. Internet site materials
are for your general information and are not part of this proxy solicitation.
By Order of the Board of Directors,
William J. Rainey
Secretary
April 19, 2001
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APPENDIX A
CHARTER FOR THE AUDIT AND FINANCE COMMITTEE
FUNCTION
The Audit and Finance Committee shall aid the Board of Directors in
undertaking and fulfilling its responsibilities for financial reporting to the
public, shall provide support for management's efforts to enhance the quality of
the Company's controls and shall work to provide appropriate avenues of
communication between the Board of Directors and the Company's external and
internal auditors. In addition, the Committee shall review the financial
policies, plans and structure of the Company.
COMPOSITION AND TERM
The Committee shall be a Committee of the Board and shall consist
exclusively of non-management directors (not less than three).
The Committee members shall be appointed for one year terms at the annual
meeting of the Board, upon the recommendation of the Compensation and Nominating
Committee. The chairman shall be designated by the Board. The members of the
Committee shall meet the independence and experience requirements of the New
York Stock Exchange, Inc. as such requirements are interpreted by the Board in
its business judgement.
ADMINISTRATIVE MATTERS
The Committee shall meet at such times and from time to time as it deems to
be appropriate, but not less than three times each year. The Committee shall
report to the full Board of Directors at the first Board meeting following each
such Committee meeting.
The Company's internal and external auditors shall attend at least one of
the Committee's meetings each year. The Committee shall provide the internal and
external auditors with appropriate opportunities to meet privately with the
Committee. Prior to the public release of quarterly and annual earnings, such
public release shall be reviewed either with the Chairman of the Committee or if
the Chairman is unavailable, with another Committee member designated by the
Committee or Chairman. The Committee shall have the authority to retain special
legal, accounting or other consultants to advise the Committee.
DUTIES AND RESPONSIBILITIES
The duties of the Committee shall include the following:
(1) make recommendations to the Board of Directors as to: (a) the selection of
the firm of independent public accountants and auditors to examine the books
and accounts of the Company for each fiscal year (including a review of the
independence of the independent public accountants and auditors) which firm
is ultimately accountable to the Committee and the Board; (b) the proposed
arrangements for the independent public accountants and auditors for each
fiscal year, including the scope of the examination, the proposed fees and
the reports to be rendered; and (c) the advisability of having the
independent public accountants and auditors make specified studies and
reports as to auditing matters, accounting procedures, tax or other matters;
(2) review the results of the audit for each fiscal year of the Company, which
review should cover and include, among other things, the audit report, the
published financial statements, the "Memorandum Regarding Accounting
Procedures and Internal Control" prepared by the independent public
accountants and auditors, any other pertinent reports and management's
responses concerning that memorandum and any material accounting issues
among management, the Company's internal audit staff and the independent
public accountants and auditors;
(3) review such accounting policies (and changes therein) of the Company as are
deemed appropriate for review by the Committee;
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(4) review the coordination between the independent public accountants and
auditors and the Company's internal auditing group and review the scopes and
procedures of the Company's internal audit work and whether such scopes and
procedures are adequate to attain the internal audit objectives, as
determined by the Company's management and approved by the Committee and
review the quality and composition of the Company's internal audit staff;
(5) evaluate the performance of the independent auditor and, if so determined by
the Committee, recommend that the Board replace the independent auditor;
(6) prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement;
(7) review and reassess the adequacy of the Committee charter on an annual
basis; and
(8) review and make recommendations, when appropriate, to the Board with respect
to the following matters:
- the financial policies of the Company, including but not limited to
debt ratings, short term vs. long term debt positions, debt/equity
ratios, fixed charge coverage, working capital and bank lines and
dividend policy;
- the long-range financial plans of the Company;
- the Company's capital expenditure program including rate of return
standards and evaluation methods;
- specific debt and/or equity placement activities;
- external financial relationships (with investment bankers, commercial
bankers, insurance companies, etc.)
- financial public relations and communication programs;
- profit sharing plan investments;
- financial aspects of proposed acquisitions and/or divestitures; and
- insurance and risk management program.
The Committee shall also undertake such additional activities within the
scope of its primary function as the Committee may from time to time determine.
It is not the duty of the committee to plan or conduct audits or to determine
that the Company's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles. This is the
responsibility of management and the Company's independent accountant and
auditors. Nor is it the duty of the committee to conduct investigations, to
resolve disagreements, if any, between management and the Company's independent
accountants and auditor, or to assure compliance with laws and regulations and
the Company's Code of Conduct.
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APPENDIX B
PAYLESS SHOESOURCE, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
AMENDED NOVEMBER 16, 2000
This document constitutes and sets forth the terms of the Payless
ShoeSource, Inc. Executive Incentive Compensation Plan for Payless Executives.
Section 1. PURPOSES OF THE PLAN. The purposes of the Plan are (i) to
provide a means to attract, retain and motivate talented personnel and (ii) to
provide to participating management employees added incentive for high levels of
performance and for additional effort to improve the Company's financial
performance. Payments of awards under this Plan are intended to qualify for tax
deductibility under the provisions of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). Notwithstanding any other provisions of
this Plan, if any decision must be made before a specified date in order for
payments to qualify for such tax deductibility under the tax rules in effect
from time to time, then such decision is to be made before such date.
Section 2. DEFINITIONS. Whenever used herein, the following terms shall
have the following meanings:
a. "Annual Award" means, for a Participant for a Fiscal Year, the product
of the Participant's Minimum Annual Compensation for such Fiscal Year multiplied
by the aggregate of:
i. the Participant's Annual EPS Factor for such Fiscal Year, plus
ii. the Participant's Annual RONA Factor for such Fiscal Year.
b. "Annual EPS Factor" means, for a Participant for a Fiscal Year (i) five
percent, if actual EPS Growth for such Fiscal Year equals or exceeds the
Participant's Threshold Annual EPS Growth Objective for such Fiscal Year, plus
(ii) ten percent multiplied by a fraction (not less than zero and not greater
than one), the numerator of which is the actual EPS Growth for such Fiscal Year
less the Participant's Threshold Annual EPS Growth Objective for such Fiscal
Year and the denominator of which is the Participant's Maximum Annual EPS Growth
Objective for such Fiscal Year less the Participant's Threshold Annual EPS
Growth Objective for such Fiscal Year; provided, however,
i. that the Annual EPS Factor shall be subject to adjustment as
provided in Section 6(b);
ii. that the percentages referred to in this definition may be
adjusted by the Committee as provided in Section 4(b); and
iii. that the percentages referred to in this definition may be
adjusted by the Committee as provided in Section 4(c).
c. "Annual RONA Factor" means, for a Participant for a Fiscal Year (i) five
percent if actual RONA for such Fiscal Year equals or exceeds the Participant's
Threshold Annual RONA Objective for such Fiscal Year, plus (ii) ten percent
multiplied by a fraction (not less than zero and not greater than one), the
numerator of which is the actual RONA for such Fiscal Year less the
Participant's Threshold Annual RONA Objective for such Fiscal Year and the
denominator of which is the Participant's Maximum Annual RONA Objective for such
Fiscal Year less the Participant's Threshold Annual RONA Objective for such
Fiscal Year; provided, however,
i. that the Annual RONA Factor shall be subject to adjustment as
provided in Section 6(b);
ii. that the percentages referred to in this definition may be
adjusted by the Committee as provided in Section 4(b); and
iii. that the percentages referred to in this definition may be
adjusted by the Committee as provided in Section 4(c).
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d. "Average Annual Compensation" means, for a Long-Term Performance Period,
the Participant's average annual salary rate during such period, determined on a
monthly basis, or such lesser amount as the Participant and the Company shall
agree to, in writing.
e. "Board" means the Board of Directors of the Company.
f. "Committee" means a committee designated by the Board, which shall
consist of not less than two members of the Board who shall be appointed by and
serve at the pleasure of the Board and who shall be "outside" directors within
the meaning of Section 162(m) of the Code.
g. "Company" means Payless ShoeSource, Inc., a Missouri corporation,
provided, that immediately after the effective time of the Merger such term
shall mean Payless ShoeSource, Inc. (formerly Payless ShoeSource Holdings,
Inc.), a Delaware corporation.
h. "Disability" means the inability of a Participant to perform the normal
duties of the Participant's regular occupation.
i. "EPS Growth" means (i) for a Fiscal Year, the annual growth rate in EPS
measured from the immediately preceding Fiscal Year; and (ii) for a Long-Term
Performance Period, the compound annual growth rate in EPS measured from the
Fiscal Year immediately preceding the Long-Term Performance Period to the last
Fiscal Year in the Long-Term Performance Period. For purposes of this
definition, "EPS" for a Fiscal Year means the Company's EPS for such Fiscal Year
as reported in the Company's annual report to its shareholders for the year of
determination (or, in the event that such item is not included in such annual
report, such comparable figure as may be determined by the Committee) adjusted
by the Company's independent certified public accountants to exclude such
non-recurring or extraordinary items as the Committee shall determine are not
representative of the on-going operations of the Company.
j. "Fiscal Year" means the fiscal year of the Company.
k. "Long-Term Award" means, for a Participant for a Long-Term Performance
Period, the product of the Participant's Average Annual Compensation for such
period multiplied by the aggregate of:
i. the Participant's Long-Term EPS Factor for such period, plus
ii. the Participant's Long-Term RONA Factor for such period
as such product is adjusted in accordance with Section 5(b) of the Plan.
l. "Long-Term EPS Factor" means, for a Participant for a Long-Term
Performance Period, (i) five percent if actual EPS Growth for such period equals
or exceeds the Participant's Threshold Long-Term EPS Growth Objective for such
period, plus (ii) ten percent multiplied by a fraction (not less than zero and
not greater than one) the numerator of which is the actual EPS Growth for such
period less the Participant's Threshold Long-Term EPS Growth Objective for such
period and the denominator of which is the Participant's Maximum Long-Term EPS
Growth Objective for such period less the Participant's Threshold Long-Term EPS
Growth Objective for such period; provided, however,
i. that the Long-Term EPS Factor shall be subject to adjustment as
provided in Section 6(b); and
ii. that the percentages referred to in this definition may be
adjusted by the Committee as provided in Section 5(c).
m. "Long-Term Performance Period" means three consecutive Fiscal Years;
provided, however, that the first Long-Term Performance Period under the Plan
shall be Fiscal Year 1996 and the second Long-Term Performance Period under the
Plan shall be Fiscal Years 1996 and 1997.
n. "Long-Term RONA Factor" means, for a Participant for a Long-Term
Performance Period (i) five percent if actual RONA for such period equals or
exceeds the Participant's Threshold Long-Term RONA Objective for such period
plus (ii) ten percent multiplied by a fraction (not less than zero and not
greater than one), the numerator of which is the actual RONA for such period
less the Participant's Threshold Long-Term RONA Objective for such period and
the denominator of which is the Participant's Maximum Long-Term
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RONA Objective for such period less the Participant's Threshold Long-Term RONA
Objective for such period; provided, however,
i. that the Long-Term RONA Factor shall be subject to adjustment as
provided in Section 6(b); and
ii. that the percentages referred to in this definition may be
adjusted by the Committee as provided in Section 5(c).
o. "Market Value" means the average closing price of the Stock on the New
York Stock Exchange, Inc. during the month of February of the year specified;
provided, however, that "Market Value" for Fiscal Year 1996 means the arithmetic
average of the high and low trading prices of the Stock on the New York Stock
Exchange for each of the first 30 trading days on which trading in the Stock on
that exchange occurs.
p. "Minimum Annual Compensation" means, for a Fiscal Year, the
Participant's rate of minimum annual salary on the first day of the fiscal month
of November in the Fiscal Year.
q. "Participant" means an individual who has been designated to participate
in the Plan in accordance with Section 3 of the Plan.
r. "Plan" mean the Payless ShoeSource, Inc. Executive Incentive
Compensation Plan for Payless Executives.
s. "Relative Performance Rank" means, for a Fiscal Year or for a Long-Term
Performance Period, the relative rank of the Company (as among the Company and a
group of competitors designated by the Committee) based on the EPS Growth and
RONA, respectively, of all such corporations for such corporations' comparable
fiscal periods, as determined by the Committee. Relative Performance Rank shall
be determined based on data provided by the Company's independent certified
public accountants from publicly available information about all such
corporations, and adjusted by such independent certified public accountants for
comparability (adjustments for LIFO, major non-recurring transactions, etc.)
subject to the direction and approval of the Committee. The Committee may change
the number of competitors or corporations included in the group when, as a
result of extraordinary or unforeseen events, it is no longer appropriate for a
particular corporation to be included in the competitor group (such as when one
of the group ceases operations, merges with another corporation, files for
bankruptcy protection or significantly changes the nature of its business).
t. "Retirement" means, as to a Participant, retirement as that word is
defined in the Company's Profit Sharing Plan.
u. "RONA" means (i) for a Fiscal Year, the Company's return on beginning
net assets for such Fiscal Year as reported in the Company's annual report to
its shareowners for the year of determination (or, in the event that such item
is not included in such annual report, such comparable figure as may be
determined by the Committee) adjusted by the Company's independent certified
public accountants to exclude such non-recurring or extraordinary items as the
Committee shall determine are not representative of the ongoing operations of
the Company; and (ii) for a Long-Term Performance Period, the sum of the RONA
for each Fiscal Year in the Long-Term Performance Period divided by three.
v. "Stock" means the common stock of the Company.
w. "Subsidiary" means a subsidiary corporation of the Company within the
meaning of Section 425(f) of Code.
x. The terms "Maximum Annual EPS Growth Objective," "Maximum Long-Term EPS
Growth Objective," "Target Annual EPS Growth Objective," "Target Long-Term EPS
Growth Objective," "Threshold Annual EPS Growth Objective," "Threshold Long-Term
EPS Growth Objective," "Maximum Annual RONA Objective," "Maximum Long-Term RONA
Objective," "Target Annual RONA Objective," "Target Long-Term RONA Objective,"
"Threshold Annual RONA Objective" and "Threshold Long-Term RONA Objective" shall
mean the respective objectives determined by the Committee for each Participant
pursuant to Section 7 of the Plan.
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y. "Merger" means the merger of Payless Merger Corp., a Missouri
corporation and wholly-owned subsidiary of Payless ShoeSource, Inc. (formerly
Payless ShoeSource Holdings, Inc.), a Delaware corporation, with the Company,
pursuant to an Agreement and Plan of Merger among the Company, Payless Merger
Corp. and Payless ShoeSource, Inc. (formerly Payless ShoeSource Holdings, Inc.).
Section 3. ELIGIBILITY. Management employees of the Company and its
Subsidiaries shall be eligible to participate in the Plan. The Committee may, in
its sole discretion, designate any such individual as a Participant for a
particular Fiscal Year and/or for a particular Long-Term Performance Period
before the end of such Fiscal Year and Long-Term Performance Period,
respectively. Designation of an individual as a Participant for any period shall
not require designation of such individual as a Participant in any other period,
and designation of one individual as a Participant shall not require designation
of any other individual as a Participant in such period or in any other period.
Section 4. ANNUAL AWARD.
a. Subject to the other provisions of the Plan, a Participant for a Fiscal
Year who is designated as such for an entire Fiscal Year shall be entitled to an
Annual Award for such Fiscal Year. Subject to the other provisions of the Plan,
a Participant for a Fiscal Year who is designated as such for less than an
entire Fiscal Year shall be entitled to a reduced Annual Award for such Fiscal
Year equal to the Annual Award for such Fiscal Year multiplied by a fraction,
the numerator of which shall be the number of complete fiscal months between (i)
the first day of the fiscal month in which occurs the date as of which the
Participant was so designated and (ii) the end of such Fiscal Year and the
denominator of which shall be twelve.
b. The Committee may change the percentages referred to in the definitions
of "Annual EPS Factor" and "Annual RONA Factor" for any Fiscal Year, provided
that the maximum Annual Award which may be paid under such different percentage
may not be greater than 45% of the Participant's Minimum Annual Compensation for
such Fiscal Year.
c. The percentages referred to in the definitions of "Annual EPS Factor"
and "Annual RONA Factor" may be adjusted by the Committee, in its sole
discretion, to provide that such percentages
i. with respect to the chairman of the Board and chief executive
officer of the Company may be up to two times the percentages stated in
such definitions (subject to a maximum of 56.25% for each factor), and
ii. with respect to the president of the Company may be up to one and
two-thirds times the percentages stated in such definitions (subject to a
maximum of 31.25% for each factor).
d. Notwithstanding any other provision of the Plan, the maximum dollar
amount of any Annual Award for any Participant for any Fiscal Year shall not
exceed $1,850,000.
Section 5. LONG-TERM AWARD.
a. Subject to the other provisions of the Plan, a Participant for a
Long-Term Performance Period who is designated as such for an entire Long-Term
Performance Period shall be entitled to a Long-Term Award for such period.
Subject to the other provisions of the Plan, a Participant for a Long-Term
Performance Period who is designated as such for less than an entire Long-Term
Performance Period shall be entitled to a reduced Long-Term Award for such
period equal to the Long-Term Award for such period multiplied by a fraction,
the numerator of which shall be the number of complete fiscal months between (i)
the first day of the fiscal month in which occurs the date as of which the
Participant was so designated and (ii) the end of such Long-Term Performance
Period and the denominator of which shall be thirty-six.
b. The Long-Term Award otherwise payable pursuant to Section 5(a) of the
Plan for a Long-Term Performance Period shall be adjusted by multiplying such
Long-Term Award by a percentage equal to a fraction, the numerator of which
shall be the Market Value of the Stock in February of the calendar year in which
such Long-Term Performance Period ends and the denominator of which shall be the
Market Value of the Stock in February of the calendar year in which such
Long-Term Performance Period begins; provided,
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however, that such percentage shall in no event be greater than one hundred
fifty percent nor less than seventy-five percent.
c. The percentages referred to in the definitions of "Long-Term EPS Factor"
and "Long-Term RONA Factor" may be adjusted by the Committee, in its sole
discretion, to provide that such percentages
i. with respect to the chairman of the Board and chief executive
officer of the Company may be up to two times the percentages stated in
such definitions (subject to a maximum of 37.5% for each factor), and
ii. with respect to the president of the Company may be up to one and
two-thirds times the percentages stated in such definitions (subject to a
maximum of 31.25% for each factor).
d. Notwithstanding any other provision of the Plan, the maximum dollar
amount of any Long-Term Award for any Participant for any Long-Term Performance
Period shall not exceed $1,500,000.
Section 6. ADJUSTMENTS.
a. Discretionary Adjustment of Awards. In the event that the Committee
determines, in its absolute discretion, that an Annual Award or a Long-Term
Award payable to a Participant in accordance with the other terms of the Plan
should be adjusted, upwards or downwards, based on all the facts and
circumstances known to the Committee at the time, then, the Committee may, in
its sole and absolute discretion, increase or decrease any such Annual Award or
Long-Term Award to such amount as it determines; provided, however, that the
Committee may not adjust upwards any Annual Award or Long-Term Award of any
Participant who is a "covered employee" (as defined in Section 162 (m) of the
Code and the regulations thereunder) with respect to the particular performance
period for which the Annual Award or Long-Term Award is being granted.
(b) Adjustment for Relative Rank. A Participant's Annual EPS Factor, Annual
RONA Factor, Long-Term EPS Factor and Long-Term RONA Factor shall be adjusted in
the following manner based upon the number of competitors in the group of
competitors used to determine the Company's Relative Performance Rank and the
Company's Relative Performance Rank therein:
NUMBER OF COMPETITOR COMPANIES (NOT INCLUDING THE COMPANY)
16 15 14 13 12 11 10 9 8 7 6 5 4
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----
Factor will be no less than 1st- 1st- 1st- 1st- 1st- 1st- 1st- 1st- 1st- 1st- 1st- 1st- 1st
"Target" if
the Company's rank is: 4th 4th 4th 4th 3rd 3rd 3rd 3rd 2nd 2nd 2nd 2nd
Factor will be no less than 5th- 5th- 5th- 5th- 4th- 4th- 4th- 4th- 3rd- 3rd- 3rd 3rd 2nd
"Threshold"
if the Company's rank is: 8th 8th 7th 7th 6th 6th 5th 5th 4th 4th
Factor will be no higher 14th- 13th- 12th- 11th- 11th- 10th- 9th- 8th- 8th- 7th- 6th- 5th- 5th
than "Threshold"
if the Company's rank is: 17th 16th 15th 14th 13th 12th 11th 10th 9th 8th 7th 6th
Section 7. ANNUAL AND LONG-TERM TARGETS. Threshold, target and maximum
annual and long-term objectives with respect to EPS Growth and with respect to
RONA shall be determined by the Committee as soon as practicable prior to the
commencement of each Fiscal Year and each Long-Term Performance Period for each
Participant or within the period permitted by applicable law. The Committee
shall cause the respective objectives for each Participant to be provided to
such Participant as soon thereafter as practicable. Such objectives shall remain
in effect for the entire Fiscal Year or Long-Term Performance Period, as
appropriate.
Section 8. PAYMENT OF AWARDS.
a. Annual Awards for a Fiscal Year shall be payable in cash within three
months after the close of such Fiscal Year or as soon thereafter as practicable.
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b. Long-Term Awards for a Long-Term Performance Period shall be payable in
cash within three months after the close of such Long-Term Performance Period or
as soon thereafter as practicable.
c. A Participant may elect to defer all or a portion of an award by making
such election under the Payless ShoeSource, Inc. Deferred Compensation 401(k)
Mirror Plan with respect to such award. Such election must be made not later
than December 31 of the calendar year preceding the commencement of the Fiscal
Year or Long-Term Performance Period, as appropriate.
d. The Company shall have the right to deduct any sums that federal, state
or local tax laws require to be withheld with respect to any payment of awards.
e. Before any award is paid to a Participant who is a "covered employee"
(as defined in Section 162(m) of the Code and the regulations thereunder), the
Committee shall certify in writing that the material terms of the Plan have been
satisfied.
Section 9. TERMINATION OF EMPLOYMENT.
a. Death or Disability. In the event of either the death or Disability of
the Participant while employed (a "Section 9(a) Event"), the Participant shall
be entitled to the following:
i. An Annual Award with respect to the Fiscal Year in which the
Section 9(a) Event occurs equal to the Annual Award otherwise payable (if
any) for that Fiscal Year, prorated to the end of the fiscal month in which
such Section 9(a) Event occurs; and
ii. A Long-Term Award with respect to each Long-Term Performance
Period which includes the Fiscal Year of the Section 9(a) Event; provided,
however, that for purposes of this Section 9(a)(ii) the Long-Term Award for
any Long-Term Performance Period (1) shall be determined at the end of the
Fiscal Year in which the Section 9(a) Event occurs, (2) shall be determined
(and averages used in that determination shall be calculated) based only on
the Fiscal Year and any preceding Fiscal Years otherwise included in the
Long-Term Performance Period and (3) shall be prorated to the end of the
fiscal month in which the Section 9(a) Event occurs.
b. Retirement.
i. In the event of the Retirement of the Participant with the written
consent of the Company, such event shall be deemed to be a Section 9(a)
Event, and the Participant shall be entitled to an Annual Award and to a
Long-Term Award as provided in Section 9(a).
ii. In the event of the Retirement of the Participant without the
consent of the Company (a "Section 9(b)(ii) Event"), the Participant shall
be entitled to the following:
(1) An Annual Award with respect to the Fiscal Year in which the
Section 9(b)(ii) Event occurs equal to the Annual Award otherwise
payable (if any) for the Fiscal Year, prorated to the end of the fiscal
month in which the Section 9(b)(ii) Event occurs; and
(2) No Long-Term Award following the Section 9(b)(ii) Event. The
Participant shall forfeit any right or entitlement to any award with
respect to any Long-Term Performance Period which has not been completed
on the date of the Section 9(b)(ii) Event. Any Long-Term Award for a
period which ended prior to the Section 9(b)(ii) Event shall remain
unaffected.
c. Termination of Employment.
i. In the event of the termination of employment of the Participant
not covered by Sections 9(a) or 9(b) above which occurs at the end of the
term of the Participant's then-current written employment agreement (if
any) with the Company or Subsidiary, or in the event of such a termination
of a Participant who has no current written employment agreement with the
Company or Subsidiary, such event shall be deemed to be a Section 9(b)(ii)
Event, and the Participant shall be entitled to an Annual Award (but not to
a Long-Term Award) as provided in Section 9(b)(ii).
B-6
39
ii. In the event of the termination of employment of the Participant
not covered by Sections 9(a) or 9(b) above before the end of the term of
the Participant's then-current written employment agreement (if any) with
the Company or Subsidiary, with the written consent of the Company (a
"Section 9(c)(ii) Event"), the Participant shall be entitled to the
following:
(1) An Annual Award with respect to the Fiscal Year in which the
Section 9(c)(ii) Event occurs equal to the actual award otherwise
payable for the Fiscal Year (if any); provided, however, that in the
event that the term of the Participant's then-current employment
agreement is due to expire during that Fiscal Year, then the Annual
Award shall be prorated to the end of the fiscal month in which such
term is due to expire; and
(2) A Long-Term Award with respect to each Long-Term Performance
Period which includes the Fiscal Year of the 9(c)(ii) Event equal to the
Long-Term Award otherwise payable with respect to each Long-Term
Performance Period; provided, however, that in the event that the term
of the Participant's then-current employment agreement (if any) with the
Company is otherwise due to expire during any such period, then the
Long-Term Award with respect to such period shall be prorated to the end
of the calendar month in which such term is due to expire.
iii. In the event of the termination of employment of the Participant
not otherwise covered by this Section 9 before the end of the term of the
then-current written employment agreement (if any) with the Company or
Subsidiary, without the written consent of the Company, the Participant
shall not be entitled to any Annual Award or to any Long-Term Award with
respect to any Fiscal Year or Long-Term Performance Period which has not
been completed as of the date of such termination of employment. The
Participant shall forfeit any right or interest in any award for any such
Fiscal Year or Long-Term Performance Period. Annual Awards and Long-Term
Awards with respect to Fiscal Years and Long-Term Performance Periods which
ended prior to the date of such termination of employment shall remain
unaffected.
d. For purposes of this Section 9, the term "written consent of the
Company" shall refer to an express written consent of the Company, duly executed
by the Company, which, by its own terms, expressly refers to this Section 9 of
the Plan.
Section 10. CHANGES IN RESPONSIBILITIES. In the event that (i) the duties
of a Participant change and the Participant becomes eligible to participate in
another bonus plan of the Company, or (ii) the duties of an employee who is a
participant in another bonus plan of the Company change and the employee is
newly designated by the Committee as a Participant in this Plan, then the
maximum amount that such Participant would be entitled to receive under the Plan
shall be
a. the Annual Award determined in accordance with the provisions of the
Plan with respect to the entire Fiscal Year in which such event occurred; and
b. a Long-Term Award with respect to each Long-Term Performance Period
which has commenced at the time of the event, determined in accordance with the
provisions of the Plan,
subject, in all events, to the Committee's right to adjust such awards in
accordance with and subject to the restrictions set forth in Section 6(a), in
its absolute discretion, which may be exercised in such a way that the Committee
deems fair and equitable based on the performance of Participant while
participating in the other bonus plan of the Company.
Section 11. RIGHTS OF PARTICIPANTS AND BENEFICIARIES.
a. Nothing contained in the Plan shall confer upon any Participant any
right to continue in the employ of the Company or constitute any contract or
agreement of employment or interfere in any way with the right of the Company to
terminate or change the conditions of employment.
b. The Company shall pay all amounts payable hereunder only to the
Participant or his or her personal representatives. In the event of the death of
a Participant, payments of all amounts otherwise due to the Participant under
the Plan shall be made to the Participant's beneficiary at the time of death
under the
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40
Company Paid Life Plan of Payless ShoeSource, Inc. or to such other beneficiary
as the Participant shall have designated, in writing, for purposes of this Plan
on a form provided by the Company.
c. Subject to the provisions of Section 11(d), rights to payments under the
Plan shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, levy or charge, and any attempt to do
so shall be void; nor shall any such amounts be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the
Participant or his or her beneficiaries.
d. Nothing in this Section 11 shall prohibit the personal representatives
of a Participant from designating that any amount that would otherwise be
distributed to the Participant's estate should be distributed in accordance with
the terms of the Participant's last will and testament or pursuant to the laws
of descent and distribution.
Section 12. UNFUNDED CHARACTER OF THE PLAN. The right of a Participant to
receive any Annual Award or Long-Term Award hereunder shall be an unsecured
claim against the general assets of the Company. Nothing in the Plan shall
require the Company to invest any amounts in Stock or in any other medium.
Section 13. CHANGES IN CAPITAL STRUCTURE. In the event that there is any
change in the Stock through merger, consolidation, reorganization,
recapitalization, spin-off or otherwise, or if there shall be any dividend on
the Stock, payable in such Stock, or if there shall be a stock split or
combination of shares, then the fraction provided for in Section 5(b) of the
Plan shall be adjusted by the Committee as it deems desirable, in its absolute
discretion, to prevent dilution or enlargement of the rights of Participants.
The issuance of Stock for consideration and the issuance of Stock rights shall
not be considered a change in the Company's capital structure.
Section 14. AMENDMENT OR TERMINATION. The Committee may, by resolution,
amend or terminate the Plan at any time. Any amendment necessary to bring the
Plan into compliance with Section 162(m) of the Code and any regulations
thereunder shall not require shareowner approval and the effectiveness of such
amendment shall be as of the effective date of the provision in Section 162(m)
of the Code or regulations thereunder giving rise to the amendment. However, (i)
shareowner approval shall be sought for any changes to the Plan which would
require shareowner approval under Section 162(m) of the Code and (ii) except as
provided in the preceding sentence, the Committee may not, without the consent
of the Participant, amend or terminate the Plan in such a manner as to affect
adversely any Annual Award or Long-Term Award which would have been payable,
based on the terms of the Plan immediately prior to any such amendment or
termination, for any Fiscal Year or Long-Term Performance Period which has
already commenced as of the effective date of the amendment or termination.
B-8
41
APPENDIX C
PAYLESS SHOESOURCE, INC.
DEFERRED COMPENSATION 401(k) MIRROR PLAN
EFFECTIVE OCTOBER 1, 2000
42
PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
PURPOSE................................................................... C-1
ARTICLE 1 DEFINITIONS................................................. C-1
ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY.......................... C-6
2.1 SELECTION BY COMMITTEE...................................... C-6
2.2 ENROLLMENT REQUIREMENTS..................................... C-6
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION.................. C-6
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS............... C-6
2.5 PRIOR PARTICIPATION......................................... C-6
ARTICLE 3 DEFERRAL COMMITMENTS/COMPANY MATCHING/CREDITING/TAXES....... C-7
3.1 MINIMUM DEFERRALS........................................... C-7
3.2 MAXIMUM DEFERRAL............................................ C-7
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.................. C-8
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS...................... C-8
3.5 COMPANY CONTRIBUTION AMOUNT................................. C-8
3.6 COMPANY MATCHING AMOUNT..................................... C-9
3.7 STOCK OPTION AMOUNT......................................... C-9
3.8 INVESTMENT OF TRUST ASSETS.................................. C-9
3.9 SOURCES OF STOCK............................................ C-9
3.10 VESTING..................................................... C-9
3.11 CREDITING/DEBITING OF ACCOUNT BALANCES...................... C-10
3.12 FICA AND OTHER TAXES........................................ C-11
3.13 DISTRIBUTIONS............................................... C-12
ARTICLE 4 SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; C-12
WITHDRAWAL ELECTION.........................................
4.1 SHORT-TERM PAYOUT........................................... C-12
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM.............. C-12
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL C-12
EMERGENCIES.................................................
ARTICLE 5 RETIREMENT BENEFIT.......................................... C-13
5.1 RETIREMENT BENEFIT.......................................... C-13
5.2 PAYMENT OF RETIREMENT BENEFIT............................... C-13
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT............. C-13
ARTICLE 6 PRE-RETIREMENT SURVIVOR BENEFIT............................. C-13
6.1 PRE-RETIREMENT SURVIVOR BENEFIT............................. C-13
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT.................. C-13
6.3 DEATH OF BENEFICIARY PRIOR TO COMPLETION OF PRE-RETIREMENT C-14
SURVIVOR BENEFIT............................................
ARTICLE 7 TERMINATION BENEFIT......................................... C-14
7.1 TERMINATION BENEFIT......................................... C-14
7.2 PAYMENT OF TERMINATION BENEFIT.............................. C-14
7.3 DEATH PRIOR TO COMPLETION OF TERMINATION BENEFIT............ C-14
ARTICLE 8 DISABILITY WAIVER AND BENEFIT............................... C-14
8.1 DISABILITY WAIVER........................................... C-14
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT................... C-15
ARTICLE 9 BENEFICIARY DESIGNATION..................................... C-15
9.1 BENEFICIARY................................................. C-15
9.2 BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY........... C-15
9.3 ACKNOWLEDGEMENT............................................. C-15
9.4 NO BENEFICIARY DESIGNATION.................................. C-15
9.5 DOUBT AS TO BENEFICIARY..................................... C-15
9.6 DISCHARGE OF OBLIGATIONS.................................... C-15
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PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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ARTICLE 10 LEAVE OF ABSENCE......................................................................... C-16
10.1 PAID LEAVE OF ABSENCE.................................................................... C-16
10.2 UNPAID LEAVE OF ABSENCE.................................................................. C-16
ARTICLE 11 TERMINATION, AMENDMENT OR MODIFICATION................................................... C-16
11.1 TERMINATION.............................................................................. C-16
11.2 AMENDMENT................................................................................ C-16
11.3 EFFECT OF PAYMENT........................................................................ C-17
ARTICLE 12 ADMINISTRATION........................................................................... C-17
12.1 COMMITTEE DUTIES......................................................................... C-17
12.2 ADMINISTRATION UPON CHANGE IN CONTROL.................................................... C-17
12.3 AGENTS................................................................................... C-18
12.4 BINDING EFFECT OF DECISIONS.............................................................. C-18
12.5 INDEMNITY OF COMMITTEE................................................................... C-18
12.6 EMPLOYER INFORMATION..................................................................... C-18
ARTICLE 13 OTHER BENEFITS AND AGREEMENTS............................................................ C-18
13.1 COORDINATION WITH OTHER BENEFITS......................................................... C-18
ARTICLE 14 CLAIMS PROCEDURES........................................................................ C-18
14.1 PRESENTATION OF CLAIM.................................................................... C-18
14.2 NOTIFICATION OF DECISION................................................................. C-18
14.3 REVIEW OF A DENIED CLAIM................................................................. C-19
14.4 DECISION ON REVIEW....................................................................... C-19
14.5 LEGAL ACTION............................................................................. C-19
ARTICLE 15 TRUST.................................................................................... C-19
15.1 ESTABLISHMENT OF THE TRUST............................................................... C-19
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST.............................................. C-19
15.3 DISTRIBUTIONS FROM THE TRUST............................................................. C-20
15.4 STOCK TRANSFERRED TO THE TRUST........................................................... C-20
ARTICLE 16 MISCELLANEOUS............................................................................ C-20
16.1 STATUS OF PLAN........................................................................... C-20
16.2 UNSECURED GENERAL CREDITOR............................................................... C-20
16.3 EMPLOYER'S LIABILITY..................................................................... C-20
16.4 NONASSIGNABILITY......................................................................... C-20
16.5 NOT A CONTRACT OF EMPLOYMENT............................................................. C-20
16.6 FURNISHING INFORMATION................................................................... C-20
16.7 TERMS.................................................................................... C-21
16.8 CAPTIONS................................................................................. C-21
16.9 GOVERNING LAW............................................................................ C-21
16.10 NOTICE................................................................................... C-21
16.11 SUCCESSORS............................................................................... C-21
16.12 VALIDITY................................................................................. C-21
16.13 INCOMPETENT.............................................................................. C-21
16.14 COURT ORDER.............................................................................. C-21
16.15 DISTRIBUTION IN THE EVENT OF TAXATION.................................................... C-21
16.17 TRUST.................................................................................... C-22
16.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL..................................... C-22
C-ii
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PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
- --------------------------------------------------------------------------------
PAYLESS SHOESOURCE, INC.
DEFERRED COMPENSATION 401(K) MIRROR PLAN
EFFECTIVE OCTOBER 1, 2000
PURPOSE
The purpose of this Plan is to provide specified benefits to a select group
of management and highly compensated Employees who contribute materially to the
continued growth, development and future business success of Payless ShoeSource,
Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor this
Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I
of ERISA.
ARTICLE 1
DEFINITIONS
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit on the
records of the Employer equal to the sum of (i) the Deferral Account
balance, (ii) the Company Contribution Account balance, (iii) the Company
Matching Account balance and (iv) the Stock Option Account balance. The
Account Balance, and each other specified account balance, shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a Participant,
or his or her designated Beneficiary, pursuant to this Plan.
1.2 "Annual Deferral Amount" shall mean that portion of a Participant's Annual
Salary and Bonus that a Participant elects to have, and is deferred, in
accordance with Article 3, for any one Plan Year. In the event of a
Participant's Retirement, Disability (if deferrals cease in accordance with
Section 8.1), death or a Termination of Employment prior to the end of a
Plan Year, such year's Annual Deferral Amount shall be the actual amount
withheld prior to such event.
1.3 "Annual Installment Method" shall mean annual installments over the number
of years selected by the Participant or Committee in accordance with this
Plan, calculated in accordance with this Section 1.3. Each annual
installment shall be paid during the month of January of each calendar
year. The Account Balance of the Participant shall be calculated on the day
in which the payment is made; provided, however, that for the Plan Year in
which the Participant Retires, experiences a Termination of Employment,
suffers a Disability or dies, the Account Balance of the Participant shall
be calculated as of the date of such event. The annual installment shall be
calculated by multiplying this balance by a fraction, the numerator of
which is one, and the denominator of which is the remaining number of
annual installments due the Participant. By way of example, if the
Participant elects a 10-year Annual Installment Method, the first annual
installment shall be 1/10 of the Account Balance, calculated as described
in this definition. The following year, the annual installment shall be 1/9
of the Account Balance, calculated as described in this definition.
1.4 "Annual Stock Option Amount" shall mean, with respect to a Participant for
any one Plan Year, the amount of Qualifying Gains deferred on Eligible
Stock Option exercise in accordance with Section 3.7 of this Plan,
calculated using the closing price of Stock as of the end of the business
day closest to the date of such Eligible Stock Option exercise.
1.5 "Annual Salary" shall mean the annual cash compensation relating to services
performed during any Plan Year, whether or not paid in such Plan Year or
included on the Federal Income Tax Form W-2 for such Plan Year, excluding
bonuses, commissions, royalties, overtime, fringe benefits, relocation
expenses, incentive payments, non-monetary awards, directors fees and other
fees, automobile and other allowances
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PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
- --------------------------------------------------------------------------------
paid to a Participant for employment services rendered (whether or not such
allowances are included in the Employee's gross income). Annual Salary
shall be calculated before reduction for compensation voluntarily deferred
or contributed by the Participant pursuant to all qualified or
non-qualified plans of any Employer and shall be calculated to include
amounts not otherwise included in the Participant's gross income under Code
Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by
any Employer; provided, however, that all such amounts will be included in
compensation only to the extent that, had there been no such plan, the
amount would have been payable in cash to the Employee.
1.6 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.7 "Beneficiary Designation Form" shall mean the form established from time to
time by the Committee that a Participant completes, signs and returns to the
Committee to designate one or more Beneficiaries.
1.8 "Board" shall mean the Board of Directors of the Company.
1.9 "Bonus" shall mean any compensation, in addition to Annual Salary relating
to services performed during any Plan Year, whether or not paid in such Plan
Year or included on the Federal Income Tax Form W-2, payable to a
Participant as an Employee under any Employer's bonus, commissions,
royalties and cash incentive plans, excluding stock based incentive
programs.
1.10 "Change in Control" shall mean the first to occur of any of the following
events:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty percent (20%) or more of either (i) the
then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) 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 1.10, none of the following shall constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any affiliated company, (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of Subsection (c) of this Section 1.10, or (v) any acquisition
by the Company which, by reducing the number of shares of Outstanding
Company Common Stock or Outstanding Company Voting Securities,
increases the proportionate number of Outstanding Company Common Stock
or Outstanding Company Voting Securities beneficially owned by any
Person to twenty percent (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 twenty
percent (20%) or more of either Outstanding Company Common Stock or
Outstanding Company Voting Securities, then such additional
acquisition shall constitute a Change in Control; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, 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
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PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
- --------------------------------------------------------------------------------
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
(c) Consummation of a reorganization, merger or consolidation of the
Company or any direct or indirect subsidiary of the Company or sale or
other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than fifty percent (50%),
respectively, of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation that, as a result of
such transaction, owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership immediately
prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination
and any Person beneficially owning, immediately prior to such Business
Combination), beneficially owns, directly or indirectly, twenty
percent (20%) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then-outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at least
a majority of the members of the Board resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
1.11 "Claimant" shall have the meaning set forth in Section 14.1.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.
1.13 "Committee" shall mean the administrative committee appointed pursuant to
the Plan as described in Article 12. The Committee shall consist of the
members of the Payless ShoeSource, Inc. 401(k) Profit Sharing Plan
Committee as such term is defined in the Payless ShoeSource, Inc. 401(k)
Profit Sharing Plan.
1.14 "Company" shall mean Payless ShoeSource, Inc., a Delaware corporation, and
any successor to all or substantially all of the Company's assets or
business.
1.15 "Company Contribution Account" shall mean (i) the sum of the Participant's
Company Contribution Amounts, plus (ii) amounts credited in accordance with
all the applicable crediting provisions of this Plan that relate to the
Participant's Company Contribution Account, less (iii) all distributions
made to the Participant or his or her Beneficiary pursuant to this Plan
that relate to the Participant's Company Contribution Account.
1.16 "Company Contribution Amount" shall mean, for any one Plan Year, the amount
determined in accordance with Section 3.5.
1.17 "Company Matching Account" shall mean (i) the sum of all of a Participant's
Company Matching Amounts, plus (ii) amounts credited in accordance with all
the applicable crediting provisions of this
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PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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Plan that relate to the Participant's Company Matching Account, less (iii)
all distributions made to the Participant or his or her Beneficiary
pursuant to this Plan that relate to the Participant's Company Matching
Account.
1.18 "Company Matching Amount" for any one Plan Year shall be the amount
determined in accordance with Section 3.6.
1.19 "Deduction Limitation" shall mean the following described limitation on a
benefit that may otherwise be distributable pursuant to the provisions of
this Plan. Except as otherwise provided, this limitation shall be applied
to all distributions that are "subject to the Deduction Limitation" under
this Plan. If an Employer determines in good faith prior to a Change in
Control that there is a reasonable likelihood that any compensation paid to
a Participant for a taxable year of the Employer would not be deductible by
the Employer solely by reason of the limitation under Code Section 162(m),
then to the extent deemed necessary by the Employer to ensure that the
entire amount of any distribution to the Participant pursuant to this Plan
prior to the Change in Control is deductible, the Employer may defer all or
any portion of a distribution under this Plan. Any amounts deferred
pursuant to this limitation shall continue to be credited/debited with
additional amounts in accordance with Section 3.11 below, even if such
amount is being paid out in installments. The amounts so deferred and
amounts credited/debited thereon shall be distributed to the Participant or
his or her Beneficiary (in the event of the Participant's death) at the
earliest possible date, as determined by the Employer in good faith, on
which the deductibility of compensation paid or payable to the Participant
for the taxable year of the Employer during which the distribution is made
will not be limited by Section 162(m), or if earlier, the effective date of
a Change in Control. Notwithstanding anything to the contrary in this Plan,
the Deduction Limitation shall not apply to any distributions made after a
Change in Control.
1.20 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual
Deferral Amounts, plus (ii) amounts credited in accordance with all the
applicable crediting provisions of this Plan that relate to the
Participant's Deferral Account, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate to
his or her Deferral Account.
1.21 "Disability" shall mean a period of disability during which a Participant
qualifies for permanent disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not
participate in such a plan, a period of disability during which the
Participant would have qualified for permanent disability benefits under
such a plan had the Participant been a participant in such a plan, as
determined in the sole discretion of the Committee. If the Participant's
Employer does not sponsor such a plan, or discontinues to sponsor such a
plan, Disability shall be determined by the Committee in its sole
discretion.
1.22 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.23 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
1.24 "Eligible Stock Option" shall mean one or more non-qualified stock
option(s) selected by the Committee in its sole discretion and exercisable
under a plan or arrangement of any Employer permitting a Participant under
this Plan to defer gain with respect to such option.
1.25 "Employee" shall mean a person who is an employee of any Employer.
1.26 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now in
existence or hereafter formed or acquired).
1.27 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
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1.28 "401(k) Plan" shall be the Payless ShoeSource, Inc. 401(k) Profit Sharing
Plan adopted by the Company, and as amended from time to time.
1.29 "Participant" shall mean any Employee (i) who is selected to participate in
the Plan, (ii) who elects to participate in the Plan, (iii) who signs an
Election Form, (iv) whose signed Election Form is accepted by the
Committee, (v) who commences participation in the Plan, and (vi) whose
participation has not terminated. A spouse or former spouse of a
Participant shall not be treated as a Participant in the Plan or have an
account balance under the Plan, even if he or she has an interest in the
Participant's benefits under the Plan as a result of applicable law or
property settlements resulting from legal separation or divorce.
1.30 "Plan" shall mean the new Payless ShoeSource, Inc. Deferred Compensation
401(k) Mirror Plan, which shall be evidenced by this instrument, as it may
be amended from time to time.
1.31 "Plan Year" shall mean the fiscal year of the Company.
1.32 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.33 "Qualifying Gain" shall mean the value accrued upon exercise of an Eligible
Stock Option (i) using a Stock-for-Stock payment method and (ii) having an
aggregate fair market value in excess of the total Stock purchase price
necessary to exercise the option. In other words, the Qualifying Gain upon
exercise of an Eligible Stock Option equals the total market value of the
shares (or share equivalent units) acquired minus the total stock purchase
price. For example, assume a Participant elects to defer the Qualifying
Gain accrued upon exercise of an Eligible Stock Option to purchase 1000
shares of Stock at an exercise price of $20 per share, when Stock has a
current fair market value of $25 per share. Using the Stock-for-Stock
payment method, the Participant would deliver 800 shares of Stock (worth
$20,000) to exercise the Eligible Stock Option and receive, in return, 800
shares of Stock plus a Qualifying Gain (in this case, in the form of an
unfunded and unsecured promise to pay money or property in the future)
equal to $5,000 (i.e., the current value of the remaining 200 shares of
Stock).
1.34 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an
Employee, voluntary severance from employment from all Employers for any
reason other than a leave of absence, death or Disability on or after the
attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with five
(5) Years of Service.
1.35 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.36 "Short-Term Payout" shall mean an in-service distribution payout as set
forth in Section 4.1.
1.37 "Stock" shall mean Payless ShoeSource, Inc. common stock, $ .001 par value,
or any other equity securities of the Company designated by the Committee.
1.38 "Stock Option Account" shall mean the sum of (i) the Participant's Annual
Stock Option Amounts, plus (ii) amounts credited/debited in accordance with
all the applicable crediting/debiting provisions of this Plan that relate
to the Participant's Stock Option Account, less (iii) all distributions
made to the Participant or his or her Beneficiary pursuant to this Plan
that relate to the Participant's Stock Option Account.
1.39 "Stock Option Amount" shall mean, for any Eligible Stock Option, the amount
of Qualifying Gains deferred in accordance with Section 3.7 of this Plan,
calculated using the closing price of Stock as of the end of the business
day closest to the date of exercise of such Eligible Stock Option.
1.40 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.41 "Termination of Employment" shall mean the severing of employment with all
Employers, voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
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1.42 "Trust" shall mean one or more trusts established, effective as of October
1, 2000 between the Company and the Trustee named therein, as amended from
time to time.
1.43 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that would
result in severe financial hardship to the Participant resulting from (i) a
sudden and unexpected illness or accident of the Participant or a dependent
of the Participant, (ii) a loss of the Participant's property due to
casualty, or (iii) such other extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant, all as
determined in the sole discretion of the Committee.
1.44 "Variable Account" shall mean, with respect to a Participant, a credit on
the records of the Employer equal to the sum of (i) the Deferral Account
balance, (ii) the Company Contribution Account balance, and (iii) the
Company Matching Account balance. The Variable Account, and each other
specified account balance, shall be a bookkeeping entry only and shall be
utilized solely as a device for the measurement and determination of the
amounts to be paid to a Participant, or his or her designated Beneficiary,
pursuant to this Plan.
1.45 "Year of Service" shall have the same meaning as the term Vesting Service
under the 401(k) Plan.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a
select group of management and highly compensated Employees of the
Employers, as determined by the Committee in its sole discretion. From that
group, the Committee shall select, in its sole discretion, Employees to
participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
Employee shall complete, execute and return to the Committee an Election
Form within 30 days after he or she is selected to participate in the Plan.
In addition, the Committee shall establish from time to time such other
enrollment requirements as it determines in its sole discretion are
necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee selected
to participate in the Plan has met all enrollment requirements set forth in
this Plan and required by the Committee, including returning all required
documents to the Committee within the specified time period, that Employee
shall commence participation in the Plan on the first day of the month
following the month in which the Employee completes all enrollment
requirements. If an Employee fails to meet all such requirements within the
period required, in accordance with Section 2.2, that Employee shall not be
eligible to participate in the Plan until the first day of the Plan Year
following the delivery to and acceptance by the Committee of the required
documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee determines
in good faith that a Participant no longer qualifies as a member of a
select group of management or highly compensated employees, as membership
in such group is determined in accordance with Sections 201(2), 301(a)(3)
and 401(a)(1) of ERISA, the Committee shall have the right, in its sole
discretion, to (i) terminate any deferral election the Participant has made
for the remainder of the Plan Year in which the Participant's membership
status changes, (ii) prevent the Participant from making future deferral
elections and/or (iii) immediately distribute the Participant's then
Account Balance as a Termination Benefit and terminate the Participant's
participation in the Plan.
2.5 PRIOR PARTICIPATION. Each Employee who participated in the Payless
ShoeSource, Inc. Deferred Compensation Plan (last amended March 19, 1998)
immediately prior to October 1, 2000, shall automatically participate in
the new Plan on and after October 1, 2000. Any deferral election in effect
as
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of October 1, 2000 shall continue to remain in effect until changed by the
Participant pursuant to the provisions of the Plan.
ARTICLE 3
DEFERRAL COMMITMENTS/COMPANY MATCHING/CREDITING/TAXES
3.1 MINIMUM DEFERRALS.
(a) ANNUAL SALARY AND BONUS. For each Plan Year, a Participant may elect
to defer, as his or her Annual Deferral Amount, Annual Salary, and/or
Bonus in the following combined minimum amount.
DEFERRAL MINIMUM AMOUNT
- -------- --------------
Annual Salary............................................. $ 0
Bonus..................................................... $ 0
Annual Salary plus Bonus.................................. $500
If an election is made for less than the stated minimum amount, or if no
election is made, the amount deferred shall be zero.
(b) SHORT PLAN YEAR. Notwithstanding the foregoing, if a Participant
first becomes a Participant after the first day of a Plan Year the
minimum Annual Salary deferral shall be an amount equal to the minimum
set forth above, multiplied by a fraction, the numerator of which is
the number of complete months remaining in the Plan Year and the
denominator of which is 12.
(c) STOCK OPTION AMOUNT. For each Eligible Stock Option, a Participant
may elect to defer, as his or her Stock Option Amount, the following
minimum percentage of Qualifying Gain with respect to exercise of the
Eligible Stock Option:
DEFERRAL MINIMUM PERCENTAGE
- -------- ------------------
Qualifying Gain......................................... 10%
provided, however, that such Stock Option Amount shall be no less than
the lesser of $10,000 or 100% of such Qualifying Gain.
3.2 MAXIMUM DEFERRAL.
(a) ANNUAL SALARY AND BONUS. For each Plan Year, a Participant may elect
to defer, as his or her Annual Deferral Amount, Annual Salary and/or
Bonus up to the following maximum percentages for each deferral
elected:
DEFERRAL MAXIMUM AMOUNT
- -------- ----------------------------------
Annual Salary..................... 50%
Bonus............................. 100% of Bonus reduced by any and
all social security and Medicare
taxes due on the Bonus
(b) Notwithstanding the foregoing, if a Participant first becomes a
Participant after the first day of a Plan Year the maximum Annual
Deferral Amount, with respect to Annual Salary, and Bonus shall be
limited to the amount of compensation not yet earned by the
Participant as of the date the Participant submits an Election Form to
the Committee for acceptance.
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(c) For each Eligible Stock Option, a Participant may elect to defer, as
his or her Stock Option Amount, Qualifying Gain up to the following
maximum percentage with respect to exercise of the Eligible Stock
Option:
DEFERRAL MAXIMUM PERCENTAGE
- -------- ----------------------------------
Qualifying Gain................... 100% of Qualifying Gain reduced by
any and all social security and
Medicare taxes due on the
Qualifying Gain
(d) Stock Option Amounts may also be limited by other terms or conditions
set forth in the stock option plan or agreement under which such
options are granted.
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.
(a) FIRST PLAN YEAR. In connection with a Participant's commencement of
participation in the Plan, the Participant shall make an irrevocable
deferral election for the Plan Year in which the Participant commences
participation in the Plan, along with such other elections as the
Committee deems necessary or desirable under the Plan. For these
elections to be valid, the Election Form must be completed and signed
by the Participant, timely delivered to the Committee (in accordance
with Section 2.2 above) and accepted by the Committee.
(b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an irrevocable
deferral election for that Plan Year, and such other elections as the
Committee deems necessary or desirable under the Plan, shall be made
by timely delivering to the Committee, in accordance with its rules
and procedures, before the end of the Plan Year preceding the Plan
Year for which the election is made, a new Election Form. If no such
Election Form is timely delivered for a Plan Year, the Annual Deferral
Amount shall be zero for that Plan Year.
(c) STOCK OPTION DEFERRAL. Subject to the shareholders of the Company
approving the use of Company Stock under the Plan, for an election to
defer gain upon an Eligible Stock Option exercise to be valid: (i) a
separate Election Form must be completed and signed by the Participant
with respect to the Eligible Stock Option; (ii) the Election Form must
be timely delivered to the Committee and accepted by the Committee at
least six (6) months prior to the date the Participant elects to
exercise the Eligible Stock Option; (iii) the Eligible Stock Option
must be exercised using an actual or phantom stock-for-stock payment
method; and (iv) the Stock actually or constructively delivered by the
Participant to exercise the Eligible Stock Option must have been owned
by the Participant during the entire six (6) month period prior to its
delivery.
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Annual
Salary portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled Annual Salary payroll in equal amounts, as adjusted from
time to time for increases and decreases in Annual Salary. The Bonus portion
of the Annual Deferral Amount shall be withheld at the time the Bonus is or
otherwise would be paid to the Participant, whether or not this occurs
during the Plan Year itself.
3.5 COMPANY CONTRIBUTION AMOUNT. For each Plan Year, an Employer, in its sole
discretion, may, but is not required to, credit any amount it desires to any
Participant's Company Contribution Account under this Plan, which amount
shall be for that Participant. The amount so credited to a Participant may
be smaller or larger than the amount credited to any other Participant, and
the amount credited to any Participant for a Plan Year may be zero, even
though one or more other Participants receive a Company Contribution Amount
for that Plan Year. If a Participant is not employed by an Employer as of
the last
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day of a Plan Year other than by reason of his or her Retirement,
Disability or death (while employed), the Company Contribution Amount for
that Plan Year shall be zero.
3.6 COMPANY MATCHING AMOUNT. For each Plan Year, an Employer, in its sole
discretion, may, but is not required to, credit any amount it desires to any
Participant's Matching Contribution Account under this Plan, which amount
shall be for that Participant.
3.7 STOCK OPTION AMOUNT. Subject to any terms and conditions imposed by the
Committee and at its sole discretion, Participants may elect to defer, under
the Plan, Qualifying Gains attributable to an Eligible Stock Option
exercise. Stock Option Amounts shall be credited/debited to the Participant
on the books of the Employer at the time Stock would otherwise have been
delivered to the Participant pursuant to the Eligible Stock Option exercise,
but for the election to defer.
3.8 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be authorized,
upon written instructions received from the Committee or investment manager
appointed by the Committee, to invest and reinvest the assets of the Trust
in accordance with the applicable Trust Agreement.
3.9 SOURCES OF STOCK. If Stock is credited under the Plan in the Trust pursuant
to Section 3.7 in connection with an Eligible Stock Option exercise, the
shares so credited shall be deemed to have originated, and shall be counted
against the number of shares reserved, under such other plan, program or
arrangement.
3.10 VESTING.
A Participant shall at all times be 100% vested in his or her Deferral
Account and Stock Option Account.
(a) A Participant shall be vested in his or her Company Contribution
Account and Company Matching Account as follows: (i) with respect to
all benefits under this Plan other than the Termination Benefit, a
Participant's Company Contribution Account and Company Matching
Account shall equal 100% of such Participant's Company Contribution
Account and Company Matching Account; and (ii) with respect to the
Termination Benefit, a Participant's Company Contribution Account and
Company Matching Account shall vest on the basis of the Participant's
Years of Service at the time the Participant experiences a Termination
of Employment, in accordance with the following schedule:
VESTED PERCENTAGE OF
YEARS OF SERVICE AT COMPANY CONTRIBUTION
DATE OF TERMINATION ACCOUNT AND COMPANY
OF EMPLOYMENT MATCHING ACCOUNT
------------------- ------------------------
Fewer than 2 years 0%
2 years 25%
3 years 50%
4 years 75%
5 years or more 100%
(b) Notwithstanding anything to the contrary contained in this Section
3.10, a Participant's Company Contribution Account and Company
Matching Account shall immediately become 100% vested (if it is not
already vested in accordance with the above vesting schedules) in the
event of the following with respect to a Participant: Retirement;
Disability; death; or a Change in Control.
(c) Notwithstanding subsection (a), the vesting schedule for a
Participant's Company Contribution Account and Company Matching
Account shall not be accelerated to the extent that the Committee
determines that such acceleration would cause the deduction
limitations of Section 280G of the Code to become effective (except as
may be provided in agreements that exist from time to time between any
Employer and a Participant which provides for acceleration of
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vesting upon a Change in Control). In the event that all of a
Participant's Company Contribution Account and/or Company Matching
Account is not vested pursuant to such a determination, the Participant
may request independent verification of the Committee's calculations
with respect to the application of Section 280G. In such case, the
Committee must provide to the Participant within 15 business days of
such a request an opinion from a nationally recognized accounting firm
selected by the Participant (the "Accounting Firm"). The opinion shall
state the Accounting Firm's opinion that any limitation in the vested
percentage hereunder is necessary to avoid the limits of Section 280G
and contain supporting calculations. The cost of such opinion shall be
paid for by the Company.
3.11 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject
to, the rules and procedures that are established from time to time by the
Committee, in its sole discretion, amounts shall be credited or debited to
a Participant's Account Balance in accordance with the following rules:
(a) ELECTION OF MEASUREMENT FUNDS FOR VARIABLE ACCOUNT. A Participant, in
connection with his or her initial deferral election in accordance
with Section 3.3(a) above, shall elect, on the Election Form, one or
more Measurement Fund(s) (as described in Section 3.11(c) below) to be
used to determine the additional amounts to be credited to his or her
Variable Account when the Participant commences participation in the
Plan and continuing thereafter for each subsequent business day in
which the Participant participates in the Plan, unless changed in
accordance with the next sentence. Commencing with the business day
that follows the Participant's commencement of participation in the
Plan and continuing thereafter for each subsequent business day in
which the Participant participates in the Plan, the Participant may
(but is not required to) elect, by submitting an Election Form to the
Committee that is accepted by the Committee, to reallocate among the
available Measurement Fund(s) to be used to determine the additional
amounts to be credited to his or her Variable Account, or to change
the portion of his or her Variable Account allocated to each
previously or newly elected Measurement Fund. If an election is made
in accordance with the previous sentence, it shall apply as soon as
administratively possible and shall continue thereafter for each
subsequent business day in which the Participant participates in the
Plan, unless changed in accordance with the previous sentence. A
Participant shall be permitted to request that the Committee
reallocate the amount available in the Measurement Fund(s) once during
a calendar month.
(b) PROPORTIONATE ALLOCATION. In making any election described in Section
3.11(a) above, the Participant shall specify on the Election Form, in
increments of one percentage points (1%), the percentage of his or her
Variable Account to be allocated to a Measurement Fund (as if the
Participant was making an investment in that Measurement Fund with
that portion of his or her Variable Account).
(c) MEASUREMENT FUNDS. The Participant may elect one or more measurement
funds (the "Measurement Funds") for the purpose of crediting
additional amounts to his or her Variable Account. The Committee
shall, in its sole discretion, select, discontinue, substitute or add
a Measurement Fund at any time. Subject to the shareholders of the
Company approving the use of Company Stock under the Plan, the
Committee may offer a Payless ShoeSource, Inc. Stock Fund (the "Stock
Fund") as a Measurement Fund.
(d) CREDITING OR DEBITING METHOD. The performance of each elected
Measurement Fund (either positive or negative) will be determined by
the Committee, in its reasonable discretion, based on the performance
of the Measurement Funds themselves. A Participant's Account balance
shall be credited or debited on a daily basis based on the performance
of each Measurement Fund selected by the Participant for the Variable
Account and for the Stock Option Account, as determined by the
Committee in its sole discretion, as though (i) a Participant's
Account Balance were invested in
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the selected or required Measurement Fund(s), or both in the percentages
applicable to such business day, as of the close of business on the
business day, at the closing price on such date; (ii) the portion of the
Annual Deferral Amount that was actually deferred as of the business day
were invested in the Measurement Fund(s) selected by the Participant, in
the percentages applicable to such business day, as soon as
administratively possible after the day on which such amounts are
actually deferred from the Participant's Annual Salary through
reductions in his or her payroll; and (iii) any distribution made to a
Participant that decreases such Participant's Account Balance ceased
being invested in the Measurement Fund(s), in the percentages applicable
to such business day, as soon as administratively possible. The
Participant's Company Matching Amount, if any, shall be credited to his
or her Company Matching Account for purposes of this Section 3.11(d) on
the date selected by the Committee in its sole and absolute discretion.
The Participant's Company Contribution Amount, if any, shall be credited
to his or her Company Contribution Account for purposes of this Section
3.11(d) on the date selected by the Committee, in its sole and absolute
discretion. The Participant's Annual Stock Option Amount(s) shall be
credited to his or her Stock Option Account as soon as administratively
possible after the date on which the Eligible Stock Option was exercised
or otherwise disposed of.
(e) SPECIAL RULE FOR STOCK OPTION ACCOUNT AND VARIABLE ACCOUNT INVESTED IN
STOCK. Notwithstanding any provision of this Plan that may be
construed to the contrary, (i) the Participant's Stock Option Account
must be allocated to the ShoeSource Stock Fund at all times prior to
distribution from this Plan, (ii) the portion of the Participant's
Variable Account allocated to the Stock Fund must at all times prior
to distribution be allocated to the Stock Fund, and (iii) the
Participant's Stock Option Account and that portion of the Variable
Account allocated to the Stock Fund must be distributed in the form of
Stock.
(f) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this
Plan that may be interpreted to the contrary, the Measurement Funds
are to be used for measurement purposes only, and a Participant's
election of any such Measurement Fund, the allocation to his or her
Account Balance thereto, the calculation of additional amounts and the
crediting or debiting of such amounts to a Participant's Account
Balance shall not be considered or construed in any manner as an
actual investment of his or her Account Balance in any such
Measurement Fund. In the event that the Company or the Trustee (as
that term is defined in the Trust), in its own discretion, decides to
invest funds in any or all of the Measurement Funds, no Participant
shall have any rights in or to such investments themselves. Without
limiting the foregoing, a Participant's Account Balance shall at all
times be a bookkeeping entry only and shall not represent any
investment made on his or her behalf by the Company or the Trust; the
Participant shall at all times remain an unsecured creditor of the
Company.
(g) AMOUNTS PREVIOUSLY DEFERRED. Each Participant with a balance under
the Payless ShoeSource, Inc. Deferred Compensation Plan (last amended
March 19, 1998) as of October 1, 2000 shall elect on the Election Form
one or more Measurement Fund(s) to be used to determine the additional
amounts to be credited to his or her Variable Account commencing
October 1, 2000 and continuing thereafter for each subsequent business
day in which the Participant participates in the Plan unless changed
in accordance with Section 3.11(a).
3.12 FICA AND OTHER TAXES.
(a) ANNUAL DEFERRAL AMOUNTS. For each Plan Year in which an Annual
Deferral Amount is being withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Annual Salary and Bonus that is not being deferred, in a
manner determined by the Employer(s), the Participant's share of FICA
and other employment taxes on such Annual
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Deferral Amount. If necessary, the Committee may reduce the Deferral
Account in order to comply with this Section 3.12.
(b) COMPANY MATCHING ACCOUNT AND COMPANY CONTRIBUTION ACCOUNT. When a
Participant becomes vested in a portion of his or her Company Matching
Account or Company Contribution Account, or both, the Participant's
Employer(s) shall withhold from the Participant's Annual Salary and/or
Bonus that is not deferred, in a manner determined by the Employer(s),
the Participant's share of FICA and other employment taxes on such
vested portions of his or her Company Matching Account and/or Company
Contribution Account. If necessary, the Committee may reduce the
vested portion of the Participant's Company Matching Account or
Company Contribution Account, or both, as the case may be, in order to
comply with this Section 3.12.
(c) ANNUAL STOCK OPTION AMOUNTS. For each Plan Year in which an Annual
Stock Option Amount is being first withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Annual Salary, Bonus and/or Qualifying Gains that are
not being deferred, in a manner determined by the Employer(s), the
Participant's share of FICA and other employment taxes on such Annual
Stock Option Amount. If necessary, the Committee may reduce the Stock
Option Account in order to comply with this Section 3.12.
3.13 DISTRIBUTIONS. The Participant's Employer(s), or the Trustee of the Trust,
shall withhold from any distributions made to a Participant under this Plan
all federal, state and local income, employment and other taxes required to
be withheld by the Employer(s), or the Trustee of the Trust, in connection
with such distributions, in amounts and in a manner to be determined in the
sole discretion of the Employer(s) and the Trustee of the Trust.
ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES;
WITHDRAWAL ELECTION
4.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual
Deferral Amount, a Participant may irrevocably elect, at the sole discretion
of the Committee, to receive a future "Short-Term Payout" from the Plan with
respect to such Annual Deferral Amount. Subject to the Deduction Limitation,
the Short-Term Payout shall be a lump sum payment in an amount that is equal
to the Annual Deferral Amount plus amounts credited or debited in the manner
provided in Section 3.11 above on that amount, determined at the time that
the Short-Term Payout becomes payable (rather than the date of a Termination
of Employment, Retirement, Disability or death). Subject to the Deduction
Limitation and the other terms and conditions of this Plan, each Short-Term
Payout elected shall be paid out during a 60 day period commencing
immediately after the last day of any calendar year designated by the
Participant that is at least three Plan Years after the Plan Year in which
the Annual Deferral Amount is actually deferred.
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM. Should an event occur that
triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral Amount,
plus amounts credited or debited thereon, that is subject to a Short-Term
Payout election under Section 4.1 shall not be paid in accordance with
Section 4.1 but shall be paid in accordance with the other applicable
Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If
the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals required
to be made by a Participant and/or (ii) receive a partial or full payout
from the Plan. The payout shall not exceed the lesser of the Participant's
Account Balance, calculated as if such Participant were receiving a
Termination Benefit, or the amount reasonably needed to satisfy the
Unforeseeable Financial Emergency. If, subject to the sole discretion of the
Committee, the petition for a
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suspension and/or payout is approved, suspension shall take effect upon the
date of approval and any payout shall be made within 60 days of the date of
approval. The payment of any amount under this Section 4.3 shall not be
subject to the Deduction Limitation. Any suspension of deferrals pursuant
to this Section 4.3 shall continue for the remainder of the Plan Year in
which the suspension is approved.
ARTICLE 5
RETIREMENT BENEFIT
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant who
Retires shall receive, as a Retirement Benefit, his or her Account Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or her
commencement of participation in the Plan, shall elect on an Election Form
to receive the Retirement Benefit pursuant to a lump sum or an Annual
Installment Method paid over a period not to exceed 15 years as approved by
the Committee. The Participant may annually change his or her election to an
allowable alternative payout period by submitting a new Election Form to the
Committee, provided that any such Election Form is submitted at least 2
years prior to the Participant's Retirement and is accepted by the Committee
in its sole discretion. The Election Form most recently accepted by the
Committee shall govern the payout of the Retirement Benefit. If a
Participant does not make any election with respect to the payment of the
Retirement Benefit, then such benefit shall be payable in a lump sum. The
lump sum payment shall be made no later than 60 days after his or her
Retirement date. Payments made pursuant to the Annual Installment Method
shall be made in accordance with Section 1.3. Any payment made shall be
subject to the Deduction Limitation.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and shall be
paid to the Participant's Beneficiary over the remaining period of time and
in the same amounts as that benefit would have been paid to the Participant
had the Participant survived.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation, the
Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit
equal to the Participant's Account Balance if the Participant dies before he
or she Retires, experiences a Termination of Employment or suffers a
Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. A Participant, in connection
with his or her commencement of participation in the Plan, shall elect on an
Election Form the form of payment to be made to his or her Beneficiary. The
Pre-Retirement Survivor Benefit shall be paid in a lump sum or an Annual
Installment Method paid over a period not to exceed 15 years as approved by
the Committee. The Participant may annually change his or her election to an
allowable alternative payout period by submitting a new Election Form to the
Committee. The Election Form most recently accepted by the Committee shall
govern the payout of the Pre-Retirement Survivor Benefit. If a Participant
does not make any election with respect to the payment of the Pre-Retirement
Survivor Benefit, then such benefit shall be payable in a lump sum. The lump
sum payment shall be made no later than 60 days after the date the Committee
is provided with proof that is satisfactory to the Committee of the
Participant's death. Payments made pursuant to the Annual Installment Method
shall be made in accordance with Section 1.3. Any payment made shall be
subject to the Deduction Limitation.
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6.3 DEATH OF BENEFICIARY PRIOR TO COMPLETION OF PRE-RETIREMENT SURVIVOR
BENEFIT. If a Beneficiary dies before the Pre-Retirement Survivor Benefit
is paid in full, the unpaid Pre-Retirement Survivor Benefit shall be made to
the Beneficiary's estate in a lump sum within 60 days after the death of the
Beneficiary.
ARTICLE 7
TERMINATION BENEFIT
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the Participant
shall receive a Termination Benefit, which shall be equal to the
Participant's Account Balance if a Participant experiences a Termination of
Employment prior to his or her Retirement, death or Disability.
7.2 PAYMENT OF TERMINATION BENEFIT. A Participant, in connection with his or
her commencement of participation in the Plan, shall elect on an Election
Form to receive the Termination Benefit pursuant to a lump sum or an Annual
Installment Method paid over a period not to exceed 15 years as approved by
the Committee. Notwithstanding the above, if the Participant's Account
Balance at the time of his or her Termination of Employment is less than
$25,000, payment of his or her Termination Benefit shall be paid in a lump
sum. The Participant may annually change his or her election to an allowable
alternative payout period by submitting a new Election Form to the
Committee, provided that any such Election Form is submitted at least 2
years prior to the Participant's Termination of Employment date and is
accepted by the Committee in its sole discretion. The Election Form most
recently accepted by the Committee shall govern the payout of the
Termination Benefit. If a Participant does not make any election with
respect to the payment of the Termination Benefit, then such benefit shall
be payable in a lump sum. The lump sum payment shall be made no later than
60 days after his or her Termination of Employment date. Payments made
pursuant to the Annual Installment Method shall be made in accordance with
Section 1.3. Any payment made shall be subject to the Deduction Limitation.
7.3 DEATH PRIOR TO COMPLETION OF TERMINATION BENEFIT. If a Participant dies
after Termination of Employment but before the Termination Benefit is paid
in full, the Participant's unpaid Termination Benefit shall continue and
shall be paid to the Participant's Beneficiary over the remaining period of
time and in the same amounts as that benefit would have been paid to the
Participant had the Participant survived.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
8.1 DISABILITY WAIVER.
(a) WAIVER OF DEFERRAL. A Participant who is determined by the Committee
to be suffering from a Disability shall be (i) excused from fulfilling
that portion of the Annual Deferral Amount commitment that would
otherwise have been withheld from a Participant's Annual Salary and/or
Bonus for the Plan Year during which the Participant first suffers a
Disability and (ii) excused from fulfilling any unexercised Stock
Option Amount commitments. During the period of Disability, the
Participant shall not be allowed to make any additional deferral
elections, but will continue to be considered a Participant for all
other purposes of this Plan.
(b) RETURN TO WORK. If a Participant returns to employment with an
Employer, after a Disability ceases, the Participant may elect to
defer an Annual Deferral Amount and Stock Option Amount for the Plan
Year following his or her return to employment or service and for
every Plan Year thereafter while a Participant in the Plan; provided
such deferral elections are otherwise allowed and an Election Form is
delivered to and accepted by the Committee for each such election in
accordance with Section 3.3 above.
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8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed, and shall be eligible for the benefits provided
for in Articles 4, 5, 6 or 7 in accordance with the provisions of those
Articles. Notwithstanding the above, the Committee shall have the right to,
in its sole and absolute discretion and for purposes of this Plan only, and
must in the case of a Participant who is otherwise eligible to Retire, deem
the Participant to have Retired, or in the case of a Participant who is not
eligible to Retire, to have experienced a Termination of Employment, after
such Participant is determined to be suffering a Disability, in which case
the Participant shall receive a Disability Benefit equal to his or her
Account Balance at the time of the Committee's determination. The
Participant shall be paid in accordance with Article 5 in the case of a
deemed Retirement and in accordance with Article 7 in the case of a deemed
Termination of Employment. Any payment made shall be subject to the
Deduction Limitation.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary(ies) (both primary as well as contingent)
to receive any benefits payable under the Plan to a beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may be
the same as or different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY. A Participant shall
designate his or her Beneficiary by completing and signing the Beneficiary
Designation Form, and returning it to the Committee or its designated agent.
A Participant shall have the right to change a Beneficiary by completing,
signing and otherwise complying with the terms of the Beneficiary
Designation Form and the Committee's rules and procedures, as in effect from
time to time. Upon the acceptance by the Committee of a new Beneficiary
Designation Form, all Beneficiary designations previously filed shall be
canceled. The Committee shall be entitled to rely on the last Beneficiary
Designation Form filed by the Participant and accepted by the Committee
prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary
shall be effective until received and acknowledged in writing by the
Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to complete
distribution of the Participant's benefits, then the Participant's
designated Beneficiary shall be deemed to be his or her estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, the Committee shall
have the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's participation in the Plan shall
terminate upon such full payment of benefits.
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ARTICLE 10
LEAVE OF ABSENCE
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the Participant's
Employer for any reason to take a paid leave of absence from the employment
of the Employer, the Participant shall continue to be considered employed
by the Employer and the Annual Deferral Amount shall continue to be
withheld during such paid leave of absence in accordance with Section 3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Participant shall be excused
from making deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment status. Upon such
expiration or return, deferrals shall resume for the remaining portion of
the Plan Year in which the expiration or return occurs, based on the
deferral election, if any, made for that Plan Year. If no election was made
for that Plan Year, no deferral shall be withheld.
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
11.1 TERMINATION. Although each Employer anticipates that it will continue the
Plan for an indefinite period of time, there is no guarantee that any
Employer will continue the Plan or will not terminate the Plan at any time
in the future. Accordingly, each Employer reserves the right to discontinue
its sponsorship of the Plan and/or to terminate the Plan at any time with
respect to any or all of its participating Employees, by action of its
board of directors. Upon the termination of the Plan with respect to any
Employer, the affected Participants who are employed by that Employer shall
terminate and their Account Balances, determined as if they had experienced
a Termination of Employment on the date of Plan termination or, if Plan
termination occurs after the date upon which a Participant was eligible to
Retire, then with respect to that Participant as if he or she had Retired
on the date of Plan termination, shall be paid to the Participants as
follows: Prior to a Change in Control, if the Plan is terminated with
respect to all of its Participants, an Employer shall have the right, in
its sole discretion, and notwithstanding any elections made by the
Participant, to pay such benefits in a lump sum or pursuant to an Annual
Installment Method of up to 15 years, with amounts credited and debited
during the installment period as provided herein. If the Plan is terminated
with respect to less than all of its Participants, an Employer shall have
the right to pay such benefits in a lump sum. After a Change in Control,
the Account Balances of all participants shall be fully vested and the
Employer shall be required to pay such benefits in a lump sum within five
(5) business days of such Change in Control unless otherwise prohibited by
court order. The termination of the Plan shall not adversely affect any
Participant or Beneficiary who has become entitled to the payment of any
benefits under the Plan as of the date of termination; provided however,
that the Employer shall have the right to accelerate installment payments
without a premium or prepayment penalty by paying the Account Balance in a
lump sum or pursuant to an Annual Installment Method using fewer years
(provided that the present value of all payments that will have been
received by a Participant at any given point of time under the different
payment schedule shall equal or exceed the present value of all payments
that would have been received at that point in time under the original
payment schedule).
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in whole
or in part with respect to that Employer by the action of its board of
directors; provided, however, that: (i) no amendment or modification shall
be effective to decrease or restrict the value of a Participant's vested
Account Balance in existence at the time the amendment or modification is
made, calculated as if the Participant had experienced a Termination of
Employment as of the effective date of the amendment or modification or,
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if the amendment or modification occurs after the date upon which the
Participant was eligible to Retire, the Participant had Retired as of the
effective date of the amendment or modification, and (ii) no amendment or
modification of this Section 11.2 or Section 12.2 of the Plan shall be
effective. The amendment or modification of the Plan shall not affect any
Participant or Beneficiary who has become entitled to the payment of
benefits under the Plan as of the date of the amendment or modification;
provided, however, that the Employer shall have the right to accelerate
installment payments by paying the Account Balance in a lump sum or
pursuant to an Annual Installment Method using fewer years (provided that
the present value of all payments that will have been received by a
Participant at any given point of time under the different payment schedule
shall equal or exceed the present value of all payments that would have
been received at that point in time under the original payment schedule).
11.3 EFFECT OF PAYMENT. The full payment of the applicable benefit under
Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all
obligations to a Participant and his or her designated Beneficiaries under
this Plan and the Participant's participation in the Plan shall terminate.
ARTICLE 12
ADMINISTRATION
12.1 COMMITTEE DUTIES. Except as otherwise provided in this Article 12, this
Plan shall be administered by a Committee which shall consist of the
members of the Payless ShoeSource, Inc. 401(k) Profit Sharing Plan
Committee, or such other committee as the Board shall appoint. Members of
the Committee may be Participants in this Plan. The Committee shall also
have the discretion and authority to (i) make, amend, interpret, and
enforce all appropriate rules and regulations for the administration of
this Plan and (ii) decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the Plan. Any
individual serving on the Committee who is a Participant shall not vote or
act on any matter relating solely to himself or herself. When making a
determination or calculation, the Committee shall be entitled to rely on
information furnished by a Participant or the Company.
12.2 ADMINISTRATION UPON CHANGE IN CONTROL. For purposes of this Plan, the
Committee shall be the "Administrator" at all times prior to the occurrence
of a Change in Control. Upon and after the occurrence of a Change in
Control, the "Administrator" shall be an independent third party selected
by the individual who, immediately prior to such event, was the Company's
Chief Executive Officer if such individual is still employed by the Company
immediately after the Change in Control or, if not so identified or not so
employed, the Company's highest ranking officer, as determined prior to the
Change in Control, who is still employed with the Company(the "Ex-CEO").
The Administrator shall have the discretionary power to determine all
questions arising in connection with the administration of the Plan and the
interpretation of the Plan and Trust including, but not limited to benefit
entitlement determinations and responses to legal inquiries and challenges;
provided, however, upon and after the occurrence of a Change in Control,
the Administrator shall have no power to direct the investment of Plan or
Trust assets or select any investment manager or custodial firm for the
Plan or Trust. Any responsibilities not expressly delegated to the
Administrator upon and after a Change in Control shall remain with the
Committee as identified prior to the Change in Control. Upon and after the
occurrence of a Change in Control, the Company must: (i) pay out the
account balances of all participants, in a lump sum within five (5)
business days of such Change in Control unless otherwise prohibited by
court order (ii) pay all reasonable administrative expenses and fees of the
Administrator; (iii) indemnify the Administrator against any costs,
expenses and liabilities including, without limitation, attorney's fees and
expenses arising in connection with the performance of the Administrator
hereunder, except with respect to matters resulting from the gross
negligence or willful misconduct of the Administrator or its employees or
agents; and (iv) supply full and timely information to the Administrator on
all matters relating to the Plan, the Trust, the Participants and their
Beneficiaries, the Account Balances of the Participants, the
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date of circumstances of the Retirement, Disability, death or Termination
of Employment of the Participants, and such other pertinent information as
the Administrator may reasonably require. Upon and after a Change in
Control, the Administrator may be terminated (and a replacement appointed)
by the Ex-CEO. Upon and after a Change in Control, the Administrator may
not be terminated by the Company.
12.3 AGENTS. In the administration of this Plan, the Committee may, from time
to time, employ agents and delegate to them such administrative duties as
it sees fit (including acting through a duly appointed representative) and
may from time to time consult with counsel who may be counsel to any
Employer.
12.4 BINDING EFFECT OF DECISIONS. The decision or action of the Administrator
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
12.5 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
the members of the Committee, and any Employee to whom the duties of the
Committee may be delegated, and the Administrator against any and all
claims, losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except in the case of willful
misconduct by the Committee, any of its members, any such Employee or the
Administrator.
12.6 EMPLOYER INFORMATION. To enable the Committee and/or Administrator to
perform its functions, the Company and each Employer shall supply full and
timely information to the Committee and/or Administrator, as the case may
be, on all matters relating to the compensation of its Participants, the
date and circumstances of the Retirement, Disability, death or Termination
of Employment of its Participants, and such other pertinent information as
the Committee or Administrator may reasonably require.
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant
and Participant's Beneficiary under the Plan are in addition to any other
benefits available to such Participant under any other plan or program for
employees of the Participant's Employer. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or program except
as may otherwise be expressly provided.
ARTICLE 14
CLAIMS PROCEDURES
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice received
by the Claimant, the claim must be made within 60 days after such notice
was received by the Claimant. All other claims must be made within 180 days
of the date on which the event that caused the claim to arise occurred. The
claim must state with particularity the determination desired by the
Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim
within a reasonable time, and shall notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or
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(b) that the Committee has reached a conclusion contrary, in whole or in
part, to the Claimant's requested determination, and such notice must
set forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any part of
it;
(ii) specific reference(s) to pertinent provisions of the Plan upon
which such denial was based;
(iii) a description of any additional material or information necessary
for the Claimant to perfect the claim, and an explanation of why
such material or information is necessary; and
(iv) an explanation of the claim review procedure set forth in Section
14.3 below.
14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the
Committee that a claim has been denied, in whole or in part, a Claimant (or
the Claimant's duly authorized representative) may file with the Committee
a written request for a review of the denial of the claim. Thereafter, but
not later than 30 days after the review procedure began, the Claimant (or
the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion,
may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written request
for review of the denial, unless a hearing is held or other special
circumstances require additional time, in which case the Committee's
decision must be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the Claimant,
and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
this Article 14 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under this
Plan.
ARTICLE 15
TRUST
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and
each Employer shall at least annually transfer over to the Trust such
assets as the Employer determines, in its sole discretion, are necessary to
provide, on a present value basis, for its respective future liabilities
created with respect to the Annual Deferral Amounts, Company Contribution
Amounts, Company Matching Amounts and Annual Stock Option Amounts for such
Employer's Participants for all periods prior to the transfer, as well as
any debits and credits to the Participants' Account Balances for all
periods prior to the transfer, taking into consideration the value of the
assets in the trust at the time of the transfer.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
shall govern the rights of a Participant to receive distributions pursuant
to the Plan. The provisions of the Trust shall govern the rights of the
Employers, Participants and the creditors of the Employers to the assets
transferred to the Trust. Each Employer shall at all times remain liable to
carry out its obligations under the Plan.
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15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the Plan
may be satisfied with Trust assets distributed pursuant to the terms of the
Trust, and any such distribution shall reduce the Employer's obligations
under this Plan.
15.4 STOCK TRANSFERRED TO THE TRUST. Subject to the shareholders of the Company
approving the use of Company Stock under the Plan, notwithstanding any
other provision of this Plan or the Trust, if Trust assets are distributed
to a Participant in a distribution which reduces the Participant's Stock
Option Account balance under this Plan or such portion of the Participant's
Variable Account invested in the Stock Fund, such distribution must be made
in the form of Stock.
ARTICLE 16
MISCELLANEOUS
16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not qualified
within the meaning of Code Section 401(a) and that is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees within the meaning of ERISA Sections 201(2), 301(a)(3) and
401(a)(1). The Plan shall be administered and interpreted to the extent
possible in a manner consistent with that intent.
16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests
or claims in any property or assets of an Employer. For purposes of the
payment of benefits under this Plan, any and all of an Employer's assets
shall be, and remain, the general, unpledged unrestricted assets of the
Employer. An Employer's obligation under the Plan shall be merely that of
an unfunded and unsecured promise to pay money in the future.
16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits
shall be defined only by the Plan. An Employer shall have no obligation to
a Participant under the Plan except as expressly provided in the Plan.
16.4 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate, alienate or convey in advance
of actual receipt, the amounts, if any, payable hereunder, or any part
thereof, which are, and all rights to which are expressly declared to be,
unassignable and non-transferable. No part of the amounts payable shall,
prior to actual payment, be subject to seizure, attachment, garnishment or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, be transferable by
operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency or be transferable to a spouse as a result of a
property settlement or otherwise.
16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall
not be deemed to constitute a contract of employment between any Employer
and the Participant. Such employment is hereby acknowledged to be an "at
will" employment relationship that can be terminated at any time for any
reason, or no reason, with or without cause, and with or without notice,
unless expressly provided in a written employment agreement. Nothing in
this Plan shall be deemed to give a Participant the right to be retained in
the service of any Employer, either as an Employee or a director, or to
interfere with the right of any Employer to discipline or discharge the
Participant at any time.
16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be requested
in order to facilitate the administration of the Plan and the payments of
benefits hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
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16.7 TERMS. Whenever any words are used herein in the masculine, they shall be
construed as though they were in the feminine in all cases where they would
so apply; and whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or
the singular, as the case may be, in all cases where they would so apply.
16.8 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of
Kansas without regard to its conflicts of laws principles.
16.10 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below:
Payless ShoeSource, Inc.
3231 SE Sixth Street
Topeka, KS 66607-2207
Such notice shall be deemed given as of the date of delivery or, if delivery
is made by mail, as of the date shown on the postmark on the receipt for
registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and
the Participant and the Participant's designated Beneficiaries.
16.12 VALIDITY. In case any provision of this Plan shall be illegal or invalid
for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as
if such illegal or invalid provision had never been inserted herein.
16.13 INCOMPETENT. If the Committee determines in its discretion that a benefit
under this Plan is to be paid to a minor, a person declared incompetent or
to a person incapable of handling the disposition of that person's
property, the Committee may direct payment of such benefit to the
guardian, legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetence, incapacity or guardianship, as it may
deem appropriate prior to distribution of the benefit. Any payment of a
benefit shall be a payment for the account of the Participant and the
Participant's Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment amount.
16.14 COURT ORDER. The Committee is authorized to make any payments directed by
court order in any action in which the Plan or the Committee has been
named as a party. In addition, if a court determines that a spouse or
former spouse of a Participant has an interest in the Participant's
benefits under the Plan in connection with a property settlement or
otherwise, the Committee, in its sole discretion, shall have the right,
notwithstanding any election made by a Participant, to immediately
distribute the spouse's or former spouse's interest in the Participant's
benefits under the Plan to that spouse or former spouse.
16.15 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any
portion of a Participant's benefits under this Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the Committee
before a Change in Control, or the newly appointed Administrator upon and
after a Change in Control, for a distribution of that portion of his or
her benefit that has become taxable. Upon the grant of such a petition,
which grant shall not be unreasonably withheld (and, after a Change in
Control, shall be granted), a Participant's Employer shall distribute to
the Participant immediately available funds in an amount equal to the
taxable portion of his or her benefit (which amount shall not exceed a
C-21
65
PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
- --------------------------------------------------------------------------------
Participant's unpaid Account Balance under the Plan). If the petition is
granted, the tax liability distribution shall be made within 90 days of the
date when the Participant's petition is granted. Such a distribution shall
affect and reduce the benefits to be paid under this Plan.
16.17 TRUST. If the Trust terminates and benefits are distributed from the
Trust to a Participant, the Participant's benefits under this Plan shall
be reduced to the extent of such distributions.
16.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and
each Employer is aware that upon the occurrence of a Change in Control,
the Board or the board of directors of a Participant's Employer (which
might then be composed of new members) or a shareholder of the Company or
the Participant's Employer, or of any successor corporation might then
cause or attempt to cause the Company, the Participant's Employer or such
successor to refuse to comply with its obligations under the Plan and
might cause or attempt to cause the Company or the Participant's Employer
to institute, or may institute, litigation seeking to deny Participants
the benefits intended under the Plan. In these circumstances, the purpose
of the Plan could be frustrated. Accordingly, if, following a Change in
Control, it should appear to any Participant that the Company, the
Participant's Employer or any successor corporation has failed to comply
with any of its obligations under the Plan or any agreement thereunder or,
if the Company, such Employer or any other person takes any action to
declare the Plan void or unenforceable or institutes any litigation or
other legal action designed to deny, diminish or to recover from any
Participant the benefits intended to be provided, then the Company and the
Participant's Employer irrevocably authorize such Participant to retain
counsel of his or her choice at the expense of the Company and the
Participant's Employer (who shall be jointly and severally liable) to
represent such Participant in connection with the initiation or defense of
any litigation or other legal action, whether by or against the Company,
the Participant's Employer or any director, officer, shareholder or other
person affiliated with the Company, the Participant's Employer or any
successor thereto in any jurisdiction.
C-22
66
[PSS LOGO]
PROXY CARD
PAYLESS SHOESOURCE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING TO BE HELD ON MAY 25, 2001.
Shareowners of Payless ShoeSource, Inc.:
By signing this card, each of Duane L. Cantrell and William J. Rainey, or both
or either of them, with full power of substitution, are appointed as proxies
for the undersigned to vote all common shares held by the undersigned in
Payless ShoeSource, Inc. at the May 25, 2001, Annual Meeting of Shareowners and
at any adjournment of the meeting, on all subjects that may properly come
before the Anual Meeting, subject to the directions on the other side of
this card.
The Board of Directors recommends a vote FOR election of all listed director
nominees, Proposal I, and a vote FOR Proposals II, III and IV on the other side
of this card. IF NO DIRECTIONS ARE GIVEN, AND THIS CARD IS RETURNED SIGNED, THE
UNDERSIGNED UNDERSTANDS THAT THE PROXIES WILL VOTE IN ACCORDANCE WITH THE ABOVE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS AND IN THEIR DISCRETION ON ANY OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
Has your address changed? Do you have any comments?
___________________________________ ________________________________________
___________________________________ ________________________________________
___________________________________ ________________________________________
To the Shareowners of Payless ShoeSource, Inc.:
You are cordially invited to attend the Annual Meeting of Payless ShoeSource
Shareowners which will be held at Washburn University, Bradbury Thompson Center,
17th Street and Jewell Avenue, Topeka, Kansas on Friday, May 25, 2001, at 10:00
a.m., Central Daylight Saving Time.
Provided with this proxy card is a return envelope, the Company's 2000 Annual
Report to Shareowners and the Proxy Statement for the 2001 Annual Meeting. It is
important that you vote either by returning the proxy card or by using the
Internet. Management's recommendation on each issue and the reasons for the
recommendations are described in the Proxy Statement.
PLEASE PROMPTLY SIGN, DATE AND RETURN THE PROXY
CARD USING THE ENCLOSED ENVELOPE OR VOTE BY USING THE INTERNET.
Please sign the proxy card exactly as your name(s)
appear(s)on the reverse side of this card.
67
- -------------------back of card--------------------------------
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE.
- ---------------------------------------------------------------
PAYLESS SHOESOURCE, INC. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
- --------------------------------------------------------------- PROPOSALS I THROUGH IV.
I. ELECTION OF DIRECTORS. For Withhold Exceptions
Authority
Mark box at right if you plan to attend the Annual Meeting. [ ] Election of Daniel Boggan Jr. and [ ] [ ] [ ]
Michael E. Murphy each for three-
year terms expiring in 2004.
Mark box at right if an address change or comment has been [ ] INSTRUCTIONS: To vote your shares for all nominees in
noted on the reverse side of this card. Proposal I, mark the FOR box. To withhold voting for all
nominees in Proposal I, mark the WITHHOLD AUTHORITY box. If
CONTROL NUMBER: you do not wish your shares voted FOR a particular nominee
in Proposal I, please mark the EXCEPTIONS box and
enter the name(s) of the director(s) for whom you wish to
withhold authority in the space provided below
Exceptions:____________________________________________________
For Against Abstain
II. Ratify the appointment of
Arthur Andersen LLP as independent [ ] [ ] [ ]
accountants for the fiscal year 2001.
III. Approve the performance goals [ ] [ ] [ ]
for the Payless ShoeSource, Inc.
Executive Incentive Compensation
Plan.
IV. Approve the Amendment of the [ ] [ ] [ ]
Date Payles ShoeSource, Inc. Deferred
Please be sure to sign and date this Proxy. Compensation 401(k) Mirror Plan.
Shareowner sign here Co-owner sign here
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH CARD DETACH CARD
To vote by mail, please detach the proxy card above and return it in the
enclosed envelope. To vote by Internet, please visit HTTP://WWW.UMB.COM/PROXY.
If you are planning to attend the Annual Meeting, please save this Admission
Ticket and bring it to the meeting for admission.
The Payless ShoeSource Annual Meeting of Shareowners will be held at:
WASHBURN UNIVERSITY, BRADBURY THOMPSON CENTER
17TH STREET AND JEWELL AVENUE
TOPEKA, KANSAS
FRIDAY, MAY 25, 2001
10:00 A.M., CENTRAL DAYLIGHT SAVING TIME
TO VOTE USING THE INTERNET:
1. Read the accompanying Proxy Statement.
2. Visit our Internet voting site at HTTP://WWW.UMB.COM/PROXY and follow the
instructions on the screen.
Your Internet vote authorizes the named proxies to vote your shares to the same
extent as if you marked, signed, dated and returned the above proxy card. Please
note that all votes cast by using the Internet must be submitted prior to 5:00
p.m., Central Daylight Saving Time, May 24, 2001. Your Internet vote is quick,
convenient and is submitted immediately.
IF YOU VOTE USING THE INTERNET, PLEASE DO NOT RETURN YOUR PROXY CARD BY MAIL.
THANK YOU FOR YOUR VOTE.
ADMISSION TICKET
68
PSS LOGO
VOTING INSTRUCTION CARD
PAYLESS SHOESOURCE, INC.
THIS VOTING INSTRUCTION CARD IS PROVIDED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING TO BE HELD ON MAY 25, 2001.
Shareowners of Payless ShoeSource, Inc.:
By signing this card, I instruct as applicable, the bank, broker-dealer, or
other designated record holder to vote all common shares beneficially owned by
the undersigned in Payless ShoeSource, Inc. at the May 25, 2001, Annual Meeting
of Shareowners and at any adjournment of the meeting, on all subjects that may
properly come before the meeting, subject to the directions on the other side of
this card.
The Board of Directors recommends a vote FOR election of all listed director
nominees, Proposal I, and a vote FOR Proposals II, III and IV on the other side
of this card. IF NO DIRECTIONS ARE GIVEN, AND THIS CARD IS RETURNED SIGNED, THE
UNDERSIGNED UNDERSTANDS THAT THE APPLICABLE BANK, BROKER-DEALER OR OTHER
DESIGNATED RECORD HOLDER WILL VOTE IN ACCORDANCE WITH THE ABOVE RECOMMENDATIONS
OF THE BOARD OF DIRECTORS AND IN THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE MEETING.
Has your address changed? Do you have any comments?
___________________________________ ________________________________________
___________________________________ ________________________________________
___________________________________ ________________________________________
To the Shareowners of Payless ShoeSource, Inc.:
You are cordially invited to attend the Annual Meeting of Payless ShoeSource
Shareowners which will be held at Washburn University, Bradbury Thompson Center,
17th Street and Jewell Avenue, Topeka, Kansas on Friday, May 25, 2001, at 10:00
a.m., Central Daylight Saving Time.
Provided with this voting instruction card is a return envelope, the Company's
2000 Annual Report to Shareowners and the Proxy Statement for the 2001 Annual
Meeting. It is important that you indicate your vote by returning the voting
instruction card. Management's recommendation on each issue and the reasons for
the recommendations are described in the Proxy Statement.
PLEASE PROMPTLY SIGN, DATE AND RETURN THE VOTING INSTRUCTION CARD
USING THE ENCLOSED ENVELOPE.
Please sign the voting instruction card exactly as your name(s)
appear(s)on the reverse side of this card.
69
- -------------------back of card--------------------------------
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE.
- ---------------------------------------------------------------
PAYLESS SHOESOURCE, INC. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
- --------------------------------------------------------------- PROPOSALS I THROUGH IV.
I. ELECTION OF DIRECTORS. For Withhold Exceptions
Authority
Mark box at right if you plan to attend the Annual Meeting. [ ] Election of Daniel Boggan Jr. and [ ] [ ] [ ]
Michael E. Murphy each for three-
year terms expiring in 2004.
Mark box at right if an address change or comment has been [ ] INSTRUCTIONS: To vote your shares for all nominees in
noted on the reverse side of this card. Proposal I, mark the FOR box. To withhold voting for all
nominees in Proposal I, mark the WITHHOLD AUTHORITY box. If
you do not wish your shares voted FOR a particular nominee
in Proposal I, please mark the EXCEPTIONS box and
enter the name(s) of the director(s) for whom you wish to
withhold authority in the space provided below
Exceptions:____________________________________________________
For Against Abstain
II. Ratify the appointment of
Arthur Andersen LLP as independent [ ] [ ] [ ]
accountants for the fiscal year 2001.
III. Approve the performance goals [ ] [ ] [ ]
for the Payless ShoeSource, Inc.
Executive Incentive Compensation
Plan.
IV. Approve the Amendment of the [ ] [ ] [ ]
Date Payles ShoeSource, Inc. Deferred
Please be sure to sign and date this Proxy. Compensation 401(k) Mirror Plan.
Shareowner sign here Co-owner sign here
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH CARD DETACH CARD
To vote, please detach the voting instruction card above and return it in the
enclosed envelope. If you are planning to attend the Annual Meeting, please
save this Admission Ticket and bring it to the meeting for admission.
The Payless ShoeSource Annual Meeting of Shareowners will be held at:
WASHBURN UNIVERSITY, BRADBURY THOMPSON CENTER
17TH STREET AND JEWELL AVENUE
TOPEKA, KANSAS
FRIDAY, MAY 25, 2001
10:00 A.M., CENTRAL DAYLIGHT SAVING TIME
THANK YOU FOR YOUR VOTE
ADMISSION TICKET
70
PSS LOGO
VOTING INSTRUCTION CARD
PAYLESS SHOESOURCE, INC.
Confidential voting instructions to American Express Trust Company or Banco
Popular de Puerto Rico as Trustee under the Payless Shoesource, Inc. 401(K)
Profit Sharing Plan and the Payless Shoesource Profit Sharing Plan for Puerto
Rico Associates, respectively (each a "Profit Sharing Plan" and collectively the
"Profit Sharing Plans") and Mellon Investor Services, L.L.C., as
recordkeeper under the Payless Shoesource, Inc. Stock Ownership Plan (the
"Ownership Plan").
To the Members of the Profit Sharing Plans and the Ownership Plan:
By signing this card, I appoint the applicable Trustee or recordkeeper to vote
all shares of common stock of Payless ShoeSource, Inc., represented by units or
shares credited to my account in the Ownership Plan, or the applicable Profit
Sharing Plan(s) each as of April 9, 2001, (the record date) at the May 25,
2001, Annual Meeting of the Shareowners of Payless ShoeSource, Inc. and at any
adjournment of the Meeting, on all subjects that may properly come before the
Annual Meeting subject to the directions on the other side of this card.
The Board of Directors recommends a vote FOR election of all listed director
nominees, Proposal I, and a vote FOR Proposals II, III and IV on the other side
of this card. IF NO DIRECTIONS ARE GIVEN, AND THIS CARD IS RETURNED SIGNED, THE
UNDERSIGNED UNDERSTANDS THAT THE APPLICABLE TRUSTEE OR RECORDKEEPERWILL VOTE IN
ACCORDANCE WITH THE ABOVE RECOMMENDATIONS OF THE BOARD OF DIRECTORS AND IN
THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
Has your address changed? Do you have any comments?
___________________________________ ________________________________________
___________________________________ ________________________________________
___________________________________ ________________________________________
Provided with this confidential voting instruction card is a return envelope,
the Company's 2000 Annual Report to Shareowners and the Proxy Statement for the
2001 Annual Meeting. It is important that you vote either by returning the
voting instruction card or by using the Internet. Management's recommendation on
each issue and the reasons for the recommendations are described in the Proxy
Statement. As applicable, the Trustee or recordkeeper will follow your voting
instructions. These instructions cannot be disclosed by the Trustee or
recordkeeper.
The voting instruction card on the reverse side of this card will constitute
your confidential voting instructions to Mellon Investor Services, L.L.C., as
recordkeeper under the Ownership Plan and the applicable Trustee under the
Profit Sharing Plans.
PLEASE PROMPTLY SIGN, DATE AND RETURN THE VOTING INSTRUCTION CARD
USING THE ENCLOSED ENVELOPE OR VOTE BY USING THE INTERNET.
Please sign the voting instruction card exactly as your name(s)
appear(s)on the reverse side of this card.
71
- -------------------back of card--------------------------------
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE.
- ---------------------------------------------------------------
PAYLESS SHOESOURCE, INC. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
- --------------------------------------------------------------- PROPOSALS I THROUGH IV.
I. ELECTION OF DIRECTORS. For Withhold Exceptions
Authority
Mark box at right if you plan to attend the Annual Meeting. [ ] Election of Daniel Boggan Jr. and [ ] [ ] [ ]
Michael E. Murphy each for three-
year terms expiring in 2004.
Mark box at right if an address change or comment has been [ ] INSTRUCTIONS: To vote your shares for all nominees in
noted on the reverse side of this card. Proposal I, mark the FOR box. To withhold voting for all
nominees in Proposal I, mark the WITHHOLD AUTHORITY box. If
CONTROL NUMBER: you do not wish your shares voted FOR a particular nominee
in Proposal I, please mark the EXCEPTIONS box and
enter the name(s) of the director(s) for whom you wish to
withhold authority in the space provided below
Exceptions:____________________________________________________
For Against Abstain
II. Ratify the appointment of
Arthur Andersen LLP as independent [ ] [ ] [ ]
accountants for the fiscal year 2001.
III. Approve the performance goals [ ] [ ] [ ]
for the Payless ShoeSource, Inc.
Executive Incentive Compensation
Plan.
IV. Approve the Amendment of the [ ] [ ] [ ]
Date Payles ShoeSource, Inc. Deferred
Please be sure to sign and date this Proxy. Compensation 401(k) Mirror Plan.
Shareowner sign here Co-owner sign here
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH CARD DETACH CARD
To vote by mail, please detach the voting instruction card above and return it
in the enclosed envelope. To vote by Internet, please visit
HTTP://WWW.UMB.COM/PROXY. If you are planning to attend the Annual Meeting,
please save this Admission Ticket and bring it to the meeting for admission.
The Payless ShoeSource Annual Meeting of Shareowners will be held at:
WASHBURN UNIVERSITY, BRADBURY THOMPSON CENTER
17TH STREET AND JEWELL AVENUE
TOPEKA, KANSAS
FRIDAY, MAY 25, 2001
10:00 A.M., CENTRAL DAYLIGHT SAVING TIME
TO VOTE USING THE INTERNET:
1. Read the accompanying Proxy Statement.
2. Visit the Internet voting site at HTTP://WWW.UMB.COM/PROXY and follow the
instructions on the screen.
Your Internet vote authorizes the applicable Trustee or recordkeeper to vote
your shares to the same extent as if you marked, signed, dated and returned the
above voting instruction card. Please note that all votes cast by using the
Internet must be submitted prior to 5:00 p.m., Central Daylight Saving
Time, May 23, 2001. Your Internet vote is quick, convenient and is submitted
immediately.
IF YOU VOTE USING THE INTERNET, PLEASE DO NOT RETURN YOUR PROXY CARD BY MAIL.
THANK YOU FOR YOUR VOTE.
ADMISSION TICKET