<PAGE> 1
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------------
PAYLESS SHOESOURCE HOLDINGS, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
DELAWARE 5661 43-1813160
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
WILLIAM J. RAINEY
SENIOR VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
3231 SOUTH EAST SIXTH STREET 3231 SOUTH EAST SIXTH STREET
TOPEKA, KANSAS 66607 TOPEKA, KANSAS 66607
(785) 233-5171 (785) 233-5171
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including telephone number, including area code, of
area code, of registrant's principal executive agent for service)
offices)
</TABLE>
---------------------------
COPIES TO:
FRANCIS J. AQUILA, ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.
---------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(2) PER UNIT(3) OFFERING PRICE(3) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share,
together with Preferred stock purchase
rights(1).................................... 37,347,552 $72.44 $2,705,456,667 $798,109.72
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Preferred stock purchase rights are attached to and will trade with the
common stock, par value $.01 per share, ("New Payless Common Stock") of
Payless ShoeSource Holdings, Inc., a Delaware corporation ("New Payless").
(2) Represents the maximum number of shares of New Payless Common Stock to be
issuable upon consummation of the merger (the "Merger") of Payless
ShoeSource Merger Corp., a Missouri corporation and a wholly-owned
subsidiary of New Payless, with and into Payless ShoeSource, Inc., a
Missouri corporation ("Payless"), based on an exchange of one share of New
Payless Common Stock, for each outstanding share of common stock, par value
$.01 per share, of Payless ("Payless Common Stock").
(2) Pursuant to Rules 457(f)(1) and 457(c) of the Securities Act of 1933, as
amended (the "Securities Act"), and estimated solely for the purpose of
calculating the registration fee, the proposed maximum aggregate offering
price is equal to the aggregate market value of the shares of Payless Common
Stock to be canceled in the Merger and is based upon the average of the
reported high and low sales prices of a share of Payless Common Stock on the
New York Stock Exchange, Inc. Composite Tape on April 14, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 2
PAYLESS SHOESOURCE
April 21, 1998
Dear Shareowner:
On behalf of the Board of Directors and management of Payless ShoeSource,
Inc., I cordially invite you to attend the Annual Meeting of the Shareowners at
the Washburn University Bradbury Thompson Center (Corner of Jewell and 17th
Streets), Topeka, Kansas, on Friday, May 22, 1998, at 10:00 a.m., Central
Daylight Time.
We will have a lot to discuss at the Annual Meeting, including our
achievements in 1997 and the proposed corporate reorganization you will be asked
to approve. In fiscal 1997, we achieved a 25% increase in basic earnings per
share, driven by strong growth in same-store sales and margins. In 1997, we
entered our first international market, Canada, and completed our acquisition of
the Parade of Shoes women's shoe chain. We also repurchased $150 million of our
common stock. During fiscal 1997, the market value of our shares increased
approximately 74%.
At the annual meeting, we will ask you to approve an important change in
our corporate structure. If approved, we intend to reorganize our corporate
legal structure by forming a new holding company incorporated in Delaware (which
will be named Payless ShoeSource, Inc.). Our Board of Directors has unanimously
approved this reorganization, and recommends that you approve it for two
principal reasons:
- Corporate planning should be simplified because Delaware corporate law
principles are more well established and predictable than those of
Missouri.
- This reorganization will allow us to reduce certain taxes.
OUR BOARD HAS UNANIMOUSLY RECOMMENDED THAT YOU HELP US CAPTURE THESE
POTENTIAL BENEFITS BY VOTING "FOR" THIS PROPOSAL. YOUR VOTE IS VERY IMPORTANT.
HOLDERS OF AT LEAST TWO-THIRDS OF OUTSTANDING PAYLESS COMMON STOCK MUST
AFFIRMATIVELY APPROVE THE REORGANIZATION IN ORDER FOR IT TO BE EFFECTED.
If the reorganization is approved, your existing shares of Payless Common
Stock will be automatically converted into shares of the holding company. YOU
WILL NOT NEED TO EXCHANGE YOUR EXISTING CERTIFICATES REPRESENTING PAYLESS COMMON
STOCK FOR CERTIFICATES REPRESENTING SHARES OF THE HOLDING COMPANY. Our corporate
name, management, and strategies will remain substantially the same, and you
will continue to find our stock quoted on the New York Stock Exchange under the
symbol PSS.
The reorganization is described in greater detail in the attached Notice of
Annual Meeting of Shareowners and Proxy Statement/Prospectus. I urge you to read
these documents carefully.
IT IS IMPORTANT THAT YOUR SHARES OF PAYLESS COMMON STOCK BE REPRESENTED AT
THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE PROMPTLY COMPLETE
AND MAIL THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID RETURN ENVELOPE.
IF YOU ATTEND THE ANNUAL MEETING AND WISH TO DO SO, YOU MAY REVOKE YOUR PROXY
AND VOTE IN PERSON, AND THAT VOTE WILL SUPERSEDE ANY EARLIER VOTE BY YOU BY
PROXY.
Sincerely,
/s/ Steven J. Douglass
Steven J. Douglass
Chairman and Chief Executive Officer
<PAGE> 3
DIRECTIONS TO WASHBURN UNIVERSITY BRADBURY THOMPSON CENTER
The Bradbury Thompson Center is located on the Washburn University Campus
on the southwest corner of 17th and Jewell Streets. 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]
<PAGE> 4
Payless ShoeSource
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
TO BE HELD ON MAY 22, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareowners (the "Annual
Meeting") of Payless ShoeSource, Inc., a Missouri corporation ("Payless"), will
be held at the Washburn University Bradbury Thompson Center (Corner of Jewell
and 17th Streets), Topeka, Kansas, on Friday, May 22, 1998, at 10:00 a.m.,
Central Daylight Time, to consider and take action on the following proposals:
1. Adoption of an Agreement and Plan of Merger dated as of April 20, 1998
(the "Merger Agreement") among Payless, Payless ShoeSource Holdings,
Inc., a Delaware corporation and a wholly owned subsidiary of Payless
("New Payless"), and Payless Merger Corp., a Missouri corporation and a
wholly owned subsidiary of New Payless ("Merger Sub"). A copy of the
Merger Agreement is attached as Annex A to the accompanying Proxy
Statement/Prospectus. The Merger Agreement provides, among other things,
that Merger Sub will be merged with and into Payless (the "Merger") and
that each share of common stock, par value $.01 per share, of Payless
("Payless Common Stock"), will be automatically converted into one share
of common stock, par value $.01 per share, of New Payless. Following the
Merger, Payless Merger 2 Corp., a Missouri corporation and a wholly owned
subsidiary of PSS Investment II, Inc., a Nevada corporation (currently a
wholly owned subsidiary of Payless), will merge with and into Payless
with the result being that Payless will be an indirect wholly owned
subsidiary of New Payless;
2. Election of four directors to the Board of Directors of Payless, three
for three-year terms expiring in 2001 and one with a two-year term
expiring in 2000;
3. Ratification of the appointment of Arthur Andersen LLP as independent
public accountants for our 1998 fiscal year; and
4. Such other business as may properly come before the meeting, or any
adjournment or adjournments thereof.
The foregoing matters are more fully described in the accompanying Proxy
Statement/Prospectus. Only holders of record of Payless Common Stock on April
15, 1998 are entitled to vote on these proposals at the Annual Meeting or any
adjournments or postponements thereof.
SHAREOWNERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING.
April 21, 1998
By Order of The Board of Directors,
/s/ WILLIAM J. RAINEY
William J. Rainey
Secretary
IMPORTANT
EVEN THOUGH YOU MAY EXPECT TO ATTEND THE ANNUAL MEETING, IT IS URGENTLY
REQUESTED THAT, WHETHER YOUR HOLDINGS OF PAYLESS COMMON STOCK ARE LARGE OR
SMALL, YOU PROMPTLY FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN
THE ENCLOSED POSTAGE PAID ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING AND WISH TO
DO SO, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON, AND THAT VOTE WILL
SUPERSEDE ANY EARLIER VOTE BY PROXY.
<PAGE> 5
PAYLESS SHOESOURCE
PROXY STATEMENT PROSPECTUS
PAYLESS SHOESOURCE, INC. PAYLESS SHOESOURCE HOLDINGS, INC.
This Prospectus, including the Proxy Statement forming a part hereof (this
"Proxy Statement/Prospectus"), is being furnished to shareowners of Payless
ShoeSource, Inc., a Missouri corporation ("Payless"), in connection with the
solicitation of proxies by the Board of Directors of Payless (the "Payless
Board") from holders of outstanding shares of common stock, par value $.01 per
share, of Payless ("Payless Common Stock"), for use at the annual meeting
(including any adjournments or postponements thereof) of shareowners of Payless
(the "Annual Meeting") to be held at the Washburn University Bradley Thompson
Center, Topeka, Kansas, on Friday, May 22, 1998 at 10:00 a.m., Central Daylight
Time.
At the Annual Meeting, shareowners of Payless will be asked to consider and
vote upon a proposal to adopt an Agreement and Plan of Merger, dated as of April
20, 1998, (the "Merger Agreement") among Payless, Payless ShoeSource Holdings,
Inc. (which will be renamed Payless ShoeSource, Inc. prior to the Merger (as
defined below)), a Delaware corporation ("New Payless") and a wholly-owned
subsidiary of Payless, and Payless Merger Corp., a Missouri corporation ("Merger
Sub") and a wholly owned subsidiary of New Payless. The Merger Agreement is
attached as Annex A to this Proxy Statement/Prospectus and is incorporated
herein by reference. The Merger Agreement provides for the merger of Merger Sub
with and into Payless (the "Merger"), with Payless being the corporation
surviving the Merger (sometimes, with respect to the period following the
Merger, being referred to as the "Surviving Corporation"). At the Effective Time
(as defined herein), New Payless will become the parent corporation of Payless
and a holding company governed by the corporate law of the State of Delaware.
Following the Effective Time, Payless Merger 2 Corp., a Missouri corporation and
a wholly owned subsidiary of PSS Investment II, Inc., a Nevada corporation
("Payless Nevada"), which will be a wholly owned subsidiary of New Payless, will
merge with and into Payless (the "Nevada Merger") with Payless being the
surviving corporation of the Nevada Merger, and becoming, as result of the
Nevada Merger, a wholly owned subsidiary of Payless Nevada (the Merger and the
Nevada Merger are collectively referred to as the "Reorganization"). See
"Summary -- Illustration of the Steps of the Reorganization". A vote in favor of
the adoption of the Merger Agreement will be considered approval of the
Reorganization (including the Nevada Merger).
In addition, at the Annual Meeting, shareowners of Payless will be asked to
elect four directors to the Payless Board (three with three-year terms expiring
in 2001 and one with a two-year term expiring in 2000) and to ratify the
appointment of Arthur Andersen LLP as independent public accountants for the
1998 fiscal year of Payless.
At the Effective Time and as a result of the Merger, each then issued and
outstanding share of Payless Common Stock will automatically be converted into
one share of common stock, par value $.01 per share, of New Payless ("New
Payless Common Stock") together with one attached right ("Rights") to purchase
Series A Preferred Stock, par value $.01 per share, of New Payless.
The Payless Board has unanimously approved the Merger and the Merger
Agreement, believes that the Merger and the Reorganization are in the best
interests of Payless and its shareowners, and unanimously recommends that the
holders of Payless Common Stock vote in favor of the proposal to adopt the
Merger Agreement and, accordingly, to authorize the Reorganization (including
the Nevada Merger).
IF THE MERGER IS EFFECTED, IT WILL NOT BE NECESSARY FOR HOLDERS OF PAYLESS
COMMON STOCK TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES ("PAYLESS
CERTIFICATES") REPRESENTING SHARES OF PAYLESS COMMON STOCK FOR CERTIFICATES
REPRESENTING SHARES OF NEW PAYLESS COMMON STOCK ("NEW PAYLESS CERTIFICATES").
THE PAYLESS CERTIFICATES WILL AUTOMATICALLY REPRESENT SHARES OF NEW PAYLESS
COMMON STOCK IMMEDIATELY FOLLOWING THE EFFECTIVE TIME.
New Payless has filed a Registration Statement on Form S-4 (including
exhibits and amendments thereto, the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering
approximately 37,347,552 shares of New Payless Common Stock (and accompanying
Rights) which are expected to be issuable upon consummation of the Merger. This
Proxy Statement/Prospectus constitutes the Proxy Statement of Payless relating
to the solicitation of proxies for use at the Annual Meeting and the Prospectus
of New Payless filed as part of the Registration Statement. This Proxy
Statement/ Prospectus and the accompanying proxy are first being provided to
shareowners of Payless on or about April 22, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
The date of this Proxy Statement/Prospectus is April 21, 1998.
<PAGE> 6
AVAILABLE INFORMATION
Payless is, and New Payless expects to be, subject to the informational
requirements of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and in accordance therewith files reports and other information with the
Securities and Exchange Commission ("SEC"). Reports, proxy statements and other
information filed by Payless can be inspected and copied at the public reference
facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at its Regional Offices located at Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and
7 World Trade Center, 13th Floor, New York, NY 10048. Copies of such material
can be obtained from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The SEC maintains a Website
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, including Payless.
The address of such site is http://www.sec.gov. Payless Common Stock is listed
on the New York Stock Exchange, Inc. (the "NYSE"). As such, reports, proxy
statements and other information concerning Payless may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. The omitted information can be inspected
and copied at the above-described reference facilities maintained by the SEC.
For further information, reference is made to such Registration Statement.
Following the Merger described in this Proxy Statement/Prospectus, New
Payless will become subject to the same informational requirements as Payless is
prior to the Effective Time, and will file reports, proxy statements and other
information with the SEC in accordance with the Exchange Act and with the NYSE
pursuant to the Exchange Act and rules of the NYSE. Payless does not expect to
be subject to such requirements after the Effective Time.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Payless with the SEC (File No. 1-11633)
are incorporated in this Proxy Statement/Prospectus by reference and made a part
hereof:
(i) the Annual Report on Form 10-K for the year ended January 31,
1998;
(ii) the description of Payless Common Stock contained in the
Registration Statement on Form 10 of Payless dated April 15, 1996; and
(iii) the description of preferred stock purchase rights of Payless
contained in the Registration Statement on Form 10 of Payless dated April
15, 1996.
All documents subsequently filed by Payless pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, after the date of this Proxy
Statement/Prospectus and prior to the date of the Annual Meeting to which this
Proxy Statement/Prospectus relates, shall be deemed to be incorporated in this
Proxy Statement/Prospectus by reference and to be a part hereof from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this Proxy
Statement/Prospectus shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained in
this Proxy Statement/Prospectus or in any other subsequently filed document
which also is or is deemed to be incorporated by reference in this Proxy
Statement/Prospectus modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. PAYLESS WILL PROVIDE WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON,
A COPY OF ANY OR ALL OF THE DOCUMENTS THAT HAVE BEEN OR MAY BE INCORPORATED IN
THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE, OTHER THAN EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THE INFORMATION THAT THIS PROXY STATEMENT/PROSPECTUS INCORPORATES. SUCH REQUESTS
SHOULD BE
i
<PAGE> 7
DIRECTED TO PAYLESS SHOESOURCE, INC., 3231 SE SIXTH STREET, TOPEKA, KANSAS
66607, ATTENTION: CORPORATE SECRETARY, TELEPHONE NUMBER (785) 233-5171. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY
15, 1998.
-------------------------
No person has been authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus in connection
with the offer contained in this Proxy Statement/Prospectus, and, if given or
made, such information or representation must not be relied upon as having been
authorized. Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of shares of New Payless Common Stock made hereunder shall, under
any circumstances, create any implication that there has not been any change in
the affairs of Payless or New Payless since the respective dates as of which
information is given herein. This Proxy Statement/Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy shares of New Payless
Common Stock by any person in any jurisdiction or in any circumstance in which
such offer would be unlawful.
ii
<PAGE> 8
TABLE OF CONTENTS
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PAGE
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<S> <C>
AVAILABLE INFORMATION....................................... i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... i
SUMMARY..................................................... 1
The Companies............................................. 1
The Reorganization........................................ 2
Comparative Shareowners' Rights........................... 5
Stock Exchange Listing.................................... 5
Other Matters to be Considered at the Annual Meeting...... 5
FORWARD-LOOKING STATEMENTS.................................. 6
THE COMPANIES............................................... 7
Payless ShoeSource, Inc................................... 7
Payless ShoeSource Holdings, Inc.......................... 7
Payless Merger Corp....................................... 7
THE ANNUAL MEETING.......................................... 7
Date, Place, Time and Purpose............................. 7
Record Date............................................... 7
Votes Required; Shares Outstanding........................ 8
Voting and Revocation of Proxies.......................... 8
Solicitation of Proxies................................... 9
PROPOSAL I: ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.... 10
General................................................... 10
Reasons for the Reorganization............................ 10
The Merger Agreement...................................... 11
New Payless Capital Stock................................. 13
Possible Antitakeover Effect of Certain Provisions of the
New Payless Charter, the New Payless Bylaws and the
DGCL................................................... 15
Comparison of Certain Rights of the Holders of New Payless
Common Stock and Payless Common Stock.................. 17
Interests of Certain Persons in the Reorganization........ 23
Listing of New Payless Common Stock....................... 23
Certain Federal Income Tax Consequences................... 23
Dissenters' Rights........................................ 24
Accounting Treatment...................................... 25
Board of Directors and Management of New Payless After the
Merger................................................. 25
Independent Public Accountants of New Payless............. 26
Issuances of New Payless Common Stock..................... 26
New Payless Charter....................................... 26
PROPOSAL II: ELECTION OF DIRECTORS.......................... 27
Directors and Nominees for Directors...................... 27
The Payless Board and Committees of the Payless Board..... 29
Compensation Committee Interlocks and Insider
Participation.......................................... 30
Compensation and Nominating Committee Report.............. 30
Stock Price Performance................................... 34
</TABLE>
iii
<PAGE> 9
<TABLE>
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<S> <C>
Executive Compensation.................................... 35
Beneficial Stock Ownership of Directors, Nominees,
Executive Officers and Persons Owning More Than Five
Percent of Common Stock................................ 40
PROPOSAL III: RATIFICATION OF INDEPENDENT
PUBLIC ACCOUNTANTS OF PAYLESS............................... 41
VALIDITY OF SHARES.......................................... 41
EXPERTS..................................................... 41
OTHER MATTERS............................................... 41
Section 16 Filings........................................ 41
1999 Shareowners Proposal................................. 42
Additional Information.................................... 42
ANNEX A
AGREEMENT AND PLAN OF MERGER
ANNEX B
FORM OF RESTATED CERTIFICATE OF INCORPORATION OF PAYLESS
SHOESOURCE, INC.
ANNEX C
FORM OF AMENDED AND RESTATED BY-LAWS OF PAYLESS SHOESOURCE,
INC.
ANNEX D
FORM OF STOCKHOLDER PROTECTION RIGHTS AGREEMENT OF PAYLESS
SHOESOURCE HOLDINGS, INC.
ANNEX E
SECTION 351.455 OF THE MISSOURI GENERAL AND BUSINESS
CORPORATION LAW
</TABLE>
iv
<PAGE> 10
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
Merger and the Reorganization fully and for a more complete description of the
legal terms of the Merger and the Reorganization, you should read carefully this
entire document and the documents referred to in this document. See "Available
Information" and "Incorporation of Certain Information by Reference."
THE COMPANIES
PAYLESS SHOESOURCE, INC.
3231 South East Sixth Street
Topeka, Kansas 66607
(785) 233-5171
Payless was founded in Topeka, Kansas in 1956 with a strategy of selling
low cost, high quality family footwear on a self-service basis. In 1979, Payless
was acquired by The May Department Stores Company ("May Company") of St. Louis,
Missouri. In 1996, Payless became an independent company as a result of its
spin-off from May Company.
Payless is North America's largest family footwear retailer. Payless sold
approximately 210 million pairs of shoes to approximately 150 million customers
in 1997. Sales for the year totaled approximately $2.6 billion. Payless' core
business, the Payless ShoeSource chain, features fashionable, quality footwear
for women, men and children sold at affordable prices in a self-service shopping
format. Under the Payless ShoeSource name, as of January 31, 1998, Payless
operated 4,256 stores in the United States, Puerto Rico, the U.S. Virgin
Islands, Guam and Canada located in regional malls, shopping centers, central
business districts and free-standing buildings. Payless also operates Parade of
Shoes, a 175-store division (as of January 31, 1998) offering fashionable
women's leather footwear at moderate prices. Payless buys footwear manufactured
to its specifications in 14 foreign countries and the United States and sells it
under Payless ShoeSource and Parade of Shoes brand names.
PAYLESS SHOESOURCE HOLDINGS, INC.
3231 South East Sixth Street
Topeka, Kansas 66607
(785) 233-5171
New Payless is a company incorporated under the laws of the State of
Delaware and was formed for the sole purpose of effecting the Reorganization.
After the consummation of the Reorganization, Payless will be an indirect wholly
owned subsidiary of New Payless and shareowners of Payless will become
shareowners of New Payless. Prior to the Effective Time, New Payless will be
renamed Payless ShoeSource, Inc.
PAYLESS MERGER CORP.
3231 South East Sixth Street
Topeka, Kansas 66607
(785) 233-5171
Merger Sub is a corporation incorporated under the laws of Missouri and was
formed for the sole purpose of effecting the Reorganization. In the Merger,
Merger Sub will merge with and into Payless and the separate corporate existence
of Merger Sub will thereupon cease.
<PAGE> 11
THE REORGANIZATION
The Merger Agreement is attached as Annex A to this Proxy
Statement/Prospectus. Shareowners of Payless are encouraged to read the Merger
Agreement in its entirety as it is the legal document that governs the Merger.
The Restated Certificate of Incorporation of New Payless and the Amended and
Restated Bylaws of New Payless are attached as Annexes B and C to this Proxy
Statement/Prospectus. Shareowners of Payless are encouraged to read the Restated
Certificate of Incorporation of New Payless and the Amended and Restated Bylaws
of New Payless as they are legal documents that will govern their rights as
shareowners of New Payless following the Merger.
RECORD DATE: VOTING POWER; ANNUAL MEETING
The Annual Meeting will be held at the Washburn University Bradley Thompson
Center (Corner of Jewell and 17th Streets), Topeka, Kansas, on Friday, May 22,
1998 at 10:00 a.m., Central Daylight time.
Shareowners of Payless are entitled to vote at the Annual Meeting if they
owned shares of Payless Common Stock as of the close of business on April 15,
1998 (the "Record Date").
On the Record Date, there were 37,317,811 shares of Payless Common Stock
outstanding and entitled to vote at the Annual Meeting. Holders of Payless
Common Stock will have one vote at the Annual Meeting for each share of Payless
Common Stock they own as of the Record Date.
VOTE REQUIRED TO ADOPT THE MERGER AGREEMENT
The favorable vote of the holders of at least two-thirds of the total
number of issued and outstanding shares of Payless Common Stock on the Record
Date is required to adopt the Merger Agreement and, accordingly, to authorize
the Reorganization. YOUR FAILURE TO VOTE YOUR SHARES OF PAYLESS COMMON STOCK
WILL HAVE THE EFFECT OF A VOTE AGAINST THE ADOPTION OF MERGER AGREEMENT AND,
ACCORDINGLY, AGAINST AUTHORIZATION OF THE REORGANIZATION.
A vote in favor of the adoption of the Merger Agreement will be considered
approval of the Reorganization (including the Nevada Merger).
REASONS FOR THE REORGANIZATION
The Payless Board believes that the Reorganization will benefit Payless by
having New Payless be subject to the more certain and well established
principles of the Delaware corporate law as it makes legal and business
decisions in the future. In addition, the Payless Board believes that the
Reorganization will allow Payless to manage state tax matters in a manner that
may result in cost savings. Accordingly, the Payless Board has unanimously
approved the Merger Agreement and the Reorganization. The Payless Board believes
that the Merger and the Reorganization are in the best interests of Payless and
its shareowners and unanimously recommends that shareowners of Payless vote FOR
the proposal to adopt the Merger Agreement and, accordingly, to authorize the
Reorganization (including the Nevada Merger). The Payless Board does not believe
that, from an operational standpoint, significant changes will occur as a result
of forming the holding company structure. There can be no assurance that the
Reorganization will result in the benefits which the Payless Board believes will
be obtained in the Reorganization.
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ILLUSTRATION OF THE STEPS OF THE REORGANIZATION
The following figures illustrate the material steps involved in the
Reorganization and the entities in Payless' consolidated group which will be
parties to the various steps in the Reorganization. Figure 1 illustrates the
present corporate structure of Payless prior to the Merger. Figure 2 illustrates
the corporate structure of New Payless following the Merger. Following the
Merger, the shareowners of Payless will become shareowners of New Payless. After
the Effective Time, Payless will transfer all of the outstanding shares of
common stock of Payless Nevada to New Payless. Figure 3 illustrates the proposed
corporate structure of New Payless after such share transfer. Figure 4
illustrates the proposed corporate structure of New Payless after the Nevada
Merger. Shareowners of New Payless will continue to be shareowners of New
Payless after the Nevada Merger.
[Figures 1, 2, 3, 4]
WHAT SHAREOWNERS OF PAYLESS WILL RECEIVE
As a result of the Merger, holders of Payless Common Stock will, following
the Effective Time, become the holders of one share of New Payless Common Stock
for each share of Payless Common Stock they own at the Effective Time.
PAYLESS SHAREOWNERS ARE NOT REQUIRED TO SEND IN THEIR PAYLESS CERTIFICATES
FOR EXCHANGE. THE EXCHANGE WILL BE AUTOMATIC AND NO EXCHANGE OF PAYLESS
CERTIFICATES FOR NEW PAYLESS CERTIFICATES WILL BE MADE UNTIL SUCH CERTIFICATES
ARE SUBMITTED TO THE REGISTRAR AND TRANSFER AGENT OF NEW PAYLESS IN THE ORDINARY
COURSE.
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CONDITIONS TO THE MERGER
The completion of the Merger depends upon the satisfaction or waiver of the
following conditions: (i) the Merger Agreement having been duly approved by
holders of at least two-thirds of the issued and outstanding shares of Payless
Common Stock and having been duly approved by the sole stockholder of Merger Sub
in accordance with applicable law and the certificate of incorporation and
Bylaws of each such corporation; (ii) the shares of New Payless Common Stock
issuable to the holders of Payless Common Stock pursuant to the Merger Agreement
having been authorized for listing on the New York Stock Exchange (the "NYSE")
upon official notice of issuance; and (iii) the date being after May 4, 1998.
The parties to the Merger Agreement have acknowledged and agreed in the Merger
Agreement that the condition set forth in (iii) above may not be waived.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT
The parties to the Merger Agreement have agreed in the Merger Agreement
that the Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, whether before or after the adoption by
shareowners of Payless of the Merger Agreement, by mutual written consent of
Payless and New Payless by action of their respective Boards of Directors. At
any time prior to the Effective Time, whether before or after adoption by
shareowners of Payless of the Merger Agreement, the boards of directors of the
parties may modify or amend the Merger Agreement, except that the condition that
the Effective Time be after May 4, 1998 may not be amended and except that,
after the Merger Agreement has been adopted by shareowners of Payless, no
amendment may alter or change the amount or kind of shares to be received by
shareowners of Payless in exchange for their shares of Payless Common Stock or
otherwise alter or change any of the terms and conditions of the Merger
Agreement so as to adversely affect shareowners of Payless.
BOARD OF DIRECTORS OF AND MANAGEMENT OF NEW PAYLESS FOLLOWING THE MERGER
The Board of Directors of New Payless (the "New Payless Board") presently
consists of the same persons comprising the Payless Board and it is expected
that the New Payless Board will remain the same after the Effective Time.
Payless expects that Thomas A. Hays, Michael E. Murphy and Daniel Boggan Jr will
continue to be assigned to Class III of the New Payless Board, whose terms will
expire in 2001. Payless expects that Richard A. Jolosky, Mylle B. Mangum, and
Robert L. Stark will continue to be assigned to Class II of the New Payless
Board, whose terms will expire in 2000. Payless expects that Steven J. Douglass
and Howard R. Fricke will continue to be assigned to Class I of the New Payless
Board, whose terms will expire in 1999.
New Payless expects that the management of New Payless at the Effective
Time will be substantially the same as that of Payless immediately prior to the
Effective Time.
ACCOUNTING TREATMENT
The Payless Board expects the Merger to qualify as a corporate
reorganization under common control, similar to a pooling of interests. Pursuant
to this type of accounting, as of the Effective Time, the recorded balances for
consolidated assets, liabilities, total shareowners' equity and results of
operations of New Payless will be the same as those of Payless.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The Merger has been structured so that none of Payless, New Payless, Merger
Sub or the shareowners of Payless will recognize gain or loss for federal income
tax purposes as a result of the Merger. TAX MATTERS ARE COMPLICATED AND THE TAX
CONSEQUENCES OF THE MERGER TO SHAREOWNERS OF PAYLESS WILL DEPEND ON THE FACTS OF
EACH SHAREOWNER'S SITUATION. SHAREOWNERS SHOULD CONSULT THEIR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO THEM.
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DISSENTERS' RIGHTS
Under the MGCL (as defined below), Payless shareowners will have the right
to a judicial determination of the value of their shares of Payless Common Stock
in connection with the Merger, if they do not vote in favor of adoption of the
Merger Agreement and if they follow the procedures summarized under the caption
"Proposal I: Adoption of the Agreement and Plan of Merger -- Dissenters'
Rights."
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
The members of the Payless Board may have certain interests in the
Reorganization which are different from or in addition to the interests of
shareowners of Payless generally. These interests relate to the provisions of
the DGCL relating to indemnification and exculpation from certain liabilities.
The Payless Board took these interests into account in reaching its decision to
recommend that shareowners of Payless vote FOR the proposal to adopt the Merger
Agreement and, accordingly, to authorize the Reorganization (including the
Nevada Merger). See "Proposal I: Adoption of the Agreement and Plan of
Merger -- Comparison of Certain Rights of the Holders of New Payless Common
Stock and Payless Common Stock -- Limitation of Directors' Liability" and
"-- Indemnification of Directors and Officers."
COMPARATIVE SHAREOWNERS' RIGHTS
Prior to the Effective Time, the New Payless Board and Payless, as the sole
shareowner of New Payless, will adopt a Restated Certificate of Incorporation of
New Payless (the "New Payless Charter") and Amended and Restated Bylaws of New
Payless (the "New Payless Bylaws"). The New Payless Charter is attached hereto
as Annex B, and is incorporated herein by reference. The New Payless Bylaws are
attached hereto as Annex C and are incorporated herein by reference.
At the Effective Time, holders of Payless Common Stock will become holders
of New Payless Common Stock, and their rights as shareowners will be governed by
the New Payless Charter, the New Payless Bylaws and the General Corporation Law
of the State of Delaware (the "DGCL") instead of the Restated Certificate of
Incorporation of Payless (the "Payless Charter"), the Bylaws of Payless (the
"Payless Bylaws") and the Missouri General and Business Corporation Law (the
"MGCL").
STOCK EXCHANGE LISTING
New Payless will apply to list the shares of New Payless Common Stock on
the NYSE. It is expected that such listing will become effective at the
Effective Time. The stock exchange ticker symbol of New Payless Common Stock is
expected to remain the same as Payless' ticker symbol, "PSS".
Following the Merger, it is expected that the shares of Payless Common
Stock will be delisted and will no longer be registered pursuant to Section 12
of the Exchange Act.
OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, shareowners of Payless will also vote on proposals
(i) to elect four Directors to the Payless Board, three with three-year terms
expiring in 2001 and one with a two-year term expiring in 2000 and (ii) to
ratify the appointment of Arthur Andersen LLP as the independent public
accountants of Payless (the "Accountant Proposal").
The Payless Board recommends that you vote FOR these proposals.
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<PAGE> 15
FORWARD-LOOKING STATEMENTS
This document includes various forward-looking statements about Payless and
the combined company that are subject to risks and uncertainties.
Forward-looking statements include information concerning anticipated financial
performance of Payless and the combined company. Also, statements including the
words "expects," "anticipates," "intends," "plans," "believes," "estimates," or
variations of such words and similar expressions are forward-looking statements.
Shareowners should note that a variety of known and unknown risks, uncertainties
and other factors, some of which are discussed elsewhere in this document and in
the documents that are incorporated by reference, could cause the actual
financial performance of Payless or the combined company to differ materially
from the anticipated financial performance set forth in or contemplated by such
forward-looking statements. Such risks, uncertainties and other factors that may
affect Payless' or the combined company's financial performance include, but are
not limited to, the following: changes in consumer spending patterns; changes in
consumer preferences; the impact of competition and pricing; changes in weather
patterns; the financial condition of suppliers and merchandisers from whom
Payless sources, and New Payless expects to source, its merchandise; changes in
existing or potential duties, tariff or quotas; changes in relationships between
the United States and foreign countries, economic and political instability in
foreign countries or restrictive actions by the governments of foreign countries
in which suppliers and merchandisers from whom Payless sources are located;
changes in trade and foreign tax laws; fluctuations in currency exchange rates;
availability of suitable store locations and appropriate terms; ability to hire
and train associates; general economic, business and social conditions; and
changes in or applications of tax laws or the DGCL which affect the benefits
Payless is seeking to achieve in the Reorganization.
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<PAGE> 16
THE COMPANIES
PAYLESS SHOESOURCE, INC.
Payless was founded in Topeka, Kansas in 1956 with a strategy of selling
low cost, high quality family footwear on a self-service basis. In 1979, Payless
was acquired by May Company. In 1996, Payless became an independent company as a
result of its spin-off from May Company.
Payless is North America's largest family footwear retailer. Payless sold
approximately 210 million pairs of shoes to approximately 150 million customers
in 1997. Sales for the year totaled approximately $2.6 billion. Payless' core
business, the Payless ShoeSource chain, features fashionable, quality footwear
for women, men and children sold at affordable prices in a self-service shopping
format. Under the Payless ShoeSource name, as of January 31, 1998, Payless
operated 4,256 stores in the United States, Puerto Rico, the U.S. Virgin
Islands, Guam and Canada located in regional malls, shopping centers, central
business districts and free-standing buildings. Payless also operates Parade of
Shoes, a 175-store division (as of January 31, 1998) offering fashionable
women's leather footwear at moderate prices. Payless buys footwear manufactured
to its specifications in 14 foreign countries and the United States and sells it
under Payless ShoeSource and Parade of Shoes brand names.
PAYLESS SHOESOURCE HOLDINGS, INC.
New Payless is a company incorporated under the laws of the State of
Delaware and was formed for the sole purpose of effecting the Reorganization.
After the consummation of the Reorganization, Payless will be an indirect wholly
owned subsidiary of New Payless and shareowners of Payless will become
shareowners of New Payless. Prior to the Effective Time, New Payless will be
renamed Payless ShoeSource, Inc.
PAYLESS MERGER CORP.
Merger Sub is a corporation incorporated under the laws of Missouri and was
formed for the sole purpose of effecting the Reorganization. In the Merger,
Merger Sub will merge with and into Payless and the separate corporate existence
of Merger Sub will thereupon cease.
THE ANNUAL MEETING
DATE, PLACE, TIME AND PURPOSE
This Proxy Statement/Prospectus is being furnished to holders of Payless
Common Stock in connection with the solicitation of proxies by the Payless Board
for use at the Annual Meeting, to be held at the Washburn University Bradley
Thompson Center (Corner of Jewell and 17th Streets), Topeka, Kansas, on Friday,
May 22, 1998 at 10:00 a.m., Central Daylight Time, and any adjournments or
postponements thereof, to consider and vote upon the adoption of the Merger
Agreement, the proposal to elect the nominees for director nominated by the
Payless Board to the Payless Board and the Accountant Proposal and to transact
such other business as may properly come before the Annual Meeting or any
adjournments or postponements thereof. A vote in favor of the adoption of the
Merger Agreement will be considered approval of the Reorganization (including
the Nevada Merger).
Each copy of this Proxy Statement/Prospectus mailed to holders of Payless
Common Stock is accompanied by a form of proxy for use at the Annual Meeting.
This Proxy Statement/Prospectus is also being furnished to holders of
Payless Common Stock as a prospectus in connection with the issuance by New
Payless of shares of New Payless Common Stock pursuant to the Merger Agreement.
RECORD DATE
Holders of Payless Common Stock on the Record Date will be entitled to
receive notice of and to vote on the proposals to be voted on at the Annual
Meeting or at any adjournments or postponements thereof.
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<PAGE> 17
VOTES REQUIRED; SHARES OUTSTANDING
As of the Record Date, there were approximately 37,317,811 shares of
Payless Common Stock issued and outstanding. Each share of Payless Common Stock
outstanding on the Record Date is entitled to one vote upon each matter properly
submitted at the Annual Meeting.
The presence, in person or by proxy, at the Annual Meeting of holders of a
majority of the votes represented by the Payless Common Stock outstanding on the
Record Date is necessary to constitute a quorum for the transaction of business
at the Annual Meeting. The affirmative vote of the majority of the votes
represented by the Payless Common Stock present and entitled to vote at the
Annual Meeting is necessary to elect each of the nominees for election to the
Payless Board as a director and to approve the Accountant Proposal, and the
affirmative vote of at least two-thirds of the votes represented by all shares
of Payless Common Stock outstanding on the Record Date is required to adopt the
Merger Agreement.
THE DIRECTORS AND EXECUTIVE OFFICERS OF PAYLESS HAVE INDICATED THEIR
INTENTION TO VOTE THEIR SHARES OF PAYLESS COMMON STOCK IN FAVOR OF APPROVAL OF
THE ADOPTION OF THE MERGER AGREEMENT AND THE ACCOUNTANT PROPOSAL AND FOR THE
ELECTION OF EACH OF THE NOMINEES FOR ELECTION TO THE PAYLESS BOARD AS A
DIRECTOR.
VOTING AND REVOCATION OF PROXIES
Shares of Payless Common Stock represented by a proxy properly signed and
received at or prior to the Annual Meeting, and not revoked, will be voted in
accordance with the instructions indicated in such proxy. IF A PROXY IS SIGNED
AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF PAYLESS
COMMON STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR THE PROPOSAL TO ADOPT
THE MERGER AGREEMENT, FOR EACH OF THE NOMINEES FOR ELECTION TO THE PAYLESS BOARD
NOMINATED BY THE PAYLESS BOARD AND FOR THE ACCOUNTANT PROPOSAL.
With respect to the election of each of the nominees for director, votes
may be cast in favor or withheld; votes that are withheld will have the effect
of a vote against the director or directors for whom authority is withheld.
Abstentions may be specified on the proposals to be voted upon at the
Annual Meeting, other than the election of directors. A properly executed proxy
marked "ABSTAIN" with respect to any such proposal will be counted as present
for purposes of determining whether there is a quorum. A proxy marked "ABSTAIN"
will not be counted for purposes of determining the number of shares represented
and entitled to vote at the Annual Meeting with respect to the Accountant
Proposal. Accordingly, a proxy marked "ABSTAIN" with respect to the Accountant
Proposal will only have the effect of reducing the total number of votes on the
Accountant Proposal. However, since the affirmative vote required for adoption
of the Merger Agreement is based upon the aggregate number of shares of Payless
Common Stock outstanding, a proxy marked "ABSTAIN" with respect to such proposal
will have the effect of a vote against such proposal. In addition, the failure
to return a proxy will have the effect of a vote against adoption of the Merger
Agreement.
Under NYSE rules, brokers who hold shares in street name for customers have
the authority to vote on certain "routine" proposals, such as the election of
directors and the Accountant Proposal, when they have not received instructions
from beneficial owners. Under NYSE rules, however, such brokers are precluded
from exercising their voting discretion with respect to the approval of
non-routine matters such as the proposal for the shareowners to adopt the Merger
Agreement and thus, absent specific instructions from the beneficial owners of
shares, brokers are not empowered to vote such shares with respect to such
proposal (i.e., "broker non-votes").
SINCE THE AFFIRMATIVE VOTE OF TWO-THIRDS OF ALL OUTSTANDING SHARES OF
PAYLESS COMMON STOCK IS REQUIRED FOR ADOPTION OF THE MERGER AGREEMENT AND TO,
ACCORDINGLY, APPROVE THE REORGANIZATION (INCLUDING THE NEVADA MERGER), A BROKER
NON-VOTE WITH RESPECT TO SUCH PROPOSAL WILL HAVE THE EFFECT OF A VOTE AGAINST
THE MERGER AGREEMENT AND, ACCORDINGLY, AGAINST THE AUTHORIZATION OF THE
REORGANIZATION (INCLUDING THE NEVADA MERGER).
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Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted by filing a duly executed
revocation with the Corporate Secretary of Payless, prior to the voting of such
proxy, or by the execution of a subsequent proxy. Attendance at the Annual
Meeting will not have the effect of revoking a properly executed proxy unless
the shareowner delivers a written revocation to the Corporate Secretary of
Payless before the proxy is voted. To avoid confusion both as to how you want
your shares of Payless Common Stock voted or not voted, all written notices of
revocation and other communications with respect to revocation of proxies should
be addressed as follows: Payless ShoeSource, Inc., 3231 S.E. Sixth Street,
Topeka, Kansas 66607, Attention: Corporate Secretary.
The Payless Board does not currently expect to bring any business to be
acted upon at the Annual Meeting other than as described in this Proxy
Statement/Prospectus. If, however, other matters are properly brought before the
Annual Meeting by the Payless Board, or any adjournments or postponements
thereof, the persons appointed as proxies will have discretion to vote or act
thereon according to their best judgment. No shareowner has given notice of its
intent to bring any other matter before the Annual Meeting. A proxy also confers
discretionary authority on the persons named therein to approve minutes of the
1997 annual meeting of shareowners, to vote on matters incident to the conduct
of the Annual Meeting and to vote on the election of any person as director if a
nominee herein named should decline or become unable to serve as a director for
any reason.
SOLICITATION OF PROXIES
The cost of solicitation of proxies will be paid by Payless. In addition to
solicitation by mail, arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send the proxy materials to beneficial
owners; and Payless will, upon request, reimburse such brokerage houses and
custodians for their reasonable expenses in so doing. Payless has retained
Corporate Investor Communications, Inc. to aid in the solicitation of proxies
and to verify certain records related to the solicitations and expects to pay
such firm approximately $30,000 plus expense reimbursement, for such services.
To the extent necessary in order to ensure sufficient representation at the
Annual Meeting, directors, officers and employees of Payless may request by
telephone or telegram the return of proxy cards. The extent to which this will
be necessary depends entirely upon how promptly proxy cards are returned.
Shareowners are urged to send in their proxies without delay.
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PROPOSAL I: ADOPTION OF THE AGREEMENT AND PLAN OF MERGER
PROPOSAL I ON THE ACCOMPANYING PROXY CARD.
GENERAL
The Payless Board and management of Payless unanimously believe that it is
in the best interest of Payless and its shareowners for Payless to reorganize
itself into a holding company structure. In order to effect the Reorganization,
Payless, New Payless and Merger Sub have entered into the Merger Agreement
pursuant to which the Merger will occur and Payless will be the Surviving
Corporation. Following the Effective Time, Payless will engage in the Nevada
Merger pursuant to which Payless will become an indirect wholly owned subsidiary
of New Payless. Pursuant to the terms of the Merger Agreement, each share of
Payless Common Stock will be automatically converted into one share of New
Payless Common Stock at the Effective Time. The Merger Agreement is attached to
this Proxy Statement/Prospectus as Annex A and is incorporated herein by
reference. The Payless Board unanimously recommends you vote "FOR" the proposal
to adopt the Merger Agreement and, accordingly, authorize the Reorganization
(including the Nevada Merger).
New Payless is not expected to hold significant assets, other than stock of
its subsidiaries. Immediately following the Merger, the Surviving Corporation
will hold substantially all of the assets and be responsible for substantially
all of the liabilities and obligations of Payless and its subsidiaries prior to
the Merger. New Payless will review its holding company structure on an ongoing
basis and based on such review may make such internal restructuring changes as
management considers appropriate. The management of the Surviving Corporation
following the Merger is expected to be substantially the same as the management
of Payless prior to the Merger (other than changes that would have occurred
through the lapse of time whether or not the Reorganization were to be
effected).
REASONS FOR THE REORGANIZATION
General. The Payless Board has determined that the Merger and the
Reorganization are in the best interests of Payless and the shareowners of
Payless and has unanimously recommended that shareowners of Payless vote FOR the
proposal to adopt the Merger Agreement and, accordingly, authorize the
Reorganization (including the Nevada Merger), on two primary bases. First, by
becoming subject to the corporate laws of the State of Delaware, corporate
planning should be simplified, and, second, by reorganizing into a holding
company structure and forming New Payless, Payless may obtain tax savings that
it would not have obtained if it had not formed the holding company structure.
The Reorganization has been divided into its two component transactions (the
Merger and the Nevada Merger) in order to attempt to achieve each of the primary
bases for the Reorganization and to clearly delineate the steps of the
Reorganization. Payless believes that the two component transactions are an
efficient structure for effecting the Reorganization.
Delaware Corporate Law. As Payless plans for its future, the Payless Board
and Payless management believe that it is essential to be able to draw upon well
established principles of corporate governance in making legal and business
decisions. The prominence and certainty of Delaware corporate law should provide
New Payless with a reliable foundation on which its governance decisions can be
based, and the Payless Board believes that shareowners will benefit from the
responsiveness of the DGCL to the needs of corporations, like Payless.
The Payless Board believes that for many years Delaware has followed a
policy of encouraging incorporation in that state and, in furtherance of that
policy, has been a leader in adopting, construing and implementing
comprehensive, flexible corporate laws responsive to the legal and business
needs of corporations organized under its laws. Many corporations have chosen
Delaware initially as a state of incorporation or have subsequently changed
corporate domicile to Delaware in a manner similar to that proposed by Payless.
Because of Delaware's prominence as the state of incorporation for many major
corporations, it is expected that many complex decisions affecting corporations
with multi-billion dollar market capitalizations will be dealt with efficiently
by the Delaware legal system. Both the Delaware legislature and Delaware courts
have demonstrated an ability and a willingness to act quickly and effectively to
meet changing business needs. The Delaware courts have developed considerable
expertise in dealing with corporate issues, and a substantial body
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<PAGE> 20
of case law has developed construing Delaware law and established public
policies with respect to corporate legal affairs.
Against these reasons the Payless Board considered the less tested nature
of the MGCL and determined that Payless' ability to make decisions and plans
will be better served if governed by the DGCL.
Tax Benefits. The Payless Board believes, and has been advised by Payless
management, that by reorganizing Payless into a holding company structure tax
savings may be obtained with respect to the state taxes paid by Payless. The
Payless Board expects that some of these savings will become realizable
beginning shortly after the Reorganization. Payless believes that (i) by causing
Payless Nevada to be the direct parent corporation of Payless, New Payless will
be able to achieve these tax savings and (ii) such tax savings, if obtained, may
not be achievable to the same extent if Payless were a direct wholly-owned
subsidiary of New Payless. However, there can be no assurance that tax laws will
remain in effect so as to permit New Payless to continue to receive these
benefits in the future or that a taxing authority will not disallow certain of
the tax benefits that Payless is seeking, whether Payless is a direct or
indirect subsidiary of New Payless. The Payless Board does not believe that,
from an operational standpoint, significant changes will occur as a result of
forming the holding company structure.
THE PAYLESS BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS
OF PAYLESS COMMON STOCK VOTE IN FAVOR OF
THE PROPOSAL TO ADOPT THE MERGER AGREEMENT
THE MERGER AGREEMENT
The Merger. Upon the terms and subject to the conditions set forth in the
Merger Agreement, at the Effective Time, Merger Sub will be merged with and into
Payless and the separate corporate existence of Merger Sub will thereupon cease.
Payless will continue as the Surviving Corporation in the Merger, but will be a
subsidiary of New Payless.
As soon as practicable following the satisfaction of the conditions set
forth in the Merger Agreement, Payless and Payless Merger Corp. have agreed to
cause Articles of Merger (the "Missouri Articles of Merger") to be executed in
duplicate as provided in Section 351.430 of the MGCL and delivered to the
Secretary of State of Missouri as provided in Section 351.435 of the MGCL. The
Merger will become effective at the time when the Secretary of State of Missouri
issues a Certificate of Merger attaching to it the Missouri Articles of Merger
(the "Effective Time").
Conditions. The respective obligation of each party to the Merger
Agreement to effect the Merger is subject to the satisfaction or waiver at or
prior to the Effective Time of each of the following conditions: (i) the Merger
Agreement having been duly approved by holders of at least two-thirds of the
issued and outstanding shares of Payless Common Stock and having been duly
approved by the sole stockholder of Merger Sub in accordance with applicable law
and the certificate of incorporation and by-laws of each such corporation; (ii)
the shares of New Payless Common Stock issuable to the stockholders of Payless
pursuant to the Merger Agreement having been authorized for listing on the NYSE
upon official notice of issuance; and (iii) the date being after May 4, 1998.
Payless, New Payless and Merger Sub have acknowledged and agreed in the Merger
Agreement that the condition set forth in (iii) above may not be waived.
Termination; Amendment. Payless, New Payless and Merger Sub have agreed in
the Merger Agreement that the Merger Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after the approval by shareowners of Payless of the Merger Agreement, by mutual
written consent of Payless and New Payless by action of their respective Boards
of Directors. At any time prior to the Effective Time, whether before or after
adoption by shareowners of Payless of the Merger Agreement, the Boards of
Directors of the parties may modify or amend the Merger Agreement, except that
the condition that the Effective Time be after May 4, 1998 may not be amended
and except that, after the Merger Agreement has been adopted by shareowners of
Payless, no amendment may alter or change the amount or kind of shares to be
received by shareowners of Payless in exchange for their shares of Payless
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<PAGE> 21
Common Stock or otherwise alter or change any of the terms and conditions of the
Merger Agreement so as to adversely affect shareowners of Payless.
Exchange of Certificates. The Merger Agreement provides that at the
Effective Time, as a result of the Merger and without any action on the part of
Payless, New Payless or Merger Sub or the holder of any capital stock of
Payless: (i) each share of Payless Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Payless Common
Stock owned by any direct or indirect subsidiary of Payless not held on behalf
of third parties or shares of Payless Common Stock that are owned by shareowners
exercising dissenters' rights pursuant to the provisions of the MGCL
(collectively, "Excluded Shares")) will be converted into, one share of New
Payless Common Stock together with one attached Right. Until thereafter
surrendered for transfer or exchange in the ordinary course, each outstanding
certificate that, immediately prior to the Effective Time, evidenced Payless
Common Stock will, from the Effective Time, be deemed and treated for all
corporate purposes to evidence the ownership of the same number of shares of New
Payless Common Stock together with attached Rights. No holder of shares of
Payless Common Stock dissenting from the Merger will be entitled to shares of
New Payless Common Stock or any dividends or other distributions thereon unless
and until the holder fails to perfect or effectively withdraws or loses such
holder's right to dissent from the Merger Agreement under the MGCL, and any
holder of shares of Payless Common Stock dissenting from the Merger will be
entitled to receive only the payment provided by Section 351.455 of the MGCL
with respect to shares of Payless Common Stock owned by such holder. If any
person who otherwise would be deemed a holder of shares of Payless Common Stock
dissenting from the Merger fails to properly perfect or effectively withdraws or
loses the right to dissent with respect to any shares of Payless Common Stock,
such shares of Payless Common Stock will be treated as though such shares of
Payless Common Stock had been converted into shares of New Payless Common Stock
pursuant to the provisions of the Merger Agreement.
HOLDERS OF PAYLESS COMMON STOCK ARE NOT REQUIRED TO
DELIVER THEIR PAYLESS CERTIFICATES IN CONNECTION
WITH THE MERGER. OUTSTANDING PAYLESS CERTIFICATES
WILL REPRESENT NEW PAYLESS COMMON STOCK
Compensation and Benefit Plans and Severance and Employment
Agreements. The Merger Agreement provides that New Payless and Payless will at
or prior to the Effective Time, execute, acknowledge and deliver an assumption
agreement pursuant to which New Payless will, from and after the Effective Time,
assume and agree to perform, or cause Payless to perform, all obligations of
Payless pursuant to the Payless Plans (as defined below) and all other employee
benefit plans and all severance and employment agreements. New Payless expects
to evaluate these arrangements from time to time in determining what it believes
to be an efficient way of performing these obligations.
Payless Plans. If the Merger is consummated, Payless' 1996 Stock Incentive
Plan, Stock Purchase Plan, Stock Ownership Plan, Profit Sharing Plans,
Restricted Stock Plan for Non-Management Directors, Spin Off Stock Plan, Profit
Sharing Plan, Profit Sharing Plan for Puerto Rico Associates, Deferred
Compensation Plan, Deferred Compensation Plan for Non-Management Directors and
Stock Appreciation and Phantom Stock Unit Plan for International Employees
(together, the "Payless Plans") will be amended without further action by
shareowners to provide, if set forth in the agreement entered into between
Payless and New Payless, that all references in such plans to Payless will
become references to New Payless, if provided in the assumption agreement
referred to above under "Compensation and Benefit Plans and Severance and
Employment Agreements," that shares of New Payless Common Stock will be issued
instead of shares of Payless Common Stock pursuant to such plans and that such
plans will be assumed by New Payless. Shares of Payless Common Stock then held
under those plans holding shares of Payless Common Stock will be converted into
shares of New Payless Common Stock. All outstanding options to purchase Payless
Common Stock under the Payless Plans pursuant to which options are granted will
be converted into options to acquire, under the same terms and conditions as
were applicable under such options immediately prior to the Effective Time, the
number of shares of New Payless Common Stock as the holder of such stock options
would have been entitled to receive in the Merger had such holder exercised such
holder's stock
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options immediately prior to the Effective Time, at a price per share of New
Payless Common Stock equal to the exercise price per share of Payless Common
Stock pursuant to such option at such time. In addition, each right or
obligation to receive payment of an amount based on shares of Payless Common
Stock under the Payless Plans and any other employee or director compensation
plan of Payless or its subsidiaries will be converted, without further
shareowner action, into the right or obligation to receive payment based on New
Payless Common Stock on the same terms as the right or obligation to receive
payment based on shares of Payless Common Stock existed under any of such plans
immediately prior to the Effective Time.
NEW PAYLESS CAPITAL STOCK
The following description of the New Payless Common Stock is based on the
provisions of the New Payless Charter and New Payless Bylaws, in the forms in
which they are expected to be adopted prior to the Effective Time, and the DGCL.
A copy of the New Payless Charter, substantially in the form expected to be in
effect immediately prior to the Effective Time, is attached as Annex B hereto,
and is incorporated herein by reference and a copy of the New Payless Bylaws,
substantially in the form expected to be in effect immediately prior to the
Effective Time, is attached as Annex C hereto, and is incorporated herein by
reference.
New Payless Common Stock. New Payless is authorized to issue 240,000,000
shares of New Payless Common Stock. Each share of New Payless Common Stock is,
subject to any rights available to New Payless Preferred Stock (as defined
below) in any future issuance of New Payless Preferred Stock, entitled to
participate pro rata in distributions upon liquidation and to one vote on all
matters submitted to a vote of shareowners. The holders of New Payless Common
Stock may receive cash dividends as declared by the New Payless Board out of its
surplus or, if there is no such surplus, out of its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year. The
outstanding shares of New Payless Common Stock offered by the Registration
Statement when issued will be fully paid and nonassessable. Holders of New
Payless Common Stock will not have preemptive or similar equity preservation
rights, and shares of New Payless Common Stock will not be cumulatively voted in
the election of directors of New Payless. The New Payless Board will have the
authority to issue additional shares of New Payless Common Stock without
shareowner approval, other than such approval as may be required by the
applicable rules of the NYSE.
Preferred Stock. New Payless is authorized to issue 25,000,000 shares of
Preferred Stock, $.01 par value per share, of New Payless ("New Payless
Preferred Stock"). New Payless Preferred Stock may be issued from time to time
in series as the New Payless Board may determine, and the respective dividend
rates, redemption terms (if any), amounts payable on liquidation, voting rights
(if any), conversion or exchange rights (if any), voting rights (if any) and
other terms not inconsistent with the New Payless Charter will be fixed by the
New Payless Board with respect to any such series prior to issuance.
Transfer Agent. The transfer agent and registrar for the shares of New
Payless Common Stock will be UMB Bank, N.A.
New Payless Rights Agreement. New Payless Board, has declared a dividend
payable on May 21, 1998 of one Right for each outstanding share of New Payless
Common Stock held of record as of the close of business on such date (the
"Rights Record Date"), or issued thereafter and prior to the Separation Time (as
defined below) and thereafter pursuant to options and convertible securities
outstanding at the Separation Time. The Rights will be issued pursuant to a
Stockholder Protection Rights Agreement, dated as of April 20, 1998 (the "New
Payless Rights Agreement"), between New Payless and UMB Bank, N.A., as Rights
Agent. The Form of New Payless Rights Agreement is attached hereto as Annex D
and is incorporated herein by reference. An amendment has been made to the
Rights Agreement, dated as of April 2, 1996 between Payless and The Bank of New
York, (the "Payless Rights Agreement") to cause the rights issued under the
Payless Rights Agreement to be terminated immediately prior to the Effective
Time. The anti-takeover effect of the Payless Rights Agreement and the New
Payless Rights Agreement are substantially similar.
The Rights will be evidenced by the New Payless Certificates until the
close of business on the earlier of (either, the "Separation Time") (i) the
tenth business day (or such later date as the New Payless Board may from time to
time fix by resolution adopted prior to the Separation Time that would otherwise
have occurred) after the date on which any person commences a tender or exchange
offer which, if consummated, would
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result in such person's becoming an Acquiring Person (as defined below), and
(ii) the first date (or such later date as the New Payless Board may from time
to time fix) (the "Flip-in Date") of public announcement by New Payless that any
Person has become an Acquiring Person (the date of such public announcement
being, the "Stock Acquisition Date"); provided that if a tender or exchange
offer referred to in clause (i) is canceled, terminated or otherwise withdrawn
prior to the Separation Time without the purchase of any shares of stock
pursuant thereto, such offer will be deemed never to have been made. An
"Acquiring Person" is defined in the New Payless Rights Agreement to be any
Person having Beneficial Ownership (as defined in the New Payless Rights
Agreement) of 15% or more of the outstanding shares of New Payless Common Stock.
The definition of the term Acquiring Person specifies that it does not include
(i) New Payless, Payless, any wholly-owned subsidiary of New Payless or any
employee stock ownership or other employee benefit plan of New Payless, (ii) any
person who (A) is the Beneficial Owner of 15% or more of the outstanding New
Payless Common Stock as of the Effective Time or who (B) becomes the Beneficial
Owner of 15% or more of the outstanding New Payless Common Stock solely as a
result of an acquisition of New Payless Common Stock by New Payless, until such
time as such person acquires additional New Payless Common Stock, other than
through a dividend or stock split, (iii) any person who becomes the Beneficial
Owner of 15% or more of the outstanding New Payless Common Stock without any
plan or intent to seek or affect control of New Payless if such person, promptly
divests sufficient securities such that such 15% or greater Beneficial Ownership
ceases or (iv) any person who Beneficially Owns shares of New Payless Common
Stock consisting solely of (A) shares acquired pursuant to the grant or exercise
of an option granted by New Payless in connection with an agreement to merge
with, or acquire, New Payless entered into prior to a Flip-in Date, (B) shares
owned by such person and its Affiliates and Associates at the time of such grant
and (C) shares, amounting to less than 1% of the outstanding New Payless Common
Stock, acquired by Affiliates and Associates of such person after the time of
such grant. The New Payless Rights Agreement provides that, until the Separation
Time, the Rights will be transferred with and only with the New Payless Common
Stock. New Payless Certificates issued after the Record Time but prior to the
Separation Time will evidence one Right for each share of New Payless Common
Stock represented thereby and will contain a legend incorporating by reference
the terms of the New Payless Rights Agreement (as such may be amended from time
to time). Promptly following the Separation Time, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to holders of
record of New Payless Common Stock at the Separation Time.
The Rights will not be exercisable until the Business Day (as defined in
the New Payless Rights Agreement) following the Separation Time. The Rights will
expire on the earliest of (i) the Exchange Time (as defined below), (ii) the
close of business on the date that is the tenth anniversary of the date of the
New Payless Rights Agreement, (iii) the date on which the Rights are redeemed as
described below and (iv) upon the merger of New Payless into another corporation
pursuant to an agreement entered into prior to a Stock Acquisition Date (in any
such case, the "Expiration Time").
In the event that prior to the Expiration Time a Flip-in Date occurs, New
Payless will take such action as shall be necessary to ensure and provide that
each Right (other than Rights Beneficially Owned by the Acquiring Person or any
affiliate or associate thereof, which Rights will become void) will constitute
the right to purchase from New Payless, upon the exercise thereof in accordance
with the terms of the New Payless Rights Agreement, that number of shares of New
Payless Common Stock having an aggregate market price, on the Stock Acquisition
Date that gave rise to the Flip-in Date, equal to twice the Exercise Price for
an amount in cash equal to the then current Exercise Price. In addition, the New
Payless Board may, at its option, at any time after a Flip-in Date and prior to
the time that an Acquiring Person becomes the Beneficial Owner of more than 50%
of the outstanding shares of New Payless Common Stock, elect to exchange all
(but not less than all) the then outstanding Rights (other than Rights
Beneficially Owned by the Acquiring Person or any affiliate or associate
thereof, which Rights become void) for shares of New Payless Common Stock at an
exchange ratio of one share of New Payless Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date of the Separation Time.
Whenever New Payless becomes obligated, as described in the preceding
paragraph, to issue shares of New Payless Common Stock upon exercise of or in
exchange for Rights, New Payless, at its option, may substitute therefor shares
of New Payless Preferred Stock at a ratio of one one-hundredth of a share of New
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Payless Preferred Stock for each share of New Payless Common Stock so issuable.
One share of the New Payless Preferred Stock to be issued pursuant to the New
Payless Rights Agreement would be designed to represent 100 shares of New
Payless Common Stock.
In the event that prior to the Expiration Time New Payless enters into,
consummates or permits to occur a transaction or series of transactions after
the time an Acquiring Person has become such in which, directly or indirectly,
New Payless (i) consolidates or merges or participates in a binding share
exchange with any other person if, at the time of the consolidation, merger or
share exchange or at the time New Payless enters into an agreement with respect
to such consolidation, merger or share exchange, the Acquiring Person controls
the New Payless Board and (A) any term of or arrangement concerning the
treatment of shares of capital stock in such merger, consolidation or share
exchange relating to the Acquiring Person is not identical to the terms and
arrangements relating to other holders of New Payless Common Stock or (B) the
person with whom such transaction or series of transactions occurs is the
Acquiring Person or an Affiliate or Associate thereof or (ii) shall sell or
otherwise transfer (or one or more of its subsidiaries shall sell or otherwise
transfer) assets (A) aggregating more than 50% of the assets (measured by either
book value or fair market value) or (B) generating more than 50% of the
operating income or cash flow, of New Payless and its subsidiaries (taken as a
whole) to any other person (other than New Payless or one or more of its wholly
owned subsidiaries) or to two or more such persons which are affiliated or
otherwise acting in concert, if, at the time of such sale or transfer of assets
or at the time New Payless (or any such subsidiary) enters into an agreement
with respect to such sale or transfer, the Acquiring Person controls the New
Payless Board (a "Flip-over Transaction or Event"), New Payless will take such
action as will be necessary to ensure, and will not enter into, consummate or
permit to occur such Flip-over Transaction or Event until it has entered into a
supplemental agreement with the person engaging in such Flip-over Transaction or
Event or the parent corporation thereof (the "Flip-over Entity"), for the
benefit of the holders of the Rights, providing, that upon consummation or
occurrence of the Flip-over Transaction or Event (i) each Right will thereafter
constitute the right to purchase from the Flip-over Entity, upon exercise
thereof in accordance with the terms of the New Payless Rights Agreement, that
number of shares of common stock of the Flip-over Entity having an aggregate
Market Price on the date of consummation or occurrence of such Flip-over
Transaction or Event equal to twice the Exercise Price (as defined in the New
Payless Rights Agreement) for an amount in cash equal to the then current
Exercise Price and (ii) the Flip-over Entity shall thereafter be liable for, and
shall assume, by virtue of such Flip-over Transaction or Event and such
supplemental agreement, all the obligations and duties of New Payless pursuant
to the New Payless Rights Agreement. The New Payless Rights Agreement provides
that for purposes of the foregoing description, the term "Acquiring Person"
includes any Acquiring Person and its Affiliates and Associates counted together
as a single Person.
The New Payless Board may, at its option, at any time prior to the Flip-in
Date, redeem all (but not less than all) the then outstanding Rights at a price
of $.01 per Right.
POSSIBLE ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE NEW PAYLESS CHARTER,
THE NEW PAYLESS BYLAWS AND THE DGCL
The Reorganization is not being proposed in order to prevent any known
attempt to acquire control of Payless by means of a merger, tender offer,
solicitation in opposition to management or otherwise; to obtain representation
on the Payless Board or to take any significant action affecting Payless.
Moreover, it is not the intention of the Payless Board to discourage legitimate
offers to enhance shareowner value. However, certain provisions of the New
Payless Charter, the New Payless Bylaws, and the DGCL may have the effect of
discouraging unilateral tender offers or other attempts to takeover and acquire
New Payless. These provisions, many of which are also contained in one or more
of the Payless Charter, the Payless Bylaws or the MGCL or otherwise apply to
Payless, might discourage a potentially interested purchaser from attempting a
unilateral takeover bid for New Payless on terms which some shareowners might
favor. By discouraging potential takeover bids, these provisions might limit the
opportunity for New Payless' shareowners to sell their shares at a premium over
then prevailing market prices. Certain of the provisions which may have an
anti-takeover effect are described below.
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Cumulative Voting. Under the DGCL shares of stock will be cumulatively
voted in the election of directors if a certificate of incorporation so
provides. The New Payless Charter does not provide for cumulative voting.
Cumulative voting permits shareowners to multiply the number of votes to which
they may be entitled by the total number of directors to be elected in the same
election by the holders of the class or classes of shares of which their shares
are a part and to cast their whole number of votes for one candidate or to
distribute them among any two or more candidates. Under the MGCL, cumulative
voting in the election of directors is mandatory unless otherwise provided in a
corporation's articles of incorporation or bylaws. The Payless Charter also
denies shareowners cumulative voting rights.
With cumulative voting it is possible for representation on a board of
directors to be obtained by an individual or group of individuals who own less
than a majority of the voting stock of such corporation. Such a shareowner or
group may have interests and goals which are not consistent with, and indeed
might be in conflict with, those of a majority of the shareowners. The Payless
Board believes that each director should represent all shareowners, rather than
the interests of any special constituency, and that the presence on the New
Payless Board of one or more directors representing such a constituency could
disrupt and impair the efficient management of New Payless. The lack of
cumulative voting could discourage the accumulation of blocks of New Payless
Common Stock and therefore could tend to make temporary increases in the market
price of New Payless Common Stock, which could result therefrom, less likely to
occur. Shareowners may not, therefore, in these limited instances, be able to
sell their shares of New Payless Common Stock at a market price temporarily
influenced by this type of activity.
Advance Notice of Business to be Brought Before Shareowner Meetings. Under
the New Payless Bylaws, shareowners must provide New Payless with prior written
notice of the business (including nomination of directors) to be brought before
an annual meeting or special meeting of shareowners, in order for it to be
considered at such meeting. The New Payless Bylaws require the written notice in
accordance with the New Payless Bylaws to be received by the Secretary of New
Payless no earlier than 90 days or later than 75 days prior to such meeting.
This provision provides a more orderly procedure for conducting shareowner
meetings and provides the New Payless Board with a meaningful opportunity prior
to shareowner meetings to inform shareowners, to the extent deemed necessary or
desirable by the New Payless Board, of any business proposed to be conducted at
such meetings, together with any recommendation of the New Payless Board. Also,
by requiring advance notice of nominations of directors by shareowners, these
provisions afford the New Payless Board a meaningful opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the New Payless Board, to inform shareowners about such
qualifications. The Payless Bylaws also contain advance notice provisions which
are substantially the same as those contained in the New Payless Bylaws.
The advance notice provision of the New Payless Bylaws may provide
sufficient time for New Payless to institute litigation or take other steps to
respond to such business, or to prevent such business from being acted upon, if
such response or prevention is thought to be necessary or desirable for any
reason. With respect to the electing of directors, these provisions may tend to
inhibit shareowners who do not have any intention of controlling New Payless or
the Payless Board from participating in the nomination process; such provisions
may also provide sufficient time for New Payless to institute litigation or take
other steps to prevent the nominee from being elected or serving if such
prevention is thought to be necessary or desirable for any reason.
"Blank-Check" Preferred and Unissued Payless Common Stock. The New Payless
Charter authorizes the issuance of 25,000,000 shares of New Payless Preferred
Stock. In addition, after the Merger, there will be 240,000,000 authorized
shares of New Payless Common Stock. An effect of the existence of unissued New
Payless Common Stock or New Payless Preferred Stock may be to enable the New
Payless Board to render more difficult or discourage a transaction to obtain
control of New Payless. Such shares might be issued by the New Payless Board
without shareowner approval in transactions that might prevent or render more
difficult or costly the completion of the takeover transaction, as by diluting
voting or other rights of the proposed acquirer. In this regard, the New Payless
Charter grants the New Payless Board broad power to establish the rights and
preferences of the authorized and unissued preferred stock, one or more classes
or series of which could be issued entitling holders to vote separately as a
class on any proposed merger or consolidation, to convert such stock into a
large number of shares of New Payless Common Stock or other securities, to
demand redemption
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at a specified price under prescribed circumstances related to a change of
control, or to exercise other rights designed to impede a takeover. The Payless
Charter also authorizes the issuance of up to 25,000,000 shares of blank check
preferred stock and authorizes the issuance of 120,000,000 shares of Payless
Common Stock.
Section 203 of the DGCL. Section 203 of the DGCL is a "moratorium" statute
that prevents certain business combinations between a Delaware corporation and a
holder of at least 15% or more of the corporation's outstanding voting stock for
three years following the date such holder acquired such ownership status. See
"Comparison of Certain Rights of the Holders of New Payless Common Stock and
Payless Common Stock -- 'Moratorium' Statutes."
New Payless Rights Agreement. The Rights issued pursuant to the New
Payless Rights Agreement which is described above may have the effect of making
it more difficult to take control of New Payless. See "-- New Payless Capital
Stock -- New Payless Rights Agreement."
Other Provisions of the New Payless Charter and Bylaws. Certain other
provisions of the New Payless Charter and the New Payless Bylaws may also tend
to discourage potential offers to takeover or acquire the securities of New
Payless. The New Payless Charter and the New Payless Bylaws divide the New
Payless Board into three classes, with directors in each class generally being
elected to serve a three-year term and such directors may not be removed by
shareowners without cause. Also, meetings of shareowners may be called only by
the Chairman of the New Payless Board or by the New Payless Board or by the
President of New Payless. Certain provisions of the New Payless Charter may be
amended only by the affirmative vote of at least two-thirds of all the
outstanding shares entitled to vote thereon. The New Payless Charter has a "fair
price" provision relating to certain business combinations. In addition, the New
Payless Charter fixes the number of directors between three and 15 and
authorizes the New Payless Board to fill any vacancy. Provisions similar to each
of the foregoing are presently contained in either or both of the Payless
Charter and the Payless Bylaws.
COMPARISON OF CERTAIN RIGHTS OF THE HOLDERS OF NEW PAYLESS COMMON STOCK AND
PAYLESS COMMON STOCK
General. As a result of the Merger, holders of Payless Common Stock will
become holders of New Payless Common Stock and the rights of all such former
holders of Payless Common Stock will thereafter be governed by the New Payless
Charter, the New Payless Bylaws and the DGCL. The rights of the holders of
Payless Common Stock are presently governed by the Payless Charter, the Payless
Bylaws and the MGCL. The following is a summary of the material differences
between the current rights of holders of Payless Common Stock and the rights
that they will have as holders of New Payless Common Stock following the Merger.
It does not purport to be complete and is qualified in its entirety by reference
to the relevant provisions of the DGCL, the New Payless Charter, the New Payless
Bylaws, the MGCL, the Payless Charter and the Payless Bylaws. Copies of the New
Payless Charter, the New Payless Bylaws, the Payless Charter and the Payless
Bylaws are incorporated by reference into the Registration Statement and will be
sent to holders of shares of Payless Common Stock upon request. See "Additional
Information" and "Incorporation of Certain Information By Reference."
Shareowner Vote for Mergers and for Dispositions of Assets. With respect
to mergers or other corporate reorganizations, and dispositions of corporate
assets, the DGCL differs from the MGCL in several respects. Under the DGCL the
affirmative vote (except as indicated below) of the holders of a majority of the
outstanding shares of the corporation entitled to vote thereon must be obtained
to approve (i) a merger of the corporation with or into another corporation,
(ii) a sale or other disposition of all, or substantially all, of the
corporation's assets or (iii) a voluntary dissolution of the corporation. In
these situations, the MGCL requires the approval of two-thirds of the
outstanding shares entitled to vote thereon. In addition, the DGCL requires the
approval and recommendation of the board of directors of a corporation for a
merger or for a sale or other disposition of all, or substantially all, of a
corporation's assets. The MGCL requires the approval of a board of directors for
a merger or a dissolution unless, in the case of a dissolution, such board
determines it should not recommend dissolution because of a conflict of interest
or other special circumstances. The MGCL does not require approval of a board of
directors for a sale of substantially all of a corporation's assets, and a
proposal for such action could be directly submitted to the shareowners of a
corporation.
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The DGCL does not require a shareowner vote of the surviving corporation to
approve a merger if (i) the merger agreement does not amend the existing
certificate of incorporation, (ii) each outstanding share of the surviving
corporation before the merger is unchanged, and (iii) the number of shares to be
issued in the merger does not exceed 20% of the shares outstanding immediately
prior to such issuance. The MGCL does not have a similar exception.
Dissenters' Rights. Generally, the MGCL affords dissenters' rights in a
broader range of situations than does the DGCL. Both the DGCL and the MGCL
provide such rights to shareowners entitled to vote in mergers or consolidations
(except as indicated below). The MGCL also provides for such rights in a sale of
all, or substantially all, of the assets of a corporation when shareowner
approval is required, whereas the DGCL does not.
Under the DGCL, dissenters' rights are not available in connection with a
merger or consolidation if the dissenting shares of the corporation are either
listed on a national securities exchange or held of record by more than 2,000
shareowners, or if the corporation is the surviving corporation and no vote of
its shareowners is required, subject to certain exceptions. The MGCL does not
have a comparable provision. Dissenters' rights will be available to Payless
shareowners in connection with the Reorganization if they do not vote in favor
of the Merger Agreement and comply with the procedures set forth in the MGCL.
See "The Reorganization -- Appraisal Rights."
Except in limited circumstances, neither the DGCL nor the MGCL provides for
dissenters' rights of appraisal in a merger of a parent corporation with a
wholly-owned subsidiary. The Merger qualifies as one of the limited
circumstances under the MGCL.
Control Share Acquisition Statute. The MGCL contains a control share
acquisition statute, which generally provides that any person or group of
persons that acquires the power to vote more than certain specified levels
(one-fifth to one-third, one-third to a majority or a majority or more) of the
shares of certain corporations incorporated in Missouri in transactions not
approved by the corporation's board of directors will not have the right to vote
such shares unless voting rights are granted by the affirmative vote of a
majority of shares entitled to vote, excluding "interested shares." Interested
shares generally are those shares held by the acquiring person, officers of the
corporation and employees of the corporation who are also directors of the
corporation. The control share acquisition statute applies to issuing public
corporations in Missouri which meet certain tests regarding a corporation's
presence in Missouri. Payless does not meet these tests and is thus not an
issuing public corporation in Missouri. A corporation may also exempt itself
from the application of the control share acquisition statute by expressly
electing not to be covered by the control share acquisition statute in its
articles of incorporation or bylaws. The Payless Charter and the Payless Bylaws
do not "opt out" of the control share acquisition statute.
The DGCL does not contain a control share acquisition statute.
"Moratorium" Statutes. Both the MGCL and the DGCL contain a business
combination "moratorium" statute. Section 203 of the DGCL prevents an
"Interested Stockholder" (defined generally as a person with 15% or more of a
Delaware corporation's outstanding voting stock (a "Delaware Interested
Stockholder")) from engaging in a business combination (as defined therein) with
a Delaware corporation for three years following the date such person became a
Delaware Interested Stockholder unless:
(i) before such person became a Delaware Interested Stockholder, the
board of directors of the Delaware corporation approved the
transaction in which the Delaware Interested Stockholder became a
Delaware Interested Stockholder or approved the business combination;
(ii) upon consummation of the transaction which resulted in the Delaware
Interested Stockholder becoming a Delaware Interested Stockholder,
the Delaware Interested Stockholder owned at least 85% of the
outstanding voting stock of the target corporation (excluding stock
held by directors who are also officers of the corporation and by
employee stock ownership plans in which employee participants do not
have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer);
or
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(iii) following the transaction in which such person became a Delaware
Interested Stockholder, the business combination is approved by the
board of directors of the Delaware corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of
two-thirds of the outstanding voting stock of the corporation not
owned by the Delaware Interested Stockholder.
Section 203 of the DGCL provides that during such three-year period the
corporation may not merge or consolidate or engage in similar transactions with
a Delaware Interested Stockholder or any affiliate thereof, including the sale
or transfer of more than 10% of the assets of the corporation, the issuance of
stock to the Delaware Interested Stockholder, transactions that increase the
proportionate share of the equity held by the Delaware Interested Stockholder
and the receipt by the Delaware Interested Stockholder of certain financial
benefits.
Similar to the business combination moratorium statute of the DGCL, the
business combination moratorium statute of the MGCL generally prohibits a
Missouri corporation that is a "resident domestic corporation" from engaging in
mergers or other business combinations with any person who is the beneficial
owner of 20% or more of the outstanding voting stock of the corporation (a
"Missouri Interested Shareholder"). Pursuant to this statute, a Missouri
"resident domestic corporation" may not engage in a business combination (as
defined in the MGCL) with a Missouri Interested Shareholder or any affiliates
thereof unless:
(i) prior to the date on which the Missouri Interested Shareholder became
such, the board of directors of the corporation approves either the
business combination or the transaction which resulted in the
shareholder becoming a Missouri Interested Shareholder;
(ii) the business combination is approved by the holders of a majority of
the outstanding voting stock not beneficially owned by the Missouri
Interested Shareholder or any affiliates thereof at a meeting called
no earlier than five years after the date on which the Missouri
Interested Shareholder became such; or
(iii) a business combination that satisfies certain detailed fairness and
procedural requirements of the MGCL no earlier than five years after
the date on which the Missouri Interested Shareholder became such.
Generally these requirements are that the business combination meets
all of the following conditions: (a) the aggregate consideration to
be received by holders of outstanding shares of stock is at least
equal to the highest of (A) the highest per share price paid by the
Missouri Interested Shareholder at a time when it was the beneficial
owner of at least five percent of the outstanding voting stock of the
corporation, for any shares of stock acquired by it within the five
year period immediately prior to or on the announcement date of the
business combination (the "Announcement Date") or within the
five-year period immediately prior to the date such person became a
Missouri Interested Shareholder (the "Missouri Interested Shareholder
Date"), whichever is higher, plus interest and less the aggregate
amount of cash dividends paid; (B) the market value per share of
stock on the Announcement Date or the Missouri Interested Shareholder
Date, whichever is higher, plus interest and less the amount of cash
dividends paid; and (C) the highest preferential amount per share to
which the holders of shares of such class or series are entitled,
plus the amount of any preference dividend; (b) the consideration to
be received by holders of outstanding stock is in cash or is in the
same form of consideration as the Missouri Interested Shareholder
used to acquire the largest number of shares previously acquired by
him or her, with such consideration distributed promptly; (c) the
holders of all outstanding shares of stock of the corporation not
beneficially owned by the Missouri Interested Shareholder immediately
prior to the consummation of the business combination are entitled to
receive cash or other consideration in compliance with the provisions
listed above; and (d) after the Missouri Interested Shareholder Date
and prior to the consummation date of the business combination, the
Missouri Interested Shareholder has not, with certain specified
exceptions, become the beneficial owner of additional shares of
voting stock of the corporation.
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Resident domestic corporations are corporations that meet certain tests
with respect to their presence in Missouri. Payless does not presently meet
these tests and therefore the business combination moratorium statute of the
MGCL does not presently apply to Payless.
Fair Price Provision. The New Payless Charter includes a "fair price"
provision. Under this provision, certain price parameters must be met in a
business combination or transactions between New Payless and a person holding
15% or more of New Payless Common Stock (an "Interested Stockowner") or its
affiliates, if the New Payless Board has not, prior to the date on which such
Interested Stockowner became an Interested Stockowner, approved such business
combination or stock acquisition. Generally, fair price means that price paid
for the New Payless Common Stock in such a business combination is at least
equal to highest price paid by the Interested Stockholder within the three years
prior to the business combination or self-dealing transaction and not less than
the market value of New Payless Common Stock on the date of the announcement of
the business combination or the date on which the Interested Stockowner became
an Interested Stockowner. A similar provision is included in the Payless
Charter.
Other Constituency Statute. Section 351.347 of the MGCL expressly
authorizes directors to consider "non-monetary factors" when analyzing takeover
bids. The factors that a board of directors is authorized to consider include
the adequacy of the consideration offered, compared not only to such board's
estimate of the value of the corporation in a freely-negotiated sale or the
liquidation value of the corporation, but also the future value of the
corporation over a period of years as an independent entity, discounted to
current value; current political, economic and other factors bearing on security
prices; whether the bid might violate federal, state or local laws; social,
legal and economic effects on employees, suppliers, customers and others with
the corporation and the communities in which the corporation conducts its
business; the financial conditions and earnings prospects of the bidder; and the
competence, experience and integrity of the bidder.
The DGCL does not contain similar provisions.
Amendment of Charter. The MGCL provides that a proposed amendment to a
corporation's articles of incorporation need not be adopted by the corporation's
board of directors and may be submitted directly to a meeting of shareowners.
Such proposed amendment generally will be adopted upon receiving the affirmative
vote of a majority of the outstanding shares then entitled to vote thereon. The
Payless Charter provides that a proposed amendment to the Payless Charter which
is not recommended by a majority of the Payless Board will only be adopted if
adopted by the affirmative vote of at least two-thirds of the outstanding shares
of the Payless Common Stock.
Under the DGCL, a proposed amendment to a corporation's certificate of
incorporation must first be adopted by the corporation's board of directors and
only the board of directors can submit the proposed amendment to an annual or
special meeting of the shareowners. With respect to the requisite vote of
shareowners, the New Payless Charter provides that certain provisions of the New
Payless Charter (including provisions relating to the ability to call special
meetings of shareowners, number, classification and removal of directors and the
fair price provision for business combinations) can only be amended by the
affirmative vote of not less than two-thirds of the shares of capital stock then
entitled to vote at a meeting of shareowners. Other provisions of the New
Payless Charter may be amended by a majority of the shares of capital stock then
entitled to vote.
Voting for Directors; Filling Vacancies. Under the DGCL, unless a
corporation's certificate of incorporation or bylaws provide otherwise,
directors are elected by a plurality vote. Under the MGCL, unless a
corporation's certificate of incorporation provides otherwise or cumulative
voting applies, directors are elected by a majority vote. The Payless Bylaws
specifically provide that directors are elected by a majority vote.
The DGCL provides that vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of directors then in office, although less than a quorum, or by the
sole remaining director, and provides that a director so chosen of a corporation
whose board is divided into classes shall serve until the next election of the
class for which such director has been chosen. The Payless Bylaws provide that
directors appointed to fill a vacancy will serve until the next election of
directors by shareowners. The New Payless Charter and the New Payless Bylaws
provide that directors elected
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to fill a vacancy will serve until the next election for the class of directors
into which such director has been elected and until such director's successor
has been duly elected and qualified.
Shareowner Action by Written Consent. The DGCL permits shareowners to act
without a meeting, without prior notice and without a vote, if a consent in
writing setting forth the actions so taken is signed by the holders of
outstanding stock having the minimum number of votes that would be necessary to
authorize such actions at a meeting at which all shares entitled to vote with
respect to the subject matter thereof were present and voted. The New Payless
Charter prohibits shareowner action by written consent. The MGCL and the Payless
Bylaws generally permit such action without a meeting if a consent in writing
setting forth the action so taken is signed by all of the shareowners entitled
to vote with respect to the subject matter thereof.
Amendment of Bylaws. Under the MGCL, the bylaws of a corporation may be
made, altered, amended, suspended or repealed by the shareowners, unless and to
the extent that such power is vested in the board of directors by the articles
of incorporation. The Payless Charter provides that the Payless Bylaws may only
be amended, altered, changed or rescinded by a two-thirds vote of the Payless
Board. Under the DGCL, the authority to amend or repeal bylaws is placed
exclusively in the shareowners of a corporation, unless the corporation's
certificate of incorporation confers the authority on the directors as well.
The New Payless Bylaws provide that they may be amended by a vote of
two-thirds of the issued and outstanding shares of Payless entitled to vote
thereon.
Quorum. Both the MGCL and the DGCL allow a corporation to set, in its
organizational documents, the minimum percentage of the outstanding shares
entitled to vote at any meeting of shareowners that must be represented, in
person or by proxy, for a quorum to be present at such meeting. The MGCL
provides that a quorum must consist of at least a majority of all the
outstanding shares entitled to vote, while the DGCL permits a quorum consisting
of one-third of all the outstanding shares entitled to vote.
Both the MGCL and the DGCL provide that unless otherwise provided in the
organizational documents of a corporation, a majority of the outstanding shares
entitled to vote constitutes a quorum. None of the Payless Charter, the Payless
Bylaws, the New Payless Charter, or the New Payless Bylaws so provide.
Inspection of Shareowners' List. The MGCL provides for a right of
inspection of the shareowners' list and books of the corporation by a shareowner
subject to such regulations as may be prescribed by the corporation's bylaws.
The DGCL allows any shareowner to inspect the shareowners' list and books of the
corporation for a purpose reasonably related to such person's interest as a
shareowner.
Payment of Dividends. Under the MGCL, the board of directors of a
corporation may declare and the corporation may pay dividends so long as the net
assets of the corporation are not less than its stated capital and the payment
of the dividend would not reduce the net assets of the corporation below its
stated capital. Under the DGCL, generally a corporation may pay dividends out of
the corporation's surplus net profits for the fiscal year in which the dividend
is declared or from the preceding fiscal year, even if the corporation has no
available surplus.
Removal of Directors. The New Payless Charter permits the removal of
directors only for cause and then only by the affirmative vote of the holders of
a majority of the shares then entitled to vote in the election of directors,
while the Payless Charter also only permits removal of directors for cause, and
then only by the affirmative vote of two-thirds of the outstanding shares then
entitled to vote in the election of directors.
Limitation of Directors' Liability. Section 102(b)(7) of the DGCL permits
the inclusion in the certificate of incorporation of a provision eliminating or
limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit liability (1) for any
breach of the director's duty or loyalty to the corporation or its stockholders,
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) for the unlawful payment of a
dividend or the unlawful purchase or redemption of stock or (4) for any
transaction from which the director derived an improper personal benefit. The
MGCL does not have such provisions. The Payless Charter does not contain any
provision limiting the personal liability of a director for monetary damages for
breach of fiduciary duty as a director. The
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New Payless Charter contains a provision limiting the personal liability of its
directors to the fullest extent provided under Delaware law. New Payless
believes that the members of the New Payless Board should be entitled to avail
themselves of the full protections of the DGCL. Payless has been informed by the
SEC that in the SEC's opinion the limitations set forth in the New Payless
Charter apply only to claims under state law and not to any liabilities which
may arise under the federal securities laws.
The inclusion of this provision in the New Payless Charter provides a
benefit to the members of the New Payless Board which was not provided to the
members of the Payless Board. In certain circumstances, this provision could
cause New Payless to incur expenses that Payless would not have incurred,
although the forms of liability covered under this provision of the New Payless
Charter are forms that Payless believes would be covered by the directors and
officers insurance policy which New Payless expects to have in place. By
including this provision in the New Payless Charter, certain claims which
Payless might have been able to assert and be successful on against its
directors may not be available to New Payless. New Payless is not proposing to
include the limitation provisions permitted by Section 102(b)(7) of the DGCL in
the New Payless Charter because it believes that it will have difficultly
recruiting qualified members for the New Payless Board in the future, but
instead, as referred to above, New Payless believes that it should be able to
permit directors to avail themselves of the protections available under the
DGCL. The Payless Board is not currently aware of any pending or threatened
litigation against any of the members of the Payless Board to which the
exculpation provisions of the New Payless Charter pursuant to Section 102(b)(7)
of the DGCL would be applicable if such provision existed in the Payless
Charter.
Indemnification of Directors and Officers. Both the Payless Charter and
the New Payless Charter provide that Payless and New Payless, respectively,
shall indemnify to the fullest extent authorized or permitted by law (as now or
hereafter in effect) any person made, or threatened to be made, a party to or
otherwise involved in any action or proceeding (whether civil or criminal or
otherwise) by reason of the fact that he, his testator or intestate, is or was a
director or officer of such corporation or by reason of the fact that such
director or officer, at the request of the Corporation, is or was serving any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, in any capacity.
The MGCL and the DGCL permit indemnification of officers, directors and
others on substantially similar terms. Generally, a corporation may indemnify
any person made or threatened to be made a party to any legal proceeding,
including any suit by or in the name of the corporation, by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation in any
capacity with respect to another enterprise, against expenses and other amounts
reasonably incurred by such person in connection with such legal proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interest of the corporation, and, with
respect to any criminal proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The foregoing notwithstanding, no indemnification
may be made in respect of any claim brought by or in the name of the corporation
as to which such person is adjudged to be liable to the corporation unless and
only to the extent that a proper court determines that in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses that the court deems proper. These indemnification
rights are not exclusive of any other rights to which the person seeking
indemnification is entitled. If authorized by articles of incorporation or by
bylaws or an agreement approved by shareholders, the MGCL empowers a Missouri
corporation to grant further indemnity beyond that provided in the MGCL,
provided no indemnification is permitted for conduct finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct.
The New Payless Charter provides that expenses, including attorneys' fees,
incurred by any such person in defending any such action, suit or proceeding
shall be paid or reimbursed by New Payless promptly upon receipt by it of an
undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation. The Payless Charter does not contain such a provision; however,
Payless has entered into indemnification agreements with directors and executive
officers providing for the advancement of expenses under similar circumstances
and generally for indemnification to the fullest extent permitted by law except
where the indemnitee's conduct has been finally adjudged to have
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been knowingly fraudulent, deliberately dishonest or wilful misconduct. New
Payless expects that it will enter into similar agreements with its directors
and certain officers.
The indemnification provisions contained in the New Payless Charter may be
more favorable to the directors of New Payless than the indemnification
provisions contained in the Payless Charter. With respect to certain litigation
this could have the effect of causing New Payless to be responsible for certain
payments for which Payless would not be responsible. Payless expects that New
Payless will have adequate directors and officers indemnification insurance to
cover any potential additional expenses. In the event that adequate insurance
were not available or deemed inapplicable to either Payless or New Payless to
cover an indemnification claim, each such company could be liable for
substantial payments as a result of its obligations to indemnify its officers
and directors. If such payments were substantial, the value of either company
could be materially adversely affected. There can be no assurance that either
company will have adequate insurance or that insurance will be applicable to any
claims for which either such company may have an indemnification obligation to
its officers or directors. The Payless Board is not currently aware of any
pending or threatened litigation against any of the members of the Payless Board
to which the indemnification provisions of the New Payless Charter would be
applicable.
The SEC has informed Payless that insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling an issuer, that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
The members of the Payless Board may have certain interests in the
Reorganization which are different from or in addition to the interests of
shareowners of Payless generally. These interests relate to the provisions of
the DGCL relating to indemnification and exculpation from certain liabilities.
The Payless Board took these interests into account in reaching their decision
to recommend that shareowners of Payless vote FOR the proposal to adopt the
Merger Agreement and, accordingly, to authorize the Reorganization (including
the Nevada Merger). See "The Reorganization -- Comparison of Certain Rights of
the Holders of New Payless Common Stock and Payless Common Stock -- Limitation
of Directors' Liability" and "-- Indemnification of Directors and Officers."
LISTING OF NEW PAYLESS COMMON STOCK
New Payless will apply to have the New Payless Common Stock listed on the
NYSE. It is expected that such listing will become effective at the Effective
Time. New Payless reserves the right to terminate its listing on the NYSE or any
exchange in the future, upon notice to shareowners, in compliance with its
listing agreements or other arrangements with the NYSE or such other exchange.
It is expected that following the Effective Time the New Payless Common Stock
will trade under the ticker symbol "PSS."
Following the Merger, it is expected that Payless Common Stock will be
delisted and will no longer be registered pursuant to Section 12 of the Exchange
Act.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income
tax consequences of the Merger. This discussion does not purport to deal with
all aspects of taxation that may be relevant to particular shareowners in light
of their personal investment or tax circumstances, or to certain types of
shareowners (including dealers in securities or currencies, banks, tax-exempt
organizations, life insurance companies, persons that hold Payless Common Stock
as other than capital assets or persons that hold Payless Common Stock as part
of a hedge, straddle or conversion transaction) subject to special treatment
under the United States federal income tax laws.
Payless expects that the Federal income tax consequences of the Merger will
be as follows:
(1) no gain or loss will be recognized by a holder of Payless Common
Stock upon the exchange of such holder's Payless Common Stock for New
Payless Common Stock;
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(2) the basis of shares of New Payless Common Stock received by a
former holder of shares of Payless Common Stock in an exchange described in
(1) above in the aggregate will equal the basis of such former holder's
shares of Payless Common Stock exchanged therefor, and the holding period
for such shares of New Payless Common Stock will include the holding period
for shares of Payless Common Stock exchanged therefor to the extent that
such shares of Payless Common Stock was held as a capital asset at the
effective time of the Merger; and
(3) no gain or loss will be recognized by New Payless or Payless on
account of the Merger or the issuance of shares of New Payless Common Stock
to the former holders of shares of Payless Common Stock in the Merger.
The foregoing discussion does not cover the tax consequences of the Merger
under state, local or foreign income or other tax laws. Shareowners of Payless
are urged to consult with their own tax advisors with respect to the effects of
such laws.
Shareowners that are United States persons for federal income tax purposes
and that exercise their right to dissent from the Merger and obtain cash in
exchange for their shares of Payless Common Stock will be required to recognize
capital gain or loss for United States federal income tax purposes equal to the
difference between the cash received and the shareowners' tax basis in the
Payless Common Stock (generally its cost). Long-term capital gain of a
non-corporate shareowner is generally subject to a maximum tax rate of 28% in
respect of property held for more than one year and to a maximum tax rate of 20%
in respect of property held in excess of 18 months. Shareowners that are not
United States persons for federal income tax purposes and that exercise their
right to dissent from the Merger and obtain cash in exchange for their shares of
Payless Common Stock will generally not be subject to tax.
DISSENTERS' RIGHTS
Shareowners who do not vote in favor of adoption of the Merger Agreement
and who follow the procedures summarized below will have the right to dissent
from and obtain payment in cash of the fair value of their shares of Payless
Common Stock in the event of the consummation of the Merger. No holder of
Payless Common Stock dissenting from the Merger will be entitled to shares of
New Payless Common Stock or any dividends or other distributions unless and
until the holder fails to perfect or effectively withdraws or loses such
holder's right to dissent from the Merger Agreement. See "-- The Merger
Agreement -- Exchange of Certificates." The following is a summary of the
procedures which must be followed by any shareowner who wishes to dissent and
demand payment for his or her shares in the event of consummation of the Merger.
The applicable procedures of the MGCL are set forth in Annex E to this Proxy
Statement/Prospectus. Holders of Payless Common Stock receiving cash upon
exercise of dissenters' rights will recognize a capital gain or loss for federal
income tax purposes. See "-- Certain Federal Income Tax Consequences."
A shareowner may assert dissenters' rights only if such shareowner:
(i) delivers to Payless prior to or at the Annual Meeting a written
objection to the Merger Agreement. Such objection should be delivered
or mailed in time to arrive before the Annual Meeting to Payless
ShoeSource, Inc., 3231 S.E. Sixth Street, Topeka, Kansas 66607,
Attention: Corporate Secretary. Such a written objection must be made
in addition to, and separate from, any proxy or other vote against
adoption of the Merger Agreement. None of a vote against, a failure
to vote for, or an abstention from voting will satisfy the
requirement that a written objection be delivered to Payless before
the vote is taken. Unless a shareowner files the written objection as
provided above, he or she will not have any dissenters' rights of
appraisal; and
(ii) does not vote in favor of adoption of the Merger Agreement; and
(iii) delivers to Payless within twenty days after the Effective Time a
written demand for payment of the fair value of his or her shares of
Payless Common Stock as of the day prior to the date on which the
vote for adoption of the Merger Agreement was taken and which demand
includes a statement of the number of shares of Payless Common Stock
owned. Such demand must be mailed or delivered to Payless at the
address set forth in (i) above. Any shareowner who fails to make a
written demand
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for payment within the twenty-day period after the Effective Time
will be conclusively presumed to have consented to the Merger
Agreement and will be bound by the terms thereof. Neither a vote
against the Merger Agreement nor the written objection referred to in
(i) satisfies the written demand requirement referred to in this
clause (iii).
A beneficial owner of shares of Payless Common Stock who is not the record
owner may not assert dissenters' rights. If the shares of Payless Common Stock
are owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, or by a nominee, the written demand asserting dissenters' rights must
be executed by the fiduciary or nominee. If the shares of Payless Common Stock
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for a
shareowner of record; however, the agent must identify the record owner and
expressly disclose the fact that, in executing the demand, he is acting as agent
for the record owner.
If within thirty days of the Effective Time the value of a dissenting
shareowner's shares of Payless Common Stock is agreed upon between the
shareowner and Payless, Payless will make payment to the shareowner within
ninety days of the Effective Time, upon the shareowner's surrender of his or her
Payless Certificates. Upon payment of the agreed value, the dissenting
shareowner will cease to have any interest in such shares or in Payless.
If the dissenting shareowner and Payless do not agree on the fair value of
the shares within thirty days of the Effective Time, the dissenting shareowner
may, within sixty days thereafter, file a petition in any court of competent
jurisdiction within Cole County, Missouri asking for a finding and a
determination of the fair value of the shares. The dissenting shareowner is
entitled to judgment against Payless for the amount of such fair value as of the
day prior to the date on which such vote was taken adopting the Merger
Agreement, together with interest thereon to the date of judgment. The judgment
is payable only upon and simultaneously with the surrender to Payless of the
Payless Certificates representing said shares. Upon payment of the judgment, the
dissenting shareowner shall cease to have any interest in such shares or in
Payless. Unless the dissenting shareowner will file such petition within the
time herein limited, such shareowner and all persons claiming under such
shareowner will be conclusively presumed to have adopted and ratified the Merger
Agreement, and will be bound by the terms thereof.
The right of a dissenting shareowner to be paid the fair value for his or
her shares will cease if the shareowner fails to comply with the procedures of
the MGCL or if the Merger Agreement is terminated for any reason.
The preceding is qualified in its entirety by the text of the appraisal
provisions of the MGCL which are attached hereto as Annex E and are incorporated
herein by reference.
ACCOUNTING TREATMENT
The Payless Board expects the Merger to qualify as a corporate
reorganization under common control similar to a pooling of interests. Pursuant
to this type of accounting, as of the Effective Time, recorded balances for
consolidated assets, liabilities, total shareowners' equity and results of
operations of New Payless will be the same as those of Payless.
BOARD OF DIRECTORS AND MANAGEMENT OF NEW PAYLESS AFTER THE MERGER
The New Payless Charter will divide the New Payless Board into three
classes of directors with directors in each class being elected for a three-year
term. New Payless expects that following the Merger the New Payless Board will
consist of the same persons currently comprising the Payless Board. Presently,
the New Payless Board and the Payless Board are comprised of the same persons.
The Payless Board expects that as of the Effective Time, the New Payless Board
will be comprised of Thomas A. Hays (if elected as a director of Payless at the
Annual Meeting), Michael E. Murphy (if elected as a director of Payless at the
Annual Meeting), Daniel Boggan Jr (if elected as a director of Payless at the
Annual Meeting), Mylle B. Mangum (if elected as a director of Payless at the
Annual Meeting), Steven J. Douglass, Richard A. Jolosky, Howard R.
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Fricke and Robert L. Stark. The adoption by the holders of Payless Common Stock
of the Merger Agreement (and, in the case of directors, the directors standing
for election at the Annual Meeting) will constitute ratification of Mr. Hays,
Mr. Murphy and Mr. Boggan as directors who will continue to be assigned to Class
II of the New Payless Board whose terms will expire in 2001, Mr. Jolosky, Mr.
Stark and Ms. Mangum as directors who will continue to be assigned to Class III
of the New Payless Board whose terms will expire in 2000, and Mr. Douglas and
Mr. Fricke as the directors who will continue to be assigned to Class I of the
New Payless Board whose terms will expire in 1999.
New Payless expects that the management of New Payless at the Effective
Time will be substantially the same as that of Payless immediately prior to the
Effective Time.
For information concerning persons expected to become directors of New
Payless, see "Proposal II: Election of Directors".
INDEPENDENT PUBLIC ACCOUNTANTS OF NEW PAYLESS
The adoption by the holders of Payless Common Stock of the Merger Agreement
will also constitute ratification of Arthur Andersen LLP, Independent Public
Accountants, as described under the caption "Proposal III: Ratification of
Independent Public Accountants of Payless" as the independent public accountants
of New Payless for New Payless' 1998 fiscal year.
ISSUANCES OF NEW PAYLESS COMMON STOCK
The adoption by the holders of Payless Common Stock of the Merger Agreement
will also constitute approval of the assumption by New Payless of the Payless
Plans and, where appropriate, the future issuance of shares of New Payless
Common Stock in lieu of shares of Payless Common Stock under the Payless Plans,
each as amended in connection with the Reorganization without further shareowner
action.
NEW PAYLESS CHARTER
The adoption by the holders of Payless Common Stock of the Merger Agreement
will also constitute approval of all of the terms of the New Payless Charter in
the form attached to this Proxy Statement/Prospectus as Annex B.
THE PAYLESS BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, BELIEVES
THAT THE MERGER AND THE REORGANIZATION ARE IN THE BEST INTERESTS OF PAYLESS AND
ITS SHAREOWNERS, AND RECOMMENDS THAT THE HOLDERS OF PAYLESS COMMON STOCK VOTE IN
FAVOR OF THE PROPOSAL TO ADOPT THE MERGER AGREEMENT AND, ACCORDINGLY, APPROVE
THE REORGANIZATION (INCLUDING THE NEVADA MERGER).
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PROPOSAL II: ELECTION OF DIRECTORS
PROPOSAL II ON THE ACCOMPANYING PROXY CARD.
DIRECTORS AND NOMINEES FOR DIRECTORS
The Payless Board currently consists of eight Directors divided into three
classes serving staggered terms. Four of Payless' 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. Two Directors, Messrs. Thomas A.
Hays and Michael E. Murphy, serve in a class with terms that expire at the
Annual Meeting, and these Directors are nominees of the Payless Board for
reelection at the Annual Meeting. Once elected at the Annual Meeting each of
Messrs. Hays and Murphy will serve a term of three years to expire at the annual
meeting of shareowners to be held in the year 2001 or until his successor is
elected and qualifies. Daniel Boggan Jr, who was elected to the Payless Board in
September 1997, is also a nominee of the Payless Board for reelection at the
Annual Meeting. He has been nominated to serve a term of three years to expire
at the annual meeting of shareowners to be held in the year 2001 or until his
successor is elected and qualifies. Mylle B. Mangum, who was elected to the
Payless Board in November 1997, is also a nominee of the Payless Board for
reelection at the Annual Meeting. She has been nominated to serve a term of two
years to expire at the annual meeting of shareowners to be held in the year 2000
or until her successor is elected and qualifies.
Two of Payless' continuing Directors, Messrs. Steven J. Douglass and Howard
R. Fricke have terms expiring at the 1999 annual meeting of shareowners, and the
other two continuing Directors, Messrs. Richard A. Jolosky and Robert L. Stark,
have terms expiring at the 2000 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
Payless Board may reduce the number of Directors to be elected.
Further information concerning the nominees for election as Directors at
the Annual Meeting and the continuing Directors, including their employment
during at least the past five years, appears below.
THOMAS A. HAYS is 65 years old and is the former Deputy Chairman of May
Company. He had served in such capacity from 1993 through April 1996. He served
as a director of May Company from 1983 through 1996. Mr. Hays joined May Company
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 Company. Mr. Hays was named Vice Chairman of May in 1982 and President in
1985. Mr. Hays is also a director of Ameren Corporation, Leggett & Platt Inc.,
Kinko's Inc., and an advisory board member of Schnuck Markets Inc. Mr. Hays has
served as a Director of Payless since April 30, 1996.
MICHAEL E. MURPHY is 61 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 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 Chicago Committee of the Chicago
Council on Foreign Relations, a principal of Chicago United, and a director of:
American General Corporation, Bassett Furniture Industries, Inc., True North
Communications, Inc., Northwestern Memorial Corporation (university hospitals),
Civic Federation, Big Shoulders Fund and Jobs for Youth, Chicago Cultural Center
Foundation, Chicago's Lyric Opera and GATX Corporation. Mr. Murphy has served as
a Director of Payless since April 30, 1996.
DANIEL BOGGAN JR is 52 years old and has served as Chief Operating Officer
of the National Collegiate Athletic Association (the "NCAA") since 1995. He
joined the NCAA in 1994 as Group Executive Director for Education Services.
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.
Mr. Boggan has served as a Director of Payless since September 18, 1997.
27
<PAGE> 37
MYLLE B. MANGUM is 49 years old and joined Carlson Wagonlit Travel in
March 1997 as President-Global Payment System and Senior Vice President-Expense
Management and Strategic Planning. 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 Reynolds Metals
Company, Scientific-Atlanta and The Woodruff Arts Center. Ms. Mangum has served
as a Director of Payless since November 20, 1997.
STEVEN J. DOUGLASS is 48 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 May Company to its
shareowners (the "Spin-off"). Mr. Douglass has been Chairman and Chief Executive
Officer of Payless since April, 1995. He joined Payless in 1993 and served as
Senior Vice President/Director of Retail Operations from 1993 to January, 1995
and as Executive Vice President/Director of Retail Operations from January, 1995
to April, 1995. Prior to his association with Payless, Mr. Douglass held several
positions at divisions of May Company, 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.
RICHARD A. JOLOSKY is 63 years old and has served as President of Payless
since January, 1996. He initially joined Payless in September, 1982, serving as
Executive Vice President-Merchandising (1982-1984) and then as President
(1985-1988). Mr. Jolosky was President and Chief Executive Officer of Silverman
Jewelry Company (1995-1996) and Chief Executive Officer of the Richard Allen
Company (1992-1995). Mr. Jolosky is a director of Stage Stores, Inc. Mr. Jolosky
has served as a Director of Payless since April 30, 1996.
HOWARD R. FRICKE is 62 years old and has been Chairman of the Board and
Chief Executive Officer of The Security Benefit Group of Companies since 1988.
Mr. Fricke also serves as a director of The Security Benefit Group of Companies,
UMB Bank, N.A. and ONEOK, Inc. Mr. Fricke has served as a Director of Payless
since April 30, 1996.
ROBERT L. STARK is 64 years old and was Dean of The Regents Center 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. for 35 years in
several 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 served as a director of
Hallmark (1976-1993). He is a director of Champion Enterprises, Inc., and
Century Products. Mr. Stark has served as a Director of Payless since April 30,
1996.
28
<PAGE> 38
THE PAYLESS BOARD AND COMMITTEES OF THE PAYLESS BOARD
The Payless Board held six meetings during its 1997 fiscal year. Each
director attended at least 80% 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 ("Committees") on
which such director served during the periods that such director served.
Overall, the average percentage attendance for all directors at all Payless
Board and Committee meetings was 91%.
The Payless 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 by reason of their directorship or attendance at
meetings of the Payless Board or any Committee or at meetings of the
shareowners. Under Payless' 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 Payless 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 $5,000. All such shares
of Payless Common Stock are subject to restrictions on transferability and to
forfeiture. For 1997, the annual fee of $35,000 was paid as 775 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 23, 1997. The cash portion of the annual fee vests
one-fifth on the date of each regular meeting of the Payless Board following the
annual meeting. Non-management directors are also paid $1,000 in cash per
meeting for attending more than twelve meetings (Payless Board and Committees)
in a year. 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 Payless' capital structure. Initial
grant shares vest 20% per year over a five year period following the date of
grant. The annual retainer shares vest one-half on November 1 following the date
of the grant (annual meeting date) and one-half on the May 1 following the date
of the grant. Shares awarded under the plan may not be sold during a person's
term 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 functions of the Audit and Finance
Committee include making recommendations to the Payless Board as to the
selection of the firm of independent public accountants and auditors to examine
the books and accounts of Payless for each fiscal year, the proposed engagement
arrangements for the independent public accountants and auditors for each fiscal
year, and the advisability of having the independent public accountants and
auditors 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
Payless as are deemed appropriate for review by the Audit and Finance Committee,
the coordination between the independent public accountants and auditors and
Payless' internal auditing group, the scope and procedures of Payless' internal
audit work and the quality and composition of Payless' internal audit staff. The
Audit and Finance Committee is responsible for reviewing and making
recommendations to the Payless Board with respect to matters such as the
following: the financial policies of Payless, 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 Payless, Payless' 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
29
<PAGE> 39
plan investments, financial aspects of proposed acquisitions and/or
divestitures, and Payless insurance and risk management program. The members of
the Audit and Finance Committee during the 1997 fiscal year were Messrs. Hays,
Murphy (Chairman), Stark and Fricke, each of whom was an independent director as
required by the rules of the NYSE. During the 1997 fiscal year, the Audit and
Finance Committee met two times. It is expected that Messrs. Hays, Murphy
(Chairman), Stark, Fricke and Ms. Mangum will be the members of the Audit and
Finance Committee of New Payless after the Effective Time.
Compensation and Nominating Committee. The functions of the Compensation
Committee include such matters as considering and recommending to the Payless
Board and Payless' management the overall compensation programs of Payless,
reviewing and approving the compensation payable to the senior management
personnel of Payless, and reviewing and monitoring the executive development
efforts of Payless 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 Payless' profit sharing plans, 1996 Stock
Incentive Plan, stock appreciation and phantom stock plan for international
employees, executive incentive compensation plans for Payless executives,
supplementary retirement plan and deferred compensation plan; and identifies and
recommends candidates for Directors of the Payless 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. Any such recommendation for the 1999 election of Directors may
be suggested at any time, but to potentially be brought before the annual
meeting of shareowners, should be submitted in accordance with the terms of the
New Payless Bylaws, in writing, at least 75 and not more than 90 days, prior to
the 1999 annual meeting, to the Corporate Secretary of New Payless at 3231 S.E.
Sixth Street, Topeka, Kansas, 66607. The members of the Compensation Committee
during the last fiscal year were Messrs. Hays (Chairman), Fricke (until
September 18, 1997), Murphy and Boggan (beginning September 18, 1997), each of
whom was a "non-employee director" within the meaning of Rule 16b-3 under 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 1997
fiscal year, the Compensation Committee met three times. It is expected that
Messrs. Hays (Chairman), Murphy and Boggan will be the members of the
Compensation Committee of New Payless after the Effective Time.
The Payless Board and the New Payless Board may, from time to time,
establish certain other committees to act on behalf of such boards of directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Except for Mr. Fricke, none of the members of the Compensation Committee
was or has been an officer or employee of Payless or engaged in transactions
with Payless (other than in his capacity as director). Mr. Fricke, Chief
Executive Officer of the Security Benefit Group of Companies, served on the
Compensation Committee until the time Mr. Douglass, Chairman of the Payless
Board and Chief Executive Officer of Payless (the "CEO"), was elected to the
Board of Directors of The Security Benefit Group of Companies. None of Payless'
other executive officers serves as a director or member of the compensation
committee of another entity one of whose executive officers serves as a member
of the Compensation Committee or a Director of Payless.
COMPENSATION AND NOMINATING COMMITTEE REPORT
The Compensation Committee reviews and approves, among other things, the
compensation payable to each of the executive officers named in the Summary
Compensation Table on page 35.
Compensation Philosophy. Payless' basic compensation philosophy is that
the compensation program should:
a) Attract, retain and motivate highly qualified executives;
b) be competitive;
c) align the executive's compensation with Payless' objectives; and
d) be related to the value created for shareowners.
30
<PAGE> 40
Compensation for executive officers is comprised of a base salary, bonus
opportunities and long-term stock incentives. The Compensation Committee reviews
compensation based on this philosophy, on the performance of Payless and on
competitive practices. As part of its review of competitive pay levels, the
Compensation 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 groups in Payless' stock price performance graph on page
34, and other retail companies of similar size to Payless (the "survey
companies"). The Compensation Committee intends to review annually the group of
companies that comprise the survey companies and make appropriate additions or
deletions to the group.
Base Salary. Base salaries are targeted at approximately the 50th
percentile of base salaries for comparable executive officer positions at the
survey companies. The Compensation Committee intends to review base salaries on
an annual basis and to adjust them based on the Compensation Committee's
discretionary assessment of the individual executive's performance and
competitive pay levels. Base salaries for most executive officers did not
increase in 1997; the average increase for all executive officers was 1.3%.
Bonus Opportunities. Executive officers participate in the Executive
Incentive Compensation Plan for Payless Executives, which provides an
opportunity for 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. However, long-term
performance periods are being phased in so that the initial long-term
performance period covered only fiscal 1996, the second long-term performance
period covered fiscal 1996-1997, and the third long-term performance period
covers fiscal 1996-1998. The annual and long-term awards will be based upon
attaining earnings per share ("EPS") growth and return on net assets ("RONA")
performance standards relating to Payless as a whole.
Awards are subject to an automatic upward or downward adjustment to reflect
Payless' performance in EPS growth and RONA as compared to the performance on
these measures of the Peer Company Group II Index of the Stock Price Performance
graph. Each financial measure is ranked with the comparable financial measure of
a group of peer companies designated in advance by the Compensation Committee.
Payless' relative rank is determined based on data reviewed by the independent
public accountants of Payless. The relative rank adjustment varies depending on
the number of peer companies designated by the Compensation Committee. For
example, for fiscal 1997, the Compensation Committee designated 17 other peer
companies (the same peer companies as in the Peer Company Group II Index of the
Stock Price Performance graph). If Payless were to rank first through fifth, the
award for that measure would not be less than the target level; if Payless were
to rank sixth through ninth, the award for that measure would not be less than
threshold level; and if Payless were to rank fourteenth through eighteenth, the
award for that measure would not be more than threshold level.
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 Payless Common Stock
price over the long-term performance periods. For this purpose, the performance
of Payless Common Stock is based on the difference between the average closing
price of Payless 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 Payless Common Stock during the month of February of the
calendar year in which such long-term performance period ends. However, for the
first three long-term performance periods, which began in 1996, the price of
Payless Common Stock at the beginning of such periods is the average of the high
and low daily trading prices of Payless Common Stock on the NYSE for each of the
first 30 trading days on which Payless Common Stock traded on the NYSE.
The annual award for fiscal 1997 could have ranged between 0% and 75% of
base salary for the CEO, between 0% and 62.5% of base salary for the President
of Payless and between 0% and 45% of base salary for the other executive
officers named in the summary compensation table. For fiscal 1997, the threshold
annual award was 25% of base salary for the CEO, 20.83% of base salary for the
President of Payless and 15% of the base salary for the other executive officers
named in the summary compensation table and the target annual
31
<PAGE> 41
award was 50% of base salary for the CEO, 41.67% of base salary for the
President of Payless and 30% of base salary for the other executive officers
named in the summary compensation table. The long-term award for fiscal 1997
could have ranged between 0% and 50% of average base salary over the long-term
performance period for the CEO, between 0% and 41.66% 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, with the long-term
awards remaining subject to the adjustment described above regarding stock price
performance over each long-term period. For fiscal 1997, 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 Compensation
Committee.
For both the fiscal 1997 period and the two-year "long-term" period (fiscal
1996 and 1997), (i) Payless' performance exceeded the maximum performance levels
set by the Compensation Committee for both annual EPS growth and RONA, (ii)
Payless' rank relative to the Peer Company Group II Index of the Stock Price
Performance graph was 9th with respect to annual EPS growth, 9th with respect to
annual RONA, 8th with respect to long-term EPS growth and 7th with respect to
long-term RONA (therefore, no adjustment was made in any of the calculations
based on Payless' relative rank in the Peer Company Group II Index of the Stock
Price Performance graph), and (iii) the price of Payless Common Stock increased
by $40.049 for the two-year "long-term" period above, resulting in a 50%
increase in the long-term bonuses. Based on these results, the annual award
represented 75% of base salary for the CEO, 62.5% of base salary for the
President of Payless and 45% of base salary for each other executive officer,
and the two-year "long-term" award represented 75% of average base salary for
the long-term performance period for the CEO, 62.5% of average base salary for
the long-term performance period for the President of Payless and 45% of average
base salary for the long-term performance period for each other executive
officer.
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 deigned to attract, retain and
motivate management associates and relate their compensation directly to the
performance of Payless Common Stock. The mix of such awards is determined by the
Compensation Committee in its discretion. The Compensation Committee has adopted
a program for long-term stock incentives through the year 2001 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 Compensation
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
1997, the long-term stock incentives consisted of a grant of stock options and
restricted stock to employees, including executive officers, in amounts as
determined by the Compensation Committee in its discretion.
Under the 1997 grant, the CEO received 12,500 shares of restricted Payless
Common Stock and 92,000 stock options: the President of Payless received 8,500
shares of restricted Payless Common Stock and 64,000 stock options: the
Executive Vice President Retail Operations of Payless received 4,400 shares of
restricted Payless Common Stock and 33,000 stock options; and each other
executive officer received 3,125 shares of restricted Payless Common Stock and
23,750 stock options. 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 provided for 100% vesting on May 14, 2003, subject to acceleration
if specific price targets for the Payless Common Stock were met. On January 28,
1998, the first of those specific price targets was achieved, resulting in 50%
of the stock options granted in fiscal 1997 becoming vested.
32
<PAGE> 42
CEO Pay. The CEO's base salary did not increase during fiscal 1997.
The CEO's bonus for 1997 of $900,000 was determined entirely by the
quantitative criteria set forth above, and his 1997 long-term grants were
consistent with the Compensation Committee's policies regarding such grants.
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, Payless adopted the following minimum stock ownership guidelines for
senior management, including executive officers.
OWNERSHIP GUIDELINES
<TABLE>
<CAPTION>
VALUE OF SHARES OF PAYLESS
COMMON STOCK OWNED AS
POSITION A MULTIPLE OF BASE SALARY
- -------- --------------------------
<S> <C>
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
</TABLE>
These guidelines are expected to be attained by 2004 and may be satisfied
through direct ownership of shares of Payless Common Stock, including share
equivalents under the profit Sharing Plan of Payless and phantom stock under the
Deferred Compensation Plan of Payless. Restricted shares of Payless Common
Stock, however, are not taken into account until they vest.
Deductibility of Compensation. Section 162(m) of the Code generally limits
Payless' tax deduction to $1 million for compensation paid to the CEO and the
five most highly compensated other executive officers who are executive officers
on the last day of the tax year in question. However, exceptions are made for
"performance-based" compensation.
The Compensation Committee believes that all compensation paid to executive
officers in fiscal 1997 is fully deductible and that all stock options granted
in fiscal 1997 will, upon exercise, result in fully deductible compensation. The
Compensation Committee's intention is to maintain full deductibility of
compensation under the applicable law unless and until the Compensation
Committee determines that this would not be in the best interests of Payless and
its shareowners.
Compensation and Nominating Committee:
Daniel Boggan Jr
Thomas A. Hays -- Chairman
Michael E. Murphy
33
<PAGE> 43
STOCK PRICE PERFORMANCE
The graph below compares the cumulative total shareowner return on the
Payless Common Stock against the cumulative returns of the Standard and Poor's
Corporation Composite Index (the "S&P 500 Index") and of two indices of peer
group companies, some of which are competitors used in determining bonuses under
Payless' performance based bonus plans (the "Peer Company Group I Index" and the
"Peer Company Group II Index").
COMPARISON OF 21-MONTH CUMULATIVE RETURN
PSS, S&P 500 INDEX, PEER COMPANY GROUP I INDEX AND
PEER COMPANY GROUP II INDEX
[GRAPH]
<TABLE>
<CAPTION>
5/6/96 6/1/96 7/6/96 8/3/96 8/31/96 10/5/96 11/2/96 11/30/96 1/4/97 2/1/97 3/1/97
------ ------ ------ ------ ------- ------- ------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payless $100 $ 99.12 $104.85 $112.78 $123.79 $128.63 $120.26 $137.89 $133.92 $132.16 $151.54
S&P 500 100 104.42 103.17 103.96 102.32 110.70 111.07 119.47 118.66 124.70 125.44
Peer Company Group Index I 100 108.26 106.17 101.86 104.63 107.98 106.01 112.37 105.81 105.88 112.24
Peer Company Group Index II 100 107.79 105.80 101.37 103.89 106.82 104.93 110.38 104.96 104.05 110.56
<CAPTION>
4/5/97 5/3/97 5/31/97 7/5/97 8/2/97 8/30/97 10/4/97 11/1/97 11/29/97 1/3/98 1/30/98
------ ------ ------- ------ ------ ------- ------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payless $145.81 $154.54 $166.96 $198.68 $211.23 $225.99 $208.81 $196.48 $223.79 $234.36 $229.30
S&P 500 120.80 129.57 135.20 146.78 151.62 143.99 155.14 147.04 153.60 157.41 158.26
Peer Company Group Index I 115.69 119.91 125.65 133.35 141.45 137.09 146.23 142.50 151.66 149.45 151.11
Peer Company Group Index II 115.20 116.30 122.91 130.02 138.14 133.41 143.12 138.54 147.49 144.96 146.22
</TABLE>
COMPARISON OF 21-MONTH TOTAL RETURNS
<TABLE>
<CAPTION>
MAY 4, 1996 JANUARY 30, 1998
----------- ----------------
<S> <C> <C>
Payless..................................... $100.00 229.30
S&P 500..................................... 100.00 158.26
Peer Company Group Index I.................. 100.00 151.11
Peer Company Group Index II................. 100.00 146.22
</TABLE>
The graph assumes $100 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 Company Group I
Index and the Peer Company Group II Index and assumes the reinvestment of
dividends. Companies comprising the Peer Company Group Index I are: Charming
Shoppes, Inc., Circuit City Stores, Inc., Dayton Hudson Corporation, The Gap,
Inc., The Home Depot, Inc., K-Mart Corporation, The Limited, Inc., Lowe's
Companies, Inc., The Pep Boys-Manny, Moe & Jack, Inc., Price/Costco, Inc.,
Sears, Roebuck and Co., Tandy Corporation, The TJX Companies, Inc., Toys "R" Us,
Inc., Wal-Mart Stores, Inc., Woolworth Corporation, and Melville Corporation
(now called CVS Corporation ("CVS")). Companies comprising the Peer Company
Group Index II are: Charming Shoppes, Inc., Circuit City Stores, Inc., Dayton
Hudson Corporation, The Gap, Inc., The Home Depot, Inc., K-Mart Corporation, The
Limited, Inc., Lowe's Companies, Inc., The Pep Boys-Manny, Moe & Jack, Inc.,
Price/Costco, Inc., Sears, Roebuck and Co., The TJX Companies, Inc., Tandy
Corporation, Toys "R" Us, Inc., Wal-Mart Stores, Inc., Woolworth Corporation,
and FootStar, Inc.
34
<PAGE> 44
EXECUTIVE COMPENSATION
The table below shows the compensation paid or accrued by Payless on behalf
of the CEO and the five other most highly compensated executive officers of
Payless (determined as of the end of the last fiscal year) for the last two
fiscal years ended January 31, 1998 and February 1, 1997 respectively. Five
people in
addition to the CEO are covered by the table because two of the persons (the two
with the lowest salary and annual bonus in the table) were paid the same
consideration in fiscal 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
-----------------------------------------
ANNUAL COMPENSATION NUMBER OF 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(5) PAYOUTS(6) COMPENSATION(7)
------------------ ---- --------- -------- --------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven J. Douglass... 1997 $600,000 $450,000 $52,007 $568,750 92,000 $450,000 8,571
Chairman of the 1996 587,500 438,540 665,156 108,125 236,909
Board and Chief
Executive Officer
Richard A. Jolosky... 1997 450,000 281,250 90,927 386,750 64,000 281,250 8,571
President 1996 450,000 328,905 52,539 498,867 87,000 221,506
Duane L. Cantrel1.... 1997 301,150 137,250 200,200 33,000 137,250 8,571
Executive Vice 1996 290,371 212,473 210,633 14,938 79,769
President Retail
Operations
Bryan P. Collins..... 1997 300,000 135,000 142,188 23,750 135,000 8,571
Senior Vice 1996 286,775 210,645 208,800 14,938 79,232
President --
Division Director
Parade of Shoes(8)
Jed L. Norden........ 1997 267,800 120,500 142,188 23,750 120,500 8,571
Senior Vice 1996 265,850 195,735 192,156 15,000 73,469
President Human
Resources
Ullrich E. Porzig.... 1997 267,800 120,500 142,188 23,750 120,500 8,571
Senior Vice 1996 262,465 195,735 192,156 7,500 142,913
President Chief
Financial Officer
</TABLE>
- -------------------------
(1) "Salary" reflects amounts paid to or deferred by the named executive
officers during fiscal 1997. 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 Payless'
Executive Incentive Compensation Plan for Payless executives. It includes
amounts deferred by the particular officer.
(3) "Other Annual Compensation" only includes amounts required to be reported
under applicable SEC rules. For 1997, includes for Mr. Douglass $14,112 of
imputed income due to life insurance coverage paid by Payless, $16,803 of
automobile allowance and $18,149 of imputed income due to personal use of an
airplane owned by Payless; and for Mr. Jolosky $27,375 of imputed income due
to life insurance coverage paid by Payless, $14,777 of automobile allowance
and $46,386 of imputed income due to personal use of an airplane owned by
Payless. "Other Annual Compensation" for 1996 includes, for Mr. Jolosky
$18,253 of imputed income due to life insurance coverage paid by Payless,
$14,013 of automobile allowance and $12,273 of imputed income due to
personal use of an airplane owned by Payless. Except as disclosed, non-cash
compensation made available to the named executive officers does not exceed
required disclosure thresholds.
(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 grant, multiplied
by the total number of shares granted to the named executive officer. In
1996 all restricted stock awards were made under Payless' Spin-Off Stock
Plan. One-third of the shares awarded in 1996 vested on May 4, 1996, an
additional one-third vested on May 4, 1997 and the remaining one-third will
vest on May 4, 1998. In 1997 all restricted stock awards were made under
Payless' 1996 Stock Incentive Plan. One-third of the shares awarded in 1997
will vest on May 14, 1999, an additional one-third will vest on May 14, 2000
and the final third will vest on May 14, 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 1997 (at $65.0625 per share) was $1,301,250 for
Mr. Douglass, representing 20,000 shares; $919,008 for Mr. Jolosky,
representing 14,125 shares; $440,798 for Mr. Cantrell, representing 6,775
shares; $356,477 for Mr. Collins, representing 5,479 shares; $344,246. for
Mr. Norden, representing 5,291 shares; and $344,246 for Mr. Porzig,
representing 5,291 shares. Dividends will be paid on restricted shares at
the same rate paid to all shareowners, if and when dividends are paid.
(5) For additional information regarding these grants, see the Stock Option
Grants in Fiscal 1997 table on page 36.
35
<PAGE> 45
(6) "Long-Term Incentive Payouts" represents the long-term portion of the bonus
paid under Payless' Executive Incentive Compensation Plan for Payless
Executives. It includes amounts deferred by the particular officer. The
long-term performance periods of the plan are being phased in so that the
initial long-term performance period covered only fiscal 1996, the second
long-term performance period covered fiscal 1996-1997, and the third
long-term performance period covers fiscal 1996-1998. For 1996, the
long-term portion of the bonus was included in the annual bonus.
(7) "All Other Compensation" represents Payless' contribution to the named
executive officer's account in Payless' profit sharing plan. In addition, in
1996 "All Other Compensation" included payments to relocate Mr. Jolosky
($47,321) and Mr. Porzig ($72,528) and amounts awarded under Payless'
Spin-Off Cash Plan. Under the Spin-Off Cash Plan employees who remain
employed with Payless at certain dates are eligible to receive cash payments
equal to a percentage of base pay. The percentage ranges from 10% to 37.5%
of base pay. Executive officers other than the CEO and President of Payless
are eligible to receive 25% of base pay under the Spin-Off Cash Plan. The
CEO and President of Payless are eligible to receive 37.5% of base pay under
the Spin-Off Cash Plan. One-half of the payment was paid on May 4, 1997, and
the second half will be paid on May 4, 1998.
(8) Parade of Shoes is a division of Payless.
Stock Option Awards. The following table provides certain information
concerning individual grants of stock options made to the named executive
officers during the 1997 fiscal year under Payless' 1996 Stock Incentive Plan.
STOCK OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE FAIR VALUE(2)
---- ---------- ------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Steven J. Douglass.................. 92,000 5.28 45.50 5/14/2007 2,418,403
Richard A. Jolosky.................. 64,000 3.68 45.50 5/14/2007 1,682,367
Duane L. Cantrell................... 33,000 1.89 45.50 5/14/2007 867,471
Bryan P. Collins.................... 23,750 1.36 45.50 5/14/2007 624,316
Jed L. Norden....................... 23,750 1.36 45.50 5/14/2007 624,316
Ullrich E. Porzig................... 23,750 1.36 45.50 5/14/2007 624,316
</TABLE>
- -------------------------
(1) These options, granted under the 1996 Stock Incentive Plan, have a term for
10 years. Pursuant to the terms of these options, 50% vested on January 28,
1998. The remaining options vest on May 14, 2003, subject to accelerated
vesting. These options have an exercise price equal to the average of the
high and low trading prices of Payless Common Stock on the date of grant.
(2) 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 monthly volatility of the price of Payless Common Stock and the stock
prices of the companies included in the Peer Company Group II Index on page
34 for the 10 year period ending January 30, 1998; and (d) dividends at the
rate of $0 per share, the annual dividend rate with respect to a share of
Payless Common Stock on the grant date.
36
<PAGE> 46
The following table presents information with respect to exercised and
unexercised options held by the named executive officers at January 31, 1998:
AGGREGATED STOCK OPTION EXERCISES IN FISCAL 1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
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 ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ----------- -------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven J. Douglass..... 0 $ 0 118,813 81,312 $7,730,271 $5,290,362
Richard A. Jolosky..... 18,750 560,320 88,250 32,000 5,741,766 2,082,000
Duane L. Cantrell...... 0 0 25,844 22,094 1,681,475 1,437,491
Bryan P. Collins....... 0 0 21,219 17,469 1,380,561 1,136,577
Jed L. Norden.......... 0 0 21,250 17,500 1,382,578 1,138,594
Ullrich E. Porzig...... 0 0 17,500 13,750 1,138,594 894,609
</TABLE>
- -------------------------
(1) "In-The-Money Options" are options outstanding at the end of the 1997 fiscal
year for which the fair market value of Payless Common Stock at the end of
the 1997 fiscal year ($65.0625 per share) exceeded the exercise price of
the options.
Long Term Awards. During the 1997 fiscal year, each of the named executive
officers became eligible to receive a potential long-term cash award for the
three fiscal years 1997 to 1999. 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 1997
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM FUTURE
PERFORMANCE OR OTHER PERIOD PAYOUTS UNDER NON-STOCK
NAME UNTIL MATURATION OF PAYOUT PRICE BASED PLAN(1)
---- ------------------------------- ------------------------
<S> <C> <C>
Steven J. Douglass..................... Three Fiscal Year Period $450,000
(1997-1999) Ending 1/29/00
Richard A. Jolosky..................... Three Fiscal Year Period 281,250
(1997-1999) Ending 1/29/00
Duane L. Cantrell...................... Three Fiscal Year Period 130,815
(1997-1999) Ending 1/29/00
Bryan P. Collins....................... Three Fiscal Year Period 135,000
(1997-1999) Ending 1/29/00
Jed L. Norden.......................... Three Fiscal Year Period 120,510
(1997-1999) Ending 1/29/00
Ullrich E. Porzig...................... Three Fiscal Year Period 120,510
(1997-1999) Ending 1/29/00
</TABLE>
- -------------------------
(1) Estimates are based on annual salaries as of January 31, 1998. 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, Payless'
performance compared to the group of peer companies included in Peer
Company Group II Index of the Stock Price Performance graph 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 Committee report on pages 30-33. 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 $1,500,000.
37
<PAGE> 47
Profit Sharing Plans and Supplementary Retirement Plan. Executive officers
of Payless may participate in the Payless ShoeSource, Inc. Profit Sharing Plan.
Contributions to this plan are related to Payless' performance each year.
Subject to management's discretion each year, Payless expects to contribute 2.5%
of its pretax net profits to this plan each year. 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. Employees are also able to
direct that Payless' 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.
Payless does not have a broad-based, defined benefit retirement plan.
Payless 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 Payless' profit sharing plan and, benefits
under retirement plans operated by May Company 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 minimum benefit under the Supplementary Plan is the amount
of benefits provided by Payless which would have been payable under Payless'
profit sharing plan and employer provided benefits under the May Company Profit
Sharing Plan and May Company 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"
(as defined in the Supplementary Plan), vesting would be accelerated in limited
circumstances and benefits would not be forfeitable. Payless plans to establish
a trust which will be funded upon a potential change in control to provide
accrued benefits under the Supplementary Plan and which would, upon an actual
change-in-control, become irrevocable. The Reorganization will not constitute a
change-in-control under the Supplemental Plan.
The following table shows the estimated aggregate annual benefits payable
upon retirement (assuming a retirement in 1997 at age 65) for persons in
specified compensation and years of service classifications covered by Payless'
profit sharing plan and, if eligible, the Supplementary Plan. The individuals
named in the Summary Compensation Table had, as of December 31, 1997, the
following years of service, respectively: Mr. Douglass, 22 years; Mr. Jolosky,
21 years; Mr. Cantrell, 19 years; Mr. Collins, 17 years; Mr. Norden, 13 years;
and Mr. Porzig, 13 years.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------
AVERAGE ANNUAL EARNINGS 20-24 25 OR MORE
----------------------- -------- ----------
<S> <C> <C>
$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
</TABLE>
38
<PAGE> 48
Employment Contracts, Termination of Employment and Change in Control
Arrangements. Each of the named executive officers have individual contracts of
employment with Payless which expire at various dates on or before May 31, 2001,
and which provide for annual base salaries at rates not less than the amounts
reported in the Summary Compensation Table.
Payless has also entered into severance agreements with the executive
officers named in the Summary Compensation Table. The agreements provide that
the executive is entitled to benefits if (i) a change in control of Payless (as
defined in such severance agreement) occurs and (ii) during the 180 days
following such change in control, the executive determines in good faith that as
a result of the change in control he is unable to execute his duties
effectively. Following such 180-day period, employment must be actually or
constructively terminated other than for cause or disability during the term of
such severance agreement for benefits to be payable. Under the severance
agreements, a change in control would include any of the following events: (i)
any "person," as defined in the Exchange Act, acquires 50% or more of Payless'
voting securities; (ii) a majority of Payless' Directors are replaced during a
two-year period; or (iii) shareowners approve certain mergers, or a liquidation,
or sale of all or substantially all of Payless' assets. The Reorganization will
not constitute a "change-of-control" under these severance agreements. The
severance agreements provide a lump sum payment equal to three times the sum of
(i) base salary at termination or, if greater, base salary immediately prior to
the change in control plus (ii) target bonus with maximum share price adjustment
for the year in which the change in control occurs. Each agreement also provides
36 months of continued medical and life insurance benefits and, if the
terminated executive is within five years of his or her eligibility date,
eligibility in Payless' post-retirement life and medical insurance benefits. The
agreements with officers who are subject to Section 16(b) of the Exchange Act
provide for a cash payment in cancellation of stock options. The agreement with
the CEO provides a "tax gross-up" payment to ensure that the above-mentioned
payments are not subject to net reduction due to imposition of excise taxes
which are payable under Section 4999 of the Code. The agreement with the
President of Payless provides for 50% of such payment. Payless plans to
establish a trust which would be funded upon a potential change in control to
provide the benefits under the severance agreements and which would, upon an
actual change in control, become irrevocable.
In addition, in the event of a change in control, (i) amounts deferred
under Payless' 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 shares (including restricted stock
under Payless' Spin-Off Stock Plan) or phantom stock units will lapse and such
shares and units will become fully vested, (iv) any performance units will be
earned and become fully payable, and (v) cash payments under the Spin-Off Cash
Plan will be accelerated. The Reorganization will not constitute a "change of
control" under these plans.
39
<PAGE> 49
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 January 31, 1998
(including shares of Payless Common Stock held in 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 35, and all current Directors,
nominees and executive officers as a group. The shares allocated to the accounts
of named participants in the Payless Profit Sharing Plan constitute
approximately 2% of Payless Common Stock (see note (1) below).
<TABLE>
<CAPTION>
VOTING POWER INVESTMENT POWER
-------------------- ------------------------ PERCENT
NAME SOLE SHARED SOLE SHARED TOTAL OF CLASS
---- ---- ------ ---- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
HOLDER OF MORE THAN FIVE PERCENT OF
COMMON STOCK
FMR Corp. .......................... 357,008 0 4,281,094 0 4,281,094 11.5%
82 Devonshire Street
Boston, MA 02109-3614
Putnam Investments, Inc. ........... 0 258,750 0 3,281,900 3,281,900 8.0%
One P.O. Box Square
Boston, MA 02109
DIRECTORS, NOMINEES AND
EXECUTIVE OFFICERS(1)
Daniel Boggan Jr.................... 1,373 0 93 0 1,373 *
Howard R. Fricke.................... 7,070 0 5,883 0 7,070 *
Thomas A. Hays...................... 39,575 0 38,388 0 39,575 *
Mylle B. Mangum..................... 1,282 0 0 0 1,282 *
Michael E. Murphy................... 3,166 0 1,979 0 3,166 *
Robert L. Stark..................... 3,166 0 1,979 0 3,166 *
Steven J. Douglass.................. 165,632 0 145,632 0 165,632 *
Richard A. Jolosky.................. 79,565 0 65,440 0 79,565 *
Duane L. Cantrell................... 42,111 0 35,336 0 42,111 *
Bryan P. Collins.................... 33,072 0 28,692 0 33,072 *
Jed L. Norden....................... 39,182 464 33,894 464 39,182 *
Ullrich E. Porzig................... 30,248 0 24,957 0 30,248 *
All directors, nominees and
executive officers as a group (21
persons).......................... 658,202 464 555,767 464 658,202 1.7%
</TABLE>
- -------------------------
* Less than one percent.
(1) The Payless Profit Sharing Plan provides for an investment fund which is
invested in shares of Payless Common Stock (the "Payless Profit Sharing Plan
Common Stock Fund"). As of January 31, 1998, the trust under the Payless
Profit Sharing Plan owned approximately 769,476 shares of Payless Common
Stock (approximately 2% 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 Plan.
The shares shown as to which sole voting power is indicated include shares
of restricted stock which have not yet vested, but with respect to which the
individual or group has been granted voting rights; restricted stock which
has not vested is not included in shares as to which investment power is
indicated.
Shares shown as beneficially owned include shares subject to options which
are presently exercisable or which will become exercisable before the Annual
Meeting, as follows: Steven J. Douglass -- 116,625 shares; Richard A.
Jolosky -- 47,625 shares; Duane L. Cantrell -- 27,688 shares; Jed L.
Norden -- 23,125 shares; Ullrich E. Porzig -- 15,625 shares; all directors,
nominees and executive officers as a group -- 395,485 shares.
40
<PAGE> 50
PROPOSAL III: RATIFICATION OF INDEPENDENT
PUBLIC ACCOUNTANTS OF PAYLESS
PROPOSAL III ON THE ACCOMPANYING PROXY CARD.
Upon recommendation of the Audit and Finance Committee, the Payless Board
appointed Arthur Andersen LLP, independent public accountants, as auditors of
Payless and its subsidiaries for the fiscal year ending January 30, 1999,
subject to ratification by the shareowners at the Annual Meeting. It is intended
that, unless otherwise directed by shareowners, proxies will be voted for the
Accountant Proposal.
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.
THE PAYLESS BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PAYLESS COMMON STOCK
VOTE IN FAVOR OF THE ACCOUNTANT PROPOSAL, AND YOUR PROXY WILL BE SO VOTED UNLESS
YOU SPECIFY OTHERWISE.
VALIDITY OF SHARES
The validity of the shares of New Payless Common Stock to be issued in the
Merger will be passed upon by Sullivan & Cromwell, special counsel to Payless
and New Payless, 125 Broad Street, New York, New York 10004.
EXPERTS
The consolidated financial statements incorporated by reference into this
Proxy Statement/Prospectus by reference to the Annual Report on Form 10-K of
Payless for the fiscal year ended January 31, 1998 have been so incorporated in
reliance on the report of Arthur Andersen LLP, independent public accountants,
and on the authority of said firm as experts in auditing and accounting.
OTHER MATTERS
Payless reserves the right, subject to the provisions of the MGCL, to
adjourn or postpone the Annual Meeting one or more times and to continue to
solicit proxies, if insufficient affirmative votes are present in person or by
proxy at the Annual Meeting for the proposal to adopt the Merger Agreement.
Since Payless will no longer be publicly held and New Payless will be the
sole owner of Payless Common Stock after the Merger, there will be no meetings
of shareowners of Payless in 1999 or thereafter to which the public will be
invited.
SECTION 16 FILINGS
Section 16(a) of the Exchange Act requires Payless 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 Payless is required to report in this Proxy
Statement/Prospectus any failure by the Reporting Persons to file by these
dates. During the fiscal year ended January 31, 1998, to Payless' knowledge all
Section 16(a) filing requirements applicable to Reporting Persons were timely
met except that, due to an administrative error made by Payless, the Form 3 of
JoAnn Ogee, Senior Vice President-General Merchandise Manager-Women's, was filed
eight days after its due date and the Form 5 of Gary Stone, a Senior Vice
President, reporting one transaction reportable on Form 5 was filed 22 days
after its due date. In making these statements, Payless has relied solely on a
review of the copies of such reports furnished to it and written representations
by directors and executive officers that no reports other than those reviewed by
Payless were required with respect to such fiscal year.
41
<PAGE> 51
1999 SHAREOWNERS PROPOSAL
If the proposal relating to the adoption of the Merger Agreement is
adopted, then shareowner proposals for the 1999 annual meeting of shareowners of
New Payless must be received at the principal executive offices of New Payless,
3231 South East Sixth Street, Topeka, Kansas, 66607, Attention: Corporate
Secretary, on or prior to December 23, 1998, for inclusion in New Payless' proxy
statement and proxy card for such meeting. If the proposal relating to the
adoption of the Merger Agreement is not adopted then shareowner proposals will
be due by the same date and to the same place, but will be with respect to the
1999 annual meeting of shareowners of Payless.
ADDITIONAL INFORMATION
Payless files an annual report on Form 10-K with the SEC which includes
additional information concerning Payless and its operations. This report,
except for exhibits, will be furnished at no cost to shareowners upon written
request to the Corporate Secretary, Payless ShoeSource, Inc., 3231 S.E. Sixth
Street, Topeka, Kansas 66607-2207.
By Order of the Board of Directors,
William J. Rainey
Secretary
April 21, 1998
42
<PAGE> 52
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
PAYLESS SHOESOURCE, INC.,
PAYLESS SHOESOURCE HOLDINGS, INC.
AND
PAYLESS MERGER CORP.
DATED AS OF APRIL 20, 1998
<PAGE> 53
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of April 20, 1998, among Payless ShoeSource, Inc., a Missouri corporation
(the "Company"), Payless ShoeSource Holdings, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Parent"), and Payless Merger Corp., a
Missouri corporation and a wholly-owned subsidiary of Parent ("Merger Sub").
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger Sub
and the Company have approved the merger of Merger Sub with and into the Company
(the "Merger"), further approved the Merger upon the terms and subject to the
conditions set forth in this Agreement and approved this Agreement;
WHEREAS, Parent and Merger Sub are newly formed corporations organized for
the purpose of participating in the transactions contemplated by this Agreement;
WHEREAS, the Boards of Directors of the Company and Merger Sub have
directed the submission of this Agreement to a vote of their respective
shareholders;
WHEREAS, the Company desires to create a new holding company structure and
permit its shareowners to own equity interests in a Delaware corporation by
consummating the Merger and converting each outstanding Share (as defined
herein) into one share of Parent Common Stock (as defined herein), all in
accordance with the terms of this Agreement;
WHEREAS, for financial accounting purposes, it is intended that the Merger
shall be accounted for as a corporate reorganization under common control
similar to a pooling of interests; and
WHEREAS, the parties will not permit the Effective Time (as defined herein)
to occur prior to May 5, 1998;
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER; EFFECTIVE TIME
1.1. THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time (as defined in Section 1.2) Merger Sub
shall be merged with and into the Company and the separate corporate existence
of Merger Sub shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"), and except as provided herein, the separate corporate existence
of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The Merger shall have the
effects specified in the Missouri General and Business Corporation Law, as
amended (the "MGCL").
1.2. EFFECTIVE TIME. As soon as practicable following the satisfaction of
the conditions set forth in this Agreement, the Company and Merger Sub will
cause Articles of Merger (the "Missouri Articles of Merger") to be executed in
duplicate as provided in Section 351.430 of the MGCL and delivered to the
Secretary of State of Missouri as provided in Section 351.435 of the MGCL. The
Merger shall become effective at the time when the Secretary of State of
Missouri issues a Certificate of Merger attaching to it the Missouri Articles of
Merger (the "Effective Time").
A-1
<PAGE> 54
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. THE CERTIFICATE OF INCORPORATION. The amended and restated
certificate of incorporation of the Company as in effect immediately prior to
the Effective Time shall be the certificate of incorporation of the Surviving
Corporation (the "Charter"), until duly amended as provided therein or by
applicable law, except that Article TENTH shall be deleted in its entirety and
each following Article shall be correspondingly renumbered, Article ELEVENTH
shall be amended by amending each reference therein to Article ELEVENTH to be a
reference to Article TENTH and Articles SECOND, THIRD and FOURTH of the Charter
shall each be amended in their entirety to provide as follows:
"SECOND. The Corporation's registered agent shall be Corporation
Service Company d/b/a CSC-Lawyers Incorporating Service Company at 222
East Dunklin Street, Jefferson City, Missouri 65101.
THIRD. The aggregate number of shares that the Corporation shall have
authority to issue is 10,000,000 shares of Common Stock, par value
$.01 per share.
FOURTH. The number of directors constituting the first Board of
Directors is FIVE (5). The number of directors to constitute all
subsequent Boards of Directors shall be fixed by, or in the manner
provided in, the Corporation's bylaws. Any change in the number of
directors constituting the Board of Directors shall be reported by the
corporation to the Missouri Secretary of State within 30 calendar days
after such change."
2.2. THE BY-LAWS. The by-laws of Merger Sub in effect at the Effective
Time shall be the by-laws of the Surviving Corporation (the "By-Laws"), until
thereafter amended as provided therein or by applicable law.
ARTICLE III
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
3.1. OFFICERS. The officers of the Company at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Certificate of Incorporation or By-laws.
3.2. DIRECTORS. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected and qualified or until their
earlier death, resignation or removal in accordance with the Certificate of
Incorporation or By-laws or as otherwise provided by law.
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
4.1. EFFECT ON CAPITAL STOCK. At the Effective Time, as a result of the
Merger and without any action on the part of Parent, the Company, Merger Sub or
the holder of any capital stock of the Company:
(a) MERGER CONSIDERATION. Each share of the Common Stock, par value
$.01 per share, of the Company (a "Share" or, collectively, the "Shares")
issued and outstanding immediately prior to the Effective Time (other than
Shares owned by any direct or indirect subsidiary of the Company not held
on behalf of third parties or Shares ("Dissenting Shares") that are owned
by stockholders ("Dissenting Stockholders") exercising dissenters' rights
pursuant to Section 351.455 of the MGCL (collectively, "Excluded Shares"))
shall be converted into one share of Common Stock, par value $.01 per
share, of
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Parent ("Parent Common Stock") together with one attached right ("Rights")
to purchase shares of Series A Preferred Stock par value $.01 per share of
Parent which shall have the rights and preferences described in the Rights
Agreement dated as of April 20, 1998 between Parent and UMB Financial Corp.
(b) CANCELLATION OF SHARES AND CERTAIN SHARES OF PARENT COMMON
STOCK. Each share of Parent Common Stock owned by the Company immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the Company, cease to be outstanding, shall be
canceled and retired without payment of any consideration therefor and
shall cease to exist.
(c) MERGER SUB. At the Effective Time, each share of Common Stock,
par value $.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into one share of common
stock of the Surviving Corporation.
(d) OPTIONS. At the Effective Time, each option or right to purchase
(each, a "Company Option") Shares pursuant to any of the Company's
incentive plans or employee benefit plans, including the Company's 1996
Stock Incentive Plan and the Company's Stock Ownership Plan (the "Option
Plans") shall become an option or right to purchase shares of Parent Common
Stock on the same terms as an option or right to purchase Shares under an
Option Plan at an exercise price equal to the exercise price per share of
such Company Option under an Option Plan.
(e) RESTRICTED AND OTHER SHARE BASED AWARDS OR RIGHTS. At the
Effective Time, each right or obligation to receive a Share or payment of
an amount based on a Share under any of the Company's incentive plans or
benefit plans, including the Company's 1996 Stock Incentive Plan,
Restricted Stock Plan for Non-Management Directors, Spin-Off Stock Plan,
Deferred Compensation Plan and Deferred Compensation Plan for
Non-Management Directors shall become a right or obligation, as the case
may be, to receive shares or payment of an amount based on shares of Parent
Common Stock on the same terms as the right or obligation to receive Shares
or payment of an amount based on Shares existed under any of such plans
immediately prior to the Effective Time.
(f) NO SURRENDER OF CERTIFICATES. Until thereafter surrendered for
transfer or exchange in the ordinary course, each outstanding certificate
(other than certificates representing Excluded Shares) that, immediately
prior to the Effective Time, evidenced Company Common Stock shall, from the
Effective Time, be deemed and treated for all corporate purposes to
evidence the ownership of the same number of shares of Parent Common Stock
together with attached Rights.
(g) DISSENTERS' RIGHTS. No Dissenting Stockholder shall be entitled
to shares of Parent Common Stock or any dividends or other distributions
thereon unless and until the holder thereof shall have failed to perfect or
shall have effectively withdrawn or lost such holder's right to dissent
from the Merger Agreement under the MGCL, and any Dissenting Stockholder
shall be entitled to receive only the payment provided by Section 351.455
of the MGCL with respect to Shares owned by such Dissenting Stockholder. If
any person who otherwise would be deemed a Dissenting Stockholder shall
have failed to properly perfect or shall have effectively withdrawn or lost
the right to dissent with respect to any Shares, such Shares shall
thereupon be treated as though such Shares had been converted into shares
of Parent Common Stock pursuant to Section 4.1(a) hereof. The right to
payment pursuant to Section 351.455 of the MGCL shall cease to exist if and
when the Company shall abandon the Merger.
ARTICLE V
ACTIONS TO BE TAKEN IN
CONNECTION WITH THE MERGER
5.1. ASSUMPTION OF PLANS AND AGREEMENTS. Parent and the Company hereby
agree that they shall, at or prior to the Effective Time, execute, acknowledge
and deliver an assumption agreement pursuant to which Parent will, from and
after the Effective Time, be substituted for, assume and agree to perform, or
cause the Company to perform, all obligations of the Company pursuant to any and
all employee benefit plans established or maintained by the Company immediately
prior to the Effective Time, all severance and
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employment agreements in effect immediately prior to the Effective Time between
the Company and an individual named therein and all compensation and incentive
plans established or maintained by the Company immediately prior to the
Effective Time, in each case as Parent and the Company may provide in such
assumption agreement, including the Option Plans, Restricted Stock Plan for
Non-Management Directors, Spin-Off Stock Plan, Profit Sharing Plan, Profit
Sharing Plan for Puerto Rico Associates, Deferred Compensation Plan, Deferred
Compensation Plan for Non-Management Directors and Stock Appreciation and
Phantom Stock Unit Plan for International Employees. In connection with such
assumption and without further action by shareholders of Parent or the Company,
such plans shall be amended such that all references to the Company and the
Shares shall become references to Parent, if provided in the assumption
agreement referred to in the preceding sentence, and Parent Common Stock,
respectively.
ARTICLE VI
CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been duly
approved by holders of at least two-thirds of the issued and outstanding
Shares and shall have been duly approved by Parent as the sole stockholder
of Merger Sub in accordance with applicable law and the certificate of
incorporation and bylaws of each such corporation.
(b) NYSE LISTING. The shares of Parent Common Stock issuable to the
stockholders of the Company pursuant to this Agreement shall have been
authorized for listing on the NYSE upon official notice of issuance.
(c) CLOSING DATE. The date shall be after May 4, 1998. The parties
hereto acknowledge and agree that the condition set forth in this Section
5.1(c) may not be waived.
ARTICLE VII
TERMINATION
7.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company referred to in
Section 6.1(a), by mutual written consent of the Company and Parent by action of
their respective Boards of Directors.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1. MODIFICATION OR AMENDMENT. Subject to the provisions of the
applicable law, at any time prior to the Effective Time, whether before or after
the approval by shareholders of the Company referred to in Section 6.1(a), the
parties hereto may modify or amend this Agreement, by written agreement approved
by the respective parties' Boards of Directors and executed and delivered by
duly authorized officers of the respective parties, except that (i) the parties
may not amend Section 6.1(c) and (ii) no amendment shall alter or change the
amount or kind of shares to be received by shareholders of the Company or
otherwise alter or change any of the terms and conditions of this Agreement so
as to adversely affect the Company's shareholders.
8.2. WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law except for the condition set forth in Section 6.1(c).
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8.3. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
8.4. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL
BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND
GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF MISSOURI WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
8.5. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
PAYLESS SHOESOURCE, INC.
By: /s/ STEVEN J. DOUGLASS
-----------------------------------
Name: Steven J. Douglass
Title: Chairman and Chief Executive
Officer
PAYLESS SHOESOURCE HOLDINGS, INC.
By: /s/ STEVEN J. DOUGLASS
------------------------------------
Name: Steven J. Douglass
Title: Chairman and Chief Executive
Officer
PAYLESS MERGER CORP.
By: /s/ STEVEN J. DOUGLASS
-----------------------------------
Name: Steven J. Douglass
Title: Chairman and Chief Executive
Officer
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<PAGE> 59
ANNEX B
FORM OF
RESTATED CERTIFICATE OF INCORPORATION OF
OF
PAYLESS SHOESOURCE, INC.
<PAGE> 60
RESTATED CERTIFICATE OF INCORPORATION
OF
PAYLESS SHOESOURCE, INC.
Payless ShoeSource, Inc., a Delaware corporation, hereby certifies as
follows:
FIRST. The name of the corporation is Payless ShoeSource, Inc. The date of
filing of its original Certificate of Incorporation with the Secretary of State
was April 15, 1998 under the name Payless ShoeSource Holdings, Inc.
SECOND. This Restated Certificate of Incorporation amends and restates the
Certificate of Incorporation, and has been duly adopted in accordance with the
provisions of Section 245 of the General Corporation Law of the State of
Delaware.
THIRD. The text of the Certificate of Incorporation is hereby restated to
read herein as set forth in full:
FIRST. The name of the corporation is Payless ShoeSource, Inc. (the
"Corporation").
SECOND. The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
THIRD. A. CLASSES AND NUMBER OF SHARES. The aggregate number of shares
that the Corporation shall have authority to issue is two hundred sixty-five
million (265,000,000), consisting of two hundred forty million (240,000,000)
shares of common stock, par value $.01 per share (the "Common Stock"), and
twenty-five million (25,000,000) shares of preferred stock, par value $.01 per
share (the "Preferred Stock").
B. PREFERRED STOCK. Shares of Preferred Stock may be issued in series
from time to time by the Board of Directors, and the Board of Directors is
expressly authorized to fix by resolution or resolutions the designations and
the powers, preferences and rights, and the qualifications, limitations and
restrictions thereof, of the shares of each series of Preferred Stock, including
without limitation the following:
(a) the distinctive serial designation of such series which shall
distinguish it from other series;
(b) the number of shares included in such series, which number may be
increased or decreased from time to time unless otherwise provided by the
board of directors in the resolution or resolutions providing for the issue
of such series;
(c) the dividend rate (or method of determining such rate) payable to
the holders of the shares of such series, any conditions upon which such
dividends shall be paid and the date or dates upon which such dividends
shall be payable;
(d) whether dividends on the shares of such series shall be cumulative
and, in the case of shares of any series having cumulative dividend rights,
the date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative;
(e) the amount or amounts which shall be payable out of the assets of
the corporation to the holders of the shares of such series upon voluntary
or involuntary liquidation, dissolution or winding up the corporation;
(f) the price or prices at which, the period or periods within which
and the terms and conditions upon which the shares of such series may be
redeemed, in whole or in part, at the option of the corporation or at the
option of the holder or holders thereof or upon the happening of a
specified event or events;
(g) the obligation, if any, of the corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price
or prices at which, the period or periods within which and the terms and
conditions upon which the shares of such series shall be redeemed or
purchased, in whole or in part, pursuant to such obligation;
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(h) whether or not the shares of such series shall be convertible or
exchangeable, at any time or times at the option of the holder or holders
thereof or at the option of the corporation or upon the happening of a
specified event or events, into shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
corporation, and the price or prices or rate or rates of exchange or
conversion and any adjustments applicable thereto; and
(i) the voting rights, if any, of the holders of the shares of such
series.
FOURTH. A. NUMBER AND CLASSIFICATION. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, consisting of not less than 3 nor more than 15 directors, the exact
number of directors within such range shall be determined from time to time by
resolution adopted by the affirmative vote of a majority of the entire Board of
Directors. The Board of Directors shall be and is divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors, with the term of office of the directors of one
class expiring each year. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, the directors elected to Class I as of
April 16, 1998 shall serve for a term ending on the date of the annual meeting
next following the end of the calendar year 1998, the directors elected to Class
II as of April 16, 1998 shall serve for a term ending on the date of the annual
meeting next following the end of the calendar year 1999, and the directors
elected to Class III as of April 16, 1998 shall serve for a term ending on the
date of the annual meeting next following the end of the calendar year 2000.
Each director shall hold office until the annual meeting for the year in which
such director's term expires and until such director's successor shall be
elected and qualified, subject, however, to such director's earlier death,
resignation, disqualification or removal from office (in accordance with this
Certificate of Incorporation). In the event of any change in the authorized
number of directors, the Board of Directors shall apportion any newly created
directorships among, or reduce the number of directorships in, such class or
classes as shall, so far as possible, equalize the number of directors in each
class. Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article THIRD applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
Article FOURTH unless expressly provided by such terms.
B. VACANCIES. Any vacancy in the Board of Directors resulting from any
increase in the number of directors and any other vacancy occurring in the Board
of Directors may be filled by the Board of Directors acting by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director, and any director so elected to fill a vacancy shall hold office until
the next election of the class of directors into which such director was placed
and such director's successor is elected and qualified or until such director's
earlier resignation or removal. In no event shall a decrease in the number of
directors shorten the term of any incumbent director.
C. REMOVAL OF DIRECTORS. Subject to the rights, if any, of the holders of
shares of Preferred Stock then outstanding, at a meeting called for that
purpose, any or all of the directors of the Corporation, may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of a majority of the outstanding securities of the Corporation then
entitled to vote generally in the election of directors, considered for purposes
of this Article FOURTH as one class. Whenever the holders of the shares of any
class are entitled to elect one or more directors by the provisions of this
Certificate of Incorporation, the provisions of this Article FOURTH shall apply
in respect of the removal of a director or directors so elected, to the vote of
the holders of the outstanding shares of that class and not to the vote of the
holders of the outstanding shares as a whole.
FIFTH. Elections of directors at an annual or special meeting of
stockholders shall be by written ballot unless the By-Laws of the Corporation
shall otherwise provide.
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SIXTH. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware (the "DGCL").
SEVENTH. The By-Laws of the Corporation may be amended, altered, changed
or rescinded, and new or amended By-Laws adopted, by a vote of a majority of the
entire Board of Directors or by a vote of sixty-six and two-thirds percent
(66 2/3%) of the outstanding securities of the Corporation then entitled to vote
generally in the election of directors.
EIGHTH. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board of Directors, the Chief Executive Officer or the President
of the Corporation. Special meetings of stockholders of the Corporation may not
be called by any other person or persons.
NINTH. Any action required or permitted to be taken by the holders of the
outstanding securities of the Corporation then entitled to vote generally in the
election of directors, must be taken at a meeting of the stockholders and may
not be taken by written consent or consents regardless of whether such consent
or consents are signed by all holders of such securities.
TENTH. A. In addition to any affirmative vote required by the DGCL or
this Certificate of Incorporation or the By-Laws of the Corporation, and except
as otherwise expressly provided in Section B of this Article TENTH, approval of
any Business Combination (as hereinafter defined) with an Interested Stockholder
(as hereinafter defined) shall require the affirmative vote of not less than a
majority of the votes entitled to be cast by the holders of all outstanding
shares of Voting Stock (as hereinafter defined) entitled to vote at a meeting of
stockholders called for such purpose, voting together as a single class,
excluding Voting Stock beneficially owned by any Interested Stockholder or any
Affiliate (as hereinafter defined) or Associate (as hereinafter defined) of such
Interested Stockholder. Such affirmative vote shall be required notwithstanding
the fact that a lesser percentage or separate class vote may be specified, by
the DGCL or in any agreement with any national securities exchange or otherwise.
B. The provisions of Section A of this Article TENTH shall not be
applicable to any Business Combination involving an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder, and such Business
Combination shall require only such affirmative vote, if any, as is required by
law, any other provision of this Certificate of Incorporation of the
Corporation, the By-Laws of the Corporation or otherwise, if:
1. The Business Combination shall have been approved by the Board of
Directors of the Corporation prior to such Interested Stockholder's Stock
Acquisition Date (as hereinafter defined), or the purchase of stock made by
such Interested Stockholder on such Interested Stockholder's Stock
Acquisition Date had been approved by the Board of Directors of the
Corporation prior to such Interested Stockholder's Stock Acquisition Date;
or
2. All of the following conditions shall have been satisfied with
respect to the Business Combination:
(a) The aggregate amount of the cash and the Market Value (as
hereinafter defined) as of the Consummation Date (as hereinafter
defined) of consideration other than cash to be received per share by
holders of outstanding shares of Common Stock of the Corporation in such
Business Combination is at least equal to the greater of the following:
(1) The highest per share price paid by such Interested
Stockholder at a time when such Interested Stockholder was the Owner
(as hereinafter defined), directly or indirectly, of five percent or
more of the outstanding Voting Stock of the Corporation, for any
shares of Common Stock acquired by it within the three-year period
immediately prior to the Announcement Date (as hereinafter defined)
with respect to such Business Combination, or within the three-year
period immediately prior to, or in, the transaction in which such
Interested Stockholder became an Interested Stockholder, whichever is
greater; plus, in either case, interest compounded annually from the
earliest date on which such highest per share acquisition price was
paid through the Consummation Date at the rate for one-year United
States treasury obligations
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from time to time in effect; less the aggregate amount of any cash
dividends paid, and the Market Value of any dividends paid other than
in cash, per share of Common Stock since such earliest date, up to
the amount of the interest calculated; and
(2) The Market Value per share of Common Stock on the
Announcement Date with respect to such Business Combination or on
such Interested Stockholder's Stock Acquisition Date, whichever is
greater; plus interest compounded annually from such date through the
Consummation Date at the rate for one-year United States treasury
obligations from time to time in effect; less the aggregate amount of
any cash dividends paid, and the Market Value of any dividends paid
other than in cash, per share of Common Stock since such date, up to
the amount of the interest calculated;
(b) The aggregate amount of the cash and the Market Value as of the
Consummation Date of consideration other than cash to be received per
share by holders of outstanding shares of any class or series of stock,
other than Common Stock, of the Corporation is at least equal to the
greatest of the following, whether or not such Interested Stockholder
has previously acquired any shares of such class or series of stock:
(1) The greatest per share price paid by such Interested
Stockholder at a time when such Interested Stockholder was the Owner,
directly or indirectly, of five percent or more of the outstanding
Voting Stock of the Corporation, for any shares of such class or
series of stock acquired by such Interested Stockholder within the
three-year period immediately prior to the Announcement Date with
respect to such Business Combination, or within the three-year period
immediately prior to, or in, the transaction in which such Interested
Stockholder became an Interested Stockholder, whichever is greater;
plus, in either case, interest compounded annually from the earliest
date on which such highest per share acquisition price was paid
through the Consummation Date at the rate for one-year United States
treasury obligations from time to time in effect; less the aggregate
amount of any cash dividends paid, and the Market Value of any
dividends paid other than in cash, per share of such class or series
of stock since such earliest date, up to the amount of the interest
calculated;
(2) The highest preferential amount per share to which the
holders of shares of such class or series of stock are entitled in
the event of any voluntary liquidation, dissolution or winding up of
the Corporation, plus the aggregate amount of any dividends declared
or due as to which such holders are entitled prior to payment of
dividends on some other class or series of stock, unless the
aggregate amount of such dividends is included in such preferential
amount; and
(3) The Market Value per share of such class or series of stock
on the Announcement Date with respect to such Business Combination or
on such Interested Stockholder's Stock Acquisition Date, whichever is
greater; plus interest compounded annually from such date through the
Consummation Date at the rate for one-year United States treasury
obligations from time to time in effect; less the aggregate amount of
any cash dividends paid, and the Market Value of any dividends paid
other than in cash, per share of such class or series of stock since
such date, up to the amount of the interest calculated;
(c) The consideration to be received by holders of a particular
class or series of outstanding stock, including Common Stock, of the
Corporation in such Business Combination is in cash or in the same form
as the Interested Stockholder has used to acquire the largest number of
shares of such class or series of stock previously acquired by it, and
such consideration shall be distributed promptly;
(d) The holders of all outstanding shares of stock of the
Corporation not beneficially owned by such Interested Stockholder
immediately prior to the Consummation Date are entitled to receive in
such Business Combination cash or other consideration for such shares in
compliance with paragraphs (a), (b) and (c) of this Section;
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(e) After such Interested Stockholder's Stock Acquisition Date and
prior to the Consummation Date with respect to such Business
Combination, such Interested Stockholder has not become the Owner of any
additional shares of Voting Stock of the Corporation except (i) as part
of the transaction which resulted in such Interested Stockholder
becoming an Interested Stockholder, (ii) by virtue of proportionate
stock splits, stock dividends or other distributions of stock in respect
of stock not constituting a Business Combination under Paragraph (l)(d)
of Section C of this Article TENTH, (iii) through a Business Combination
meeting all of the conditions of this Section B, or (iv) through
purchase by such Interested Stockholder at any price which, if such
price had been paid in an otherwise permissible Business Combination the
Announcement Date and Consummation Date of which were the date of such
purchase, would have satisfied the requirements of paragraphs (a), (b),
and (c) of this Section.
C. For purposes of this Article TENTH:
1. The term "Business Combination" shall mean:
(a) Any merger or consolidation of the Corporation or any direct or
indirect majority-owned subsidiary of the Corporation with (i) an
Interested Stockholder, or (ii) any other corporation, partnership,
unincorporated association or other entity if the merger or
consolidation is caused by the Interested Stockholder;
(b) Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions except
proportionately as a stockholder of the Corporation, to or with an
Interested Stockholder, whether as part of a dissolution or otherwise,
of assets of the Corporation or any direct or indirect majority-owned
subsidiary of the Corporation having an aggregate Market Value equal to
ten percent or more of the aggregate Market Value of all the assets,
determined on a consolidated basis, of the Corporation, or having an
aggregate Market Value equal to ten percent or more of the aggregate
Market Value of all the outstanding stock of the Corporation;
(c) The issuance or transfer by the Corporation or any direct or
indirect majority-owned subsidiary of the Corporation, in one
transaction or a series of transactions, of any stock of the Corporation
or such subsidiary of the Corporation to an Interested Stockholder
except (i) pursuant to the exercise, exchange or conversion of
securities exercisable for, exchangeable for or convertible into stock
of the Corporation or any such subsidiary which securities were
outstanding prior to the time that the Interested Stockholder became
such, (ii) pursuant to a merger under Section 251(g) of the DGCL, (iii)
pursuant to a dividend or distribution paid or made, or the exercise,
exchange or conversion of securities exercisable for, exchangeable for
or convertible into stock of the Corporation or any such subsidiary
which security is distributed, pro rata to all stockholders subsequent
to the time the Interested Stockholder became such, (iv) pursuant to an
exchange offer by the Corporation to purchase stock made on the same
terms to all Stockholders, or (v) any issuance or transfer of stock by
the Corporation, provided however, that in no case under (iii)-(v) above
shall there be an increase in the Interested Stockholder's proportionate
share of the stock of the Corporation or of the Voting Stock of the
Corporation;
(d) Any reclassification of securities, including, without
limitation, any stock split, stock dividend, or other distributions of
stock in respect of stock, or any reverse stock split, or
recapitalization of the Corporation, any transaction involving the
Corporation or any direct or indirect majority-owned subsidiary of the
Corporation which has the effect, directly or indirectly, of increasing
the proportionate share of the stock of any class or series, or
securities convertible into the stock of any class or series, of the
Corporation or any such subsidiary which is owned by such Interested
Stockholder, except as a result of immaterial changes due to fractional
share adjustments or as a result of any purchase or redemption of any
share of stock not caused, directly or indirectly, by the Interested
Stockholder; or
(e) Any receipt by an Interested Stockholder of the benefit,
directly or indirectly, except proportionately as a stockholder of the
Corporation, of any loans, advances, guarantees, pledges or
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other financial benefits provided by or through the Corporation or any
direct or indirect majority-owned subsidiary of the Corporation.
2. The term "Voting Stock" shall mean all shares of capital stock of
the Corporation entitled to vote generally in the election of directors.
3. The term "person" shall mean any individual, corporation,
partnership, unincorporated association or other entity.
4. The term "Interested Stockholder" shall mean any person who:
(a) Is the Owner (as hereinafter defined), directly or indirectly,
of fifteen percent (15%) or more of the outstanding Voting Stock of the
Corporation; or
(b) Is an Affiliate or Associate of the Corporation and at any time
within the three-year period immediately prior to the date in question
was the Owner, directly or indirectly, of fifteen percent (15%) or more
of the then outstanding Voting Stock of the Corporation; and
(c) The Affiliates and Associates of any person described in (a) or
(b) above provided that, for the purpose of determining whether a person
is an Interested Stockholder, the number of shares of Voting Stock of
the Corporation deemed to be outstanding shall include shares deemed to
be owned by the person but shall not include any other unissued shares
of Voting Stock of the Corporation which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
5. The term "Owner" of any capital stock, including the terms "own,"
"owned," and "ownership," means a person who:
(a) Individually or with or through any of its Affiliates or
Associates, beneficially owns such stock, directly or indirectly; or
(b) Individually or with or through any of its Affiliates or
Associates, has (i) the right to acquire such stock, whether such right
is exercisable immediately or only after the passage of time, pursuant
to any agreement, arrangement or understanding, whether or not in
writing, or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise; provided, however, that a person
shall not be deemed the Owner of stock tendered pursuant to a tender or
exchange offer made by such person or any of such person's Affiliates or
Associates until such tendered stock is accepted for purchase or
exchange; or (ii) the right to vote such stock pursuant to any
agreement, arrangement or understanding, whether or not in writing;
provided, however, that a person shall not be deemed the Owner of any
stock under this item if the agreement, arrangement or understanding to
vote such stock arises solely from a revocable proxy or consent given in
response to a proxy or consent solicitation made to ten (10) or more
persons; or
(c) Has any agreement, arrangement or understanding, whether or not
in writing, for the purpose of acquiring, holding, voting, except voting
pursuant to a revocable proxy or consent as described in paragraph (b)
of this subsection, or disposing of such stock with any other person
that beneficially owns or whose Affiliates or Associates beneficially
own, directly or indirectly, such stock.
6. The term "Affiliate" shall mean a person that directly or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, a specified person.
7. The term "Associate," when used to indicate a relationship with any
person, means any corporation, partnership, unincorporated association or
other entity of which such person is an officer or partner or is, directly
or indirectly, the Owner of twenty percent (20%) or more of any class of
Voting Stock, any trust or other estate in which such person has at least a
twenty percent (20%) beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity, and any relative or spouse
of such person, or any relative of such spouse, who has the same residence
as such person.
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8. The term "Consummation Date," with respect to any Business
Combination, means the date of consummation of such Business Combination,
or, in the case of a Business Combination as to which a stockholder vote is
taken, the later of the business day prior to the vote or 20 days prior to
the date of consummation of such Business Combination;
9. The term "control," including the terms "controlling," "controlled
by" and "under common control with," shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting stock, by
contract, or otherwise. A person's ownership of twenty percent (20%) or
more of the outstanding Voting Stock of any corporation, partnership,
unincorporated association or other entity shall create a presumption that
such person has control of such corporation. Notwithstanding the foregoing,
a person shall not be presumed to have control if such person holds Voting
Stock, in good faith and not for the purpose of circumventing this Article,
as an agent, bank, broker, nominee, custodian or trustee for one or more
Owners who do not individually or as a group have control of such
corporation.
10. The term "stock" means:
(a) Any stock or similar security, any certificate of interest, any
participation in any profit sharing agreement, any voting trust
certificate, or any certificate of deposit for stock; and
(b) Any security convertible, with or without consideration, into
stock, or any warrant, call or other option or privilege of buying stock
without being bound to do so, or any other security carrying any right
to acquire, subscribe to or purchase stock;
11. The term "Stock Acquisition Date," with respect to any person and
the Corporation, means the date that such person first becomes an
Interested Stockholder of the Corporation.
12. The term "Market Value" means:
(a) In the case of stock, the highest closing sale price during the
thirty-day period immediately preceding the date in question of a share
of such stock on the composite tape for New York Stock Exchange listed
stocks, or, if such stock is not quoted on such composite tape or if
such stock is not listed on such exchange, on the principal United
States securities exchange on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock during the thirty-day
period preceding the date in question on the National Association of
Securities Dealers, Inc., Automated Quotations System or any system then
in use, or if no such quotations are available, the fair market value on
the date in question of a share of such stock as determined by the Board
of Directors of the Corporation in good faith; and
(b) In the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by
the Board of Directors of the Corporation in good faith.
13. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in Paragraphs (2)(a) and (2)(b) of Section B of this Article TENTH shall
include the shares of Common Stock and/or the shares of any other class or
series of capital stock retained by the holders of such shares.
14. The term "Announcement Date" when used in reference to any
Business Combination, means the date of the first public announcement of
the final proposal for such Business Combination.
ELEVENTH. A. INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS. The
Corporation shall indemnify to the fullest extent authorized or permitted by law
(as now or hereafter in effect) any person made, or threatened to be made, a
party to or otherwise involved in any action or proceeding (whether civil or
criminal or otherwise) by reason of the fact that he, his testator or intestate,
is or was a director or officer of the Corporation or by reason of the fact that
such director or officer, at the request of the Corporation, is or was serving
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, in any capacity. Expenses, including attorneys' fees,
incurred by any such person in defending any such action,
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suit or proceeding shall be paid or reimbursed by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt by it of
an undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation. A director of the Corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that such exemption from liability or
limitation thereof is not permitted under the Delaware General Corporation Law
as currently in effect or as the same may hereafter be amended. The rights
provided to any person by this Article ELEVENTH shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director or officer as provided above.
Nothing contained herein shall affect any rights to indemnification to which
employees other than directors and officers may be entitled by law. No amendment
or repeal of this Article ELEVENTH shall apply to or have any effect on any
right to indemnification provided hereunder with respect to any acts or
omissions occurring prior to such amendment or repeal.
B. INSURANCE, INDEMNIFICATION AGREEMENTS AND OTHER MATTERS. The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plans
or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power to indemnify
such person against such liability under the provisions of the law. The
Corporation may create a trust fund, grant a security interest and/or use other
means (including, without limitation, letters of credit, surety bonds and/or
other similar arrangements), as well as enter into contracts providing for
indemnification to the fullest extent authorized or permitted by law and
including as part thereof any or all of the foregoing, to ensure the payment of
such sums as may become necessary to effect full indemnification.
C. NONEXCLUSIVITY. The rights to indemnification and advancement of
expenses conferred in this Article ELEVENTH shall not be deemed exclusive of any
other right which any person may have or hereafter acquire under any statute,
this Certificate of Incorporation of the Corporation, or the By-Laws or any
agreement, vote of stockholders or directors or otherwise.
TWELFTH. Notwithstanding the fact that a lesser percentage may be
specified by the DGCL, this Certificate of Incorporation or the By-Laws of the
Corporation, any proposal to amend, repeal or adopt any provision of ARTICLES
FOUR, SEVEN, EIGHT, NINE AND TEN of this Certificate of Incorporation shall
require the affirmative vote of the holders of not less than sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of stock of the
Corporation entitled to vote thereon.
IN WITNESS WHEREOF, I have signed this certificate of incorporation this
day of May, 1998.
PAYLESS SHOESOURCE, INC.
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ANNEX C
FORM OF
AMENDED AND RESTATED BY-LAWS
OF
PAYLESS SHOESOURCE, INC.
<PAGE> 69
AMENDED AND RESTATED BY-LAWS
OF
PAYLESS SHOESOURCE, INC.
(Amended and Restated as of May , 1998)
ARTICLE I
OFFICES
Section 1. The registered office of the Corporation in the State of
Delaware shall be at the office of Corporation Service Company at 1013 Centre
Road in the City of Wilmington, County of New Castle, or at such other place
within the State of Delaware as the Board of Directors may at any time and from
time to time designate.
Section 2. The Corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders shall be held either within or
without the State of Delaware as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. The annual meeting of stockholders for the election of
directors shall be held at such place within or without the State of Delaware,
at such hour and on such date, commencing in 1999, not earlier than May 1 in
each year as the Board of Directors may specify in the call of such meeting, at
which meeting the stockholders shall elect directors by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors and to transact such other
business as may properly be brought before the meeting.
Section 3. Except as otherwise required by law, written notice of the
annual meeting stating the place, date and hour of the meeting shall be given by
mail, postage prepaid, not less than ten or more than sixty days before the date
of the meeting, to each stockholder entitled to vote at such meeting at such
address as shall appear on the books of the Corporation.
Section 4. The Secretary of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if, not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept open
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, may be called by persons specified in the Certificate of
Incorporation. The business transacted at a special meeting of stockholders
shall be confined to the purpose or purposes specified in the notice therefore.
Section 6. Except as otherwise required by law, written notice of a
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given by mail, postage
prepaid, not less than ten or more than sixty days before the date of the
meeting, to each stockholder entitled to vote at such meeting at such address as
shall appear on the books of the Corporation.
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Section 7. At each meeting of stockholders, except where otherwise
provided by law or the Certificate of Incorporation or these By-laws, the
holders of a majority of the outstanding shares of stock entitled to vote on a
matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum to take action with respect to that vote on
that matter. Two or more classes or series of stock shall be considered a single
class if the holders thereof are entitled to vote together as a single class at
the meeting. In the absence of a quorum of the holders of any class of stock
entitled to vote on a matter, the holders of such class so present or
represented may, by majority vote, adjourn the meeting of such class from time
to time in the manner provided by Section 8 of Article II of these by-laws until
a quorum of such class shall be so present or represented. Shares of its own
capital stock belonging on the record date for the meeting to the Corporation or
to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
Section 8. Any meeting of stockholders, annual or special, may be
adjourned from time to time, to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. Other than in the election of directors, unless otherwise
provided by law or by the Certificate of Incorporation or these by-laws, the
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote on the subject matter shall be the act
of the stockholders. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy. A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power, regardless of
whether the interest with which it is coupled is an interest in the stock itself
or an interest in the Corporation generally. A stockholder may revoke any proxy
which is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary of the Corporation.
Section 10. Except as otherwise provided by the Certificate of
Incorporation, each stockholder of record shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock of the
Corporation entitled to vote thereat held by such stockholder. Such votes may be
cast in person or by proxy, but no proxy shall be valid after three years from
the date of its execution unless otherwise provided in the proxy. Subject to
applicable law, the Board of Directors shall prescribe the rules and regulations
for voting at all meetings of the stockholders; provided, however, the vote for
the election of directors, and upon the direction of the presiding officer of
the meeting, the vote on any other question before the meeting, shall be by
written ballot.
Section 11. To be properly brought before the annual or any special
stockholders' meeting, business must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before an
annual meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before the annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
(i) delivered to or mailed and (ii) received at the principal executive offices
of the Corporation by the Secretary of the Corporation not less than 75 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 90 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to
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be timely must be so received not later than the close of business on the 15th
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the meeting (i) the text of the proposal to be
presented and a brief written statement of the reasons why such stockholders
favor the proposal, (ii) the name and record address of the stockholder
proposing such business, (iii) the class and number of shares of common stock of
the Corporation which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at the annual or any special meeting except in accordance
with the procedures set forth in this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine and declare, any such business not properly brought before the meeting
shall not be transacted.
Section 12. Except as provided in Section 3 of Article III, only persons
who are nominated in accordance with the following procedures shall be eligible
for election as directors. Nominations of persons for election to the Board of
Directors of the Corporation at the annual meeting may be made at the meeting by
or at the direction of the Board of Directors, by any nominating committee or
person appointed by the Board of Directors or by any stockholders of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 12. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 75 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 90 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs. Such stockholder's notice to the Secretary shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence of
the person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of common stock of the Corporation which are
beneficially owned by the person, and (iv) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, and, if such information is different, the information
regarding such person required by paragraphs (a), (e) and (f) of Item 401 of
Regulation S-K adopted by the Securities and Exchange Commission (or the
corresponding provisions of any regulation subsequently adopted by the
Securities and Exchange Commission applicable to the Corporation); and (b) as to
the stockholder giving the notice (i) the name and record address of the
stockholder and (ii) the class and number of shares of common stock of the
Corporation which are beneficially owned by the stockholder. Such notice shall
be accompanied by the executed consent of each nominee to serve as a director if
so elected. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as a director of the
Corporation.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine and declare, the defective
nomination shall be disregarded.
Section 13. Meetings of stockholders shall be presided over by the
Chairman of the Board, if any, or in the absence of the Chairman of the Board by
the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman
of the Board by the Chief Executive Officer, or in the absence of the Chief
Executive Officer by the President, or in the absence of the President by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary, or in the absence of the Secretary an
Assistant Secretary,
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shall act as secretary of the meeting, but in the absence of the Secretary and
any Assistant Secretary the chairman of the meeting may appoint any person to
act as secretary of the meeting.
The order of business at each such meeting shall be as determined by the
chairman of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments on the affairs of the Corporation, restrictions on entry to such
meeting after the time prescribed for the commencement thereof and the opening
and closing of the voting polls.
Section 14. Prior to any meeting of stockholders, the Board of Directors,
the Chairman of the Board, the Chief Executive Officer, the President or the
person who will be presiding over such meeting shall appoint one or more
inspectors to act at such meeting and make a written report thereof and may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at the meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall ascertain the number of shares
outstanding and the voting power of each, determine the shares represented at
the meeting and the validity of proxies and ballots, count all votes and
ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors and
certify their determination of the number of shares represented at the meeting
and their count of all votes and ballots. The inspectors may appoint or retain
other persons to assist them in the performance of their duties. The date and
time of the opening and closing of the polls for each matter upon which the
stockholders will vote at a meeting shall be announced at the meeting. No
ballot, proxy or vote, nor any revocation thereof or change thereto, shall be
accepted by the inspectors after the closing of the polls. In determining the
validity and counting of proxies and ballots, the inspectors shall be limited to
an examination of the proxies, any envelopes submitted therewith, any
information provided by a stockholder who submits a proxy by telegram, cablegram
or other electronic transmission from which it can be determined that the proxy
was authorized by the stockholder, ballots and the regular books and records of
the Corporation, and they may also consider other reliable information for the
limited purpose of reconciling proxies and ballots submitted by or on behalf of
banks, brokers, their nominees or similar persons which represent more votes
than the holder of a proxy is authorized by the record owner to cast or more
votes than the stockholder holds of record. If the inspectors consider other
reliable information for such purpose, they shall, at the time they make their
certification, specify the precise information considered by them, including the
person or persons from whom they obtained the information, when the information
was obtained, the means by which the information was obtained and the basis for
the inspectors' belief that such information is accurate and reliable.
ARTICLE III
DIRECTORS
Section 1. Except as otherwise required by law or the Certificate of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
Section 2. The number of directors of the Corporation from time to time
shall be fixed in the manner provided in the Certificate of Incorporation.
Section 3. Except as otherwise required by the Certificate of
Incorporation, any vacancy in the Board of Directors resulting from any increase
in the number of directors and any other vacancy occurring in the Board of
Directors may be filled by the Board of Directors acting by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director, and any director so elected to fill a vacancy shall hold office for a
term that shall coincide with the term of the class to which such director shall
have been elected and such director's successor is elected and qualified or
until such director's earlier resignation or removal. Whenever the holders of
any class or classes of stock or series thereof are entitled to elect one or
more directors by the Certificate of Incorporation, vacancies and newly created
directorships of such class or
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classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by the sole remaining
director so elected. In no event shall a decrease in the number of directors
shorten the term of any incumbent director.
Section 4. The Board of Directors may hold its meetings, both regular and
special, and cause the books of the Corporation to be kept, either within or
without the State of Delaware at such place or places as they may from time to
time determine or as otherwise may be provided in these by-laws.
Section 5. Subject to Section 8 of this Article III there shall be an
annual meeting of the Board of Directors on the day of the annual meeting of
stockholders in each year or as soon thereafter as convenient, such annual
meeting to be at such place and time (and, if applicable, on such date) as the
Chairman of the Board or the Chief Executive Officer shall designate by written
notice to the directors, and regular meetings shall be held on such dates and at
such times and places either as the directors shall by resolution provide or as
the Chairman of the Board or the Chief Executive Officer shall designate by
written notice to the directors. Except as provided, no notice of said annual
meeting or such regular meetings of the Board of Directors need be given.
Section 6. Special meetings of the Board of Directors may be called by the
Chairman of the Board, the Chief Executive Officer, the President, the Secretary
or the Treasurer and shall be called by one of the foregoing officers on the
written request of a majority of the entire Board of Directors specifying the
object or objects of such special meeting. In the event that one of the
foregoing officers shall fail to call a meeting within two days after receipt of
such request, such meeting may be called in like manner by the directors making
such request. The person or persons calling the special meeting may fix the
place, either within or without the State of Delaware, as a place for holding
the meeting. Notice of each special meeting, stating the date, place and time of
the meeting and the purpose or purposes for which it is called, shall be
deposited in the regular or overnight mail, sent by telecopy, telegram or
delivered by hand to each director not later than the day preceding the date of
such meeting, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.
Section 7. At all meetings of the Board of Directors a majority of the
entire Board of Directors in office shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by law, the
Certificate of Incorporation or by these by-laws. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Except as otherwise required by the Certificate of
Incorporation or these by-laws, any action required or permitted to be taken by
the Board of Directors at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
the committee as the case may be.
Section 9. Any one or more members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time. Participation in a meeting
pursuant to this Section 9 shall constitute presence in person at such meeting.
Section 10. The Board of Directors may, by resolution passed by a majority
of the entire Board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any committee meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any absent or
disqualified member. Any such committee, to the extent allowed by law and as
provided in the resolution, shall
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have and may exercise all of the powers and authority of the Board of Directors
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 11. Each committee of the Board shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Section 12. Directors and members of committees may receive such
compensation for their services, and such reimbursement of expenses, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefore.
Section 13. No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (a) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee and the Board of Directors or the committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (b) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (c) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
Section 14. As used in these by-laws generally, the term "entire Board of
Directors" means the total number of directors which the Corporation would have
if there were no vacancies.
ARTICLE IV
NOTICES
Section 1. Whenever written notice is required by law, the Certificate of
Incorporation or these by-laws, to be given to any director, committee member or
stockholder, such requirement shall not be construed to mean personal notice,
but such notice may be given in writing, by mail addressed to such director,
committee member or stockholder, at his address as it appears on the records of
the Corporation, with postage thereon prepaid and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States mail.
Written notice may also be given personally or by telecopy, telegram, telex or
cable or by overnight mail. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent of the Corporation that the notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
Section 2. Whenever any notice is required by law, the Certificate of
Incorporation or these by-laws, to be given to any director, committee member or
stockholder, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the certificate of incorporation or these by-laws.
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ARTICLE V
OFFICERS
Section 1. The officers of the Corporation elected by the Board of
Directors shall consist of a Chairman of the Board, a Chief Executive Officer, a
President and a Secretary and such other officers as the Board of Directors may
deem necessary and proper, including, without limitation, one or more Executive
Vice Presidents, one or more Senior Vice Presidents, one or more Vice
Presidents, a Treasurer, and one or more Assistant Secretaries or Assistant
Treasurers. The Board of Directors shall elect the Chairman of the Board, the
Chief Executive Officer, the President and the Secretary at its first meeting
held after each annual meeting of stockholders and may elect such other officers
from time to time as it deems necessary or advisable. Any two or more of such
offices, excepting the offices of President and Secretary, may be held by the
same person, but no officer shall execute, acknowledge, or verify any instrument
on behalf of the Corporation in more than one capacity.
Section 2. The Chairman of the Board, the Chief Executive Officer, the
President and such other officer or officers as the Board may from time to time
by resolution designate may appoint one or more Vice Presidents, a Controller,
and one or more Assistant Controllers, Assistant Secretaries and Assistant
Treasurers, who shall also be officers of the Corporation.
Section 3. The Board of Directors may determine or provide the method of
determining the compensation of all officers.
Section 4. The officers of the Corporation shall hold office until their
successors are chosen and qualify, or until their earlier resignation or
removal. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board of Directors. Any vacancy occurring in any
office of the Corporation that was filled by the Board of Directors pursuant to
Article V, Section 1 also shall be filled by the Board of Directors.
Section 5. Each officer of the Corporation shall be subject to the control
of the Board of Directors and shall have such duties in the management of the
Corporation as may be provided by appropriate resolution of the Board of
Directors and/or provided in these by-laws.
Section 6. Powers of attorney, proxies, waivers of notice of meeting,
consents and other instruments relating to securities owned by the Corporation
may be executed in the name of and on behalf of the Corporation by the Chairman
of the Board, the Chief Executive Officer, the President or any Vice President
and any such officer may, in the name of and on behalf of the Corporation, take
all such action as any such officer may deem advisable to vote in person or by
proxy at any meeting of security holders of any corporation in which the
Corporation may own securities and at any such meeting shall possess and may
exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
Section 7. In the case of the absence of any officer of the Corporation,
or for any other reason that the Board may deem sufficient, the Board of
Directors may delegate the powers or duties of such officer to any other officer
or to any other director, or to any other person for the time being.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. The shares of stock in the Corporation shall be represented by
certificates, provided that the Board of Directors may provide by resolution or
resolutions that some or all of any or all classes or series of the
Corporation's stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate theretofore issued until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board, every holder of stock represented by
certificates, and upon request every holder of uncertificated shares, shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman or Vice Chairman of the Board, if any, or the President or a Vice
President, and
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by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, of the Corporation, representing the number of shares of stock
registered in certificate form owned by such holder. Any signature on such
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
If the Corporation is authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided by law, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Within a reasonable time after the issuance or transfer of
uncertificated shares, the Corporation shall send to the registered owner
thereof a written notice containing the information required by law to be set
forth or stated on certificates or a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. The provisions of this paragraph
will not apply to the common stock of the Corporation so long as and to the
extent that the Corporation shall have only one class of common stock
outstanding.
Except as otherwise expressly provided by law, the rights and obligations
of the holders of uncertificated shares and the rights and obligations of the
holders of certificates representing stock of the same class and series shall be
identical.
Section 2. The Corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or such owner's legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
Section 3. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, and which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors;
provided, however that if the Board of Directors does not set a record date for
the determination of the stockholders entitled to notice of, and to vote at, a
meeting of stockholders, only the stockholders of record at the close of
business on the day next preceding the day on which notice is given (or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held) shall be entitled to notice of, and to vote at, the
meeting and any adjournment of the meeting. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
days prior to such action, and which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board; provided,
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however that if the Board of Directors does not set a record date in relation to
such action, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. All checks or demands for money and all notes and other
obligations of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may at any time and from
time to time designate.
Section 2. The fiscal year of the Corporation shall end on the Saturday
closest to the 31st day of January in each year or shall otherwise be as
determined by the Board of Directors.
Section 3. The Corporation may have a corporate seal which shall have the
name of the Corporation inscribed thereon and shall be in such form as may be
approved from time to time by the Board of Directors and shall be kept by the
Secretary. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
These by-laws may be amended, altered, changed or rescinded, in whole or in
part, or new by-laws may be adopted, in the manner provided in the Certificate
of Incorporation.
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ANNEX D
FORM OF
STOCKHOLDER RIGHTS PROTECTION AGREEMENT
OF
PAYLESS SHOESOURCE HOLDINGS, INC.
<PAGE> 79
================================================================================
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
DATED AS OF
APRIL 20, 1998
BETWEEN
PAYLESS SHOESOURCE HOLDINGS, INC.
AND
UMB BANK, N.A.
AS RIGHTS AGENT
================================================================================
<PAGE> 80
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1 Definitions................................................. 1
ARTICLE II
THE RIGHTS
2.1 Summary of Rights........................................... 5
2.2 Legend on Common Stock Certificates......................... 5
2.3 Exercise of Rights; Separation of Rights.................... 5
2.4 Adjustments to Exercise Price; Number of Rights............. 6
2.5 Date on Which Exercise is Effective......................... 7
Execution, Authentication, Delivery and Dating of Rights
2.6 Certificates................................................ 7
2.7 Registration, Registration of Transfer and Exchange......... 7
2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates... 8
2.9 Persons Deemed Owners....................................... 8
2.10 Delivery and Cancellation of Certificates................... 9
2.11 Agreement of Rights Holders................................. 9
ARTICLE III
ADJUSTMENTS TO THE RIGHTS IN
THE EVENT OF CERTAIN TRANSACTIONS
3.1 Flip-in..................................................... 9
3.2 Flip-over................................................... 11
ARTICLE IV
THE RIGHTS AGENT
4.1 General..................................................... 11
4.2 Merger or Consolidation or Change of Name of Rights Agent... 11
4.3 Duties of Rights Agent...................................... 12
4.4 Change of Rights Agent...................................... 14
ARTICLE V
MISCELLANEOUS
5.1 Redemption.................................................. 14
5.2 Expiration.................................................. 14
5.3 Issuance of New Rights Certificates......................... 14
5.4 Supplements and Amendments.................................. 15
5.5 Fractional Shares........................................... 15
5.6 Rights of Action............................................ 15
5.7 Holder of Rights Not Deemed a Stockholder................... 15
5.8 Notice of Proposed Actions.................................. 15
5.9 Notices..................................................... 16
5.10 Suspension of Exercisability................................ 16
5.11 Costs of Enforcement........................................ 16
5.12 Successors.................................................. 16
5.13 Benefits of this Agreement.................................. 16
5.14 Determination and Actions by the Board of Directors, etc.... 17
5.15 Descriptive Headings........................................ 17
5.16 Governing Law............................................... 17
</TABLE>
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<PAGE> 81
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.17 Counterparts................................................ 17
5.18 Severability................................................ 17
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
Exhibit A Form of Rights Certificate
(Together with Form of Election to Exercise)
Exhibit B Form of Certificate of Designation and Terms of
Participating Preferred Stock
</TABLE>
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<PAGE> 82
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
STOCKHOLDER PROTECTION RIGHTS AGREEMENT (as amended from time to time, this
"Agreement"), dated as of April 20, 1998, between Payless ShoeSource Holdings,
Inc., a Delaware corporation (the "Company"), and UMB Bank, N.A., a national
banking association organized and existing under the laws of the United States
of America, as rights agent (the "Rights Agent", which term shall include any
successor Rights Agent hereunder).
WITNESSETH:
WHEREAS, the Board of Directors of the Company has (a) authorized and
declared a dividend of one right ("Right") in respect of each share of Common
Stock (as hereinafter defined) held of record as of the close of business on May
21, 1998 (the "Record Time") and (b) as provided in Section 2.4, authorized the
issuance of one Right in respect of each share of Common Stock issued after the
Record Time and prior to the Separation Time (as hereinafter defined) and, to
the extent provided in Section 5.3, each share of Common Stock issued after the
Separation Time;
WHEREAS, subject to the terms and conditions hereof, each Right entitles
the holder thereof, after the Separation Time, to purchase securities or assets
of the Company (or, in certain cases, securities of certain other entities)
pursuant to the terms and subject to the conditions set forth herein; and
WHEREAS, the Company desires to appoint the Rights Agent to act on behalf
of the Company, and the Rights Agent is willing so to act, in connection with
the issuance, transfer, exchange and replacement of Rights Certificates (as
hereinafter defined), the exercise of Rights and other matters referred to
herein;
NOW THEREFORE, in consideration of the premises and the respective
agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms have
the meanings indicated:
"Acquiring Person" shall mean any Person who is a Beneficial Owner of 15%
or more of the outstanding shares of Common Stock; provided, however, that the
term "Acquiring Person" shall not include any Person (i) who is the Beneficial
Owner of 15% or more of the outstanding shares of Common Stock on the date of
this Agreement or who shall become the Beneficial Owner of 15% or more of the
outstanding shares of Common Stock solely as a result of an acquisition by the
Company of shares of Common Stock, until such time hereafter or thereafter as
any of such Persons shall become the Beneficial Owner (other than by means of a
stock dividend or stock split) of any additional shares of Common Stock, (ii)
who becomes the Beneficial Owner of 15% or more of the outstanding shares of
Common Stock but who acquired Beneficial Ownership of shares of Common Stock
without any plan or intention to seek or affect control of the Company, if such
Person promptly enters into an irrevocable commitment to divest, and thereafter
promptly divests (without exercising or retaining any power, including voting,
with respect to such shares), sufficient shares of Common Stock (or securities
convertible into, exchangeable into or exercisable for Common Stock) so that
such Person ceases to be the Beneficial Owner of 15% or more of the outstanding
shares of Common Stock or (iii) who Beneficially Owns shares of Common Stock
consisting solely of one or more of (A) shares of Common Stock Beneficially
Owned pursuant to the grant or exercise of an option granted to such Person (an
"Option Holder") by the Company in connection with an agreement to merge with,
or acquire, the Company entered into prior to a Flip-in Date, (B) shares of
Common Stock (or securities convertible into, exchangeable into or exercisable
for Common Stock), Beneficially Owned by such Option Holder or its Affiliates or
Associates at the time of grant of such option, and (C) shares of Common Stock
(or securities convertible into, exchangeable into or exercisable for Common
Stock) acquired by Affiliates or Associates of such Option Holder after the time
of such grant which, in the aggregate, amount to less than 1% of the outstanding
shares of Common Stock. In addition, Payless, the Company, any wholly-owned
Subsidiary of the Company and any
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<PAGE> 83
employee stock ownership or other employee benefit plan of the Company or a
wholly-owned Subsidiary of the Company shall not be an Acquiring Person.
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 under the Exchange Act, as such Rule is in effect on
the date of this Agreement.
"Agreement" shall have the meaning set forth in the preamble.
A Person shall be deemed the "Beneficial Owner", and to have "Beneficial
Ownership" of, and to "Beneficially Own", any securities as to which such Person
or any of such Person's Affiliates or Associates is or may be deemed to be the
beneficial owner of pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, as
such Rules are in effect on the date of this Agreement, as well as any
securities as to which such Person or any of such Person's Affiliates or
Associates has the right to become Beneficial Owner (whether such right is
exercisable immediately or only after the passage of time or the occurrence of
conditions) pursuant to any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner", or to have "Beneficial Ownership" of, or to
"Beneficially Own", any security (i) solely because such security has been
tendered pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered security is accepted
for payment or exchange or (ii) solely because such Person or any of such
Person's Affiliates or Associates has or shares the power to vote or direct the
voting of such security pursuant to a revocable proxy given in response to a
public proxy or consent solicitation made to more than ten holders of shares of
a class of stock of the Company registered under Section 12 of the Exchange Act
and pursuant to, and in accordance with, the applicable rules and regulations
under the Exchange Act, except if such power (or the arrangements relating
thereto) is then reportable under Item 6 of Schedule 13D under the Exchange Act
(or any similar provision of a comparable or successor report). For purposes of
this Agreement, in determining the percentage of the outstanding shares of
Common Stock with respect to which a Person is the Beneficial Owner, all shares
as to which such Person is deemed the Beneficial Owner shall be deemed
outstanding.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in Kansas City, Missouri are generally authorized or
obligated by law or executive order to close.
"Close of business" on any given date shall mean 5:00 p.m. New York City
time on such date or, if such date is not a Business Day, 5:00 p.m. New York
City time on the next succeeding Business Day.
"Common Stock" shall mean the shares of Common Stock, par value $.01 per
share, of the Company.
"Company" shall have the meaning set forth in the preamble.
"Effective Time" shall mean the effective time of the merger of Payless and
Payless Merger Corp., a Missouri corporation.
"Election to Exercise" shall have the meaning set forth in Section 2.3(d)
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Ratio" shall have the meaning set forth in Section 3.1(c) hereof.
"Exchange Time" shall mean the time at which the right to exercise the
Rights shall terminate pursuant to Section 3.1(c) hereof.
"Exercise Price" shall mean, as of any date, the price at which a holder
may purchase the securities issuable upon exercise of one whole Right. Until
adjustment thereof in accordance with the terms hereof, the Exercise Price shall
equal $250.
"Expansion Factor" shall have the meaning set forth in Section 2.4(a)
hereof.
"Expiration Time" shall mean the earliest of (i) the Exchange Time, (ii)
the Redemption Time, (iii) the close of business on the tenth anniversary of the
Record Time and (iv) immediately prior to the effective time of a consolidation,
merger or share exchange of the Company (A) into another corporation or (B) with
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another corporation in which the Company is the surviving corporation but Common
Stock is converted into cash and/or securities of another corporation, in either
case pursuant to an agreement entered into by the Company prior to a Stock
Acquisition Date.
"Flip-in Date" shall mean any Stock Acquisition Date or such later date as
the Board of Directors of the Company may from time to time fix by resolution
adopted prior to the Flip-in Date that would otherwise have occurred.
"Flip-over Entity," for purposes of Section 3.2, shall mean (i) in the case
of a Flip-over Transaction or Event described in clause (i) of the definition
thereof, the Person issuing any securities into which shares of Common Stock are
being converted or exchanged and, if no such securities are being issued, the
other party to such Flip-over Transaction or Event and (ii) in the case of a
Flip-over Transaction or Event referred to in clause (ii) of the definition
thereof, the Person receiving the greatest portion of the (A) assets or (B)
operating income or cash flow being transferred in such Flip-over Transaction or
Event, provided in all cases if such Person is a subsidiary of a corporation,
the parent corporation shall be the Flip-Over Entity.
"Flip-over Stock" shall mean the capital stock (or similar equity interest)
with the greatest voting power in respect of the election of directors (or other
persons similarly responsible for direction of the business and affairs) of the
Flip-Over Entity.
"Flip-over Transaction or Event" shall mean a transaction or series of
transactions after a Flip-in Date in which, directly or indirectly, (i) the
Company shall consolidate or merge or participate in a share exchange with any
other Person if, at the time of the consolidation, merger or share exchange or
at the time the Company enters into any agreement with respect to any such
consolidation, merger or share exchange, the Acquiring Person Controls the Board
of Directors of the Company and either (A) any term of or arrangement concerning
the treatment of shares of capital stock in such consolidation, merger or share
exchange relating to the Acquiring Person is not identical to the terms and
arrangements relating to other holders of the Common Stock or (B) the Person
with whom the transaction or series of transactions occurs is the Acquiring
Person or an Affiliate or Associate of the Acquiring Person or (ii) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer) assets (A) aggregating more than 50% of the assets
(measured by either book value or fair market value) or (B) generating more than
50% of the operating income or cash flow, of the Company and its Subsidiaries
(taken as a whole) to any Person (other than the Company or one or more of its
wholly owned Subsidiaries) or to two or more such Persons which are Affiliates
or Associates or otherwise acting in concert, if, at the time of the entry by
the Company (or any such Subsidiary) into an agreement with respect to such sale
or transfer of assets, the Acquiring Person Controls the Board of Directors of
the Company. An Acquiring Person shall be deemed to Control the Company's Board
of Directors when, following a Flip-in Date, the persons who were directors of
the Company (or persons nominated and/or appointed as directors by vote of a
majority of such persons) before the Stock Acquisition Date shall cease to
constitute a majority of the Company's Board of Directors.
"Market Price" per share of any securities on any date shall mean the
average of the daily closing prices per share of such securities (determined as
described below) on each of the 20 consecutive Trading Days through and
including the Trading Day immediately preceding such date; provided, however,
that if an event of a type analogous to any of the events described in Section
2.4 hereof shall have caused the closing prices used to determine the Market
Price on any Trading Days during such period of 20 Trading Days not to be fully
comparable with the closing price on such date, each such closing price so used
shall be appropriately adjusted in order to make it fully comparable with the
closing price on such date. The closing price per share of any securities on any
date shall be the last reported sale price, regular way, or, in case no such
sale takes place or is quoted on such date, the average of the closing bid and
asked prices, regular way, for each share of such securities, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange, Inc.
or, if the securities are not listed or admitted to trading on the New York
Stock Exchange, Inc., as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the securities are listed or admitted to trading
or, if the securities are not listed or admitted to trading on any national
securities exchange, as reported by the National Association of Securities
Dealers, Inc.
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Automated Quotation System or such other system then in use, or, if on any such
date the securities are not listed or admitted to trading on any national
securities exchange or quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the securities selected by the Board of Directors of the Company;
provided, however, that if on any such date the securities are not listed or
admitted to trading on a national securities exchange or traded in the over-the-
counter market, the closing price per share of such securities on such date
shall mean the fair value per share of securities on such date as determined in
good faith by the Board of Directors of the Company, after consultation with a
nationally recognized investment banking firm, and set forth in a certificate
delivered to the Rights Agent.
"Option Holder" shall have the meaning set forth in the definition of
Acquiring Person.
"Payless" shall mean Payless ShoeSource, Inc., a Missouri corporation.
"Person" shall mean any individual, firm, partnership, association, group
(as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934,
as such Rule is in effect on the date of this Agreement), corporation or other
entity.
"Preferred Stock" shall mean the Series A Preferred Stock, par value $.01
per share, of the Company to be created by a Certificate of Designation and
Terms in substantially the form set forth in Exhibit B hereto appropriately
completed.
"Record Time" shall have the meaning set forth in the Recitals.
"Redemption Price" shall mean an amount equal to one cent, $0.01.
"Redemption Time" shall mean the time at which the right to exercise the
Rights shall terminate pursuant to Section 5.1 hereof.
"Right" shall have the meaning set forth in the Recitals.
"Rights Agent" shall have the meaning set forth in the Preamble.
"Rights Certificate" shall have the meaning set forth in Section 2.3(c)
hereof.
"Rights Register" shall have the meaning set forth in Section 2.7(a)
hereof.
"Separation Time" shall mean the close of business on the earlier of (i)
the tenth business day (or such earlier or later date as the Board of Directors
of the Company may from time to time fix by resolution adopted prior to the
Separation Time that would otherwise have occurred) after the date on which any
Person commences a tender or exchange offer which, if consummated, would result
in such Person's becoming an Acquiring Person and (ii) the Flip-in Date;
provided, that if any tender or exchange offer referred to in clause (i) of this
paragraph is cancelled, terminated or otherwise withdrawn prior to the
Separation Time without the purchase of any shares of Common Stock pursuant
thereto, such offer shall be deemed, for purposes of this paragraph, never to
have been made.
"Stock Acquisition Date" shall mean the close of business on the first date
of public announcement by the Company (by any means) that a Person has become an
Acquiring Person.
"Subsidiary" of any specified Person shall mean any corporation or other
entity of which a majority of the voting power of the equity securities or a
majority of the equity interest is Beneficially Owned, directly or indirectly,
by such Person.
"Trading Day," when used with respect to any securities, shall mean a day
on which the New York Stock Exchange, Inc. is open for the transaction of
business or, if such securities are not listed or admitted to trading on the New
York Stock Exchange, Inc., a day on which the principal national securities
exchange on which such securities are listed or admitted to trading is open for
the transaction of business or, if such securities are not listed or admitted to
trading on any national securities exchange, a Business Day.
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ARTICLE II
THE RIGHTS
2.1 Summary of Rights. As soon as practicable after the Effective Time, the
Company will mail a letter summarizing the terms of the Rights to each holder of
record of Common Stock immediately following the Effective Time, at such
holder's address as shown by the records of the Company and shall provide a copy
of such letter to the Rights Agent.
2.2 Legend on Common Stock Certificates. Certificates for the Common Stock
issued after the Record Time but prior to the Separation Time shall evidence one
Right for each share of Common Stock represented thereby and shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
Until the Separation Time (as defined in the Rights Agreement referred to
below), this certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement, dated as of April 20,
1998 (as such may be amended from time to time, the "Rights Agreement"),
between Payless Shoe Source Holdings, Inc. (the "Company") and UMB Bank,
N.A., as Rights Agent, the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices
of the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights may be redeemed, may become exercisable for
securities or assets of the Company or securities of another entity, may be
exchanged for shares of Common Stock or other securities or assets of the
Company, may expire, may become void (if they are "Beneficially Owned" by
an "Acquiring Person" or an Affiliate or Associate thereof, as such terms
are defined in the Rights Agreement, or by any transferee of any of the
foregoing) or may be evidenced by separate certificates and may no longer
be evidenced by this certificate. The Company will mail or arrange for the
mailing of a copy of the Rights Agreement to the holder of this certificate
without charge after the receipt of a written request therefor.
Certificates representing shares of Common Stock that are issued and outstanding
at the Record Time shall evidence one Right for each share of Common Stock
evidenced thereby notwithstanding the absence of the foregoing legend.
2.3 Exercise of Rights; Separation of Rights. (a) Subject to Sections 3.1,
5.1 and 5.10 and subject to adjustment as herein set forth, each Right will
entitle the holder thereof, after the Separation Time and prior to the
Expiration Time, to purchase, for the Exercise Price, one one-hundredth of a
share of Preferred Stock.
(b) Until the Separation Time, (i) no Right may be exercised and (ii) each
Right will be evidenced by the certificate for the associated share of Common
Stock (together, in the case of certificates issued prior to the Record Time,
with the letter mailed to the record holder thereof pursuant to Section 2.1) and
will be transferable only together with, and will be transferred by a transfer
(whether with or without such letter) of, such associated share.
(c) Subject to the terms and conditions hereof, after the Separation Time
and prior to the Expiration Time, the Rights (i) may be exercised and (ii) may
be transferred independent of shares of Common Stock. Promptly following the
Separation Time, the Rights Agent will mail to each holder of record of Common
Stock as of the Separation Time (other than any Person whose Rights have become
void pursuant to Section 3.1(b)), at such holder's address as shown by the
records of the Company (the Company hereby agreeing to furnish copies of such
records to the Rights Agent for this purpose), (x) a certificate (a "Rights
Certificate") in substantially the form of Exhibit A hereto appropriately
completed, representing the number of Rights held by such holder at the
Separation Time and having such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any national securities
exchange or quotation system on which the Rights may from time to time be listed
or traded, or to conform to usage, and (y) a disclosure statement describing the
Rights.
(d) Subject to the terms and conditions hereof, Rights may be exercised on
any Business Day after the Separation Time and prior to the Expiration Time by
submitting to the Rights Agent at the principal office of
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the Rights Agent in New York City the Rights Certificate evidencing such Rights
with an Election to Exercise (an "Election to Exercise") substantially in the
form attached to the Rights Certificate duly completed, accompanied by a
signature guarantee and such other documents as the Rights Agent may reasonably
request, together with payment in cash, or by certified or official bank check
or money order payable to the order of the Company, of a sum equal to the
Exercise Price multiplied by the number of Rights being exercised and a sum
sufficient to cover any transfer tax or charge which may be payable in respect
of any transfer involved in the transfer or delivery of Rights Certificates or
the issuance or delivery of certificates for shares or depositary receipts (or
both) in a name other than that of the holder of the Rights being exercised.
(e) Upon receipt of a Rights Certificate, with an Election to Exercise
accompanied by payment as set forth in Section 2.3(d), and subject to the terms
and conditions hereof, the Rights Agent will thereupon promptly (i)(A)
requisition from any transfer agent stock certificates evidencing such number of
shares or other securities to be purchased (the Company hereby irrevocably
authorizing its transfer agents to comply with all such requisitions) and (B) if
the Company elects pursuant to Section 5.5 not to issue certificates
representing fractional shares, requisition from the depositary selected by the
Company depositary receipts representing the fractional shares to be purchased
or requisition from the Company the amount of cash to be paid in lieu of
fractional shares in accordance with Section 5.5 and (ii) after receipt of such
certificates, depositary receipts and/or cash, deliver the same to or upon the
order of the registered holder of such Rights Certificate, registered (in the
case of certificates or depositary receipts) in such name or names as may be
designated by such holder.
(f) In case the holder of any Rights shall exercise less than all the
Rights evidenced by such holder's Rights Certificate, a new Rights Certificate
evidencing the Rights remaining unexercised will be issued by the Rights Agent
to such holder or to such holder's duly authorized assigns.
(g) The Company covenants and agrees that it will (i) take all such action
as may be necessary to ensure that all shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such shares (subject to
payment of the Exercise Price), be duly and validly authorized, executed, issued
and delivered and fully paid and nonassessable; (ii) take all such action as may
be necessary to comply with any applicable requirements of the Securities Act of
1933 or the Exchange Act, and the rules and regulations thereunder, and any
other applicable law, rule or regulation, in connection with the issuance of any
shares upon exercise of Rights; and (iii) pay when due and payable any and all
federal and state transfer taxes and charges which may be payable in respect of
the original issuance or delivery of the Rights Certificates or of any shares
issued upon the exercise of Rights, provided, that the Company shall not be
required to pay any transfer tax or charge which may be payable in respect of
any transfer involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of certificates for shares in a name other than that of the
holder of the Rights being transferred or exercised.
2.4 Adjustments to Exercise Price; Number of Rights. (a) In the event the
Company shall at any time after the Record Time and prior to the Separation Time
(i) declare or pay a dividend on Common Stock payable in Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares of Common Stock, (x) the Exercise Price in
effect after such adjustment will be equal to the Exercise Price in effect
immediately prior to such adjustment divided by the number of shares of Common
Stock (the "Expansion Factor") that a holder of one share of Common Stock
immediately prior to such dividend, subdivision or combination would hold
thereafter as a result thereof and (y) each Right held prior to such adjustment
will become that number of Rights equal to the Expansion Factor, and the
adjusted number of Rights will be deemed to be distributed among the shares of
Common Stock with respect to which the original Rights were associated (if they
remain outstanding) and the shares issued in respect of such dividend,
subdivision or combination, so that each such share of Common Stock will have
exactly one Right associated with it. Each adjustment made pursuant to this
paragraph shall be made as of the payment or effective date for the applicable
dividend, subdivision or combination.
In the event the Company shall at any time after the Record Time and prior
to the Separation Time issue any shares of Common Stock otherwise than in a
transaction referred to in the preceding paragraph, each such share of Common
Stock so issued shall automatically have one new Right associated with it, which
Right shall
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be evidenced by the certificate representing such share. To the extent provided
in Section 5.3, Rights shall be issued by the Company in respect of shares of
Common Stock that are issued or sold by the Company after the Separation Time.
(b) In the event the Company shall at any time after the Record Time and
prior to the Separation Time issue or distribute any securities or assets in
respect of, in lieu of or in exchange for Common Stock (other than pursuant to a
regular periodic cash dividend or a dividend paid solely in Common Stock)
whether by dividend, in a reclassification or recapitalization (including any
such transaction involving a merger, consolidation or share exchange), or
otherwise, the Company shall make such adjustments, if any, in the Exercise
Price, number of Rights and/or securities or other property purchasable upon
exercise of Rights as the Board of Directors of the Company, in its sole
discretion, may deem to be appropriate under the circumstances in order to
adequately protect the interests of the holders of Rights generally, and the
Company and the Rights Agent shall amend this Agreement as necessary to provide
for such adjustments.
(c) Each adjustment to the Exercise Price made pursuant to this Section 2.4
shall be calculated to the nearest cent. Whenever an adjustment to the Exercise
Price is made pursuant to this Section 2.4, the Company shall (i) promptly
prepare a certificate setting forth such adjustment and a brief statement of the
facts accounting for such adjustment and (ii) promptly file with the Rights
Agent and with each transfer agent for the Common Stock a copy of such
certificate.
(d) Rights certificates shall represent the securities purchasable under
the terms of this Agreement, including any adjustment or change in the
securities purchasable upon exercise of the Rights, even though such
certificates may continue to express the securities purchasable at the time of
issuance of the initial Rights Certificates.
2.5 Date on Which Exercise is Effective. Each person in whose name any
certificate for shares is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the shares represented
thereby on the date upon which the Rights Certificate evidencing such Rights was
duly surrendered and payment of the Exercise Price for such Rights (and any
applicable taxes and other governmental charges payable by the exercising holder
hereunder) was made; provided, however, that if the date of such surrender and
payment is a date upon which the stock transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the stock transfer books of the Company are open.
2.6 Execution, Authentication, Delivery and Dating of Rights
Certificates. (a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, Chief Executive Officer, President or one
of its Vice Presidents, under its corporate seal reproduced thereon attested by
its Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Rights Certificates may be manual or facsimile.
Rights Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the countersignature and delivery of such Rights
Certificates.
Promptly after the Separation Time, the Company will notify the Rights
Agent of such Separation Time and will deliver Rights Certificates executed by
the Company to the Rights Agent for counter-signature, and, subject to Section
3.1(b), the Rights Agent shall manually countersign and deliver such Rights
Certificates to the holders of the Rights pursuant to Section 2.3(c) hereof. No
Rights Certificate shall be valid for any purpose unless manually countersigned
by the Rights Agent.
(b) Each Rights Certificate shall be dated the date of countersignature
thereof.
2.7 Registration, Registration of Transfer and Exchange. (a) After the
Separation Time, the Company will cause to be kept a register (the "Rights
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company will provide for the registration and transfer of Rights. The Rights
Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the
Rights Register for the Company and registering Rights and transfers of Rights
after the Separation Time as herein provided. In the event that the
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Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have
the right to examine the Rights Register at all reasonable times after the
Separation Time.
After the Separation Time and prior to the Expiration Time, upon surrender
for registration of transfer or exchange of any Rights Certificate, and subject
to the provisions of Section 2.7(c) and (d), the Company will execute, and the
Rights Agent will countersign and deliver, in the name of the holder or the
designated transferee or transferees, as required pursuant to the holder's
instructions, one or more new Rights Certificates evidencing the same aggregate
number of Rights as did the Rights Certificate so surrendered.
(b) Except as otherwise provided in Section 3.1(b), all Rights issued upon
any registration of transfer or exchange of Rights Certificates shall be the
valid obligations of the Company, and such Rights shall be entitled to the same
benefits under this Agreement as the Rights surrendered upon such registration
of transfer or exchange.
(c) Every Rights Certificate surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company or the Rights Agent, as the case
may be, duly executed by the holder thereof or such holder's attorney duly
authorized in writing. As a condition to the issuance of any new Rights
Certificate under this Section 2.7, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto.
(d) The Company shall not be required to register the transfer or exchange
of any Rights after such Rights have become void under Section 3.1(b), been
exchanged under Section 3.1(c) or been redeemed under Section 5.1.
2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates. (a) If any
mutilated Rights Certificate is surrendered to the Rights Agent prior to the
Expiration Time, then, subject to Sections 3.1(b), 3.1(c) and 5.1, the Company
shall execute and the Rights Agent shall countersign and deliver in exchange
therefor a new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so surrendered.
(b) If there shall be delivered to the Company and the Rights Agent prior
to the Expiration Time (i) evidence to their satisfaction of the destruction,
loss or theft of any Rights Certificate and (ii) such security or indemnity as
may be required by them to save each of them and any of their agents harmless,
then, subject to Sections 3.1(b), 3.1(c) and 5.1 and in the absence of notice to
the Company or the Rights Agent that such Rights Certificate has been acquired
by a bona fide purchaser, the Company shall execute and upon its request the
Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost
or stolen Rights Certificate, a new Rights Certificate evidencing the same
number of Rights as did the Rights Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate under this
Section 2.8, the Company may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Rights Agent)
connected therewith.
(d) Every new Rights Certificate issued pursuant to this Section 2.8 in
lieu of any destroyed, lost or stolen Rights Certificate shall evidence an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Rights Certificate shall be at any time enforceable by
anyone, and, subject to Section 3.1(b) shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Rights duly
issued hereunder.
2.9 Persons Deemed Owners. Prior to due presentment of a Rights Certificate
(or, prior to the Separation Time, the associated Common Stock certificate) for
registration of transfer, the Company, the Rights Agent and any agent of the
Company or the Rights Agent may deem and treat the person in whose name such
Rights Certificate (or, prior to the Separation Time, such Common Stock
certificate) is registered on the Rights Register maintained by the Rights Agent
as the absolute owner thereof and of the Rights evidenced thereby for all
purposes whatsoever, including the payment of the Redemption Price and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary. As used in this Agreement,
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unless the context otherwise requires, the term "holder" of any Rights shall
mean the registered holder of such Rights (or, prior to the Separation Time, the
associated shares of Common Stock) as recorded on the Rights Register maintained
by the Rights Agent.
2.10 Delivery and Cancellation of Certificates. All Rights Certificates
surrendered upon exercise or for registration of transfer or exchange shall, if
surrendered to any person other than the Rights Agent, be delivered to the
Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent.
The Company may at any time deliver to the Rights Agent for cancellation any
Rights Certificates previously countersigned and delivered hereunder which the
Company may have acquired in any manner whatsoever, and all Rights Certificates
so delivered shall be promptly cancelled by the Rights Agent and a certificate
of cancellation shall be delivered by the Rights Agent to the Company. No Rights
Certificates shall be countersigned in lieu of or in exchange for any Rights
Certificates cancelled as provided in this Section 2.10, except as expressly
permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights
Certificates, in accordance with applicable law, and shall deliver a certificate
of destruction to the Company, if destroyed.
2.11 Agreement of Rights Holders. Every holder of Rights by accepting the
same consents and agrees with the Company and the Rights Agent and with every
other holder of Rights that:
(a) prior to the Separation Time, each Right will be transferable only
together with, and will be transferred by a transfer of, the associated
share of Common Stock;
(b) after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;
(c) prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated Common Stock certificate) for registration
of transfer, the Company, the Rights Agent and any agent of the Company or
the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Separation Time, the associated Common Stock
certificate) is registered on the Rights Register maintained by the Rights
Agent as the absolute owner thereof and of the Rights evidenced thereby for
all purposes whatsoever, and neither the Company nor the Rights Agent shall
be affected by any notice to the contrary;
(d) Rights beneficially owned by certain Persons will, under the
circumstances set forth in Section 3.1(b), become void; and
(e) this Agreement may be supplemented or amended from time to time
pursuant to Section 2.4(b) or 5.4 hereof.
ARTICLE III
ADJUSTMENTS TO THE RIGHTS IN
THE EVENT OF CERTAIN TRANSACTIONS
3.1 Flip-in. (a) In the event that prior to the Expiration Time a Flip-in
Date shall occur, except as provided in this Section 3.1, each Right shall
constitute the right to purchase from the Company, upon exercise thereof in
accordance with the terms hereof (but subject to Section 5.10), that number of
shares of Common Stock having an aggregate Market Price on the Stock Acquisition
Date equal to twice the Exercise Price for an amount in cash equal to the
Exercise Price (such right to be appropriately adjusted in order to protect the
interests of the holders of Rights generally in the event that on or after such
Stock Acquisition Date an event of a type analogous to any of the events
described in Section 2.4(a) or (b) shall have occurred with respect to the
Common Stock).
(b) Notwithstanding the foregoing, any Rights that are or were Beneficially
Owned on or after the Stock Acquisition Date by an Acquiring Person or an
Affiliate or Associate thereof or by any transferee, direct or indirect, of any
of the foregoing shall become void and any holder of such Rights (including
transferees) shall thereafter have no right to exercise or transfer such Rights
under any provision of this Agreement. If any
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Rights Certificate is presented for assignment or exercise and the Person
presenting the same will not complete the certification set forth at the end of
the form of assignment or notice of election to exercise and provide such
additional evidence of the identity of the Beneficial Owner and its Affiliates
and Associates (or former Beneficial Owners and their Affiliates and Associates)
as the Company shall reasonably request, then the Company shall be entitled
conclusively to deem the Beneficial Owner thereof to be an Acquiring Person or
an Affiliate or Associate thereof or a transferee of any of the foregoing and
accordingly will deem the Rights evidenced thereby to be void and not
transferable or exercisable.
(c) The Board of Directors of the Company may, at its option, at any time
after a Flip-in Date and prior to the time that an Acquiring Person becomes the
Beneficial Owner of more than 50% of the outstanding shares of Common Stock,
elect to exchange all (but not less than all) the then outstanding Rights (which
shall not include Rights that have become void pursuant to the provisions of
Section 3.1(b)) for shares of Common Stock at an exchange ratio of one share of
Common Stock per Right, appropriately adjusted in order to protect the interests
of holders of Rights generally in the event that after the Separation Time an
event of a type analogous to any of the events described in Section 2.4(a) or
(b) shall have occurred with respect to the Common Stock (such exchange ratio,
as adjusted from time to time, being hereinafter referred to as the "Exchange
Ratio").
Immediately upon the action of the Board of Directors of the Company
electing to exchange the Rights, without any further action and without any
notice, the right to exercise the Rights will terminate and each Right (other
than Rights that have become void pursuant to Section 3.1(b)) will thereafter
represent only the right to receive a number of shares of Common Stock equal to
the Exchange Ratio. Promptly after the action of the Board of Directors electing
to exchange the Rights, the Company shall give notice thereof (specifying the
steps to be taken to receive shares of Common Stock in exchange for Rights) to
the Rights Agent and the holders of the Rights (other than Rights that have
become void pursuant to Section 3.1(b)) outstanding immediately prior thereto by
mailing such notice in accordance with Section 5.9.
Each Person in whose name any certificate for shares is issued upon the
exchange of Rights pursuant to this Section 3.1(c) or Section 3.1(d) shall for
all purposes be deemed to have become the holder of record of the shares
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of any applicable taxes and other governmental charges payable by the holder was
made; provided, however, that if the date of such surrender and payment is a
date upon which the stock transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the stock
transfer books of the Company are open.
(d) Whenever the Company shall become obligated under Section 3.1(a) or (c)
to issue shares of Common Stock upon exercise of or in exchange for Rights, the
Company, at its option, may substitute therefor shares of Preferred Stock, at a
ratio of one one-hundredth of a share of Preferred Stock for each share of
Common Stock so issuable.
(e) In the event that there shall not be sufficient treasury shares or
authorized but unissued shares of Common Stock or Preferred Stock of the Company
to permit the exercise or exchange in full of the Rights in accordance with
Section 3.1(a) or (c), and the Company elects not to, or is otherwise unable to,
make the exchange referred to in Section 3.1(c), the Company shall either (i)
call a meeting of stockholders seeking approval to cause sufficient additional
shares to be authorized (provided that if such approval is not obtained the
Company will take the action specified in clause (ii) of this sentence) or (ii)
take such action as shall be necessary to ensure and provide, to the extent
permitted by applicable law and any agreements or instruments in effect on the
Stock Acquisition Date to which it is a party, that each Right shall thereafter
constitute the right to receive, (x) at the Company's option, either (A) in
return for the Exercise Price, debt or equity securities or other assets (or a
combination thereof) having a fair value equal to twice the Exercise Price, or
(B) without payment of consideration (except as otherwise required by applicable
law), debt or equity securities or other assets (or a combination thereof)
having a fair value equal to the Exercise Price, or (y) if the Board of
Directors of the Company elects to exchange the Rights in accordance with
Section 3.1(c), debt or equity securities or other assets (or a combination
thereof) having a fair value equal to the product of the
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Market Price of a share of Common Stock on the Flip-in Date times the Exchange
Ratio in effect on the Flip-in Date, where in any case set forth in (x) or (y)
above the fair value of such debt or equity securities or other assets shall be
as determined in good faith by the Board of Directors of the Company, after
consultation with a nationally recognized investment banking firm.
3.2 Flip-over. (a) Prior to the Expiration Time, the Company shall not
enter into any agreement with respect to, consummate or permit to occur any
Flip-over Transaction or Event unless and until it shall have entered into a
supplemental agreement with the Flip-over Entity, for the benefit of the holders
of the Rights, providing that, upon consummation or occurrence of the Flip-over
Transaction or Event (i) each Right shall thereafter constitute the right to
purchase from the Flip-over Entity, upon exercise thereof in accordance with the
terms hereof, that number of shares of Flip-over Stock of the Flip-over Entity
having an aggregate Market Price on the date of consummation or occurrence of
such Flip-over Transaction or Event equal to twice the Exercise Price for an
amount in cash equal to the Exercise Price (such right to be appropriately
adjusted in order to protect the interests of the holders of Rights generally in
the event that after such date of consummation or occurrence an event of a type
analogous to any of the events described in Section 2.4(a) or (b) shall have
occurred with respect to the Flip-over Stock) and (ii) the Flip-over Entity
shall thereafter be liable for, and shall assume, by virtue of such Flip-over
Transaction or Event and such supplemental agreement, all the obligations and
duties of the Company pursuant to this Agreement. The provisions of this Section
3.2 shall apply to successive Flip-over Transactions or Events.
(b) Prior to the Expiration Time, unless the Rights will be redeemed
pursuant to Section 5.1 hereof in connection therewith, the Company shall not
enter into any agreement with respect to, consummate or permit to occur any
Flip-over Transaction or Event if at the time thereof there are any rights,
warrants or securities outstanding or any other arrangements, agreements or
instruments that would eliminate or otherwise diminish in any material respect
the benefits intended to be afforded by this Rights Agreement to the holders of
Rights upon consummation of such transaction.
ARTICLE IV
THE RIGHTS AGENT
4.1 General. (a) The Company hereby appoints the Rights Agent to act as
agent for the Company in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
costs, charges, expenses and counsel fees and other disbursements incurred in
the administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted to be done by the Rights
Agent in connection with the acceptance and administration of this Agreement,
including the costs and expenses of defending against any claim of liability.
(b) The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any certificate for securities
purchasable upon exercise of Rights, Rights Certificate, certificate for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons.
4.2 Merger or Consolidation or Change of Name of Rights Agent. (a) any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent is a party, or any corporation succeeding to the shareholder services
business of the Rights Agent or any successor Rights Agent, will be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation
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would be eligible for appointment as a successor Rights Agent under the
provisions of Section 4.4 hereof. In case at the time such successor Rights
Agent succeeds to the agency created by this Agreement any of the Rights
Certificates have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates have not been countersigned, any successor Rights
Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates will have the full force provided in the
Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is changed and at such
time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior name or in its
changed name; and in all such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agreement.
4.3 Duties of Rights Agent. The Rights Agent undertakes the duties and
obligations imposed by this Agreement and undertakes those duties and
obligations which are reasonably incidental to those duties and obligations
imposed by this Agreement upon the following terms and conditions and shall not
be construed to have undertaken any other duties or obligations, by all of which
the Company and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company or the Rights Agent), and the opinion of such
counsel will be full and complete authorization and protection to the
Rights Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent deems it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by a person believed by the
Rights Agent to be the Chairman of the Board, the President or any Vice
President and by the Treasurer or any Assistant Treasurer or the Secretary
or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate will be full authorization to the Rights Agent
for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent will be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates for securities purchasable upon exercise of Rights or the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and will be
deemed to have been made by the Company only.
(e) The Rights Agent will not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due authorization, execution and delivery hereof by the Rights
Agent) or in respect of the validity or execution of any certificate for
securities purchasable upon exercise of Rights or Rights Certificate
(except its countersignature thereof); nor will it be responsible for any
breach by the Company of any covenant or condition contained in this
Agreement or in any Rights Certificate; nor will it be responsible for any
change in the exercisability of the Rights (including the Rights becoming
void pursuant to Section 3.1(b) hereof) or any adjustment required under
the provisions of Section 2.4, 3.1 or 3.2 hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with
respect to the exercise of Rights after receipt of the certificate
contemplated by Section 2.4 describing any such adjustment); nor will it by
any act hereunder be deemed to make any representation
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or warranty as to the authorization or reservation of any securities
purchasable upon exercise of Rights or any Rights or as to whether any
securities purchasable upon exercise of Rights will, when issued, be duly
and validly authorized, executed, issued and delivered and fully paid and
nonassessable. Subject to the provisions set forth in this Agreement, the
Rights Agent shall not be liable for the misuse of any Rights Certificates.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any person believed by the Rights Agent to be the Chairman of the Board,
the President or any Vice President or the Secretary or any Assistant
Secretary or the Treasurer or any Assistant Treasurer of the Company, and
to apply to such persons for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered by it
in good faith in accordance with instructions of any such person. The
Rights Agent shall also not be liable for failing to take any action solely
as a result of the delay of any of the aforementioned persons in providing
any such advice or instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in Common Stock, Rights
or other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for
any other legal entity.
(i) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the Rights Certificate attached to
the form of assignment or form of election to purchase, as the case may be,
is incomplete in any manner, the Rights Agent shall be under no obligation
to take further action with respect to such requested exercise or transfer
without first consulting with the Company.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds to believe that repayment of
such funds or adequate indemnification against such risk or liability, as
applicable, is not reasonably likely to be available.
(k) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent will not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from
any such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
(l) The Rights Agent shall not be required to pay the Company or any
holders of Rights interest or earnings on any monies held by the Rights
Agent pursuant to this Agreement, unless the Rights Agent shall fail on a
timely basis to provide any such monies to a Person when such monies are
due.
(m) The Rights Agent shall not be required to take notice or be deemed
to have notice of any event or condition hereunder, including, but not
limited to, a Flip-In Date, Stock Acquisition Date, Separation Time, any
adjustment of the Exercise Price or the Common Stock, the existence of an
Acquiring Person, or a Beneficial Owner or any other event or condition
that may require action by the Rights Agent, unless the Rights Agent shall
be specifically (i) notified in writing by the Company or (ii) notified
orally by an officer of the Company of such event or condition, and all
written notices or other instruments required by this subsection to be
delivered to the Rights Agent must, in order to be effective, be received
at the principal office of the Rights Agent, and, in the absence of oral or
written notice delivered in accordance with the terms of this Agreement,
the Rights Agent may conclusively assume no such event or condition exists.
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<PAGE> 95
4.4 Change of Rights Agent. The Rights Agent may resign and be discharged
from its duties under this Agreement upon 90 days' notice (or such lesser notice
as is acceptable to the Company) in writing mailed to the Company and to each
transfer agent of Common Stock by registered or certified mail, and to the
holders of the Rights in accordance with Section 5.9. The Company may remove the
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to
each transfer agent of the Common Stock by registered or certified mail, and to
the holders of the Rights in accordance with Section 5.9. If the Rights Agent
should resign or be removed or otherwise become incapable of acting, the Company
will appoint a successor to the Rights Agent. If the Company fails to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of any Rights (which holder shall,
with such notice, submit such holder's Rights Certificate for inspection by the
Company), then the holder of any Rights may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be (i) a
corporation organized and doing business under the laws of the United States or
any state of the United States, in good standing, which is authorized under such
laws to exercise the powers of the Rights Agent contemplated by this Agreement
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000 or (ii) a subsidiary of a corporation described
in clause (i) of this sentence; provided that the corporation described in
clause (i) guarantees the obligations of such subsidiary. After appointment, the
successor Rights Agent will be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company will file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock, and mail a notice thereof in
writing to the holders of the Rights. Failure to give any notice provided for in
this Section 4.4, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
ARTICLE V
MISCELLANEOUS
5.1 Redemption. (a) The Board of Directors of the Company may, at its
option, at any time prior to the Flip-in Date, elect to redeem all (but not less
than all) the then outstanding Rights at the Redemption Price and the Company,
at its option, may pay the Redemption Price either in cash or shares of Common
Stock or other securities of the Company deemed by the Board of Directors, in
the exercise of its sole discretion, to be at least equivalent in value to the
Redemption Price.
(b) Immediately upon the action of the Board of Directors of the Company
electing to redeem the Rights (or, if the resolution of the Board of Directors
electing to redeem the Rights states that the redemption will not be effective
until the occurrence of a specified future time or event, upon the occurrence of
such future time or event), without any further action and without any notice,
the right to exercise the Rights will terminate and each Right will thereafter
represent only the right to receive the Redemption Price in cash or securities,
as determined by the Board of Directors. Promptly after the Rights are redeemed,
the Company shall give notice of such redemption to the Rights Agent and the
holders of the then outstanding Rights by mailing such notice in accordance with
Section 5.9.
5.2 Expiration. The Rights and this Agreement shall expire at the
Expiration Time and no Person shall have any rights pursuant to this Agreement
or any Right after the Expiration Time, except, if the Rights are exchanged or
redeemed, as provided in Section 3.1 or 5.1 hereof, respectively.
5.3 Issuance of New Rights Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the number or kind or class of shares of stock purchasable upon exercise of
Rights made in accordance with the provisions of
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<PAGE> 96
this Agreement. In addition, in connection with the issuance or sale of shares
of Common Stock by the Company following the Separation Time and prior to the
Expiration Time pursuant to the terms of securities convertible or redeemable
into shares of Common Stock or to options, in each case issued or granted prior
to, and outstanding at, the Separation Time, the Company shall issue to the
holders of such shares of Common Stock, Rights Certificates representing the
appropriate number of Rights in connection with the issuance or sale of such
shares of Common Stock; provided, however, in each case, (i) no such Rights
Certificate shall be issued, if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or to the Person to whom such
Rights Certificates would be issued, (ii) no such Rights Certificates shall be
issued if, and to the extent that, appropriate adjustment shall have otherwise
been made in lieu of the issuance thereof, and (iii) the Company shall have no
obligation to distribute Rights Certificates to any Acquiring Person or
Affiliate or Associate of an Acquiring Person or any transferee of any of the
foregoing.
5.4 Supplements and Amendments. The Company and the Rights Agent may from
time to time supplement or amend this Agreement without the approval of any
holders of Rights (i) prior to the Flip-in Date, in any respect and (ii) on or
after the Flip-in Date, to make any changes that the Company may deem necessary
or desirable and which shall not materially adversely affect the interests of
the holders of Rights generally or in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be inconsistent with any
other provisions herein or otherwise defective. The Rights Agent will duly
execute and deliver any supplement or amendment hereto requested by the Company
which satisfies the terms of the previous sentence.
5.5 Fractional Shares. If the Company elects not to issue certificates
representing fractional shares upon exercise or redemption of Rights, the
Company shall, in lieu thereof, in the sole discretion of the Board of
Directors, either (a) evidence such fractional shares by depositary receipts
issued pursuant to an appropriate agreement between the Company and a depositary
selected by it, providing that each holder of a depositary receipt shall have
all of the rights, privileges and preferences to which such holder would be
entitled as a beneficial owner of such fractional share, or (b) pay to the
registered holder of such Rights the appropriate fraction of the Market Price
per share in cash.
5.6 Rights of Action. Subject to the terms of this Agreement (including
Sections 3.1(b) and 5.14), rights of action in respect of this Agreement, other
than rights of action vested solely in the Rights Agent, are vested in the
respective holders of the Rights; and any holder of any Rights, without the
consent of the Rights Agent or of the holder of any other Rights, may, on such
holder's own behalf and for such holder's own benefit and the benefit of other
holders of Rights, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, such
holder's right to exercise such holder's Rights in the manner provided in such
holder's Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of, the obligations of any Person subject to this Agreement.
5.7 Holder of Rights Not Deemed a Stockholder. No holder, as such, of any
Rights shall be entitled to vote, receive dividends or be deemed for any purpose
the holder of shares or any other securities which may at any time be issuable
on the exercise of such Rights, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 5.8 hereof), or to receive dividends or subscription rights,
or otherwise, until such Rights shall have been exercised or exchanged in
accordance with the provisions hereof.
5.8 Notice of Proposed Actions. In case the Company shall propose after the
Separation Time and prior to the Expiration Time (i) to effect or permit a
Flip-over Transaction or Event or (ii) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of a
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<PAGE> 97
Right, in accordance with Section 5.9 hereof, a notice of such proposed action,
which shall specify the date on which such Flip-over Transaction or Event,
liquidation, dissolution, or winding up is to take place, and such notice shall
be so given at least 20 Business Days prior to the date of the taking of such
proposed action.
5.9 Notices. Notices or demands authorized or required by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights to or on the
Company shall be sufficiently given or made if delivered or sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Payless ShoeSource Holdings, Inc.
3231 SE Sixth Street
Topeka, Kansas 66607
Attention: Corporate Secretary
Any notice or demand authorized or required by this Agreement to be given or
made by the Company or by the holder of any Rights to or on the Rights Agent
shall be sufficiently given or made if delivered or sent by registered or
certified mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:
UMB Bank, N.A., as Rights Agent
928 Grand Avenue
Kansas City, MO 64106
Attention: Corporate Trust Department
Notices or demands authorized or required by this Agreement to be given or made
by the Company or the Rights Agent to or on the holder of any Rights shall be
sufficiently given or made if delivered or sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as it appears
upon the Rights Register maintained by the Rights Agent or, prior to the
Separation Time, on the registry books of the transfer agent for the Common
Stock. Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice.
5.10 Suspension of Exercisability. To the extent that the Company
determines in good faith that some action will or need be taken pursuant to
Section 3.1 or to comply with federal or state securities laws, the Company may
suspend the exercisability of the Rights for a reasonable period in order to
take such action or comply with such laws. In the event of any such suspension,
the Company shall issue as promptly as practicable a public announcement stating
that the exercisability or exchangeability of the Rights has been temporarily
suspended. Notice thereof pursuant to Section 5.9 shall not be required.
Failure to give a notice pursuant to the provisions of this Agreement shall
not affect the validity of any action taken hereunder.
5.11 Costs of Enforcement. The Company agrees that if the Company or any
other Person the securities of which are purchasable upon exercise of Rights
fails to fulfill any of its obligations pursuant to this Agreement, then the
Company or such Person will reimburse the holder of any Rights for the costs and
expenses (including legal fees) incurred by such holder in actions to enforce
such holder's rights pursuant to any Rights or this Agreement.
5.12 Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
5.13 Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
holders of the Rights any legal or equitable right, remedy or claim under this
Agreement and this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the holders of the Rights.
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<PAGE> 98
5.14 Determination and Actions by the Board of Directors, etc. The Board of
Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement. All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties, and (y) not subject the Board of Directors of
the Company to any liability to the holders of the Rights.
5.15 Descriptive Headings. Descriptive headings appear herein for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
5.16 Governing Law. THIS AGREEMENT AND EACH RIGHT ISSUED HEREUNDER SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF DELAWARE AND FOR ALL
PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH
STATE APPLICABLE TO CONTRACTS TO BE MADE AND PERFORMED ENTIRELY WITHIN SUCH
STATE.
5.17 Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
5.18 Severability. If any term or provision hereof or the application
thereof to any circumstance shall, in any jurisdiction and to any extent, be
invalid or unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
PAYLESS SHOESOURCE HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
UMB BANK, N.A., as Rights Agent
By:
-----------------------------------
Name:
Title:
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<PAGE> 99
EXHIBIT A
[FORM OF RIGHTS CERTIFICATE]
CERTIFICATE NO. W- ____ RIGHTS
THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE
OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, RIGHTS BENEFICIALLY OWNED
BY ACQUIRING PERSONS OR AFFILIATES OR ASSOCIATES THEREOF (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR TRANSFEREES OF ANY OF
THE FOREGOING WILL BE VOID.
RIGHTS CERTIFICATE
PAYLESS SHOESOURCE HOLDINGS, INC.
This certifies that , or registered assigns, is
the registered holder of the number of Rights set forth above, each of which
entitles the registered holder thereof, subject to the terms, provisions and
conditions of the Stockholder Protection Rights Agreement, dated as of April 20,
1998 (as amended from time to time, the "Rights Agreement"), between Payless
ShoeSource Holdings, Inc. a Delaware corporation (the "Company"), and UMB Bank,
N.A., a national banking association organized and existing under the laws of
the United States of America, as Rights Agent (the "Rights Agent", which term
shall include any successor Rights Agent under the Rights Agreement), to
purchase from the Company at any time after the Separation Time (as such term is
defined in the Rights Agreement) and prior to the close of business on April 20,
2008, one one-hundredth of a fully paid share of Series A Preferred Stock, par
value $.01 per share (the "Preferred Stock"), of the Company (subject to
adjustment as provided in the Rights Agreement) at the Exercise Price referred
to below, upon presentation and surrender of this Rights Certificate with the
Form of Election to Exercise duly executed at the principal office of the Rights
Agent in The City of New York. The Exercise Price shall initially be $250 per
Right and shall be subject to adjustment in certain events as provided in the
Rights Agreement.
In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase
securities of an entity other than the Company or securities of the Company
other than Preferred Stock or assets of the Company, all as provided in the
Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal office of the Company and are
available without cost upon written request.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
evidencing an aggregate number of Rights equal to the aggregate number of Rights
evidenced by the Rights Certificate or Rights Certificates surrendered. If this
Rights Certificate shall be exercised in part, the registered holder shall be
entitled to receive, upon surrender hereof, another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, each Right evidenced by
this Certificate may be (a) redeemed by the Company under certain circumstances,
at its option, at a redemption price of $0.01 per Right or (b) exchanged by the
Company under certain circumstances, at its option, for one share of Common
Stock or one one-hundredth of a share of Preferred Stock per Right (or, in
certain cases, other securities or assets of the Company), subject in each case
to adjustment in certain events as provided in the Rights Agreement.
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<PAGE> 100
No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of any securities
which may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Rights evidenced by
this Rights Certificate shall have been exercised or exchanged as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Date:
- ------------------------------
ATTEST: PAYLESS SHOESOURCE HOLDINGS, INC.
- ----------------------------------- By
Secretary ------------------------------
Countersigned:
UMB BANK, N.A, as Rights Agent
By
---------------------------------
Authorized Signature
D-A-2
<PAGE> 101
[FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE]
FORM OF ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH
HOLDER DESIRES TO TRANSFER THIS RIGHTS CERTIFICATE.)
FOR VALUE RECEIVED ____________________________ hereby sells, assigns and
transfers unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: ____________________
Signature Guaranteed: ----------------------------------------
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular, without
alteration or enlargement or any change
whatsoever)
Signatures must be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee Medallion program), pursuant to SEC Rule
17Ad-15.
- ----------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights and
shares of Common Stock, that the Rights evidenced by this Rights Certificate are
not, and, to the knowledge of the undersigned, have never been, Beneficially
Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in
the Rights Agreement).
----------------------------------------
Signature
NOTICE
In the event the certification set forth above is not completed in
connection with a purported assignment, the Company will deem the Beneficial
Owner of the Rights evidenced by the enclosed Rights Certificate to be an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement) or a transferee of any of the foregoing and accordingly will deem the
Rights evidenced by such Rights Certificate to be void and not transferable or
exercisable.
D-A-3
<PAGE> 102
[TO BE ATTACHED TO EACH RIGHTS CERTIFICATE]
FORM OF ELECTION TO EXERCISE
(To be executed if holder desires to
exercise the Rights Certificate.)
TO: PAYLESS SHOESOURCE HOLDINGS, INC.
The undersigned hereby irrevocably elects to exercise whole
Rights represented by the attached Rights Certificate to purchase the shares of
Participating Preferred Stock issuable upon the exercise of such Rights and
requests that certificates for such shares be issued in the name of:
--------------------------------------------------------------
Address:
--------------------------------------------------------------
--------------------------------------------------------------
Social Security or Other Taxpayer
Identification Number:
--------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
--------------------------------------------------------------
Address:
--------------------------------------------------------------
--------------------------------------------------------------
Social Security or Other Taxpayer
Identification Number:
--------------------------------------------------------------
Dated: ________________ , ____
Signature Guaranteed: --------------------------------------
Signature
(Signature must correspond to name as
written upon the face of the attached
Rights Certificate in every
particular, without alteration or
enlargement or any change whatsoever)
D-A-4
<PAGE> 103
Signatures must be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee Medallion program), pursuant to SEC Rule
17Ad-15.
- --------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights
and shares of Common Stock, that the Rights evidenced by the attached Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement).
--------------------------------------
Signature
NOTICE
In the event the certification set forth above is not completed in
connection with a purported exercise, the Company will deem the Beneficial Owner
of the Rights evidenced by the attached Rights Certificate to be an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Rights Agreement)
or a transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
D-A-5
<PAGE> 104
EXHIBIT B
FORM OF CERTIFICATE OF DESIGNATION AND TERMS
OF PARTICIPATING PREFERRED STOCK OF
PAYLESS SHOESOURCE HOLDINGS, INC.
PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
We, the undersigned, and , the
, and , respectively, of Payless
ShoeSource Holdings, Inc., a Delaware corporation (the "Corporation"), do hereby
certify as follows:
Pursuant to authority granted by Article THIRD of the Restated Certificate
of Incorporation of the Corporation, and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation has adopted the following resolutions fixing the
designation and certain terms, powers, preferences and other rights of a new
series of the Corporation's Preferred Stock, par value $.01 per share, and
certain qualifications, limitations and restrictions thereon:
RESOLVED, that there is hereby established a series of Preferred
Stock, par value $.01 per share, of the Corporation, and the designation
and certain terms, powers, preferences and other rights of the shares of
such series, and certain qualifications, limitations and restrictions
thereon, are hereby fixed as follows:
(i) The distinctive serial designation of this series shall be
"Series A Preferred Stock" (hereinafter called "this Series"). Each
share of this Series shall be identical in all respects with the other
shares of this Series except as to the dates from and after which
dividends thereon shall be cumulative.
(ii) The number of shares in this Series shall initially be
, which number may from time to time be increased or
decreased (but not below the number then outstanding) by the Board of
Directors. Shares of this Series purchased by the Corporation shall be
cancelled and shall revert to authorized but unissued shares of
Preferred Stock undesignated as to series. Shares of this Series may be
issued in fractional shares, which fractional shares shall entitle the
holder, in proportion to such holder's fractional share, to all rights
of a holder of a whole share of this Series.
(iii) The holders of full or fractional shares of this Series shall
be entitled to receive, when and as declared by the Board of Directors,
but only out of funds legally available therefor, dividends, (A) on each
date that dividends or other distributions (other than dividends or
distributions payable in Common Stock of the Corporation) are payable on
or in respect of Common Stock comprising part of the Reference Package
(as defined below), in an amount per whole share of this Series equal to
the aggregate amount of dividends or other distributions (other than
dividends or distributions payable in Common Stock of the Corporation)
that would be payable on such date to a holder of the Reference Package
and (B) on the last day of March, June, September and December in each
year, in an amount per whole share of this Series equal to the excess
(if any) of $ * over the aggregate dividends paid per whole
share of this Series during the three month period ending on such last
day. Each such dividend shall be paid to the holders of record of shares
of this Series on the date, not exceeding sixty days preceding such
dividend or distribution payment date, fixed for the purpose by the
Board of Directors in advance of payment of each particular dividend or
distribution. Dividends on each full and each fractional share of this
Series shall be cumulative from the date such full or fractional share
is originally issued; provided that any such full or fractional share
originally issued after a dividend record date and on or prior to the
dividend payment date to which
- ---------------
* Insert an amount equal to 1/4 of 1% of the Exercise Price divided by the
number of shares of Preferred
Stock purchasable upon exercise of one Right (i.e., a guaranteed 1% dividend).
D-B-1
<PAGE> 105
such record date relates shall not be entitled to receive the
dividend payable on such dividend payment date or any amount in respect
of the period from such original issuance to such dividend payment date.
The term "Reference Package" shall initially mean 100 shares of
Common Stock, par value $.01 per share ("Common Stock"), of the
Corporation. In the event the Corporation shall at any time after the
close of business on , * (A) declare or pay a dividend
on any Common Stock payable in Common Stock, (B) subdivide any Common
Stock or (C) combine any Common Stock into a smaller number of shares,
then and in each such case the Reference Package after such event shall
be the Common Stock that a holder of the Reference Package immediately
prior to such event would hold thereafter as a result thereof.
Holders of shares of this Series shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided on this Series.
So long as any shares of this Series are outstanding, no dividend
(other than a dividend in Common Stock or in any other stock ranking
junior to this Series as to dividends and upon liquidation) shall be
declared or paid or set aside for payment or other distribution declared
or made upon the Common Stock or upon any other stock ranking junior to
this Series as to dividends or upon liquidation, nor shall any Common
Stock nor any other stock of the Corporation ranking junior to or on a
parity with this Series as to dividends or upon liquidation be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be
paid to or made available for a sinking fund for the redemption of any
shares of any such stock) by the Corporation (except by conversion into
or exchange for stock of the Corporation ranking junior to this Series
as to dividends and upon liquidation), unless, in each case, the full
cumulative dividends (including the dividend to be due upon payment of
such dividend, distribution, redemption, purchase or other acquisition)
on all outstanding shares of this Series shall have been, or shall
contemporaneously be, paid.
(iv) In the event of any merger, consolidation, reclassification or
other transaction in which the shares of Common Stock are exchanged for
or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of this Series shall at the
same time be similarly exchanged or changed in an amount per whole share
equal to the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, that a holder of
the Reference Package would be entitled to receive as a result of such
transaction.
(v) In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, the
holders of full and fractional shares of this Series shall be entitled,
before any distribution or payment is made on any date to the holders of
the Common Stock or any other stock of the Corporation ranking junior to
this Series upon liquidation, to be paid in full an amount per whole
share of this Series equal to the greater of (A) $ ** or (B)
the aggregate amount distributed or to be distributed prior to such date
in connection with such liquidation, dissolution or winding up to a
holder of the Reference Package (such greater amount being hereinafter
referred to as the "Liquidation Preference"), together with accrued
dividends to such distribution or payment date, whether or not earned or
declared. If such payment shall have been made in full to all holders of
shares of this Series, the holders of shares of this Series as such
shall have no right or claim to any of the remaining assets of the
Corporation.
In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled
- ---------------
* For a certificate of designation relating to shares to be issued pursuant to
Section 2.3 of the Rights
Agreement, insert the Separation Time. For a certificate of designation
relating to shares to be issued pursuant to Section 3.1(d) of the Rights
Agreement, insert the Flip-in Date.
** Insert an amount equal to 100 times the Exercise Price in effect as of the
Separation Time.
D-B-2
<PAGE> 106
pursuant to the first paragraph of this Section (v), no such
distribution shall be made on account of any shares of any other class
or series of Preferred Stock ranking on a parity with the shares of this
Series upon such liquidation, dissolution or winding up unless
proportionate distributive amounts shall be paid on account of the
shares of this Series, ratably in proportion to the full distributable
amounts for which holders of all such parity shares are respectively
entitled upon such liquidation, dissolution or winding up.
Upon the liquidation, dissolution or winding up of the Corporation,
the holders of shares of this Series then outstanding shall be entitled
to be paid out of assets of the Corporation available for distribution
to its stockholders all amounts to which such holders are entitled
pursuant to the first paragraph of this Section (v) before any payment
shall be made to the holders of Common Stock or any other stock of the
Corporation ranking junior upon liquidation to this Series.
For the purposes of this Section (v), the consolidation or merger
of, or binding share exchange by, the Corporation with any other
corporation shall not be deemed to constitute a liquidation, dissolution
or winding up of the Corporation.
(vi) The shares of this Series shall not be redeemable.
(vii) In addition to any other vote or consent of stockholders
required by law or by the Restated Certificate of Incorporation, as
amended, of the Corporation, each whole share of this Series shall, on
any matter, vote as a class with any other capital stock comprising part
of the Reference Package and voting on such matter and shall have the
number of votes thereon that a holder of the Reference Package would
have.
IN WITNESS WHEREOF, the undersigned have signed and attested this
certificate on the day of , .
------------------------------------------------------
Attest:
- ------------------------------------------------------
D-B-3
<PAGE> 107
ANNEX E
SECTION 351.455 OF
THE MISSOURI GENERAL AND BUSINESS CORPORATION LAW
<PAGE> 108
351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES,
WHEN. -- 1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall not
vote in favor thereof, and such shareholder, within twenty days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon surrender of
his certificate or certificates representing said shares, the fair value
thereof. Such demand shall state the number and class of the shares owned by
such dissenting shareholder. Any shareholder failing to make demand within the
twenty day period shall be conclusively presumed to have consented to the merger
or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in the
corporation.
3. If within such period of thirty days the shareholders and the surviving
or new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty day period, file a petition in any
court of competent jurisdiction within the county in which the registered office
of the surviving or new corporation is situated, asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of such
judgment. The judgment shall be payable only upon and simultaneously with the
surrender to the surviving or new corporations of the certificate or
certificates representing said shares. Upon the payment of the judgment, the
dissenting shareholder shall cease to have any interest in such shares, or in
the surviving or new corporation. Such shares may be held and disposed by the
surviving or new corporation as it may see fit. Unless the dissenting
shareholder shall file such petition within the time herein limited, such
shareholder and all persons claiming under him shall be conclusively presumed to
have approved and ratified the merger or consolidation, and shall be bound by
the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall abandon
the merger or consolidation.
E-1
<PAGE> 109
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Payless Charter provides that New Payless will indemnify any person
who was or is a party or is threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
any action or suit by or in the right of New Payless) by reason of the fact that
such person is or was a director, officer, employee or agent of New Payless or
is or was serving at the request of New Payless as a director, of ricer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, but in each case only if and
to the extent permitted under applicable state or federal law. Expenses,
including attorneys' fees, incurred by any such person in defending any such
action, suit or proceeding shall be paid or reimbursed by New Payless in advance
of the final disposition of such action, suit or proceeding upon receipt by it
of an undertaking of such person to repay such expenses if it shall ultimately
be determined that such person is not entitled to be indemnified by New Payless.
The New Payless Charter further states that the right to indemnification
and advancement of expenses provided therein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled, and shall continue
as to a person who has ceased to be a director, of ricer, employee or agent and
shall inure to the benefit of the heirs, and personal representatives of such a
person.
Section 145 of the DGCL permits a corporation to indemnify its directors
and officers against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties, if such
directors or of ricers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reason to believe
their conduct was unlawful. In a derivative action, i.e., one by or in the right
of the corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors and officers in connection with the defense or
settlement of an action or suit, and only with respect to a matter as to which
they shall have acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
officers or directors are fairly and reasonable entitled to indemnity for such
expenses despite such adjudication of liability.
As permitted by Section 102(b)(7) of the DGCL, the New Payless Charter
provides that no director of New Payless will be liable to New Payless or its
shareowners for monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to New
Payless or its shareowners; (2) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of the law; (3) under
Section 174 of the DGCL; or (4) for any transaction from which a director
derived an improper benefit.
New Payless will maintain, at its expense, a policy of insurance which
insures its directors and officers, subject to certain exclusions and deductions
as are usual in such insurance policies, against certain liabilities which may
be incurred in such capacities.
II-1
<PAGE> 110
ITEM 21. EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
2(a) Agreement and Plan of Merger (attached to Proxy
Statement/Prospectus as Annex A).
3(a) Form of Restated Certificate of incorporation of New Payless
(attached to Proxy Statement Prospectus as Annex B).
3(b) Form of Bylaws of New Payless (attached to Proxy
Statement/Prospectus as Annex C).
3(c) Restated Certificate of incorporation of Payless
(incorporated by reference to Exhibit 3.1 of Payless' Form
10-Q (file number 1-11633) for the quarter ended May 4,
1996).
3(d) Bylaws of Payless (incorporated by reference to Exhibit 3.2
of Payless' Form 10-K (file number 1-11633) for the year
ended January 31, 1998).
4 Form of New Payless Rights Agreement (attached to the Proxy
Statement/Prospectus as Annex D).
5 Opinion of Sullivan & Cromwell.
23(a) Consent of Sullivan & Cromwell (included in Exhibit 5).
23(b) Consent of Arthur Andersen LLP.
24 Power of Attorney.
99(a) Form of Proxy Card.
99(b) Confidential Voting instructions.
99(c) Confidential Voting instructions.
</TABLE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes
(1) To file, during any period in which offers or sates are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933,
(ii) To reflect in the prospectus any facts or events arising after
the Effective Time of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the tow or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if
in the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) The undersigned Registrant hereby undertakes that, for the purpose
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<PAGE> 111
(3) The undersigned Registrant hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities
which remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Topeka, State of Kansas,
on the 21st of April, 1998.
PAYLESS SHOESOURCE HOLDINGS, INC.
By: /s/ STEVEN J. DOUGLASS
------------------------------------
Name: Steven J. Douglass
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C>
Date April 21, 1998 By: /s/ STEVEN J. DOUGLASS
-------------------------------------------------------
Steven J. Douglass, Director,
Chairman of the Board and Chief
Executive Officer
Date April 21, 1998 By: /s/ RICHARD A. JOLOSKY
-------------------------------------------------------
Richard A. Jolosky, Director and
President
Date April 21, 1998 By: /s/ ULLRICH E. PORZIG
-------------------------------------------------------
Ullrich E. Porzig, Senior Vice
President and Chief Financial Officer
Date April 21, 1998 By: /s/ RONALD A. COOPERMAN
-------------------------------------------------------
Ronald A. Cooperman
Controller
Date April 21, 1998 By: *
-------------------------------------------------------
Thomas A. Hays, Director
Date April 21, 1998 By: *
-------------------------------------------------------
Michael E. Murphy, Director
Date April 21, 1998 By: *
-------------------------------------------------------
Daniel Boggan Jr, Director
Date April 21, 1998 By: *
-------------------------------------------------------
Mylle B. Mangum, Director
Date April 21, 1998 By: *
-------------------------------------------------------
Howard R. Fricke, Director
Date April 21, 1998 By: *
-------------------------------------------------------
Robert L. Stark, Director
</TABLE>
*By: /s/ WILLIAM J. RAINEY
-------------------------------
William J. Rainey
Attorney in fact
II-4
<PAGE> 1
EXHIBIT 5
April 21, 1998
Payless ShoeSource Holdings, Inc.,
3231 South East Sixth Street,
Topeka, Kansas 66607.
Dear Sirs:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act") of 37,347,552 shares (the "Securities") of Common Stock, par
value $.01 per share, of Payless ShoeSource Holdings, Inc., a Delaware
corporation (the "Company"), and related preferred stock purchase rights (the
"Rights") to be issued pursuant to an agreement substantially in the form of the
Stockholder Protection Rights Agreement (the "Rights Agreement") between the
Company and UMB Bank, N.A., as Rights Agent (the "Rights Agent"), attached as an
Annex to the Registration Statement (as defined below), we, as your special
counsel, have examined such corporate records, certificates and other documents,
and such questions of law, as we have considered necessary or appropriate for
the purposes of this opinion. Upon the basis of such examination, we advise you
that, in our opinion:
(1) When (i) the registration statement relating to the Securities
(the "Registration Statement") has become effective under the Act, (ii) the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of April
20, 1998 by and among the Company, Payless ShoeSource, Inc., a Missouri
corporation ("PSS") and Payless Merger Corp., a Missouri corporation and
wholly owned subsidiary of the Company ("Merger Sub"), attached as Annex A
to the Prospectus/Proxy Statement contained in the Registration Statement
(the "Prospectus/Proxy Statement"), has been duly adopted by the
shareholders of PSS at the annual meeting of shareholders scheduled to be
held on May 22, 1998, (iii) all conditions to the effectiveness of the
Merger (as defined in the Merger Agreement) contained in the Merger
Agreement have been satisfied or waived in accordance with the terms of the
Merger Agreement, (iv) a Restated Certificate of Incorporation of the
Company substantially in the form attached as Annex B to the
Prospectus/Proxy Statement has been duly filed with the Secretary of State
of the State of Delaware, and (v) the Securities have been issued in
accordance with the terms of the Merger Agreement, the Securities will be
validly issued, fully paid, and nonassessable.
(2) Assuming that the Rights Agreement has been duly authorized,
executed and delivered by the Rights Agent, when (i) the Registration
Statement has become effective under the Act, and (ii) the Securities have
been duly issued in the Merger as contemplated by the Registration
Statement, the Rights attributable to the Securities will be validly
issued.
In connection with our opinion set forth in paragraph (2) above, we note
that the question whether the Board of Directors of the Company might be
required to redeem the Rights at some future time will depend upon the facts and
circumstances existing at that time and, accordingly, is beyond the scope of
such opinion.
The foregoing opinion is limited to the Federal laws of the United States
and the General Corporation Law of the State of Delaware, and we are expressing
no opinion as to the effect of the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from public
officials, officers of the Company and PSS and other sources believed by us to
be responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Validity of
Shares" in the Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Act.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-4 of our report dated
February 20, 1998, incorporated by reference in the Payless ShoeSource, Inc.
Form 10-K for the year ended January 31, 1998, and to all references to our firm
included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri
April 20, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of Payless
ShoeSource Holdings, Inc., a Delaware corporation, do hereby constitute and
appoint Steven J. Douglass, Ullrich E. Porzig, and William J. Rainey, and each
or any one of them acting alone, as his true and lawful attorney-in-fact and
agent, with full power of substitution for him and in his name, place and stead,
in any and all capacities, to sign the Registration Statement on Form S-4 under
the Securities Act of 1933, as amended, and any amendments thereto of said
Company, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises to perfect and complete such filing(s), as fully to all the intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue thereof.
Dated this 20th day of April, 1998.
/s/ STEVEN J. DOUGLASS
------------------------------------------------
Steven J. Douglass
/s/ HOWARD R. FRICKE
------------------------------------------------
Howard R. Fricke
/s/ MICHAEL E. MURPHY
------------------------------------------------
Michael E. Murphy
/s/ DANIEL BOGGAN JR
------------------------------------------------
Daniel Boggan Jr
/s/ RICHARD A. JOLOSKY
------------------------------------------------
Richard A. Jolosky
/s/ THOMAS A. HAYS
------------------------------------------------
Thomas A. Hays
/s/ ROBERT L. STARK
------------------------------------------------
Robert L. Stark
/s/ MYLLE B. MANGUM
------------------------------------------------
Mylle B. Mangum
<PAGE> 1
EXHIBIT 99(a)
DIRECTIONS TO WASHBURN UNIVERSITY
BRADBURY THOMPSON CENTER
17TH AND JEWELL
TOPEKA, KANSAS
[MAP]
The Bradbury Thompson Center is located on the Washburn University
Campus on the southwest corner of 17th and Jewell Streets. The meeting
will be held in Ruth Garvey Fink Room, First Floor in the Bradbury
Thompson Center.
Parking is available for you in Parking Lots 10 and 11. From the
parking lot you may enter Bradbury Thompson Center from the south or
east entrances.
- --------------------------------------------------------------------------------
(PSS)
PROXY PAYLESS SHOESOURCE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING TO BE HELD ON MAY 22, 1998.
By signing this card, the undersigned appoints each of Jed L. Norden and William
J. Rainey, or both or either of them, with full power of substitution, as
proxies for the undersigned, to vote all common shares of the undersigned in
Payless ShoeSource, Inc. at the May 22, 1998, 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 of the other side of this card.
The Board of Directors recommends a vote FOR election of all listed director
nominees and FOR proposals I and III 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 RECOMMENDATIONS OF
THE BOARD OF DIRECTORS AND IN EACH PROXY'S DISCRETION ON ANY OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE MEETING.
The nominees for the board of directors are Thomas A. Hays, Michael E. Murphy
and Daniel Boggan Jr, each for three year terms expiring in 2001, and Mylle R.
Mangum, for a two year term expiring in 2000.
<TABLE>
<S> <C>
Please sign the other side of this card and
return this card promptly to the address
shown on the enclosed return envelope to:
</TABLE>
(Continued, and to be dated and signed on reverse side.)
<PAGE> 2
PAYLESS SHOESOURCE, INC.
3231 EAST 6TH STREET
P.O. BOX 1189
TOPEKA, KANSAS 66601-1189
(913) 233-5171
To Shareowners of Payless ShoeSource, Inc. ("PSS"):
The Annual Meeting of PSS shareowners will be held at Washburn University
Bradbury Thompson Center, 1700 College Avenue, corner of 17th Street and Jewell
Avenue, Topeka, Kansas on Friday, May 22, 1998, at 10:00 a.m. Central Daylight
Time. The accompanying Proxy Statement/Prospectus provides you with information
regarding the meeting.
It is important that your shares be represented at this meeting. Even if you
plan to attend, please promptly sign, date and return your proxy in the enclosed
postage-paid envelope.
ADMISSION TICKET
(Please detach this proxy card below 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.)
DETACH PROXY CARD HERE
-------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Proposals I, II(a) and (b) and III
Proposal I. Proposal to adopt the Agreement and Plan of Merger dated as of April
20, 1998, among Payless ShoeSource, Inc., Payless ShoeSource Holdings, Inc. and
Payless Merger Corp.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal II. Election of Directors
(a) Election of Thomas A. Hays, Michael E. Murphy and Daniel Boggan Jr for
three year terms expiring in 2001
FOR [ ] WITHHOLD AUTHORITY [ ] *EXCEPTIONS [ ]
(b) Election of Mylle B. Mangum for a two year term expiring in 2000
FOR [ ] WITHHOLD AUTHORITY [ ]
INSTRUCTIONS: To vote your shares for all nominees, please mark the appropriate
FOR box in Proposal II(a) and (b). To withhold voting for all nominees under
Proposals II(a) and/or (b), please mark the appropriate WITHHOLD AUTHORITY box
or boxes. If you do not wish your shares voted FOR a particular nominee in
Proposal II(a), please mark the EXCEPTION box and enter the name of the
director(s) for whom you wish to withhold authority in the space provided below.
*Exceptions
Proposal III. Ratification of the appointment of independent auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<TABLE>
<S> <C>
If you plan to attend Change of Address and/or
the Annual Meeting, Comments Mark Here. [ ]
please mark here. [ ]
Please sign name(s) exactly as shown on this card.
Dated, 1998
--------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
Signature(s)
Votes MUST be indicated in Black or Blue ink.
</TABLE>
Please promptly Sign, Date and Return the Proxy Using the Enclosed Envelope.
<PAGE> 1
EXHIBIT 99(b)
(PSS)
CONFIDENTIAL VOTING INSTRUCTIONS TO THE BANK OF NEW YORK AS TRUSTEE UNDER
PAYLESS SHOESOURCE, INC. PROFIT SHARING PLAN AND PROFIT SHARING PLAN FOR PUERTO
RICO ASSOCIATES (EACH, A "PROFIT SHARING PLAN.")
By signing this card, I appoint the Trustee to vote all shares of common stock
of Payless ShoeSource, Inc. represented by units credited to my account in the
PSS Common Stock Fund or the Profit Sharing Plan, all as of January 31, 1998
(the latest practicable Valuation Date), at the May 22, 1998, 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 of
Payless ShoeSource, Inc., 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 and, FOR proposals I and III listed on the other side of this card. IF
NO DIRECTIONS ARE GIVEN, AND THIS CARD IS RETURNED SIGNED, I UNDERSTAND THAT THE
TRUSTEE WILL VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF
DIRECTORS AND IN ITS DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING. If this card is not received by the Trustee on or before May
15, 1998, the Trustee will vote my shares in the same proportion as the other
shares held by the Trustee are voted pursuant to instructions received from
other participants in the Profit Sharing Plan.
The nominees for the Board of Directors are Thomas A. Hays, Michael E. Murphy
and Daniel Boggan Jr, each for three year terms expiring in 2001, and Mylle R.
Mangum, for a two year term expiring in 2000.
<TABLE>
<S> <C>
Please sign the other side of this card and PAYLESS SHOESOURCE, INC.
return this card promptly to the address
shown on the right in the enclosed return
envelope to:
</TABLE>
(Continued, and to be dated and signed on reverse side.)
<PAGE> 2
PAYLESS SHOESOURCE, INC.
3231 EAST 6(TH) STREET
P.O. BOX 1189
TOPEKA, KANSAS 66601-1189
(785) 233-5171
To Members of the Profit Sharing Plan:
Provided with this card is the Company's 1997 Annual Report to Shareowners and
the proxy statement for the 1998 Annual Meeting, a confidential voting
instruction card and a return envelope. It is important that you vote.
Management's recommendation on each issue and the reasons for the
recommendations are described in the proxy statement.
Please complete, sign and return the confidential voting instruction card; the
Profit Sharing Plan trustee (The Bank of New York) will follow your voting
instructions. These instructions cannot be disclosed by the trustee.
DETACH PROXY CARD HERE
-------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Proposals I, II(a) and (b) and III
Proposal I. Proposal to adopt the Agreement and Plan of Merger dated as of
April 20, 1998 among Payless ShoeSource, Inc., Payless ShoeSource Holdings, Inc.
and Payless Merger Corp.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal II. Election of Directors
(a) Election of Thomas A. Hays, Michael E. Murphy and Daniel Boggan Jr for
three year terms expiring in 2001
FOR [ ] WITHHOLD AUTHORITY [ ] *EXCEPTIONS [ ]
(B) Election of Mylle B. Mangum for a two year term expiring in 2000
FOR [ ] WITHHOLD AUTHORITY [ ]
INSTRUCTIONS: To vote your shares for all nominees, please mark the appropriate
FOR box in Proposal II(a) and (b). To withhold voting for all nominees under
Proposals II(a) and/or (b), please mark the appropriate WITHHOLD AUTHORITY box
or boxes. If you do not wish your shares voted FOR a particular nominee in
Proposal II(a), please mark the EXCEPTION box and enter the name of the
director(s) for whom you wish to withhold authority in the space provided below.
*Exceptions
Proposal III. Ratification of the appointment of independent auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<TABLE>
<S> <C>
If you plan to attend Change of Address and/or
the Annual Meeting, Comments Mark Here. [ ]
please mark here. [ ]
Please sign name(s) exactly as shown on this card.
Dated: 1998
--------------------------------------------
------------------------------------------------------
------------------------------------------------------
Signature(s)
Votes MUST be indicated in Black or Blue ink.
</TABLE>
Please promptly Sign, Date and Return the Proxy Using the Enclosed Envelope.
<PAGE> 1
EXHIBIT 99(c)
(PSS)
CONFIDENTIAL VOTING INSTRUCTIONS TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C. AS
TRUSTEE UNDER PAYLESS SHOESOURCE, INC. STOCK OWNERSHIP PLAN.
By signing this card, I appoint the Trustee to vote all shares of common stock
of Payless ShoeSource, Inc. represented by units credited to my account in the
PSS Stock Ownership Plan, all as of January 31, 1998 (the latest practicable
Valuation Date), at the May 22, 1998, 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 of Payless ShoeSource, Inc.,
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 and, FOR proposals I and III listed on the other side of this card. IF
NO DIRECTIONS ARE GIVEN, AND THIS CARD IS RETURNED SIGNED, I UNDERSTAND THAT THE
TRUSTEE WILL VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF
DIRECTORS AND IN ITS DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING.
The nominees for the Board of Directors are Thomas A. Hays, Michael E. Murphy
and Daniel Boggan Jr, each for three year terms expiring in 2001, and Mylle R.
Mangum, for a two year term expiring in 2000.
<TABLE>
<S> <C>
Please sign the other side of this card and PAYLESS SHOESOURCE, INC.
return this card promptly to the address
shown on the right in the enclosed return
envelope to:
</TABLE>
(Continued, and to be dated and signed on reverse side.)
<PAGE> 2
PAYLESS SHOESOURCE, INC.
3231 EAST 6(TH) STREET
P.O. BOX 1189
TOPEKA, KANSAS 66601-1189
(785) 233-5171
To Members of the Stock Ownership Plan:
Provided with this card is the Company's 1997 Annual Report to Shareowners and
the proxy statement for the 1998 Annual Meeting, a confidential voting
instruction card and a return envelope. It is important that you vote.
Management's recommendation on each issue and the reasons for the
recommendations are described in the proxy statement.
Please complete, sign and return the confidential voting instruction card; the
Stock Ownership Plan trustee (ChaseMellon) will follow your voting instructions.
These instructions cannot be disclosed by the trustee.
DETACH PROXY CARD HERE
-------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Proposals I, II(a) and (b) and III
Proposal I. Proposal to adopt the Agreement and Plan of Merger dated as of
April 20, 1998 among Payless ShoeSource, Inc., Payless ShoeSource Holdings, Inc.
and Payless Merger Corp.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal II. Election of Directors
(a) Election of Thomas A. Hays, Michael E. Murphy and Daniel Boggan Jr for
three year terms expiring in 2001
FOR [ ] WITHHOLD AUTHORITY [ ] *EXCEPTIONS [ ]
(B) Election of Mylle B. Mangum for a two year term expiring in 2000
FOR [ ] WITHHOLD AUTHORITY [ ]
INSTRUCTIONS: To vote your shares for all nominees, please mark the appropriate
FOR box in Proposal II(a) and (b). To withhold voting for all nominees under
Proposals II(a) and/or (b), please mark the appropriate WITHHOLD AUTHORITY box
or boxes. If you do not wish your shares voted FOR a particular nominee in
Proposal II(a), please mark the EXCEPTION box and enter the name of the
director(s) for whom you wish to withhold authority in the space provided below.
*Exceptions
Proposal III. Ratification of the appointment of independent auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<TABLE>
<S> <C>
If you plan to attend Change of Address and/or
the Annual Meeting, Comments Mark Here. [ ]
please mark here. [ ]
Please sign name(s) exactly as shown on this card.
Dated: 1998
--------------------------------------------
------------------------------------------------------
------------------------------------------------------
Signature(s)
Votes MUST be indicated in Black or Blue ink.
</TABLE>
Please promptly Sign, Date and Return the Proxy Using the Enclosed Envelope.
