<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
PAYLESS SHOE SOURCE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE> 2
Payless ShoeSource
3231 SOUTH EAST SIXTH STREET
TOPEKA, KANSAS 66607
April 12, 1999
Dear Fellow Shareowner,
On behalf of the Board of Directors and management of Payless ShoeSource,
Inc., I cordially invite you to attend the Annual Meeting of Shareowners at the
Washburn University Bradbury Thompson Center, on the corner of 17th Street and
Jewell Avenue, Topeka, Kansas on Friday, May 28, 1999 at 10:00 a.m. Central
Daylight Saving Time. At the meeting, you will hear a report on the Company's
progress in 1998, our strategies for the future, and you will have a chance to
meet the Company's directors and executives, including our new President, Ken C.
Hicks. In addition, we will conduct the following business:
- Elect three directors, each for a three-year term
- Ratify the appointment of Arthur Andersen LLP as independent accountants
for fiscal year 1999
- Conduct other business, if properly raised
In the following pages you will find the formal notice of the meeting and
the proxy statement. The proxy statement provides more detail about the agenda
and procedures for the meeting and includes biographical information about the
director candidates.
Even if you only own a few shares, we want your shares to be represented at
the meeting. I urge you to complete, sign, date and return your proxy card
promptly in the enclosed envelope or vote via the Internet as indicated on the
proxy card and instructions. To attend the meeting in person, please follow the
instructions on page 1.
Thank you for your investment in Payless ShoeSource.
Sincerely,
/s/ Steven J. Douglass
Steven J. Douglass
Chairman 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 Street and Jewell Avenue. The Annual Meeting
will be held in the Ruth Garvey Fink Room, First Floor of the Bradbury Thompson
Center.
Parking is available for you in Parking Lots 10 and 11. From the parking
lot, you may enter the Bradbury Thompson Center from the south or east
entrances.
[MAP]
<PAGE> 4
Payless ShoeSource
NOTICE OF PAYLESS SHOESOURCE, INC., ANNUAL MEETING OF SHAREOWNERS
DATE:
May 28, 1999
TIME:
10:00 a.m. Central Daylight Saving Time
PLACE:
Washburn University Bradbury Thompson Center
Corner of 17th Street and Jewell Avenue
Topeka, Kansas
PURPOSES:
Elect three directors, each for a three-year term
Ratify the appointment of Arthur Andersen LLP as independent
accountants for fiscal year 1999
Conduct other business, if properly raised
WHO MAY VOTE?
Only shareowners of record on April 2, 1999 may vote at the
meeting.
Your vote is important. Please promptly complete, sign, date and return
your proxy card in the enclosed envelope. You may also vote via the Internet at
HTTP://WWW.UMB.COM/PROXY. If you attend the meeting, you may revoke your proxy
and vote in person, if you wish to do so.
/s/ WILLIAM J. RAINEY
William J. Rainey
Secretary
April 12, 1999
<PAGE> 5
Payless ShoeSource
PROXY STATEMENT GENERAL INFORMATION
PAYLESS SHOESOURCE, INC.
WHAT ARE THE PURPOSES OF THIS MEETING?
The purposes of this meeting are to (i) elect three directors, each for a
three-year term, (ii) ratify the appointment of Arthur Andersen LLP as the
Company's independent accountants for fiscal year 1999 and (iii) conduct other
business, if properly raised.
WHO MAY VOTE?
Shareowners of Payless ShoeSource, Inc., a Delaware corporation ("Payless"
or the "Company"), as recorded in our stock register on April 2, 1999, may vote
at the meeting.
HOW TO VOTE?
You may vote in person at the meeting or by proxy. Proxies may be submitted
either via United States Mail or the Internet at HTTP://WWW.UMB.COM/PROXY. We
recommend you vote by proxy even if you plan to attend the meeting. If you
attend the meeting, you may revoke your proxy and vote in person, if you wish to
do so.
HOW DO PROXIES WORK?
The Board of Directors is asking for your proxy. Giving us your proxy means
you authorize us to vote your shares at the meeting in the manner you direct.
You may vote for all, some or none of our director candidates. You also may vote
for or against the other proposals or abstain from voting. If you sign and
return the enclosed proxy card but do not specify how to vote, we will vote your
shares in favor of our director candidates and in favor of the Management
proposals.
WHY DID I RECEIVE MULTIPLE PROXY CARDS?
You may receive more than one proxy or voting instruction card depending on
how you hold your shares. You will receive a proxy card for shares registered in
your name. Payless employees will receive a voting instruction card for the
aggregate number of shares they hold in the Company's profit sharing plan and
shares held by the employee stock purchase plan. If you hold shares through
someone else, such as a stockbroker, you may also get material from them asking
how you want to vote.
HOW DO I REVOKE MY PROXY?
You may revoke your proxy before it is voted by submitting a new proxy card
with a later date. Record holders may also revoke their proxy by voting in
person at the meeting or by notifying the Company's Secretary in writing at the
address listed under "Questions" on page 18.
WHAT IS A QUORUM?
In order to carry on the business of the meeting, we must have a quorum.
This means at least a majority of the outstanding shares eligible to vote must
be represented at the meeting, either in person or by proxy. Shares owned by
Payless are not voted and do not count for this purpose.
HOW MANY VOTES ARE NEEDED?
The director candidates receiving the most votes will be elected to fill
the seats on the Board. The other Management proposal will pass if a majority of
the votes cast on that proposal are in favor of it. We count abstentions and
broker non-votes to determine if a quorum is present, but not to determine if a
proposal passes. When a broker returns a proxy but does not have authority to
vote on a particular proposal, we call it a "broker non-vote."
WHO MAY ATTEND THE MEETING?
Only shareowners, their proxy holders and the Company's guests may attend
the meeting. The lower half of your proxy or voting instruction card is your
admission ticket. Please bring the admission ticket with you to the meeting.
If you hold your shares through someone else, such as a stockbroker, send
proof of your ownership to the Secretary at the address listed under "Questions"
on page 18, and we will send you an admission ticket. Alternatively, you may
bring proof of ownership with you to the meeting. Acceptable proof could include
an account statement showing that you owned Payless shares on April 2, 1999.
-------------------------
This Proxy Statement and the enclosed form of proxy are being mailed to
shareowners
on or about April 12, 1999.
<PAGE> 6
PROPOSAL I: ELECTION OF DIRECTORS
PROPOSAL I ON THE ACCOMPANYING PROXY CARD.
DIRECTORS AND NOMINEES FOR DIRECTORS
The Board currently consists of nine Directors divided into three classes
serving staggered terms. Six of the Company's current Directors are serving in
two classes with terms that continue beyond the Annual Meeting, and they are not
subject to election at the Annual Meeting. Two Directors, Messrs. Steven J.
Douglass and Howard R. Fricke, serve in a class with a term that expires at the
Annual Meeting, and these Directors are nominees of the Board for reelection at
the Annual Meeting. Mr. Ken C. Hicks was elected to the Board in January 1999
filling a vacancy caused by increasing the size of the Board. Mr. Hicks is also
a nominee of the Board for reelection at the Annual Meeting. Once elected at the
Annual Meeting, each of Messrs. Douglass, Fricke and Hicks will serve a term of
three years to expire at the annual meeting of shareowners to be held in the
year 2002 or until his successor is elected and qualifies.
Messrs. Richard A. Jolosky, Robert L. Stark and Ms. Mylle B. Mangum, have
terms expiring at the 2000 Annual Meeting of Shareowners and Messrs. Thomas A.
Hays, Michael E. Murphy and Daniel Boggan Jr. have terms expiring at the 2001
Annual Meeting of Shareowners.
Each nominee has consented to being named as a nominee and to serve, if
elected. If any nominee should subsequently become unavailable for election, the
holders of proxies may, in their discretion, vote for a substitute or the Board
may reduce the number of Directors to be elected.
Further information concerning the nominees for election as Directors at
the Annual Meeting and the continuing Directors, including their employment
during at least the past five years, appears below.
DIRECTORS SUBJECT TO ELECTION:
STEVEN J. DOUGLASS is 49 years old and has served as Chairman of the Board
and Chief Executive Officer of Payless since May 4, 1996, the date on which the
Payless Common Stock was distributed in a spin-off by The May Department Stores
Company ("May") to its shareowners (the "Spin-off"). Mr. Douglass was also
Chairman and Chief Executive Officer of Payless from April, 1995 until the
Spin-off. 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, 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.
HOWARD R. FRICKE is 63 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 Financial Corporation and ONEOK, Inc. Mr. Fricke has served as a Director of
Payless since April 30, 1996.
KEN C. HICKS is 46 years old and has served as President of Payless since
January 28, 1999. Before joining Payless, he was Executive Vice President and
General Merchandise Manager for Home Shopping Network, Inc. Prior to his
association with Home Shopping Network, Inc., Mr. Hicks held several positions
with May serving as Senior Vice President and General Merchandise Manager of
Foley's Department Stores (1995-1998), Senior Vice President and General
Merchandise Manager for May Merchandising Company (1990-1995) and as Senior Vice
President of Strategic Planning for May (1987-1990). Mr. Hicks has served as a
Director of Payless since January 28, 1999.
THE BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PAYLESS COMMON STOCK VOTE IN
FAVOR OF ALL OF THE ABOVE NOMINEES.
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<PAGE> 7
CONTINUING DIRECTORS:
DANIEL BOGGAN JR. is 53 years old and has served as Senior Vice President
of The National Collegiate Athletic Association (the "NCAA") since August, 1998.
He joined the NCAA in 1994 as Group Executive Director for Education Services
and served as Chief Operating Officer from January, 1996 to August, 1998. Prior
to his tenure with the NCAA, Mr. Boggan served as Vice Chancellor of the
University of California (1986-1994) and City Manager of Berkeley, California
(1982-1986). Mr. Boggan is a director of The Clorox Company. Mr. Boggan has
served as a Director of Payless since September 18, 1997.
THOMAS A. HAYS is 66 years old and is the former Deputy Chairman of May. He
served in such capacity from 1993 through April, 1996. He also served as a
director of May from 1983 through 1996. Mr. Hays joined May in 1969 in the
finance and operations areas. From 1972 to 1984, he served as Chairman,
President or Chief Executive Officer of several operating divisions of May. Mr.
Hays was named Vice Chairman of May in 1982 and President in 1985. Mr. Hays is
also a director of Ameren Corporation and Leggett & Platt, Incorporated. Mr.
Hays has served as a Director of Payless since April 30, 1996.
RICHARD A. JOLOSKY is 64 years old and has served as Vice Chairman of
Payless since January 28, 1999. He served as President of Payless from 1996
through January, 1999. Mr. Jolosky initially joined Payless in September, 1982,
serving as Executive Vice President-Merchandising (1982-1984) and then as
President (1985-1988). Mr. Jolosky was previously 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. and has served as a Director of Payless since April 30, 1996.
MYLLE B. MANGUM is 50 years old and joined Carlson Wagonlit Travel (now
known as CWT Holdings, Inc.) in March, 1997 as President-Global Payment Systems
and Senior Vice President-Expense Management and Strategic Planning. She was
previously Executive Vice President-Strategic Management for Holiday Inn
Worldwide (1992-1997). Ms. Mangum was previously employed with BellSouth
Corporation as Director-Corporate Planning and Development (1986-1992). 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.
MICHAEL E. MURPHY is 62 years old and is the former Vice Chairman and Chief
Administrative Officer of Sara Lee Corporation ("Sara Lee"). He served in such
capacity from 1994 through 1997. In addition, he served as a director of Sara
Lee from 1979 through October, 1997. Mr. Murphy joined Sara Lee in 1979, serving
as Executive Vice President and Chief Financial and Administrative Officer
(1979-1993) and as Vice Chairman and Chief Financial and Administrative Officer
(1993-1994). Mr. Murphy is a member of Chicago Committee of the Chicago Council
on Foreign Relations 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 is also a member of the Board of Trustees
of Northern Funds (a family of mutual funds). Mr. Murphy has served as a
Director of Payless since April 30, 1996.
ROBERT L. STARK is 65 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 from 1976 to 1993. He is currently a director of Champion Enterprises,
Inc. Mr. Stark has served as a Director of Payless since April 30, 1996.
THE BOARD AND COMMITTEES OF THE BOARD
The Board of Directors of the Company held a total of 12 meetings during
fiscal 1998. No Director, except for Mr. Hays, attended less than 75% of the
aggregate of (i) the total number of board meetings held during the period for
which such director held such office and (ii) the total number of meetings held
by all Board committees on which such director served during the periods that
such director served.
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<PAGE> 8
The Board has two committees: an Audit and Finance Committee (the "Audit
and Finance Committee") and a Compensation and Nominating Committee (the
"Compensation Committee").
Compensation of Directors. Management directors are not entitled to
additional compensation for their service as a Director, attendance at Board or
committee meetings or at meetings of the shareowners. Under the Company's
Restricted Stock Plan for Non-Management Directors, each Director who is not an
officer of Payless receives 1,000 shares of Payless Common Stock upon joining
the Board. As of the date of each annual meeting, non-management directors also
are awarded an annual fee of $35,000 payable in Payless Common Stock and cash
compensation of $5,000. All such shares of Payless Common Stock are subject to
restrictions on transferability and to forfeiture. For 1998, the annual fee of
$35,000 was paid as 500 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 22, 1998.
The cash portion of the annual fee vests one-fifth on the date of each regular
meeting of the Board following the annual meeting. Non-management directors are
also paid $1,000 in cash per meeting for attending more than twelve meetings
(Board and committee) 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 the Company's 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 May 1 following the
date of the grant. Shares awarded under the plan may not be sold during a
person's tenure as a Director. The Restricted Stock Plan for Non-Management
Directors may not be amended in a manner that would increase the number of
shares of Payless Common Stock issuable thereunder, change the class of persons
eligible to participate thereunder or otherwise materially increase benefits or
modify eligibility requirements without shareowner approval.
The Deferred Compensation Plan for Non-Management Directors referred to
above allows each Director to defer receipt of any fee received for services as
a Director, whether payable as restricted stock or cash, until after the
calendar year in which the person ceases to serve as a Director.
Audit and Finance Committee. The Audit and Finance Committee recommends to
the Board the firm of independent public accountants to audit the Company's
financial statements, the proposed engagement arrangements for the independent
public accountants for each fiscal year and the advisability of having the
independent public accountants perform consulting or other special projects,
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 the
Company's internal auditing group, the scope and procedures of the Company's
internal audit work and the quality and composition of the Company's internal
audit staff. The Audit and Finance Committee is responsible for reviewing and
making recommendations to the Board with respect to matters such as the
following: the financial policies of 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; the Company's capital expenditure program, including rate of return
standards and evaluation methods; specific debt and/or equity placement
activities; external financial relationships with investment bankers, commercial
bankers, insurance companies, etc.; financial public relations and communication
programs; profit sharing plan investments; financial aspects of proposed
acquisitions and/or divestitures; and Payless insurance and risk management
program. The members of the Audit and Finance Committee, during the 1998 fiscal
year, were Messrs. Hays, Murphy (Chairman), Stark and Fricke and Ms. Mangum,
each of whom was an independent director as required by the rules of the NYSE.
During the 1998 fiscal year, the Audit and Finance Committee met three times.
Compensation and Nominating Committee. The functions of the Compensation
Committee include such matters as considering and recommending to the Board and
the Company's management the overall compensation programs of the Company,
reviewing and approving the compensation payable to the senior
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<PAGE> 9
management personnel of the Company and reviewing and monitoring the executive
development efforts of the Company to assure development of a pool of management
and executive personnel adequate for orderly management succession. The
Compensation Committee: reviews significant changes in employee benefit plans
and stock related plans; serves as the "Committee" under the Company's profit
sharing plans, the stock incentive plan, stock appreciation and phantom stock
plan for international employees, executive incentive compensation plans for the
Company executives, supplementary retirement plan and deferred compensation
plan; and identifies and recommends candidates for Directors of the Board,
members of committees and the successor to the chief executive officer. The
Compensation Committee considers suggestions as to nominees for Directors from
any source, including any shareowner. To potentially be brought before the 2000
annual meeting, the recommendation must be in writing, submitted to the
Corporate Secretary of Payless at 3231 South East Sixth Street, Topeka, Kansas,
66607, at least 75 and not more than 90 days prior to the 2000 annual meeting,
and otherwise comply with the terms of the Company's Bylaws. The members of the
Compensation Committee during the last fiscal year were Messrs. Hays (Chairman),
Murphy and Boggan, each of whom was a "non-employee director" within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act"),
and an "outside director" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). During the 1998 fiscal year, the
Compensation Committee met five times.
The Board may, from time to time, establish certain other committees to act
on behalf of the Board of Directors
COMPENSATION AND NOMINATING COMMITTEE REPORT
The Compensation Committee (the "Committee") reviews and approves, among
other things, the compensation payable to each of the executive officers named
in the Summary Compensation Table on page 10.
Compensation Philosophy. The Company's basic compensation philosophy is
that the compensation program should:
1) attract, retain and motivate highly qualified executives;
2) be competitive;
3) align the executive's compensation with the Company's objectives; and
4) be related to the value created for shareowners.
Compensation for executive officers is comprised of a base salary, bonus
opportunities and long-term stock incentives. The Committee regularly reviews
compensation based on the Company's compensation philosophy, the performance of
Payless and competitive practices. As part of its review of competitive pay
levels, the Committee looks at the base salary levels, annual bonus levels and
long-term incentives of a broad group of companies, including some of the
companies in the peer group represented in the Stock Price Performance graph on
page 9, and other retail companies of similar size to Payless (the "survey
companies").
Base Salary. Base salaries are targeted at approximately the 50th
percentile of base salaries for comparable executive officer positions at the
survey companies. The Committee annually reviews and adjusts base salaries based
on the Committee's discretionary assessment of each individual executive's
performance and competitive pay levels. Base salaries for all executive officers
increased an average of 6.5 percent during fiscal 1998.
Bonus Opportunities. The Executive Incentive Compensation Plan (the "EICP")
and the Executive Incentive Plan for Business Unit Management (the "EICP for
Business Unit Management") provide an opportunity for all executive officers to
earn bonuses based on both annual and long-term results. Both the annual and
long-term bonus opportunities are targeted at approximately the 65th percentile
of the bonus opportunities for comparable positions at the survey companies for
targeted above-market performance. Executive officers are eligible to receive
annual cash awards for individual fiscal years and long-term cash
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<PAGE> 10
awards for long-term performance periods of three years. The long-term
performance period covers fiscal 1996-1998.
EICP. The annual and long-term awards are based upon attaining earnings per
share ("EPS") targets and return on net assets ("RONA") performance standards
relating to Payless as a whole. Awards are subject to automatic upward or
downward adjustment to reflect the Company's performance in EPS growth and RONA
as compared to a group of peer companies designated in advance by the Committee.
The relative rank adjustment varies depending on the number of peer companies
designated by the Committee. For fiscal 1998, the Committee designated the 17
peer companies comprising the peer group of companies used in the Stock Price
Performance graph (the "Peer Group"). The Company's relative rank is determined
based on data reviewed by the Company's independent public accountants. If
Payless ranks first through fifth, the award for that measure is not less than
the target level; if Payless ranks sixth through ninth, the award for that
measure is not less than threshold level; and if Payless ranks fourteenth
through eighteenth, the award for that measure is not more than threshold level.
For annual and long-term performance periods beginning in fiscal 1999, the
Committee determined that the following 16 companies will comprise the peer
group: Gap, Inc., Limited, Inc., Ross Stores, Inc., The TJX Companies, Inc.,
Brown Group, Inc., Footstar, Inc., Genesco, Inc., Just for Feet, Inc., Nine West
Group, Inc., Shoe Carnival, Inc., Finish Line, Inc., Venator Group, Inc., Dayton
Hudson, Corp., Dollar General Corp., Family Dollar Stores, Inc. and Wal-Mart
Stores, Inc. The Committee believes that the new peer group more closely
resembles the Company's business and size.
The long-term award is also subject to an automatic upward (up to 50%) or
downward (up to 25%) adjustment based on the performance of the Company's Common
Stock price over the long-term performance periods. For this purpose, the
performance of the Company's Common Stock is based on the difference between the
average closing price of the Company's Common Stock on the NYSE during the month
of February of the calendar year in which a long-term performance period begins
and the average closing price of the Company's Common Stock during the month of
February of the calendar year in which such long-term performance period ends.
However, for the first three long-term performance periods, which began in 1996,
the price of the Company's Common Stock at the beginning of such periods is the
average of the high and low daily trading prices of the Company's Common Stock
on the NYSE for each of the first 30 trading days on which the Company's Common
Stock traded on the NYSE.
The annual award for fiscal 1998 could have ranged between 0% and 75% of
base salary for the CEO, between 0% and 62.5% of base salary for the President
and between 0% and 45% of base salary for the other executive officers named in
the Summary Compensation Table. For fiscal 1998, the threshold annual award was
25% of base salary for the CEO, 20.83% of base salary for the President and 15%
of the base salary for the other executive officers named in the Summary
Compensation Table. The target annual award for fiscal 1998 was 50% of base
salary for the CEO, 41.67% of base salary for the President and 30% of base
salary for the other executive officers named in the Summary Compensation Table.
The long-term award for fiscal 1998 could have ranged between 0% and 50% of
average base salary over the long-term performance period for the CEO, between
0% and 41.67% of average base salary over the long-term performance period for
the President and between 0% and 30% of average base salary over the long-term
performance period for the other executive officers named in the Summary
Compensation Table. For fiscal 1998, the threshold long-term award was 16.67% of
average base salary over the long-term performance period for the CEO, 13.89% of
average base salary over the long-term performance period for the President and
10% of average base salary over the long-term performance period for the other
executive officers named in the Summary Compensation Table, and the target
long-term award was 33.33% of average base salary over the long-term performance
period for the CEO, 27.78% of average base salary over the long-term performance
period for the President and 20% of average base salary over the long-term
performance period for the other executive officers named in the Summary
Compensation Table. All long-term awards are subject to the adjustment described
above regarding stock price performance over the long-term period. The awards
for the executive officers named in the Summary Compensation Table may also be
adjusted downward on a discretionary basis by the Committee.
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<PAGE> 11
For the three-year "long-term" performance period, fiscal 1996 to 1998, the
Company's performance exceeded the maximum performance levels set by the
Committee for both EPS and RONA. For the annual performance period, the
Company's performance was between the threshold and the target performance level
for EPS and below the threshold target for RONA. The Company's rank relative to
the companies comprising the Peer Group was eighth with respect to annual RONA,
eleventh with respect to annual EPS Growth, eighth with respect to long-term
RONA and ninth with respect to long-term EPS Growth. Therefore the payout for
annual RONA was adjusted to the threshold level and no adjustment was made for
annual or long-term EPS or long-term RONA based on the Company's relative rank
to the companies comprising the Peer Group. The price of the Company's Common
Stock increased by $26.87 for the three-year "long-term" performance period
above, resulting in a 50% increase in long-term bonuses.
The above performance resulted in the following annual and long-term bonus
awards:
<TABLE>
<CAPTION>
ANNUAL BONUS AWARD LONG-TERM BONUS AWARD
(PERCENTAGE OF BASE SALARY) (PERCENTAGE OF BASE SALARY)
--------------------------- ---------------------------
<S> <C> <C>
CEO.............................................. 25.63% 75%
President........................................ 21.36% 62.5%
Each other Executive Officer participating in the
EICP........................................... 15.38% 45%
</TABLE>
EICP for Business Unit Management. The EICP for Business Unit Management is
modeled after the EICP and provides an opportunity for management employees of
the Company and its subsidiaries who manage separate business units to earn
bonuses based on both annual and long-term results of their business unit. The
annual and long-term awards are based upon attaining annual earnings growth and
RONA performance standards for a given business unit. The long-term award is
also subject to an automatic upward (up to 50%) or downward (up to 25%)
adjustment based on the performance of the Company's Common Stock price over the
long-term performance periods.
Long-Term Stock Incentives. The Company may provide for long-term stock
incentives with stock options, restricted stock, stock appreciation rights,
phantom stock and performance units, which are designed to attract, retain and
motivate management associates and relate their compensation directly to the
performance of the Company's Common Stock. The mixture of such awards is
determined by the Committee in its discretion. The 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 growth
in the value of the Company and aligning management interests more closely with
those of the Company's shareowners. As part of this policy, the Committee
believes that the long-term incentives provided to the Company's executives
should be targeted at approximately the 50th percentile of the long-term
incentive opportunities for comparable positions at the survey companies.
Consistent with the Company's compensation philosophy and because of the grants
of options and restricted stock in 1997, no additional grants of options or
restricted stock were made to the executive officers named in the Summary
Compensation Table during fiscal 1998. The next grant of long-term stock
incentives is anticipated to occur in fiscal 2000.
CEO Pay. Based on the Company's compensation philosophy, effective May 3,
1998, the CEO's base salary increased to $675,000. The Committee noted that Mr.
Douglass' compensation was below targeted levels.
The CEO's bonus for 1998 of $679,253 was determined entirely by the
quantitative criteria set forth above.
Executive Stock Ownership. Payless believes that it is important for every
executive of Payless to establish and maintain an equity ownership interest in
Payless that is significant relative to his or her base salary. Accordingly, in
1997, the Company adopted the following minimum stock ownership guidelines for
senior management, including executive officers.
7
<PAGE> 12
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 the later of 2004 or within
seven years of appointment to one of the above positions. The stock ownership
guidelines may be satisfied through direct ownership of shares of Payless Common
Stock, including share equivalents under the Profit Sharing Plan and phantom
stock under the Deferred Compensation Plan. Restricted shares of Payless Common
Stock, however, are not taken into account until they vest.
Deductibility of Compensation. Section 162(m) of the Code generally limits
a company's 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 Committee believes that all compensation paid to executive officers in
fiscal 1998 is fully deductible and that all stock options granted in fiscal
1998 will, upon exercise, result in fully deductible compensation. The
Committee's intention is to maintain full deductibility of compensation under
the applicable law unless and until the Committee determines that this would not
be in the best interests of the Company and its shareowners.
Compensation and Nominating Committee:
Daniel Boggan Jr.
Thomas A. Hays -- Chairman
Michael E. Murphy
8
<PAGE> 13
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 the Peer Group, some of
which are competitors used in determining bonuses under the Company's
performance based bonus plans.
COMPARISON OF 33-MONTH CUMULATIVE RETURNS
OF THE COMPANY, THE S&P 500 INDEX, AND THE PEER GROUP
LINE GRAPH
<TABLE>
<CAPTION>
PAYLESS
SHOESOURCE, INC S&P 500 INDEX PEER GROUP INDEX
--------------- ------------- ----------------
<S> <C> <C> <C>
'5/6/96' 100.00 100.00 100.00
'8/3/96' 112.78 96.99 103.05
'11/2/96' 120.26 111.31 109.23
'2/1/97' 132.16 124.70 103.12
'5/3/97' 151.54 130.01 118.12
'8/2/97' 211.45 149.83 147.94
'11/1/97' 196.48 144.59 146.28
'1/30/98' 229.30 155.58 160.03
'5/2/98' 252.86 177.11 200.42
'8/1/98' 199.12 177.26 226.77
'10/31/98 165.42 174.47 228.83
'1/30/99' 183.48 203.89 301.31
</TABLE>
COMPARISON OF 33-MONTH TOTAL RETURNS
<TABLE>
<CAPTION>
MAY 4, 1996 JANUARY 29, 1999
----------- ----------------
<S> <C> <C>
Payless..................................... $100.00 $183.48
S&P 500..................................... 100.00 203.89
Peer Group Index............................ 100.00 301.31
</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 Group and assumes
the reinvestment of dividends. Companies comprising the Peer Group 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., Venator Group, Inc. (formerly Woolworth
Corporation), and Footstar, Inc.
9
<PAGE> 14
EXECUTIVE COMPENSATION
The table below shows the compensation paid or accrued by the Company on
behalf of the CEO and the Company's five other most highly compensated executive
officers (determined as of the end of the last fiscal year) for the last three
fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997,
respectively or such shorter time as they were employed by Payless.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
-----------------------------------------
ANNUAL COMPENSATION NUMBER OF PAYOUTS
-------------------------------------- SECURITIES ----------
OTHER UNDERLYING LONG-TERM
NAME AND ANNUAL ANNUAL RESTRICTED STOCK INCENTIVE
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) STOCK AWARDS(4) OPTIONS PAYOUTS(5)
------------------ ---- --------- -------- --------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven J. Douglass..... 1998 $656,250 $173,003 $50,558 $ 0 0 $506,250
Chairman of the 1997 600,000 450,000 52,007 568,750 92,000 450,000
Board and Chief 1996 587,500 438,540 665,156 108,125
Executive Officer
Richard A. Jolosky..... 1998 487,500 106,800 86,771 0 0 312,500
Vice Chairman(7) 1997 450,000 281,250 90,927 386,750 64,000 281,250
1996 450,000 328,905 52,539 498,867 87,000
Duane L. Cantrell...... 1998 320,000 49,985 0 0 146,250
Executive Vice 1997 301,150 137,250 200,200 33,000 137,250
President Retail 1996 290,371 212,473 210,633 14,938
Operations
JoAnn Ogee............. 1998 290,000 45,371 0 0 132,750
Senior Vice 1997 195,675 92,812 104,286 23,750 92,812
President General
Merchandise
Manager -- Women's
Jed L. Norden.......... 1998 276,200 42,910 0 0 125,550
Senior Vice 1997 267,800 120,500 142,188 23,750 120,500
President 1996 265,850 195,735 192,156 15,000
Human Resources
Ullrich E. Porzig...... 1998 276,200 42,910 0 0 125,550
Senior Vice 1997 267,800 120,500 142,188 23,750 120,500
President Chief 1996 262,465 195,735 192,156 7,500
Financial Officer and
Treasurer
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION(6)
------------------ ---------------
<S> <C>
Steven J. Douglass..... $ 5,132
Chairman of the 8,571
Board and Chief 236,909
Executive Officer
Richard A. Jolosky..... 5,132
Vice Chairman(7) 8,571
221,506
Duane L. Cantrell...... 5,132
Executive Vice 8,571
President Retail 79,769
Operations
JoAnn Ogee............. 5,132
Senior Vice 0
President General
Merchandise
Manager -- Women's
Jed L. Norden.......... 5,132
Senior Vice 8,571
President 73,469
Human Resources
Ullrich E. Porzig...... 5,132
Senior Vice 8,571
President Chief 142,913
Financial Officer and
Treasurer
</TABLE>
- -------------------------
(1) "Salary" reflects amounts paid to or deferred by the named executive
officers during fiscal 1998. 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 to or deferred
by the particular officer under the Company's EICP or EICP for Business Unit
Management.
(3) "Other Annual Compensation" only includes amounts required to be reported
under applicable SEC rules. For 1998, it includes for Mr. Douglass $14,156
of imputed income due to life insurance coverage paid by Payless, $15,475 of
automobile allowance and $20,927 of imputed income due to personal use of an
airplane owned by Payless; and for Mr. Jolosky $48,051 of imputed income due
to life insurance coverage paid by Payless, $16,343 of automobile allowance
and $22,377 of imputed income due to personal use of an airplane owned by
Payless. For 1997, it 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.
(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.
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 vested on May 4,
1998. 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 1998 (at
$51.9688 per share) was $649,610 for Mr. Douglass, representing 12,500
shares; $441,735 for Mr. Jolosky, representing 8,500 shares; $228,663 for
Mr. Cantrell, representing 4,400 shares; $162,403 for Ms. Ogee representing
3,125 shares; $162,403 for Mr. Norden, representing 3,125 shares; and
$162,403 for Mr. Porzig, representing 3,125 shares. Dividends will be paid
on restricted shares at the same rate paid to all shareowners, if and when
dividends are paid.
(5) "Long-Term Incentive Payouts" represents the long-term portion of the bonus
paid under the Company's EICP or EICP for Business Unit Management. 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
10
<PAGE> 15
period covered fiscal 1996-1997, and the third long-term performance period
covered fiscal 1996-1998. For 1996, the long-term portion of the bonus was
included in the annual bonus.
(6) "All Other Compensation" represents the Company's contribution to the named
executive officer's account in the Company's profit sharing plan. In
addition, in 1996 "All Other Compensation" included payments to relocate Mr.
Jolosky ($47,321) and Mr. Porzig ($72,528) and amounts awarded under the
Company's Spin-Off Cash Plan. Under the Spin-Off Cash Plan employees who
remained employed with Payless at certain dates were eligible to receive
cash payments equal to a percentage of base pay. The percentage ranged from
10% to 37.5% of base pay. Executive officers other than the CEO and
President of Payless were eligible to receive 25% of base pay under the
Spin-Off Cash Plan. The CEO and President of Payless were 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 was paid on May 4,
1998.
(7) Mr. Jolosky served as President of the Company through January 28, 1999.
The following table presents information with respect to exercised and
unexercised options held by the named executive officers at January 30, 1999:
AGGREGATED STOCK OPTION EXERCISES IN FISCAL 1998
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 83,500 116,625 $1,218,985 $2,045,179
Richard A. Jolosky...... 50,750 1,639,094 63,250 0 1,128,422 0
Duane L. Cantrell....... 0 0 20,250 27,688 197,488 383,004
JoAnn Ogee.............. 0 0 11,875 11,875 76,817 76,817
Jed L. Norden........... 0 0 15,625 23,125 167,570 354,633
Ullrich E. Porzig....... 0 0 15,625 15,625 167,570 167,570
</TABLE>
- -------------------------
(1) "In-The-Money Options" are options outstanding at the end of the 1998 fiscal
year for which the fair market value of Payless Common Stock at the end of
the 1998 fiscal year ($51.9688 per share) exceeded the exercise price of the
options. Value is determined based on the difference between fair market
value at the end of the 1998 fiscal year and the exercise price.
Long Term Awards. During the 1998 fiscal year, each of the named executive
officers became eligible to receive a potential long-term cash award for the
three fiscal years 1998, 1999 and 2000. The following table shows the maximum
long-term cash awards payable to each of them for these long-term periods.
11
<PAGE> 16
LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL 1998
<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 $506,250
(1998-2000) Ending 2/3/01
Richard A. Jolosky......................... Three Fiscal Year Period 312,500
(1998-2000) Ending 2/3/01
Duane L. Cantrell.......................... Three Fiscal Year Period 146,250
(1998-2000) Ending 2/3/01
JoAnn Ogee................................. Three Fiscal Year Period 132,750
(1998-2000) Ending 2/3/01
Jed L. Norden.............................. Three Fiscal Year Period 125,550
(1998-2000) Ending 2/3/01
Ullrich E. Porzig.......................... Three Fiscal Year Period 125,550
(1998-2000) Ending 2/3/01
</TABLE>
- -------------------------
(1) Estimates are based on annual salaries as of January 30, 1999. Payouts may
range from $0 to the "maximum" award value. The estimate above assumes that
the individual remains eligible to participate throughout the long-term
performance period, the maximum performance goals have been met, the
Company's performance compared to the Peer Group is such that no downward
adjustment is required for any award and that the stock price has increased
sufficiently to result in the maximum stock price adjustment (all as
described in the Compensation and Nominating Committee report on pages 5-8.)
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.
Profit Sharing Plans and Supplementary Retirement Plan. The Company's
executive officers may participate in the Payless ShoeSource, Inc. Profit
Sharing Plan. Contributions to this plan are related to the Company's
performance each year. Subject to Management's discretion each year, the Company
expects to contribute 2.5% of its pretax net profits to this plan annually.
Eligible employees are able to voluntarily contribute to the profit sharing
plans on both a before-tax and after-tax basis under Section 40l(k) of the Code.
Eligible employees are also able to direct that the Company's contribution to
their accounts and/or their voluntary contributions be invested in a Payless
Common Stock fund or in one of several other investment funds.
The Company does not have a broad-based, defined benefit retirement plan.
The Company does, however, have a supplementary retirement plan (the
"Supplementary Plan") covering employees who have had compensation in a calendar
year equal to at least twice the amount of "wages" then subject to the payment
of old age, survivor and disability insurance Social Security taxes. Under the
Supplementary Plan, covered employees become entitled to a single life annuity
retirement benefit equal to (i) 2% of the average of the highest three out of
the last five fiscal years of total annual salary and bonuses (reported as
salary and annual and long-term bonus in the Summary Compensation Table)
multiplied by their years of service, up to a maximum of 25 years, reduced by
(ii) primary Social Security benefits, benefits provided under the Company's
profit sharing plan and, benefits under retirement plans operated by May which
may be payable to the employee and, if appropriate, by amounts to reflect early
retirement. Benefits are payable upon retirement after reaching age 55 and
completing at least 5 years of service. The minimum benefit under the
Supplementary Plan is the amount of benefits provided by the Company which would
have been payable under the Company's profit sharing plan and employer provided
benefits under the May Profit Sharing Plan and May Retirement Plan, determined
without regard to any statutory limits, less the amount of benefits actually
payable under those plans.
12
<PAGE> 17
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. The Company 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 following table shows the estimated aggregate annual benefits payable
upon retirement (assuming a retirement in 1998 at age 65) for persons in
specified compensation and years of service classifications covered by the
Company's profit sharing plan and, if eligible, the Supplementary Plan. The
individuals named in the Summary Compensation Table had, as of December 31,
1998, the following years of service, respectively: Mr. Douglass, 23 years; Mr.
Jolosky, 22 years; Mr. Cantrell, 20 years; Ms. Ogee, 2 years; Mr. Norden, 14
years; and Mr. Porzig, 14 years.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------
AVERAGE ANNUAL EARNINGS 20 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>
Employment Contracts, Termination of Employment and Change in Control
Arrangements. Each of the executive officers named in the Summary Compensation
Table have individual contracts of employment with the Company which expire at
various dates on or before May 31, 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 and Mr. Hicks. The agreements
provide that the executive is entitled to benefits if (i) a change in control of
Payless (as defined in the relevant 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 they are unable to execute their
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 the
Company's voting securities; (ii) a majority of the Company's 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 the Company's assets.
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 the Company's 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 Chief Executive Officer 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
agreements with the President and Vice Chairman provide for 50% of such payment.
The Company plans to establish a trust which would be funded upon a potential
change in control to provide the
13
<PAGE> 18
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 the Company's deferred compensation plan will be immediately distributed
to participants in a lump sum cash payment, (ii) all options and stock
appreciation rights outstanding on that date will become immediately and fully
exercisable, (iii) all restrictions on any restricted or phantom stock units
will lapse and such shares and units will become fully vested and (iv) any
performance units will be earned and become fully payable.
Employment Agreement with Ken C. Hicks. On January 28, 1999, the Company
entered into an employment agreement with Mr. Hicks for a term expiring on April
30, 2002. Mr. Hicks serves as the Company's President and a Director. For his
services, Mr. Hicks will receive subject to the terms and conditions of the
applicable plans and policies of the Company as in effect from time to time: (i)
a signing bonus of $210,000, (ii) an annual salary of $500,000, (iii) a bonus of
up to 125 percent of his base salary with a guaranteed minimum of $70,000 for
the 1999 long-term portion, (iv) 65,000 stock options, (v) 6,000 shares of
restricted stock and (vi) other benefits generally available to executive
officers. The signing bonus will be paid in three equal installments, the first
of which has been paid. The remaining installments will be paid on the first and
second anniversaries of Mr. Hicks' hire date. The Company granted Mr. Hicks
65,000 stock options at the fair market value on the date of the grant vesting
one-third on the earlier of May 14, 2003 or when the Company's stock price
closes at $75 per share or higher for 20 consecutive trading days, one-third on
the earlier of May 14, 2003 or when the Company's stock price closes at $95 per
share or higher for 20 consecutive trading days and one-third on the earlier of
May 14, 2005 or when the Company's stock price closes at $115 per share or
higher for 20 consecutive trading days. Mr. Hicks is entitled to additional
option grants in 2000 and 2001. The Company also granted Mr. Hicks 6,000 shares
of restricted Payless common stock with the restrictions lapsing with respect to
3,000 shares on each anniversary of the grant. Mr. Hicks is entitled to an
additional grant of restricted Payless stock in 2000. Mr. Hicks has agreed not
to compete with the Company for two years from the actual termination of
employment with the Company or, if there are more than two years remaining under
Mr. Hicks' employment agreement, then until the expiration of his employment
agreement.
14
<PAGE> 19
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 March 11, 1999
(including shares of the Company's 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 10, and all current Directors,
nominees and executive officers as a group. The shares allocated to the accounts
of participants named below in the Payless Profit Sharing Plan constitute less
than one percent of Payless Common Stock (see note (2) below). On March 11,
1999, there were 32,158,789 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
VOTING POWER (1) INVESTMENT POWER (1)
--------------------- --------------------- 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. ............................. 471,944 0 2,416,684 0 2,416,684 7.5%
82 Devonshire Street
Boston, MA 02109-3614
Franklin Mutual Advisors, Inc. ........ 2,430,180 0 2,430,180 0 2,430,180 7.6%
51 John F. Kennedy Parkway
Short Hills, NJ 07078
DIRECTORS, NOMINEES AND
EXECUTIVE OFFICERS (2)
Daniel Boggan Jr. (3).................. 0 0 0 0 0 *
Howard R. Fricke (3)(4)................ 7,070 0 6,670 0 7,070 *
Thomas A. Hays (3)(5).................. 29,575 0 29,175 0 29,575 *
Mylle B. Mangum (3).................... 0 0 0 0 0 *
Michael E. Murphy...................... 4,570 0 4,170 0 4,570 *
Robert L. Stark (3).................... 3,166 0 2,766 0 3,166 *
Steven J. Douglass..................... 187,496 0 161,903 0 187,496 *
Richard A. Jolosky (6)................. 27,524 0 19,024 0 27,524 *
Duane L. Cantrell...................... 43,316 0 38,916 0 43,316 *
Jed L. Norden (7)...................... 40,243 464 37,118 464 40,707 *
JoAnn Ogee............................. 16,514 0 25,264 0 16,514 *
Ullrich E. Porzig...................... 32,378 0 29,253 0 32,378 *
All Directors, nominees and executive
officers as a group (22 persons)..... 620,583 464 550,083 464 621,047 1.9%
</TABLE>
- -------------------------
* Less than one percent.
15
<PAGE> 20
(1) Shares shown as beneficially owned include shares subject to options which
are presently exercisable or which will become exercisable on or before May
10, 1999, as follows: Steven J. Douglass -- 135,375 shares; Richard A.
Jolosky -- 18,750 shares; Duane L. Cantrell -- 29,563 shares; JoAnn
Ogee -- 11,875 shares; Jed L. Norden -- 25,000 shares; Ullrich E.
Porzig -- 17,500 shares; all Directors, nominees and executive officers as a
group -- 382,003 shares.
(2) 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 February 28, 1999, the trust under the Payless
Profit Sharing Plan owned approximately 746,944 shares of Payless Common
Stock (approximately 2.3% 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.
(3) Does not include units credited to non-employee Director's accounts under
the Deferred Compensation Plan for Non-Management Directors. As of May 10,
1999, the following Directors had the indicated units credited to their
account under the plan: Mr. Boggan -- 1,873 units; Mr. Fricke -- 500 units;
Mr. Hays -- 500 units; Ms. Mangum -- 1,782 units; and Mr. Stark -- 500
units. At the end of the deferral period, the units will be paid out in an
equivalent number of shares of Payless common stock.
(4) Includes 4,000 shares owned by Mr. Fricke's spouse.
(5) Includes 26,505 shares held by a limited partnership of which Mr. Hays is a
general and limited partner. Mr. Hays disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein.
(6) Mr. Jolosky's ownership includes 6,411 shares held by a family trust.
(7) Includes 464 shares held by Mr. Norden's children, of which he disclaims
beneficial ownership.
16
<PAGE> 21
PROPOSAL II: RATIFICATION OF INDEPENDENT
PUBLIC ACCOUNTANTS OF PAYLESS
PROPOSAL II ON THE ACCOMPANYING PROXY CARD.
Upon recommendation of the Audit and Finance Committee, the Board appointed
Arthur Andersen LLP, independent public accountants, as auditors of Payless and
its subsidiaries for the fiscal year ending January 29, 2000, subject to
ratification by the shareowners at the Annual Meeting.
A member of the firm of Arthur Andersen LLP will be present at the meeting
to make such statements as that firm may desire and to answer any questions by
shareowners.
THE BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PAYLESS COMMON STOCK VOTE IN
FAVOR OF PROPOSAL II.
ADDITIONAL INFORMATION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE:
Section 16(a) of the Exchange Act requires the Company's Directors,
executive officers and greater than ten percent beneficial owners ("Reporting
Persons") to file with the SEC initial reports of ownership and reports of
changes in ownership of Payless Common Stock. Specific due dates for these
reports have been established and the Company is required to report in this
Proxy Statement any failure by the Reporting Persons to file by these dates.
During the fiscal year that ended January 30, 1999, to the Company's knowledge,
all Section 16(a) filing requirements applicable to Reporting Persons were
timely met. In making these statements, the Company 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
the Company were required with respect to such fiscal year.
OTHER BUSINESS:
Under the laws of Delaware, where Payless is incorporated, no business
other than procedural matters may be raised at the annual meeting unless proper
notice to the shareowners has been given. We do not expect any business to come
up for shareowner vote at the meeting other than the items described in this
booklet. If other business is properly raised, your proxy card authorizes the
people named as proxies to vote as they think best.
PEOPLE WITH DISABILITIES:
We can provide reasonable assistance to help you participate in the meeting
if you tell us about your disability and your plan to attend. Please call or
write the Secretary at least two weeks before the meeting at the number or
address under "Questions" below.
OUTSTANDING SHARES:
On April 2, 1999, the record date, 32,065,259 shares of common stock were
outstanding. Each share of common stock has one vote.
HOW WE SOLICIT PROXIES:
In addition to this mailing, Payless employees may solicit proxies
personally, electronically or by telephone. The Company pays the costs of
soliciting this proxy. We are paying Corporate Investor Communications, Inc. a
fee of $5,000 plus expenses to help with the solicitation. We also reimburse
brokers and other nominees for their expenses in sending these materials to you
and getting your voting instructions.
17
<PAGE> 22
SHAREOWNER PROPOSALS FOR NEXT YEAR:
The deadline for shareowner proposals for next year's meeting is December
10, 1999. On written request, the Secretary will provide detailed instructions
for submitting proposals.
QUESTIONS:
If you have questions or need more information about the Annual Meeting of
Shareowners, write to:
Secretary
Payless ShoeSource, Inc.
3231 South East Sixth Street
Topeka, KS 66607-6182
or call us at (785) 233-5171.
For information about your record holdings you may call Payless Shareowner
Services at 1-800-884-4225. For information regarding your holdings in the
Payless Profit Sharing Plan you may call 1-888-544-7463. For information about
your holdings in the Payless Stock Ownership Plan you may call 1-888-744-7463.
We also invite you to visit the Company's Internet site at
HTTP://WWW.PAYLESS.COM. Internet site materials are for your general information
and are not part of this proxy solicitation.
By Order of the Board of Directors,
William J. Rainey
Secretary
April 12, 1999
18
<PAGE> 23
[PSS LOGO] PROXY CARD
PAYLESS SHOESOURCE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING TO BE HELD ON MAY 28, 1999.
Shareowners of Payless ShoeSource, Inc.:
By signing this card, each of Jed L. Norden and William J. Rainey, or both or
either of them, with full power of substitution, are appointed as proxies for
the undersigned to vote all common shares held by the undersigned in Payless
ShoeSource, Inc. at the May 28, 1999, Annual Meeting of Shareowners and at any
adjournment of the meeting, on all subjects that may properly come before the
meeting, subject to the directions on the other side of this card.
The Board of Directors recommends a vote FOR election of all listed director
nominees, Proposal I, and FOR Proposal II on the other side of this card. IF NO
DIRECTIONS ARE GIVEN, AND THIS CARD IS RETURNED SIGNED, THE UNDERSIGNED
UNDERSTANDS THAT THE PROXIES WILL VOTE IN ACCORDANCE WITH THE ABOVE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS AND IN THEIR DISCRETION ON ANY OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
Has your address changed? Do you have any comments?
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
To the Shareowners of Payless ShoeSource, Inc.:
You are cordially invited to attend the Annual Meeting of Payless ShoeSource
shareowners which will be held at Washburn University, Bradbury Thompson Center,
corner of 17th Street and Jewell Avenue, Topeka, Kansas on Friday, May 28, 1999,
at 10:00 a.m., Central Daylight Saving Time.
Provided with this proxy card is a return envelope, the Company's 1998 Annual
Report to Shareowners and the Proxy Statement for the 1999 Annual Meeting. It is
important that you vote either by returning the proxy card or by using the
Internet. Management's recommendation on each issue and the reasons for the
recommendations are described in the Proxy Statement.
- --------------------------------------------------------------------------------
PLEASE PROMPTLY SIGN, DATE AND RETURN THE PROXY CARD
USING THE ENCLOSED ENVELOPE OR VOTE BY USING THE INTERNET.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign the proxy card exactly as your name(s) appear(s)on the
reverse side of this card.
- --------------------------------------------------------------------------------
<PAGE> 24
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE.
- ------------------------------------------------------------------------
PAYLESS SHOESOURCE, INC.
- -------------------------------------------------------------------------
Mark box at right if you plan to attend the Annual Meeting. [ ]
Mark box at right if an address change or comment has been [ ]
noted on the reverse side of this card.
Please be sure to sign and date this Proxy. Date _______________
- -------------------------------------------------------------------------
Shareowner sign here Co-owner sign here
- -------------------------------------------------------------------------
The Board of Directors recommends a vote FOR
Proposals I and II.
I. Election of Directors.
Withhold
For Authority Exceptions
Election of Steven J. Douglass, Howard R. [ ] [ ] [ ]
Fricke and Ken C. Hicks, each for three
year terms expiring in 2002.
INSTRUCTIONS: To vote your shares for all nominees in Proposal I, mark the FOR
box. To withhold voting for all nominees in Proposal I, mark the WITHHOLD
AUTHORITY box. If you do not wish your shares voted FOR a particular nominee in
Proposal I, please mark the EXCEPTIONS box and enter the name(s) of the
director(s) for whom you wish to withhold authority in the space provided below.
Exceptions:
- --------------------------------------------------------------------------
For Against Abstain
II. Ratification of the appointment of [ ] [ ] [ ]
Arthur Andersen LLP as independent auditors.
CONTROL NUMBER:
DETACH CARD DETACH CARD
To vote by mail, please detach the proxy card above and return it in the
enclosed envelope. To vote by Internet, please visit HTTP://WWW.UMB.COM/PROXY.
If you are planning to attend the Annual Meeting, please save this Admission
Ticket and bring it to the meeting for admission.
The Payless ShoeSource Annual Meeting of Shareowners will be held at:
WASHBURN UNIVERSITY, BRADBURY THOMPSON CENTER
17TH STREET AND JEWELL AVENUE
TOPEKA, KANSAS
FRIDAY, MAY 28, 1999
10:00 A.M. CENTRAL DAYLIGHT SAVING TIME
TO VOTE USING THE INTERNET:
---------------------------
1. Read the accompanying Proxy Statement.
2. Visit our Internet voting site at HTTP://WWW.UMB.COM/PROXY and follow the
instructions on the screen.
Your Internet vote authorizes the named proxies to vote your shares to the same
extent as if you marked, signed, dated and returned the above proxy card. Please
note that all votes cast by using the Internet must be submitted prior to 5:00
p.m. Central Daylight Saving Time, May 27, 1999. Your Internet vote is quick,
convenient and is submitted immediately.
IF YOU VOTE USING THE INTERNET, PLEASE DO NOT RETURN YOUR PROXY CARD BY MAIL.
THANK YOU FOR YOUR VOTE.
ADMISSION TICKET
<PAGE> 25
PSS VOTING INSTRUCTION CARD
PAYLESS SHOESOURCE, INC.
THIS VOTING INSTRUCTION CARD IS PROVIDED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD ON MAY 28, 1999
Shareowners of Payless ShoeSource, Inc.:
By signing this card, I instruct, as applicable, the bank, broker-dealer, or
other designated record holder to vote all common shares beneficially owned by
the undersigned in Payless ShoeSource, Inc. at the May 28, 1999, Annual Meeting
of Shareowners and at any adjournment of the meeting, on all subjects that may
properly come before the meeting, subject to the directions on the other side of
this card.
The Board of Directors recommends a vote FOR election of all listed director
nominees, Proposal I, and FOR Proposal II on the other side of this card. IF NO
DIRECTIONS ARE GIVEN, AND THIS CARD IS RETURNED SIGNED, THE UNDERSIGNED
UNDERSTANDS THAT THE APPLICABLE BANK, BROKER-DEALER OR OTHER DESIGNATED RECORD
HOLDER WILL VOTE IN ACCORDANCE WITH THE ABOVE RECOMMENDATIONS OF THE BOARD OF
DIRECTORS AND IN THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING.
Has your address changed? Do you have my comments?
- ------------------------------ -------------------------
- ------------------------------ -------------------------
- ------------------------------ -------------------------
To the Shareowners of Payless ShoeSource, Inc.:
You are cordially invited to attend the Annual Meeting of Payless ShoeSource
shareowners which will be held at Washburn University, Bradbury Thompson Center,
corner of 17th Street and Jewell Avenue, Topeka, Kansas on Friday, May 28, 1999,
at 10:00 a.m., Central Daylight Saving Time.
Provided with this voting instruction card is a return envelope, the Company's
1998 Annual Report to Shareowners and the Proxy Statement for the 1999 Annual
Meeting. It is important that you indicate your vote by returning the voting
instruction card. Management's recommendation on each issue and the reasons for
the recommendations are described in the Proxy Statement.
- -------------------------------------------------------------------------------
PLEASE PROMPTLY SIGN, DATE AND RETURN THE VOTING INSTRUCTION CARD
USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Please sign the voting instruction card exactly as your name(s)
appear(s) on the reverse side of this card.
- --------------------------------------------------------------------------------
<PAGE> 26
- --------------------------------------------------------------------------------
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE.
- --------------------------------------------------------------------------------
PAYLESS SHOESOURCE, INC.
- --------------------------------------------------------------------------------
Mark box at right if you plan to attend the Annual Meeting. [ ]
Mark box at right if an address change or comment has been noted [ ]
on the reverse side of this card.
Please be sure to sign and date this card. Date _______________
- --------------------------------------------------------------------------------
Shareowner sign here Co-owner sign here
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR
Proposals I and II.
I. Election of Directors.
Withhold
For Authority Exceptions
Election of Steven J. Douglass, Howard R. [ ] [ ] [ ]
Fricke and Ken C. Hicks, each for three
year terms expiring in 2002.
INSTRUCTIONS: To vote your shares for all nominees in Proposal I, mark the
FOR box. To withhold voting for all nominees in Proposal I, mark the
WITHHOLD AUTHORITY box. If you do not wish your shares voted FOR a particular
nominee in Proposal I, please mark the EXCEPTIONS box and enter the name(s)
of the director(s) for whom you wish to withhold authority in the space
provided below.
Exceptions:
______________________________________________________
For Against Abstain
II. Ratification of the appointment of [ ] [ ] [ ]
Arthur Andersen LLP as independent auditors.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DETACH CARD DETACH CARD
To indicate your vote, please detach the voting instruction card above
and return it in the enclosed envelope. If you are planning to attend the
Annual Meeting, please save this Admission Ticket and bring it to the
meeting for admission.
The Payless ShoeSource Annual Meeting of Shareowners will be held at:
WASHBURN UNIVERSITY, BRADBURY THOMPSON CENTER
17TH STREET AND JEWELL AVENUE
TOPEKA, KANSAS
FRIDAY, MAY 28, 1999
10:00 A.M. CENTRAL DAYLIGHT SAVING TIME
THANK YOU FOR YOUR VOTE.
ADMISSION TICKET
<PAGE> 27
PSS VOTING INSTRUCTION CARD
PAYLESS SHOESOURCE, INC.
CONFIDENTIAL VOTING INSTRUCTIONS TO THE BANK OF NEW YORK AS TRUSTEE UNDER THE
PAYLESS SHOESOURCE, INC. PROFIT SHARING PLAN AND THE PAYLESS SHOESOURCE PROFIT
SHARING PLAN FOR PUERTO RICO ASSOCIATES (EACH A "PROFIT SHARING PLAN" AND
COLLECTIVELY THE "PROFIT SHARING PLANS") AND CHASEMELLON SHAREHOLDER SERVICES,
L.L.C. AS TRUSTEE UNDER THE PAYLESS SHOESOURCE, INC. STOCK OWNERSHIP PLAN (THE
"OWNERSHIP PLAN")
To the Members of the Profit Sharing Plans and the Ownership Plan:
By signing this card, I appoint the applicable Trustee to vote all shares of
common stock of Payless ShoeSource, Inc. represented by units or shares credited
to my account in the Ownership Plan as of April 2, 1999, (the record date) or
the applicable Profit Sharing Plan(s) as of February 28, 1999, (the latest
practicable date) at the May 28, 1999, Annual Meeting of the Shareowners of
Payless ShoeSource, Inc. and at any adjournment of the Meeting, on all subjects
that may properly come before the Annual Meeting subject to the directions on
the other side of this card.
The Board of Directors recommends a vote FOR election of all listed director
nominees, Proposal I, and FOR Proposal II on the other side of this card. IF NO
DIRECTIONS ARE GIVEN, AND THIS CARD IS RETURNED SIGNED, THE UNDERSIGNED
UNDERSTANDS THAT THE APPLICABLE TRUSTEE WILL VOTE IN ACCORDANCE WITH THE ABOVE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS AND IN THEIR DISCRETION ON ANY OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
Has your address changed? Do you have any comments?
- -------------------------------------- -------------------------
- -------------------------------------- -------------------------
- -------------------------------------- -------------------------
Provided with this confidential voting instruction card is a return envelope,
the Company's 1998 Annual Report to Shareowners and the Proxy Statement for the
1999 Annual Meeting. It is important that you vote either by returning the
voting instruction card or by using the Internet. Management's recommendation on
each issue and the reasons for the recommendations are described in the Proxy
Statement. The applicable Trustee will follow your voting instructions. These
instructions cannot be disclosed by the Trustee.
The voting instruction card on the reverse side of this card will constitute
your confidential voting instructions to ChaseMellon Shareholder Services,
L.L.C. as Trustee under the Ownership Plan and The Bank of New York as Trustee
under the Profit Sharing Plans.
- --------------------------------------------------------------------------------
PLEASE PROMPTLY SIGN, DATE AND RETURN THE VOTING INSTRUCTION CARD
USING THE ENCLOSED ENVELOPE OR VOTE BY USING THE INTERNET.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign the voting instruction card exactly as your name(s)
appear(s) on the reverse side of this card.
- --------------------------------------------------------------------------------
<PAGE> 28
- --------------------------------------------------------------------------------
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE.
PAYLESS SHOESOURCE, INC.
Mark box at right if you plan to attend the Annual Meeting. [ ]
Mark box at right if an address change or comment has been noted
on the reverse side of this card. [ ]
Please be sure to sign and date this card. Date _______________
- --------------------------------------------------------------------------------
Shareowner sign here Co-owner sign here
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR
Proposals I and II.
I. Election of Directors.
Withhold
For Authority Exceptions
Election of Steven J. Douglass, Howard R. [ ] [ ] [ ]
Fricke and Ken C. Hicks, each for three
year terms expiring in 2002.
INSTRUCTIONS: To vote your shares for all nominees in Proposal I, mark the
FOR box. To withhold voting for all nominees in Proposal I, mark the
WITHHOLD AUTHORITY box. If you do not wish your shares voted FOR a particular
nominee in Proposal I, please mark the EXCEPTIONS box and enter the name(s)
of the director(s) for whom you wish to withhold authority in the space
provided below.
Exceptions:
____________________________________________________________
For Against Abstain
II. Ratification of the appointment of [ ] [ ] [ ]
Arthur Andersen LLP as independent auditors.
- --------------------------------------------------------------------------------
CONTROL NUMBER:
DETACH CARD DETACH CARD
To vote by mail, please detach the proxy card above and return it in the
enclosed envelope. To vote by Internet, please visit
HTTP://WWW.UMB.COM/PROXY. If you are planning to attend the Annual Meeting,
please save this Admission Ticket and bring it to the meeting for
admission.
The Payless ShoeSource Annual Meeting of Shareowners will be held at:
WASHBURN UNIVERSITY, BRADBURY THOMPSON CENTER
17TH STREET AND JEWELL AVENUE
TOPEKA, KANSAS
FRIDAY, MAY 28, 1999
10:00 A.M. CENTRAL DAYLIGHT SAVING TIME
TO VOTE USING THE INTERNET:
1. Read the accompanying Proxy Statement.
2. Visit our Internet voting site at HTTP://WWW.UMB.COM/PROXY and follow the
instructions on the screen.
Your Internet vote authorizes the applicable trustee to vote your shares to
the same extent as if you marked, signed, dated and returned the above
voting instruction card. Please note that all votes cast by using the
Internet must be submitted prior to 5:00 p.m. Central Daylight Saving Time,
May 25, 1999. Your Internet vote is quick, convenient and is immediately
submitted.
IF YOU VOTE USING THE INTERNET, PLEASE DO NOT RETURN YOUR
VOTING INSTRUCTION CARD BY MAIL.
THANK YOU FOR YOUR VOTE.
ADMISSION TICKET
