<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
SCHEDULE TO
TENDER OFFER STATEMENT UNDER SECTION
14(d)(1) OR 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
PAYLESS SHOESOURCE, INC.
(NAME OF ISSUER)
PAYLESS SHOESOURCE, INC. (ISSUER)
(NAME OF FILING PERSON (IDENTIFYING STATUS AS OFFEROR, ISSUER OR OTHER PERSON))
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
704379106
(CUSIP NUMBER OF CLASS OF SECURITIES)
WILLIAM J. RAINEY, ESQ.
PAYLESS SHOESOURCE, INC.
3231 SOUTH EAST SIXTH AVENUE, TOPEKA, KANSAS 66607-2207
TELEPHONE: (785) 233-5171
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF FILING PERSONS)
COPY TO:
EDWARD D. HERLIHY, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
TELEPHONE: (212) 403-1000
CALCULATION OF FILING FEE
<TABLE>
<S> <C>
TRANSACTION VALUATION* AMOUNT OF FILING FEE
$400,000,010 $80,000
</TABLE>
- ---------------
* CALCULATED SOLELY FOR THE PURPOSE OF DETERMINING THE AMOUNT OF THE FILING FEE,
BASED UPON THE PURCHASE OF 7,547,170 SHARES OF COMMON STOCK, PAR VALUE $.01
PER SHARE, AT THE MAXIMUM TENDER OFFER PRICE OF $53.00 PER SHARE.
[ ]CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE
0-11(a)(2) AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS
PREVIOUSLY PAID. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT
NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
AMOUNT PREVIOUSLY PAID: N/A
FORM OR REGISTRATION NO.: N/A
FILING PARTY: N/A
DATE FILED: N/A
[ ] CHECK THE BOX IF THE FILING RELATES SOLELY TO PRELIMINARY
COMMUNICATIONS MADE BEFORE THE COMMENCEMENT OF A TENDER OFFER.
CHECK THE APPROPRIATE BOXES BELOW TO DESIGNATE ANY TRANSACTIONS TO WHICH THE
STATEMENT RELATES:
[ ]THIRD-PARTY TENDER OFFER SUBJECT TO RULE 14d-1.
[X]ISSUER TENDER OFFER SUBJECT TO RULE 13e-4.
[ ]GOING-PRIVATE TRANSACTION SUBJECT TO RULE 13e-3.
[ ]AMENDMENT TO SCHEDULE 13D UNDER RULE 13d-2.
CHECK THE FOLLOWING BOX IF THE FILING IS A FINAL AMENDMENT REPORTING THE RESULTS
OF THE TENDER OFFER: [ ]
<PAGE> 2
This Amendment No. 1 to the Tender Offer Statement on Schedule TO relates
to the tender offer by Payless ShoeSource, Inc., a Delaware corporation, to
purchase 7,547,170 shares, or such lesser number of shares as are properly
tendered and not properly withdrawn, of its common stock, par value $.01 per
share, including the associated preferred stock purchase rights issued under the
Stockholder Protection Rights Agreement, dated as of April 20, 1998, as amended,
between Payless ShoeSource, Inc. and UMB Bank, N.A., as Rights Agent, at prices
not greater than $53.00 nor less than $48.00 per share, net to the seller in
cash, without interest, as specified by stockholders tendering their shares,
upon the terms and subject to the conditions set forth in the offer to purchase,
dated March 13, 2000, and in the related letter of transmittal, which, as
amended and supplemented from time to time, together constitute the tender
offer. Unless the context otherwise requires, all references to shares shall
include the associated preferred stock purchase rights. This Amendment No. 1 to
the Schedule TO is intended to satisfy the reporting requirements of Rule
13e-4(c)(2) of the Securities Exchange Act of 1934, as amended. Copies of the
offer to purchase and the related letter of transmittal are filed with this
Amendment No. 1 to the Schedule TO as Exhibits (a)(1)(A) and (a)(1)(B),
respectively.
The information in the offer to purchase and the related letter of
transmittal, copies of which are filed with this Amendment No. 1 to the Schedule
TO as Exhibits (a)(1)(A) and (a)(1)(B), respectively, is incorporated in this
Amendment No. 1 to the Schedule TO by reference in answer to Items 1 through 11
of Schedule TO.
ITEM 12. EXHIBITS.
<TABLE>
<S> <C>
(a)(1)(A) Offer to Purchase, dated March 13, 2000
(a)(1)(B) Letter of Transmittal
(a)(1)(C) Notice of Guaranteed Delivery
(a)(1)(D) Letter to brokers, dealers, commercial banks, trust
companies and other nominees, dated March 13, 2000
(a)(1)(E) Letter to clients for use by brokers, dealers, commercial
banks, trust companies and other nominees
(a)(1)(F) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
(a)(1)(G) Summary Advertisement, dated March 13, 2000
(a)(1)(H) Letter to Participants in the Payless ShoeSource, Inc.
Profit Sharing Plan and the Payless ShoeSource, Inc. Profit
Sharing Plan for Puerto Rico Associates, dated March 13,
2000
(a)(1)(I) Letter to Participants in the Payless ShoeSource, Inc. Stock
Ownership Plan, dated March 13, 2000
(a)(2)-(4) Not applicable
(a)(5)(A) Press Release, dated March 8, 2000*
(a)(5)(B) Press Release, dated March 13, 2000
(a)(5)(C) Letter to Stockholders from the Chairman of the Board and
Chief Executive Officer of Payless ShoeSource, Inc., dated
March 13, 2000
(b) Goldman Sachs Credit Partners L.P. $600,000,000 Term and
Revolving Senior Facilities Commitment Letter, dated March
10, 2000
(c) Not applicable
(d) Not applicable
(e) Not applicable
</TABLE>
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* Previously filed on Schedule TO
<PAGE> 3
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
PAYLESS SHOESOURCE, INC.
By: /s/ ULLRICH E. PORZIG
------------------------------------
Name: Ullrich E. Porzig
Title: Senior Vice President-
Chief Financial
Officer and Treasurer
Dated: March 13, 2000
<PAGE> 1
Payless ShoeSource
OFFER TO PURCHASE FOR CASH
7,547,170 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
AT A PURCHASE PRICE NOT IN EXCESS OF $53.00
NOR LESS THAN $48.00 PER SHARE
THE TENDER OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 10, 2000,
UNLESS THE TENDER OFFER IS EXTENDED.
Payless ShoeSource, Inc., a Delaware corporation, is offering to purchase
for cash 7,547,170 shares of its common stock, including the associated
preferred stock purchase rights issued under the Stockholder Protection Rights
Agreement, dated as of April 20, 1998, as amended, between Payless and UMB Bank,
N.A., as Rights Agent, upon the terms and subject to the conditions set forth in
this document and the related letter of transmittal (which together, as they may
be amended and supplemented from time to time, constitute the tender offer). We
are inviting you to tender your shares at prices specified by you that are not
greater than $53.00 nor less than $48.00 per share, net to you in cash, without
interest, upon the terms and subject to the conditions of the tender offer.
Unless the context otherwise requires, all references to shares shall include
the associated preferred stock purchase rights; and, unless the associated
preferred stock purchase rights are redeemed prior to the expiration of the
offer, a tender of shares will also constitute a tender of the associated
preferred stock purchase rights.
On the terms and subject to the conditions of the tender offer, we will
determine the single per share price, not in excess of $53.00 nor less than
$48.00 per share net to you in cash, without interest, that we will pay for
shares properly tendered and not properly withdrawn in the tender offer, taking
into account the total number of shares so tendered and the prices specified by
you. We will select the lowest purchase price that will allow us to purchase
7,547,170 shares, or such lesser number of shares as are properly tendered and
not properly withdrawn, at prices not in excess of $53.00 nor less than $48.00
per share. All shares properly tendered at prices at or below the purchase price
and not properly withdrawn will be purchased at the purchase price, on the terms
and subject to the conditions of the tender offer, including the odd lot and
proration provisions. We reserve the right, in our sole discretion, to purchase
more than 7,547,170 shares in the tender offer, subject to applicable law.
Shares tendered at prices in excess of the purchase price and shares not
purchased because of proration provisions will not be purchased in the tender
offer. Shares not purchased in the tender offer will be returned to the
tendering stockholders at our expense as promptly as practicable after the
expiration of the tender offer. Payless reserves the right to purchase all
shares duly tendered by any stockholder who tenders all shares owned
beneficially or of record at or below the purchase price and who, as a result of
proration, would then
The Dealer Manager for the Tender Offer is:
GOLDMAN, SACHS & CO.
March 13, 2000
<PAGE> 2
beneficially or of record own an aggregate of fewer than 100 shares. If you own
beneficially or of record less than 100 shares, properly tender all of them at
or below the purchase price before the tender offer expires and complete the
section entitled "Odd Lots" in the related letter of transmittal, we will
purchase all of your shares without subjecting them to the proration procedure.
See Section 1.
THE TENDER OFFER IS NOT CONDITIONED ON THE TENDER OF ANY MINIMUM NUMBER OF
SHARES BEING TENDERED. THE TENDER OFFER IS, HOWEVER, SUBJECT TO OTHER
CONDITIONS. SEE SECTION 6.
The shares are listed and traded on the New York Stock Exchange under the
trading symbol "PSS". On March 7, 2000, the last trading day before the date of
the public announcement of the tender offer, the last reported sale price of the
shares on the NYSE Composite Tape was $41.75. Stockholders are urged to obtain
current market quotations for the shares. See Section 7.
OUR BOARD OF DIRECTORS HAS APPROVED THE TENDER OFFER. HOWEVER, NEITHER WE
NOR OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO YOU AS TO WHETHER YOU
SHOULD TENDER OR REFRAIN FROM TENDERING YOUR SHARES OR AS TO THE PRICE OR PRICES
AT WHICH YOU MAY CHOOSE TO TENDER YOUR SHARES. YOU MUST MAKE YOUR OWN DECISION
AS TO WHETHER TO TENDER YOUR SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND
THE PRICE OR PRICES AT WHICH YOUR SHARES SHOULD BE TENDERED. OUR DIRECTORS AND
EXECUTIVE OFFICERS HAVE ADVISED US THAT THEY DO NOT INTEND TO TENDER ANY SHARES
IN THE TENDER OFFER.
---------------------------------
IMPORTANT
If you wish to tender all or any part of your shares, you should either
(1) (a) complete and sign a letter of transmittal, or a facsimile of
it, according to the instructions in the related letter of transmittal and
mail or deliver it, together with any required signature guarantee and any
other required documents, to EquiServe, the depositary for the tender
offer, and mail or deliver the certificates for the shares to the
depositary together with any other documents required by the letter of
transmittal or (b) tender the shares according to the procedure for
book-entry transfer described in Section 3, or
(2) request a broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for you.
If your shares are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee, you should contact that person if you
desire to tender your shares. If you desire to tender your shares and
(1) your certificates for the shares are not immediately available or
cannot be delivered to the depositary, or
(2) you cannot comply with the procedure for book-entry transfer, or
(3) your other required documents cannot be delivered to the
depositary by the expiration of the tender offer,
you must tender your shares according to the guaranteed delivery procedure
described in Section 3.
TO TENDER SHARES PROPERLY, YOU MUST PROPERLY COMPLETE AND DULY EXECUTE THE
RELATED LETTER OF TRANSMITTAL, INCLUDING THE SECTION RELATING TO THE PRICE AT
WHICH YOU ARE TENDERING YOUR SHARES.
Questions and requests for assistance may be directed to D.F. King & Co.,
Inc., the information agent for the tender offer, or to Goldman, Sachs & Co.,
the dealer manager for the tender offer, at their respective addresses and
telephone numbers set forth on the back cover page of this document. Requests
for additional copies of this document, the related letter of transmittal or the
notice of guaranteed delivery may be directed to the information agent.
<PAGE> 3
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF
AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING YOUR SHARES IN THE
TENDER OFFER. WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION IN CONNECTION WITH THE TENDER OFFER OTHER THAN THOSE
CONTAINED IN THIS DOCUMENT OR IN THE RELATED LETTER OF TRANSMITTAL. IF GIVEN OR
MADE, ANY RECOMMENDATION OR ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY US OR THE DEALER MANAGER.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
Summary Term Sheet................................................. 1
The Tender Offer................................................... 4
1. Number of Shares; Proration................................. 4
2. Purpose of the Tender Offer; Material Effects of the Tender
Offer..................................................... 6
3. Procedures for Tendering Shares............................. 8
4. Withdrawal Rights........................................... 12
5. Purchase of Shares and Payment of Purchase Price............ 13
6. Conditions of the Tender Offer.............................. 14
7. Price Range of Shares; Dividends............................ 16
8. Source and Amount of Funds.................................. 18
9. Certain Information Concerning Payless...................... 21
10. Interest of Directors and Executive Officers and Principal
Stockholders; Transactions and Arrangements Concerning
Shares.................................................... 24
11. Effects of the Tender Offer on the Market for Shares;
Registration Under the Exchange Act....................... 27
12. Legal Matters; Regulatory Approvals......................... 27
13. United States Federal Income Tax Consequences............... 27
14. Extension of the Tender Offer; Termination; Amendment....... 30
15. Fees and Expenses........................................... 31
16. Miscellaneous............................................... 32
</TABLE>
i
<PAGE> 5
FORWARD-LOOKING STATEMENTS
This offer to purchase, including the Summary Term Sheet, the Introduction
and Sections 2, 6, 7, 8, 9, 10, 11 and 13 contains statements that are not
historical facts and constitute projections, forecasts or forward-looking
statements. These statements may be identified by the use of forward-looking
words or phrases such as "anticipate", "believe", "expect", "intend", "may",
"planned", "potential", "should", "will" and "would". Such forward-looking
statements are inherently subject to known and unknown risks and uncertainties.
Our actual actions or results may differ materially from those expected or
anticipated in the forward-looking statements. Specific factors that might cause
such a difference, include, but are not limited to:
- change in consumer spending patterns;
- change in consumer preferences and overall economic conditions;
- impact of competition and pricing;
- changes in weather patterns;
- successful implementations of new technologies;
- the financial condition of the suppliers and manufacturers from whom the
Company sources its merchandise;
- changes in existing or potential duties, tariffs or quotas;
- changes in political instability in foreign countries or restrictive
actions by the governments of foreign countries in which suppliers and
manufacturers from whom the Company sources are located;
- changes in trade and foreign tax laws;
- fluctuations in currency exchanges rates;
- availability of suitable store locations on acceptable terms;
- the ability to achieve expected advantages of operating shoe departments
in speciality discount stores;
- the ability to hire, train and retain associates; and
- general economic, business and social conditions.
In addition, please refer to our 1998 Annual Report and our Form 10-K for
the fiscal year ended January 30, 1999, for more information on these and other
risk factors. We undertake no obligation to make any revisions to the
forward-looking statements contained in this document or to update them to
reflect events or circumstances occurring after the date of this document.
ii
<PAGE> 6
SUMMARY TERM SHEET
We are providing this summary term sheet for your convenience. It
highlights the most material information in this document, but you should
realize that it does not describe all of the details of the tender offer to the
same extent described in this document. We urge you to read the entire document
and the related letter of transmittal because they contain the full details of
the tender offer. We have included references to the Sections of this document
where you will find a more complete discussion.
WHO IS OFFERING TO PURCHASE MY
SHARES?..................... Payless ShoeSource, Inc. is offering to
purchase your shares of Payless common stock
and the associated preferred stock purchase
rights.
WHAT WILL THE PURCHASE PRICE
FOR THE SHARES BE?............ We will determine the purchase price that we
will pay per share as promptly as practicable
after the tender offer expires. The purchase
price will be the lowest price at which, based
on the number of shares tendered and the prices
specified by the tendering stockholders, we can
purchase 7,547,170 shares, or such lesser
number of shares as are properly tendered. The
purchase price will not be greater than $53.00
nor less than $48.00 per share. We will pay
this purchase price in cash, without interest,
for all the shares we purchase under the tender
offer, even if some of the shares are tendered
below the purchase price. See Section 1.
HOW MANY SHARES WILL PAYLESS
PURCHASE?................... We will purchase 7,547,170 shares in the tender
offer, or such lesser number of shares as are
properly tendered. We also expressly reserve
the right to purchase additional shares of up
to 2% of the outstanding shares and could
decide to purchase more shares subject to
applicable legal requirements. Each share is
coupled with an associated preferred stock
purchase right that we will reacquire with the
shares we purchase. No additional consideration
will be paid for the preferred stock purchase
rights. See Section 1. The tender offer is not
conditioned on any minimum number of shares
being tendered. See Section 6.
HOW WILL PAYLESS PAY FOR THE
SHARES?..................... We anticipate that we will obtain all of the
funds necessary to purchase shares tendered in
the offer, to refinance Payless' existing
indebtedness and to pay related fees and
expenses by means of (1) a senior secured
credit facility consisting of (a) up to $400
million under a senior secured term loan
facility and (b) borrowings of up to $50
million under a $200 million senior secured
revolving credit facility and (2) available
cash. The tender offer is not subject to the
receipt of financing. See Section 8.
HOW LONG DO I HAVE TO TENDER
MY SHARES?.................... You may tender your shares until the tender
offer expires. The tender offer will expire on
Monday, April 10, 2000, at 5:00 p.m., New York
City time, unless we extend it. See Section 1.
We may choose to extend the tender offer for
any reason. See Section 14.
1
<PAGE> 7
HOW WILL I BE NOTIFIED IF
PAYLESS EXTENDS THE TENDER
OFFER?...................... We will issue a press release by 9:00 a.m., New
York City time, on the business day after the
previously scheduled expiration date if we
decide to extend the tender offer. See Section
14.
ARE THERE ANY CONDITIONS TO
THE TENDER OFFER?............. Yes. The tender offer is subject to conditions
such as the absence of court and governmental
action prohibiting the tender offer and changes
in general market conditions or our business
that, in our judgment, is or may be materially
adverse to us. See Section 6.
HOW DO I TENDER MY SHARES?.... To tender your shares, prior to 5:00 p.m., New
York City time, on Monday, April 10, 2000,
unless the offer is extended:
- you must deliver your share certificate(s)
and a properly completed and duly executed
letter of transmittal to the depositary at
the address appearing on the back cover page
of this document; or
- the depositary must receive a confirmation of
receipt of your shares by book-entry transfer
and a properly completed and duly executed
letter of transmittal; or
- you must comply with the guaranteed delivery
procedure.
Contact the information agent or the dealer
manager for assistance. See Section 3 and the
instructions to the letter of transmittal.
ONCE I HAVE TENDERED SHARES IN
THE TENDER OFFER, CAN I
WITHDRAW MY TENDER?......... You may withdraw any shares you have tendered
at any time before 5:00 p.m., New York City
time, on Monday, April 10, 2000, unless we
extend the tender offer. If we have not
accepted for payment the shares you have
tendered to us, you may also withdraw your
shares after 12:00 Midnight, New York City
time, on Friday, May 5, 2000. See Section 4.
HOW DO I WITHDRAW SHARES I
PREVIOUSLY TENDERED?........ You must deliver on a timely basis a written,
telegraphic or facsimile notice of your
withdrawal to the depositary at the address
appearing on the back cover page of this
document. Your notice of withdrawal must
specify your name, the number of shares to be
withdrawn and the name of the registered holder
of such shares. Some additional requirements
apply if the certificates for shares to be
withdrawn have been delivered to the depositary
or if your shares have been tendered under the
procedure for book-entry transfer set forth in
Section 3. See Section 4.
HAS PAYLESS OR ITS BOARD OF
DIRECTORS ADOPTED A POSITION
ON THE TENDER OFFER?........ Our Board of Directors has approved the tender
offer. However, neither we nor our Board of
Directors makes any recommendation to you as to
whether you should tender or
2
<PAGE> 8
refrain from tendering your shares or as to the
price or prices at which you may choose to
tender your shares. You must make your own
decision as to whether to tender your shares
and, if so, how many shares to tender and the
price or prices at which your shares should be
tendered. Our directors and executive officers
have advised us that they do not intend to
tender any shares in the tender offer. See
Section 10.
IF I OWN LESS THAN 100 SHARES,
AND I TENDER ALL OF MY SHARES,
WILL I BE SUBJECT TO
PRORATION?.................. If you own beneficially or of record less than
100 shares, tender all of them at or below the
purchase price before the tender offer expires
and complete the section entitled "Odd Lots" in
the related letter of transmittal, we will
purchase all of your shares without subjecting
them to the proration procedure. See Section 1.
WHEN WILL PAYLESS PAY FOR THE
SHARES I TENDER?............ We will pay the purchase price, net in cash,
without interest, for the shares we purchase as
promptly as practicable after the expiration of
the tender offer and the acceptance of the
shares for payment. See Section 5.
WILL I HAVE TO PAY BROKERAGE
COMMISSIONS IF I TENDER MY
SHARES?..................... If you are a registered stockholder and you
tender your shares directly to the depositary,
you will not incur any brokerage commissions.
If you hold shares through a broker or bank, we
urge you to consult your broker or bank to
determine whether transaction costs are
applicable. See Section 2.
WHAT ARE THE UNITED STATES
FEDERAL INCOME TAX
CONSEQUENCES IF I TENDER MY
SHARES?..................... Generally, you will be subject to United States
federal income taxation when you receive cash
from us in exchange for the shares you tender.
In addition, such receipt of cash for your
tendered shares will be treated either as (1) a
sale or exchange eligible for capital gains
treatment or (2) a dividend subject to ordinary
income tax rates. See Section 13.
WILL I HAVE TO PAY STOCK
TRANSFER TAX IF I TENDER MY
SHARES?..................... If you instruct the depositary in the related
letter of transmittal to make the payment for
the shares to the registered holder, you will
not incur any stock transfer tax. See Section
5.
WHO CAN I TALK TO IF I HAVE
QUESTIONS?.................. The information agent and the dealer manager
can help answer your questions. The information
agent is D.F. King & Co., Inc. and the dealer
manager is Goldman, Sachs & Co. Their contact
information is set forth on the back cover page
of this document.
3
<PAGE> 9
THE TENDER OFFER
1. NUMBER OF SHARES; PRORATION.
General. Upon the terms and subject to the conditions of the tender offer,
Payless will purchase 7,547,170 shares, or such lesser number of shares as are
properly tendered and not properly withdrawn in accordance with Section 4,
before the scheduled expiration date of the tender offer at prices not in excess
of $53.00 nor less than $48.00 per share, net to the seller in cash, without
interest.
The term "expiration date" means 5:00 p.m., New York City time, on Monday,
April 10, 2000, unless and until Payless, in its sole discretion, shall have
extended the period of time during which the tender offer will remain open, in
which event the term "expiration date" shall refer to the latest time and date
at which the tender offer, as so extended by Payless, shall expire. See Section
14 for a description of Payless' right to extend, delay, terminate or amend the
tender offer. In accordance with the rules of the Securities and Exchange
Commission, Payless may, and Payless expressly reserves the right to, purchase
under the tender offer an additional amount of shares not to exceed 2% of the
outstanding shares without amending or extending the tender offer. See Section
14. In the event of an over-subscription of the tender offer as described below,
shares tendered at or below the purchase price will be subject to proration,
except for odd lots. The proration period and withdrawal rights expire on the
expiration date.
If (1)(a) Payless increases the price to be paid for shares above $53.00
per share or decreases the price to be paid for shares below $48.00 per share,
(b) Payless increases the number of shares being sought in the tender offer and
such increase in the number of shares being sought exceeds 2% of the outstanding
shares or (c) Payless decreases the number of shares being sought and (2) the
tender offer is scheduled to expire at any time earlier than the expiration of a
period ending on the tenth business day (as defined below) from, and including,
the date that notice of any such increase or decrease is first published, sent
or given in the manner specified in Section 14, the tender offer will be
extended until the expiration of such period of ten business days. For the
purposes of the tender offer, a "business day" means any day other than a
Saturday, Sunday or United States federal holiday and consists of the time
period from 12:01 a.m. through 12:00 Midnight, New York City time.
THE TENDER OFFER IS NOT CONDITIONED ON THE TENDER OF ANY MINIMUM NUMBER OF
SHARES BEING TENDERED. THE TENDER OFFER IS, HOWEVER, SUBJECT TO OTHER
CONDITIONS. SEE SECTION 6.
In accordance with Instruction 5 of the related letter of transmittal,
stockholders desiring to tender shares must specify the price or prices, not in
excess of $53.00 nor less than $48.00 per share, at which they are willing to
sell their shares to Payless under the tender offer. Alternatively, stockholders
desiring to tender shares can choose to not specify a price and, instead,
specify that they will sell their shares at the purchase price ultimately paid
for shares properly tendered in the tender offer, which could result in the
tendering stockholder receiving a price per share as low as $48.00 or as high as
$53.00. As promptly as practicable following the expiration date, Payless will,
in its sole discretion, determine the purchase price that it will pay for shares
properly tendered and not properly withdrawn, taking into account the number of
shares tendered and the prices specified by tendering stockholders. Payless will
select the lowest purchase price, not in excess of $53.00 nor less than $48.00
net per share in cash, without interest, that will enable it to purchase
7,547,170 shares, or such lesser number of shares as are properly tendered,
under the tender offer. Shares properly tendered under the tender offer at or
below the purchase price and not properly withdrawn will be purchased at the
purchase price, upon the terms and subject to the conditions of the tender
offer, including the odd lot and proration provisions. All shares tendered and
not purchased under the tender offer, including shares tendered at prices in
excess of the purchase price and shares not purchased because of proration
provisions will not be purchased in the tender offer. Shares not purchased in
the tender offer will be returned to the tendering stockholders at
4
<PAGE> 10
Payless's expense as promptly as practicable following the expiration date. By
following the instructions to the letter of transmittal, stockholders can
specify one minimum price for a specified portion of their shares and a
different minimum price for other specified shares but a separate letter of
transmittal must be submitted for shares tendered at each price. Stockholders
can also specify the order in which the specified portions will be purchased in
the event that, as a result of the proration provisions or otherwise, some but
not all of the tendered shares are purchased pursuant to the tender offer.
If the number of shares properly tendered at or below the purchase price
and not properly withdrawn prior to the expiration date is less than or equal to
7,547,170 shares, or such greater number of shares as Payless may elect to
purchase, subject to applicable law, Payless will, upon the terms and subject to
the conditions of the tender offer, purchase all shares so tendered at the
purchase price.
Priority of Purchases. Upon the terms and subject to the conditions of the
tender offer, if more than 7,547,170 shares, or such greater number of shares as
Payless may elect to purchase, subject to applicable law, have been properly
tendered at prices at or below the purchase price and not properly withdrawn
before the expiration date, Payless will purchase properly tendered shares on
the basis set forth below:
(1) Payless will purchase all shares properly tendered and not
properly withdrawn before the expiration date by any odd lot holder (as
defined below) who:
(a) tenders all shares owned beneficially or of record by such odd
lot holder at a price at or below the purchase price (tenders of less
than all the shares owned by such odd lot holder will not qualify for
this preference); and
(b) completes the section entitled "Odd Lots" in the related letter
of transmittal and, if applicable, in the notice of guaranteed delivery;
and
(2) after the purchase of all of the foregoing shares, Payless will
purchase all other shares properly tendered at prices at or below the
purchase price and not properly withdrawn before the expiration date, on a
pro rata basis with appropriate adjustments to avoid purchases of
fractional shares, as described below.
Odd Lots. For purposes of the tender offer, the term "odd lots" shall mean
all shares properly tendered prior to the expiration date at prices at or below
the purchase price and not properly withdrawn by any person, referred to as an
"odd lot holder," who owns beneficially or of record an aggregate of fewer than
100 shares and so certifies in the appropriate place on the related letter of
transmittal and, if applicable, on the notice of guaranteed delivery. To qualify
for this preference, an odd lot holder must tender all shares owned beneficially
or of record by the odd lot holder in accordance with the procedures described
in Section 3. As set forth above, odd lots will be accepted for payment before
proration, if any, of the purchase of other tendered shares. This preference is
not available to partial tenders or to beneficial or record holders of an
aggregate of 100 or more shares, even if these holders have separate accounts or
certificates representing fewer than 100 shares. By accepting the tender offer,
an odd lot holder who holds shares in its name and tenders its shares directly
to the depositary would not only avoid the payment of brokerage commissions, but
also would avoid any applicable odd lot discounts in a sale of the holder's
shares on the NYSE. Any stockholder wishing to tender all of such stockholder's
shares pursuant to the tender offer should complete the section entitled "Odd
Lots" in the related letter of transmittal and, if applicable, in the notice of
guaranteed delivery.
Payless also reserves the right, but will not be obligated, to purchase all
shares duly tendered by any stockholder who tenders all shares beneficially or
of record owned at or below the purchase price and who, as a result of
proration, would then beneficially or of record own an aggregate of fewer than
100 shares. If Payless exercises this right, it will increase the number of
shares that it is
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offering to purchase in the tender offer by the number of shares purchased
through the exercise of such right, subject to applicable law.
Proration. If proration of tendered shares is required, Payless will
determine the proration factor as soon as practicable following the expiration
date. Proration for each stockholder tendering shares, other than odd lot
holders, shall be based on the ratio of the number of shares properly tendered
and not properly withdrawn by such stockholder to the total number of shares
properly tendered and not properly withdrawn by all stockholders, other than odd
lot holders, at or below the purchase price. Because of the difficulty in
determining the number of shares properly tendered, including shares tendered by
guaranteed delivery procedures, as described in Section 3, and not properly
withdrawn, and because of the odd lot procedure, Payless does not expect that it
will be able to announce the final proration factor or commence payment for any
shares purchased under the tender offer until seven to ten business days after
the expiration date. The preliminary results of any proration will be announced
by press release as promptly as practicable after the expiration date.
Stockholders may obtain preliminary proration information from the information
agent or the dealer manager and may be able to obtain such information from
their brokers.
As described in Section 13, the number of shares that Payless will purchase
from a stockholder under the tender offer may affect the United States federal
income tax consequences to that stockholder and, therefore, may be relevant to a
stockholder's decision whether or not to tender shares.
This offer to purchase and the related letter of transmittal will be mailed
to record holders of shares and will be furnished to brokers, dealers,
commercial banks and trust companies whose names, or the names of whose
nominees, appear on Payless' stockholder list or, if applicable, who are listed
as participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of shares.
2. PURPOSE OF THE TENDER OFFER; MATERIAL EFFECTS OF THE TENDER OFFER.
Purpose of the Tender Offer. Payless is making the tender offer because
the Payless Board of Directors believes that its shares are undervalued in the
public market. Payless believes that the tender offer is a prudent use of its
financial resources given its business profile, assets and current market price,
and that investing in its own shares is an attractive use of capital and an
efficient means to provide value to its stockholders. The tender offer is
consistent with its historical commitment of repurchasing shares from time to
time as a means of increasing stockholder value.
Since Payless was spun-off from The May Department Stores Company in 1996,
it has repurchased an aggregate of approximately $582 million of shares. Over
the past year, Payless has been considering various strategic alternatives, such
as acquisitions and share repurchases, as a use of available resources to create
stockholder value. To date, Payless has not found a suitable acquisition
candidate available on appropriate terms. In addition, during the course of its
general stockholder relations efforts, several of Payless' large stockholders
have indicated their view that large share repurchases would be a preferable use
of available resources to increase stockholder value.
Therefore, in order to achieve the potential benefits described below,
Payless has commenced the tender offer. In connection with its decision to
commence the tender offer, the Company has raised its earnings per share growth
targets above its previous goal of 15 percent, to 20 percent on the current
fiscal year, excluding non-recurring and extraordinary charges. The Company will
take approximately $11.8 million of pre-tax charges for non-recurring and
extraordinary items against earnings of the first fiscal quarter 2000,
principally for costs associated with the analysis and consideration of various
strategic alternatives, refinancing costs and costs associated with the self-
tender.
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After the completion of the tender offer, Payless expects to have
sufficient cash flow and access to other funding (including as a result of the
financing described in Section 8) to meet its cash needs for normal operations
and anticipated capital expenditures.
Potential Benefits of the Tender Offer. Payless believes the tender offer
may provide several benefits to the Company and its stockholders, including:
- The tender offer and related borrowings will provide a capital structure
that makes greater use of financial leverage at reasonable interest
rates, thus making possible improved earnings per share for continuing
stockholders if future earnings are at the level anticipated, without
imposing excessive risk on the Company or its stockholders if future
earnings are weaker than expected.
- Payless believes that after the tender offer is completed its financial
condition, access to capital and outlook for continued favorable cash
generation will allow Payless to continue to pursue the development of
its core business, including ongoing product development activities,
important retail marketing initiatives, capital expenditures, strategic
acquisitions and expansion in Canada.
- The tender offer represents the opportunity to return a portion of its
cash to stockholders who elect to tender their shares. Stockholders who
sell all or a portion of their common stock have the opportunity to
receive a premium of 15% to 27% to Payless' closing price per share of
$41.75 on March 7, 2000, the last trading day prior to the announcement
of the tender offer. In addition, where common stock is tendered by the
registered owner of that stock directly to the depositary, the sale of
those shares in the tender offer will permit the seller to avoid the
usual transaction costs associated with open market sales. Furthermore,
odd lot holders who hold common stock registered in their names and
tender their shares directly to the depositary and whose shares are
purchased under the tender offer will avoid not only the payment of
brokerage commissions but also any applicable odd lot discounts that
might be payable on sales of their shares in New York Stock Exchange
transactions.
- Stockholders who determine not to participate in the tender offer will
realize a proportionate increase in their relative equity interest in the
Company and thus in the Company's future earnings and assets.
Accordingly, the Board of Directors of Payless believes that the tender
offer is consistent with the Company's long-term corporate goal of increasing
stockholder value.
Potential Risks and Disadvantages of the Tender Offer. The tender offer
also presents some potential risks and disadvantages to the Company and its
continuing stockholders, including:
- Payless will incur significant additional indebtedness in order to pay
for the tendered shares. If the tender offer is fully subscribed,
Payless' ratio of total debt to total capital will increase materially.
In addition, its stockholders' equity will decrease from $704 million to
$274 million. See Section 9. Payless cannot determine whether stock
market or other third party perceptions of the Company will be adversely
affected by the additional indebtedness. Payless' higher leverage will
also result in its continuing stockholders bearing a higher risk in the
event of future losses or earnings reductions.
- The pro forma balance sheet contained in Section 9 shows that Payless'
interest expense for fiscal year 1999 on a pro forma basis was
approximately $38.7 million compared to its actual interest income for
fiscal year 1999 of approximately $900,000, thereby reducing its
available cash for normal operations, capital expenditures and other
growth initiatives.
- Payless will incur a one-time extraordinary charge of approximately $3.7
million after taxes in connection with the tender offer as a result of
the early retirement of existing borrowings. See Section 9.
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- The tender offer will reduce the Company's "public float" (the number of
shares owned by non-affiliate stockholders and available for trading in
the securities markets). This reduction in Payless' public float,
combined with higher leverage, may result in lower stock prices or
reduced liquidity in the trading market for its common stock following
the completion of the tender offer.
NEITHER PAYLESS NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY
STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY SHARES OR AS
TO THE PRICE OR PRICES AT WHICH STOCKHOLDERS MAY CHOOSE TO TENDER THEIR SHARES.
PAYLESS HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY SUCH RECOMMENDATION.
STOCKHOLDERS SHOULD CAREFULLY EVALUATE ALL INFORMATION IN THE TENDER OFFER,
SHOULD CONSULT THEIR OWN INVESTMENT AND TAX ADVISORS, AND SHOULD MAKE THEIR OWN
DECISIONS ABOUT WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER
AND THE PRICE OR PRICES AT WHICH TO TENDER. PAYLESS HAS BEEN INFORMED THAT NONE
OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTENDS TO TENDER ANY SHARES IN THE
TENDER OFFER.
Payless may in the future purchase additional shares of common stock on the
open market, in private transactions, through tender offers or otherwise. Any
additional purchases may be on the same terms or on terms that are more or less
favorable to stockholders than the terms of the tender offer. However, SEC Rule
13e-4 prohibits Payless and its affiliates from purchasing any shares, other
than pursuant to the tender offer, until at least ten business days after the
expiration date of the tender offer, except pursuant to certain limited
exceptions provided in Rule 14e-5.
Shares the Company acquires pursuant to the tender offer will be canceled
and returned to the status of authorized but unissued stock, and will be
available for the Company to issue without further stockholder action (except as
required by applicable law or the rules of NYSE or any other securities exchange
on which the shares are listed) for purposes including, without limitation,
acquisitions, raising additional capital and the satisfaction of obligations
under existing or future employee benefit or compensation programs or stock
plans or compensation programs for directors.
3. PROCEDURES FOR TENDERING SHARES.
Proper Tender of Shares. For shares to be tendered properly under the
tender offer, (1) the certificates for such shares (or confirmation of receipt
of such shares under the procedure for book-entry transfer set forth below),
together with a properly completed and duly executed letter of transmittal (or a
manually signed facsimile thereof), including any required signature guarantees,
or an "agent's message" (as defined below), and any other documents required by
the letter of transmittal, must be received before 5:00 p.m., New York City
time, on the expiration date by the depositary at its address set forth on the
back cover page of this document or (2) the tendering stockholder must comply
with the guaranteed delivery procedure set forth below. IN ACCORDANCE WITH
INSTRUCTION 5 OF THE LETTER OF TRANSMITTAL, STOCKHOLDERS DESIRING TO TENDER
SHARES UNDER THE TENDER OFFER MUST PROPERLY INDICATE IN THE SECTION CAPTIONED
(1) "PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED" ON THE
LETTER OF TRANSMITTAL THE PRICE (IN MULTIPLES OF $0.125) AT WHICH SHARES ARE
BEING TENDERED OR (2) "SHARES TENDERED AT PRICE DETERMINED UNDER THE TENDER
OFFER" ON THE LETTER OF TRANSMITTAL THAT THE STOCKHOLDER WILL ACCEPT THE
PURCHASE PRICE DETERMINED BY PAYLESS IN ACCORDANCE WITH THE TERMS OF THE TENDER
OFFER. Stockholders who desire to tender shares at more than one price must
complete a separate letter of transmittal for each price at which shares are
tendered, provided that the same shares cannot be tendered (unless properly
withdrawn previously in accordance with Section 4) at more than one price. TO
TENDER SHARES PROPERLY, ONE AND ONLY ONE PRICE BOX MUST BE CHECKED IN THE
APPROPRIATE SECTION ON EACH LETTER OF TRANSMITTAL.
IN ADDITION, ODD LOT HOLDERS WHO TENDER ALL SHARES MUST COMPLETE THE
SECTION CAPTIONED "ODD LOTS" IN THE LETTER OF TRANSMITTAL AND, IF APPLICABLE, IN
THE NOTICE OF GUARANTEED DELIVERY, TO QUALIFY FOR THE PREFERENTIAL TREATMENT
AVAILABLE TO ODD LOT HOLDERS AS SET FORTH IN SECTION 1.
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STOCKHOLDERS WHO HOLD SHARES THROUGH BROKERS OR BANKS ARE URGED TO CONSULT
THE BROKERS OR BANKS TO DETERMINE WHETHER TRANSACTION COSTS ARE APPLICABLE IF
STOCKHOLDERS TENDER SHARES THROUGH THE BROKERS OR BANKS AND NOT DIRECTLY TO THE
DEPOSITARY.
Stockholders who own shares under the Payless ShoeSource, Inc. Stock
Ownership Plan and who wish to tender shares in the tender offer should so
indicate (1) by marking "Yes" in the section of the letter of transmittal
captioned "Payless ShoeSource, Inc. Stock Ownership Plan" and (2) stating
whether they are tendering all or a percentage of their stock fund account.
Participants in the Payless ShoeSource, Inc. Profit Sharing Plan and those in
the Payless ShoeSource, Inc. Profit Sharing Plan for Puerto Rico Associates will
receive separate instructions from the applicable plan trustee on how to tender
shares held under the applicable plan. For all three plans, because of the
manner in which the plans are administered, participants will tender a
designated percentage of their shares rather than a set number of shares.
Signature Guarantees and Method of Delivery. No signature guarantee is
required: (1) if the letter of transmittal is signed by the registered holder of
the shares (which term, for purposes of this Section 3, shall include any
participant in The Depository Trust Company, referred to as the "book-entry
transfer facility", whose name appears on a security position listing as the
owner of the shares) tendered therewith and such holder has not completed either
the box captioned "Special Delivery Instructions" or the box captioned "Special
Payment Instructions" on the letter of transmittal; or (2) if shares are
tendered for the account of a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the Securities
Transfer Agents Medallion Program or a bank, broker, dealer, credit union,
savings association or other entity which is an "eligible guarantor
institution", as such term is defined in Rule 17Ad-15 under the Exchange Act.
See Instruction 1 of the letter of transmittal. If a certificate for shares is
registered in the name of a person other than the person executing a letter of
transmittal, or if payment is to be made to a person other than the registered
holder, then the certificate must be endorsed or accompanied by an appropriate
stock power, in either case signed exactly as the name of the registered holder
appears on the certificate, with the signature guaranteed by an eligible
guarantor institution.
Payment for shares tendered and accepted for payment under the tender offer
will be made only after timely receipt by the depositary of certificates for
such shares or a timely confirmation of the book-entry transfer of such shares
into the depositary's account at the book-entry transfer facility as described
above, a properly completed and duly executed letter of transmittal or a
manually signed facsimile thereof, or an agent's message in the case of a
book-entry transfer, and any other documents required by the letter of
transmittal. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR
SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE
ELECTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
Book-Entry Delivery. The depositary will establish an account with respect
to the shares for purposes of the tender offer at the book-entry transfer
facility within two business days after the date of this document, and any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of the shares by causing the
book-entry transfer facility to transfer shares into the depositary's account in
accordance with the book-entry transfer facility's procedures for transfer.
Although delivery of shares may be effected through a book-entry transfer into
the depositary's account at the book-entry transfer facility, either (1) a
properly completed and duly executed letter of transmittal or a manually signed
facsimile thereof with any required signature guarantees, or an agent's message,
and any other required documents must, in any case, be transmitted to and
received by the depositary at its address set forth on the back cover page of
this document before the expiration date or (2) the guaranteed delivery
procedure described below must be followed. Delivery of the letter of
transmittal and any other required documents to the book-entry transfer facility
does not constitute delivery to the depositary.
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<PAGE> 15
The term "agent's message" means a message transmitted by the book-entry
transfer facility to, and received by, the depositary, which states that the
book-entry transfer facility has received an express acknowledgment from the
participant in the book-entry transfer facility tendering the shares that such
participant has received and agrees to be bound by the terms of the letter of
transmittal and that Payless may enforce such agreement against such
participant.
Federal Backup Withholding Tax. Under the United States federal backup
withholding tax rules, 31% of the gross proceeds payable to a stockholder or
other payee under the tender offer must be withheld and remitted to the United
States Treasury, unless the stockholder or other payee provides such person's
taxpayer identification number (employer identification number or social
security number) to the depositary and certifies under penalties of perjury that
such number is correct or otherwise establishes an exemption. If the depositary
is not provided with the correct taxpayer identification number or another
adequate basis for exemption, the holder may be subject to certain penalties
imposed by the Internal Revenue Service. Therefore, each tendering stockholder
should complete and sign the Substitute Form W-9 included as part of the letter
of transmittal in order to provide the information and certification necessary
to avoid backup withholding, unless such stockholder otherwise establishes to
the satisfaction of the depositary that the stockholder is not subject to backup
withholding. Specified stockholders (including, among others, all corporations
and certain foreign stockholders (in addition to foreign corporations)) are not
subject to these backup withholding and reporting requirements rules. In order
for a foreign stockholder to qualify as an exempt recipient, that stockholder
must submit an IRS Form W-8 or a Substitute Form W-8, signed under penalties of
perjury, attesting to that stockholder's exempt status. The applicable form can
be obtained from the Information Agent. See Instructions 13 and 14 of the
related letter of transmittal.
TO PREVENT FEDERAL BACKUP WITHHOLDING TAX EQUAL TO 31% OF THE GROSS
PAYMENTS MADE TO STOCKHOLDERS FOR SHARES PURCHASED UNDER THE TENDER OFFER, EACH
STOCKHOLDER WHO DOES NOT OTHERWISE ESTABLISH AN EXEMPTION FROM SUCH WITHHOLDING
MUST PROVIDE THE DEPOSITARY WITH THE STOCKHOLDER'S CORRECT TAXPAYER
IDENTIFICATION NUMBER AND PROVIDE OTHER INFORMATION BY COMPLETING THE SUBSTITUTE
FORM W-9 INCLUDED WITH THE LETTER OF TRANSMITTAL.
For a discussion of United States federal income tax consequences to
tendering stockholders, see Section 13.
Federal Income Tax Withholding on Foreign Stockholders. Even if a foreign
stockholder has provided the required certification as described in the
preceding paragraph to avoid backup withholding, the depositary will withhold
United States federal income taxes at a rate of 30% of the gross payment payable
to a foreign stockholder or his or her agent unless the depositary determines
that an exemption from, or a reduced rate of, withholding tax is available under
a tax treaty or that an exemption from withholding is applicable because such
gross proceeds are effectively connected with the conduct of a trade or business
of the foreign stockholder within the United States. For this purpose, a foreign
stockholder is any stockholder that is not a "United States holder" (as defined
in Section 13). In order to obtain a reduced rate of withholding under a tax
treaty, a foreign stockholder must deliver to the depositary before the payment
a properly completed and executed IRS Form 1001 or W-8BEN. In order to obtain an
exemption from withholding on the grounds that the gross proceeds paid under the
tender offer are effectively connected with the conduct of a trade or business
within the United States, a foreign stockholder must deliver to the depositary a
properly completed and executed IRS Form 4224 or W-8ECI. A foreign stockholder
may be eligible to obtain a refund of all or a portion of any tax withheld if
such stockholder satisfies one of the "Section 302 tests" for capital gain
treatment described in Section 13 or is otherwise able to establish that no
withholding or a reduced amount of withholding is due. Federal backup
withholding generally will not apply to amounts subject to the 30% or a
treaty-reduced rate of federal income tax withholding.
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FOREIGN STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX WITHHOLDING, INCLUDING
ELIGIBILITY FOR A REDUCTION OF OR AN EXEMPTION FROM WITHHOLDING TAX, AND THE
REFUND PROCEDURE. SEE INSTRUCTIONS 13 AND 14 OF THE LETTER OF TRANSMITTAL.
Guaranteed Delivery. If a stockholder desires to tender shares under the
tender offer and the stockholder's share certificates are not immediately
available or cannot be delivered to the depositary before the expiration date,
or the procedure for book-entry transfer cannot be completed on a timely basis,
or if time will not permit all required documents to reach the depositary before
the expiration date, the shares may nevertheless be tendered, provided that all
of the following conditions are satisfied:
(a) the tender is made by or through an eligible guarantor
institution;
(b) the depositary receives by hand, mail, overnight courier, telegram
or facsimile transmission, before the expiration date, a properly completed
and duly executed notice of guaranteed delivery in the form Payless has
provided with this document, specifying the price at which shares are being
tendered, including (where required) a signature guarantee by an eligible
guarantor institution in the form set forth in such notice of guaranteed
delivery; and
(c) the certificates for all tendered shares, in proper form for
transfer, or confirmation of book-entry transfer of such shares into the
depositary's account at the book-entry transfer facility, together with a
properly completed and duly executed letter of transmittal, or a manually
signed facsimile thereof, and any required signature guarantees, or an
agent's message, or other documents required by the letter of transmittal,
are received by the depositary within three NYSE trading days after the
date of receipt by the depositary of the notice of guaranteed delivery.
Return of Unpurchased Shares. If any tendered shares are not purchased
under the tender offer or are properly withdrawn before the expiration date, or
if less than all shares evidenced by a stockholder's certificates are tendered,
certificates for unpurchased shares will be returned as promptly as practicable
after the expiration or termination of the tender offer or the proper withdrawal
of the shares, as applicable, or, in the case of shares tendered by book-entry
transfer at the book-entry transfer facility, the shares will be credited to the
appropriate account maintained by the tendering stockholder at the book-entry
transfer facility, in each case without expense to the stockholder.
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the number of shares
to be accepted, the price to be paid for shares to be accepted and the validity,
form, eligibility (including time of receipt) and acceptance for payment of any
tender of shares will be determined by Payless, in its sole discretion, and its
determination will be final and binding on all parties. Payless reserves the
absolute right to reject any or all tenders of any shares that it determines are
not in proper form or the acceptance for payment of or payment for which Payless
determines may be unlawful. Payless also reserves the absolute right to waive
any of the conditions of the tender offer or any defect or irregularity in any
tender with respect to any particular shares or any particular stockholder and
Payless's interpretation of the terms of the tender offer will be final and
binding on all parties. No tender of shares will be deemed to have been properly
made until all defects or irregularities have been cured by the tendering
stockholder or waived by Payless. None of Payless, the depositary, the
information agent, the dealer manager or any other person will be under any duty
to give notification of any defects or irregularities in any tender or incur any
liability for failure to give any such notification.
Tendering Stockholder's Representation and Warranty; Payless' Acceptance
Constitutes an Agreement. A tender of shares under any of the procedures
described above will constitute the tendering stockholder's acceptance of the
terms and conditions of the tender offer, as well as the tendering stockholder's
representation and warranty to Payless that (1) the stockholder has a net
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<PAGE> 17
long position in the shares or equivalent securities at least equal to the
shares tendered within the meaning of Rule 14e-4 promulgated by the Commission
under the Exchange Act and (2) the tender of shares complies with Rule 14e-4. It
is a violation of Rule 14e-4 for a person, directly or indirectly, to tender
shares for that person's own account unless, at the time of tender and at the
end of the proration period or period during which shares are accepted by lot
(including any extensions thereof), the person so tendering (1) has a net long
position equal to or greater than the amount tendered in (x) the subject
securities or (y) securities immediately convertible into, or exchangeable or
exercisable for, the subject securities and (2) will deliver or cause to be
delivered the shares in accordance with the terms of the tender offer. Rule
14e-4 provides a similar restriction applicable to the tender or guarantee of a
tender on behalf of another person. Payless' acceptance for payment of shares
tendered under the tender offer will constitute a binding agreement between the
tendering stockholder and Payless upon the terms and conditions of the tender
offer.
Lost or Destroyed Certificates. Stockholders whose certificate for part or
all of their shares have been lost, stolen, misplaced or destroyed may contact
UMB Bank, the transfer agent for Payless shares, at (800) 884-4225, for
instructions as to obtaining a replacement certificate. That certificate will
then be required to be submitted together with the letter of transmittal in
order to receive payment for shares that are tendered and accepted for payment.
A bond may be required to be posted by the stockholder to secure against the
risk that the certificates may be subsequently recirculated. Stockholders are
urged to contact UMB Bank immediately in order to permit timely processing of
this documentation and to determine if the posting of a bond is required.
CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL OR FACSIMILE THEREOF, OR AN AGENT'S MESSAGE, AND
ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL, MUST BE DELIVERED TO
THE DEPOSITARY AND NOT TO PAYLESS, THE DEALER MANAGER OR THE INFORMATION AGENT.
ANY SUCH DOCUMENTS DELIVERED TO PAYLESS, THE DEALER MANAGER OR THE INFORMATION
AGENT WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT BE DEEMED
TO BE PROPERLY TENDERED.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of shares under the
tender offer are irrevocable. Shares tendered under the tender offer may be
withdrawn at any time before the expiration date and, unless theretofore
accepted for payment by Payless under the tender offer, may also be withdrawn at
any time after 12:00 midnight, New York City time, on Friday, May 5, 2000.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the depositary at
its address set forth on the back cover page of this document. Any such notice
of withdrawal must specify the name of the tendering stockholder, the number of
shares to be withdrawn and the name of the registered holder of such shares. If
the certificates for shares to be withdrawn have been delivered or otherwise
identified to the depositary, then, before the release of such certificates, the
serial numbers shown on such certificates must be submitted to the depositary
and the signature(s) on the notice of withdrawal must be guaranteed by an
eligible guarantor institution, unless such shares have been tendered for the
account of an eligible guarantor institution.
If shares have been tendered under the procedure for book-entry transfer
set forth in Section 3, any notice of withdrawal also must specify the name and
the number of the account at the book-entry transfer facility to be credited
with the withdrawn shares and must otherwise comply with such book-entry
transfer facility's procedures. All questions as to the form and validity
(including the time of receipt) of any notice of withdrawal will be determined
by Payless, in its sole discretion, whose determination will be final and
binding. None of Payless, the depositary, the information agent, the dealer
manager or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
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<PAGE> 18
Withdrawals may not be rescinded and any shares properly withdrawn will
thereafter be deemed not properly tendered for purposes of the tender offer
unless the withdrawn shares are properly re-tendered before the expiration date
by following one of the procedures described in Section 3.
If Payless extends the tender offer, is delayed in its purchase of shares
or is unable to purchase shares under the tender offer for any reason, then,
without prejudice to Payless' rights under the tender offer, the depositary may,
subject to applicable law, retain tendered shares on behalf of Payless, and such
shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in this Section 4.
5. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE.
Upon the terms and subject to the conditions of the tender offer, as
promptly as practicable following the expiration date, Payless (1) will
determine the purchase price it will pay for shares properly tendered and not
properly withdrawn before the expiration date, taking into account the number of
shares so tendered and the prices specified by tendering stockholders, and (2)
will accept for payment and pay for, and thereby purchase, shares properly
tendered at prices at or below the purchase price and not properly withdrawn
before the expiration date. For purposes of the tender offer, Payless will be
deemed to have accepted for payment and therefore purchased shares that are
properly tendered at or below the purchase price and not properly withdrawn,
subject to the proration provisions of the tender offer, only when, as and if it
gives oral or written notice to the depositary of its acceptance of the shares
for payment under the tender offer.
Upon the terms and subject to the conditions of the tender offer, as
promptly as practicable after the expiration date, Payless will accept for
payment and pay a single per share purchase price for 7,547,170 shares, subject
to increase or decrease as provided in Section 14, if properly tendered and not
properly withdrawn, or such lesser number of shares as are properly tendered and
not properly withdrawn, at prices not in excess of $53.00 nor less than $48.00
per share.
Payless will pay for shares purchased under the tender offer by depositing
the aggregate purchase price for such shares with the depositary, which will act
as agent for tendering stockholders for the purpose of receiving payment from
Payless and transmitting payment to the tendering stockholders.
In the event of proration, Payless will determine the proration factor and
pay for those tendered shares accepted for payment as soon as practicable after
the expiration date; however, Payless does not expect to be able to announce the
final results of any proration and commence payment for shares purchased until
approximately seven to ten business days after the expiration date. Certificates
for all shares tendered and not purchased, including all shares tendered at
prices in excess of the purchase price and shares not purchased due to
proration, will be returned to the tendering stockholder, or, in the case of
shares tendered by book-entry transfer, will be credited to the account
maintained with the book-entry transfer facility by the participant therein who
so delivered the shares, at Payless' expense as promptly as practicable after
the expiration date or termination of the tender offer without expense to the
tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE
PRICE BE PAID BY PAYLESS REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT. In
addition, if certain events occur, Payless may not be obligated to purchase
shares under the tender offer. See Section 6.
Payless will pay all stock transfer taxes, if any, payable on the transfer
to it of shares purchased under the tender offer. If, however, payment of the
purchase price is to be made to any person other than the registered holder, or
if tendered certificates are registered in the name of any person other than the
person signing the letter of transmittal, the amount of all stock transfer
taxes, if any (whether imposed on the registered holder or the other person),
payable on account of the transfer to the person will be deducted from the
purchase price unless satisfactory evidence of the payment
13
<PAGE> 19
of the stock transfer taxes, or exemption therefrom, is submitted. See
Instruction 7 of the letter of transmittal.
ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY, SIGN
AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER OF
TRANSMITTAL MAY BE SUBJECT TO FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF
THE GROSS PROCEEDS PAID TO THE STOCKHOLDER OR OTHER PAYEE UNDER THE TENDER
OFFER. SEE SECTION 3. ALSO SEE SECTION 13 REGARDING UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES FOR FOREIGN STOCKHOLDERS.
6. CONDITIONS OF THE TENDER OFFER.
Notwithstanding any other provision of the tender offer, Payless will not
be required to accept for payment, purchase or pay for any shares tendered, and
may terminate or amend the tender offer or may postpone the acceptance for
payment of, or the purchase of and the payment for shares tendered, subject to
Rule 13e-4(f) under the Exchange Act, if at any time on or after March 13, 2000
and before the expiration date any of the following events shall have occurred
(or shall have been determined by Payless to have occurred) that, in Payless'
judgment and regardless of the circumstances giving rise to the event or events
(including any action or omission to act by Payless), makes it inadvisable to
proceed with the tender offer or with acceptance for payment:
(a) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person, domestic
or foreign, before any court, authority, agency or tribunal that directly
or indirectly (i) challenges the making of the tender offer, the
acquisition of some or all of the shares under the tender offer or
otherwise relates in any manner to the tender offer or (ii) in Payless'
judgment, could materially and adversely affect the business, condition
(financial or other), income, operations or prospects of Payless and its
subsidiaries, taken as a whole, or otherwise materially impair in any way
the contemplated future conduct of the business of Payless or any of its
subsidiaries or materially impair the contemplated benefits of the tender
offer to Payless;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the tender offer or Payless
or any of its subsidiaries, by any court or any authority, agency or
tribunal that, in Payless' judgment, would or might directly or indirectly
(i) make the acceptance for payment of, or payment for, some or all of the
shares illegal or otherwise restrict or prohibit completion of the tender
offer, (ii) delay or restrict the ability of Payless, or render Payless
unable, to accept for payment or pay for some or all of the shares, (iii)
materially impair the contemplated benefits of the tender offer to Payless
or (iv) materially and adversely affect the business, condition (financial
or other), income, operations or prospects of Payless and its subsidiaries,
taken as a whole, or otherwise materially impair in any way the
contemplated future conduct of the business of Payless or any of its
subsidiaries;
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States or the
European Union, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or the
European Union, (iii) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States or any of its territories, (iv) any limitation (whether or
not mandatory) by any governmental, regulatory or administrative agency or
authority on, or any event, or any disruption or adverse change in the
financial or capital markets generally or the market for loan syndications
in particular, that, in Payless' judgment, might affect, the extension of
credit by banks or other lending institutions in the United States or the
European Union, (v) any significant decrease in the market price of the
shares or any
14
<PAGE> 20
change in the general political, market, economic or financial conditions
in the United States or abroad that could, in the judgment of Payless, have
a material adverse effect on Payless' business, operations or prospects or
the trading in the shares, (vi) in the case of any of the foregoing
existing at the time of the commencement of the tender offer, a material
acceleration or worsening thereof or (vii) any decline in either the Dow
Jones Industrial Average or the Standard and Poor's Index of 500 Industrial
Companies by a material amount (including, without limitation, an amount in
excess of 10%) from the close of business on March 7, 2000;
(d) a tender offer or exchange offer for any or all of the shares
(other than this tender offer), or any merger, business combination or
other similar transaction with or involving Payless or any subsidiary,
shall have been proposed, announced or made by any person;
(e) (i) any entity, "group" (as that term is used in Section 13(d)(3)
of the Exchange Act) or person shall have acquired or proposed to acquire
beneficial ownership of more than 5% of the outstanding shares (other than
any such person, entity or group who has filed a Schedule 13D or Schedule
13G with the Commission on or before March 7, 2000), (ii) any such entity,
group or person who has filed a Schedule 13D or Schedule 13G with the
Commission on or before March 7, 2000 shall have acquired or proposed to
acquire beneficial ownership of an additional 2% or more of the outstanding
shares or (iii) any person, entity or group shall have filed a Notification
and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, or made a public announcement reflecting an intent to
acquire Payless or any of its subsidiaries or any of their respective
assets or securities other than in connection with a transaction authorized
by the board of directors of Payless;
(f) any change or changes shall have occurred in the business,
financial condition, assets, income, operations, prospects or stock
ownership of Payless or its subsidiaries that, in Payless' judgment, is or
may be material and adverse to Payless or its subsidiaries; or
(g) Payless determines that the completion of the tender offer and the
purchase of the shares may cause the shares to be delisted from the NYSE or
to be eligible for deregistration under the Exchange Act.
The foregoing conditions are for the sole benefit of Payless and may be
asserted by Payless regardless of the circumstances (including any action or
inaction by Payless) giving rise to any such condition, and may be waived by
Payless, in whole or in part, at any time and from time to time in its sole
discretion. Payless' failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right, and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
Any determination or judgment by Payless concerning the events described above
will be final and binding on all parties.
15
<PAGE> 21
7. PRICE RANGE OF SHARES; DIVIDENDS.
The shares are listed and traded on the NYSE under the trading symbol
"PSS." The following table sets forth, for the fiscal quarters indicated, the
intraday high and low sales prices per share on the NYSE Composite Tape, as
applicable. The Company has declared no dividends between January 1, 1998 and
the date of this document.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1998:
First Quarter........................................ $77.000 $65.125
Second Quarter....................................... 74.375 56.375
Third Quarter........................................ 57.688 37.000
Fourth Quarter....................................... 53.000 41.625
Fiscal 1999:
First Quarter........................................ $59.250 $44.375
Second Quarter....................................... 59.813 48.438
Third Quarter........................................ 54.125 44.750
Fourth Quarter....................................... 47.750 40.000
Fiscal 2000:
First Quarter (through March 10, 2000)............... $49.750 $38.750
</TABLE>
On March 7, 2000, the last trading day before the date of announcement of
the tender offer, the last reported sale price of the shares on the NYSE
Composite Tape was $41.75. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE SHARES.
Rights Agreement. On April 20, 1998, Payless entered into a Stockholder
Protection Rights Agreement with UMB Bank, N.A., as Rights Agent (as amended,
the "Rights Agreement").
The rights attach to all certificates representing shares of common stock
outstanding at the close of business on May 21, 1998 and will attach to any
shares of common stock issued by Payless, including upon the exercise of any
warrants and options or upon conversion of any convertible debt securities,
after May 21, 1998, and prior to the "separation time," as defined below. The
rights will become exercisable and will separate from the common stock and be
represented by separate certificates at the separation time, which generally
will be the date 10 days after anyone acquires or commences a tender or exchange
offer to acquire 15% or more of Payless' outstanding common stock (such person
being referred to as an "acquiring person"). The rights will not be exercisable
until such date, if any, and will expire on May 21, 2008, unless this date is
extended or unless the rights are earlier exchanged or redeemed by Payless. Upon
the distribution date, the rights will initially be exercisable, at a price of
$250, for one one-hundredth of a share of Payless' preferred stock, although the
terms of the exercise are subject to adjustment under the Rights Agreement.
Under the Rights Agreement, the following are not acquiring persons:
- Payless;
- any of Payless' subsidiaries;
- employee benefit plans of Payless or any of its subsidiaries;
- any person who becomes the beneficial owner of more than 15% or more of
the shares without any plan or intention to seek or affect control of
Payless if such person promptly enters into an irrevocable commitment to
divest (and actually divests) sufficient shares of Payless common stock
so that such person ceases to be the beneficial owner of 15% or more of
the Payless common stock;
16
<PAGE> 22
- any person who becomes the beneficial owner of 15% or more of Payless
common stock solely as a result of an acquisition by Payless of common
stock (including as a result of this tender offer), except that such a
person will be an acquiring person if such person acquires any additional
shares of Payless common stock); or
- certain other limited exceptions.
Upon any person becoming an acquiring person, subject to the exception
noted below in this paragraph, each right will entitle the holder to purchase
the number of shares of common stock of Payless having a then current market
value of twice the exercise price of the right. For example, at the initial
exercise price of $250, upon exercise, each right would entitle its holder to
receive $500 worth of common stock of Payless or other consideration, as
described below. In addition, each right will entitle the holder to purchase the
number of shares of common stock of the acquiring company having a current
market value of twice the exercise price of the right, if, after the date upon
which someone has become an acquiring person:
- Payless is party to certain merger or another business combination
transactions; or
- Payless sells or disposes of 50% or more of its consolidated assets,
operating income or cash flow.
If either of the above events occur, the acquiring company shall assume all
of Payless' obligations under the Rights Agreement.
From and after the occurrence of the event which triggers the exercise of
the rights, any rights that are or were acquired or beneficially owned by any
acquiring person, any associate or any affiliate shall be void and any holder of
those rights shall thereafter have no right to exercise or transfer those
rights.
At any time prior to the earlier of ten business days following the date
upon which it has been publicly announced by Payless that someone has become an
acquiring person (or such later date as the Payless Board of Directors may
determine prior to such an announcement), the Payless Board of Directors may
redeem all, but not less than all, of the outstanding rights at a price of $0.01
per right, subject to adjustment, payable in cash, shares of common stock of
Payless or other securities of Payless. Immediately upon any redemption of the
rights, the right to exercise the rights will terminate, and the only right of
the holders of rights will be to receive the redemption price.
At any time after a person becomes an acquiring person and prior to the
time that any acquiring person becomes the beneficial owner of more than 50% of
the outstanding shares of Payless common stock, Payless' Board of Directors may
exchange all, but not less than all, the then outstanding rights, other than
those rights owned by the acquiring person or any associate or affiliate thereof
for shares of Payless common stock at an exchange ratio of one share of common
stock per right.
In the event that, after the rights become exercisable for shares of the
Payless common stock, there is an insufficient number of shares of the Payless
common stock available to permit the full exercise of the rights, Payless' Board
of Directors has the ability to substitute an equivalent value in debt or equity
securities or other assets (or a combination thereof).
Prior to the time that any person has become an acquiring person, the
Rights Agreement may be amended in any respect by the Payless Board of Directors
without the consent of the holders of the rights.
The foregoing description of the rights is qualified in its entirety by
reference to the Stockholder Protection Rights Agreement, a copy of which has
been filed as Exhibit 4 to Form 8-K filed by Payless on June 3, 1998 with the
Commission. Such report and exhibit may be obtained from the Commission in the
manner provided in Section 9.
17
<PAGE> 23
8. SOURCE AND AMOUNT OF FUNDS.
Assuming that the maximum 7,547,170 shares are tendered in the offer at a
price between $48.00 and $53.00 per share, the aggregate purchase price will be
between $362,264,160 and $400,000,010. Payless expects that its fees and
expenses for the offer will be approximately $16,500,000 (including fees and
expenses incurred as a result of refinancing its existing indebtedness of
approximately $122 million).
Payless anticipates that it will obtain all of the funds necessary to
purchase shares tendered in the offer and to refinance the Company's existing
indebtedness, as well as to pay related fees and expenses, by means of (1) a
senior secured credit facility consisting of (a) up to $400 million under a
senior secured term loan facility ("Term Facility") and (b) a $200 million
senior secured revolving credit facility ("Revolving Credit Facility" and,
together with the Term Facility, the "Facilities") and (2) available cash. In
addition, Payless will also use funds available under the Revolving Credit
Facility to provide working capital and for general and other corporate
purposes. The availability of funds under the Facilities is subject to the
satisfaction or waiver of certain conditions, as summarized below. While it is
the Company's expectation that those conditions will be satisfied, such
conditions are not all within the Company's control, and there can be no
assurance that the conditions will be satisfied. The Company intends to repay
amounts borrowed under the Facilities from available cash flow as payments come
due under the Facilities.
The Facilities are to be established pursuant to a commitment letter, dated
March 10, 2000, from Goldman Sachs Credit Partners L.P. ("GSCP"), an affiliate
of Goldman, Sachs & Co. (the "Commitment Letter"). Under the Commitment Letter,
GSCP will act as sole lead arranger to provide Payless with structuring advice
and as sole syndication agent to provide Payless with syndication advice
relating to the Facilities. In addition, GSCP has committed, subject to the
terms and conditions of the Commitment Letter, to provide the full $600 million
of the Facilities. Payless is currently in the process of negotiating definitive
documentation for the Facilities (the "Credit Agreements").
GSCP's commitments are subject, in its discretion, to certain conditions
precedent, including without limitation (1) that there has not been any change
in Payless' capital stock or long-term debt or any adverse change in or
affecting its general affairs, management, financial position, stockholders'
equity, results of operations or prospects since January 30, 1999 that GSCP, in
its reasonable good faith judgment, deems material, (2) that there shall not
have been any disruption or adverse change in the financial or capital markets
generally, or in the market for loan syndications in particular that GSCP, in
its reasonable good faith judgment, deems material, (3) the Facilities being
assigned a credit rating by each of Moody's Investor Service, Inc. ("Moody's")
and Standard & Poor's Rating Group ("S&P"), (4) the negotiation, execution and
delivery of appropriate loan documents relating to the Facilities and (5) GSCP
has not become aware of any new or inconsistent information with respect to
legal or regulatory issues relevant to Payless that GSCP deems material and
adverse. Payless does not have alternative financing arrangements or plans in
the event that the financing contemplated by the Commitment Letter is not
available.
It is GSCP's intention to syndicate the Facilities to other financial
institutions (the "Lenders"), which will be selected by GSCP with Payless'
consent (not to be unreasonably withheld). One of the Lenders will act as
collateral agent and administrative agent for the Lenders (the "Administrative
Agent").
General Description of Facilities. Pursuant to the Commitment Letter, the
Term Facility is expected to consist of a $400 million senior term loan maturing
on the fifth anniversary of the date on which Payless pays for shares accepted
in the tender offer and the funding occurs (the "Closing Date"). The Term
Facility will be drawn on only one time and will be used to finance the tender
offer and possibly, depending upon the resulting aggregate purchase price in the
offer, to refinance a portion of Payless' existing indebtedness and to pay
transaction costs. The Term Facility will be amortized in equal quarterly
installments that will equal 5.0% in the first year following the Closing
18
<PAGE> 24
Date, 12.5% in the second year, 20.0% in the third year, 27.5% in the fourth
year and 35.0% in the fifth year.
Pursuant to the Commitment Letter, the Revolving Credit Facility is
expected to consist of a $200 million senior revolving credit facility maturing
on the fifth anniversary of the Closing Date. The Revolving Credit Facility will
be available beginning on the Closing Date to provide working capital and for
general and other corporate purposes. Amounts available under the Revolving
Credit Facility may be borrowed, repaid and reborrowed until maturity. The $200
million available under the Revolving Credit Facility will also be available for
the issuance of letters of credit, which will require Payless to pay certain
fees in connection therewith.
Interest Rates. Amounts borrowed under the Facilities will bear interest
during the period beginning on the Closing Date and ending on the six-month
anniversary of the Closing Date at Payless' option as follows:
- at the rate per annum equal to a 2.00% per annum margin plus the reserve
adjusted Eurodollar Rate (as defined in the Commitment Letter) or
- at the rate per annum equal to a 1.00% per annum margin plus the greater
of (1) the Administrative Agent's prime lending rate in effect from time
to time and (2) the Base Rate (as defined in the Commitment Letter) in
effect from time to time plus 0.50%.
If during the six-month period Payless receives a senior unsecured debt
rating of at least Ba1 and BB+ from each of Moody's and S&P, respectively, in
connection with the ratings required to be received on the Closing Date, the
additional interest rate margin for the adjusted Eurodollar Rate and the Base
Rate will be reduced to 1.75% and 0.75%, respectively.
After the six-month anniversary, the margins will be subject to adjustment
based on a performance pricing grid as follows:
<TABLE>
<CAPTION>
TOTAL DEBT/EBITDA RATIO APPLICABLE MARGINS
- ------------------------ ----------------------------
EURODOLLAR
FROM TO RATE BASE RATE
- ---- ---------- ---------- ---------
<S> <C> <C> <C>
>1.75 x 2.00% 1.00%
1.25 1.75 1.75% 0.75%
0.75 1.25 1.50% 0.50%
<0.75 x 1.25% 0.25%
</TABLE>
If Payless receives a senior unsecured debt rating of at least Ba1 and BB+
from each of Moody's and S&P, respectively, in connection with the ratings
required to be received on the Closing Date, the margins for the adjusted
Eurodollar Rate and the Base Rate will not exceed 1.75% and 0.75%, respectively.
If an Event of Default (as that term will be defined in the Credit
Agreements) occurs and is continuing, the applicable interest rates will be
equal to the rate of interest on then applicable Base Rate loans plus 2.00% per
annum.
Commitment Fees. Commitment fees on the unused portion of the Revolving
Credit Facility will accrue from the Closing Date at a rate per annum equal to
0.50% (0.35% if Payless receives a senior unsecured debt rating of at least Ba1
and BB+ from each of Moody's and S&P, respectively, in connection with the
ratings required to be received on the Closing Date) until the six-month
anniversary of the Closing Date. After the six-month anniversary, commitment
fees will accrue at a rate per annum based on a performance pricing grid as
follows (except that if Payless receives a senior unsecured debt rating of at
least Ba1 and BB+ from each of Moody's and S&P, respectively,
19
<PAGE> 25
in connection with the ratings required to be received on the Closing Date the
fees will not exceed 0.350%):
<TABLE>
<CAPTION>
TOTAL DEBT/EBITDA RATIO
- ------------------------
FROM TO COMMITMENT FEE
- ---- ---------- --------------
<S> <C> <C> <C>
>1.75 x
0.500%
1.25 1.75
0.350%
0.75 1.25
0.300%
<0.75 x
0.250%
</TABLE>
Voluntary Prepayments. The Facilities may be prepaid in whole or in part
without premium or penalty except that loans bearing interest with reference to
the adjusted Eurodollar Rate will be prepayable only with certain associated
fees unless prepaid on the last day of the related interest period. Voluntary
prepayments will be applied between the Facilities in the manner in which
Payless chooses; however, voluntary prepayments of the Term Facility will be
applied as follows: the first 50% to the next scheduled amortization payments in
the order of maturity and the second 50% on a pro rata basis to the
then-remaining scheduled amortization payments.
Mandatory Prepayments. Until Payless obtains a senior unsecured debt
rating of at least Baa3 and BBB- from each of Moody's and S&P, respectively,
Payless will be required to make prepayments on the Facilities under certain
customary circumstances, including without limitation:
- all net proceeds from any asset sales of more than $10 million in any
fiscal year;
- all net proceeds from any debt or preferred stock issuance in excess of
$25 million in any fiscal year subject to certain exceptions to be agreed
upon; and
- all net proceeds from any issuance or condemnation events totaling more
than $10 million in any fiscal year.
Security Interests. Until Payless obtains a senior unsecured debt rating
of at least Baa3 and BBB- from each of Moody's and S&P, respectively, the
Facilities will be secured by a first priority perfected security interest in
all of Payless' current and future domestic subsidiaries' capital stock and 65%
of the capital stock of each of Payless' foreign subsidiaries. In addition, all
of Payless' other assets and properties, including those of Payless' domestic
subsidiaries, will be subject to a negative pledge.
Representations, Warranties, Covenants and Events of Default. The
Facilities will contain certain representations and warranties, certain
affirmative covenants, certain negative covenants, certain financial covenants,
certain conditions and events of default that are customarily required for
similar financings. Such covenants will include restrictions and limitations on
liens, consolidations and mergers, indebtedness, capital expenditures, asset
dispositions, sale-leaseback transactions, limitations on stock repurchases,
subsidiary indebtedness, advances and investments, acquisitions and other
restrictions and limitations. Furthermore, the Company will be required to
maintain compliance with certain financial covenants such as a Total Debt to
EBITDA, Minimum Fixed Charge Coverage and Total Debt to Total Capitalization
Ratios (as those terms will be defined in the Credit Agreements).
Funding Protections. Pursuant to the Commitment Letter, there will be
certain funding protections in favor of the Lenders customary for transactions
of the type contemplated by the Facilities, including breakage costs, gross-ups
for withholding, compensation for increased costs and compliance with capital
adequacy and other regulatory restrictions.
Facilities are Subject to Finalization and the Description of the
Facilities is Qualified by Reference to the Commitment Letter. The terms of the
Facilities have not yet been finalized and are still being negotiated.
Accordingly, the foregoing description of the Facilities is preliminary and
necessarily incomplete. In addition, the terms and provisions of the Facilities,
to the extent described, are
20
<PAGE> 26
subject to change if the terms of the Offer change, and may be changed after
consultation with Payless in limited respects under certain circumstances. In
any event, the ultimate Facilities might contain terms that are more or less
onerous than those currently contemplated.
Conditions to Initial Funding. Pursuant to the Commitment Letter, the
initial funding under the Facilities is subject to certain conditions precedent,
including but not limited to (i) the negotiation, execution and delivery of
definitive documents reasonably satisfactory to GSCP, the Lenders and the
Administrative Agent for the financing, (ii) the Administrative Agent, on behalf
of the Lenders, shall have been granted a perfected first priority security
interest in all of the assets constituting security for the lending under the
Facilities, (iii) there shall have been no adverse change in our general
affairs, management, financial position, stockholders' equity, results of
operations or prospects since January 30, 1999 that GSCP deems material, (iv)
there shall have been no disruption or adverse change in the financial or
capital markets generally or in the market for loan syndications in particular
that GSCP deems material, (v) all necessary governmental and third party
approvals in connection with the Facilities and the transactions contemplated by
the Facilities have been obtained and remain in effect (and all applicable
waiting periods shall have expired without any action being taken by any
applicable authority) and no applicable law or regulation shall restrain,
prevent or impose materially adverse conditions on the transactions contemplated
by the tender offer or the financings contemplated by the Facilities, (vi) GSCP
and the Administrative Agent shall be reasonably satisfied with the structure
utilized to consummate the tender offer and the refinancing of our existing
indebtedness, (vii) completion of the tender offer and retirement of the
acquired shares in accordance with the terms of the offer to purchase and (viii)
such other conditions as are set forth in the Commitment Letter, which is filed
as an exhibit to the Schedule of which this offer to purchase forms a part, and
which is incorporated herein by reference. In addition, all borrowings are
subject to conditions precedent that include without limitation requirements
relating to prior written notice of borrowing, the accuracy of representations
and warranties that we will make in the definitive loan documentation, the
absence of any "default" or "potential default" (as those terms will be defined
in the definitive loan documentation) and other customary conditions for
financing of the sort undertaken pursuant to the Commitment Letter.
The foregoing description is qualified in its entirety by reference to the
Commitment Letter, a copy of which is filed as an exhibit to the Schedule TO in
which this document has been filed with the Commission and is incorporated
herein by reference.
9. CERTAIN INFORMATION CONCERNING PAYLESS.
General. Payless, first founded in 1956 under the name "Volume
Distributors," was acquired by The May Department Stores Company in 1979, was
spun-off by The May Department Stores Company in 1996 and was reorganized into
its current holding company structure in June 1998. Today Payless, together with
its subsidiaries, is the largest family footwear retailer in the United States.
Payless sold approximately 215 million pairs of shoes in fiscal 1999 and served
nearly 160 million customers.
As of January 29, 2000, Payless operated 4,492 Payless ShoeSource stores in
50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam,
Saipan, and Canada. Payless ShoeSource stores feature fashionable, quality
footwear for men, women and children, including athletic, casual, dress,
sandals, work boots and slippers. In addition, the Company operated 220 Parade
stores in 16 states. Parade offers fashionable women's footwear and accessories
at moderate prices. Payless has approximately 26,000 employees.
Payless considers itself part of the value-priced segment of the footwear
industry. In 1999, the Company's sales accounted for approximately 7.1% of the
total sales of the estimated $38 billion United States footwear market. Payless
stores offer a broad assortment of fashionable, quality footwear for men, women
and children, including athletic, casual, dress, sandals, work boots and
slippers. Shoes are constructed with leather, canvas and man-made materials.
Styling is updated
21
<PAGE> 27
regularly in an effort to remain current with proven fashion trends. In addition
to shoes, Payless ShoeSource stores offer accessories, including handbags, shoe
polish and hosiery. Parade stores are self-selection and feature fashionable
women's dress, casual and athletic footwear priced in the $20 to $40 per pair
range.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA AND
SUMMARY PRO FORMA FINANCIAL DATA
The following summary historical consolidated financial data has been
derived from the accounting records of Payless. The historical information
accords with the information contained in the Company's press release reporting
the results of their operations for the year ended January 29, 2000. In the
opinion of management of the Company, the summary historical financial
information as of and for the year ended January 29, 2000, includes all
adjusting entries (consisting of normal recurring adjustments) necessary to
present fairly the information set forth therein. For additional historical
financial information, please refer to the Company's Annual Report on Form 10-K
for the fiscal year ended January 30, 1999, and to its Quarterly Report on Form
10-Q for the fiscal quarter ended October 30, 1999.
The following pro forma financial information gives effect to the purchase
of shares pursuant to the tender offer and the financing described in Section 8,
based on the assumptions described in the footnotes below, as if such
transactions had occurred on the first day of the year ended January 29, 2000.
This pro forma information does not purport to be indicative of the results that
would have been obtained or results that may be obtained in the future, or the
financial condition that would have resulted if the purchase of the shares
pursuant to the tender offer and the financing had been completed at the date
indicated.
PAYLESS SHOESOURCE, INC.
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
PRO FORMA
FOR FISCAL YEAR 1999
ACTUAL FOR FISCAL ----------------------------
YEAR 1999 $48.00 SHARE $53.00 SHARE
----------------- ------------ ------------
($ MILLIONS, EXCEPT PER SHARE)
<S> <C> <C> <C>
Net Retail Sales................................. $ 2,730.1 $ 2,730.1 $ 2,730.1
Cost of Sales.................................... (1,868.3) (1,868.3) (1,868.3)
--------- --------- ---------
Gross Margin..................................... $ 861.8 $ 861.8 $ 861.8
Selling, General and Administrative Expenses..... 635.7 635.7 635.7
Interest (Income) expense, net................... (0.9) 36.3 38.7
--------- --------- ---------
Earnings Before Income Taxes..................... $ 227.0 $ 189.8 $ 187.4
Provisions for Income Taxes...................... (90.5) (75.7) (74.8)
--------- --------- ---------
Net Earnings..................................... $ 136.5 $ 114.1 $ 112.6
========= ========= =========
Diluted Earnings Per Share....................... $ 4.35 $ 4.79 $ 4.73
Basic Earnings Per Share......................... $ 4.37 $ 4.82 $ 4.76
Diluted Average Shares Outstanding............... 31.4 23.8 23.8
Basic Average Shares Outstanding................. 31.2 23.7 23.7
</TABLE>
22
<PAGE> 28
PAYLESS SHOESOURCE, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA AS OF THE END OF
FISCAL YEAR 1999
ACTUAL ----------------------------
1999 $48.00 SHARE $53.00 SHARE
-------- ------------ ------------
($ MILLIONS)
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents............................. $ 164.2 $ 22.3 $ 23.1
Merchandise Inventories............................... $ 349.7 $ 349.7 $ 349.7
Current Deferred Income Taxes......................... 12.1 12.1 12.1
Other Current Assets.................................. 40.9 40.9 40.9
-------- -------- --------
Total Current Assets........................ $ 566.9 $ 425.0 $ 425.8
Gross Property, Plant & Equipment..................... $1,037.8 $1,037.8 $1,037.8
Accumulated Depreciation.............................. (554.9) (554.9) (554.9)
-------- -------- --------
Property, Plant & Equipment, Net...................... $ 482.9 $ 482.9 $ 482.9
Deferred Income Taxes................................. $ 21.3 $ 21.3 $ 21.3
Other Assets.......................................... 4.4 10.0 10.0
-------- -------- --------
Total Assets................................ $1,075.5 $ 939.2 $ 940.0
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Maturities of Long-term Debt.................. $ 0.7 $ 50.7 $ 90.7
Accounts Payable...................................... 81.2 81.2 81.2
Accrued Expenses...................................... 115.9 112.7 112.7
-------- -------- --------
Total Current Liabilities............................. $ 197.8 $ 244.6 $ 284.6
Long Term Debt........................................ $ 126.1 $ 334.1 $ 334.1
Other Liabilities..................................... $ 47.8 $ 47.8 $ 47.8
Shareowners' Equity................................... $ 703.8 $ 312.7 $ 273.5
-------- -------- --------
Total Liabilities and Shareowners' Equity... $1,075.5 $ 939.2 $ 940.0
======== ======== ========
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(1) The pro forma financial information reflects the repurchase of 7,547,170
shares at $48.00 and $53.00 per share, as appropriate.
(2) The unaudited pro forma financial information gives effect to the purchase
of shares pursuant to the offer as if such transaction had occurred on
January 31, 1999, the first day of the fiscal year ended January 29, 2000.
(3) The funds used to purchase shares were obtained through additional
borrowings and available cash held in interest bearing short-term
investments. The additional borrowings will require the retirement of
existing borrowings. The balance sheet and income statement give effect to
these borrowing activities as if they had occurred on January 31, 1999, the
first day of the fiscal year ended January 29, 2000. The pro forma data
assumes interest of 9.5% on the new debt and 5% on interest bearing
deposits.
(4) The pro forma data assumes an incremental tax rate of 40%.
(5) No earnings statement effect has been given to the one-time costs associated
with the early retirement of existing borrowings. These costs are estimated
to be $6.2 million pre tax ($3.7 million after tax) and will be classified
as extraordinary expenses when incurred. These costs were reflected in the
balance sheet and cash flows in arriving at the pro forma data.
23
<PAGE> 29
Additional Information. Payless is subject to the information requirements
of the Exchange Act, and in accordance therewith files periodic reports, proxy
statements and other information relating to its business, financial condition
and other matters. Payless is required to disclose in such proxy statements
certain information, as of particular dates, concerning the Payless directors
and executive officers, their compensation, stock options granted to them, the
principal holders of the securities of Payless and any material interest of such
persons in transactions with Payless. Pursuant to Rule 13e-4(c)(2) under the
Exchange Act, Payless has filed with the Commission an Issuer Tender Offer
Statement on Schedule TO and Amendment No. 1 to the Schedule TO which include
additional information with respect to the tender offer. Such material and other
information may be inspected at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and
also should be available for inspection and copying at the following regional
offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained by mail, upon
payment of the Commission's customary charges, by writing to the Public
Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. These
reports, statements and other information concerning Payless can also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
Payless urges you to review its Annual Report on Form 10-K for the year
ended January 30, 1999 and its Quarterly Reports on Form 10-Q for the quarters
ended May 1, 1999, July 31, 1999 and October 30, 1999.
10. INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING SHARES.
As of March 7, 2000, Payless had 29,601,406 issued and outstanding shares
and held 7,322,721 shares in treasury. The 7,547,170 shares Payless is offering
to purchase under the tender offer represent approximately 25.5% of the shares
outstanding as of March 7, 2000.
As of March 7, 2000, the Company's directors and executive officers as a
group (14 persons) beneficially owned an aggregate of 455,363 shares of Payless
common stock, representing approximately 1.53% of outstanding shares. The
directors and executive officers of the Company are entitled to participate in
the tender offer on the same basis as all other stockholders. However, they have
advised the Company that they do not intend to tender any shares in the tender
offer.
As of March 7, 2000, the aggregate number and percentage of Payless
securities that were beneficially owned by the directors and executive officers
of Payless were as appears in columns two and three of the table below. No
director or executive officer beneficially owned more than 1.0% of the Company's
shares as of such date. Assuming Payless purchases 7,547,170 shares of common
stock and that no director or executive officer tenders any shares under the
tender offer (as is intended by the directors and executive officers), then
after the purchase of shares under the tender offer, the directors and executive
officers as a group will beneficially own approximately 2.04% of the outstanding
common stock. None of Payless' directors or executive officers will beneficially
own more than 1.0% of the Company's shares after the tender offer. The
percentage
24
<PAGE> 30
beneficial ownership of each director and officer will be approximately as
appears in column four of the table below.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
AFTER TENDER OFFER
SHARES OF PERCENTAGE (ASSUMING PAYLESS
PAYLESS OWNERSHIP OF PURCHASES 7,547,170
COMMON STOCK SHARES SHARES AND NO DIRECTOR OR
BENEFICIALLY OUTSTANDING AS EXECUTIVE OFFICER
DIRECTORS AND OFFICERS(1) OWNED(2)(3) OF MARCH 7, 2000 TENDERS)
- ------------------------- ------------ ---------------- -------------------------
<S> <C> <C> <C>
Steven J. Douglass.................... 211,124 0.71% 0.95%
(Chairman of the Board & Chief
Executive Officer)
Ken C. Hicks.......................... 17,706 *** ***
(President and Director)
Duane L. Cantrell..................... 49,543 0.17% 0.22%
(Executive Vice President --
Operations)
John N. Haugh......................... 2,800 *** ***
(Senior Vice President -- Marketing)
Jed L. Norden......................... 46,091(4) 0.16% 0.21%
(Senior Vice President -- Human
Resources)
Ullrich E. Porzig..................... 37,432 0.13% 0.17%
(Senior Vice President -- Chief
Financial Officer and Treasurer)
William J. Rainey..................... 29,641(5) 0.10% 0.13%
(Senior Vice President -- General
Counsel and Secretary)
Gary M. Stone......................... 20,861 *** ***
(Senior Vice President -- Corporate
Development)
Daniel Boggan, Jr. ................... 0(6) *** ***
(Director)
Howard R. Fricke...................... 7,070(6)(7) *** ***
(Director)
Thomas A. Hays........................ 24,575(6)(8) *** 0.11%
(Director)
Mylle B. Mangum....................... 100 *** ***
(Director)
Michael E. Murphy..................... 5,254 *** ***
(Director)
Robert L. Stark....................... 3,166 *** ***
(Director)
</TABLE>
- ---------------
(1) The business address of each of the directors and executive officers of
Payless is as follows: Payless ShoeSource, Inc., 3231 South East Sixth
Avenue, Topeka, Kansas 66607-2207.
(2) Shares shown as beneficially owned include shares subject to options which
are presently exercisable or which will become exercisable on or before May
6, 2000, as follows: Steven J. Douglass -- 151,000 shares; Duane L.
Cantrell -- 30,813 shares; Jed L. Norden -- 26,250 shares; Ullrich E.
Porzig -- 18,750 shares; William J. Rainey -- 18,750 shares; and Gary M.
Store -- 11,875 shares.
(3) The Payless ShoeSource, Inc. Profit Sharing Plan provides for an investment
fund which is invested in shares of Payless common stock. Shares shown as
beneficially owned by the persons referred to in the table include any
shares allocated to their accounts under this plan.
(4) Includes 464 shares held by Mr. Norden's children, of which he disclaims
beneficial ownership.
25
<PAGE> 31
(5) Includes 4,382 shares held by a revocable trust.
(6) Does not include units credited to non-employee directors' accounts under
the Deferred Compensation Plan for Non-Management Directors. As of March 1,
2000, the following directors had the following units credited to their
account under the Plan: Mr. Boggan -- 2,557 units; Mr. Fricke -- 1,184
units; Mr. Hays -- 1,184 units; Ms. Mangum -- 2,466 units; and Mr.
Stark -- 1,184 units. At the end of the deferred period, the units will be
paid out in an equivalent number of shares of Payless common stock.
(7) Includes 4,000 shares owned by Mr. Fricke's spouse.
(8) Includes 21,505 shares held by a limited partnership of which Mr. Hays is a
general and limited partner. Mr. Hays disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein.
*** Less than 0.10% ownership.
Based on Payless' records and information provided to Payless by its
directors, executive officers, associates and subsidiaries, neither Payless, nor
any associate or subsidiary of Payless nor, to the best of Payless' knowledge,
any directors or executive officers of Payless or any associates or subsidiaries
thereof, has effected any transactions in Payless shares during the 60 days
before the date hereof, except as stated below.
STOCK REPURCHASES
(EFFECTED BY PAYLESS IN OPEN MARKET TRANSACTIONS
ON THE NEW YORK STOCK EXCHANGE THROUGH A REGISTERED BROKER-DEALER)
<TABLE>
<CAPTION>
DATE NUMBER OF SHARES SHARE PRICE($) TRANSACTION VALUE($)
---- ---------------- -------------- --------------------
<S> <C> <C> <C>
January 10, 2000........................ 17,896 44.700 799,956.57
January 11, 2000........................ 17,666 44.284 799,990.68
January 12, 2000........................ 18,000 44.338 798,089.40
January 13, 2000........................ 18,101 44.192 799,913.96
January 14, 2000........................ 17,809 44.914 799,873.43
January 18, 2000........................ 18,693 42.796 799,978.15
January 19, 2000........................ 19,171 41.726 799,925.31
January 20, 2000........................ 19,142 41.792 799,986.29
January 21, 2000........................ 18,986 42.136 799,984.60
</TABLE>
OPTIONS EXERCISED(++)
<TABLE>
<CAPTION>
NUMBER OF EXERCISE OPTION
DATE SHARES PRICE($) PRICE($)
---- --------- -------------- ------------
<S> <C> <C> <C>
January 11, 2000..................................... 75 44.875 29.250
January 21, 2000..................................... 75 41.375 29.250
February 18, 2000.................................... 548 39.687 27.027
February 18, 2000.................................... 375 39.687 29.250
</TABLE>
- ---------------
++ By persons other than Payless directors or executive officers. No directors
or executive officers of Payless exercised any options in Payless securities
in the 60 days prior to the date hereof.
Except as otherwise described herein, neither Payless nor, to the best of
Payless' knowledge, any of its affiliates, directors or executive officers, is a
party to any agreement, arrangement or understanding with any other person
relating, directly or indirectly, to the tender offer or with respect to any
securities of Payless, including, but not limited to, any agreement, arrangement
or understanding concerning the transfer or the voting of the securities of
Payless, joint ventures, loan or
26
<PAGE> 32
option arrangements, puts or calls, guarantees of loans, guarantees against loss
or the giving or withholding of proxies, consents or authorizations.
11. EFFECTS OF THE TENDER OFFER ON THE MARKET FOR SHARES; REGISTRATION UNDER THE
EXCHANGE ACT.
The purchase by Payless of shares under the tender offer will reduce the
number of shares that might otherwise be traded publicly and may reduce the
number of stockholders. Nonetheless, Payless anticipates that there will be a
sufficient number of shares outstanding and publicly traded following completion
of the tender offer to ensure a continued trading market for the shares. Based
upon published guidelines of the NYSE, Payless does not believe that its
purchase of shares under the tender offer will cause the remaining outstanding
shares of Payless common stock to be delisted from the NYSE.
The shares are now "margin securities" under the rules of the Federal
Reserve Board. This has the effect, among other things, of allowing brokers to
extend credit to their customers using such shares as collateral. Payless
believes that, following the purchase of shares under the tender offer, the
shares will continue to be "margin securities" for purposes of the Federal
Reserve Board's margin rules and regulations.
The shares are registered under the Exchange Act, which requires, among
other things, that Payless furnish certain information to its stockholders and
the Commission and comply with the Commission's proxy rules in connection with
meetings of the Payless stockholders. Payless believes that its purchase of
shares under the tender offer will not result in the shares becoming eligible
for deregistration under the Exchange Act.
12. LEGAL MATTERS; REGULATORY APPROVALS.
Except as described above, Payless is not aware of any license or
regulatory permit that appears material to its business that might be adversely
affected by its acquisition of shares as contemplated by the tender offer or of
any approval or other action by any government or governmental, administrative
or regulatory authority or agency, domestic, foreign or supranational, that
would be required for the acquisition or ownership of shares by Payless as
contemplated by the tender offer. Should any such approval or other action be
required, Payless presently contemplates that it will seek that approval or
other action. Payless is unable to predict whether it will be required to delay
the acceptance for payment of or payment for shares tendered under the tender
offer pending the outcome of any such matter. There can be no assurance that any
such approval or other action, if needed, would be obtained or would be obtained
without substantial cost or conditions or that the failure to obtain the
approval or other action might not result in adverse consequences to its
business and financial condition. The obligations of Payless under the tender
offer to accept for payment and pay for shares is subject to conditions. See
Section 6.
13. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
The following summary describes the material United States federal income
tax consequences relating to the tender offer. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
promulgated thereunder, administrative pronouncements and judicial decisions,
all as in effect as of the date hereof and all of which are subject to change,
possibly with retroactive effect. This summary addresses only shares that are
held as capital assets within the meaning of Section 1221 of the Code and does
not address all of the tax consequences that may be relevant to stockholders in
light of their particular circumstances or to certain types of stockholders
subject to special treatment under the Code, including, without limitation,
certain financial institutions, dealers in securities or commodities, traders in
securities who elect to apply a mark-to-market method of accounting, insurance
companies, tax-exempt organizations, persons who hold shares as a position in a
"straddle" or as a part of a "hedging," "conversion" or "constructive sale"
transaction for United States federal income tax purposes or
27
<PAGE> 33
persons who received their shares through the exercise of employee stock options
or otherwise as compensation. In addition, except as otherwise specifically
noted, this discussion applies only to "United States holders" (as defined
below). This summary also does not address the state, local or foreign tax
consequences of participating in the tender offer. For purposes of this
discussion, a "United States holder" means:
- a citizen or resident of the United States;
- a corporation or other entity taxable as a corporation created or
organized in the United States or under the laws of the United States or
of any political subdivision thereof;
- an estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all of its substantial decisions.
If a partnership holds shares, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership and the "Section 302 test" (as defined below) will apply at the
partnership level. Partners of partnerships holding shares should consult their
tax advisors. Holders of shares who are not United States holders should consult
their tax advisors regarding the United States federal income tax consequences
and any applicable foreign tax consequences of the tender offer and should also
see Section 3 for a discussion of the applicable United States withholding rules
and the potential for obtaining a refund of all or a portion of any tax
withheld.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO THEM OF PARTICIPATING OR NOT PARTICIPATING IN THE
TENDER OFFER.
Characterization of the Purchase. The purchase of a United States holder's
shares by Payless under the tender offer will be a taxable transaction for
United States federal income tax purposes. As a consequence of the purchase, a
United States holder will, depending on the United States holder's particular
circumstances, be treated either as having sold the United States holder's
shares or as having received a distribution in respect of stock from Payless.
Under Section 302 of the Code, a United States holder whose shares are
purchased by Payless under the tender offer will be treated as having sold its
shares, and thus will recognize capital gain or loss if the purchase:
- results in a "complete termination" of the United States holder's equity
interest in Payless;
- results in a "substantially disproportionate" redemption with respect to
the United States holder; or
- is "not essentially equivalent to a dividend" with respect to the United
States holder.
Each of these tests, referred to as the "Section 302 tests," is explained
in more detail below.
If a United States holder satisfies any of the Section 302 tests explained
below, the United States holder will be treated as if it sold its shares to
Payless and will recognize capital gain or loss equal to the difference between
the amount of cash received under the tender offer and the United States
holder's adjusted tax basis in the shares surrendered in exchange therefor. This
gain or loss will be long-term capital gain or loss if the United States
holder's holding period for the shares that were sold exceeds one year as of the
date of purchase by Payless under the tender offer. Specified limitations apply
to the deductibility of capital losses by United States holders. Gain or loss
must be determined separately for each block of shares (shares acquired at the
same cost in a single transaction) that is purchased by Payless from a United
States holder under the tender offer. A United States holder may be able to
designate, generally through its broker, which blocks of shares
28
<PAGE> 34
it wishes to tender under the tender offer if less than all of its shares are
tendered under the tender offer, and the order in which different blocks will be
purchased by Payless in the event of proration under the tender offer. United
States holders should consult their tax advisors concerning the mechanics and
desirability of that designation.
If a United States holder does not satisfy any of the Section 302 tests
explained below, the purchase of a United States holder's shares by Payless
under the tender offer will not be treated as a sale or exchange under Section
302 of the Code with respect to the United States holder. Instead, the entire
amount received by a United States holder with respect to the purchase of its
shares by Payless under the tender offer will be treated as a dividend
distribution to the United States holder with respect to its shares under
Section 301 of the Code, taxable at ordinary income tax rates, to the extent of
the United States holder's share of the current and accumulated earnings and
profits (within the meaning of the Code) of Payless. To the extent the amount
exceeds the United States holder's share of the current and accumulated earnings
and profits of Payless, the excess first will be treated as a tax-free return of
capital to the extent of the United States holder's adjusted tax basis in its
shares and any remainder will be treated as capital gain (which may be long-term
capital gain as described above). To the extent that a purchase of a United
States holder's shares by Payless under the tender offer is treated as the
receipt by the United States holder of a dividend, the United States holder's
adjusted tax basis in the purchased shares will be added to any shares retained
by the United States holder.
Constructive Ownership of Stock and Other Issues. In applying each of the
Section 302 tests explained below, United States holders must take into account
not only shares that they actually own but also shares they are treated as
owning under the constructive ownership rules of Section 318 of the Code. Under
the constructive ownership rules, a United States holder is treated as owning
any shares that are owned (actually and in some cases constructively) by certain
related individuals and entities as well as shares that the United States holder
has the right to acquire by exercise of an option or by conversion or exchange
of a security. Due to the factual nature of the Section 302 tests explained
below, United States holders should consult their tax advisors to determine
whether the purchase of their shares under the tender offer qualifies for sale
treatment in their particular circumstances.
Payless cannot predict whether or the extent to which the tender offer will
be oversubscribed. If the tender offer is oversubscribed, proration of tenders
under the tender offer will cause Payless to accept fewer shares than are
tendered. Therefore, no assurance can be given that Payless will purchase a
sufficient number of a United States holder's shares under the tender offer to
ensure that the United States holder receives sale treatment, rather than
dividend treatment, for United States federal income tax purposes under the
rules discussed below.
Section 302 Tests. One of the following tests must be satisfied in order
for the purchase of shares by Payless under the tender offer to be treated as a
sale or exchange for federal income tax purposes:
- Complete Termination Test. The purchase of a United States holder's
shares by Payless under the tender offer will result in a "complete
termination" of the United States holder's equity interest in Payless if
all of the shares that are actually owned by the United States holder are
sold under the tender offer and all of the shares that are constructively
owned by the United States holder, if any, are sold under the tender
offer or, with respect to shares owned by certain related individuals,
the United States holder effectively waives, in accordance with Section
302(c) of the Code, attribution of shares which otherwise would be
considered as constructively owned by the United States holder. United
States holders wishing to satisfy the "complete termination" test through
waiver of the constructive ownership rules should consult their tax
advisors.
- Substantially Disproportionate Test. The purchase of a United States
holder's shares by Payless under the tender offer will result in a
"substantially disproportionate" redemption
29
<PAGE> 35
with respect to the United States holder if, among other things, the
percentage of the then outstanding shares actually and constructively
owned by the United States holder immediately after the purchase is less
than 80% of the percentage of the shares actually and constructively
owned by the United States holder immediately before the purchase
(treating as outstanding all shares purchased under the tender offer).
- Not Essentially Equivalent to a Dividend Test. The purchase of a United
States holder's shares by Payless under the tender offer will be treated
as "not essentially equivalent to a dividend" if the reduction in the
United States holder's proportionate interest in Payless as a result of
the purchase constitutes a "meaningful reduction" given the United States
holder's particular circumstances. Whether the receipt of cash by a
stockholder who sells shares under the tender offer will be "not
essentially equivalent to a dividend" will depend upon the stockholder's
particular facts and circumstances. The IRS has indicated in a published
revenue ruling that even a small reduction in the percentage interest of
a stockholder whose relative stock interest in a publicly held
corporation is minimal (for example, an interest of less than 1%) and who
exercises no control over corporate affairs should constitute a
"meaningful reduction." United States holders should consult their tax
advisors as to the application of this test in their particular
circumstances.
Corporate Stockholder Dividend Treatment. In the case of a corporate
United States holder, to the extent that any amounts received under the tender
offer are treated as a dividend, such holder may be eligible for the
dividends-received deduction. The dividends-received deduction is subject to
certain limitations. In addition, any amount received by a corporate United
States holder pursuant to the tender offer that is treated as a dividend may
constitute an "extraordinary dividend" under Section 1059 of the Code. Corporate
United States holders should consult their own tax advisors as to the
application of Section 1059 of the Code to the tender offer, and to the tax
consequences of dividend treatment in their particular circumstances.
Foreign Stockholders. Generally, the depositary will withhold United
States federal income tax at a rate of 30% from the gross proceeds paid under
the tender offer to a foreign stockholder (as defined in Section 3) or his
agent, unless the depositary determines that an exemption from, or a reduced
rate of, withholding tax is available under a tax treaty or that an exemption
from withholding otherwise applies. See Section 3 for a discussion of the
applicable United States withholding rules and the potential for a foreign
stockholder being subject to reduced withholding and for obtaining a refund of
all or a portion of any tax withheld.
Stockholders Who do Not Receive Cash Under the Tender Offer. Stockholders
whose shares are not purchased by Payless under the tender offer will not incur
any tax liability as a result of the completion of the tender offer.
Backup Withholding. See Section 3 with respect to the application of
United States federal backup withholding tax.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISOR TO DETERMINE THE PARTICULAR
TAX CONSEQUENCES TO THEM OF THE TENDER OFFER, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
14. EXTENSION OF THE TENDER OFFER; TERMINATION; AMENDMENT.
Payless expressly reserves the right, in its sole discretion, at any time
and from time to time, and regardless of whether or not any of the events set
forth in Section 6 shall have occurred or shall be deemed by Payless to have
occurred, to extend the period of time during which the tender offer is open and
thereby delay acceptance for payment of, and payment for, any shares by giving
oral or written notice of such extension to the depositary and making a public
announcement of such extension. Payless also expressly reserves the right, in
its sole discretion, to terminate the tender offer and not accept for payment or
pay for any shares not theretofore accepted for payment or paid
30
<PAGE> 36
for or, subject to applicable law, to postpone payment for shares upon the
occurrence of any of the conditions specified in Section 6 hereof by giving oral
or written notice of such termination or postponement to the depositary and
making a public announcement of such termination or postponement. Payless'
reservation of the right to delay payment for shares which it has accepted for
payment is limited by Rule 13e-4(f)(5) promulgated under the Exchange Act, which
requires that Payless must pay the consideration offered or return the shares
tendered promptly after termination or withdrawal of a tender offer. Subject to
compliance with applicable law, Payless further reserves the right, in its sole
discretion, and regardless of whether any of the events set forth in Section 6
shall have occurred or shall be deemed by Payless to have occurred, to amend the
tender offer in any respect, including, without limitation, by decreasing or
increasing the consideration offered in the tender offer to holders of shares or
by decreasing or increasing the number of shares being sought in the tender
offer. Amendments to the tender offer may be made at any time and from time to
time effected by public announcement, such announcement, in the case of an
extension, to be issued no later than 9:00 a.m., New York City time, on the next
business day after the last previously scheduled or announced expiration date.
Any public announcement made under the tender offer will be disseminated
promptly to stockholders in a manner reasonably designed to inform stockholders
of such change. Without limiting the manner in which Payless may choose to make
a public announcement, except as required by applicable law, Payless shall have
no obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a release through Business Wire.
If Payless materially changes the terms of the tender offer or the
information concerning the tender offer, Payless will extend the tender offer to
the extent required by Rules 13e-4(d)(2), 13e-4(e)(2) and 13e-4(f)(1)
promulgated under the Exchange Act. These rules and certain related releases and
interpretations of the Commission provide that the minimum period during which a
tender offer must remain open following material changes in the terms of the
tender offer or information concerning the tender offer (other than a change in
price or a change in percentage of securities sought) will depend on the facts
and circumstances, including the relative materiality of such terms or
information. If (1) Payless increases or decreases the price to be paid for
shares or increases or decreases the number of shares being sought in the tender
offer and, if an increase in the number of shares being sought, such increase
exceeds 2% of the outstanding shares and (2) the tender offer is scheduled to
expire at any time earlier than the expiration of a period ending on the tenth
business day from, and including, the date that such notice of an increase or
decrease is first published, sent or given to security holders in the manner
specified in this Section 14, the tender offer will be extended until the
expiration of such period of ten business days.
15. FEES AND EXPENSES.
Payless has retained Goldman, Sachs & Co. to act as its financial advisor,
as well as the dealer manager, in connection with the tender offer. Goldman,
Sachs & Co. will receive reasonable and customary compensation. Payless also has
agreed to reimburse Goldman, Sachs & Co. for reasonable out-of-pocket expenses
incurred in connection with the tender offer, including reasonable fees and
expenses of counsel, and to indemnify Goldman, Sachs & Co. against certain
liabilities in connection with the tender offer, including liabilities under the
federal securities laws. Goldman, Sachs & Co. has rendered various investment
banking and other services to Payless in the past and may continue to render
such services, for which they have received and may continue to receive
customary compensation from Payless. In the ordinary course of its trading and
brokerage activities, Goldman, Sachs & Co. and its affiliates may hold
positions, for their own accounts or for those of their customers, in securities
of Payless.
Payless has retained D.F. King & Co., Inc. to act as information agent and
EquiServe to act as depositary in connection with the tender offer. The
information agent may contact holders of shares by mail, telephone, telegraph
and in person and may request brokers, dealers, commercial banks, trust
companies and other nominee stockholders to forward materials relating to the
tender offer to
31
<PAGE> 37
beneficial owners. The information agent and the depositary will each receive
reasonable and customary compensation for their respective services, will be
reimbursed by Payless for specified reasonable out-of-pocket expenses and will
be indemnified against certain liabilities in connection with the tender offer,
including certain liabilities under the federal securities laws.
No fees or commissions will be payable by Payless to brokers, dealers,
commercial banks or trust companies (other than fees to the dealer manager and
the information agent as described above) for soliciting tenders of shares under
the tender offer. Stockholders holding shares through brokers or banks are urged
to consult the brokers or banks to determine whether transaction costs are
applicable if stockholders tender shares through such brokers or banks and not
directly to the depositary. Payless, however, upon request, will reimburse
brokers, dealers, commercial banks and trust companies for customary mailing and
handling expenses incurred by them in forwarding the tender offer and related
materials to the beneficial owners of shares held by them as a nominee or in a
fiduciary capacity. No broker, dealer, commercial bank or trust company has been
authorized to act as the agent of Payless, the dealer manager, the information
agent or the depositary for purposes of the tender offer. Payless will pay or
cause to be paid all stock transfer taxes, if any, on its purchase of shares
except as otherwise provided in this document and Instruction 7 in the related
Letter of Transmittal.
16. MISCELLANEOUS.
Payless is not aware of any jurisdiction where the making of the tender
offer is not in compliance with applicable law. If Payless becomes aware of any
jurisdiction where the making of the tender offer or the acceptance of shares
pursuant thereto is not in compliance with applicable law, Payless will make a
good faith effort to comply with the applicable law. If, after such good faith
effort, Payless cannot comply with the applicable law, the tender offer will not
be made to (nor will tenders be accepted from or on behalf of) the holders of
shares in such jurisdiction. In any jurisdiction where the securities, blue sky
or other laws require the tender offer to be made by a licensed broker or
dealer, the tender offer shall be deemed to be made on behalf of Payless by the
dealer manager or one or more registered brokers or dealers licensed under the
laws of that jurisdiction.
Pursuant to Rule 13e-4(c)(2) under the Exchange Act, Payless has filed with
the Commission an Issuer Tender Offer Statement on Schedule TO and Amendment No.
1 to the Schedule TO which contain additional information with respect to the
tender offer. The Schedule TO and Amendment No. 1 thereto, including the
exhibits and any amendments and supplements thereto, may be examined, and copies
may be obtained, at the same places and in the same manner as is set forth in
Section 9 with respect to information concerning Payless.
PAYLESS HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON BEHALF
OF PAYLESS AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING YOUR SHARES
IN THE TENDER OFFER. PAYLESS HAS NOT AUTHORIZED ANY PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE TENDER OFFER
OTHER THAN THOSE CONTAINED IN THIS DOCUMENT OR IN THE RELATED LETTER OF
TRANSMITTAL. IF GIVEN OR MADE, ANY RECOMMENDATION OR ANY SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PAYLESS OR
THE DEALER MANAGER.
March 13, 2000
32
<PAGE> 38
The letter of transmittal and certificates for shares and any other
required documents should be sent or delivered by each stockholder or such
stockholder's broker, dealer, commercial bank, trust company or nominee to the
depositary at one of its addresses set forth below.
The depositary for the tender offer is:
EQUISERVE
<TABLE>
<S> <C> <C>
By hand delivery: By overnight delivery or By Mail:
express mail: EquiServe
Securities Transfer & Reporting EquiServe Attn: Corporate Actions
Services, Inc. Attn: Corporate Actions P.O. Box 9573
c/o EquiServe 40 Campanelli Drive Boston, MA 02205-9573
100 Williams Street, Galleria Braintree, MA 02184
New York, NY 10038
</TABLE>
Any questions or requests for assistance may be directed to the information
agent or the dealer manager at their respective telephone numbers and addresses
set forth below. Requests for additional copies of the offer to purchase, the
related letter of transmittal or the notice of guaranteed delivery may be
directed to the information agent at the telephone number and address set forth
below. Stockholders may also contact their broker, dealer, commercial bank,
trust company or nominee for assistance concerning the tender offer. To confirm
delivery of shares, stockholders are directed to contact the depositary.
The information agent for the tender offer is:
D.F. KING & CO., INC.
77 WATER STREET, 20TH FLOOR
NEW YORK, NEW YORK 10005
TOLL FREE: (800) 848-3416
BANKS AND BROKERAGE FIRMS PLEASE CALL: (212) 269-5550
The dealer manager for the tender offer is:
GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 902-1000 (CALL COLLECT)
(800) 323-5678 (CALL TOLL FREE)
<PAGE> 1
LETTER OF TRANSMITTAL
TO ACCOMPANY SHARES OF COMMON STOCK,
PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
PAYLESS SHOESOURCE
TENDERED UNDER THE OFFER TO PURCHASE, DATED MARCH 13, 2000
THE TENDER OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME,
ON MONDAY, APRIL 10, 2000, UNLESS THE TENDER OFFER IS EXTENDED.
The Depositary for the tender offer is:
EQUISERVE
<TABLE>
<S> <C> <C>
By Mail: By Hand Delivery: By Overnight Delivery
or Express Mail:
EquiServe Securities Transfer &
Attn: Corporate Actions Reporting Services, Inc. EquiServe
P.O. Box 9573 c/o EquiServe Attn: Corporate Actions
Boston, MA 02205-9573 100 Williams Street, Galleria 40 Campanelli Drive
New York, NY 10038 Braintree, MA 02184
</TABLE>
The Information Agent for the offer is:
D.F. KING & CO., INC.
All questions regarding the tender offer should be directed to D.F. King & Co.,
Inc. at (800) 848-3416.
------------------------
THIS LETTER OF TRANSMITTAL, INCLUDING THE ACCOMPANYING INSTRUCTIONS, SHOULD
BE READ CAREFULLY BEFORE YOU COMPLETE THIS LETTER OF TRANSMITTAL.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN ONE OF
THOSE SHOWN ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO PAYLESS
SHOESOURCE, INC., GOLDMAN, SACHS & CO., THE DEALER MANAGER OF THE TENDER OFFER,
OR D.F. KING & CO., INC., THE INFORMATION AGENT OF THE TENDER OFFER, WILL NOT BE
FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT CONSTITUTE VALID DELIVERY TO
THE DEPOSITARY. DELIVERIES TO THE BOOK-ENTRY TRANSFER FACILITY WILL NOT
CONSTITUTE VALID DELIVERY TO THE DEPOSITARY.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED (SEE INSTRUCTIONS 3 AND 4)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE(S) TENDERED NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(ATTACH ADDITIONAL SIGNED LIST, IF NECESSARY) (PLEASE FILL IN EXACTLY AS APPEARS ON CERTIFICATE(S))
- ---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER
CERTIFICATE REPRESENTED BY OF SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total Shares
Tendered*
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Indicate in this box the order (by certificate number) in which shares are to
be purchased in event of proration (attach additional signed list if
necessary):***
See Instruction 9.
1st: ; 2nd: ; 3rd: ; 4th: ; 5th: ; 6th:
- --------------------------------------------------------------------------------
* Need not be completed if shares are delivered by book-entry transfer.
** If you desire to tender fewer than all shares evidenced by any
certificates listed above, please indicate in this column the number of
shares you wish to tender. Otherwise, all shares evidenced by such
certificates will be deemed to have been tendered. See Instruction 4.
*** If you do not designate an order, in the event less than all shares
tendered are purchased due to proration, shares will be selected for
purchase by the depositary. See Instruction 9.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF ANY CERTIFICATES REPRESENTING SHARES TENDERED HEREBY HAVE BEEN
LOST, STOLEN, DESTROYED OR MUTILATED. YOU MUST COMPLETE AN AFFIDAVIT OF LOSS
AND RETURN IT WITH YOUR LETTER OF TRANSMITTAL. A BOND MAY BE REQUIRED TO BE
POSTED BY THE STOCKHOLDER TO SECURE AGAINST THE RISK THAT THE CERTIFICATES
MAY BE SUBSEQUENTLY RECIRCULATED. PLEASE CALL UMB BANK, AS THE TRANSFER
AGENT FOR THE SHARES, AT (800) 884-4225, TO OBTAIN AN AFFIDAVIT OF LOSS AND
FOR FURTHER INSTRUCTIONS AND AS TO THE DETERMINATION OF THE REQUIREMENT FOR
POSTING OF A BOND. SEE INSTRUCTION 15.
<PAGE> 2
PAYLESS SHOESOURCE, INC. STOCK OWNERSHIP PLAN (SEE INSTRUCTION 16)
- --------------------------------------------------------------------------------
THE UNDERSIGNED IS TENDERING SHARES THAT ARE HELD IN HIS OR HER NAME PURSUANT TO
THE PAYLESS SHOESOURCE, INC. STOCK OWNERSHIP PLAN (THE "STOCK OWNERSHIP
PLAN"):*
<TABLE>
<S> <C> <C>
[ ] YES [ ] NO
</TABLE>
IF YOU SAID "YES," INDICATE WHETHER YOU ARE TENDERING ALL OR A PARTIAL AMOUNT
OF SUCH SHARES.
[ ] ALL (INCLUDES ANY FRACTIONAL SHARES)
[ ] PARTIAL TENDER (INDICATE PERCENTAGE OF YOUR SHARES HELD UNDER THE
STOCK OWNERSHIP PLAN THAT YOU WISH TO TENDER -- ONLY WHOLE SHARES
MAY BE TENDERED):
<TABLE>
<C> <S> <C> <C> <C> <C>
[ ] 10% [ ] 50% [ ] 90%
[ ] 20% [ ] 60% [ ] 100%
[ ] 30% [ ] 70%
[ ] 40% [ ] 80%
</TABLE>
- ---------------
* You must provide the letter of transmittal to EquiServe no later than 5:00
p.m., New York City time, on Friday, April 7, 2000 if you want to tender
shares owned under the Stock Ownership Plan. If you do not meet that deadline,
your shares owned pursuant to the Stock Ownership Plan will not be tendered.
This letter of transmittal is to be used only if (1) certificates for
shares are to be forwarded with it, or such certificates will be delivered under
a notice of guaranteed delivery previously sent to the depositary or (2) a
tender of shares is to be made by book-entry transfer to the account maintained
by the depositary at The Depository Trust Company, referred to as the
"book-entry transfer facility," under Section 3 of the offer to purchase.
Stockholders who desire to tender shares under the tender offer and who
cannot deliver the certificates for their shares or who are unable to comply
with the procedures for book-entry transfer before the "expiration date" (as
defined in Section 1 of the offer to purchase), and who cannot deliver all other
documents required by this letter of transmittal to the depositary before the
expiration date may tender their shares according to the guaranteed delivery
procedures set forth in Section 3 of the offer to purchase. See Instruction 2.
Delivery of documents to the book-entry transfer facility does not constitute
delivery to the depositary.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
Name of tendering institution: ---------------------------------------------
Account number: --------------------------------------------------
Transaction code number: ----------------------------------------
[ ] CHECK HERE IF CERTIFICATES FOR TENDERED SHARES ARE BEING DELIVERED UNDER A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE
THE FOLLOWING:
Name(s) of registered holder(s): ------------------------------
Date of execution of notice of guaranteed delivery: ----------
Name of institution which guaranteed delivery: ---------------
Account number: ---------------------------------------------
<PAGE> 3
ODD LOTS
(SEE INSTRUCTION 8)
To be completed ONLY if shares are being tendered by or on behalf of a
person owning beneficially or of record an aggregate of fewer than 100 shares.
On the date hereof, the undersigned either (check one box):
[ ] owned beneficially or of record an aggregate of fewer than 100 shares,
and is tendering all of such shares, or
[ ] is a broker, dealer, commercial bank, trust company or other nominee
which:
(a) is tendering, for the beneficial owners thereof, shares with respect
to which it is the record owner, and
(b) believes, based upon representations made to it by such beneficial
owners, that each such person was the beneficial owner of an
aggregate of fewer than 100 shares and is tendering all of such
shares.
In addition, the undersigned is tendering shares either (check one box):
[ ] at the purchase price, as the same shall be determined by Payless in
accordance with the terms of the tender offer (persons checking this
box need not indicate the price per share below), or
[ ] at the price per share indicated below under "Price (in Dollars) Per
Share at Which Shares are Being Tendered" in this letter of
transmittal.
<PAGE> 4
To EquiServe:
The undersigned hereby tenders to Payless ShoeSource, Inc., a Delaware
corporation, the above-described shares of Payless' common stock, par value
$0.01 per share, including the associated preferred stock purchase rights,
issued under the Stockholder Protection Rights Agreement, dated as of April 20,
1998, as amended, between Payless and UMB Bank, N.A., as the Rights Agent, at
the price per share indicated in this letter of transmittal, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in Payless' offer to purchase, dated March 13, 2000, receipt of which is
hereby acknowledged, and in this letter of transmittal which, as amended and
supplemented from time to time, together constitute the tender offer. Unless the
context requires otherwise, all reference herein to shares shall include the
associated preferred stock purchase rights.
Subject to and effective on acceptance for payment of the shares tendered
hereby in accordance with the terms of the tender offer, including, if the
tender offer is extended or amended, the terms or conditions of any such
extension or amendment, the undersigned hereby sells, assigns and transfers to
or upon the order of Payless all right, title and interest in and to all shares
tendered hereby and orders the registration of such shares tendered by
book-entry transfer that are purchased under the tender offer to or upon the
order of Payless and hereby irrevocably constitutes and appoints the depositary
as attorney-in-fact of the undersigned with respect to such shares, with the
full knowledge that the depositary also acts as the agent of Payless, with full
power of substitution, such power of attorney being an irrevocable power coupled
with an interest, to:
(a) deliver certificates for shares, or transfer ownership of such
shares on the account books maintained by the book-entry transfer facility,
together in either such case with all accompanying evidences of transfer
and authenticity, to or upon the order of Payless, upon receipt by the
depositary, as the undersigned's agent, of the purchase price with respect
to such shares;
(b) present certificates for such shares for cancellation and transfer
on Payless' books; and
(c) receive all benefits and otherwise exercise all rights of
beneficial ownership of such shares, subject to the next paragraph, all in
accordance with the terms of the tender offer.
The undersigned hereby covenants, represents and warrants to Payless that:
(a) the undersigned understands that tendering of shares under any one
of the procedures described in Section 3 of the offer to purchase and in
the instructions hereto will constitute the undersigned's acceptance of the
terms and conditions of the tender offer, including the undersigned's
representation and warranty that (i) the undersigned has a net long
position in shares or equivalent securities at least equal to the shares
tendered within the meaning of Rule 14e-4 under the Securities Exchange Act
of 1934, as amended, and (ii) such tender of shares complies with Rule
14e-4 under the Exchange Act;
(b) when and to the extent Payless accepts the shares for purchase,
Payless will acquire good, marketable and unencumbered title to them, free
and clear of all security interests, liens, charges, encumbrances,
conditional sales agreements or other obligations relating to their sale or
transfer, and not subject to any adverse claim;
(c) on request, the undersigned will execute and deliver any
additional documents the depositary or Payless deems necessary or desirable
to complete the assignment, transfer and purchase of the shares tendered
hereby; and
(d) the undersigned has read and agrees to all of the terms of the
tender offer.
The names and addresses of the registered holders should be printed, if
they are not already printed above, exactly as they appear on the certificates
representing shares tendered hereby. The certificate numbers, the number of
shares represented by such certificates, and the number of shares that the
undersigned wishes to tender, should be set forth in the appropriate boxes
above.
The undersigned understands that Payless will, upon the terms and subject
to the conditions of the tender offer, determine a single per share price, not
in excess of $53.00 nor less than $48.00 per share, that it will pay for shares
properly tendered and not withdrawn under the tender offer, taking into account
the number of shares so tendered and the prices specified by tendering
stockholders. The undersigned understands that
<PAGE> 5
Payless will select the purchase price that will allow it to purchase 7,547,170
shares, or such lesser number of shares as are properly tendered, at prices not
greater than $53.00 nor less than $48.00 per share, under the tender offer,
subject to its right to increase the total number of shares purchased to the
extent permitted by law. The undersigned understands that all shares properly
tendered at prices at or below the purchase price and not properly withdrawn
will be purchased at the purchase price, net to the seller in cash, without
interest, upon the terms and subject to the conditions of the tender offer,
including its odd lot and proration provisions, and that Payless will return all
other shares, including shares tendered at prices greater than the purchase
price and not properly withdrawn and shares not purchased because of proration,
as promptly as practicable following the expiration date.
The undersigned recognizes that under certain circumstances set forth in
the offer to purchase, Payless may terminate or amend the tender offer or may
postpone the acceptance for payment of, or the payment for, shares tendered or
may accept for payment fewer than all of the shares tendered hereby. The
undersigned understands that certificate(s) for any shares not tendered or not
purchased will be returned to the undersigned at the address indicated above.
The undersigned recognizes that Payless has no obligation, under the Special
Payment Instructions, to transfer any certificate for shares from the name of
its registered holder, or to order the registration or transfer of shares
tendered by book-entry transfer, if Payless purchases none of the shares
represented by such certificate or tendered by such book-entry transfer.
The undersigned understands that acceptance of shares by Payless for
payment will constitute a binding agreement between the undersigned and Payless
upon the terms and subject to the conditions of the tender offer.
The check for the aggregate net purchase price for such of the tendered
shares as are purchased by Payless will be issued to the order of the
undersigned and mailed to the address indicated above unless otherwise indicated
under either of the "Special Payment Instructions" or the "Special Delivery
Instructions" boxes below.
All authority conferred or agreed to be conferred in this letter of
transmittal shall survive the death or incapacity of the undersigned and any
obligations or duties of the undersigned under this letter of transmittal shall
be binding upon the heirs, personal representatives, successors and assigns of
the undersigned. Except as stated in the offer to purchase, this tender is
irrevocable.
<PAGE> 6
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
(SEE INSTRUCTION 5)
By checking ONE of the following boxes below INSTEAD OF THE BOX UNDER
"Shares Tendered at Price Determined Under the Tender Offer," the undersigned
hereby tenders shares at the price checked. This action could result in none of
the shares being purchased if the purchase price determined by Payless for the
shares is less than the price checked below. A stockholder who desires to tender
shares at more than one price must complete a separate letter of transmittal for
each price at which shares are tendered. The same shares cannot be tendered,
unless previously properly withdrawn as provided in Section 4 of the offer to
purchase, at more than one price.
PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED
<TABLE>
<S> <C> <C> <C>
[ ] $48.000 [ ] $49.250 [ ] $50.500 [ ] $51.750
[ ] $48.125 [ ] $49.375 [ ] $50.625 [ ] $51.875
[ ] $48.250 [ ] $49.500 [ ] $50.750 [ ] $52.000
[ ] $48.375 [ ] $49.625 [ ] $50.875 [ ] $52.125
[ ] $48.500 [ ] $49.750 [ ] $51.000 [ ] $52.250
[ ] $48.625 [ ] $49.875 [ ] $51.125 [ ] $52.375
[ ] $48.750 [ ] $50.000 [ ] $51.250 [ ] $52.500
[ ] $48.875 [ ] $50.125 [ ] $51.375 [ ] $52.625
[ ] $49.000 [ ] $50.250 [ ] $51.500 [ ] $52.750
[ ] $49.125 [ ] $50.375 [ ] $51.625 [ ] $52.875
[ ] $53.000
</TABLE>
CHECK ONLY ONE BOX ABOVE. IF YOU CHECK MORE THAN ONE BOX ABOVE, YOU WILL NOT
HAVE VALIDLY TENDERED THE SHARES.
<PAGE> 7
SHARES TENDERED AT PRICE DETERMINED UNDER THE TENDER OFFER
(SEE INSTRUCTION 5)
[ ] The undersigned wants to maximize the chance of having Payless purchase all
of the shares the undersigned is tendering (subject to the possibility of
proration). Accordingly, by checking THIS BOX INSTEAD OF ONE OF THE PRICE
BOXES ABOVE, the undersigned hereby tenders shares and is willing to accept
the purchase price determined by Payless in accordance with the terms of the
tender offer. This action could result in receiving a price per share as low
as $48.00.
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 6, 7 AND 10)
To be completed ONLY if the check for the purchase price of shares
purchased is to be issued in the name of someone other than the
undersigned.
Issue check to:
Name:
---------------------------------------------------
(PLEASE PRINT)
Address:
-------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(INCLUDING ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREWITH)
------------------------------------------------------------
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 6 AND 10)
To be completed ONLY if the check for the purchase price of shares
purchased is to be sent to someone other than the undersigned or to the
undersigned at an address other than that shown above.
Deliver check to:
Name:
---------------------------------------------------
(PLEASE PRINT)
Address:
-------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(INCLUDING ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREWITH)
------------------------------------------------------------
<PAGE> 8
STOCKHOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 1 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
(Must be signed by registered holder(s) exactly as name(s) appear(s) on Share
Certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by Share Certificates and documents transmitted
herewith. If a signature is by an officer on behalf of a corporation or by an
executor, administrator, trustee, guardian, attorney-in-fact, agent or other
person acting in a fiduciary or representative capacity, please provide full
title and see Instruction 6.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S))
Dated:
- --------------------------------------------------------------------------------
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
(Area Code) Telephone Number:
- --------------------------------------------------------------------------------
Taxpayer Identification or Social Security No.:
- -----------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 6)
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE
- --------------------------------------------------------------------------------
NAME(S)
- --------------------------------------------------------------------------------
TITLE
- --------------------------------------------------------------------------------
NAME OF FIRM
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(AREA CODE) TELEPHONE NO.
Dated:
- ------------------------------, 2000
<PAGE> 9
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS OF THE TENDER OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee is required if either:
(a) this letter of transmittal is signed by the registered holder of
the shares exactly as the name of the registered holder appears on the
certificate, which term, for purposes of this document, shall include any
participant in a book-entry transfer facility whose name appears on a
security position listing as the owner of shares, tendered with this letter
of transmittal, and payment and delivery are to be made directly to such
registered holder unless such registered holder has completed either the
box entitled "Special Payment Instructions" or "Special Delivery
Instructions" above; or
(b) such shares are tendered for the account of a bank, broker,
dealer, credit union, savings association or other entity which is a member
in good standing of the Securities Transfer Agents Medallion Program or a
bank, broker, dealer, credit union, savings association or other entity
which is an "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, each
such entity, referred to as an "eligible guarantor institution."
In all other cases, signatures must be guaranteed by an eligible guarantor
institution. See Instruction 6.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This letter of transmittal is to be used only if certificates are
delivered with it to the depositary, or such certificates will be delivered
under a notice of guaranteed delivery previously sent to the depositary, or if
tenders are to be made under the procedure for tender by book-entry transfer set
forth in Section 3 of the offer to purchase. Certificates for all physically
tendered shares, or confirmation of a book-entry transfer into the depositary's
account at the book-entry transfer facility of shares tendered electronically,
together in each case with a properly completed and duly executed letter of
transmittal or manually signed facsimile of it, or an agent's message, and any
other documents required by this letter of transmittal, should be mailed or
delivered to the depositary at the appropriate address set forth herein and must
be delivered to the depositary before the expiration date.
The term "agent's message" means a message transmitted by the book-entry
transfer facility to, and received by, the depositary, which states that the
book-entry transfer facility has received an express acknowledgment from the
participant in such book-entry transfer facility tendering the shares, that such
participant has received and agrees to be bound by the terms of the letter of
transmittal, and that Payless may enforce such agreement against such
participant.
Stockholders whose certificates are not immediately available or who cannot
deliver certificates for their shares and all other required documents to the
depositary before the expiration date, or whose shares cannot be delivered
before the expiration date under the procedures for book-entry transfer, may
tender their shares by or through any eligible guarantor institution by properly
completing and duly executing and delivering a notice of guaranteed delivery, or
facsimile of it, and by otherwise complying with the guaranteed delivery
procedure set forth in Section 3 of the offer to purchase. Under such procedure,
the certificates for all physically tendered shares or book-entry confirmation,
as the case may be, as well as a properly completed and duly executed letter of
transmittal, or manually signed facsimile of it, or an agent's message, and all
other documents required by this letter of transmittal, must be received by the
depositary within three New York Stock Exchange trading days after receipt by
the depositary of such notice of guaranteed delivery, all as provided in Section
3 of the offer to purchase.
The notice of guaranteed delivery may be delivered by hand or transmittal
by telegram, facsimile transmission or mail to the depositary and must include,
if necessary, a guarantee by an eligible guarantor institution in the form set
forth in such notice. For shares to be tendered validly under the guaranteed
delivery procedure, the depositary must receive the notice of guaranteed
delivery before the expiration date.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR SHARES,
IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY.
<PAGE> 10
Payless will not accept any alternative, conditional or contingent tenders,
nor will it purchase any fractional shares. All tendering stockholders, by
execution of this letter of transmittal, or a facsimile of it, waive any right
to receive any notice of the acceptance of their tender.
3. INADEQUATE SPACE. If the space provided in the box captioned "Description of
Shares Tendered" is inadequate, the certificate numbers and/or the number of
shares should be listed on a separate signed schedule and attached to this
letter of transmittal.
4. PARTIAL TENDERS AND UNPURCHASED SHARES. (Not applicable to stockholders who
tender by book-entry transfer.) If fewer than all of the shares evidenced by any
certificate are to be tendered, fill in the number of shares which are to be
tendered in the column entitled "Number of Shares Tendered." In such case, if
any tendered shares are purchased, a new certificate for the remainder of the
shares evidenced by the old certificates will be issued and sent to the
registered holder(s) as promptly as practicable after the expiration date.
Unless otherwise indicated, all shares represented by the certificates listed
and delivered to the depositary will be deemed to have been tendered.
5. INDICATION OF PRICE AT WHICH SHARES ARE BEING TENDERED. For shares to be
properly tendered, the stockholder MUST check the box indicating the price per
share at which such stockholder is tendering shares under "Price (in Dollars)
per Share at Which Shares are Being Tendered" in this letter of transmittal;
provided, however, that (1) an "odd lot holder" (as defined in Instruction 8)
may check the box above in the section entitled "Odd Lots" indicating that such
holder is tendering all of such holder's shares at the purchase price determined
by Payless under the tender offer or (2) a stockholder may check the box above
in the section captioned "Shares Tendered at Price Determined Under the Tender
Offer" in order to maximize the chance of having Payless purchase all of the
shares tendered (subject to the possibility of proration). Selecting the option
under (1) or (2) could result in the stockholder receiving a price per share as
low as $48.00. ONLY ONE BOX MAY BE CHECKED. IF MORE THAN ONE BOX IS CHECKED OR
IF NO BOX IS CHECKED, THERE IS NO PROPER TENDER OF SHARES. A stockholder wishing
to tender portions of such stockholder's share holdings at different prices must
complete a separate letter of transmittal for each price at which such
stockholder wishes to tender each such portion of such stockholder's shares. The
same shares cannot be tendered more than once, unless previously properly
withdrawn as provided in Section 4 of the offer to purchase, at more than one
price.
6. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS.
(a) If this letter of transmittal is signed by the registered
holder(s) of the shares tendered hereby, the signature(s) must correspond
exactly with the name(s) as written on the face of the certificate(s)
without any change whatsoever.
(b) If the shares are registered in the names of two or more joint
holders, each such holder must sign this letter of transmittal.
(c) If any tendered shares are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate letters of transmittal, or photocopies of it, as there are
different registrations of certificates.
(d) When this letter of transmittal is signed by the registered
holder(s) of the shares listed and transmitted hereby, no endorsements of
certificate(s) representing such shares or separate stock powers are
required unless payment is to be made or the certificates for shares not
tendered or not purchased are to be issued to a person other than the
registered holder(s). SIGNATURE(S) ON SUCH CERTIFICATE(S) MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION. If this letter of
transmittal is signed by a person other than the registered holder(s) of
the certificate(s) listed, or if payment is to be made to a person other
than the registered holder(s), the certificate(s) must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as
the name(s) of the registered holder(s) appear(s) on the certificate(s),
and the signature(s) on such certificates or stock power(s) must be
guaranteed by an eligible guarantor institution. See Instruction 1.
<PAGE> 11
(e) If this letter of transmittal or any certificates or stock powers
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing
and must submit proper evidence to the depositary that is satisfactory to
Payless of their authority so to act.
7. STOCK TRANSFER TAXES. Except as provided in this Instruction 7, no stock
transfer tax stamps or funds to cover such stamps need to accompany this letter
of transmittal. Payless will pay or cause to be paid any stock transfer taxes
payable on the transfer to it of shares purchased under the tender offer. If,
however:
(a) payment of the purchase price is to be made to any person other
than the registered holder(s); or
(b) tendered certificates are registered in the name of any person(s)
other than the person(s) signing this letter of transmittal;
then the depositary will deduct from the purchase price the amount of any stock
transfer taxes (whether imposed on the registered holder(s), such other
person(s) or otherwise) payable on account thereof, unless satisfactory evidence
of the payment of such taxes or an exemption from them is submitted.
8. ODD LOTS. As described in Section 1 of the offer to purchase, if Payless is
to purchase fewer than all shares tendered before the expiration date and not
properly withdrawn, the shares purchased first will consist of all shares
tendered by any stockholder who owned beneficially or of record an aggregate of
fewer than 100 shares, and who tenders all of such holder's shares at or below
the purchase price. This preference will not be available unless all of such
holder's shares are tendered at or below the purchase price. This preference
will not be available unless the box captioned "Odd Lots" is completed.
9. ORDER OF PURCHASE IN EVENT OF PRORATION. As described in Section 1 of the
offer to purchase, stockholders may designate the order in which their shares
are to be purchased in the event of proration. The order of purchase may have an
effect on the federal income tax classification of any gain or loss on the
shares purchased. See Sections 1 and 13 of the offer to purchase.
10. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If check(s) are to be issued in
the name of a person other than the signer of the letter of transmittal or if
such check(s) are to be sent to someone other than the person signing the letter
of transmittal or to the signer at a different address, the boxes captioned
"Special Payment Instructions" and/or "Special Delivery Instructions" on this
letter of transmittal should be completed as applicable and signatures must be
guaranteed as described in Instructions 1 and 6.
11. IRREGULARITIES. All questions as to the number of shares to be accepted,
the price to be paid therefor and the validity, form, eligibility, including
time of receipt, and acceptance for payment of any tender of shares will be
determined by Payless in its sole discretion, which determinations shall be
final and binding on all parties. Payless reserves the absolute right to reject
any or all tenders of shares it determines not be in proper form or the
acceptance of which or payment for which may, in the opinion of Payless, be
unlawful. Payless also reserves the absolute right to waive any of the
conditions of the tender offer and any defect or irregularity in the tender of
any particular shares, and Payless' interpretation of the terms of the tender
offer, including these instructions, will be final and binding on all parties.
No tender of shares will be deemed to be properly made until all defects and
irregularities have been cured or waived. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as
Payless shall determine. None of Payless, the dealer manager (as defined in the
offer to purchase), the depositary, the information agent (as defined in the
offer to purchase) or any other person is or will be obligated to give notice of
any defects or irregularities in tenders and none of them will incur any
liability for failure to give any such notice.
12. QUESTIONS AND REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Any questions
or requests for assistance or for additional copies of the offer to purchase,
the letter of transmittal or the notice of guaranteed delivery may be directed
to the information agent at the telephone number and address set forth below.
You may also contact the dealer manager or your broker, dealer, commercial bank
or trust company for assistance concerning the tender offer.
<PAGE> 12
13. TAX IDENTIFICATION NUMBER AND BACKUP WITHHOLDING. Each tendering
stockholder is required to provide the depositary with a correct Taxpayer
Identification Number ("TIN") on the Substitute Form W-9 which is provided
below, and to certify, under penalties of perjury, that such number is correct
and that such stockholder is not subject to backup withholding of Federal income
tax. If a tendering stockholder has been notified by the Internal Revenue
Service that such stockholder is subject to backup withholding, such stockholder
must cross out item (2) of the certification box of the Substitute Form W-9,
unless such stockholder has since been notified by the Internal Revenue Service
that such stockholder is no longer subject to backup withholding. Failure to
provide the information on the Substitute Form W-9 may subject the tendering
stockholder to a $50 penalty imposed by the Internal Revenue Service and to a
31% Federal income tax withholding on the payment of the purchase price of all
shares purchased from such stockholder. If the tendering stockholder has not
been issued a TIN and has applied for one or intends to apply for one in the
near future, such stockholder should write "Applied For" in the space provided
for the TIN in Part I of the Substitute Form W-9, and sign and date the
Substitute Form W-9 and the Certificate of Awaiting Taxpayer Identification
Number. If "Applied For" is written in Part I and the depositary is not provided
with a TIN within 60 days, the depositary will withhold 31% on all payments of
the purchase price to such stockholder until a TIN is provided to the
depositary. Each foreign stockholder must complete and submit Form W-8 in order
to be exempt from the 31% Federal income tax backup withholding due on payments
with respect to the Shares. See Instruction 14.
14. WITHHOLDING ON FOREIGN HOLDER. The following discussion applies to any
"foreign stockholder," that is a stockholder that, for United States federal
income tax purposes, is a non-resident alien individual, a foreign corporation,
a foreign partnership, a foreign estate or a foreign trust. A foreign
stockholder who has provided the necessary certification to the depositary will
not be subject to backup withholding. However, foreign stockholders generally
are subject to withholding under Internal Revenue Code sections 1441 or 1442 at
a rate of 30% of the gross payments. If a stockholder's address is outside the
United States, and if the depositary has not received a Substitute Form W-9, the
depositary will assume that the stockholder is a foreign stockholder. The
general 30% withholding rate may be reduced under a tax treaty, if appropriate
certification is furnished to the depositary. A foreign stockholder may be
eligible to obtain a refund of all or a portion of any tax withheld if such
holder meets those tests described in Section 13 of the offer to purchase that
would characterize the exchange as a sale (as opposed to a dividend) or is
otherwise able to establish that no tax or a reduced amount of tax is due.
FOREIGN STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX WITHHOLDING, INCLUDING
ELIGIBILITY FOR A WITHHOLDING TAX REDUCTION OR EXEMPTION, AND THE REFUND
PROCEDURE.
15. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. If any certificate
representing shares has been lost, stolen, destroyed or mutilated, the
stockholder should notify U.M.B. Bank, the transfer agent for the shares, of
that fact by calling UMB Bank at (800) 884-4225 and asking for instructions on
obtaining a replacement certificate(s). UMB Bank will require you to complete an
affidavit of loss and return it to UMB Bank. Such stockholder will then be
instructed by UMB Bank as to the steps that must be taken in order to replace
the certificate. A bond may be required to be posted by the stockholder to
secure against the risk that the certificate may be subsequently recirculated.
This letter of transmittal and related documents cannot be processed until the
procedures for replacing lost, stolen, destroyed or mutilated certificates have
been followed.
16. TENDER OF PROFIT SHARING PLAN SHARES. Shareholders who are participants in
the Payless ShoeSource, Inc. Stock Ownership Plan and who wish to tender all or
a percentage of their shares in the tender offer should so indicate (a) by
marking "Yes" in the appropriate bracket in the section captioned "PAYLESS
SHOESOURCE, INC. STOCK OWNERSHIP PLAN" and (b) indicating whether they are
tendering all (including any fractional shares) or a percentage of their shares,
and if the latter, stating what percentage (only whole shares will be accepted
for purchase in any partial tender). EquiServe will then work with Mellon Bank
to determine the number of shares that you are tendering based on the percentage
you have determined to tender. Then EquiServe will notify Mellon Bank of the
number of shares you are tendering and will request Mellon Bank to effect the
book-entry transfer of your shares to the depositary's account at the book-entry
transfer facility. By executing this letter of transmittal, you hereby appoint
EquiServe to act as your agent for the purpose of making such determination and
so requesting Mellon Bank to effect the book-entry transfer of
<PAGE> 13
your shares. Because EquiServe and Mellon Bank will have to determine the number
of shares you hold under the Stock Ownership Plan and will have to calculate the
number of shares represented by the percentage of shares you have elected to
tender, you must submit the letter of transmittal relating to those shares no
later than 5:00 p.m., New York City time, on Friday, April 7, 2000.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED PHOTOCOPY OF IT
(TOGETHER WITH CERTIFICATE(S) FOR SHARES OR CONFIRMATION OF BOOK-ENTRY TRANSFER
AND ALL OTHER REQUIRED DOCUMENTS) OR, IF APPLICABLE, THE NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY BEFORE THE EXPIRATION DATE.
<PAGE> 14
IMPORTANT TAX INFORMATION
Under the Federal income tax law, a stockholder whose tendered shares are
accepted for payment is required by law to provide the depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is such stockholder's social security
number. If the depositary is not provided with the correct TIN, the stockholder
may be subject to a $50 penalty imposed by the Internal Revenue Service and
payments that are made to such stockholder with respect to shares purchased
pursuant to the tender offer may be subject to backup withholding of 31%.
Certain stockholders including, among others, all corporations and certain
foreign individuals are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a Form W-8, signed under penalties of
perjury, attesting to such individual's exempt status. A Form W-8 can be
obtained from the depositary. Exempt stockholders should furnish their TIN,
write "Exempt" on the face of the Substitute Form W-9, and sign, date and return
the Substitute Form W-9 to the information agent. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions. A stockholder should consult his or her tax advisor as
to such stockholder's qualification for an exemption from backup withholding and
the procedure for obtaining such exemption.
If backup withholding applies, the depositary is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the Federal income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to shares purchased pursuant to the tender offer, the stockholder
is required to notify the depositary of such stockholder's correct TIN by
completing the form below certifying that (a) the TIN provided on Substitute
Form W-9 is correct (or that such stockholder is awaiting a TIN) and (b) that
(i) such stockholder has not been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding as a result of a failure to
report all interest or dividends or (ii) the Internal Revenue Service has
notified such stockholder that such stockholder is no longer subject to backup
withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the depositary the social security
number or employer identification number of the record holder of the shares
tendered hereby. If the shares are in more than one name or are not in the name
of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report. If the tendering stockholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for the
TIN in Part I, and sign and date the Substitute Form W-9 and the Certificate of
Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I
and the depositary is not provided with a TIN within 60 days, the depositary
will withhold 31% of all payments of the purchase price to such stockholder
until a TIN is provided to the depositary.
<PAGE> 15
TAXPAYER IDENTIFICATION NUMBER
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: EQUISERVE
- ------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Name ----------------------------------------------------------------------------------
FORM W-9 Address--------------------------------------------------------------------------------
(Number and Street)
-----------------------------------------------------------------------------------------
(City) (State) (Zip Code)
-------------------------------------------------------------------------------------------
Department of the PART 1--Please provide your Taxpayer Identification
Treasury, Internal Number in the box at the right and certify by signing
Revenue Service and dating below. If awaiting TIN, write "Applied For." TIN: -----------------------
Social Security Number
or Employer
Identification Number
-------------------------------------------------------------------------------------------
PAYER'S REQUEST FOR PART 2--For Payees exempt from Backup Withholding:
TAXPAYER IDENTIFICATION Check the box if you are NOT subject to backup withholding [ ]
NUMBER AND CERTIFICATION -----------------------------------------------------------------------------------------
PART 3--CERTIFICATION UNDER PENALTIES OF PERJURY, I CERTIFY THAT (1) The number shown on
this form is my correct taxpayer identification number (or I am waiting for a number to
be issued to me), and (2) I am not subject to backup withholding because (A) I am exempt
from backup withholding, or (B) I have not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result of a failure to report all interest
or dividends, or (C) the Internal Revenue Service has notified me that I am no longer
subject to backup withholding.
-----------------------------------------------------------------------------------------
SIGNATURE ___________________________________ DATE ______________
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
You must cross out Item (2) of Part 3 above if you have been notified by
the Internal Revenue Service that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax return.
However, if after being notified by the Internal Revenue Service that you were
subject to backup withholding you received another notification from the
Internal Revenue Service that you are no longer subject to backup withholding,
do not cross out Item (2) of Part 3 above. (Also see certification under
instructions in the enclosed guidelines.)
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 1(b)
OF THE SUBSTITUTE FORM W-9 INDICATING YOU HAVE APPLIED FOR, AND ARE AWAITING
RECEIPT OF, YOUR TAXPAYER IDENTIFICATION NUMBER.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to
me, and that I mailed or delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service center or Social Security Administration office (or I
intend to mail or deliver an application in the near future). I understand that if I do not
provide a taxpayer identification number to the payer, 31% of all payments made to me under the
tender offer shall be retained until I provide a taxpayer identification number to the payer and
that, if I do not provide my taxpayer identification number within sixty days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all
reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue
Service until I provide a taxpayer identification number.
Signature ________________________________________________ Date ---------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
Facsimile copies of the letter of transmittal will be accepted from
eligible guarantor institutions. The letter of transmittal and certificates for
shares and any other required documents should be sent or delivered by each
tendering stockholder or its broker, dealer, commercial bank, trust company or
other nominee to the depositary at one of its addresses set forth above.
Any questions or requests for assistance or for additional copies of the
offer to purchase, the letter of transmittal or the notice of guaranteed
delivery may be directed to the information agent at the telephone number and
address set forth below. You may also contact the dealer manager or your broker,
dealer, commercial bank or trust company for assistance concerning the tender
offer. To confirm delivery of your shares, you are directed to contact the
depositary.
The information agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street, 20th Floor
New York, New York 10005
Toll Free: (800) 848-3416
Banks and Brokerage Firms Please Call: (212) 269-5550
The dealer manager for the Offer is:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000 (call collect)
(800) 323-5678 (call toll free)
<PAGE> 1
EXHIBIT (a)(1)(C)
NOTICE OF GUARANTEED DELIVERY FOR
PAYLESS SHOESOURCE
OFFER TO PURCHASE FOR CASH 7,547,170 SHARES OF ITS
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
AT A PURCHASE PRICE NOT IN EXCESS OF $53.00
NOR LESS THAN $48.00 PER SHARE
As set forth in Section 3 of the offer to purchase, dated March 13, 2000,
this notice of guaranteed delivery, or a facsimile hereof, must be used to
accept the tender offer if:
(a) certificates representing shares of common stock, par value $0.01
per share, of Payless ShoeSource, Inc., a Delaware corporation, cannot be
delivered prior to the "expiration date" (as defined in Section 1 of the
offer to purchase); or
(b) the procedure for book-entry transfer cannot be completed before
the "expiration date" (as defined in Section 1 of the offer to purchase);
or
(c) time will not permit a properly completed and duly executed letter
of transmittal, or manually signed facsimile thereof, and all other
required documents to reach the depositary referred to below before the
expiration date.
This form or a facsimile of it, signed and properly completed, may be
delivered by hand or transmitted by facsimile transmission or mailed to the
depositary so that it is received by the depositary before the expiration date.
See Section 3 of the offer to purchase.
The Depositary for the tender offer is:
EQUISERVE
<TABLE>
<S> <C>
By Mail: Facsimile Transmission:
EquiServe (781) 575-4826
Attn: Corporate Actions (for eligible guarantor institutions only)
P.O. Box 9573 Confirm by telephone:
Boston, MA 02205-9573 (781) 575-4816
By Hand: By Overnight Delivery or Express Mail:
Securities Transfer & Reporting Services, EquiServe
Inc. Attn: Corporate Actions
c/o EquiServe 40 Campanelli Drive
100 Williams Street, Galleria Braintree, MA 02184
New York, NY 10038
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
THOSE SHOWN ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA THE FACSIMILE NUMBER OTHER
THAN THE ONE LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO
PAYLESS, THE DEALER MANAGER OF THE TENDER OFFER OR THE INFORMATION AGENT OF THE
TENDER OFFER WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT
CONSTITUTE VALID DELIVERY. DELIVERIES TO THE BOOK-ENTRY TRANSFER FACILITY (AS
DEFINED IN THE OFFER TO PURCHASE) WILL NOT CONSTITUTE VALID DELIVERY TO THE
DEPOSITARY.
This notice of guaranteed delivery form is not to be used to guarantee
signatures. If a signature on the letter of transmittal is required to be
guaranteed by an "eligible guarantor institution" (as defined in Section 3 of
the offer to purchase) under the instructions thereto, such signature must
appear in the applicable space provided in the signature box on the letter of
transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders the above described shares (including the
associated preferred stock purchase rights) to Payless at the price per share
indicated below, net to the seller in cash, without interest, upon the terms and
subject to the conditions set forth in the offer to purchase, and the related
letter of transmittal, which, as may be amended and supplemented from time to
time, together constitute the tender offer, receipt of which are hereby
acknowledged. Unless the context requires otherwise, all references to shares
herein shall include the associated preferred stock purchase rights.
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
(See Instruction 5 of the letter of transmittal)
By checking ONE of the following boxes below INSTEAD OF THE BOX UNDER
"Shares Tendered at Price Determined Under the Tender Offer," the undersigned
hereby tenders shares at the price checked. This action could result in none of
the shares being purchased if the purchase price determined by Payless for the
shares is less than the price checked below. A stockholder who desires to tender
shares at more than one price must complete a separate letter of transmittal for
each price at which shares are tendered. The same shares cannot be tendered,
unless previously properly withdrawn as provided in Section 4 of the offer to
purchase, at more than one price.
PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED
<TABLE>
<S> <C> <C> <C>
[ ] $48.000 [ ] $49.250 [ ] $50.500 [ ] $51.750
[ ] $48.125 [ ] $49.375 [ ] $50.625 [ ] $51.875
[ ] $48.250 [ ] $49.500 [ ] $50.750 [ ] $52.000
[ ] $48.375 [ ] $49.625 [ ] $50.875 [ ] $52.125
[ ] $48.500 [ ] $49.750 [ ] $51.000 [ ] $52.250
[ ] $48.625 [ ] $49.875 [ ] $51.125 [ ] $52.375
[ ] $48.750 [ ] $50.000 [ ] $51.250 [ ] $52.500
[ ] $48.875 [ ] $50.125 [ ] $51.375 [ ] $52.625
[ ] $49.000 [ ] $50.250 [ ] $51.500 [ ] $52.750
[ ] $49.125 [ ] $50.375 [ ] $51.625 [ ] $52.875
[ ] $53.000
</TABLE>
CHECK ONLY ONE BOX ABOVE. IF MORE THAN ONE BOX IS CHECKED ABOVE, THE SHARES WILL
NOT BE VALIDLY TENDERED.
SHARES TENDERED AT PRICE DETERMINED UNDER THE TENDER OFFER
(See Instruction 5 of the letter of transmittal)
[ ] The undersigned wants to maximize the chance of having Payless purchase
all of the shares the undersigned is tendering (subject to the
possibility of proration). Accordingly, by checking this box instead of
one of the price boxes above, the undersigned hereby tenders shares and
is willing to accept the purchase price determined by Payless in
accordance with the terms of the tender offer. This action could result
in receiving a price per share as low as $48.00.
ODD LOTS
To be completed ONLY if shares are being tendered by or on behalf of a
person owning beneficially or of record an aggregate of fewer than 100 shares.
2
<PAGE> 3
On the date hereof, the undersigned either (check one):
[ ] was the beneficial or record owner of an aggregate of fewer than 100
shares and is tendering all of those shares; or
[ ] is a broker, dealer, commercial bank, trust company or other nominee
that:
(a) is tendering, for the beneficial owner(s) thereof, shares with
respect to which it is the record holder; and
(b) believes, based upon representations made to it by each such
beneficial owner, that each such person was the beneficial owner of an
aggregate of fewer than 100 shares, and is tendering all of such shares.
In addition, the undersigned is tendering shares either (check one):
[ ] at the purchase price, as the same shall be determined by Payless in
accordance with the terms of the tender offer (persons checking this
box need not indicate the price per share above); or
[ ] at the price per share indicated above under "Price (in Dollars) per
Share at Which Shares are Being Tendered" on this notice of guaranteed
delivery.
<TABLE>
<S> <C>
Please type or print --------------------------- SIGN HERE: -----------------------------------
Certificate No.(s) (if available) -------------- Dated: ------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
Name(s) ---------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
Address(es) ----------------------------------- If shares will be tendered by book-entry transfer,
provide the following information:
Area code and telephone number ----------- Account No.: ---------------------------------
</TABLE>
3
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
THE UNDERSIGNED, A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION
OR OTHER ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER
AGENTS MEDALLION PROGRAM OR A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS
ASSOCIATION OR OTHER ENTITY WHICH IS AN "ELIGIBLE GUARANTOR INSTITUTION," AS
SUCH TERM IS DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, EACH OF THE FOREGOING CONSTITUTING AN "ELIGIBLE GUARANTOR
INSTITUTION," GUARANTEES THE DELIVERY TO THE DEPOSITARY OF THE SHARES TENDERED
HEREBY, IN PROPER FORM FOR TRANSFER, OR A CONFIRMATION THAT THE SHARES TENDERED
HEREBY HAVE BEEN DELIVERED UNDER THE PROCEDURE FOR BOOK-ENTRY TRANSFER SET FORTH
IN THE OFFER TO PURCHASE INTO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY
TRANSFER FACILITY, TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER
OF TRANSMITTAL, OR A MANUALLY SIGNED FACSIMILE THEREOF, AND ANY OTHER REQUIRED
DOCUMENTS, ALL WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS OF THE DATE
HEREOF.
Name of Firm:
--------------------------------------
Authorized Signature:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address:
--------------------------------------
Zip Code:
--------------------------------------
Area Code and Telephone Number:
--------------------------------------
Dated:
-------------------------------------- ,
2000
DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE OF GUARANTEED DELIVERY.
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
4
<PAGE> 1
EXHIBIT (a)(1)(D)
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
PAYLESS SHOESOURCE, INC.
OFFER TO PURCHASE FOR CASH 7,547,170 SHARES OF ITS
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
AT A PURCHASE PRICE NOT IN EXCESS OF $53.00
NOR LESS THAN $48.00 PER SHARE
THE TENDER OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 10, 2000,
UNLESS THE TENDER OFFER IS EXTENDED.
March 13, 2000
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Payless ShoeSource, Inc., a Delaware corporation, has appointed us to act
as the dealer manager in connection with its offer to purchase for cash
7,547,170 shares of its common stock, par value $0.01 per share, including the
associated preferred stock purchase rights issued under the Stockholder
Protection Rights Agreement, dated as of April 20, 1998, as amended, between
Payless and UMB Bank, N.A., as Rights Agent, at prices, net to the seller in
cash, without interest, not greater than $53.00 nor less than $48.00 per share,
specified by its stockholders, upon the terms and subject to the conditions set
forth in its offer to purchase, dated March 13, 2000, and in the related letter
of transmittal which, as may be amended and supplemented from time to time,
together constitute the tender offer. Unless the context requires otherwise, all
references herein to shares shall include the associated preferred stock
purchase rights.
Payless will, upon the terms and subject to the conditions of the tender
offer, determine a single per share price, not in excess of $53.00 nor less than
$48.00 per share, that it will pay for shares properly tendered and not properly
withdrawn under the tender offer, taking into account the number of shares so
tendered and the prices specified by tendering stockholders. Payless will select
the lowest purchase price that will allow it to purchase 7,547,170 shares, or
such lesser number of shares as are properly tendered, at prices not in excess
of $53.00 nor less than $48.00 per share, under the tender offer. All shares
properly tendered before the "expiration date" (as defined in Section 1 of the
offer to purchase), at prices at or below the purchase price and not properly
withdrawn, will be purchased by Payless at the purchase price, net to the seller
in cash, without interest, upon the terms and subject to the conditions of the
tender offer, including the odd lot and proration provisions thereof. See
Section 1 of the offer to purchase. Shares tendered at prices in excess of the
purchase price and shares not purchased because of proration will be returned at
Payless' expense to the stockholders who tendered such shares as promptly as
practicable after the expiration date. Payless reserves the right, in its sole
discretion, to purchase more than 7,547,170 shares under the tender offer,
subject to applicable law.
If, at the expiration date, more than 7,547,170 shares, or such greater
number of shares as Payless may elect to purchase in accordance with applicable
law, are properly tendered at or below the purchase price and not properly
withdrawn, Payless will, upon the terms and subject to the
<PAGE> 2
conditions of the tender offer, accept shares for purchase first from "odd lot
holders" (as defined in Section 1 of the offer to purchase) who properly tender
all of their shares at or below the purchase price and then on a pro rata basis
from all other stockholders whose shares are properly tendered at or below the
purchase price and not properly withdrawn.
THE TENDER OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE TENDER OFFER IS, HOWEVER, SUBJECT TO OTHER CONDITIONS. SEE SECTION
6 OF THE OFFER TO PURCHASE.
For your information and for forwarding to your clients for whom you hold
shares registered in your name or in the name of your nominee, we are enclosing
the following documents:
1. Offer to purchase, dated March 13, 2000;
2. Letter to clients that you may send to your clients for whose
accounts you hold shares registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the tender offer;
3. Letter dated March 13, 2000, from the Chairman of the Board and
Chief Executive Officer of Payless, to stockholders of Payless;
4. Letter of transmittal for your use and for the information of your
clients (together with accompanying instructions and Substitute Form W-9);
5. Notice of guaranteed delivery to be used to accept the tender offer
if the share certificates and all other required documents cannot be
delivered to the depositary before the expiration date or if the procedure
for book-entry transfer cannot be completed before the expiration date; and
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE TENDER
OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MONDAY, APRIL 10, 2000, UNLESS THE TENDER OFFER IS EXTENDED.
No fees or commissions will be payable to brokers, dealers, commercial
banks, trust companies or any person for soliciting tenders of shares under the
tender offer other than fees paid to the dealer manager and the information
agent, as described in the offer to purchase. Payless will, however, upon
request, reimburse you for customary mailing and handling expenses incurred by
you in forwarding any of the enclosed materials to the beneficial owners of
shares held by you as a nominee or in a fiduciary capacity. Payless will pay or
cause to be paid any stock transfer taxes applicable to its purchase of shares,
except as otherwise provided in the offer to purchase and letter of transmittal.
In order to take advantage of the tender offer, a properly completed and
duly executed letter of transmittal, or a manually signed facsimile thereof,
including any required signature guarantees and any other required documents,
should be sent to the depositary with either a certificate or certificates
representing the tendered shares or confirmation of their book-entry transfer,
all in accordance with the instructions set forth in the offer to purchase and
letter of transmittal.
Holders of shares whose certificate(s) for such shares are not immediately
available, holders who cannot deliver such certificate(s) and all other required
documents to the depositary or holders who cannot complete the procedures for
book-entry transfer before the expiration date must tender their shares
according to the procedure for guaranteed delivery set forth in Section 3 of the
offer to purchase.
Any inquiries you may have with respect to the tender offer should be
addressed to Goldman, Sachs & Co. or to the information agent, D.F. King & Co.,
Inc., at their respective addresses and telephone numbers set forth on the back
cover page of the offer to purchase.
2
<PAGE> 3
Additional copies of the enclosed material may be obtained from D.F. King &
Co., Inc., by calling them at: (800) 848-3416.
Very truly yours,
GOLDMAN, SACHS & CO.
ENCLOSURES
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON AS AN AGENT OF PAYLESS, THE DEALER MANAGER, THE INFORMATION
AGENT OR THE DEPOSITARY OR ANY AFFILIATE OF THE FOREGOING, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF
THEM IN CONNECTION WITH THE TENDER OFFER OTHER THAN THE DOCUMENTS ENCLOSED
HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE> 1
EXHIBIT (a)(1)(E)
PAYLESS SHOESOURCE, INC.
OFFER TO PURCHASE FOR CASH 7,547,170 SHARES OF ITS
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
AT A PURCHASE PRICE NOT IN EXCESS OF $53.00
NOR LESS THAN $48.00 PER SHARE
March 13, 2000
To Our Clients:
Enclosed for your consideration are the offer to purchase, dated March 13,
2000, and the related letter of transmittal, which, as amended and supplemented
from time to time, together constitute the tender offer, in connection with the
tender offer by Payless ShoeSource, Inc., a Delaware corporation, to purchase up
to 7,547,170 shares of its common stock, par value $0.01 per share, including
the associated preferred stock purchase rights issued under the Stockholder
Protection Rights Agreement, dated as of April 20, 1998, as amended, between
Payless and UMB Bank, N.A., as Rights Agent, at prices, net to the seller in
cash, without interest, not greater than $53.00 nor less than $48.00 per share,
specified by tendering stockholders, upon the terms and subject to the
conditions set forth in the tender offer. Unless the context requires otherwise,
all references herein to shares shall include the associated preferred stock
purchase rights.
Payless will, upon the terms and subject to the conditions of the tender
offer, determine a single per share price, not in excess of $53.00 nor less than
$48.00 per share, that it will pay for shares properly tendered and not
withdrawn under the tender offer, taking into account the number of shares so
tendered and the prices specified by tendering stockholders. Payless will select
the lowest purchase price that will allow it to purchase 7,547,170 shares, or
such lesser number of shares as are properly tendered, at prices not in excess
of $53.00 nor less than $48.00 per share, under the tender offer. All shares
properly tendered prior to the "expiration date" (as defined in Section 1 of the
offer to purchase) at prices at or below the purchase price and not properly
withdrawn will be purchased at the purchase price, net to the seller in cash,
without interest, upon the terms and subject to the conditions of the tender
offer, including the odd lot and proration provisions. Payless will return as
promptly as practicable after the expiration date, all shares, including shares
tendered at prices greater than the purchase price and shares not purchased
because of proration. Payless reserves the right, in its sole discretion, to
purchase more than 7,547,170 shares under the tender offer in accordance with
applicable law.
If, prior to the expiration date, more than 7,547,170 shares, or such
greater number of shares as Payless may elect to purchase, are properly tendered
and not withdrawn, Payless will, upon the terms and subject to the conditions of
the tender offer, accept shares for purchase first from "odd lot holders" (as
defined in Section 1 of the offer to purchase) who properly tender their shares
at or below the purchase price and then on a pro rata basis from all other
stockholders whose shares are properly tendered at or below the purchase price
and not properly withdrawn.
We are the owner of record of shares held for your account. As such, we are
the only ones who can tender your shares, and then only pursuant to your
instructions. WE ARE SENDING YOU THE LETTER OF TRANSMITTAL FOR YOUR INFORMATION
ONLY; YOU CANNOT USE IT TO TENDER SHARES WE HOLD FOR YOUR ACCOUNT.
Please instruct us as to whether you wish us to tender any or all of the
shares we hold for your account on the terms and subject to the conditions of
the tender offer.
<PAGE> 2
We call your attention to the following:
1. You may tender shares at prices not in excess of $53.00 nor less
than $48.00 per share as indicated in the attached instruction form, net to
you in cash, without interest.
2. You should consult with your broker on the possibility of
designating the priority in which your shares will be purchased in the
event of proration.
3. The tender offer is not conditioned upon any minimum number of
shares being tendered. The tender offer is, however, subject to certain
other conditions set forth in Section 6 of the offer to purchase.
4. The tender offer, proration period and withdrawal rights will
expire at 5:00 p.m., New York City time, on Monday, April 10, 2000, unless
Payless extends the tender offer.
5. The tender offer is for 7,547,170 shares, constituting
approximately 25% of the shares outstanding as of March 7, 2000.
6. Tendering stockholders who are registered stockholders or who
tender their shares directly to EquiServe will not be obligated to pay any
brokerage commissions or fees, solicitation fees, or, except as set forth
in the offer to purchase and the letter of transmittal, stock transfer
taxes on Payless' purchase of shares under the tender offer.
7. If you own beneficially or of record an aggregate of fewer than 100
shares, and you instruct us to tender on your behalf all such shares at or
below the purchase price before the expiration date and check the box
captioned "Odd Lots" in the attached instruction form, Payless, upon the
terms and subject to the conditions of the tender offer, will accept all
such shares for purchase before proration, if any, of the purchase of other
shares properly tendered at or below the purchase price and not properly
withdrawn.
8. If you wish to tender portions of your shares at different prices,
you must complete a separate instruction form for each price at which you
wish to tender each such portion of your shares. We must submit separate
letters of transmittal on your behalf for each price you will accept.
9. The Board of Directors of Payless has approved the tender offer.
However, neither Payless nor its board of directors makes any
recommendation to stockholders as to whether to tender or refrain from
tendering their shares or as to the price or prices at which stockholders
may choose to tender their shares. Stockholders must make their own
decision as to whether to tender their shares and, if so, how many shares
to tender and the price or prices at which such shares should be tendered.
Payless' directors and executive officers have advised Payless that they do
not intend to tender any shares in the tender offer.
If you wish to have us tender any or all of your shares, please so instruct
us by completing, executing, detaching and returning to us the attached
instruction form. If you authorize us to tender your shares, we will tender all
such shares unless you specify otherwise on the attached instruction form.
YOUR INSTRUCTION FORM SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US
TO SUBMIT A TENDER ON YOUR BEHALF BEFORE THE EXPIRATION DATE OF THE TENDER
OFFER. THE TENDER OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 10, 2000, UNLESS PAYLESS EXTENDS
THE TENDER OFFER.
As described in the offer to purchase, if more than 7,547,170 shares, or
such greater number of shares as Payless may elect to purchase in accordance
with applicable law, are properly tendered at
2
<PAGE> 3
or below the purchase price and not properly withdrawn before the expiration
date, Payless will accept shares for purchase at the purchase price in the
following order of priority:
(a) all shares properly tendered at or below the purchase price and
not properly withdrawn before the expiration date by any odd lot holder
who:
(1) tenders all shares owned beneficially or of record by such odd
lot holder at or below the purchase price (partial tenders will not
qualify for this preference); and
(2) completes the section captioned "Odd Lots" on the letter of
transmittal and, if applicable, on the notice of guaranteed delivery;
and
(b) after purchase of all of the foregoing shares, all other shares
properly tendered at or below the purchase price and not properly withdrawn
before the expiration date on a pro rata basis, if necessary, with
adjustments to avoid purchases of fractional shares, as provided in the
offer to purchase.
The tender offer is being made solely under the offer to purchase and the
related letter of transmittal and is being made to all record holders of shares.
The tender offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of shares residing in any jurisdiction in which the making of
the tender offer or acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction.
3
<PAGE> 4
INSTRUCTION FORM WITH RESPECT TO
PAYLESS SHOESOURCE
OFFER TO PURCHASE FOR CASH 7,547,170 SHARES OF ITS
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
AT A PURCHASE PRICE NOT IN EXCESS OF $53.00
NOR LESS THAN $48.00 PER SHARE
The undersigned acknowledge(s) receipt of your letter and the enclosed
offer to purchase, dated March 13, 2000, and the related letter of transmittal,
which, as may be amended and supplemented from time to time, together constitute
the tender offer in connection with the tender offer by Payless ShoeSource,
Inc., a Delaware corporation, to purchase 7,547,170 shares of its common stock,
par value $0.01 per share, including the associated preferred stock purchase
rights issued under the Stockholder Protection Rights Agreement, dated as of
April 20, 1998, as amended, between Payless and UMB Bank, N.A., as Rights Agent,
at prices, net to the seller in cash, without interest, not greater than $53.00
nor less than $48.00 per share, specified by the undersigned, upon the terms and
subject to the conditions of the tender offer. Unless the context requires
otherwise, all references herein to shares shall include the associated
preferred stock purchase rights.
The undersigned understands that Payless will, upon the terms and subject
to the conditions of the tender offer, determine a single per share price not in
excess of $53.00 nor less than $48.00 per share that it will pay for the shares
properly tendered and not withdrawn under the tender offer taking into account
the number of shares so tendered and the prices specified by tendering
stockholders. Payless will select the lowest purchase price that will allow it
to purchase 7,547,170 shares, or such lesser number of shares as are properly
tendered, at prices not in excess of $53.00 nor less than $48.00 per share under
the tender offer. All shares properly tendered at prices at or below the
purchase price and not properly withdrawn will be purchased at the purchase
price, net to the seller in cash, without interest, upon the terms and subject
to the conditions of the tender offer, including the odd lot and proration
provisions described in the offer to purchase. Payless will return as promptly
as practicable all other shares, including shares tendered at prices in excess
of the purchase price and shares not purchased because of proration.
The undersigned hereby instruct(s) you to tender to Payless the number of
shares indicated below or, if no number is indicated, all shares you hold for
the account of the undersigned, at the price per share indicated below, under
the terms and subject to the conditions of the tender offer.
Aggregate number of shares to be tendered by you for the account of the
undersigned:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
----------------
shares*
----------------
</TABLE>
- ---------------
* UNLESS OTHERWISE INDICATED, ALL OF THE SHARES, INCLUDING THE ASSOCIATED
PREFERRED STOCK PURCHASE RIGHTS, HELD FOR THE ACCOUNT WILL BE TENDERED.
ODD LOTS
[ ] By checking this box, the undersigned represents that the undersigned
owns beneficially or of record an aggregate of fewer than 100 shares
and is instructing the holder to tender all such shares.
4
<PAGE> 5
In addition, the undersigned is tendering shares either (check one box):
[ ] at the purchase price, as the same shall be determined by Payless in
accordance with the terms of the tender offer (persons checking this
box need not indicate the price per share below), or
[ ] at the price per share indicated below under "Price (in Dollars) Per
Share at Which Shares are Being Tendered."
5
<PAGE> 6
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
(See Instruction 5 to the letter of transmittal)
By checking ONE of the following boxes below INSTEAD OF THE BOX UNDER
"Shares Tendered at Price Determined under the Tender Offer," the undersigned
hereby tenders shares at the price checked. This action could result in none of
the shares being purchased if the purchase price determined by Payless for the
shares is less than the price checked below. A stockholder who desires to tender
shares at more than one price must complete a separate letter of transmittal for
each price at which shares are tendered. The same shares cannot be tendered,
unless previously properly withdrawn as provided in Section 4 of the offer to
purchase, at more than one price.
PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED
<TABLE>
<S> <C> <C> <C>
[ ] $48.000 [ ] $49.250 [ ] $50.500 [ ] $51.750
[ ] $48.125 [ ] $49.375 [ ] $50.625 [ ] $51.875
[ ] $48.250 [ ] $49.500 [ ] $50.750 [ ] $52.000
[ ] $48.375 [ ] $49.625 [ ] $50.875 [ ] $52.125
[ ] $48.500 [ ] $49.750 [ ] $51.000 [ ] $52.250
[ ] $48.625 [ ] $49.875 [ ] $51.125 [ ] $52.375
[ ] $48.750 [ ] $50.000 [ ] $51.250 [ ] $52.500
[ ] $48.875 [ ] $50.125 [ ] $51.375 [ ] $52.625
[ ] $49.000 [ ] $50.250 [ ] $51.500 [ ] $52.750
[ ] $49.125 [ ] $50.375 [ ] $51.625 [ ] $52.875
[ ] $53.000
</TABLE>
CHECK ONLY ONE BOX ABOVE. IF MORE THAN ONE BOX IS CHECKED ABOVE, THERE IS NO
VALID TENDER OF SHARES.
SHARES TENDERED AT PRICE DETERMINED UNDER THE TENDER OFFER
(See Instruction 5 to the letter of transmittal)
[ ] The undersigned wants to maximize the chance of having Payless purchase
all of the shares the undersigned is tendering (subject to the
possibility of proration, if applicable). Accordingly, by checking this
box instead of one of the price boxes above, the undersigned hereby
tenders shares and is willing to accept the purchase price determined
by Payless, in accordance with the terms of the tender offer. This
action could result in receiving a price per share as low as $48.00
6
<PAGE> 7
THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE OPTION AND RISK OF THE
TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY.
SIGNATURE BOX
Signature(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated --------------------------------------------------------------------, 2000
Name(s) and address(es)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Area code and telephone number -------------------------------------------------
Taxpayer Identification or Social Security Number ------------------------------
7
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------------------------------------
<C> <S> <C>
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-
trust account (grantor is also trustee(1)
trustee)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust
under State law
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------------------------------------
<C> <S> <C>
5. Sole proprietorship account The owner(3)
6. A valid trust, estate, or pension Legal entity (Do
trust not furnish the TIN
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(4)
7. Corporate account The corporation
8. Partnership The partnership
9. Association, club, religious, The organization
charitable, educational or other
tax-exempt organization
10. A broker or registered nominee The broker or
nominee
11. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State or
local government, school district,
or prison) that receives
agricultural program payments
- ------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(4) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, or Form SS-4,
Application for Employer Identification Number (for business and all other
entities), at the local office of the Social Security Administration or the
Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- An organization exempt from tax under Section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), any IRA, or a custodial account under
Section 403(b)(7), if the account satisfies the requirements of Section
401(f)(2).
- The United States or any of its agencies or instrumentalities.
- A State, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
Other payees that may be exempt from back-up withholding include:
- A corporation.
- A foreign central bank of issue.
- A dealer in securities or commodities required to register in the U.S., the
District of Columbia or a possession of the U.S.
- A real estate investment trust.
- An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- A common trust fund operated by a bank under Section 584(a) of the Code.
- A financial institution.
- A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate
Securities, Inc. Nominee List.
- A trust exempt from tax under Section 664 or described in Section 4947(a)(1)
of the Code.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under Section 1441 of
the Code.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
Section 852 of the Code).
- Payments described in Section 6049(b)(5) of the Code to non-resident aliens.
- Payments on tax-free covenant bonds under Section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
- Mortgage interest paid to you.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE A FORM W-9 TO AVOID POSSIBLE ERRONEOUS
BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE
FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN
ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH A PAYER A COMPLETED INTERNAL
REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A and 6050N of the Code and the regulations
promulgated thereunder.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes, and to help verify the accuracy of your tax return. The IRS may also
provide this information to the Department of Justice for civil and criminal
litigation and to cities, states, and the District of Columbia to carry out
their tax laws. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
<PAGE> 1
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made solely by the Offer to Purchase, dated
March 13, 2000, and the related Letter of Transmittal, and any amendments or
supplements thereto. The Offer is not being made to, nor will tenders be
accepted from or on behalf of, holders of Shares in any jurisdiction in which
the making or acceptance of offers to sell Shares would not be in compliance
with the laws of that jurisdiction. In any jurisdiction where the securities,
blue sky or other laws require the Offer to be made by a licensed broker or
dealer, the Offer shall be deemed to be made on behalf of the Company by
Goldman, Sachs & Co., the dealer manager of the Offer, or by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
BY
PAYLESS SHOESOURCE, INC.
OF UP TO 7,547,170 SHARES OF ITS COMMON STOCK (INCLUDING
THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) AT A
PURCHASE PRICE NOT GREATER THAN $53.00 NOR LESS THAN $48.00
PER SHARE
Payless ShoeSource, Inc., a Delaware corporation ("Payless"), is offering
to purchase for cash up to 7,547,170 shares of its common stock, par value $0.01
per Share (including the associated preferred stock purchase rights, the
"Shares"), upon the terms and subject to the conditions set forth in the Offer
to Purchase dated March 13, 2000 (the "Offer to Purchase"), and in the related
Letter of Transmittal (which together, as they may be amended and supplemented
from time to time, constitute the "Offer"). Payless is inviting its stockholders
to tender their Shares at prices specified by the tendering stockholder that are
not greater than $53.00 nor less than $48.00 per Share, net to the seller in
cash, without interest, upon the terms and subject to the conditions of the
Offer. The Offer is not conditioned on any minimum number of Shares being
tendered. The Offer is, however, subject to other conditions set forth in the
Offer to Purchase and the related Letter of Transmittal.
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON MONDAY, APRIL 10, 2000, UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF PAYLESS HAS APPROVED THE OFFER, BUT NEITHER
PAYLESS NOR ITS BOARD OF DIRECTORS IS MAKING ANY RECOMMENDATION TO ITS
STOCKHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES OR
AS TO THE PRICE OR PRICES AT WHICH STOCKHOLDERS MAY CHOOSE TO TENDER THEIR
SHARES. STOCKHOLDERS MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER THEIR
SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH
SUCH SHARES SHOULD BE TENDERED. PAYLESS DIRECTORS AND EXECUTIVE OFFICERS HAVE
ADVISED PAYLESS THAT THEY WILL NOT TENDER ANY SHARES IN THE OFFER.
Payless will, upon the terms and subject to the conditions of the Offer,
determine the single per Share price, not in excess of $53.00 nor less than
$48.00 per Share, that it will pay for Shares properly tendered under the Offer,
taking into account the number of Shares so tendered and the prices specified by
tendering stockholders. Payless will select the lowest purchase price (the
"Purchase Price") that will allow it to purchase 7,547,170 Shares, or such
lesser number of Shares as are properly tendered (and not properly withdrawn)
pursuant to the Offer at prices not in excess of $53.00 nor less than $48.00 per
Share. All Shares properly tendered (and not properly withdrawn) prior to the
"expiration date" (as defined below) at prices at or below the Purchase Price
will be purchased at the Purchase Price, upon the terms and subject to the
conditions of the Offer, including the "odd lot" and proration provisions.
Under no circumstances will interest be paid on the Purchase Price for the
Shares, regardless of any delay in making such payment. All Shares acquired in
the Offer will be acquired at the Purchase Price regardless of whether the
stockholder selected a lower price. The term "expiration date" means 5:00 p.m.,
New York City time, on Monday, April 10, 2000, unless and until Payless, in its
sole discretion, shall have extended the period
<PAGE> 2
of time during which the Offer will remain open, in which event the term
expiration date shall refer to the latest time and date at which the Offer, as
so extended by Payless, shall expire. Payless reserves the right, in its sole
discretion, to purchase more than 7,547,170 Shares under the Offer subject to
applicable law. For purposes of the Offer, Payless will be deemed to have
accepted for payment (and therefore purchased) Shares properly tendered at or
below the Purchase Price and not properly withdrawn, subject to the "odd lot"
and proration provisions of the Offer, only when, as and if Payless gives oral
or written notice to EquiServe, the depositary of the Offer, of its acceptance
for payment of such Shares under the Offer. Payment for Shares tendered and
accepted for payment under the Offer will be made only after timely receipt by
the depositary of certificates for such Shares or a timely confirmation of a
book-entry transfer of such Shares into the depositary's account at the
"book-entry transfer facility" (as defined in the Offer to Purchase), a properly
completed and duly executed Letter of Transmittal, or a manually signed
facsimile thereof, or an "agent's message" (as defined in the Offer to Purchase)
in the case of a book-entry transfer, and any other documents required by the
Letter of Transmittal.
Upon the terms and subject to the conditions of the Offer, if more than
7,547,170 Shares, or such greater number of Shares as Payless may elect to
purchase subject to applicable law, have been properly tendered (and not
properly withdrawn) prior to the expiration date at prices at or below the
Purchase Price, Payless will purchase properly tendered Shares on the following
basis: (1) all Shares properly tendered and not properly withdrawn prior to the
expiration date by any odd lot holder who (a) tenders all Shares owned
beneficially or of record by such odd lot holder at a price at or below the
Purchase Price (partial tenders will not qualify for this preference) and (b)
completes the section entitled "Odd Lots" in the Letter of Transmittal and, if
applicable, in the Notice of Guaranteed Delivery and (2) after the purchase of
all of the foregoing Shares, all other Shares properly tendered at prices at or
below the Purchase Price and not properly withdrawn prior to the expiration
date, on a pro rata basis, with appropriate adjustments to avoid purchases of
fractional Shares. All other Shares that have been tendered and not purchased
will be returned to the stockholder as promptly as practicable after the
expiration date.
Payless expressly reserves the right, in its sole discretion, at any time
and from time to time, to extend the period of time during which the Offer is
open and thereby delay acceptance for payment of, and payment for, any Shares by
giving oral or written notice of such extension to the depositary and making a
public announcement thereof no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date. During any
such extension, all Shares previously tendered and not properly withdrawn will
remain subject to the Offer and to the right of a tendering stockholder to
withdraw such stockholder's Shares.
Payless is making the Offer because (1) its Board of Directors believes
that its Shares are undervalued in the public market, (2) its Board of Directors
believes that the purchase of Shares pursuant to the Offer is a prudent use of
its financial resources given Payless's business profile, assets and prospects
and (3) the Offer provides stockholders who are considering a sale of all or a
portion of their Shares with the opportunity to determine the price, not in
excess of $53.00 nor less than $48.00 per Share, at which they are willing to
sell their Shares. In addition, where Shares are tendered by the registered
owner thereof directly to the depositary pursuant to the Offer, the sale of
those Shares in the Offer will permit the seller to avoid the usual transaction
costs associated with open market sales. Also, "odd lot holders" (as defined in
the Offer to Purchase) who hold Shares registered in their names and tender all
of their Shares directly to the depositary and whose Shares are purchased under
the Offer not only will avoid the payment of brokerage commissions but also will
avoid any applicable odd lot discounts that might be payable on sales of their
Shares in New York Stock Exchange transactions. The Offer also allows
stockholders to sell a portion of their Shares while retaining a continuing
equity interest in Payless.
Tenders of Shares under the Offer are irrevocable, except that such Shares
may be withdrawn at any time prior to the expiration date and, unless previously
accepted for payment by Payless under the Offer, may also be withdrawn at any
time after 12:00 Midnight, New York City time, on Friday, May 5, 2000. For such
withdrawal to be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by EquiServe at its address set
forth on the back cover page of the Offer to Purchase. Any such notice of
withdrawal must specify the name of the tendering stockholder, the number of
Shares to be withdrawn and
<PAGE> 3
the name of the registered holder of such Shares. If the certificates for Shares
to be withdrawn have been delivered or otherwise identified to the depositary,
then, before the release of such certificates, the serial numbers shown on such
certificates must be submitted to the depositary and the signature(s) on the
notice of withdrawal must be guaranteed by an "eligible guarantor institution"
(as defined in the Offer to Purchase), unless such Shares have been tendered for
the account of an eligible guarantor institution. If Shares have been tendered
pursuant to the procedure for book-entry transfer set forth in the Offer to
Purchase, any notice of withdrawal also must specify the name and the number of
the account at the book-entry transfer facility to be credited with the
withdrawn Shares and must otherwise comply with such book-entry transfer
facility's procedures. All questions as to the form and validity of any notice
of withdrawal, including the time of receipt, will be determined by Payless, in
its sole discretion, whose determination will be final and binding. None of
Payless, EquiServe as the depositary, D.F. King & Co., Inc. as the information
agent, Goldman, Sachs & Co. as the dealer manager or any other person will be
under any duty to give notification of any defects or irregularities in any
tender or notice of withdrawal or incur any liability for failure to give any
such notification.
The information required to be disclosed by Rule 13e-4(d)(1) under the
Securities Exchange Act of 1934, as amended, is contained in the Offer to
Purchase and is incorporated herein by reference.
The Offer to Purchase and the related Letter of Transmittal are being
mailed promptly to record holders of Shares whose names appear on Payless's
stockholder list and will be furnished to brokers, dealers, commercial banks,
trust companies and similar persons whose names, or the names of whose nominees,
appear on the stockholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION WITH
RESPECT TO THE OFFER IS MADE. Additional copies of the Offer to Purchase and
Letter of Transmittal may be obtained from the Information Agent at the address
and telephone number set forth below and will be furnished promptly at the
Company's expense.
Any questions or requests for assistance may be directed to the information
agent or the dealer manager at the respective telephone numbers and addresses
set forth below. Requests for additional copies of the Offer to Purchase, the
Letter of Transmittal or the Notice of Guaranteed Delivery may be directed to
the information agent at the telephone number and address set forth below.
Stockholders may also contact their broker, dealer, commercial bank, trust
company or nominee for assistance concerning the Offer. To confirm delivery of
Shares, stockholders are directed to contact the depositary.
The information agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street, 20th Floor
New York, New York 10005
Toll Free: (800) 348-3416
Banks and Brokerage Firms Please Call: (212) 269-5550
The dealer manager for the Offer is:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000 (call collect)
(800) 323-5678 (call toll free)
MARCH 13, 2000
<PAGE> 1
PAYLESS SHOESOURCE, INC.
MARCH 13, 2000
TO THE PARTICIPANTS IN THE PAYLESS SHOESOURCE, INC. PROFIT SHARING PLAN AND THE
PAYLESS SHOESOURCE, INC. PROFIT SHARING PLAN FOR PUERTO RICO ASSOCIATES
Enclosed are materials that require immediate attention. The materials
describe events that may affect your interest in the Payless ShoeSource, Inc.
Profit Sharing Plan or the Payless ShoeSource, Inc. Profit Sharing Plan for
Puerto Rico Associates, and any successor plans (together, the "Plan").
As you probably already know, Payless ShoeSource, Inc. ("Payless") has made
a tender offer to acquire up to 7,547,170 shares of its outstanding common stock
at a price not in excess of $53.00 nor less than $48.00 per share, net to the
seller in cash, without interest.
Your account in the Plan includes an investment in the Payless Common Stock
Fund (the "Stock Fund"). Your account balance in the Stock Fund represents an
interest in a specific number of shares determined at each valuation date and as
a participant with an investment in the Stock Fund, you have a right to direct
the Plan trustee to tender shares allocated to your Stock Fund account. The
number of shares you may direct the trustee to tender and the price at which
those shares will be tendered is discussed below.
You will be allowed to direct the Trustee to tender up to and including the
number of shares allocated to your Plan account on February 29, 2000, adjusted
for purchases, exchanges, or withdrawals from the Stock Fund after that date
through the closing day of the tender offer, April 10, 2000, as a percentage of
the number of shares allocated to your Stock Fund account. The February 29,
2000, allocation is not available at this time. For informational purposes only,
the number of shares allocated to your Stock Fund account as of January 31,
2000, is listed on the label affixed to the attached designation form.
Because your interest in the Stock Fund is comprised of units representing
shares of Payless common stock rather than shares of Payless common stock, The
Bank of New York, as the Plan's current trustee, is the record holder of the
shares. As of April 1, 2000, American Express Trust Company will succeed The
Bank of New York as trustee of the Payless ShoeSource, Inc. Profit Sharing Plan
and Banco Popular de Puerto Rico will succeed The Bank of New York as trustee of
the Payless ShoeSource, Inc. Profit Sharing Plan for Puerto Rico Associates.
Therefore, American Express Trust Company or Banco Popular de Puerto Rico, as
the applicable successor trustee, will respond to the tender offer on your
behalf.
As you may be aware, the Plan is changing its recordkeeper and investment
options effective April 1, 2000. This requires a "quiet period" for the plan.
After March 20, 2000 you will not be allowed to make investment changes or
change your contribution rate through the end of the quiet period, which will
run through mid-June. Any Payless common stock allocated to your Stock Fund
account not accepted in the tender offer cannot be sold during the quiet period.
If you want to change the way your Plan contributions are invested, or change
the funds in which your current Plan account is invested prior to the beginning
of the quiet period, you must act by 12:00 p.m., Central time, on March 20,
2000. Please see the materials describing the Plan changes that you recently
received from Payless.
IF YOU DO NOT WISH TO PARTICIPATE IN THIS OFFER, YOU DO NOT NEED TO TAKE ANY
ACTION. IF YOU DO WISH TO DIRECT THE TRUSTEE TO TENDER SOME OR ALL OF THE SHARES
ALLOCATED TO YOUR STOCK FUND ACCOUNT, THE INSTRUCTIONS ON HOW TO TENDER THOSE
SHARES ARE EXPLAINED IN DETAIL IN THE ACCOMPANYING MATERIALS. YOU SHOULD READ
AND FOLLOW THE INSTRUCTIONS IN THIS LETTER CAREFULLY. PLEASE ALSO CAREFULLY READ
THE OTHER MATERIALS PROVIDED WITH THIS LETTER PRIOR TO RESPONDING.
<PAGE> 2
The enclosed documents describe the terms and conditions of the tender offer, as
well as other information relating to the tender offer and Payless. You should
read these documents carefully and in their entirety. However, for your
information, the following are answers to some of the questions you might have
regarding the offer:
WHAT IS A TENDER OFFER?
A tender offer is a process through which Payless can offer to purchase shares
of its common stock, and the owners of those shares can decide whether or not
they want to tender their shares, and if so, at what price they would like to
tender their shares within the price range Payless has established.
HOW MANY SHARES CAN I DIRECT THE TRUSTEE TO TENDER FROM THE PLAN?
You may tender all shares allocated to your Stock Fund account as of February
29, 2000, adjusted for purchases, exchanges, or withdrawals from the Stock Fund
after that date through April 10, 2000.
The Plan is currently valued on a monthly basis. The latest date for which the
valuation reconciliation is complete is January 31, 2000. The number of shares
allocated to your Stock Fund account as of that date is listed on the attached
designation form. When the tender offer is completed, the last reconciled
valuation date will be as of February 29, 2000. If you have directed
contribution dollars to the Stock Fund, transferred Stock Fund assets to another
investment option, transferred another investment option to Stock Fund assets or
taken a withdrawal from the Stock Fund, the number of shares in your account
will vary from the shares that you owned at the January 31, 2000 valuation date.
The Plan's trustee will use its best efforts to determine the number of shares
that you own as of April 10, 2000, and can tender pursuant to your direction.
However, it is possible that the shares the trustee tenders on your behalf will
differ from the actual shares allocated to your Stock Fund account. Therefore,
if you tender all of your allocated shares and Payless accepts your tender
offer, you may still have a balance in the Stock Fund after the tender offer is
completed. The balance left in your Stock Fund account would equal the
difference between your actual balance in the Stock Fund on April 10, 2000, and
the estimated Stock Fund balance determined by the trustee.
As a result of the monthly valuation, you will be required to direct the trustee
to tender the shares allocated to your Stock Fund account as a percentage, to
the nearest 10%, of the number of shares allocated to your Stock Fund account.
WHY MUST I DIRECT THE TENDER OF THE SHARES ALLOCATED TO MY STOCK FUND ACCOUNT BY
PERCENTAGE?
The Plan is currently valued on a monthly basis. As discussed above, the number
of shares listed on the attached designation form does not reflect activity in
your Plan account after January 31, 2000. This activity may include your
contribution dollars to the Stock Fund, transfers of Stock Fund assets to
another investment option, transfers of another investment option to Stock Fund
assets or withdrawals from the Stock Fund. A percentage designation will allow
the trustee to include the above transactions and maximize the number of shares
you are able to instruct the trustee to tender on your behalf. However, it is
possible that the shares the trustee tenders on your behalf will differ from the
actual shares that you own. Therefore, if you tender all of your allocated
shares and Payless accepts your tender offer, you may still have a balance in
the Stock Fund after the tender offer is completed.
You must designate the percentage of shares allocated to your Stock Fund account
that you instruct the trustee to tender in 10% increments.
<PAGE> 3
AT WHAT PRICE MAY I DIRECT THE TRUSTEE TO TENDER THE SHARES ALLOCATED TO MY
STOCK FUND ACCOUNT?
The attached designation form contains a price designation block. Check the box
of the price at which you would like to have the trustee tender the shares
allocated to your Stock Fund account. You must designate one of the listed
prices. Alternatively, you may instruct the trustee to tender your shares at the
price that is paid in the tender offer by checking the box labeled "Shares
Tendered at Price Determined Under the Tender Offer."
IF I SELECT A PRICE, WILL THE TRUSTEE TENDER MY SHARES AT THAT PRICE?
Generally, the trustee will tender the shares you have designated in accordance
with your instructions. However, the law requires that the trustee not tender
any shares at a price less than the closing price of Payless' common stock on
April 10, 2000, as reported on the New York Stock Exchange.
As a result, if the closing price of Payless' common stock on April 10, 2000 is
higher than the price you designate on the enclosed form, the trustee will
automatically increase the price you have designated to the closing price. The
trustee will then tender the share allocated to your Stock Fund account in
accordance with your percentage designation. If you have elected to have the
shares allocated to your Stock Fund account tendered at the price determined
under the tender offer, the trustee will tender such shares at the closing price
of Payless' common stock on April 10, 2000.
WHO WILL DETERMINE THE PURCHASE PRICE THAT IS PAID IN THE TENDER OFFER?
Payless will determine a single per share price that it will pay for shares
properly tendered, taking into account the number of shares tendered and the
prices specified by tendering stockholders. Payless will select the lowest
purchase price that will allow it to purchase up to 7,547,170 shares of its
common stock or, if a lesser number of shares are properly tendered, all shares
that are properly tendered. Payless will then purchase all of the shares
tendered at or below that final price, although Payless may not purchase all of
those shares if more than 7,547,170 shares are tendered in the offer. In other
words, if you select a price greater than the price that is finally determined
to be paid in the tender offer, none of your shares will be purchased. All
shares acquired in the offer will be acquired at the same purchase price.
HOW DO I DIRECT THE TRUSTEE TO TENDER THE SHARES ALLOCATED TO MY STOCK FUND
ACCOUNT?
If you wish to direct the trustee to tender shares allocated to your Stock Fund
account, please complete the attached designation form and return it as directed
so that it is received by EquiServe no later than 5:00 p.m., New York City time,
on April 7, 2000, in the enclosed envelope or via facsimile to EquiServe, as
specified on the attached designation form. You must instruct the trustee,
through EquiServe, to tender some percentage or all of the shares allocated to
your Stock Fund account (subject to the discussion of the number of shares which
you may direct, above) by following the instructions in this letter and the
attached designation form. If the designation form is not properly completed or
is not received by the 5:00 p.m., New York City time, April 7, 2000 deadline,
none of your shares will be purchased.
The only actions you are required to take to direct the trustee to tender shares
allocated to your Stock Fund account are (i) specify the percentage of the
shares that you wish the trustee to tender, (ii) designate the price at which
the trustee should tender the shares and (iii) return the attached designation
form so that it is received by EquiServe no later than 5:00 p.m., New York City
time, on April 7, 2000. You do not need to complete any form other than the
attached designation form.
After April 10, 2000, it will be determined whether all, part, or none of your
tendered shares have been purchased by Payless. If you miss the 5:00 p.m., New
York City time, April 7, 2000 deadline, the trustee will not tender your shares.
<PAGE> 4
THE DESIGNATION FORM MUST BE RECEIVED BY EQUISERVE NO LATER THAN 5:00 P.M., NEW
YORK CITY TIME, ON APRIL 7, 2000.
WHAT IF I HOLD SHARES OUTSIDE OF THE PLAN?
If you hold shares outside of the Plan, you will receive, under separate cover,
tender offer materials that can be used to tender the shares held outside the
Plan. Those materials may not be used to instruct the applicable trustee to
tender shares allocated to your Stock Fund account.
WHAT HAPPENS IF MORE THAN 7,547,170 SHARES ARE TENDERED IN THE OFFER?
If more than 7,547,170 shares are tendered, Payless (1) will first purchase all
shares properly tendered, and not properly withdrawn, by any stockholder who
owns fewer than 100 shares and tenders all of those shares at a purchase price
at or below the price that is finally determined to be paid in the tender offer
and (2) will then purchase all other shares properly tendered, and not properly
withdrawn, at prices at or below the price that is finally determined to be paid
in the tender offer on a pro rata basis.
CAN I TAKE ADVANTAGE OF THE "ODD LOT" PRIORITY?
No. While fewer than 100 shares of Payless common stock may have been allocated
to your Stock Fund account, the record holder of the shares, the trustee, has
significantly more than 100 shares and therefore, shares held in the Plan are
not eligible to avoid proration by virtue of the "odd lot" priority.
WHAT IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
Contact D. F. King & Co., Inc., the information agent, for the tender offer, at
(800) 848-3416 (toll-free) with any questions about the terms and conditions of
the tender offer or how to tender the shares allocated to your Stock Fund
account.
HOW WILL THE PROCEEDS OF THE TENDER BE INVESTED?
Any shares tendered by the trustee and accepted by Payless will be exchanged for
cash. The cash proceeds will remain in your Plan account and will be invested in
the same manner as you have directed the trustee to invest your current
contributions (including any election which you make prior to March 20, 2000),
as soon as administratively feasible after the funds have been received. Again,
the manner in which your contributions are directed cannot be changed throughout
the quiet period, beginning at 12:00 Midnight, Central time, on March 20, 2000.
<PAGE> 5
DESIGNATION FORM
DIRECTION TO THE TRUSTEE
Name:
- --------------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
Designate the percentage of the shares allocated to your Stock Fund account that
you direct the trustee to tender pursuant to the tender offer. (Check the
appropriate box.) IF MORE THAN ONE BOX IS CHECKED, THERE IS NO VALID DESIGNATION
AND THE SHARES ALLOCATED TO YOUR STOCK FUND WILL NOT BE TENDERED.
<TABLE>
<S> <C> <C> <C> <C> <C>
0% 20% 40% 60% 80% 100%
10% 30% 50% 70% 90%
</TABLE>
Designate the price that you direct the trustee to offer to sell the shares
allocated to your Stock Fund account to Payless.* (Check the appropriate box.)
This action could result in none of the shares being purchased if the purchase
price determined by Payless for the shares is less than the price checked below
or if the price checked below is increased by the trustee above the purchase
price determined by Payless. IF MORE THAN ONE BOX IS CHECKED, THERE IS NO VALID
DESIGNATION AND THE SHARES ALLOCATED TO YOUR STOCK FUND WILL NOT BE TENDERED.
<TABLE>
<S> <C> <C> <C> <C>
[ ] $48.000 [ ] $49.000 [ ] $50.000 [ ] $51.000 [ ] $52.000
[ ] $48.125 [ ] $49.125 [ ] $50.125 [ ] $51.125 [ ] $52.125
[ ] $48.250 [ ] $49.250 [ ] $50.250 [ ] $51.250 [ ] $52.250
[ ] $48.375 [ ] $49.375 [ ] $50.375 [ ] $51.375 [ ] $52.375
[ ] $48.500 [ ] $49.500 [ ] $50.500 [ ] $51.500 [ ] $52.500
[ ] $48.625 [ ] $49.625 [ ] $50.625 [ ] $51.625 [ ] $52.625
[ ] $48.750 [ ] $49.750 [ ] $50.750 [ ] $51.750 [ ] $52.750
[ ] $48.875 [ ] $49.875 [ ] $50.875 [ ] $51.875 [ ] $52.875
[ ] $53.000
</TABLE>
* The trustee will adjust the price you elect to the closing price of Payless's
common stock on April 10, 2000, as reported on the New York Stock Exchange, if
such closing price is greater than the price you designated above.
Return this form to EquiServe, the depositary for the tender offer at:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
BY OVERNIGHT OR
BY MAIL: BY HAND DELIVERY: EXPRESS MAIL
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
EquiServe Securities Transfer & Reporting Services, Inc. EquiServe
Attn: Corporate Actions c/o EquiServe Attn: Corporate Actions
P.O. Box 9573 100 Williams Street, Galleria 40 Capanelli Drive
Boston, MA 02205-9573 New York, NY 10038 Braintree, MA 02184
- --------------------------------------------------------------------------------------------------
</TABLE>
You may also fax this designation form to EquiServe at (781) 575-4826
The information agent for this tender offer is D. F. King & Co., Inc. All
questions regarding the tender offer should be directed to D. F. King & Co.,
Inc. at (800) 848-3416.
<PAGE> 1
PAYLESS SHOESOURCE, INC.
MARCH 13, 2000
TO THE PARTICIPANTS IN THE PAYLESS SHOESOURCE, INC. STOCK OWNERSHIP PLAN
Enclosed are materials that require immediate attention. The materials
describe events that may affect your interest in the Payless ShoeSource, Inc.
Stock Ownership Plan (the "Plan").
As you probably already know, Payless ShoeSource, Inc. ("Payless") has made
a tender offer to acquire up to 7,547,170 shares of its outstanding common stock
at a price not in excess of $53.00 nor less than $48.00 per share, net to the
seller in cash, without interest.
Your account in the Plan is a direct investment in Payless common stock. As
a participant in the Plan, you have a right to tender your shares in the Plan
pursuant to the terms and conditions of this tender offer.
You will be allowed to tender up to and including the number of shares
allocated to your Plan account as of 5:00 p.m., New York City time, on the
closing day of the tender offer, April 10, 2000. For informational purposes
only, the February 29, 2000 balance in your Plan account is listed on the label
attached to the letter of transmittal. This balance does not include shares of
Payless common stock purchased with your contributions to the Plan between the
end of February and April 10, 2000, if any, but you will be able to tender such
shares in addition to the shares listed on the letter of transmittal.
If you wish to tender the shares you hold in the Plan account, please
complete the attached letter of transmittal and return it to EquiServe so that
it is received no later than 5:00 p.m., New York City time, on April 7, 2000, in
the enclosed envelope. After April 10, 2000, it will be determined whether all,
part or none of your tendered shares have been purchased by Payless. If you miss
the deadline, your shares will not be purchased. Please carefully read the other
materials prior to responding.
Any shares tendered by you and accepted by Payless will be exchanged for
cash. The cash proceeds will be sent to you as soon as administratively
feasible.
As you are aware, Payless contributes 15% toward the purchase price of
Payless common stock purchased pursuant to this Plan. Generally, at the time
that you dispose of the stock, you will recognize ordinary income equal to the
amount of Payless's 15% contribution. The remainder of the gain, if any, may
qualify for capital gains treatment with respect to any proceeds in excess of
the total purchase price of the stock. If the sale occurs less than two years
from the first date of the purchase period in which the stock was purchased or
one year from the date of purchase, Payless is required to report, for W-2 tax
purposes, the 15% contribution as ordinary income. However, if the sale occurs
two or more years after the first date of the purchase period in which the stock
was purchased or one year from the date the shares were purchased, the amount
recognized as ordinary income will be limited to the gain on the sale if that
amount is less than the amount of Payless' 15% contribution. For additional
information with respect to the tax consequences of the Plan, including state
and local taxes, you should consult with your tax counsel.
IF YOU DO NOT WISH TO PARTICIPATE IN THIS OFFER, YOU DO NOT NEED TO TAKE ANY
ACTION. IF YOU DO WISH TO TENDER SOME OR ALL OF THE SHARES IN YOUR PLAN ACCOUNT,
THE INSTRUCTIONS ON HOW TO TENDER THOSE SHARES ARE EXPLAINED IN DETAIL IN THE
ENCLOSED MATERIALS. YOU SHOULD READ AND FOLLOW THE INSTRUCTIONS IN THIS LETTER
AND IN THE ENCLOSED MATERIALS CAREFULLY.
<PAGE> 2
In addition to describing how to tender shares, the enclosed documents describe
the terms and conditions of the tender offer, as well as other information
relating to the tender offer and Payless. You should read these documents
carefully and in their entirety. However, for your information, the following
are answers to some of the questions you might have regarding the offer:
WHAT IS A TENDER OFFER?
A tender offer is a process through which Payless can offer to purchase shares
of its common stock, and the owners of those shares can decide whether or not
they want to tender their shares, and if so, at what price they would like to
tender their shares within the price range Payless has established.
HOW MANY SHARES CAN I TENDER FROM THE PLAN?
You may tender up to all shares, including any fractional shares, allocated to
your Plan account as of April 10, 2000. You may tender fractional shares only if
you tender all of your shares. If you tender less than all of your shares, you
will only be able to tender the nearest whole number of shares less than the
calculated percentage of your shares you designate.
Because the number of shares listed on the letter of transmittal does not
include shares of Payless common stock purchased with your contributions to the
Plan between the end of February and April 10, 2000, if any, you will be
required to tender the shares in your Plan account as a percentage (in 10%
increments), of the number of shares in your Plan account.
WHY MUST I TENDER THE SHARES IN MY PLAN ACCOUNT BY PERCENTAGE?
The number of shares listed on the letter of transmittal does not include shares
of Payless common stock purchased with your contributions to the Plan between
the end of February and April 10, 2000, if any. As a result, to maximize the
number of shares that you may tender, you must designate the shares you wish to
tender from your Plan account as a percentage (in 10% increments), of the number
of shares in your Plan account.
HOW DO I SPECIFY THE PRICE AT WHICH I WANT TO TENDER THE SHARES IN MY PLAN
ACCOUNT?
The attached letter of transmittal contains a price designation block. Check the
box of the price at which you would like to tender the shares allocated to your
Plan account. You must designate one of the listed prices. Alternatively, you
may tender your shares at the price that is paid in the tender offer by checking
the box labeled "Shares Tendered at Price Determined Under the Tender Offer."
WHO WILL DETERMINE THE PURCHASE PRICE THAT IS PAID IN THE TENDER OFFER?
Payless will determine a single per share price that it will pay for shares
properly tendered, taking into account the number of shares properly tendered
and the prices specified by tendering stockholders. Payless will select the
lowest purchase price that will allow it to purchase up to 7,547,170 shares of
its common stock or, if a lesser number of shares are properly tendered, all
shares that are properly tendered. Payless will then purchase all of the shares
tendered at or below that final price, although Payless may not purchase all of
those shares if more than 7,547,170 shares are tendered in the offer. In other
words, if you select a price greater than the price that is finally determined
to be paid in the tender offer, none of your shares will be purchased. All
shares acquired in the offer will be acquired at the same purchase price.
WHAT HAPPENS IF MORE THAN 7,547,170 SHARES ARE TENDERED IN THE OFFER?
If more than 7,547,170 shares are tendered, Payless (1) will first purchase all
shares properly tendered, and not properly withdrawn, by any stockholder who
owns fewer than 100 shares and tenders all of those shares at a purchase price
at or below the price that is determined by Payless to
<PAGE> 3
be the purchase price in the tender offer (such stockholders must complete the
portion of the letter of transmittal labeled "Odd Lots") and (2) will then
purchase, on a pro rata basis, all other shares properly tendered, and not
properly withdrawn, at prices at or below the price that is determined by
Payless to be the purchase price.
CAN I TAKE ADVANTAGE OF THE "ODD LOT" PRIORITY?
If you hold fewer than 100 shares in the Plan, and regardless of any shares you
may hold through any other means, the shares you hold in your Plan account are
eligible for odd lot priority if you tender all of such shares. You will need to
check the appropriate box in the letter of transmittal.
HOW DO I TENDER THE SHARES IN MY PLAN ACCOUNT?
If you wish to tender shares in your Plan account, please complete the attached
letter of transmittal and return it as directed so that it is received by
EquiServe no later than 5:00 p.m., New York City time, on April 7, 2000, as
specified on the letter of transmittal. You may only tender some percentage or
all of the shares in your Plan account to Payless, through EquiServe, by
following the instructions in this letter and the attached letter of
transmittal. EquiServe will work with Mellon Bank to determine the number of
shares represented by the percentage you have selected to tender and EquiServe
will direct Mellon Bank to transfer the tendered shares to EquiServe. If the
letter of transmittal is not properly completed or is not received by the
deadline of 5:00 p.m., New York City time on April 7, 2000, none of your shares
will be purchased.
Because your shares are held in the Plan and administered by Mellon Bank, you do
not need to submit a stock certificate to tender your shares.
THE LETTER OF TRANSMITTAL MUST BE RECEIVED BY EQUISERVE NO LATER THAN 5:00 P.M.,
NEW YORK CITY TIME, ON APRIL 7, 2000.
WHAT IF I HOLD SHARES OUTSIDE OF THE PLAN?
If you hold shares under the Payless ShoeSource, Inc. Profit Sharing Plan or the
Payless ShoeSource, Inc. Profit Sharing Plan for Puerto Rico Associates
(together, the "Profit Sharing Plans"), you will have to use materials that will
be separately provided to participants of those Profit Sharing Plans to tender
such shares. You cannot use the enclosed materials to tender shares under the
Profit Sharing Plans or use the material separately provided to participants of
the Profit Sharing Plans to tender shares under this Plan. You may, however, use
the enclosed materials to tender shares that you hold outside of any Payless
employee plan.
WHAT HAPPENS IF MY TENDERED SHARES ARE PURCHASED?
Mellon Bank will surrender the shares you have tendered to Payless and you will
receive a check for the proceeds as soon as practicable.
WHAT HAPPENS IF MY TENDERED SHARES ARE NOT PURCHASED?
Mellon Bank will continue to hold the stock for you in your Plan account.
WHAT IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
Contact D.F. King & Co., Inc., the Information Agent, for the tender offer, at
(800) 848-3416 (toll-free) with any questions about the terms and conditions of
the tender offer or how to tender the shares in your Plan account.
WILL THERE BE ANY CHARGES ASSOCIATED WITH TENDERING THE SHARES IN MY PLAN
ACCOUNT?
Payless will pay any fees charged by Mellon Bank in connection with the tender
of your shares.
<PAGE> 1
EXHIBIT (a)(5)(B)
For Immediate Release Contact: Timothy J. Reid (785) 295-6695
PAYLESS SHOESOURCE, INC. COMMENCES SELF-TENDER FOR 7,547,170 SHARES OR 25% OF
ITS OUTSTANDING COMMON STOCK
TOPEKA, Kan., March 13, 2000 -- Payless ShoeSource, Inc. (NYSE: PSS) today
commenced its previously announced Dutch auction self-tender offer for up to
7,547,170 shares, or approximately 25 percent of its outstanding common stock,
at prices ranging from $48 to $53 per share, or a total of $362 million to
$400 million if the maximum number of shares is repurchased.
The tender offer will expire at 5:00 p.m., Eastern Standard time, on Monday,
April 10, 2000, unless extended. If the number of shares tendered is greater
than the number sought, the company will select the lowest price within the
stated range that will allow it to buy 7,547,170 shares, with purchases
generally to be made on a pro rata basis for shareowners tendering at or below
the purchase price. The company reserves the right, in its sole discretion, to
increase the number of shares purchased subject to compliance with applicable
law.
This price range represents a 15 to 27 percent premium to the $41 3/4 closing
price per share on March 7, 2000, the last trading day prior to announcing its
intention to commence the tender offer.
Steven J. Douglass, Payless Chairman and Chief Executive Officer, said, "This
repurchase program clearly demonstrates that management continues to focus its
capital allocation on creating value for its shareowners. We think that this
transaction is the right choice for the company. We have had a very positive
response from our shareowners to the announcement of the self-tender."
Copies of the offer to purchase, the letter of transmittal and other tender
offer documents can be obtained for free by calling the Information Agent, D.F.
King & Co., Inc. at 800-848-3416. Shareowners will also be able to obtain the
offer to purchase and related materials for free at the SEC's website at
www.sec.gov. The Dealer Manager of the tender offer is Goldman, Sachs & Co.
This press release is for informational purposes only and is not an offer to buy
or the solicitation of an offer to sell any shares of the company's common
stock. The solicitation of offers to buy the company's common stock are only
being made pursuant to the tender offer documents described above, which the
company is sending out to its shareowners.
<PAGE> 2
2
Shareowners should read those materials carefully prior to making any decisions
with respect to the tender offer because they will contain important
information, including the various terms and conditions of the offer.
The Board of Directors of the company has approved the tender offer but neither
the company nor the Board of Directors is making any recommendation to
shareowners as to whether to tender or refrain from tendering their shares or as
to the purchase price or prices at which shareowners may choose to tender their
shares. Shareowners must make their own decision as to whether to tender their
shares and, if so, how many shares to tender and the price or prices at which
such shares should be tendered.
Payless ShoeSource, Inc. is North America's largest family footwear retailer.
The company operates 4,462 Payless ShoeSource stores offering quality family
footwear at affordable prices. In addition, customers can buy shoes over the
Internet through Payless.com(SM), at http://www.payless.com. Payless also
operates 220 Parade stores featuring fashionable mid-priced women's footwear.
This release contains forward-looking statements relating to such matters as
anticipated financial performance, share repurchase plans, consumer spending
patterns, business prospects, new products, future store openings, inventories,
possible strategic alternatives and similar matters. Forward-looking statements
are identified by words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," or variations of such words. A variety of known and unknown
risks and uncertainties and other factors could cause actual results and
expectations to differ materially from the anticipated results or expectations.
Please refer to the company's 1998 Annual Report and the company's Form 10-K for
the fiscal year ended January 30, 1999, for more information on these and other
risk factors that could cause actual results to differ. The company does not
undertake any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
<PAGE> 1
EXHIBIT (a)(5)(C)
PAYLESS SHOESOURCE
March 13, 2000
To Our Stockholders:
Payless ShoeSource, Inc., a Delaware corporation, is offering to purchase
7,547,170 shares, or such lesser number of shares as are properly tendered, of
its common stock from existing stockholders. The price paid by Payless will not
be greater than $53.00 nor less than $48.00 per share, net to the seller in
cash, without interest. Payless is conducting the tender offer through a
procedure commonly referred to as a "Dutch auction." This procedure allows you
to select the price within the $53.00 to $48.00 price range at which you are
willing to sell your shares to Payless or to select the actual purchase price
paid by Payless, which could result in your receipt of a price per share as low
as $48.00. The actual purchase price will be determined by Payless in accordance
with the terms of the tender offer. All shares purchased under the tender offer
will receive the same price. A tender of shares will include a tender of the
preferred stock purchase rights issued under the Stockholder Protection Rights
Agreement, dated as of April 20, 1998, as amended, between Payless and UMB Bank,
N.A., as Rights Agent. No separate consideration will be paid for those rights.
You may tender all or only a portion of your shares upon the terms and subject
to the conditions of the tender offer, including the odd lot and proration
provisions.
Any stockholder whose shares are properly tendered directly to EquiServe,
the depositary of the tender offer, and purchased under the tender offer will
receive the net purchase price in cash, without interest, as promptly as
practicable after the expiration of the tender offer. Stockholders who own fewer
than 100 shares should note that the tender offer represents an opportunity for
them to sell their shares without reduction for any odd lot discounts.
The terms and conditions of the tender offer are explained in detail in the
enclosed offer to purchase and the related letter of transmittal. I encourage
you to read these materials carefully before making any decision with respect to
the tender offer. The instructions on how to tender shares are also explained in
detail in the accompanying materials.
The Board of Directors of Payless has approved the tender offer. However,
neither Payless nor its Board of Directors makes any recommendation to you as to
whether you should tender or refrain from tendering your shares or as to the
price or prices at which you may choose to tender your shares. You must make
your own decision as to whether to tender your shares and, if so, how many
shares to tender and the price or prices at which your shares should be
tendered. The directors and executive officers of Payless have advised the
company that they do not intend to tender any shares in the tender offer.
The tender offer will expire at 5:00 p.m., New York City time, on Monday,
April 10, 2000, unless extended by Payless. If you have any questions regarding
the tender offer or need assistance in tendering your shares, please contact
D.F. King & Co., Inc., the information agent of the tender offer, at (800)
848-3416, or Goldman, Sachs & Co., the dealer manager of the tender offer, at
(800) 323-5678.
Sincerely,
/s/ Steven J. Douglass
Steven J. Douglass
Chairman of the Board and
Chief Executive Officer
<PAGE> 1
EXHIBIT (b)
GOLDMAN SACHS CREDIT PARTNERS L.P.
85 BROAD STREET
NEW YORK, NEW YORK 10004
PERSONAL AND CONFIDENTIAL
March 10, 2000
Payless ShoeSource, Inc.
3231 E. Sixth Street
Topeka, KS 66607-2207
Attention: Mr. Ullrich E. Porzig
Chief Financial Officer
Re: Senior Facilities
Ladies and Gentlemen:
We are pleased to confirm the arrangement under which Goldman Sachs Credit
Partners L.P. ("GSCP") is exclusively authorized by Payless ShoeSource, Inc., a
Delaware corporation (the "Company"), to act a sole Lead Arranger and sole
Syndication Agent in connection with, and commits to provide the financing for,
certain loans described herein, in each case on the terms and subject to the
conditions set forth in this letter, the attached Annex A and the attached Annex
B (together, the "Commitment Letter").
We understand that, although the structure and certain terms of the transaction
have yet to be finally determined, the Company intends to consummate a
recapitalization of the Company (the "Recapitalization") pursuant to which the
Company will purchase and retire certain shares of its outstanding common stock
for an aggregate purchase price not in excess of $400.0 million plus fees and
expenses and will refinance approximately $122.0 million of certain existing
indebtedness of the Company and its subsidiaries.
The Company intends to establish a single credit facility to consist of up to
$400.0 million under a senior secured term loan facility (the "Term Facility")
and up to $200.0 million under a senior secured revolving credit facility (the
"Revolving Facility", together with the Term Facility, the "Facilities"). The
proceeds from the Term Facility and up to $50.0 million under the Revolving
Facility are expected to be used, together with the Company's existing on-hand
cash, to finance the Recapitalization and pay transaction costs. Amounts
available under the Revolving Facility are also expected to be used to provide
working capital and for general and other corporate purposes.
GSCP is pleased to confirm its commitment to act as sole Lead Arranger to
provide the Company with structuring advice in connection with the Facilities
and as sole Syndication Agent to provide the Company with syndication advice in
connection with the Facilities and to provide the
<PAGE> 2
Payless ShoeSource, Inc.
March 10, 2000
Page 2
Company the full $600.0 million of the Facilities, in each case on the terms and
subject to the conditions contained in this Commitment Letter. Our fees for such
services are set forth in a separate fee letter (the "Fee Letter") entered into
by the Company and GSCP on the date hereof.
GSCP's commitment is subject, in its discretion, to the following conditions:
(i) there shall not have been, since the date of the most recent audited
financial statements of the Company furnished by the Company to GSCP, any change
in the capital stock or long-term debt of the Company and its subsidiaries, or
any adverse change, in or affecting the general affairs, management, financial
position, stockholders' equity, results of operations or prospects of the
Company and its subsidiaries, (ii) there shall not have been any disruption or
adverse change in the financial or capital markets generally, or in the market
for loan syndications in particular, which in any such case under clause (i) or
(ii) GSCP, in its reasonable, good faith judgment, deems material and (iii) the
Facilities being assigned a credit rating by each of Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P"). GSCP's commitment
is also subject, in its discretion, to the satisfactory negotiation, execution
and delivery of appropriate loan documents relating to the Facilities,
including, without limitation, a credit agreement, guaranties, pledge
agreements, opinions of counsel and other related definitive documents
(collectively, the "Loan Documents") to be based upon and substantially
consistent with the terms set forth in this Commitment Letter. In addition,
GSCP's commitment is subject to the condition that we have not become aware
after the date hereof of any new or inconsistent information or other matter
with respect to legal and regulatory issues relevant to the Company and its
subsidiaries which we, in our judgment, deem is material and adverse.
The terms of this Commitment Letter are intended as an outline of certain of the
material terms of the Facilities, but do not include all of the terms,
conditions, covenants, representations, warranties, default clauses and other
provisions that will be contained in the Loan Documents. The Loan Documents
shall include, in addition, provisions that are customary or typical for
financings of this type and other provisions that GSCP may reasonably determine
(after consultation with the Company) to be appropriate in the context of
similar transactions of this type.
GSCP intends and reserves the right to syndicate the Facilities to the Lenders
(as defined in the attached Annex B). GSCP shall select the Lenders with the
Company's consent, not to be unreasonably withheld. A Lender reasonably
acceptable to the Company and GSCP will be identified by GSCP to act as
collateral agent and administrative agent for the Lenders (the "Administrative
Agent"). GSCP will lead the syndication, including determining the timing of all
offers to potential Lenders, any title of agent or similar designations awarded
to any Lender and the acceptance of commitments, the amounts offered and the
compensation provided to each Lender from the amounts to be paid to GSCP
pursuant to the terms of this Commitment Letter and the Fee Letter. GSCP will
determine the final commitment allocations and will notify the Company of such
determinations. To ensure an orderly and effective syndication of the
Facilities, you agree that, until 180 days following the date of the
consummation of the Recapitalization, you will not, and will not permit any of
your affiliates to, syndicate or issue, attempt to syndicate or issue, announce
or authorize the announcement of the syndication or issuance of, or engage in
discussions
<PAGE> 3
Payless ShoeSource, Inc.
March 10, 2000
Page 3
concerning the syndication or issuance of, any debt facility or debt security of
the Company or any of its subsidiaries (other than the Facilities and other
indebtedness contemplated hereby), including any renewals or refinancings of any
existing debt facility or debt security, without the prior written consent of
GSCP.
The Company agrees to cooperate with GSCP in connection with (i) the
preparation of an information package regarding the business, operations and
prospects of the Company, including, without limitation, the delivery of all
information relating to the transactions contemplated hereunder prepared by or
on behalf of the Company deemed reasonably necessary by GSCP to complete the
syndication of the Facilities and (ii) the presentation of such information
package in bank meetings and other communications with prospective Lenders in
connection with the syndication of the Facilities. The Company shall be solely
responsible for the contents of any such information package and presentation
and acknowledges that GSCP will be using and relying upon the information
contained in such information package and presentation without independent
verification thereof. In addition, the Company represents and covenants that (i)
all information, other than projections (the "Projections"), provided directly
or indirectly by the Company to GSCP of the Lenders in connection with the
transactions contemplated hereunder is and will be complete and correct in all
material respects and does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein not misleading and (ii) the Projections that have been or will
be made available by you or any of your representatives have been or will be
prepared in good faith based upon reasonable assumptions (it being understood
that the Projections are subject to significant uncertainties and contingencies,
many of which are beyond the Company's control, and that no assurance can be
given that the Projections will be realized).
In connection with arrangements such as this, it is our firm policy to receive
indemnification. The Company agrees to the provisions with respect to our
indemnity and other matters set forth in Annex A which is incorporated by
reference into this Commitment Letter.
Please note that this Commitment Letter, the Fee Letter and any written or oral
advice provided by GSCP in connection with this arrangement are exclusively for
the information of the Board of Directors and senior management of the Company
and may not be disclosed to any third party or circulated or referred to
publicly without our prior written consent, except, after providing written
notice to GSCP, pursuant to a subpoena or order issued by a court of competent
jurisdiction
<PAGE> 4
Payless ShoeSource, Inc.
March 10, 2000
Page 4
or by a judicial, administrative or legislative body or committee. In addition,
we hereby consent to your disclosure of such advice to your officers, directors,
agents and advisors who are directly involved in the consideration of the
Facilities to the extent such persons are obligated to hold such advice in
confidence. If approval of the Company's stockholders is required in order to
consummate the Recapitalization and reference to GSCP and this Commitment Letter
is required to be made in a proxy statement of the Company relating thereto to
be filed under the Federal Securities laws, GSCP will not unreasonably withhold
our consent thereto so long as we have reasonably approved in advance the text
of any such disclosure.
As you know, GSCP may from time to time effect transactions, for its own action
or the account of customers, and hold positions in loans or options on loans of
the Company and other companies that may be the subject of this arrangement. In
addition, Goldman Sachs & Co. is a full service securities firm and as such may
from time to time effect transactions, for its own account or the account of
customers, and hold positions in securities or options on securities of the
Company and other companies that may be the subject of this arrangement. In
addition, GSCP may employ the services of its affiliates in providing certain
services hereunder and may exchange with such affiliates information concerning
the Company and other companies that may be the subject of this arrangement, and
such affiliates shall be entitled to the benefits afforded to GSCP hereunder.
GSCP's commitment hereunder shall terminate on June 3, 2000 unless the closing
of the Facilities, on the terms and subject to the conditions contained herein,
shall have consummated. GSCP and the Company agree by execution hereof that
GSCP's commitment and GSCP's and the Company's obligations (other than the
Company's obligations with respect to confidentiality, indemnification and
reimbursement of fees, costs and expenses) under the commitment letter dated
December 12, 1999 among GSCP and the Company (the "Prior Commitment Letter")
terminated. This Commitment Letter supersedes and replaces in its entirety the
Commitment Letter dated March 7, 2000 between GSCP and the Company (the "Prior
Commitment Letter") and GSCP and the Company agree by execution hereof that the
Prior Commitment Letter is null and void.
[Remainder of page intentionally left blank]
<PAGE> 5
Payless ShoeSource, Inc.
March 10, 2000
Page 5
Please confirm the foregoing is in accordance with your understanding by signing
and returning to GSCP the enclosed copy of this Commitment Letter, together, if
not previously executed and delivered, with the Fee Letter, on or before 5:00
p.m. (New York time) on March 11, 2000, whereupon this Commitment Letter and the
Fee Letter shall become binding agreements between us. If not signed and
returned as described in the preceding sentence by such date, this offer will
terminate on such date. We look forward to working with you on this assignment.
Very truly yours,
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/______________________________
Authorized Signatory
ACCEPTED AS OF THE DATE ABOVE:
PAYLESS SHOESOURCE, INC.
By:_____________________________
Name:
Title:
<PAGE> 6
ANNEX A
In the event that GSCP becomes involved in any capacity in any action,
proceeding or investigation brought by or against any person, including
stockholders of the Company, in connection with or as a result of either this
arrangement or any matter referred to in this Commitment Letter or the Fee
Letter (together, the "Letters"), the Company periodically will reimburse GSCP
for its documented and reasonable legal and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith. The
Company also will indemnify and hold GSCP harmless against any and all losses,
claims, damages or liabilities to any such person in connection with or as a
result of either this arrangement or any matter referred to in the Letters,
except to the extent that any such loss, claim, damage or liability results from
the gross negligence, willful misconduct or bad faith of GSCP in performing the
services that are the subject of the Letters. If for any reason the foregoing
indemnification is unavailable to GSCP or insufficient to hold it harmless, then
the Company shall contribute to the amount paid or payable by GSCP as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative economic interests of the Company and its stockholders on
the one hand and GSCP on the other hand in the matters contemplated by the
Letters as well as the relative fault of the Company and GSCP with respect to
such loss, claim, damage or liability and any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliate of GSCP and the partners, directors, agents, employees and
controlling persons (if any), as the case may be, of GSCP and any such affiliate
(each, an "Indemnified Party"), and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, GSCP, any such affiliate and any such person. The Company also agrees
that no Indemnified Party shall have any liability to the Company or any person
asserting claims on behalf of or in right of the Company in connection with or
as a result of either this arrangement or any matter referred to in the Letters
except to the extent that any losses, claims, damages, liabilities or expenses
incurred by the Company result from the gross negligence, willful misconduct or
bad faith of such Indemnified Party in performing the services that are the
subject of the Letters. Any right to trial by jury with respect to any action or
proceeding arising in connection with or as a result of either this arrangement
or any matter referred to in the Letters is hereby waived by the parties hereto.
The provisions of this Annex A shall survive any termination or completion of
the arrangement provided by the Letters, and this Commitment Letter shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflict of laws.
<PAGE> 7
ANNEX B
PAYLESS SHOESOURCE, INC.
SUMMARY OF TERMS AND CONDITIONS OF THE FACILITIES
This Summary of Terms and Conditions outlines certain terms of the Facilities
referred to in the Commitment Letter, of which this Annex B is a part. Certain
capitalized terms used herein are defined in the Commitment Letter.
BORROWER: Payless ShoeSource, Inc., a Delaware
corporation (the "Company"), and/or one or
more wholly-owned subsidiaries of the
Company acceptable to the Arranger.
GUARANTORS: The Company (if the Company is not the
Borrower) and all subsidiaries of the
Borrower (other than any foreign
subsidiaries to the extent such guaranties
would result in material adverse tax
consequences) shall guaranty (the
"Guarantee") all obligations under the
Facilities.
PURPOSE/USE To finance the Recapitalization, including
OF PROCEEDS: to refinance certain existing debt of the
Company and its subsidiaries, and to pay
transaction costs, to provide working
capital and for general corporate purposes.
SOLE LEAD ARRANGER AND SOLE Goldman Sachs Credit Partners L.P. (in such
SYNDICATION AGENT: capacity, the "Arranger").
ADMINISTRATIVE AGENT: A Lender reasonably acceptable to the
Company and GSCP (such Lender, in such
capacity, the "Administrative Agent").
LENDERS: GSCP and/or other financial institutions
selected by GSCP with the consent (not to be
unreasonably withheld) of the Company (each
a "Lender" and collectively, the "Lenders").
AMOUNT OF SENIOR FACILITIES: Up to $600 million of senior bank financing
(the "Facilities") to include:
(i) a $400.0 million senior term loan
(the "Term Facility"); and
(ii) a $200.0 million senior revolving
credit facility (the "Revolving
Facility").
AVAILABILITY: Term Facility - One drawing may be made
under the Term Facility on the Closing Date
to finance the Recapitalization, including
to refinance certain existing debt, and to
pay transaction costs.
<PAGE> 8
Revolving Facility - The entire amount of
the Revolving Facility will be available on
the Closing Date to provide working capital
and for general corporate and other
purposes. Amounts available under the
Revolving Facility may be borrowed, repaid
and reborrowed until the fifth anniversary
of the Closing Date.
MATURITIES: Term Facility: 5th anniversary of the
Closing Date
Revolving Facility: 5th anniversary of the
Closing Date
CLOSING DATE: The date on or before June 3, 2000 on which
the initial borrowings under the Facilities
are made.
AMORTIZATION: Term Facility: The Term Facility will be
amortized in equal quarterly installments
during the periods set forth below:
<TABLE>
<CAPTION>
Year Following the Closing Term
Date Facility
<S> <C> <C>
Year 1 5.0%
Year 2 12.5%
Year 3 20.0%
Year 4 27.5%
Year 5 35.0%
</TABLE>
Revolving Facility: The Revolving Facility
will be fully revolving until 5 years from
the Closing Date
LETTERS OF CREDIT: At the Borrower's option, the entire $200
million of the Revolving Facility will be
made available for the issuance of letters
of credit ("Letters of Credit"). The entire
amount of the Revolving Facility will be
available on the Closing Date for the
issuance of Letters of Credit.
INTEREST RATE: All amounts outstanding under the Facilities
shall bear interest from the Closing Date
until the six-month anniversary of the
Closing Date at the Borrower's option as
follows:
(i) at the reserve adjusted Eurodollar
Rate plus 2.00% per annum; or
(ii) at the Base Rate plus 1.00% per
annum;
ANNEX B-2
<PAGE> 9
provided, however, that if the Borrower
receives a senior unsecured debt rating of
at least Ba1 and BB+ from each of Moody's
Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P"),
respectively, in connection with the ratings
required to be delivered on or about the
Closing Date, the above applicable margins
for the reserve adjusted Eurodollar Rate and
the Base Rate shall be reduced to 1.75% and
0.75%, respectively.
After the six-month anniversary of the
Closing Date, the applicable margins with
respect to the interest rates for the
Facilities will be subject to adjustments
based on a performance pricing grid as
follows:
<TABLE>
<CAPTION>
TOTAL
DEBT/EBITDA
RATIO APPLICABLE MARGINS
FROM TO EURODOLLAR RATE BASE RATE
<S> <C> <C> <C> <C>
>1.75x 2.00% 1.00%
1.25 1.75 1.75% 0.75%
0.75 1.25 1.50% 0.50%
<0.75x 1.25% 0.25%
</TABLE>
; provided, however, that if the Borrower
receives a senior unsecured debt rating of
at least Ba1 and BB+ from each of Moody's
and S&P, respectively, in connection with
the ratings required to be delivered on or
about the Closing Date, the applicable
margins for the reserve adjusted Eurodollar
Rate and the Base Rate shall not exceed
1.75% and 0.75%, respectively.
As used herein, the term "reserve adjusted
Eurodollar Rate" shall have a meaning
customary and appropriate for financings of
this type, and the basis for calculating
accrued interest and the interest periods
for loans bearing interest at the reserve
adjusted Eurodollar Rate shall be customary
and appropriate for financings of this type.
As used herein, the term "Base Rate" shall
have a meaning customary and appropriate for
financings of this type, and will include
the rate per annum (rounded to the nearest
1/100 of 1%) equal to the greater of (i) the
Administrative Agent's prime lending rate in
effect from time to time and (ii) the
Federal Funds Effective Rate in effect from
time to time plus 1/2 of 1%.
ANNEX B-3
<PAGE> 10
Interest on outstanding amounts following
the occurrence and during the continuance of
an Event of Default shall accrue at a rate
equal to the rate on loans bearing interest
at the rate determined by reference to the
Base Rate plus an additional two percentage
points (2.00%) per annum and shall be
payable on demand.
INTEREST PAYMENTS: Quarterly for loans bearing interest with
reference to the Base Rate; on the last day
of selected interest periods (which shall be
one, two, three and six months) for loans
bearing interest with reference to the
reserve adjusted Eurodollar Rate (and at the
end of every three months, in the case of
interest periods of longer than three
months); and upon prepayment, in each case
payable in arrears and computed on the basis
of, in the case of Base Rate loans, a
365/366-day year, and in all other cases, a
360-day year.
FUNDING PROTECTION: Customary for transactions of this type,
including breakage costs, gross-up for
withholding, compensation for increased
costs and compliance with capital adequacy
and other regulatory restrictions.
COMMITMENT FEES: Commitment fees based on the daily average
unused portion of the Revolving Facility
(reduced by the amount of letters of credit
issued and outstanding) shall accrue from
the Closing Date and shall be payable
quarterly in arrears on the unused portion
of the Revolving Facility at a rate per
annum equal to:
(i) until the six-month
anniversary of the Closing
Date, 0.50%; provided,
however, that if the Borrower
receives a senior unsecured
debt rating of at least Bal
and BB+ from each of Moody's
and S&P, respectively, in
connection with the ratings
required to be delivered on or
about the Closing Date, the
rate per annum for such period
shall be reduced to 0.35%; and
(ii) after the six-month
anniversary of the Closing
Date, a percentage per annum
based on a performance pricing
grid as follows:
ANNEX B-4
<PAGE> 11
<TABLE>
<CAPTION>
TOTAL DEBT/EBITDA RATIO COMMITMENT
FEES PERCENTAGE
FROM TO
<S> <C> <C> <C>
>1.75x 0.500%
1.25 1.75 0.350%
0.75 1.25 0.300%
<0.75x 0.250%
</TABLE>
; provided, however, that if
the Borrower receives a senior
unsecured debt rating of at
least Bal and BB+ from each of
Moody's and S&P, respectively,
in connection with the ratings
required to be delivered on or
about the Closing Date, the
above per annum commitment fee
percentage shall not exceed
0.350%.
LETTERS OF CREDIT FEES: The letter of credit fee shall be a
percentage per annum equal to the applicable
margin for Eurodollar Rate loans under the
Revolving Facility, which shall be shared by
all Lenders, and an additional fronting fee
of a percentage per annum to be mutually
agreed upon with the Administrative Agent,
which shall be retained by the Lender
issuing the letter of credit, in each case
based upon the applicable percentage
multiplied by the amount available from time
to time for drawing under such letter of
credit. In addition, certain customary fees
assessed by the issuing Lender shall be
payable.
VOLUNTARY PREPAYMENTS: The Facilities may be prepaid in whole or in
part without premium or penalty (provided
that loans bearing interest with reference
to the reserve adjusted Eurodollar Rate
shall be prepayable only on the last day of
the related interest period unless the
Borrower pays any related "broken funding"
costs). Voluntary prepayments shall be
applied between the Facilities as determined
by the Borrower; provided that voluntary
prepayments of the Term Facility shall be
applied as follows: (i) 50% of each
prepayment shall be applied to the next
scheduled amortization payments in order of
maturity and (ii) the remaining 50% of each
prepayment shall be applied on a pro rata
basis to the then-remaining scheduled
amortization payments.
MANDATORY PREPAYMENTS: Usual and customary for a transaction of
this type, including but not limited to the
following:
1. Asset Sales - 100% of the Net
Proceeds (hereinafter defined) from
asset divestitures aggregating in
excess of $10,000,000 in any fiscal
year. As used herein, "Net
Proceeds" shall mean,
ANNEX B-5
<PAGE> 12
with respect to any asset
divestiture, all proceeds thereof
net of related costs associated
with (x) liquidation of inventory,
(y) termination of operating leases
or (z) employee severance.
2. Debt Offerings - 100% of the net
proceeds in excess of $25,000,000
in any fiscal year from the
issuances of debt or preferred
stock securities (with exceptions
to be agreed upon, including
(subject to further review and
approval by the Arranger, which
approval shall not unreasonably be
withheld) IRB debt issued by the
Borrower).
3. Insurance/Condemnation Proceeds -
100% of the net proceeds from any
insurance or condemnation events
aggregating in excess of
$10,000,000 in any fiscal year.
The mandatory prepayment provisions, which
are in addition to the scheduled
amortization of the Term Facility, shall
apply until the Borrower has received a
senior unsecured debt rating of at least
Baa3 and BBB- from each of Moody's and S&P,
respectively.
All such prepayments shall be applied
without penalty or premium (except for
breakage costs, if any) to repay outstanding
loans under the Term Facility as follows:
(i) 50% of such proceeds applied to the
remaining scheduled amortization payments in
the inverse order of maturity and (ii) the
remaining 50% of such proceeds applied on a
pro rata basis among the then-remaining
scheduled amortization payments.
SECURITY: Until such time as the Borrower has received
a senior unsecured debt rating of at least
Baa3 and BBB- from each of Moody's and S&P,
respectively, the Facilities and Guarantees
shall be secured by a first priority
perfected security interest in all of the
capital stock of the Borrower (if the
Borrower is not the Company) and each of the
domestic subsidiaries (direct or indirect)
of the Borrower now owned or hereafter
acquired or created and 65% of the capital
stock of each foreign subsidiary directly
owned by the Borrower or a domestic
subsidiary of the Borrower, which capital
stock shall not be subject to any other lien
or encumbrance. All other present and future
assets and properties of the Borrower and
its domestic subsidiaries (including,
without limitation, accounts receivable,
inventory, real property, machinery,
equipment, contracts, trademarks, copyright,
patents, license rights and general
intangibles) shall be subject to a negative
pledge.
ANNEX B-6
<PAGE> 13
The foregoing security shall ratably secure
the Facilities and any interest rate
swap/foreign currency swap or similar
agreements with a Lender or its affiliates
under the Facilities entered into in the
ordinary course of Borrowers' and its
subsidiaries' business and not for
speculative purposes.
REPRESENTATIONS AND Customary and appropriate including, without
WARRANTIES: limitation, due organization and
authorization, execution, delivery and
enforceability of the Loan Documents,
financial condition, no material adverse
change, title to properties, liens,
litigation, payment of taxes, compliance
with laws, environmental and ERISA matters,
Year 2000 compliance, consents and approvals
and full disclosure.
AFFIRMATIVE COVENANTS: Usual and customary for a credit agreement
of this type including but not limited to:
financial reports, certificates, other
information; notices; books, records and
inspections; insurance; maintenance of
corporate existence, etc.; maintenance of
property; compliance with laws, payment of
taxes and liabilities; compliance with
ERISA; environmental laws; additional
guarantors; and Year 2000 compliance.
NEGATIVE COVENANTS: Usual and customary for a credit agreement
of this type including but not limited to:
Liens. Limitation on liens except for the
Permitted Liens (to be mutually agreed upon)
plus a basket of $50 million.
Consolidations and Mergers. Subsidiaries may
merge with and into other subsidiaries or
the Borrower as long as the Borrower or the
Guarantor as the case may be is the survivor
and no Event of Default exists or arises
from the transaction.
Indebtedness. Limitation on indebtedness
with usual and customary exceptions to be
mutually agreed upon and exceptions for
secured indebtedness in an amount to be
mutually agreed upon and for subordinated
indebtedness provided no default or event of
default exists or would result therefrom and
the Borrower demonstrates pro forma covenant
compliance after giving effect thereto.
Capital Expenditures. Limitation on capital
expenditures equal to $165 million in the
fiscal year ending February 3, 2001 and $150
million for each fiscal year thereafter,
with the ability to carry forward from one
fiscal year to future fiscal years the
amount equal to the difference between
permitted capital expenditures and actual
capital expenditures for such fiscal year.
This limitation shall expire when the
Borrower has received a senior unsecured
debt rating of at least Baa3 and BBB-from
each of Moody's and S&P, respectively.
ANNEX B-7
<PAGE> 14
Asset Dispositions. Limitation on asset
dispositions to be mutually agreed upon
subject to a threshold of 5% of net tangible
assets in the aggregate measured on a
cumulative basis from the Closing Date.
Sale-Leaseback Transactions. Limitation on
sale-leaseback transactions subject to
exclusion for one or more future
transactions aggregating up to $75 million
measured on a cumulative basis from the
Closing Date.
Limitation on Stock Repurchases. Other than
the repurchase of common stock in accordance
with the Recapitalization, repurchases of
Borrower's common stock will be limited to
$25 million in the fiscal year ending
February 3, 2001 and $50 million in each
following fiscal year. This limitation shall
expire when the Borrower has received a
senior unsecured debt rating of at least
Baa3 and BBB- from each of Moody's and S&P,
respectively.
Subsidiary Indebtedness. Limitation on
subsidiary indebtedness (excluding
subordinated intercompany indebtedness among
the Borrower and its domestic subsidiaries)
to $35 million with exceptions for certain
existing indebtedness, refinancing of
existing indebtedness, and certain
indebtedness of foreign subsidiaries.
Advances and Investments. Limitation on
advances and other investments (including
investments in subsidiaries) with usual and
customary exceptions to be mutually agreed
upon plus a basket of $50 million for other
advances and investments.
Acquisitions. Permitted acquisitions will
not exceed $200 million in the aggregate and
must be friendly acquisitions of companies
in substantially the same business as the
Borrower. The Borrower must demonstrate pro
forma covenant compliance giving effect to
the transaction, be the survivor, and
provide any information requested by the
Lenders. Permitted acquisitions in excess of
the basket amount will need the approval of
the Requisite Lenders until such time as the
Borrower has received a senior unsecured
debt rating of at least Baa3 and BBB- from
each of Moody's and S&P, respectively.
Other. Limitations on: transactions with
affiliates; ERISA; change in business;
accounting changes (GAAP); use of proceeds;
incurrence of contingent obligations; and
restrictions affecting subsidiaries.
FINANCIAL COVENANTS: Total Debt to EBITDA. Not permit the
Leverage Ratio to exceed 2.00:1.00.
ANNEX B-8
<PAGE> 15
Minimum Fixed Charge Coverage. Not permit
the ratio of EBITDAR to Interest Expense
plus Rent Expense as measured on a rolling
four quarter basis to be less than
1.75:1.00.
Total Debt (including PVOL) to Total
Capitalization. Commencing at the end of the
first fiscal quarter which ends closest to
January 2001, not permit the ratio of Total
Debt plus the present value of operating
leases ("PVOL") to Total Capitalization (to
be defined to equal the sum of Total Debt,
PVOL and shareholders' equity) to exceed 80%
prior to the end of the fiscal quarter which
ends closest to January, 2002 or 70%
thereafter.
The financial covenants will be tested at
the end of each relevant fiscal quarter.
EVENTS OF DEFAULT: Customary and appropriate including, without
limitation, failure to make payments when
due, defaults under other agreements or
instruments of indebtedness, noncompliance
with covenants, breaches of representations
and warranties, bankruptcy, judgments in
excess of specified amounts, ERISA,
impairment of security interests in
collateral, invalidity of guarantees,
"changes of control" (to be defined in a
mutually agreed upon manner).
CONDITIONS PRECEDENT TO 1. Satisfactory Documentation. The
INITIAL BORROWINGS: definitive documentation evidencing
the Facilities shall be prepared by
counsel to the Arranger and shall
be in form and substance
satisfactory to the Arranger, the
Administrative Agent and the
Lenders.
2. Security. The Administrative Agent,
for the benefits of the Lenders,
shall have been granted perfected
first priority security interests
in all assets to the extent
described above under the heading
"Security" in form and substance
satisfactory to the Arranger and
the Administrative Agent.
3. Environmental Matters. The Lenders
shall have received certificates
and such other information which
the Arranger and the Administrative
Agent may reasonably request
relating to the Company and its
subsidiaries in form, scope and
substance reasonably satisfactory
to the Arranger and the
Administrative Agent concerning any
environmental liabilities.
4. No Material Adverse Change. Since
January 30, 1999, there shall not
have been any adverse change, in or
affecting the general affairs,
management, financial position,
shareholders' equity, results of
operations or prospects of the
Company and its subsidiaries, which
the Arranger, in its judgment,
deems material.
ANNEX B-9
<PAGE> 16
5. No Disruption of Financial and
Capital Markets. There shall not
have been any disruption or adverse
change in the financial or capital
markets generally or in the market
for loan syndications in
particular, which the Arranger, in
its judgment, deems material.
6. Financial Statements. The Lenders
shall have received the audited
financial statements for the
Company and its subsidiaries for
the period ended January 30, 1999,
the unaudited financial statements
for the Company and its
subsidiaries for the most recently
concluded quarterly period, and the
same store comparable sales flash
report for the most recently
concluded monthly period. The
Lenders shall have received pro
forma consolidated financial
statements satisfactory to the
Arranger and the Administrative
Agent with respect to the Company
for the fiscal year ended January
30, 1999 and with respect to the
fiscal quarter ended September 30,
1999 (and each subsequent fiscal
quarter, if any, ending at least 45
days prior to the Closing Date),
reflecting the Recapitalization as
of the beginning of such periods.
7. Consents and Approvals. All
necessary governmental and third
party approvals in connection with
the Facilities, the transactions
contemplated by the Facilities and
otherwise referred to herein shall
have been obtained and remain in
effect, and all applicable waiting
periods shall have expired without
any action being taken by any
applicable authority, and no law or
regulation shall be applicable in
the reasonable judgment of the
Arranger that restrains, prevents
or imposes materially adverse
conditions upon the
Recapitalization or any of the
financings contemplated hereby.
8. Payments of Amounts Due. All costs,
fees, expenses (including, without
limitation, legal fees and
expenses, title premiums, survey
charges and recording taxes and
fees) and other compensation
contemplated hereby payable to the
Arranger, the Administrative Agent
or the Lenders shall have been paid
to the extent due.
9. Capital Structure; Related
Agreements. The corporate structure
of the Company and its
subsidiaries, and all
organizational documents and all
material agreements relating to the
capitalization and corporate
structure of such entities shall be
reasonably satisfactory to the
Arranger.
10. Customary Closing Documents. All
documents required to be delivered
under the definitive financing
documents, including
ANNEX B-10
<PAGE> 17
customary legal opinions, corporate
records and documents from public
officials and officers'
certificates, shall have been
delivered.
11. Recapitalization Structure and
Documentation. The Arranger and the
Administrative Agent shall be
reasonably satisfied with (i) the
structure utilized to consummate
the Recapitalization, (ii) the
final terms and conditions of the
Recapitalization, including without
limitation, the price per share and
number of shares to be acquired,
and (iii) the proposed terms and
conditions of the Recapitalization;
the Arranger and the Administrative
Agent shall be reasonably satisfied
with all legal and tax aspects of
the Recapitalization; all
documentation relating to the
Recapitalization, including,
without limitation, the offer to
purchase the Company's common stock
and the retirement thereof (the
"Offer to Purchase"), shall be in
form and substance reasonably
satisfactory to the Arranger and
the Administrative Agent.
12. Consummation of the
Recapitalization. The acquisition
of the Company's common stock and
the retirement thereof in
connection with the
Recapitalization shall have been
consummated in accordance with the
terms of the Offer to Purchase,
without any waiver, amendment,
supplement or other modification
not consented to by the Arranger
and the Administrative Agent (such
consent not to be unreasonably
withheld or delayed) of any term,
provision or condition set forth
therein, and in compliance with all
applicable laws.
13. Litigation. There shall exist no
action, suit, investigation,
litigation or proceeding pending or
threatened in any court or before
any arbitrator or governmental
instrumentality that (i) could be
reasonably likely to have a
material adverse effect on or
affecting the general affairs,
management, financial position,
shareholders' equity or results of
operations of the Company and its
subsidiaries, or (ii) purports to
affect the Facilities, the
Recapitalization or any of the
other transactions contemplated by
the Facilities.
14. Margin Regulations. All loans made
by the Lenders and all other loans
or extensions of credit made by
other parties to the Company or any
of its affiliates shall be in full
compliance with the Federal
Reserve's Margin Regulations.
15. Solvency. The Company shall have
delivered certificates and letters,
in form and substance satisfactory
to the Arranger and the
Administrative Agent, attesting to
the solvency of the
ANNEX B-11
<PAGE> 18
Company and each Guarantor after
giving effect to the transactions
contemplated hereby, from the
Company's chief financial officer.
16. Use of Proceeds, etc. All proceeds
of the initial borrowing under the
Facilities shall have been used by
the Borrower to finance the
Recapitalization, to pay
transaction costs, to provide
working capital and for general
corporate purposes.
17. Discharge of Existing Debt.
Concurrently with the initial
borrowings under the Facilities, in
connection with the
Recapitalization, all pre-existing
indebtedness (required to be
reflected on a balance sheet) of
the Company and its subsidiaries
(other than (i) permitted
intercompany indebtedness, (ii)
permitted purchase money
indebtedness and capitalized leases
of the Company and its subsidiaries
not in excess of $5 million in
aggregate, and (iii) permitted
industrial revenue bond
indebtedness of the Company and its
subsidiaries not in excess of $40
million in the aggregate) shall
have been repaid or repurchased in
full, all commitments relating
thereto shall have been terminated,
and all liens or security interests
related thereto shall have been
terminated or released, in each
case on terms reasonably
satisfactory to the Arranger and
the Administrative Agent.
CONDITIONS TO ALL BORROWINGS: The conditions to all borrowings will
include requirements relating to prior
written notice of borrowing, the accuracy of
representations and warranties, and the
absence of any default (to be defined in the
Loan Documents) or potential event of
default (to be defined in the Loan
Documents), and will otherwise be customary
and appropriate for financings of this type.
ASSIGNMENTS AND The Lenders may assign all, or in an amount
PARTICIPATIONS: of not less than $5 million (or such lesser
amount as may constitute the assigning
Lender's entire commitment), any part of
their respective shares of the Facilities to
affiliates or one or more banks, financial
institutions or other entities that are
eligible assignees (to be described in the
Loan Documents) which, in the case of
assignments with respect to the Revolving
Facility (other than the case of assignments
made by or to GSCP), are acceptable to the
Administrative Agent, such consent not to be
unreasonably withheld, and upon such
assignment, such affiliate, bank, financial
institution or entity shall become a Lender
for all purposes under the Loan Documents;
provided, assignments made to affiliates and
other Lenders shall not be subject to the
above described consent or minimum
assignment amount requirements. The
Administrative Agent will receive a
processing fee of $2,000 payable by the
assignor or assignee, in connection with
each assignment; provided, for any
ANNEX B-12
<PAGE> 19
assignments made to affiliates, other
Lenders or made by or to GSCP, the
processing fee shall be $500. The Lenders
will also have the right to sell
participations, subject to customary
limitations on voting rights, in their
respective shares of the Facilities.
REQUISITE LENDERS: Lenders holding more than 50% of total
commitments or exposure under the
Facilities, except that (x) any amendment
which would disproportionately affect the
obligation of the Borrower to make payment
of the loans under the Revolving Facility or
the Term Facility shall not be effective
without the approval of holders of more than
50% of such class of loans and (y) with
respect to matters relating to the interest
rates, maturity, amortization, collateral
issues and the definition of Requisite
Lenders, Requisite Lenders will be defined
as Lenders holding 100% of total commitments
or exposure of the Facilities affected
thereby.
TAXES, All payments are to be made free and clear
RESERVE REQUIREMENTS of any taxes (other than franchise taxes and
AND INDEMNITIES: taxes on overall net income), imposts,
assessments, withholdings or other
deductions whatsoever. Foreign Lenders shall
furnish to the Administrative Agent
appropriate certificates or other evidence
of exemption from U.S. federal tax
withholding. The Borrower will indemnify the
Lenders against all increased costs of
capital resulting from reserve requirements
or otherwise imposed, in each case subject
to customary increased costs, capital
adequacy and similar provisions to the
extent not taken into account in the
calculation of the Base Rate or the
Eurodollar Rate.
INDEMNITY: Customary and appropriate provisions
relating to indemnity and related matters in
a form reasonably satisfactory to the
Arranger, the Administrative Agent and the
Lenders.
GOVERNING LAW AND The Borrower and the Guarantors will submit
JURISDICTION: to the non-exclusive jurisdiction and venue
of the federal and state courts of the State
of New York and shall waive any right to
trial by jury. New York law shall govern the
Loan Documents.
ARRANGER'S COUNSEL: Skadden, Arps, Slate, Meagher & Flom LLP
The foregoing is intended to summarize certain basic terms of the Facilities. It
is not intended to be a definitive list of all of the requirements of the
Lenders in connection with the Facilities.
ANNEX B-13
