PAYLESS CASHWAYS INC, DEF 14A, 1994-02-28

PAYLESS CASHWAYS INC
DEF 14A, 1994-02-28
LUMBER & OTHER BUILDING MATERIALS DEALERS

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<PAGE>

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by the registrant /x/

Filed by a party other than the registrant / /

Check the appropriate box:

/ / Preliminary proxy statement

/x/ Definitive proxy statement

/ / Definitive additional materials

/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

PAYLESS CASHWAYS, INC.
(Name of Registrant as Specified In Its Charter)

PAYLESS CASHWAYS, INC.
(Name of Person(s) Filing Proxy Statement)

Payment of filing fee (Check the appropriate box):

/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).

/ / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transactions applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1

(4) Proposed maximum aggregate value of transaction:

1 Set forth the amount on which the filing fee is calculated and state how
it was determined.

<PAGE>

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

<PAGE>
(Letterhead of Payless Cashways, Inc.)

February 25, 1994

To Our Shareholders:

It is my pleasure to invite you to our Annual Meeting. This year it will be
held on Thursday, April 21, at 10:00 a.m., at our corporate offices, located at
2300 Main, 1st Floor, Kansas City, Missouri 64108.

With this letter, you will find the formal notice of the Annual Meeting, our
1993 Annual Report and our Proxy Statement. When you have finished reading the
Proxy Statement, please promptly mark, sign, and return to us the enclosed proxy
card, to insure that your shares will be represented.

We appreciate the continuing interest of our shareholders in Payless Cashways,
Inc., and I look forward to seeing many of you at the Annual Meeting.

Very truly yours,

/s/ David Stanley

David Stanley
Chairman of the Board and Chief Executive Officer
<PAGE> 1
(Letterhead of Payless Cashways, Inc.)
2300 Main
Kansas City, Missouri 64108
_____________________________

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
PAYLESS CASHWAYS, INC.

To Be Held April 21, 1994

To the Shareholders of PAYLESS CASHWAYS, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Payless Cashways, Inc. will be held at 2300 Main, 1st Floor, Kansas City,
Missouri, on Thursday, April 21, 1994, at 10:00 a.m. for the following purposes:

1. To elect four directors to terms of three years each as set forth
in the Proxy Statement.
2. To transact such other and further business as may properly come
before the meeting.

The Board of Directors has fixed the close of business on February 15,
1994, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting.

Dated: February 25, 1994

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Linda J. French

Linda J. French, Senior Vice President - General
Counsel/Secretary

- -------------------------------------------------------------------------------
|You are cordially invited to attend the meeting. However, whether or not you |
|plan to be personally present at the meeting, please date and sign the |
|enclosed proxy and return it promptly in the enclosed envelope. If you later |
|desire to revoke your proxy, you may do so at any time before it is exercised.|
------------------------------------------------------------------------------

<PAGE> 2

GENERAL INFORMATION FOR SHAREHOLDERS

In order to provide every shareholder with an opportunity to vote on all
matters scheduled to come before the Annual Meeting, whether or not the
shareholder attends in person, proxies are solicited from shareholders by the
Board of Directors of Payless Cashways, Inc. ("Payless" or the "Company"). When
the enclosed proxy card is properly executed and returned, the shares
represented will be voted by the persons designated as proxies, in accordance
with the shareholder's directions. Shareholders may vote on a matter by marking
the appropriate box on the card or, if no box is marked for a specific matter,
the shares will be voted as recommended by the Board of Directors on that
matter.

Management knows of no matters other than those set forth on the proxy card
that will be presented for action at the Annual Meeting. Execution of a proxy,
however, confers on each of the persons designated as proxies the discretionary
authority to vote the shares represented in accordance with his and/or her best
judgment on any other business that may properly come before the meeting.

Any shareholder executing a proxy may revoke that proxy or submit a revised
proxy at any time before it is voted. A shareholder may also vote by ballot at
the Annual Meeting, thereby cancelling any proxy previously returned as to any
matter voted on by ballot. A shareholder wishing to name as his or her proxy
someone other than those designated on the proxy card may do so by crossing out
the names of the designated proxies and inserting the name(s) of the person(s)
he or she wishes to have act as his or her proxy. In such a case, it will be
necessary that the proxy be delivered by the shareholder to the person(s) named,
and that the person(s) named be present and vote at the meeting. Proxy cards on
which alternate proxies have been named should not be mailed directly to the
Company.

Holders of the Common Stock, par value $.01 per share, of the Company
("Common Stock") and Series A Cumulative Convertible Preferred Stock, par value
$1.00 per share, of the Company ("Preferred Stock") at the close of business on
February 15, 1994, the record date for the Annual Meeting (the "Record Date"),
are entitled to receive notice of, and to vote at, the Annual Meeting. At the
close of business on such date, a total of 37,445,550 shares of Common Stock and
406,000 shares of Preferred Stock were outstanding. Each share of Common Stock
is entitled to one vote and each share of Preferred Stock is entitled to 5.9994
votes on each matter to be presented at the Annual Meeting. It is expected that
this Proxy Statement and the enclosed form of proxy will be mailed to the
shareholders on or about February 25, 1994.

<PAGE> 3

MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING

1. ELECTION OF DIRECTORS

The Articles of Incorporation and the By-laws of the Company provide
that the business of the Company shall be managed by a Board of
Directors. Pursuant to the Articles of Incorporation, the directors are
divided into 3 classes, designated Class I, Class II and Class III. Each
class consists, as nearly as may be possible, of 1/3 the total number of
directors constituting the entire Board of Directors, which currently
numbers 11. At each Annual Meeting, successors to the class of directors
whose terms expire at that Annual Meeting are elected for a 3-year term.

At the Annual Meeting of Shareholders in 1994, 4 Class I directors are
to be elected. Each of the nominees listed below was recommended by the
Nominating Committee and approved by the Board of Directors. It is the
intention of the persons named as proxies in the accompanying form of
proxy, unless such authority is withheld, to vote for the election of
each nominee set forth below. In order to be elected a Director, a
nominee must receive a majority of the votes cast by the shares entitled
to vote in the election at an Annual Meeting at which a quorum is
present. The abstention or failure to vote shares present at an Annual
Meeting and broker nonvotes do not have the effect of a vote "against" a
nominee.

Each nominee has consented to being named a nominee and has agreed to
serve if elected. In case any nominee is not available for election for
reasons not presently known to the Company, discretionary authority will
be exercised by the proxies named in the enclosed form of proxy to vote
for a substitute selected by the Board of Directors. Information
regarding the nominees is set forth below.

Principal Occupation and
Name Age Five-Year Employment History
---- --- ----------------------------

Harold Cohen.............63 Vice-Chairman of the Board of Payless
First elected a director: from October 1988 until his retirement
1985 in December 1993; Chairman Emeritus of
Somerville Lumber and Supply Co., Inc.
("Somerville") since December 1993;
Chairman of the Board of Somerville from
March 1991 to December 1993; Co-Chairman
of the Board of Somerville from March 1987
to March 1991; and currently a Director of
Somerset Savings Bank and Syratech Corp.

Scott G. Fossel..........41 Vice President of Court Square Capital
First elected a director: Limited and Vice President of Citicorp
1989 Venture Capital Ltd., each an indirect
wholly-owned subsidiary of Citicorp, since
March 1986. Mr. Fossel is a member of the
Audit Committee of Payless' Board of
Directors.

George Latimer...........58 Director, Office of Special Actions,
First elected a director: U. S. Department of Housing and Urban
1993 Development since July 1993; Specialist
Consultant to the U.S. Department of
Housing and Urban Development from
February 1993 to July 1993; Dean of
Hamline University School of Law from
January 1990 to February 1993; Mayor of
St. Paul, Minnesota, from 1976 through
1989; and currently a director of Digital
Biometrics, Inc. and 13 closed-end mutual
funds managed by Piper Capital Management,
a wholly-owned subsidiary of Piper Jaffray
Companies, Inc. Mr. Latimer is a member
of the Audit Committee of Payless' Board
of Directors.

<PAGE> 4

Susan M. Stanton.........45 President and Chief Operating Officer of
First elected a director: Payless since November 1993; Senior Vice
1993 President - Merchandising of Payless from
October 1989 to November 1993; and
Senior Vice President - Development/
Administration of Payless from April 1988
to October 1989. Ms. Stanton is a member
of the Nominating Committee of Payless'
Board of Directors.

Information regarding the 7 directors, who were previously elected and
will continue to serve their terms, is set forth below.

Principal Occupation and
Name Age Five-Year Employment History
---- --- ----------------------------

David Stanley............58 Chairman of the Board and Chief Executive
First elected a director: Officer of Payless since August 1986; and
1969 currently a director of Piper Jaffray
Class III Companies Inc., Digi International, Inc.
and Best Buy Co., Inc. Mr. Stanley is a
member of the Nominating Committee of
Payless' Board of Directors.

Larry P. Kunz............59 Consultant of Payless since November 1993;
First elected a director: President and Chief Operating Officer
1986 of Payless from August 1986 to November
Class II 1993; and currently a director of Sprouse
-Reitz Stores, Inc. and Chromcraft
Revington, Inc.

Gary D. Rose.............48 General Partner of The Goldman Sachs
First elected a director: Group, L.P., since December 1989;
1985 and General Partner of Goldman Sachs
Class II & Co. ("Goldman Sachs") since November
1984. Mr. Rose is Chairman of the
Compensation Committee and a member of the
Nominating Committee of Payless' Board of
Directors.

Wayne B. Lyon............61 President and Chief Operating Officer
First elected a director: of Masco Corporation ("Masco") since
1988 August 1985; and currently a director
Class III of Masco, Comerica, Incorporated, and
Formica Corporation. Mr. Lyon is Chairman
of the Audit Committee and a member of
Compensation and Nominating Committees of
Payless' Board of Directors.

Ralph Strangis...........57 Member of the law firm of Kaplan,
First elected a director: Strangis and Kaplan, P.A. for more than
1983 (to 1988); five years; and currently a director
1993 of National Presto Industries, Inc.,
Class III UAL Corporation, Life USA Holding, Inc.,
Damark International, Inc. and TCF
Financial Corporation. Mr. Strangis is
the Chairman of the Nominating Committee
and a member of the Compensation Committee
of Payless' Board of Directors.

John H. Weitnauer, Jr....67 Chairman and Chief Executive Officer of
First elected a director: Richway, a mass merchandising division
1993 of Federated Department Stores, Inc. from
Class II 1980 until his retirement in 1986; and
currently a director of John H. Harland
Co., and Goody's Family Clothing, Inc.
Mr. Weitnauer is a member of the Audit
Committee and Compensation Committee of
Payless' Board of Directors.

William A. Hall..........48 Assistant to the Chairman of Hallmark
First elected a director: Cards, Inc. for more than five years;
1993 and currently a director of AgriStar, Inc.
Class II and Mercantile Bank Corporation. Mr. Hall
is a member of the Audit Committee of
Payless' Board of Directors.

<PAGE> 5

During 1993, there were 6 regular meetings and 2 special meetings of the
Board of Directors. During 1993, each director who served the entire year
attended more than 75% of all meetings of the Board of Directors and of the
Committees on which he served and each Director elected within the year attended
more than 75% of all meetings of the Board of Directors and of the Committees on
which he or she served subsequent to his or her election. In addition to
attending Board of Directors and Committee meetings during the year, the
directors conferred with officers regarding corporate matters and reviewed
material submitted by management to the Board of Directors and Committees for
consideration and action.

COMMITTEES OF THE BOARD

The Board has 3 standing committees. Their functions are described below:

AUDIT - The Audit Committee monitors and reviews the adequacy of
financial, operating and system controls, financial reporting, compliance with
legal, ethical and regulatory requirements, and the performance of the external
and internal auditors, serving as the conduit for communication between the
Board of Directors and external and internal auditors. Additionally, the Audit
Committee recommends to the Board of Directors the independent public
accountants to conduct the annual examination of financial statements, and
reviews the proposed scope and fees of the examination, as well as its results,
and any significant, non-audit services and fees. The Audit Committee met 2
times during 1993. Members of the Audit Committee are Wayne B. Lyon, Chairman;
Scott G. Fossel; George Latimer; John H. Weitnauer, Jr.; and William A. Hall.

COMPENSATION - The Compensation Committee reviews the compensation (wages,
salaries, supplemental compensation and benefits) of the employees of the
Company, including approval of compensation and benefit policies, approval of
direct and indirect officer compensation, administration of stock programs, and
oversight of the Company's executive development plan, and makes recommendations
to the Board of Directors regarding compensation and benefits for directors.
The Compensation Committee met 8 times during 1993. Members of the Compensation
Committee are Gary D. Rose, Chairman; Wayne B. Lyon; Ralph Strangis; and John H.
Weitnauer, Jr.

NOMINATING - The Nominating Committee reviews the size, composition and
effectiveness of the Board of Directors, including retention, tenure and
retirement policies, criteria for selection of nominees to the Board of
Directors, qualifications of candidates, membership and structure of Board
Committees, and developments in corporate governance generally. The Nominating
Committee met 2 times during 1993. Members of the Nominating Committee are
Ralph Strangis, Chairman; David Stanley; Susan M. Stanton; Gary D. Rose; and
Wayne B. Lyon.

COMPENSATION OF DIRECTORS

The Company pays each non-employee director (i) an annual directors' fee
of $25,000, payable quarterly, (ii) $1,000 for each meeting of the Board of
Directors attended by the director and (iii) $1,000 for each Committee meeting
attended by the director on days when the Board of Directors as a whole is not
meeting. Committee chairmen are paid an additional annual fee of $1,500.

The Company has also adopted the Payless Cashways Director Option Plan for
non-employee directors (the "Director Option Plan"), for the purpose of
attracting and retaining outstanding individuals as directors and to provide
them with an equity interest in the Company. Participants consist solely of the
members of the Company's Board of Directors who are not full-time employees of
the Company or its subsidiaries. Under the Director Option Plan, which has a
term of not more than 10 years, each non-employee director is granted an option
of $100,000 worth of the Company's Common Stock, valued on the date on which the
director is first elected, for an aggregate exercise price of $100,000. In
addition, each non-employee director will be granted an option to purchase 1,000
shares of Common Stock on the date immediately following the Company's Annual
Meeting so long as such non-employee director continues to serve on the
Company's Board of Directors. The exercise price for the annual options will be
the fair market value of the Company's Common Stock on the date of grant.
Options granted under the Director Option Plan may be exercised six months and
one day after the grant date and expire on the earlier of (a) 10 years after the
date of grant, or (b) 1 year after the date on which the director ceases to be a
member of the Company's

<PAGE> 6

Board of Directors. An aggregate of 350,000 shares of Common Stock are reserved
for issuance under the Director Option Plan, which number is subject to
adjustment i) automatically if the Company issues shares of Common Stock without
consideration and ii) by the Board of Directors if other equitable adjustments
are deemed appropriate after changes in the Common Stock resulting from
reorganization, sale, merger, consolidation or similar occurrence.

The Director Option Plan is administered by the Board of Directors of the
Company which has the authority to amend the plan, terminate the plan, interpret
the plan, prescribe, amend and rescind rules and regulations relating thereto,
and make all other determinations necessary or advisable for the administration
of the plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Members of the Compensation Committee of the Company's Board of Directors
during 1993 were: Gary D. Rose, Chairman; Wayne B. Lyon; John H. Weitnauer, Jr.;
and Ralph Strangis. The law firm of Kaplan, Strangis and Kaplan, P.A., of which
Mr. Strangis is a member, was retained by and rendered services to the Company
in 1993, for an amount which was not greater than 5% of the Company's or the
firm's annual gross revenues. The firm has also been retained by and will
render services to the Company in 1994. Mr. Rose is a general partner of
Goldman Sachs. During 1993, Payless retained Goldman Sachs for investment
banking services on customary terms and paid customary fees for those services,
the amount of which was not greater than 5% of the Company's or Goldman Sachs'
annual gross revenues. Goldman Sachs will also render investment services to
the Company in 1994. Mr. Lyon is President and Chief Operating Officer of
Masco. In 1988, Payless entered into a Supply Agreement with Masco, as a
preferred supplier for certain products. The Supply Agreement expires on
December 31, 1995 but will be automatically extended for a one-year period for
each succeeding year after December 31, 1995, unless sooner terminated by either
party by written notice to the other party delivered at least 180 days prior to
the end of each succeeding year. During 1993, Payless' purchases from Masco
were not greater than 5% of either Payless' or Masco's annual gross revenues.
Payless will make purchases from Masco in 1994. Payless believes that the terms
and conditions of its relationships with each of Kaplan, Strangis and Kaplan,
P.A., Goldman Sachs and Masco are as favorable as those that could have been
obtained from arm's-length negotiations with unassociated third parties.

<PAGE> 7

PERFORMANCE GRAPH

The graph set forth below compares the percentage change in cumulative
shareholder return of the Company's Common Stock, from March 9, 1993 (the date
the Company commenced its initial public offering of Common Stock) to November
27, 1993 (the Company's fiscal year end), against the cumulative return of the
Standard and Poor's Composite 500 Stock Index ("S&P 500") and the Standard and
Poor's Specialty Retail Index ("S&P Retail Index") covering the same time
period. The graph is based on $100 invested on March 9, 1993, in the Company's
Common Stock, the S&P 500 and the S&P Retail Index, each assuming dividend
reinvestment. The historical stock price performance shown on this graph is not
necessarily indicative of future performance.

Measurement Period
(03/10/93 and 11/30/93) S&P 500 S&P Retail Payless

At November 27, 1993, the value of $100 invested on March 9, 1993 was
$92.27 for the Company, $105.66 for the S&P Retail Index and $102.94 for S&P
500.

<PAGE> 8

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors is composed entirely
of directors who are not executive officers of the Company. The Committee is
responsible for establishing and administering the policies which govern the
compensation program for executive officers of the Company, including cash
compensation, stock plans and all other benefit programs.

The Compensation Committee believes that it is in the best interest of the
shareholders of the Company to attract, retain and motivate top quality
management personnel, especially its executive officers, by offering a
competitive compensation package that establishes a relationship between
executive pay and shareholder value.

The Committee reviews its executive officer compensation practices each
year and regularly retains an independent, executive compensation consulting
firm. Every two or three years, the Committee engages the firm to conduct a
formal study to determine whether the Company's compensation program is
competitive with executive compensation programs of comparable companies
(including building supply companies, similarly-sized companies, other retail
companies, and highly leveraged companies, one company of which is included in
the S&P Retail Index) and national industry data obtained from national
compensation surveys in which the Company annually participates, including an
annual retail compensation study published by the executive compensation
consulting firm. In years in which a formal study is not completed, the prior
study is updated based on a survey of retail compensation trends published by
the executive compensation consulting firm, published wage and salary surveys,
and inflation indices. The Committee annually reviews the performance of all
executive officers of the Company and approves base annual salary, bonus
opportunity and stock incentives, if any.

The Committee administers an executive compensation program which has been
designed to achieve the objectives described above. It consists of three basic
elements: annual base salary, annual incentive opportunity and long-term
incentive awards.

ANNUAL BASE SALARY

The Compensation Committee believes that annual base salaries for the
Company's executives should be maintained at levels which are competitive with
salaries at comparable companies. As a result, the Committee has established a
policy to set annual base salaries at approximately the 50th percentile of
annual base salaries for executives in similar positions at comparable
companies. Prior to the beginning of each fiscal year, the Committee reviews
the base salaries and performance of executive officers, compares base salaries
against the comparable companies and determines base pay adjustments, as
appropriate. The performance criteria used by the Compensation Committee
includes reporting responsibilities of each officer and corporate performance in
terms of the Company's sales, income, operations, expansion and similar factors.
The Compensation Committee does not employ any specific weighting of the
performance criteria and application of the criteria is also dependent upon the
position of the particular officer. When the Company entered into the
employment agreements with executive officers (discussed following the Summary
Compensation Table), the base annual salaries under the agreements were
established consistent with this criteria.

ANNUAL INCENTIVE CASH BONUS

Annual incentive bonus opportunities are established by the Committee and
predicated upon the Company's annual performance measured by attainment of
established levels of earnings before interest, taxes and depreciation
("EBITD"). Eligible employees, including executive officers, are entitled to
receive 100% of their incentive targets only if the Company achieves 100% of the
EBITD target. Based on the Company's payout schedule, participants may receive
50% of their target incentive for attainment of 90% of the EBITD target, and as
much as 150% of the incentive target for attainment of 110% of the EBITD target.
No incentives are paid if the Company fails to achieve a minimum of 90% of the
EBITD target. Incentive levels are set for eligible employees, including
executive officers, based on salary grade. Total cash compensation (base salary
plus annual incentive) for executive officers is intended to exceed the
Company's established competitive levels (50th percentile of base salaries and
incentives for executives in similar positions at comparable companies) when
superior performance levels are achieved, i.e., performance which exceeds 100%
EBITD. For the purpose of determining the achievement of the performance
levels, the

<PAGE> 8

Committee has the authority in its discretion to adjust the actual EBITD results
to eliminate or reduce the effect of unanticipated or non-recurring charges,
events or transactions such as special financing expenses or restructuring
charges which were not taken into account in determining the EBITD target and
which the Committee believes should be eliminated or reduced to reflect the
ongoing performance of the Company. For 1993, eligible employees, including the
executive officers, were paid bonuses at 75% of the bonus target, based on
attainment of 95% of the EBITD target, even though the actual EBITD was slightly
below that level because the Committee reduced in part the effect on actual
EBITD of a non-recurring, fourth quarter special charge related to a store
management reorganization.

LONG-TERM STOCK INCENTIVE PROGRAM

The Committee believes that it is essential for management employees,
especially executive officers, to own significant amounts of Common Stock,
thereby aligning the long-term interests of management with those of
shareholders. The long-term stock incentive program is also intended to provide
a means of attracting and retaining outstanding individuals as management
employees and executive officers of the Company.

Long-term stock incentives are awarded pursuant to the Payless Cashways
1992 Incentive Stock Program, which was approved by the Company's shareholders
in July 1992. In June 1993, with the advice of the Company's independent
executive compensation consulting firm, the Committee adopted incentive stock
program guidelines, which provide for annual grants of stock options to
approximately 1,300 management employees, including the executive officers, and
annual restricted stock awards to officers of the Company. It is anticipated
that stock option grants will be made annually during the four-year period 1993-
1996 and that restricted stock awards will be made annually during the five-year
period 1994-1998. One objective of the program and the guidelines is to provide
each executive employee with significant value in the Company's Common Stock,
based on a projected stock price at the end of the grant program in relation to
the employee's expected, aggregate cash compensation during the term of the
program.

Stock option grants are the main element of the Company's long-term stock
incentive program. With respect to stock option grants to participating
executive officers, the program and the guidelines are intended to provide the
opportunity to obtain Common Stock, from annual option grants during 1993-1996,
having a value (based on a targeted stock price) approximately equal to 50% of
their expected, aggregate cash compensation during the five-year period 1993-
1997. The targeted stock price is calculated based upon a projection of future
net income and, therefore, earnings per share. This is combined with a
projected increase in the Company's stock price-to-earnings multiple from its
level in 1993 to a projected level of the S&P 500 in the year 2000. Stock option
incentives are also intended to be provided to all the other participating
management employees (except those reporting to a store director or store
manager), having a value (based on a targeted stock price) approximately equal
to 12% to 40%, depending upon management level, of aggregate cash compensation
expected during the 1993-1997 period. A stock option incentive for an
equivalent, smaller number of shares, not related to compensation, is also
expected to be granted to each participating management employee reporting to a
store director or store manager. The Committee will review the program
guidelines for stock options annually and may make adjustments determined to be
necessary to meet the long-term objectives of the program. The annual stock
option grants are subject to the discretion of the Committee.

In June 1993, pursuant to the program guidelines, the Committee granted to
each eligible employee, including executive officers, 40% of their allocated
portion of the shares subject to stock options under the program. In each of
June 1994, 1995, and 1996, the Committee expects to grant 20% of the shares
subject to stock options under the program to each eligible employee, including
executive officers. The exercise price of the option grants will be 100% of
fair market value of the Common Stock on the date of grant. Stock options are
generally subject to a four-year vesting schedule from the date of grant, with
25% of the grant vesting on each of the four anniversaries of the grant date.

Restricted stock awards comprise the remaining part of the long-term stock
incentive program. Each officer of the Company will have the opportunity to
receive an annual restricted stock award during the period 1994-1998 based on
the extent of achievement of the previous year's specified EBITD target and
actual, annual incentive cash bonus paid as discussed in the previous section of
this Report. The maximum number of restricted shares to be

<PAGE> 9

available annually to the officers under the program equals the aggregate annual
incentive cash bonuses earned by the officers for the preceding year divided by
the targeted stock price (as defined above). The Committee determines whether
awards will be made to the officers from the annual pool of restricted stock and
allocates the awards among the executive officers in its sole discretion. The
factors which the Committee considers in making allocations include the
performance of each individual officer in his or her position and their
contribution to the performance of the Company in terms of sales, income,
operations, expansion and similar factors. The Compensation Committee does not
employ any specific weighting of the performance criteria and application of the
criteria is also dependent upon the position of the particular officer.

In addition, in 1993, the Committee granted options under the 1992
Incentive Stock Program to three executive officers, including two executive
officers named in the Summary Compensation Table, in connection with entering
into new employment agreements with them as incentives for the executives to
remain with the Company. Also, the Committee considers the grant of additional
options when an officer is promoted, to reflect the additional contribution
which the executive can have to the Company's performance in his or her new
position and the amount of options which have historically been provided to an
officer in such a position. These grants are described in the last two
paragraphs under "Compensation of Other Named Officers" in this Report.

CHIEF EXECUTIVE OFFICER COMPENSATION

The Compensation Committee determines Mr. Stanley's compensation as Chief
Executive Officer using the criteria described above. Based on performance
relating to (i) the Company's income, sales, operations, expansion and similar
factors, (ii) management of the strategic direction of the Company, (iii)
development of senior executives (which performance criteria are not subject to
any specific weighting by the Compensation Committee) and the 50th percentile of
annual base salaries for executives in similar positions at comparable
companies, the Committee determined that Mr. Stanley's annual base salary
should be increased to $600,000 for 1993 from $565,000 in 1992. In addition,
Mr. Stanley received an annual incentive cash bonus of $180,000 for 1993 under
the annual incentive cash bonus plan, described above. The Committee also
awarded Mr. Stanley a non-qualified stock option on 35,200 shares in June 1993
as the first annual stock option grant under the long-term stock incentive
program described above. These compensation elements for 1993 are reflected in
the "Summary Compensation Table". On February 17, 1994, the Committee awarded
Mr. Stanley 5,000 shares of restricted stock pursuant to the stock program.

COMPENSATION FOR THE OTHER NAMED OFFICERS

Certain other executive officers, named in the Summary Compensation Table,
received base salary increases which were consistent with the Committee's
objective of maintaining annual base salaries at approximately the 50th
percentile of annual base salaries for executives in similar positions at
comparable companies. Mr. Kunz's annual base salary for 1993 was increased to
$455,000 in 1993 from $425,000 in 1992. The annual base salaries for Ms.
Stanton and Mr. Butler were increased to $240,000 for 1993 from $225,000 for
1992. In addition, the other named executive officers received bonuses under
the annual incentive cash bonus plan at 75% of the bonus opportunity based on
the adjusted EBITD target, described above. The cash bonuses awarded for 1993
were $136,500 for Mr. Kunz, $127,500 for Mr. Cohen, $59,400 for Ms. Stanton and
$59,400 for Mr. Butler. As the first annual grant under the long-term stock
incentive program, the following non-qualified stock options were granted to the
other named executives: 26,400 shares to Mr. Kunz; 12,450 shares to Ms.
Stanton; and 12,450 shares to Mr. Butler. These compensation elements for 1993
are reflected in the "Summary Compensation Table." On February 17, 1994, the
Committee awarded 3,900 shares to Ms. Stanton and 2,400 shares to Mr. Butler of
restricted stock pursuant to the stock program.

In January 1993, the Company entered into employment agreements with three
executive officers, including Ms. Stanton and Mr. Butler, as a result of the
Committee's belief that it was in the Company's best interests to retain and
motivate these executives and to recognize their special contributions to the
Company. As partial consideration, Ms. Stanton and Mr. Butler were each granted
stock options on 25,000 shares at $12 per share, which options vest as follows:
2,500 shares on March 1, 1994; 5,000 shares on March 1, 1995; 7,500 shares on
March 1, 1996; and 10,000 shares on March 1, 1997. For a description of the
employment agreements, see the discussion following the "Summary Compensation
Table".

<PAGE> 10

At the beginning of fiscal year 1994, Ms. Stanton succeeded Mr. Kunz as
President and Chief Operating Officer of the Company. Consistent with the
Committee's policy of establishing base annual salary and awarding incentive
compensation based upon the executive's position, Ms. Stanton's annual base
salary was increased to $400,000 and she received a stock option award for
13,950 additional shares of Common Stock at $14.375 per share, with the
following vesting schedule: 3,487 shares on December 15, 1994; 3,487 shares on
December 15, 1995; 3,488 shares on December 15, 1996; and 3,488 shares on
December 15, 1997.

OTHER INFORMATION

Regulations under Section 162(m) of the Internal Revenue Code, regarding
the annual deduction limitation of $1 million on the compensation of certain
executive officers of publicly held corporations, do not apply to the 1994
fiscal year of the Company which began prior to January 1, 1994. During this
year, however, the Compensation Committee will review compensation policies,
plans and arrangements to determine whether any proposals should be submitted to
shareholders for approval at the Annual Meeting of Shareholders in 1995.

The Compensation Committee:

Gary D. Rose - Chairman
Wayne B. Lyon
Ralph Strangis
John H. Weitnauer, Jr.

<PAGE> 11

SUMMARY COMPENSATION TABLE

The following table details the compensation of the Company's named
executive officers who held the positions listed during each of the last three,
completed fiscal years:

ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ ----------------------

Awards
-----------------

(a) (b) (c) (d) (e) (f) (g) (i)

Name and Other Annual Restricted Options/ All Other
Principal Position Year Salary ($)(1) Bonus ($) Compensation ($)(2) Stock Awards ($)(3) SARs(#) Compensation ($)(4)
- ------------------ ---- ------------- --------- ------------------- ------------------- -------- -------------------

<S> <C> <C> <C> <C> <C> <C> <C>
David Stanley - 1993 600,000 180,000 10,262 -- 35,200 --
Chairman of the Board & 1992 565,000 226,000 72,027 -- 33,496 3,326
Chief Executive Officer 1991 585,192 226,000 3,216 -- 4,915 3,230

Larry P. Kunz - 1993 490,000 136,500 -- -- 56,400 --
President, 1992 425,000 170,000 47,878 -- 16,247 3,326
Chief Operating Officer 1991 421,923 160,000 -- -- 3,440 3,159
and Director

Harold Cohen - 1993 425,000 127,500 26,514 -- -- --
Vice-Chairman of the 1992 425,000 170,000 62,641 -- 10,827 --
Board; and Chairman of 1991 400,000 160,000 10,764 -- 2,458 --
the Board of Somerville

Susan M. Stanton - 1993 240,000 59,400 6,897 -- 37,450 --
Senior Vice President - 1992 225,000 89,250 86,622 -- 8,326 3,326
Merchandising 1991 211,250 67,375 2,144 -- 2,293 3,102

Ronald H. Butler - 1993 244,615 59,400 -- -- 37,450 7,139
Senior Vice President - 1992 225,000 74,250 22,166 -- 3,300 20,082
Store Operations 1991 38,942 35,000 -- 50,000 22,000 5,178

<FN>

(1) Salaries for 1991 reflect a 53-week fiscal year versus a 52-week year for 1992 and 1993. Mr. Kunz's 1993 salary includes base
annual salary of $455,000 plus $35,000 cash in lieu of vacation. Mr. Butler's 1993 salary includes base annual salary of
$240,000 plus $4,615 cash in lieu of vacation.

(2) For 1993 other annual compensation includes above-market interest earnings under the Wealth-Op Deferred Compensation Plan:
$10,262 for Mr. Stanley, $26,514 for Mr. Cohen and $6,897 for Ms. Stanton.

For 1992 other annual compensation includes tax reimbursement related to restricted stock vesting: $66,579 for Mr. Stanley,
$47,878 for Mr. Kunz, $47,469 for Mr. Cohen, $82,869 for Ms. Stanton and $22,166 for Mr. Butler. Above-market interest
earnings under the Wealth-Op Deferred Compensation Plan were $5,448 for Mr. Stanley, $15,172 for Mr. Cohen and $3,753 for Ms.
Stanton.

For 1991 other annual compensation includes above-market interest earnings under the Wealth-Op Deferred Compensation Plan:
$3,216 for Mr. Stanley, $10,764 for Mr. Cohen and $2,144 for Ms. Stanton.

The Wealth-Op Deferred Compensation Plan is a non-qualified deferred compensation plan which allows certain employees to elect
to defer compensation for a period of four or eight years. The Plan provides for interest to be credited to deferred amounts
at a bench-mark rate established in the Plan. Mr. Stanley

<PAGE> 12

deferred compensation into the Plan during 1993 in the amount of $2,999.05. None of the other named officers deferred
compensation under the Plan in 1993.

(3) There was no established trading market for Payless' Common Stock prior to March 15, 1993. Therefore, the most recent fair
market value for Common Stock (as of May 25, 1991) as determined by an independent investment banking firm was used for 1991
grants. This valuation was made according to the terms of a Shareholders' Agreement, dated August 1988, among the Company and
its then-existing shareholders, and, as such, did not take into consideration any transfer restrictions contained in such
agreement. Mr. Butler's 1991 restricted stock grant vested in October 1992.

Dividends will be payable on the shares if and to the extent paid on Payless' Common Stock generally. None of the listed
individuals held restricted stock at the end of 1993.

(4) Other compensation for 1993 consists of a $7,139 trip award for Mr. Butler. Employee Savings Plan contributions for Mr.
Stanley, Mr. Kunz, Ms. Stanton and Mr. Butler have not yet been determined for 1993.

</TABLE>

David Stanley, Susan M. Stanton and Ronald H. Butler (the "Executives")
have entered into employment agreements (the "Employment Agreements") with
Payless. The term of the Employment Agreement for Mr. Stanley expires on
December 1, 1995 and for each of Ms. Stanton and Mr. Butler on March 1, 1997,
including a 1-year extension period which is automatic unless either the
Executive or Payless gives prior notice of non-renewal. Upon an Executive's
termination of employment by Payless "without cause" or by the Executive for
"cause" (as such terms are defined in the respective Employment Agreements), the
Executive will be entitled to receive (i) base salary regardless of death or
disability of the Executive until the scheduled expiration date of the
Employment Agreement, (ii) unpaid Incentive Compensation (as defined in the
Employment Agreement) for any previous year and the average of the Executive's
Incentive Compensation during the 2 years immediately preceding the year in
which the Executive is terminated, multiplied by a fraction, the numerator of
which is the number of months remaining in the Employment Agreement after the
end of the year for which the Executive's Incentive Compensation has been
determined and the denominator of which is 12, (iii) continuation of
substantially similar health, life and disability insurance to that which the
Executive had been receiving immediately prior to termination for a period equal
to the longer of the Executive's Employment Agreement and the period during
which the Executive otherwise would have received such benefits at Payless'
expense, and (iv) benefits under each of Payless' pension plan and Payless'
Supplemental Retirement Plan (defined below), at the time the Executive reaches
(or would have reached) the earliest retirement age in effect as of the date of
the Executive's Employment Agreement under each such plan in effect immediately
prior to the date of termination in the case of Mr. Stanley or, in the case of
Ms. Stanton or Mr. Butler, benefits under such plans will be computed as if the
Executive's employment continued through the term of her or his Employment
Agreement. Also, under Mr. Stanley's Employment Agreement, all options granted
pursuant to the 1988 Payless Cashways, Inc. Employee Stock Plan shall remain
exercisable during the Executive's lifetime until their normal expiration date
(without regard to termination) or, if the Executive dies before such normal
expiration date, then until the earlier of such normal expiration date or the
date which is one year after death; and, under Ms. Stanton's and Mr. Butler's
Employment Agreements, all options and restricted stock grants shall continue to
vest and be exercisable in accordance with their respective terms as if the
Executive continued to be employed until the scheduled expiration date of the
Employment Agreement (regardless of the death or disability of the Executive
subsequent to the date of termination of employment) and, from March 1, 1997 to
April 30, 1997, each Executive shall be entitled to put to the Company, for
$4.00 per share, all or any unexercised portion of the option granted pursuant
to the Employment Agreements, upon the occurrence of certain events including
employment on March 1, 1997 and the termination of employment prior to March 1,
1997. In addition, the Employment Agreements for Mr. Stanley, Ms. Stanton and
Mr. Butler permit the Executive to terminate her or his employment within a
specified period immediately following the first anniversary of a "Change of
Control" (as defined in their respective Employment Agreements) and receive the
same benefits as a termination by the Company without cause as described above;
provided, however, that all of Mr. Stanley's stock options and restricted stock
grants shall continue to vest or be earned and be exercisable in accordance with
their respective terms as if the Executive continued to be employed until the
scheduled expiration of Mr. Stanley's Employment Agreement (regardless of death
or disability of the Executive subsequent to the date of termination of
employment), and further provided that, in the event that any payment or benefit
to be received as a result of termination following a Change of Control would
constitute a

<PAGE> 13

"parachute payment" within the meaning of Section 280G (or any similar or
successor provision) of the Internal Revenue Code of 1986, as amended (the
"Code"), and would be subject to excise tax pursuant to Section 4999 of the
Code, such payment or benefit shall be reduced so that no portion thereof would
be subject to excise tax.

During 1993, Larry P. Kunz was party to an employment agreement with
Payless, the terms of which were the same as those described above for the
Employment Agreement of Mr. Stanley. On September 22, 1993, Mr. Kunz entered
into an employment agreement (the "1993 Agreement") which replaced the prior
employment agreement. The term of the 1993 Agreement commenced on December 1,
1993 and will continue through December 1, 1995. The 1993 Agreement provides
that, upon Mr. Kunz's termination by the Company "without cause" or by him for
"cause", Mr. Kunz will be entitled to receive (i) Base Salary and incentive
compensation (as provided in the 1993 Agreement) regardless of his death or
disability until the scheduled expiration date of the 1993 Agreement; (ii)
continuation of substantially similar health, life and disability insurance,
which Mr. Kunz was receiving or entitled to receive immediately prior to the
date of termination, until December 1, 1995 or the period during which Mr. Kunz
otherwise would have received such benefits at Payless' expense, whichever is
longer; and (iii) benefits under Payless' pension plans as if Mr. Kunz
continued to be employed through December 1, 1995. Also, Restricted Stock and
Stock Options grants previously granted to Mr. Kunz will continue to vest under
the terms of the various grant agreements until December 1, 1995. Mr. Kunz was
vested under the Supplemental Retirement Plan effective November 30, 1993.

During 1993, Harold Cohen was party to an employment agreement with
Payless, the terms of which were the same as those described above for the
Employment Agreement of Mr. Stanley. On November 14, 1993, Mr. Cohen executed
an agreement with the Company and Somerville providing for his retirement from
Somerville and the Company, effective December 31, 1993, and terminating his
prior employment agreement. Pursuant to the agreement, Mr. Cohen will receive
(i) health insurance benefits to which he had been entitled (including dependent
coverage) from January 1, 1994 to April 30, 1996 and (ii) a gross dollar
amount sufficient to net the amount of Payless' or Somerville's share of the
annual premiums for health insurance coverage in 1994, 1995 and through April
30, 1996. Also, all vested and exercisable Stock Options remain exercisable
through February 28, 1996. Pursuant to his retirement, Mr. Cohen resigned as
Vice Chairman of the Board of Directors and an officer of the Company and also
as Chairman of the Board of Directors and an officer of Somerville. Effective
December 31, 1993, Mr. Cohen was elected Chairman Emeritus of Somerville.

<PAGE> 14

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
----------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)

% of Total Options/
Options SARs Granted to Exercise or Base Expiration
Name Granted (#)(1) Employees in FY Price ($/share)(2) Date 5% ($) 10% ($)
- --------------- -------------- ------------------ ------------------- ---------- ------ -------

<S> <C> <C> <C> <C> <C> <C>
David Stanley 35,200 2.4% 12.25 06/23/03 271,744 685,696

Larry P. Kunz 30,000 2.1% 12.00 02/08/03 226,800 572,400
26,400 1.8% 12.25 06/23/03 203,808 514,272

Harold Cohen -- -- -- -- -- --

Susan M. Stanton 25,000 1.7% 12.00 02/08/03 189,000 477,000
12,450 0.9% 12.25 06/23/03 96,114 242,526

Ronald H. Butler 25,000 1.7% 12.00 02/08/03 189,000 477,000
12,450 0.9% 12.25 06/23/03 96,114 242,526

<FN>

(1) All options are rights to buy Common Stock of the Company. The 30,000 options granted to Mr. Kunz are subject to a three-year
vesting schedule from December 1, 1993, with 20%, 30% and 50%, respectively, of the grant vesting on each of the three vesting
dates. The 25,000 options granted to Ms. Stanton and Mr. Butler are subject to a four-year vesting schedule from March 1,
1993, with 10%, 20%, 30% and 40%, respectively, of the grant vesting on each of March 1, 1994, 1995, 1996 and 1997. The other
options listed are subject to a four-year vesting schedule from the date of grant (June 23, 1993), with 25% of the grant
vesting on each of the four anniversaries of the grant date. Other aspects of the Plan are described in the section entitled
"Plans Maintained by the Company".

(2) Before March 15, 1993, there was no established trading market for Payless' Common Stock. The $12.00 Exercise Price
represented the fair market value for Common Stock as determined by the Compensation Committee after consultation with
investment banking advisors to the Company. The $12.25 Exercise Price is equal to the fair market value of the Company's
Common Stock on the date of grant.
</TABLE>

<PAGE> 15

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>

Number of Unexercised Options/ Value of Unexercised In-the-Money
SARs at FY-End (#) Options/SARs at FY-End ($)
(a) (d) (e)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- --------------- ------------------------ -------------------------

<S> <C> <C>
David Stanley 256,805/ $1,765,616/
35,200 39,776

Larry P. Kunz 124,564/ 690,310/
56,400 71,232

Harold Cohen 83,008/ $ 434,109/
0 --

Susan M. Stanton 63,836/ $ 264,307/
37,450 48,569

Ronald H. Butler 25,300/ $ 78,914/
37,450 48,569

<FN>
No options were exercised in 1993 by the above-named individuals.
</TABLE>

<PAGE> 16

RETIREMENT PROGRAM

PENSION BENEFITS

Payless maintains a non-qualified supplemental pension plan for executive
officers, the Payless Supplemental Retirement Plan (the "Supplemental Retirement
Plan"), which provides benefits that would otherwise be denied participants in
the Retirement Plan (defined below) by reason of certain Internal Revenue Code
limitations on qualified plan benefits. Mr. Stanley, Mr. Kunz, Mr. Cohen, Ms.
Stanton and Mr. Butler are participants in the Supplemental Retirement Plan.
The estimated annual benefits payable under both the Retirement Plan and the
Supplemental Retirement Plan, based on 10 years or more of credited service and
at different levels of remuneration, are as follows:

<TABLE>
<PAGE> 17

Annual Benefits
Exclusive of Social
Security Benefits
Annual (for participants
Pre-Retirement with 10 or more
Earnings years of service
-------------- ------------------

The remuneration covered by the Supplemental Retirement Plan is the final
5-year average total cash remuneration, including salary, bonus (both as
reported in the Summary Compensation Table) and other cash amounts which would
have been reported on Treasury Form W-2. As of the end of the last fiscal year,
years of service credited pursuant to the Supplemental Retirement Plan are as
follows: Mr. Stanley 13, Mr. Kunz 10, Mr. Cohen 10, Ms. Stanton 8 and Mr.
Butler 2.

The Payless Cashways Amended Retirement Plan ("Retirement Plan") is a
defined benefit plan under which the annual pension benefits payable to
employees, including officers, upon social security retirement age are based
upon both service credit prior to December 1, 1989, and service after December
1, 1989. The normal retirement benefit for service prior to December 1, 1989,
is the greater of the 1) product of (i) 1.25% of average compensation (the
average for the five calendar years ending December 31, 1983), plus .9% of that
average annual compensation in excess of the individual's "covered compensation"
(a particular dollar amount which increases depending on the

<PAGE> 18

year of birth to 1950), multiplied by (ii) the number of years and fractional
years of benefit service prior to December 1, 1983, or 2) the product of (i) 1%
of average annual compensation (the average for calendar years 1986, 1987 and
1988), plus .5% of that average annual compensation in excess of the
individual's "covered compensation" (a particular dollar amount which increases
depending on the year of birth to 1950), multiplied by (ii) the number of years
of benefit service prior to December 1, 1989. The normal retirement benefit for
each year and fractional year of benefit service subsequent to December 1, 1989,
is the sum (a) 1% of annual compensation for the year, plus (b) an additional
.5% of annual compensation in excess of the "covered compensation" for the year.
Benefits from the Retirement Plan are included in the annual benefits listed in
the table above.

As of the end of the last fiscal year, years of service credited pursuant
to the Retirement Plan are as follows: Mr. Stanley 14, Mr. Kunz 10, Ms. Stanton
11 and Mr. Butler 2. Benefits shown are computed as a straight single life
annuity beginning at age 62 and have been reduced for Social Security benefits.

Somerville also maintains a retirement plan (the "Somerville Plan"), of
which Mr. Cohen is a participant. The estimated annual benefits under the
Somerville Plan payable upon retirement at various years of credited service and
at different levels of remuneration are as follows:
<TABLE>
<CAPTION>

Years of Credited Service at Retirement
------------------------------------------
Remuneration 15 20 25 30 35
------------ ------------------------------------------

*Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, limits the
amount of compensation that can be considered in computing benefits under a
qualified retirement plan. For 1993, the maximum amount of compensation allowed
for use in calculating an individual's pension benefit is $235,840. This limit
may be raised in the future by annual cost-of-living adjustments determined by
the U.S. Secretary of the Treasury.

Mr. Cohen has elected not to accrue benefits in the Somerville Plan since
1982, when he had accrued a benefit under the Somerville Plan at a remuneration
level of $209,000. Mr. Cohen is credited with 29 years of service under the
Somerville Plan as of the end of the last fiscal year. Benefits shown are
computed upon a basis of a lifetime only annuity with 10 years certain and are
not subject to any reduction for Social Security benefits.

PLANS MAINTAINED BY THE COMPANY

The Company has granted stock incentives to employees under two stock
plans and to directors under the Director Option Plan. The following is
provided for information only, pursuant to regulations of the Securities and
Exchange Commission.

1988 PAYLESS CASHWAYS, INC. EMPLOYEE STOCK PLAN

The 1988 Payless Cashways, Inc. Employee Stock Plan (the "Plan") was
adopted by the Board of Directors and approved by the Company's shareholders in
August 1988. The Plan was established to provide employees responsible for the
future growth and continued success of the Company with an opportunity to
participate in the appreciation in the value of the Company's stock, as an
incentive to work for and contribute to such appreciation through the growth and
success of the Company. In addition, the Plan was established to aid in
retaining and encouraging key employees of ability and in attracting additional
able employees. The Plan provides for the granting of awards to those officers
and key employees of Payless and Somerville who have executive, managerial,
supervisory, professional or similar responsibilities. Currently, approximately
410 employees participate in the Plan.

Grants were awardable pursuant to the Plan from its inception in 1988
until July 15, 1992 (when the

<PAGE> 19

Program, defined below, was adopted). During the period when grants could be
made, the maximum aggregate number of shares of stock which could be granted
pursuant to the Plan, prior to adjustments (described below), was 2,637,909. No
more than 182,643 shares of stock could be utilized for the grant of Restricted
Stock (defined below); no more than 811,485 shares of stock could be utilized
for the grant of Roll-Over Options (defined below); and no more than 1,643,781
shares of stock could be utilized for the grant of other options, of which
Normal Options (defined below) could constitute a maximum of two-thirds and
Performance Options (defined below) could constitute a maximum of one-third.
The total number of shares which could be granted was subject to increase in
certain circumstances related to exercise, or failure to exercise, Roll-Over
Options and to acquisition, by the Company or by certain persons, of shares
issued pursuant to the Plan or shares held by executive officers at the end of
the 1988 fiscal year (during which the leveraged buyout of the Company's
predecessor occurred). Awards allocating a total of 2,729,639 shares of stock
were outstanding at July 15, 1992.

Permissible forms of awards pursuant to the Plan were: Roll-Over Options
(such term referring to outstanding, unexpired employee stock options existing
prior to the leveraged buyout of the Company's predecessor in 1988 and which
were converted into a vested option under the Plan), Normal Options (options
which vested over specified time periods without regard to financial tests),
Performance Options (options which vested based on financial performance of the
Company), and Restricted Stock (which vested over time and was subject to
restrictions on transfer). Grants of Normal Options, Performance Options, and
Restricted Stock also provided for earlier vesting in the event, among other
things, of a change of control of the Company or the initial public offering of
common equity of the Company. On March 15, 1993, when the Company completed an
initial public offering of its stock, all Restricted Stock and some options had
previously vested and all unvested options became vested and exercisable.

All options granted under the Plan are classified as non-qualified stock
options. Each vested option may be exercised for a maximum term of ten years and
one day from the granting date, with shorter terms provided in certain instances
of termination of employment. Subject to any required action by the
shareholders, if Payless is a party to any merger or consolidation, any option
granted under the Plan will pertain to and apply to the cash or securities to
which a holder of the number of shares of common stock subject to the option
would have been entitled, and any shares of Restricted Stock will become the
right to receive such cash or securities subject to the terms and conditions
(including restrictions) applicable to the shares of Restricted Stock.

The Plan is administered by the Compensation Committee of the Board of
Directors. The Committee is required to consist of not less than three
directors of the Company who are not officers or employees of the Company or
members of management, and who are appointed by the Board of Directors. Subject
to the express provisions of the Plan, the Committee has plenary authority, in
its discretion, to interpret the Plan, to prescribe, amend, and rescind rules
and regulations relating to it, and to determine the terms and conditions of the
respective options and shares of Restricted Stock. The Committee also had
plenary authority to determine the employees to whom, and the time or times at
which, awards would be granted and the number of shares to be subject to each
award. The Committee determined whether an employee would receive shares of
Restricted Stock, or would be granted options, or both, and which of the
foregoing classifications of options would be granted to a particular employee.

The purchase price of the stock awardable under the Plan was determined by
the Committee, and was not less than 100% of the fair market value of the stock,
as determined by the Committee, on the date of grant. Pursuant to the Plan and
option agreements, payment for shares of stock purchased upon exercise of any
option will be made either in full in cash or by the transfer to the Company of
shares of stock, or any combination thereof, having an aggregate value (at the
time that such option, or any part thereof, is exercised) at least equal to the
full purchase price of the shares of stock with respect to which the option is
being exercised. Additionally, the Plan and the Committee permit payment of the
purchase price of shares for options through transactions with brokerage firms,
whereby the broker delivers to the Company the amount of the purchase price for
the stock and any taxes required to be withheld.

The Plan provides for adjustments in the aggregate number of shares of
stock which may be granted under the Plan and pursuant to any outstanding option
agreement, as the Board of Directors or the Committee may determine, as a result
of subdivision or consolidation of shares or increases or decreases in shares
effected without receipt of consideration by the Company. The Plan also
provides that the Plan shall terminate on August 4, 1998, provided that the
Board of Directors of the Company may at any time prior to that date terminate
the Plan; and the

<PAGE> 20

Committee may amend the Plan at any time, but may not, without shareholder
approval, adopt any amendment not otherwise permitted by the Plan which would
increase the maximum number of shares which may be granted, amend the formula
for determination of the purchase price of shares, extend the period during
which options or shares may be granted, or amend the requirements as to the
class of employees eligible to receive options or shares of Restricted Stock.

PAYLESS CASHWAYS 1992 INCENTIVE STOCK PROGRAM

The Payless Cashways 1992 Incentive Stock Program (the "Program") was
adopted by the Board of Directors in June 1992 and approved by the Company's
shareholders in July 1992. The Program was established for the purpose of
attracting and retaining outstanding individuals as officers and other employees
of the Company and its subsidiaries, and to furnish incentives to such persons
by providing opportunities to acquire common shares of the Company, or monetary
payments based on the value of such shares or the financial performance of the
Company, or both, on advantageous terms. Participants in the Program consist of
such employees as the Compensation Committee of the Board of Directors in its
sole discretion may designate from time to time. The Committee must consider
such factors as it deems pertinent in selecting participants and in determining
the type and amount of their respective benefits, including the financial
condition of the Company, anticipated profits for the current or future years,
contributions of participants to the profitability and development of the
Company and other compensation provided to participants. Currently,
approximately 1,300 employees participate in the Program.

The aggregate number of shares of stock reserved for issuance under the
Program is equal to the sum of (a) the greater of (i) 3,500,000 Common Shares,
or (ii) five percent (5%) of the sum of the Common Shares of the Company
outstanding at the end of any fiscal year during the term of the Program and the
Common Shares reserved for issuance upon exercise or conversion of any options,
warrants or other securities of the Company outstanding at the end of any fiscal
year during the term of the Program, plus (b) any Common Shares which were
available for grant under the Plan at July 15, 1992 and any Common Shares
subject to options or Restricted Stock granted pursuant to the Plan which lapse,
terminate or are cancelled. At November 27, 1993, a total of approximately
2,217,225 Common Shares were reserved for issuance under the Program.

Permissible forms of awards ("Benefits") include the following:

Incentive Stock Options -- which may be granted pursuant to the
restrictions of Section 422 of the Internal Revenue Code. Incentive Stock
Options consist of options to purchase Common Shares at purchase prices not less
than 100% of the Fair Market Value (as defined in the Program) of such Common
Shares on the date of grant; and they are exercisable for a term of not more
than 10 years after the date of grant, with shorter terms in certain instances
of termination of employment, unless the Committee specifies otherwise.

Non-qualified Stock Options -- which consist of options to purchase Common
Shares at purchase prices not less than 85% of the Fair Market Value of such
Common Shares on the date of grant, and are exercisable for a term of over not
more that 10 years after the date of grant, with shorter terms in certain
instances of termination of employment, unless the Committee specifies
otherwise.

Stock Appreciation Rights -- which permit the holder to receive cash, or
stock at the discretion of the Committee, equal to the appreciation on Common
Shares subsequent to the date the Stock Appreciation Rights are granted. Stock
Appreciation Rights may be granted with respect to any Stock Option granted
pursuant to the Plan or the Program, either at the time of its grant or at any
time thereafter.

Restricted Stock Awards -- which are Common Shares delivered to an
individual, without payment of consideration, as additional compensation for
services and subject to such restrictions or conditions as the Committee
determines appropriate, including continued employment for a specified period or
the individual's right to dispose of or sell the shares.

Performance Units -- which are rights to receive cash payments or Common
Shares, or a combination of both, and may be earned in whole or in part if the
Company achieves certain goals established by the Committee

<PAGE> 21

over a designated period of time, not more than 5 years. Goals may include
earnings per share, return on shareholder equity, and/or return on average total
capital employed.

Any Benefit is subject to limited rights of transfer and may also be
subject to other terms and conditions as the Committee determines appropriate,
including, without limitation, provisions for installment purchases of Common
Shares, provisions for the payment of the purchase price of shares by delivery
of other shares or through a brokerage transaction, restrictions on resale or
other disposition, such provisions as may be appropriate to comply with federal
or state securities laws and stock exchange requirements, and understandings or
conditions as to the participant's employment. Notwithstanding any other
provision of the Program, all Benefits then outstanding shall be fully vested
upon the occurrence of a Change in Control (as defined in the Program).

The Program is administered by the Compensation Committee of the Board of
Directors, composed entirely of "disinterested persons" as defined in Rule 16b-3
of the Securities and Exchange Commission . The Committee interprets the
Program, prescribes, amends and rescinds rules and regulations relating thereto,
and makes all other determinations necessary or advisable for the administration
of the Program. Pursuant to the Program, the Committee has adopted guidelines
for granting stock options and restricted stock, which guidelines are described
in the subsection entitled "Compensation Committee Report on Executive
Compensation."

The Program provides that no Benefit shall be granted more than 10 years
after the date of the approval of the Program by the shareholders (July 15,
1992), provided that the Committee may terminate the Program at any time; and
the Committee may amend the Program at any time or, by mutual agreement with the
participant or other interested person, amend, modify or cancel the terms and
conditions applicable to any Benefits granted, but may not increase the number
of Common Shares issuable pursuant to the Program, or amend the Program so that
any Committee member would lose his or her status as a "disinterested person"
(as defined above) with respect to any employee benefit plan of the Company or
result in the Program's losing its status as a plan under Rule 16b-3.

The Program provides for automatic adjustment of the number of shares
reserved for issuance pursuant to the Program and covered by each outstanding
Benefit, in the event that the Company shall at any time change the number of
issued Common Shares without new consideration to the Company. The Committee
also has the right to provide for the continuation of Benefits or for other
equitable adjustments after changes in Common Shares resulting from
reorganization, sale, merger, consolidation or similar occurrence, and to
authorize the issuance or assumption of Benefits in connection with any merger,
consolidation, acquisition of property or stock or reorganization upon such
terms and conditions as it may deem appropriate.

PAYLESS CASHWAYS DIRECTOR OPTION PLAN

Material terms of the Director Option Plan are described in the subsection
entitled "Compensation of Directors".

<PAGE> 21

OUTSTANDING PLAN AWARDS

During 1993, there were no grants awarded under the 1988 Payless Cashways,
Inc. Employee Stock Plan. Awards made during 1993 under the Payless Cashways
1992 Incentive Stock Program and the Payless Cashways Director Option Plan were
in the form of non-qualified stock options. The awards made in 1993 are set
forth in the table below.

The Program Director Option Plan
----------- --------------------
Stock Exercise Stock Exercise
Options Price Options Price ------- --------
<S> <C> <C> <C> <C>
David Stanley 35,200 $12.25 -- --
Chairman of the Board
and Chief Executive
Officer

Larry P. Kunz 30,000 $12.00 -- --
President and 26,400 $12.25 -- --
Chief Operating
Officer

Harold Cohen -- -- -- --
Vice-Chairman of the
Board; and Chairman
of the Board of
Somerville

Susan M. Stanton 25,000 $12.00 -- --
Senior Vice President- 12,450 $12.25 -- --
Merchandising

Ronald H. Butler 25,000 $12.00 -- --
Senior Vice President- 12,450 $12.25 -- --
Store Operations

Executive Officers 105,000 $12.00 -- --
Group 143,000 $12.25 -- --
(10 persons)

Non-Employee -- -- 48,692 $14.375
Director Group
(7 persons)

Non-Executive Officer 85,820 $12.00 -- --
Employee Group 1,053,898 $12.25 -- --
3,150 $12.75 -- --
</TABLE>

FEDERAL TAX ASPECTS

Under current federal law, the following are the federal income tax
consequences generally arising with respect to grants or awards made pursuant to
either the 1988 Payless Cashways, Inc. Employee Stock Plan, the Payless Cashways
1992 Incentive Stock Program or the Director Option Plan.

<PAGE> 22

The grantee of a Non-Qualified Stock Option will not realize income until
the option is exercised. At the time of exercise, the grantee will realize
ordinary income equal to the difference between the exercise price of the shares
of common stock acquired and the market value of such shares on the date of
exercise; and the Company will be entitled to a corresponding deduction in an
amount equal to the amount included in income by the optionee. If an optionee
thereafter sells shares, the gain or loss, if any, realized upon such
disposition will constitute capital gain or loss to the optionee and the
optionee's tax basis in the shares is equal to the fair market value of the
shares at exercise of the option.

The grantee of a Restricted Stock award generally will not realize taxable
income at the time of the grant, and the Company will not be entitled to a
deduction at the time of the grant, assuming that the restrictions constitute a
substantial risk of forfeiture for federal tax purposes. When such restrictions
lapse, the grantee will receive ordinary income in an amount equal to the excess
of the fair market value of the shares at such time over the amount, if any,
paid for such shares. The Company will then be entitled to a corresponding
deduction.

Although a grantee of a Restricted Stock award is not normally taxed at
the time of grant, the grantee may elect, under the Internal Revenue Code of
1986, as amended (the "Code"), Section 83(b), within 30 days following the
grant, to include in income at that time the fair market value of the Restricted
Stock. In such case, the recipient will recognize taxable income in an amount
equal to the excess of the fair market value of the shares at the time of grant
over the amount, if any, paid for such shares. The Company will be entitled to
a corresponding deduction at such time. Making such an election prevents any
increase in the fair market value from being included in income when the
Restricted Stock award vests. However, if the market value decreases and is
lower when the stock vests, as compared to when the Section 83(b) election was
made, there is no provision for reducing the amount already taken into income.
Further, if the Restricted Stock award is forfeited after the election is made,
no deduction is allowed for the forfeited stock. Consequently, while the Code
Section 83(b) election fixes the ordinary income portion of the Restricted Stock
award, the making of such an election carries with it certain risks in the event
the market price of the Common Stock decreases or any part or all of the award
is forfeited. If the grantee sells Restricted Stock, the gain or loss, if any,
realized upon such disposition will constitute capital gain or loss to the
grantee; and the grantee's basis in the shares is equal to the amount previously
included in income by the grantee with respect to those shares.

The exercise of Stock Appreciation Rights or the receipt of cash or Common
Stock in payment of Performance Units (such units are only available pursuant to
the Payless Cashways 1992 Incentive Stock Program) gives rise to ordinary income
in the nature of compensation in the year of exercise or payment, subject to
withholding, equal to the fair market value of the Common Stock received on the
date of exercise or payment and any cash received.

The grantee of an Incentive Stock Option (which options are available only
pursuant to the Payless Cashways 1992 Incentive Stock Program) will not realize
taxable income by reason of the grant or the exercise of the option. Similarly,
the Company will not be entitled to any deduction at the time of grant or at the
time of exercise. If an optionee exercises an Incentive Stock Option and
retains the acquired shares for at least one year after the date of transfer and
for at least two years after the date of grant, any gain realized upon
disposition will be taxable to the grantee as a long-term capital gain, and the
Company will not be entitled to any tax deduction. However, if the grantee does
not satisfy the applicable holding periods, the difference between the option
price and the lesser of the fair market value of the Common Stock on the date of
exercise or the price received upon disposition of the Common Stock generally
will be treated as compensation and generally will be taxable to the grantee as
ordinary income. Any additional gain upon such disposition will be taxed as
capital gain. The Company then will be entitled to a deduction in the amount
constituting ordinary income to the grantee. At the time of exercise, the
difference between the price paid and the market value of the Common Stock (the
"bargain element"), is treated as an item of tax preference and may result in
the imposition of the "alternative minimum tax."

<PAGE> 23

CERTAIN BENEFICIAL OWNERSHIP

The table below sets forth certain information, as of January 15, 1994,
regarding the beneficial ownership of the Company's Common Stock, Non-Voting
Common Stock and Convertible Preferred Stock by (i) each of the Company's
directors, (ii) each person known by the Company to be the beneficial owner of
5% or more of its outstanding Common Equity, (iii) each of the executive
officers named in the Summary Compensation Table above and (iv) all of the
Company's directors and executive officers as a group. As required by a rule of
the Securities and Exchange Commission, the number of shares of Common Stock
beneficially owned includes shares as to which a right to acquire ownership
exists within 60 days, such as through the exercise of employee stock options
and conversion of convertible securities.

Name and Address Shares Beneficially
of Beneficial Owner Owned Percent of Class
- ------------------- ------------------- ----------------

<S> <C> <C>
Common Stock

Goldman Sachs & Co.(1) 2,736,000 7.6%
85 Broad Street
New York, NY 10004

Gary D. Rose (2) 123,896 .3%

David Stanley (3) 291,132 .8%

Harold Cohen (4) 135,658 .4%

Larry P. Kunz (5) 181,964 .5%

Susan M. Stanton (6) 95,397 .3%

Ronald H. Butler (7) 33,906 .1%

Wayne B. Lyon (8) 6,956 (9)

Scott G. Fossel (10) 10,956 (9)

George Latimer (11) 7,956 (9)

Ralph Strangis (12) 11,956 (9)

John H. Weitnauer, Jr. (13) 14,956 (9)

William A. Hall (14) 7,956 (9)

Masco Capital Corporation (15) 2,435,757 6.3%
21001 Van Born Road
Taylor, MI 48180

Ariel Capital Management, Inc. (16) 4,164,030 11.5%
307 North Michigan Ave.
Chicago, IL 60601

<PAGE> 24

All Directors and Executive 1,188,685 3.2%
Officers as a group (18 Persons)(17)

Class A Non-Voting Common

Court Square Capital Limited 2,250,000 100.0%
399 Park Avenue
New York, NY 10043

Convertible Preferred Stock

Masco Capital Corporation(18) 406,000 100.0%
21001 Van Born Road
Taylor, MI 48180

<FN>
___________________
(1) Represents shares beneficially owned by Goldman Sachs and certain
limited investment partnerships identified below of which Goldman Sachs or
a corporation wholly owned by Goldman Sachs is the general partner of the
managing general partner. Such shares may also be deemed to be
beneficially owned by The Goldman Sachs Group, L.P., one of the general
partners of Goldman Sachs. For purposes of this table, such beneficial
ownership has been excluded.
Goldman Sachs owns directly 216,248 shares of Common Stock; Broad Street
Investment Fund I, L.P. owns 2,429,752 shares of Common Stock; Stone Street
Fund 1987 owns 39,330 shares of Common Stock; Stone Street Fund 1988 owns
31,050 shares of Common Stock; Bridge Street Fund 1987 owns 13,500 shares
of Common Stock; and Bridge Street Fund 1988 owns 6,120 shares of Common
Stock. Goldman Sachs and The Goldman Sachs Group, L.P. disclaim beneficial
ownership in shares held by such investment partnerships to the extent
partnership interests in such partnerships are held by persons other than
Goldman Sachs and The Goldman Sachs Group, L.P. and their affiliates.
(2) Includes 6,956 shares subject to options and 106,940 shares subject to
Warrants to purchase Common Stock. Mr. Rose is a general partner of
Goldman Sachs. As a general partner, Mr. Rose may be deemed to be the
beneficial owner of shares beneficially owned or held by Goldman Sachs and
affiliates, including certain limited investment partnerships. Mr. Rose
disclaims beneficial ownership of such shares except to the extent of
pecuniary interest therein.
(3) Includes 256,805 shares subject to options. Includes 6,000 shares owned by
Mr. Stanley's wife, 1,000 shares owned by a trust for the benefit of Mr.
Stanley's daughter for which Mr. Stanley acts as trustee, 2,000 shares
owned by two trusts for the benefit of Mr. Stanley's minor stepchildren for
which Mr. Stanley does not act as trustee and 2,000 shares owned by Mr.
Stanley's minor stepchildren. Mr. Stanley disclaims beneficial ownership
of such 11,000 shares.
(4) Includes 83,008 shares subject to options.
(5) Includes 130,564 shares subject to options.
(6) Includes 66,336 shares subject to options.
(7) Includes 27,800 shares subject to options.
(8) Includes 6,956 shares subject to options. Mr. Lyon is President and Chief
Operating Officer of Masco, which owns Masco Capital Corporation ("Masco
Capital"), and disclaims beneficial ownership of shares beneficially owned
by Masco Capital.
(9) Less than 0.1%.
(10) Includes 6,956 shares subject to options. Mr. Fossel is a Vice President
of Court Square Capital Limited and disclaims beneficial ownership of
shares beneficially owned by Court Square Capital Limited.
(11) Includes 6,956 shares subject to options.
(12) Includes 6,956 shares subject to options.
(13) Includes 6,956 shares subject to options.
(14) Includes 6,956 shares subject to options.
(15) Represents shares of Common Stock into which 406,000 shares of Convertible
Preferred Stock beneficially owned by Masco Capital are convertible. Each
share of Convertible Preferred Stock is convertible into 5.9994 shares of
Common Stock, subject to certain customary anti-dilution adjustments, at
the option of the holder thereof until the close of business on August 1,
1994. It is assumed that the Convertible Preferred

<PAGE> 25

Stock has been converted to Common Stock in calculating the percent of
Common Stock for Masco Capital, but not when the percent of class is
calculated for any other holders of Common Stock.
(16) Based on a Schedule 13G filed with the Securities and Exchange Commission
on December 31, 1993, represents shares of Common Stock owned by Ariel
Capital Management, Inc. which has sole voting power of 2,910,195 shares,
shared voting power of 350,365 shares, and sole investment discretion for
4,164,030 shares. Ariel Capital Management, Inc. claims no beneficial
interest in any of the shares. The shares are held solely for client
accounts of which none individually owns more than 5% of the Company's
Common Stock.
(17) Includes 835,089 shares subject to options, 106,940 shares subject to
Warrants and 62 shares held indirectly by an executive officer (who is not
a named executive officer) in a 401(k) plan. Excludes shares held by
Broad Street Investment Fund I, L.P., Goldman Sachs and certain limited
partnerships affiliated with Goldman Sachs. Mr. Gary Rose, a director of
Payless and a general partner of Goldman Sachs, expressly disclaims
beneficial ownership of all such shares.

(18) Shares owned are convertible into Common Stock. See footnote 15.

</TABLE>

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who beneficially own more than 10
percent of a registered class of the Company's equity securities to file, with
the Securities and Exchange Commission and the New York Stock Exchange, initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and beneficial
owners of more than 10 percent of the Company's equity securities are required
by regulation to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of the copies of such
reports and written representations that no other reports were required during
1993, all section 16(a) filing requirements applicable to its officers,
directors and beneficial owners of more than 10 percent of the Company's equity
securities were complied with, except that one report on Form 4 for each of
Larry P. Kunz (two transactions), Scott G. Fossel (two transactions), George
Latimer (two transactions), John H. Weitnauer Jr. (two transactions), William A.
Hall (two transactions), and Ronald H. Butler (four transactions) was filed 4
days later than required due to an administrative error by the Company and a
report on one Form 4, covering an aggregate of nine transactions, was
inadvertently filed later than required by Gary D. Rose.

<PAGE> 26

2. OTHER BUSINESS

As of the date of delivery of the text of this Proxy Statement to the
printer, management knew of no other business that will be presented for action
at the Annual Meeting. In the event that any other business should properly
come before the meeting, it is the intention of the persons designated as
proxies on the proxy card to take such action as shall be in accordance with his
and/or her best judgment.

OTHER INFORMATION, SHAREHOLDER PROPOSALS

The Board of Directors, on the recommendation of the Audit Committee, has
selected the firm of KPMG Peat Marwick as independent auditor to examine the
financial statements of the Company and its subsidiary for the fiscal year 1994.
Representatives of KPMG Peat Marwick will be present at the Annual Meeting, will
have an opportunity to make a statement if they so desire, and will be available
to respond to appropriate questions.

Shareholder proposals requested for inclusion in the Proxy Statement for
the Company's Annual Meeting in 1995 must be received by the Company's Secretary
on or before November 1, 1994. The Company currently plans to hold the 1995
Annual Meeting in Kansas City, Missouri, on April 20, 1995. The Nominating
Committee will also consider persons recommended by Shareholders as director
nominees if the name and qualifications of the person(s) recommended are
received by the Company's Secretary on or before November 1, 1994.

In addition to the solicitation of proxies by mail, officers or other
employees of the Company, without extra remuneration, may solicit proxies by
telephone or personal contact. The Corporation also will request brokerage
houses, nominees, custodians and fiduciaries to forward soliciting material to
beneficial owners of stock held of record and will pay such persons for
forwarding the material. All costs for the solicitation of proxies by the Board
of Directors will be paid by the Company.

The Company's Annual Report to Shareholders, including financial
statements for the year ended November 27, 1993, is enclosed with this Proxy
Statement.

BY ORDER OF THE BOARD OF DIRECTORS

Linda J. French
Senior Vice President - General Counsel/Secretary

February 25, 1994

<PAGE>
<TABLE>
<CAPTION>
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| PROXY PAYLESS CASHWAYS, INC.
|
| 2300 Main, Kansas City, Missouri 64108
|
| This Proxy is Solicited on Behalf of the Board of Directors
|
|
|
|The undersigned hereby appoints LINDA J. FRENCH and STEPHEN A. LIGHTSTONE, or either of them, as Proxy/Proxies, and hereby
|
|authorizes them to represent and to vote, as designated below, all the shares of Common Stock of Payless Cashways, Inc. held
|
|of record by the undersigned on February 15, 1994, at the Annual Meeting of Shareholders to be held on April 21, 1994, or any
|
|adjournment thereof.
|
|
|<S> <C>
|1. ELECTION OF DIRECTORS
|
| FOR all nominees listed below WITHHOLD AUTHORITY to vote
|
| (except as marked to the contrary below) / / for all nominees listed below / /
|
|
|
| HAROLD COHEN, SCOTT G. FOSSEL, GEORGE LATIMER, SUSAN M. STANTON
|
|
|
| (INSTRUCTION: To withhold authority to vote for any individual nominee write that nominee's name on the space provided
|below.)
|
|
| -------------------------------------------------------------------------------------------------------------------------------
|
|2. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
|
-----------------------------------------------------------------------------------------------------------------------------------

<PAGE>

-----------------------------------------------------------------------------------------------------------------------------------

| This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder.
|
|If no direction is made, this proxy will be voted for Proposals 1 and 2.
|
|
|
| Please sign exactly as name appears below. When shares are held by joint tenants, both should sign. When
|
|signing as attorney, as executor, administrator, trustee or guardian, please give full title as such; if a
|
|corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please
|
|sign in partnership name by authorized person.
|
|
|
| Dated:____________________________, 1994
|
|
|
| ______________________________________
|
| Signature
|
|
|
| ______________________________________
|
| Signature if held jointly
|
| --------------------------------------
| | |
| | PLEASE MARK, SIGN, DATE AND |
| | |
| | RETURN THE PROXY CARD |
| | |
| | PROMPTLY USING THE ENCLOSED |
| | |
| | ENVELOPE. |
| ---------------------------------------
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</TABLE>