<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended November 27, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________to__________
Commission file number 1-8210
PAYLESS CASHWAYS, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0945849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Pershing Square
2300 Main, P.O. Box 419466
Kansas City, Missouri 64141-0466
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 234-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
Common Stock, $.01 par value New York Stock Exchange
9-1/8% Senior Subordinated Notes due April 15, 2003 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES / X / NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock, par value $.01 per share, of the
registrant held by nonaffiliates of the registrant as of February 4, 1994, was
$707,033,909.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of February 4, 1994:
Voting -- 37,407,667 shares
Class A Non-Voting -- 2,250,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
November 27, 1993, are incorporated by reference into Part II. Portions of the
Annual Proxy Statement for the Annual Meeting of Shareholders to be held April
21, 1994, are incorporated by reference into Part III.
<PAGE> 2
PART I
------
Item 1. BUSINESS.
- ------ ---------
GENERAL
Payless Cashways, Inc. ("Payless" or the "Company") is the third largest
retailer of building materials and home improvement products in the United
States as measured by sales. The Company operates 197 full-line retail stores
in 26 states located in the Midwest, Southwest, Pacific Coast, Rocky Mountain
and New England areas under the names of Payless Cashways Building Materials,
Furrow Building Materials, Lumberjack Building Materials, Hugh M. Woods Building
Materials, Knox Lumber and Somerville Lumber. Each full-line store is designed
as a one-stop source that provides customers with a complete selection of
quality products and services needed to build, improve, and maintain their home,
business, farm or ranch properties. The Company's merchandise assortment
includes approximately 22,000 items in the following categories: lumber and
building materials, millwork, tools, hardware, electrical and plumbing products,
paint, lighting, home decor, kitchens, decorative plumbing, heating, ventilating
and cooling (HVAC), and seasonal items. The Company believes that the
combination of a full-line lumberyard, a broad product mix, a high level of in-
store customer assistance concerning product usage and installation, and
competitive prices distinguishes Payless from many competitors.
The Company's primary customers include serious do-it-yourselfers and
professionals. Serious Do-It-Yourselfers ("DIY'ers") are those that engage in
more frequent and complex repair or improvement projects and typically spend in
excess of $1,000 annually on home improvement products. Professionals ("Pros")
include remodelers, residential contractors, and specialty tradesmen along with
enterprises which purchase large quantities of building materials for facility
maintenance, such as property management firms, commercial and industrial
accounts, and government institutions. Due to its product mix (especially the
advantage provided by its full-line lumberyard) and customer service approach,
the Company believes that it is well positioned to increase its penetration of
these segments of the building materials and home improvement products market.
Payless also serves the needs of the moderate and light DIY'er.
INDUSTRY OVERVIEW
Building materials and home improvement products are sold through two
distribution channels -- retail units and wholesale supply outlets. According
to a study prepared by DRI/McGraw-Hill in October 1993, the retail channel of
the industry was estimated to be $115.4 billion in 1993, and is forecast to
exceed $151.9 billion by 1998. The Company estimates the wholesale supply
channel for products sold by the Company represented approximately $86 billion
in 1992, based on the most recently available unpublished data from the U.S.
Department of Commerce for 1992.
Retail distribution channels include neighborhood hardware stores, home
centers, warehouse stores, specialty stores (such as paint and tile stores) and
lumberyards. Although the industry remains highly fragmented, the retail
distribution channel has consolidated somewhat in the last ten years,
particularly in metropolitan areas. Warehouse, home center and building
materials chains have grown while the number of local independent merchants has
declined. The top 25 chains accounted for approximately 28% of industry sales
in 1992.
In general terms, customers can be characterized as either retail-oriented
(consumer) or wholesale-oriented (professional). The consumer segments, as
defined by the Company, include light DIY'ers who spend less than $200 annually
on building materials and home improvements products; moderate DIY'ers who make
annual purchases of $200 to $1,000; and serious DIY'ers who make annual
purchases in excess of $1,000. Consumer purchases tend to be self-service and
paid for with cash or credit cards. Purchases by professionals tend to be
larger in volume and require specialized merchandise assortments, competitive
market pricing, superior lumber quality, telephone order placement, commercial
credit and job-site delivery.
<PAGE> 3
BUSINESS STRATEGY
OBJECTIVES
The Company's principal objectives are to (i) increase its market share in
the Pro and serious DIY segments through its existing stores, (ii) continue to
increase Pro sales as a percentage of total sales to approximately 50% and (iii)
acquire new customers through the implementation of a store expansion program
and development of new, complementary retail concepts.
The Company believes that demographic and lifestyle factors (such as the
aging baby boomers, the increase in home-centered activities and the aging
housing stock) will result in a growing demand for its products. The Company
also believes that the rate of growth in the professional segment will continue
to exceed the consumer or DIY segment due to the lack of discretionary time of
many homeowners and the reluctance of an aging homeowner population to engage in
major repair or remodeling projects. As a national chain, the Company believes
it enjoys economies of scale, buying power and professional management that the
traditional outlets supplying the professional commonly do not have. These
advantages, along with the broad product assortment and full service package,
make the Company well suited to supply the professional's needs.
Based on the Company's most recent Spring 1993 surveys from ten stores,
which the Company believes are representative of its stores, the Company's
business mix as a percentage of sales was approximately 54% DIY and 46% Pro.
Approximately 58% of the DIY sales were derived from the serious DIY'er and the
remainder from the light and medium DIY'er. Due to the Company's focus on
expanding its Pro business and the higher rate of increase anticipated for the
professional segment, the Company expects the Pro business to contribute
approximately 50% of its total sales by the end of 1994. The Company's goal is
to maintain this balance once it is achieved.
The Company also believes that there are significant market opportunities
for specialty store concepts which complement its full-line building material
stores.
PROFESSIONAL STRATEGY
After a strategic review of the industry in 1988, the Company determined
there was a significant opportunity to expand the portion of its business
derived from the professional customers because the Company concluded this
market was underpenetrated by full-service distributors. As a result, the
Company implemented a strategy beginning in late 1988 and early 1989 to increase
its sales to the professional customer. These initiatives included: (i) the
addition of a dedicated sales staff, currently numbering approximately 1,400,
many of whom call on professional customers at their places of business and job
sites; (ii) construction of a separate commercial sales area in each store;
(iii) implementation of an enhanced delivery program which guarantees next-day
job-site delivery; and (iv) the offering of special services such as roof-top
delivery, commercial credit and a telephone ordering service.
The Company also enhanced its merchandise assortment to reflect the
increased emphasis on the Pro customer. This included the addition of
contractor preferred brands, commercial grade items, contractor packs and more
top-of-the-line products. The Company also improved the quality of the lumber
offered.
Surveys conducted by the Company in fiscal 1988 from ten stores which the
Company believes were representative of its stores indicated a business mix of
approximately 75% DIY and 25% Pro based on sales. Following implementation of
the initiatives outlined above, the Company's business mix has shifted to
approximately 54% DIY and 46% Pro in fiscal 1993.
Several additional initiatives were implemented to support the continued
growth and profitability of Pro sales. These include the following:
. Account Management. Each Pro customer is assigned to a sales
representative who has responsibility for servicing and ensuring the
profitability of each account. The sales representatives have detailed
information regarding account purchases (what was purchased and when) and the
profitability of their accounts. The Company believes that this level of
customer service and type of sales management system is effective in increasing
purchases and improving profitability from current professional customers and
building customer loyalty.
<PAGE> 4
. Customer Segmentation for Profitability. Each retail store prepares an
annual business plan which targets customers by Standard Industry Code and
purchase potential. This focus is intended to create more sales in the higher
margin hardware and decorative products without impairing the growth in sales of
lumberyard products.
. Enhanced Service Capabilities. The Company implemented a number of
enhanced service capabilities intended to increase sales to current customers
and make stores more appealing to new customers. The Company, through its On-
Property Total Inventory Control ("OPTIC") program, offers on-site product
replenishment service to over 1,700 large property owners and managers.
Additionally, all stores offer automated blueprint estimating services featuring
48-hour turnaround. This estimating system is unique in that it utilizes a
digitizer which ensures accuracy in the measurement process and it is fully
integrated into the store's point-of-sale ("POS") system. The Company also
supports its professional customer with joint marketing programs such as its
contractor referral data base.
. National Accounts Program. The Company initiated a national accounts
program in 1992 which targets businesses with major facilities or multiple
locations and which utilize large amounts of building materials and improvement
products for facility maintenance. The primary focus of this program is to
emphasize sales of hardware and decorative items. This program is designed to
provide incremental sales from national accounts at current store locations.
The Company had 278 national accounts at the end of 1993.
. Differentiation through Product Offering. Payless has actively worked
to offer professional and commercial products previously available to customers
only through authorized wholesale distributors. These additions are intended to
generate increased sales and increase customer perception of the wider selection
of quality products offered.
DIY STRATEGY
The Company's strategy to increase market share with the DIY customer
focuses primarily on the serious DIY'er. In fiscal 1993, sales to serious
DIY'ers represented approximately 58% of the sales to DIY'ers while accounting
for approximately 49% of the DIY'er transactions based on Company surveys of ten
stores which the Company believes are representative of its stores.
Quality products, a wide assortment, in-stock position, competitive pricing
and service assistance on more complex projects are important to the serious DIY
customer and have been the foundation upon which the Company has built its
business with these customers. Since 1988, the Company has upgraded its
assortment and displays in product categories which represent a significant
portion of the purchases by serious DIY'ers. These upgraded product categories
include paint, decorative plumbing, kitchen cabinets, power tools, builders'
hardware, millwork, and home decor.
Serious DIY'ers are similar to the professional customer with regard to the
brands preferred and the importance of stocking high quality lumber. The
Company believes that many of the steps it has taken to serve the professional
customer have also had a positive impact on sales to the serious DIY customer.
Several additional initiatives were implemented to support the continued
growth and profitability of DIY sales. These include the following:
. Improved Customer Service. In 1992, the Company increased the number of
sales personnel available to assist customers. Improved productivity in support
areas such as receiving rooms and offices allowed this re-allocation of
personnel. The Company also has an employee recognition and reward program to
promote outstanding customer service. Improved customer service is intended to
increase the average sales ticket size and the number of repeat purchasers.
. Design Services. The Company has also expanded the project design
services offered to its customers. A computer design system for kitchens, baths
and closet systems is located in each of the store's kitchen design centers.
Design Works, a building packages design system focusing initially on decks,
garages and post-frame buildings, was installed in all stores (except
Somerville) in 1993. Both of these systems are integrated into the store's POS
system, providing on-line pricing, confirmation of inventory availability and
immediate conversion of an estimate into an order.
<PAGE> 5
. Lumberyard Improvements. Serious DIY'ers are frequent purchasers of the
lumber and building material products stocked in the lumberyard. Currently, DIY
customers are not provided a single location in the store at which they can
complete a purchase of lumberyard products. The Company has completed changes
to one pilot store and is currently in various stages of design or
implementation for an additional 55 stores in 1994 as part of a plan that is
designed to facilitate the purchase of lumberyard products, saving the customer
time and increasing customer satisfaction. The Company believes these changes
position it for increased future sales.
. Special Events. The Company offers the serious DIY'er special buying
opportunities through after-hours sales and other preferred customer programs.
EXPANSION STRATEGY
Payless grew substantially in the 1980's prior to a 1988 leveraged buyout
by certain members of Payless' senior management and a group of investors, with
a net increase of 77 full-line stores during the 1984-1988 period. The Company
has added one (net) store since 1988. An important part of the Company's
business strategy is an expansion program, which will include seven additional
full-line stores in 1994, approximately six new stores annually thereafter and
new, complementary retail concepts in new and existing markets. Implementation
of this program is dependent on a number of factors, including availability of
cash flow from operations and site availability. Although there is no assurance
that future growth will take place as anticipated, the Company believes that its
prior experience in site selection and acquisition and demographic analysis
provides a solid base for its future expansion activities.
The Company's expansion program is designed to broaden the Company's
penetration into new and existing markets. Although existing market expansion
may initially adversely affect sales at existing stores, the Company believes
that expansion into existing markets will increase market penetration by
attracting new customers to more convenient locations and allow the Company to
increase operating margins by achieving economies of scale in certain areas such
as management supervision, advertising and distribution. Expansion in the
Company's current market is also less uncertain because of its experience in
those markets with existing store locations. Typically, the Company plans to
enter new markets with multiple store locations. The Company expects that the
additional stores will generally be located in trade areas which have high
housing density and above-average household income.
The Company estimates that the time required to open a new full-line store,
from site selection to opening the doors for business is approximately 12 to 15
months. The Company also estimates that capital investment for new stores will
average $6.5 to $7.0 million per store, with land costs being the greatest
variable, and that the initial net inventory investment will average $1.9
million per store.
In addition to opening traditional full-line stores, the Company expects to
increase its market share with new, complementary retail concepts piloted in
1993 which require significantly less capital outlay than traditional full-line
stores:
. Remote Contractor Sales Office (CSO). CSO's, which include an order desk
and selected, high-demand products, are located generally within 50 miles of a
full-line store in an underserved area and are designed to significantly expand
a full-line store's trade area for the professional and commercial customer.
The Company currently operates 21 CSO's.
. Home & Room Designs (HRD). HRD showrooms feature kitchens, baths,
millwork, lighting, flooring, wall covering, window treatments and builders'
hardware. HRD's are designed to serve the professional home builder, remodeler,
architect, interior designer and their customers. The Company currently
operates two HRD's.
. Tool Site. Tool Site specialty stores feature approximately 6,500 tools
and related products in a facility with an average size of 15,000 square feet.
The Company opened two pilot units in 1993.
The mix of the number of CSO's, HRD's and Tool Sites that the Company
expects to open each year will depend on a variety of factors, including
financial performance as well as economic factors beyond the Company's control.
Also, at the end of 1993 the Company announced its first, international
expansion into Mexico through the creation of a joint venture, with plans to
build a chain of at least 25 stores within the next five to six years. The
stores will offer customers, both DIYer's and Pros, a complete line of building
materials and home improvement products and services in a customized retail
setting. The first retail facility is currently scheduled to open in late 1994
or early 1995.
<PAGE> 6
MERCHANDISING AND MARKETING
Payless' full-line stores sell a broad range of building material products
totaling approximately 22,000 items, many of which are nationally advertised
brand-name items. Payless categorizes its product offerings into the classes
described below:
LUMBERYARD - Dimensional lumber, plywood, sidings, roofing materials,
fencing materials, windows, doors and moldings, insulation materials and
drywall.
HARDWARE - Electrical wire and wiring materials, plumbing materials,
power and hand tools, paint and painting supplies, lawn and garden
products, door locks, fasteners, and heating and cooling products.
SHOWROOM - Interior and exterior lighting, bathroom fixtures and
vanities, kitchen cabinets, flooring, panelling, wallcoverings and ceiling
tiles.
During the three fiscal years ended November 27, 1993, the three product
classifications accounted for the following percentages of Payless' sales:
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Lumberyard 45% 46% 48%
Hardware 34 34 33
Showroom 21 20 19
---- ---- ----
100% 100% 100%
</TABLE>
During the past five years the Company has remerchandised its retail
showroom in order to maximize space utilization. This has contributed to an
increase in space productivity as sales per square foot of retail space have
risen from $327 in fiscal 1988 to $435 in fiscal 1993.
Payless addresses its primary target customers through a mix of newspaper,
direct mail, radio and television advertising methods. The primary media
vehicle is newspaper advertisements, both freestanding inserts and run-of-press
ads. Television and radio advertising are used in support of major promotional
events. Additionally, the Company participates in or hosts a variety of home
shows, customer hospitality events, contractor product shows and national trade
association shows and conferences. During fiscal 1993, the Company's
expenditures (net of vendor allowances) on all forms of advertising totaled
approximately $36 million or 1.4% of sales.
The Company utilizes data base marketing techniques to increase the
effectiveness of its marketing programs. The data base allows the Company to
track purchases of individual customers at the stock keeping unit ("SKU") level
if desired. This purchase history data is used in targeted marketing campaigns
and to develop distinct customer profiles for various product categories. In
addition, the Company conducts its own market research, including customer
intercepts, phone surveys and customer focus groups.
STORE LOCATIONS
The Company's 197 full-line stores are located in the following states:
<TABLE>
<CAPTION>
No. of Stores No. of Stores
------------- -------------
<C> <C> <C> <C>
Arizona........... 8 Montana......... 1
Arkansas.......... 1 Nebraska........ 4
California........ 16 Nevada.......... 4
Colorado.......... 18 New Hampshire... 2
Illinois.......... 6 New Mexico...... 3
Indiana........... 16 North Dakota.... 1
Iowa.............. 10 Ohio............ 12
Kansas............ 9 Oklahoma........ 8
Kentucky.......... 5 Oregon.......... 2
Louisiana......... 1 Rhode Island.... 1
Massachusetts..... 7 South Dakota.... 1
Minnesota......... 9 Tennessee....... 2
Missouri.......... 9 Texas........... 41
</TABLE>
<PAGE> 7
Payless owns 173 of its full-line store facilities and 161 of the 197 sites
on which such stores are located. The remaining 24 stores and 36 sites are
leased. Additionally, 21 CSO's, two Tool Sites, and two Home & Room Designs
units are leased. Mortgages or deeds of trust on 167 store parcels secure
existing indebtedness.
Payless has generally located retail stores adjacent to residential areas
of major metropolitan cities or adjacent to major arteries in smaller
communities which are convenient to the DIY and Pro customer. Operation of
multiple stores in a trade area permits more effective supervision of stores and
provides certain economies in distribution expenses and advertising costs. Each
of Payless' 197 existing stores has an average of approximately 30,000 square
feet of indoor display space and 52,000 square feet of warehouse space. The
prototype stores being built in 1994 will average approximately 60,000 square
feet of retail selling space with an attached 17,000 square foot warehouse and a
150,000 square foot lumberyard. The average Payless Store occupies
approximately eight acres of land.
An average Payless store currently carries approximately $1.7 million of
inventory, and during fiscal 1993 sales at Payless stores averaged approximately
$13.3 million per store.
During fiscal 1993, one full-line store, 17 CSO's, two Tool Sites and one
Home & Room Designs unit were opened. No full-line stores were opened in fiscal
1991 or 1992. However, four CSO's and one Home & Room Designs unit were opened
in 1992.
STORE MANAGEMENT AND PERSONNEL
Payless recently reorganized the coordination of its 197 full-line-store
operations. The structure includes 101 Group Store Directors and Store Managers
reporting to one of six Regional Vice Presidents. Supervision and control over
the individual stores are facilitated by means of detailed operating reports.
All of Payless' Group Store Directors, Store Managers, and Regional Vice
Presidents have been promoted from within Payless or from within the stores
Payless has acquired.
To obtain candidates for store supervisory and management positions,
Payless recruits both recent college graduates and persons with business
experience. These employees are placed in a formal training program
administered by Payless. In addition, Payless maintains an ongoing training
program for existing store personnel. Group Store Directors and Store Managers
typically have more than ten years of experience with the Company.
The stores utilize a departmental management structure designed to provide
a superior level of service to customers. Sales associates are trained in
product knowledge, selling skills and systems and procedures. Formal classroom
training sessions are supplemented with product clinics, rallies and special
assignments. Department sales managers typically have more than five years of
experience with the Company.
The Company utilizes a sales tracking system at the store level to set
individual sales and gross margin goals for each of its sales associates.
Information is available on a weekly basis to monitor performance against those
goals.
Incentive compensation systems reward employees for store performance above
goal. In addition to management personnel, all sales and support personnel in
the retail stores participate in incentive compensation programs. In fiscal
1993, the Company paid $5.6 million in incentive compensation to its
nonmanagement store personnel. Group Store Directors and Store Managers can
earn in excess of 40% of base salary in incentive compensation. The Company
paid approximately $10.8 million in incentive compensation to its store
management personnel for fiscal 1993. The Company believes that its incentive
compensation systems are key to employee performance and motivation.
INFORMATION SYSTEMS
During the past five years, Payless has spent over $101 million in
information systems technology (consisting of capital expenditures and operating
expenses) providing timely operational and management information. All of the
Company's 197 full-line stores have point-of-sale terminals equipped with
scanning that transmit daily information on sales at the SKU level via a
satellite network. This information is used to support merchandising, inventory
replenishment and promotional decisions. The satellite network is also utilized
for on-line credit card processing and check authorization.
<PAGE> 8
The Company has developed or purchased software packages to support
numerous integrated systems in such areas as finance, merchandising, marketing,
distribution, store operations and human resources. The Company continues to
evaluate information systems usage and architecture, including such things as
data base and client/server processing, hand-held registers, and other
applications to enhance customer service.
DISTRIBUTION AND SUPPLIERS
The Company operates a total of eight distribution centers and three
manufacturing locations. The distribution centers maintain inventories and tag
and ship product to stores on a weekly basis. Of the eight, two (Sedalia,
Missouri and Bellingham, Massachusetts) handle small-sized, conveyable, high
value items such as hardware, plumbing and electrical supplies, and hand tools.
The other six distribution centers handle commodity products and bulky
manufactured products such as tubs, paneling and ceiling tile. The
manufacturing locations assemble pre-hung doors and customized windows.
In fiscal 1993, 54% of merchandise was channeled through the distribution
centers for redistribution to individual stores. This benefits the Company in
the areas of product costs, in-stock positions and inventory turnover.
The Sedalia Distribution Center commenced operations in April 1988 and now
serves 187 stores. The 495,000 square foot facility utilizes computerized
receiving, storage and selection technology. The Bellingham Distribution Center
was opened in May 1989 with similar automation. The facility has 453,000 square
feet and serves the Somerville Lumber stores. Excluding the Sedalia and
Bellingham operations, the Company's regional distribution centers average 18
acres with 154,000 square feet of warehouse space, operating with manual storage
and selection systems. In addition, the Company uses third-party operations for
specialized needs.
Payless purchases substantially all of its merchandise from approximately
3,500 suppliers, no one of which accounted for more than 5% of the Company's
purchases during fiscal 1993.
CREDIT
The Company offers credit to both its DIY and Pro customers. Purchases
under national credit cards and the Company's private label credit card program
as a percentage of sales represented 25.1% in fiscal 1993, 25.6% in fiscal 1992,
and 26.4% in fiscal 1991. Purchases under the Company's private label
commercial credit program as a percentage of sales represented 22.1% in fiscal
1993, 16.7% in fiscal 1992, and 14.3% in fiscal 1991. The Company's private-
label credit card program and commercial credit program are administered by a
large finance and asset management company. Accounts written off (net of
recoveries) under the commercial credit program in fiscal 1993 were
approximately $2.8 million or .5% of net commercial credit sales. The cost of
the private label credit card program represents a fixed percentage fee of
charge sales. The fees on the commercial credit program consist of
administrative fees which are primarily tied to commercial credit sales and fees
for accounts written off, which are substantially all absorbed by the Company.
COMPETITION
The business of Payless is highly competitive. Payless encounters
competition from national and regional chains, including those with a warehouse
format, and from local independent wholesalers, supply houses and distributors.
Certain of its competitors are larger in terms of capital and sales volume and
have been operating longer than Payless in particular areas. Although Payless'
competition varies by geographical area, Payless believes that it generally has
a favorable competitive position as a result of its full-line lumberyard, broad
product mix, customer service, product availability and price. As a result of
the Company's shift in marketing focus to the market for professional customers,
the Company competes with local independent lumberyards, independent
wholesalers, supply houses and distributors who market primarily to commercial
and professional users.
<PAGE> 9
EMPLOYEES
At November 27, 1993, Payless employed approximately 18,100 persons,
approximately 29% of whom were part-time, although the number of employees may
fluctuate seasonally. Payless believes its employee relations are satisfactory.
Payless' employees are primarily nonunion with less than 2% being represented
by a union.
A substantial portion of the administrative, purchasing, advertising and
accounting functions are centralized at Payless' headquarters in Kansas City,
Missouri.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The following table sets forth the name and age of all executive officers
of Payless and their present positions and recent business experience. There is
no family relationship among Payless' current directors and executive officers.
<TABLE>
<CAPTION>
Principal Occupation and
Name Age Five-Year Employment History
- ---- --- ----------------------------
<S> <C> <C>
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
Companies, Inc., Digi International, Inc.
and Best Buy Co., Inc. Mr. Stanley is a
member of the Nominating Committee of
Payless' Board of Directors.
Susan M. Stanton........ 45 President and Chief Operating Office
First elected a director: Payless since November 1993; Senior
1993 Vice 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.
Gerald M. Buchen....... 38 Senior Vice President - Store Operations
of Payless since November 1993; and Vice
President - Merchandising/Lumberyard of
Payless from August 1988 to November 1993.
Ronald H. Butler....... 44 Senior Vice President - Merchandising of
Payless since November 1993; Senior Vice
President - Store Operations of Payless
from September 1991 to November 1993; Vice
President, Marketing/Merchandising of 84
Lumber Company from August 1990 to
September 1991; and Principal of Alabama
Holding Company from September 1988 to
August 1990.
Linda J. French........ 46 Senior Vice President - General
Counsel/Secretary of Payless since October
1991; and Vice President - General
Counsel/Secretary of Payless from April
1986 to October 1991.
E.J. Holland, Jr....... 50 Senior Vice President - Human Resources of
Payless since June 1992; and Partner of
the law firm Spencer Fane Britt & Browne
from January 1974 to June 1992.
Stephen A. Lightstone...48 Senior Vice President - Finance/Treasurer
and Chief Financial Officer of Payless
since February 1988.
Richard E. Nawrot...... 46 Senior Vice President - Information
Systems of Payless since September 1991;
Vice President of Management Information
Services of Jamesway Corporation from
February 1991 to September 1991; and
Senior Vice President - MIS and Chief
Information Officer of Ames Department
Stores, Inc. from July 1988 to February
1991.
Richard G. Luse....... 46 Vice President - Controller of Payless
since February 1988.
</TABLE>
<PAGE> 10
Item 2. PROPERTIES.
- ------ ----------
Payless owns 173 of its full-line store facilities and 161 of the 197 sites
on which such stores are located. The remaining 24 facilities and 36 sites are
leased. Additionally, 21 CSO's, two Tool Sites, and two Home & Room Design
units are leased. The leases provide for various terms. Mortgages or deeds of
trust on 167 store parcels secure existing indebtedness.
Six of the Company's eight distribution centers are owned and, of the
remaining two, one is leased for land only and the facility and land are leased
for the other. Mortgages or deeds of trust on six distribution center parcels
secure existing indebtedness.
Payless leases its corporate office in Kansas City, Missouri, under a lease
expiring on November 30, 2002. The administrative offices occupy several floors
(approximately 204,000 square feet) of a multi-story building.
See also "Store Locations" and "Distribution and Suppliers" in Item 1,
above.
Item 3. LEGAL PROCEEDINGS.
- ------ -----------------
There are presently no material legal proceedings to which Payless or its
subsidiary is a party or of which any of their property is the subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
None.
PART II
-------
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------ -----------------------------------------------------------------
MATTERS.
-------
Payless Common Stock has been traded on the New York Stock Exchange (ticker
symbol PCS) since March 9, 1993. Prior to that date there was no established
trading market for Payless' Common Stock. Therefore, high and low bid
quotations are only available from that date.
<TABLE>
<CAPTION>
1993
-----------------
Price range of common stock High Low
-----------------------------------------------------
<S> <C> <C>
Second Quarter 14-7/8 12-3/8
Third Quarter 14-1/4 11-5/8
Fourth Quarter 13-7/8 11
</TABLE>
At February 4, 1994, there were 835 holders of record of Payless' Voting
Common Stock and one holder of Class A Non-Voting Common Stock. No cash
dividends have been declared on the Common Stock since 1988. Certain of
Payless' debt instruments contain restrictions on the declaration and payment of
dividends on, or the making of any distribution to the holders of, or the
acquisition of, any shares of Common Stock or Convertible Preferred Stock.
Item 6. SELECTED FINANCIAL DATA.
- ------ -----------------------
The Five-Year Financial Summary, page 34 of the Annual Report to
Shareholders for the fiscal year ended November 27, 1993, is incorporated herein
by reference.
<PAGE> 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
Management's Discussion and Analysis of the Financial Condition and Results
of Operations on pages 8 through 12 of the Annual Report to Shareholders for
the fiscal year ended November 27, 1993, is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------ -------------------------------------------
The financial statements and independent auditors' report included on pages
14 through 32 of the Annual Report to Shareholders for the fiscal year ended
November 27, 1993, are incorporated herein by reference.
The Quarterly Consolidated Statements of Operations on pages 6 and 7 of the
Annual Report to Shareholders for the fiscal year ended November 27, 1993, are
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------- --------------------------------------------------
The information required by this item with respect to directors and
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated herein by reference to the Registrant's Proxy Statement for the
1994 Annual Meeting of Shareholders, dated February 25, 1994, to be filed
pursuant to Regulation 14A. The required information as to executive officers
is set forth in Part I hereof.
Item 11. EXECUTIVE COMPENSATION.
- ------- ----------------------
The information required by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1994 Annual Meeting of Shareholders,
dated February 25, 1994, to be filed pursuant to Regulation 14A.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------- --------------------------------------------------------------
The information called for by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1994 Annual Meeting of Shareholders,
dated February 25, 1994, to be filed pursuant to Regulation 14A.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ------- ----------------------------------------------
The information called for by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1994 Annual Meeting of Shareholders,
dated February 25, 1994, to be filed pursuant to Regulation 14A.
<PAGE> 12
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ------- ----------------------------------------------------------------
(a) Document list.
1. and 2. The response to this portion of Item 14 is submitted as a
separate section of this report.
3. List of exhibits.
3.1 Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 filed as part of
Amendment No. 1 to Registration Statement No. 33-58008 on Form
S-2 on March 8, 1993).
3.2 By-laws of the Company (incorporated by reference to Exhibit
3.2 filed as part of Registration Statement No. 33-58008 on
Form S-2 on February 8, 1993).
4.0 Long-term debt instruments of the Registrant in amounts not
exceeding ten percent (10%) of the total assets of the
Registrant and its subsidiary on a consolidated basis will be
furnished to the Commission upon request.
4.1 Indenture dated as of April 20, 1993 by and between Payless and
United States Trust Company of New York, pursuant to which the 9
1/8% Senior Subordinated Notes of Payless due April 15, 2003
were issued (incorporated by reference to Exhibit 4.2 filed as
part of Payless' Quarterly Report on Form 10-Q for the quarter
ended May 29, 1993).
4.2(a) 1993 Credit Agreement, dated as of March 8, 1993, among Payless,
the Banks listed on the signature pages thereof and Canadian
Imperial Bank of Commerce, New York Agency, as Administrative
Agent (incorporated by reference to Exhibit 4.1(b) filed as part
of Amendment No. 1 to Registration Statement No. 33-58008 on
Form S-2 on March 8, 1993).
4.2(b) First Amendment dated as of March 15, 1993, to the 1993 Credit
Agreement, dated as of March 8, 1993, among Payless, the Banks
listed on the signature pages thereof and Canadian Imperial Bank
of Commerce, New York Agency, as Administrative Agent
(incorporated by reference to Exhibit 4.2(b) filed as part of
Registration Statement No. 33-59854 on Form S-2 on March 19,
1993).
4.2(c) Second Amendment dated as of March 19, 1993, to the 1993 Credit
Agreement, dated as of March 8, 1993, among Payless, the Banks
listed on the signature pages thereof and Canadian Imperial Bank
of Commerce, New York Agency, as Administrative Agent
(incorporated by reference to Exhibit 4.2(c) filed as part of
Amendment No. 1 to Registration Statement No. 33-59854 on Form
S-2 on April 9, 1993).
4.2(d) Third Amendment dated as of April 14, 1993, to the 1993 Credit
Agreement, dated as of March 8, 1993, among Payless, the Banks
listed on the signature pages thereof and Canadian Imperial Bank
of Commerce, New York Agency, as Administrative Agent
(incorporated by reference to Exhibit 4.1(b) filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended May
29, 1993).
4.2(e) Fourth Amendment dated as of September 17, 1993, to the 1993
Credit Agreement, dated as of March 8, 1993, among Payless, the
Banks listed on the signature pages thereof and Canadian
Imperial Bank of Commerce, New York Agency, as Administrative
Agent (incorporated by reference to Exhibit 4.1 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
August 28, 1993).
4.2(f) Fifth Amendment dated as of February 14, 1994, to the 1993
Credit Agreement, dated as of March 8, 1993, among Payless, the
Banks listed on the signature pages thereof and Canadian
Imperial Bank of Commerce, New York Agency, as Administrative
Agent.
4.3 Amended and Restated Warrant Agreement, dated as of January 1,
1993, to Warrant Agreement dated as of November 1, 1988, between
Payless and Bank of New York (incorporated by reference to
Exhibit 4.1(b) of Payless' Annual Report on Form 10-K for the
fiscal year ended November 28, 1992, as amended by Form 8, dated
February 1, 1993).
<PAGE> 13
4.4(a) Loan Agreement dated June 20, 1989, by and among Payless
Cashways, Inc., Knox Home Centers, Inc., Somerville Lumber and
Supply Co., Inc., and The Prudential Insurance Company of
America (incorporated by reference to Exhibit 4.2 filed as part
of Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(b) Guaranty effective June 20, 1989, given by Somerville Lumber and
Supply Co., Inc. to The Prudential Insurance Company of America,
guaranteeing certain indebtedness of Payless Cashways, Inc.
(incorporated by reference to Exhibit 4.7 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended May
27, 1989).
4.4(c) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche A (AR, MA, NH,
RI) (incorporated by reference to Exhibit 4.10 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended May
27, 1989).
4.4(d) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche A (LA)
(incorporated by reference to Exhibit 4.11 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended May
27, 1989).
4.4(e) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche B (MN)
(incorporated by reference to Exhibit 4.12 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended May
27, 1989).
4.4(f) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche B (MT)
(incorporated by reference to Exhibit 4.13 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended May
27, 1989).
4.4(g) Promissory Note dated June 20, 1989 from Payless to the
Prudential Insurance Company of America, Tranche B (ND)
(incorporated by reference to Exhibit 4.14 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended May
27, 1989).
4.4(h) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche B (NV)
(incorporated by reference to Exhibit 4.15 filed a part of
Payless' Quarterly Report on Form 10-Q for the quarter ended May
27, 1989).
4.4(i) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche B (AZ, CA)
(incorporated by reference to Exhibit 4.16 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended May
27, 1989).
4.4(j) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche C (IN, KY, NM,
OH, TN)(incorporated by reference to Exhibit 4.17 filed as part
of Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(k) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche D (CO, IA, IL,
KS, NE, MO, TX, OR, OK) (incorporated by reference to Exhibit
4.18 filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended May 27, 1989).
4.4(l) Form of Deed of Trust, Mortgage and Security Agreement effective
June 20, 1989, given to The Prudential Insurance Company of
America (incorporated by reference to Exhibit 4.19 filed as part
of Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(m) Form of Deed of Trust, Security Agreement and Assignment of
Leases dated June 20, 1989 given to Morgan Bank (Delaware), as
Collateral Agent (incorporated by reference to Exhibit 4.20
filed as part of Payless' Quarterly Report on Form 10-Q for the
quarter ended May 27, 1989).
4.4(n) First Modification Agreement dated as of October 18, 1991, by
and among Payless, Knox, Somerville and The Prudential Insurance
Company of America (incorporated by reference to Exhibit 4.9(r)
filed as part of Payless' Annual Report on Form 10-K for fiscal
year ended November 30, 1991).
<PAGE> 14
4.4(o) Second Modification Agreement dated as of December 17, 1991, by
and among Payless, Knox, Somerville and The Prudential Insurance
Company of America (incorporated by reference to Exhibit 4.9(s)
filed as part of Payless' Annual Report on Form 10-K for fiscal
year ended November 30, 1991).
4.4(p) Third Modification Agreement dated as of December 31, 1991, by
and among Payless, Knox, Somerville and the Prudential Insurance
Company of America (incorporated by reference to Exhibit 4.9(t)
filed as part of Payless' Annual Report on Form 10-K for fiscal
year ended November 30, 1991).
4.4(q) Fourth Modification Agreement dated as of March 8, 1993, by and
among Payless, Somerville and The Prudential Insurance Company
of America (incorporated by reference to exhibit 4.6(v) filed as
part of Amendment No. 1 to Registration Statement No. 33-58008
on Form S-2 on March 8, 1993).
4.4(r) Letter dated March 12, 1993 modifying Fourth Modification
Agreement dated as of March 8, 1993 by and among Payless,
Somerville and The Prudential Insurance Company of America
(incorporated by reference to Exhibit 4.5(w) filed as part of
Registration Statement No. 33-59854 on Form S-2 on March 19,
1993).
4.5 Security Agreement, dated October 7, 1988, executed by Payless
for the benefit of Morgan Bank (Delaware) as Collateral Agent
(incorporated by reference to Exhibit 4.15 filed as part of
Post-Effective Amendment No. 1 on Form S-2 to Form S-1
Registration Statement No. 33-23893 filed August 8, 1989).
4.6 Acknowledgement and Release of Current Banks, dated as of March
8, 1993, among Morgan Guaranty Trust Company of New York,
Payless and the banks party to the 1988 Credit Assignment
(incorporated by reference to Exhibit 4.8 filed as part of
Registration Statement No. 33-59854 on Form S-2 on March 19,
1993).
4.7 Assignment Agreement, dated as of March 8, 1993, among J.P.
Morgan Delaware, Canadian Imperial Bank of Commerce, New York
Agency ("CIBC"), Payless and Somerville (incorporated by
reference to Exhibit 4.9 filed as part of Registration Statement
No. 33-59854 on Form S-2 on March 19, 1993).
4.8 Subsidiary Security Agreement, dated as of March 8, 1993, made
by Somerville in favor of CIBC, as Collateral Agent, for the
benefit of the banks and other financial institutions party to
the 1993 Credit Agreement (incorporated by reference to Exhibit
4.10 filed as part of Registration Statement No. 33-59854 on
Form S-2 on March 19, 1993).
4.9 Amended and Restated Note Pledge Agreement, dated as of March 8,
1993, between Payless and CIBC, as Collateral Agent, for the
benefit of the banks and other financial institutions party to
the 1993 Credit Agreement (incorporated by reference to Exhibit
4.11 filed as part of Registration Statement No. 33-59854 on
Form S-2 on March 19, 1993).
4.10(a) Amended and Restated Inter-Facility Agreement, dated as of March
8, 1993, between Payless, Somerville and CIBC, as Administrative
Agent and Collateral Agent for the benefit of the banks and
other financial institutions listed on the signature pages
thereto (incorporated by reference to Exhibit 4.12 filed as part
of Registration Statement No. 33-59854 on Form S-2 on March 19,
1993).
4.10(b) Joinder Agreement dated February 14, 1994 among Payless,
Somerville Lumber and Supply Co., Inc. the Banks listed on the
signature pages thereof and Canadian Imperial Bank of Commerce,
New York Agency, as Administrative Agent.
4.11 Amended and Restated Borrower Security Agreement, dated as of
March 8, 1993, between Payless and CIBC, as Collateral Agent,
for the benefit of the banks and other financial institutions
party to the 1993 Credit Agreement (incorporated by reference to
Exhibit 4.13 filed as part of Registration Statement No. 33-
59854 on Form S-2 on March 19, 1993).
4.12 Amended and Restated Guarantee, dated as of March 8, 1993,
between Somerville and CIBC, as Collateral Agent, for the
benefit of the banks and other financial institutions party to
the 1993 Credit Agreement (incorporated by reference to Exhibit
4.14 filed as part of Registration Statement No. 33-59854 on
Form S-2 on March 19, 1993).
<PAGE> 15
4.13 Amended and Restated Pledge Agreement, dated as of March 8,
1993, between Payless and CIBC, as Collateral Agent, for the
benefit of the banks and other financial institutions party to
the 1993 Credit Agreement (incorporated by reference to Exhibit
4.15 filed as part of Registration Statement No. 33-59854 on
Form S-2 on March 19, 1993).
4.14 Form of First amendment to Mortgage and Assignment of Mortgage,
dated as of March 15, 1993, among Payless, CIBC, as Collateral
Agent, and J.P. Morgan Delaware (incorporated by reference to
Exhibit 4.16 filed as part of Registration Statement No. 33
-59854 on Form S-2 on March 19, 1993).
10.1 Supply Agreement dated as of August 4, 1988, between Masco
Corporation and Payless (incorporated by reference to Exhibit
10.1 filed as part of Registration Statement No.33-23893 on Form
S-1 filed August 19, 1988).
10.2 Indemnification Agreement (incorporated by reference to Exhibit
10.2 filed as part of Amendment No. 2 to Registration Statement
No. 33-49772 filed August 26, 1992).
10.3 Payless Cashways, Inc. Corporate Management Incentive
Compensation Program, dated as of December 1991 (incorporated by
reference to Exhibit 10.2 filed as part of Payless' Quarterly
Report on Form 10-Q for the quarter ended May 30, 1992).
10.4(a) Employment Agreement dated as of December 1, 1988 between
Payless and Larry P. Kunz (incorporated by reference to Exhibit
10.12 filed as part of Post Effective Amendment No. 1 on Form
S-2 to Form S-1 Registration Statement No. 33-23893 filed August
8, 1989).
10.4(b) Amendment dated March 10, 1992 to Employment Agreement between
Payless and Larry Kunz (incorporated by reference to Exhibit
10.1 filed as part of the Payless' Quarterly Report on Form 10-Q
for the quarter ended February 29, 1992).
10.4(c) Amendment dated as of February 8, 1993 to Employment Agreement
between Payless and Larry Kunz (incorporated by reference to
Exhibit 10.4(c) filed as part of Registration Statement No. 33-
58008 on Form S-2 on March 8, 1993).
10.4(d) Amendment dated June 23, 1993 to Employment Agreement between
Payless and Larry Kunz (incorporated by reference to Exhibit
10.1 filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended May 29, 1993).
10.4(e) Employment Agreement dated as of September 22, 1993 between
Payless and Larry Kunz (incorporated by reference to Exhibit
10.1 filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended August 28, 1993).
10.5(a) Employment Agreement dated as of December 1, 1988 between
Payless and David Stanley (incorporated by reference to Exhibit
10.13 filed as part of Post Effective Amendment No. 1 on Form
S-2 to Form S-1 Registration Statement No. 33-23893 filed August
8, 1989).
10.5(b) Amendment dated March 10, 1992 to Employment Agreement between
Payless and David Stanley, (incorporated by reference to Exhibit
10.2 filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended February 29, 1992).
10.5(c) Amendment dated June 23, 1993 to Employment Agreement between
Payless and David Stanley (incorporated by reference to Exhibit
10.2 filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended May 29, 1993).
10.6(a) Employment Agreement dated as of December 1, 1988 between
Payless and Harold Cohen (incorporated by reference to Exhibit
10.14 filed as part of Post Effective Amendment No. 1 on Form
S-2 to Form S-1 Registration Statement No. 33-23893 filed August
8, 1989).
<PAGE> 16
10.6(b) Amendment dated March 10, 1992 to Employment Agreement between
Payless and Harold Cohen (incorporated by reference to Exhibit
10.3 filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended February 29, 1992).
10.6(c) Retirement Agreement dated as of November 14, 1993 between
Payless and Harold Cohen.
10.7 Employment Agreement dated as of February 8, 1993 between
Payless and Ronald H. Butler (incorporated by reference to
Exhibit 10.24 files as part of Registration Statement No. 33-
58008 on Form S-2 on February 8, 1993).
10.8 Employment Agreement dated as of February 8, 1993 between
Payless and Stephen A. Lightstone (incorporated by reference to
Exhibit 10.25 filed as part of Registration Statement No. 33-
58008 on Form S-2 on February 8, 1993).
10.9 Employment Agreement dated as of February 8, 1993 between
Payless and Susan M. Stanton (incorporated by reference to
Exhibit 10.26 filed as part of Registration Statement No. 33-
58008 on Form S-2 on February 8, 1993).
10.10(a) Payless Cashways, Inc. Wealth-Op Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8 filed as part of
Post-Effective Amendment No. 7 to Registration Statement No. 33-
23893 on Form S-2 filed May 26, 1992).
10.10(b) Amendment to Payless' Wealth-Op Deferred Compensation Plan.
10.11(a) Payless Cashways, Inc. 1988 Deferred Compensation Plan.
10.11(b) Amendment to Payless' 1988 Deferred Compensation Plan.
10.12 Payless Cashways, Inc. Supplemental Death Benefit Plan.
10.13 Payless Cashways, Inc. Supplemental Disability Plan.
10.14(a) Payless Cashways, Inc. Supplemental Retirement Plan.
10.14(b) First Amendment to the Payless Cashways, Inc. Supplemental
Retirement Plan effective June 22, 1989.
10.15(a) Registration Rights Agreement dated as of August 4, 1988 among
PCI Acquisition Corp. and certain of its shareholders.
10.15(b) Agreement and Amendment dated as of November 11, 1988 to
Registration Rights Agreement dated as of August 4, 1988 among
Payless and certain of its shareholders.
10.15(c) Addendum to Shareholders' Agreement and Registration Rights
Agreement dated February 22, 1989 by and among Payless and
certain of its shareholders.
10.16(a) Amended and Restated Shareholders' Agreement, dated as of
February 22, 1990, by and among PCI Acquisition Corp. and
certain of its shareholders (incorporated by reference to
Exhibit 10.47 filed as part of Post-Effective Amendment No. 3 to
Registration Statement No. 33-23893 on Form S-2 filed March 23,
1990).
10.16(b) Amendment No. 1 dated as of March 18, 1991, to the Amended and
Restated Shareholders' Agreement dated as of February 22, 1990,
by and among Payless and certain of its shareholders
(incorporated by reference to Exhibit 10.43(b) filed as part of
Post-Effective Amendment No. 5 to Registration Statement No.
33-23893 on Form S-2 filed March 21, 1991).
10.17(a) 1988 Payless Cashways, Inc. Employee Stock Plan (incorporated by
reference to Annex 1 filed as part of Registration Statement No.
33-24368 on Form S-8 filed September 9, 1988).
<PAGE> 17
10.17(b) First Amendment to the 1988 Payless Cashways, Inc. Employee
Stock Plan, dated November 11, 1988 (incorporated by reference
to Exhibit 10.1(b) filed as part of Payless' Quarterly Report on
Form 10-Q for the quarter ended February 25, 1989).
10.17(c) Second Amendment to the 1988 Payless Cashways, Inc. Employee
Stock Plan, dated February 22, 1989 (incorporated by reference
to Exhibit 10.1(c) filed as part of Payless' Quarterly Report on
Form 10-Q for the quarter ended February 25, 1989).
10.17(d) Third Amendment to the 1988 Payless Cashways, Inc. Employee
Stock Plan, dated March 6, 1990 (incorporated by reference to
Exhibit 10.2 of Payless' Quarterly Report on Form 10-Q for the
quarter ended February 24, 1990).
10.17(e) Form of Performance Stock Option Agreement pursuant to the 1988
Payless Cashways, Inc. Employee Stock Option Plan amended on
June 20, 1991 (incorporated by reference to Exhibit 10.21(e)
filed as part of Payless' Annual Report on Form 10-K for fiscal
year ended November 30, 1991).
10.17(f) Amendment to the 1988 Payless Cashways, Inc. Employee Stock
Plan, dated as of May 1, 1992 (incorporated by reference to
Exhibit 10.26 filed as part of Post-Effective Amendment No. 7 to
Form S-2 Registration Statement No. 33-23893 filed May 26,
1992).
10.18 Payless Cashways 1992 Incentive Stock Program (incorporated by
reference to Exhibit 10.24 filed as part of Amendment No. 2 to
Registration Statement No. 33-49772 on Form S-2 filed August 26,
1992).
10.19 Payless Cashways Director Option Plan (incorporated by reference
to Exhibit 10.23 filed as part of Registration Statement No. 33-
59854 on Form S-2 on March 19, 1993).
11.1 Computation of per share earnings.
13.1 Annual Report to Shareholders.
21.1 Subsidiary of the Registrant (incorporated by reference to
Exhibit 22.1 filed as part of Payless' Annual Report on Form
10-K for fiscal year ended November 30,1991).
23.1 Consent of KPMG Peat Marwick.
Copies of any or all Exhibits will be furnished upon written request and payment
of Payless' reasonable expenses in furnishing the Exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Registrant during
the quarter ended November 27, 1993.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a
separate section of this report.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Payless has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PAYLESS CASHWAYS, INC.
(Registrant)
By s/David Stanley
------------------------------------------
David Stanley, Principal Executive Officer
Dated: February 14, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Payless and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
============================= ================================= ===================
<S> <C> <C>
s/David Stanley
- ----------------------------- Chief Executive Officer and February 14, 1994
David Stanley Chairman of the Board
(Principal Executive Officer)
s/Susan M. Stanton
- ----------------------------- President and Chief Operating February 14, 1994
Susan M. Stanton Officer and Director
s/Harold Cohen
- ----------------------------- Director February 11, 1994
Harold Cohen
s/Scott G. Fossel
- ----------------------------- Director February 11, 1994
Scott G. Fossel
s/William A. Hall
- ----------------------------- Director February 11, 1994
William A. Hall
s/Larry P. Kunz
- ----------------------------- Director February 11, 1994
Larry P. Kunz
s/George Latimer
- ----------------------------- Director February 11, 1994
George Latimer
s/Wayne B. Lyon
- -----------------------------
Wayne B. Lyon Director February 11, 1994
s/Gary D. Rose
- ----------------------------- Director February 11, 1994
Gary D. Rose
s/Ralph Strangis
- ----------------------------- Director February 11, 1994
Ralph Strangis
s/John H. Weitnauer, Jr.
- ----------------------------- Director February 8, 1994
John H. Weitnauer, Jr.
s/Stephen A. Lightstone
- ----------------------------- Senior Vice President-Finance/ February 14, 1994
Stephen A. Lightstone Treasurer and Chief Financial
Officer (Principal Financial
Officer and Principal
Accounting Officer)
</TABLE>
<PAGE> 19
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
EXHIBITS
YEAR ENDED NOVEMBER 27, 1993
PAYLESS CASHWAYS, INC., and subsidiary
KANSAS CITY, MISSOURI
<PAGE> 20
PAYLESS CASHWAYS, INC., and subsidiary
FORM 10-K--ITEM 14(a) (1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Payless Cashways, Inc.,
and subsidiary included in Payless' Annual Report to the Shareholders for the
year ended November 27, 1993, are incorporated by reference in Item 8:
Consolidated Balance Sheets--November 27, 1993 and November 28, 1992.
Consolidated Statements of Operations--fiscal years ended November 27,
1993, November 28, 1992 and November 30, 1991.
Consolidated Statements of Shareholders' Equity--fiscal years ended
November 27, 1993, November 28, 1992 and November 30, 1991.
Consolidated Statements of Cash Flows--fiscal years ended November 27,
1993, November 28, 1992 and November 30, 1991.
Notes to Consolidated Financial Statements.
The following financial statement schedules of Payless Cashways, Inc., and
subsidiary are included in Item 14(d):
V - Property, Plant and Equipment
VI - Accumulated Depreciation and Amortization of Property, Plant and
Equipment
VIII - Valuation and Qualifying Accounts
IX - Short-Term Borrowings
X - Supplementary Income Statement Information
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
<PAGE> 21
[Letterhead of KPMG Peat Marwick]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Payless Cashways, Inc.:
Under date of January 7, 1994, we reported on the consolidated balance sheets of
Payless Cashways, Inc. and subsidiary as of November 27, 1993 and November 28,
1992, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the fiscal years in the three-year period
ended November 27, 1993, as contained in the 1993 annual report to shareholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the fiscal year 1993. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedules as listed
in the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits.
In our opinion, such schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
s/KPMG Peat Marwick
-------------------
KPMG Peat Marwick
Kansas City, Missouri
January 7, 1994
<PAGE> 22
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
PAYLESS CASHWAYS, INC., and subsidiary
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning Other changes Balance at end
Classification of period Additions at cost Retirements add (deduct) of period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 27, 1993:
Land and land improvements $ 172,090 $ 6,197 $ 146 $ (565)(1) $ 178,251
675 (3)
Buildings 415,344 14,705 1,331 10,232 (1) 435,886
(3,064)(3)
Equipment 88,771 17,529 1,821 (117)(1) 103,959
(403)(3)
Automobiles and trucks 20,012 9,271 661 117 (1) 28,739
Construction in progress 9,667 2,280 -- (9,667)(1) 2,280
--------- ---------- --------- -------- ----------
TOTAL $ 705,884 $ 49,982 (2) $ 3,959 $(2,792) $ 749,115
========= ========== ========= ======== ==========
YEAR ENDED NOVEMBER 28, 1992:
Land and land improvements $ 168,387 $ 3,911 $ 226 $ 18 (1) $ 172,090
Buildings 401,097 15,703 1,448 (8) (1) 415,344
Equipment 88,798 9,066 9,023 (70) (1) 88,771
Automobiles and trucks 19,693 880 621 60 (1) 20,012
Construction in progress 2,615 7,052 -- -- 9,667
---------- ---------- --------- -------- ----------
TOTAL $ 680,590 $ 36,612 (2) $ 11,318 $ -- $ 705,884
========== ========== ========= ======== ==========
YEAR ENDED NOVEMBER 30, 1991:
Land and land improvements $ 164,703 $ 5,776 $ 127 $ (896) (3) $ 168,387
(1,069) (1)
Buildings 374,130 14,317 2,818 (28) (3) 401,097
15,496 (1)
Equipment 86,219 12,416 1,786 (11,227) (1) 88,798
3,176 (3)
Automobiles and trucks 16,715 5,949 1,571 (1,400) (1) 19,693
Construction in progress 1,851 2,564 -- (1,800) (1) 2,615
---------- ---------- --------- -------- ----------
TOTAL $ 643,618 $ 41,022 (2) $ 6,302 $ 2,252 $ 680,590
========== ========== ========= ======== ==========
<FN>
(1) Reclassification.
(2) Additions principally relate to building and equipment for new stores and replacement of existing equipment.
(3) Transfer to/from Real Estate Held for Resale and Other Assets.
</TABLE>
<PAGE> 23
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
PAYLESS CASHWAYS, INC., and subsidiary
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning Other changes Balance at end
Classification of period Additions at cost Retirements add (deduct) of period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 27, 1993:
Land and land improvements $ 8,087 $ 2,183 $ 61 $ (177) (1) $ 10,032
Buildings 101,067 24,628 1,372 (992) (1) 123,331
Equipment 52,887 12,511 1,727 (21) (1) 63,455
Automobiles and trucks 11,921 3,874 614 -- 15,181
-------- -------- -------- -------- --------
TOTAL $173,962 $ 43,196 $ 3,774 $(1,385) $211,999
======== ======== ======== ======== ========
YEAR ENDED NOVEMBER 28, 1992:
Land and land improvements $ 5,988 $ 2,240 $ 141 $ -- $ 8,087
Buildings 78,720 24,889 2,542 -- 101,067
Equipment 48,223 11,992 7,328 -- 52,887
Automobiles and trucks 9,142 3,291 512 -- 11,921
-------- -------- -------- -------- --------
TOTAL $142,073 $ 42,412 $ 10,523 $ -- $173,962
======== ======== ======== ======== ========
YEAR ENDED NOVEMBER 30, 1991:
Land and land improvements $ 4,214 $ 2,014 $ 80 $ (160) (2) $ 5,988
Buildings 57,714 24,019 2,718 (143) (2) 78,720
(152) (1)
Equipment 35,309 14,666 1,612 (140) (2) 48,223
Automobiles and truck 6,469 3,576 1,346 443 (2) 9,142
-------- -------- -------- -------- --------
TOTAL $103,706 $ 44,275 $ 5,756 $ (152) $142,073
======== ======== ======== ======== ========
<FN>
The annual provisions for depreciation have been computed principally in accordance with the following ranges of rates: Buildings,
3% to 20%; Equipment, 10% to 20%; Automobiles and trucks, 14% to 33%.
(1) Transfer to/from Real Estate Held for Resale and Other Assets.
(2) Reclassification.
</TABLE>
<PAGE> 24
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
PAYLESS CASHWAYS, INC., and subsidiary
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------
Balance at Charged to Balance at
beginning cost and end of
Description of period expenses Deductions period
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 27, 1993:
Reserve for Inventory Shrink
and Obsolescence $ 12,848 $ 23,948 $ 18,544 $ 18,252
YEAR ENDED NOVEMBER 28, 1992:
Reserve for Inventory Shrink
and Obsolescence $ 13,937 $ 24,911 $ 26,000 $ 12,848
YEAR ENDED NOVEMBER 30, 1991:
Reserve for Inventory Shrink
and Obsolescence $ 13,184 $ 35,491 $ 34,738 $ 13,937
</TABLE>
<PAGE> 25
SCHEDULE IX - SHORT-TERM BORROWINGS
PAYLESS CASHWAYS, INC., and subsidiary
(In thousands, except interest rates)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum amount Average amount Weighted average
Category of aggregate Balance at Weighted average outstanding outstanding interest rate
short-term borrowings end of period interest rate at any month end during the period (1) during the period (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 27, 1993 $5,000 7.5% $35,000 $13,791 7.3%
YEAR ENDED NOVEMBER 28, 1992 $ 0 N/A $15,000 $ 3,321 8.0%
YEAR ENDED NOVEMBER 30, 1991 $ 0 N/A $10,000 $ 526 10.7%
<FN>
(1) The average amount outstanding during the period was computed by dividing the total daily principal balances outstanding by
the number of days in the period.
(2) The weighted average interest rate during the period was computed by dividing the actual interest expense by the average
short-term debt outstanding.
</TABLE>
<PAGE> 26
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
PAYLESS CASHWAYS, INC., and subsidiary
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
COL. A COL. B
- ------------------------------------------------------------------------------------------------------------
Item Charged to costs and expenses
- ------------------------------------------------------------------------------------------------------------
<S> <C>
YEAR ENDED NOVEMBER 27, 1993:
Advertising costs $36,475
Maintenance and repairs $26,371
YEAR ENDED NOVEMBER 28, 1992:
Advertising costs $37,232
Maintenance and repairs $23,143
YEAR ENDED NOVEMBER 30, 1991:
Advertising costs $39,875
Maintenance and repairs $22,119
<FN>
NOTE -- Amounts for depreciation and amortization of intangible assets; taxes, other than payroll and income taxes; and royalties,
are not presented as such amounts are either not present, are less than 1% of total sales and revenues, or are shown in the
related financial statements or schedules.
</TABLE>
<PAGE> 1
Exhibit 4.2(f)
FIFTH AMENDMENT
---------------
FIFTH AMENDMENT, dated as of February 14, 1994 (this "Fifth
Amendment"), to the Amended and Restated Credit Agreement, dated as of March 8,
1993 (as heretofore amended, the "Credit Agreement"), among Payless Cashways,
Inc., an Iowa corporation (the "Borrower"), the banks and other financial
institutions parties thereto (the "Banks"), Canadian Imperial Bank of Commerce,
New York Agency ("CIBC"), as Administrative Agent (in such capacity, the
"Administrative Agent") and as Collateral Agent (in such capacity, the
"Collateral Agent"), CIBC, The Bank of Nova Scotia and NationsBank of Texas,
N.A., as Managing Agents (in such capacity, the "Managing Agents") and Bank of
America National Trust and Savings Association, as Co-Agent (in such capacity,
the "Co-Agent").
W I T N E S S E T H :
---------------------
WHEREAS, the Borrower, the Banks, the Administrative Agent, the
Collateral Agent, the Letter of Credit Bank, the Managing Agents and the Co-
Agent are parties to the Credit Agreement;
WHEREAS, the Borrower has requested that the Banks amend the Credit
Agreement in the manner set forth below; and
WHEREAS, the Banks are willing to accede to the requests of the
Borrower upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Borrower, the Banks, the Administrative Agent,
the Collateral Agent, the Letter of Credit Bank, the Managing Agents and the Co-
Agent hereby agree as follows:
SECTION I. DEFINED TERMS
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein are so used as so defined, and the following terms shall have
the following meanings:
"Fifth Amendment Phase I Effective Date" means the date on which all
conditions precedent specified in Section III A of this Fifth Amendment
shall have been satisfied in accordance with their respective terms.
"Fifth Amendment Phase II Effective Date" means the date, if any,
occurring prior to May 14, 1994 on which all conditions precedent specified
in Section II B of this Fifth Amendment shall have been satisfied in
accordance with their respective terms.
<PAGE> 2
SECTION II. AMENDMENTS
A. PHASE I AMENDMENTS. The amendments to the Credit Agreement
contained in this Section II A shall become effective on and as of the Fifth
Amendment Phase I Effective Date.
1. Definitions. (a) Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of "Required Banks" therefrom and
substituting, in lieu thereof, the following:
"'Required Banks' means at any time Banks and Standby Participating
Banks having an aggregate amount of the Revolving Commitments, Term Loan
Commitments (or, after the Term Loan Commitments expire, are terminated or
are fully utilized, Term Loans) and Standby Commitments which constitute at
least 51% of the aggregate amount of all Revolving Commitments, Term Loan
Commitments (or, after the Term Loan Commitments expire, are terminated or
are fully utilized, Term Loans) and Standby Commitments then in effect or
outstanding; provided that for the purposes of this definition, (a) the
Commitments of any Bank shall be disregarded if and for so long as such
Bank (each, a "Defaulting Bank") shall have not theretofore made available
to (i) the Administrative Agent its pro rata share of a given Borrowing in
accordance with Section 2.02(c) or (ii) the Letter of Credit Bank its pro
rata share of a given unreimbursed reimbursement obligation in accordance
with Section 3.04 and (b) the Standby Commitment of any Standby
Participating Bank shall be disregarded if and for so long as such Standby
Participating Bank is a Defaulting Standby Participating Bank.".
(b) Section 1.01 of the Credit Agreement is hereby further amended by
deleting the definition of "Revolving Commitment" therefrom and substituting, in
lieu thereof, the following:
"'Revolving Commitment' means, with respect to each Bank, the amount
set forth opposite the name of such Bank on the signature pages to the
Fifth Amendment (or, in the case of a Bank which becomes a party hereto
after the Fifth Amendment Phase I Effective Date, in the Commitment
Transfer Supplement pursuant to which such Bank becomes a party hereto) as
its "Revolving Commitment", as such amount may be reduced from time to time
pursuant to Sections 2.06 and 2.07 and as it may be adjusted pursuant to
Section 10.06(c) hereof.".
(c) Section 1.01 of the Credit Agreement is hereby further amended by
deleting the definition of "Standby Letter of Credit Agreement" therefrom and
substituting, in lieu thereof, the following:
"'Standyby Letter of Credit Agreement' means the Standby Letter of
Credit Issuance and Reimbursement Agreement, dated as of February 14, 1994,
among the Borrower, the Standby Participating Banks and CIBC, as Issuing
Bank.".
<PAGE> 3
(d) Section 1.01 of the Credit Agreement is hereby further amended by
adding the following defined terms thereto in the appropriate alphabetical
order:
"'Defaulting Standby Participating Bank' has the meaning assigned to
the term "Defaulting Participating Bank" in the Standby Letter of Credit
Agreement.
'Fifth Amendment' means the Fifth Amendment, dated as of February 14,
1994, to this Agreement.
'Fifth Amendment Phase I Effective Date' means the date on which all
conditions precedent specified in Section III A of the Fifth Amendment
shall have been satisfied in accordance with their respective terms.
'Required Accelerating Banks' means at any time the Required Banks;
provided that for the purposes of this definition of Required Accelerating
Banks only, the Standby Commitments of the Standby Participating Banks
shall be disregarded in any calculation of the Required Banks at any time
after the Obligations under the Standby Letter of Credit Agreement shall
have been accelerated.
'Standby Commitment' has the meaning set forth in the Standby Letter
of Credit Agreement.
'Standby Participating Bank' has the meaning assigned to the term
"Participating Bank" in the Standby Letter of Credit Agreement.".
2. Mandatory Termination or Reduction of Commitments and Mandatory
Prepayments. Section 2.07(l) of the Credit Agreement is hereby amended by
deleting such Section in its entirety and substituting in lieu thereof,
"INTENTIONALLY DELETED".
3. 1994 Adjustments. Article II of the Credit Agreement is hereby
amended by adding at the end thereof a new Section 2.11, which new Section shall
be and read as follows:
"SECTION 2.11. 1994 Adjustments. (a) On and as of the Fifth Amendment
Phase I Effective Date, each Bank's Revolving Commitment shall be as set
forth opposite the name of such Bank on the signature pages to the Fifth
Amendment as its "Revolving Commitment". All Banks whose Revolving
Commitments have, pursuant to the Fifth Amendment, changed shall receive a
new Revolving Note reflecting such change in
<PAGE> 4
accordance with paragraph 2 of Section III of the Fifth Amendment.
(b) On the Fifth Amendment Phase I Effective Date, the Agent and the
Banks shall make appropriate adjustments to allocate among the Banks the
outstanding Revolving Loans made as CIBC Alternate Base Rate Loans in order
to reflect the revised Revolving Commitments of the Banks after giving
effect to the Fifth Amendment. Such adjustments may include payments being
made to Banks whose Revolving Commitments are decreasing or being
terminated, and advances being made by Banks whose Revolving Commitments
are increasing.
(c) On the Fifth Amendment Phase I Effective Date, the Borrower shall
prepay all Revolving Loans, if any, made as Euro-Dollar Loans, and shall
pay all amounts then owing under Section 4.05. Subject to the terms and
conditions hereof, the Borrower may then immediately re-borrow Revolving
Loans from the Banks in accordance with the revised Revolving Commitments
of the Banks after giving effect to the Fifth Amendment."
4. Events of Default. Section 8.01 of the Credit Agreement is
hereby amended by (i) adding the word "or" at the end of paragraph (n) thereof
and (ii) adding the following new paragraph (o) immediately after such paragraph
(n):
"(o) any "Standby Event of Default" under the Standby Letter of Credit
Agreement shall have occurred and shall be continuing;".
5. Acceleration Clause. That portion of Section 8.01 of the Credit
Agreement which follows new paragraph (o) (i.e., the text beginning with the
words "then, and in every such event, the Administrative Agent shall") is hereby
amended by deleting the term "Required Banks" each time such term appears
therein and substituting, in lieu thereof, the term "Required Accelerating
Banks".
6. Amendments and Waivers. Section 10.05 of the Credit Agreement is
hereby amended by deleting the proviso thereto and substituting, in lieu
thereof, the following:
"provided that no such amendment or waiver shall, unless signed by all the
Banks (other than Defaulting Banks) affected thereby and all the Standby
Participating Banks (other than Defaulting Standby Participating Banks)
affected thereby, (i) increase or decrease the Revolving Commitment,
Tranche A Term Commitment or Tranche B Term Commitment of any Bank or
subject any Bank to any additional obligation to extend credit hereunder,
(ii) reduce the principal of or rate of interest on any Loan or any fees
hereunder, (iii) postpone the date fixed for any payment of principal of or
interest on any Loan or any fees hereunder, (iv) change the
<PAGE> 5
definition of "Required Banks" or "Required Accelerating Banks", (v) amend
or waive any provision of this Section 10.05, (vi) change the percentage of
the Revolving Commitments,Tranche A Term Commitments, Tranche B Term
Commitments or Standby Commitments or of the aggregate unpaid principal
amount of the Notes, or the number of Banks or Standby Participating Banks,
which shall be required for the Administrative Agent, the Managing Agents,
the Banks or the Standby Participating Banks or any of them to take any
action under this Section or any other provision of this Agreement, (vii)
substitute, discharge, release or surrender all or substantially all of the
Collateral except as permitted in the Credit Documents or (viii) release
any Guarantee of the Bank Obligations.".
7. Successors and Assigns; Participations; Purchasing Banks. Section
10.06(a) of the Credit Agreement is hereby amended by deleting such Section in
its entirety and substituting, in lieu thereof, the following:
"(a) This Agreement shall be binding upon and inure to the benefit
of the Borrower, the Banks, the Managing Agents, the Administrative Agent,
all future holders of the Notes and the Participating Interests and their
respective successors and assigns, except that (i) Section 10.05 and the
definition of "Required Banks" shall inure to the benefit of and be
enforceable by the Standby Participating Banks and (ii) the Borrower may
not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Bank and each Standby
Participating Bank.".
B. PHASE II AMENDMENTS. The amendments to the Credit Agreement
contained in this Section II B shall become effective on and as of the Fifth
Amendment Phase II Effective Date.
1. Definitions. (a) Section 1.01 of the Credit Agreement is hereby
amended by deleting the definition of "CIBC Alternate Base Rate Margin"
therefrom and substituting, in lieu thereof, the following:
"'CIBC Alternate Base Rate Margin' means
(a) in the case of Revolving Loans and Tranche A Term Loans, a
rate per annum equal to one and one-half percent (1-1/2%); provided, that
if the Debt to Capitalization Ratio on the last day of any fiscal quarter
of the Borrower shall be less than or equal to .68 to 1.00 but greater than
.49 to 1.00, then the CIBC Alternate Base Rate Margin shall (unless a
Default or Event of Default shall be then continuing) be changed to three-
quarters of one percent (3/4 of 1%) on the fifth Domestic Business Day
following the date of the receipt by the Banks of the financial statements
covering such fiscal quarter (or fiscal
<PAGE> 6
year, in the case of the last fiscal quarter of each fiscal year) pursuant
to Section 7.01(a) or (b) hereof and of the related compliance certificate
pursuant to Section 7.01(c) hereof and shall remain at such changed rate
until the next change in such rate required by this definition; and
provided, further, that if the Debt to Capitalization Ratio of the Borrower
shall be equal to or less than .49 to 1.00 on the last day of any fiscal
quarter of the Borrower, then the CIBC Alternate Base Rate Margin shall
(unless a Default or Event of Default shall be then continuing) be changed
to one-quarter of one percent (1/4 of 1%) on the fifth Domestic Business
Day following the date of the receipt by the Banks of the financial
statements covering such fiscal quarter (or fiscal year, in the case of the
last fiscal quarter of each fiscal year) pursuant to Section 7.01(a) or (b
hereof and of the related compliance certificate pursuant to Section
7.01(c) hereof and shall remain at such changed rate until the next change
in such rate required by this definition; provided, finally, that if the
Borrower shall fail to deliver such financial statements or compliance
certificate within the time periods required pursuant to said Sections, the
Debt to Capitalization Ratio for the period-end date covered thereby shall
conclusively be presumed to be greater than .68 to 1.00 unless and until
such financial statements and certificate are received by the Banks showing
such Debt to Capitalization Ratio to be less than .68 to 1.00; and
(b) in the case of Tranche B Term Loans, a rate per annum equal
to two percent (2%); provided, that if the Debt to Capitalization Ratio on
the last day of any fiscal quarter of the Borrower shall be less than or
equal to .68 to 1.00, then the CIBC Alternate Base Rate Margin shall
(unless a Default or Event of Default shall be then continuing) be changed
to one and one-half (1-1/2%) on the fifth Domestic Business Day following
the date of the receipt by the Banks of the financial statements covering
such fiscal quarter (or fiscal year, in the case of the last fiscal quarter
of each fiscal year) pursuant to Section 7.01(a) or (b) hereof and of the
related compliance certificate pursuant to Section 7.01(c) hereof and shall
remain at such changed rate until the next change in such rate required by
this definition; and provided, further, that if the Borrower shall fail to
deliver such financial statements or compliance certificate within the time
periods required pursuant to said Sections, the Debt to Capitalization
Ratio for the period-end date covered thereby shall conclusively be
presumed to be greater than .68 to 1.00 unless and until such financial
statements and certificate are received by the Banks showing such Debt to
Capitalization Ratio to be less than .68 to 1.00.".
(b) Section 1.01 of the Credit Agreement is hereby further amended by
deleting the definition of "Euro-Dollar Margin" therefrom and substituting, in
lieu thereof, the following:
<PAGE> 7
"'Euro-Dollar Margin' means
(a) in the case of Revolving Loans and Tranche A Term Loans, a
rate per annum equal to two and one-half percent (2-1/2%); provided, that
if the Debt to Capitalization Ratio on the last day of any fiscal quarter
of the Borrower shall be less than or equal to .68 to 1.00 but greater than
.49 to 1.00, then the Euro-Dollar Margin shall (unless a Default or Event
of Default shall be then continuing) be changed to one and three-quarters
percent (1-3/4%) on the fifth Domestic Business Day following the date of
the receipt by the Banks of the financial statements covering such fiscal
quarter (or fiscal year, in the case of the last fiscal quarter of each
fiscal year) pursuant to Section 7.01(a) or (b) hereof and of the related
compliance certificate pursuant to Section 7.01(c) hereof and shall remain
at such changed rate until the next change in such rate required by this
definition; and provided, further, that if the Debt to Capitalization Ratio
of the Borrower shall be equal to or less than .49 to 1.00 on the last day
of any fiscal quarter of the Borrower, then the Euro-Dollar Margin shall
(unless a Default or an Event of Default shall be then continuing) be
changed to one and one-quarter percent (1-1/4%) on the fifth Domestic
Business Day following the date of the receipt by the Banks of the
financial statements covering such fiscal quarter (or fiscal year, in the
case of the last fiscal quarter of each fiscal year) pursuant to Section
7.01(a) or (b) hereof and of the related compliance certificate pursuant to
Section 7.01(c) hereof and shall remain at such changed rate until the next
change in such rate required by this definition; provided, finally, that if
the Borrower shall fail to deliver such financial statements or compliance
certificate within the time periods required pursuant to said Sections, the
Debt to Capitalization Ratio for the period-end date covered thereby shall
conclusively be presumed to be greater than .68 to 1.00 unless and until
such financial statements and certificate are received by the Banks showing
such Debt to Capitalization Ratio to be less than .68 to 1.00; and
(b) in the case of Tranche B Term Loans, a rate per annum equal
to three percent (3%); provided, that if the Debt to Capitalization Ratio
on the last day of any fiscal quarter of the Borrower shall be less than or
equal to .68 to 1.00, then the Euro-Dollar Margin shall (unless a Default
or Event of Default shall be then continuing) be changed to two and one-
half (2-1/2%) on the fifth Domestic Business Day following the date of the
receipt by the Banks of the financial statements covering such fiscal
quarter (or fiscal year, in the case of the last fiscal quarter of each
fiscal year) pursuant to Section 7.01(a) or (b) hereof and of the related
compliance certificate pursuant to Section 7.01(c) hereof and shall remain
at such changed rate until the next change in such rate required by this
definition; and
<PAGE> 8
provided, further, that if the Borrower shall fail to deliver such
financial statements or compliance certificate within the time periods
required pursuant to said Sections, the Debt to Capitalization Ratio for
the period-end date covered thereby shall conclusively be presumed to be
greater than .68 to 1.00 unless and until such financial statements and
certificate are received by the Banks showing such Debt to Capitalization
Ratio to be less than .68 to 1.00.".
(c) Section 1.01 of the Credit Agreement is hereby further amended by
deleting the definition of "L/C Rate" therefrom and substituting, in lieu
thereof, the following:
"'L/C Rate' means a rate per annum equal to two and one-quarter
percent (2-1/4%); provided, that if the Debt to Capitalization Ratio on the
last day of any fiscal quarter of the Borrower shall be less than or equal
to .68 to 1.00 but greater than .49 to 1.00, then the L/C Rate shall
(unless a Default or Event of Default shall be then continuing) be changed
to one and one-half (1-1/2%) on the fifth Domestic Business Day following
the date of the receipt by the Banks of the financial statements covering
such fiscal quarter (or fiscal year, in the case of the last fiscal quarter
of each fiscal year) pursuant to Section 7.01(a) or (b) hereof and of the
related compliance certificate pursuant to Section 7.01(c) hereof and shall
remain at such changed rate until the next change in such rate required by
this definition; and provided, further, that if the Debt to Capitalization
Ratio of the Borrower shall be equal to or less than .49 to 1.00 on the
last day of any fiscal quarter of the Borrower, then the L/C Rate shall
(unless a Default or an Event of Default shall be then continuing) be
changed to one percent (1%) on the fifth Domestic Business Day following
the date of the receipt by the Banks of the financial statements covering
such fiscal quarter (or fiscal year, in the case of the last fiscal quarter
of each fiscal year) pursuant to Section 7.01(a) or (b) hereof and of the
related compliance certificate pursuant to Section 7.01(c) hereof and shall
remain at such changed rate until the next change in such rate required by
this definition; provided, finally, that if the Borrower shall fail to
deliver such financial statements or compliance certificate within the time
periods required pursuant to said Sections, the Debt to Capitalization
Ratio for the period-end date covered thereby shall conclusively be
presumed to be greater than .68 to 1.00 unless and until such financial
statements and certificate are received by the Banks showing such Debt to
Capitalization Ratio to be less than .68 to 1.00.".
<PAGE> 9
SECTION III. CONDITIONS PRECEDENT
A. PHASE I CONDITIONS PRECEDENT. The amendments contained in Section
II A of this Fifth Amendment shall become effective on and as of the date on
which the following conditions precedent are satisfied:
1. Amendment. The Administrative Agent shall have received
counterparts of this Amendment duly executed by the Borrower and each of
the Banks.
2. New Revolving Notes. The Borrower shall have executed and
delivered to the Administrative Agent for the benefit of each Bank whose
Revolving Commitment is, pursuant to this Fifth Amendment, being changed,
in exchange for the existing Revolving Note of each such Bank, a new
Revolving Note payable to the order of each such Bank in an amount equal to
the Revolving Commitment of such Bank after giving effect to this Fifth
Amendment. Such new Revolving Notes shall be dated the Effective Date and
shall otherwise be in the form of the Revolving Notes replaced thereby.
The Revolving Notes surrendered by the Banks shall be returned by the
Administrative Agent to the Borrower marked "cancelled".
3. Joinder Agreement. A Joinder Agreement in form and substance
satisfactory to the Banks shall have been executed and delivered to the
Borrower, Somerville, the Banks, the Standby Participating Banks and the
Merchandise Letter of Credit Bank.
4. Consents of Other Parties. The Borrower shall have obtained all
consents required to be obtained from any Person in connection with the
execution, delivery and performance of this Fifth Amendment, including,
without limitation, any consent required to be obtained from Prudential or
the Merchandise Letter of Credit Bank. The Administrative Agent shall have
received copies of all such consents.
5. Consent of Guarantor. Somerville shall have executed this Fifth
Amendment in the appropriate space below the caption "Consent of Guarantor"
on the signature pages hereto.
6. Opinion of Counsel. The Administrative Agent shall have received
an opinion of General Counsel of the Borrower, covering such matters
relating to the transactions contemplated hereby as the Administrative
Agent may reasonably request.
7. Corporate Proceedings, Etc. The Administrative Agent shall have
received all documents it may reasonably request relating to the corporate
authority for and the
<PAGE> 10
validity of this Fifth Amendment and the new Revolving Notes executed
pursuant hereto, and any other matters relevant hereto (including, without
limitation, certified resolutions), all in form and substance satisfactory
to the Administrative Agent.
8. Phase I Amendment Fee. The Administrative Agent shall have
received, on behalf of each Bank, an amendment fee equal to one-quarter of
one percent (1/4 of 1%) of the excess, if any, of (i) such Bank's Revolving
Commitment after giving effect to this Fifth Amendment over (ii) 77.27% of
such Bank's Revolving Commitment immediately prior to giving effect to this
Fifth Amendment.
9. Conditions to Standby Facility. All conditions precedent
specified in Section 4.02 of the Standby Letter of Credit Agreement shall
have been satisfied.
B. PHASE II CONDITIONS PRECEDENT. The amendments contained in
Section II B of this Fifth Amendment shall become effective on and as of the
date occurring prior to May 14, 1994 on which the following conditions precedent
are satisfied:
1. Phase I Conditions. The Fifth Amendment Phase I Effective Date
shall have occurred.
2. Representations and Warranties True; No Default. The
representations and warranties of the Borrower and its Subsidiaries
contained in the Credit Documents shall be true and correct in all material
respects on and as of such date, and no Default or Event of Default shall
have occurred and be continuing on such date.
3. Phase II Notice. Prior to May 14, 1994, the Administrative Agent
shall have received a written notice executed by a duly authorized officer
of the Borrower specifying that the Borrower has elected to cause the Fifth
Amendment Phase II Effective Date to occur.
4. Phase II Amendment Fee. The Administrative Agent shall have
received, on behalf of each Bank, an amendment fee equal to one-quarter of
one percent (1/4 of 1%) of the sum of such Bank's outstanding Term Loans
and Revolving Commitments immediately prior to giving effect to this Fifth
Amendment.
SECTION IV. MISCELLANEOUS
1. Limited Effect. This Fifth Amendment is limited precisely as
written and shall not be deemed (a) to be a consent to any modification or
amendment of any other term or condition of the Credit Agreement or of any other
term or condition of the instruments or agreements referred to therein or (b) to
prejudice any other right or rights that the Administrative Agent, the
<PAGE> 11
Collateral Agent, the Managing Agents, the Co-Agent or any Bank may now have or
may have in the future under or in connection with the Credit Agreement or the
agreements referred to therein. Except as expressly amended and modified by
this Fifth Amendment, all of the provisions and covenants of the Credit
Agreement are and shall continue to remain in full force and effect in
accordance with the terms thereof.
2. Counterparts. This Fifth Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
3. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4. Expenses. The Borrower agrees to pay or reimburse the
Administrative Agent for all its reasonable out-of-pocket costs and expenses
incurred in connection with the preparation and execution of this Fifth
Amendment, including, without limitation, the reasonable fees and disbursements
of counsel to the Administrative Agent. The Borrower expressly acknowledges and
further agrees that nothing in the preceding sentence shall be construed to
limit in any way the provisions of Section 10.03 of the Credit Agreement.
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to be executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
PAYLESS CASHWAYS, INC.
By: s/Stephen A. Lightstone
----------------------------
Title: Sr. Vice President-
Finance/Treasurer
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY,
as Administrative Agent,
Collateral Agent, Managing
Agent and Letter of Credit
Bank
By: s/ David McGowan
----------------------------
Title: Authorized Signatory
Revolving Commitment: THE BANK OF NOVA SCOTIA,
$6,862,279.52 as Managing Agent and Bank
By: s/ F. C. H. Ashby
----------------------------
Title: Sr. Mgr. Loan Operation
Revolving Commitment: NATIONSBANK OF TEXAS, N.A.,
$6,862,279.52 as Managing Agent and Bank
By: s/ Ellis Moseley
----------------------------
Title:Sr. Vice President
Revolving Commitment: BANK OF AMERICA NATIONAL TRUST
$4,901,628.22 AND SAVINGS ASSOCIATION,
as Co-Agent and Bank
By: s/ Burton Queen
----------------------------
Title:Vice President
Revolving Commitment: CIBC INC.
$4,901,628.22
By:s/ David McGowan
----------------------------
Title:Authorized Signatory
<PAGE> 13
Revolving Commitment: ABN AMRO BANK N.V.
$4,405,718.57
By: s/ Patricia M. Luken
----------------------------
Title:Vice President
By:
----------------------------
Title:
Revolving Commitment: BANCA COMMERCIALE
$2,546,547.79 ITALIANA
By: s/ Julian Teodori
----------------------------
Title: Sr. Vice President
By: s/ Dianna Lamb
----------------------------
Title: Vice President
Revolving Commitment: BANK OF MONTREAL
$3,307,162.34
By: s/ Hugh K. Brown
----------------------------
Title: Director
Revolving Commitment: THE BANK OF NEW YORK
$5,870,459.43
By: s/ Bruce C. Miller
----------------------------
Title: Vice President
Revolving Commitment: BOATMEN'S FIRST NATIONAL
$5,870,459.43 BANK OF KANSAS CITY
By: s/ Thomas J. Butkus
----------------------------
Title: Vice President
Revolving Commitment: BANQUE PARIBAS
$3,425,392.92
By: s/ Robert E. Taubenheim
----------------------------
Title: Group Vice President
By: s/ Nancy E. Borman
----------------------------
Title: AVP
Revolving Commitment: DAI-ICHI KANGYO BANK
$1,960,651.29 LTD., CHICAGO BRANCH
By: s/ Masami Tsuboi
----------------------------
Title: Vice President
<PAGE> 14
Revolving Commitment: FIRST BANK NATIONAL
$5,386,043.44 ASSOCIATION
By: s/ Merri Bernhardson
----------------------------
Title: Vice President
Revolving Commitment: THE FUJI BANK, LIMITED,
$3,425,392.92 CHICAGO BRANCH
By: s/ Peter Chinnici
----------------------------
Title: Joint Gen'l Mgr.
Revolving Commitment: THE INDUSTRIAL BANK OF
$4,157,763.74 JAPAN, LTD.
By: s/ Hiroaki Nakamura
----------------------------
Title: Joint Gen'l Mgr.
Revolving Commitment: THE MITSUBISHI BANK, LTD.
$1,960,651.29
By: s/ Hiroaki Fuchida
----------------------------
Title: Vice President, Mgr.
Revolving Commitment: MITSUI NEVITT CAPITAL
$1,960,651.29 CORPORATION
By: s/ Jerry Parisi
----------------------------
Title: Vice President
Revolving Commitment: MITSUBISHI TRUST AND
$1,960,651.29 BANKING CORPORATION
By: s/ Akira Suzuki
----------------------------
Title: Chief Manager
Revolving Commitment: NATIONAL CITY BANK
$3,290,757.34
By: s/ Brian Karrip
----------------------------
Title: Vice President
Revolving Commitment: PILGRIM PRIME RATE TRUST
$0.00
By: s/ Michael D. Hatley
----------------------------
Title: Asst. Portfolio Mgr.
<PAGE> 15
Revolving Commitment: THE SUMITOMO BANK, LTD.
$4,405,718.57
By: s/ Katsuyasu Jwasawa
----------------------------
Title: Joint Gen'l Mgr.
Revolving Commitment: UNION BANK
$5,138,089.39
By: s/ Richard A. Sutter
----------------------------
Title: Vice President
Revolving Commitment: UNITED STATES NATIONAL
$2,400,073.47 BANK OF OREGON
By: s/ Blake R. Howells
----------------------------
Title: Vice President
Revolving Commitment: VAN KAMPEN MERRITT
$0.00 PRIME RATE INCOME TRUST
By: s/ Jeffrey W. Maillet
----------------------------
Title: Vice President
CONSENT OF GUARANTOR
--------------------
The undersigned, pursuant to the Amended and Restated Guarantee, dated
as of March 15, 1993, made by the undersigned in favor of Canadian Imperial Bank
of Commerce, New York Agency, as Collateral Agent for the Banks, hereby consents
to the provisions of the above Fifth Amendment and agrees that the Amended and
Restated Guarantee remains in full force and effect after giving effect to the
above Fifth Amendment.
SOMERVILLE LUMBER AND SUPPLY
CO., INC.
By: s/ Stephen A. Lightstone
----------------------------
Title: Treasurer
<PAGE> 1
Exhibit 4.10(b)
JOINDER AGREEMENT
-----------------
JOINDER AGREEMENT, dated as of February 14, 1994 (this "Joinder
Agreement"), among: Payless Cashways, Inc. (the "Borrower"); Somerville Lumber
and Supply Co., Inc. ("Somerville"); the banks and other financial institutions
(the "Banks") from time to time parties to the Amended and Restated Credit
Agreement hereinafter referenced; Canadian Imperial Bank of Commerce, New York
Agency ("CIBC"), as Administrative Agent (in such capacity, the "Administrative
Agent") for the Banks; CIBC, The Bank of Nova Scotia and NationsBank of Texas,
N.A., as Managing Agents (in such capacity, the "Managing Agents") for the
Banks; Bank of America National Trust and Savings Association, as Co-Agent (in
such capacity, the "Co-Agent") for the Banks; Commerce Bank of Kansas City,
N.A., as issuer of merchandise letters of credit (in such capacity, the
"Merchandise Letter of Credit Bank"); CIBC, as Issuing Bank (in such capacity,
the "Standby Issuing Bank") under the Standby Agreement (as hereinafter
defined); the banks and other financial institutions (the "Standby Participating
Banks") from time to time parties to the Standby Letter of Credit Agreement
hereinafter referenced; and CIBC as Collateral Agent (in such capacity, the
"Collateral Agent") for the Banks, the Merchandise Letter of Credit Bank and the
Standby Participating Banks;
W I T N E S S E T H :
---------------------
WHEREAS, the Borrower, the Banks, the Administrative Agent, the
Managing Agents, the Co-Agent and the Collateral Agent are parties to the
Amended and Restated Credit Agreement, dated as of March 8, 1993 (as amended,
the "Credit Agreement");
WHEREAS, the Borrower and the Merchandise Letter of Credit Bank are
parties to the Amended and Restated Letter of Credit Issuance and Reimbursement
Agreement, dated as of March 11, 1993 (as amended, the "Merchandise Letter of
Credit Facility"), between the Borrower and the Merchandise Letter of Credit
Bank;
WHEREAS, the Borrower, Somerville and the Collateral Agent are parties
to the Security Documents (as defined in the Credit Agreement) pursuant to which
the Borrower and Somerville have granted certain security interests and other
rights to the Collateral Agent for the benefit of the Banks, the Merchandise
Letter of Credit Bank and such Person or Persons as may become the "Standby
Letter of Credit Bank" as defined in the Credit Agreement;
WHEREAS, the Borrower, Somerville, the Banks, the Administrative
Agent, the Collateral Agent, the Managing Agents, the Co-Agent and the
Merchandise Letter of Credit Bank are parties to the Amended and Restated Inter-
Facility Agreement, dated as of March 8, 1993 (the "Inter-Facility Agreement"),
among
<PAGE> 2
the Borrower, Somerville, the Administrative Agent, the Collateral Agent, the
Managing Agents, the Co-Agent, the Merchandise Letter of Credit Bank and such
Person or Persons as may become the "Standby Letter of Credit Bank" as defined
in the Credit Agreement;
WHEREAS, pursuant to Section 7.08(viii) of the Credit Agreement and
Section 5.1 of the Merchandise Letter of Credit Facility, the Borrower is
permitted to enter into a credit facility providing for up to $25,000,000 in
standby letters of credit;
WHEREAS, concurrently herewith the Standby Issuing Bank, the Standby
Participating Banks and the Borrower have entered into the Standby Agreement,
which agreement constitutes the "Standby Letter of Credit Agreement" as defined
in the Credit Agreement;
WHEREAS, each of the Security Documents and the Inter-Facility
Agreement contain provisions requiring that the Standby Letter of Credit Bank
agree in writing to be bound by the terms of such documents prior to its
becoming entitled to the benefits thereof;
WHEREAS, the Standby Issuing Bank, on behalf of itself and the Standby
Participating Banks, wishes to become entitled to the benefits of the Security
Documents and the Inter-Facility Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of each of
(i) the Fifth Amendment, dated as of the date hereof, to the Credit Agreement
and (ii) the Standby Agreement that the parties hereto enter into this Joinder
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Borrower, Somerville, the Banks, the
Administrative Agent, the Collateral Agent, the Managing Agents, the Co-Agent,
the Merchandise Letter of Credit Bank, the Standby Issuing Bank and the Standby
Participating Banks hereby agree as follows:
SECTION I. DEFINED TERMS
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein are so used as so defined.
SECTION II. JOINDER
(a) Each of the Standby Issuing Bank and the Standby Participating
Banks hereby agrees to be bound by each of the Inter-Facility Agreement, the
Security Agreement, the Subsidiary
<PAGE> 3
Security Agreement, the Subsidiary Guarantee, the Note Pledge Agreement, the
Stock Pledge Agreement, each of the Mortgages and each other Security Document,
in each case with the same effect as if it were an original party thereto.
(b) Each of the Borrower, Somerville, the Administrative Agent, each
Bank, the Collateral Agent and the Merchandise Letter of Credit Bank hereby
consents to the execution, delivery and performance by the Standby Issuing Bank
and the Standby Participating Banks of the Standby Agreement and hereby agrees
that the Standby Issuing Bank, on behalf of the Standby Participating Banks,
shall be entitled to the benefits of each of the Inter-Facility Agreement, the
Security Agreement, the Subsidiary Security Agreement, the Subsidiary Guarantee,
the Note Pledge Agreement, the Stock Pledge Agreement, each of the Mortgages and
each other Security Document, in each case with the same effect as if it were an
original party thereto.
SECTION III. MISCELLANEOUS
1. Counterparts. This Joinder Agreement may be executed by one or
more of the parties hereto in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
2. GOVERNING LAW. THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Joinder
Agreement to be executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
PAYLESS CASHWAYS, INC.
By: s/ Stephen A. Lightstone
--------------------------
Title: Sr. Vice President-
Finance/Treasurer
SOMERVILLE LUMBER AND SUPPLY
CO., INC.
By: s/ Stephen A. Lightstone
--------------------------
Title: Treasurer
<PAGE> 4
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY,
as Administrative Agent,
Collateral Agent, Managing
Agent and Standby Issuing
Bank
By: s/ David McGowan
--------------------------
Title: Authorized Signatory
THE BANK OF NOVA SCOTIA,
as Managing Agent, Bank and
Standby Participating Bank
By: s/ F. C. H. Ashby
--------------------------
Title: Sr. Mgr. Loan Oprtns.
NATIONSBANK OF TEXAS, N.A.,
as Managing Agent, Bank and
Standby Participating Bank
By: s/ Ellis Moseley
--------------------------
Title: Sr. Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Co-Agent, Bank and
Standby Participating Bank
By: s/ Burton Queen
--------------------------
Title: Vice President
CIBC INC., as Bank and Standby
Participating Bank
By: s/ David McGowan
--------------------------
Title: Authorized Signatory
<PAGE> 5
ABN AMRO BANK N.V., as Bank
and Standby Participating
Bank
By: s/ Patricia M. Luken
--------------------------
Title: Vice President
By:
--------------------------
Title:
BANCA COMMERCIALE ITALIANA, as
Bank and Standby Partici-
pating Bank
By: s/ Julian Teodori
--------------------------
Title: Sr. Vice President
By: s/ Dianna Lamb
--------------------------
Title: Vice President
BANK OF MONTREAL, as Bank and
Standby Participating Bank
By: s/ Hugh K. Brown
--------------------------
Title: Director
THE BANK OF NEW YORK, as Bank
and Standby Participating
Bank
By: s/ Bruce C. Miller
--------------------------
Title: Vice President
BOATMEN'S FIRST NATIONAL
BANK OF KANSAS CITY, as Bank
and Standby Participating
Bank
By: s/ Thomas J. Butkus
--------------------------
Title: Vice President
<PAGE> 6
BANQUE PARIBAS, as Bank
and Standby Participating
Bank
By: s/ Robert E. Taubenheim
--------------------------
Title: Group Vice President
By: s/ Nancy E. Borman
--------------------------
Title: AVP
DAI-ICHI KANGYO BANK
LTD., CHICAGO BRANCH, as
Bank and Standby Partici-
pating Bank
By: s/ Masami Tsuboi
--------------------------
Title: Vice President
FIRST BANK NATIONAL ASSOCIA-
TION, as Bank and Standby
Participating Bank
By: s/ Merri Bernhardson
--------------------------
Title: Vice President
THE FUJI BANK, LIMITED,
CHICAGO BRANCH, as Bank
and Standby Participating
Bank
By: s/ Peter Chinnici
--------------------------
Title: Joint Gen'l Mgr.
THE INDUSTRIAL BANK OF
JAPAN, LTD., as Bank
and Standby Participating
Bank
By: s/ Hiroaki Nakamura
--------------------------
Title: Joint Gen'l Mgr.
<PAGE> 7
THE MITSUBISHI BANK, LTD., as
Bank and Standby Partici-
pating Bank
By: s/ Hiroaki Fuchida
--------------------------
Title: Vice President, Mgr.
MITSUI NEVITT CAPITAL
CORPORATION, as Bank
and Standby Participating
Bank
By: s/ Jerry Parisi
--------------------------
Title: Vice President
MITSUBISHI TRUST AND
BANKING CORPORATION, as Bank
and Standby Participating
Bank
By: s/ Akira Suzuki
--------------------------
Title: Chief Manager
NATIONAL CITY BANK, as Bank
and Standby Participating
Bank
By: s/ Brian Karrip
--------------------------
Title: Vice President
THE SUMITOMO BANK, LTD., as
Bank and Standby
Participating Bank
By: s/ Katysuyasu Jwasawa
--------------------------
Title: Joint Gen'l Mgr.
UNION BANK, as Bank and
Standby Participating
Bank
By: s/ Richard A. Sutter
--------------------------
Title: Vice President
<PAGE> 8
UNITED STATES NATIONAL
BANK OF OREGON, as Bank
and Standby Participating
Bank
By: s/ Blake R. Howells
--------------------------
Title: Vice President
VAN KAMPEN MERRITT
PRIME RATE INCOME TRUST, as
Bank
By: s/ Jeffrey W. Maillet
--------------------------
Title: Vice President
PILGRIM PRIME RATE TRUST, as
Bank
By: s/ Michael D. Hatley
--------------------------
Title: Asst. Portfolio Mgr.
COMMERCE BANK OF KANSAS CITY,
N.A., as Merchandise Letter of
Credit Bank
By: s/ John M. McGee
--------------------------
Title: Vice President
<PAGE> 1
Exhibit 10.6(c)
November 10, 1993
Mr. Harold Cohen
Somerville Lumber and Supply Co., Inc.
281 Winter Street
Waltham, MA 02254-9002
Dear Harold:
Pursuant to our recent discussions, this letter sets forth the agreement we have
reached regarding your retirement from Somerville Lumber and Supply Co., Inc.
("Somerville") and Payless Cashways, Inc. ("Payless"):
1. You promise and Somerville and Payless agree to accept your promise to
retire early, effective December 31, 1993.
2. In exchange for your early retirement, Payless agrees to pay you, in
each of January, 1994, 1995 and 1996, a gross amount sufficient to net
(after estimating your taxes for each such year) the amount of
Payless' or Somerville's share of the annual premiums charged for
health insurance coverage described in the first paragraph of
Paragraph 7. The gross amount payable to you pursuant to this
Paragraph will be reported on a Form 1099 for each tax year.
3. Payless has previously granted you the following Options to purchase
a total of 83,008.00 shares of Common Stock as follows:
Roll-Over Options
-----------------
31,230.00 shares at $2.22 exercise price;
Normal Options
--------------
13,651.00 shares at $11.11 exercise price;
8,189.00 shares at $12.00 exercise price;
5,732.00 shares at $12.50 exercise price; and
10,827.00 shares at $12.00 exercise price.
<PAGE> 2
Mr. Harold Cohen
November 10, 1993
Page 2
Performance Options
-------------------
6,825.00 shares at $11.11 exercise price;
4,096.00 shares at $12.00 exercise price; and
2,458.00 shares at $12.50 exercise price.
As of the date of this letter, all of such shares are vested and
exercisable and such shares shall remain exercisable through
February 28, 1996.
4. At no cost to you, Somerville agrees to convey title to you in two
automobiles: a 1984 Jeep Wagoneer and a 1991 Cadillac. Taxable income
will also be reported on the Form 1099 for the 1994 tax year.
5. Effective January 1, 1994, the terms of any retirement, profit-sharing
or deferred compensation plans in which you have participated shall
govern your rights and obligations and Somerville's or Payless' rights
and obligations. Payless acknowledges that, effective November 30,
1993, you will be 100% vested in The Payless Cashways, Inc.
Supplemental Retirement Plan.
6. Effective January 1, 1994, and for so long as you choose, you shall
continue to retain office privileges and appropriate clerical
assistance at Somerville's administrative offices, wherever located.
7. From January 1, 1994 until April 30, 1996, you will be eligible to
receive all of the health insurance benefits to which you are
currently entitled (including dependent coverage), subject to the
provisions of any documents which govern benefit plans. Somerville or
Payless will annually retain the amount described in Paragraph 2 which
represents the annual premium amount for such coverage. Payless or
Somerville will apply the premium amount for such coverage on a timely
basis to assure that coverage will continue.
From May 1, 1996 to April 30, 1997, you will be eligible to receive
all the health insurance benefits to which you are currently entitled,
subject to the provisions of any documents which govern benefit plans,
at your own cost and expense.
<PAGE> 3
Mr. Harold Cohen
November 10, 1993
Page 3
8. Your retirement shall constitute your resignation as Vice Chairman of
the Board of Directors and an officer of Payless and also as Chairman
of the Board of Directors and an officer of Somerville. Effective
December 31, 1993, you shall be elected Chairman Emeritus of
Somerville. You shall remain a director of Payless, at least until
the Annual Meeting of the Shareholders in 1994.
9. If you do not accept this agreement, the terms of the employment
agreement, dated December 1, 1988, as amended March 10, 1992, between
you and Payless ("the Employment Agreement"), shall continue in full
force and effect, in accordance with its terms. If you accept this
agreement, then the Employment Agreement shall automatically terminate
and be superseded by this agreement, effective January 1, 1994.
10. You are advised by Somerville and Payless to consult with an attorney
before you sign this letter agreement.
Sincerely,
s/David Stanley
David Stanley
Chairman of the Board and
Chief Executive Officer of
Payless Cashways, Inc. and
Vice President of Somerville
Lumber and Supply Co., Inc.
DS:MD:jdw
I HEREBY ACCEPT ALL THE TERMS AND PROVISIONS SET FORTH IN THE FOREGOING LETTER.
I HAVE READ THE ENTIRE CONTENTS OF THIS LETTER AGREEMENT, I UNDERSTAND ALL OF
ITS TERMS, I HAVE CONSULTED AN ATTORNEY REGARDING THEM BEFORE SIGNING THIS
LETTER AGREEMENT REQUIRING MY SIGNATURE, I ACKNOWLEDGE THAT THIS LETTER
AGREEMENT IS AN IMPORTANT LEGAL DOCUMENT, AND I SIGN BELOW VOLUNTARILY WITH FULL
KNOWLEDGE OF THE SIGNIFICANCE AND BINDING EFFECT OF THIS LETTER.
s/Harold Cohen 11/14/93
- ---------------------------------------- --------------------
HAROLD COHEN DATE
<PAGE> 1
Exhibit 10.10(b)
AMENDMENTS TO THE PAYLESS CASHWAYS, INC.
WEALTH-OP DEFERRED COMPENSATION PLAN
- ------------------------------------------------------------------------------
1. Section l.F. shall be amended to read as follows:
------------------------------------------------
"Change in Control" of the Corporation shall mean and be deemed to have
occurred if:
(i) any "person" (as defined in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 [the "Exchange Act"] ) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing
thirty percent (30%) or more of the combined voting power of the
Corporation's then outstanding securities. For purposes of this Section
2(i), the term "beneficial owner" does not include any employee benefit
plan maintained by the Corporation that invests in the Corporation's
voting securities. Or
(ii) during any period of two (2) consecutive years (not
including any period prior to the execution of this Agreement) there
shall cease to be a majority of the Board comprised as follows:
individuals who at the beginning of such period constitute the Board and
any new director(s) whose election by the Board or nomination for
election by the Corporation's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, or
(iii) the shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Corporation outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 70% of the combined
voting power of the voting securities of the Corporation or such
surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all the
Corporation's assets; provided, however, that no change in control will
be deemed to have occurred if such merger, consolidation, sale or
disposition of assets, or liquidation is not subsequently consummated.
<PAGE> 2
2. Section 5.4 shall be amended to read as follows:
-----------------------------------------------
Benefits Upon Termination of Employment Following a Change of Control--If,
within twenty-four (24) months after a Change of Control, a Termination of
Employment with respect to a Participant occurs for any reason, the rights
of the Participant, his spouse, if any, and his beneficiary to benefits
under the Plan shall cease, except that the Participant, his spouse, if
any, or his beneficiary shall receive the full amount in his Deferral
Account(s) on the date of Termination of Employment calculated as if such
date were a Determination Date and without reduction for any reason
whatsoever (including any reduction in the Crediting Rate as otherwise
provided in Section 5.3). Such benefit shall be payable in a lump sum
within 30 days following Termination of Employment. Following such
payment, the Participant shall have no further right to any benefit
pursuant to this Plan. Notwithstanding any other provision contained in
this Section 5.4, if such Termination of Employment is due to death,
Survivorship Benefits, if any, shall be calculated and paid out in
accordance with Section 5.8. If such Termination of Employment is due to
Retirement, Retirement Benefits, if any, shall be calculated and paid out
in accordance with Section 5.1. If such Termination of Employment is due
to Disability, Disability Benefits, if any, shall be calculated and paid
out in accordance with Section 5.2.
This Section 5.4 may not be amended within two years following a Change in
Control of the Corporation, as defined in Section l.F. of the Plan.
3. Section 5.5 shall be amended to read as follows:
-----------------------------------------------
Election Upon Reduction in Crediting Rate--If, within 24 months of a
Change of Control, the Plan is amended to reduce the Crediting Rate, a
Participant may elect within 60 days of the date of the amendment to
receive his Deferral Account balance(s) calculated without regard to the
reduced rate and as if the date of the election were a Determination Date.
The amounts so calculated shall be paid in a lump sum on the first
business day of the Plan Year following the Plan Year of the election.
Following such election, the Participant, his spouse, if any, and his
beneficiary shall have no further right to any benefit pursuant to this
Plan, other than the lump sum payment provided for in this Paragraph 5.5.
This Section 5.5 may not be amended within two years following a Change in
Control of the Corporation, as defined in Section l.F. of the Plan.
<PAGE>
Exhibit 10.11(a)
PAYLESS CASHWAYS, INC.
1988 DEFERRED COMPENSATION PLAN
<PAGE>
INDEX
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Account Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Actual Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Annual Bonus Deferral Agreement . . . . . . . . . . . . . . . . . . . . . . 1
2.5 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.6 Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.7 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.8 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.9 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.10 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.11 Crediting Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.12 Deferred Compensation Agreement . . . . . . . . . . . . . . . . . . . . . . 3
2.13 Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.14 Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.15 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.16 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.17 Early Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.18 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.19 Executive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.20 Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.21 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.22 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.23 Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.24 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.25 Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.26 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.27 Termination of Service . . . . . . . . . . . . . . . . . . . . . . . . . . 4
III. Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Eligibility to Participate . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Termination of Participation . . . . . . . . . . . . . . . . . . . . . . . 5
IV. Participant Compensation Deferral . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Deferral and Reduction of Compensation . . . . . . . . . . . . . . . . . . 5
4.2 Election to Defer Irrevocable . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Certain Retirement Benefit Plan Equivalents . . . . . . . . . . . . . . . . 8
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
V. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Establishment and Crediting of Account . . . . . . . . . . . . . . . . . . 9
5.2 Statement of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
VI. Payment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Benefit Upon Disability . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Benefits Upon Other Termination of Service . . . . . . . . . . . . . . . 11
6.4 Benefits Upon Termination of Employment
Following a Change of Control . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Distribution Upon Reduction in Crediting Rate . . . . . . . . . . . . . . 12
6.6 Survivorship Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.7 Hardship Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.8 Recipients of Payments; Designation of Beneficiary . . . . . . . . . . . 14
VII. Administration and Interpretation of the Plan . . . . . . . . . . . . . . . . . . 15
VIII. Funding and Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 Unfunded Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Insurance Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
IX. Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
X. Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
XI. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.1 Finality of Determination . . . . . . . . . . . . . . . . . . . . . . . . 16
11.2 Assignment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.3 Legal Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.4 No Set Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.5 Arbitration of All Disputes . . . . . . . . . . . . . . . . . . . . . . . 17
11.6 Employment Not Guaranteed by Plan . . . . . . . . . . . . . . . . . . . . 18
11.7 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.9 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.10 Form of Communication . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.13 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
(ii)
<PAGE>
PAYLESS CASHWAYS, INC.
1988 DEFERRED COMPENSATION PLAN
I. INTRODUCTION
PAYLESS CASHWAYS, INC., an Iowa corporation (the "Company"), hereby
establishes the 1988 Deferred Compensation Plan (the "Plan"), to provide
deferrals of Compensation payable on and after January 1, 1988, for the
purposes of providing the benefits of a deferred compensation plan to a select
group of its management and highly compensated executives in order to promote
in its employees the strongest interest in the successful operation of the
Company and increased efficiency in their work, and to provide benefits upon
Retirement, death, Disability or other Termination of Service.
II. DEFINITIONS
2.1 "Account Balance" means the balance of a Participant's account
(established pursuant to Section 5.1) as of any Determination Date, to which
are credited a Participant's Actual Deferrals and adjustments credited pursuant
to Section 4.3, plus the interest credited thereon and less any distributions
therefrom, in accordance with the terms hereof.
2.2 "Actual Deferrals" means the total amount of Compensation actually
deferred by a Participant under the Plan.
2.3 "Age" means the age of a Participant as of his most recent
birthday.
2.4 "Annual Bonus Deferral Agreement" means, for any Plan Year, a
written agreement between a Participant and the Company whereby a Participant
agrees to defer a portion of his Bonus payable for such Plan Year, in
accordance with Section 4.1.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Bonus" means payments made from time to time by the Company or a
Subsidiary to an Executive pursuant to the Company's Incentive Bonus
Compensation Plan.
2.7 "Change of Control" means the following:
(a) The acquisition, at any time after the Effective Date, by
any person, or by any group of persons acting in concert with respect to
such acquisition, of an ownership interest in the Company, resulting in
the total ownership interest of such persons or group of persons equaling
or exceeding 20% of the issued and outstanding capital stock of the
Company. As used in this definition, "person" and "persons" include
individuals, corporations, partnerships, associations, trusts and any and
all other organizations and entities legally capable of owning corporate
stock. The Change of Control shall be deemed to occur on the date that
the ownership interest of the acquiring person or group of persons first
equals or exceeds 20% of the issued and outstanding stock of the Company.
PAGE 1
<PAGE>
(b) A change, within a period of 24 months or less, in the
composition of the Board, such that at the end of such period the
majority of directors who are then serving were not serving at the
beginning of such period, unless at the end of such period a majority of
the directors in office were nominated upon the recommendation of the
majority of the Board at the beginning of such period. The Change of
Control shall be deemed to occur on the date the last director necessary
to constitute a Change of Control takes office.
(c) The merger, consolidation, or other reorganization having
substantially the same effect as a merger or consolidation, or the sale
of substantially all the assets of the Company, excluding any such
transaction or transactions which, individually or in the aggregate
result in the persons who were shareholders of the Company immediately
prior to such transaction(s) owning, immediately after such
transaction(s), total equity ownership interests in the Company or its
successor of at least 80%. The Change of Control shall be deemed to
occur on the date on which the transaction is approved by the Company's
stockholders.
2.8 "Committee" means the committee from time to time appointed by the
Board to administer the Plan.
2.9 "Company" means Payless Cashways, Inc., an Iowa Corporation, any
successor thereto.
2.10 "Compensation" means:
(a) with respect to an Executive, the total cash remuneration
payable to the Executive by the Company and any Subsidiary, including
Salary, Bonus and other cash amounts which would have been reported on
Treasury Form W-2 (or any comparable successor form) for a Plan Year if
the Executive had not entered into a Deferred Compensation Agreement,
increased by any amounts deferred under the Employee Savings Plan by
Compensation reduction or other similar arrangement, any elective
deferrals under any cash and deferred plan described in Internal Revenue
Code Section 401(k) of the Company or a Subsidiary, or Compensation
reduction under a cafeteria plan described in Internal Revenue Code
Section 125(d) of the Company or a Subsidiary, and excluding expense
reimbursement, moving expense payments, third-party sick pay, imputed
income (from excess life insurance premiums, automobile use premiums or
any other source), non-qualified stock options, disqualifying
dispositions of stock acquired pursuant to the exercise of incentive
stock options, stock appreciation rights, amounts attributable to
long-term incentive plans, severance settlements and similar items of
remuneration; and
(b) with respect to a Director, the fees paid by the Company as
a result of service as a Director.
2.11 "Crediting Rate" means, with respect to any Plan Year, 120% of the
120-month rolling average determined by averaging the monthly average yield for
10-year United States Treasury Notes for 120 months (as published by Salomon
Brothers or any successor thereto, or, if such yield is no longer published, a
substantially similar average selected by the Deferred Compensation Committee),
determined for the 120-month period ending two months before the beginning of
such Plan Year.
PAGE 2
<PAGE>
2.12 "Deferred Compensation Agreement" means a written agreement
between a Participant and the Company, whereby the Participant agrees to defer
a portion of his Compensation and the Company agrees to make benefit payments,
both in accordance with the provisions of the Plan.
2.13 "Determination Date" means the last day of each Plan Year, and
shall be the date on which a Participant's Account Balance is determined.
2.14 "Director" means an individual who is a member of the Board and
who is not an Executive of the Company or a Subsidiary.
2.15 "Disability" means a Participant's inability, due to physical or
mental illness or injury which is expected to be permanent or of long or
indefinite duration, as determined by the Committee on the basis of competent
medical evidence, to carry out the responsibilities of the position or office
held by the participant with the Company or a Subsidiary at the time the injury
or illness is incurred.
2.16 "Disability Benefit" means the Disability benefit described in
Section 6.2.
2.17 "Early Retirement Date" means the first day of the month
coinciding with or next following the month in which a participant has reached
age 55 and has completed 10 or more years of service with the Company or a
Subsidiary.
2.18 "Effective Date" means January 1, 1988.
2.19 "Executive" means an individual who is a member of a select group
of management or highly compensated employees, as determined by the Committee.
2.20 "Normal Retirement Date" means the first day of the month
coinciding with or next following the month in which occurs the later of the
Participant's sixty-fifth (65th) birthday or the Participant's Termination of
Service.
2.21 "Participant" means each Director or Executive who has elected to
participate in the Plan by entering into a Deferred Compensation Agreement
hereunder.
2.22 "Plan Year" means the 12-month period commencing January 1 and
ending December 31.
2.23 "Retirement" means (a) for an Executive, Termination of Service
for reasons other than death or Disability after reaching the Early or Normal
Retirement Date, and (b) for a Director, Termination of Service at any time for
reasons other than death or Disability.
2.24 "Retirement Benefit" means the retirement benefit described in
Section 6.1.
2.25 "Salary" means that portion of Compensation denominated by the
Company or a Subsidiary as salary to be paid on a regular periodic basis.
PAGE 3
<PAGE>
2.26 "Subsidiary" means any corporation, the majority of the voting
stock of which is directly or indirectly owned by the Company, which, with the
approval of the Board, elects to adopt the Plan.
2.27 "Termination of Service" means:
(a) for an Executive, ceasing to be employed by the Company or a
Subsidiary for any reason whatsoever, whether voluntary or involuntary,
including by reason of Retirement, death or Disability; provided however,
that a leave of absence granted by the Company or a Subsidiary in
accordance with uniform rules applied in a nondiscriminatory manner shall
not constitute a Termination of Service; and
(b) for a Director, ceasing to serve as a member of the Board.
III. PARTICIPATION
3.1 Eligibility to participate. Each individual who is an Executive
or Director on the Effective Date shall become a Participant as of the
Effective Date if he executes a Deferred Compensation Agreement prior to the
Effective Date. The Committee may, in its discretion, permit an individual who
becomes an Executive or a Director after the Effective Date and prior to
December 31, 1988 to become a Participant upon such terms and conditions as it,
- - in its sole discretion, shall determine.
3.2 Termination of Participation. A Participant shall cease to be a
Participant upon Termination of Service or ceasing to be an Executive or a
Director. A person who ceases to be a Participant shall have no further right
to defer Compensation hereunder, and any election to defer Compensation
hereunder shall cease to be effective.
IV. PARTICIPANT COMPENSATION DEFERRAL
4.1 Deferral and Reduction of Compensation.
(a) Compensation Deferral Election.
A Participant wishing to defer Compensation hereunder shall,
prior to the Effective Date, elect to defer a portion of his
Compensation payable on or after the Effective Date by executing a
Deferred Compensation Agreement in the form provided or permitted
by the Committee. The Deferred Compensation Agreement shall set
forth (i) the dollar amount to be deferred in each Plan Year, (ii)
the portions of the deferral to be made from Salary and Bonus,
respectively, and (iii) the number of Plan Years for which such
annual amount shall be deferred, all subject to the provisions
specified in paragraphs (c), (d) and (e) hereof. The amount of
Compensation specified in the Deferred Compensation Agreement
shall be deferred by making corresponding reductions in the
Compensation otherwise payable to such Participant.
PAGE 4
<PAGE>
(b) Annual Bonus Deferral Election.
A Participant who has made the election described in
paragraph (a) may, prior to the beginning of any Plan Year, elect
to defer amounts from his Bonus payable in the Plan Year, in
addition to amounts deferred pursuant to paragraph (a), by
executing an Annual Bonus Deferral Agreement in the form provided
or permitted by the Committee setting forth the dollar amount of
Bonus to be deferred. Such amount shall be deferred by reducing
the amount of Bonus otherwise payable to the Participant. If and
to the extent any such elected Bonus deferral would cause total
deferrals to exceed the total amount of deferral elected by the
Participant, pursuant to paragraph (a), such election shall be
limited to such total.
(c) Types of Deferral.
(i) Executives. A Participant who is an Executive may:
(A) with respect to Compensation deferral elections
in a Deferred Compensation Agreement,
(I) specify a dollar amount to be deferred
ratably from his Salary with respect to the Plan
Years during which his Deferred Compensation
Agreement is effective, provided that at least 50% of
the Participant's elected deferrals must be from
Salary; and
(II) specify a dollar amount of his Bonus
payable during each Plan Year during which his
Deferred Compensation Agreement is effective to be
deferred over such Plan Years, provided that no more
than 50% of his total deferral may consist of Bonus,
and provided further that if, for any Plan Year
during which the Participant's Deferred Compensation
Agreement is effective, the Participant's actual
Bonus is less than the amount specified as the amount
to be deferred from Bonus, the deficiency shall be
deferred from Salary payable to the Participant
during the remainder of such Plan Year following the
date on which the Bonus would have been payable, in
such manner as the Committee shall determine; and
(B) with respect to annual Bonus Deferral elections
in an Annual Bonus Deferral Agreement, if a Participant
elects an annual Bonus deferral pursuant to paragraph (b),
such deferral shall be applied to pay amounts elected in
subparagraph (A) above, by treating such annual Bonus
deferral as paying the latest Plan Year first and, within
such latest Plan Year, by treating it as first being applied
to pay elected salary deferrals and then treating the
remainder of such annual Bonus deferral, if any, as paying
the elected Bonus deferral. Any amount of Salary and Bonus
deferral treated under this subparagraph (B) as having been
paid by such annual Bonus deferrals shall be treated as
extinguishing a Participant's obligation to defer such
elected portions of Salary and Bonus.
PAGE 5
<PAGE>
(ii) Directors. With respect to any Director, the
Deferred Compensation Agreement shall provide for deferral, over
the Plan Years for which such Deferred Compensation Agreement is
effective, the amount of Compensation otherwise payable to such
Director with respect to such Plan Years as is elected by the
Director. A Participant who is a Director shall:
(A) specify the dollar amount to be deferred
ratably from his annual Director's fees with respect to the
Plan Years during which his Deferred Compensation Agreement
is effective; and
(B) specify a dollar amount of meeting fees (or, to
the extent permitted by the Committee, a percentage of
meeting fees) with respect to each Plan Year during which
his Deferred Compensation Agreement is effective to be
deferred over such Plan Years. If, for any Plan Year during
which the Participant's Deferred Compensation Agreement is
effective, the Participant's actual meeting fees are less
than the amount specified as the amount to be deferred from
meeting fees, the deficiency may be deferred from Director's
fees otherwise payable to the Participant, in such manner as
the Committee shall determine.
(iii) Certain Deductions. The Company (or a Subsidiary, if
applicable) shall deduct from the Participant's nondeferred
Compensation any amounts it is required to withhold under any
state, federal or local law for taxes or other charges.
(d) Maximum and Minimum Deferrals. The following limitations
shall apply to Participants under the Plan:
(i) Minimum Deferrals:
(A) for Executives, $3,000 of Compensation from
Salary per Plan Year, and
(B) for Directors, $3,000 from Director's fees per
Plan Year.
(ii) Maximum Amount of Actual Deferrals: $100,000 total
for all Plan Years for each Participant.
(e) Length of Deferral Period. Each Participant shall specify
in his Deferred Compensation Agreement the Plan Years with respect to
which Compensation is to be deferred hereunder, commencing with the Plan
Year beginning January 1, 1988, for the number of Plan Years equal to any
of the following periods:
(i) four years,
(ii) eight years, or
(iii) in the case of a Deferred Compensation Agreement
executed within eight years of the date on which a Participant
will attain age 65, the period ending on the date such Participant
attains age 65.
PAGE 6
<PAGE>
(f) Acceleration Elections. If a Participant is expected to
satisfy the requirements for Retirement as of a specified date
("Accelerated Retirement Date"), and, if the Participant has elected to
defer Compensation for a period which will expire after the Accelerated
Retirement Date, the Participant may make a written election
("Acceleration Election") to have deferrals in any Plan Year after the
Acceleration Election increased by such amounts or the Participant may
elect in order to prepay the elected deferrals by the Accelerated
Retirement Date. Any such prepayments shall be applied to prepay the
elected deferrals latest in time first.
4.2 Election to Defer Irrevocable. Except as provided herein, a
Participant's election hereunder to defer Compensation shall be irrevocable.
4.3 Certain Retirement Benefit Plan Equivalents. If a participant
remains with the Company or a Subsidiary until retirement, and if a
Participant's retirement benefits from any Company or Subsidiary-sponsored
tax-qualified defined benefit retirement plan or defined benefit excess benefit
plan are decreased in any way due to such Participant's deferral of
Compensation hereunder, there shall be credited to the Participant's Account
Balance, as of the date of the Participant's Retirement, an amount which is
equal to the lump sum actuarial equivalent of the increased benefit which would
have been payable under the plan if the Participant had not elected deferral of
Compensation hereunder. The amount so credited shall be determined by the
Committee, in its sole and absolute discretion, based upon an interest rate at
the Crediting Rate at the date of the Participant's Retirement, and such
mortality and other assumptions as the Committee determines to be appropriate.
V. ACCOUNTS
5.1 Establishment and Crediting of Account. With respect to each
Participant, the Company shall establish an account on its books, and shall
credit or charge to such account the following amounts at the times specified:
(a) the amount of Compensation deferred by the Participant
pursuant to his Deferred Compensation Agreement and any Annual Bonus
Deferral Agreement, credited as of the date the Participant would have
received the Compensation in absence of such agreement;
(b) any amount credited pursuant to Section 4.3;
(c) the amount of any distributions from the account charged as
of the date of the distribution; and
(d) with respect to interest earned on the deferrals described
in (a), above, and other credits and charges under (b) and (c), above, as
of each Determination Date, an amount equal to the interest earned since
the last preceding Determination Date. Interest shall be compounded on a
daily basis at an annual effective yield equal to the Crediting Rate
based upon the daily balances in the account following the preceding
Determination Date. In the case of the final payment of a Participant's
Account Balance, interest shall be credited through the date of payment.
PAGE 7
<PAGE>
5.2 Statement of Accounts. The Committee shall provide to each
Participant, within 120 days after the close of each Plan Year, a statement in
such form as the Committee deems desirable, setting forth the Participant's
Account Balance as of the last day of such Plan Year.
VI. PAYMENT OF BENEFITS
6.1 Retirement Benefits. Upon a Participant's Retirement, the
Participant's Account Balance shall be payable as provided in this Section 6.1.
(a) Normal Form, The normal form of payment of Retirement
Benefits shall be 180 monthly installments. The amount of each monthly
installment shall be determined for the Plan Year in which such payments
commence, and shall be redetermined for each successive Plan Year during
which monthly installments are to be paid. The amount of each monthly
installment in a Plan Year shall be determined based upon a Participant's
Account Balance as of the Determination Date immediately preceding the
first day of the Plan Year, and shall be the amount that would be payable
monthly under a period certain annuity payable for a period equal to the
number of monthly installment payments remaining payable as of the first
day of the Plan Year, with interest at the rate of 8% per annum. The
participant's remaining Account Balance shall continue to be credited on
each Determination Date with interest at the Crediting Rate during such
period.
(b) Optional Forms. At the time a deferral election is made
pursuant to Section 4.1(a), a Participant may, on a form provided or
permitted by the Committee, elect payment of his Retirement Benefit in
one lump sum payment made within 30 days of the Participant's Retirement.
(c) Deferred Payment. At the time a deferral election is made
pursuant to Section 4.1(a), a Participant may, subject to Committee
approval, on a form provided or permitted by the Committee, elect to
defer the commencement of payment of his Retirement Benefits for up to
five years following the date of Retirement. If the Committee permits
such deferral, the Participant's Account Balance shall be credited with
interest by applying the Crediting Rate during the period between
Retirement and the commencement of benefit payments hereunder. If the
Participant has, with the consent of the Committee, elected such deferral
of commencement of benefits, payment of benefits shall commence on such
deferred date, and shall be payable under this Section 6.1 as though the
deferred date were the Participant's Retirement Date.
6.2 Benefit Upon Disability.
(a) Disability Benefits. Upon a Participant's Termination of
Service due to Disability, the Company shall credit to the Participant's
account established under Section 5.1 the amounts elected in the
Participant's Deferred Compensation Agreement at the times and in the
manner such amounts would have been credited if such Termination of
Service had not occurred. Upon the first to occur of the commencement of
the participant's Retirement Benefits or death, the amounts credited to
the Participant's Account Balance pursuant to the preceding sentence
shall be deducted from such Account Balance.
PAGE 8
<PAGE>
(b) Commencement of Retirement Benefits. A Participant who
reaches the Normal Retirement Date while Disabled shall receive,
commencing on such date, the Retirement Benefit set forth in Section 6.1.
(c) Survivorship Benefits. If a Participant dies Prior to
receiving his Account Balance, death benefits shall be paid in accordance
with Section 6.6.
6.3 Benefits Upon Other Termination of Service. This Paragraph 6.3
shall apply only to a Participant who is an Executive.
(a) Amount of Benefit. Upon a participant's Termination of
Service for reasons other than death, Disability or Retirement, the
rights of the Participant, his spouse, if any, and his beneficiary to
benefits under this Plan shall cease, except that the Committee shall pay
to the Participant a benefit determined as follows:
(i) If the Participant has been employed by the Company or
a Subsidiary for at least 10 years, the benefit under this Section
6.3 shall equal the amount of the Participant's Account Balance as
of the date of Termination of Service, calculated as if such date
were a Determination Date.
(ii) If the Participant has not been employed by the
Company or a Subsidiary thereof for at least 10 years, the benefit
under this Section 6.3 shall equal the amount of the Participant's
Account Balance calculated as if such Termination date were a
Determination Date; provided, however, that the Account Balance
shall be redetermined on a retroactive basis from the date of the
Participant's first deferral using a Crediting Rate adjusted as
follows:
<TABLE>
<CAPTION>
Adjusted
Years of Service Crediting Rate
---------------- --------------
<S> <C>
Less than 6 years Crediting Rate minus 5%
6 years but less than 7 years Crediting Rate minus 4%
7 years but less than 8 years Crediting Rate minus 3%
8 years but less than 9 years Crediting Rate minus 2%
9 years but less than 10 years Crediting Rate minus 1%
</TABLE>
(iii) In no case shall the Participant receive less than
his Actual Deferrals.
(b) Form of Payment. A Participant's Account Balance shall be
payable in a single lump sum payment made within 30 days following the
date of Termination of Service.
6.4 Benefits Upon Termination of Service Following a Change of
Control. If, within 36 months after a Change of Control, a Termination of
Service with respect to a Participant occurs for any reason, the rights of the
Participant, his spouse, if any, and his beneficiary to benefits under the Plan
shall cease, except that the Participant shall receive his Account Balance on
the date of Termination of Service calculated without reduction for any reason
whatsoever and as if the date of the distribution were a Determination Date.
Such benefit shall be payable in one lump sum within 30 days following
Termination of Service. Following such payment, the
PAGE 9
<PAGE>
Participant, his spouse, if any, and beneficiary shall have no further right to
any benefit under the Plan.
6.5 Distribution Upon Reduction in Crediting Rate. If, within 36
months following a Change of Control, the Plan is amended to reduce the
Crediting Rate, each Participant shall receive payment of his Account Balance
in a single lump sum within 30 days following the date of such amendment,
calculated without regard to the reduced rate and as if the date of the
distribution were a Determination Date. Following such distribution, the
Participant, his spouse, if any, and his beneficiary shall have no further
right to any benefit under the Plan.
6.6 Survivorship Benefits.
(a) Death Prior to Retirement. If a Participant either (i) dies
prior to satisfying the requirements for Retirement (other than
Termination of Service) while employed by the Company or, (ii) dies after
a Termination of Service due to Disability but prior to satisfying the
requirements for Retirement, the Company shall pay to the Participant's
designated beneficiary an annual pre-retirement survivor's benefit equal
to 50% of the Participant's Actual Deferrals (adjusted for repayment of
amounts credited pursuant to Section 6.2(a)), payable in equal monthly
installments commencing on the first day of the month coincident with or
next following the Participant's death, and continuing on the first day
of each calendar month thereafter for a period of 120 months. However,
if at the time of the Participant's death his Account Balance is greater
than the discounted present value of the survivorship payments described
above using a discount rate of 10%, the beneficiary shall receive, in
lieu of the benefit described above, such Account Balance (adjusted for
repayment of amounts advanced pursuant to Section 6.2(a)), paid in the
same manner as Retirement Benefits are paid in accordance with Section
6.1(a). Payment of the benefit under this Section 6.6(a) shall relieve
the Company of the obligation to pay any other benefits to which the
Participant, his spouse or other beneficiary would have otherwise been
entitled under this Plan.
(b) Death After Retirement Eligibility. If a Participant dies
after satisfying the requirements for Retirement (other than Termination
of Service) but prior to receiving his entire Account Balance, the
Company shall make the remaining payments to the Participant's designated
beneficiary at the same times and in the same amounts as would have been
paid to the Participant, had the Participant survived, provided that if
at the time of the Participant's death such payments have not commenced,
such payments shall commence as of the month following the month of the
Participant's death.
(c) Surviving Spouse Benefit. If a Participant dies and
benefits are payable pursuant to Section 6.6(b) and if married to such
spouse for at least one year prior to the spouse, in addition to any
amount payable under (b), above, a monthly benefit equal to 50% of the
average of the monthly Retirement Benefit which the Participant had
received as of the date of his death (or the initial amount of monthly
Retirement Benefits the Participant would have received if benefits
commenced in the month of the Participant's death), commencing in the
month following the month in which the last payment under 6.6(b), above,
is made, and continuing through the month in which the surviving spouse
dies. However, if the spouse is more than 60 months younger than the
Participant, the amount of such benefit shall be reduced by 0.5% for each
month's difference in their ages in excess of 60 months.
PAGE 10
<PAGE>
6.7 Hardship Distribution. In the event a Participant suffers an
unforeseen financial emergency, at the Participant's request, the Committee
may, in its sole discretion, to the extent the Committee determines necessary
to alleviate the emergency, cancel the Participant's deferral election and
authorize the immediate distribution of all or a portion of the Participant's
Account Balance.
6.8 Recipients of Payments: Designation of Beneficiary.
(a) All benefit payments hereunder shall be made to the
Participant, if living. In the event of a Participant's death prior to
the receipt of all benefit payments hereunder, subsequent payments under
the Plan shall be made to the Participant's beneficiary(ies) designated
in accordance with this Section 6.8. In the event a beneficiary dies
before receiving all the payments due to such beneficiary pursuant to
this Plan, the then-remaining payments shall be paid to the legal
representatives of the beneficiary's estate.
(b) The Participant shall designate a beneficiary by filing a
written notice of such designation with the Committee in such form as the
Committee may prescribe or permit. The Participant may revoke or modify
said designation at any time by a subsequent written designation.
However, no such designation, revocation or modification shall be
effective unless executed by the Participant during the Participant's
lifetime and received by the Committee prior to the distribution of
benefits hereunder. The Participant's beneficiary designation shall be
deemed automatically revoked in the event of the designated beneficiary's
death prior to the death of a Participant. If no beneficiary designation
shall be in effect at the time when any benefits payable under this Plan
shall become due, the Participant's beneficiary shall be such
Participant's spouse, or if no spouse is then living, the Participant's
descendants per stirpes, or, if none, the legal representatives of the
Participant's estate.
(c) In the event a benefit is payable to a minor or person
declared incompetent, or to a person incapable of handling the
disposition of his property, the Company may pay such benefit to the
guardian, legal representative or person having the care or custody of
such person. The Committee may require such proof of incompetency,
minority or guardianship as it may deem appropriate prior to distribution
of the benefit. Such distribution shall completely discharge the
Committee and the Company from all liability with respect to such
benefit.
VII. ADMINISTRATION AND INTERPRETATION OF THE PLAN
The Committee, the members of which may be Participants in the Plan,
shall enforce, administer and construe the Plan in accordance with its terms,
and shall have all powers necessary to accomplish that purpose. The
determination of any questions arising hereunder by the Committee shall be
final and binding upon all persons. The Committee may adopt such rules and
regulations relating to the Plan as it may deem necessary or advisable for the
administration of the Plan. The Committee may allocate to any of its members,
or delegate to any person, such of the Committee's duties as the Committee
shall from time to time deem appropriate.
PAGE 11
<PAGE>
VIII. FUNDING AND LIFE INSURANCE
8.1 Unfunded Obligation. The obligation of the Company under the Plan
shall be unfunded and unsecured, and the Company shall not be required to
segregate or set aside any assets to pay benefits hereunder.
8.2 Insurance Contracts. The Company in its discretion may apply for
and procure, as owner and for the Company's own benefit, insurance on the life
of a Participant, in such amounts and in such forms as the Company may choose.
Neither the Participant nor the Participant's spouse or beneficiary shall have
any interest in any such policy or policies. At the request of the Company,
the Participant shall submit to such medical examinations and supply such
information and execute such documents as may be required by the insurance
company or companies to whom the Company has applied for insurance.
IX. AMENDMENT AND TERMINATION
The Board of Directors of the Company may, at any time, amend, suspend or
terminate the Plan, provided that the Board may not reduce or modify any
benefit payable to a participant. The power to amend the Plan includes the
power to change the Crediting Rate; provided, however, that the Crediting Rate
may be changed only with respect to the Plan Years commencing after 90 days'
written notice to the Participant, and shall be effective only with respect to
amounts deferred after such 90-day written notice.
In the event the Board shall terminate the Plan, notwithstanding any
provision of the Plan to the contrary, each Participant shall receive the full
amount of his Account Balance, calculated without reduction for any reason
whatsoever and as if the date of the termination of the Plan were a
Determination Date. Such benefit shall be payable in one lump sum as soon as
possible following the decision of the Board to terminate the Plan.
X. FORFEITURE
(a) In the event of a Participant's suicide during the first two
(2) years after the Effective Date of any Deferred Compensation
Agreement, all of a Participant's and the Participant's spouse's and
beneficiary's rights to receive any benefits hereunder shall cease,
including, but not limited to, the right to receive all or a portion of
the Participant's Account Balance; provided, however, that the
beneficiary of such Participant shall be entitled to receive an amount
equal to the Participant's Actual Deferrals.
(b) In the event a Participant (i) makes any material
misstatement of information in connection with any Deferred Compensation
Agreement, (ii) fails to disclose to the Company or its agents any
material item of his medical history, or (iii) takes any other action (or
fails to take any action), which action (or failure to act) results in a
loss to the Company under the Plan, then the Committee shall reduce the
Participant's and the Participant's spouse's and beneficiary's rights to
receive any benefits hereunder, including, but not limited to, the right
to receive all or a portion of such Participant's Account Balance
PAGE 12
<PAGE>
by the amount of any direct, indirect or consequential damages of the
Company, as determined by the Committee in its sole and absolute
discretion.
XI. MISCELLANEOUS
11.1 Finality of Determination. Any interpretation or determination by
the Committee as to any disputed questions arising under the Plan, including
questions of fact (such as when Disability exists) or questions of construction
and interpretation, shall be final, binding and conclusive upon all persons.
11.2 Assignment of Benefits. Neither the Participant nor any
beneficiary under the Plan shall have any right to assign the right to receive
any benefits hereunder, and any such attempted assignment or transfer shall be
of no force or effect.
11.3 Legal Expenses and Fees.
(a) If a Participant incurs legal fees and other expenses in a
good faith effort to establish entitlement to benefits hereunder
(including but not limited to the enforcement of an arbitration award),
regardless of whether the Participant ultimately prevails, the Company
shall reimburse him for such fees and expenses. The existence of any
case or regulatory law which is directly inconsistent with the position
taken by the Participant shall be evidence that the Participant did not
act in good faith.
(b) Reimbursement of legal fees and expenses shall be made
monthly during the course of any action described in subparagraph (a),
above, upon the written submission of a request for reimbursement
together with proof that the fees and expenses were incurred. If the
Company shall have reimbursed the Participant for legal fees and expenses
and it is later determined that the Participant was not acting in good
faith, all amounts reimbursed to him shall be promptly refunded to the
Company.
11.4 No Set Off. It is understood that the Participant's rights to
receive when due the payments and other benefits provided for under this Plan
shall be absolute and unconditional, subject to no set-off, counterclaim or
legal or equitable defense, and that time shall be of the essence in the
performance by the Company of all obligations to pay such amounts or provide
such benefits. Any claim which the Company may hereafter have against a
Participant shall be pursued in a separate action or proceeding and not as part
of any concurrent action or proceeding which may then be pending brought by the
Participant to enforce any rights against the Company for failure to pay any of
such amounts or to provide any of such benefits.
11.5 Arbitration of All Disputes. Any controversy or claim arising out
of or relating to this Plan, shall be settled by arbitration in the city of
Kansas City in accordance with the laws of the State of Missouri by three
arbitrators, one of whom shall be appointed by the Company, one by the
Participant and the third of whom shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the Chief
Judge of the United States Court of Appeals for the Eighth Circuit. The
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of arbitrators
which shall be as provided in this
PAGE 13
<PAGE>
Section 11.5. Judgement upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. Any award of the arbitrators
shall include interest at a rate or rates considered just under the
circumstances by the arbitrators.
11.6 Employment Not Guaranteed by Plan. Nothing contained herein shall
be construed to constitute a contract of employment or otherwise to expand the
participant's rights to be employed by the Company or a Subsidiary.
11.7 Gender and Number. Except when the contexts indicates to the
contrary, when used herein, masculine terms shall be deemed to include the
feminine, and singular, the plural.
11.8 Taxes. The Company shall deduct from all payments made hereunder
any applicable federal, state or local taxes required by law to be withheld
from such payments.
11.9 Construction. The Plan shall be construed according to the laws
of the state of Missouri.
11.10 Form of Communication. Any election, application, claim, notice
or other communication required or permitted to be made by a participant to the
Committee shall be made in writing and in such form as the Committee shall
prescribe or permit. Such communication shall be effective upon mailing, if
sent by first class mail, postage prepaid, and addressed to the Company's
offices at Kansas City, Missouri.
11.11 Headings. The headings of Articles and Sections are included
solely for convenience, of reference, and if there is any conflict between such
headings and the text of this Plan, the text shall control.
11.12 Severability. If all or any part of this Plan is declared by any
court or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of this Plan not declared
to be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner which will
give effect to the terms of such Section or part of a Section to the fullest
extent possible while remaining lawful and valid.
PAGE 14
<PAGE>
11.13 Binding Agreement. The provisions of this Plan shall be binding
upon the Participant, his or her heirs, personal representatives and
beneficiaries, and upon the Company, its successors and assigns.
Executed this 15th day of December, 1987.
PAYLESS CASHWAYS, INC.
By: s/Susan M. Stanton
ATTEST:
s/Linda J. French
Secretary
CXS/4487e
PAGE 15
<PAGE> 1
Exhibit 10.11(b)
AMENDMENTS TO THE PAYLESS CASHWAYS, INC.
1988 DEFERRED COMPENSATION PLAN
- ------------------------------------------------------------------------------
1. Section 2.7 shall be amended to read as follows:
-----------------------------------------------
"Change in Control" of the Corporation shall mean and be deemed to have
occurred if:
(i) any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 [the "Exchange Act"]) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing
thirty percent (30%) or more of the combined voting power of the
Corporation's then outstanding securities. For purposes of this Section
2(i), the term "beneficial owner" does not include any employee benefit
plan maintained by the Corporation that invests in the Corporation's
voting securities. Or
(ii) during any period of two (2) consecutive years (not including
any period prior to the execution of this Agreement) there shall cease to
be a majority of the Board comprised as follows: individuals who at the
beginning of such period constitute the Board and any new director(s)
whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election
was previously so approved, or
(iii) the shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Corporation outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 70% of the combined
voting power of the voting securities of the Corporation or such
surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all the
Corporation's assets; provided, however, that no change in control will
be deemed to have occurred if such merger, consolidation, sale or
disposition of assets, or liquidation is not subsequently consummated.
<PAGE> 2
2. Section 6.4 shall be amended to read as follows:
-----------------------------------------------
Benefits Upon Termination of Service Following a Change of Control--If,
within twenty-four (24) months after a Change of Control, a Termination
of Service with respect to a Participant occurs for any reason, the
rights of the Participant, his spouse, if any, and his beneficiary to
benefits under the Plan shall cease, except that the Participant, his
spouse, if any, or his beneficiary shall receive his Account Balance as
of the date of Termination of Service calculated without reduction for
any reason whatsoever (including any reduction in the Crediting Rate as
otherwise provided in Section 6.3) and as if the date of the distribution
were a Determination Date. Such benefit shall be payable in one lump sum
within 30 days following Termination of Employment. Following such
payment, the Participant, his spouse, if any, and the beneficiary shall
have no further right to any benefit under the Plan. Notwithstanding any
other provision contained in this Section 6.4, if such Termination of
Employment is due to death, Survivorship Benefits, if any, shall be
calculated and paid out in accordance with Section 6.6. If such
Termination of Employment is due to Retirement, Retirement Benefits, if
any, shall be calculated and paid out in accordance with Section 6.1. If
such Termination of Employment is due to Disability, Disability Benefits,
if any, shall be calculated and paid out in accordance with Section 6.2.
This Section 6.4 may not be amended within two years following a Change
in Control of the Corporation, as defined in Section 2.7 of the Plan.
3. Section 6.5 shall be amended to read as follows:
-----------------------------------------------
Distribution Upon Reduction in Crediting Rate--If, within 24 months of a
Change of Control, the Plan is amended to reduce the Crediting Rate, each
Participant shall receive payment of his Account Balance in a single lump
sum within 30 days following the date of such amendment, calculated
without regard to the reduced rate and as if the date of the distribution
were a Determination Date. Following such distribution, the Participant,
his spouse, if any, and his beneficiary shall have no further right to
any benefit under the Plan.
This Section 6.5 may not be amended within two years following a Change
in Control of the Corporation, as defined in Section 2.7 of the Plan.
<PAGE>
Exhibit 10.12
THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL DEATH BENEFIT PLAN
<PAGE> 1
<TABLE>
THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL DEATH BENEFIT PLAN
<CAPTION>
Article Section Page
_______ _______ ____
<C> <C> <C>
I. Establishment and Purpose
_________________________
1.1 Establishment........................................1
1.2 Purpose..............................................1
1.3 Application of Plan..................................1
II. Definitions and Construction
____________________________
2.1 Definitions..........................................1
2.2 Gender and Number....................................2
2.3 Employment Rights....................................2
2.4 Severability.........................................2
2.5 Applicable Law.......................................3
III. Participation
_____________
3.1 Participation........................................3
IV. Benefits
________
4.1 Eligibility..........................................3
4.2 Amount...............................................3
4.3 Form and Duration....................................4
V. General Provisions
__________________
5.1 Funding..............................................4
5.2 Vesting..............................................4
5.3 Administration.......................................5
5.4 Expenses.............................................5
5.5 Indemnification and Exculpation......................5
5.6 Interests not Transferable...........................6
5.7 Effect on Other Benefit Plans........................6
5.8 Tax Liability........................................6
5.9 Insurance Contracts..................................6
5.10 Forfeiture..........................................7
VI. Amendment and Termination............................7
_________________________
</TABLE>
<PAGE> 2
THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL DEATH BENEFIT
Article I. Establishment and Purpose
_____________________________________
1.1 Establishment. PAYLESS CASHWAYS, INC. (the "Company") hereby adopts a
death benefit plan for officers of the Company to be knows as THE PAYLESS
CASHWAYS, INC. SUPPLEMENTAL DEATH BENEFIT PLAN (the "Plan"), effective January
1, 1988.
1.2 Purpose. The purpose of this Plan is to provide certain death
benefits to eligible employees that takes into consideration the maximum dollar
limitation imposed by the Company's regular plan. In addition, this Plan
provides a life insurance supplemental benefit in recognition of the
contribution to the company by eligible Participants.
1.3 Application of Plan. The terms of this Plan are applicable only to
eligible employees who are in the employ of the Company on or after the
Effective Date.
Article II. Definitions and Construction
_________________________________________
2.1 Definitions. The terms used in this Plan shall have the meaning
stated below unless the context clearly indicates otherwise.
(a) "Compensation" means a Participant's total pay in the 12-month period
immediately preceding the date of disability, including only base pay,
amounts deferred pursuant to a salary deduction agreement or cash or
deferred arrangement offered by the Company under Code section 401(k)
or 125, and amounts deferred under any "nonqualified" deferred
compensation plan offered by the Company.
(b) "Effective Date" means January 1, 1988.
(c) "ERISA" means the Employee Retirement Income Security Act of 1974, as
now in effect or hereafter amended.
(d) "Participant" means an employee of the Company who has met the
participation requirements set forth in section 3.1 of this Plan.
<PAGE> 3
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender shall include the feminine and neuter genders, the
plural shall include the singular, and the singular shall include the plural.
2.3 Employment Rights. Establishment of this Plan shall not be construed
to give any Participant the right to be retained by the Company or to any
benefits not specifically provided by the Plan.
2.4 Severability. In the event any provision of the Plan shall be held
invalid or illegal for an reason, any invalidity or illegality shall not affect
the remaining parts of the Plan, but the Plan shall be construed and enforced as
if the invalid or illegal provision had never been inserted, and the Company
shall have the privilege and opportunity to correct and remedy such questions of
invalidity or illegality by amendment as provided in the Plan.
2.5 Applicable Law. This Plan is fully exempt from Titles II, III, and IV
of ERISA. The Plan shall be governed and construed in accordance with Title I
of ERISA and to the extent not preempted, the laws of the State of Missouri.
Article III. Participation
___________________________
3.1 Participation. An employee shall become a participant on the date he
is elected an officer of the Company who is a member of a select group of its
management and highly compensated executives.
Article IV. Death Benefits
___________________________
4.1 Pre-Retirement Death Benefit. The designated beneficiary of a
Participant who dies while employed by the Company shall be paid a lump sum
death benefit equal to three (3) times their compensation less any amount of
life insurance provided by the Payless Cashways, Inc. Employee Life, Accidental
Death & Dismemberment and Dependent Life Insurance Plan.
<PAGE> 4
4.2 Post-Retirement Death Benefit. A designated beneficiary of a former
Participant who dies while receiving a benefit from the Payless Cashways, Inc.
Amended Retirement Plan shall be paid a lump sum death benefit equal to their
compensation less any amount of life insurance provided by the Payless Cashways,
Inc. Employee Life, Accidental Death & Dismemberment and Dependent Life
Insurance Plan.
4.3 Beneficiary. The Beneficiary(ies) for the Plan shall be the
beneficiary designated to receive any benefit under the Payless Cashways, Inc.
Employee Life, Accidental Death & Dismemberment and Dependent Life Insurance
Plan.
Article V. General Provisions
_____________________________
5.1 Funding. All benefits paid under this Plan shall be paid in cash from
the general assets of the Company. No employee shall have any right, title, or
interest whatever in or to any investment reserves, accounts, or funds that the
Company may purchase, establish, or accumulate to aid in providing benefits
under this Plan. Nothing contained in this Plan, and no action taken pursuant
to its provisions, shall create a trust of fiduciary relationship of any kind
between the Company and an employee or any other person. Neither an employee
nor beneficiary of an employee shall acquire any interest greater than that of
an unsecured creditor.
5.2 Vesting. A Participant or his beneficiary shall have no right to
benefits under this Plan if the Company determines that he engaged in a willful,
deliberate, or gross act of commission or omission which is substantially
injurious to the finances or reputation of the Company.
5.3 Administration. This Plan shall be administered by the Company and
such other persons or committee as the Company shall appoint for general or
specific purposes. The Company may from time to time establish rules for the
administration of the Plan that are not inconsistent with the provisions
thereof.
<PAGE> 5
5.4 Expenses. The expenses of administering the Plan shall be borne by
the Company.
5.5 Indemnification and Exculpation. The members of an committee
appointed by the Company to administer the Plan, its agents, and officers,
directors, and employees of the Company shall be indemnified and held harmless
by the Company against and from any and all loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by them in connection with or
resulting from any claim, action, suit, or proceeding to which they may be a
party or in which they may be involved by reason of any action taken or failure
to act under this Plan and against and from any and all amounts paid by them in
settlement (with the Company's written approval) or paid by them in satisfaction
of a judgment in any such action, suit, or proceeding. The foregoing provision
shall not be applicable to any person if the loss, cost, liability, or expense
is due to such persons' gross negligence or willful misconduct.
5.6 Interests not Transferable. The interests of the Participants and
their beneficiaries under the Plan are not subject to the claim of their
creditors and may not be voluntarily or involuntarily transferred, assigned,
alienated, or encumbered.
5.7 Effect on Other Benefit Plans. Amounts credited or paid under this
Plan shall not be considered to be compensation for the purposes of a qualified
pension plan maintained by the Company. The treatment of such amounts under
other employee benefit plans shall be determined pursuant to the provisions of
such plans.
5.8 Tax Liability. The Company may withhold from any payment of benefits
hereunder, any taxes required to be withheld and such sum as the Company may
reasonably estimate to be necessary to cover any taxes for which the Company may
be liable and which may be assessed with regard to such payment.
5.9 Insurance Contracts. The Company in its discretion may apply for and
procure, as owner and for the Company's own benefit, insurance on the life of a
participant, in such amounts and in such forms as the Company may choose.
Neither the participant nor the Participant's spouse or beneficiary shall have
any interest in any such policy or policies. At the
<PAGE> 6
request of the Company, the Participant shall submit to such medical
examinations and supply such information and execute such documents as may be
required by the insurance company or companies to whom the Company has applied
for insurance.
5.10 Forfeiture. In the event of a participant's suicide during the first
two (2) years after becoming a participant in this Plan, all of a participant's
and the Participant's beneficiary's right to receive any benefits hereunder
shall cease. In addition, in the event a Participant(i) makes any material
misstatement of information in connection with any insurance contract (ii) fails
to disclose to the Company or its agents any material item of his medical
history, (iii) takes any other action (or fails to take any action), which
action (or failure to act) results in a loss to the Company under the Plan, then
the Company shall reduce the Participant's and the Participant's beneficiary's
rights to receive any benefits hereunder as determined by the Company in its
sole and absolute discretion.
Article VI. Amendment and Termination
______________________________________
The Company reserves the right to amend this Plan from time to time or to
terminate the Plan at any time.
********************
<PAGE> 7
IN WITNESS WHEREOF, PAYLESS CASHWAYS, INC. has caused this instrument to be
executed by its duly authorized officers on this 15th day of December, 1987,
effective as of the 1st day of January, 1988.
PAYLESS CASHWAYS, INC.
ATTEST:
By: s/ Susan M. Stanton
_______________________
s/ Linda J. French
__________________
<PAGE> 1 Exhibit 10.13
THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL DISABILITY BENEFIT PLAN
____________________________________
<PAGE> 2
<TABLE>
THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL DISABILITY BENEFIT PLAN
____________________________________
<CAPTION>
Article Section Page
_______ _______ ____
<C> <C> <C>
I. Establishment and Purpose
_________________________
1.1 Establishment . . . . . . . . . . . . . . . . . . 1
1.2 Purpose . . . . . . . . . . . . . . . . . . . . . 1
1.3 Application of Plan . . . . . . . . . . . . . . . 1
II. Definitions and Construction
____________________________
2.1 Definitions . . . . . . . . . . . . . . . . . . . 1
2.2 Gender and Number . . . . . . . . . . . . . . . . 2
2.3 Employment Rights . . . . . . . . . . . . . . . . 2
2.4 Severability . . . . . . . . . . . . . . . . . . .3
2.5 Applicable Law . . . . . . . . . . . . . . . . . .3
III. Participation
_____________
3.1 Participation . . . . . . . . . . . . . . . . . . 3
IV. Benefits
________
4.1 Eligibility . . . . . . . . . . . . . . . . . . . 3
4.2 Amount . . . . . . . . . . . . . . . . . . . . . .3
4.3 Form and Duration . . . . . . . . . . . . . . . . 4
V. General Provisions
__________________
5.1 Funding . . . . . . . . . . . . . . . . . . . . . 4
5.2 Vesting . . . . . . . . . . . . . . . . . . . . . 5
5.3 Administration . . . . . . . . . . . . . . . . . .5
5.4 Expenses . . . . . . . . . . . . . . . . . . . . .5
5.5 Indemnification and Exculpation . . . . . . . . . 5
5.6 Interests not Transferable . . . . . . . . . . . .6
5.7 Effect on Other Benefit Plans . . . . . . . . . . 6
5.8 Tax Liability . . . . . . . . . . . . . . . . . . 6
VI. Amendment and Termination . . . . . . . . . . . . 6
_________________________
</TABLE>
<PAGE> 3
THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL DISABILITY BENEFIT
_______________________________
Article I. Establishment and Purpose
_____________________________________
1.1 Establishment. PAYLESS CASHWAYS, INC. (the "Company") hereby adopts a
disability plan for officers of the Company to be knows as THE PAYLESS CASHWAYS,
INC. SUPPLEMENTAL DEATH BENEFIT PLAN (the "Plan"), effective January 1, 1988.
1.2 Purpose. The purpose of this Plan is to provide disability benefit
protection to eligible employees that takes into consideration all current and
deferred compensation and removes the maximum dollar limitation imposed by the
Company's regular disability plan.
1.3 Application of Plan. The terms of this Plan are applicable only to
eligible employees who are in the employ of the Company on or after the
Effective Date.
Article II. Definitions and Construction
_________________________________________
2.1 Definitions. The terms used in this Plan shall have the meaning
stated below unless the context clearly indicates otherwise.
(a) "Compensation" means a Participant's total pay in the 12-month period
immediately preceding the date of disability, including base pay,
bonuses, amounts deferred pursuant to a salary deduction agreement or
cash or deferred arrangement offered by the Company under Code section
401 (k) or 25, and amounts deferred under any "nonqualified" deferred
compensation plan offered by the Company.
(b) "Disabled" shall have the same meaning in this Plan as in the
Company's regular disability plan.
(c) "Effective Date" means January 1, 1988.
(d) "ERISA" means the Employee Retirement Income Security Act of 1974, as
now in effect or hereafter amended.
<PAGE> 4
(e) "Participant" means an employee of the Company who has met the
participation requirements set forth in section 3.1 of this Plan.
(f) "Primary Social Security Disability Benefit" shall have the same
meaning in this Plan as in the Company's regular disability plan.
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender shall include the feminine and neuter genders, the
plural shall include the singular, and the singular shall include the plural.
2.3 Employment Rights. Establishment of this Plan shall not be construed
to give any Participant the right to be retained by the Company or to any
benefits not specifically provided by the Plan.
2.4 Severability. In the event any provision of the Plan shall be held
invalid or illegal for an reason, any invalidity or illegality shall not affect
the remaining parts of the Plan, but the Plan shall be construed and enforced as
if the invalid or illegal provision had never been inserted, and the Company
shall have the privilege and opportunity to correct and remedy such questions of
invalidity or illegality by amendment as provided in the Plan.
2.5 Applicable Law. This Plan is fully exempt from Titles II, III, and IV
of ERISA. The Plan shall be governed and construed in accordance with Title I
of ERISA and the laws of the State of Missouri.
Article III. Participation
___________________________
3.1 Participation. An employee shall become a participant on the date he
is elected an officer of the Company.
<PAGE> 5
Article IV. Benefits
_____________________
4.1 Eligibility. A Participant who becomes Disabled shall be eligible for
a supplemental disability benefit under this Plan.
4.2 Amount. A Participant who is eligible under section 4.1 shall be
entitled to a monthly disability benefit under this Plan in an amount equal to
one-twelfth of 60 percent of his current Compensation reduced by (a) his Primary
Social Security Disability benefit and (b) the amount of benefits payable under
the Company's regular disability plan.
4.3 Form and Duration. Upon the disability of an eligible Participant
under section 4.1, the benefit calculated under section 4.2 shall be paid as a
monthly income until the earliest of (a) age 65, (b) commencement of benefits
under the Company's qualified pension plan, or (c) the Participant's date of
death. No payments will be made to a surviving spouse or other beneficiary of a
Participant under this Plan.
Article V. General Provisions
_____________________________
5.1 Funding. All benefits paid under this Plan shall be paid in cash from
the general assets of the Company. No employee shall have any right, title, or
interest whatever in or to any investment reserves, accounts, or funds that the
Company may purchase, establish, or accumulate to aid in providing benefits
under this Plan. Nothing contained in this Plan, and no action taken pursuant
to its provisions, shall create a trust of fiduciary relationship of any kind
between the Company and an employee or any other person. Neither an employee
nor beneficiary of an employee shall acquire any interest greater than that of
an unsecured creditor.
5.2 Vesting. A Participant or his beneficiary shall have no right to
benefits under this Plan if the Company determines that he engaged in a willful,
deliberate, or gross act of commission or omission which is substantially
injurious to the finances or reputation of the Company.
<PAGE> 6
5.3 Administration. This Plan shall be administered by the Company and
such other persons or committee as the Company shall appoint for general or
specific purposes. The Company may from time to time establish rules for the
administration of the Plan that are not inconsistent with the provisions
thereof.
5.4 Expenses. The expenses of administering the Plan shall be borne by
the Company.
5.5 Indemnification and Exculpation. The members of an committee
appointed by the Company to administer the Plan, its agents, and officers,
directors, and employees of the Company shall be indemnified and held harmless
by the Company against and from any and all loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by them in connection with or
resulting from any claim, action, suit, or proceeding to which they may be a
party or in which they may be involved by reason of any action taken or failure
to act under this Plan and against and from any and all amounts paid by them in
settlement (with the Company's written approval) or paid by them in satisfaction
of a judgment in any such action, suit, or proceeding. The foregoing provision
shall not be applicable to any person if the loss, cost, liability, or expense
is due to such persons' gross negligence or willful misconduct.
5.6 Interests not Transferable. The interests of the Participants and
their beneficiaries under the Plan are not subject to the claim of their
creditors and may not be voluntarily or involuntarily transferred, assigned,
alienated, or encumbered.
5.7 Effect on Other Benefit Plans. Amounts credited or paid under this
Plan shall not be considered to be compensation for the purposes of a qualified
pension plan maintained by the Company. The treatment of such amounts under
other employee benefit plans shall be determined pursuant to the provisions of
such plans.
5.8 Tax Liability. The Company may withhold from any payment of benefits
hereunder, any taxes required to be withheld and such sum as the Company may
reasonably estimate to be necessary to cover any taxes for which the Company may
be liable and which may be assessed with regard to such payment.
<PAGE> 7
Article VI. Amendment and Termination
_______________________________________
The Company reserves the right to amend this Plan from time to time or to
terminate the Plan at any time.
********************
IN WITNESS WHEREOF, PAYLESS CASHWAYS, INC. has caused this instrument to be
executed by its duly authorized officers on this 15th day of December, 1987,
effective as of the 1st day of January, 1988.
PAYLESS CASHWAYS, INC.
ATTEST
By: s/Susan M. Stanton
___________________________
s/Linda J. French
_________________________________
<PAGE> 1 Exhibit 10.14 (a)
THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL RETIREMENT PLAN
____________________________
<PAGE> 2
<TABLE>
THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL RETIREMENT PLAN
____________________________
<CAPTION>
Article Section Page
_______ _______ ____
<C> <C> <C>
I. Establishment and Purpose
_________________________
1.1 Establishment . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Application of Plan . . . . . . . . . . . . . . . . 1
II. Definitions and Construction
____________________________
2.1 Definitions . . . . . . . . . . . . . . . . . . . . 2
2.2 Gender and Number . . . . . . . . . . . . . . . . . 3
2.3 Employment Rights . . . . . . . . . . . . . . . . . 3
2.4 Severability . . . . . . . . . . . . . . . . . . . .3
2.5 Applicable Law . . . . . . . . . . . . . . . . . . .3
III. Participation
_____________
3.1 Participation . . . . . . . . . . . . . . . . . . . 4
IV. Benefits
________
4.1 Normal Retirement Benefit . . . . . . . . . . . . . 4
4.2 Early Retirement Benefit . . . . . . . . . . . . . .5
4.3 Disability . . . . . . . . . . . . . . . . . . . . .6
4.4 Surviving Spouse Benefit . . . . . . . . . . . . . .7
4.5 Forms of Distribution . . . . . . . . . . . . . . . 8
4.6 Designation of Beneficiaries . . . . . . . . . . . .9
V. General Provisions
__________________
5.1 Funding . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Vesting . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Administration . . . . . . . . . . . . . . . . . . .10
5.4 Expenses . . . . . . . . . . . . . . . . . . . . . .10
5.5 Indemnification and Exculpation . . . . . . . . . . 11
5.6 Action by the Company . . . . . . . . . . . . . . . 11
5.7 Interests not Transferable . . . . . . . . . . . . .11
5.8 Effect on Other Benefit Plans . . . . . . . . . . . 12
5.9 Tax Liability . . . . . . . . . . . . . . . . . . . 12
VI. Amendment and Termination . . . . . . . . . . . . . 12
_________________________
</TABLE>
<PAGE> 3
THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL RETIREMENT PLAN
____________________________
Article I. Establishment and Purpose
_____________________________________
1.1 Establishment. PAYLESS CASHWAYS, INC. (the "Company") hereby adopts
this unfunded deferred compensation plan which shall be known as THE PAYLESS
CASHWAYS, INC. SUPPLEMENTAL RETIREMENT PLAN (the "Plan"), effective January 1,
1988. This Plan will provide benefits to certain eligible employees of the
Company.
1.2 Purpose. The Company sponsors the Payless Cashways, Inc. Amended
Retirement Plan for the benefit of its employees and their beneficiaries. That
plan is intended to operate as a "qualified plan" as that term is defined under
the Code.
The purpose of the Plan is to provide benefits above the levels provided by
the qualified plan in recognition of the contribution made to the Company by the
eligible employees. This Plan is intended as an unfunded deferred compensation
plan for a select group of management or highly compensated employees, as
described in sections 201(2), 301(a)(3), and 401(a)(l) of ERISA.
1.3 Application of Plan. The terms of this Plan are applicable only to
eligible employees who are in the active employ of the Company on or after the
Effective Date.
Article II. Definitions and Construction
_________________________________________
2.1 Definitions. The terms used in this Plan shall have the same meaning
as they have under the Pension Plan (if defined therein) except as otherwise
indicated herein.
(a) "Compensation" means the total cash remuneration payable to the
Executive by the Company and any Subsidiary, including Salary, Bonus
and other cash amounts which would have been reported on Treasury Form
W-2 (or any comparable successor form) for a Plan Year if the
Executive had not entered into a Deferred
<PAGE> 4
Compensation Agreement, increases by any amounts deferred under the
Employee Savings Plan by Compensation reduction or other similar
arrangement, any elective deferrals under any cash and deferred plan
described in Internal Revenue Code Section 401(k) of the Company or a
Subsidiary or Compensation reduction under a cafeteria plan described
in Internal Revenue Code Section 125(d) of the Company or a
Subsidiary; and excluding expense reimbursement, moving expense
payments, third-party sick pay, imputed income (from excess life
insurance premiums, automobile use premiums or any other source),
nonqualified stock options, disqualifying dispositions of stock
acquired pursuant to the exercise of incentive stock options, stock
appreciation rights, amounts attributable to long-term incentive
plans, severance settlements and similar items of remuneration.
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender shall include the feminine and neuter genders, the
plural shall include the singular, and the singular shall include the plural.
2.3 Employment Rights. Establishment of this Plan shall not be construed
to give any Participant the right to be retained by the Company or to any
benefits not specifically provided by the Plan.
2.4 Severability. In the event any provision of the Plan shall be held
invalid or illegal for any reason, any invalidity or illegality shall not affect
the remaining parts of the Plan, but the Plan shall be construed and enforced as
if the invalid or illegal provision had never been inserted, and the Company
shall have the privilege and opportunity to correct and remedy such questions of
invalidity or illegality by amendment as provided in the Plan.
2.5 Applicable Law. This Plan is fully exempt from Titles II, III, and IV
of The Act. The Plan shall be governed and construed in accordance with Title I
of The Act and the laws of the State of Missouri.
<PAGE> 5
Article III. Participation
___________________________
3.1 Participation. An employee shall become a Participant on the date he
is named Chief Executive Officer, Chief Operating Officer, Senior Vice
President, or Regional Vice President.
Article IV. Benefits
_____________________
4.1 Normal Retirement Benefit.
(a) Eligibility. A Participant whose employment with the Company
terminates after he has attained age 62 shall be eligible for a normal
retirement benefit under this Plan provided that the Participant has
completed 10 years of employment as an eligible employee.
(b) Amount. A participant who is eligible under section 4.1(a) shall be
entitled to a monthly retirement benefit under this plan in an amount
equal to one-twelfth of 50 percent of his Final Average Compensation
reduced by the Actuarial Equivalent of (1) his Primary Social Security
Benefit payable at the earlier of age 65 or retirement age, and (2)
the amount of pension benefits payable under the Pension Plan.
(c) Commencement and Form. Monthly normal retirement benefit payments
shall be paid in accordance with section 4.5 and shall commence on the
first day of the month coincident with or next following the
Participant's termination of employment after his attainment of age
62.
4.2 Early Retirement Benefit.
(a) Eligibility. A Participant whose employment with the Company
terminates (for reasons other than normal retirement or Disability)
after he has completed at least ten years of employment as an eligible
employee and attained age 55 shall be eligible for an early retirement
benefit under this Plan.
<PAGE> 6
(b) Amount. A Participant who is eligible under section 4.2(a) shall be
entitled to a monthly early retirement benefit computed in the same
manner as a normal retirement benefit under section 4.2(b) hereof
based on his Final Average Compensation and Years of Service at his
termination; provided, however, such amount shall be reduced by one-
third of 1 percent for each complete calendar month by which his first
early retirement benefit payment precedes his attainment of age 62.
(c) Commencement and Form. Monthly early retirement benefit payments
shall be paid in accordance with section 4.5 and shall commence on the
first day of the month coincident with or next following the
Participant's termination of employment after his attainment of age
55.
4.3 Disability. In the event a Participant terminates employment due to
Disability, benefits payable under the Plan shall be determined in accordance
with Section 4.1 or 4.2 hereof; provided, however, for purposes of satisfying
Service requirements thereunder, a Disabled Participant shall continue to accrue
Service notwithstanding such termination of employment.
In the case of a Participant who terminates employment due to disability
with less than 10 years of Service, benefits shall become payable when such
Participant has accrued 10 years of Service in accordance with the terms hereof.
4.4 Surviving Spouse Benefit.
(a) Eligibility. The surviving spouse of a Participant who was eligible
for a benefit under Section 4.1, 4.2, or 4.3 shall be eligible for a
surviving spouse benefit under the Plan in lieu of any benefit under
such sections if such Participant dies prior to commencement of
benefits, providing that the spouse had been married to the
Participant for at least one year as of the date of the Participant's
death. No surviving spouse benefit shall be paid under the Plan
except as provided in this Section 4.4(a) for an eligible spouse of a
Participant.
(b) Amount. A surviving spouse who is eligible pursuant to Section 4.4(a)
shall be entitled to a monthly surviving spouse benefit equal to 50
percent of the early retirement benefit the Participant would have
been entitled to receive if the
<PAGE> 7
Participant had retired on the date before his death and elected a 50
percent joint and survivor annuity.
(c) Commencement and Duration. Monthly surviving spouse benefit payments
shall be payable to the spouse over her remaining life, but for not
more than 10 years, and shall commence on the later to occur of the
date the Participant would have attained age 55 or the first day of
the month coincident with or next following the month of the
Participant's death.
4.5 Forms of Distribution.
(a) Normal Form
(1) If a Participant is not married on the date that benefits under
Section 4.1, 4.2, or 4.3 commence, such Participant's benefits
shall be paid as a monthly income for life.
(2) If a Participant is married on the date that benefits under
Section 4.1, 4.2, 4.3 commence, such Participant shall receive an
actuarially reduced monthly benefit payable for life, and upon the
Participant's death a monthly benefit in an amount equal to 50
percent of such Participant's benefit shall be payable to the
spouse to whom he was married when his benefits commenced,
providing that he was also married to such spouse at his death.
The monthly benefit to such spouse shall be payable for the life
of the spouse.
(b) Optional Forms. In lieu of the normal form of distribution as
described in Subsection (a) of this section, a Participant, subject to
the approval of the Administrator, may elect to receive the Actuarial
Equivalent of his benefit to be paid in the form of a:
(1) single life annuity;
(2) joint and 66 2/3%, or 100% survivor annuity;
(3) 10-year period certain and life annuity; or
(4) 15-year period certain and life annuity.
(c) Actuarial Equivalent. Benefit payments hereunder shall be subject to
the same actuarial factors and adjustments used under the Pension
Plan.
<PAGE> 8
4.6 Designation of Beneficiaries. The Beneficiary of each Participant
under the Pension Plan shall be the beneficiary of the Participant's benefits
under this Plan.
4.7 Forfeiture of Benefits. A Participant or his beneficiary shall have
no rights to benefits under this Plan if his employment is terminated due to a
discharge for cause (or if, at the time his employment is terminated, he could
have been terminated due to a discharge for cause). Discharge for cause means a
termination of the Participant's employment by the Company, any parent or
subsidiary of the Company or any successor to the Company or any parent or
subsidiary of the Company because of the Participant's:
(a) Commission of any felony which includes as an element of the crime a
premeditated intention to commit the act;
(b) inability to perform his duties due to his habitual alcohol or drug
addiction;
(c) serious misconduct in the course of his employment involving
dishonesty; or
(d) habitual neglect of his duties. Discharge for cause shall not mean a
discharge because of:
(1) bad judgment or negligence other than habitual neglect of duty;
(2) any act or omission believed by the Participant in good faith to
have been in or not opposed to the interest of the Company, any
parent or subsidiary of the Company, or any successor to the
Company or any parent or subsidiary of such successor to the
Company (without intent of the Participant to gain therefrom,
directly or indirectly, a profit to which he was not legally
entitled);
(3) any act or omission in respect of which a determination could
properly have been made by the Board of Directors of the Company
or, if employed by any parent or subsidiary of the Company, the
Board of Directors of such parent or subsidiary or, if employed
by any successor to the Company or any parent or subsidiary of
the Company or such successor, the Board of Directors thereof,
that the Participant met the applicable standard of conduct for
indemnification or reimbursement under the bylaws of such company
or the laws and regulations under which such company is governed,
in each case in effect at the time of such act or omission; or
<PAGE> 9
(4) any act or omission with respect to which notice of termination
of employment of the Participant is given more than twelve (12)
months after the earliest date on which any member of the Board
of Directors of the Company or, if employed by a parent or
subsidiary of the Company, a member of the Board of Directors of
such parent or subsidiary or, if employed by a successor to the
Company or any parent or subsidiary of the Company, or such
successor, a member of the Board of Directors thereof, who is not
a party to the act or omission knew or should have known of such
act or omission.
Article V. General Provisions
______________________________
5.1 Funding. All benefits paid under this Plan shall be paid in cash from
the general assets of the Company. Such amounts shall be reflected on the
accounting records of the Company but shall not be construed to create or
require the creation of a trust, custodial, or escrow account. No employee
shall have any right, title, or interest whatever in or to any investment
reserves, accounts, or funds that the Company may purchase, establish, or
accumulate to aid in providing benefits under this Plan. Nothing contained in
this Plan, and no action taken pursuant to its provisions, shall create a trust
or fiduciary relationship of any kind between the Company and an employee or any
other person. Neither an employee nor beneficiary of an employee shall acquire
any interest greater than that of an unsecured creditor.
5.2 Vesting. Benefits under this Plan shall become nonforfeitable upon
attainment of age 55 and ten Years of Service. Notwithstanding the preceding
sentence, a Participant's benefit may be forfeited in accordance with the
provisions of Section 4.6 hereof.
5.3 Administration. This Plan shall be administered by the Administrator.
The Administrator shall have, to the extent appropriate, the same powers,
rights, duties, and obligations with respect to this Plan as does the
Administrator of the Pension Plan; provided, however, that the determination of
the Administrator as to any questions arising under this Plan,
<PAGE> 10
including questions of construction and interpretation, shall be final, binding,
and conclusive upon all persons.
5.4 Expenses. The expenses of administering the Plan shall be borne by
the Company.
5.5 Indemnification and Exculpation. The Administrator, its agents, and
officers, directors, and employees of the Company shall be indemnified and held
harmless by the Company against and from any and all loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by them in connection
with or resulting from any claim, action, suit, or proceeding to which they may
be a party or in which they may be involved by reason of any action taken or
failure to act under this Plan and against and from any and all amounts paid by
them in settlement (with the Company's written approval) or paid by them in
satisfaction of a judgment in any such action, suit, or proceeding. The
foregoing provision shall not be applicable to any person if the loss, cost
liability, or expense is due to such person's gross negligence or willful
misconduct.
5.6 Action by the Company. Any action required of or permitted by the
Company under this Plan shall be by approval of the Administrator or any person
or persons authorized by such Administrator.
5.7 Interests not Transferable. The interests of the Participants and
their beneficiaries under the Plan are not subject to the claims of their
creditors and may not be voluntarily or involuntarily transferred, assigned,
alienated, or encumbered.
5.8 Effect on Other Benefit Plans. Amounts credited or paid under this
Plan shall not be considered to be compensation for the purposes of a qualified
pension plan maintained by the Company. The treatment of such amounts under
other employee benefit plans shall be determined pursuant to the provisions of
such plans.
<PAGE> 11
5.9 Tax Liability. The Company may withhold from any payment of benefits
hereunder any taxes required to be withheld and such sum as the Company may
reasonably estimate to be necessary to cover any taxes for which the Company may
be liable and which may be assessed with regard to such payment.
5.10 Arbitration of All Disputes. Any controversy or claim arising out of
or relating to this Plan, shall be settled by arbitration in the city of Kansas
City in accordance with the laws of the State of Missouri by three arbitrators,
one of whom shall be appointed by the Company, one by the Participant and the
third of whom shall be appointed by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the Chief Judge of the United States
Court of Appeals for the Eighth Circuit. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as provided in this
Section 5.10. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. Any award of the arbitrators
shall include interest at a rate or rates considered just under the
circumstances by the arbitrators.
Article VI. Amendment and Termination
______________________________________
The Company reserves the right to amend this Plan from time to time or to
terminate the Plan at any time; provided, however, any such amendment or
termination shall not have the effect of reducing or eliminating any amounts
previously credited on the books of the Company pursuant to the provisions of
this Plan nor shall such amendment or termination reduce or eliminate any
benefits payable under the terms of this Plan as of the date of the amendment or
termination.
<PAGE> 12
IN WITNESS WHEREOF, PAYLESS CASHWAYS, INC. has caused this instrument to be
executed by its duly authorized officers on this 15th day of December, 1987,
effective as of the 1st day of January, 1988.
PAYLESS CASHWAYS, INC.
ATTEST:
By: s/Susan M. Stanton
_____________________________
s/Linda J. French
_____________________________
<PAGE> 1 Exhibit 10.14(b)
FIRST AMENDMENT TO THE
PAYLESS CASHWAYS, INC.
SUPPLEMENTAL RETIREMENT PLAN
Effective June 22, 1989, Article III, Section 3.1 of The Payless Cashways,
Inc. Supplemental Retirement Plan be amended to read in its entirety as follows:
3.1 Participation. An employee shall become a Participant on the date he
is named Chief Executive Officer, Chief Operating Officer, Vice Chairman, Senior
Vice President, or Regional Vice President.
<PAGE> 1
Exhibit 10.15(a)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of August 4, 1988 among PCI
Acquisition Corp., a Delaware corporation ("PCI"), and the undersigned parties
hereto and persons who become parties to this Agreement pursuant to the
Shareholders' Agreement (as defined below) (the "Shareholders").
PCI and each of the Shareholders is a party to a Shareholders' Agreement,
dated as of the date hereof (the "Shareholders' Agreement"). All capitalized
terms used herein without definition shall have the meaning assigned to them in
the Shareholders' Agreement.
PCI and Payless Cashways, Inc., an Iowa corporation ("Payless"), have
entered into an Agreement and Plan of Merger dated as of June 30, 1988, as
amended on August 2, 1988 (the "Merger Agreement"), providing for the merger
(the "Merger") of PCI with and into Payless. Payless will be the surviving
corporation (the "Surviving Corporation") in the Merger. PCI and the Surviving
Corporation are sometimes hereinafter referred to as the "Company".
1. Registration.
1.1 Registration on Request; Certain Definitions.
(a) On or after August 4, 1991, upon the written request of one or more
Holders (as hereinafter defined) of Registrable
<PAGE> 2
Securities (as hereinafter defined) requesting that the Company effect the
registration of any Registrable Securities of such Holder or Holders under the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Securities Act") (which request shall state the intended method of
disposition by such Holder or Holders), the Company shall promptly give written
notice of such requested registration to all registered holders of Registrable
Securities and to the holders of the Convertible Preferred Stock, and thereupon
the Company shall, subject to Sections 1.6 and Section 1.7, as expeditiously as
reasonably possible use its best efforts to effect the registration under the
Securities Act of
(i) the Registrable Securities which the Company has been so
requested to register, for disposition in accordance with the intended
method of disposition stated in such request, and
(ii) all other Registrable Securities the holders of which shall
have made a written request to the Company for registration thereof (x)
within 30 days after the receipt of such written notice from the Company in
the case of the initial request pursuant to this Section 1.1(a) and (y)
within 10 days after the receipt of such written notice from the Company in
the case of any subsequent request pursuant to this Section 1.1(a)
<PAGE> 3
all to the extent required to permit the disposition by the holders of such
Registrable Securities so to be registered; provided, however, that:
(A) the Company shall not be required to effect any
registration pursuant to this Section 1.1 unless the Company shall
have received reasonable assurances that the seller or sellers of any
such Registrable Securities will pay any registration expenses
required to be paid by such sellers pursuant to Section 1.4.
(B) the Company shall not be required to effect a registration
pursuant to this Section 1.1(a) within a period of six months after
the effective date of any other registration statement of the Company
(other than any other registration statement on Form S-4 or Form S-8,
or any successor or similar forms).
(C) the Company shall not be required to effect more than an
aggregate of four registrations pursuant to this Section 1.1(a).
(D) the Company may postpone filing a registration statement
relating to a registration request under this Section 1.1(a) for a
period of time (not in excess of 60 days) if in the judgment of a
Supermajority of the Board such filing would require the disclosure of
material
<PAGE> 4
information that the Company has a bona fide business purpose for
preserving as confidential and provided that the Company will be
entitled to deliver only one such notice during any nine month period.
(E) the Company shall not be required to effect any
registration pursuant to this Section 1.1 unless the Holders shall
have delivered in good faith a certificate to the Company to the
effect that the securities which are proposed to be registered are
expected to have an aggregate offering price of the then applicable
Requisite Amount (as defined below). For purposes of this Agreement,
the term "Requisite Amount" shall mean (x) until August 4, 1994, $100
million or more and (y) thereafter, $50 million or more; provided,
however, that in the event that any Common Equivalents have been sold
pursuant to an effective registration statement under the Securities
Act (other than in connection with the Warrants or any employee
benefit plan), the term Requisite Amount shall thereafter mean $20
million. For purposes of this Agreement, the term "Common
Equivalents" shall mean with respect to each share of Stock the number
of shares of Class A Common Stock represented thereby or the number of
shares of Class A Common Stock into which such share is then
convertible or into which such share would then be convertible if
<PAGE> 5
any restrictions or limitations on such conversion were not
applicable, as the case may be.
(F) the Company shall not be required to effect the
registration of any Convertible Preferred Stock unless the Company
shall have prior thereto consummated a registered offering under the
Securities Act of shares of Common Stock (other than any such shares
issued or issuable upon exercise of any of the Warrants or in
connection with any employee benefit plan of the Company) (a "Trigger
Event").
(G) for so long as the Company has any obligation outstanding
under Section 2.01 of the Loan Agreement, dated as of August 4, 1988,
among the Company and BPC Partners and Citibank, N.A. (the "Loan
Agreement") or any amount of principal or interest on the Notes (as
defined in the Loan Agreement), or any fees payable and due under
Section 2.02 of the Loan Agreement, shall remain unpaid, the Company
shall not (and shall not be required hereunder to) file any
registration statement under the Securities Act pursuant to this
Agreement and shall not permit (and shall not be required hereunder to
cause) any such registration statement to become or be effective
pursuant to this Agreement.
<PAGE> 6
(H) in the event that for any reason the Company is not
obligated to effect the registration of the Registrable Securities
specified in Section 1.1(a)(i), it shall not be obligated to effect
the registration of the Registrable Securities specified in Section
1.1(a)(ii).
(b) As used in this Agreement, the term "Holder" or "Holders" shall mean
any party which is a signatory to this Agreement and any party who shall
hereafter acquire and hold shares of Stock pursuant to the provisions of, and
subject to the rights and restrictions set forth in, the Shareholders'
Agreement, including without limitation any acquisition of Stock pursuant to any
employee benefit plan; provided, however, that if the Company issues any shares
of Stock other than pursuant to any employee benefit plan and other than to any
officer or employee or former officer or former employee of the Company or any
of its subsidiaries, the holders of such shares of Stock shall not be deemed
Holders and such shares of Stock shall not be deemed Registrable Securities for
purposes of this Agreement.
(c) As used in this Agreement, the term "Registrable Securities" shall
mean any shares of (i) Class A Common Stock issued or issuable upon conversion
of the Class B Common Stock or the Class C Common Stock or (ii) Class B Common
Stock and (iii), in the event (but only in the event)
<PAGE> 7
that a Trigger Event shall have occurred, the term "Registerable Securities"
shall also mean any shares of Convertible Preferred Stock. Holders of
securities convertible into Registrable Securities will be deemed holders of
Registrable Securities whether or not such conversion is then permitted by
applicable statute or regulations. As to any particular Registrable Securities,
once issued such securities shall cease to be Registrable Securities (unless
then held by a holder of Registrable Securities) when (i) a registration
statement with respect to such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) such securities shall have ceased to be
outstanding, or (iii) such securities shall have been sold pursuant to Rule 144
(or any successor provision) under the Securities Act.
(d) (i) Registrations under this Section 1.1 shall be on such appropriate
registration form of the Securities and Exchange Commission for the disposition
of the Registrable Securities in an underwritten public offering as shall be
selected by the Company and the Holders requesting such registration. (ii) A
registration requested pursuant to this Section 1.1 will not be deemed to have
been effected unless it has become effective and unless at least 75% of the
Common Equivalents represented by the Registrable Secu-
<PAGE> 8
rities proposed to be registered are included in such registration; provided,
however, that if, after a registration has become effective, the offering of
Registrable Securities pursuant to such registration is suspended or blocked by
any stop order, injunction or other order or requirement of the Securities and
Exchange Commission or any other governmental agency or court, such registration
will be deemed not to have been effected.
(e) Goldman, Sachs & Co. ("Goldman Sachs") shall act as the underwriters
in the public underwritten offering of Registrable Securities requested to be
registered pursuant to this Section 1.1 or Section 1.2, if it is then so
entitled in accordance with the terms of any engagement letter, shareholder
agreement or other agreement or arrangement with the Company. Goldman Sachs may
form a syndicate of underwriters, for which they shall act as managing
underwriters, for purposes of such public underwritten offering of Registrable
Securities. If Goldman Sachs is unwilling or unable to so act, the Company
shall have the right to select any nationally recognized investment banker(s) to
act as underwriters the offering.
1.2 "Piggy-back" Registrations. (a) If the Company at any time proposes
to register any of its equity securities (which term as used in this Agreement
shall not
<PAGE> 9
be deemed to include debt securities which are convertible into or exchangeable
for, or which carry warrants or rights to subscribe to or purchase an equity
security) under the Securities Act (other than a registration on Form S-4 or
Form S-8, or any successor or similar form then in effect and other that a
registration pursuant to Section 1.1 hereof), whether or not for sale for its
own account, and if the registration form proposed to be used may be used for
the registration for sale to the public under the Securities Act of Registrab1e
Securities, the Company will give prompt written notice to all Holders of
Registrable Securities and to the holders of the Convertible Preferred Stock of
its intention to register such securities and of the registration form that has
been selected by the Company. Upon the written request of any Holder made
within 10 days after the receipt of any such notice (which request shall specify
the Registrable Securities intended to be disposed of by such Holder), the
Company shall, subject to Section 1.6 and Section 1.7, use its best efforts to
cause all such Registrable Securities, the Holders of which shall have so
requested the registration thereof, to be registered under the Securities Act
(with the securities which the Company at the time proposes to register), to the
extent required to permit the sale or other disposition by the Holders of the
Registrable Securities to be so registered; provided, however, that (i)
<PAGE> 10
if, at any time after giving written notice of its intention to register any
equity securities and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register such equity securities, the Company may, at its election,
give written notice of such determination to all Holders of record of any
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such abandoned
registration, without prejudice, however, to the rights of Holders under Section
1.1 hereof; (ii) in case of a determination by the Company to delay such
registration of its equity securities, the Company shall be permitted to delay
the registration of such Registrable Securities for the same period as the delay
in registering such other equity securities, (iii) the Company shall not be
required to effect any registration pursuant to this Section 1.2 unless the
Company shall have received reasonable assurances that the seller or sellers of
any such Registrable Securities will pay any expenses required to be paid by
such sellers as provided in Section 1.4 and (iv) the Holders of any shares of
Convertible Preferred Stock shall not be entitled to register any such shares
pursuant to this Section 1.2 unless (A) a Trigger Event shall have occurred and
(B) none of the Company or any Holder of any Class A Common Stock, Class B
<PAGE> 11
Common Stock, Class C Common Stock or any other class of common stock
(collectively, the "Junior Securities") proposes to include (whether pursuant to
this Section 1.2 or otherwise) any Junior Securities in any such offering. No
registration effected under this Section 1.2 shall relieve the Company of its
obligations to effect registrations upon request under Section 1.1 and,
notwithstanding anything to the contrary in Section 1.1, no Holder shall have
the right to require the Company to register any Registrable Securities pursuant
to Section 1.1 during each six month period commencing on the date each
registration statement effected under this Section 1.2 is declared effective.
(b) No registration effected pursuant to a request or requests referred to
in this Section 1.2 shall be deemed to have been effected pursuant to Section
1.1.
(c) The Company hereby agrees that if it shall previously have received a
request for registration pursuant to Section 1.1 or pursuant to this Section
1.2, and if such previous registrations shall not have been withdrawn or
abandoned, the Company shall not effect any registration of any of its
securities under the Securities Act (other than in accordance with Section 1.7
or a registration on Form S-4 or Form S-8 or any successor or similar form which
is then in effect and except as may be required by any agreement to
<PAGE> 12
which the Company is a party or by which it is bound as of the date hereof, as
in effect on such date), whether or not for sale for its own account, until a
period of 90 days shall have elapsed from the effective date of such previous
registration; and the Company shall so provide in any registration rights
agreements hereafter entered into with respect to any of its securities.
1.3 Registration procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement the Company shall, as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission as soon
as reasonably practicable a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become and remain effective; provided, however, that the Company
may discontinue any registration of its securities that is being effected
pursuant to Section 1.2 herein at any time prior to the effective date of the
registration statement relating thereto;
<PAGE> 13
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for such period (which shall in no event exceed 120 days) as
any seller of such Registrable Securities shall request and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement;
(c) furnish to each seller of such Registrable Securities and each
underwriter, if any, of the securities being sold by such seller such number of
copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each preliminary
prospectus) in conformity with the requirements of the Securities Act, and such
other documents, as such seller and underwriter may reasonably request in order
to facilitate the public sale or other disposition of the Registrable Securities
owned by such seller;
<PAGE> 14
(d) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other securities or
"blue sky" laws of such jurisdictions as any sellers of Registrable Securities
representing more than 15% of the total number of Common Equivalents covered by
such registration statement or any managing underwriter shall reasonably
request, and do any and all other acts and things which may be necessary or
advisable to enable such seller or underwriter to consummate the disposition in
such jurisdictions of such Registrable Securities owned by such seller, except
that the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it would not
but for the requirements of this paragraph (d) be obligated to be qualified, to
subject itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(e) use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities;
<PAGE> 15
(f) notify each seller of any such Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein in the light of the circumstances under which they were made, not
misleading, and, at the request of any such seller, promptly prepare and furnish
to such seller and each underwriter a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein in the light of
the circumstances under which they were made, not misleading;
(g) comply with all applicable rules and regulations of the Securities and
Exchange Commission, and make generally available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve consecutive
<PAGE> 16
months beginning with the first day of the Company's first calendar quarter
after the effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(h) use its best efforts to cause all such Registrable Securities covered
by such registration statement to be listed on the principal securities exchange
on which similar securities issued by the Company are then listed, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange;
(i) provide a transfer agent and registrar for all such Registrable
Securities covered by such registration statement not later than the effective
date of such registration statement;
(j) enter into such agreements (including an underwriting agreement in
customary form) and take such other actions as the holders of at least 51% of
the Common Equivalents to be sold under such registration statement shall
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities; provided that subject to Section 1.1(e) the selection of
any managing underwriter or underwriters other than Goldman Sachs by such
sellers shall require the consent of the Company;
<PAGE> 17
(k) obtain an opinion from the Company's counsel and a "cold comfort"
letter from the Company's independent public accountants in customary form and
covering such matters as are customarily covered by such opinions and "cold
comfort" letters as the holders of at least 51% of the Common Equivalents to be
sold shall reasonably request;
(l) upon receipt of such confidentiality agreements as the Company may
reasonably request, make available for inspection by any seller of such
Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent retained
by any such seller or any such underwriter, all pertinent financial and other
records, pertinent corporate documents and properties of the Company, and cause
all of the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(m) permit any Holder of Registrable Securities which Holder, in the sole
judgment, exercised in good faith, of such Holder, might be deemed to be a
control-
<PAGE> 18
ling person of the Company, to participate in the preparation of such
registration statement and all discussions between the Company and the
Securities and Exchange Commission or its staff with respect to such
registration statement, and to require the insertion therein of material,
furnished to the Company in writing, which in such Holder's judgment should be
included.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each Holder of Registrable Securities shall be desired to have agreed by
acquisition of such Registrable Securities that upon receipt of any notice from
the Company of the happening of any event of the kind described in paragraph (f)
of this Section 1.3, such holder will forthwith discontinue such Holder's
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by paragraph (f) of this
Section 1.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file
<PAGE> 19
copies, then in such holder's possession of the prospectus covering such
Registrable Securities that was in effect at the time of receipt of such notice.
In the event the Company shall give any such notice,
paragraph (b) of this Section 1.3 shall be extended by the number of days during
the period from and including the date of the giving of such notice to and
including the date when each seller of any Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph (f) of this Section 1.3.
If any such registration statement refers to any Holder by name or
otherwise as the Holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance satisfactory to such Holder, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such Holder by name or otherwise is not in the judgment of the
Company, as advised by counsel, required by the Securities Act or any similar
federal statute or any state "blue sky"
<PAGE> 20
or securities law then in force, the deletion of the reference to such holder.
1.4 Registration Expenses. The Company shall, whether or not any
registration pursuant to this Agreement shall become effective, pay all expenses
incident to its performance of or compliance with this Agreement, other than
underwriting commissions and discounts and transfer taxes (all of which shall be
borne by the selling Holders in proportion to the number of Common Equivalents
requested to be registered by each such selling Holder under such registration
statement), including Securities and Exchange Commission, stock exchange or
National Association of Securities Dealers, Inc. registration and filing fees,
fees and expenses of compliance with state securities or "blue sky" laws,
printing expenses, messenger and delivery expenses, fees and disbursements of
counsel for the Company, of one counsel for the selling Holders (selected by the
holders of a majority of the Common Equivalents represented by the Registrable
Securities included in such registration), of all independent public accountants
(including the expenses of any audit and/or "cold comfort" letter) and of other
persons retained by the Company and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (but excluding underwriting
commissions and discounts as aforesaid). In all cases, any allocation of
Company person-
<PAGE> 21
nel or other general overhead expenses of the Company or other expenses for the
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business shall be borne by the Company.
1.5 Indemnification. (a) In the event of any registration of any
securities of the Company under the Securities Act pursuant to Section 1.1 or
1.2 hereof, the Company will, and hereby does, indemnify and hold harmless, to
the extent permitted by law, the seller of any Registrable Securities covered by
such registration statement, its directors and officers or general and limited
partners (and the directors and officers thereof), each other individual,
partnership, joint venture, corporation, trust, unincorporated organization or
government or any department or agency thereof (each, a "person") who
participates as an underwriter or qualified independent underwriter/prior
("independent underwriter"), if any, in the offering or sale of such securities,
each officer, director or partner of such underwriter or independent
underwriter, and each other Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including fees of counsel and any amounts paid in any settlement effected with
the Company's consent, which consent shall not be unreasonably withheld)
<PAGE> 22
to which such seller, any such director or officer or general or limited partner
or any such underwriter or independent underwriter, such officer, director or
partner of such underwriter or independent underwriter or controlling person may
become subject under the Securities Act, common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof), or expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement under which such securities were
registered under the Securities Act or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary, final or summary
prospectus, together with the documents incorporated by reference therein (as
amended or supplemented if the Company shall have filed with the Securities and
Exchange Commission any amendment thereof or supplement thereto), or contained
in the prospectus, together with the documents incorporated by reference therein
(as amended or supplemented if the Company shall have filed with the Securities
and Exchange Commission any amendment thereof or supplement thereto), or the
omission or alleged omission to state therein a material
<PAGE> 23
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or (iii) any violation by the Company of any federal, state or common
law rule or regulation applicable to the Company and relating to action required
of or inaction by the Company in connection with any such registration, and the
Company will reimburse such seller and each such director, officer, general or
limited partner, underwriter, independent underwriter, director or officer or
partner of such underwriter or independent underwriter and controlling Person
for any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, that the Company shall not be liable to any such
seller or any such director, officer, general or limited partner, underwriter,
independent underwriter, director or officer or partner of such underwriter or
independent underwriter or controlling Person in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding, whether
commenced or threatened, in respect thereof) or expense arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment thereof or
supplement thereto or in any such preliminary, final or
<PAGE> 24
summary prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such seller or any such
director, officer, general or limited partner, underwriter, independent
underwriter, director or officer or partner of such underwriter or independent
underwriter or controlling person, for use in the preparation thereof; and
provided further, that the Company will not be liable to any Person who
participates as an underwriter or an independent underwriter in the offering or
sale of Registrable Securities, if any, or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, under the
indemnity agreement in this Section 1.5(a) with respect to any preliminary
prospectus or the final prospectus or the final prospectus as amended or
supplemented as the case may be, to the extent that any such loss, claim, damage
or liability or such underwriter or controlling Person results from the fact
that such underwriter sold Registrable Securities to a person to whom there was
not sent or given, at or prior to the written confirmation of such sale, a copy
of the final prospectus or of the final prospectus as then amended or
supplemented whichever is most recent, if the Company has previously furnished
copies thereof to such underwriter and such final prospectus, as then amended or
supplemented has corrected any such misstatement or omission. Such indemnity
and reimbursement
<PAGE> 25
of expenses shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any director, officer,
general or limited partner, underwriter or controlling person and shall survive
the transfer of such securities by such seller.
(b) The Company may require, as a condition to including any Registrable
Securities in any registration statement filed in accordance with Section 1.1 or
1.2 hereof, that the Company shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registrable Securities
and any underwriter or independent underwriter, to indemnify and hold harmless
(in the same manner and to the same extent as set forth in paragraph (a) of this
Section 1.5) the Company and its directors and officers and each person
controlling the Company within the meaning of the Securities Act and all other
prospective sellers and their directors, officers, general and limited partners
and respective controlling Persons with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary final or summary prospectus contained therein, or any amendment
or supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or its representatives by or on behalf
<PAGE> 26
of such seller or underwriter for use in the preparation of such registration
statement, preliminary, final or summary prospectus or amendment or supplement;
provided, however that the aggregate amount which any such seller or prospective
seller shall be required to pay pursuant to such undertaking shall be limited to
the amount of the net proceeds received by such person upon the sale of the
Registrable Securities pursuant to the registration statement giving rise to
such claim. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Company or any of the prospective
sellers or any of their respective directors, officers, general or limited
partners or controlling persons and shall survive the transfer of such
securities by such seller.
(c) As soon as possible after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Section 1.5, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnified party to give written notice to the latter of the commencement of
such action; provided, that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section 1.5, except to the extent that
<PAGE> 27
the indemnifying party is actually prejudiced by such failure to give notice.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein, and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party; provided, that
the indemnifying party shall not be entitled to so participate or so assume the
defense if, in the indemnified party's reasonable judgment, a conflict of
interest between the indemnified party and the indemnifying party exists in
respect of such claim. After notice from the indemnifying party to such
indemnified party of its election to assume the defense of such claim or action,
the indemnifying party shall not be liable to the indemnified party under this
Section 1.5 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof unless the indemnifying
party has failed to assume the defense of such claim or to employ counsel
reasonably satisfactory to such indemnified party; and provided further that the
sellers and their respective officers, directors, general and limited partners
and controlling persons or the Company and its officers, directors and
controlling persons, as the case may be, shall have the right
<PAGE> 28
to employ one counsel to represent such indemnified parties if in such
indemnified parties' reasonable judgment, a conflict of interest between the
indemnified parties and the indemnifying parties exists in respect of such
claim, and in that event the fees and expenses of such separate counsel shall be
paid by the indemnifying party; and provided further that if, in the reasonable
judgment of any of the indemnified parties, a conflict of interest between such
indemnified parties and any other indemnified parties exist in respect of such
claims, such indemnified parties shall be entitled to additional counsel or
counsels and the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels. No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation. No indemnifying party will be liable for any settlement
effected without its prior written consent.
(d) Indemnification similar to that specified in the preceding paragraphs
of this Section 1.5 (with appropriate modifications) shall be given by the
Company and each seller of Registrable Securities with respect to any required
registration or other qualification of securities under any state securities and
"blue sky" laws.
<PAGE> 29
(e) If the indemnification provided for in this Section 1.5 is unavailable
or insufficient to hold harmless an indemnified party under Section 1.5(a) or
(b) of this Agreement, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section 1.5(a) or (b) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and the indemnified party on the other hand in connection
with statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statements or omission. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 1.5(e) were to be determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the first sentence of this Section 1.5(e).
<PAGE> 30
The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this Section 1.5(e)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any action
or claim (which shall be limited as provided in Section 1.5(c) if the
indemnifying party has assumed the defense of any such action in accordance with
the provisions thereof) which is the subject of this Section 1.5(e). No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Promptly after receipt by an
indemnified party under this Section 1.5(e) of notice of the commencement of any
action against such party in respect of which a claim for contribution may be
made against an indemnifying party under this Section 1.5(e), such indemnified
party shall notify the indemnifying party in writing of the commencement thereof
if the notice specified in Section 1.5(c) has not been given with respect to
such action; provided that the omission so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may have to
any indemnified party otherwise under this Section 1.5(e), except to the extent
that the indemnifying party is actually prejudiced by
<PAGE> 31
such failure to give notice. Notwithstanding anything in this Section 1.5(e) to
the contrary no indemnifying party (other than the Company) shall be required
pursuant to this Section 1.5(e) to contribute any amount in excess of the
proceeds received by such indemnifying party from the sale of Registrable
Securities in the offering to which the losses, claims, damages or liabilities
of the indemnified parties relate.
(f) The provisions of this Section 1.5 shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract and shall remain in full force and effect regardless
of any investigation made by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.
1.6 Certain Limitations on Registration Rights.
(a) In the case of any registration under Section 1.1, if the holders of
51% of the Common Equivalents to be included therein determine to enter into an
underwriting agreement in connection therewith, or, in the case of a
registration under Section 1.2, if the Company has determined to enter into an
underwriting agreement in connection therewith, all shares constituting
Registrable Securities to be included in such registration shall be subject to
such underwriting
<PAGE> 32
agreement and no person may participate in such registration unless such person
agrees to sell such person's securities on the basis provided therein and
completes and/or executes all questionnaires, powers of attorney and other
documents which must be executed in connection therewith.
1.7 Allocation of Securities Included in Registration Statement. (a) (i)
If the managing underwriter for a requested registration pursuant to Section 1.1
shall advise the Company in writing that, in its opinion, the number of
Registrable Securities requested to be included in such registration exceeds the
number that can be sold in an orderly manner in such offering within a price
range acceptable to Holders who are the registered holders of Registerable
Securities proposed to be registered, then the Company shall not be entitled to
include any securities in such registration and the number of such Registrable
Securities to be included in such registration shall be allocated pro rata among
all Holders requesting that Registrable Securities be included in such
registration on the basis of the relative number of Common Equivalents each such
Holder has requested to be included in such registration. If, as a result of
the proration provisions of this Section 1.7, any Holder shall not be entitled
to include all Registrable Securities in a registration that such Holder has
requested to be included, such Holder may elect to withdraw his re-
<PAGE> 33
quest to include Registrable Securities in such registration (a "Withdrawal
Election"); provided, however, that a Withdrawal Election shall be irrevocable
and, after making a Withdrawal Election, a Holder shall no longer have any right
to include Registrable Securities in the registration as to which such
Withdrawal Election was made.
(ii) If as a result of Withdrawal Elections (but after the Company shall
have included in such registration in place of such withdrawn Registrable
Securities such additional Registrable Securities held by other Holders whose
Registrable Securities were excluded as a result of the proration provisions of
Section 1.7), less than the Requisite Amount of Registrable Securities are
requested to be included in a registration the Company may, at its election,
give written notice to all Holders who have requested that Registrable
Securities be included in a registration and who have not made a Withdrawal
Election that the Company has determined not to proceed with such registration
and, thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such abandoned registration, without prejudice,
however, to the Holders' rights to have Registrable Securities registered
pursuant to Section 1.1 in the future.
<PAGE> 34
(b) If the managing underwriter for a registration pursuant to Section 1.2
that involves an underwritten offering shall advise the Company in writing that,
in its opinion, the number of securities requested to be included in such
registration exceeds the number (the "Section 1.2 Sale Number") that can be sold
in an orderly manner in such offering within a price range acceptable to the
Company, the Company shall include in such offering (i) first, all the
securities the Company proposes to register, and (ii) second, to the extent that
the Registrable Securities to be included by the Company are less than the
Section 1.2 Sale Number, all Registrable Securities requested to be included by
all Holders, provided, however, that if the number of such Registrable
Securities exceeds the Section 1.2 Sale Number less the number of securities
included pursuant to clause (i) hereof, then the number of such Registrable
Securities included in such registration shall be allocated pro rata among all
requesting Holders, on the basis of the relative number of Common Equivalents
each such Holder has requested to be included in such registration. If, as a
result of the proration provisions of this Section 1.7(b), any Holder shall not
be entitled to include all Registrable Securities in a registration pursuant to
Section 1.2 that such Holder has requested be included, such Holder may make a
Withdrawal Election; provided, however, that such
<PAGE> 35
Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, a Holder shall no longer have any right to include Registrable
Securities in the registration as to which such Withdrawal Election was made.
1.8 Limitations on Sale or Distribution of Other Securities. If requested
in writing by the Company or the managing underwriter, if any, of any
registration effected pursuant to Section 1.1 or 1.2 hereof, each Holder of
Registrable Securities shall be deemed to have agreed by acquisition of such
Registrable Securities not to effect any public sale or distribution, including
any sale pursuant to Rule 144 under the Securities Act, of any Registrable
Securities, or of any other equity security of the Company or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than as part of such underwritten public offering) within 15 days
before or 120 days after the effective date of such registration statement (and
the Company hereby also so agrees and agrees to cause each holder of any equity
security or of any security convertible into or exchangeable or exercisable for
any equity security of the Company purchased from the Company at any time other
than in a public offering so to agree).
1.9 No Required Sale. Nothing in this Agreement shall be deemed to create
an independent obligation on the
<PAGE> 36
part of any Holder to sell any Registrable Securities pursuant to any effective
registration statement.
1.10 Certain Restrictions on the Company. If the Company enters into any
agreement providing for, or otherwise grants, any registration rights with
respect to its equity securities:
(a) The terms of this Agreement will be amended if and to the extent
that such other agreement's or grant's terms are superior to the terms
hereof; provided, however, that in no event will the Company be entitled to
enter into any other agreement or otherwise grant any right to demand a
registration for an amount below the then applicable Requisite Amount, and
(b) if a registration is requested pursuant to such other agreement
or grant (a "New Agreement Request") and a demand registration is requested
pursuant hereto (whether or not such is requested before or after the New
Agreement Request), the terms of this Agreement shall govern any
registration under this Agreement.
<PAGE> 37
2. General.
2.1 Adjustments Affecting Registrable Securities. The Company agrees that
it shall not effect or permit to occur any combination or subdivision of shares
which would adversely affect the ability of the holder of any Registrable
Securities to include such Registrable Securities in any registration
contemplated by this Agreement or the marketability of such Registrable
Securities in any such registration.
2.2 Rule 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of any
Common Stock or securities of the Company convertible into or exchangeable or
exercisable for Common Stock, the Company covenants that it will timely file the
reports required to be filed by it under the Securities Act or the Exchange Act
(including but not limited to the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(l) of Rule 144 under the Securities
Act), and will take such further action as any Holder of Registrable Securities
may reasonably request, all to the extent required from time to time to enable
such Holder to sell Registrable Securities without registration
<PAGE> 38
under the Securities Act within the limitation of the exemptions provided by (i)
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (ii) any similar rule or regulation hereafter adopted by the Securities
and Exchange Commission. Upon the request of any Holder of Registrable
Securities, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
2.3 Nominees for Beneficial Owners. If Registrable Securities are held by
a nominee for the beneficial owner thereof, the beneficial owner thereof may, at
its option, be treated as the Holder of such Registrable Securities for purposes
of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement (or any determination of any number or
percentage of shares constituting Registrable Securities held by any holder or
holders of Registrable Securities contemplated by this Agreement); provided that
the Company shall have received written notice thereof from both such beneficial
owner and nominee.
2.4 Shareholders' Agreement. Notwithstanding anything above to the
contrary, all transfers of Registrable Securities subject to the provisions of
the Shareholders' Agreement shall be made in accordance with said provisions.
<PAGE> 39
2.5 Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Holders
owning at least 80 percent of the then Common Equivalents represented by the
then Outstanding Registrable Securities (assuming for the purposes of this
sentence that the Common Stock issuable upon conversion of the Convertible
preferred Stock will be deemed included in such Common Stock Equivalents whether
or not a Trigger Event has occurred) and, in the case of any amendment, action
or omission to act that adversely affects any Holder or all of the members of
such group of Holders differently from any of the other Holders, the written
consent of such Holder or group of Holders and, in the case of any amendment to
Section l.l(a)(6), the written consent of the parties to the Loan Agreement
other than the Company. Holders shall be bound from and after the date of the
receipt of a written notice from the Company setting forth such amendment or
waiver by any consent authorized by this Section 2.5, whether or not such shares
of Stock shall have been marked to indicate such consent.
2.6 Notices. Except as otherwise provided in this Agreement notices and
other communications under this
<PAGE> 40
Agreement shall be in writing and shall be delivered, or mailed by first-class
mail, postage prepaid, addressed, if to a party other than the Company, to such
party in the manner set forth in the Shareholders' Agreement, or at such other
address as such party shall have furnished to the Company in writing, or, if to
the Company, at 2300 Main, Kansas City, Missouri 64141, to the attention of its
Secretary, or at such other address, or to the attention of such other officer,
as the Company shall have furnished to each Holder of Registrable Securities at
the time outstanding.
2.7 Miscellaneous.
(a) This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not.
(b) This Agreement and the documents referred to herein or delivered
pursuant hereto embodies the entire agreement and understanding between each
Holder and the Company and supersedes all prior agreements and understandings
relating to the subject matter hereof.
(c) This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of New York.
<PAGE> 41
(d) The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
(e) This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
(f) In the event that any one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision, paragraph, word, clause, phrase or sentence in every other respect
and of the remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
(g) The provisions of this Agreement regarding Stock shall apply to any
and all shares of capital stock of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) that may
be issued in respect of, in exchange for, or in substitution of the Stock, by
reason of any stock divi-
<PAGE> 42
dend, stock split, stock issuance, reverse stock split, combination,
recapitalization, reclassification, merger, consolidation or otherwise. Upon
the occurrence of any of such events, the definitions of Common Stock,
Convertible Preferred Stock, Common Equivalents, specified Common Equivalents,
Registerable Securities and Requisite Share Number shall be appropriately
modified.
(h) This Agreement shall terminate, and thereby become null and void, on
the tenth anniversary of the date hereof; provided, however, that the provisions
of Section 1.5 shall survive the termination of this Agreement.
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed on the date first written above.
PCI ACQUISITION CORP.
By: s/David Stanley
_____________________________
BROAD STREET INVESTMENT FUND I, L.P.
By: Goldman, Sachs & Co.
General Partner
By: s/Goldman, Sachs & Co.
_________________________
GOLDMAN, SACHS & CO.
By: s/Goldman, Sachs & Co.
_____________________________
MASCO CAPITAL CORPORATION
By: s/Sam Valenti
_____________________________
CITICORP CAPITAL INVESTORS, LTD.
By: s/Scott G. Fossel
_____________________________
MORGAN CAPITAL CORPORATION
By: J.P. Morgan & Co. Incorporated
as agent for Morgan Capital
Corporation
By: s/R. Leigh Ardrey
___________________________
<PAGE> 44
H.C. CROWN CORP.
By: s/Dan L. Altman
_____________________________
BRIDGE STREET FUND 1987
By:
_____________________________
Stone Street Capital Corp.,
as Managing General Partner
BRIDGE STREET FUND 1988
By:
_____________________________
Stone Street Managers Corp.,
as Managing General Partner
STONE STREET FUND 1987
By:
_____________________________
Stone Street Capital Corp.,
as General Partner
STONE STREET FUND 1988
By:
_____________________________
Stone Street Managers Corp.,
as General Partner
s/David Stanley
_________________________________
David Stanley
s/Harold Cohen
_________________________________
Harold Cohen
s/Melvin Cohen
_________________________________
Melvin Cohen
<PAGE> 45
s/David Cohen
_________________________________
David Cohen
s/Larry Kunz
_________________________________
Larry Kunz
s/Dale Pond
_________________________________
Dale Pond
s/Stephen Lightstone
_________________________________
Stephen Lightstone
s/Susan Stanton
_________________________________
Susan Stanton
<PAGE> 1
Exhibit 10.15(b)
AGREEMENT AND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
AGREEMENT AND AMENDMENT, dated as of November 11, 1988, to the Registration
Rights Agreement, dated as of August 4, 1988 (the "Registration Rights
Agreement"), among Payless Cashways, Inc., an Iowa corporation ("Payless" or the
"Company") (as successor by merger to the obligations of PCI Acquisition Corp.,
a Delaware corporation) and the undersigned parties hereto. All capitalized
terms used herein without definition shall have the meanings assigned to them in
the Registration Rights Agreement.
WHEREAS, Payless is currently effecting the public offering and sale and
registration under the Securities Act of 1933, as amended, of $335 million
aggregate principal amount of Senior Subordinated Debentures due 2000 (the
"Debentures") and warrants (the "Warrants") to purchase shares of the Class A
Common Stock par value $.01 per share, of Payless to be issued pursuant to a
warrant agreement between Payless and Irving Bank & Trust Company, as Warrant
Agent substantially in the form of Exhibit A hereto with such changes therein as
the officer of Payless executing the same may approve as necessary or
appropriate to facilitate the public offering and sale of the Debentures and the
Warrants, such approval to be conclusively evidenced by the execution and
delivered thereof (such warrant agreement, as executed and delivered on behalf
of Payless, being herein called the "Warrant Agreement"); and
WHEREAS, the parties hereto believe that the sale of the Debentures and the
Warrants is in the best interests of Payless and desire to facilitate the sale
of Debentures and the Warrants;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The parties hereto hereby consent to the execution and delivery by
Payless of and the performance by Payless of its obligations under the Warrant
Agreement and to the execution, issuance and delivery of the Warrants and hereby
waive all rights or benefits they may have, and agree that the Company shall
have no obligations, under the Registration Rights Agreement, in each case to
the extent they conflict with the terms of the Warrant Agreement.
<PAGE> 2
2. The phrase "on Form S-4 or Form S-8" in the first sentence of Section
1.2(a) is hereby amended to read "pursuant to Section 2.03(b), 2.04, 2.05 or
2.11(d) of the Warrant Agreement or on Form S-4 or Form S-8"; and the phrase
"include debt securities" in the first sentence of Section 1.2(a) is hereby
amended to read "include the Warrants or any debt securities".
3. The clause "subject to Sections 1.6 and 1.7" in Section 1.1(a) of the
Registration Rights Agreement shall be amended to read "subject to Sections 1.6
and 1.7 and subject to any restrictions contained in the Warrant Agreement".
4. The clause "in this Agreement, the Company shall," in the first clause
of Section 1.3 is hereby amended to read "in this Agreement, (i) in the event
that, pursuant to the Warrant Agreement, such registration requires the
inclusion in such registration of securities of holders of Warrants in
accordance with Section 2.03(a) of the Warrant Agreement, then (1) the rights
and obligations of the Company and holders of Warrants specified in Section 2.06
of the Warrant Agreement in respect of the Underlying Common Stock included in
such registration shall extend on as nearly the same terms and conditions as may
be practicable to the Company and the holders of Registrable Securities in
respect of such Registrable Securities included in such registration and (2)
except to the extent inconsistent with the provisions of the Warrant Agreement
(in which case the provisions of the Warrant Agreement shall apply), the Company
shall, and (ii) in any other event, the Company shall,".
5. The following is hereby added to the end of the second full paragraph
of the Registration Rights Agreement.
"For purposes of this Registration Rights Agreement, the term 'Common
Equivalents' means with respect to each share of capital stock or other security
of the Company the number of shares of Common Stock represented thereby or the
number of shares of Common Stock into which such share or security is then
convertible or exercisable or into which such share or other security would then
be convertible or exercisable if any restrictions or limitations on conversion
or exercise were not applicable, as the case may be; and the term 'Warrant
Agreement' means the Warrant Agreement as executed and delivered between the
Company and Irving Bank & Trust Company, as Warrant Agent substantially in the
form of Exhibit A hereto with such changes therein as the officer of the Company
executing the same may approve as necessary or appropriate to facilitate the
public offering and sale of the Debentures (as defined in the Loan Agreement)
and the
<PAGE> 3
Warrants, such approval to be conclusively evidenced by the execution and
delivery thereof."
6. Sections 1.7, 1.8 and 1.10 of the Registration Rights Agreement are
hereby amended to read in their entirety as set forth below. Section 1.9 shall
remain unchanged.
"1.7 Allocation of Securities Included in Registration Statement.
(a) (i) If (x) a requested registration pursuant to Section 1.1 involves
an underwritten offering and (y) the aggregate of the number of Registrable
Securities requested to be included in such registration and the number of
securities duly requested to be included in such registration pursuant to
the Warrant Agreement in accordance with Section 2.03(a) thereof exceeds
the total number of securities which, pursuant to the advice of the
managing underwriter, may be distributed without adversely affecting the
price or distribution of any securities to be offered (such shares of
Registrable Securities and such securities to be included pursuant to the
Warrant Agreement which may be included without affecting adversely the
price or distribution of securities to be sold being the "Covered
Securities"), then the Company shall not be entitled to include any
securities in such registration for its own account and the Covered
Securities shall be allocated pro rata among all Holders and all holders of
Warrants requesting to be included in such registration statement, on the
basis of the relative number of Common Equivalents each such person has
requested to be included in such registration statement. If, as a result
of the proration provision of this Section 1.7, any Holder shall not be
entitled to include all Registrable Securities in a registration that such
Holder has requested to be included, such Holder may elect to withdraw his
request to include Registrable Securities in such registration (a
"Withdrawal Election"); provided, however, that a Withdrawal Election shall
be irrevocable and, after making a Withdrawal Election, a Holder shall no
longer have any right to include Registrable Securities in the registration
as to which such Withdrawal Election was made.
(ii) If as a result of Withdrawal Elections less than the Requisite
Amount of Registrable Securities are requested to be included in a
registration, the Company may, at its election, give written notice to all
Holders who have requested that Registrable Securities be included in a
registration and who have not made a
<PAGE> 4
Withdrawal Election that the Company has determined not to proceed with
such registration and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such abandoned
registration, without prejudice, however, to the Holders' rights to have
Registrable Securities registered pursuant to Section 1.1 in the future.
(iii) If (x) a requested registration pursuant to Section 1.1 relates
to an offering that is to be underwritten and (y) the aggregate of the
number of Registrable Securities requested to be included in such
registration and the number of securities requested to be included in such
registration pursuant to the Warrant Agreement in accordance with Section
2.03(a) thereof (the "Entitled Securities") does not exceed the total
number of securities which, pursuant to the advice of the managing
underwriter, may be distributed without adversely affecting the price or
distribution of any securities to be offered, then the Company shall be
entitled to include any securities in such registration for its own account
only to the extent such total number exceeds such aggregate number of
Entitled Securities.
(b) If (x) a registration pursuant to Section 1.2 involves an
underwritten offering that is entirely a secondary offering and (y) the
number of Registrable Securities requested to be included in such
registration plus the number of securities duly requested to be included in
such registration pursuant to the Warrant Agreement in accordance with
Section 2.03(a) thereof exceeds the total number of securities which,
pursuant to the advice of the managing underwriter, may be distributed
without adversely affecting the price or distribution of any securities to
be offered (such shares of Registrable Securities and such securities to be
included pursuant to the Warrant Agreement which may be included without
affecting adversely the price or distribution of securities to be sold
being the "included Securities"), the included Securities shall be
allocated pro rata among all Holders and all holders of Warrants requesting
to be included in such registration statement, on the basis of the relative
number of Common Equivalents each such person has requested to be included
in such registration. If, as a result of the proration provisions of this
Section 1.7(b), any Holder shall not be entitled to include all Registrable
Securities in a registration pursuant to Section 1.2 that such Holder has
requested be included, such Holder may make a Withdrawal Election;
provided, however, that such Withdrawal
<PAGE> 5
Election shall be irrevocable and, after making a Withdrawal Election, a
Holder shall no longer have any right to include Registrable Securities in
the registration as to which such Withdrawal Election was made.
(c) If (x) a registration pursuant to Section 1.2 involves an
underwritten offering that is not entirely a secondary offering and (y) the
number of Registrable Securities requested to be included in such
registration plus the number of securities duly requested to be included in
such registration pursuant to the Warrant Agreement in accordance with
Section 2.03(a) thereof exceeds the total number which, pursuant to the
advice of the managing underwriter, may be distributed without adversely
affecting the price or distribution of any securities to be sold solely for
the Company's account (such shares of Underlying Common Stock and such
securities of such other selling security holders which may be included
without affecting adversely the price or distribution of securities to be
sold solely for the Company's account being the "includible Securities"),
the Company shall be entitled to include in such registration statement all
of the securities proposed to be sold solely for the Company's account and
the includible Securities shall be allocated pro rata among all Holders and
all holders of Warrants requesting to be included in such registration
statement, on the basis of the relative number of Common Equivalents each
such person has requested to be included in such registration statement.
1.8 Limitations on Sale or Distribution of Other Securities. If
requested in writing by the Company or the managing underwriter, if any, of
any registration effected pursuant to Section 1.1 or 1.2 hereof, each
Holder of Registrable Securities shall be deemed to have agreed by
acquisition of such Registrable Securities not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under the. Securities
Act, of any Registrable Securities, or of any other equity securities of
the Company or of any securities convertible into or exchangeable or
exercisable for any equity security of the Company (other than as part of
such underwritten public offering) within 15 days before or 120 days after
the effective date of such registration statement (and the Company hereby
also agrees and agrees to cause each holder of any equity security or of
any security convertible into or exchangeable or exercisable for any
equity security of the Company purchased from the Company at any time other
<PAGE> 6
than in a public offering so to agree; provided, however, that the
foregoing shall not apply to the holders of the Warrants or to the holders
of any securities acquired upon exercise of the Warrants, in each case, in
their capacity as such).
1.10 Certain Restrictions on the Company. if the Company enters into
any agreement (other than the Warrant Agreement) providing for, or
otherwise grants (other than pursuant to the Warrant Agreement), any
registration rights with respect to its equity securities:
(a) the terms of this Agreement will be amended if and to the extent
that such other agreement's or grant's terms are superior to the terms
hereof; provided, however, that in no event will the Company be entitled to
enter into any other agreement (other than the Warrant Agreement) or
otherwise grant (other than pursuant to the Warrant Agreement) any right to
demand a registration for an amount below the then applicable Requisite
Amount, and
(b) if a registration is requested pursuant to such other agreement
(other than the Warrant Agreement) or grant (other than pursuant to the
Warrant Agreement) (a "New Agreement Request") and a demand registration is
requested pursuant hereto (whether or not such is requested before or after
the New Agreement Request), the terms of this Agreement shall govern any
registration under this Agreement."
7. The phrase "Section 1.7" in Section 1.2(c) of the Registration Rights
Agreement is hereby amended to read "Section 1.7 or pursuant to the Warrant
Agreement" and the phrase "agreements hereafter" in such Section 1.2(c) is
hereby amended to read "agreements (other than the Warrant Agreement) hereafter"
8. The last sentence of Section l.1(a)(ii)(E) is hereby deleted.
9. Exhibit A hereto is hereby added to the Registration Rights Agreement
as Exhibit A thereto.
10. This Agreement may be executed in counterparts, each of which shall be
an original, and all of which, taken together, shall constitute a single
instrument. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.
<PAGE> 7
11. From and after the execution of this Agreement, all references in the
Registration Rights Agreement "to this Agreement," "hereof," "herein" and
similar terms, shall mean and refer to the Registration Rights Agreement, as
amended by this Agreement.
12. The Registration Rights Agreement is hereby ratified and confirmed
and, except as herein set forth, remains in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
PAYLESS CASHWAYS, INC.
By: s/Stephen A. Lightstone
_________________________
Stephen A. Lightstone
BROAD STREET INVESTMENT
FUND I, L.P.
By: Goldman, Sachs & Co.
General Partner
By: s/Goldman, Sachs & Co.
_________________________
<PAGE> 8
GOLDMAN, SACHS & CO.
s/Goldman, Sachs & Co.
_____________________________
MASCO CAPITAL CORPORATION
By: s/Sam Valenti
_________________________
CITICORP CAPITAL INVESTORS, LTD.
By: s/Scott Fossel
_________________________
Vice President
MORGAN CAPITAL CORPORATION
By: J.P. Morgan & Co. Incor-
porated, as agent for
Morgan Capital Corporation
By: s/C. Seth Cunningham
_________________________
H.C. CROWN CORP.
By: s/Dan L. Altman
_________________________
BRIDGE STREET FUND 1987
By: s/Diana M. Fine,
Vice President
_________________________
of Stone Street Managers
Corp., as Managing General
Partner
<PAGE> 9
BRIDGE STREET FUND 1988
By: s/Diana M. Fine,
Vice President
_________________________
of Stone Street Managers
Corp., as Managing General
Partner
STONE STREET FUND 1987
By: s/Diana M. Fine,
Vice President
_________________________
of Stone Street Capital Corp.,
as General Partner
STONE STREET FUND 1988
By: s/Diana M. Fine,
Vice President
_________________________
of Stone Street Managers
Corp., as General Partner
s/David Stanley
_____________________________
David Stanley
s/Harold Cohen
_____________________________
Harold Cohen
s/Melvin Cohen
_____________________________
Melvin Cohen
s/David Cohen
_____________________________
David Cohen
s/Larry Kunz
_____________________________
Larry Kunz
<PAGE> 10
s/Dale Pond
_____________________________
Dale Pond
s/Stephen Lightstone
_____________________________
Stephen Lightstone
s/Susan Stanton
_____________________________
Susan Stanton
s/Richard L. Gelb
_____________________________
Richard L. Gelb
<PAGE> 1
Exhibit 10.15(c)
ADDENDUM TO SHAREHOLDERS' AGREEMENT AND
REGISTRATION RIGHTS AGREEMENT
_____________________________
The parties hereto have heretofore entered into a Shareholders' Agreement
dated as of August 4, 1988 (the "Shareholders' Agreement") and a Registration
Rights Agreement dated as of August 4, 1988, as amended by an Agreement and
Amendment to Registration Rights Agreement, dated as of November 11, 1988 (the
"Registration Rights Agreement").
The Shareholders' Agreement provides that the Restated Articles of
Incorporation of the Company will be amended so as to authorize the issuance of
Class C Common Stock to a person designated by Citicorp Capital Investors Ltd.
("CCIL"). CCIL has designated David Wagstaff as its designee to purchase the
shares of Class C Common Stock. CCIL is presently the holder of 2,250,000
shares of Class B Common Stock. The Company and CCIL have agreed to a partial
recapitalization under which CCIL will cease to hold Class B Common Stock but
will instead hold 2,250,000 shares of a newly created Class D Common Stock of
the Company.
The parties hereto agree as follows:
1. David Wagstaff has been designated by CCIL as its designee for the
purchase of 900 shares of Class C Common Stock and such designee is acceptable
to the Company. David Wagstaff hereby becomes a party to the Shareholders'
Agreement and the Registration Rights Agreement.
2. The terms "Stock", "Common Stock" and "Common Equivalents", appearing
in the Shareholders' Agreement and the Registration Rights Agreement, shall
include the Class D Common Stock.
3. The phrase "to any transfers of Class C Common Stock among the
Entities", appearing in clause (v) on page 26 of the Shareholders' Agreement, is
hereby amended to read as follows: "to any transfers of Class C Common Stock and
Class D Common Stock among the Entities."
4. Clause (iii) appearing on page 57 of the Shareholders' Agreement is
hereby amended to read as follows: "the issuance of any securities upon
conversion of the Convertible Preferred Stock, the Class B Common Stock, the
Class C Common Stock or the Class D Common Stock."
5. The term "Registrable Securities", appearing in the Registration
Rights Agreement, shall include shares of Class A
<PAGE> 2
Common Stock issued or issuable upon conversion of the Class D Common Stock and
shares of Class D Common Stock.
6. CCIL will exchange 2,250,000 shares of its Class B Common Stock for
2,250,000 shares of Class D Common Stock.
7. The Shareholders' Agreement and the Registration Rights Agreement are
hereby ratified and confirmed and remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to the
Shareholders' Agreement and the Registration Rights Agreement by their
respective authorized officers as of this 22 day of February, 1989.
PAYLESS CASHWAYS, INC.
By: s/David Stanley
__________________________
MASCO CAPITAL CORPORATION
By: s/Richard A. Manoogian
__________________________
CITICORP CAPITAL INVESTORS LTD.
By: s/Scott G. Fossel
__________________________
MORGAN CAPITAL CORPORATION
By: s/C. Seth Cunningham
__________________________
Vice President
J.P. Morgan Co. Incorporated
as agent for Morgan Capital
Corporation
By: __________________________
H. C. CROWN CORP.
By: s/Dan L. Altman
__________________________
<PAGE> 3
BRIDGE STREET FUND 1987
By: s/Stuart Schlesinger
__________________________
Stone Street Capital Corp.,
as Managing General Partner
BRIDGE STREET FUND 1988
By: s/Stuart Schlesinger
__________________________
Stone Street Managers Corp.,
as Managing General Partner
STONE STREET FUND 1987
By: s/Stuart Schlesinger
__________________________
Stone Street Capital Corp.,
as General Partner
STONE STREET FUND 1988
By: s/Stuart Schlesinger
__________________________
Stone Street Managers Corp.,
as General Partner
BROAD STREET INVESTMENT FUND I,
L.P.
By: s/Goldman, Sachs & Co.
__________________________
Goldman, Sachs & Co.
General Partner
GOLDMAN, SACHS & CO.
By: s/Goldman, Sachs & Co.
__________________________
s/Richard L. Gelb
______________________________
Richard L. Gelb
DAVID STANLEY AS VOTING TRUSTEE
By: s/David Stanley
__________________________
<PAGE> 1
Exhibit 11.1
Page 1
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ----------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------
November 27, November 28, November 30,
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle $ 9,669 $ (9,000) $ (13,259)
Less:
Preferred stock dividends (4,718) (4,358) (4,026)
Changes in redemption value of common
stock subject to puts and calls and
warrants subject to puts -- (455) --
------------ ------------ ------------
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle available to
common shareholders 4,951 (13,813) (17,285)
Extraordinary loss (45,828) -- --
Cumulative effect on prior years of change in
accounting for postretirement benefits -- (6,902) --
------------ ------------ ------------
Net loss available to common shareholders $ (40,877) $ (20,715) $ (17,285)
Weighted average common and dilutive
common equivalent shares outstanding 30,514 6,571 6,571
------------ ------------ ------------
Weighted average common shares outstanding,
excluding dilutive common equivalent shares 29,875 6,571 6,571
------------ ------------ ------------
Income (loss) per common share before extraordinary item
and cumulative effect of change in accounting principle $ .16 $ (2.10) $ (2.63)
Extraordinary loss per common share (1.53) -- --
Cumulative effect on prior years of change in
accounting principle per common share -- (1.05) --
------------ ------------ ------------
Net loss per common share $ (1.37) $ (3.15) $ (2.63)
============ ============ ============
FULLY DILUTED
- -------------
Net income available to common shareholders $ -- (1) $ -- (1) $ --
Weighted average common and dilutive common
equivalent shares outstanding -- (1) -- (1) --
------------ ------------ ------------
Net income per common share $ -- (1) $ -- (1) $ --
============ ============ ============
</TABLE>
<PAGE> 2
Page 2
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ----------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------
February 27, May 29, August 28, November 2
1993 1993 1993 1993
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item $ (21,244) $ 7,130 $ 8,138 $ 15,645
Deduct:
Preferred stock dividends (1,145) (1,167) (1,191) (1,215
------------ ------------ ------------ ----------
Income (loss) before extraordinary item
available to common shareholders (22,389) 5,963 6,947 14,430
Extraordinary loss -- (9,111) (9,471) (27,246
------------ ------------ ------------ ----------
Net loss available to common shareholders $ (22,389) $ (3,148) $ (2,524) $ (12,816
------------ ------------ ------------ -----------
Weighted average common and dilutive
common equivalent shares outstanding 6,571 34,953 40,355 40,176
------------ ------------ ------------ -----------
Weighted average common shares
outstanding, excluding common
equivalent shares 6,571 33,958 39,457 39,512
------------ ------------ ------------ ----------
Income (loss) per common share before
extraordinary item (3.41) .17 .17 .36
Extraordinary loss per common share -- (.27) (.24) (.69
------------ ------------ ------------ -----------
Net loss per common share $ (3.41) $ (.09) $ (.06) $ (.32
============ ============ ============ ===========
FULLY DILUTED
- -------------
Net income available to common
shareholders $ -- (1) $ -- (1) $ -- (1) $ -- (1
Weighted average common and dilutive
common equivalent shares outstanding -- (1) -- (1) -- (1) -- (1
------------ ------------ ------------ -----------
Net income (loss) per common share $ -- (1) $ -- (1) $ -- (1) $ -- (1
============ ============ ============ ===========
</TABLE>
<PAGE> 3
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ---------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
February 29, May 30, August 29, November 2
1992 1992 1992 1992
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect of
change in accounting principle $ (22,792) $ 3,509 $ 6,351 $ 3,932
Add (deduct):
Preferred stock dividends (1,057) (1,079) (1,100) (1,122
Changes in redemption value
of common stock subject to
puts and calls and warrants
subject to puts -- -- (455) --
Interest expense reduction,
net of tax -- -- 78 97
------------ ------------ ------------ -----------
Income (loss) before cumulative effect of
change in accounting principle available
to common shareholders (23,849) 2,430 4,874 2,907
Cumulative effect on prior years of change
in accounting for postretirement benefits (6,902) -- -- --
------------ ------------ ------------ -----------
Net income (loss) available to common
shareholders $ (30,751) $ 2,430 $ 4,874 $ 2,907
------------ ------------ ------------ -----------
Weighted average common and dilutive
common equivalent shares outstanding 6,571 7,576 8,203 8,389
------------ ------------ ------------ -----------
Income (loss) per common share before
cumulative effect of change in
accounting principle $ (3.63) $ .32 $ .59 .35
Cumulative effect of change in accounting
principle per common share (1.05) -- -- --
------------ ------------ ------------ -----------
Net income (loss) per common share $ (4.68) $ .32 $ .59 $ .35
============ ============ ============ ===========
FULLY DILUTED
- -------------
Net income available to common
shareholders $ -- (1) $ 3,509 $ 5,994 $ 4,038
Weighted average common and dilutive
common equivalent shares outstanding $ -- (1) $ 10,012 10,847 $ 10,888
------------ ------------ ------------ -----------
Net income per common share $ -- (1) $ .35 $ .55 $ .37
============ ============ ============ ============
<FN>
(1) Not applicable. Due to net loss incurred for period, fully diluted earnings per share have not been presented.
</TABLE>
<PAGE>
Exhibit 13.1
Payless Cashways, Inc. and subsidiary
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year Ended November 27, 1993 Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Net sales $492,843 $698,786 $716,853 $692,521
Other income 1,272 1,344 1,077 1,282
-------- -------- -------- --------
494,115 700,130 717,930 693,803
Costs and expenses
Cost of merchandise sold 336,262 493,909 509,862 484,630
Selling, general and administrative 130,303 149,279 146,367 144,067
Provision for depreciation and amortization 13,663 13,935 14,260 14,355
Interest 37,891 34,950 31,415 20,991
Special charges -- -- -- 4,000
-------- -------- -------- ---------
518,119 692,073 701,904 668,043
-------- -------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (24,004) 8,057 16,026 25,760
Federal and state income taxes (2,760) 927 7,888 10,115
-------- -------- -------- ---------
Income (loss) before extraordinary item (21,244) 7,130 8,138 15,645
Extraordinary item: early extinguishment of debt -- (9,111) (9,471) (27,246)
-------- -------- -------- ---------
NET LOSS $(21,244) $(1,981) $(1,333) $(11,601)
--------- -------- -------- ---------
--------- -------- -------- ---------
Income (loss) per common share before extraordinary item (3.41) .17 .17 .36
Extraordinary item: early extinguishment of debt -- (.27) (.24) (.69)
-------- -------- -------- ---------
Net loss per common share, primary $ (3.41) $ (.09) $ (.06) $ (.32)
-------- -------- -------- ---------
-------- -------- -------- ---------
Weighted average common and dilutive common
equivalent shares outstanding 6,571 34,953 40,355 40,176
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
A lower-than-anticipated rate of inflation decreased the LIFO inventory
provision, after tax, by $1.0 million, or $.03 per share, in the fourth
quarter. Special charges reflected in the fourth quarter relate to costs
associated with the elimination of a layer of management in the Company's field
organization.
- 6 -
<PAGE>
Payless Cashways, Inc. and subsidiary
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (cont'd.)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year Ended November 28, 1992 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Net sales $470,591 $682,342 $693,460 $649,513
Other income 922 1,060 1,269 1,207
-------- -------- -------- ---------
471,513 683,402 694,729 650,720
Costs and expenses
Cost of merchandise sold 317,879 479,215 489,868 452,434
Selling, general and administrative 127,514 141,328 142,193 140,444
Provision for depreciation and amortization 13,486 13,579 14,087 14,277
Interest 38,387 38,816 38,959 37,618
Special charges -- 6,500 -- --
-------- -------- -------- ---------
497,266 679,438 685,107 644,773
-------- -------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (25,753) 3,964 9,622 5,947
Federal and state income taxes (2,961) 455 3,271 2,015
-------- -------- -------- ---------
Income (loss) before cumulative effect of change in
accounting principle (22,792) 3,509 6,351 3,932
Cumulative effect on prior years of change in
accounting for postretirement benefits (6,902) -- -- --
-------- -------- -------- ---------
NET INCOME (LOSS) $(29,694) $ 3,509 $ 6,351 $ 3,932
--------- -------- -------- --------
--------- -------- -------- --------
Income (loss) per common share before cumulative effect
of change in accounting principle $ (3.63) $ .32 $ .59 $ .35
Cumulative effect of change in accounting principle (1.05) -- -- --
-------- -------- -------- ---------
Net income (loss) per common share, primary $ (4.68) $ .32 $ .59 $ .35
-------- -------- -------- ---------
-------- -------- -------- ---------
Net income per common share, fully diluted $ -- $ -- $ .55 $ --
-------- -------- -------- ---------
-------- -------- -------- ---------
Weighted average common and dilutive common
equivalent shares outstanding 6,571 7,576 8,203 8,389
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
Effective December 1, 1991, the Company changed its method of accounting for
postretirement benefits other than pensions as described in Note G. The effect
of the change on loss from operations was immaterial. Special charges
reflected in the second quarter relate to costs and expenses incurred in
connection with the Company's withdrawn recapitalization plan. A lower-than-
anticipated rate of inflation decreased the LIFO inventory provision, after
tax, by $2.0 million, or $ .23 per share, in the fourth quarter.
- 7 -
<PAGE>
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Activities
In 1993, Payless Cashways, Inc. (the "Company") developed and executed a
recapitalization plan (the "Recapitalization Plan") which consisted of a series
of transactions, completed during 1993, designed to increase shareholders'
equity, reduce the Company's debt and interest expense, improve the Company's
access to capital markets and improve the Company's operating and financial
flexibility.
The transactions comprising the Recapitalization Plan were as follows:
(i) The initial public offering of 32,200,000 shares of Common Stock,
which was completed on March 15, 1993 for net proceeds of $385.4
million.
(ii) The repayment on March 15, 1993 of $175.8 million of indebtedness
outstanding under the Company's previously existing bank credit
agreement.
(iii) The prepayment on March 16, 1993 of $50 million of indebtedness
outstanding under the Company's $226.6 million mortgage loan payable
to an insurance company.
(iv) The issuance of 9-1/8% senior subordinated notes due 2003, which was
completed on April 20, 1993 for the aggregate principal amount of
$200 million.
(v) The repurchase on April 15 and 16, 1993 of $99.9 million aggregate
principal amount of the Company's 16-1/2% Junior Subordinated
Discount Debentures due August 1, 2008 (the "Junior Subordinated
Debentures") and the redemption of the remaining $291.1 million
aggregate principal amount of the Junior Subordinated Debentures on
July 30, 1993.
(vi) Borrowings on November 1, 1993 of $325 million of bank indebtedness
under an amended and restated bank credit agreement entered into by
the Company and certain banks (the "1993 Credit Agreement"). The
1993 Credit Agreement also provides for a revolving credit facility
(the "Revolving Credit Facility") of $85 million which was used to
provide a portion of the funds necessary to complete the
Recapitalization Plan and which has been and will continue to be
used to finance the working capital requirements of the Company in
the ordinary course of business.
(vii) The redemption on November 1, 1993 of $332.5 million aggregate
principal amount of the Company's 14-1/2% Senior Subordinated
Debentures due November 1, 2000.
See "Results of Operations" for pro forma consolidated operating data for
fiscal 1993 and 1992 as if the Recapitalization Plan had occurred at the
beginning of each of those years.
At November 27, 1993, Payless had approximately $701.1 million of indebtedness.
Payless expects from time to time to incur additional seasonal indebtedness.
- 8 -
<PAGE>
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Results of Operations
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Annual Report to
Shareholders.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------
Nov. 27, Nov. 28, Nov. 30,
1993 1992 1991
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING DATA (PERCENT OF NET SALES):
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0 %
Cost of merchandise sold . . . . . . . . . . . . . . . . . . . . . . 70.2 69.7 69.7
Selling, general and administrative . . . . . . . . . . . . . . . . . 21.9 22.1 22.2
Provision for depreciation and amortization . . . . . . . . . . . . . 2.2 2.2 2.4
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 6.2 6.5
Special charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 .3 --
------ ------ ------
Income (loss) before income taxes . . . . . . . . . . . . . . . . . 1.0 (.2) (.6)
Federal and state income taxes . . . . . . . . . . . . . . . . . . . .6 .1 (.1)
------ ------ ------
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 (.4) (.6)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . (1.8) -- --
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (.3) --
------ ------ ------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.4)% (.6)% (.6) %
------ ------ -------
------ ------ -------
</TABLE>
GENERAL
After a strategic review of the industry in 1988, management determined there
was a significant opportunity to expand the portion of its business derived
from the professional customers because management concluded this market was
underpenetrated by full-service distributors. As a result, the Company
implemented a strategy beginning in late 1988 and early 1989 to increase its
sales to the professional customer. These initiatives included: (i) the
addition of a dedicated sales staff, currently numbering approximately 1,400,
many of whom call on the professional customers at their places of business and
job-sites; (ii) the construction of a separate commercial sales area in each
store; (iii) the implementation of an enhanced delivery program which
guarantees next day job-site delivery; and (iv) the offering of special
services such as roof-top delivery, commercial credit and a telephone ordering
service.
In conjunction with these initiatives, the Company's merchandise assortment was
enhanced to reflect increased emphasis on the professional ("Pro") customer.
Improvements were made in most merchandise categories by adding
contractor-preferred brands, commercial grade items, contractor packs and more
top-of-the-line products. The Company also improved the quality of the lumber
offered.
As a result of these initiatives, management believes the proportion of its
sales derived from the Pro customer has increased significantly since 1988.
- 9 -
<PAGE>
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd.)
SALES
During each of the three fiscal years ended November 27, 1993, net sales
increased primarily as a result of the growth in business from professional
customers. In addition, a new store opened in late March, 1993. Net sales
increased by 4.2% for fiscal 1993 over fiscal 1992, 4.6% (or 6.4% compared to a
52-week year) for fiscal 1992 over fiscal 1991, and 7.3% (or 5.6% compared to a
52-week year) for fiscal 1991 (a 53-week year) over fiscal 1990.
Comparable-store sales (sales from stores that have been open one full year) on
a 52-week basis increased by 4.1% for fiscal 1993, 6.4% for fiscal 1992, and
5.5% for fiscal 1991.
COSTS AND EXPENSES
The cost of merchandise sold, as a percent of sales, was 70.2% in fiscal 1993
and 69.7% in fiscal 1992 and 1991. The increase in 1993 was due primarily to
the growth in sales to the professional customer whose merchandise purchases
include a higher percentage of commodity goods at margin rates somewhat lower
than the Company average. The LIFO provision in fiscal 1993 was $2.0 million
compared to $1.2 million in fiscal 1992 and $2.2 million in fiscal 1991,
reflecting effective merchandise purchasing and low inflation rates in all
three years.
Selling, general and administrative expenses, as a percent of sales, were
21.9%, 22.1%, and 22.2% for fiscal 1993, 1992 and 1991, respectively.
The provision for depreciation and amortization increased slightly in fiscal
1993 because completion of the Recapitalization Plan increased the Company's
funds available for capital expenditures. Prior to 1993, capital expenditures
had been more limited and the related provision for depreciation and
amortization had decreased.
Interest expense decreased substantially from fiscal 1992 to fiscal 1993 due
primarily to the retirement of long-term debt in connection with the
Recapitalization Plan. Had the Recapitalization Plan been completed at the
beginning of fiscal 1992, the Company believes it would have resulted in
aggregate interest expense savings (including noncash interest) to the Company
of approximately $55.7 million and $78.8 million in 1993 and 1992,
respectively. The decrease in interest expense from fiscal 1991 to fiscal 1992
was primarily due to lower average long-term borrowings during 1992.
At the end of 1993, the Company decided to eliminate a layer of management in
the field organization and recognized a special charge of $4.0 million in the
fourth quarter of 1993 to reflect the associated costs. The elimination of
this management layer took place in January, 1994.
Expenses of $6.5 million, related to a prior withdrawn recapitalization plan,
were recognized as a special charge in the second quarter of 1992.
NET INCOME (LOSS)
The Company had income before an extraordinary item and the cumulative effect
of change in accounting principle of $9.7 million in fiscal 1993 compared to a
loss of $9.0 million in fiscal 1992 primarily because of reduced interest
expense as a result of 1993 long-term debt retirements related to the
Recapitalization Plan. The 1993 net loss includes $4.0 million ($2.5 million
net of tax) of costs associated with the elimination of a field management
layer in early 1994 and $45.8 million, net of tax, of extraordinary charges
related to the early extinguishment of debt in connection with the
Recapitalization Plan. Excluding such expenses, the 1993 net income would have
been approximately $12.1 million.
- 10 -
<PAGE>
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd.)
The loss before the cumulative effect of a change in accounting principle for
fiscal 1992 of $9.0 million decreased from the loss of $13.3 million in fiscal
1991 primarily because of increased sales. The 1992 net loss includes $6.5
million ($4.3 million net of tax) of expenses incurred in connection with the
Company's withdrawn recapitalization plan and a $6.9 million charge (after
reduction for income tax benefits of $3.6 million) for a change in accounting
principle relating to the method of accounting for postretirement benefits
other than pensions. Excluding such expenses, the 1992 net loss would have
been approximately $4.7 million.
The effective tax rates for fiscal 1993, 1992 and 1991 were different from the
34% federal statutory rate primarily because the amortization of costs in
excess of net assets acquired is nondeductible. Additionally, $1.2 million was
charged to income tax expense in the third quarter of 1993 to reflect the
cumulative impact of the corporate income tax rate changes enacted by the
Omnibus Budget Reconciliation Act of 1993.
In November 1992, the Financial Accounting Standards Board issued a new
standard on accounting for postemployment benefits. Currently, the Company
does not expect to implement this standard due to the immaterial effect on its
consolidated financial statements.
The following table presents summary unaudited pro forma consolidated operating
data of the Company ("Pro Forma Data") for the fiscal years ended November 27,
1993 and November 28, 1992 which gives effect to the Recapitalization Plan as
if it had occurred at the beginning of the years presented. Special charges of
$6.5 million, reflecting the fees and expenses incurred in connection with the
Company's withdrawn 1992 recapitalization plan, have been excluded from the Pro
Forma Data for the 1992 period. The Pro Forma Data is based upon available
information and certain assumptions that management believes are reasonable.
The Pro Forma Data does not purport to represent what the Company's results of
operations would actually have been if the transactions had occurred at the
beginning of the years presented or to project the Company's financial position
or results of operations for any future period.
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ended Ended
Nov. 27, 1993 Nov. 28, 1992
------------- -------------
(In thousands, except per share data)
<S> <C> <C>
Unaudited Pro Forma Consolidated Operating Data:
Net sales and other income $ 2,605,978 $ 2,500,364
Interest expense 69,541 74,938
Income before income taxes, extraordinary
item, and cumulative effect of change in
accounting principle 81,545 79,123
Income before extraordinary item and
cumulative effect of change in account-
ing principle 44,666 43,189
Income per common share before extraordinary
item and cumulative effect of change in
accounting principle $ .99 $ .96
Weighted average common and dilutive
common equivalent shares outstanding 40,240 40,240
</TABLE>
- 11 -
<PAGE>
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Effects of Inflation
The Company's inflation rates, included in the cost of merchandise sold, for
fiscal 1993, 1992 and 1991 were comparable. Approximately 79% of the Company's
inventory is valued using the LIFO inventory accounting method; therefore,
current costs are reflected in the cost of merchandise sold, rather than in
inventory balances.
Liquidity and Capital Resources
The Company's principal source of cash is from operations. Cash provided by
operating activities was $109.0 million for fiscal 1993, compared to $88.6
million for fiscal 1992. The primary reason for the increase in cash provided
by operating activities was the 1993 operating income versus a 1992 operating
loss. The Company's 1992 cash flow reflects $6.5 million used for its
withdrawn recapitalization plan. Cash provided by operating activities was
$87.9 million for fiscal 1991. The primary reason for the increase in cash
provided by operating activities was the decrease in the 1992 operating loss
compared to the 1991 operating loss.
Borrowings are available under the Revolving Credit Facility and a standby
letter of credit facility to supplement cash generated by operations. At
November 27, 1993, $68.4 million was available for borrowing. Working capital
was $85.1 million and $74.9 million at the end of fiscal 1993 and fiscal 1992,
respectively. The current ratio was 1.25 to 1 and 1.22 to 1 at the end of
fiscal 1993 and fiscal 1992, respectively. The primary reason for the increase
in working capital and the current ratio was a lower current portion of
long-term debt due to the Recapitalization Plan. The Company's inventory
levels are at the lowest levels during the seasonally low sales months of
December through February and are at the highest levels during the peak selling
season of May through September. During the peak period, inventory is financed
by cash from operations and trade accounts payable. During the winter months,
inventory is financed by cash from operations, trade accounts payable and
borrowings under the Revolving Credit Facility and the standby letter of credit
facility, as needed. The Company believes that cash generated from operations
and borrowings under the Revolving Credit Facility and the standby letter of
credit facility will adequately meet its debt service and other obligations
which will become due in fiscal 1994.
The Company's primary investing activities continue to be capital expenditures
for existing and new stores and distribution centers. The 1993 Credit
Agreement governs the amount of capital expenditures which can be made. The
Company spent approximately $50.0 million, $36.6 million and $41.0 million in
fiscal 1993, 1992, and 1991, respectively, for equipment and renovated retail
facilities and distribution centers. During 1993, the Company reopened a store
that was closed in 1988. The Company intends to finance fiscal 1994 budgeted
capital expenditures of approximately $70.0 million, consisting primarily of
seven new stores, additional equipment, and renovation of existing stores with
funds generated from operations.
The Company's most significant financing activity is and will continue to be
the retirement of indebtedness. Although the Company's consolidated
indebtedness is and will continue to be substantial, management believes that
based upon the Company's recent recapitalization and management's analysis of
the Company's financial condition, the cash flow generated from operations
during the past 12 months and the expected results of operations in the future,
cash flow from operations and borrowings under the Revolving Credit Facility
and the standby letter of credit facility should provide sufficient liquidity
to meet all cash requirements for the next 12 months without additional
borrowings.
- 12 -
<PAGE>
[KPMG Peat Marwick Letterhead]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Payless Cashways, Inc.:
We have audited the accompanying consolidated balance sheets of Payless
Cashways, Inc. and subsidiary as of November 27, 1993 and November 28, 1992,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the fiscal years in the three-year period ended November
27, 1993. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Payless Cashways,
Inc. and subsidiary as of November 27, 1993 and November 28, 1992, and the
results of their operations and their cash flows for each of the fiscal years
in the three-year period ended November 27, 1993 in conformity with generally
accepted accounting principles.
As discussed in Note G to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions," in
fiscal 1992.
s/KPMG Peat Marwick
-------------------
Kansas City, Missouri KPMG Peat Marwick
January 7, 1994
- 14 -
<PAGE>
Payless Cashways, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------------
November 27, November 28, November 30,
(In thousands, except per share amounts) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Net sales $ 2,601,003 $ 2,495,906 $ 2,387,235
Other income 4,975 4,458 4,595
------------ ------------- -------------
2,605,978 2,500,364 2,391,830
Costs and expenses
Cost of merchandise sold 1,824,663 1,739,396 1,663,508
Selling, general and
administrative--Notes B, F and G 570,016 551,479 531,115
Provision for depreciation and amortization 56,213 55,429 57,291
Interest--Note C 125,247 153,780 155,066
Special charges--Note I 4,000 6,500 --
------------ ------------- -------------
2,580,139 2,506,584 2,406,980
------------ ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 25,839 (6,220) (15,150)
Federal and state income taxes--Note E 16,170 2,780 (1,891)
------------ ------------- -------------
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle 9,669 (9,000) (13,259)
Extraordinary item: Early extinguishment of
debt--Notes A, C and E (45,828) -- --
Cumulative effect on prior years of change in
accounting for postretirement benefits--
Notes E and G -- (6,902) --
------------ ------------- -------------
NET LOSS $ (36,159) $ (15,902) $ (13,259)
------------ ------------- -------------
------------ ------------- -------------
Net loss attributable to common stock $ (40,877) $ (20,715) $ (17,285)
------------ ------------- -------------
------------ ------------- -------------
Income (loss) per common share before extraordinary
item and cumulative effect of change in accounting
principle $ .16 $ (2.10) $ (2.63)
Extraordinary item: Early extinguishment of debt (1.53) -- --
Cumulative effect on prior years of change in
accounting for postretirement benefits -- (1.05) --
------------ ------------- -------------
Net loss per common share--Note B $ (1.37) $ (3.15) $ (2.63)
------------ ------------- -------------
------------ ------------- -------------
Weighted average common and dilutive common
equivalent shares outstanding--Notes B and D 30,514 6,571 6,571
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
See notes to consolidated financial statements
- 15 -
<PAGE>
Payless Cashways, Inc. and subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 27, November 28,
(In thousands) 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 3,673 $ 30,915
Trade receivables 9,890 8,779
Merchandise inventories--Note B 382,403 358,204
Prepaid expenses and other current assets 17,056 20,079
Deferred income taxes--Note E 9,797 3,916
------------ ------------
TOTAL CURRENT ASSETS 422,819 421,893
OTHER ASSETS
Real estate held for sale 7,149 10,149
Cost in excess of net assets acquired,
less accumulated amortization of $69,339
and $56,322--Note B 451,327 464,344
Deferred financing costs--Note C 26,326 25,651
Other 8,861 7,289
LAND, BUILDINGS AND EQUIPMENT--Notes B and C
Land and land improvements 178,251 172,090
Buildings 435,886 415,344
Equipment 103,959 88,771
Automobiles and trucks 28,739 20,012
Construction in progress 2,280 9,667
Allowance for depreciation and amortization (211,999) (173,962)
------------- -------------
537,116 531,922
------------- -------------
$ 1,453,598 $ 1,461,248
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements
- 16 -
<PAGE>
Payless Cashways, Inc. and subsidiary
CONSOLIDATED BALANCE SHEETS (cont'd.)
<TABLE>
<CAPTION>
November 27, November 28,
(In thousands) 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Advances under bank facilities $ 5,000 $ --
Current portion of long-term debt--Note C 55,978 84,415
Trade accounts payable 145,265 133,229
Salaries, wages and bonuses 29,202 28,378
Accrued interest 5,290 7,232
Insurance reserves 17,068 13,135
Other accrued expenses--Note F 44,770 46,346
Taxes, other than income taxes 19,963 17,999
Income taxes payable--Note E 15,141 16,248
------------- -------------
TOTAL CURRENT LIABILITIES 337,677 346,982
LONG-TERM DEBT, less portion classified as current
liability--Note C 640,127 986,155
NONCURRENT LIABILITIES
Deferred income taxes--Note E 64,624 68,168
Other--Note G 23,859 24,744
COMMON STOCK SUBJECT TO PUTS AND CALLS--Notes B and D -- 6,283
WARRANTS SUBJECT TO PUTS--Notes B and D -- 18,242
SHAREHOLDERS' EQUITY--Notes B, C and D
Preferred Stock, $1.00 par value, 25,000,000
shares authorized; issued:
Series A Cumulative Convertible Preferred
Stock, 406,000 shares at redemption value 40,600 40,600
Common Stock, $.01 par value:
Voting, 150,000,000 shares authorized, 36,161,771
and 3,718,584 shares issued (less 0 and
523,584 shares subject to puts and calls),
respectively 361 32
Class A Non-Voting, 5,000,000 shares authorized, 2,250,000
shares issued 23 23
Class B Non-Voting, 5,000,000 shares authorized, 1,125,000
shares issued 11 11
Additional paid-in capital 482,575 70,108
Accumulated deficit (136,259) (100,100)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 387,311 10,674
------------- -------------
COMMITMENTS--Notes F and H
$ 1,453,598 $ 1,461,248
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements
- 17 -
<PAGE>
Payless Cashways, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------
November 27, November 28, November 30,
(In thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (36,159) $ (15,902) $ (13,259)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 56,213 55,429 57,291
Noncash interest -- Note C 39,119 56,215 48,029
Loss on early extinguishment of debt--Note C 45,828 -- --
Deferred income taxes (9,425) (5,182) (6,667)
Cumulative effect on prior years of change in
accounting for postretirement benefits--Note G -- 6,902 --
Other 835 2,896 701
Changes in assets and liabilities:
(Increase) decrease in trade receivables (1,111) (2,796) 1,608
Increase in merchandise inventories (24,199) (8,321) (12,902)
Decrease in prepaid expenses
and other current assets 5,527 450 5,018
Increase (decrease) in trade accounts payable 12,036 (388) 4,307
Increase (decrease) in other current liabilities 20,363 (663) 3,771
---------- ----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 109,027 88,640 87,897
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and equipment (49,982) (36,612) (41,022)
Proceeds from sale of land, buildings and equipment 1,306 2,637 3,114
Increase in other assets (1,572) (228) (1,368)
----------- ----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (50,248) (34,203) (39,276)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt--Note C 524,999 -- --
Retirements of long-term debt and related premiums
and penalties -- Note C (983,076) (59,454) (44,707)
Fees and financing costs paid in connection with debt
refinancing -- Notes A and C (20,277) -- --
Sale of Common Stock, $.01 par value -- Note A 385,444 -- --
Sale of Common Stock under stock option plan 2,189 -- --
Increase in short-term borrowings 5,000 -- --
Put of Common Stock subject to puts and calls -- -- (2,123)
Other (300) (687) (682)
---------- ----------- ----------
NET CASH USED IN FINANCING ACTIVITIES (86,021) (60,141) (47,512)
---------- ----------- ----------
Net (decrease) increase in cash and cash equivalents (27,242) (5,704) 1,109
Cash and cash equivalents, beginning of period 30,915 36,619 35,510
--------- ----------- ----------
Cash and cash equivalents, end of period $ 3,673 $ 30,915 $ 36,619
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See notes to consolidated financial statements
- 18 -
<PAGE>
Payless Cashways, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock $.01 Par Value
(In thousands) Preferred Stock Class A Class B
------------------------------------------------------------------------
$1.00 Par Value Voting Non-Voting Non-Voting Class A Class B Class C Class D
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 24, 1990 $ 40,600 $ -- $ -- $ -- $ 32 $ 11 $ -- $ 23
Net loss for the year
Changes in redemption value of Common
Stock subject to puts and calls and
warrants subject to puts
Put of Common Stock subject to
puts and calls
-------- ------ ------ ------ ------- ------ ------ -------
Balance at November 30, 1991 $40,600 $ -- $ -- $ -- $ 32 $ 11 $ -- $ 23
Net loss for the year
Changes in redemption value of Common
Stock subject to puts and calls
-------- ------ ------ ------ ------- ------ ------ -------
Balance at November 28, 1992 $40,600 $ -- $ -- $ -- $ 32 $ 11 $ -- $ 23
Net loss for the year
Sale of Voting Common Stock--Note A 322
Sale of Common Stock under stock
option plan 2
Reclass Common Stock subject to puts
and calls and warrants subject to
puts--Note B 5
Reclass classes of Common Stock--Note D 32 23 11 (32) (11) -- (23)
-------- ------ ------ ------ ------- ------ ------ -------
Balance at November 27, 1993 $40,600 $ 361 $ 23 $ 11 $ -- $ -- $ -- $ --
-------- ------ ------ ------ ------- ------ ------ ------
-------- ------ ------ ------ ------- ------ ------ ------
<CAPTION>
Additional
(In thousands) Paid-in Accumulated
Capital Deficit Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at November 24, 1990 $ 69,923 $ (73,749) $ 36,840
Net loss for the year (13,259) (13,259)
Changes in redemption value of Common
Stock subject to puts and calls and
warrants subject to puts 3,265 3,265
Put of Common Stock subject to
puts and calls 185 185
--------- ---------- -----------
Balance at November 30, 1991 $ 70,108 $ (83,743) $ 27,031
Net loss for the year (15,902) (15,902)
Changes in redemption value of Common
Stock subject to puts and calls (455) (455)
---------- ---------- -----------
Balance at November 28, 1992 $ 70,108 $(100,100) $ 10,674
Net loss for the year (36,159) (36,159)
Sale of Voting Common Stock--Note A 385,122 385,444
Sale of Common Stock under stock
option plan 2,825 2,827
Reclass Common Stock subject to puts
and calls and warrants subject to
puts--Note B 24,520 24,525
Reclass classes of Common Stock--Note D --
---------- ---------- -----------
Balance at November 27, 1993 $482,575 $(136,259) $ 387,311
-------- ---------- -----------
-------- ---------- -----------
</TABLE>
See notes to consolidated financial statements
- 19 -
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-RECAPITALIZATION PLAN
The Company developed and executed a recapitalization plan (the
"Recapitalization Plan") which consisted of a series of transactions, completed
during 1993, designed to increase shareholders' equity, reduce the Company's
debt and interest expense, improve the Company's access to capital markets and
improve the Company's operating and financial flexibility.
The transactions comprising the Recapitalization Plan were as follows:
(i) The initial public offering of 32,200,000 shares of Common Stock,
which was completed on March 15, 1993 for net proceeds of $385.4
million.
(ii) The repayment on March 15, 1993 of $175.8 million of indebtedness
outstanding under the Company's previously existing bank credit
agreement, the 1988 Credit Agreement.
(iii) The prepayment on March 16, 1993 of $50 million of indebtedness
outstanding under the Company's $226.6 million mortgage loan payable
to an insurance company.
(iv) The issuance of 9-1/8% senior subordinated notes due 2003, which was
completed on April 20, 1993 for the aggregate principal amount of $200
million.
(v) The repurchase on April 15 and 16, 1993 of $99.9 million aggregate
principal amount of the Company's 16-1/2% junior subordinated
debentures due August 1, 2008 and the redemption of the remaining
$291.1 million aggregate principal amount of the junior subordinated
debentures on July 30, 1993.
(vi) Borrowings on November 1, 1993 of $325 million under an amended and
restated bank credit agreement entered into by the Company and certain
banks, the 1993 Credit Agreement. The 1993 Credit Agreement also
provides for a revolving credit facility of $85 million which was used
to provide a portion of the funds necessary to complete the
Recapitalization Plan and which has been and will continue to be used
to finance the working capital requirements of the Company in the
ordinary course of business.
(vii) The redemption on November 1, 1993 of $332.5 million aggregate
principal amount of the Company's 14-1/2% senior subordinated
debentures due November 1, 2000.
NOTE B-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Payless Cashways, Inc., and its wholly-owned subsidiary,
Somerville Lumber and Supply Co., Inc. ("Somerville"), referred to collectively
herein as the "Company". All significant intercompany transactions and balances
have been eliminated in the accompanying consolidated financial statements.
LINE OF BUSINESS: The Company is engaged in only one line of business--the
retail sale of building materials and supplies.
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost
(approximately 79% at last-in, first-out method, and the remainder at first-in,
first-out method) or market. Had the first-in, first-out method been used for
all inventories, the carrying value of these inventories would have increased
approximately $20.2 million and $18.2 million at November 27, 1993 and November
28, 1992, respectively.
-20-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
LAND, BUILDINGS AND EQUIPMENT: Land, buildings and equipment are stated on the
basis of cost. Provisions for depreciation of land improvements, buildings and
equipment are computed primarily by the straight-line method over the estimated
useful lives of the assets or the terms of the related leases, which range from
three to 39 years.
In July, 1993, two of the Company's retail facilities were severely damaged by
the midwestern floods. The Company carries property, business interruption,
and extra-expense insurance coverages. The Company is currently operating
temporary locations to service its customers until these facilities are
rebuilt. The Company ultimately expects to receive insurance proceeds for the
buildings and equipment destroyed based upon their replacement values, which
are in excess of their net book values. No gain has been recorded as of
November 27, 1993, as the extent of the actual damages are being evaluated.
DEFERRED FINANCING COSTS: Deferred financing costs are being amortized over the
respective borrowing terms using the interest method.
COST IN EXCESS OF NET ASSETS ACQUIRED: The cost in excess of the fair value of
net assets acquired (goodwill) is being amortized using the straight-line
method over 40 years. The Company measures any impairment of goodwill as the
excess of the carrying amount over the expected cash flow from operations
during the remaining amortization period.
COMMON STOCK SUBJECT TO PUTS AND CALLS AND WARRANTS SUBJECT TO PUTS: Prior to
March 15, 1993, certain shares of Common Stock and the warrants were subject to
redemption in specified events. Such shares and warrants were reported at their
redemption value (estimated fair value) and had been excluded from
shareholders' equity. In connection with the March 15, 1993 Common Stock
issuance, put and call features relating to certain shares of Common Stock
terminated and such shares have been reclassified as shareholders' equity. The
warrants have been reclassified as shareholders' equity because the Company
will no longer be compelled to offer to repurchase the warrants since it filed
a registration statement on September 8, 1993 covering the shares into which
the warrants are exercisable and intends to maintain the effectiveness of such
registration statement until November 1, 1996. During 1992, the Common Stock
subject to puts and calls was adjusted to reflect increases in the estimated
redemption value of approximately $455,000 with a corresponding charge to
accumulated deficit. Similar adjustments to decrease the estimated redemption
value of shares and warrants were made in 1991.
NET INCOME (LOSS) PER COMMON SHARE: Net income (loss) per common share has been
computed based on the weighted average number of common shares outstanding
during the period plus common stock equivalents, when dilutive, consisting of
shares subject to puts and calls, certain stock options and warrants. For
purposes of this computation, net income (loss) was adjusted for dividend
requirements on preferred stock, changes in the redemption value of both common
stock subject to puts and calls and warrants subject to puts (prior to March
15, 1993), and interest expense reduction (net of tax) applicable to the
exercise of warrants and stock options, when these items were dilutive.
Additional shares of common stock issuable upon the conversion of convertible
preferred stock (which is not a common stock equivalent) and the exercise of
performance-based stock options have been considered only when the impact is
dilutive.
INCOME TAXES: Effective December 1, 1991, the Company prospectively adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates applied to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
-21-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
The Company previously used the asset and liability method under Statement 96.
Under the asset and liability method of Statement 96, deferred tax assets and
liabilities were recognized for all events that had been recognized in the
financial statements. Under Statement 96, the future tax consequences of
recovering assets or settling liabilities at their financial statement carrying
amounts were considered in calculating deferred taxes. Generally, Statement 96
prohibited consideration of any other future events in calculating deferred
taxes.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the
Company considers investments in debt instruments with original maturities of
three months or less to be cash equivalents.
During 1993 and 1992, federal and state income taxes paid, net of refunds, were
$5.7 million and $4.2 million, respectively. Federal and state income tax
refunds, net of taxes paid, during fiscal 1991 were approximately $4.7 million.
Cash paid for interest, net of interest capitalized, was $302.2 million, $103.8
million and $111.9 million during fiscal 1993, 1992 and 1991, respectively.
SALE OF RECEIVABLES: The Company sells its commercial credit accounts to a
third-party administrator. A substantial portion of the Company's commercial
credit sales are to remodelers and contractors. Under the agreement, the
Company pays a servicing fee and assumes a significant portion of the credit
risk. At November 27, 1993, and November 28, 1992, the outstanding balance of
commercial credit accounts sold to the third-party administrator was
approximately $71.9 million and $46.8 million, respectively. The Company has
provided a reserve of $4.9 million at November 27, 1993 and $4.8 million at
November 28, 1992, which is believed to adequately cover its credit risk
related to these accounts.
Under a third-party administrative servicing agreement for the Company's
private-label charge card program, charge card accounts are sold to the
administrator. The agreement includes a monthly fee which represents the
Company's estimated portion of the credit losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Based on the borrowing rates currently
available to the Company for debt issuances with similar terms and maturities,
the fair value of long-term debt including the current portion is approximately
$727 million at November 27, 1993. The Company believes the carrying amounts
of cash and cash equivalents, trade receivables, real estate held for sale,
accounts payable and accrued expenses are a reasonable estimate of their fair
value.
ACCOUNTING PERIOD: The Company's fiscal year ends on the last Saturday in
November. Fiscal years 1993 and 1992 consisted of 52 weeks each while fiscal
1991 consisted of 53 weeks.
-22-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NOTE C--LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consisted of the following: 1993 1992
------------ -------------
<S> <C> <C>
1993 Credit Agreement, secured by certain real estate,
equipment and capital stock of a subsidiary,
variable interest rate, payable in varying amounts
through 2000 $ 325,000 $ --
1988 Credit Agreement, secured by certain real estate,
equipment and capital stock of a subsidiary,
variable interest rate, payable in varying amounts
through 1995 -- 183,008
Mortgage loan payable to insurance company, secured by
certain real estate, 10.99% to 11.21%, payable in
varying amounts through 2003 168,072 228,213
Senior subordinated notes, 9-1/8%, due 2003 200,000 --
Senior subordinated debentures, net of unamortized original
issue discount of $14.9 million, 14 1/2%, due 2000 -- 317,595
Junior subordinated debentures, net of unamortized original
issue discount of $53.1 million, 16 1/2%, due 2008 -- 337,864
Other senior debt, 9-7/8% to 13% and variable interest
rate, payable in varying amounts through 2004 3,033 3,890
---------- -----------
696,105 1,070,570
Less portion classified as current liability (55,978) (84,415)
---------- -----------
$ 640,127 $ 986,155
---------- -----------
---------- -----------
</TABLE>
On March 8, 1993, as part of the Recapitalization Plan described in Note A, the
Company entered into the 1993 Credit Agreement which consists of $325 million
in term loans and a revolving credit facility providing for borrowings of up to
$85 million. At November 27, 1993, there were borrowings of $5 million against
the revolving credit facility as well as standby letters of credit of $11.6
million and the Company had $68.4 million available under this facility. The
1993 Credit Agreement is secured by substantially all of the land, buildings
and equipment of the Company and all capital stock of the Company's subsidiary.
The term loans provided under the 1993 Credit Agreement are divided into two
tranches, with Tranche A representing loans of $250 million and Tranche B
representing loans of $75 million. The Tranche A loans and the loans under the
revolving credit facility bear interest at fluctuating rates of either an
alternate base rate (6.0% at November 27, 1993) plus 1 1/2% per annum or LIBOR
(3.5% at November 27, 1993) plus 2 1/2% per annum; the Tranche B loans bear
interest at fluctuating rates of either the alternate base rate plus 2% per
annum or LIBOR plus 3% per annum. The interest rates on borrowings under
Tranche A and the revolving credit facility are subject to reduction of up to
.75% if certain financial ratios are met. Tranche A loans require semiannual
principal payments beginning on May 25, 1994 with final maturity on September
25, 1998. Tranche B loans require semiannual principal payments beginning on
May 25, 1999 with final maturity on May 25, 2000. The revolving credit
facility will terminate on the earlier of May 1, 1999 or the date six months
after the date the Tranche A loans are paid in full. In addition to the
scheduled repayments, the Company will also be required to repay the term loans
with all or a portion of proceeds of certain asset sales and certain other
transactions and a portion of "excess cash flow". The 1993 Credit Agreement
contains a number of customary covenants, including, but not limited to, a
minimum net worth covenant, a minimum interest coverage ratio, a minimum fixed
charge coverage ratio and limitations on capital expenditures and lease
payments as well as prohibiting the Company from paying dividends on its common
and preferred stock.
-23-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
On April 20, 1993, as part of the Recapitalization Plan described in Note A,
the Company issued senior subordinated notes. The senior subordinated notes
are unsecured obligations, subordinated to substantially all indebtedness of
the Company and mature on April 15, 2003. Interest is payable on April 15 and
October 15 of each year at 9-1/8% per annum. The senior subordinated notes are
callable after April 15, 1998 at 104.5625% face value declining ratably to par
on and after April 15, 2000. The senior subordinated notes contain certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur indebtedness, pay dividends, issue preferred stock of
subsidiaries, issue guarantees and pledges of subsidiaries, engage in
transactions with stockholders and affiliates, create payment restrictions
affecting subsidiaries and engage in mergers and consolidations.
The 1988 Credit Agreement originally consisted of approximately $609 million of
term loans and a revolving credit facility which provided for borrowings based
on existing collateral up to a variable amount not to exceed $65 million.
Indebtedness under this agreement was repaid on March 15, 1993 in connection
with the Recapitalization Plan described at Note A resulting in an
extraordinary charge of approximately $2.3 million, net of tax, in the
accompanying 1993 consolidated statement of operations.
On June 20, 1989, the Company completed a mortgage loan transaction with an
insurance company, borrowing approximately $230 million secured by certain real
estate of the Company. The proceeds of the mortgage loan were used to prepay a
portion of the term loans under the 1988 Credit Agreement. The Company made a
$50 million mortgage loan prepayment on March 16, 1993 in connection with the
Recapitalization Plan described in Note A resulting in an extraordinary charge
of approximately $1.2 million, net of tax, in the accompanying 1993
consolidated statement of operations. The mortgage loan is secured by land,
land improvements and buildings having a net book value of approximately $366.8
million at November 27, 1993.
During November 1988 the Company issued 335,000 units, each of which consisted
of one senior subordinated debenture in the principal amount of $1,000 and one
warrant. The debentures and warrants were separately transferable. The senior
subordinated debentures were redeemed on November 1, 1993 in connection with
the Recapitalization Plan described at Note A, resulting in an extraordinary
charge of approximately $27.2 million, net of tax, in the accompanying 1993
consolidated statement of operations. The warrants are described in Note D.
During 1988 the Company received $165.8 million of proceeds from the issuance
of the 16-1/2% junior subordinated debentures which had a face amount of $391
million. The outstanding junior subordinated debentures were redeemed on July
30, 1993 in connection with the Recapitalization Plan described in Note A
resulting in an extraordinary charge of approximately $15.1 million, net of
tax, in the accompanying 1993 consolidated statement of operations.
The Company defeased certain industrial revenue bonds during fiscal 1988 by
placing government securities in an irrevocable trust. Such industrial revenue
bond debt is considered to be extinguished and does not appear as a liability
in the accompanying consolidated balance sheets. Bonds in the amount of $29.1
million are outstanding as of November 27, 1993.
Scheduled maturities of long-term debt, including sinking fund requirements,
are:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1994 $ 55,978
1995 60,724
1996 62,509
1997 87,701
1998 84,992
Thereafter 344,201
-------------
$ 696,105
-------------
-------------
</TABLE>
-24-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NOTE D--SHAREHOLDERS' EQUITY
In connection with the initial public offering described in Note A, the
Company's articles of incorporation were amended, among other things, to
redefine the classes of Common Stock. The total number of shares of all
classes of Common Stock which the Company has the authority to issue is
160,000,000, consisting of 150,000,000 shares of Voting Common Stock, 5,000,000
shares of Non-Voting Class A Common Stock and 5,000,000 shares of Non-Voting
Class B Common Stock. All classes of Common Stock are substantially identical
except for voting rights. Shares of Non-Voting Class A and Non-Voting Class B
Common Stock are convertible at the option of the holder, subject to certain
restrictions, into a like number of shares of Voting Common Stock. Subsequent
to November 27, 1993, this right of conversion was exercised on all outstanding
shares of Non-Voting Class B Common Stock. In the event of liquidation, all
distributions on the Common Stock of the Company are payable to all classes of
Common Stock in a like manner.
Masco Capital, an affiliate of one of the Company's suppliers, owns
100% of the Company's Convertible Preferred Stock. The terms of the Convertible
Preferred Stock provide for dividends at an annual rate of eight percent until
2008 (at which time the rate increases) on a cumulative basis, whether or not
declared. At November 27, 1993 cumulative undeclared dividends on the
Convertible Preferred Stock were $21,346,000 ($52.58 per share). Each share of
Convertible Preferred Stock is convertible, at the option of the holder, into
5.9994 shares of Common Stock at any time during the period from August 1, 1990
to August 1, 1994. Cumulative undeclared dividends are forfeited in the event
of conversion. Each share of Convertible Preferred Stock is generally entitled
to 5.9994 votes on all matters on which holders of Common Stock are entitled to
vote.
The Company has 335,000 warrants outstanding as of November 27, 1993. Each
warrant entitles the holder thereof, to purchase four shares of the Common
Stock of Payless at an exercise price of $11.11 per share, subject to
adjustment in certain events. The Company has filed a registration statement
covering the shares into which the warrants are exercisable and intends to
maintain the effectiveness of such registration statement until November 1,
1996.
The Payless Cashways 1992 Incentive Stock Program (the Program) has been
established to attract and retain outstanding individuals in certain key
positions. The Program provides for the grant of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock awards
and performance units. All new grants after July 15, 1992 were under the
Program. The aggregate number of shares of Common Stock reserved for issuance
under the Program is equal to the sum of (1) the greater of (a) 3,500,000
shares of Common Stock or (b) 5% of the sum of (i) the Common Stock outstanding
at the end of any fiscal year during the term of the Program and (ii) the
Common Stock reserved for issuance upon exercise or conversion of any options,
warrants or Convertible Preferred Stock outstanding at the end of any fiscal
year during the term of the Program; plus (2) any shares which remain available
under the Plan (defined below) or which are subject to options or awards
outstanding on July 15, 1992 and which expire, terminate or are cancelled after
such date. The exercise price for any incentive stock options will be at least
100% of the fair market value of the Common Stock at the date of grant. The
exercise price for any nonqualified stock options will be at least 85% of the
fair market value of the Common Stock at the date of grant.
During 1993, the Company adopted an option plan for nonemployee directors (the
"Director Option Plan"). Under the Director Option Plan, each nonemployee
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 nonemployee director will
receive an option to purchase 1,000 shares of Common Stock on the date
immediately following the Company's Annual Meeting so long as such nonemployee
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 such anniversary date. 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
Board of Directors. An aggregate of 350,000 shares of Common Stock are
reserved for issuance under the Director Option Plan.
-25-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
The 1988 Payless Cashways, Inc. Employee Stock Plan (the Plan) provided for the
conversion of options to purchase shares of the predecessor company Common
Stock into options to purchase shares of the successor company Common Stock,
and for the granting of options for the purchase of up to 1,643,781 shares of
Common Stock and awards of up to approximately 183,000 shares of restricted
stock. One-third of the options were performance-based and two-thirds vested
without regard to performance tests. All unvested options under the Plan
vested as of March 15, 1993 with the initial public offering described at Note
A. The exercise price for options was the fair market value of the Company's
Common Stock on the date of grant. During 1992, each participant waived the
ability to elect an alternative settlement method involving the receipt of
shares of Common Stock in return for (i) the immediately vested grant of an
option in an amount equal to 15% of the respective number of shares of Common
Stock granted in options to such a participant which were outstanding as of the
day immediately preceding the date of receipt of such participant's waiver and
(ii) an extension of the time period during which all outstanding options were
exercisable following termination of employment prior to the initial public
offering (described in Note A) from three months to three years or 90 days
after a public offering, whichever was earlier. After adoption of the Program
(defined above), no further grants were made pursuant to the Plan.
-26-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
The following sets forth details of shares under options for all three plans:
<TABLE>
<CAPTION>
1992 Incentive 1988 Employee
Stock Program Stock Plan Director Option Plan
------------------------ ------------------------ -----------------------
Number Average Number Average Number Average
Of Shares Price Of Shares Price Of Shares Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR 1991:
Options granted -- $ -- 198,573 $ 11.70 -- $ --
Options exercised -- -- (111,123) 3.88 -- --
Options terminated or
cancelled -- -- (151,860) 11.76 -- --
----------- -------- ----------- -------- --------- ---------
Options outstanding at
November 30, 1991 -- $ -- 2,323,513 $ 9.11 -- $ --
----------- -------- ----------- -------- --------- ---------
----------- -------- ----------- -------- --------- ---------
Options exercisable at
November 30, 1991 -- $ -- 1,892,562 $ 8.68 -- $ --
----------- -------- ----------- -------- --------- ---------
----------- -------- ----------- -------- --------- ---------
FISCAL YEAR 1992:
Options granted 10,881 $ 12.00 412,918 $ 12.31 -- $ --
Options exercised -- -- (47,921) 6.69 -- --
Options terminated or
cancelled -- -- (69,982) 11.93 -- --
----------- -------- ---------- -------- --------- ---------
Options outstanding at
November 28, 1992 10,881 $ 12.00 2,527,528 $ 9.61 -- $ --
----------- -------- ----------- -------- --------- ---------
----------- -------- ----------- -------- --------- ---------
Options exercisable at
November 28, 1992 3,920 $ 12.00 2,354,023 $ 9.40 -- $ --
----------- -------- ----------- -------- --------- ---------
----------- -------- ----------- -------- --------- ---------
FISCAL YEAR 1993:
Options granted 1,440,048 $ 12.22 -- $ -- 48,692 $ 14.38
Options exercised (3,300) 12.00 (238,788) 9.00 -- --
Options terminated or
cancelled (45,580) 12.24 (35,419) 17.42 -- --
----------- -------- ----------- -------- --------- ---------
Options outstanding at
November 27, 1993 1,402,049 $ 12.22 2,253,321 $ 9.55 48,692 $ 14.38
----------- -------- ----------- -------- --------- ---------
----------- -------- ----------- -------- --------- ---------
Options exercisable at
November 27, 1993 88,838 $ 12.00 2,253,321 $ 9.55 48,692 $ 14.38
----------- -------- ----------- -------- --------- ---------
----------- -------- ----------- -------- --------- ---------
</TABLE>
-27-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NOTE E-INCOME TAXES
As discussed in Note B, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" as of December 1, 1991. The
cumulative effect of applying the new accounting standard to years prior to
fiscal 1992 and the effect of adopting the new standard on operating results
for the year ended November 28, 1992 are immaterial to the consolidated
financial statements.
Income taxes for the year ended November 27, 1993 were allocated to income
before extraordinary item and to the extraordinary item for early
extinguishment of debt, see Note C. The income tax benefit allocated to the
extraordinary item was $18,267,000; the income tax expense allocated to income
before extraordinary item was $16,170,000.
Income taxes for the year ended November 28, 1992 were allocated to the loss
before the cumulative effect of change in accounting principle and to the
cumulative effect of adopting Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions",
see Note G. The income tax benefit allocated to the cumulative effect was
$3,556,000; the income tax expense allocated to the loss before the cumulative
effect of a change in accounting principle was $2,780,000.
Income tax expense (benefit) attributable to the income (loss) before
extraordinary item and cumulative effect of change in accounting principle
consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
1993 1992 1991
-------------- ------------- -------------
<S> <C> <C> <C>
Currently payable
Federal $ 6,045 $ 3,472 $ 4,010
State 1,284 934 765
---------- ---------- ---------
7,329 4,406 4,775
Deferred
Federal 8,311 (1,529) (6,266)
State 530 (97) (400)
---------- ---------- ---------
8,841 (1,626) (6,666)
---------- ---------- ---------
$ 16,170 $ 2,780 $ (1,891)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The differences between actual income tax expense (benefit) and the amount
computed by applying the statutory federal income tax rate to the income (loss)
before income taxes, extraordinary item and cumulative effect of a change in
accounting principle, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------------- ---------------- ---------------
<S> <C> <C> <C>
Federal statutory rate 34.0 % (34.0) % (34.0) %
State income taxes,
net of federal tax benefit 6.9 7.2 3 .3
Amortization of goodwill 17.1 71.2 29.2
Permanent tax differences .7 15.6 1.3
Alternative minimum tax -- -- (3.9)
Tax credits (1.2) (14.3) (4.4)
Cumulative impact of corporate income
tax rate change 4.8 -- --
Other .3 (1.0) (4.0)
-------- ------- --------
62.6 % 44.7 % (12.5) %
--------- -------- ---------
--------- -------- ---------
</TABLE>
-28-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
The tax effects of temporary differences and tax credits that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
are as follows:
<TABLE>
<CAPTION>
1993 1992
----------- ------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 9,399 $ 5,317
Retirement, deferred compensation, restricted stock
and stock option plans 6,403 6,695
Tax credit carryforwards 5,924 4,337
Postretirement benefits 4,348 3,912
Vacation reserves 4,225 3,887
Reserves for bad debts 2,757 2,987
Other 3,538 4,487
---------- -----------
Total deferred tax assets 36,594 31,622
Less valuation allowance -- --
---------- -----------
Net deferred tax assets 36,594 31,622
---------- -----------
Deferred tax liabilities:
Land, buildings and equipment (67,969) (69,934)
Acquisition fees (15,464) (15,087)
Inventory basis difference (4,144) (5,987)
Other (3,844) (4,867)
---------- -----------
Total deferred tax liabilities (91,421) (95,875)
---------- -----------
Net deferred tax liability $ (54,827) $ (64,253)
---------- -----------
---------- -----------
</TABLE>
At November 27, 1993, the Company has charitable contribution carryforwards for
federal income tax purposes of $1,444,000 which are available to offset future
federal taxable income through 1995. The Company has general business and
alternative minimum tax credit carryforwards for federal income tax purposes
totaling $5,924,000 identified above which are available to reduce future
federal income taxes of which $2,296,000 expire in 2006 and the remainder is
available over an indefinite period. Included in the Company's 1993 deferred
income tax expense was a charge of $1.1 million to reflect the cumulative
impact of the Corporate income tax rate changes enacted by the Omnibus Budget
Reconciliation Act of 1993.
NOTE F--PENSION PLANS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time employees. Benefits under the plan are based on
years of service and an employee's average compensation. The Company's funding
policy is to contribute annually the amount actuarially determined to provide
the plan with sufficient assets to meet future benefit payment requirements.
Assets of the pension plan are maintained in a trust fund.
The Company also has a supplemental pension plan covering certain of its
officers. The plan is an unfunded, noncontributory defined benefit pension
plan. Benefits under the plan are based on years of service, age and the
employee's average compensation.
-29-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Net pension cost included the following components:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 3,717 $ 3,267 $ 2,846
Interest cost on projected benefit
obligation 3,168 2,641 2,322
Actual return on plan assets (3,245) (2,464) (5,234)
Net amortization and deferral 761 299 3,478
-------- --------- ---------
Net periodic pension cost $ 4,401 $ 3,743 $ 3,412
-------- --------- ---------
-------- --------- ---------
</TABLE>
Significant assumptions used in accounting for defined benefit plans were as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate 7.5% 8.5% 8.5%
Rate of increase in future compensation levels 5.0% 6.0% 6.0%
Expected long-term rate of return on plan assets 8.5% 8.5% 8.5%
</TABLE>
The following table sets forth the plans' funded status and amounts recognized
in the consolidated balance sheets:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
----------------------------- ---------------------------
Supplemental Supplemental
Pension Pension Pension Pension
Plan Plan Plan Plan
---------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested $ 29,358 $ 2,510 $ 21,471 $ 1,320
Nonvested 3,778 1,606 2,628 1,862
--------- ---------- --------- ----------
Total 33,136 4,116 24,099 3,182
Increase in benefits due to estimated
future compensation increases 8,420 1,984 7,308 1,255
--------- ---------- --------- ----------
Projected benefit obligation
for service rendered to date 41,556 6,100 31,407 4,437
Plan assets at fair value, primarily publicly traded
stocks and U.S. Government obligations 33,126 -- 30,253 --
--------- ---------- --------- ----------
Plan assets less than
projected benefit obligation (8,430) (6,100) (1,154) (4,437)
Unrecognized net loss (gain) from past
experience different from that assumed 3,707 1,335 (2,510) 690
Unrecognized prior service cost 361 -- 402 --
--------- ---------- --------- ----------
Accrued pension cost included
in other accrued expenses $ (4,362) $ (4,765) $ (3,262) $ (3,747)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
-30-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
In addition, the Company has sponsored several defined contribution plans.
Under the Payless Cashways, Inc. Employee Savings Plan, which covered
substantially all employees in fiscal 1993, the Company contributed an amount
equal to a percentage of the amount contributed by employees into the plan.
The employees of Somerville Lumber and Supply Co. are covered by a profit
sharing plan for which contributions are made at the discretion of the
Somerville Board of Directors and approval of the Company's Compensation
Committee. The aggregate contributions to all defined contribution plans were
$2,258,000, $2,773,000, and $5,080,000 in 1993, 1992, and 1991, respectively.
NOTE G--POSTRETIREMENT BENEFIT PLANS
The Company has certain unfunded postretirement defined benefit plans that
provide health and life insurance benefits for retirees and eligible
dependents. The health plan is contributory and contains cost sharing features
such as deductibles and coinsurance.
Effective December 1, 1991, the Company changed its method of accounting for
postretirement benefits other than pensions and adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." Under Statement 106, the cost of postretirement
benefits other than pensions is recognized on an accrual basis as employees
perform services. The Company elected to recognize the December 1, 1991
transition obligation as a one-time charge to earnings during the first quarter
of fiscal 1992. The cumulative effect of this change in accounting principle
of $6,902,000 (after reduction for income tax benefits of $3,556,000) is
presented in the accompanying 1992 consolidated statement of operations.
The effect of the change in accounting principle on loss from operations for
fiscal 1992, and the pro forma effect of the change as if the newly adopted
method had been applied retroactively to fiscal 1991 are immaterial.
Postretirement benefit costs on a cash basis, the accounting method used prior
to adoption of Statement 106, were $720,000, $487,000, and $381,000 for fiscal
1993, 1992, and 1991, respectively.
Net postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
----------------- -----------------
<S> <C> <C>
Service cost - benefits earned during the period $ 621 $ 594
Interest cost on accumulated postretirement
benefit obligation 1,007 940
----------- -----------
Net periodic postretirement benefit cost $ 1,628 $ 1,534
----------- -----------
----------- -----------
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the consolidated balance sheets:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
----------------- -----------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and beneficiaries $ 8,833 $ 8,269
Fully eligible active plan participants 353 106
Other active plan participants 5,738 3,843
----------- -----------
Total 14,924 12,218
Plan assets at fair value -- --
----------- -----------
Accumulated postretirement benefit obligation in excess of
plan assets 14,924 12,218
Unrecognized net loss from past experience different from
that assumed 2,502 713
----------- -----------
Accrued postretirement benefit cost included in other
noncurrent liabilities $ 12,422 $ 11,505
----------- -----------
----------- -----------
</TABLE>
-31-
<PAGE>
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Significant assumptions used in accounting for postretirement benefit plans
were as follows:
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
<S> <C> <C>
Weighted average discount rate 7.5% 8.5%
Rate of increase in future compensation levels 5.0% 6.0%
Health-care cost trend rate 11.2% 13.0%
</TABLE>
In both fiscal years 1993 and 1992, the health-care cost trend rate was assumed
to decrease gradually to 5.9% by the year 2001 and remain at that level
thereafter. The effect of a 1.0% annual increase in these assumed health-care
cost trend rates would increase the November 27, 1993 accumulated
postretirement benefit obligation by $759,000 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for
the fiscal year ended November 27, 1993 by $56,000.
NOTE H--LEASES
The Company leases certain stores and other facilities under noncancellable
operating leases. Aggregate minimum future rentals under noncancellable
operating leases for the next five years are: 1994 -- $17,523,000; 1995 --
$16,528,000; 1996 -- $15,384,000; 1997 -- $10,640,000; 1998 - $10,837,000;
thereafter -- $51,222,000. Rental expense under operating leases was
$20,577,000 for 1993, $19,600,000 for 1992, and $17,629,000 for 1991.
NOTE I--SPECIAL CHARGES
Special charges reflecting costs of $4.0 million associated with the
elimination of a layer from the Company's field management organization in
early 1994 are included in the accompanying statement of operations for fiscal
1993.
Special charges reflecting fees and expenses of $6.5 million incurred in
connection with the Company's withdrawn 1992 recapitalization plan are included
in the accompanying statement of operations for fiscal 1992.
-32-
<PAGE>
Payless Cashways, Inc. and subsidiary
FIVE-YEAR FINANCIAL SUMMARY
(In thousands, except per share amounts,
percentages and ratios)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and other income $2,605,978 $2,500,364 $2,391,830 $2,229,375 $2,006,534
Cost of merchandise sold 1,824,663 1,739,396 1,663,508 1,551,133 1,398,342
Selling, general and administrative 570,016 551,479 531,115 491,716 440,030
Depreciation and amortization 56,213 55,429 57,291 58,291 60,233
Interest 125,247 153,780 155,066 155,056 155,930
Special charges (a) 4,000 6,500 -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 25,839 (6,220) (15,150) (26,821) (48,001)
Federal and state income taxes
(benefit) 16,170 2,780 (1,891) (5,576) (18,721)
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle 9,669 (9,000) (13,259) (21,245) (29,280)
Extraordinary item (b) (45,828) -- -- 223 (3,152)
Cumulative effect on prior years
of change in accounting principle (c) -- (6,902) -- -- --
----------- ----------- ----------- ----------- -----------
Net loss $ (36,159) $ (15,902) $ (13,259) $ (21,022) $ (32,432)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income (loss) per common share before
extraordinary item and cumulative
effect of change in accounting $ .16 $ (2.10) $ (2.63) $ (3.98) $ (4.99)
principle
Cash dividends per share $ -- $ -- $ -- $ -- $ --
Weighted average common and dilutive
common equivalent shares outstanding 30,514 6,571 6,571 6,571 6,983
Current ratio 1.25 1.22 1.19 1.26 1.40
Working capital $ 85,142 $ 74,911 $ 65,570 $ 81,882 $ 115,257
Total assets $1,453,598 $1,461,248 $1,477,336 $1,493,189 $1,533,891
Long-term debt $ 640,127 $ 986,155 $ 998,047 $1,017,118 $1,062,874
Common Stock subject to puts and calls $ -- $ 6,283 $ 5,621 $ 8,841 $ 8,582
Shareholders' equity $ 387,311 $ 10,674 $ 27,031 $ 36,840 $ 59,043
Capital expenditures $ 49,982 $ 36,612 $ 41,022 $ 39,915 $ 30,452
Income from operations before
depreciation and amortization (d) $ 211,299 $ 209,489 $ 197,207 $ 186,526 $ 168,162
</TABLE>
(a) Special charges for 1993 consisted of costs associated with the
elimination of a layer from the Company's field management organization.
Special charges for 1992 consisted of fees and expenses incurred in
connection with the Company's withdrawn recapitalization plan.
(b) Represents gains (losses) on early extinguishment of debt.
(c) Effective December 1, 1991, the Company changed its method of accounting
for postretirement benefits other than pensions.
(d) Income from operations before depreciation, amortization and special
charges is utilized by the Company as a measure for managing cash flow in
its day-to-day operations and in financial covenants (including special
charges) required to be maintained under the 1993 Credit Agreement
relating to interest coverage and net worth.
-34-
<PAGE> 1
Exhibit 23.1
AUDITORS' CONSENT
_________________
The Board of Directors
Payless Cashways, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-8 and Form S-3 of Payless Cashways, Inc. of our audit reports dated January 7,
1994, relating to the consolidated balance sheets of Payless Cashways, Inc. and
subsidiary as of November 27, 1993 and November 28, 1992, and the related
consolidated statements of operations, shareholders' equity, and cash flows and
related schedules for each of the fiscal years in the three-year period ended
November 27, 1993, which report appears in the November 27, 1993 annual report
on Form 10-K of Payless Cashways, Inc. Our reports refer to a change in the
accounting for postretirement benefits other than pensions in fiscal 1992.
s/KPMG Peat Marwick
___________________
KPMG Peat Marwick
Kansas City, Missouri
February 16, 1994
