<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 27, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of June 16, 1995:
Voting -- 37,661,922 shares
Class A Non-Voting -- 2,250,000 shares
<PAGE> 2
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (1)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------------- ---------------------------
May 27, May 28, May 27, May 28,
1995 1994 1995 1994
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Income
Net sales $ 711,679 $ 734,215 $ 1,267,897 $ 1,276,268
Other income (7) 1,517 2,711 2,861 3,967
------------ ------------ ------------ ------------
713,196 736,926 1,270,758 1,280,235
Costs and expenses
Cost of merchandise sold 513,418 518,659 902,483 893,940
Selling, general and administrative 158,984 156,358 301,653 294,240
Provision for depreciation and amortization 15,083 14,565 29,772 28,863
Interest expense 15,573 16,463 30,846 33,068
------------ ------------ ------------ ------------
703,058 706,045 1,264,754 1,250,111
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 10,138 30,881 6,004 30,124
Federal and state income taxes 4,550 13,481 2,780 13,405
------------ ------------ ------------ ------------
Income before equity in loss of joint
venture and extraordinary item 5,588 17,400 3,224 16,719
Equity in loss of joint venture (5) (975) (444) (2,475) (444)
------------ ------------ ------------ ------------
Income before extraordinary item 4,613 16,956 749 16,275
Extraordinary item: early extinguishment
of debt (4) -- 55 -- 55
------------ ------------ ------------ ------------
NET INCOME $ 4,613 $ 17,011 $ 749 $ 16,330
============ ============ ============ ============
Income (loss) per common share before
extraordinary item $ .08 $ .38 $ (.05) $ .34
Extraordinary item: early extinguishment
of debt (4) -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) per common share (3) $ .08 $ .38 $ (.05) $ .34
============ ============ ============ ============
Weighted average common and dilutive
common equivalent shares
outstanding 40,092 41,013 39,896 40,321
============ ============ ============ ============
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE> 3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (1)
<TABLE>
<CAPTION>
May 27, November 26, May 28,
(In thousands) 1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,705 $ 2,680 $ 17,455
Trade receivables -- 5,127 8,276
Merchandise inventories (2) 437,305 406,066 430,898
Prepaid expenses and other current assets 20,366 26,448 27,257
Deferred income taxes 15,886 9,549 8,222
------------ ------------ ------------
TOTAL CURRENT ASSETS 476,262 449,870 492,108
OTHER ASSETS
Real estate held for sale 5,458 5,498 7,040
Cost in excess of net assets acquired, less
accumulated amortization of $88,863,
$82,355 and $75,847, respectively 431,803 438,311 444,819
Deferred financing costs 11,996 11,199 25,256
Other 23,697 17,706 13,306
LAND, BUILDINGS AND EQUIPMENT 847,182 810,825 771,391
Allowance for depreciation and amortization (256,824) (237,527)
------------ ------------ ------------
(225,145)
TOTAL LAND, BUILDINGS AND EQUIPMENT 590,358 573,298 546,246
------------ ------------ ------------
$ 1,539,574 $ 1,495,882 $ 1,528,775
============ ============ ============
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued (Unaudited) (1)
<TABLE>
<CAPTION>
May 27, November 26, May 28,
(In thousands) 1995 1994 1994
------------- -------------- ------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 49,173 $ 20,269 $ 57,629
Advances under bank facilities -- -- 50,000
Trade accounts payable 180,638 151,059 177,617
Other current liabilities 122,269 128,031 118,065
Income taxes payable 17,141 11,383 18,183
------------- -------------- ------------
TOTAL CURRENT LIABILITIES 369,221 310,742 421,494
LONG-TERM DEBT, less portion
classified as current liability (4) 645,789 654,131 609,841
NON-CURRENT LIABILITIES
Deferred income taxes 66,137 72,129 66,707
Other 23,290 23,015 23,454
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 25,000,000
shares authorized; issued:
Cumulative Preferred Stock, 406,000 shares,
$69.8 million aggregate liquidation preference 40,600 40,600 40,600
Common Stock, $.01 par value:
Voting, 150,000,000 shares authorized,
37,661,922, 37,624,222, and 37,568,198
shares issued, respectively 377 376 376
Non-Voting Class A, 5,000,000 shares
authorized, 2,250,000 shares issued 23 23 23
Additional paid-in capital 486,816 486,326 486,209
Foreign currency translation adjustment (2,058) (90) --
Accumulated deficit (90,621) (91,370) (119,929)
------------- -------------- ------------
TOTAL SHAREHOLDERS' EQUITY 435,137 435,865 407,279
------------- -------------- ------------
COMMITMENTS (6)
$ 1,539,574 $ 1,495,882 $ 1,528,775
============= ============== ============
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (1)
<TABLE>
<CAPTION>
(In thousands)
Twenty-Six Weeks Ended
--------------------------------------------
May 27, May 28,
1995 1994
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 749 $ 16,330
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 29,772 28,863
Non-cash interest 1,150 2,295
Gain on early extinguishment of debt -- (55)
Equity in loss of joint venture 2,475 444
Deferred income taxes (12,329) 3,658
Other 569 1,733
Changes in assets and liabilities 9,789 (19,939)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 32,175 33,329
Cash Flows from Investing Activities
Additions to land, building and equipment (43,366) (32,160)
Proceeds from sale of land, buildings and equipment 80 1,207
Investment in joint venture (6,207) (1,960)
Increase in other assets (1,472) (3,960)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (50,965) (36,873)
Cash Flows from Financing Activities
Proceeds from long-term debt 28,000 2,864
Retirements of long-term debt (4) (7,438) (31,337)
Increase in short-term borrowings -- 45,000
Sale of Common Stock under stock option plan 11 2,383
Sale of Common Stock under warrants -- 89
Other (1,758) (1,673)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,815 17,326
--------- ---------
Net increase in cash and cash equivalents 25 13,782
Cash and cash equivalents, beginning of period 2,680 3,673
--------- ---------
Cash and cash equivalents, end of period $ 2,705 $ 17,455
========= =========
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Twenty-six weeks ended May 27, 1995 and May 28, 1994.
(1) The accompanying condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q. To the extent
that information and footnotes required by generally accepted accounting
principles for complete financial statements are contained in or
consistent with the audited consolidated financial statements
incorporated by reference in the Company's Form 10-K for the year ended
November 26, 1994, such information and footnotes have not been
duplicated herein. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for a fair
presentation of financial statements have been reflected herein. The
November 26, 1994, condensed consolidated balance sheet has been derived
from the audited consolidated financial statements as of that date.
Certain reclassifications have been made to prior period amounts to
conform with the 1995 presentation.
(2) Approximately 81% of the Company's inventories are valued using the LIFO
(last-in, first-out) method. Because inventory determination under the
LIFO method is only made at the end of each fiscal year based on the
inventory levels and costs at that time, interim LIFO determinations must
necessarily be based on management's estimates of expected year-end
inventory levels and costs. Since future estimates of inventory levels
and costs are subject to change, interim financial results reflect the
Company's most recent estimate of the effect of inflation and are subject
to final year-end LIFO inventory amounts. If the FIFO (first-in,
first-out) method of inventory accounting had been used by the Company,
inventories would have been $26.1 million, $23.3 million and $22.8
million higher than reported at May 27, 1995, November 26, 1994, and May
28, 1994, respectively.
(3) 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 certain stock
options and warrants. For purposes of this computation, net income was
adjusted for dividend requirements on preferred stock.
(4) Long-term debt consisted of the following:
<TABLE>
<CAPTION>
May 27, November 26, May 28,
(In thousands) 1995 1994 1994
------------ ------------- ------------
<S> <C> <C> <C>
1994 Credit Agreement $ 373,000 $ 345,000 $ --
1993 Credit Agreement -- -- 304,546
1994 Multi-Draw Credit Agreement -- -- 2,864
Mortgage loan payable to insurance company 146,802 154,195 161,467
Senior subordinated notes - 9-1/8% 173,655 173,655 197,000
Other senior debt 1,505 1,550 1,593
------------ ------------- ------------
694,962 674,400 667,470
Less portion classified as current liability (49,173) (20,269) (57,629)
------------ ------------- ------------
$ 645,789 $ 654,131 $ 609,841
============ ============= ============
</TABLE>
During the first quarter of 1995, the Company entered into an interest
rate cap with an affiliate of an investment banking firm, limiting to 8%
LIBOR the interest rates on $100 million of its floating rate debt. The
cost of this agreement is included in deferred financing costs and is
being amortized over the three-year period of the agreement.
During the second quarter of 1994, the Company borrowed $2.9 million
under the 1994 Multi-Draw Credit Agreement to repurchase and retire $3
million aggregate principal amount of 9-1/8% Senior Subordinated Notes,
resulting in an extraordinary gain of $.6 million, net of tax, for the
quarter ended May 28, 1994.
(5) The Company is a 49% investor in Total Home de Mexico, S.A. de C.V., a
joint venture with a Mexican company, Alfa, S.A. de C.V. Total Home has
opened one store in Mexico and plans to open one additional store in
1995. During 1996, a third store is expected to be opened. The joint
venture owners continue to assess long-range plans for the opening of
additional stores over the next several years. The next several quarters
are expected to be difficult for the Mexican economy and further
expansion plans for Total Home have been tabled until economic recovery
is in sight. The Company accounts for this investment on the equity
method.
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(6) In 1995, the Company has entered into an agreement providing for the
operating lease of two of its 1994 new stores and up to five of its 1995
or 1996 new stores. The Company will have the option to purchase the
stores at the end of the lease terms. In the event the Company chooses
not to exercise this option, it is obligated to arrange the sale of the
stores to an unrelated party and is required to pay the lessor any
difference between the net sales proceeds and the lessor's net investment
in the stores, subject to certain limitations.
(7) In July, 1993, two of the Company's retail facilities were severely
damaged by the midwestern floods. Settlement proceeds in excess of the
book value of $1.9 million, related to the flood-damaged real estate,
have been reflected as other income in the accompanying consolidated
statements of operations for the thirteen weeks and the twenty-six-weeks
ended May 28, 1994.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Income
Net sales for the quarter ended May 27, 1995 decreased 3.1% over the same period
of 1994 in total and 6.0% on a comparable-store sales basis. (Comparable stores
are those open one full year.) Net sales for the first half of 1995 decreased
.7% from the same period of 1994 in total and 3.3% on a comparable store sales
basis. Sales for both periods of 1995 were negatively impacted by a slower
housing environment, lower lumber costs, a softening in consumer spending and
unusually wet, cool spring weather in most markets. During the first half of
1995 and 1994, the Company opened four and three new stores, respectively. Two
stores were sold during the first quarter of 1995.
Included in other income for the second quarter and first half of 1994 was a
$1.9 million gain related to the settlement on flood-damaged real estate.
Costs and Expenses
Cost of merchandise sold as a percent of sales was 72.2% and 70.6% for the
second quarter of 1995 and 1994, respectively. For the first half of 1995 and
1994, cost of merchandise sold as a percent of sales was 71.2% and 70.0%,
respectively. The increase for both periods is primarily due to pricing
initiatives in a soft retail environment.
Selling, general and administrative expenses were 22.3% and 21.3% of sales for
the second quarter of 1995 and 1994, respectively. For the first half of 1995
and 1994, selling, general and administrative expenses were 23.8% and 23.1% of
sales, respectively. The primary reason for both period increases is higher
personnel costs associated with new stores.
The provision for depreciation and amortization increased over the second
quarter and first half of 1994 due to increased capital expenditures over the
past two years.
Interest expense for the second quarter and first half of 1995 decreased to
$15.6 million and $30.8 million compared to $16.5 million and $33.1 million,
respectively, for the same periods of 1994.
The income tax expense for the first half of 1995 was $2.8 million compared to
$13.4 million for the first half of 1994. The effective tax rates for both
periods were different from the 35% statutory rate primarily due to the effect
of goodwill amortization, which is non-deductible for income tax purposes.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Net Income
Net income for the quarter ended May 27, 1995 was $4.6 million compared to $17.0
million for the same period of 1994. For the first half of 1995 net income was
$.7 million compared to $16.3 million for the same period of 1994. The decrease
in net income for both periods was due, in large part, to decreased operating
earnings. Net income for the first half of 1995 and 1994 also reflects a $2.5
million and $.4 million loss, respectively, attributable to start-up costs for
Total Home, the Company's joint venture in Mexico.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash is from operations. Cash provided by
operating activities was $32.2 million for the first half of 1995 compared to
$33.3 million for the same period of 1994.
Borrowings are available under the 1994 Credit Agreement to supplement cash
generated by operations. At May 27, 1995, $37.2 million was available for
borrowing under the 1994 Credit Agreement. At May 27, 1995, working capital was
$107.0 million compared to $139.1 million and $70.6 million at November 26, 1994
and May 28, 1994, respectively. The current ratios at May 27, 1995, November 26,
1994, and May 28, 1994 were 1.29 to 1, 1.45 to 1, and 1.17 to 1, respectively.
The Company's primary investing activities continue to be capital expenditures
for existing and new stores and distribution centers. The 1994 Credit Agreement
governs the amount of capital expenditures which can be made. The Company spent
approximately $43.4 million and $32.2 million for new stores, equipment and
renovation of retail facilities and distribution centers during the first half
of 1995 and 1994, respectively. During the first half of 1995, four new stores
were opened, while three new stores were opened in the first half of 1994. The
Company intends to finance the remaining fiscal 1995 capital expenditures of
approximately $26 million, consisting primarily of new stores, additional
equipment, and renovation of existing stores, with funds generated from
operations. The two stores remaining to be opened in 1995 will be leased. The
Company has entered into an agreement providing for the operating lease of two
of its 1994 new stores and up to five of its 1995 or 1996 new stores.
The Company also invested $6.2 million and $2.0 million in its joint venture,
Total Home de Mexico, S.A. de C.V., during the first half of 1995 and 1994,
respectively. Total Home opened its first store in Monterrey, Mexico, in
December, 1994 and plans to open one additional store in 1995. During 1996, a
third store is expected to be opened in Monterrey, on property owned by Total
Home. A loss of $4 to $5 million attributable to the Company's share of the
start-up cost of Total Home is expected to be incurred in 1995. The joint
venture owners continue to assess long-range plans for the opening of additional
stores over the next several years. The next several quarters are expected to be
difficult for the Mexican economy and further expansion plans for Total Home
have been tabled until an economic recovery is in sight. At May 27, 1995 the
carrying value of the Company's investment in the joint venture was
approximately $6.3 million, net of a cumulative foreign currency translation
adjustment of approximately $2.1 million, which is recorded as a direct
reduction of shareholders' equity. The Company continues to assess the impact
the changes in the Mexican economy may have on the recoverability of its
investment in the joint venture.
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 its
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 borrowing availability under the 1994
Credit Agreement should provide sufficient liquidity to meet all cash
requirements for the next 12 months without additional borrowings. During the
second quarter of 1995, the 1994 Credit Agreement was amended which resulted in
the modification of certain financial covenants contained therein. The permitted
levels of capital expenditures and investments in the Mexican joint venture were
reduced. In addition, the interest coverage and debt to capitalization covenants
were relaxed. As a result, the Company has reduced its planned fiscal 1995
capital expenditures from approximately $82.5 million to approximately $65 to
$70 million.
<PAGE> 9
REVIEW BY INDEPENDENT AUDITORS
The condensed consolidated financial statements of Payless Cashways, Inc. and
its subsidiary for the thirteen and twenty-six week periods ended May 27, 1995
and May 28, 1994, have been reviewed by KPMG Peat Marwick LLP, independent
auditors. Their report is included in this filing.
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders was held April 20, 1995.
Shareholders voted in favor of each of the four nominees for director:
Gary D. Rose (31,455,240 for; 506,683 withheld), John H. Weitnauer, Jr.
(31,456,793 for; 505,130 withheld), William A. Hall (31,457,142 for;
504,781 withheld) and Louis W. Smith (31,457,951 for; 503,972
withheld). Previously elected and continuing to serve their terms are
David Stanley, Harold Cohen, Wayne B. Lyon, Scott G. Fossel, George
Latimer, Ralph Strangis, and Susan M. Stanton.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
4.0 Long-term debt instruments of Payless in amounts not
exceeding ten percent (10%) of the total assets of
Payless and its subsidiary on a consolidated basis will
be furnished to the Commission upon request.
4.1 Fifth Modification Agreement, dated as of May 25, 1995,
by and among Payless, Somerville and The Prudential
Insurance Company of America.
4.2 First Amendment to the 1994 Credit Agreement, dated as
of May 26, 1995, among Payless, the Banks listed on the
signature pages thereof and Canadian Imperial Bank of
Commerce, New York Agency, as Administrative Agent.
10.1 Employment Agreement dated as of June 16, 1995,
between Payless and David Stanley.
10.2 Fourth Amendment, effective June 16, 1995, to the
Payless Cashways, Inc. Supplemental Retirement Plan
dated as of January 1, 1988.
11.1 Computation of per share earnings.
15.1 Letter re unaudited financial information - KPMG Peat
Marwick LLP.
27.1 Financial data schedule.
b. Reports on Form 8-K.
No reports on Form 8-K were filed by Payless during the quarter
ended May 27, 1995.
<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAYLESS CASHWAYS, INC.
(Registrant)
Date: June 26, 1995 By s/Stephen A. Lightstone
----------------------------------------
Stephen A. Lightstone, Senior Vice President,
Financial and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
<PAGE> 1
Exhibit 4.1
FIFTH MODIFICATION AGREEMENT
This FIFTH MODIFICATION AGREEMENT (hereinafter called this "Agreement")
dated as of the 25th day of May, 1995, by and among PAYLESS CASHWAYS, INC., an
Iowa corporation (hereinafter called "Borrower"), SOMERVILLE LUMBER AND SUPPLY
CO., INC., a Massachusetts corporation (hereinafter called "Somerville")
(Borrower and Somerville are hereinafter individually called a "Related Person"
and collectively sometimes called "Related Persons"), and THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a New Jersey corporation (hereinafter called
"Lender");
W I T N E S S E T H:
WHEREAS, Borrower has executed and delivered to Lender nine (9) certain
promissory notes dated June 20, 1989, payable to the order of Lender in the
original aggregate principal amount of $230,242,500 [including a promissory note
in the original principal amount of $57,013,750, which has been modified and
amended by (a) First Modification Agreement (hereinafter called the "First
Modification Agreement) dated October 18, 1991, by and among Related Persons,
Knox Home Centers, Inc., a Delaware corporation (hereinafter called "Knox"), and
Lender, and (b) Second Modification Agreement (hereinafter called the "Second
Modification Agreement) dated December 17, 1991, by and among Related Persons,
Knox and Lender] (said promissory notes are hereinafter collectively called the
"Note"), with interest and principal payable as therein provided, the
disbursement of which Note is governed by a Loan Agreement dated June 20, 1989,
by and among Related Persons and Lender (said Loan Agreement, as modified and
amended by (a) the First Modification Agreement, (b) the Second Modification
Agreement, (c) Third Modification Agreement (hereinafter called the "Third
Modification Agreement") dated as of December 31, 1991, by and among Related
Persons, Knox and Lender relating to the merger of Knox into Borrower with
Borrower being the surviving entity, and (d) Fourth Modification Agreement
(hereinafter called the "Fourth Modification Agreement") dated as of March 8,
1993, by and among Related Persons and Lender, hereinafter called the "Loan
Agreement");
WHEREAS, Somerville is the guarantor under a guaranty (hereinafter
called the "Somerville Guaranty") dated June 20, 1989, relating to the Note and
the other Loan Documents (as defined in the Loan Agreement);
WHEREAS, Borrower has requested and Lender has consented to the
amendment of the Loan Agreement to permit Borrower to perform certain capital
improvements at the Property without the prior written consent of Lender;
<PAGE> 2
WHEREAS, pursuant to the terms of that certain letter agreement
(hereinafter called the "Letter Agreement") dated August 9, 1994, from Lender
addressed to Borrower (and agreed to and acknowledged by Borrower), Lender has
consented to the amendment of the Loan Agreement to permit Borrower to implement
the "Quantum Leap Program" (herein so called) as relates to certain capital
improvements at the Property upon satisfaction of the conditions described
herein;
WHEREAS, pursuant to subsection 2.5(c) of the Loan Agreement, Borrower
has heretofore delivered to Lender a Substitution Notice (herein so called)
together with a nonrefundable service fee relating to the substitution and
release of collateral described therein in the amount of $2,500) requesting (a)
the release of the Lien on the Individual Property consisting of Store #37
located at 6 South 59th Street, Kansas City, Wyandotte County, Kansas and more
particularly described on Exhibit A attached hereto and made a part hereof for
all purposes (hereinafter called the "Released Property"), secured by Mortgage
and Security Agreement (hereinafter called the "Subject Mortgage") dated
effective as of June 20, 1989, recorded in Book 3369, Page 616, in the Office of
the Register of Deeds, Wyandotte County, Kansas and (b) the substitution of
Store #251 located at 7401 State Avenue, Kansas City, Wyandotte County, Kansas
and more particularly described on Exhibit B attached hereto and made a part
hereof for all purposes (hereinafter called the "Substitution Property") for the
Released Property;
WHEREAS, Lender is willing to substitute the Substitution Property for
the Released Property and to release the Lien of the Subject Mortgage as to the
Released Property upon the terms and conditions herein set forth; and
WHEREAS, Lender is the owner and holder of the Note, and Related
Persons are the owners of the legal and equitable title to the Property;
NOW THEREFORE, for and in consideration of the mutual covenants
contained herein and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined terms used herein which are defined in the Loan Agreement as
amended hereby, and are not otherwise defined herein, shall have the same
meaning as set forth in the Loan Agreement as amended hereby.
2. Lender hereby consents, to the extent required by the Loan Agreement
and the other Loan Documents, to the implementation of the Quantum Leap Program.
Notwithstanding anything to the contrary contained herein, the consent and
agreement of Lender contained in this paragraph and in the Letter Agreement
shall not be effective unless and until the conditions and matters hereinafter
set forth have been satisfied. Lender hereby also consents to the structural
alterations and the repair and replacement of roofs and asphalt parking lots at
Individual Properties which Borrower has performed prior to the effective
<PAGE> 3
date of this Agreement, provided, however, that any work previously performed
must comply with the provisions set forth in subsection 5.1(g) of the Loan
Agreement as amended by this Agreement.
3. The Substitution Property is hereby substituted for the Released
Property pursuant to the terms of subsection 2.5(c) of the Loan Agreement and
shall be covered by the Substitution Mortgage (as hereinafter defined). The
Substitution Property shall hereinafter be deemed for all purposes to be an
"Individual Property" and shall be subject to the terms and provisions of the
Loan Agreement for all purposes.
4. The Loan Agreement is hereby modified and amended as
follows:
a. The last sentence of subsection 5.1(g) (Repair and
Maintenance) of the Loan Agreement is hereby deleted in its
entirety and the following language is substituted therefor:
Notwithstanding the foregoing, no Related Person will, without
the prior written consent of Lender, (i) remove from the
Property any fixtures or personal property covered by the
Security Documents except (A) such as is replaced by the
Related Persons by an article of equal suitability and value
owned by the Related Person who is the owner of the Mortgaged
Property upon which such fixture or personal property is
located, free and clear of any Lien or security interest
(except that created by the Security Documents or the
Permitted Second Lien) or (B) such fixtures or personal
property (other than heating and air conditioning equipment)
having a value of less than $100,000, the removal of which
would not have a Materially Adverse Effect on the Individual
Property to which it relates, or (ii) make any structural
alterations which diminish the value of the improvements on
the Property, or (iii) expend more than $150,000 in the
aggregate in any twelve (12) calendar month period on
structural alterations on any Individual Property, or (iv)
erect any new buildings, structures, or building additions on
any Individual Property (except such new buildings, structures
or building additions that do not diminish the value of such
Individual Property and the cost of construction of which is
not in excess of $200,000 in the aggregate in any twelve (12)
calendar month period). Notwithstanding the above, Related
Persons may repair or replace the roof and/or the asphalt
parking lot at any Individual Property provided such repairs
or replacement shall meet all applicable building codes and
requirements and shall result in the roof and/or parking lot
being of equal or greater quality as the
<PAGE> 4
roofs and/or parking lots of comparable retail establishments.
In addition to the foregoing, Lender has approved a renovation
and improvement program (the "Quantum Leap Program") to be
implemented by Related Persons, which includes modifications
to driveways and parking lots and certain structural changes
and building additions necessary to implement the Quantum Leap
Program. Related Persons hereby agree that with respect to the
Quantum Leap Program, in addition to the foregoing:
(i) No changes to an Individual Property
shall reduce the number of contiguous parking spaces
for such Individual Property below that required by
the applicable zoning laws or restrictive covenants
affecting such Individual Property without reliance
on any variance or any easement from or agreement
with any adjoining property owner to permit parking.
Evidence of such compliance shall be provided to
Lender and shall be satisfactory to Lender in its
sole discretion. Such evidence may include, without
limitation, a title endorsement or attorney's opinion
letter.
(ii) All easements necessary for the
operation of any Individual Property must be approved
in writing by Lender prior to execution and
recordation. Any real property which is acquired for
the operation of an Individual Property must be owned
by a Related Person either in fee simple or pursuant
to an instrument granting an easement estate of
sufficient duration (as determined by Lender)
encumbering such property and, if required by Lender,
shall be added to the security for the Loan.
(iii) At the conclusion of construction at
any Individual Property, Lender must be provided with
satisfactory evidence that Lender continues to have a
first lien position with respect to such Individual
Property and that there are no outstanding mechanics'
or materialmen's liens against the Property. Such
evidence may be in the form of an endorsement to the
mortgagee title policy in favor of Lender covering
such Individual Property or, in such jurisdictions
where such an endorsement is not available, a report
on title indicating instruments which have been filed
of record since the date of the mortgagee title
policy. Upon request of Related Persons, Lender will
consider lien waivers in lieu of an endorsement to
Lender's mortgagee title policy, subject to the right
of Lender to require an
<PAGE> 5
endorsement or title report after review of all
documentation if deemed necessary by Lender.
(iv) The review of all documentation in
connection with any construction, including the
Quantum Leap Program, will be coordinated through
Lender's outside counsel. All legal fees and expenses
of Lender's outside counsel associated with such
reviews will be paid by Related Persons. In addition,
Related Persons agree to pay any additional
administrative fees which Lender may deem necessary
to cover future reviews on a property by property
basis.
b. Schedule 2 is amended to add the following as item
44 thereto:
"44. Mortgage and Security Agreement dated May 25th,
1995, executed by PCI. [KS]"
c. Exhibit D is amended to include the legal
description of the Substitution Property set forth on
Exhibit B hereto.
d. Page 4 of Exhibit E is amended as follows:
i. The following information relating to the
Substitution Property is hereby added immediately
following the information relating to Store #190:
Tranche: D
Store #: 251
Store Name: Payless Cashways, Inc.
Property Name/Address: 7401 State Avenue
City: Kansas City
St.: KS
Square Footage: 65,536
Land Acres: 7.18 acres
Year Acquired: 1994
Agreed Value (based on cost): $3,000,000
Allocated Loan Amount: $942,142
Agreed Loan to Value Ratio (%): .75
ii. The information relating to the Released
Property is hereby deleted in its entirety.
e. Notwithstanding the fact that the actual value of the
Substitution Property is greater than the actual value of the Released
Property, the total Appraised Value and Allocated Loan Amount relating
to Tranche D shall remain unchanged.
<PAGE> 6
5. Schedule I attached to the $93,626,750 Tranche D Note is hereby
modified and amended to delete "37" in the fourth line of item 8 thereof and to
add the following as item 22:
22. Mortgage and Security Agreement dated May __, 1995,
executed by Payless Cashways, Inc., Mortgagor, to The
Prudential Insurance Company of America, Mortgagee
(Kansas Store 251).
6. Concurrently herewith Related Persons shall deliver, or cause to be
delivered, to Lender the following, duly executed and delivered and in form,
substance and date satisfactory to Lender:
a. A Mortgage and Security Agreement (herein called
the "Substitution Mortgage").
b. UCC-2 Financing Statement perfecting the security
interest created in the Substitution Mortgage for filing
with the Secretary of State of Kansas.
c. UCC-1 Financing Statement perfecting the security
interest created in the Substitution Mortgage for filing
with the Register of Deeds of Wyandotte County, Kansas.
d. UCC-3 Financing Statement Amendment adding the
Substitution Property to the Financing Statement currently
on file with the Secretary of State of Missouri.
e. Favorable opinions from (i) Blackwell Sanders
Matheny Weary & Lombardi, L.C. counsel for Borrower, (ii)
Linda French, General Counsel of Borrower and (iii) Perry,
Hamill & Fillmore, L.C., special Kansas counsel for Lender.
f. A mortgagee policy of title insurance issued by a title
insurance company approved by Lender, insuring the lien of the
Substitution Mortgage in the amount of $942,142, showing Borrower as
the owner of the Substitution Property, together with such endorsements
reasonably required by Lender and containing only those exceptions to
coverage previously approved by Lender.
g. An affidavit of a representative of Borrower
acceptable to Lender.
h. A Notice and Agreement relating to Section 26.02
of the Texas Business and Commerce Code.
i. A current Certification of Non-Foreign Status
executed by Borrower.
j. A current Certification of Non-Foreign Status
executed by Somerville.
<PAGE> 7
k. An unconditional certificate of occupancy for the
Substitution Property.
7. Related Persons hereby represent and warrant that (a) either
Borrower or Somerville is the sole legal and beneficial owner of the Property;
(b) no Related Person is in Default in the performance of any of the covenants
and agreements contained herein or in the Loan Documents; (c) no event has
occurred and is continuing which constitutes a Default; (d) each of Borrower and
Somerville is a corporation duly organized, validly existing and in good
standing under the laws of its state of organization, having all corporate
powers required to carry on its business and enter into and carry out the
transactions contemplated hereby; (e) Related Persons have all requisite power
and all governmental certificates of authority, licenses, permits,
qualifications and other documentation to own, lease and operate the Property
and to carry on their business as now conducted and as contemplated to be
conducted except where failure to obtain any such governmental certificate of
authority, license, permit, qualification or other documentation would not have
a Materially Adverse Effect; (f) each of Related Persons is duly qualified, in
good standing and authorized to do business in the jurisdiction where the
Property owned by it is located; (g) each Related Person has duly taken all
corporate action necessary to authorize the execution and delivery by it of this
Agreement and the performance of its obligations hereunder; (h) the execution
and delivery by Related Persons of this Agreement, the performance by each of
its obligations under this Agreement, and the consummation of the transactions
contemplated by this Agreement, do not and will not (1) conflict with any
provision of (A) any applicable domestic or foreign law, statute, decree, rule
or regulation, except where failure to comply therewith would not have a
Materially Adverse Effect, (B) the articles or certificate of incorporation,
charter or bylaws of either Related Person or (C) any material agreement,
judgment, license, order or permit applicable to or binding upon either Related
Person, (2) result in the acceleration of any debt owed by either Related
Person, (3) result in or require the creation of any Lien upon any assets or
properties of either Related Person except as expressly contemplated in this
Agreement or the Loan Documents, or (4) contravene, result in a breach of or
constitute a default under any mortgage, deed of trust, lease, promissory note,
loan agreement or other material contract or material agreement to which either
Related Person is a party or by which either Related Person or any of its
properties may currently be bound or affected; (i) no consent, approval,
authorization or order of, and no notice to or filing with, any court or
governmental authority or third party is required in connection with the
execution, delivery or performance by either Related Person of this Agreement or
to consummate any transactions contemplated by this Agreement that have not been
obtained or made prior to the execution hereof; (j) this Agreement constitutes
the legal and binding obligations of each Related Person, enforceable in
accordance with its terms, except
<PAGE> 8
as limited by bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights; and (k) the provisions of
subsection 4.1(q) (Compliance With Covenants and Laws) and subsection 4.1(r)
(Environmental) of the Loan Agreement are true and correct as of the date
hereof. Related Persons agree to indemnify and hold Lender harmless against any
loss, claim, damage, liability or expense (including without limitation
attorneys' fees) incurred as a result of any representation or warranty made by
either or both of them herein proving to be untrue in any material respect.
8. Somerville, in its capacity as guarantor under the Somerville
Guaranty, hereby consents to this Agreement and hereby declares to and agrees
with Lender that all of the obligations of Somerville under the Somerville
Guaranty are and shall be unaffected by the transactions described in this
Agreement and that the Somerville Guaranty is hereby ratified and confirmed in
all respects.
9. Related Persons, upon request from Lender, agree to execute such
other and further documents as may be reasonably necessary or appropriate to
consummate the transactions contemplated herein or in the Quantum Leap Program
or to perfect the liens and security interests intended to secure the payment of
the Note.
10. If (a) either Related Person shall fail to keep or perform any of
the covenants or agreements contained herein and such failure is not remedied
within the Grace Period as provided in the Loan Agreement with respect to an
Event of Default for which a Grace Period is provided under subsection (c) of
Section 7.1 of the Loan Agreement, or (b) any statement, representation or
warranty contained herein or with respect to the Quantum Leap Program shall
prove to have been false or incorrect in any material respect as of the date
hereof, and the represented or warranted state of affairs does not become true
within the Grace Period as provided in the Loan Agreement with respect to an
Event of Default for which a Grace Period is provided under subsection (d) of
Section 7.1 of the Loan Agreement, an Event of Default shall be deemed to have
occurred under the Loan Agreement and Lender shall be entitled at its option to
exercise any and all of the rights and remedies granted pursuant to the Loan
Agreement or any other Loan Document or to which Lender may otherwise be
entitled, whether at law or in equity.
11. Except as provided or contemplated herein, the terms and provisions
of the Note, the Loan Agreement and the other Loan Documents shall remain
unchanged and shall remain in full force and effect. Any modification herein of
the Loan Agreement and the other Loan Documents shall in no way affect the
security of the Security Documents and the other Loan Documents for the payment
of the Note. Related Persons hereby agree, covenant and represent that the Note,
the Loan Agreement and the other Loan Documents as modified and amended hereby
are and remain valid and
<PAGE> 9
enforceable and that nothing herein shall affect the validity or
enforceability thereof.
12. Related Persons hereby acknowledge that the liens and security
interests created and evidenced by the Security Documents are valid and
subsisting and further acknowledge and agree that there are no offsets, claims
or defenses to the Note, the Loan Agreement or any other Loan Documents. Related
Persons further acknowledge that they have no knowledge that there are any
defects or deficiencies with respect to the validity of the liens and security
interests created and evidenced by any of the Security Documents.
13. Borrower shall pay, or cause to be paid, all costs and expenses
incident to Lender's consent under the Letter Agreement and this Agreement,
including but not limited to legal fees and expenses of outside counsel (but
shall not include reimbursement of fees of Lender's in-house counsel).
14. This Agreement may be executed in any number of counterparts with
the same effect as if all parties hereto had signed the same document. All such
counterparts shall be construed together and shall constitute one instrument,
but in making proof hereof it shall only be necessary to produce one such
counterpart.
15. The terms and provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their
successors and assigns.
16. This Agreement and the rights and duties of the parties hereunder
shall be governed for all purposes by the law of the State of Texas and the law
of the United States applicable to transactions within said State.
17. Related Persons hereby release, remise, acquit and forever
discharge Lender, together with its employees, agents, representatives,
consultants, attorneys, fiduciaries, servants, officers, directors, partners,
predecessors, successors and assigns, subsidiary corporations, parent
corporations, and related corporate divisions (all of the foregoing hereinafter
called the "Released Parties"), from any and all actions and causes of action,
judgments, executions, suits, debts, claims, demands, liabilities, obligations,
damages and expenses of any and every character, known or unknown, direct and/or
indirect, at law or in equity, of whatsoever kind or nature, whether heretofore
or hereafter accruing, for or because of any matter or things done, omitted or
suffered to be done by any of the Released Parties prior to and including the
date hereof, and in any way directly or indirectly arising out of or in any way
connected to this Agreement, the Loan Agreement, the Note, the Security
Documents, or any other document executed by Related Persons in connection with
any of the transactions associated
<PAGE> 10
therewith, or the Property, including specifically but not
limited to claims of usury.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
above written.
PAYLESS CASHWAYS, INC., an Iowa
corporation
By: s/ Stephen A. Lightstone
-----------------------------------
Name: Stephen A. Lightstone
Title: Senior Vice President
Finance/Treasurer
SOMERVILLE LUMBER AND SUPPLY CO.,
INC., a Massachusetts corporation
By: s/ Stephen A. Lightstone
-----------------------------------
Name: Stephen A. Lightstone
Title: Treasurer
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey corporation
By: s/ Randall M. Hall
-----------------------------------
Name: Randall M. Hall
Title: Vice-President
<PAGE> 11
EXHIBIT A
A tract of land lying in the Southeast Quarter of the Northwest Quarter of
Section 14, Township 11 South, Range 24 East, in the City of Kansas City,
Wyandotte County,Kansas, being more particularly described as follows:Commencing
at the Southeast corner of the Northwest Quarter of said Section; thence North
00 degrees 00 minutes 00 seconds East along the East line of said Northwest
Quarter a distance of 894.96 feet; thence North 90 degrees 00 minutes 00 seconds
West a distance of 40.96 feet to the POINT OF BEGINNING said point being at the
intersection of the Southeasterly right-of-way line of 59th Street and the
Southwesterly right-of-way line of Kansas Highway No. 132; thence South 35
degrees 34 minutes 30 seconds West along said Highway No. 132 right-of-way line
a distance of 488.17 feet; thence North 65 degrees 48 minutes 30 seconds west
along the Northerly right-of-way line of said Highway No. 132 a distance of
919.10 feet to a point on the Southerly right-of-way line of the Union Pacific
Railroad; thence North 51 degrees 22 minutes 50 seconds East along said
right-of-way line a distance of 732.63 feet; thence along a curve to the left
having an initial tangent bearing of South 35 degrees 41 minutes 32 seconds East
a radius of 326.50 feet (a chord bearing of South 61 degrees 34 minutes 16
seconds East a length of 285.01 feet) a distance of 294.94 feet; thence South 87
degrees 27 minutes 00 seconds East a distance of 151.40 feet; thence along a
curve to the right being tangent to the last described course having a radius of
246.50 feet (a chord bearing of South 46 degrees 14 minutes 51 seconds East a
length of 324.75 feet) a distance of 354.53 feet to the point of beginning.
<PAGE> 12
EXHIGIT B
(Legal Description)
All that part of the Northeast 1/4 of the Northwest 1/4 Section 9, Township
11 South, Range 24 East, known as Lot 1 of the "West State Plaza" Subdivision, a
Subdivision in the City of Kansas City, Wyandotte County, Kansas as recorded in
Book 34, Pages 53 and 54 in the Plat of Records in Wyandotte County, described
as follows:
Commencing at the northwest corner of said 1/4 Section; Thence North 88
degrees 14' 16" East, along the north line of said 1/4 Section, 1946.17'; Thence
South 01 degrees 45' 37" East, a distance of 74.40' to a point on the north
right of way line of U.S. Highway No. 24-40-73 as now established and the true
point of beginning; thence continuing South 01 degrees 45' 37" East, a distance
of 655.29'; thence Northeasterly on a curve to the left having an initial
tangent bearing of North 75 degrees 36' 57" East, a radius of 2508.27', an arc
length of 149.96', and a central angle of 3 degrees 25' 32"; Thence North 72
degrees 11' 25" East, a distance of 183.89'; Thence Northeasterly on a curve to
the right, tangent to the last described course, having a radius of 993.44', an
arc length of 309.09', and a central angle of 17 degrees 49' 35"; Thence North
89 degrees 58' 59" East, a distance of 10.81'; Thence Northwesterly on a curve
to the left having an initial tangent bearing of North 03 degrees 31' 47" West,
a radius of 281.43', an arc length of 149.88', and a central angle of 30 degrees
30' 50"; Thence North 34 degrees 02' 37" West, a distance of 136.28'; Thence
Northerly on a curve to the right, tangent to the last described course, having
a radius of 381.97', an arc length of 227.07', and a central angle of 34 degrees
03' 38", Thence North 00 degrees 01' 00" West, a distance of 45.02'; Thence
North 35 degrees 33' 04" West, a distance of 14.10', Thence South 88 degrees 14'
23" West, a distance of 456.79' to the true Point of Beginning, containing 7.18
acres more or less all in Wyandotte County, Kansas.
<PAGE> 1
Exhibit 4.2
FIRST AMENDMENT
FIRST AMENDMENT, dated as of May 26, 1995 (this "Amendment"), to the
Credit Agreement, dated as of November 18, 1994 (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"), The Bank of Nova Scotia, NationsBank of Texas, N.A. and
Bank of America National Trust and Savings Association, as Co-Agent (in such
capacity, the "Co-Agents").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Administrative
Agent, the Collateral Agent and the Co-Agents 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 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.
SECTION II. AMENDMENTS
1. Investments. Section 8.9 of the Credit Agreement
is hereby amended by deleting clause (viii) therefrom and
substituting, in lieu thereof, the following:
"(viii) Investments in the Mexican Joint Venture not to exceed (a)
$10,000,000 during the Borrower's 1994 fiscal year, (b) $10,200,000 during
the Borrower's 1995 fiscal year or (c) during any fiscal year thereafter,
an amount equal to the lesser of (x) $1,000,000 and (y) the aggregate
amount
<PAGE> 2
receivable by the Borrower from the Mexican Joint Venture in
consideration for services and/or support rendered by the Borrower to the
Mexican Joint Venture during such fiscal year.
2. Capital Expenditures and Leases. Section 8.12 of
the Credit Agreement is hereby amended by deleting the table that
appears therein and substituting, in lieu thereof, the following:
<TABLE>
<CAPTION>
"Period Amount
<S> <C>
November 1994 fiscal
month of the Borrower $11,000,000
1995 fiscal year of
the Borrower $70,000,000
1996 fiscal year
of the Borrower $55,000,000
1997 fiscal year
of the Borrower $50,000,000
1998 fiscal year
of the Borrower $40,000,000
1999 and each subsequent
fiscal year of the Borrower $65,000,000
</TABLE>
3. Interest Coverage. Section 8.17 of the Credit
Agreement is hereby amended by deleting the table that appears
therein and substituting, in lieu thereof, the following:
<TABLE>
<CAPTION>
"Period Amount
<S> <C>
Month In Which Four
Consecutive Fiscal Quarters End Ratio
November 1994 and February 1995 2.60: 1.00
May 1995 2.50: 1.00
August 1995 2.28: 1.00
November 1995, February,
May and August 1996 2.28: 1.00
November 1996, February,
May and August 1997 2.34: 1.00
November 1997 and February,
May and August 1998 2.37: 1.00
Each November, February,
<PAGE> 2
May and August thereafter 2.56: 1.00"
</TABLE>
4. Debt to Capitalization Ratio. Section 8.26 of
the Credit Agreement is hereby amended by deleting the table that
appears therein and substituting, in lieu thereof, the following:
<TABLE>
<CAPTION>
"Month Ratio
<S> <C>
November 1994 .610 to 1.00
February 1995 .629 to 1.00
May 1995 .624 to 1.00
August 1995 .621 to 1.00
November 1995 .585 to 1.00
February 1996 .608 to 1.00
May 1996 .601 to 1.00
August 1996 .596 to 1.00
November 1996 .553 to 1.00
February 1997 .570 to 1.00
May 1997 .567 to 1.00
August 1997 .561 to 1.00
November 1997 .516 to 1.00
February 1998 .534 to 1.00
May 1998 .532 to 1.00
August 1998 .530 to 1.00
November 1998 .465 to 1.00
February 1999 .485 to 1.00
May 1999 .480 to 1.00
August 1999 .478 to 1.00
November 1999 .420 to 1.00"
</TABLE>
SECTION III. CONDITIONS PRECEDENT
This Amendment shall become effective on and as of the date that
the following conditions precedent are satisfied:
1. Amendment. The Administrative Agent shall
have received counterparts of this Amendment duly
executed by the Borrower and the Required Banks.
2. Consent of Guarantor. Somerville shall have
executed this Amendment in the appropriate space below
the caption "Consent of Guarantor" on the signature pages
hereto.
SECTION IV. MISCELLANEOUS
1. Limited Effect. This 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
Collateral Agent, the Co-Agents or any Bank may now have or may
<PAGE> 4
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
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 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 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 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 11.3 of the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this 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
------------------------------------------
Sr. Vice President-Finance
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, as Administrative
Agent and Collateral Agent
By: s/ David McGowan
------------------------------------------
Agent
CIBC INC.
By: s/ David McGowan
------------------------------------------
Vice President
<PAGE> 5
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Co-Agent and Bank
By: s/ Patricia P. DelGrande
------------------------------------------
Title: Managing Director
THE BANK OF NOVA SCOTIA,
as Co-Agent and Bank
By: s/ F.C.H. Ashby
------------------------------------------
Title: Sr. Mgr. Loan Operations
NATIONSBANK OF TEXAS, N.A.,
as Co-Agent and Bank
By: s/ Perry B. Stephenson
------------------------------------------
Title: Sr. Vice President
BANK OF MONTREAL
By: s/ Erin M. Keyser
------------------------------------------
Title: Director
THE BANK OF NEW YORK
By: s/ Bruce C. Miller
------------------------------------------
Title: Vice President
BOATMEN'S FIRST NATIONAL
BANK OF KANSAS CITY
By: s/ Thomas J. Butkus
------------------------------------------
Title: Vice President
DAI-ICHI KANGYO BANK
LTD., CHICAGO BRANCH
By: s/ Masomi Tsuboi
------------------------------------------
Title: Vice President
<PAGE> 6
ABN-AMBRO BANK N.V.
By:
------------------------------------------
Title:
FIRST BANK NATIONAL
ASSOCIATION
By: s/ Merri B. Bernhardson
------------------------------------------
Title: Vice President
THE INDUSTRIAL BANK OF
JAPAN, LTD.
By:
------------------------------------------
Title:
NATIONAL CITY BANK, INDIANA
By: s/ Michael J. Stewart
------------------------------------------
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: s/ Hiroyuki Iwami
------------------------------------------
Title: Joint General Manager
UNION BANK
By:
------------------------------------------
Title:
<PAGE> 7
CONSENT OF GUARANTOR
The undersigned, pursuant to the Guarantee, dated as of November 18,
1994, between by the undersigned and Canadian Imperial Bank of Commerce, New
York Agency, as Collateral Agent, hereby consents to the provisions of the above
Amendment and agrees that the Guarantee remains in full force and effect after
giving effect to the above Amendment.
SOMERVILLE LUMBER AND SUPPLY
CO., INC.
By: s/ Stephen A. Lightstone
--------------------------------------------
Title:
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of June 16, 1995, between
PAYLESS CASHWAYS, INC., an Iowa corporation (hereinafter called the "Company"),
and DAVID STANLEY (hereinafter called the "Executive").
WHEREAS, the Company currently employs the Executive as Chairman and
Chief Executive Officer pursuant to an Employment Agreement dated as of December
1, 1988, as amended on March 10, 1992 and June 23, 1993 (the "Prior Agreement"),
and the Executive is a key executive officer of the Company; and
WHEREAS, the Company desires to continue to employ the Executive and
the Executive desires to continue to be employed by the Company on the terms and
conditions set forth in this Agreement,
NOW, THEREFORE, in consideration of the mutual covenants of the parties
herein made, it is hereby agreed:
1. Employment and Duties. For the term stated in Paragraph 2 below, the
Company hereby agrees to employ the Executive, and the Executive hereby accepts
employment, to perform the duties and responsibilities of a chairman and chief
executive officer, together with such other responsibilities as are consistent
with such position and as are assigned by the Board of Directors from time to
time, and to serve as Chairman and Chief Executive Officer of the Company,
subject at all times to the performance by the Board of Directors of the Company
of its responsibilities with regard to the management and affairs of the
Company. The Executive agrees to devote his full business time and effort to the
diligent and faithful performance of his duties under the direction of the Board
of Directors of the Company. Such duties shall be performed from the Company's
principal executive offices in Kansas City, Missouri.
2. Term of Employment. Unless sooner terminated as hereinafter
provided, the term of this Agreement shall commence on the date hereof and shall
continue through March 1, 1999. The term of the Executive's employment hereunder
shall automatically be extended for a period of one year through March 1, 2000
unless either party hereto shall give written notice of non-renewal on or before
December 1, 1998. In the event a Change of Control (as defined in Paragraph 6(e)
below) occurs, the term of this Agreement shall be (a) the stated term hereof,
or (b) one year and sixty (60) days after the date of the Change of Control,
whichever is longer.
3. Compensation.
(a) Base Salary. As compensation for his services, the
Executive shall be paid a base salary at a minimum annual rate of
$650,000 payable in equal bi-weekly installments, which salary shall be
reviewed and may be adjusted from time to time at the discretion of the
Board of Directors (the "Base Salary"); provided that the Base Salary
<PAGE> 2
shall not be less than the amount stated in this Paragraph 3(a).
(b) Incentive Compensation. The Executive shall, in addition
to his Base Salary, also be eligible to receive incentive compensation
payable under the Company's management and executive incentive
compensation program or such other program or plan as from time to time
in effect and as determined by the Compensation Committee of the Board
of Directors (the "Incentive Compensation").
(c) Other Benefits. The Executive shall be entitled to
participate in the Company's regular health, life, pension, vacation
and disability plans in accordance with their respective terms. The
Company will also provide employee benefits to the Executive in respect
of the Executive's employment as the Company customarily provides, from
time to time, to its senior officers, including the Company's
Supplemental Retirement Plan dated January 1, 1988, as amended (the
"Supplemental Retirement Plan") and other benefits for senior officers
set forth in Exhibit A hereto. Nothing herein shall be construed to
limit the Company's discretion to amend, terminate or otherwise modify
any such plans, subject to the Executive's rights under Paragraph
6(c)(iii) below.
4. Confidentiality Provision and Solicitation Provisions.
(a) Confidentiality of Proprietary Information. The Executive
agrees that, at all times, both during his employment and after the
termination thereof, he shall not divulge to any other person, firm or
corporation, or in any way use for his own benefit, except as required
in the conduct of the Company's business or as authorized in writing on
behalf of the Company, any trade secrets or confidential information
(the "Proprietary Information") obtained during the course of his
employment with the Company. The Proprietary Information includes, but
is not limited to, customer or client lists (including the names and/or
positions of persons employed by such customers or clients who play a
role in the decisions of such customers or clients concerning products
or services of the type provided by the Company), financial matters,
inventory techniques and programs, Company records of accounts,
business projections, Company contracts, sales or marketing plans and
strategies, pricing information and formulas, matters contained in
unpublished records and correspondence, planned expansion programs
(including areas of expansion and potential customer lists) and any and
all information concerning the business or affairs of the Company which
is not known by or generally available to the public. All papers and
records of every kind relating to the Proprietary Information,
including any such papers and records which shall at any time come into
the possession of the Executive, shall be the sole and exclusive
property of the Company and shall be surrendered to the Company upon
termination of the Executive's employment for any reason or upon
request by the Company at any time either during or after the
termination of such employment. All information relating to or owned by
customers of the Company of which the Executive becomes aware or with
which the Executive becomes familiar through the Executive's employment
with the Company shall be kept confidential and not disclosed to others
or used by the Executive directly or indirectly except in the course of
the Company's business.
<PAGE> 3
(b) Solicitation Prohibition. During the term of this
Agreement and for a period of one (1) year after the termination of the
Executive's employment with the Company for any reason, the Executive
shall not directly or indirectly, whether as an individual for the
Executive's own account or with any other person, firm corporation,
partnership, joint venture or entity whatsoever, solicit or endeavor to
entice away from the Company any employee who is or was employed by the
Company during the period that the Executive is employed by the
Company. Additionally, the Executive shall not, during the term of this
Agreement or within one (1) year after the termination of the
Executive's employment with the Company for any reason directly or
indirectly, through any other individual or entity solicit, entice,
persuade or induce any individual or entity to terminate, reduce or
refrain from renewing or extending its contractual or prospective
relationship or other relationship with the Company.
(c) Definition of "Company". For the purposes of Paragraph 4,
the term "Company" shall mean the Company and any of its direct or
indirect subsidiaries.
5. Covenant Not to Compete. During (a) the term of the Executive's
employment with the Company, (b) the one year after termination of the
Executive's employment with the Company if such termination is as a result of
any of the following:
(i) a voluntary termination by the Executive under
Paragraph 6(d),
(ii) a termination by the Company for Cause under
Paragraph 6(b), or
(iii) the election of the Executive not to renew the
terms of the
Executive's employment under this Agreement as provided in
Paragraph 2 above,
and (c) the one year following expiration of the term (including the one year
renewal term) of Executive's employment hereunder on March 1, 2000 if there has
been no termination of the Executive's employment prior thereto, the Executive
agrees not to engage in or act as an officer or director, or on an individual
basis as an employee, consultant or agent, of any other person, firm,
corporation, partnership, joint venture or other entity which is engaged in the
business of building materials retailing if the annual sales of such business
(including any related or commonly owned entity on a combined basis) from the
sale of building materials and all related products and services for the most
recently completed fiscal year exceeds $500,000,000. The foregoing provisions
shall not prohibit the Executive from investing in any securities of any
corporation whose securities, or any of them, are listed on a national
securities exchange or traded in the over-the-counter market if the Executive
shall own less than 1% of the outstanding voting stock of such corporation. The
Executive agrees that a breach of the covenants contained herein will result in
irreparable and continuing damage to the Company for which there will be no
adequate remedy at law and in the event of any breach of such agreement, the
Company shall be entitled to injunctive and such other and further relief,
including damages, as may be proper.
6. Termination.
(a) Death or Disability. In the event of the Executive's
death or disability as
<PAGE> 4
defined in the Company's disability plan then in effect, the Company's
obligation to make further Base Salary payments hereunder shall
thereupon terminate. Executive shall be entitled to receive any
Incentive Compensation which he has earned, prorated to the date of
death or disability termination, and the Executive's rights to other
compensation and benefits shall be determined under the Company's
benefit plans and policies applicable to Company executives then in
effect, including any agreements pursuant thereto.
(b) Termination for Cause by the Company. By following the
procedure set forth in Paragraph 6(f), the Company shall have the right
to terminate the employment of the Executive for "Cause" in the event
Executive: (i) has committed a significant act of dishonesty, deceit or
breach of fiduciary duty in the performance of the Executive's duties
as an employee of the Company; (ii) grossly neglected or wilfully
failed in any way to perform substantially the duties of the
Executive's employment hereunder, including but not limited to an act
of insubordination; or (iii) acted or failed to act in any other way
that reflects materially and adversely upon the Company, including but
not limited to the Executive's conviction of or plea of nolo contendere
to (A) any felony (other than any felony arising out of negligence) or
any misdemeanor involving moral turpitude, or (B) any crime or offense
involving dishonesty with respect to the Company; or (iv) has knowingly
and for his own benefit failed to comply with the covenants contained
in Paragraphs 4 or 5 of this Agreement. If the employment of the
Executive is terminated by the Company for Cause, this Agreement and
the Company's obligation to make further Base Salary and Incentive
Compensation payments hereunder shall thereupon terminate. The
Executive's rights to other compensation and benefits shall be
determined under the Company's benefit plans and policies applicable to
Company executives then in effect.
(c) Termination for Good Reason by the Executive. By following
the procedure set forth in Paragraph 6(f), the Executive shall have the
right to terminate his employment with the Company for "Good Reason" in
the event (i) he is not at all times the duly elected Chairman and
Chief Executive Officer of the Company; (ii) there is any material
reduction in the scope of his authority and responsibility (provided,
however, in the event of an illness or injury which disables the
Executive from performing his duties, the Company may reassign the
Executive's duties to one or more other employees until the Executive
is able to perform his duties); (iii) there is a reduction in the
Executive's Base Salary below the minimum amount specified in Paragraph
3(a) above, a reduction in the percentage of Base Salary which is the
Incentive Compensation opportunity of the Executive under Paragraph
3(b), an amendment to the Supplemental Retirement Plan which is
materially adverse to the Executive or a material reduction in the
other benefits to which the Executive is entitled under Paragraph 3(c)
above; (iv) the Company requires the Executive's principal place of
employment to be anywhere other than the Company's principal executive
offices, or there is a relocation of the Company's principal executive
offices outside of the Kansas City, Missouri metropolitan area; or (v)
the Company fails to perform its obligations under this Agreement. If
the employment of the Executive is terminated by the Executive for Good
Reason, the Executive shall be entitled to the severance benefits set
forth in Paragraph 6(g) below.
<PAGE> 5
(d) Termination Without Cause or Without Good Reason. The
Company may terminate the Executive's employment without Cause prior to
the expiration of the term of this Agreement, and in such event the
Executive shall be entitled to the severance benefits set forth in
Paragraph 6(g) below. The Executive may voluntarily terminate his
employment without Good Reason prior to the expiration of the term of
this Agreement, and in such event Executive's rights to further Base
Salary payments and Incentive Compensation (except Incentive
Compensation prorated to the date of termination) shall terminate on
the effective date of such resignation and Executive's rights to other
compensation and benefits shall be determined under the Company's
benefit plans and policies applicable to Company executives then in
effect, including any agreements pursuant thereto.
(e) Right of Termination after a Change of Control. In the
event of a Change of Control (as defined below), the Executive may
terminate the Executive's employment under this Agreement upon thirty
(30) days' prior written notice to the Company; provided that (x) such
notice of termination under this Paragraph 6(e) must be given, if at
all, during the sixty (60) day period immediately following the first
anniversary of the date of the Change of Control, and (y) until the
termination of the Executive's employment pursuant to this Paragraph
6(e) (subject to the continued right of the Executive to terminate
employment for Good Reason pursuant to Paragraph 6(c) of this
Agreement) the Executive shall continue to perform the Executive's
duties and responsibilities under this Agreement. In the event the
Executive terminates the Executive's employment pursuant to this
Paragraph 6(e), the Executive shall be entitled to the severance
benefits set forth in Paragraph 6(g) below; provided, however, in the
event that any payment or benefit received or to be received by the
Executive in connection with a termination of the Executive's
employment pursuant to this Paragraph 6(e) (collectively, the
"Termination Payments") would (i) constitute a "parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any similar or successor provision to
Section 280G (the "Termination Parachute Payments") and (ii) but for
this proviso, be subject to the excise tax imposed by Section 4999 of
the Code or any similar or successor provisions to Section 4999 (the
"Excise Tax"), then such Termination Payments shall be reduced to the
largest amount which the Company, in the Company's reasonable
discretion, determines would result in no portion of the Termination
Parachute Payments being subject to the Excise Tax. A "Change in
Control" shall occur when and if:
(i) any person, as defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange
Act"), becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated pursuant to the Exchange Act), directly or
indirectly, of securities of the Company having 25% or more of
the voting power in the election of directors of the Company,
excluding, however, any person or an "affiliate" (as defined
in the Exchange Act) of such person who is the beneficial
owner of any shares of any class (preferred or common) of the
Company's capital stock on January 31, 1993; or
<PAGE> 6
(ii) the occurrence within any twelve-month period
during the term of the Agreement of a change in the Board of
Directors of the Company with the result that the Incumbent
Members (as defined below) do not constitute a majority of the
Company's Board of Directors. The term "Incumbent Members"
shall mean the members of the Board on the date immediately
preceding the commencement of such twelve-month period,
provided that any person becoming a director during such
twelve-month period whose election or nomination for election
was approved by a majority of the directors who, on the date
of such election or nomination for election, comprised the
Incumbent Members shall be considered one of the Incumbent
Members in respect of such twelve-month period.
(f) Notice and Right to Cure. The party proposing to terminate
the employment of the Executive for Cause or Good Reason under
Paragraph 6(b) or 6(c) above shall give written notice to the other,
specifying the reason therefor with particularity. In the case of a
termination pursuant to Paragraphs 6(b)(i), (iii) or (iv), or 6(c)(i),
such termination shall be effective immediately upon delivery of such
notice. In the case of any other proposed termination for Cause or Good
Reason, the notice shall be given with sufficient particularity so that
the other party will have an opportunity to correct any curable
situation to the reasonable satisfaction of the party giving the notice
within the period of time specified in the notice which shall not be
less than thirty (30) days. If such correction is not so made or the
circumstances or situation is such that it is not curable, the party
giving such notice may, within thirty (30) days after the expiration of
the time so fixed within which to correct such situation, give written
notice to the other party that the employment is terminated effective
forthwith.
(g) Severance Benefits. If the Executive's employment with the
Company is terminated by the Company without Cause, by the Executive
for Good Reason or by the Executive after a Change of Control in
accordance with Paragraph 6(e), then the Executive shall be entitled to
the following benefits:
(i) Base Salary. The Company shall continue to pay to
the Executive his Base Salary when and as such Base Salary
would have been paid during the Severance Period (as defined
in Paragraph 6(i) below).
(ii) Incentive Compensation. If the effective date of
such termination occurs before Incentive Compensation for any
preceding year has been paid, the Company shall pay to the
Executive the amount of the Executive's Incentive Compensation
for the preceding year when and as it would have been paid if
the Executive remained employed by the Company. In addition,
the Company shall pay the Executive an amount equal to the
average of the Incentive Compensation paid or payable to the
Executive in respect of the two years immediately preceding
the year in which the termination occurs multiplied by a
fraction, the numerator of which is the number of months in
the Severance Period after the end of the year for which
Incentive Compensation for the Executive has been
<PAGE> 7
determined and the denominator of which is 12, which amount of
Incentive Compensation shall be paid to the Executive when and
as it would have been paid if the Executive remained employed
by the Company (and regardless of the death or disability of
the Executive subsequent to the date of termination).
(iii) Insurance Coverage. During the Severance
Period, the Company shall provide the Executive with health,
life and disability insurance substantially similar to the
coverage of benefits which the Executive was receiving or
entitled to receive under Paragraph 3(c) immediately prior to
the date of termination, the cost of which was paid by the
Company. Such insurance coverage shall be provided to the
Executive for the longer of (x) the Severance Period, or (y)
the period during which such benefits would have been
provided, at the Company's expense, to the Executive under the
applicable health, life and disability insurance plans of the
Company in effect immediately prior to the date of
termination.
(iv) Stock Incentives. All of the Executive's stock
options and restricted stock grants shall continue to vest or
be earned and be exercisable in accordance with their
respective terms as if the Executive continued to be employed
by the Company during the Severance Period (regardless of the
death or disability of the Executive subsequent to the date of
termination of employment).
(v) Retirement Benefits. To the extent that benefits
under each of the Company's pension plans and the Company's
Supplemental Retirement Plan are computed on the basis of
either the salary and benefits paid while in the Company's
employ or the term of the Executive's employment with the
Company, the benefits payable and the Executive's eligibility
therefor shall be determined as though the Executive were
employed by the Company under this Agreement for and had
attained the age that he would have attained at the end of the
Severance Period.
(h) Survival of Certain Provisions. Notwithstanding any
termination of the Executive's employment with the Company under this
Agreement or the expiration of the Executive's employment hereunder,
the provisions of Paragraphs 4 and 5 shall, to the extent provided
therein, survive any such termination or expiration and shall be
binding upon the Executive in accordance with the provisions thereof.
(i) Definition of Severance Period. The term "Severance
Period" shall mean (x) except, in the case of a termination by the
Company under Paragraph 6(d) after a Change of Control has occurred, or
a termination by the Executive under Paragraph 6(e), the period from
the date of the termination of the Executive's employment through March
1, 1999 if such termination occurs prior to December 1, 1998 or from
the date of the termination of the Executive's employment through March
1, 2000 if such termination occurs after November 30, 1998, and in
either case regardless of the death or disability
<PAGE> 8
of the Executive subsequent to the date of termination of his
employment, or (y) in the case of a termination by the Company under
Paragraph 6(d) after a Change of Control or a termination by the
Executive under Paragraph 6(e), the period from the date of the
termination of the Executive's employment through March 1, 1999 or two
years after the date of such termination, whichever is longer and
regardless of the death or disability of the Executive subsequent to
the date of termination of his employment.
7. Arbitration. The parties hereby agree that any dispute arising
hereunder or any claim for breach or violation of any item hereof shall be
submitted to arbitration pursuant to the rules of the American Arbitration
Association ("AAA") to a panel of three arbitrators selected by mutual agreement
of the parties or, if the parties do not mutually agree on the arbitration, in
accordance with the rules of the AAA. The award determination of the arbitrators
shall be final and binding upon the parties without right of appeal. Either
party shall have the right to bring an action in any court of competent
jurisdiction to enforce this Paragraph and to enforce any arbitrators' award
rendered pursuant to this Paragraph. The venue for all proceedings in
arbitration hereunder and for any judicial proceedings related thereto shall be
in Kansas City, Missouri.
8. Business Expenses. The Company shall reimburse the Executive for
entertainment and travel expenses incurred related to the Company's business in
accordance with the practices of the Company in effect on the date hereof with
respect to the Executive, subject to the right of the Company to modify its
general policies relating to expense reimbursement for employees to the extent
such modifications do not materially reduce the extent of reimbursement for the
Executive as in effect on the date hereof.
9. Severability. If any one or more of the provisions of this Agreement
shall be held invalid or unenforceable, the validity and enforceability of all
other provisions of this Agreement shall not be affected thereby.
10. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the personal representatives, heirs and assigns of Executive and
any successors in interest and assigns of the Company.
11. Notices. All notices required or permitted to be given hereunder
shall be by registered or certified mail addressed to the respective parties at
their addresses set forth below:
To the Executive: David Stanley
2300 Main, P.O. Box 419466
Kansas City, MO 64141-0466
To the Company: Payless Cashways, Inc.
Two Pershing Square
<PAGE> 9
2300 Main, P.O. Box 419466
Kansas City, MO 64141-0466
Attention: Senior Vice President,
General Counsel and Secretary
or such other address as a party hereto may notify the other in writing.
12. Applicable Law. This Agreement, or any portion thereof, shall be
interpreted in accordance with the laws of the State of Missouri.
13. Prior Agreement. This Agreement replaces the Prior Agreement which,
upon execution hereof by both parties, shall be of no further force or effect.
14. Corporate Approval. This Agreement and the execution thereof have
been duly authorized by the Compensation Committee of the Company's Board of
Directors.
<PAGE> 10
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first written above.
PAYLESS CASHWAYS, INC.
By s/ Susan M. Stanton
-------------------------------
Susan M. Stanton, President and
Chief Operating Officer
s/ David Stanley
-------------------------------
David Stanley
Approval of the foregoing Agreement by the Compensation Committee of
the Board of Directors of the Company is hereby confirmed.
s/ Gary D. Rose
-------------------------------
Gary D. Rose, Chairman
<PAGE> 11
Exhibit A
PAYLESS CASHWAYS SENIOR OFFICER
BENEFITS SUMMARY
I. Group Benefit Plans
-------------------
Medical/vision
Dental
Salary Continuance
Long-term Disability
Life insurance
Survivor benefit
Benefits are described in detail in the Payless Cashways, Inc. Group
Benefit Plans for full-time employees.
II. Vacation
--------
PCI provides paid vacation to employees after one year of employment and
according to the following:
Years of Employment Vacation Awarded
------------------- ----------------
1yr - 4 yrs 2 weeks
5 yrs - 14 yrs 3 weeks
15 yrs - 19 yrs 4 weeks
20+ yrs 5 weeks
III. Holidays
--------
PCI provides employees with eight holidays during the year. Nationally
recognized holidays are:
New Year's Day
Memorial Day
Independence Day
Labor Day
Thanksgiving Day
Christmas Day
Two personal days each year
IV. Retirement Plans
----------------
MONEYBUILDER - PCI offers employees the opportunity to participate in a
401K Plan after 1 year of employment (entry dates January 1 and July 1 next
following employee's one year anniversary). Employees may defer between 2%
to 18% of pay (base and bonus). Senior Officers and other highly
compensated individuals may only defer up to 6% of pay. The Company matches
deferrals at 50% of the first 2% of pay and 25% for deferrals between 2%
and 6%. There is no match for deferrals above 6%. The match for highly
compensated individuals is made in equal installments throughout the year
to the maximum match allowed by the Plan, based on discrimination testing.
Vesting of employer contribution is:
Less than 3 years 0%
3 yrs - 4 yrs 60%
4 yrs - 5 yrs 80%
5 yrs and more 100%
MoneyBuilder offers eight investment choices including a 2 year GIC, a 5
year GIC, a stock index fund, a bond and mortgage fund, a money market
fund, a Payless stock fund, a stock emphasis balanced fund and an
international stock fund.
<PAGE> 12
RETIREMENT - PCI offers a defined-benefit retirement plan to employees with
one year employment (entry date January 1 and July 1 next following
employee's one year anniversary). Benefits are based on years of service
and career average pay. The benefit formula is:
1% times years of service times average pay
plus
1/2% times years of service times excess of covered compensation
Excess of covered compensation is defined by the IRS. Unreduced benefits
are payable at social security retirement age. Early retirement benefits
are payable as early as age 55 with 10 years of service. Participants are
100% vested with five years' plan participation.
V. Miscellaneous Officer Benefits
------------------------------
OFFICER PHYSICAL - PCI offers are provided a complete Company-paid annual
physical. Officers are allowed to arrange for their physical through the
physician of their choice.
PCI PROVIDED AUTOMOBILE - Automobiles are provided to officers based on a
standard make/model and option package determined by officer's
classification. Fuel and maintenance expenses are provided by PCI and W-2
wages are increased by the portion of the lease, fuel and expenses
attributable to personal use.
PARKING - Officers receive Company paid parking.
TAX PREPARATION/FINANCIAL SERVICES - PCI provides each officer with up to
$1,000 annually to pay for personal financial services.
SUPPLEMENTAL DISABILITY - The group LTD program caps benefits at $120,000,
a maximum insured annual income of $200,000. Officers participate in a
supplemental disability plan which provides a benefit, when combined with
the group LTD plan and social security, of 60% of total pay received during
the 12 months preceding disability. Benefits are payable beginning on day
181 of disability to age 65.
SUPPLEMENTAL DEATH BENEFIT - The PCI group life insurance plan provides a
death benefit of two times base pay. PCI provides officers with a
supplemental death plan which provides pre-retirement death benefit, when
combined with the group plan, of three times base pay received during the
12 months preceding death. The plan provides a post-retirement death
benefit of one times pay.
SUPPLEMENTAL RETIREMENT - Officers are eligible to participate in a
supplemental retirement plan which provides a benefit, when combined with
the PCI retirement Plan and Social Security, of up to 50% of the final five
year average total cash compensation. Unreduced benefits are payable as
early as age 62 and reduced, early retirement benefits, as early as age 55.
Benefits normally are not payable until the participant has been an
eligible employee for 10 years. Precise terms of participation for
executive officers is at the discretion of the Compensation Committee of
the Board of Directors. Participation, including precise terms of
participation, for all other officers is at the discretion of the Chief
Executive Officer.
June, 1995
<PAGE> 1
EXHIBIT 10.2
FOURTH AMENDMENT TO THE PAYLESS CASHWAYS, INC.
SUPPLEMENTAL RETIREMENT PLAN
Effective June 16, 1995, Article IV, Sections 4.4(b) and 4.4(c) of The
Payless Cashways, Inc. Supplemental Retirement Plan are amended in their
entirety to read as follows:
4.4(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 the
early retirement benefit the Participant would have been entitled to receive if
the Participant had retired on the date before his death and elected a 100
percent joint and survivor annuity.
4.4(c) Commencement and Duration. Monthly surviving spouse benefit
payments shall be payable to the spouse over his/her remaining life 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.
IN WITNESS WHEREOF, Payless Cashways, Inc. has caused this Fourth
Amendment to be executed by its duly authorized officers on this 16th day of
June, 1995.
PAYLESS CASHWAYS, INC.
s/ E.J. Holland, Jr.
-----------------------
E. J. Holland, Jr.
Senior Vice President-
Human Resources
ATTEST:
s/ Linda J. French
- --------------------------
Linda J. French, Secretary
<PAGE> 1
Exhibit 11.1
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ---------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended Year Ended
-------------------------------- --------------------------------
May 27, May 28, May 27, May 28,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Net income $ 4,613 $ 17,011 $ 749 $ 16,330
Less:
Preferred stock dividends (1,368) (1,264) (2,709) (2,503)
---------- ---------- ---------- ----------
Net income (loss) available to common shareholders $ 3,245 $ 15,747 $ (1,960) $ 13,827
---------- ---------- ---------- ----------
Weighted average common and dilutive common
equivalent shares outstanding 40,092 41,013 39,896 (1) 40,321
---------- ---------- ---------- ----------
Net income (loss) per common share $ .08 $ .38 $ (.05) $ .34
========== ========== ========== ==========
FULLY DILUTED
- -------------
Net income $ 4,613 $ 17,011 $ 749 $ 16,330
Less:
Preferred stock dividends (1,368) -- (2,709) --
---------- ---------- ---------- ----------
Net income (loss) available to common shareholders $ 3,245 $ 17,011 $ (1,960) $ 16,330
---------- ---------- ---------- ----------
Weighted average common and dilutive common
equivalent shares outstanding 40,092 43,449 39,896 (1) 41,539
---------- ---------- ---------- ----------
Net income (loss) per common share $ .08 $ .39 $ (.05) $ .39
========== ========== ========== ==========
<FN>
(1) Due to a loss being incurred for the period, dilutive common equivalent
shares have not been computed as the resulting earnings per share would be
antidilutive.
</TABLE>
<PAGE> 1
EXHIBIT 15.1
- ------------
[Letterhead of KPMG Peat Marwick LLP]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Payless Cashways, Inc.:
We have reviewed the accompanying condensed consolidated balance sheets of
Payless Cashways, Inc. and subsidiary as of May 27, 1995 and May 28, 1994 and
the related condensed consolidated statements of operations and cash flows for
the twenty-six week periods then ended. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole.
Accordingly, we do not express such as opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Payless Cashways, Inc. and
subsidiary as of November 26, 1994 and the related consolidated statements of
operations, shareholders' equity and cash flows for the fiscal year then ended
(not presented herein); and in our report dated January 9, 1995, we expressed an
unqualified opinion on those consolidated financial statements. Our report
referred to a change in the method of accounting for post-retirement benefits
other than pensions in fiscal 1992. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of November 26, 1994 is
fairly presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
s/ KPMG Peat Marwick LLP
Kansas City, Missouri
June 9, 1995
<PAGE> 2
EXHIBIT 15.1
- ------------
[Letterhead of KPMG Peat Marwick LLP]
Payless Cashways, Inc.
Kansas City, Missouri
Gentlemen:
With respect to the subject registration statements on Form S-8 and Form S-3, we
acknowledge our awareness of the use therein of our report dated June 9, 1995
related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1993, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act.
s/ KPMG Peat Marwick LLP
Kansas City, Missouri
June 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the May 27,
1995, financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-25-1995
<PERIOD-END> MAY-27-1995
<CASH> 2705
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 437305
<CURRENT-ASSETS> 476262
<PP&E> 847182
<DEPRECIATION> (256824)
<TOTAL-ASSETS> 1539574
<CURRENT-LIABILITIES> 369221
<BONDS> 645789
<COMMON> 400
0
40600
<OTHER-SE> 394137
<TOTAL-LIABILITY-AND-EQUITY> 1539574
<SALES> 1267897
<TOTAL-REVENUES> 1270758
<CGS> 902483
<TOTAL-COSTS> 902483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30846
<INCOME-PRETAX> 6004
<INCOME-TAX> 2780
<INCOME-CONTINUING> 749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 749
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
