<PAGE> 1
"THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d)
OF REGULATION S-T"
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant /x/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/x/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
PAYLESS CASHWAYS, INC.
(Name of Registrant as Specified in its Charter)
PAYLESS CASHWAYS, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2). / /
$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1 (4) Proposed maximum aggregate value
of transaction:
1 Set forth the amount on which the filing fee is calculated and state how
it was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
{PAYLESS CASHWAYS LETTERHEAD}
February 23, 1996
To Our Shareholders:
It is my pleasure to invite you to our Annual Meeting. This year it
will be held on Thursday, April 18, at 10:00 a.m., at our corporate offices,
located at 2300 Main, 1st Floor, Kansas City, Missouri 64108.
With this letter, you will find the formal notice of the Annual
Meeting, our 1995 Annual Report and our Proxy Statement. When you have finished
reading the Proxy Statement, please promptly mark, sign, and return to us the
enclosed proxy card, to insure that your shares will be represented.
We appreciate the continuing interest of our shareholders in Payless
Cashways, Inc., and I look forward to seeing many of you at the Annual Meeting.
Very truly yours,
/s/ David Stanley
David Stanley
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
{PAYLESS CASHWAYS LOGO}
BUILDING MATERIALS
2300 Main
Kansas City, Missouri 64108
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
PAYLESS CASHWAYS, INC.
To Be Held April 18, 1996
To the Shareholders of PAYLESS CASHWAYS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Payless Cashways, Inc. will be held at 2300 Main, 1st Floor, Kansas City,
Missouri, on Thursday, April 18, 1996, at 10:00 a.m. for the following purposes:
1. To elect three directors to terms of three years each as set forth in
the Proxy Statement.
2. To approve the Payless Cashways, Inc. Deferred Compensation Plan for
Directors.
3. To transact such other and further business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on February 14,
1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting.
Dated: February 23, 1996
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Linda J. French
Linda J. French, Senior Vice President-General Counsel/Secretary
/You are cordially invited to attend the meeting. However, whether or not you
plan to be personally/ /present at the meeting, please date and sign the
enclosed proxy and return it promptly in the enclosed/ /envelope. If you
later desire to revoke your proxy, you may do so at any time before it is
exercised./
<PAGE> 4
GENERAL INFORMATION FOR SHAREHOLDERS
In order to provide every shareholder with an opportunity to vote on
all matters scheduled to come before the Annual Meeting, whether or not the
shareholder attends in person, proxies are solicited from shareholders by the
Board of Directors of Payless Cashways, Inc. ("Payless" or the "Company"). When
the enclosed proxy card is properly executed and returned, the shares
represented will be voted by the persons designated as proxies, in accordance
with the shareholder's directions. Shareholders may vote on a matter by marking
the appropriate box on the card or, if no box is marked for a specific matter,
the shares will be voted as recommended by the Board of Directors on that
matter.
Management knows of no matters other than those set forth on the proxy
card that will be presented for action at the Annual Meeting. Execution of a
proxy, however, confers on each of the persons designated as proxies the
discretionary authority to vote the shares represented in accordance with his
and/or her best judgment on any other business that may properly come before the
meeting.
Any shareholder executing a proxy may revoke that proxy or submit a
revised proxy at any time before it is voted. A shareholder may also vote by
ballot at the Annual Meeting, thereby cancelling any proxy previously returned
as to any matter voted on by ballot. A shareholder wishing to name as his or her
proxy someone other than those designated on the proxy card may do so by
crossing out the names of the designated proxies and inserting the name(s) of
the person(s) he or she wishes to have act as his or her proxy. In such a case,
it will be necessary that the proxy be delivered by the shareholder to the
person(s) named, and that the person(s) named be present and vote at the
meeting. Proxy cards on which alternate proxies have been named should not be
mailed directly to the Company.
Holders of the Common Stock, par value $.01 per share, of the Company
("Common Stock") and Series A Cumulative Convertible Preferred Stock, par value
$1.00 per share, of the Company ("Preferred Stock") at the close of business on
February 14, 1996, the record date for the Annual Meeting (the "Record Date"),
are entitled to receive notice of, and to vote at, the Annual Meeting. At the
close of business on such date, a total of {37,668,206} shares of Common Stock
and 406,000 shares of Preferred Stock were outstanding. Each share of Common
Stock is entitled to one vote and each share of Preferred Stock is entitled to
5.9994 votes on each matter to be presented at the Annual Meeting. It is
expected that this Proxy Statement and the enclosed form of proxy will be mailed
to the shareholders on or about February 23, 1996.
<PAGE> 5
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
1. PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Articles of Incorporation and the By-laws of the Company
provide that the business of the Company shall be managed by a Board of
Directors. Pursuant to the Articles of Incorporation, the directors are
divided into 3 classes, designated Class I, Class II and Class III.
Each class consists, as nearly as may be possible, of 1/3 the total
number of directors constituting the entire Board of Directors, which
currently numbers 11. At each Annual Meeting, successors to the class
of directors whose terms expire at that Annual Meeting are elected for
a 3-year term.
At the Annual Meeting of Shareholders in 1996, 3 Class III
directors are to be elected. Each of the nominees listed below was
recommended by the Corporate Governance and Nominating Committee and
approved by the Board of Directors. It is the intention of the persons
named as proxies in the accompanying form of proxy, unless such
authority is withheld, to vote for the election of each nominee set
forth below. In order to be elected a Director, a nominee must receive
a majority of the votes cast by the shares entitled to vote in the
election at an Annual Meeting at which a quorum is present. The
abstention or failure to vote shares present at an Annual Meeting and
broker nonvotes do not have the effect of a vote "for" or "against" a
nominee.
Each nominee has consented to being named a nominee and has
agreed to serve if elected. In case any nominee is not available for
election for reasons not presently known to the Company, discretionary
authority will be exercised by the proxies named in the enclosed form
of proxy to vote for a substitute selected by the Board of Directors.
Information regarding the nominees is set forth below.
<TABLE>
<CAPTION>
Principal Occupation and
Name Age Five-Year Employment History
- --- ----- ----------------------------------------
<S> <C> <C>
David Stanley..............60 Chairman of the Board and Chief
First elected a director: Executive Officer of Payless since
1969 August 1986; and currently a director
Class III of Piper Jaffray Companies Inc., Digi
International, Inc. and Best Buy Co.,
Inc. Mr. Stanley is a member of the
Corporate Governance and Nomina-
ting Committee of Payless' Board of
Directors.
Wayne B. Lyon..............63 President and Chief Operating Officer
First elected a director: of Masco Corporation ("Masco") since
1988 August 1985; and currently a
Class III director of Masco, Comerica,
Incorporated and Emco Limited. Mr.
Lyon is Chairman of the Audit
and a member of the Compensation
Committee of Payless' Board of
Directors.
Ralph Strangis.............59 Member of the law firm of Kaplan,
First elected a director: Strangis and Kaplan, P.A. for more
1983 (to 1988); five years; and currently a director
Class III of National Presto Industries, Inc.,
Life USA Holding, Inc., Damark
International, Inc. and TCF
Financial Corporation. Mr. Strangis
is the Lead Director, Chairman of the
Corporate Governance and Nominating
Committee and a member of the
Compensation Committee of Payless'
Board of Directors. As the Lead
Director, Mr. Strangis has been
elected by the non-management directors
to address, on behalf of the Board of
Directors, various governance matters.
</TABLE>
The Board of Directors unanimously recommends a vote "FOR" the
proposal to elect the nominees as Class III directors of the Company.
<PAGE> 6
Information regarding the 8 directors, who were previously elected and
will continue to serve their terms, is set forth below.
<TABLE>
<CAPTION>
Principal Occupation and
Name Age Five-Year Employment History
- ---- ----- ----------------------------
<S> <C> <C>
Harold Cohen...............65 Chairman Emeritus of Somerville Lumber
First elected a director: and Supply Co., Inc. ("Somerville") from
1985 December 1993 to November 1995;
Class I Vice-Chairman of the Board of Payless
from October 1988 to December 1993;
Chairman of the Board of Somerville from
March 1991 to December 1993; Co-
Chairman of the Board of Somerville from
March 1987 to March 1991; and
currently a director of Syratech Corp.
Scott G. Fossel............43 President of Fossel Investments since
First elected a director: September 1994; Vice President of Court
1989 Square Capital Limited and Vice President
Class I of Citicorp Venture Capital Ltd., each an
indirect wholly-owned subsidiary of
Citicorp, from March 1986 to September
1994. Mr. Fossel is a member of the Audit
Committee and Compensation Committee
of Payless' Board of Directors.
William A. Hall............50 Assistant to the Chairman of Hallmark
First elected a director: Cards, Inc. for more than five years; and
1993 currently a director of Mercantile Bank
Class II Corporation. Mr. Hall is a member of the
Audit Committee and Corporate
Governance and Nominating Committee
of Payless' Board of Directors.
George Latimer.............60 Distinguished Visiting Professor of Urban
First elected a director: Affairs at Macalester College since Jan-
1993 uary 1996 and Chief Executive of The
Class I National Equity Fund since November 1995;
Director Office of Special Actions, U. S.
Department of Housing and Urban Develop-
ment from July 1993 to November 1995;
Special Consultant to the U. S. Depart-
ment of Housing and Urban Development
from February 1993 to July 1993; Dean of
Hamline University School of Law from
January 1990 to February 1993; and
currently a director of Digital
Biometrics, Inc. and 13 closed-end mutual
funds managed by Piper Capital
Management, a wholly-owned subsidiary of
Piper Jaffray Companies, Inc. Mr. Latimer
is a member of the Audit Committee
of Payless' Board of Directors.
Gary D. Rose...............50 Limited Partner of The Goldman Sachs
First elected a director: Group, L.P. since November 1994;
1985 General Partner of The Goldman Sachs
Class II Group, L.P. from December 1989 to
November 1994; and General Partner of
Goldman Sachs & Co. ("Goldman
Sachs") from November 1984 to
November 1994. Mr. Rose is Chairman
of the Compensation Committee and a
member of the Corporate Governance
and Nominating Committee of
Payless' Board of Directors.
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Principal Occupation and
Name Age Five-Year Employment History
- ---- ------ ----------------------------
<S> <C> <C>
Louis W. Smith.............53 President and Chief Operating Officer
First elected a director: of The Ewing Marion Kauffman
1995 Foundation since July 1995; President,
Class II Kansas City Division of AlliedSignal
Inc. from April 1990 to May 1995; and
currently a director of Western Resources,
Inc. and Commerce Bank, N.A. Mr. Smith
is a member of the Compensation
Committee of Payless' Board of Directors.
Susan M. Stanton...........47 President and Chief Operating Officer of
First elected a director: Payless since November 1993; and Senior
1993 Vice President - Merchandising of Payless
Class I from October 1989 to November 1993.
Ms. Stanton is a member of the Corporate
Governance and Nominating Committee of
Payless' Board of Directors.
John H. Weitnauer, Jr......69 Chairman and Chief Executive Officer of
First elected a director: Richway, a mass merchandising division
1993 Federated Department Stores, Inc. from
Class II 1980 until his retirement in 1986; and
currently a director of John H. Harland Co.
Mr. Weitnauer is a member of the Audit
Committee and Compensation Committee
of Payless' Board of Directors.
</TABLE>
During fiscal 1995, there were 6 regular meetings and 1 special meeting
of the Board of Directors. During fiscal 1995, each director who served the
entire year attended more than 75% of all meetings of the Board of Directors and
of the Committees on which he or she served and each Director elected within the
year attended more than 75% of all the meetings of the Board of Directors and of
the Committees on which he served subsequent to his election. In addition to
attending Board of Directors and Committee meetings during the year, the
directors conferred with officers regarding corporate matters and reviewed
material submitted by management to the Board of Directors and Committees for
consideration and action.
<PAGE> 8
COMMITTEES OF THE BOARD
The Board has 3 standing committees. Their functions are described
below:
Audit - The Audit Committee monitors and reviews the adequacy of
financial, operating and system controls, financial reporting, compliance with
legal, ethical and regulatory requirements, and the performance of the external
and internal auditors, serving as the conduit for communication between the
Board of Directors and external and internal auditors. Additionally, the Audit
Committee recommends to the Board of Directors the independent public
accountants to conduct the annual examination of financial statements, and
reviews the proposed scope and fees of the examination, as well as its results,
and any significant, non-audit services and fees. The Audit Committee met 4
times during 1995. Members of the Audit Committee are Wayne B. Lyon, Chairman;
Scott G. Fossel; William A. Hall; George Latimer; and John H.
Weitnauer, Jr.
Compensation - The Compensation Committee reviews the compensation
(wages, salaries, supplemental compensation and benefits) of the employees of
the Company, including approval of compensation and benefit policies, approval
of direct and indirect executive officer compensation, administration of stock
programs, and oversight of the Company's executive development plan, and makes
recommendations to the Board of Directors regarding compensation and benefits
for directors. The Compensation Committee met 5 times during 1995. Members of
the Compensation Committee are Gary D. Rose, Chairman; Scott G. Fossel; Wayne B.
Lyon; Louis W. Smith; Ralph Strangis; and John H. Weitnauer, Jr.
Corporate Governance and Nominating - The Corporate Governance and
Nominating Committee reviews the size, composition and effectiveness of the
Board of Directors, including retention, tenure and retirement policies,
criteria for selection of nominees to the Board of Directors, qualifications of
candidates, membership and structure of Board Committees, and developments in
corporate governance. The Corporate Governance and Nominating Committee met 3
times during 1995. Members of the Corporate Governance and Nominating Committee
are Ralph Strangis, Chairman; William A.
Hall; Gary D. Rose; David Stanley; and Susan M. Stanton.
Compensation of Directors
The Company pays each non-employee director (i) an annual directors'
fee of $25,000 (except that the Lead Director is paid an annual fee of $50,000),
payable quarterly, (ii) $1,000 for each meeting of the Board of Directors
attended by the director and (iii) $1,000 for each Committee meeting attended by
the director on days when the Board of Directors as a whole is not meeting.
Committee chairs are paid an additional annual fee of $1,500. If the Payless
Cashways, Inc. Deferred Compensation Plan for Directors described in Proposal
No. 2 of this Proxy Statement is approved by shareholders, all of the
non-employee directors have chosen to defer the payment of all or a substantial
portion of their fees and to have such fees invested in the Company's Common
Stock, as more fully described in Proposal No. 2 below.
The Company has also adopted the Payless Cashways Director Option Plan
for non-employee directors (the "Director Option Plan"), for the purpose of
attracting and retaining outstanding individuals as directors and to provide
them with an equity interest in the Company. Participants consist solely of the
members of the Company's Board of Directors who are not full-time employees of
the Company or its subsidiaries. Under the Director Option Plan, which has a
term of not more than 10 years, each non-employee director is granted an option
of $100,000 worth of the Company's Common Stock, valued on the date on which the
director is first elected, for an aggregate exercise price of $100,000. In
addition, each non-employee director will be granted an option to purchase 1,000
shares of Common Stock on the date immediately following the Company's Annual
Meeting so long as such non-employee director continues to serve on the
Company's Board of Directors. Further, in the event that the Director Option
Plan, or any successor plan, allows the grant of additional stock options to a
non-employee director, the Lead Director shall be annually awarded an option to
purchase the number of shares of the Company's Common Stock equal to the number
of shares to which any non-employee director is annually entitled, plus the
number of shares of the Company's Common Stock equal to the number of shares
granted to the Lead Director as a non-employee director during any fiscal
year(s) in which the Lead Director served but was ineligible to receive such an
award. The exercise price for the annual options will be the fair market value
of the Company's Common Stock on the date of grant. Options granted under the
Director Option Plan may be exercised six months and one day after the grant
date and expire on the earlier of (a) 10 years after the date of grant, or (b) 1
year after the date on which the director ceases to be a member of the Company's
Board of Directors. An aggregate of 350,000 shares of Common Stock is reserved
for issuance under the Director Option Plan, which number is subject to
adjustment i) automatically if the Company issues
<PAGE> 9
shares of Common Stock without consideration and ii) by the Board of Directors
if other equitable adjustments are deemed appropriate after changes in the
Common Stock resulting from reorganization, sale, merger, consolidation or
similar occurrence.
The Director Option Plan is administered by the Board of Directors of
the Company which has the authority to amend the plan, terminate the plan,
interpret the plan, prescribe, amend and rescind rules and regulations relating
thereto, and make all other determinations necessary or advisable for the
administration of the plan.
Compensation Committee Interlocks and Insider Participation
Members of the Compensation Committee of the Company's Board of
Directors during 1995 were: Gary D. Rose, Chairman; Scott G. Fossel; Wayne B.
Lyon; Louis W. Smith; Ralph Strangis; and John H. Weitnauer, Jr. Mr. Rose is a
Limited Partner of Goldman Sachs Group L.P. Goldman Sachs Capital Markets L.P.,
an affiliate of Goldman Sachs Group L.P., entered into a three-year interest cap
agreement with the Company in January, 1995, the amount of which was not greater
than 5% of the Company's or the firm's annual gross revenues. Mr. Lyon is
President and Chief Operating Officer of Masco. In 1988, Payless entered into a
Supply Agreement with Masco, as a preferred supplier for certain products. The
Supply Agreement expired on December 31, 1995. During 1995, Payless' purchases
from Masco were not greater than 5% of either Payless' or Masco's annual gross
revenues. Payless will make purchases from Masco in 1996. The law firm of
Kaplan, Strangis and Kaplan, P. A., of which Mr. Strangis is a member, was
retained by and rendered services to the Company in 1995, for an amount which
was not greater than 5% of the Company's or the firm's annual gross revenues.
The firm has also been retained by and will render services to the Company in
1996. Payless believes that the terms and conditions of its relationships with
each of Goldman Sachs Capital Markets L.P., Masco and Kaplan, Strangis and
Kaplan, P.A., are as favorable as those that could have been obtained from
arm's-length negotiations with unassociated third parties.
<PAGE> 10
Performance Graph
The graph set forth below compares the indexed total return on an
investment in the Company's Common Stock on March 9, 1993 (the day the Company
commenced its initial public offering of Common Stock) through the Company's
fiscal year end, with the returns on investments in the Standard and Poor's
Composite 500 Stock Index ("S&P 500") and the Standard and Poor's Retail
(Specialty) Index ("S&P Retail Index") during the same time period or the
closest available date. The graph is based on stock performance and assumes the
reinvestment of any dividends. The historical stock price performance shown on
this graph is not necessarily indicative of future performance.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
As of As of As of
November 27, 1993(1) November 26, 1994(1) November 25, 1995(1)
<S> <C> <C> <C>
Payless Cashways, Inc. $92.27 $58.60 $32.76
S&P 500 $105.66 $100.40 $134.03
S&P Retail Index $102.94 $99.50 $90.34
</TABLE>
[FN]
(1) Fiscal year ends on a Saturday, so closest available date is utilized.
<PAGE> 11
Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is composed
entirely of directors who are not executive officers of the Company. The
Committee is responsible for establishing and administering the policies which
govern the compensation program for executive officers of the Company, including
cash compensation, stock plans and all other benefit programs.
The Compensation Committee believes that it is in the best interest of
the shareholders of the Company to attract, retain and motivate top quality
management personnel, especially its executive officers, by offering a
competitive compensation package that establishes a relationship between
executive pay and the enhancement of shareholder value.
The Committee reviews its executive officer compensation program each
year and regularly retains the assistance of an independent, executive
compensation consulting firm. Every two or three years, the Committee engages a
firm to conduct a formal study to determine whether the Company's compensation
program is competitive with executive compensation programs of comparable
companies (including building supply companies, similarly-sized companies, and
other retail companies) and national industry data obtained from national
compensation surveys in which the Company annually participates, including an
annual retail compensation study published by another executive compensation
consulting firm. In years in which a formal study is not completed, the prior
study is updated based on a survey of retail compensation trends published by
executive compensation consulting firms, published wage and salary surveys, and
inflation indices.
Each year the Committee reviews the performance of the Company and
approves an annual base salary, an annual incentive bonus opportunity and, if
appropriate, a long-term stock incentive award and a stock option grant for each
executive officer consistent with the policies and objectives described below.
ANNUAL BASE SALARY
The Compensation Committee believes that annual base salaries for the
Company's executives should be maintained at levels which are competitive with
salaries at comparable companies. As a result, the Committee has established a
policy to set annual base salaries at approximately the 50th percentile of
annual base salaries for executives in similar positions at comparable
companies. Prior to the beginning of each fiscal year, the Committee reviews the
performance of the Company and base salaries of executive officers, compares
base salaries against the comparable companies and determines base pay
adjustments, as appropriate. The performance criteria used by the Compensation
Committee include reporting responsibilities of each officer and corporate
performance in terms of the Company's sales, income, operations, expansion and
similar factors. The Compensation Committee does not employ any specific
weighting of the performance criteria and application of the criteria is also
dependent upon the position of the particular executive officer. When the
Company entered into the employment agreements with executive officers
(discussed in the section entitled "Summary Compensation Table"), the annual
base salaries under the agreements were established consistent with this
criteria.
ANNUAL INCENTIVE BONUS OPPORTUNITY
Annual incentive bonus opportunities are established by the Committee
and predicated upon the Company's annual performance measured by attainment of
established levels of earnings before interest, taxes, depreciation and
amortization ("EBITDA"). Eligible employees, including executive officers, are
entitled to receive 100% of their incentive targets only if the Company achieves
100% of the EBITDA target. Based on the Company's payout schedule, participants
may receive 50% of their target incentive for attainment of 90% of the EBITDA
target, and as much as 150% of the incentive target for attainment of 110% of
the EBITDA target. No incentives are paid if the Company fails to achieve a
minimum of 90% of the EBITDA target. Incentive levels are set for eligible
employees, including executive officers, based on salary grade. Total cash
compensation (base salary plus annual incentive) for executive officers is
intended to exceed the Company's established competitive levels (50th percentile
of base salaries and incentives for executives in similar positions at
comparable companies) when superior performance levels are achieved, i.e.,
performance which exceeds 100% EBITDA. For the purpose of determining the
achievement of the performance levels, the Committee has the authority in its
discretion to adjust the actual EBITDA results to eliminate or reduce the effect
of unanticipated or non-recurring charges, events or transactions such as
special financing expenses or restructuring charges which were not taken into
account in determining
<PAGE> 12
the EBITDA target and which the Committee believes should be eliminated or
reduced to reflect the ongoing performance of the Company. For 1995, no
incentives based on attainment of the EBITDA target were paid since the minimum
EBITDA target was not achieved.
LONG-TERM STOCK INCENTIVE PROGRAM
The Committee believes that it is essential for management employees,
especially executive officers, to own significant amounts of Common Stock,
thereby aligning the long-term interests of management with those of
shareholders. The long-term stock incentive program is also intended to provide
a means of attracting and retaining outstanding individuals as management
employees and executive officers of the Company.
Long-term stock incentives are awarded pursuant to the Payless Cashways
1992 Incentive Stock Program, which was approved by the Company's shareholders
in July 1992. In June 1993, with the advice of an independent executive
compensation consulting firm, the Committee adopted incentive stock program
guidelines, which provide for annual grants of stock options to approximately
1,300 management employees, including the executive officers, and annual
restricted stock awards to officers of the Company. It was anticipated that
stock option grants would be made annually during the four-year period 1993-1996
and that restricted stock awards would be made annually during the five-year
period 1994-1998. As originally designed, one objective of the program and the
guidelines was to provide each executive employee with significant value in the
Company's Common Stock, based on a projected stock price at the end of the grant
program in relation to the employee's expected, aggregate cash compensation
during the term of the program.
Stock option grants are the main element of the Company's long-term
stock incentive program. With respect to stock option grants to participating
executive officers, the program and the guidelines were designed to provide the
opportunity to obtain Common Stock, from annual option grants during 1993-1996,
having a value (based on a targeted stock price) approximately equal to 50% of
their expected, aggregate cash compensation during the five-year period
1993-1997. The targeted stock price, calculated based upon a projection of
future net income and, therefore, earnings per share, was combined with a
projected increase in the Company's stock price-to-earnings multiple from its
level in 1993 to a projected level of the S&P 500 in the year 2000. Stock option
incentives were also designed to be provided to all the other participating
management employees (except those reporting to a store director or store
manager), having a value (based on a targeted stock price) approximately equal
to 12% to 40%, depending upon management level, of aggregate cash compensation
expected during the 1993-1997 period. A stock option incentive for an
equivalent, smaller number of shares, not related to compensation, has also been
granted to each participating management employee reporting to a store director
or store manager. The Committee reviews the program guidelines for stock options
annually and makes adjustments determined to be necessary to meet the long-term
objectives of the program. The annual stock option grants are subject to the
discretion of the Committee. The Committee considers the grant of additional
stock options when an officer is hired or promoted, to reflect the additional
contribution which the executive can have to the Company's performance in his or
her position and the amount of options which have historically been provided to
an officer in such a position. Stock options are generally subject to a
four-year vesting schedule from the date of grant, with 25% of the grant vesting
on each of the first four anniversaries of the grant date.
In June 1993 and June 1994, pursuant to the program guidelines, the
Committee granted to each eligible employee, including executive officers, 40%
and 20% respectively, of their allocated portion of the shares subject to
options under the program. In June 1995, the Committee enhanced the option grant
by allocating the full amount allotted for 1995 and the majority of the options
allotted for granting in 1996, or approximately 36%, of their allocated portion
of the shares subject to options under the program. It is anticipated that no
annual option grants will be made in 1996, but that option grants related to
hiring or promotion will be made.
Restricted stock awards comprise the remaining part of the long-term
stock incentive program. Each officer of the Company has the opportunity to
receive an annual restricted stock award during the period 1994-1998 based on
the extent of achievement of the previous year's specified EBITD or EBITDA
target and actual, annual incentive cash bonus paid as discussed in the previous
section of this Report. The maximum number of restricted shares to be available
annually to the officers under the program equals the aggregate annual incentive
cash bonuses earned by the officers for the preceding year divided by the
targeted stock price (as defined above). The Committee determines whether awards
will be made to the officers from the annual pool of restricted stock and
allocates the awards among the executive officers in its sole discretion. The
factors which the Committee considers in making allocations include the
performance of each individual officer in his
<PAGE> 13
or her position and their contribution to the performance of the Company in
terms of sales, income, operations, expansion and similar factors. The
Compensation Committee does not employ any specific weighting of the performance
criteria and application of the criteria is also dependent upon the position of
the particular officer. It is anticipated that no annual restricted stock award
will be made in 1996.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee determines Mr. Stanley's compensation as
Chief Executive Officer using the criteria described above. Based on performance
relating to (i) the Company's sales, income, operations, expansion and similar
factors, (ii) management of the strategic direction of the Company, (iii)
development of senior executives (which performance criteria are not subject to
any specific weighting by the Compensation Committee) and the 50th percentile of
annual base salaries for executives in similar positions at comparable
companies, the Committee determined that Mr. Stanley's annual base salary should
remain at $650,000 for 1995. Mr. Stanley received no annual incentive cash bonus
for fiscal 1995 under the annual incentive cash bonus plan, described above.
Under the long-term stock incentive program described above, the Committee
awarded Mr. Stanley: a non-qualified stock option on 30,800 shares in June 1995
as the third annual stock option grant; and a restricted stock award of 8,000
shares in February 1995 as the second annual restricted stock award with respect
to performance for the fiscal year ending November 26, 1994. These compensation
elements for 1995 are reflected in the table entitled "Summary Compensation
Table". It is anticipated that, during the 1996 fiscal year, Mr. Stanley will
not be granted an option grant or a third annual restricted stock award with
respect to performance for the fiscal year ending November 25, 1995 under the
terms of the long-term stock incentive program.
COMPENSATION FOR THE OTHER NAMED OFFICERS
Certain other executive officers, named in the Summary Compensation
Table, received base salary increases which were consistent with the Committee's
objective of maintaining annual base salaries at approximately the 50th
percentile of annual base salaries for executives in similar positions at
comparable companies. The annual base salaries for Ms. Stanton, Mr. Lightstone,
Mr. Buchen, and Mr. Holland increased, respectively, to $450,000, $275,000,
$255,000 and $235,000 in 1995 from $400,000, $250,000, $225,000 and $225,000 in
1994. The other named executive officers received no bonuses for fiscal 1995
under the annual incentive cash bonus plan based on the EBITDA target, described
above. As the third annual grant under the long-term stock incentive program,
the following non-qualified stock options were granted to the other named
executives in June 1995: 23,100 shares to Ms. Stanton; 10,900 shares to Mr.
Lightstone; 10,900 shares to Mr. Buchen; and 10,900 shares to Mr. Holland. The
Committee also awarded the following restricted stock awards in February 1995 as
the second annual restricted stock awards under the long-term stock incentive
program described above with respect to performance for the fiscal year ending
November 26, 1994: 4,400 shares to Ms. Stanton, 2,300 shares to Mr. Lightstone,
2,100 shares to Mr. Buchen; and 2,100 shares to Mr. Holland. These compensation
elements for 1995 are reflected in the table entitled "Summary Compensation
Table". It is anticipated that, during the 1996 fiscal year, Ms. Stanton, Mr.
Lightstone, Mr. Buchen and Mr. Holland will not be granted an option grant or a
third annual restricted stock award with respect to performance for the fiscal
year ending November 25, 1995 under the terms of the long-term stock incentive
program.
OTHER INFORMATION
The Company does not anticipate that compensation to any executive
officer for 1996 will exceed $1 million for purposes of IRS Revenue Rule 162(m).
It is the current intention of the Committee that all compensation paid under
the executive compensation program will be tax deductible to the Company in the
year paid to the Executive.
The Compensation Committee:
Gary D. Rose - Chairman
Scott G. Fossel
Wayne B. Lyon
Louis W. Smith
Ralph Strangis
John H. Weitnauer, Jr.
<PAGE> 14
SUMMARY COMPENSATION TABLE
The following table details the compensation during each of the last
three, completed fiscal years for the Company's named executive officers who
held the positions listed in 1995:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Name and Salary Other Annual
Principal Position Year ($)(1) Bonus($) Compensation($)(2
- ------------------ ---- ------ -------- -----------------
David Stanley - 1995 650,000 -- 8,643
Chairman of the Board & 1994 650,000 260,000 5,400
Chief Executive Officer 1993 600,000 180,000 10,262
Susan M. Stanton- 1995 450,000 -- 5,786
President, 1994 400,000 128,000 3,615
Chief Operating Office 1993 240,000 59,400 6,897
and Director
Stephen A. Lightstone- 1995 275,000 -- 6,350
Senior Vice President- 1994 250,000 66,000 4,054
Finance/Treasurer 1993 225,000 55,688 8,045
Gerald M. Buchen- 1995 255,000 -- 1,069
Senior Vice President- 1994 225,000 59,400 668
Store Operations 1993 178,365 40,194 1,274
E. J. Holland, Jr. - 1995 235,000 -- --
Senior Vice President- 1994 225,000 59,400 --
Human Resources 1993 199,000 49,253 --
</TABLE>
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
Awards
-----------------------------------------
<S> <C> <C> <C> <C>
(a) (b) (f) (g) (i)
Securities
Restricted Underlying All Other
Name and Stock Options/ Compensa-
Principal Position Year Awards ($)(3) SARs (#) tion ($)(4)
- ------------------ ---- ------------- -------- ------------
David Stanley - 1995 73,000 30,800 2,909
Chairman of the Board & 1994 95,000 17,600 2,909
Chief Executive Officer 1993 -- 35,200 3,428
Susan M. Stanton - 1995 40,150 23,100 2,909
President, 1994 74,100 27,150 2,909
Chief Operating Officer 1993 -- 37,450 3,428
and Director
Stephen A. Lightstone - 1995 20,988 10,900 3,431
Senior Vice President- 1994 45,600 6,225 2,909
Finance/Treasurer 1993 -- 37,450 2,592
Gerald M. Buchen - 1995 19,163 10,900 8,139
Senior Vice President- 1994 41,800 10,375 11,136
Store Operations 1993 -- 8,300 4,161
E. J. Holland, Jr. - 1995 19,163 10,900 2,909
Senior Vice President 1994 41,800 6,225 2,909
Human Resources 1993 -- 12,450 2,281
</TABLE>
[FN]
(1) Mr. Buchen's 1993 salary includes a base salary of $175,000 plus $3,365
cash in lieu of vacation.
(2) The amounts reflected in column (e) above represent the above-market
interest earnings under the Wealth-Op Deferred Compensation Plan and
the 1988 Deferred Compensation Plan.
The Wealth-Op Deferred Compensation Plan and the 1988 Deferred
Compensation Plan are non-qualified deferred compensation plans which
allowed certain employees to elect to defer compensation for a period
of four or eight years. The Plans provide for interest to be credited
to deferred amounts at a bench-mark rates established in the Plans.
None of the named officers deferred compensation under the Plans in
1995.
(3) Each restricted stock award listed above is based upon the closing fair
market value of the stock on the date of grant. For each of the named
executive officers, the number and value of the aggregate restricted
stock holdings at the end of the fiscal year 1995 was as follows: David
Stanley 13,000/$61,750; Susan M. Stanton 8,300/$39,425; Stephen A.
Lightstone 4,700/$22,325; Gerald M. Buchen 4,300/$20,425; and E. J.
Holland, Jr. 4,300/$20,425. The 1995 restricted stock awards were the
second annual restricted stock awards under the long-term stock
incentive program described in the section entitled "Long-Term Stock
Incentive Program". The restricted stock awards are subject to a
three-year-cliff vesting schedule from the date of the award.
Dividends will be payable on the shares if and to the extent paid on
Payless' Common Stock generally.
(4) All other compensation for 1995 consists of a trip award of $5,230 for
Mr. Buchen and the Employee Savings Plan contributions. The Employee
Savings Plan contributions are as follows: $2,909 for Mr. Stanley,
$2,909 for Ms.
<PAGE> 15
Stanton, $2,909 for Mr. Lightstone, $2,909 for Mr. Buchen and $2,909
for Mr. Holland. In addition, Mr. Lightstone was paid $522 in 1995 for
earnings lost when his 1992 contribution to the Employee Savings Plan
was delayed due to an administrative oversight.
David Stanley, Susan M. Stanton and Stephen A. Lightstone (the
"Executives") have entered into employment agreements (the "Employment
Agreements") with Payless. The term of the Employment Agreement for Mr. Stanley
expires on March 1, 1999 and for each of Ms. Stanton and Mr. Lightstone on March
1, 1997, including a 1-year extension period which is automatic unless either
the Executive or Payless gives prior notice of non-renewal. Upon an Executive's
termination of employment by Payless "without cause" or by the Executive for
"cause" (as such terms are defined in the respective Employment Agreements), the
Executive will be entitled to receive (i) base salary regardless of death or
disability of the Executive until the scheduled expiration date of the
Employment Agreement, (ii) unpaid Incentive Compensation (as defined in the
Employment Agreement) for any previous year and the average of the Executive's
Incentive Compensation during the 2 years immediately preceding the year in
which the Executive is terminated, multiplied by a fraction, the numerator of
which is the number of months remaining in the Employment Agreement after the
end of the year for which the Executive's Incentive Compensation has been
determined and the denominator of which is 12, (iii) continuation of
substantially similar health, life and disability insurance to that which the
Executive had been receiving immediately prior to termination for a period equal
to the longer of the Executive's Employment Agreement and the period during
which the Executive otherwise would have received such benefits at Payless'
expense, (iv) benefits under each of Payless' pension plan and Payless'
Supplemental Retirement Plan (defined below), computed as if the Executive's
employment continued through the term of her or his Employment Agreement, and
(v) all options and restricted stock grants shall continue to vest and be
exercisable in accordance with their respective terms as if the Executive
continued to be employed until the scheduled expiration date of the Employment
Agreement (regardless of the death or disability of the Executive subsequent to
the date of termination of employment). Also, under Ms. Stanton's and Mr.
Lightstone's Employment Agreements, from March 1, 1997 to April 30, 1997, each
Executive shall be entitled to put to the Company, for $4.00 per share, all or
any unexercised portion of the option granted pursuant to the Employment
Agreements, upon the occurrence of certain events including employment on March
1, 1997 and the termination of employment prior to March 1, 1997. In addition,
the Employment Agreements for Mr. Stanley, Ms. Stanton and Mr. Lightstone permit
the Executive to terminate her or his employment within a specified period
immediately following the first anniversary of a "Change of Control" (as defined
in the respective Employment Agreements) and receive the same benefits as a
termination by the Company without cause as described above; provided, however,
that, in the event that any payment or benefit to be received as a result of
termination following a Change of Control would constitute a "parachute payment"
within the meaning of Section 280G (or any similar or successor provision) of
the Internal Revenue Code of 1986, as amended (the "Code"), and would be subject
to excise tax pursuant to Section 4999 of the Code, such payment or benefit
shall be reduced so that no portion thereof would be subject to excise tax.
In addition, the Executives have entered into agreements for supplemental
retirement benefits (the "Supplemental Retirement Agreements") with Payless.
Effective as of August 31, 1994, the Supplemental Retirement Agreements provide
such supplemental retirement benefits as are set forth in the Payless Cashways,
Inc. Supplemental Retirement Plan effective January 1, 1988 and modified from
time to time ("Supplemental Retirement Plan"). The Supplemental Retirement Plan
provides benefits that would otherwise be denied participants in the Retirement
Plan (defined in the section entitled "Retirement Program") by reason of certain
Code limitations on qualified benefits. The estimated annual benefits payable
under both the Retirement Plan and the Supplemental Retirement Plan and a
description of remuneration covered by the Supplemental Retirement Plan are
described in the section entitled "Retirement Program".
<PAGE> 16
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------
(a) (b) (c) (d)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options Employees Base Price
Name Granted (#)(1) in FY ($/share)(2)
- --------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
David Stanley 30,800 2.0% 6.50
Susan M. Stanton 23,100 1.5% 6.50
Stephen A. Lightstone 10,900 0.7% 6.50
Gerald M. Buchen 10,900 0.7% 6.50
E. J. Holland, Jr. 10,900 0.7% 6.50
</TABLE>
<TABLE>
<CAPTION>
Potential Realizable Value
of Assumed Annual Rates
of Stock Price Appreciation
for Option Term (3)
--------------------------------------------
(a) (e) (f) (g)
Expiration
Name Date 5% ($) 10% ($)
- --------------------- ----------- ---------- ----------
<S> <C> <C> <C>
David Stanley 06/16/05 125,905 319,067
Susan M. Stanton 06/16/05 94,429 239,300
Stephen A. Lightstone 06/16/05 44,557 112,917
Gerald M. Buchen 06/16/05 44,557 112,917
E. J. Holland, Jr. 06/16/05 44,557 112,917
</TABLE>
[FN]
(1) The Payless Cashways 1992 Incentive Stock Program (the "Program") was
adopted by the Board of Directors in June 1992 and approved by the
Company's shareholders in July 1992. Participants in the Program include
such employees as the Compensation Committee of the Board of Directors in
its sole discretion may designate from time to time. The Committee must
consider such factors as it deems pertinent in selecting participants and
in determining the type and amount of their respective benefits, including
the financial condition of the Company, anticipated profits for the
current or future years, contributions of participants to the
profitability and development of the Company and other compensation
provided to participants. All options are rights to buy Common Stock of
the Company. The options are subject to a four-year vesting schedule from
the date of grant, with 25% of the grant vesting on each of the first four
anniversaries of the grant date. Program guidelines are described in the
section entitled, "Committee Report on Executive Compensation".
(2) The Exercise Prices are equal to the fair market value of the Company's
Common Stock on the date of grant.
(3) The amounts listed under columns (f) and (g) illustrate values that might
be realized upon exercise immediately prior to the expiration of the
options' terms using 5 percent and 10 percent appreciation rates,
compounded annually from the date of grant to the stated expiration date
of the options, and are not intended to forecast possible future
appreciation, if any, of the Company's stock price.
<PAGE> 17
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Securities
Underlying Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End ($)
(a) (b) (c) d) (e)
Shares Value Exercisable/ Exercisable/
Acquire on Realized Unexercis- Unexercis-
Name Exercise(#) ($)(1) able able
- ------------------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
David Stanley --- --- 278,805/ $357,762/
61,600 ---
Susan M. Stanton --- --- 84,347/ 42,375/
67,189 ---
Stephen A. Lightstone --- --- 79,896/ 48,796/
39,295 ---
Gerald M. Buchen --- --- 39,325/ 7,782/
22,832 ---
E. J. Holland, Jr. --- --- 30,780/ ---/
21,795 ---
</TABLE>
[FN]
(1) The value of exercised options is calculated by subtracting the exercise
price from the sale price.
(2) The value of unexercised in-the-money options is calculated by subtracting
the exercise price from the closing price of the Company's Common Stock at
fiscal year end, and multiplying the difference by the number of shares
granted as options.
<PAGE> 18
RETIREMENT PROGRAM
PENSION BENEFITS
Payless maintains a non-qualified supplemental pension plan for
executive officers, the Payless Supplemental Retirement Plan (the "Supplemental
Retirement Plan"), which provides benefits that would otherwise be denied
participants in the Retirement Plan (defined below) by reason of certain Code
limitations on qualified plan benefits. Mr. Stanley, Ms. Stanton, Mr.
Lightstone, Mr. Buchen and Mr. Holland are participants in the Supplemental
Retirement Plan and have entered into Supplemental Retirement Agreements with
Payless. The estimated annual benefits payable under both the Retirement Plan
and the Supplemental Retirement Plan, based on 10 years or more of credited
service and at different levels of remuneration, are as follows:
Annual Benefits
Final Five-Year Exclusive of Social
Average Security Benefits
Annual (for participants
Pre-Retirement with 10 or more
Earnings years of service
--------------- --------------------
$ 100,000 $ 40,352
125,000 52,852
150,000 65,352
175,000 77,852
200,000 90,352
225,000 102,852
250,000 115,352
300,000 140,352
350,000 165,352
400,000 190,352
450,000 215,352
500,000 240,352
550,000 265,352
600,000 290,352
650,000 315,352
700,000 340,352
750,000 365,352
800,000 390,352
850,000 415,352
900,000 440,352
950,000 465,352
1,000,000 490,352
The remuneration covered by the Supplemental Retirement Plan is the
final 5-year average total cash remuneration, including salary, bonus (both as
reported in the table entitled "Summary Compensation Table") and other cash
amounts which would have been reported on Treasury Form W-2. As of the end of
the last fiscal year, years of service credited pursuant to the Supplemental
Retirement Plan are as follows: Mr. Stanley 15, Ms. Stanton 10, Mr. Lightstone
12, Mr. Buchen 2, and Mr. Holland 3.
The Payless Cashways Amended Retirement Plan ("Retirement Plan") is a
defined benefit plan under which the annual pension benefits payable to
employees, including officers, upon normal retirement age are based upon both
service credit prior to December 1, 1989, and service after December 1, 1989.
The normal retirement benefit for service prior to December 1, 1989, is the
greater of 1) the product of (i) 1.25% of average compensation (the average for
the five calendar years ending December 31, 1983), plus .9% of that average
annual compensation in excess of the individual's "covered compensation" (a
particular dollar amount which increases depending on the year of birth to
1950), multiplied by (ii) the number of years and fractional years of benefit
service prior to
<PAGE> 19
December 1, 1983, or 2) the product of (i) 1% of average annual compensation
(the average for calendar years 1986, 1987 and 1988), plus .5% of that average
annual compensation in excess of the individual's "covered compensation" (a
particular dollar amount which increases depending on the year of birth to
1950), multiplied by (ii) the number of years of benefit service prior to
December 1, 1989. The normal retirement benefit for each year and fractional
year of benefit service subsequent to December 1, 1989, is the sum (a) 1% of
annual compensation for the year, plus (b) an additional .5% of annual
compensation in excess of the "covered compensation" for the year. Benefits from
the Retirement Plan are included in the annual benefits listed in the table
above.
As of the end of the last fiscal year, years of service credited
pursuant to the Retirement Plan are as follows: Mr. Stanley 16, Ms. Stanton 13,
Mr. Lightstone 13, Mr. Buchen 22 and Mr. Holland 3. Benefits shown are computed
as a straight single life annuity beginning at age 62 and have been reduced for
Social Security benefits.
<PAGE> 20
CERTAIN BENEFICIAL OWNERSHIP
The table below sets forth certain information, as of January 10, 1996,
regarding the beneficial ownership of the Company's Common Stock, Non-Voting
Common Stock and Preferred Stock by (i) each of the Company's directors and
nominees, (ii) each person known by the Company to be the beneficial owner of 5%
or more of each class of the Company's voting securities, (iii) each of the
executive officers named in the table entitled "Summary Compensation Table"
above and (iv) all of the Company's directors and executive officers as a group.
As required by a rule of the Securities and Exchange Commission, the number of
shares of Common Stock beneficially owned includes shares as to which a right to
acquire ownership exists within 60 days, such as through the exercise of
employee stock options and conversion of convertible securities.
Name and Address Shares Beneficially
of Beneficial Owner Owned Percent of Class
- ------------------- ------------------- --------------------
Common Stock
David Stanley (1) 327,132 .9%
Susan M. Stanton (2) 134,695 .4%
Stephen A. Lightstone (3) 116,958 .3%
Gerald M. Buchen (4) 45,162 .1%
E. J. Holland, Jr.(5) 40,080 .1%
Harold Cohen (6) 137,658 .4%
Scott G. Fossel (7) 13,956 (8)
William A. Hall (9) 9,956 (8)
George Latimer (10) 9,956 (8)
Wayne B. Lyon (11) 8,956 (8)
Gary D. Rose (12) 18,956 .1%
Louis W. Smith (13) 17,903 (8)
Ralph Strangis (14) 13,956 (8)
John H. Weitnauer, Jr. (15) 16,956 (8)
Ariel Capital Management, Inc. (16) 4,563,385 12.1%
307 North Michigan Ave.
Chicago, IL 60601
Alliance Capital Management L.P. (17) 3,855,500 10.2%
1345 Avenue of the Americas
New York, NY 10105
<PAGE> 21
The Goldman Sachs Group, L.P. (18) 3,806,101 10.1%
85 Broad Street
New York, NY 10004
State of Wisconsin Investment Board(19) 3,969,500 10.5%
121 E. Wilson St., 2nd Floor
Madison, WI 53703
All Directors and Executive 1,050,563 2.7%
Officers as a group (17 Persons)(20)
Class A Non-Voting Common
Court Square Capital Limited 2,250,000 100.0%
399 Park Avenue
New York, NY 10043
Preferred Stock
Masco Capital Corporation 406,000 100.0%
21001 Van Born Road
Taylor, MI 48180
[FN]
(1) Includes 278,805 shares subject to options, 13,000 shares of restricted
stock, 7,000 shares owned by Mr. Stanley's wife, 1,000 shares owned by
a trust for the benefit of Mr. Stanley's daughter for which Mr. Stanley
acts as trustee, 2,000 shares owned by two trusts for the benefit of
Mr. Stanley's stepchildren for which Mr. Stanley does not act as
trustee and 2,000 shares owned by Mr. Stanley's stepchildren. Mr.
Stanley disclaims beneficial ownership of such 12,000 shares.
(2) Includes 95,334 shares subject to options, 8,300 shares of restricted
stock and 2,000 shares held in Ms. Stanton's father's marital trust for
which Ms. Stanton acts as co-trustee.
(3) Includes 87,396 shares subject to options, 4,700 shares of restricted
stock and 2,000 shares owned by Mr. Lightstone's wife.
(4) Includes 40,362 shares subject to options, 4,300 shares of restricted
stock, 100 shares owned by Mr. Buchen's wife, and 100 shares owned by
each of Mr. Buchen's four children.
(5) Includes 30,780 shares subject to options, 4,300 shares of restricted
stock and 5,000 shares held in a trust for the benefit of Mrs. Holland
for which Mr. Holland acts as Co-Trustee.
(6) Includes 85,008 shares subject to options.
(7) Includes 8,956 shares subject to options.
(8) Less than 0.1%.
(9) Includes 8,956 shares subject to options.
(10) Includes 8,956 shares subject to options.
(11) Includes 8,956 shares subject to options. Mr. Lyon is President and
Chief Operating Officer of Masco, which owns Masco Capital Corporation
("Masco Capital"), and disclaims beneficial ownership of shares of
Preferred Stock beneficially owned by Masco Capital.
(12) Includes 8,956 shares subject to options. Mr. Rose is a Limited Partner
of The Goldman Sachs Group, L.P. As a Limited Partner, Mr. Rose may be
deemed to be the beneficial owner of shares beneficially owned or held
by The Goldman Sachs Group, L.P. referenced in Footnote 18. Mr. Rose
disclaims beneficial ownership of such shares except to the extent of
pecuniary interest therein.
(13) Includes 12,903 shares subject to options.
(14) Includes 8,956 shares subject to options.
(15) Includes 8,956 shares subject to options.
(16) Based on a Questionnaire dated January 10, 1996, Ariel Capital
Management, Inc. owns 4,563,385 shares of Common Stock. Ariel Capital
Management, Inc., in its capacity as investment advisor, has sole
voting
<PAGE> 22
power of 4,423,385 shares and sole investment discretion for 4,563,385
shares. Ariel Capital Management, Inc. claims no beneficial interest in
any of the shares.
(17) Based on a Schedule 13G filed with the Securities and Exchange
Commission dated November 9, 1995, Alliance Capital Management L.P. has
sole voting power of 3,150,400 shares and sole disposition power of
3,855,500 shares.
(18) Based on a Questionnaire dated January 10, 1996, The Goldman Sachs
Group, L.P. owns 3,806,101 shares of Common Stock. The Goldman Sachs
Group, L.P. has shared voting power and shared disposition power of
such 3,806,101 shares.
(19) Based on a Questionnaire dated January 10, 1996, State of Wisconsin
Investment Board owns 3,969,500 shares of Common Stock. State of
Wisconsin Investment Board has sole voting power and sole disposition
of such 3,969,500 shares.
(20) Included 808,413 shares subject to options, 44,000 shares of restricted
stock and 62 shares held indirectly by an executive officer (who is not
a named executive officer) in a 401(k) plan. Excludes shares held by
The Goldman Sachs Group, L.P.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who beneficially own more
than 10 percent of a registered class of the Company's equity securities to
file, with the Securities and Exchange Commission and the New York Stock
Exchange, initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
beneficial owners of more than 10 percent of the Company's equity securities are
required by regulation to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on review of the
copies of such reports and written representations that no other reports were
required during 1995, all section 16(a) filing requirements applicable to its
officers, directors and beneficial owners of more than 10 percent of the
Company's equity securities were complied with on a timely basis.
<PAGE> 23
2. PROPOSAL NO. 2 - APPROVAL OF PAYLESS CASHWAYS, INC. DEFERRED
COMPENSATION PLAN FOR DIRECTORS
The Board of Directors approved the Payless Cashways, Inc.
Deferred Compensation Plan for Directors (the "Deferred Stock
Compensation Plan") on October 20, 1995, subject to approval of the
Company's shareholders. A copy of the Deferred Stock Compensation Plan
is attached hereto as Annex A. Approval of the Deferred Stock
Compensation Plan by shareholders is being sought in order to assure
that the Deferred Stock Compensation Plan qualifies for exemption from
short-swing profit liability pursuant to Rule 16b-3 of the Securities
and Exchange Commission. Pursuant to Rule 16b-3, for purposes of
determining whether the Deferred Stock Compensation Plan has been
approved, the inspector of election will include abstentions, but
exclude broker non-votes, from the number of shares of stock deemed to
be present, or represented, and entitled to vote at the Annual Meeting.
Accordingly, abstentions will have the effect of a "no" vote, and
broker non-votes will have no effect, on the Deferred Stock
Compensation Plan Proposal.
The purposes of the Deferred Stock Compensation Plan are to
align the interests of directors more closely with the interests of
other shareholders of the Company, to encourage the highest level of
director performance by providing the directors with a direct interest
in the Company's attainment of its financial goals, and to help attract
and retain qualified directors. Subject to shareholder approval of the
Deferred Stock Compensation Plan, all of the non-employee directors
have elected to defer all or a substantial portion of their fees and to
have such fees invested in the Company's Common Stock, as described
below.
GENERAL PROVISIONS
The Deferred Stock Compensation Plan became effective upon
approval of the Plan by the Board of Directors. However, any fees
deferred by a director and interest thereon may not be invested until
the later of the date on which the Deferred Stock Compensation Plan is
approved by the shareholders of the Company, or such other dates as are
specified in the Deferred Stock Compensation Plan. The Deferred Stock
Compensation Plan will remain effective until the close of business on
the tenth anniversary of the effective date, unless sooner terminated
by the Board of Directors.
Under the Deferred Stock Compensation Plan, directors who are
not officers or employees of the Company ("Non-management Directors")
can voluntarily elect to defer all or a portion of their cash
directors' fees, annual committee chair's fee, and/or meeting and other
fees for succeeding calendar years, and have the deferred amounts
deemed invested in Common Stock Equivalents (defined below). An
election to defer, once made, is irrevocable for the first calendar
year with respect to which the election is made, except in limited
circumstances. The "Common Stock Equivalents" are phantom stock units,
i.e., each Common Stock Equivalent represents a hypothetical share of
Stock which shall have a value on any date equal to the Fair Market
Value of one share of Stock on that date. "Fair Market Value" will be
based on the closing price of the Common Stock on the New York Stock
Exchange (or other stock exchange or stock quotation system on which
the Common Stock is then listed or quoted or, if none, the value as
determined by the Company's Board of Directors in good faith) on the
applicable date. Dividends and other distributions on Common Stock, if
any, will be credited to Non-management Directors as if the Common
Stock Equivalents were outstanding shares of Common Stock. Such
dividends will be converted into additional Common Stock Equivalents.
Any amount deferred by a Non-management Director will earn interest at
8% per annum from the date on which the fees are deferred until the
date the fees are converted in Common Stock Equivalents.
As soon as practicable following termination of services as a
director, a Non-management Director will receive a distribution of a
number of shares of Common Stock equal to the number of Common Stock
Equivalents then credited to him or her under the Deferred Stock
Compensation Plan, either in a lump sum or in equal annual installments
(not greater than five). Upon the death of a Non-management Director,
shares will be issued to his or her beneficiary or estate. Upon a
"change in control"
<PAGE> 24
of the Company (as defined in the Deferred Stock Compensation Plan),
each Non-management Director will receive a lump sum distribution in
shares equal to the value of his or her accumulated Common Stock
Equivalents. Cash will be paid in lieu of fractional shares upon any
distribution. Under limited circumstances in an "unforseeable
emergency" (as defined in the Deferred Stock Compensation Plan), a
Non-management Director may receive all or a part of his or her
accumulated Common Stock Equivalents in shares; and in the event that
the Internal Revenue Service should finally determine that part or all
of the value of a Non-management Director's accumulated Common Stock
Equivalents are required to be included in the Non-management
Director's gross income for federal and/or State income tax purposes,
then that portion includable in gross income will be distributed in
shares to the Non-management Director in a lump sum as soon as
practicable after such determination. Each Non-management Director or
beneficiary will be an unsecured general creditor of the Company with
respect to any payments due and owing to such Non-management Director
pursuant to the Deferred Stock Compensation Plan.
The Board of Directors can amend or terminate the Deferred
Stock Compensation Plan at any time. However, amendments must be
approved by the Company's shareholders if shareholder approval is
required in order for the Deferred Stock Compensation Plan to meet
applicable statutory or regulatory requirements; and Non-management
Director consent must be obtained if an amendment would adversely
affect such Non-management Director's rights pursuant to the Deferred
Stock Compensation Plan.
A maximum of 250,000 shares of Common Stock will be available
for issuance under the Deferred Stock Compensation Plan. Such shares
will be authorized and unissued shares or previously issued and
outstanding shares of Common Stock reacquired by the Company.
The Senior Vice President of Human Resources and the Senior
Vice President of Finance of the Company (the Administrative Committee)
will administer the Deferred Stock Compensation Plan, but will have no
discretion to alter any terms or conditions specified in the Deferred
Stock Compensation Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal
income tax consequences of the Deferred Stock Compensation Plan based
upon current federal income tax laws. The summary is not intended to be
exhaustive and, among other things, does not describe state, local or
foreign tax consequences.
Awards of Common Stock Equivalents, and amounts voluntarily
deferred pursuant to the Deferred Stock Compensation Plan and converted
into Common Stock Equivalents, will not be taxable to the
Non-management Director until a distribution is made to the
Non-management Director or to his or her beneficiary. A Non-management
Director will recognize ordinary income in an amount equal to the
amount of cash received or the fair market value of the shares of
Common Stock distributed. The Company will be entitled to take a
corresponding tax deduction for the tax year in which the
Non-management Director recognizes ordinary income. Any appreciation in
value of Common Stock from the distribution date to the date the
Non-management Director disposes of such Common Stock will be taxed as
capital gain, short-term or long-term, depending on the length of time
the Common Stock was held.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
COMPANY'S SHAREHOLDERS VOTE "FOR" APPROVAL OF THE DEFERRED STOCK
COMPENSATION PLAN.
<PAGE> 25
3. OTHER BUSINESS
As of the date of delivery of the text of this Proxy Statement to the
printer, management knew of no other business that will be presented for action
at the Annual Meeting. In the event that any other business should properly come
before the meeting, it is the intention of the persons designated as proxies on
the proxy card to take such action as shall be in accordance with his and/or her
best judgment.
OTHER INFORMATION, SHAREHOLDER PROPOSALS
The Board of Directors, on the recommendation of the Audit Committee,
has selected the firm of KPMG Peat Marwick LLP as independent auditor to examine
the financial statements of the Company for the fiscal year 1996.
Representatives of KPMG Peat Marwick LLP will be present at the Annual Meeting,
will have an opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions.
Shareholder proposals requested for inclusion in the Proxy Statement
for the Company's Annual Meeting in 1997 must be received by the Company's
Secretary on or before October 27, 1996. The Company currently plans to hold the
1997 Annual Meeting in Kansas City, Missouri, on April 17, 1997. Management will
appropriately consider all proposals from shareholders. When adoption of a
proposal is clearly in the best interests of the Company and the shareholders
generally, and does not require shareholder approval, the Board of Directors
will usually adopt the proposal, if appropriate, rather than including the
proposal in the Proxy Statement.
Pursuant to the Company policy and Rules and Regulations of the
Securities and Exchange Commission, shareholder proposals requested for
inclusion in the Company's Proxy Statement must meet the following criteria: (1)
the proponent must be a record or beneficial owner of at least 1% or $1,000 in
market value of securities entitled to be voted on the proposal and must have
held such securities for at least one year; (2) the proponent may submit no more
than one proposal; (3) the proposal and any supporting statement together shall
not exceed 500 words; (4) proposals must be received by the Company's Secretary
on or before the date provided in the Proxy Statement, or as may otherwise be
provided by the Board of Directors; and (5) the proposal must contain the name
of the proposing shareholder(s) and a contact address.
The Corporate Governance and Nominating Committee will also consider
persons recommended by Shareholders as director nominees recommended by
shareholders. In order to be eligible for nomination as a director by the
Corporate Governance and Nominating Committee, a director nominee must be under
the age of 70 at the date of the Annual Meeting of Shareholders at which such
director would be elected. All letters of nomination should be sent to the
Secretary and should include the nominee's name and qualifications and a
statement from the nominee that he or she consents to being named in the Proxy
Statement and will serve as a director if elected. In order for any nominee to
be considered by the Corporate Governance and Nominating Committee and, if
accepted, to be included in the Proxy Statement, letters of nomination must be
received by the Secretary on or before October 27, 1996.
In addition to the solicitation of proxies by mail, officers or other
employees of the Company, without extra remuneration, may solicit proxies by
telephone or personal contact. The Company also will request brokerage houses,
nominees, custodians and fiduciaries to forward soliciting material to
beneficial owners of stock held of record and will pay such persons for
forwarding the material. All costs for the solicitation of proxies by the Board
of Directors will be paid by the Company.
<PAGE> 26
The Company's Annual Report to Shareholders, including financial
statements for the year ended November 25, 1995, is enclosed with this Proxy
Statement.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Linda J. French
Linda J. French
Senior Vice President-General Counsel/Secretary
February 23, 1996
<PAGE> 27
ANNEX 1
PAYLESS CASHWAYS, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
SECTION 1. INTRODUCTION
1.1 Establishment. Payless Cashways, Inc., an Iowa corporation (the
"Company"), hereby establishes the Payless Cashways, Inc. Deferred Compensation
Plan for Directors (the "Plan") for those directors of the Company who are
neither officers nor employees of the Company. The Plan provides the opportunity
for Directors to defer receipt of all or a part of their cash compensation on a
pretax basis and, subject to approval of the Plan by shareholders, invest those
deferrals in the Company's Stock.
1.2 Purposes. The purposes of the Plan are to align the interests of
Directors more closely with the interests of other shareholders of the Company,
to encourage the highest level of Director performance by providing the
Directors with a direct interest in the Company's attainment of its financial
goals, and to help attract and retain qualified Directors.
1.3 Effective Date. This Plan shall be effective upon approval of the
Plan by the Board; provided that any fees deferred by a Director and interest
thereon shall not be invested until the later of (i) the date on which the Plan
is approved by the shareholders of the Company or (ii) the date specified in
Section 5.3. To the extent an investment or distribution of Stock may be made
under this Plan, the Plan is intended to qualify for the exemption from short
swing profits under Section 16(b) of the Securities Exchange Act of 1934, as
amended, provided by Rule 16b-3 of the Securities and Exchange Commission as now
in effect or hereafter amended. In the event the shareholders of the Company do
not approve this Plan at the Company's 1996 annual meeting of shareholders, a
participating Director may, within thirty days after the date of such meeting,
elect to terminate participation in this Plan and to receive a one-time
immediate cash distribution of the entire balance in the Deferred Account.
Section 2. Definitions
2.1 Definitions. The following terms shall have the meanings set
forth below:
(a) "Administrative Committee" means the committee designated in
Section 3 to administer the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control" means any of the events set forth below:
(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
(ii) the occurrence within any twelve-month period
during the term of the Plan of a change in the Board with the
result that the Incumbent Members (as defined below) do not
<PAGE> 28
constitute a majority of the Company's Board. 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.
(d) "Common Stock Equivalent" means a hypothetical share of Stock
which shall have a value on any date equal to the Fair Market
Value of one share of Stock on that date.
(e) "Deferred Account" means the bookkeeping account established
by the Company in respect to each Director pursuant to Section
5.3 hereof and to which shall be credited the fees deferred by
the Director and interest thereon, if any, as provided in this
Plan and the Common Stock Equivalents into which such deferred
fees and interest are invested pursuant to the Plan.
(f) "Director" means a member of the Board who is neither an
officer nor an employee of the Company. For purposes of the
Plan, an employee is an individual whose wages are subject to
the withholding of federal income tax under section 3401 of
the Internal Revenue Code, and an officer is an individual
elected or appointed by the Board or chosen in such other
manner as may be prescribed in the Bylaws of the Company to
serve as such.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(h) "Fair Market Value" means as of any applicable date the
closing sale price of a share of the Company's Common Stock in
question on the Composite Tape for New York Stock
Exchange-Listed Stock, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on such Exchange, on the principal United
States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the last
closing bid quotation with respect to a share of such stock
immediately preceding the time in question on the National
Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use (or any other system of
reporting or ascertaining quotations then available), or if
such stock is not so quoted, the fair market value at the time
in question of a share of such stock as determined by the
Company's Board in good faith.
(i) "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time.
(j) "Stock" means the $.01 par value common stock of the Company.
(k) "Payment Date" means each of the dates each year on which the
Company pays fees to Directors.
2.2 Gender and Number. Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the definitions
of any term herein in the singular shall also include the plural.
<PAGE> 29
SECTION 3. PLAN ADMINISTRATION
The Plan shall be administered by the Administrative Committee,
comprised of the Senior Vice President of Human Resources and the Senior Vice
President of Finance of the Company. Subject to the limitations of the Plan, the
Administrative Committee shall have the sole and complete authority: (i) to
impose such limitations, restrictions and conditions as shall be deemed
appropriate, (ii) to interpret the Plan and to adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan
and (iii) to make all other determinations and to take all other actions
necessary or advisable for the implementation and administration of the Plan.
Notwithstanding the foregoing, the Administrative Committee shall have no
authority, discretion or power to alter any terms or conditions specified in the
Plan, except in the sense of administering the Plan subject to the provisions of
the Plan. The Administrative Committee's determinations on matters within its
authority shall be conclusive and binding upon the Company, the Directors, and
other persons. The Plan shall be interpreted and implemented in a manner so that
Directors will not fail, by reason of the Plan or its implementation, to be
"disinterested persons" within the meaning of Rule 16b-3 under Section 16 of the
Exchange Act, as such rule may be amended.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. There shall be authorized for issuance under the
Plan, in accordance with the provisions of the Plan, 250,000 shares of Stock.
This authorization may be increased from time to time by approval of the Board
and by the shareholders of the Company if such shareholder approval is required.
The Company shall at all times during the term of the Plan retain as authorized
and unissued Stock at least the number of shares from time to time required
under the provisions of the Plan, or otherwise assure itself of its ability to
perform its obligations hereunder. The shares of Stock issuable hereunder shall
be authorized and unissued shares or previously issued and outstanding shares of
Stock reacquired by the Company.
4.2 Other Shares of Stock. Any shares of Stock that are subject to a
Common Stock Equivalent and for any reason are not issued to a Director shall
automatically become available again for use under the Plan.
4.3 Adjustments Upon Changes in Stock. If there shall be any change in
the Stock of the Company, through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, spinoff, split up, dividend in
kind or other change in the corporate structure or distribution to the
shareholders, appropriate adjustments shall be made by the Administrative
Committee (or if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) in the
aggregate number and kind of shares subject to the Plan, and the number and kind
of shares which may be issued under the Plan. Appropriate adjustments may also
be made by the Administrative Committee in the terms of Common Stock Equivalents
under the Plan to reflect such changes and to modify any other terms on an
equitable basis as the Administrative Committee in its discretion determines.
SECTION 5. DEFERRALS AND DISTRIBUTIONS
5.1 Deferral Elections. A Director may elect to defer receipt of all or
a specified portion of the annual directors' fee, the annual committee chair's
fee, and/or meeting and other fees payable in cash to the Director for serving
on the Board or any committee thereof. A Director may make the elections
permitted hereunder by giving written notice to the Company in a form approved
by the Administrative Committee. The notice shall include: (i) the percentage of
fees to be deferred, (ii) the date as of which deferral is to commence and,
(iii) subject to the limitations of this Section 5, the year in which
distribution is to commence and whether lump sum or installments (not greater
than 5 years) are requested. Amounts deferred by a Director pursuant to this
Section 5.1 shall be converted into Common Stock Equivalents in accordance with
Section 5.3.
<PAGE> 30
5.2 Time for Electing Deferral and Change in Election. An election to
defer fees shall be made prior to the latest to occur of the following: (i) the
beginning of the calendar year for which the fees are to be earned; (ii) such
Director's first day of Board service in that year; (iii) the thirty-first day
following the date the Director first becomes eligible to participate in the
Plan; provided that, an election made after the first day of a calendar year
shall only apply to fees earned after the date of the election. An election to
defer, once made, is irrevocable for the first calendar year with respect to
which the election is made, except as provided in Section 5.11 hereof. An
election to defer, once made, shall continue to be effective for succeeding
calendar years until revoked or modified by the Director by written request to
the Administrative Committee prior to the beginning of a calendar year for which
fees would otherwise be deferred, provided that any change in the election other
than a complete termination of the deferral shall not be effective until six
months and one day after the date of the notice by the Director.
5.3 Deferred Accounts. A Deferred Account shall be established for each
Director. Fees deferred by a Director shall be credited to such Account as of
the date such amounts would have otherwise been paid in cash to the Director,
and shall be converted into Common Stock Equivalents based on Fair Market Value
as of the later to occur of (i) the date such amounts would have otherwise been
paid in cash to the Director, (ii) the date on which this Plan is approved by
shareholders, or (iii) six months plus one day after the date of the Director's
election to defer; provided that any amount deferred by the Director shall earn
interest at eight percent (8%) per annum from the date on which the fees were
deferred until the date the fees are converted into Common Stock Equivalents as
provided in this sentence. A Director's Deferred Account shall also be credited
with dividends and other distributions pursuant to Section 5.4.
5.4 Hypothetical Dividends on Common Stock Equivalents. Dividends and
other distributions on Common Stock Equivalents shall be deemed to have been
paid as if such Common Stock Equivalents were actual shares of Stock issued and
outstanding on the respective record or distribution dates. Common Stock
Equivalents shall be credited to the Deferred Account in respect of cash
dividends and any other securities or property issued on the Stock in connection
with reclassifications, spinoffs and the like on the basis of the value of the
dividend or other asset distributed and the Fair Market Value of the Common
Stock Equivalents on the date of the announcement of the dividend or asset
distribution, all at the same time and in the same amount as dividends or other
distributions are paid or issued on the Stock. Fractional shares shall be
credited to a Director's Deferred Account cumulatively, but the balance of
shares of Common Stock Equivalents in a Director's Deferred Account shall be
rounded to the next highest whole share for any distribution to such Director
pursuant to this Section 5.
5.5 Statement of Accounts. A statement will be sent to each Director as
to the balance of his or her Deferred Account at least once each calendar year.
5.6 Payment of Accounts. As soon as practicable following termination
of services as a Director, a Director shall receive a distribution of his
Deferred Account as directed by the Director in an election deferral notice.
Either a lump sum or the first of equal annual installments (not greater than
five) shall be paid in the year of termination. Succeeding installments (if any)
shall be paid on January 31 of each calendar year following the calendar year in
which the first payment was made. Such distribution(s) shall consist of one
share of Stock for each Common Stock Equivalent credited to such Director's
Deferred Account as of the Payment Date immediately preceding the date of
distribution.
5.7 Payments to a Deceased Director's Estate. In the event of a
Director's death before the balance of his Deferred Account is fully paid,
payment of the balance of the Director's Deferred Account shall then be made to
the beneficiary designated by the Director pursuant to Section 5.8 or, in the
absence of a designation of a beneficiary pursuant to Section 5.8, to his
estate, in the time and manner selected by the Administrative Committee. The
Administrative Committee may take into account the application of any duly
appointed administrator or executor of a Director's estate and direct that the
balance of the Director's Deferred Account be paid to his estate in the manner
requested by such application.
5.8 Designation of Beneficiary. A Director may designate a beneficiary
on a form approved by the Administrative Committee.
<PAGE> 31
5.9 Change in Control. Notwithstanding any provision of this Plan to
the contrary, in the event a Change in Control of the Company occurs, within ten
(10) days of the date of such Change in Control, each Director shall receive a
lump sum distribution in the number of shares of Stock equal to the number of
Common Stock Equivalents credited to such Director's Deferred Account as of the
date of the Change in Control.
5.10 Emergency Payments. In the event of an "unforeseeable emergency"
as defined herein, the Administrative Committee may determine the amounts
payable under Section 5 hereof and pay all or a part of such amounts in shares
of Stock without regard to the payment dates provided in Section 5, to the
extent the Administrative Committee determines that such action is necessary in
light of immediate and substantial needs of the Director (or his beneficiary)
occasioned by severe financial hardship. For the purposes of this Section, an
"unforeseeable emergency" is a severe financial hardship to the Director
resulting from a sudden and unexpected illness or accident of the Director or
beneficiary, or of a dependent (as defined in Section 152(a) of the Internal
Revenue Code of 1986, as amended) of the Director or beneficiary, loss of the
Director's or beneficiary's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Director or beneficiary. Payments shall not be made
pursuant to this Section to the extent that such hardship is or may be relieved:
(a) through reimbursement or compensation by insurance or otherwise, (b) by
liquidation of the Director's or beneficiary's assets, to the extent the
liquidation of such assets would not itself cause severe financial hardship, or
(c) by cessation of the Director's deferrals under the Plan. Such action shall
be taken only if a Director (or a Director's legal representatives or
successors) signs an application describing fully the circumstances which are
deemed to justify the payment, together with an estimate of the amounts
necessary to prevent such hardship, which application shall be approved by the
Administrative Committee after making such inquiries as the Administrative
Committee deems necessary or appropriate.
5.11 Payment of Taxable Amount. Notwithstanding any other provision of
this Section 5 or any payment schedule directed by a Director pursuant to this
Section 5 and regardless of whether payments have commenced under this Section
5, in the event that the Internal Revenue Service should finally determine that
part or all of the value of a Director's Deferred Account which has not actually
been distributed to the Director is nevertheless required to be included in the
Director's gross income for federal and/or State income tax purposes, then the
balance of the Deferred Account or the part thereof that was determined to be
includable in gross income shall be distributed in shares of Stock to the
Director in a lump sum as soon as practicable after such determination, without
any action or approval by the Administrative Committee. A "final determination"
of the Internal Revenue Service for purposes of this Section is a determination
in writing by said Service ordering the payment of additional tax, reporting of
additional gross income or otherwise requiring Plan amounts to be included in
gross income, which is not appealable or which the Director does not appeal
within the time prescribed for appeals.
SECTION 6. GENERAL CREDITOR STATUS
Each Director, and each other recipient of a Director's Deferred
Amounts pursuant to Section 5, shall be and remain an unsecured general creditor
of the Company with respect to any payments due and owing to such Director
hereunder. All payments to persons entitled to benefits hereunder shall be made
out of the general assets, and shall be the sole obligations, of the Company.
The Plan is a promise to pay benefits in the future and it is the intention of
the parties that it be "unfunded" for tax purposes (and for the purposes of
Title I of the Employee Retirement Income Security Act of 1974 ("ERISA")).
<PAGE> 32
SECTION 7. CLAIMS PROCEDURES
If a claim for benefits made by any person (the "Applicant") is denied,
the Administrative Committee shall furnish to the Applicant, within 90 days
after its receipt of such claim (or within 180 days after such receipt if
special circumstances require an extension of time), a written notice which: (i)
specifies the reasons for the denial, (ii) refers to the pertinent provisions of
the Plan on which the denial is based, (iii) describes any additional material
or information necessary for the perfection of the claim and explains why such
material or information is necessary, and (iv) explains the claim review
procedures. Upon the written request of the Applicant submitted within 60 days
after receipt of such written notice, the Administrative Committee shall afford
the Applicant a full and fair review of the decision denying the claim and, if
so requested: (i) permit the Applicant to review any documents which are
pertinent to the claim, (ii) permit the Applicant to submit to the
Administrative Committee issues and comments in writing, and (iii) afford the
Applicant an opportunity to meet with the Administrative Committee as a part of
the review procedure. Within 60 days after its receipt of a request for review
(or within 120 days after such receipt if special circumstances, such as the
need to hold a hearing, require an extension of time) the Administrative
Committee shall notify the Applicant in writing of its decision and the reasons
for its decision and shall refer the Applicant to the provisions of the Plan
which form the basis for its decision.
SECTION 8. ASSIGNABILITY
The right to receive payments or distributions hereunder shall not be
transferable or assignable by a Director other than by will or the laws of
descent and distribution.
SECTION 9. PLAN TERMINATION, AMENDMENT AND MODIFICATION
The Plan shall automatically terminate at the close of business on the
tenth anniversary of the effective date unless sooner terminated by the Board.
The Board may at any time terminate, and from time to time may amend or modify
the Plan, provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the shareholders
if shareholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, and, provided further that no termination,
amendment or modification shall reduce the then existing balance of any
Director's Deferred Account or otherwise adversely change the terms and
conditions thereof without the Director's consent, and, provided further that no
amendment or modification shall be made more than once every six months that
would change the amount, price or timing of the Common Stock Equivalents, other
than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules promulgated
thereunder.
SECTION 10. GOVERNING LAW/PLAN CONSTRUCTION
The Plan and all agreements hereunder shall be construed in accordance
with and governed by the laws of the State of Missouri. Nothing in this document
shall be construed as an employment agreement or in any way impairing the right
of the Company, its board, committees or shareholders, to remove a Director from
service as a director, to refuse to renominate or reelect such person as a
director, or to enforce the duly adopted retirement policies of the board of
directors of the Company.
<PAGE> 33
February 22, 1996
Attn: Filer Support
U. S. Securities and Exchange Commission
Mail Stop 0-7
6432 General Green Way
Alexandria, VA 22312
Gentlemen:
The Proxy Statement of Payless Cashways, Inc. is being filed today, via Edgar,
and mailed to the shareholders on February 23, 1996, along with the glossy
Annual Report.
The Company wire transferred the filing fee of $125 to your account no. 910-8739
at Mellon Bank, Pittsburg, Pennsylvania, on February 20, 1996.
Very truly yours,
/s/ Linda J. French
Linda J. French
Senior Vice President-
General Counsel/Secretary
LJF:dd
Enclosures
cc: Mr. Robert F. Bartelmes, Esq.
Securities and Exchange Commission
<PAGE> 34
FRONT
- --------------------------------------------------------------------------------
PROXY PAYLESS CASHWAYS, INC.
2300 Main, Kansas City, Missouri 64108
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints LINDA J. FRENCH and STEPHEN A.
LIGHTSTONE, or either or them, as Proxy/Proxies, and hereby authorizes them to
represent and to vote, as designated below, all the shares of Common stock of
Payless Cashways, Inc. held of record by the undersigned on February 14, 1996 at
the Annual Meeting of Shareholders to be held on April 18, 1996, or any
adjournment thereof.
1. ELECTION OF DIRECTORS
//FOR all nominees listed below //WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees listed
below) below
DAVID STANLEY, WAYNE B. LYON, RALPH STRANGIS
(INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
2. Approval of Payless Cashways, Inc. Deferred Compensation Plan for Directors.
FOR / / Against / / Abstain / /
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
- --------------------------------------------------------------------------------
BACK
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted for Proposals 1, 2 and 3.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such; if a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated:______________________________, 1996
----------------------------------------
Signature
----------------------------------------
Signature if held jointly
/PLEASE MARK, SIGN, DATE AND RETURN/
/THE PROXY CARD PROMPTLY USING THE/
/ENCLOSED ENVELOPE./
- --------------------------------------------------------------------------------
<PAGE> 35
FRONT
- --------------------------------------------------------------------------------
PAYLESS CASHWAYS, INC. EMPLOYEE SAVINGS PLAN
VOTING INSTRUCTIONS
Voting Instructions to: The Chase Manhattan Bank, N.A. as Trustee of the Payless
Cashways, Inc. Employee Savings Plan
I hereby direct that the voting rights pertaining to shares of Payless
Cashways, Inc. held by the Trustee and attributable to my account in the
above-described plan shall be exercised at the Annual Meeting of Shareholders of
the Company to be held April 18, 1996, or at any adjournment of such meeting, in
accordance with the instructions below, to vote upon the Proposals 1 and 2.
1. ELECTION OF DIRECTORS
a. David Stanley / / FOR / / WITHHOLD
b. Wayne B. Lyon / / FOR / / WITHHOLD
c. Ralph Strangis / / FOR / / WITHHOLD
2. Approval of Payless Cashways, Inc. Deferred Compensation Plan for Directors.
For / / Against / / Abstain / /
- --------------------------------------------------------------------------------
BACK
(see reverse side for matters to be voted on)
If you fail to give specific directions or fail to return this instruction card,
the shares allocated to your account will be voted by the Trustee in the
same proportion as the shares for which timely directions are received
by the Trustee and voted in such manner.
Please sign exactly as name appears below.
Dated:______________________________, 1996
----------------------------------------
Participant's Signature
/PLEASE MARK, SIGN, DATE AND RETURN/
/THE PROXY CARD PROMPTLY USING THE/
/ENCLOSED ENVELOPE./
- --------------------------------------------------------------------------------
<PAGE> 36
{PAYLESS CASHWAYS LETTERHEAD}
February 23, 1996
Dear MoneyBuilder Participant:
As a participant in the Payless Cashways, Inc. Employee Savings Plan
(the " MoneyBuilder Plan"), you have the right to direct the Trustee of the
MoneyBuilder Plan (the "Trustee") how you wish the shares of the Company's
common stock allocated to your MoneyBuilder account as of the close of business
on February 14, 1996 to be voted at the Company's Annual Meeting of Stockholders
scheduled for April 18, 1996. The only matters identified in the Company's Proxy
Statement proposed to be considered and voted upon at the Annual Meeting are the
election of three directors and the approval of the Payless Cashways, Inc.
Deferred Compensation Plan for Directors.
Enclosed are the following materials for you to consider and act on:
1. The Company's Proxy Statement for the Annual Meeting of Stockholders;
2. "Voting Instructions" card for you to give directions to the Trustee
as to the voting of the shares allocated to your account; and
3. The Company's Annual Report for 1995.
After reviewing the enclosed materials, please complete, sign and
return as soon as possible the enclosed "Voting Instructions" card to Securities
Transfer Division, United Missouri Bank N.A., P. O. Box 410064, Kansas City, MO
64179-0013 in the enclosed prepaid return envelope. United Missouri Bank N.A.
will tabulate the votes in order to permit the Trustee to vote the shares
allocated to your account as you direct. If you do not sign and return the
enclosed "Voting Instructions" card, the shares in your ESOP account will be
voted in the same proportion as the shares with respect to which timely
directions are received by the Trustee and voted in such matters.
The shares allocated to your account can be voted at the meeting only
by the Trustee pursuant to your instructions. In order for your instructions to
be counted, the enclosed "Voting Instructions" card must be received by April
15, 1996.
Sincerely,
/s/ E. J. Holland, Jr.
E. J. Holland, Jr.
On Behalf of the Plan Committee
