SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
<PAGE>1
Payless Cashways, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / 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 transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>COVER
February 27, 1998
To Our Stockholders:
It is my pleasure to invite you to our 1998 annual meeting of stockholders.
This year it will be held on Wednesday, April 15, 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 1998 annual
meeting, our 1997 Annual Report and our Proxy Statement for the 1998 annual
meeting. When you have finished reading the Proxy Statement, please promptly
mark, sign, and return to us the enclosed proxy card, to ensure that your shares
will be represented.
We appreciate the continuing interest of our stockholders in Payless
Cashways, Inc., and we look forward to seeing many of you at the annual meeting.
Very truly yours,
/s/ Donald E. Roller
Donald E. Roller
Acting Chief Executive Officer
<PAGE>1
[PAYLESS LOGO]
BUILDING MATERIALS
2300 Main
Kansas City, Missouri 64108
--------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
PAYLESS CASHWAYS, INC.
To Be Held April 15, 1998
To the Stockholders of PAYLESS CASHWAYS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Payless
Cashways, Inc. will be held at 2300 Main, 1st Floor, Kansas City, Missouri, on
Wednesday, April 15, 1998 at 10:00 a.m. for the following purposes:
1. To elect one director to a term of three years as set forth in the Proxy
Statement.
2. To transact such other and further business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on February 17,
1998, as the record date for the determination of stockholders entitled to
notice of and to vote at the meeting.
Dated: February 27, 1998
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gary D. Gilson
Gary D. Gilson, Secretary
- --------------------------------------------------------------------------------
You are cordially invited to attend the meeting. However, whether or not you
plan to be personally present at the meeting, please date and sign the enclosed
proxy and return it promptly in the enclosed envelope. If you later desire to
revoke your proxy, you may do so at any time before it is exercised.
- --------------------------------------------------------------------------------
<PAGE>2
General Information for Stockholders
In order to provide every stockholder with an opportunity to vote on all
matters scheduled to come before the Annual Meeting, whether or not the
stockholder attends in person, proxies are solicited from stockholders 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 stockholder's directions. Stockholders 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 their best judgment
on any other business that may properly come before the meeting.
Any stockholder executing a proxy may revoke that proxy or submit a revised
proxy at any time before it is voted. A stockholder may also vote by ballot at
the Annual Meeting, thereby canceling any proxy previously returned as to any
matter voted on by ballot. A stockholder 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 stockholder 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 (the
"New Stock") at the close of business on February 17, 1998, 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 19,991,516 shares of New Stock were outstanding. Each share of New Stock is
entitled to one vote 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 stockholders on or about February 27, 1998.
Background
On July 21, 1997, the Company filed a petition for relief commencing a case
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Western District of Missouri. From that date until
December 2, 1997, the Company operated as a debtor-in-possession.
On November 19, 1997, the Bankruptcy Court entered an order (the
"Confirmation Order") confirming the Company's First Amended Plan of
Reorganization, as modified (the "Plan of Reorganization"). In connection with
the Plan of Reorganization, a new Board of Directors of the Company was
appointed effective December 2, 1997. In January 1998, David Stanley and Susan
M. Stanton resigned from their positions as officers and directors of the
Company and Stephen A. Lightstone, Gerald M. Buchen and E.J. Holland, Jr.
resigned from their positions as officers of the Company. None of the current
members of the Board of Directors was a member of the Company's Board of
Directors prior to December 2, 1997. In addition, the Company's previously
outstanding shares of common stock, par value $0.01 per share (the "Old Common
Stock"), and series A cumulative preferred stock, par value $1.00 per share (the
"Old Preferred Stock" and, collectively, with the Old Common Stock, the "Old
Stock"), were canceled, and New Stock of the reorganized Company was, or will
be, issued to the holders of the Old Stock and to certain of the Company's
creditors. In connection with the Plan of Reorganization, Payless Cashways,
Inc., an Iowa corporation, was merged into a wholly-owned subsidiary to effect a
reincorporation of the Company in Delaware, with the surviving entity continuing
under the name, "Payless Cashways, Inc."
<PAGE>3
Matters to be Considered at the Annual Meeting
1. Proposal No. 1 - Election of Directors
The business and affairs of the Company are to be managed by or under
the direction of a Board of Directors. Pursuant to the Certificate of
Incorporation of the Company, the terms of the directors are divided into
three classes, designated Class I, Class II and Class III. Each class
consists, as nearly as may be possible, of one-third the total number of
directors constituting the entire Board of Directors, which has been
reduced from nine to eight. There is currently only one Class I director
standing for election. The Company is searching for a new Chief Executive
Officer, and it is expected that the new CEO will be appointed a Class I
director. The initial term of the Class I directors, Class II directors and
Class III directors expires in 1998, 1999 and 2000, respectively. 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 Stockholders in 1998, one Class I director is
to be elected. The nominee listed below has been 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 the nominee set forth below. In order to be elected a
director, a nominee must receive a plurality of the votes of the shares
present in person or represented by proxy at the Annual Meeting and
entitled to vote in the election of directors. 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.
The nominee has consented to being named a nominee and has agreed to
serve if elected. In case the 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
nominee is set forth below.
Principal Occupation and
Name Age Five-Year Employment History
- ---------------------------- --- -------------------------------------------
H.D. Cleberg 59 President and Chief Executive Officer of
First designated a director: Farmland Industries, Inc. since 1991. Mr.
1997 Cleberg is Chairman of the Audit Committee
Class I and a member of the Corporate Governance
and Nominating Committee of the Payless
Board of Directors.
The Board of Directors unanimously recommends a vote "FOR" the
proposal to elect the nominee as a Class I director of the Company.
Information regarding the six directors who were previously designated and
will continue to serve their terms is set forth below.
<PAGE>4
<TABLE>
<CAPTION>
Principal Occupation and
Name Age Five-Year Employment History
- ------------------------------- --- -------------------------------------------------------------
<S> <C> <C>
David M. Chamberlain 54 Chairman of Genesco, Inc. since 1994 and President and Chief
First designated as a director: Executive Officer from 1994 to 1996; served in various
1997 senior management positions with the Shaklee Corporation
Class II from 1983-1993; and currently a director of Wild Oats Inc.,
Expressly Portraits, Inc., and L. Kee & Company. Mr.
Chamberlain is Chairman of the Compensation Committee and a
member the Audit Committee of the Payless Board of Directors.
Max D. Hopper 63 Principal of Max D. Hopper Associates, Inc. since 1995; and
First designated as a director: currently a director of Gartner Group, Metrocall Corp.,
1997 Scopus Corp., U.S. Data Corp., Vtel Corp. and Wordtalk
Class II Corp. Mr. Hopper is a member of the Corporate Governance
and Nominating Committee and of the Finance Committee of the
Payless Board of Directors.
Peter M. Wood 59 Former Managing Director of J.P. Morgan & Co., Incorporated
First designated as a director: from 1986 until 1996; and currently a director of Middlesex
1997 Mutual Assurance Company and Stone & Webster, Incorporated.
Class II Mr. Wood is Chairman of the Corporate Governance and
Nominating Committee and a member of the Audit Committee of
the Payless Board of Directors.
Peter G. Danis 65 Non-Executive Chairman of the Board of Payless since
First designated as a director: December, 1997; Chief Executive Officer of Boise Office
1997 Products Corporation and Executive Vice President of Boise
Class III Cascade Corporation since 1994; served in various upper
management positions with both Boise Cascade Corporation and
Boise Cascade Office Products Corporation since 1968; and
currently a director of Boise Office Products. Mr. Danis is
a member of the Compensation Committee of the Payless Board
of Directors.
David G. Gundling 47 President and Chief Executive Officer of Hagemeyer Foods
First designated as a director: N.A., Inc. since 1997; served in various management
1997 positions with Richfood, Inc. from 1995 to 1997 and with
Class III Super Rite Corporation from 1979 to 1995. Mr. Gundling is a
member of the Compensation Committee and of the Finance
Committee of the Payless Board of Directors.
Donald E. Roller 60 Acting Chief Executive Officer of Payless since January
First designated as a director: 1998; Executive Vice President - North American Gypsum USG
1997 Corporation from January 1996 to November 1996; President
Class III and Chief Executive Officer of United States Gypsum Company
from January 1993 to November 1996. Mr. Roller is Chairman
of the Finance Committee of the Payless Board of Directors.
</TABLE>
<PAGE>5
The current Board of Directors took office December 2, 1997, following the
close of fiscal 1997. During fiscal 1997, there were five meetings and four
telephonic meetings of the Board of Directors. During fiscal 1997, each former
director attended more than 75% of all meetings of the Board of Directors and of
the committees on which he or she served during the time he or she remained on
the Board of Directors. In addition to attending Board of Directors and
committee meetings during the year, the former directors conferred with officers
regarding corporate matters and reviewed material submitted by management to the
Board of Directors and committees for consideration and action.
Committees of the Board
The Board of Directors has four 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. The Audit Committee serves as the conduit for communication
between the Board of Directors and external and internal auditors. The Audit
Committee recommends to the Board of Directors the independent public
accountants to conduct the annual examination of financial statements and also
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 four
times during fiscal 1997. The members of the Company's Audit Committee during
fiscal 1997 were Wayne B. Lyon, Chairman; Scott G. Fossel; William A. Hall;
George Latimer; and John H. Weitnauer, Jr. The members of the Company's Audit
Committee are currently H.D. Cleberg, Chairman; Peter M. Wood; and David M.
Chamberlain.
Compensation - The Compensation Committee reviews the compensation (wages,
salaries, supplemental compensation and benefits) of the employees of the
Company, approves compensation and benefit policies and plans, approves direct
and indirect executive officer compensation, administers stock programs, and
oversees the Company's executive development plan. The Committee also makes
recommendations to the Board of Directors regarding election of executive
officers and compensation and benefits for directors. The Compensation Committee
met three times during fiscal 1997. The members of the Compensation Committee
during fiscal 1997 were Gary D. Rose, Chairman; Scott G. Fossel; Wayne B. Lyon;
Louis W. Smith; Ralph Strangis; and John H. Weitnauer, Jr. The members of the
Company's Compensation Committee are currently David M. Chamberlain, Chairman;
David G. Gundling; and Peter G. Danis.
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. The Committee also
reviews developments in corporate governance generally and makes recommendations
to the Board of Directors, as appropriate. The Corporate Governance and
Nominating Committee met two times during fiscal 1997. The members of the
Company's Corporate Governance and Nominating Committee during fiscal 1997 were
Ralph Strangis, Chairman; William A. Hall; Gary D. Rose; David Stanley; and
Susan M. Stanton. The members of the Company's Corporate Governance and
Nominating Committee are currently Peter M. Wood, Chairman; H.D. Cleberg; and
Max D. Hopper.
Finance - The Finance Committee considers the financing requirements of the
Company, reviews and makes recommendations to the Board of Directors with
respect to acquisitions, divestitures, extraordinary capital expenditure
requests, and significant changes in the capital structure of the Company,
including the incurrence/defeasance of long-term indebtedness and the
issuance/redemption of equity securities, and other major financial
transactions. The Finance Committee held one meeting and several telephone
meetings during fiscal 1997. The members of the Company's Finance Committee
during fiscal 1997 were Scott G. Fossel, Chairman; William A. Hall; Gary D.
Rose; David Stanley; and Ralph Strangis. The members of the Company's Finance
Committee are currently Donald E. Roller, Chairman; David G. Gundling; and Max
D. Hopper.
<PAGE>6
Compensation of Directors
Effective in fiscal 1998, the Company pays each non-employee director (i)
an annual directors' fee of $25,000, except that the Non-Executive Chairman is
paid an annual fee of $100,000, 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. Committee chairs are paid an
additional annual fee of $3,500.
Obligations under the Payless Cashways, Inc. Deferred Compensation Plan for
Directors were discharged pursuant to the Plan of Reorganization. All former
directors who had deferred the payment of all or a portion of their fees had
such amounts treated as unsecured claims of creditors entitling them to receive
their pro rata share of 8,269,329 shares of New Stock reserved for allowed Class
3A claims of unsecured creditors of the Company.
Similarly, all outstanding options granted to former directors under
the Payless Cashways Director Option Plan were canceled on December 2, 1997
pursuant to the Plan of Reorganization. In January 1998, the Non-Executive
Chairman and the acting Chief Executive Officer were each granted options to
purchase 120,000 shares of Common Stock and the remaining five directors were
each granted options to purchase 60,000 shares of Common Stock pursuant to the
1998 Omnibus Incentive Plan. All such options have an exercise price equal to
the fair market value of the Common Stock on the date of grant, and are subject
to a four-year vesting schedule with one-fourth of the grant vesting on each
anniversary from the grant date.
Compensation Committee Interlocks and Insider Participation
Members of the Compensation Committee of the Company's Board of Directors
during fiscal 1997 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 Partner
of Goldman Sachs Group L.P. During fiscal 1997, Payless retained Goldman, Sachs
& Co., an affiliate of Goldman Sachs Group L. P., to provide financial advisory
service, for an amount which was not greater than 5% of the Company's or the
firm's annual gross revenues. 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 was President and
Chief Operating Officer and a director of Masco Capital Corporation ("Masco")
until August, 1996, and he continues to serve as a director of Masco. During
fiscal 1997, 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 fiscal 1998. 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 fiscal 1997, for an amount which was not greater than 5% of the
Company's or the firm's annual gross revenues. Payless believes that the terms
and conditions of its relationships with each of Goldman, Sachs & Co., 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.
Performance Graph
The graph set forth below compares the indexed total return on an
investment in the Company's Old Common Stock on March 9, 1993 (the day the Old
Common Stock began trading publicly) through the Company's 1997 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 (Speciality) 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.
<PAGE>7
[OBJECT OMITTED]
As of As of As of As of As of
1/27/93(1) 11/26/94(1) 11/25/95(1) 11/30/96(1) 11/29/97(1)
Payless Cashways, Inc. $ 89.66 $ 58.62 $ 32.76 $ 12.97 $ 0.36
S&P 500 $102.24 $100.45 $134.03 $167.60 $211.53
S&P Retail Index $101.23 $ 99.47 $ 90.34 $ 14.37 $157.80
(1) Fiscal year ends on a Saturday, therefore closest available date is
utilized.
On December 2, 1997, the effective date of the Company's Plan of
Reorganization, the Old Stock was canceled and New Stock was issued or reserved
for issuance in accordance with the terms of the Plan of Reorganization.
Accordingly, the historical stock price performance of the Old Common Stock
reflected above is not indicative of the current price of the Company's
outstanding New Stock or its future performance. The New Stock is currently
traded on the Over The Counter Bulletin Board. The closing price on February 10,
1998 was $2 7/16 per share.
Report on Executive Compensation
The members of the Compensation Committee during fiscal 1997 and the
persons responsible for the Company's executive compensation policies for fiscal
1997 as described below were Gary D. Rose, Chairman (through April 1997); Scott
G. Fossel; Wayne B. Lyon (through June 1997); Louis W. Smith; Ralph Strangis;
and John H. Weitnauer, Jr. On December 2, 1997, the Company's Board of Directors
was reconstituted. The current members of the Compensation Committee did not set
and were not responsible for the compensation policies for fiscal 1997, which
are described below.
The Compensation Committee of the Board of Directors was composed entirely
of directors who were 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 incentive plans and all other benefit programs.
<PAGE>8
The Compensation Committee believes that it is in the best interest of the
stockholders of the Company to attract, retain and motivate top quality
executive officers, by offering a competitive compensation package that
establishes a relationship between executive pay and the enhancement of
stockholder value.
Historically, the Committee reviewed its executive officer compensation
program each year and periodically retained the assistance of an independent,
executive compensation consulting firm. Every two or three years, the Committee
engaged a firm to conduct a formal study to determine whether the Company's
compensation program was 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 was not
completed, the prior study was 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 reviewed the performance of the Company and
approved 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 believed 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 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 reviewed
the performance of the Company and base salaries of executive officers, compared
base salaries against the comparable companies and determined base pay
adjustments, as appropriate. The performance criteria used by the Compensation
Committee included reporting responsibilities of each executive officer and
corporate performance in terms of the Company's sales, income, operations,
expansion and similar factors. The Compensation Committee did not employ any
specific weighting of the performance criteria and application of the criteria
was 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 were established by the Committee and,
pursuant to the Company's annual incentive bonus program, predicated upon the
Company's annual performance measured by attainment of established levels of
earnings before interest, taxes, depreciation and amortization ("EBITDA"). Under
the program, executive officers were entitled to receive 100% of their incentive
targets only if the Company achieved 100% of the EBITDA target; and based on the
Company's payout schedule, executive officers received 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 were
paid if the Company failed to achieve a minimum of 90% of the EBITDA target.
Incentive levels were set for executive officers based on salary grade. Total
cash compensation (base salary plus annual incentive) for executive officers was
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 were achieved, i.e.,
performance exceeded 100% EBITDA. For the purpose of determining the achievement
of the performance levels under the program, the Committee had 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 the EBITDA target and which the
<PAGE>9
Committee believed should be eliminated or reduced to reflect the ongoing
performance of the Company. During 1997, no incentives were paid under the
program because the minimum EBITDA target was not achieved.
Long-Term Stock Incentive Program
The Committee believes that it is essential for executive officers to own
significant amounts of stock in the Company, thereby aligning the long-term
interests of executive officers with those of stockholders. The long-term stock
incentive program is also intended to provide a means of attracting and
retaining outstanding individuals as executive officers of the Company.
Historically, long-term stock incentives were awarded pursuant to the
Payless Cashways 1992 Incentive Stock Program. No stock options were granted and
no shares of restricted stock were awarded to executive officers in fiscal 1997.
Chief Executive Officer Compensation
During fiscal 1997, the Committee determined 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 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 fiscal 1997. Mr. Stanley received no annual incentive cash bonus
for fiscal 1997 under the annual incentive cash bonus plan, described above, and
received no option grant or restricted stock award under the long-term stock
incentive program described above. However, under a reorganization retention
plan described below under Summary Compensation Table, Mr. Stanley received a
retention bonus of $97,500 in December 1997 for the performance of his duties
during the reorganization and an additional $180,000 success bonus based on the
effective date of the Plan of Reorganization.
Compensation for the Other Named Executive Officers
Based on performance criteria described above under "Chief Executive
Officer Compensation", the Committee determined that the annual base salaries
for Ms. Stanton, Mr. Lightstone, Mr. Buchen, and Mr. Holland should remain at
$450,000, $295,000, $275,000 and $242,000, respectively, in 1997. These other
named executive officers received no bonuses for fiscal 1997 under the annual
incentive cash bonus plan since the EBITDA target, described above, was not
achieved, and received no stock option grants or restricted stock awards under
the long-term stock incentive program, described above. However, as described
above under "Chief Executive Officer Compensation," Ms. Stanton, Mr. Lightstone,
Mr. Buchen and Mr. Holland received in December 1997 retention bonuses of
$67,500, $44,250, $41,250 and $36,300, respectively, and success bonuses of
$135,000, $90,000, $85,000 and $85,000, respectively.
<PAGE>10
Summary Compensation Table
The following table sets forth the compensation during each of the last
three completed fiscal years for the Company's named executive officers who held
the positions listed in fiscal 1997:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------------------- ----------------------------
(a) (b) (c) (d) (e) (f) (g) (i)
Securities
Underlying
Name and Other Annual Restricted Stock Options/ All Other
Principal Position Year Salary($) Bonus ($)(1) Compensation($)(2) Awards($)(3) SARs (#) Compensation($)(4)
- ------------------ ---- --------- ------------ ------------------- ---------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
David Stanley - 1997 650,000 277,500 -- -- -- 1,539
Chief Executive Officer 1996 650,000 -- 9,497 -- -- 2,370
and Director 1995 650,000 -- 8,643 73,000 30,800 2,538
Susan M. Stanton - 1997 450,000 202,500 100,000 -- -- 1,539
President 1996 450,000 -- 6,358 -- -- 2,370
Chief Operating Officer 1995 450,000 -- 5,786 40,150 23,100 2,538
and Director
Stephen A. Lightsone- 1997 295,000 134,250 100,000 -- -- 1,539
Senior Vice President- 1996 295,000 -- 6,644 -- -- 2,370
Finance/Treasurer 1995 275,000 -- 6,350 20,988 10,900 3,060
Gerald M. Buchen- 1997 275,000 126,250 -- -- -- 10,063
Senior Vice President- 1996 275,000 -- 1,175 -- -- 11,069
Merchandising 1995 255,000 -- 1,069 19,163 10,900 10,519
E.J. Holland, Jr.- 1997 242,000 121,300 -- -- -- 1,539
Senior Vice President- 1996 242,000 -- -- -- -- 2,370
Administration/ 1995 235,000 -- -- 19,163 10,900 2,538
Secretary
<FN>
(1) The amounts reflected in column (d) above represent the retention
bonuses and success bonuses that were paid in December 1997, which are
more fully described in the text below this table.
(2) The amounts reflected in column (e) above for 1997 reflect the exercise
of put options by Ms. Stanton and Mr. Lightstone, which are more fully
described in footnote 2 to the table below entitled "Aggregated
Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Options/SAR Values."
The amounts reflected in column (e) above for 1996 and 1995 represent
the above-market interest earnings under the Wealth-Op Deferred
Compensation Plan and the 1988 Deferred Compensation Plan. These plans
have been terminated and amounts deferred under these plans as of July
21, 1997 have been treated as unsecured claims in the Chapter 11
proceedings in 1997.
The Wealth-Op Deferred Compensation Plan and the 1988 Deferred
Compensation Plan were non-qualified deferred compensation plans which
allowed certain employees to elect to defer compensation for a period
of four or eight years. The Plans provided for interest to be credited
to deferred accounts at bench-mark rates established in the Plans. None
of the named officers deferred compensation under the Plans in 1997.
<PAGE>11
(3) No annual restricted stock award was made to the named executive
officers in 1997. 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 fiscal 1997 were as
follows: David Stanley 8,000/$320; Susan M. Stanton 4,400/$176; Stephen
A. Lightstone 2,300/$92; Gerald M. Buchen 2,100/$84; and E. J. Holland,
Jr. 2,100/$84. The restricted stock awards were issued pursuant to the
long-term stock incentive program, which has been terminated. The
restricted stock awards were subject to a three-year-cliff vesting
schedule from the date of the award, but all previously unvested shares
fully vested on the effective date of the Plan of Reorganization,
December 2, 1997. All restricted stock awards were Old Common Stock.
Dividends were payable on the shares if and to the extent paid on
Payless' Old Common Stock generally.
(4) All other compensation for fiscal 1997 consists of a trip award of
$8,523.62 for Mr. Buchen and Employee Savings Plan contributions. The
Employee Savings Plan estimated contributions are $1,539 for each of
Mr. Stanley, Ms. Stanton, Mr. Lightstone, Mr. Buchen and Mr. Holland.
</FN>
</TABLE>
Employment agreements with David Stanley, Susan Stanton, Stephen Lightstone
and Gerald Buchen were terminated in connection with their resignations in
January 1998. An executive change-in-control agreement with E.J. Holland, Jr.
was terminated in connection with his resignation in January 1998.
In connection with the Company's Plan of Reorganization, and because of the
difficulty of recruiting key employees to a debtor in a bankruptcy proceeding
and the difficulty in general of recruiting in a tight labor market, the Company
presented for the Bankruptcy Court's approval, and the Bankruptcy Court
approved, an Amended Reorganization Retention Plan (the "Retention Plan") with
respect to approximately 350 key employees, including David Stanley, Susan M.
Stanton, Stephen A. Lightstone, Gerald M. Buchen and E.J. Holland, Jr. Pursuant
to the Retention Plan, these employees were eligible for a retention bonus (the
"Retention Bonus") if they (i) were employed by the Company on the date of
payment, and (ii) had performed at expectations measured against performance
standards for their position. The Retention Bonus is payable in two
installments. Fifty percent of the Retention Bonus became payable on December 2,
1997, the effective date of the Plan of Reorganization. The remaining fifty
percent of the Retention Bonus becomes payable six months after the date of the
first payment. Pursuant to the Retention Plan, certain executive officers,
including David Stanley, Susan M. Stanton, Stephen A. Lightstone, Gerald M.
Buchen and E.J. Holland, Jr. were also eligible for an additional discretionary
bonus (the "Success Bonus") on the effective date of the Plan of Reorganization.
The purpose of the Success Bonus was to give these executive officers an
incentive to cause the effective date of the Plan of Reorganization to occur as
early as possible, and the maximum total amount of the Success Bonus pool was
designed to decrease in steps if the effective date did not occur by specified
dates.
<PAGE>12
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
(a) (b) (c) (d)
Underlying
Shares Acquired Value Unexercised Options/
Name on Exercise (#) Realized ($) SARs at FY-End (#)(1)
- --------------------- ------------------ ------------ ---------------------
David Stanley -- -- 340,405
Susan M. Stanton 25,000(2) $100,000 126,536
Stephen A. Lightstone 25,000(2) $100,000 94,191
Gerald M. Buchen -- -- 62,157
E. J. Holland, Jr -- -- 52,575
(1) None of the options outstanding at the end of fiscal 1997 was an
in-the-money option and all of such options were canceled on the
effective date of the Plan of Reorganization, December 2, 1997.
(2) Pursuant to employment agreements, each of Ms. Stanton and Mr.
Lightstone exercised a right to put 25,000 shares to the Company for
$4.00 per share on April 1, 1997.
Retirement Program
Pension Benefits
At the end of fiscal 1997, Payless maintained a non-qualified supplemental
pension plan for executive officers, the Payless Supplemental Retirement Plan
(the "Supplemental Retirement Plan"), which provided 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 were participants in the
Supplemental Retirement Plan and had entered into Supplemental Retirement
Agreements with Payless. Obligations under the Supplemental Retirement Plan were
discharged in connection with the Plan of Reorganization and executive officers
due amounts pursuant to the Supplemental Retirement Plan are being treated as
unsecured creditors to the extent of the amounts owed them. Executive officers
are entitled to receive New Stock, the amount of which has not been finally
determined, in settlement of such claims. On December 15, 1997, the first
partial distribution in partial settlement of allowed, unsecured claims of
creditors was made by the Company, including claims under the Supplemental
Retirement Plan, for which Mr. Stanley, Ms. Stanton, Mr. Lightstone, Mr. Buchen
and Mr. Holland received 55,151, 13,179, 10,064, 4,246 and 10,550 shares of New
Stock, respectively, valued on that date at $127,537, $30,476, $23,273, $9,819
and $24,397, respectively.
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
<PAGE>13
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 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.
As of the end of fiscal 1997, years of service credited pursuant to the
Retirement Plan were as follows: Mr. Stanley 18, Ms. Stanton 15, Mr. Lightstone
15, Mr. Buchen 24 and Mr. Holland 5. The estimated monthly benefits payable at
age 65 under the Retirement Plan (computed as a straight single life annuity),
based on actual credited service and compensation, is as follows for the
executive officers named in the Summary Compensation Table above: Mr. Stanley
$6,891.83, Ms. Stanton $2,790.96, Mr. Lightstone $2,822.25, Mr. Buchen $2,800.55
and Mr. Holland $1,188.39.
Certain Transactions
Canadian Imperial Bank of Commerce and its affiliates ("CIBC"),
NationsBank, N.A. and its affiliates ("NationsBank"), and Van Kampen American
Capital Prime Rate Income Trust ("Van Kampen"), each of whom beneficially owns
in excess of 5% of the New Stock, are or have been parties to the following
credit agreements with the Company since the filing of the Company's petition
under Chapter 11: From July 21, 1997, the date the petition was filed, to
December 2, 1997, they were parties to the Company's Debtor-in Possession
Financing Agreement; and since December 2, 1997, the effective date of the
Company's Plan of Reorganization, they have been parties to the Company's Exit
Financing Agreement. CIBC, NationsBank and Van Kampen received $833,333,
$508,333 and $381,250, respectively, in facility, advisory and agency fees under
those agreements. In addition, pursuant to the terms of those agreements, CIBC,
NationsBank and Van Kampen have been paid interest, commitment fees and letter
of credit fees.
Certain Beneficial Ownership
The table below sets forth certain information, as of January 12, 1998,
regarding the beneficial ownership of the Company's New 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 ("SEC"), the number of shares of New Stock beneficially
owned includes shares as to which a right to acquire ownership within 60 days
exists, such as through the exercise of employee stock options and conversion of
convertible securities.
<PAGE>14
Name and Address Shares Beneficially
of Beneficial Owner Owned Percent of Class
- ------------------------- ------------------- ----------------
Donald E. Roller 0 0%
David Stanley (1) 61,042 0.3%
Susan M. Stanton (2) 17,485 (6)
Stephen A. Lightstone (3) 9,151 (6)
Gerald M. Buchen (4) 5,000 (6)
E.J. Holland, Jr.(5) 10,643 (6)
H.D. Cleberg 63 (6)
David M. Chamberlain 0 0%
Max D. Hopper 0 0%
Peter M. Wood 0 0%
Peter G. Danis 0 0%
David G. Gundling 0 0%
CIBC Inc. 1,222,897 6.1%
425 Lexington Ave
New York, NY 10017
NationsBank, N.A.(7) 1,554,772 7.8%
901 Main St
Dallas, TX 75202
Van Kampen American Capital
Prime Rate Income Trust 1,024,159 5.1%
1 Park View Plaza
Oak Brook Terrace, IL 60181
All Directors and Executive Officers
as a group (15 persons) 114,627 0.6%
- ----------------------------
(1) Includes 10 shares owned by a trust for the benefit of Mr. Stanley's
daughter for which Mr. Stanley acts as trustee. Mr. Stanley disclaims
beneficial ownership of such 10 shares.
(2) Includes 20 shares held in Ms. Stanton's father's marital trust for
which Ms. Stanton acts as co-trustee.
(3) Includes 22 shares owned by Mr. Lightstone's wife.
<PAGE>15
(4) Includes 23 shares owned by Mr. Buchen's wife, and 1 share owned by
each of Mr. Buchen's four children.
(5) Held in a trust for the benefit of Mr. Holland's wife for which Mr.
Holland acts as Co-Trustee.
(6) Less than 0.1%.
(7) Includes 962,438 shares held of record by NationsBank of Texas, N.A.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
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 SEC, initial reports of ownership and
reports of changes in ownership of 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 of directors and executive officers that no other reports were
required during 1997, 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.
2. Other Business
As of the date of delivery of the text of this Proxy Statement to the
printer, management knew of no other business that will be presented for action
at the Annual Meeting. In the event that any other business should properly come
before the meeting, it is the intention of the persons designated as proxies on
the proxy card to take such action as shall be in accordance with their best
judgment.
Other Information, Stockholder 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 1998. 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.
The Company currently plans to hold the 1999 Annual Meeting in Kansas City,
Missouri, on April 15, 1999. Management will appropriately consider all
proposals from stockholders meeting the requirements set forth in the following
paragraphs. When adoption of a proposal is clearly in the best interests of the
Company and the stockholders generally, and does not require stockholder
approval, the Board of Directors will usually adopt the proposal, if
appropriate, rather than including the proposal in the Proxy Statement.
A stockholder proposal may be considered at the Company's Annual Meeting in
1999 only if it meets the following requirements. First, the stockholder making
the proposal must be a stockholder of record on the record date for such Annual
Meeting, must continue to be a stockholder of record at the time of such
meeting, and must be entitled to vote thereat. Second, the stockholder must
deliver or cause to be delivered a written notice to the Company's Secretary.
Such notice must be received by the Secretary no later than February 14, 1999.
The notice shall specify (a) the name and address of the stockholder as they
appear on the books of the Company, (b) the number of shares of the Company
which are beneficially owned by the stockholder; (c) any material interest of
the stockholder in the proposed business described in the notice; (d) if such
business is a nomination for director, each
<PAGE>16
nomination sought to be made, together with the reasons for each nomination, a
description of the qualifications and business or professional experience of
each proposed nominee and a statement signed by each nominee indicating his or
her willingness to serve if elected, and disclosing the information about him or
her that is required by the Exchange Act, and the rules and regulations
promulgated thereunder to be disclosed in the proxy materials for the meeting
involved if he or she were a nominee of the Company for election as one of its
directors; (e) if such business is other than a nomination for director, the
nature of the business, the reasons why it is sought to be raised and submitted
for a vote of the stockholders and if and why it is deemed by the stockholder to
be beneficial to the Company, and (f) if so requested by the Company, all other
information that would be required to be filed with the SEC if, with respect to
the business proposed to be brought before the meeting, the person proposing
such business was a participant in a solicitation subject to Section 14 of the
Exchange Act. Notwithstanding satisfaction of the above, the proposed business
may be deemed not properly brought before the meeting if, pursuant to state law
or any rule or regulation of the SEC, it was offered as a stockholder proposal
and was omitted from the proxy materials for the meeting.
Pursuant to the Rules and Regulations of the SEC, stockholder 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; and
(5) the proposal must contain the name of the proposing stockholder(s) and a
contact address. For stockholder proposals to be considered for inclusion in the
Company's proxy materials for the 1999 Annual Meeting of Stockholders, such
proposals must be received by the Secretary of the Company on or before October
30, 1998.
The Corporate Governance and Nominating Committee will consider persons
recommended by stockholders as director nominees. 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 Stockholders at which such director would be elected. All letters of
nomination should be sent to the Secretary of the Company 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
Company's Proxy Statement, letters of nomination must be received by the
Secretary of the Company on or before October 30, 1998.
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 may retain a firm to assist in the
solicitation of proxies from individual stockholders, brokers, nominees,
fiduciaries and other custodians. 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.
The Company's Annual Report to Stockholders, including financial statements
for the year ended November 29, 1997, is enclosed with this Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gary D. Gilson
Gary D. Gilson, Secretary
February 27, 1998
<PAGE>
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 Richard G. Luse and Juliann Tapko, or
either of them, as Proxy/Proxies, with the power to appoint his substitute, 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 17, 1998 at the Annual Meeting of Stockholders to be
held on April 15, 1998, or any adjournment or postponement thereof. This Proxy
revokes all prior Proxies given by the undersigned.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. ELECTION OF DIRECTOR
FOR the nominee listed below WITHHOLD AUTHORITY
to vote for the nominee
listed below
Nominee: H.D. Cleberg
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting and all matters incident to the
conduct of the meeting.
<PAGE>
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted for Proposal 1.
Please sign exactly as the name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, 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 an authorized
person.
Dated: , 1998
--------------------------------------
-----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
----------------------------------
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
----------------------------------
