<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended February 28, 1998
Or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-4437
PAYLESS CASHWAYS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 42-0945849
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Two Pershing Square
2300 Main, P.O. Box 419466
Kansas City, Missouri 64141-0466
(Address of Principal Executive Offices) (Zip Code)
(816) 234-6000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES / X / NO / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 19,992,397 shares of Common Stock, $.01 par value, outstanding as of
March 30, 1998.
<PAGE>2
PAYLESS CASHWAYS, INC.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF OPERATIONS (Unaudited) (1)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
----------------- | ----------------
Thirteen | Thirteen
Weeks Ended | Weeks Ended
February 28, | March 1,
1998 | 1997
--------------------------|------------------------
<S> <C> | <C>
|
Income |
Net sales $ 394,271 | $ 487,550
Other income 789 | 1,205
--------------------------|------------------------
395,060 | 488,755
|
Costs and Expenses |
Cost of merchandise sold 291,909 | 348,247
Selling, general and administrative 112,170 | 138,407
Special charges 5,584 | --
Provision for depreciation and amortization 8,312 | 12,804
Interest expense 10,235 | 16,055
--------------------------|------------------------
428,210 | 515,513
--------------------------|------------------------
|
LOSS BEFORE INCOME TAXES (33,150) | (26,758)
|
Federal and state income taxes (8,188) | (18,623)
--------------------------|------------------------
NET LOSS $ (24,962) | $ (8,135)
==========================|========================
|
Net loss per common share-basic (2) $ (1.25) |
==========================|
|
Weighted average common shares outstanding (2) 20,000 |
==========================|
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>3
PAYLESS CASHWAYS, INC.
CONDENSED BALANCE SHEETS (Unaudited) (1)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
-----------------------------------------|---------------
February 28, November 29, | March 1,
(In thousands) 1998 1997 | 1997
-----------------------------------------|---------------
<S> <C> <C> | <C>
ASSETS |
|
CURRENT ASSETS |
Cash and cash equivalents $ 5,604 $ 11,961 | $ 8,509
Merchandise inventories (3) 411,358 414,882 | 386,812
Prepaid expenses and other current assets 12,073 14,705 | 18,889
Income taxes receivable 9,706 32,232 | 34,464
Deferred income taxes 6,171 8,665 | 13,104
-----------------------------------------|--------------
TOTAL CURRENT ASSETS 444,912 482,445 | 461,778
|
OTHER ASSETS |
Real estate held for sale 24,996 48,562 | 16,639
Cost in excess of net assets acquired, less |
accumulated amortization of $107,568 |
at March 1, 1997 -- -- | 290,910
Deferred financing costs 2,398 2,600 | 12,867
Other 9,848 14,316 | 13,626
|
LAND, BUILDINGS AND EQUIPMENT 367,064 363,418 | 787,318
Allowance for depreciation and amortization (8,301) -- | (285,808)
-----------------------------------------|--------------
TOTAL LAND, BUILDINGS AND EQUIPMENT 358,763 363,418 | 501,510
-----------------------------------------|--------------
$ 840,917 $ 911,341 | $ 1,297,330
========================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>4
PAYLESS CASHWAYS, INC.
CONDENSED BALANCE SHEETS - Continued (Unaudited) (1)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
-------------------------------------- | -------------
February 28, November 29, | March 1,
(In thousands) 1998 1997 | 1997
-----------------------------------------|---------------
<S> <C> <C> | <C>
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
CURRENT LIABILITIES |
Current portion of long-term debt (4) $ 3,135 $ 9,354 | $ 18,765
Trade accounts payable 52,308 75,583 | 107,516
Other current liabilities 113,899 136,741 | 152,659
Income taxes payable 2,990 2,362 | 6,249
-----------------------------------------|--------------
TOTAL CURRENT LIABILITIES 172,332 224,040 | 285,189
|
LONG-TERM DEBT, less portion |
classified as current liability (4) 438,513 424,031 | 664,572
|
NON-CURRENT LIABILITIES |
Deferred income taxes 50,476 58,788 | 41,729
Other 20,758 20,682 | 24,177
|
SHAREHOLDERS' EQUITY (5) |
Common Stock, $.01 par value, 50,000,000 shares |
authorized, 20,000,000 shares issued at |
February 28, 1998, and November 29, 1997 200 200 | --
Preferred Stock, $1.00 par value, 25,000,000 |
shares authorized; issued: |
Cumulative Preferred Stock, 406,000 shares |
issued and $80,134 aggregate |
liquidation preference at March 1, 1997 -- -- | 40,600
Common Stock, $.01 par value: |
Voting, 150,000,000 shares authorized, |
37,711,528 shares issued at March 1, 1997 -- -- | 377
Non-Voting Class A, 5,000,000 shares authorized |
2,250,000 shares issued at March 1, 1997 -- -- | 23
Additional paid-in capital 183,600 183,600 | 487,795
Accumulated deficit (24,962) -- | (247,132)
-----------------------------------------|--------------
TOTAL SHAREHOLDERS' EQUITY 158,838 183,800 | 281,663
-----------------------------------------|--------------
$ 840,917 $ 911,341 | $ 1,297,330
========================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>5
PAYLESS CASHWAYS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
------------------ | ----------------
Thirteen | Thirteen
Weeks Ended | Weeks Ended
February 28, | March 1,
(In thousands) 1998 | 1997
<S> <C> | <C>
------------------ | -----------------
|
Cash Flows from Operating Activities |
|
Net loss $ (24,962) | $ (8,135)
Adjustments to reconcile net loss to net cash |
provided by operating activities: |
Depreciation and amortization 8,312 | 12,804
Deferred income taxes (5,818) | 641
Non-cash interest 170 | 700
Other 76 | 851
Changes in assets and liabilities (16,807) | (38,376)
-----------------------|----------------------
NET CASH USED IN OPERATING ACTIVITIES (39,029) | (31,515)
|
Cash Flows from Investing Activities |
|
Additions to land, buildings and equipment (3,788) | (6,875)
Proceeds from sale of land, buildings and equipment 23,697 | 1,985
Acquisition of business, excluding working capital: |
Purchase price in excess of net assets acquired -- | (334)
Decrease (increase) in other assets 4,468 | (708)
-----------------------|----------------------
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 24,377 | (5,932)
|
Cash Flows from Financing Activities |
|
Retirements of long-term debt (54,737) | (3,670)
Net proceeds from revolving credit facility 63,000 | 50,000
Other 32 | (799)
-----------------------|----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,295 | 45,531
-----------------------|---------------------
|
Net (decrease) increase in cash and cash equivalents (6,357) | 8,084
Cash and cash equivalents, beginning of period 11,961 | 425
-----------------------|---------------------
Cash and cash equivalents, end of period $ 5,604 | $ 8,509
=======================|=====================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>6
PAYLESS CASHWAYS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Thirteen weeks ended February 28, 1998, and March 1, 1997.
(1) The accompanying condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q. To the extent that
information and footnotes required by generally accepted accounting
principles for complete financial statements are contained in or
consistent with the audited financial statements incorporated by
reference in the Company's Form 10-K for the year ended November 29,
1997, such information and footnotes have not been duplicated herein. In
the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of
financial statements have been reflected herein. The November 29, 1997,
condensed balance sheet has been derived from the audited financial
statements as of that date.
(2) Basic net loss per common share has been computed based on the
weighted-average number of common shares outstanding during the period.
Dilutive net loss per common share is computed based on the
weighted-average number of common shares plus potential common shares
outstanding during the period, when dilutive, consisting of certain stock
options. However, given the net loss reported in the first quarter of
fiscal 1998, the impact of considering such stock option would be
antidilutive. Accordingly, diluted loss per common share has not been
presented. Net loss per common share has not been presented for the
Predecessor Company because Old Preferred Stock and Old Common Stock were
canceled on December 2, 1997, under the Plan of Reorganization.
Presentation of net loss per common share based on Predecessor Company
average shares outstanding would therefore not be meaningful.
(3) Approximately 80% of the Company's inventories are valued using the LIFO
(last-in, first-out) method. Because inventory determination under the
LIFO method is only made at the end of each fiscal year based on the
inventory levels and costs at that time, interim LIFO determinations must
necessarily be based on management's estimates of expected year-end
inventory levels and costs. Since future estimates of inventory levels
and costs are subject to change, interim financial results reflect the
Company's most recent estimate of the effect of inflation and are subject
to final year-end LIFO inventory amounts. If the FIFO (first-in,
first-out) method of inventory accounting had been used by the Company,
inventories would have been $1.0 million and $25.5 million higher than
reported at February 28, 1998, and March 1, 1997, respectively.
(4) Long-term debt consisted of the following:
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
-------------------------------------- | --------------
February 28, November 29, | March 1,
(In thousands) 1998 1997 | 1997
-----------------------------------------|----------------
<S> <C> <C> | <C>
Exit Financing Agreement, variable interest rate $ 339,794 $ 317,133 | $ --
Mortgage loan, variable interest rate 100,665 102,010 | --
Note payable, variable interest rate -- 13,000 | --
Amended Credit Agreement, variable interest rate -- -- | 404,000
Mortgage loan, 11.04% to 11.21% -- -- | 104,358
Senior subordinated notes, 9-1/8% -- -- | 173,655
Other senior debt 1,189 1,242 | 1,324
-----------------------------------------|----------------
441,648 433,385 | 683,337
Less portion classified as current liability (3,135) (9,354) | (18,765)
-----------------------------------------|----------------
$ 438,513 $ 424,031 | $ 664,572
==========================================================
</TABLE>
On February 26, 1998, the Company borrowed an additional $13 million
under the variable rate mortgage loan and prepaid the note payable.
(5) During the first quarter of 1998, the Company granted 1,350,000 stock
options under the Payless Cashways, Inc. 1998 Omnibus Incentive Plan. The
exercise price for these incentive stock options was the fair market
value of the Common Stock on the grant date. The Company has accounted
for these stock options according to APB Opinion No. 25, "Accounting for
Stock Issued to Employees."
<PAGE>7
PAYLESS CASHWAYS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Income
Net sales for the quarter ended February 28, 1998, decreased 19.1% from the same
period of 1997 in total and 7.5% on a same-store sales basis. (Same stores are
those open one full year.) The sales decline for the first quarter is primarily
due to the lingering impact of the Company's July 1997 Chapter 11 filing and
competitive pressure. Same-store sales to professional customers declined 4.5%
and same-store sales to do-it-yourself customers declined 10.3%. During the
second half of fiscal 1997, the Company closed 30 stores whose sales were $64.5
million in the first quarter of 1997.
Costs and Expenses
Cost of merchandise sold, as a percent of sales, was 74.0% and 71.4% for the
first quarter of 1998 and 1997, respectively. The increase for the first quarter
of 1998 was primarily due to more competitive pricing designed to regain
customer traffic lost during the Chapter 11 period during fiscal 1997.
Selling, general and administrative expenses were 28.4% of sales for both the
first quarter of 1998 and 1997. Selling, general and administrative expenses for
the first quarter of 1998 decreased approximately $26.2 million compared to the
same period of the prior year primarily because of closed stores.
A special charge of $5.6 million ($3.4 million after tax), primarily a cash
charge, was recorded in the first quarter of 1998 to reflect severance costs
related to the elimination of staff at the Company's headquarters and regional
administrative centers.
The provision for depreciation and amortization decreased from the first quarter
of 1997 due primarily to goodwill written off and assets written down in
fresh-start reporting related to the Company's emergence from bankruptcy. In
addition, assets were removed from service in connection with the store closings
mentioned above.
Interest expense for the first quarter of 1998 decreased compared to the same
period of 1997 primarily due to lower borrowing levels in 1998 somewhat offset
by higher interest rates in 1998. Certain debt was discharged in accordance with
a Plan of Reorganization effective December 2, 1997.
The income tax benefit for the first quarter of 1998 was $8.2 million compared
to $18.6 million for the first quarter of 1997. The effective tax rates for 1998
and 1997 were different from the 35% statutory rate primarily due to various
expenses that are permanently non-deductible for income tax purposes. The most
significant of these expenses was goodwill amortization in fiscal 1997. Such tax
benefits reflect management's estimates of the annual effective tax rates at the
end of each quarter, and are subject to change throughout the year.
Net Loss
Net loss for the quarter ended February 28,1998, was $25.0 million compared to
$8.1 million for the same period of 1997. The increase in net loss was primarily
the result of decreased same-store sales and increased cost of goods sold. Loss
per common share was $1.25. Excluding the special charge, net loss for the first
quarter of 1998 would have been $20.8 million and loss per common share would
have been $1.04.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $39.0 million for the first quarter of
1998 compared to $31.5 million for the same period of 1997. The increase in cash
used in operating activities was primarily caused by the increased net loss in
1998. The Company benefited from income tax refunds of $24.6 million received in
the first quarter of 1998. During the first quarters of 1998 and 1997, the
Company used cash of approximately $.4 million and $1.8 million, respectively,
in operating activities related to the execution of the 1997, 1996 and 1995
restructuring plans and $8.8 million in the first quarter of 1998 for costs
related to the Chapter 11 filing. In addition, the Company used $4.6 million in
the first quarter of 1998 to
<PAGE>8
PAYLESS CASHWAYS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
pay severance costs related to the elimination of staff at the Company's
headquarters and regional administrative centers. Due to seasonally lower sales
in the winter months, cash flow in the first quarter represents a small amount
of annual operating cash flow.
Borrowings are available under the Exit Financing Agreement to supplement cash
generated by operations. At February 28, 1998, $33.0 million was available for
borrowing under the Exit Financing Agreement. At February 28, 1998, working
capital was $272.6 million compared to $258.4 million and $176.6 million at
November 29, 1997 and March 1, 1997, respectively. The current ratios at
February 28,1998, November 29, 1997, and March 1, 1997, were 2.58 to 1, 2.15 to
1, and 1.62 to 1, respectively.
The Company's primary investing activities are capital expenditures for the
renovation of existing stores and additional equipment. The Exit Financing
Agreement governs the amount of capital expenditures that can be made ($59.6
million in 1998, $52.1 million in 1999, $41.2 million in 2000, $51.3 million in
2001 and $52.3 million in 2002). The Company spent approximately $3.8 million
and $7.2 million during the first quarter of 1998 and 1997, respectively, for
renovation of existing stores and additional equipment. In 1997 the Company's
capital expenditures also included expenditures for strategic initiatives. The
Company's Board of Directors is currently analyzing the Company's competitive
positioning in the market and the related capital expenditures. Until such
evaluation is complete, budgeted capital expenditures for 1998 will be limited
to normal renovation of existing stores and routine equipment purchases, which
will be financed with funds generated from operations and borrowings under the
Exit Financing Agreement. During the first quarter of 1998, the Company sold
twelve real estate properties related to stores previously closed for
approximately $23.6 million of cash proceeds. Additionally, in the first quarter
of 1998, the Company received $5.1 million from the surrender of certain life
insurance policies related to a terminated benefit plan.
The Company's most significant financing activity is and will continue to be the
retirement of indebtedness. As a result of the Company's reorganization under
Chapter 11, the indebtedness of the Company was reduced significantly in fiscal
1997. Although the Company's consolidated indebtedness is and will continue to
be substantial, management believes that, based upon its analysis of the
Company's financial condition, the cash flow generated from operations during
the past 12 months and the expected results of operations in the future, cash
flow from operations and borrowing availability under the Exit Financing
Agreement should provide sufficient liquidity to meet all cash requirements for
the next 12 months without additional financing. As a result of the Chapter 11
filing, trade creditors have significantly shortened credit terms. The Company
believes that progress with regard to lengthening terms and reestablishing trade
credit is continuing, but availability of trade credit cannot be assured. The
Exit Financing Agreement contains a number of financial covenants with which the
Company must comply. Management currently expects that it will achieve
compliance with these covenants throughout fiscal 1998; however, factors beyond
management's control, including competitive conditions, economic conditions,
supplier support, lumber prices, and weather, could cause noncompliance. If
compliance with these covenants is not achieved, the Company may be required to
renegotiate its existing covenants with lenders or to refinance borrowings.
Success in achieving any such renegotiations or refinancing, or the specific
terms thereof, including interest rates, capital expenditure limits or borrowing
capacity, cannot be assured. If the Company fails to achieve compliance with
these covenants or, in the absence of such compliance, if the Company fails to
amend such financial covenants on terms favorable to the Company, the Company
may be in default under such covenants. If such default occurred, it would
permit acceleration of its debt under the Exit Financing Agreement which, in
turn, would permit acceleration of substantially all of the Company's other
long-term debt.
Statements above in the subsections entitled "Costs and Expenses," and in this
subsection of this report such as "estimated", "believe", "expect" and similar
expressions which are not historical are forward-looking statements that involve
risks and uncertainties. Such statements include, without limitation, the
Company's expectation as to future performance.
Such forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. There are certain
important factors that could cause results to differ materially from those
anticipated by the forward-looking statements made above. Investors are
cautioned that all forward-looking statements involve risks and uncertainty.
Among the factors that could cause actual results to differ materially are the
following: competitor activities; stability of customer demand; stability of the
sales force; supplier support; consumer spending and debt levels; interest
rates; housing activity; lumber prices; product mix; growth of certain market
segments; an excess of retail space devoted to the sale of building materials;
and the success of the Company's strategy. Additional information concerning
these and other
<PAGE>9
PAYLESS CASHWAYS, INC.
factors is contained in the Company's Securities and Exchange
Commission filings, including but not limited to the Form 10-K, copies of which
are available from the Company without charge or on the Company's web site,
payless.cashways.com.
<PAGE>10
PAYLESS CASHWAYS, INC.
REVIEW BY INDEPENDENT AUDITORS
The condensed consolidated financial statements of Payless Cashways, Inc. for
the thirteen week periods ended February 28, 1998, and March 1, 1997, have been
reviewed by KPMG Peat Marwick LLP, independent auditors. Their report is
included in this filing.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
A group of terminated employees and others have filed a lawsuit against
the Company and other named defendants in the United States District Court for
the Southern District of Iowa. (See the full description of the lawsuit in Item
3-Legal Proceedings contained in the Company's Form 10-K for the year ended
November 29, 1997.) The lawsuit was brought in connection with a reduction in
force pursuant to a January 1994 restructuring. The suit has asserted a variety
of claims including federal and state securities fraud claims, alleged
violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act,
federal and state claims of age discrimination, alleged violations of the
Employment Retirement Income Security Act of 1974, and various state law claims
including, but not limited to, fraudulent misrepresentation allegations. The
Company filed a motion to dismiss the majority of the claims; and Rulings and an
Order have been issued with respect thereto, substantially narrowing plaintiff's
legal claims by dismissing some age discrimination counts, all federal
securities fraud and RICO counts except one each, and all state law counts
related to an alleged partnership.
The plaintiff's motion for class certification has been denied on all
claims except the age discrimination claims. The court has recently granted the
plaintiff's motion for class certification of certain age discrimination claims.
As a result of this ruling, approximately 20 additional individuals may choose
to participate in the age claims asserted in this suit. Each of the parties has
conducted discovery pursuant to the court's scheduling order and discovery plan.
The lawsuit was formally stayed pursuant to the automatic stay issued by the
Bankruptcy Court following the voluntary Chapter 11 reorganization filing on
July 21, 1997. During the Chapter 11 reorganization, plaintiffs timely filed
proofs of claim, including a purported claim on behalf of the potential Age
Discrimination Employment Act opt-in class, for an aggregate of $37 million,
which was reduced by the Bankruptcy Court to a reserve of $22 million. The case
has been returned to the United States District Court for the Southern District
of Iowa for resolution. Any recovery for the plaintiffs would be treated as a
general unsecured claim entitling the plaintiffs to their pro rata share of
8,269,329 shares of New Common Stock reserved for such claims.
The Company denies any and all claimed liability and is vigorously
defending this litigation, but is unable to estimate a potential range of
monetary exposure, if any, to the Company or to predict the likely outcome of
this matter.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other.
Unsecured claims against the Company by vendors and suppliers for goods
delivered and services rendered prior to July 21, 1997, claims in
respect of the 9-1/8% senior subordinated notes, contingent
unliquidated claims and claims for damage arising from the rejection by
the Company pursuant to Section 365 of the Bankruptcy Code of executory
contracts and unexpired leases (collectively, "General Unsecured
Claims") will receive their pro rata share of 8,269,329 shares of New
Common Stock or approximately 41% of the shares of the newly
reorganized Company. Holders of General Unsecured Claims began
receiving their first distribution of shares in partial satisfaction
and discharge of their allowed claims on or about December 15, 1997. To
date 5,866,312 shares of New Common Stock have been issued to holders
of General Unsecured Claims whose claims have been allowed by the
Bankruptcy Court. The remaining shares of New Common Stock are held for
future distributions to holders of General Unsecured Claims, pending
the final resolution of disputed claims.
<PAGE>11
PAYLESS CASHWAYS, INC.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
4.0 Long-term debt instruments of Payless in amounts not
exceeding ten percent (10%) of the total assets of Payless
will be furnished to the Commission upon request.
10.1 Payless Cashways, Inc. 1998 Omnibus Incentive Plan
effective January 15, 1998.
10.2 Settlement Agreement, Resignation, and Full General Release
dated January 5, 1998, by and between Payless and David
Stanley.
10.3 Settlement Agreement, Resignation, and Full General Release
dated January 6, 1998, by and between Payless and Susan M.
Stanton.
10.4 Settlement Agreement, Resignation, and Full General Release
dated January 21, 1998, by and between Payless and Stephen
A. Lightstone.
10.5 Settlement Agreement, Resignation, and Full General Release
dated January 17, 1998, by and between Payless and G.
Michael Buchen.
10.6 Settlement Agreement, Resignation, and Full General Release
dated January 23, 1998, by and between Payless and E. J.
Holland, Jr.
10.7 Form of Indemnification Agreement between Payless and
various officers and directors.
15.1 Letter re unaudited financial information - KPMG Peat
Marwick LLP.
27.1 Financial data schedule.
b. Reports on Form 8-K.
The Registrant has filed one report on Form 8-K during the
quarter ended February 28, 1998. The report was dated December
2, 1997, and contained Item 5, Other Events, and Item 7,
Financial Statements and Exhibits. No financial statements were
filed with this report.
<PAGE>12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAYLESS CASHWAYS, INC.
(Registrant)
Date: April 7, 1998 By: s/Richard G. Luse
---------------------------------------
Richard G. Luse, Senior Vice President-
Finance and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>1
PAYLESS CASHWAYS, INC.
1998 OMNIBUS INCENTIVE PLAN
Section 1. Purpose.
The purposes of the 1998 Omnibus Incentive Plan of Payless Cashways, Inc.
(the "Plan") are to give the Company and its Affiliates a competitive advantage
in attracting, motivating and retaining Employees and Outside Directors and to
more closely align the interests of the Employees with the Company's
stockholders and to motivate Employees to enhance the value of the Company for
the benefit of all stockholders.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
(1) "Affiliate" means (i) any Person that directly, or through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Company, (ii) any entity in which the Company has an equity interest of at
least 50%, and (iii) any entity in which the Company has any other significant
equity interest, as determined by the Committee.
(2) "Award" means any Option, Limited Right, Performance Share, Performance
Unit, Restricted Stock, Shares, Dividend Equivalent, or any other right,
interest, or option relating to Shares granted pursuant to the provisions of the
Plan.
(3) "Award Agreement" means any written agreement or contract, setting
forth the terms and conditions of any Award granted hereunder.
(4) "Board" means the Board of Directors of the Company.
(5) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
(6) "Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board, authorized to administer the Plan under
Section 3 hereof. The Committee shall consist of not less than two directors,
each of whom shall be a Non-Employee Person within the meaning of Rule 16b-3 and
an outside director within the meaning of Code Section 162(m).
(7) "Company" means Payless Cashways, Inc., a Delaware corporation.
(8) "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
<PAGE>2
(9) "Dividend Equivalent" means any right granted pursuant to Section 11
hereof.
(10) "Employee" means any employee (including officers) of the Company or
any Affiliates regularly employed for more than 20 hours per week.
(11) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successors thereto, and the rules and regulations promulgated
thereunder, all as shall be amended from time to time.
(12) "Fair Market Value" means, with respect to any property, the market
value of such property as determined by such methods or procedures as shall be
established from time to time by the Committee.
(13) "Incentive Stock Option" means an Option granted under Section 6
hereof that is intended to meet the requirements of Code Section 422 or any
successor provision thereto.
(14) "Limited Right" means any right granted to a Participant pursuant to
Section 7 hereof.
(15) "Non-Qualified Stock Option" means an Option granted under Section 6
hereof that is not intended to be an Incentive Stock Option, and an Option
granted to an Outside Director pursuant to Section 10 hereof.
(16) "Option" means an Incentive Stock Option or a Non-Qualified Stock
Option.
(17) "Outside Director" means a member of the Board who is not an Employee
of the Company or an Affiliate.
(18) "Participant" means an Employee or Outside Director who receives an
Award under the Plan.
(19) "Performance Award" means any Award of Performance Shares or
Performance Units pursuant to Section 8 hereof.
(20) "Performance Goals" means preestablished, objectively determinable
performance goals, and a level or levels of performance with respect to each of
the goals, adopted by the Committee prior to the grant of Restricted Stock or
Performance Awards and that are based, in whole or in part, on one or more of
the following performance-based criteria: (i) attainment during the Performance
Period of a specified price per share of the Company's common stock; (ii)
attainment during the Performance Period of a specified rate of growth or
increase in the amount of growth in the price per share of the Company's common
stock; (iii) attainment during the Performance Period of a specified level of
the Company's earnings or earnings per share of the Company's common stock; (iv)
attainment during the Performance Period of a specified rate
<PAGE>3
of growth or increase in the amount of growth of the Company's earnings or
earnings per share of the Company's common stock; (v) attainment during the
Performance Period of a specified level of the Company's cash flow or cash flow
per share of the Company's common stock; (vi) attainment during the Performance
Period of a specified rate of growth or increase in the amount of growth of the
Company's cash flow or cash flow per share of the Company's common stock; (vii)
attainment during the Performance Period of a specified level of the Company's
return on equity; (viii) attainment during the Performance Period of a specified
rate of growth or increase in the amount of growth of the Company's return on
equity; (ix) attainment during the Performance Period of a specified level of
the Company's return on assets or return on net assets. For purposes hereof,
"earnings" may, but need not, be measured by reference to earnings before
interest, taxes, depreciation and amortization.
(21) "Performance Period" means that period established by the Committee at
the time any Performance Award is granted or at any time thereafter during which
any performance criteria, including any Performance Goal, if applicable,
specified by the Committee with respect to such Award are to be measured.
(22) "Performance Share" means any grant pursuant to Section 8 hereof of a
unit valued by reference to a designated number of Shares.
(23) "Performance Unit" means any grant pursuant to Section 8 hereof of (i)
a bonus consisting of cash or other property, the amount or value of which,
and/or the entitlement to which, is conditioned upon the attainment of any
performance criteria, including any Performance Goals, if applicable, specified
by the Committee, or (ii) a unit valued by reference to a designated amount of
property other than Shares.
(24) "Person" means any individual, corporation, limited liability company,
partnership, association, joint-stock company, trust, unincorporated
organization, or government or political subdivision thereof.
(25) "Restricted Stock" means any Share issued pursuant to Section 9 hereof
with the restriction that the holder may not sell, transfer, pledge, or assign
such Share and with such other restrictions as the Committee, in its sole
discretion, may impose (including, without limitation, any restriction on the
right to vote such Share, and the right to receive any cash dividends), which
restrictions may lapse separately or in combination upon such conditions and at
such time or times, in installments or otherwise, as the Committee may deem
appropriate, and which restriction shall provide that the Shares subject to such
restriction shall be forfeited if the restriction does not lapse prior to such
date or such event as the Committee may deem appropriate.
(26) "Restricted Stock Award" means an award of Restricted Stock pursuant
to Section 9 hereof.
<PAGE>4
(27) "Rule 16b-3" means Rule l6b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor rule or regulation
thereto.
(28) "Shares" means shares of the Common Stock of the Company, par value
$.01 per share.
(29) "Termination of Employment" means the termination of the Participant's
employment with the Company and any Affiliate. A Participant employed by an
Affiliate shall also be deemed to incur a Termination of Employment if the
Affiliate ceases to be an Affiliate and the Participant does not immediately
thereafter become an employee of the Company or another Affiliate.
Section 3. Administration.
(1) Committee. The Plan shall be administered by the Committee.
(2) Committee Authority. Subject to the terms of the Plan and applicable
law, the Committee shall have full power and authority to: (i) designate
Participants, (ii) determine the type or types of awards to be granted to each
Participant hereunder, (iii) determine the number of Shares to be covered by or
with respect to which payments, rights, or other matters are to be calculated in
connection with each Award, (iv) determine the terms and conditions of any
Award, (v) determine whether, to what extent, and under what circumstances
Awards may be settled or exercised in cash, Shares, other securities, other
Awards, or other property, or canceled, forfeited, or suspended, and the method
or methods by which Awards may be settled, exercised, canceled, forfeited, or
suspended, (vi) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan, (vii) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it deems
appropriate for the proper administration of the Plan, (viii) make any other
determination and take any other action that the Committee deems necessary or
desirable for administration of the Plan, and (ix) determine to what extent and
under what circumstances Shares and other amounts payable with respect to an
Award shall be deferred either automatically or at the election of the
Participant or the Committee.
(3) Replacement Awards. Subject to the terms of the Plan (including without
limitation Section 13 hereof), the Committee shall also have the authority to
grant Awards in replacement of Awards previously granted under this Plan or any
other compensation plan of the Company or an Affiliate.
(4) Delegation. The Committee, in its discretion, may delegate its
authority and duties under the Plan to an officer of the Company under such
conditions and/or limitations as the Committee may establish; provided, however,
that only the Committee may select and grant Awards, or otherwise take any
action with respect to Awards, to Participants who are (i) officers or directors
of the Company for purposes of Section 16 of the Exchange Act, or (ii)
Participants who are "covered employees" under Code Section 162(m).
<PAGE>5
(5) Decisions of Committee and Its Delegates. Unless otherwise expressly
provided in the Plan, all determinations, designations, interpretations, and
other decisions of the Committee, or (unless the Committee has specified an
appeal process to the contrary) any other Person(s) to whom the Committee has
delegated authority, shall be final, conclusive and binding upon all Persons,
including the Company, any Participant, any stockholder, and any Employee. All
determinations of the Committee shall be made by a majority of its members.
The Committee and each member thereof shall be entitled to rely upon any
report or other information furnished by any officer or employee of the Company
or any Affiliate, or the Company's independent auditors, and shall be entitled
to rely upon the advice of counsel, who may be counsel to the Company. Members
of the Committee and any employee of the Company or an Affiliate acting at the
direction or on behalf of the Committee shall not be personally liable for any
action or determination taken or made in good faith with respect to the Plan
upon such report, information or advice.
Section 4. Shares Subject to the Plan.
(1) Subject to adjustment as provided in Section 4(c) hereof, a total of
Two Million Four Hundred Thousand (2,400,000) Shares shall be available for the
grant of Awards under the Plan; provided, however, that not more than Four
Hundred Eighty Thousand (480,000) of such shares shall be issued as Restricted
Stock and that no more than Two Hundred Thousand (200,000) shares of Restricted
Stock shall be issued in any one fiscal year. Any Shares issued hereunder may
consist of authorized and unissued shares or treasury shares. If any Shares
subject to any Award granted hereunder, or to which such an Award relates, are
forfeited or such Award otherwise terminates without the issuance of such Shares
or of other consideration in lieu of such Shares, the Shares subject to such
Award, or to which such Award relates, to the extent of any such forfeiture or
termination, shall again be available for grant under the Plan. In addition, to
the extent permitted by Code Section 422, any Shares issued by, and any Awards
granted by or that become obligations of, the Company through or as the result
of the assumption of outstanding grants or the substitution of Shares under
outstanding grants of an acquired company shall not reduce the Shares available
for grants under the Plan.
(2) For purposes of this Section 4,
(1) If an Award (other than a Dividend Equivalent) is denominated in
Shares, the number of Shares covered by such Award, or to which such Award
relates, shall be counted on the date of grant of such Award against the
aggregate number of Shares available for granting Awards under the Plan;
(2) Dividend Equivalents and Awards not denominated in Shares shall be
counted against the aggregate number of Shares available for granting Awards
under the Plan in
<PAGE>6
such amount and at such time as the Committee shall determine under procedures
adopted by the Committee consistent with the purposes of the Plan; and
(3) Awards that operate in tandem with (whether granted simultaneously
with or at a different time from), or that are substituted for, other Awards or
awards under other Company plans may be counted or not counted under procedures
adopted by the Committee in order to avoid double counting.
(3) In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Shares, or other securities or
property), stock split, reverse stock split, merger, reorganization,
consolidation, recapitalization, split-up, spin-off, repurchase, exchange of
shares, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee may: (i) make
adjustments in the aggregate number and class of shares or property which may be
delivered under the Plan and may substitute other shares or property for
delivery under the Plan, including shares of another entity which is a party to
any such merger, reorganization, consolidation or exchange of shares; and (ii)
make adjustments in the number, class and option price of shares or property
subject to outstanding Awards and Options granted under the Plan, and may
substitute other shares or property for delivery under outstanding Awards and
Options, including shares of another entity which is a party to any such merger,
reorganization, consolidation or exchange of shares, as may be determined to be
appropriate by the Committee in its sole discretion, provided that the number of
Shares subject to any Award or Option shall always be a whole number. The
preceding sentence shall not limit the actions which may be taken by the
Committee under Section 12 of the Plan. No adjustment shall be made with respect
to Awards of Incentive Stock Options that would cause the Plan to violate Code
Section 422.
Section 5. Eligibility.
Any Employee or Outside Director shall be eligible to be selected as a
Participant. Notwithstanding any other provision of the Plan to the contrary, no
Participant may be granted an Option, Limited Right, Performance Shares, Shares
or Restricted Stock with respect to a number of Shares in any one calendar year
which, when added to the Shares subject to any other Option, Limited Right,
Performance Shares, Shares or Restricted Stock granted to such Participant in
the same fiscal year, shall exceed One Million (1,000,000) Shares. If an Option,
Limited Right, or Performance Share is canceled, the canceled Option, Limited
Right or Performance Share continues to count against the maximum number of
Shares for which an Option, Limited Right or Performance Share may be granted to
a Participant in any fiscal year. All Shares specified in this Section 5 shall
be adjusted to the extent necessary to reflect adjustments to Shares required by
Section 4(c) hereof. No Participant may be granted Performance Units in any one
fiscal year which when added to all other Performance Units granted to such
Participant in the same fiscal year shall exceed 300% of the Participant's
annual base salary as of the first day of
<PAGE>7
such fiscal year (or, if later, as of the date on which the Participant becomes
an Employee); provided, however, that no more than $1,200,000 of annual base
salary may be taken into account for purposes of determining the maximum amount
of Performance Units which may be granted in any fiscal year to any Participant.
Section 6. Stock Options.
Options may be granted under this Section 6 to Participants, other than
Outside Directors, either alone or in addition to other Awards granted under the
Plan. Options may be Incentive Stock Options or Non-Qualified Stock Options, or
a combination thereof. The Committee may condition the grant of any Incentive
Stock Option upon approval of the Plan by the Company's stockholders. Any Option
granted to a Participant under this Section 6 shall be evidenced by an Award
Agreement in such form as the Committee may from time to time approve. Any such
Option shall be subject to the following terms and conditions and to such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine:
(1) Option Price. The purchase price per Share purchasable under an Option
shall be determined by the Committee but shall not be less than 100% of the Fair
Market Value of the Share on the effective date of the grant of the Option (or,
if the Committee so determines, in the case of any Option retroactively granted
in tandem with or in substitution for another Award or any outstanding Award
granted under any other plan of the Company, on the effective date of the grant
of such other Award or award under another Company plan).
(2) Option Term. The term of each Option shall be determined by the
Committee, except as provided below for Incentive Stock Options.
(3) Exercisability. Options shall be exercisable at such time or times as
determined by the Committee at or subsequent to the granting of such either
automatically or at the election of the Participant or the Committee, except as
otherwise provided in Section 12(a); provided, however, that the Committee may
condition the exercise of any Option upon approval of the Plan by the Company's
stockholders. In addition, the Committee may at any time accelerate the time at
which Options may be exercised and otherwise modify the time of exercise of the
Options.
(4) Method of Exercise. Subject to the other provisions of the Plan and any
applicable Award Agreement, the Participant may make payment of the option price
in such form or forms as the Committee shall determine, including, payment by
delivery of cash, Shares, Restricted Stock, or other consideration (including,
where permitted by law and the Committee, Awards) having a Fair Market Value on
the exercise date equal to the total option price, or by any combination of
cash, Shares, Restricted Stock and other consideration as the Committee may
specify in the applicable Award Agreement; provided, however, that if Restricted
Stock is surrendered to pay the option price, an equal number of Shares issued
as a result of the option exercise shall be subject to the same restrictions.
The Committee may also specify in the applicable Award Agreement the methods by
which the exercise price may be paid or deemed to
<PAGE>8
be paid and the methods by or forms in which Shares will be delivered or deemed
to be delivered to Participants.
(5) Incentive Stock Options. The terms of any Incentive Stock Option
granted hereunder shall comply in all respects with the provisions of Code
Section 422, or any successor provision, and any regulations promulgated
thereunder. In accordance with rules and procedures established by the
Committee, the aggregate Fair Market Value (determined as of the time of grant)
of the Shares with respect to which Incentive Stock Options held by any
Participant are exercisable for the first time by such Participant during any
calendar year under the Plan (and under any other benefit plans of the Company
or of any parent or subsidiary corporation of the Company as defined in Code
Section 424), shall not exceed One Hundred Thousand Dollars ($100,000) or, if
different, the maximum limitation in effect at the time of grant under Code
Section 422, or any successor provision. and any regulations promulgated
thereunder. The option price per Share purchasable under an Incentive Stock
Option shall not be less than 100% of the Fair Market Value of the Share on the
date of grant of the Option. Each Incentive Stock Option shall expire not later
than 10 years from its date of grant. No Incentive Stock Option shall be granted
to any Participant if at the time the Option is granted such Participant owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company, its parent or its subsidiaries unless (i) the option
price per Share is at least 110% of the Fair Market Value of the Share on the
date of grant, and (ii) such Option by its terms is not exercisable after the
expiration of five years from the date such Option is granted.
(6) Form of Settlement. In its sole discretion, the Committee may provide
at the time of grant that the Shares to be issued upon an Option's exercise
shall be in the form of Shares subject to restrictions as the Committee may
determine, or other similar securities, or may reserve the right to so provide
after the time of grant.
(7) Reload Options. If and to the extent the Committee expressly provides,
at the time of grant or later, that the Participant shall have the right to
receive Reload Options (as defined below) with respect to Non-Qualified Stock
Options, the Participant shall receive Reload Options in accordance with and
subject to the following terms and conditions:
(1) Grant of the Reload Option; Number of Shares; Price. Subject to
paragraph (ii) of this subsection and, except as provided in paragraph (viii)
hereof, to the availability of Shares to be optioned to the Participant under
the Plan (including the limitations set forth in Section 5 hereof), if a
Participant has an Option (the "Original Option") with reload rights and pays
for the exercise of the Original Option by surrendering Shares or Restricted
Stock (whether by means of delivering Shares or Restricted Stock previously held
by the optionee or by delivering Shares or Restricted Stock simultaneously
acquired on exercise of the Original Option), the Participant shall receive a
new option ("Reload Option") for the number of Shares or Restricted Shares so
surrendered at an option price per Share equal to the Fair Market Value of a
Share on the date of the exercise of the Original Option.
<PAGE>9
(2) Conditions to Grant of Reload Option. A Reload Option will not be
granted if (A) the Fair Market Value of a Share on the date of exercise of the
Original Option is less than the exercise price of the Original Option, or (B)
the Participant is no longer an Employee of the Company or of an Affiliate.
(3) Term of Reload Option. The Reload Option shall expire on the same
date as the Original Option, or at such later date as the Committee may provide.
(4) Type of Option. The Reload Option shall be a Non-Qualified Stock
Option.
(5) Additional Reload Options. Except as expressly provided by the
Committee (at the time of the grant of the Original Option or later), Reload
Options shall not include any right to subsequent Reload Options.
(6) Date of Grant; Vesting. The date of grant of the Reload Option
shall be the date of the exercise of the Original Option. Reload Options shall
be exercisable in full beginning from the date of grant, except as otherwise
provided by the Committee.
(7) Stock Withholding Grants of Reload Options. If and to the extent
expressly permitted by the Committee, if the other requirements of this
subsection are satisfied, and if Shares are withheld or Shares surrendered for
tax withholding pursuant to Section 16(f) hereof, a Reload Option will be
granted for the number of Shares surrendered as payment for the exercise of the
Original Option plus the number of Shares surrendered or withheld to satisfy tax
withholding.
(8) Share Limits. Reload Options granted with respect to Original
Options paid for by delivery of Shares or Restricted Stock simultaneously
acquired on exercise of the Original Option shall be counted or not counted
against or as a reduction from the number of shares available for grant under
Section 4 hereof under procedures adopted by the Committee in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan.
(9) Other Terms and Conditions. In connection with Reload Options for
officers who are subject to Section 16 of the Exchange Act, the Committee may at
any time impose any limitations which, in the Committee's sole discretion, are
necessary or desirable in order to comply with Section 16(b) of the Exchange Act
and the rules and regulations thereunder, or in order to obtain any exemption
therefrom.
Section 7. Limited Rights.
Limited Rights may be granted to Participants only with respect to an
Option granted under Section 6 hereof or a stock option granted under another
plan of the Company. Any Limited Right shall be subject to the following terms
and conditions and to such additional terms
<PAGE>10
and conditions, not inconsistent with the Plan, as the Committee shall
determine. Any Limited Right related to a Non-Qualified Stock Option may be
granted at the same time such Option is granted or at any time thereafter before
exercise or expiration of such Option. Any Limited Right related to an Incentive
Stock Option must be granted at the same time such Option is granted. A Limited
Right shall terminate and no longer be exercisable upon termination or exercise
of the related Option, except that a Limited Right granted with respect to less
than the full number of Shares covered by a related Option shall not be reduced
until the exercise or termination of the related Option exceeds the number of
Shares not covered by the Limited Right. Any Option related to any Limited Right
shall no longer be exercisable to the extent the related Limited Right has been
exercised. Any Limited Right shall be exercisable to the extent, and only to the
extent, the related Option is exercisable and only during the ninety (90) day
period immediately following a Change in Control of the Company (as defined in
Section 12 hereof). The Committee may impose such other conditions or
restrictions on the exercise of any Limited Right as it deems appropriate.
Subject to the terms of the Plan and any applicable Award Agreement, a Limited
Right granted under the Plan shall confer on the holder thereof a right to
receive, upon exercise thereof, an amount equal to the excess of (i) the Fair
Market Value of one Share on the date of exercise or if greater and only with
respect to any Limited Right related to a Non-Qualified Stock Option, the
highest price per Share paid in connection with any Change in Control of the
Company, over (ii) the option price of the related Option, multiplied by the
number of Shares as to which the holder is exercising the Limited Right. The
amount payable to the holder shall be paid by the Company in cash.
Section 8. Performance Awards.
(1) Administration. Performance Awards may be granted to Participants other
than Outside Directors in the form of Performance Shares or Performance Units,
either alone or in addition to other Awards granted under the Plan. Performance
Shares or Performance Units shall be payable to, or be exercisable by, the
Participant holding such Award, in whole or in part, following achievement of
one or more performance criteria during such Performance Period as determined by
the Committee. Except as provided in Section 12, Performance Awards will be paid
only after the end of the relevant Performance Period. Performance Awards may be
paid in cash, Shares, Restricted Stock, Options, other property or any
combination thereof, in the sole discretion of the Committee at the time of
payment. Performance Awards may be paid in a lump sum or in installments
following the close of the Performance Period or, in accordance with subsection
(c) hereof, on a deferred basis. Notwithstanding the foregoing, an Award
Agreement may condition the vesting or exercise of a Performance Award on any
combination of the achievement of one or more performance criteria and/or the
completion of a specified period of service as the Committee shall determine at
the time of grant. If the Committee determines that a Performance Award should
qualify as "performance-based compensation" within the meaning of Code Section
162(m), when making such Performance Award, the Committee shall adopt
Performance Goals, certify completion of such goals and comply with any other
requirements necessary to be in compliance with the performance-based
compensation requirements of Code
<PAGE>11
Section 162(m). The Committee may make the payment of any Performance Award
granted prior to approval of the Plan by the Company's stockholders contingent
upon such approval.
(2) Performance Period and Criteria. The length of the Performance Period,
the performance criteria levels to be achieved for each Performance Period, and
the amount of the Award to be distributed shall be conclusively determined by
the Committee.
(3) Deferral of Awards. At the discretion of the Committee, payment of a
Performance Award or any portion thereof may be deferred by a Participant until
such time as the Committee may establish. All such deferrals shall be
accomplished by the delivery on a form provided by the Company of a written,
irrevocable election by the Participant prior to such time payment would
otherwise be made. Further, all deferrals shall be made in accordance with
administrative guidelines established by the Committee to ensure that such
deferrals comply with all applicable requirements of the Code and its
regulations. Deferred payments shall be paid in a lump sum or installments, as
determined by the Committee. The Committee may also credit interest, at such
rates to be determined by the Committee, on cash payments that are deferred and
credit Dividend Equivalents on deferred payments denominated in the form of
Shares.
Section 9. Restricted Stock.
(1) Administration. Restricted Stock Awards may be granted to Participants
other than Outside Directors, either alone or in addition to other Awards
granted under the Plan. The granting of Restricted Stock shall take place on the
date the Committee decides to grant the Restricted Stock, or if the Restricted
Stock Award provides that the grant of Restricted Stock is conditioned upon the
achievement of performance criteria specified in the Restricted Stock Award, on
a date established by the Committee following the achievement of such measures
of performance.
A Restricted Stock Award may condition the grant of Restricted Stock and/or
the lapse of any restriction or restrictions on Restricted Stock on any
combination of the achievement of one or more performance criteria and/or the
completion of a specified period of service as the Committee shall determine at
the time the Restricted Stock Award is made. If the Committee determines that a
Restricted Stock Award should qualify as "performance-based compensation" within
the meaning of Code Section 162(m), when making Restricted Stock Awards, the
Committee shall adopt Performance Goals, certify completion of such goals and
comply with any other requirements necessary to be in compliance with the
performance-based compensation requirements of Code Section 162(m). The
Committee may make the grant of any Restricted Stock Award granted prior to
approval of the Plan by the Company's stockholders contingent upon such
approval.
(2) Registration. Any Restricted Stock issued hereunder may be evidenced in
such manner as the Committee in its sole discretion deems appropriate,
including, without limitation, book-entry registration or issuance of a stock
certificate or certificates. In the event any stock
<PAGE>12
certificate is issued in respect of shares of Restricted Stock awarded under the
Plan, such certificate shall be registered in the name of the Participant, shall
be held in escrow by the Company, and shall bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such Award,
substantially in the following form:
"The transferability of this certificate and shares represented
hereby are restricted pursuant to the terms and conditions (including
forfeiture) of the 1998 Omnibus Incentive Plan of Payless Cashways,
Inc. and a Restricted Stock Agreement. Copies of such Plan and
Agreement are on file at the corporate headquarters of Payless
Cashways, Inc."
(3) Transfer Restrictions. Subject to the provisions of the Plan and the
Award Agreement, during the period, if any, set by the Committee, commencing
with the date of such Award for which such Participant's continued service is
required (the "Restriction Period"), and until the later of (i) the expiration
of the Restriction Period or (ii) the date the performance criteria (if any)
including Performance Goals if applicable are satisfied, the Participant shall
not be permitted to sell, assign, transfer, pledge or otherwise encumber shares
of Restricted Stock. Within these limits, the Committee may provide for the
lapse of restrictions based upon period of service in installments or otherwise
and may accelerate or waive, in whole or in part, restrictions based upon period
of service or upon performance; provided, however, that any applicable
performance criteria, including any Performance Goals if applicable, have been
satisfied.
(4) Rights of Restricted Stockholder. Except as otherwise provided in this
Section 9 and the Award Agreement, the Participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a stockholder of the
Company holding Shares, including the right to vote the shares and the right to
receive any dividends or other distributions. If so determined by the Committee
in the applicable Award Agreement, (i) cash dividends on shares of Restricted
Stock shall be automatically deferred and reinvested in additional Restricted
Stock, held subject to the vesting of the underlying Restricted Stock, or held
subject to meeting performance criteria, including Performance Goals if
applicable, and (ii) dividends payable in Shares shall be paid in the form of
Restricted Stock, held subject to the vesting of the underlying Restricted
Stock, or held subject to meeting performance criteria, including Performance
Goals if applicable.
(5) Lapse of Restrictions. As soon as practicable following the lapse of
the restrictions on Restricted Stock, unrestricted Shares, evidenced in such
manner as the Committee deems appropriate, shall be issued to the grantee.
(6) Forfeiture. Except as otherwise determined by the Committee at the time
of grant, upon Termination of Employment for any reason before the restriction
lapses, all shares of Restricted Stock still subject to restriction shall be
forfeited by the Participant (who shall sign any document and take any other
action required to assign such shares back to the Company) and reacquired
without further consideration by the Company.
<PAGE>13
Section 10. Outside Directors' Options.
(1) Grant of Options. The Committee may grant Options under this Section 10
to Outside Directors, including members of the Committee. All such Options shall
be Non-Qualified Stock Options. Any Option granted to an Outside Director shall
be evidenced by an Award Agreement in such form as the Committee may from time
to time approve. The price at which each Share covered by such Options may be
purchased shall be 100% of the Fair Market Value of a Share on the date the
Option is granted.
(2) Exercise of Options. Except as set forth in this Section 10, Options
shall be exercisable at such time or times as determined by the Committee at or
subsequent to the granting of such either automatically or at the election of
the Outside Director or the Committee. In addition, the Committee may at any
time accelerate the times at which Options may be exercised and otherwise modify
the time of exercise of the Options. However, no Option shall be exercisable
more than 10 years after the date of grant. Options may be exercised by an
Outside Director: (i) during the period that the Outside Director remains a
member of the Board; (ii) for a period of one year after ceasing to be a member
of the Board by reason of death or retirement (as defined below) from the Board;
or (v) for a period of 90 days after ceasing to be a member of the Board for
reasons other than retirement, death or disability, however, only those Options
exercisable at the date the Outside Director ceases to be a member of the Board
shall remain exercisable. For purposes of this Section 10, "retire" or
"retirement" shall mean discontinuance of service as a director after the
director has reached age 60 and has at least five years or more of service on
the Board. All Options shall immediately become exercisable in the event of a
Change in Control, as hereinafter defined, except that Options shall not be
exercisable earlier than six months from the date of grant to the extent
required for exemption under Section 16 of the Exchange Act.
In the event of the death of an Outside Director or former Outside
Director, his Options shall be exercisable only to the extent that they were
exercisable at his date of death and only by the executor or administrator of
the Outside Director's estate, by the person or persons to whom the Outside
Director's rights under the Option shall pass under the Outside Director's will
or the laws of descent and distribution, or by a beneficiary designated in
writing in accordance with Section 16(a) hereof.
(3) Payment. An Option granted to an Outside Director shall be exercisable
only upon payment to the Company of the full purchase price of the Shares with
respect to which the Option is being exercised. Payment for the Shares shall be
in United States dollars, payable in cash or by check or by delivery of Shares
having a Fair Market Value on the exercise date equal to the total option price,
or by any combination of cash and Shares.
(4) Adjustment of Options. In the event there shall be a merger,
reorganization, consolidation, recapitalization, stock dividend or other change
in corporate structure such that the
<PAGE>14
Shares of the Company are changed into or become exchangeable for a larger or
smaller number of Shares, thereafter the number of Shares subject to outstanding
Options and the number of Shares subject to Options to be granted to Outside
Directors pursuant to the provisions of this Section 10 shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of Shares of the Company by reason of such change in corporate
structure; provided, that the number of Shares shall always be a whole number,
and the purchase price per share of any outstanding Options shall, in the case
of an increase in the number of Shares, be proportionately reduced, and in the
case of a decrease in the number of Shares, shall be proportionately increased.
Section 11. Dividend Equivalents.
Subject to the provisions of this Plan and any Award Agreement, the
recipient of an Award (including, without limitations any deferred Award), may,
if so determined by the Committee, be entitled to receive, currently or on a
deferred basis, interest or dividends, or interest or dividend equivalents, with
respect to the number of Shares covered by the Award, as determined by the
Committee, in its sole discretion, and the Committee may provide that such
amounts (if any) shall be deemed to have been reinvested in additional Shares or
otherwise reinvested.
Section 12. Change in Control.
(1) In the event of any Change in Control of the Company, as hereinafter
defined, the Committee, as constituted before such Change in Control, may, in
its sole discretion, as to any Award either at the time an Award is made
hereunder or any time thereafter, take any one or more of the following actions:
(i) provide for the purchase by the Company of any such Award, upon the
Participant's request, for an amount of cash equal to the amount that could have
been attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable or payable; (ii)
make such adjustment to any such Award then outstanding as the Committee deems
appropriate to reflect such Change in Control; or (iii) cause any such Award
then outstanding to be assumed, or new rights substituted therefor, by the
acquiring or surviving corporation after such Change in Control. In the event of
a Change of Control, there shall be an automatic acceleration of any time
periods relating to the exercise or realization of any such Award and all
performance award standards shall be deemed satisfactorily completed without any
action required by the Committee so that such Award may be exercised or realized
in full on or before a date fixed by the Committee, except no Award shall be
exercisable earlier than six months after the date of grant to the extent
required for exemption under Section 16 of the Exchange Act. The Committee may,
in its discretion, include such further provisions and limitations in any
agreement documenting such Awards as it may deem equitable and in the best
interests of the Company.
For purposes of this Plan, a "Change in Control" shall be deemed to have
occurred if:
<PAGE>15
(i) any person (as defined in Sections 13(d) and 14(d)(2) of the
Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), without the prior approval of the Incumbent
Members (as defined below), 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 the date hereof;
(ii) the occurrence within any twelve-month period of a change in the
Board of Directors of the Company with the result that the Incumbent
Members (as defined below) do not constitute a majority of the Company's
Board of Directors. The term "Incumbent Members" shall mean the members of
the Board on the date immediately preceding the commencement of such
twelve-month period, provided that any person becoming a director during
such twelve-month period whose election or nomination for election was
approved by a majority 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; or
(iii) the stockholders of the Company shall have approved a merger,
consolidation or dissolution of the Company or a sale, lease, exchange or
disposition of all or substantially all of the Company's assets, unless
such merger, consolidation, dissolution, sale, lease, exchange or
disposition shall have been approved by a majority of the Incumbent
Members.
Section 13. Amendments.
(1) The Plan. The Board may amend, suspend or terminate the Plan, but no
amendment, suspension or termination shall, without the consent of the
Participant, alter or impair the rights of the Participant under any award
theretofore granted. In addition, no amendment shall be effective without the
approval of stockholders if required by Section 16 of the Exchange Act or Code
Section 162(m) or Section 422 as the case may be.
(2) Awards. The Committee may amend the terms of any Award theretofore
granted, prospectively or retroactively, and may also substitute new Awards for
Awards previously granted under this Plan or for awards granted under any other
compensation plan of the Company or an Affiliate to Participants, including
without limitation previously granted Options having higher option prices, but
no such amendment or substitution shall impair the rights of any Participant
without his or her consent. Except as may provided in an Award Agreement, the
Committee may, in its sole discretion, in whole or in part, waive any
restrictions or conditions applicable to, or accelerate the vesting of, any
Award.
(3) Performance Award Criteria. The Committee shall be authorized, without
the Participant's consent, to make adjustments in Performance Award criteria or
in the terms and
<PAGE>16
conditions of other Awards in recognition of events that it deems in its sole
discretion to be unusual or nonrecurring that affect the Company or any
Affiliate or the financial statements of the Company or any Affiliate, or in
recognition of changes in applicable laws, regulations or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent the dilution or enlargement of benefits or potential benefits under
the Plan.
(4) Curative Amendments. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it deems desirable to carry it into effect. In the event the
Company shall assume outstanding employee benefit awards or the right or
obligation to make future such awards in connection with the acquisition of
another corporation or business entity, the Committee may, in its discretion,
make such adjustments in the terms of awards under the Plan as it deems
appropriate.
Section 14. Termination of Employment and Non-Competition.
The Committee shall have full power and authority to determine whether, to
what extent and under what circumstances any Award shall be canceled or
suspended and shall promulgate rules and regulations to determine (a) what
events constitute disability, retirement, termination for an approved reason and
termination for cause for purposes of the Plan and (b) the treatment of a
Participant under the Plan in the event of his death, disability, retirement, or
termination for an approved reason. In addition, but without limitation, all
outstanding Awards to any Participant shall be canceled or forfeited if the
Participant, without the consent of the Committee, while employed by the Company
or after termination of such employment, becomes associated with, employed by,
renders services to, or owns any interest in (other than any non-substantial
interest, as determined by the Committee), any business that is in competition
with the Company or any Affiliate, or with any business in which the Company or
any Affiliate has a substantial interest as determined by the Committee or such
officers or committee of senior officers to whom the authority to make such
determination is delegated by the Committee.
Section 15. Termination of Awards under Certain Circumstances.
Unless the Participant's Award Agreement provides otherwise, all
unexercised, unearned, and/or unpaid Awards, including, but not by way of
limitation, Awards earned, but not yet paid, all unpaid dividends and Dividend
Equivalents, and all interest accrued on the foregoing shall be canceled or
forfeited, as the case may be, if (a) the Participant's employment with the
Company or an Affiliate is terminated for cause, (b) the Participant is not in
compliance with all applicable provisions of this Plan or with any Award
Agreement, or (c) the Participant, whether or not employed or serving as a
director, acts or otherwise conducts himself in a manner inimical or contrary to
the best interest of the Company or any Affiliate.
<PAGE>17
Section 16. General Provisions.
(1) Non-Assignability. No Award may be pledged or otherwise encumbered or
subject to any lien, obligation or liability of a Participant (other than to the
Company or an Affiliate), or, except for Non-Qualified Stock Options as provided
below, assigned or transferred by such Participant other than by will or the
laws or descent and distribution and shall be exercisable during the lifetime of
the Participant, only by the Participant or, if permissible under applicable
law, by the guardian or legal representative of the Participant, provided,
however, that the Participant may, pursuant to a written designation of
beneficiary filed with and approved by the Committee prior to his death,
designate a beneficiary to exercise the rights of the Participant with respect
to any Award upon the death of the Participant. Any Award of Non-Qualified Stock
Options may be transferred during the lifetime of the Participant, and may be
exercised by the transferee in accordance with the terms of the Award, but only
if and to the extent such transfers are permitted by the Committee pursuant to
the express terms of an Award Agreement and subject to any terms and conditions
which the Committee may impose on such transfers.
(2) Terms. The term of each Award shall be for such period of months or
years from the date of its grant as may be determined by the Committee;
provided, however, that in no event shall the term of any Incentive Stock Option
or Limited Right related to any Incentive Stock Option exceed a period of 10
years from the date of its grant.
(3) Rights to Awards. No Employee, Participant, or other Person shall have
any claim to be granted any Award, and there is no obligation for uniformity of
treatment of Employees, Participants, or holders or beneficiaries of Awards.
(4) No Cash Consideration for Awards. Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law.
(5) Restrictions. All certificates for Shares delivered under the Plan
pursuant to any Award shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange or stock quotation system upon which the Shares are then listed, and
any applicable Federal or state securities law, and the Committee may cause a
legend or legends to be placed on any such certificates to make appropriate
reference to such restrictions.
<PAGE>18
(6) Withholding. The Company shall be authorized to withhold from any Award
granted, payment due or Shares or other property transferred under the Plan or
from any compensation or other amount owing to a Participant the amount of any
applicable withholding and other taxes due and payable in respect of an Award,
payment or shares or other property transferred hereunder and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. The Company may require the
Participant to pay to it such tax prior to and as a condition of the making of
such payment or transfer of Shares or property under the Plan. The Committee may
allow a Participant to pay the amount of taxes due or payable in respect of an
Award by withholding from any payment of Shares due as a result of such Award,
or by permitting the Participant to deliver to the Company, Shares having a fair
market value, as determined by the Committee, equal to the amount of such taxes.
(7) No Limit on Other Compensation Arrangements. Nothing contained in this
Plan shall prevent the Company or any Affiliate from adopting other or
additional compensation arrangements.
(8) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware and applicable Federal law.
(9) Severability. If any provision of this Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction, as to
any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken and the
remainder of the Plan and any such Award shall remain in full force and effect.
(10) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time terminate
the employment of a Participant, free from any liability, or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(11) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. To the
extent than any person acquires a right to receive payments from the Company or
any Affiliate pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company or any Affiliate;
provided, however, that the Committee may authorize the creation of trusts and
deposit therein cash, Shares or other property, or make other arrangements to
meet the Company's obligations under the Plan, and provided that such trusts or
other arrangements are consistent with the "unfunded" status of the Plan.
<PAGE>19
(12) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares, or whether such fractional Shares or any
rights thereto shall be canceled, terminated, or otherwise eliminated.
(13) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
(14) Rule 16b-3 Compliance. With respect to persons subject to Section 16
of the Exchange Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3. To the extent any provision of this
Plan or action by the Committee was not to so comply, the Committee may deem,
for such persons, such provision or action null and void to the extent permitted
by law.
Section 17. Effective Date of Plan.
The Plan shall be effective as of January 15, 1998.
Section 18. Term of Plan.
No Award shall be granted pursuant to the Plan after January 15, 2008 but
any Award theretofore granted may extend beyond that date.
<PAGE>1
SETTLEMENT AGREEMENT, RESIGNATION,
AND FULL GENERAL RELEASE
This Settlement Agreement, Resignation, and Release ("Agreement") is made
and entered into on January 5, 1998 by and between PAYLESS CASHWAYS, INC.
("PAYLESS") and DAVID STANLEY ("STANLEY").
WHEREAS, STANLEY was employed by PAYLESS on April 10, 1980, and is entitled
to the benefits of an Employment Agreement dated as of June 16, 1995, as amended
on August 20, 1997 (the "Employment Agreement"), and
WHEREAS, PAYLESS and STANLEY mutually wish to terminate the employment
status of STANLEY, and STANLEY'S employment with PAYLESS shall end on January
13, 1998; and
WHEREAS, PAYLESS AND STANLEY have agreed that STANLEY shall retire as Chief
Executive Officer and resign as a Director, but that for purposes of his
severance benefits STANLEY'S termination shall be regarded as a termination of
his employment without cause by PAYLESS;
NOW THEREFORE, in consideration of the mutual promises, agreements and
releases contained in this Agreement, the parties agree as follows:
1. PAYLESS' AGREEMENTS
1. EFFECTIVE DATE.
PAYLESS acknowledges that the effective date of this Agreement shall be
January 13, 1998 (the "Effective Date") and that STANLEY will not be required to
perform services for PAYLESS after the Effective Date.
2. SEVERANCE BENEFITS
PAYLESS agrees to provide STANLEY the severance benefits set forth below.
1. Lump Sum Payment.
(1) PAYLESS agrees to pay STANLEY on the Effective Date a lump
sum payment (less applicable payroll deductions) in the amount set forth on
Schedule I hereto. As set forth in Schedule I, such lump sum payment consists of
(A) the amount that STANLEY would have received as base salary from the
Effective Date through March 1, 1999 (the "Severance Period") (based on his base
salary in effect on January 5, 1998), (B) the remaining
<PAGE>2
amount due STANLEY under the PAYLESS Reorganization Retention Plan, and (C) an
amount for unused earned vacation days through the Effective Date. In addition,
PAYLESS shall pay STANLEY on the Effective Date or as promptly thereafter as is
practicable an amount equal to any previously unreimbursed business expenses.
(2) PAYLESS also agrees to pay, in lieu of contributions to the
Payless Cashways, Inc. Employee Savings Plan which would otherwise have been
made on STANLEY's behalf during the Severance Period, and in partial
consideration for the Release of Liability contained herein in Paragraph B.2, an
additional lump sum payment (less applicable payroll deductions) of $20,000
(Twenty Thousand Dollars).
2. Continuation of Benefits. PAYLESS agrees that during the Severance
Period it will provide STANLEY with health, life and dental benefits and other
benefits substantially equivalent to those that STANLEY was receiving or
entitled to receive under the Employment Agreement on January 5, 1998. Such
benefits are described in Schedule II and shall be provided during the Severance
Period (or, if longer, the period during which such benefits would have been
provided at PAYLESS' expense under applicable plans of PAYLESS in effect on
January 5, 1998). Except as may be indicated in Schedule II, such benefits shall
be provided at the same coverage levels that were in effect on January 5, 1998,
and such benefits shall be provided at PAYLESS' expense, subject to the same
cost sharing provisions, if any, as existed on such date. After the Severance
Period, STANLEY shall be eligible for COBRA continuation coverage of health,
life, dental and disability benefits for a period of 18 months or such period as
may then be provided by law. Notwithstanding the foregoing, STANLEY shall not be
entitled to receive such benefits to the extent that STANLEY obtains other
employment that provides comparable benefits during the twelve months following
termination of employment, provided, however, that STANLEY is under no
obligation to seek other employment during such period.
3. Retirement Benefits. PAYLESS agrees that for purposes of
determining the benefits payable to STANLEY under the Payless Cashways, Inc.
Amended Retirement Plan (the "Pension Plan") and STANLEY's eligibility therefor,
STANLEY's date of separation from PAYLESS shall be deemed to be March 1, 1999,
his age shall be deemed to be his age on such date and the amount allocable to
base pay included in the lump sum payment in paragraph A.2.a(i) shall be
included in determining career average pay. If the terms of the Pension Plan do
not permit the forgoing, then on the Effective Date PAYLESS shall pay STANLEY an
amount equal to the present value of the additional retirement benefits that
would have accrued had he continued to perform services for PAYLESS through the
Severance Period at the same rate of compensation as was in effect on January 5,
1998. The present value payable hereunder shall be calculated using the GATT
rate currently in effect under the Pension Plan.
4. Car Allowance. PAYLESS also agrees to a lump sum payment (less
applicable payroll deductions) of $8,400 in lieu of car allowance to be paid on
the Effective Date.
3. DEATH OF STANLEY
<PAGE>3
The death of STANLEY prior to the expiration of this Agreement will not
void this Agreement, but the terms thereof will survive his death. In the event
that STANLEY dies prior to receipt of all sums set forth in section A.2. above,
then any and all such remaining sums not yet received by STANLEY otherwise due
under this Agreement shall become due and payable to the beneficiaries
hereinafter listed: Principal Beneficiary: Trust under agreement dated March 6,
1995, between David Stanley, as Donor, and David Stanley and Jean B. Keffeler,
as Trustees..
4. STOCK INCENTIVE
The parties acknowledge that STANLEY has no vested stock incentives.
5. TELEPHONE, E-MAIL AND COMPUTER ACCESS
For a period of three months after the Effective Date STANLEY will be
provided telephone answering and e-mail services and remote access to the
Company's Microsoft Outlook and Quicken programs.
6. INDEMNIFICATION
Set forth as Schedules III through V hereto are provisions of PAYLESS
Certificate of Incorporation and Bylaws relating to Indemnification of directors
and officers and an Indemnification Agreement dated November 26, 1997, between
PAYLESS and STANLEY(collectively "Indemnification Provisions"). Such
Indemnification Provisions are incorporated by this reference and made a part of
this Agreement in their entirety. PAYLESS acknowledges and agrees that STANLEY
and his estate are entitled to the benefit of such Indemnification Provisions
notwithstanding his termination of service and that such provisions apply to his
service as a director and officer of PAYLESS and any of its predecessors.
PAYLESS further acknowledges that the Indemnification Provisions obligate
PAYLESS, among other matters, to indemnify STANLEY against any and all expenses
(including costs and attorneys' fees) which be might incur as a witness or party
with respect to that certain matter pending in the United States District Court
for the Southern District of Iowa captioned PAYLESS Cashways, Inc. Partners [et.
al.] v. PAYLESS Cashways, Inc. [et. al.]. PAYLESS agrees to honor such
obligations with respect to such proceeding or any other proceeding to which
STANLEY may become a party or witness by reason of the fact that he served as a
director or officer of PAYLESS, except as may be provided in the Indemnification
Provisions. PAYLESS further agrees that as to STANLEY, any amendments or changes
to the Indemnification Provisions or the insurance coverages described in
paragraph A.7 below will not adversely affect STANLEY without STANLEY's written
consent, and that breach by STANLEY of any provision of this AGREEMENT will not
constitute grounds by PAYLESS to change such coverages or to terminate its
obligations under this Agreement or otherwise with respect to the
Indemnification Provisions. PAYLESS and STANLEY agree that said Indemnification
Agreement is hereby amended to delete section 9.6 thereof in its entirety.
7. LIABILITY INSURANCE
<PAGE>4
PAYLESS currently maintains $30 million in directors' and officers'
liability insurance that provides coverage for STANLEY and other directors and
officers of PAYLESS. The coverage period, including the run-off provisions
provided for thereunder, continue through December 2, 2003. PAYLESS agrees to
maintain such directors' and officers' liability insurance coverage or to
provide similar coverage to STANLEY so that STANLEY will remain insured under
similar coverage at current levels until December 2, 2003 with respect to the
period of time that STANLEY served as a director or officer of PAYLESS. PAYLESS
has given STANLEY a copy of such policy and will give him a copy of any
amendment or rider promptly after it becomes effective.
8. NON-COMPETE PROVISIONS
PAYLESS agrees that the provisions of Section 5 of the Employment Agreement
do not apply after the Effective Date.
9. RELEASE OF LIABILITY
PAYLESS releases STANLEY of all claims and demands of any kind, known or
unknown, which it may have against STANLEY as of the Effective Date or which it
may have had at any time before the Effective Date for any acts which STANLEY
committed or omitted during his employment with PAYLESS. PAYLESS understands
that it is releasing STANLEY, to the maximum extent permissible by law, from any
liability which STANLEY may have had to it, known or unknown, at any time up to
and including the Effective Date.
2. STANLEY'S AGREEMENTS
1. VOLUNTARY RESIGNATION
STANLEY and PAYLESS acknowledge that STANLEY does and he does hereby retire
from PAYLESS and voluntarily resign his employment as Chief Executive Officer
and resign as a Director, effective as of the Effective Date. STANLEY and
PAYLESS acknowledge that the resignation which is the subject of this Agreement
has been effected by the mutual and amicable agreement of both parties.
Notwithstanding the foregoing STANLEY will, at PAYLESS' request, provide
transitional advisory services to PAYLESS' acting Chief Executive Officer for a
period ending April 30, 1998 and may continue to occupy his current office
during the month of January, 1998. Such service will be performed without
compensation other than reimbursement of business expenses. The hours (if any)
during which STANLEY performs such transitional advisory services on any given
day shall be determined by him, although he will use reasonable efforts to
respond timely to accommodate the reasonable requests of PAYLESS' acting Chief
Executive Officer for his services.
2. RELEASE OF LIABILITY
<PAGE>5
STANLEY releases PAYLESS from the terms of the Employment Agreement and
acknowledges that further obligations of STANLEY and PAYLESS in that Employment
Agreement are extinguished upon execution of this Agreement, except as
specifically noted herein. STANLEY understands that he is releasing PAYLESS to
the maximum extent permissible by law, from any liability which STANLEY believes
PAYLESS may have had to him, at any time up to and including the date he signs
this Agreement. STANLEY waives any legal right or claims STANLEY may have or may
have had, including claims of race, color, national origin, sex or gender, age
or disability discrimination, arising under the Title VII of the Civil Rights
Acts of 1964, the Rehabilitation Act of 1973, the Civil Rights Act of 1866
(Section 1981), the Americans with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974, the Age Discrimination in Employment
Act, the Family and Medical Leave Act of 1993, the Missouri Human Rights Act,
the Missouri Workers Compensation Act and the Missouri Service Letter Act and
under any other federal, state, or local statute, regulation, or common law of
any state, including any and all claims in tort or contract; provided, however,
that nothing contained in this Release of Liability shall modify or in any way
detract from the indemnification provisions of Paragraph A.5 herein.
3. COOPERATION AGREEMENT
STANLEY also agrees to cooperate and assist PAYLESS in the investigation
and handling of any actual or threatened court action, arbitration or
administrative proceeding or dispute involving any matter that arose during
STANLEY's employment (including, but not limited to, testifying in deposition
and/or court and providing information to PAYLESS). PAYLESS acknowledges and
agrees that it is responsible for any and all expenses (including costs and
attorneys' fees) that STANLEY may incur in connection with any such proceeding.
4. ADEQUACY OF CONSIDERATION
STANLEY acknowledges that the sum paid by PAYLESS under this Agreement is
adequate consideration for STANLEY'S execution of this Agreement, and further
acknowledges that the sum is in excess of the amounts to which he would be
entitled under the existing Employment Agreement, policies or practices of
PAYLESS.
5. CONFIDENTIALITY AND NON-SOLICITATION
STANLEY agrees that notwithstanding the provisions of this Agreement, the
provisions of Section 4 of his Employment Agreement will continue to apply in
accordance with their terms after the Effective Date.
3. OTHER AGREEMENTS
1. NON-DISPARAGEMENT
<PAGE>6
STANLEY and PAYLESS acknowledge and agree that disparaging or critical
statements made by STANLEY about PAYLESS or its board members, officers and
employees of PAYLESS or disparaging statements made by board members or senior
officers of PAYLESS about STANLEY would be uniquely detrimental to the interests
of both parties. Therefore, STANLEY agrees to refrain from making such
disparaging or critical statements about PAYLESS, or its board members,
officers, and employees of PAYLESS, and PAYLESS agrees that PAYLESS' board
members and senior officers (i.e. the Chairman, acting Chief Executive Officer,
President and the senior vice presidents) will refrain from making such
disparaging or critical statements about STANLEY. All other provisions of this
Agreement notwithstanding, PAYLESS agrees that any statements made by STANLEY
during any testimony given by him as part of any deposition, court hearing,
trial, arbitration hearing or similar proceeding, shall not be considered a
disparaging or critical statement, and STANLEY agrees that any statements made
by PAYLESS or its board members, officers, and employees of PAYLESS during any
testimony given by any of them as part of any deposition, court hearing, trial,
arbitration hearing, or similar proceeding, shall not be considered a
disparaging or critical statement.
2. NO ADMISSION OF LIABILITY
STANLEY acknowledges that this Agreement shall not in any way be construed
as an admission by PAYLESS of any liability on the part of PAYLESS, and that all
such liability is expressly denied by PAYLESS. Likewise, PAYLESS acknowledges
that this Agreement shall not in any way be construed as an admission by STANLEY
of any liability on the part of STANLEY and that all such liability is expressly
denied by STANLEY.
3. VOLUNTARY NATURE OF AGREEMENT AND ADVICE OF COUNSEL
STANLEY acknowledges that he has read this Agreement and any attached
exhibits, understands their terms, and signs the Agreement voluntarily of his
own free will, without coercion or duress, and with full understanding of the
significance and binding effect of the Agreement. STANLEY has consulted with his
attorney before signing this Agreement. STANLEY further acknowledges that he has
been represented by counsel with respect to his pending and potential claims and
has thoroughly discussed all aspects of this Agreement with his attorney.
4. CONSIDERATION PERIOD AND REVOCATION
STANLEY received this Agreement on January 5, 1998. STANLEY acknowledges
that he has had a reasonable lime. and has had adequate opportunity to consider
the terms of the Agreement and whether or not to enter into the Agreement.
STANLEY has twenty-one (21) calendar days, after the date STANLEY received the
Agreement, within which to consider the Agreement, although he may return it
sooner if he desires. STANLEY may revoke the Agreement by delivering a written
notice of revocation to E. J. Holland, Jr ., Sr. Vice-President -
Administration/Secretary, within seven (7) calendar days after STANLEY signs the
Agreement. The provisions of this Agreement will become effective and
enforceable on the Effective Date,
<PAGE>7
which is the eighth (8th) calendar day following the date STANLEY signs the
Agreement.
5. BINDING EFFECT
This Agreement will be binding upon STANLEY and his heirs, administrators,
representatives, executors, successors and assigns, and will inure to the
benefit of PAYLESS and its successors and assigns. Similarly, this agreement
will be binding on PAYLESS, its officers, agents and successors in interest and
assigns and will inure to the benefit of STANLEY and his heirs, administrators,
representatives, executors, successors and assigns.
6. NEWS RELEASES
PAYLESS agrees that before it makes any public announcements concerning the
resignation of STANLEY in any newspaper, trade publication, radio, television,
or other form of public communication, it will submit such a prepared
announcement to STANLEY for his review and approval. No such announcement will
be made without the prior approval of STANLEY. STANLEY agrees that his approval
shall not be unreasonably refused.
7. GOVERNING LAW
This Agreement will be interpreted and enforced in accordance with the laws
of the State of Missouri.
8. SEVERABILITY
Should any provision of this Agreement be declared or determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, the
remaining parts, terms and provisions shall continue to be valid, legal and
enforceable, and will be performed and enforced to the fullest extent permitted
by law.
9. COMPLETE AGREEMENT
Except for the Indemnification Provisions and rights and obligations under
directors' and officers' liability insurance policy referred to in paragraphs
A.6 and A.7, which this Agreement merely supplements but which otherwise remain
in full force and effect, and except for the confidentiality and
non-solicitation provision referred to in Paragraph B.5, this Agreement contains
the entire agreement between STANLEY and PAYLESS with respect to the subject
matter hereof and, except as otherwise noted herein, supersedes all prior
agreements or understandings between them. No change or waiver of any part of
this Agreement will be valid unless in writing and signed by both STANLEY and
PAYLESS.
10. ARBITRATION
The parties hereby agree that any dispute arising hereunder or any claim
for breach or
<PAGE>8
violation of any item hereof shall be submitted to arbitration pursuant to the
rules of the American Arbitration Association ("AAA") to a panel of three
arbitrators selected by mutual agreement of the parties or, if the parties do
not mutually agree on the arbitrators, in accordance with the rules of the AAA.
The award determination of the arbitrators shall be final and binding upon the
parties without right of appeal. Either party shall have the right to bring an
action in any court of competent jurisdiction to enforce this Paragraph and to
enforce any arbitrators' award rendered pursuant to this Paragraph. The venue
for all proceedings in arbitration hereunder and for any judicial proceedings
related thereto shall be in Kansas City, Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year set forth first above written.
PAYLESS CASHWAYS, INC. DAVID STANLEY
By: /s/ Peter G. Danis, Jr. /s/ David Stanley
----------------------- ----------------------
Name: Peter G.Danis, Jr. Date: January 5, 1998
Title: Chairman
Date: January 5, 1998
<PAGE>9
Schedule I to David Stanley Settlement Agreement
(Lump sum payment computation)
Severance Period Base Salary - $ 750,000.00
Unpaid Retention Bonus 97,500.00
Unused Vacation Through Effective Date 62,500.00
-------------
Total $ 910,000.00
<PAGE>10
Schedule II to David Stanley Settlement Agreement
(Benefit Continuation)
Group Medical/Vision
Group Dental
Group Life and Supplemental Death Benefits during the Severance Period, and a
$650,000 life insurance policy thereafter
Annual Physical in early 1998
1997 Tax Preparation ($1,000 limit)
<PAGE>11
Schedule III to David Stanley Settlement Agreement
CERTIFICATE OF INCORPORATION
INDEMNIFICATION PROVISION
ARTICLE VIII
INDEMNIFICATION; INSURANCE
The directors and officers of the corporation shall be indemnified to the
maximum extent permitted by law. Without limiting the foregoing, each person who
was or is made a party or is threatened to be made a party to any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation, or is or was serving, at the request of the corporation, as
a director, officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation, to the fullest extent which it is empowered to
do so by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment), against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such proceeding, including attorneys' fees, and such indemnification shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in the bylaws of the corporation, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors of the corporation. Expenses incurred
by a director or officer of the corporation in defending a civil or criminal
action, suit or proceeding shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it is ultimately determined that the director or officer is not entitled to be
indemnified by the corporation as authorized by the Delaware General Corporation
Law. The foregoing right of indemnification and advancement of expenses shall be
a contract right and shall in no way be exclusive of any other rights of
indemnification and advancement of expenses to which any such director or
officer may be entitled by law, agreement, vote of stockholders or of
disinterested directors or otherwise. All rights of indemnification and
advancement of expenses hereunder shall survive any repeal or modification of
this Article VIII as to any set of facts or proceeding then existing, shall
continue as to a person who has ceased to be an officer or director and shall
inure to the benefit of the heirs, executors and administrators of such a
director or officer. The procedures with respect to indemnification shall be set
forth in the bylaws of the corporation.
<PAGE>12
The corporation may maintain insurance, at its expense, to protect itself
and any person who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
<PAGE>13
Schedule IV to David Stanley Settlement Agreement
BYLAWS
INDEMNIFICATION PROVISIONS
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the corporation or advance of
expenses under Article VIII of the certificate of incorporation shall be made
promptly, and in any event within thirty days, upon the written request of the
director or officer. If a determination by the corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the corporation fails to respond within sixty days to a written request for
indemnity, the corporation shall be deemed to have approved the request. If the
corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within thirty days, the right to indemnification or advances as granted
by this Article V shall be enforceable by the director or officer in any court
of competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his or her right to indemnification,
in whole or in part, in any such action shall also be indemnified by the
corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any, has
been tendered to the corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including its board of directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 2. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision or the certificate of incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
<PAGE>14
Section 3. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors. Expenses (including attorneys'
fees) incurred by employees and agents may be paid upon such terms and
conditions, if any, as the board of directors deems appropriate; provided, that
such expenses may only be paid by the corporation in advance of a proceeding's
final disposition upon receipt of an undertaking by or on behalf of such
employee or agent to repay such amount if it shall ultimately be determined that
he or she is not entitled to be indemnified by the corporation.
Section 4. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the Delaware General Corporation Law or other applicable
law are in effect, and any repeal or modification of this Article V or any such
law shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then existing.
Section 5. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
<PAGE>15
Schedule V to David Stanley Settlement Agreement
INDEMNIFICATION AGREEMENT
<PAGE>1
SETTLEMENT AGREEMENT, RESIGNATION,
AND FULL GENERAL RELEASE
This Settlement Agreement, Resignation, and Release ("Agreement") is made
and entered into on January 6, 1998 by and between PAYLESS CASHWAYS, INC.
("PAYLESS") and SUSAN M. STANTON (" STANTON").
WHEREAS, STANTON was employed by PAYLESS on March 7, 1983 and is entitled
to the benefits of an Employment Agreement dated as of February 8, 1993, as
amended as of October 17, 1996, June 30, 1997 and August 20, 1997, (the
"Employment Agreement") ; and
WHEREAS, PAYLESS and STANTON mutually wish to terminate the employment
status of STANTON, and STANTON'S employment with PAYLESS shall end on January
13, 1998; and
WHEREAS, PAYLESS AND STANTON have agreed that STANTON shall resign as
President and Chief Operating Officer and as a Director, but that for purposes
of her severance benefits STANTON'S termination shall be regarded as a
termination of her employment without cause by PAYLESS;
NOW THEREFORE, in consideration of the mutual promises, agreements and
releases contained in this Agreement, the parties agree as follows:
1. A. PAYLESS' AGREEMENTS
1. EFFECTIVE DATE.
PAYLESS acknowledges that the effective date of this Agreement shall be
January 13, 1998 (the "Effective Date") and that STANTON will not be required to
perform services for PAYLESS after the Effective Date.
2. SEVERANCE BENEFITS
PAYLESS agrees to provide STANTON the severance benefits set forth below.
1. Lump Sum Payment.
(1) PAYLESS agrees to pay STANTON on the Effective Date a lump
sum payment (less applicable payroll deductions) in the amount set forth on
Schedule I hereto. As set forth in Schedule 1, such lump sum payment consists of
(A) the amount that STANTON would have received as base salary from the
Effective Date through March 1, 1999 (the "Severance Period") (based on her base
salary in effect on January 5, 1998), (B) the remaining amount due STANTON under
the PAYLESS Reorganization Retention Plan, and (C) an amount
<PAGE>2
for unused earned vacation days through the Effective Date. In addition, PAYLESS
shall pay STANTON on the Effective Date or as promptly thereafter as is
practicable an amount equal to any previously unreimbursed business expenses.
(2) PAYLESS also agrees to pay, in lieu of matching contributions
to the Payless Cashways, Inc. Employee Savings Plan which would otherwise have
been made on STANTON's behalf during the Severance Period, and in partial
consideration for the Release of Liability contained herein in Paragraph B.2, an
additional lump sum payment (less applicable payroll deductions) of $20,000
(Twenty Thousand Dollars).
2. Continuation of Benefits. PAYLESS agrees that during the Severance
Period it will provide STANTON with health, life (including supplemental death
benefits), dental and disability (including supplemental disability) benefits
and other benefits substantially equivalent to those that STANTON was receiving
or entitled to receive under the Employment Agreement on January 5, 1998. Such
benefits are described in Schedule II and shall be provided during the Severance
Period (or, if longer, the period during which such benefits would have been
provided at PAYLESS' expense under applicable plans of PAYLESS in effect on
January 5, 1998). Except as may be indicated in Schedule II, such benefits shall
be provided at the same coverage levels that were in effect on January 5, 1998,
and such benefits shall be provided at PAYLESS' expense, subject to the same
cost sharing provisions, if any, as existed on such date. After the Severance
Period, STANTON shall be eligible for COBRA continuation coverage of health,
life (including supplemental death benefits), dental and disability (including
supplemental disability) benefits for a period of 18 months or such period as
may then be provided by law. STANTON shall not be entitled to receive such
benefits to the extent that she obtains other employment prior to the end of the
Severance Period that provides comparable benefits, provided, however, that
STANTON is under no obligation to seek other employment during such period.
3. Retirement Benefits. PAYLESS agrees that for purposes of
determining the benefits payable to STANTON under the Payless Cashways, Inc.
Amended Retirement Plan (the "Pension Plan") and STANTON's eligibility therefor,
STANTON's date of separation from PAYLESS shall be deemed to be March 1, 1999,
her age shall be deemed to be her age on such date and the amount allocable to
base pay included in the lump sum payment in Paragraph A.2.a (i) shall be
included in determining career average pay. If the terms of the Pension Plan do
not permit the forgoing, then on the Effective Date PAYLESS shall pay STANTON an
amount equal to the present value of the additional retirement benefits that
would have accrued had she continued to perform services for PAYLESS through the
Severance Period at the same rate of compensation as was in effect on January 5,
1998. The present value payable hereunder shall be calculated using GATT rate
currently in effect under the Pension Plan.
4. Automobile. PAYLESS also agrees to a lump sum payment (less
applicable payroll deductions) of $11,668.66 in lieu of car allowance to be paid
on the Effective Date. STANTON and PAYLESS agree that the lease of her company
car will be terminated.
<PAGE>3
3. DEATH OF STANTON
The death of STANTON prior to the expiration of this Agreement will not
void this Agreement, but the terms thereof will survive her death. In the event
that STANTON dies prior to receipt of all sums set forth in section A.2. above,
then any and all such remaining sums not yet received by STANTON otherwise due
under this Agreement shall become due and payable to the beneficiaries
hereinafter listed: Principal Beneficiary: Susan M. Stanton Living Trust dated
August, 1989.
4. STOCK INCENTIVE
The parties acknowledge that STANTON has no vested stock incentives.
5. OUT PLACEMENT
PAYLESS will provide STANTON at PAYLESS' expense with telephone answering
and e-mail services at Payless for a period of 60 days and executive-level out
placement services at an out placement service of PAYLESS' choice in the Kansas
City area, including an office and telephone transfer services, until she
obtains other employment, for a maximum of 18 months.
6. INDEMNIFICATION
Set forth as Schedules III through V hereto are provisions of PAYLESS
Certificate of Incorporation and Bylaws relating to indemnification of directors
and officers and an Indemnification Agreement dated November 26, 1997, between
PAYLESS and STANTON (collectively "Indemnification Provisions"). Such
Indemnification Provisions are incorporated by this reference and made a part of
this Agreement in their entirety. PAYLESS acknowledges and agrees that STANTON
and her estate are entitled to the benefit of such Indemnification Provisions
notwithstanding her termination of service and that such provisions apply to her
service as a director and officer of PAYLESS and any of its predecessors.
PAYLESS further acknowledges that the Indemnification Provisions obligate
PAYLESS, among other matters, to indemnify STANTON against any and all
expenses(including costs and attorneys' fees) which she might incur as a witness
or party with respect to that certain matter pending in the United States
District Court for the Southern District of Iowa captioned PAYLESS Cashways,
Inc. Partners [et. al.] v. PAYLESS Cashways, Inc. [et. al.]. PAYLESS agrees to
honor such obligations with respect to such proceeding or any other proceeding
to which STANTON may become a party or witness by reason of the fact that she
served as a director or officer of PAYLESS, except as may be provided in the
Indemnification Provisions. PAYLESS further agrees that as to STANTON, any
amendments or changes to the Indemnification Provisions or the insurance
coverages described in paragraph A.7 below will not adversely affect STANTON
without STANTON's written consent, and that breach by STANTON of any provision
of this AGREEMENT will not constitute grounds by PAYLESS to change such
coverages or to terminate its obligations under this
<PAGE>4
Agreement or otherwise with respect to the Indemnification Provisions. PAYLESS
and STANTON agree that said Indemnification Agreement is hereby amended to
delete section 9.6 thereof in its entirety.
7. LIABILITY INSURANCE
PAYLESS currently maintains $30 million in directors' and officers'
liability insurance that provides coverage for STANTON and other directors and
officers of PAYLESS. The coverage period, including the run-off provisions
provided for thereunder, continue through December 2, 2003. PAYLESS agrees to
maintain such directors' and officers' liability insurance coverage or to
provide similar coverage to STANTON so that STANTON will remain insured under
similar coverage at current levels until December 2, 2003 with respect to the
period of time that STANTON served as a director or officer of PAYLESS. PAYLESS
has given STANTON a copy of such policy and will give her a copy of any
amendment or rider promptly after it becomes effective.
8. NON-COMPETE PROVISIONS
PAYLESS agrees that the provisions of Section 5 of the Employment Agreement
do not apply after the Effective Date.
9. RELEASE OF LIABILITY
PAYLESS releases STANTON of all claims and demands of any kind, known or
unknown, which it may have against STANTON as of the Effective Date or which it
may have had at any time before the Effective Date for any acts which STANTON
committed or omitted during her employment with PAYLESS. PAYLESS understands
that it is releasing STANTON, to the maximum extent permissible by law, from any
liability which STANTON may have had to it, known or unknown, at any time up to
and including the Effective Date.
2. STANTON'S AGREEMENTS
1. VOLUNTARY RESIGNATION
STANTON and PAYLESS acknowledge that STANTON does and she hereby does
voluntarily resign her employment as President and Chief Operating Officer and
as a Director, effective as of the Effective Date. STANTON and PAYLESS
acknowledge that the resignation which is the subject of this Agreement has been
effected by the mutual and amicable agreement of both parties. Notwithstanding
the foregoing STANTON will, at PAYLESS' request, provide transitional advisory
services to PAYLESS' acting Chief Executive Officer for a period ending April
30, 1998 and may continue to occupy her current office during the month of
January, 1998. Such service will be performed without compensation other than
reimbursement of business expenses. The hours (if any) during which STANTON
performs such transitional advisory
<PAGE>5
services on any given day shall be determined by her, although she will use
reasonable efforts to respond timely to accommodate the reasonable requests of
PAYLESS' acting Chief Executive Officer for her services.
2. RELEASE OF LIABILITY.
STANTON releases PAYLESS from the terms of the Employment Agreement and
acknowledges that further obligations of STANTON and PAYLESS in that Employment
Agreement are extinguished upon execution of this Agreement, except as
specifically noted herein. STANTON understands that she is releasing PAYLESS to
the maximum extent permissible by law, from any liability which STANTON believes
PAYLESS may have had to her, at any time up to and including the date she signs
this Agreement. STANTON waives any legal right or claims STANTON may have or may
have had, including claims of race, color, national origin, sex or gender, age
or disability discrimination, arising under the Title VII of the Civil Rights
Acts of 1964, the Rehabilitation Act of 1973, the Civil Rights Act of 1866
(Section 1981), the Americans with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974, the Age Discrimination in Employment
Act, the Family and Medical Leave Act of 1993, the Missouri Human Rights Act,
the Missouri Workers Compensation Act and the Missouri Service Letter Act and
under any other federal, state, or local statute, regulation, or common law of
any state, including any and all claims in tort or contract; provided, however,
that nothing contained in this Release of Liability shall modify or in any way
detract from the Indemnification provisions of Paragraph A.5 herein.
3. COOPERATION AGREEMENT
STANTON also agrees to cooperate and assist PAYLESS in the investigation
and handling of any actual or threatened court action, arbitration or
administrative proceeding or dispute involving any matter that arose during
STANTON'S employment (including, but not limited to, testifying in deposition
and/or court and providing information to PAYLESS). PAYLESS acknowledges and
agrees that it is responsible for any and all expenses (including costs and
attorneys' fees) that STANTON may incur in connection with any such proceeding.
4. ADEQUACY OF CONSIDERATION
STANTON acknowledges that the sum paid by PAYLESS under this Agreement is
adequate consideration for STANTON'S execution of this Agreement, and further
acknowledges that the sum is in excess of the amounts to which she would be
entitled under the existing Employment Agreement, policies or practices of
PAYLESS.
5. CONFIDENTIALITY AND NON-SOLICITATION
STANTON agrees that notwithstanding the provisions of this Agreement, the
provisions of Section 4 of her Employment Agreement will continue to apply in
accordance with their terms
<PAGE>6
after the Effective Date.
3. OTHER AGREEMENTS
1. NON-DISPARAGEMENT
STANTON and PAYLESS acknowledge and agree that disparaging or critical
statements made by STANTON about PAYLESS or its board members, officers and
employees of PAYLESS or disparaging statements made by board members or senior
officers of PAYLESS about STANTON would be uniquely detrimental to the interests
of both parties. Therefore, STANTON agrees to refrain from making such
disparaging or critical statements about PAYLESS, or its board members,
officers, and employees of PAYLESS, and PAYLESS agrees that PAYLESS' board
members and senior officers (i.e. the Chairman, acting Chief Executive Officer,
President, and the senior vice presidents) will refrain from making such
disparaging or critical statements about STANTON. All other provisions of this
Agreement notwithstanding, PAYLESS agrees that any statements made by STANTON
during any testimony given by her as part of any deposition, court hearing,
trial, arbitration hearing or similar proceeding, shall not be considered a
disparaging or critical statement and STANTON agrees that any statements made by
PAYLESS or its board members, officers, and employees of PAYLESS during any
testimony given by any of them as part of any deposition, court hearing, trial,
arbitration hearing, or similar proceeding, shall not be considered a
disparaging or critical statement.
2. NO ADMISSION OF LIABILITY
STANTON acknowledges that this Agreement shall not in any way be construed
as an admission by PAYLESS of any liability on the part of PAYLESS, and that all
such liability is expressly denied by PAYLESS. Likewise, PAYLESS acknowledges
that this Agreement shall not in any way be construed as an admission by STANTON
of any liability on the part of STANTON and that all such liability is expressly
denied by STANTON.
3. VOLUNTARY NATURE OF AGREEMENT AND ADVICE OF COUNSEL
STANTON acknowledges that she has read this Agreement and any attached
exhibits, understands their terms, and signs the Agreement voluntarily of her
own free will, without coercion or duress, and with full understanding of the
significance and binding effect of the Agreement. STANTON has consulted with her
attorney before signing this Agreement. STANTON further acknowledges that she
has been represented by counsel with respect to her pending and potential claims
and has thoroughly discussed all aspects of this Agreement with her attorney.
<PAGE>7
4. CONSIDERATION PERIOD AND REVOCATION
STANTON received this Agreement on January 6, 1998. STANTON acknowledges
that she has had a reasonable time, and has had adequate opportunity to consider
the terms of the Agreement and whether or not to enter into the Agreement.
STANTON has twenty-one (21) calendar days, after the date STANTON received the
Agreement, within which to consider the Agreement, although she may return it
sooner if she desires. STANTON may revoke the Agreement by delivering a written
notice of revocation to E. J. Holland, Jr ., Sr. Vice-President -
Administration/Secretary, within seven (7) calendar days after STANTON signs the
Agreement. The provisions of this Agreement will become effective and
enforceable on the Effective Date, which is the eighth (8th) calendar day
following the date STANTON signs the Agreement.
5. BINDING EFFECT
This Agreement will be binding upon STANTON and her heirs, administrators,
representatives, executors, successors and assigns, and will inure to the
benefit of PAYLESS and its successors and assigns. Similarly, this Agreement
will be binding on PAYLESS, its officers, agents and successors in interest and
assigns and will inure to the benefit of STANTON and her heirs, administrators,
representatives, executors, successors and assigns.
6. NEWS RELEASES
PAYLESS agrees that before it makes any public announcements concerning the
resignation of STANTON in any newspaper, trade publication, radio, television,
or other form of public communication, it will submit such a prepared
announcement to STANTON for her review and approval. No such announcement will
be made without the prior approval of STANTON. STANTON agrees that her approval
shall not be unreasonably refused.
7. GOVERNING LAW
This Agreement will be interpreted and enforced in accordance with the laws
of the State of Missouri.
8. SEVERABILITY
Should any provision of this Agreement be declared or determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, the
remaining parts, terms and provisions shall continue to be valid, legal and
enforceable, and will be performed and enforced to the fullest extent permitted
by law.
<PAGE>8
9. COMPLETE AGREEMENT
Except for the Indemnification Provisions and rights and obligations under
directors' and officers' liability insurance policy referred to in paragraphs
A.6 and A.7, which this Agreement merely supplements but which otherwise remain
in full force and effect, and except for the confidentiality and
non-solicitation provision referred to in Paragraph B.5, this Agreement contains
the entire agreement between STANTON and PAYLESS with respect to the subject
matter hereof and, except as otherwise noted herein supersedes all prior
agreements or understandings between them. No change or waiver of any part of
this Agreement will be valid unless in writing and signed by both STANTON and
PAYLESS.
10. ARBITRATION
The parties hereby agree that any dispute arising hereunder or any claim
for breach or violation of any item hereof shall be submitted to arbitration
pursuant to the rules of the American Arbitration Association ("AAA") to a panel
of three arbitrators selected by mutual agreement of the parties or, if the
parties do not mutually agree on the arbitrators, in accordance with the rules
of the AAA. The award determination of the arbitrators shall be final and
binding upon the parties without right of appeal. Either party shall have the
right to bring an action in any court of competent jurisdiction to enforce this
Paragraph and to enforce any arbitrators' award rendered pursuant to this
Paragraph. The venue for all proceedings in arbitration hereunder and for any
judicial proceedings related thereto shall be in Kansas City, Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year set forth first above written.
PAYLESS CASHWAYS, INC. SUSAN M. STANTON
By: /s/ Donald E. Roller /s/ Susan M. Stanton
---------------------- ----------------------
Name: Donald E. Roller Date: January 6, 1998
Title: Acting Chief Executive Officer
Date: January 6, 1998
<PAGE>9
Schedule I to Susan Stanton Settlement Agreement
Lump sum payment computation
Severance Period Base Salary - $ 519,231.00
Unpaid Retention Bonus 67,500.00
Unused Vacation Days
Through Effective Date 34,616.00
-----------
Total $ 621,347.00
<PAGE>10
Schedule II to Susan Stanton Settlement Agreement
Benefit Continuation
Group Medical/Vision
Group Dental
Group Long/Term Disability and Supplemental Disability
Group Life Insurance and Supplemental Death Benefits during the Severance
Period, and a $450,000 life insurance policy thereafter
Annual Physical in early 1998
1997 Tax Preparation ($1,000 limit)
<PAGE>11
Schedule III to Susan Stanton Settlement Agreement
CERTIFICATE OF INCORPORATION
INDEMNIFICATION PROVISION
ARTICLE VIII
INDEMNIFICATION; INSURANCE
The directors and officers of the corporation shall be indemnified to the
maximum extent permitted by law. Without limiting the foregoing, each person who
was or is made a party or is threatened to be made a party to any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation, or is or was serving, at the request of the corporation, as
a director, officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation, to the fullest extent which it is empowered to
do so by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment), against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such proceeding, including attorneys' fees, and such indemnification shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in the bylaws of the corporation, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors of the corporation. Expenses incurred
by a director or officer of the corporation in defending a civil or criminal
action, suit or proceeding shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it is ultimately determined that the director or officer is not entitled to be
indemnified by the corporation as authorized by the Delaware General Corporation
Law. The foregoing right of indemnification and advancement of expenses shall be
a contract right and shall in no way be exclusive of any other rights of
indemnification and advancement of expenses to which any such director or
officer may be entitled by law, agreement, vote of stockholders or of
disinterested directors or otherwise. All rights of indemnification and
advancement of expenses hereunder shall survive any repeal or modification of
this Article VIII as to any set of facts or proceeding then existing, shall
continue as to a person who has ceased to be an officer or director and shall
inure to the benefit of the heirs, executors and administrators of such a
director or officer. The procedures with respect to indemnification shall be set
forth in the bylaws of the corporation.
<PAGE>12
The corporation may maintain insurance, at its expense, to protect itself
and any person who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
<PAGE>13
Schedule IV to Susan Stanton Settlement Agreement
BYLAWS
INDEMNIFICATION PROVISIONS
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the corporation or advance of
expenses under Article VIII of the certificate of incorporation shall be made
promptly, and in any event within thirty days, upon the written request of the
director or officer. If a determination by the corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the corporation fails to respond within sixty days to a written request for
indemnity, the corporation shall be deemed to have approved the request. If the
corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within thirty days, the right to indemnification or advances as granted
by this Article V shall be enforceable by the director or officer in any court
of competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his or her right to indemnification,
in whole or in part, in any such action shall also be indemnified by the
corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any, has
been tendered to the corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including its board of directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 2. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision or the certificate of incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
<PAGE>14
Section 3. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors. Expenses (including attorneys'
fees) incurred by employees and agents may be paid upon such terms and
conditions, if any, as the board of directors deems appropriate; provided, that
such expenses may only be paid by the corporation in advance of a proceeding's
final disposition upon receipt of an undertaking by or on behalf of such
employee or agent to repay such amount if it shall ultimately be determined that
he or she is not entitled to be indemnified by the corporation.
Section 4. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the Delaware General Corporation Law or other applicable
law are in effect, and any repeal or modification of this Article V or any such
law shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then existing.
Section 5. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
<PAGE>15
Schedule V to Susan Stanton Settlement Agreement
INDEMNIFICATION AGREEMENT
<PAGE>1
SEVERANCE AGREEMENT, RESIGNATION,
AND FULL GENERAL RELEASE
This Settlement Agreement, Resignation, and Release ("Agreement") is made
and entered into on January 21, 1998 by and between PAYLESS CASHWAYS, INC.
("PAYLESS") and Stephen A. Lightstone ("LIGHTSTONE").
WHEREAS, LIGHTSTONE was employed by PAYLESS on November 1, 1983 and is
entitled to the benefits of an Employment Agreement dated as of February 8,
1993, as amended as of October 17, 1996, June 30, 1997 and August 20, 1997, (the
"Employment Agreement"); and
WHEREAS, PAYLESS and LIGHTSTONE mutually wish to terminate the employment
status of LIGHTSTONE, and LIGHTSTONE's employment with PAYLESS shall end on
January 30, 1998; and
WHEREAS, PAYLESS AND LIGHTSTONE have agreed that LIGHTSTONE shall resign as
Senior Vice President Finance, Chief Financial Officer, and Treasurer, but that
for purposes of his severance benefits LIGHTSTONE's termination shall be
regarded as a termination of his employment without cause by PAYLESS;
NOW THEREFORE, in consideration of the mutual promises, agreements and
releases contained in this Agreement, the parties agree as follows:
1. A. PAYLESS' AGREEMENTS
1. EFFECTIVE DATE
PAYLESS acknowledges that this Agreement will become effective on the 8th
day after LIGHTSTONE signs (the "Effective Date"), and that LIGHTSTONE will not
be required to perform services for PAYLESS after January 30, 1998.
2. SEVERANCE BENEFITS
PAYLESS agrees to provide LIGHTSTONE the severance benefits set forth
below.
1. Lump Sum Payment
(1) PAYLESS agrees to pay LIGHTSTONE on the Effective Date a lump
sum payment (less applicable payroll deductions) in the amount set forth on
Schedule I hereto. As set forth in Schedule 1, such lump sum payment consists of
(A) the amount that LIGHTSTONE would have received as base salary from the
Effective Date through March 1, 1999 (the "Severance Period") (based on his base
salary in effect on January 20, 1998), (B) the
<PAGE>2
remaining amount due LIGHTSTONE under the PAYLESS Reorganization Retention Plan,
and (C) an amount for unused earned vacation days through the Effective Date. In
addition, PAYLESS shall pay LIGHTSTONE on the Effective Date or as promptly
thereafter as is practicable an amount equal to any previously unreimbursed
business expenses.
(2) PAYLESS also agrees to pay, in lieu of matching contributions
to the Payless Cashways, Inc. Employee Savings Plan which would otherwise have
been made on LIGHTSTONE's behalf during the Severance Period, and in
consideration for the Release of Liability contained herein in Paragraph B.2, an
additional lump sum payment (less applicable payroll deductions) of $10,000.00.
2. Continuation of Benefits PAYLESS agrees that during the Severance
Period it will provide LIGHTSTONE with health, life (including supplemental
death benefits), and dental benefits substantially equivalent to those received
by eligible active employees of PAYLESS. Such benefits are described in Schedule
II and shall be provided during the Severance Period (or, if longer, the period
during which such benefits would have been provided at PAYLESS' expense under
applicable plans of PAYLESS). Except as may be indicated in Schedule II, such
health, life and dental benefits shall be provided at the same coverage levels
provided to eligible active employees of PAYLESS, and such benefits shall be
provided at PAYLESS' expense, subject to the same cost sharing provisions, if
any. In addition, PAYLESS agrees that during the Severance Period it will
provide LIGHTSTONE with disability benefits similar to those that LIGHTSTONE was
receiving or was entitled to receive under the Employment Agreement, except that
during the Severance Period, such benefits will provide a maximum monthly
benefit of $5,000.00. Such benefits are also listed in Schedule II. After the
Severance Period, LIGHTSTONE shall be eligible for COBRA continuation coverage
of health and dental benefits for a period of 18 months or such period as may
then be provided by law. LIGHTSTONE shall not be entitled to receive such
benefits to the extent that he obtains other employment prior to the end of the
Severance Period that provides comparable benefits, provided, however, that
LIGHTSTONE is under no obligation to seek other employment during such period.
3. Retirement Benefits PAYLESS agrees that for purposes of determining
the benefits payable to LIGHTSTONE under the Payless Cashways, Inc. Amended
Retirement Plan (the "Pension Plan") and LIGHTSTONE's eligibility therefor,
LIGHTSTONE's date of separation from PAYLESS shall be deemed to be March 1,
1999, his age shall be deemed to be his age on such date and the amount
allocable to base pay included in the lump sum payment in Paragraph A.2.a (i)
shall be included in determining career average pay. If the terms of the Pension
Plan do not permit the foregoing, then on the Effective Date PAYLESS shall pay
LIGHTSTONE an amount equal to the present value of the additional retirement
benefits that would have accrued had he continued to perform services for
PAYLESS through the Severance Period at the same rate of compensation as was in
effect on January 21, 1998. The present value payable hereunder shall be
calculated using GATT rate currently in effect under the Pension Plan.
4. Automobile PAYLESS also agrees to a lump sum payment (less
<PAGE>3
applicable payroll deductions) of $9,233.25 in lieu of LIGHTSTONE's car
allowance, to be paid on the Effective Date. LIGHTSTONE and PAYLESS agree that
the lease, and use, of his company car will be terminated.
3. DEATH OF LIGHTSTONE
The death of LIGHTSTONE prior to the expiration of this Agreement will not
void this Agreement, but the terms thereof will survive his death. In the event
that LIGHTSTONE dies prior to receipt of all sums set forth in section A.2.
above, then any and all such remaining sums not yet received by LIGHTSTONE
otherwise due under this Agreement shall become due and payable to the
beneficiaries hereinafter listed: Principal Beneficiary: Executor of the Estate
of Stephen A. Lightstone. .
4. STOCK INCENTIVE
The parties acknowledge that LIGHTSTONE has no vested stock incentives.
5. OUTPLACEMENT
PAYLESS will provide LIGHTSTONE at PAYLESS' expense with telephone
answering and e-mail services at Payless for a period of 60 days and
executive-level outplacement services at an outplacement service of PAYLESS'
choice in the Kansas City area, including an office and telephone transfer
services, until he obtains other employment, for a maximum of 18 months.
6. INDEMNIFICATION
Set forth as Schedules III through V hereto are provisions of PAYLESS
Certificate of Incorporation and Bylaws relating to indemnification of directors
and officers and an Indemnification Agreement dated December 2, 1997, between
PAYLESS and LIGHTSTONE (collectively "Indemnification Provisions"). Such
Indemnification Provisions are incorporated by this reference and made a part of
this Agreement in their entirety. PAYLESS acknowledges and agrees that
LIGHTSTONE and his estate are entitled to the benefit of such Indemnification
Provisions notwithstanding his termination of service and that such provisions
apply to his service as an officer of PAYLESS and any of its predecessors.
PAYLESS further acknowledges that the Indemnification Provisions obligate
PAYLESS, among other matters, to indemnify LIGHTSTONE against any and all
expenses(including costs and attorneys' fees) which he might incur as a witness
or party with respect to that certain matter pending in the United States
District Court for the Southern District of Iowa captioned PAYLESS Cashways,
Inc. Partners [et. al.] v. PAYLESS Cashways, Inc. [et. al.]. PAYLESS agrees to
honor such obligations with respect to such proceeding or any other proceeding
to which LIGHTSTONE may become a party or witness by reason of the fact that he
served as an officer of PAYLESS, except as may be provided in the
Indemnification Provisions. PAYLESS further agrees that as to LIGHTSTONE, any
amendments or changes to the Indemnification Provisions or the insurance
coverages described in paragraph A.7 below will not adversely affect LIGHTSTONE
without LIGHTSTONE's written consent, and
<PAGE>4
that breach by LIGHTSTONE of any provision of this AGREEMENT will not constitute
grounds by PAYLESS to change such coverages or to terminate its obligations
under this Agreement or otherwise with respect to the Indemnification
Provisions. PAYLESS and LIGHTSTONE agree that said Indemnification Agreement is
hereby amended to delete section 9.6 thereof in its entirety.
7. LIABILITY INSURANCE
PAYLESS currently maintains $30 million in directors' and officers'
liability insurance that provides coverage for LIGHTSTONE and other directors
and officers of PAYLESS. The coverage period, including the run-off provisions
provided for thereunder, continue through December 2, 2003. PAYLESS agrees to
maintain such directors' and officers' liability insurance coverage or to
provide similar coverage to LIGHTSTONE so that LIGHTSTONE will remain insured
under similar coverage at current levels until December 2, 2003 with respect to
the period of time that LIGHTSTONE served as an officer of PAYLESS. PAYLESS has
given LIGHTSTONE a copy of such policy and will give him a copy of any amendment
or rider promptly after it becomes effective.
8. NON-COMPETE PROVISIONS
PAYLESS agrees that the provisions of Section 5 of the Employment Agreement
do not apply after the Effective Date.
9. RELEASE OF LIABILITY
PAYLESS releases LIGHTSTONE of all claims and demands of any kind, known or
unknown, which it may have against LIGHTSTONE as of the Effective Date or which
it may have had at any time before the Effective Date for any acts which
LIGHTSTONE committed or omitted during his employment with PAYLESS. PAYLESS
understands that it is releasing LIGHTSTONE, to the maximum extent permissible
by law, from any liability which LIGHTSTONE may have had to it, known or
unknown, at any time up to and including the Effective Date.
2. LIGHTSTONE'S AGREEMENTS
1. VOLUNTARY RESIGNATION
LIGHTSTONE and PAYLESS acknowledge that LIGHTSTONE does and he hereby does
voluntarily resign his employment as Senior Vice President, Finance and Chief
Financial Officer, effective as of the Effective Date. LIGHTSTONE and PAYLESS
acknowledge that the resignation which is the subject of this Agreement has been
effected by the mutual and amicable agreement of both parties. Notwithstanding
the foregoing LIGHTSTONE will, at PAYLESS' request, provide transitional
advisory services to PAYLESS' acting Chief Executive Officer for a period ending
April 30, 1998. Such service will be performed without compensation other than
<PAGE>5
reimbursement of business expenses. The hours (if any) during which LIGHTSTONE
performs such transitional advisory services on any given day shall be
determined by him, although he will use reasonable efforts to respond timely to
accommodate the reasonable requests of PAYLESS' acting Chief Executive Officer
for his services.
2. RELEASE OF LIABILITY
LIGHTSTONE releases PAYLESS from the terms of the Employment Agreement and
acknowledges that further obligations of LIGHTSTONE and PAYLESS in that
Employment Agreement are extinguished upon execution of this Agreement, except
as specifically noted herein. LIGHTSTONE understands that he is releasing
PAYLESS to the maximum extent permissible by law, from any liability which
LIGHTSTONE believes PAYLESS may have had to him, at any time up to and including
the date he signs this Agreement. LIGHTSTONE waives any legal right or claims
LIGHTSTONE may have or may have had, including claims of race, color, national
origin, sex or gender, age or disability discrimination, arising under the Title
VII of the Civil Rights Acts of 1964, the Rehabilitation Act of 1973, the Civil
Rights Act of 1866 (Section 1981), the Americans with Disabilities Act of 1990,
the Employee Retirement Income Security Act of 1974, the Age Discrimination in
Employment Act, the Family and Medical Leave Act of 1993, the Missouri Human
Rights Act, the Missouri Workers Compensation Act and the Missouri Service
Letter Act and under any other federal, state, or local statute, regulation, or
common law of any state, including any and all claims in tort or contract;
provided, however, that nothing contained in this Release of Liability shall
modify or in any way detract from the Indemnification provisions of Paragraph
A.6 herein.
3. COOPERATION AGREEMENT
LIGHTSTONE also agrees to cooperate and assist PAYLESS in the investigation
and handling of any actual or threatened court action, arbitration or
administrative proceeding or dispute involving any matter that arose during
LIGHTSTONE's employment (including, but not limited to, testifying in deposition
and/or court and providing information to PAYLESS). PAYLESS acknowledges and
agrees that it is responsible for any and all expenses (including costs and
attorneys' fees) that LIGHTSTONE may incur in connection with any such
proceeding.
ADEQUACY OF CONSIDERATION
LIGHTSTONE acknowledges that the sum paid by PAYLESS under this Agreement
is adequate consideration for LIGHTSTONE's execution of this Agreement, and
further acknowledges that the sum is in excess of the amounts to which he would
be entitled under the existing Employment Agreement, as amended, and any
policies or practices of PAYLESS.
<PAGE>6
4. CONFIDENTIALITY AND NON-SOLICITATION
LIGHTSTONE agrees that notwithstanding the provisions of this Agreement,
the provisions of Section 4 of his Employment Agreement will continue to apply
in accordance with their terms after the Effective Date.
3. OTHER AGREEMENTS
1. NON-DISPARAGEMENT
LIGHTSTONE and PAYLESS acknowledge and agree that disparaging or critical
statements made by LIGHTSTONE about PAYLESS or its board members, officers and
employees of PAYLESS or disparaging statements made by board members or senior
officers of PAYLESS about LIGHTSTONE would be uniquely detrimental to the
interests of both parties. Therefore, LIGHTSTONE agrees to refrain from making
such disparaging or critical statements about PAYLESS, or its board members,
officers, and employees of PAYLESS, and PAYLESS agrees that PAYLESS' board
members and senior officers (i.e. the Chairman, acting Chief Executive Officer,
President, and the senior vice presidents) will refrain from making such
disparaging or critical statements about LIGHTSTONE. All other provisions of
this Agreement notwithstanding, PAYLESS agrees that any statements made by
LIGHTSTONE during any testimony given by him as part of any deposition, court
hearing, trial, arbitration hearing or similar proceeding, shall not be
considered a disparaging or critical statement and LIGHTSTONE agrees that any
statements made by PAYLESS or its board members, officers, and employees of
PAYLESS during any testimony given by any of them as part of any deposition,
court hearing, trial, arbitration hearing, or similar proceeding, shall not be
considered a disparaging or critical statement.
2. NO ADMISSION OF LIABILITY
LIGHTSTONE acknowledges that this Agreement shall not in any way be
construed as an admission by PAYLESS of any liability on the part of PAYLESS,
and that all such liability is expressly denied by PAYLESS. Likewise, PAYLESS
acknowledges that this Agreement shall not in any way be construed as an
admission by LIGHTSTONE of any liability on the part of LIGHTSTONE and that all
such liability is expressly denied by LIGHTSTONE.
3. VOLUNTARY NATURE OF AGREEMENT AND ADVICE OF COUNSEL
LIGHTSTONE acknowledges that he has read this Agreement and any attached
exhibits, understands their terms, and signs the Agreement voluntarily of his
own free will, without coercion or duress, and with full understanding of the
significance and binding effect of the Agreement. LIGHTSTONE has consulted with
his attorney before signing this Agreement. LIGHTSTONE further acknowledges that
he has been represented by counsel with respect to his pending and potential
claims and has thoroughly discussed all aspects of this Agreement with his
<PAGE>7
attorney.
4. CONSIDERATION PERIOD AND REVOCATION
LIGHTSTONE received this Agreement on January 21, 1998. LIGHTSTONE
acknowledges that he has had a reasonable time, and has had adequate opportunity
to consider the terms of the Agreement and whether or not to enter into the
Agreement. LIGHTSTONE has twenty-one (21) calendar days, after the date
LIGHTSTONE received the Agreement, within which to consider the Agreement,
although he may sign and deliver sooner if he desires. LIGHTSTONE may revoke the
Agreement by delivering a written notice of revocation to Louise Iennacaro, Vice
President of Human Resources, within seven (7) calendar days after LIGHTSTONE
signs the Agreement. The provisions of this Agreement will become effective and
enforceable on the eighth (8th) calendar day following the date LIGHTSTONE signs
the Agreement.
5. BINDING EFFECT
This Agreement will be binding upon LIGHTSTONE and his heirs,
administrators, representatives, executors, successors and assigns, and will
inure to the benefit of PAYLESS and its successors and assigns. Similarly, this
Agreement will be binding on PAYLESS, its officers, agents and successors in
interest and assigns and will inure to the benefit of LIGHTSTONE and his heirs,
administrators, representatives, executors, successors and assigns.
6. NEWS RELEASES
PAYLESS agrees that before it makes any public announcements concerning the
resignation of LIGHTSTONE in any newspaper, trade publication, radio,
television, or other form of public communication, it will submit such a
prepared announcement to LIGHTSTONE for his review and approval. No such
announcement will be made without the prior approval of LIGHTSTONE. LIGHTSTONE
agrees that his approval shall not be unreasonably refused.
7. GOVERNING LAW
This Agreement will be interpreted and enforced in accordance with the laws
of the State of Missouri.
8. SEVERABILITY
Should any provision of this Agreement be declared or determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, the
remaining parts, terms and provisions shall continue to be valid, legal and
enforceable, and will be performed and enforced to the fullest extent permitted
by law.
<PAGE>8
9. COMPLETE AGREEMENT
Except for the Indemnification Provisions and rights and obligations under
directors' and officers' liability insurance policy referred to in paragraphs
A.6 and A.7, which this Agreement merely supplements but which otherwise remain
in full force and effect, and except for the confidentiality and
non-solicitation provision referred to in Paragraph B.5, this Agreement contains
the entire agreement between LIGHTSTONE and PAYLESS with respect to the subject
matter hereof and, except as otherwise noted herein supersedes all prior
agreements or understandings between them. No change or waiver of any part of
this Agreement will be valid unless in writing and signed by both LIGHTSTONE and
PAYLESS.
10. ARBITRATION
The parties hereby agree that any dispute arising hereunder or any claim
for breach or violation of any item hereof shall be submitted to arbitration
pursuant to the rules of the American Arbitration Association ("AAA") to a panel
of three arbitrators selected by mutual agreement of the parties or, if the
parties do not mutually agree on the arbitrators, in accordance with the rules
of the AAA. The award determination of the arbitrators shall be final and
binding upon the parties without right of appeal. Either party shall have the
right to bring an action in any court of competent jurisdiction to enforce this
Paragraph and to enforce any arbitrators' award rendered pursuant to this
Paragraph. The venue for all proceedings in arbitration hereunder and for any
judicial proceedings related thereto shall be in Kansas City, Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year set forth first above written.
PAYLESS CASHWAYS, INC. STEPHEN A. LIGHTSTONE
By: /s/ Donald E. Roller /s/ Stephen A. Lightstone
---------------------- ---------------------------
Name: Donald E. Roller Date: January 21, 1998
Title: Acting Chief Executive Officer
Date: January 22, 1998
<PAGE>9
Schedule I to Lightstone Settlement Agreement
Lump sum payment computation
Severance Period Base Salary - $ 319,583.32
Through March 1, 1999
Unpaid Retention Bonus 44,250.00
(50% of 30% of $295,000)
Unused Vacation Days (4 weeks)
Through Effective Date 22,692.31
-----------
Total $ 386,525.63
<PAGE>10
Schedule II to Lightstone Settlement Agreement
Benefit Continuation
Group Medical/Vision
Group Dental
Long/Term Disability and Supplemental Disability (up to a maximum monthly
benefit of $5,000.00)
GroupLife Insurance and Supplemental Death Benefits during the Severance Period,
and a $295,000.00 life insurance policy thereafter
Annual Physical in early 1998
1997 Tax Preparation ($1,000 limit)
<PAGE>11
Schedule III to Lightstone Settlement Agreement
CERTIFICATE OF INCORPORATION
INDEMNIFICATION PROVISION
ARTICLE VIII
INDEMNIFICATION; INSURANCE
The directors and officers of the corporation shall be indemnified to the
maximum extent permitted by law. Without limiting the foregoing, each person who
was or is made a party or is threatened to be made a party to any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation, or is or was serving, at the request of the corporation, as
a director, officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation, to the fullest extent which it is empowered to
do so by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment), against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such proceeding, including attorneys' fees, and such indemnification shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in the bylaws of the corporation, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors of the corporation. Expenses incurred
by a director or officer of the corporation in defending a civil or criminal
action, suit or proceeding shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it is ultimately determined that the director or officer is not entitled to be
indemnified by the corporation as authorized by the Delaware General Corporation
Law. The foregoing right of indemnification and advancement of expenses shall be
a contract right and shall in no way be exclusive of any other rights of
indemnification and advancement of expenses to which any such director or
officer may be entitled by law, agreement, vote of stockholders or of
disinterested directors or otherwise. All rights of indemnification and
advancement of expenses hereunder shall survive any repeal or modification of
this Article VIII as to any set of facts or proceeding then existing, shall
continue as to a person who has ceased to be an officer or director and shall
inure to the benefit of the heirs, executors and administrators of such a
director or officer. The procedures with respect to indemnification shall be set
forth in the bylaws of the corporation.
<PAGE>12
The corporation may maintain insurance, at its expense, to protect itself
and any person who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
<PAGE>13
Schedule IV to Lightstone Settlement Agreement
BYLAWS
INDEMNIFICATION PROVISIONS
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the corporation or advance of
expenses under Article VIII of the certificate of incorporation shall be made
promptly, and in any event within thirty days, upon the written request of the
director or officer. If a determination by the corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the corporation fails to respond within sixty days to a written request for
indemnity, the corporation shall be deemed to have approved the request. If the
corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within thirty days, the right to indemnification or advances as granted
by this Article V shall be enforceable by the director or officer in any court
of competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his or her right to indemnification,
in whole or in part, in any such action shall also be indemnified by the
corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any, has
been tendered to the corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including its board of directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 2. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision or the certificate of incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
<PAGE>14
Section 3. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors. Expenses (including attorneys'
fees) incurred by employees and agents may be paid upon such terms and
conditions, if any, as the board of directors deems appropriate; provided, that
such expenses may only be paid by the corporation in advance of a proceeding's
final disposition upon receipt of an undertaking by or on behalf of such
employee or agent to repay such amount if it shall ultimately be determined that
he or she is not entitled to be indemnified by the corporation.
Section 4. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the Delaware General Corporation Law or other applicable
law are in effect, and any repeal or modification of this Article V or any such
law shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then existing.
Section 5. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
<PAGE>15
Schedule V to Lightstone Settlement Agreement
INDEMNIFICATION AGREEMENT
<PAGE>1
SETTLEMENT AGREEMENT, RESIGNATION,
AND FULL GENERAL RELEASE
This Settlement Agreement, Resignation, and Release ("Agreement") is made
and entered into on January 17, 1998 by and between PAYLESS CASHWAYS, INC.
("PAYLESS") and G. MICHAEL BUCHEN ("BUCHEN").
WHEREAS, BUCHEN was employed by PAYLESS on August 5, 1974 and is entitled
to the benefits of an Employment Agreement dated as of October 17, 1996, as
amended as of June 30, 1997 and August 20, 1997, (the "Employment Agreement") ;
and
WHEREAS, PAYLESS and BUCHEN mutually wish to terminate the employment
status of BUCHEN, and BUCHEN'S employment with PAYLESS shall end on January 30,
1998; and
WHEREAS, PAYLESS AND BUCHEN have agreed that BUCHEN shall resign as Senior
Vice President-Merchandising, but that for purposes of his severance benefits
BUCHEN'S termination shall be regarded as a termination of his employment
without cause by PAYLESS;
NOW THEREFORE, in consideration of the mutual promises, agreements and
releases contained in this Agreement, the parties agree as follows:
1. A PAYLESS' AGREEMENTS
1. EFFECTIVE DATE.
PAYLESS acknowledges that the effective date of this Agreement shall be
January 30, 1998 (the "Effective Date") and that BUCHEN will not be required to
perform services for PAYLESS after the Effective Date.
2. SEVERANCE BENEFITS
PAYLESS agrees to provide BUCHEN the severance benefits set forth below.
1. Lump Sum Payment.
(1) PAYLESS agrees to pay BUCHEN on the Effective Date a lump sum
payment (less applicable payroll deductions) in the amount set forth on Schedule
I hereto. As set forth in Schedule I, such lump sum payment consists of (A) the
amount that BUCHEN would have received as base salary from the Effective Date
through March 1, 1999 (the "Severance Period") (based on his base salary in
effect on July 21, 1997), (B) the remaining amount due BUCHEN under the PAYLESS
Reorganization Retention Plan, and (C) an amount for unused earned vacation days
through the Effective Date. In addition, PAYLESS shall pay BUCHEN on the
Effective Date or as promptly thereafter as is practicable an amount equal to
any
<PAGE>2
previously unreimbursed business expenses.
(2) PAYLESS also agrees to pay, in lieu of matching contributions
to the Payless Cashways, Inc. Employee Savings Plan which would otherwise have
been made on BUCHEN'S behalf during the Severance Period, and in consideration
for the Release of Liability contained herein in Paragraph B.2, an additional
lump sum payment (less applicable payroll deductions) of $10,000 (Ten Thousand
Dollars).
2. Continuation of Benefits. PAYLESS agrees that during the Severance
Period it will provide BUCHEN with health, life (including supplemental death
benefits), and dental benefits substantially equivalent to those received by
eligible active employees of PAYLESS. Such benefits are described in Schedule II
and shall be provided during the Severance Period (or, if longer, the period
during which such benefits would have been provided at PAYLESS' expense under
applicable plans of PAYLESS in effect on January 5, 1998). Except as may be
indicated in Schedule II, such health, life and dental benefits shall be
provided at the same coverage levels provided to eligible active employees of
PAYLESS, and such benefits shall be provided at PAYLESS' expense, subject to the
same cost sharing provisions, if any. In addition, PAYLESS agrees that during
the Severance Period it will provide BUCHEN with disability benefits similar to
those that BUCHEN was receiving or was entitled to receive under the Employment
Agreement, except that during the Severance Period, such benefits will provide a
maximum monthly benefit of $5,000.00. Such benefits are listed in Schedule II.
After the Severance Period, BUCHEN shall be eligible for COBRA continuation
coverage of health and dental benefits for a period of 18 months or such period
as may then be provided by law. BUCHEN shall not be entitled to receive such
benefits to the extent that he obtains other employment prior to the end of the
Severance Period that provides comparable benefits, provided, however, that
BUCHEN is under no obligation to seek other employment during such period.
3. Retirement Benefits. PAYLESS agrees that for purposes of
determining the benefits payable to BUCHEN under the Payless Cashways, Inc.
Amended Retirement Plan (the "Pension Plan") and BUCHEN'S eligibility therefor,
BUCHEN'S date of separation from PAYLESS shall be deemed to be March 1, 1999,
his age shall be deemed to be his age on such date and the amount allocable to
base pay included in the lump sum payment in Paragraph A.2.a (i) shall be
included in determining career average pay. If the terms of the Pension Plan do
not permit the foregoing, then on the Effective Date PAYLESS shall pay BUCHEN an
amount equal to the present value of the additional retirement benefits that
would have accrued had he continued to perform services for PAYLESS through the
Severance Period at the same rate of compensation as was in effect on July 21,
1997. The present value payable hereunder shall be calculated using GATT rate
currently in effect under the Pension Plan.
4. Automobile. PAYLESS also agrees to a lump sum payment (less
applicable payroll deductions) of $8,161.62 in lieu of car allowance, to be paid
on the Effective Date. BUCHEN and PAYLESS agree that the lease, and use, of his
company car will be terminated.
<PAGE>3
3. DEATH OF BUCHEN
The death of BUCHEN prior to the expiration of this Agreement will not void
this Agreement, but the terms thereof will survive his death. In the event that
BUCHEN dies prior to receipt of all sums set forth in section A.2. above, then
any and all such remaining sums not yet received by BUCHEN otherwise due under
this Agreement shall become due and payable to the beneficiaries hereinafter
listed: Principal Beneficiary: Carol A. Buchen.
4. STOCK INCENTIVE
The parties acknowledge that BUCHEN has no vested stock incentives.
5. OUT PLACEMENT
PAYLESS will provide BUCHEN at PAYLESS' expense with executive-level
outplacement services at Rights Associates, including an office and telephone
transfer services.
6. INDEMNIFICATION
Set forth as Schedules III through V hereto are provisions of PAYLESS
Certificate of Incorporation and Bylaws relating to indemnification of directors
and officers and an Indemnification Agreement dated December 2, 1997, between
PAYLESS and BUCHEN (collectively "Indemnification Provisions"). Such
Indemnification Provisions are incorporated by this reference and made a part of
this Agreement in their entirety. PAYLESS acknowledges and agrees that BUCHEN
and his estate are entitled to the benefit of such Indemnification Provisions
notwithstanding his termination of service and that such provisions apply to his
service as an officer of PAYLESS and any of its predecessors. PAYLESS further
acknowledges that the Indemnification Provisions obligate PAYLESS, among other
matters, to indemnify BUCHEN against any and all expenses (including costs and
attorneys' fees) which he might incur as a witness or party with respect to that
certain matter pending in the United States District Court for the Southern
District of Iowa captioned PAYLESS Cashways, Inc. Partners [et. al.] v. PAYLESS
Cashways, Inc. [et. al.]. PAYLESS agrees to honor such obligations with respect
to such proceeding or any other proceeding to which BUCHEN may become a party or
witness by reason of the fact that he served as an officer of PAYLESS, except as
may be provided in the Indemnification Provisions. PAYLESS further agrees that
as to BUCHEN, any amendments or changes to the Indemnification Provisions or the
insurance coverages described in paragraph A.7 below will not adversely affect
BUCHEN without BUCHEN'S written consent, and that breach by BUCHEN of any
provision of this AGREEMENT will not constitute grounds by PAYLESS to change
such coverages or to terminate its obligations under this Agreement or otherwise
with respect to the Indemnification Provisions. PAYLESS and BUCHEN agree that
said Indemnification Agreement is hereby amended to delete section 9.6 thereof
in its entirety.
<PAGE>4
7. LIABILITY INSURANCE
PAYLESS currently maintains $30 million in directors' and officers'
liability insurance that provides coverage for BUCHEN and other officers of
PAYLESS. The coverage period, including the run-off provisions provided for
thereunder, continue through December 2, 2003. PAYLESS agrees to maintain such
directors' and officers' liability insurance coverage or to provide similar
coverage to BUCHEN so that BUCHEN will remain insured under similar coverage at
current levels until December 2, 2003 with respect to the period of time that
BUCHEN served as an officer of PAYLESS. PAYLESS has given BUCHEN a copy of such
policy and will give him a copy of any amendment or rider promptly after it
becomes effective.
8. NON-COMPETE PROVISIONS
PAYLESS agrees that the provisions of Section 5 of the Employment Agreement
do not apply after the Effective Date.
9. RELEASE OF LIABILITY
PAYLESS releases BUCHEN of all claims and demands of any kind, known or
unknown, which it may have against BUCHEN as of the Effective Date or which it
may have had at any time before the Effective Date for any acts which BUCHEN
committed or omitted during his employment with PAYLESS. PAYLESS understands
that it is releasing BUCHEN, to the maximum extent permissible by law, from any
liability which BUCHEN may have had to it, known or unknown, at any time up to
and including the Effective Date.
2. BUCHEN'S AGREEMENTS
1. VOLUNTARY RESIGNATION
BUCHEN and PAYLESS acknowledge that BUCHEN does and he hereby does
voluntarily resign his employment as Senior Vice President-Merchandising,
effective as of the Effective Date. BUCHEN and PAYLESS acknowledge that the
resignation which is the subject of this Agreement has been effected by the
mutual and amicable agreement of both parties. Notwithstanding the foregoing
BUCHEN will, at PAYLESS' request, provide transitional advisory services to
PAYLESS for a period ending April 30, 1998. Such service will be performed
without compensation other than reimbursement of business expenses. The hours
(if any) during which BUCHEN performs such transitional advisory services on any
given day shall be determined by him, although he will use reasonable efforts to
respond timely to accommodate the reasonable requests of PAYLESS for his
services.
2. RELEASE OF LIABILITY.
BUCHEN releases PAYLESS from the terms of the Employment Agreement and
<PAGE>5
acknowledges that further obligations of BUCHEN and PAYLESS in that Employment
Agreement are extinguished upon execution of this Agreement, except as
specifically noted herein. BUCHEN understands that he is releasing PAYLESS to
the maximum extent permissible by law, from any liability which BUCHEN believes
PAYLESS may have had to him, at any time up to and including the date he signs
this Agreement. BUCHEN waives any legal right or claims BUCHEN may have or may
have had, including claims of race, color, national origin, sex or gender, age
or disability discrimination, arising under the Title VII of the Civil Rights
Acts of 1964, the Rehabilitation Act of 1973, the Civil Rights Act of 1866
(Section 1981), the Americans with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974, the Age Discrimination in Employment
Act, the Family and Medical Leave Act of 1993, the Missouri Human Rights Act,
the Missouri Workers Compensation Act and the Missouri Service Letter Act and
under any other federal, state, or local statute, regulation, or common law of
any state, including any and all claims in tort or contract; provided, however,
that nothing contained in this Release of Liability shall modify or in any way
detract from the Indemnification provisions of Paragraph A.6 herein.
3. COOPERATION AGREEMENT
BUCHEN also agrees to cooperate and assist PAYLESS in the investigation and
handling of any actual or threatened court action, arbitration or administrative
proceeding or dispute involving any matter that arose during BUCHEN'S employment
(including, but not limited to, testifying in deposition and/or court and
providing information to PAYLESS). PAYLESS acknowledges and agrees that it is
responsible for any and all expenses (including costs and attorneys' fees) that
BUCHEN may incur in connection with any such proceeding.
4. ADEQUACY OF CONSIDERATION
BUCHEN acknowledges that the sum paid by PAYLESS under this Agreement is
adequate consideration for BUCHEN'S execution of this Agreement, and further
acknowledges that the sum is in excess of the amounts to which he would be
entitled under the existing Employment Agreement, policies or practices of
PAYLESS.
5. CONFIDENTIALITY AND NON-SOLICITATION
BUCHEN agrees that notwithstanding the provisions of this Agreement, the
provisions of Section 4 of his Employment Agreement will continue to apply in
accordance with their terms after the Effective Date.
<PAGE>6
3. OTHER AGREEMENTS
1. NON-DISPARAGEMENT
BUCHEN and PAYLESS acknowledge and agree that disparaging or critical
statements made by BUCHEN about PAYLESS or its board members, officers and
employees or disparaging statements made by board members or senior officers of
PAYLESS about BUCHEN would be uniquely detrimental to the interests of both
parties. Therefore, BUCHEN agrees to refrain from making such disparaging or
critical statements about PAYLESS, or its board members, officers, and employees
of PAYLESS, and PAYLESS agrees that PAYLESS' board members and senior executive
officers will refrain from making such disparaging or critical statements about
BUCHEN. All other provisions of this Agreement notwithstanding, PAYLESS agrees
that any statements made by BUCHEN during any testimony given by him as part of
any deposition, court hearing, trial, arbitration hearing or similar proceeding,
shall not be considered a disparaging or critical statement and BUCHEN agrees
that any statements made by PAYLESS or its board members, officers, and
employees of PAYLESS during any testimony given by any of them as part of any
deposition, court hearing, trial, arbitration hearing, or similar proceeding,
shall not be considered a disparaging or critical statement.
2. NO ADMISSION OF LIABILITY
BUCHEN acknowledges that this Agreement shall not in any way be construed
as an admission by PAYLESS of any liability on the part of PAYLESS, and that all
such liability is expressly denied by PAYLESS. Likewise, PAYLESS acknowledges
that this Agreement shall not in any way be construed as an admission by BUCHEN
of any liability on the part of BUCHEN and that all such liability is expressly
denied by BUCHEN.
3. VOLUNTARY NATURE OF AGREEMENT AND ADVICE OF COUNSEL
BUCHEN acknowledges that he has read this Agreement and any attached
schedules, understands their terms, and signs the Agreement voluntarily of his
own free will, without coercion or duress, and with full understanding of the
significance and binding effect of the Agreement. BUCHEN has consulted with his
attorney before signing this Agreement. BUCHEN further acknowledges that he has
been represented by counsel with respect to his pending and potential claims and
has thoroughly discussed all aspects of this Agreement with his attorney.
<PAGE>7
4. CONSIDERATION PERIOD AND REVOCATION
BUCHEN received this Agreement on January 17, 1998. BUCHEN acknowledges
that he has had a reasonable time, and has had adequate opportunity to consider
the terms of the Agreement and whether or not to enter into the Agreement.
BUCHEN has twenty-one (21) calendar days, after the date BUCHEN received the
Agreement, within which to consider the Agreement, although he may sign and
deliver it to PAYLESS sooner if he desires. BUCHEN may revoke the Agreement by
delivering a written notice of revocation to E. J. Holland, Jr ., Sr.
Vice-President - Administration/Secretary, within seven (7) calendar days after
BUCHEN signs the Agreement. The provisions of this Agreement will become
effective and enforceable on the eighth (8th) calendar day following the date
BUCHEN signs the Agreement.
5. BINDING EFFECT
This Agreement will be binding upon BUCHEN and his heirs, administrators,
representatives, executors, successors and assigns, and will inure to the
benefit of PAYLESS and its successors and assigns. Similarly, this Agreement
will be binding on PAYLESS, its officers, agents and successors in interest and
assigns and will inure to the benefit of BUCHEN and his heirs, administrators,
representatives, executors, successors and assigns.
6. NEWS RELEASES
PAYLESS agrees that before it makes any public announcements concerning the
resignation of BUCHEN in any newspaper, trade publication, radio, television, or
other form of public communication, it will submit such a prepared announcement
to BUCHEN for his review and approval. No such announcement will be made without
the prior approval of BUCHEN. BUCHEN agrees that his approval shall not be
unreasonably refused.
7. GOVERNING LAW
This Agreement will be interpreted and enforced in accordance with the laws
of the State of Missouri.
8. SEVERABILITY
Should any provision of this Agreement be declared or determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, the
remaining parts, terms and provisions shall continue to be valid, legal and
enforceable, and will be performed and enforced to the fullest extent permitted
by law.
<PAGE>8
9. COMPLETE AGREEMENT
Except for the Indemnification Provisions and rights and obligations under
directors' and officers' liability insurance policy referred to in paragraphs
A.6 and A.7, which this Agreement merely supplements but which otherwise remain
in full force and effect, and except for the confidentiality and
non-solicitation provision referred to in Paragraph B.5, this Agreement contains
the entire agreement between BUCHEN and PAYLESS with respect to the subject
matter hereof and, except as otherwise noted herein supersedes all prior
agreements or understandings between them. No change or waiver of any part of
this Agreement will be valid unless in writing and signed by both BUCHEN and
PAYLESS.
10. ARBITRATION
The parties hereby agree that any dispute arising hereunder or any claim
for breach or violation of any item hereof shall be submitted to arbitration
pursuant to the rules of the American Arbitration Association ("AAA") to a panel
of three arbitrators selected by mutual agreement of the parties or, if the
parties do not mutually agree on the arbitrators, in accordance with the rules
of the AAA. The award determination of the arbitrators shall be final and
binding upon the parties without right of appeal. Either party shall have the
right to bring an action in any court of competent jurisdiction to enforce this
paragraph and to enforce any arbitrators' award rendered pursuant to this
paragraph. The venue for all proceedings in arbitration hereunder and for any
judicial proceedings related thereto shall be in Kansas City, Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year set forth first above written.
PAYLESS CASHWAYS, INC. G. MICHAEL BUCHEN
By: /s/ Donald E. Roller /s/ G. Michael Buchen
----------------------- ------------------------
Name: Donald E. Roller Date: January 17, 1998
Title: Acting Chief Executive Officer
Date: January 21, 1998
<PAGE>9
Schedule I to G. Michael Buchen Settlement Agreement
Lump sum payment computation
Severance Period Base Salary $ 296,153.85
(13 months at $275,000 base rate
in effect on 1/21/97)
Unpaid Retention Bonus 41,250.00
(50% of 30% of $275,000)
Unused Vacation Days
(6 weeks pay at $275,000 per annum) 31,730.77
Additional Lump Sum Payment, pursuant to 10,000.00
P. A(2)(a)(ii)
Automobile Allowance 8,161.62
----------
Total $ 387,296.24
<PAGE>10
Schedule II to G. Michael Buchen Settlement Agreement
Benefit Continuation
Group Medical/Vision
Group Dental
Long Term Disability and Supplemental Disability (limited to a maximum monthly
benefit of $5,000.00)
GroupLife Insurance and Supplemental Death Benefits during the Severance
Period, and a $275,000 life insurance policy thereafter
Annual Physical in early 1998
1997 Tax Preparation ($1,000 limit)
<PAGE>11
Schedule III to G. Michael Buchen Settlement Agreement
CERTIFICATE OF INCORPORATION
INDEMNIFICATION PROVISION
ARTICLE VIII
INDEMNIFICATION; INSURANCE
The directors and officers of the corporation shall be indemnified to the
maximum extent permitted by law. Without limiting the foregoing, each person who
was or is made a party or is threatened to be made a party to any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation, or is or was serving, at the request of the corporation, as
a director, officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation, to the fullest extent which it is empowered to
do so by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment), against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such proceeding, including attorneys' fees, and such indemnification shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in the bylaws of the corporation, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors of the corporation. Expenses incurred
by a director or officer of the corporation in defending a civil or criminal
action, suit or proceeding shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it is ultimately determined that the director or officer is not entitled to be
indemnified by the corporation as authorized by the Delaware General Corporation
Law. The foregoing right of indemnification and advancement of expenses shall be
a contract right and shall in no way be exclusive of any other rights of
indemnification and advancement of expenses to which any such director or
officer may be entitled by law, agreement, vote of stockholders or of
disinterested directors or otherwise. All rights of indemnification and
advancement of expenses hereunder shall survive any repeal or modification of
this Article VIII as to any set of facts or proceeding then existing, shall
continue as to a person who has ceased to be an officer or director and shall
inure to the benefit of the heirs, executors and administrators of such a
director or officer. The procedures with respect to indemnification shall be set
forth in the bylaws of the corporation.
<PAGE>12
The corporation may maintain insurance, at its expense, to protect itself
and any person who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
<PAGE>13
Schedule IV to G. Michael Buchen Settlement Agreement
BYLAWS
INDEMNIFICATION PROVISIONS
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the corporation or advance of
expenses under Article VIII of the certificate of incorporation shall be made
promptly, and in any event within thirty days, upon the written request of the
director or officer. If a determination by the corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the corporation fails to respond within sixty days to a written request for
indemnity, the corporation shall be deemed to have approved the request. If the
corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within thirty days, the right to indemnification or advances as granted
by this Article V shall be enforceable by the director or officer in any court
of competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his or her right to indemnification,
in whole or in part, in any such action shall also be indemnified by the
corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any, has
been tendered to the corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including its board of directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 2. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision or the certificate of incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
<PAGE>14
Section 3. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors. Expenses (including attorneys'
fees) incurred by employees and agents may be paid upon such terms and
conditions, if any, as the board of directors deems appropriate; provided, that
such expenses may only be paid by the corporation in advance of a proceeding's
final disposition upon receipt of an undertaking by or on behalf of such
employee or agent to repay such amount if it shall ultimately be determined that
he or she is not entitled to be indemnified by the corporation.
Section 4. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the Delaware General Corporation Law or other applicable
law are in effect, and any repeal or modification of this Article V or any such
law shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then existing.
Section 5. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
<PAGE>15
Schedule V to G. Michael Buchen Settlement Agreement
INDEMNIFICATION AGREEMENT
<PAGE>1
SEVERANCE AGREEMENT, RESIGNATION,
AND FULL GENERAL RELEASE
This Severance Agreement, Resignation, and Release ("Agreement") is made
and entered into on January 23, 1998 by and between PAYLESS CASHWAYS, INC.
("PAYLESS") and E. J. HOLLAND, JR. ("HOLLAND").
WHEREAS, HOLLAND was employed by PAYLESS on June 30, 1992, and is entitled
to the benefits of an Executive Change in Control Agreement dated as of June 26,
1997, as amended as of August 20, 1997, (the "Control Agreement"); and
WHEREAS, PAYLESS and HOLLAND mutually wish to terminate the employment
status of HOLLAND, and HOLLAND's employment with PAYLESS shall end on January
30, 1998, or such later date as HOLLAND and PAYLESS shall agree, and
WHEREAS, PAYLESS and HOLLAND have agreed that HOLLAND shall resign as
Senior Vice President-Administration/Secretary, but that for purposes of his
severance benefits HOLLAND's termination shall be regarded as a termination of
his employment without cause by PAYLESS;
NOW THEREFORE, in consideration of the mutual promises, agreements and
releases contained in this Agreement, the parties agree as follows:
1. A. PAYLESS' AGREEMENTS
1. EFFECTIVE DATE
PAYLESS acknowledges that this Agreement will become effective on the 8th
day following HOLLAND's execution of this Agreement (the "Effective Date"), and
that HOLLAND will not be required to perform services for PAYLESS after January
30, 1998, or such later date as HOLLAND and PAYLESS shall agree.
2. SEVERANCE BENEFITS
PAYLESS agrees to provide HOLLAND the severance benefits set forth below.
1. Lump Sum Payment
(1) PAYLESS agrees to pay HOLLAND on the Effective Date a lump
sum payment (less applicable payroll deductions) in the amount set forth on
Schedule I hereto. As set forth in Schedule I, such lump sum payment consists of
(A) the amount that HOLLAND would have received as one year's annual Base Salary
from the Effective Date through February 1, 1999 (the "Severance Period") (based
on his base salary in effect on July 21, 1997),
<PAGE>2
(B) the remaining amount due HOLLAND under the PAYLESS Reorganization Retention
Plan, and (C) an amount for unused earned vacation days through the Effective
Date. In addition, PAYLESS shall pay HOLLAND on the Effective Date or as
promptly thereafter as is practicable an amount equal to any previously
unreimbursed business expenses.
(2) PAYLESS also agrees to pay, in lieu of matching contributions
to the Payless Cashways, Inc. Employee Savings Plan which would otherwise have
been made on HOLLAND's behalf during the Severance Period, and in consideration
for the Release of Liability contained herein in Paragraph B.2, an additional
lump sum payment (less applicable payroll deductions) of $10,000.00.
2. Continuation of Benefits PAYLESS agrees that during the Severance
Period it will provide HOLLAND with health, life (including supplemental death
benefits), and dental benefits substantially equivalent to those received by
HOLLAND as of the date of the termination of his employment. Such benefits are
described in Schedule II and shall be provided during the Severance Period (or,
if longer, the period during which such benefits would have been provided at
PAYLESS' expense under applicable plans of PAYLESS. Except as may be indicated
in Schedule II, such health, life and dental benefits shall be provided at the
same coverage levels provided to HOLLAND as of the date of the termination of
his employment, and such benefits shall be provided at PAYLESS' expense, subject
to the same cost sharing provisions, if any, applicable to HOLLAND as of the
date of the termination of his employment. In addition, PAYLESS agrees that
during the Severance Period it will provide HOLLAND with disability benefits
similar to those that HOLLAND was receiving or was entitled to receive during
the period of his employment, except that during the Severance Period, such
benefits will provide a maximum monthly benefit of $5,000.00. Such benefits are
also listed in Schedule II. PAYLESS agrees to use its reasonable best efforts to
obtain an additional $5,000.00 of monthly disability benefits on behalf of
HOLLAND during the Severance Period. After the Severance Period, HOLLAND shall
be eligible for COBRA continuation coverage of health and dental benefits for a
period of 18 months or such period as may then be provided by law. HOLLAND shall
not be entitled to receive such benefits to the extent that he obtains other
employment prior to the end of the Severance Period that provides comparable
benefits, provided, however, that HOLLAND is under no obligation to seek other
employment during such period.
3. Retirement Benefits PAYLESS agrees that for purposes of determining
the benefits payable to HOLLAND under the Payless Cashways, Inc. Amended
Retirement Plan (the "Pension Plan") and HOLLAND's eligibility therefor,
HOLLAND's date of separation from PAYLESS shall be deemed to be February 1,
1999, his age shall be deemed to be his age on such date and the amount
allocable to base pay included in the lump sum payment in Paragraph A.2.a(i)
shall be included in determining career average pay. If the terms of the Pension
Plan do not permit the foregoing, then on the Effective Date PAYLESS shall pay
HOLLAND an amount equal to the present value of the additional retirement
benefits that would have accrued had he continued to perform services for
PAYLESS through the Severance Period at the same rate of compensation as was in
effect on the date of this Agreement. The present value payable hereunder shall
be
<PAGE>3
calculated using GATT rate currently in effect under the Pension Plan.
4. Automobile PAYLESS also agrees to a lump sum payment (less
applicable payroll deductions) of $8,158.00 in lieu of HOLLAND's car allowance,
to be paid on the Effective Date. HOLLAND and PAYLESS agree that the lease, and
use, of his company car will be terminated as of the Effective Date.
3. DEATH OF HOLLAND
The death of HOLLAND prior to the expiration of this Agreement will not
void this Agreement, but the terms thereof will survive his death. In the event
that HOLLAND dies prior to receipt of all sums set forth in section A.2. above,
then any and all such remaining sums not yet received by HOLLAND otherwise due
under this Agreement shall become due and payable to the beneficiaries
hereinafter listed: Principal Beneficiary: The Trustee(s) under Trust Agreement
created by Edward J. Holland Jr. dated December 15, 1992, as amended, or the
successor(s) in trust, Beneficiary, if the trust evidenced by said agreement is
in effect at HOLLAND's death. If said trust is not then in effect, the proceeds
will be payable in one sum to HOLLAND's estate.
4. STOCK INCENTIVE
The parties acknowledge that HOLLAND has no vested stock incentives.
5. OUTPLACEMENT
PAYLESS will provide HOLLAND at PAYLESS' expense with telephone answering
and e-mail services at Payless for a period of 60 days and executive-level
outplacement services at an outplacement service of PAYLESS' choice in the
Kansas City area, including an office and telephone transfer services, until he
obtains other employment, for a maximum of 18 months.
6. INDEMNIFICATION
Set forth as Schedules III through V hereto are provisions of PAYLESS
Certificate of Incorporation and Bylaws relating to indemnification of directors
and officers and an Indemnification Agreement dated December 2, 1997, between
PAYLESS and HOLLAND (collectively "Indemnification Provisions"). Such
Indemnification Provisions are incorporated by this reference and made a part of
this Agreement in their entirety. PAYLESS acknowledges and agrees that HOLLAND
and his estate are entitled to the benefit of such Indemnification Provisions
notwithstanding his termination of service and that such provisions apply to his
service as an officer of PAYLESS and any of its predecessors. PAYLESS further
acknowledges that the Indemnification Provisions obligate PAYLESS, among other
matters, to indemnify HOLLAND against any and all expenses (including costs and
attorneys' fees) which he might incur as a witness or party with respect to that
certain matter pending in the United States District Court for the Southern
District of Iowa captioned PAYLESS Cashways, Inc. Partners [et. al.] v. PAYLESS
Cashways, Inc. [et. al.]. PAYLESS agrees to honor such obligations with respect
to such
<PAGE>4
proceeding or any other proceeding to which HOLLAND may become a party or
witness by reason of the fact that he served as an officer of PAYLESS, except as
may be provided in the Indemnification Provisions. PAYLESS further agrees that
as to HOLLAND, any amendments or changes to the Indemnification Provisions or
the insurance coverages described in paragraph A.7 below will not adversely
affect HOLLAND without HOLLAND's written consent, and that breach by HOLLAND of
any provision of this AGREEMENT will not constitute grounds by PAYLESS to change
such coverages or to terminate its obligations under this Agreement or otherwise
with respect to the Indemnification Provisions. PAYLESS and HOLLAND agree that
said Indemnification Agreement is hereby amended to delete section 9.6 thereof
in its entirety.
7. LIABILITY INSURANCE
PAYLESS currently maintains $30 million in directors' and officers'
liability insurance that provides coverage for HOLLAND and other officers of
PAYLESS. The coverage period, including the run-off provisions provided for
thereunder, continue through December 2, 2003. PAYLESS agrees to maintain such
directors' and officers' liability insurance coverage or to provide similar
coverage to HOLLAND so that HOLLAND will remain insured under similar coverage
at current levels until December 2, 2003 with respect to the period of time that
HOLLAND served as an officer of PAYLESS. PAYLESS has given HOLLAND a copy of
such policy and will give him a copy of any amendment or rider promptly after it
becomes effective.
8. RELEASE OF LIABILITY
PAYLESS releases HOLLAND of all claims and demands of any kind, known or
unknown, which it may have against HOLLAND as of the Effective Date or which it
may have had at any time before the Effective Date for any acts which HOLLAND
committed or omitted during his employment with PAYLESS. PAYLESS understands
that it is releasing HOLLAND, to the maximum extent permissible by law, from any
liability which HOLLAND may have had to it, known or unknown, at any time up to
and including the Effective Date.
2. HOLLAND'S AGREEMENTS
1. VOLUNTARY RESIGNATION
HOLLAND and PAYLESS acknowledge that HOLLAND does and he hereby does
voluntarily resign his employment as Senior Vice
President-Administration/Secretary, effective as of the Effective Date or such
later date as HOLLAND and PAYLESS shall agree. HOLLAND and PAYLESS acknowledge
that the resignation which is the subject of this Agreement has been effected by
the mutual and amicable agreement of both parties. Notwithstanding the foregoing
HOLLAND will, at PAYLESS' request, provide transitional advisory services to
PAYLESS for a period ending April 30, 1998. Such service will be performed
without compensation other than reimbursement of business expenses. The hours
(if any) during which HOLLAND
<PAGE>5
performs such transitional advisory services on any given day shall be
determined by him, although he will use reasonable efforts to respond timely to
accommodate the reasonable requests of PAYLESS for his services.
2. RELEASE OF LIABILITY
HOLLAND releases PAYLESS from the terms of the Control Agreement and
acknowledges that further obligations of HOLLAND and PAYLESS in that Control
Agreement are extinguished upon execution of this Agreement, except as
specifically noted herein. HOLLAND understands that he is releasing PAYLESS to
the maximum extent permissible by law, from any liability which HOLLAND believes
PAYLESS may have had to him, at any time up to and including the date he signs
this Agreement. HOLLAND waives any legal right or claims HOLLAND may have or may
have had, including claims of race, color, national origin, sex or gender, age
or disability discrimination, arising under the Title VII of the Civil Rights
Acts of 1964, the Rehabilitation Act of 1973, the Civil Rights Act of 1866
(Section 1981), the Americans with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974, the Age Discrimination in Employment
Act, the Family and Medical Leave Act of 1993, the Missouri Human Rights Act,
the Missouri Workers Compensation Act and the Missouri Service Letter Act and
under any other federal, state, or local statute, regulation, or common law of
any state, including any and all claims in tort or contract; provided, however,
that nothing contained in this Release of Liability shall modify or in any way
detract from the Indemnification provisions of Paragraph A.6 herein.
3. COOPERATION AGREEMENT
HOLLAND also agrees to cooperate and assist PAYLESS in the investigation
and handling of any actual or threatened court action, arbitration or
administrative proceeding or dispute involving any matter that arose during
HOLLAND's employment (including, but not limited to, testifying in deposition
and/or court and providing information to PAYLESS). PAYLESS acknowledges and
agrees that it is responsible for any and all expenses (including costs and
attorneys' fees) that HOLLAND may incur in connection with any such proceeding.
4. ADEQUACY OF CONSIDERATION
HOLLAND acknowledges that the sum paid by PAYLESS under this Agreement is
adequate consideration for HOLLAND's execution of this Agreement, and further
acknowledges that the sum is in excess of the amounts to which he would be
entitled under the existing Control Agreement, policies or practices of PAYLESS.
<PAGE>6
3. OTHER AGREEMENTS
1. NON-DISPARAGEMENT
HOLLAND and PAYLESS acknowledge and agree that disparaging or critical
statements made by HOLLAND about PAYLESS or its board members, officers and
employees or disparaging statements made by board members or senior officers of
PAYLESS about HOLLAND would be uniquely detrimental to the interests of both
parties. Therefore, HOLLAND agrees to refrain from making such disparaging or
critical statements about PAYLESS, or its board members, officers, and employees
of PAYLESS, and PAYLESS agrees that PAYLESS' board members and senior executive
officers will refrain from making such disparaging or critical statements about
HOLLAND. All other provisions of this Agreement notwithstanding, PAYLESS agrees
that any statements made by HOLLAND during any testimony given by him as part of
any deposition, court hearing, trial, arbitration hearing or similar proceeding,
shall not be considered a disparaging or critical statement and HOLLAND agrees
that any statements made by PAYLESS or its board members, officers, and
employees of PAYLESS during any testimony given by any of them as part of any
deposition, court hearing, trial, arbitration hearing, or similar proceeding,
shall not be considered a disparaging or critical statement.
2. NO ADMISSION OF LIABILITY
HOLLAND acknowledges that this Agreement shall not in any way be construed
as an admission by PAYLESS of any liability on the part of PAYLESS, and that all
such liability is expressly denied by PAYLESS. Likewise, PAYLESS acknowledges
that this Agreement shall not in any way be construed as an admission by HOLLAND
of any liability on the part of HOLLAND and that all such liability is expressly
denied by HOLLAND.
3. VOLUNTARY NATURE OF AGREEMENT AND ADVICE OF COUNSEL
HOLLAND acknowledges that he has read this Agreement and any attached
schedules, understands their terms, and signs the Agreement voluntarily of his
own free will, without coercion or duress, and with full understanding of the
significance and binding effect of the Agreement. HOLLAND has consulted with his
attorney before signing this Agreement. HOLLAND further acknowledges that he has
been represented by counsel with respect to his pending and potential claims and
has thoroughly discussed all aspects of this Agreement with his attorney.
4. CONSIDERATION PERIOD AND REVOCATION
HOLLAND received this Agreement on January 23, 1998. HOLLAND acknowledges
that he has had a reasonable time, and has had adequate opportunity to consider
the terms of the Agreement and whether or not to enter into the Agreement.
HOLLAND has twenty-one (21) calendar days, after the date HOLLAND received the
Agreement, within which to consider the
<PAGE>7
Agreement, although he may sign and deliver it to PAYLESS sooner if he desires.
HOLLAND may revoke the Agreement by delivering a written notice of revocation to
Louise Iennacaro, Vice President of Human Resources, within seven (7) calendar
days after HOLLAND signs the Agreement. The provisions of this Agreement will
become effective and enforceable on the eighth (8th) calendar day following the
date HOLLAND signs the Agreement.
5. BINDING EFFECT
This Agreement will be binding upon HOLLAND and his heirs, administrators,
representatives, executors, successors and assigns, and will inure to the
benefit of PAYLESS and its successors and assigns. Similarly, this Agreement
will be binding on PAYLESS, its officers, agents and successors in interest and
assigns and will inure to the benefit of HOLLAND and his heirs, administrators,
representatives, executors, successors and assigns.
6. NEWS RELEASES
PAYLESS agrees that before it makes any public announcements concerning the
resignation of HOLLAND in any newspaper, trade publication, radio, television,
or other form of public communication, it will submit such a prepared
announcement to HOLLAND for his review and approval. No such announcement will
be made without the prior approval of HOLLAND. HOLLAND agrees that his approval
shall not be unreasonably refused.
7. GOVERNING LAW
This Agreement will be interpreted and enforced in accordance with the laws
of the State of Missouri.
8. SEVERABILITY
Should any provision of this Agreement be declared or determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, the
remaining parts, terms and provisions shall continue to be valid, legal and
enforceable, and will be performed and enforced to the fullest extent permitted
by law.
9. COMPLETE AGREEMENT
Except for the Indemnification Provisions and rights and obligations under
directors' and officers' liability insurance policy referred to in paragraphs
A.6 and A.7, which this Agreement merely supplements but which otherwise remain
in full force and effect, this Agreement contains the entire agreement between
HOLLAND and PAYLESS with respect to the subject matter hereof and, except as
otherwise noted herein supersedes all prior agreements or understandings between
them. No change or waiver of any part of this Agreement will be valid unless in
writing and signed by both HOLLAND and PAYLESS.
<PAGE>8
10. ARBITRATION
The parties hereby agree that any dispute arising hereunder or any claim
for breach or violation of any item hereof shall be submitted to arbitration
pursuant to the rules of the American Arbitration Association ("AAA") to a panel
of three arbitrators selected by mutual agreement of the parties or, if the
parties do not mutually agree on the arbitrators, in accordance with the rules
of the AAA. The award determination of the arbitrators shall be final and
binding upon the parties without right of appeal. Either party shall have the
right to bring an action in any court of competent jurisdiction to enforce this
paragraph and to enforce any arbitrators' award rendered pursuant to this
paragraph. The venue for all proceedings in arbitration hereunder and for any
judicial proceedings related thereto shall be in Kansas City, Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year set forth first above written.
PAYLESS CASHWAYS, INC. E. J. HOLLAND, JR.
By: /s/ Donald E. Roller /s/ E. J. Holland, Jr.
------------------------ -------------------------
Name: Donald E. Roller Date: January 23, 1998
Title: Acting Chief Executive Officer
Date: January 23, 1998
<PAGE>9
Schedule I to E. J. Holland, Jr. Severance Agreement
Lump sum payment computation
Severance Period Base Salary $242,000.00
(12 months at rate
in effect on 7/21/97)
Unpaid Retention Bonus $36,300.00
(50% of 30% of $242,000)
Unused Vacation Days
(4 weeks pay at $242,000 per annum) $18,615.38
Additional Lump Sum Payment pursuant to
P. A(2)(a)(ii) $10,000.00
Additional Retirement Benefit, as [to be determined]
described in P. A(2)(c)
Automobile Allowance $8,158.00
----------
Total (exclusive of Additional Retirement Benefit $315,073.38
described in P. A(2)(c)
<PAGE>10
Schedule II to E. J. Holland, Jr. Severance Agreement
Benefit Continuation
Group Medical/Vision
Group Dental
Long Term Disability and Supplemental Disability (limited to a maximum monthly
benefit of $5,000.00)
Combined Group Life Insurance and Supplemental Death Benefits of $810,000 during
the Severance Period, and a $270,000 life insurance policy thereafter
Annual
Physical in early 1998 1997 Tax Preparation ($1,000 limit)
<PAGE>11
Schedule III to E. J. Holland, Jr. Severance Agreement
CERTIFICATE OF INCORPORATION
INDEMNIFICATION PROVISION
ARTICLE VIII
INDEMNIFICATION; INSURANCE
The directors and officers of the corporation shall be indemnified to the
maximum extent permitted by law. Without limiting the foregoing, each person who
was or is made a party or is threatened to be made a party to any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation, or is or was serving, at the request of the corporation, as
a director, officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation, to the fullest extent which it is empowered to
do so by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment), against all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such proceeding, including attorneys' fees, and such indemnification shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in the bylaws of the corporation, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors of the corporation. Expenses incurred
by a director or officer of the corporation in defending a civil or criminal
action, suit or proceeding shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it is ultimately determined that the director or officer is not entitled to be
indemnified by the corporation as authorized by the Delaware General Corporation
Law. The foregoing right of indemnification and advancement of expenses shall be
a contract right and shall in no way be exclusive of any other rights of
indemnification and advancement of expenses to which any such director or
officer may be entitled by law, agreement, vote of stockholders or of
disinterested directors or otherwise. All rights of indemnification and
advancement of expenses hereunder shall survive any repeal or modification of
this Article VIII as to any set of facts or proceeding then existing, shall
continue as to a person who has ceased to be an officer or director and shall
inure to the benefit of the heirs, executors and administrators of such a
director or officer. The procedures with respect to indemnification shall be set
forth in the bylaws of the corporation.
<PAGE>12
The corporation may maintain insurance, at its expense, to protect itself
and any person who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
<PAGE>13
Schedule IV to E. J. Holland, Jr. Severance Agreement
BYLAWS
INDEMNIFICATION PROVISIONS
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the corporation or advance of
expenses under Article VIII of the certificate of incorporation shall be made
promptly, and in any event within thirty days, upon the written request of the
director or officer. If a determination by the corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the corporation fails to respond within sixty days to a written request for
indemnity, the corporation shall be deemed to have approved the request. If the
corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within thirty days, the right to indemnification or advances as granted
by this Article V shall be enforceable by the director or officer in any court
of competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his or her right to indemnification,
in whole or in part, in any such action shall also be indemnified by the
corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any, has
been tendered to the corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including its board of directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 2. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision or the certificate of incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
<PAGE>14
Section 3. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors. Expenses (including attorneys'
fees) incurred by employees and agents may be paid upon such terms and
conditions, if any, as the board of directors deems appropriate; provided, that
such expenses may only be paid by the corporation in advance of a proceeding's
final disposition upon receipt of an undertaking by or on behalf of such
employee or agent to repay such amount if it shall ultimately be determined that
he or she is not entitled to be indemnified by the corporation.
Section 4. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the Delaware General Corporation Law or other applicable
law are in effect, and any repeal or modification of this Article V or any such
law shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then existing.
Section 5. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
<PAGE>15
Schedule V to E. J. Holland, Jr. Severance Agreement
INDEMNIFICATION AGREEMENT
<PAGE>1
INDEMNIFICATION AGREEMENT
This Agreement, dated as of March , 1998, is made by and between Payless
Cashways, Inc., a Delaware corporation (the "Company"), and ________________who
is serving as a director and/or officer of the Company ("Indemnitee").
RECITALS
WHEREAS, Indemnitee is currently serving in the capacity or capacities
described above.
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as directors, officers,
employees and agents of the Company and to indemnify these individuals so as to
provide them with the maximum protection permitted by law.
WHEREAS, the Company and Indemnitee recognize the substantial increase in
corporate litigation in general, subjecting directors, officers, employees, and
agents to expensive litigation risk at the same time that the availability and
coverage of liability insurance has been severely limited.
WHEREAS, Indemnitee is currently entitled to indemnification under Delaware
General Corporation Law and the Certificate of Incorporation of the Company.
WHEREAS, Indemnitee regards the protection extended by Delaware law and
the Certificate of Incorporation as beneficial, but Indemnitee may not be
willing to serve or continue to serve as director or officer of the Company
without additional inducements, and the Company desires Indemnitee to serve in
such capacity and in other capacities.
AGREEMENT
1. Definitions.
1.1 "Agent" means any person who is or was a director, officer, employee,
agent or fiduciary of the Company or a subsidiary of the Company, or is or was
serving at the request of, for the convenience of, or to represent the interests
of the Company or a subsidiary of the Company as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise or entity, including service with respect to an employee
benefit plan.
1.2 "Disinterested Director" means a director of the Company who is not and
was not a party to the proceeding for which indemnification is being sought by
the claimant.
<PAGE>2
1.3 "Expenses" includes all direct and indirect costs of any type or nature
whatsoever (including, without limitation, all attorneys' fees and related
disbursements, other out-of-pocket costs and reasonable compensation for time
spent by Indemnitee for which he/she is not otherwise compensated by the Company
or any third party) actually and reasonably incurred by Indemnitee in connection
with either the investigation, defense or appeal of a proceeding or establishing
or enforcing a right to indemnification under this Agreement, Section 145 of the
General Corporation Law of Delaware or otherwise.
1.4 "Independent Legal Counsel" means a law firm, a member of a law firm,
or an independent practitioner,that is experienced in matters of corporation law
and shall include any person who, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
1.5 "Proceeding" means any threatened, pending, or completed action, suit
or other proceeding, whether civil, criminal, administrative, investigative
or any other type whatsoever.
1.6 "Subsidiary" means any corporation, partnership, joint venture or other
enterprise, a majority of whose equity interests are owned by the Company,
directly or through one or more other subsidiaries.
2. Agreement to Serve. Indemnitee agrees to serve or to continue to serve as an
Agent of the Company in the capacity Indemnitee currently serves as an agent of
the Company, so long as he/she is duly appointed or elected and qualified in
accordance with the applicable provisions of the Certificate of Incorporation of
the Company or any Subsidiary of the Company or until such time he/she tenders
his/her resignation in writing.
3. D&O Insurance.
3.1 Maintenance of D&O Insurance. So long as Indemnitee shall continue to
serve in any capacity described in Section 2 and thereafter so long as there is
any reasonable possibility that Indemnitee shall be subject to any proceeding by
reason of the fact that Indemnitee served in any of such capacities, the Company
will use reasonable efforts to purchase and maintain in effect for the benefit
of Indemnitee one or more valid, binding and enforceable policies of directors'
and officers' liability insurance ("D&O Insurance") providing, in all respects,
coverage and amounts as reasonably determined by the Board of Directors.
3.2 Unavailability or Impracticality of D&O Insurance. Notwithstanding
subsection 3.1, the Company shall not be required to maintain D&O Insurance if
(a) such insurance is not reasonably available or (b) in the reasonable business
judgment of the Board of Directors of the Company as it may exist from time to
time, either (i) the premium cost for such insurance is substantially
disproportionate to the amount of insurance or (ii) the coverage is so limited
by exclusions that there is insufficient benefit provided by such insurance.
<PAGE>3
4. Limitation of Indemnity. Notwithstanding anything in Section 7 or Section 8
to the contrary, the Company shall not be liable under this Agreement to make
any indemnity payment or advancement of expenses in connection with any
Proceeding (a) to the extent that payment is actually made to or on behalf of
Indemnitee under a valid and collectible insurance policy, except in respect of
any amount in excess of the limits of liability of such policy or any applicable
deductible under such policy; (b) to the extent that payment has been or will be
made to Indemnitee other than pursuant to this Agreement; (c) with respect to
acts or omissions listed in Section 102(b)(7) of the Delaware General
Corporation Law, as amended from time to time; and (d) if a final decision by a
Court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
5. Notice and Defense of Claim.
5.1 Notification of Proceeding. Promptly after receipt by Indemnitee of
notice of the commencement or the threat of commencement of any Proceeding,
Indemnitee shall notify the Company of the commencement or threat of
commencement thereof. The failure to notify or promptly notify the Company shall
not relieve the Company from any liability that it may have to Indemnitee
otherwise than under this Agreement and shall relieve the Company from liability
hereunder only to the extent the Company has been prejudiced in its defense of
such Proceeding as a result of Indemnitee's failure to notify the Company.
5.2 Notice to Insurer. If, at the time of the receipt of a notice of the
commencement of a Proceeding pursuant to subsection 5.1, the Company has D&O
Insurance in effect, the Company shall give prompt notice of the commencement of
such proceeding to the insurers in accordance with the procedures set forth in
the D&O Insurance policy. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, to or on behalf of Indemnitee,
all amounts payable as a result of such proceeding in accordance with the terms
of such policy.
5.3 Assumption of Defense. In the event the Company shall be obligated to
pay any expenses or costs of any Proceedings against Indemnitee, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with
counsel approved by Indemnitee, upon the delivery to Indemnitee of written
notice of its election to assume the defense. After delivery of such notice, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same Proceeding,
provided, however, that (a) Indemnitee shall have the right to employ separate
counsel in any such Proceeding at Indemnitee's expense, or (b) if (i) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of such
defense, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such Proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company. The Company shall
not be entitled to assume the defense of any Proceeding brought by or in the
right of the Company or as to which Indemnitee shall have made the conclusion
provided for in (b)(ii) above.
<PAGE>4
5.4 Cooperation and Settlement of Claim. In defense of any claim or threat
thereof, Indemnitee shall give the Company such information and cooperation as
the Company may reasonably request. The Company shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without the prior written consent of the Company. The Company
shall not settle any action or claim in any manner which will impose any penalty
or limitation on Indemnitee without Indemnitee's prior written consent. Both the
Company and Indemnitee agree that they will not unreasonably withhold their
consent to any proposed settlement. In the event that consent is not given and
the parties hereto are unable to agree on a proposed settlement, Independent
Legal Counsel shall be retained by the Company, at its expense (with the consent
of Indemnitee, which consent shall not be unreasonably withheld), for the
purpose of determining whether or not the proposed settlement is reasonable
under all the circumstances; and if Independent Legal Counsel determines the
proposed settlement is reasonable under all the circumstances, the settlement
may be consummated without the consent of the other party.
6. Determination of Right to Indemnification.
6.1 Procedure. The Secretary of the Company shall, promptly upon receipt of
a request for indemnification, advise the Board of Directors in writing that
Indemnitee has requested indemnification. Indemnitee shall be entitled to
indemnification if: (i) Indemnitee is in fact an Agent of the Company or is or
was serving at the request of the Company as an Agent of another entity, (ii)
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company, (iii) with respect to
any criminal action or proceeding, Indemnitee had no reason to believe his/her
conduct was unlawful, and (iv) the indemnification would not otherwise be
prohibited under Delaware law. The determination with respect to Indemnitee's
entitlement to indemnification shall be made in the specific case as follows:
(a) by a majority vote of Disinterested Directors, even though less than a
quorum, (b) by Independent Legal Counsel selected by such Disinterested
Directors, or (c) if Disinterested Directors cannot be obtained, by vote of the
stockholders of the Company.
6.2 Notice of Determination. Following the determination with respect to
Indemnitee's entitlement to indemnification under subsection 6.1, the Secretary
or any other officer of the Company shall provide written notice to Indemnitee
of such determination.
6.3 Payment of Indemnification. After a determination that Indemnitee is
entitled to indemnification, whether under subsection 6.1 or pursuant to an
adjudication or arbitration under Section 9, the Company shall pay all costs and
expenses reasonably incurred by Indemnitee in investigating, defending, and
appealing any Proceeding against Indemnitee. Such payment shall be made within a
reasonable time after the Company's receipt of evidence that an indemnifiable
expense has been incurred.
6.4 Payment of Independent Legal Counsel. If the determination of
entitlement to indemnification is to be made by Independent Legal Counsel under
subsection 6.1
<PAGE>5
of this Agreement, the Company shall pay any and all reasonable fees and
expenses incurred by such independent counsel in connection with acting pursuant
to this Agreement.
6.5 Payment of Expenses Incurred by Indemnitee in Making Determination. All
reasonable costs or expenses (including attorneys' fees and disbursements)
incurred by Indemnitee in cooperating with the persons responsible for making
the determination called for under subsection 6.1 shall be borne by the Company,
irrespective of the determination as to Indemnitee's entitlement to
indemnification.
6.6 Presumption of Entitlement to Indemnification. In making any
determination under subsection 6.1 or subsection 9.1, it shall be presumed that
Indemnitee is entitled to indemnification under this Agreement, and the Company
shall have the burden of proof to overcome this presumption. As is provided
under Section 145 of the General Corporation Law of Delaware, the termination of
any Proceeding covered by this Agreement, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption for the purpose of subsection 6.1 or any other
provision of this Agreement that Indemnitee did not act in good faith and in a
manner that Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had reasonable cause to believe that the conduct was unlawful.
7. Mandatory Indemnification. Subject to the limitations set forth in Section 4
and the determination to be made under Section 6, if Indemnitee is a person who
was or is a party or is threatened to be made a party to or is involved
(including involvement as a witness) in a Proceeding, including any action by or
in the right of the Company, by reason of the fact that he/she is or was or has
agreed to become an Agent, or by reason of any action alleged to have been taken
or omitted by him/her in any capacity, the Company shall indemnify Indemnitee
against all expense, liability and loss (including, but not limited to,
judgements, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement), actually and reasonably incurred by him/her in connection
with the investigation, defense, settlement or appeal of such Proceeding;
provided, however, that except as provided in subsection 9.1 of this Agreement
with respect to remedies of Indemnitee, the Company shall indemnify Indemnitee
in connection with a Proceeding (or part thereof) initiated by Indemnitee only
if such Proceeding (or any part thereof) was authorized by the Board of
Directors of the Company.
8. Mandatory Advancement of Expenses. The Company shall pay in advance of final
determination all costs and expenses reasonably incurred by Indemnitee in
connection with the investigation, defense, settlement or appeal of any
Proceeding to which Indemnitee is a party or is threatened to be made a party or
with respect to which Indemnitee is otherwise involved (including involvement as
a witness) as an Agent. An advancement of expenses incurred by Indemnitee in
his/her capacity as an Agent shall be made only upon receipt by the Company of
(a) a written affirmation by Indemnitee of Indemnitee's good faith belief that
Indemnitee has met the standard of conduct necessary for indemnification as
outlined in Section 6 and Section 7, and (b) an undertaking by or on behalf of
Indemnitee to repay all amounts so advanced if it shall ultimately be determined
by final judicial decision from which there is no
<PAGE>6
further right to appeal that Indemnitee is not entitled to be indemnified for
such expenses under this Agreement or otherwise. The advances to be made
hereunder shall be paid within a reasonable time after the Company's receipt of
a written request for reimbursement for incurred costs and expenses.
9. Remedies of Indemnitee.
9.1 In the event (a) the Company determines pursuant to subsection 6.1 that
Indemnitee is not entitled to indemnification under this Agreement or (b) the
Company fails to make the determination called for in subsection 6.1 within 60
days of the Company's receipt of the request for indemnification, Indemnitee may
seek an adjudication in an appropriate court of the State of Delaware, or in any
other court of competent jurisdiction, for the purpose of enforcing Indemnitee's
right to indemnification or the advance payment of expenses pursuant to this
Agreement. Alternatively, Indemnitee may, at Indemnitee's option, seek an award
in arbitration to be conducted by a single arbitrator pursuant to the rules of
the American Arbitration Association. Indemnitee must exercise the rights under
this subsection within 180 days of the earlier of (x) the date of notice of a
determination that Indemnitee is not entitled to indemnification or (y) the date
60 days after the Company receives the request for indemnification.
9.2 In the event that a determination shall have been made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 9
shall be conducted in all respects as a de novo trial or arbitration, on the
merits, and Indemnitee shall not be prejudiced by reason of that adverse
determination.
9.3 If a determination shall have been made pursuant to Section 6 of this
Agreement that Indemnitee is entitled to indemnification, the Company shall be
bound by such determination in any judicial proceeding or arbitration commenced
pursuant to this Section 9, absent (a) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification or (b) a prohibition of such indemnification under applicable
law.
9.4The Company shall be precluded from asserting in any judicial proceeding
or arbitration commenced pursuant to this Section 9 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court or before any such arbitrator that the Company is
bound by all the provisions of this Agreement.
9.5 The obligations of the Company to make the payments required to be made
hereunder and to perform and observe the other agreements on its part contained
herein, shall not be subject to diminution by set off, counterclaim, abatement
or otherwise; provided, however, that Indemnitee shall not be released from any
liability or obligation that Indemnitee may owe the Company, whether hereunder
or otherwise.
<PAGE>7
9.6 Indemnitee's expenses incurred in successfully establishing his/her
right to indemnification or advancement of expenses under this Section 9, in
whole or in part, in any such action (or settlement thereof) shall be paid by
the Company.
10. Notice. All notices, requests, demands, and other communications relating to
this Agreement shall be in writing and shall be deemed to be duly given if (a)
delivered by hand and receipted for by the party to whom the notice or
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed:
if to Indemnitee, to:
- -------------------------------------
- -------------------------------------
or to such other address as may have been furnished to the Company by
Indemnitee and
if to the Company, to:
Payless Cashways, Inc.
2300 Main
Kansas City, MO 64108
Attention: Secretary/Assistant Secretary
with a copy to:
Blackwell Sanders Matheny Weary & Lombardi LLP
2300 Main
Kansas City, MO 64108
Attention: Gary D. Gilson
or to such other address as may have been furnished to Indemnitee by the
Company.
11. Severability. If this Agreement, or any portion hereof, shall be held to be
invalid or unenforceable for any reason, the Company shall nevertheless
indemnify Indemnitee as to all expenses, judgments, fines and penalties with
respect to any action, suit or proceeding, whether threatened or commenced, to
the full extent permitted by any portion of this Agreement that shall not have
been held to be invalid or unenforceable under the General Corporation Law of
Delaware and the Certificate of Incorporation of the Company. Such invalidity or
unenforceability shall not otherwise affect the validity or enforceability of
the other provisions hereof.
<PAGE>8
12. Modification and Waiver. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by both parties. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions (whether or not similar); nor shall such waiver
constitute a continuing waiver.
13. Continuation of Indemnity. All agreements and obligations of the Company
contained in this Agreement shall continue during the period Indemnitee has
consented to be or is a director or officer of the Company or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise and
shall continue thereafter so long as Indemnitee shall be subject to any possible
claim or threatened, pending or completed Proceeding by reason of the fact that
Indemnitee has consented to be or is or was a director or officer of the Company
or is or was serving in any other capacity referred to in this Agreement.
14. Binding Effect. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his/her
heirs, assigns and personal representatives.
15. Non-exclusivity. The indemnification, contribution and advance payment of
expenses provided by any provision of this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under any
provision of law, the Certificate of Incorporation, any Bylaw, other agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in Indemnitee's official capacity and as to action in any other capacity after
consenting to serve as a director or while occupying any of the positions or
having any of the relationships referred to in this Agreement.
16. Subrogation Rights. In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee against any person or organization and Indemnitee
shall execute all papers required and shall do everything that may be
reasonablely necessary to secure such rights.
17. Document to Supersede.This Agreement shall supersede any other prior written
Indemnification Agreement between the Company and Indemnitee.
18. Governing Law. The parties agree that this Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Delaware
applicable to contracts made and to be performed in that state.
19. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall constitute the original.
20. Headings. The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction of it.
<PAGE>9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PAYLESS CASHWAYS, INC.
- --------------------------------- ----------------------------------------
Name: By:
- --------------------------------- ----------------------------------------
Address: Title:
- --------------------------------- ----------------------------------------
- ---------------------------------
<PAGE> 1
[Letterhead of KPMG Peat Marwick LLP]
EXHIBIT 15.1
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Payless Cashways, Inc.:
We have reviewed the accompanying condensed balance sheets of Payless Cashways,
Inc. as of February 28, 1998 and March 1, 1997 and the related condensed
statements of operations and cash flows for the thirteen-week periods then
ended. These condensed financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Payless Cashways, Inc. as of November 29, 1997
and the related statements of operations, shareholders' equity and cash flows
for the fiscal year then ended (not presented herein); and in our report dated
January 19, 1998, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of November 29, 1997 is fairly presented, in all
material respects, in relation to the balance sheet from which it has been
derived. Our report states that the November 29, 1997 balance sheet reflects
the application of fresh-start reporting as of that date and, therefore, is not
comparable in all respects to the balance sheets of the Company prior to
November 29, 1997.
s/ KPMG Peat Marwick LLP
Kansas City, Missouri
March 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the February
28, 1998, financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-END> FEB-28-1998
<CASH> 5604
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 411358
<CURRENT-ASSETS> 444912
<PP&E> 367064
<DEPRECIATION> (8301)
<TOTAL-ASSETS> 840917
<CURRENT-LIABILITIES> 172332
<BONDS> 438513
0
0
<COMMON> 200
<OTHER-SE> 158638
<TOTAL-LIABILITY-AND-EQUITY> 840917
<SALES> 394271
<TOTAL-REVENUES> 395060
<CGS> 291909
<TOTAL-COSTS> 291909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10235
<INCOME-PRETAX> (33150)
<INCOME-TAX> (8188)
<INCOME-CONTINUING> (24962)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24962)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> 0
</TABLE>
