<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 August 29, 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 by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. 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 19,993,811 shares of Common Stock, $.01 par value, outstanding as of
October 6, 1998.
<PAGE> 2
PAYLESS CASHWAYS, INC.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
STATEMENTS OF OPERATIONS (Unaudited) (1)
<CAPTION>
Reorganized | Predecessor Reorganized | Predecessor
Company | Company Company | Company
-------------------------------- -------------------------------
Thirteen | Thirteen Thirty-nine | Thirty-nine
Weeks Ended | Weeks Ended Weeks Ended | Weeks Ended
August 29, | August 30, August 29, | August 30,
(In thousands, except per share amounts) 1998 | 1997 1998 | 1997
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
| |
Income | |
Net sales $ 523,508 | $ 632,107 $ 1,423,698 | $ 1,780,848
Other income 908 | 1,191 2,688 | 3,660
-------------------------------- -------------------------------
524,416 | 633,298 1,426,386 | 1,784,508
| |
Costs and expenses | |
Cost of merchandise sold (2) 393,021 | 478,038 1,059,901 | 1,309,378
Selling, general and administrative 112,382 | 148,166 336,748 | 437,720
Reorganization items (7) -- | 5,121 -- | 5,121
Special charges (2) 837 | 13,056 6,421 | 13,056
Asset impairment charges (8) -- | 60,483 -- | 60,483
Provision for depreciation and amortization 7,835 | 12,768 25,002 | 38,609
Interest expense (contractual interest of | |
$16,468 and $48,797 for the thirteen weeks | |
and thirty-nine weeks ended August 30, 1997, | |
respectively) 8,994 | 14,663 29,144 | 46,992
-------------------------------- -------------------------------
523,069 | 732,295 1,457,216 | 1,911,359
-------------------------------- -------------------------------
| |
INCOME (LOSS) BEFORE INCOME TAXES 1,347 | (98,997) (30,830) | (126,851)
| |
Federal and state income taxes 332 | (33,595) (7,615) | (40,085)
-------------------------------- -------------------------------
| |
NET INCOME (LOSS) $ 1,015 | $ (65,402) $ (23,215) | $ (86,766)
================================ ================================
| |
| |
Weighted average common shares outstanding 20,000 | 20,000 |
-----------------| ---------------|
| |
Net income (loss) per common share-basic (3) $ .05 | $ (1.16) |
================= =================
| |
Weighted average common and dilutive | |
common equivalent shares outstanding 20,004 | 20,000 |
-----------------| ---------------|
| |
Net income (loss) per common share-diluted (3) $ .05 | $ (1.16) |
=================| ===============|
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE> 3
<TABLE>
CONDENSED BALANCE SHEETS (Unaudited) (1)
<CAPTION>
Reorganized | Predecessor
Company | Company
----------------------------------------- | ------------
August 29, November 29, | August 30,
(In thousands) 1998 1997 | 1997
--------------------------------------------------------
<S> <C> <C> <C>
|
ASSETS |
|
CURRENT ASSETS |
Cash and cash equivalents $ 8,984 $ 11,961 | $ 36,707
Merchandise inventories (4) 376,739 414,882 | 348,780
Prepaid expenses and other current assets 11,635 14,705 | 14,930
Income taxes receivable 9,649 32,232 | 47,421
Deferred income taxes 3,296 8,665 | 12,733
--------------------------------------------------------
TOTAL CURRENT ASSETS 410,303 482,445 | 460,571
|
OTHER ASSETS |
Real estate held for sale (8) 18,815 48,562 | 44,321
Cost in excess of net assets acquired, less |
accumulated amortization of $112,332 |
at August 30, 1997 (8) -- -- | 268,120
Deferred financing costs 3,570 2,600 | 11,176
Other 8,010 14,316 | 15,511
|
LAND, BUILDINGS AND EQUIPMENT 364,832 363,418 | 719,173
Allowance for depreciation and amortization (24,194) -- | (275,011)
--------------------------------------------------------
TOTAL LAND, BUILDINGS AND EQUIPMENT 340,638 363,418 | 444,162
--------------------------------------------------------
|
$ 781,336 $ 911,341 | $ 1,243,861
========================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE> 4
<TABLE>
CONDENSED BALANCE SHEETS - Continued (Unaudited) (1)
<CAPTION>
Reorganized | Predecessor
Company | Company
---------------------------------------- | -------------
August 29, November 29, | August 30,
(In thousands) 1998 1997 | 1997
--------------------------------------------------------
<S> <C> <C> <C>
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
CURRENT LIABILITIES |
Current portion of long-term debt $ 10,143 $ 9,354 | $ 465,372
Trade accounts payable 44,446 75,583 | 17,991
Other current liabilities 112,749 136,741 | 125,452
Income taxes payable 7,436 2,362 | 8,980
--------------------------------------------------------
TOTAL CURRENT LIABILITIES 174,774 224,040 | 617,795
|
LONG-TERM DEBT, less portion |
classified as current liability (5) 381,000 424,031 | --
|
NON-CURRENT LIABILITIES |
Deferred income taxes 43,935 58,788 | 29,358
Other 21,042 20,682 | 21,462
|
LIABILITIES SUBJECT TO COMPROMISE -- -- | 372,158
|
SHAREHOLDERS' EQUITY (6) |
Common Stock, $.01 par value, 50,000,000 shares |
authorized, 20,000,000 shares issued at |
August 29, 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 $83,372 aggregate liquidation |
preference at August 30, 1997 -- -- | 40,600
Common Stock, $.01 par value: |
Voting, 150,000,000 shares authorized, |
39,964,041 shares issued at August 30, 1997 -- -- | 400
Additional paid-in capital 183,600 183,600 | 487,851
Accumulated deficit (23,215) -- | (325,763)
--------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 160,585 183,800 | 203,088
--------------------------------------------------------
|
$ 781,336 $ 911,341 | $ 1,243,861
========================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE> 5
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1)
<CAPTION>
Reorganized | Predecessor
Company | Company
---------------------- | --------------------
Thirty-nine | Thirty-nine
Weeks Ended | Weeks Ended
August 29, | August 30,
(In thousands) 1998 | 1997
---------------------------------------------
<S> <C> <C>
|
Cash Flows from Operating Activities |
|
Net loss $ (23,215) | $ (86,766)
Adjustments to reconcile net loss to net cash |
provided by operating activities: |
Depreciation and amortization 25,002 | 38,609
Asset impairment charges (8) -- | 60,483
Deferred income taxes (9,484) | (11,359)
Non-cash reorganization items (7) -- | 2,481
Non-cash interest 530 | 2,500
Other 385 | 2,048
Changes in assets and liabilities 12,078 | 54,747
---------------------------------------------
|
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,296 | 62,743
|
Cash Flows from Investing Activities |
|
Additions to land, buildings and equipment (9,929) | (33,764)
Proceeds from sale of land, buildings and equipment 39,092 | 12,277
Acquisition of business, excluding working capital: |
Purchase price in excess of net assets acquired -- | (1,015)
Decrease (increase) in other assets 6,306 | (2,593)
----------------------------------------------
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 35,469 | (25,095)
|
Cash Flows from Financing Activities |
|
Retirements of long-term debt (64,242) | (10,703)
Net proceeds from revolving credit facility 22,000 | 13,461
Financing fees (1,500) | (3,320)
Other -- | (804)
----------------------------------------------
|
NET CASH USED IN FINANCING ACTIVITIES (43,742) | (1,366)
----------------------------------------------
|
Net (decrease) increase in cash and cash equivalents (2,977) | 36,282
Cash and cash equivalents, beginning of period 11,961 | 425
----------------------- ---------------------
Cash and cash equivalents, end of period $ 8,984 | $ 36,707
=============================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE> 6
NOTES TO CONDENSED FINANCIAL STATEMENTS
Thirty-nine weeks ended August 29, 1998, and August 30, 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) A special charge of $0.8 million ($0.5 million after tax), primarily a
cash charge, was recorded in the third quarter of fiscal 1998 in
connection with the closing of three stores. In addition, the Company
recorded an inventory write-down of $1.3 million ($0.8 million after
tax), included in cost of merchandise sold, in connection with the store
closings. The 1998 special charge includes:
Amount Amount Reserve
Charged Utilized at
(In millions) 1998 Through 8/29/98 8/29/98
----------------------------------------------
Real estate disposal costs $ 0.7 $ -- $ 0.7
Other costs 0.1 -- 0.1
----------------------------------------------
$ 0.8 $ -- $ 0.8
==============================================
A special charge of $13.1 million ($8.1 million after tax), primarily a
cash charge, was recorded in the third quarter of fiscal 1997 in
connection with the closing of twenty-nine stores as part of the
Company's reorganization under Chapter 11. In addition, the Company
recorded an inventory write-down of $10.7 million ($6.6 million after
tax), included in cost of merchandise sold, in connection with the store
closings.
(3) Basic net income (loss) per common share has been computed based on the
weighted-average number of common shares outstanding during the period.
Dilutive net income (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. Given the net loss reported for the thirty-nine weeks ended
August 29, 1998, the impact of considering such stock options would be
antidilutive. Accordingly, diluted loss per common share for that period
has been computed without considering such stock options. 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.
(4) 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 $27.3 million higher than
reported at August 29, 1998, and August 30, 1997, respectively.
<PAGE> 7
(5) Long-term debt consists of the following:
<TABLE>
<CAPTION>
August 29, November 29, August 30,
(In thousands) 1998 1997 1997
-----------------------------------------------------
<S> <C> <C> <C>
1997 Credit Agreement, variable interest rate $ 294,283 $ 317,133 $ --
Mortgage loan, variable interest rate 95,736 102,010 --
Note payable, variable interest rate -- 13,000 --
Amended Credit Agreement -- -- 367,462
Mortgage loan payable to insurance company -- -- 97,364
Senior subordinated notes -- -- 173,655
Other senior debt 1,124 1,242 1,285
-----------------------------------------------------
391,143 433,385 639,766
Less portion classified as current liability (10,143) (9,354) (465,372)
Less portion classified as liabilities subject to
compromise -- -- (174,394)
-----------------------------------------------------
$ 381,000 $ 424,031 $ --
</TABLE>
On August 13, 1998, the Company amended its 1997 Credit Agreement to
modify various covenants, including required minimum cash flow (defined
as earning before interest, taxes and depreciation, (EBITD)) and the
maximum debt to EBITD ratio. At the end of the fiscal year 1998, the
required EBITD levels were decreased from $59.3 million to $44.6 million
and from $74.5 million to $59.0 million at the end of fiscal year 1999.
The maximum debt to EBITD ratio was increased from 7.2/1 to 9.0/1 at the
end of fiscal year 1998 and from 5.6/1 to 7.5/1 at the end of fiscal year
1999.
(6) During the first nine months of 1998, the Company granted stock options
relating to 1,820,000 shares of common stock under the Payless Cashways,
Inc. 1998 Omnibus Incentive Plan. The exercise price for these 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."
(7) In connection with its Chapter 11 filing on July 21, 1997, the Company
recorded reorganization items of $5.1 million during the quarter ended
August 30, 1997. Reorganization items for this period consisted of
professional fees of $2.8 million, the write-off of deferred financing
costs of $2.5 million and interest income of $0.2 million.
(8) The Company recorded an asset impairment charge of $60.5 million ($43.9
million after tax) in the third quarter of 1997. This asset impairment
charge was recorded after considering current and expected future
operating cash flows for certain stores together with the proceeds the
Company could expect to receive upon the sale of these assets.
In 1997, as a result of the impairment charge, certain real estate
carrying values were reduced $28.8 million, goodwill was reduced $18.7
million and a $13.0 million liability for future store lease payments was
recorded.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Income
Net sales for the quarter ended August 29, 1998, decreased 17.2% from the same
period of 1997 in total and 6.7% on a same-store sales basis. (Same stores are
those open one full year.) Net sales for the first three quarters of 1998
decreased 20.1% from the same period of 1997 in total and 9.3% on a same-store
sales basis. Management believes continuing competitive pressure and the
lingering effects of the Chapter 11 filing have contributed to sales declines
throughout 1998. Same-store sales to professional customers during the third
quarter of 1998 increased 4.0% and same-store sales to do-it-yourself customers
declined 16.0 %. The Company closed thirty stores during the second half of
fiscal 1997 and three stores at the end of the 1998 second quarter. Sales from
these closed stores were $70.6 million and $230.4 million in the third quarter
and first three quarters of 1997, respectively. The Company plans to close three
more stores in the fourth quarter of 1998.
Costs and Expenses
Cost of merchandise sold as a percent of sales was 75.1% and 75.6% for the third
quarter of 1998 and 1997, respectively. For the first three quarters of 1998 and
1997, cost of merchandise sold as a percent of sales was 74.4% and 73.5%,
respectively. An inventory write-down of $1.3 million ($0.8 million after tax)
related to the closing of three stores in the fourth quarter of 1998 was 0.3%
and 0.1% of sales for the third quarter and the first three quarters of 1998,
respectively. An inventory write-down of $10.7 million ($6.6 million after tax),
related to the closing of twenty-nine stores in connection with the Company's
reorganization under Chapter 11, was 1.7% and 0.6% of sales for the third
quarter and first three quarters of 1997, respectively. Excluding the effects of
inventory write-downs related to store closings, the increase in cost of
merchandise sold as a percentage of sales for the third quarter and first three
quarters of 1998 was primarily due to more competitive pricing designed to
regain customer traffic lost during the Chapter 11 period during fiscal 1997.
The disruption in the supply of product resulting from the Chapter 11 filing
caused some increase in cost of goods sold for the third quarter of 1997 due to
purchasing product from secondary sources at higher costs.
Selling, general and administrative expenses were 21.5% and 23.5% of sales for
the third quarter of 1998 and 1997, respectively. For the first three quarters
of 1998 and 1997, selling, general and administrative expenses were 23.7% and
24.6% of sales, respectively. Selling, general and administrative expenses for
the third quarter and first three quarters of 1998 decreased approximately $35.8
million and $101.0 million, respectively, compared to the same periods of the
prior year. The reductions in selling, general and administrative expenses were
primarily the result of closed stores, as well as initiatives undertaken in 1998
to reduce store as well as corporate level personnel costs.
In connection with its Chapter 11 filing on July 21, 1997, the Company recorded
reorganization items of $5.1 million during the quarter ended August 30, 1997.
Reorganization items for this period consisted of professional fees of $2.8
million, the write-off of deferred financing costs of $2.5 million and interest
income of $0.2 million.
A special charge of $0.8 million ($0.5 million after tax), primarily a cash
charge, was recorded in the third quarter of 1998 to reflect real estate
disposal and other costs related to the future closing of three stores and an
administrative center in the fourth quarter of 1998. A special charge of $5.6
million ($3.4 million after tax), primarily a cash charge, was also 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. In
the third quarter of fiscal 1997, a special charge of $13.0 million ($8.1
million after tax), primarily a cash charge, was recorded to reflect real estate
disposal and severance costs related to the future closing of twenty-nine
underperforming stores as part of the Company's reorganization under Chapter 11.
The Company recorded an asset impairment charge of $60.5 million ($43.9 million
after tax) in the third quarter of 1997. Primarily because the environment for
building materials retailing continued to be increasingly competitive, the
Company conducted a review of underperforming stores and determined that certain
additional assets were impaired, including assets related to twenty-nine stores,
which the Company determined to close. The asset impairment charges were
recorded after considering current and expected future operating cash flows for
certain stores together with the proceeds the Company could expect to receive
upon the sale of these assets.
<PAGE> 9
The provision for depreciation and amortization for the third quarter and first
three quarters of 1998 decreased compared to the same periods 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 third quarter and first three quarters of 1998
decreased compared to the same periods of 1997 primarily due to lower borrowing
levels in 1998 somewhat offset by higher 1998 interest rates. Certain debt was
discharged in accordance with the Plan of Reorganization effective December 2,
1997.
The income tax benefit for the first three quarters of 1998 was $7.6 million
compared to $40.1 million for the first three quarters of 1997. The effective
tax rates for both periods 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 Income (Loss)
Net income for the quarter ended August 29, 1998, was $1.0 million compared to a
net loss of $65.4 million for the same period of 1997. Excluding the effect of
the third quarter 1998 and 1997 non-routine charges, net income was $2.7 million
for the 1998 quarter compared to a net loss of $3.7 million for the 1997
quarter. The third quarter improvement in 1998 was due to lower selling, general
and administrative expenses as well as a lower depreciation and amortization
provision and lower interest expense. For the first three quarters of 1998, net
loss was $23.2 million compared to $86.8 million for the same period of 1997.
Basic and diluted income per common share were $0.05 for the third quarter of
1998, while basic and diluted loss per common share were $1.16 for the first
three quarters of 1998. Excluding the 1998 and 1997 non-routine charges, net
loss for the first three quarters of 1998 would have been $17.4 million with
basic and diluted loss per common share of $0.87 compared to net loss of $25.1
million for the same period of 1997.
THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000. This could result in system failure or miscalculations.
The Company has completed an assessment of the impact of the Year 2000 on its
computer systems, both hardware and software, and has developed a plan to timely
address the Year 2000 issue. Systems that interact with customers and that focus
on the core business functions of buying, selling and accounting have been given
the highest priority. Some of the Company's current systems are being renovated
and others are being replaced with Year 2000-compliant systems. All renovation
code and system replacements are being unit-tested as they are completed.
Integrated full-system testing will begin in the first quarter of 1999 and is
expected to continue through the third quarter of 1999. As of August 29, 1998,
code renovation is 85% complete. The Company expects that code renovation will
be 95% complete by January 1, 1999, and that all core business systems requiring
replacement will be complete by mid-1999. The Company estimates that
expenditures to complete execution of the Year 2000 plan will range from $4
million to $6 million. Most of such expenditures are being charged to expense as
incurred. The Company currently believes that it will complete all phases of the
plan without any material adverse consequences to its business, operations, or
financial condition.
All non-information technology, which contains or might contain imbedded
software chips that utilize a date function, such as distribution conveyance
systems, security systems, climate controls, and other electronic devices used
in daily business operations, have been inventoried and assessed. All
non-compliant systems are being upgraded and tested as compliant versions become
available. This work is expected to continue throughout 1999.
The Company is in the process of assessing the extent to which the Company is
vulnerable to the failure of significant suppliers and other third parties to
remediate their own Year 2000 issues. The Company expects that this assessment
will be competed by February 1999 and believes testing of interfaces with
business partners and vendors will continue through 1999. The Company does not
anticipate the cost of Year 2000 compliance by suppliers to be passed on to the
Company. However, there can be no assurances that failure to address the Year
2000 issue by a third party on whom the Company's systems rely would not have a
material adverse effect on the Company.
<PAGE>10
As testing and assessment of third parties is completed, the Company intends to
develop contingency plans for possible Year 2000 problems. The costs of the
Company's Year 2000 project and the date on which it will be completed are based
on management's best estimates. However, there can be no assurance that these
estimates will be achieved and actual results could differ materially from those
anticipated.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $5.3 million for the first three
quarters of 1998 compared to $62.7 million for the same period of 1997. Cash
provided by operating activities in 1997 was significantly greater than
historical levels due to the balance sheet impact of the Chapter 11 filing. Cash
provided by operating activities in 1998 has been negatively impacted by
decreased trade accounts payable. During the first three quarters of 1998 and
1997, the Company used cash of approximately $2.4 million and $4.2 million,
respectively, in operating activities related to the execution of the 1997, 1996
and 1995 restructuring plans and $10.2 million in the first three quarters of
1998 for costs related to the Chapter 11 filing. In addition, the Company used
$5.4 million in the first three quarters of 1998 to pay severance costs related
to the elimination of staff at the Company's headquarters and regional
administrative centers.
Borrowings have been available under the 1997 Credit Agreement to supplement
cash generated by operations. At August 29, 1998, $74.1 million was available
for borrowing under the 1997 Credit Agreement. Working capital was $235.5
million and $258.4 million at August 29, 1998, and November 29, 1997,
respectively, compared to a working capital deficit of $157.2 million at August
30, 1997. The working capital deficit was due to the reclassification of
long-term debt as current, partially offset by the reclassification of current
liabilities as liabilities subject to compromise. The current ratios at August
29, 1998, and November 29, 1997, were 2.35 to 1, and 2.15 to 1, respectively.
The current ratio at August 30, 1997, was 0.7 to 1 due to the same factors
causing the working capital deficit.
The Company's primary investing activities are capital expenditures for the
renovation of existing stores and additional equipment. The 1997 Credit
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 $9.9 million
and $34.8 million during the first three quarters 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. 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 1997
Credit Agreement. During the first three quarters of 1998, the Company sold 22
real estate properties related to stores previously closed for approximately
$39.1 million of cash proceeds which were applied to outstanding debt.
Additionally, in the first three quarters of 1998, the Company received $5.8
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 twelve months and the expected results of operations in the future,
cash flow from operations and borrowing availability under the 1997 Credit
Agreement should provide sufficient liquidity to meet all cash requirements for
the next twelve months without additional financing, subject to the possible
adverse impact of loan covenants described below. As a result of the 1997
Chapter 11 filing, trade creditors have significantly shortened credit terms and
the availability of trade credit cannot be assured. The 1997 Credit Agreement
contains a number of financial covenants with which the Company must comply. On
On August 13, 1998, the Company amended its 1997 Credit Agreement to modify
various covenants, including required minimum cash flow (defined as earning
before interest, taxes and depreciation, (EBITD)) and the maximum debt to EBITD
ratio. At the end of the fiscal year 1998, the required EBITD levels were
decreased from $59.3 million to $44.6 million and from $74.5 million to $59.0
million at the end of fiscal year 1999. The maximum debt to EBITD ratio was
increased from 7.2/1 to 9.0/1 at the end of fiscal year 1998 and from 5.6/1 to
7.5/1 at the end of fiscal year 1999. Management currently expects that it will
achieve compliance with these covenants throughout fiscal 1998 and 1999;
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
<PAGE> 11
such covenants. If such default occurred, it would permit acceleration of its
debt under the 1997 Credit Agreement which, in turn, would permit acceleration
of substantially all of the Company's other long-term debt.
FORWARD-LOOKING STATEMENTS
Statements above in the subsections of this report entitled "Costs and
Expenses," "The Year 2000 Issue" and "Liquidity and Capital Resources," such as
"estimate", "believe", "expect," "anticipate," "intend" 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
work 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; the success
of the Company's strategy; and the success of the Company's remediation for the
Year 2000 issue. Additional information concerning these and other 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.
REVIEW BY INDEPENDENT ACCOUNTANTS
The condensed consolidated financial statements of Payless Cashways, Inc. for
the thirteen week and thirty-nine week periods ended August 29, 1998 and August
30, 1997, have been reviewed by KPMG Peat Marwick LLP, independent accountants.
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 eleven additional individuals chose 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 with a trial date anticipated in early 1999. 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.
<PAGE> 12
Item 5. Other Information.
The Company is pursuing a number of opportunities in an effort to
become the building materials and home improvement supplier of first choice for
the professional builder, remodel and repair contractor, institutional buyer and
project-oriented consumers. Two examples of these opportunities are a pilot
program with a large insurance company in two of Payless' markets to provide
materials for the repair of damaged property and arrangements with large home
builders in three other markets to supply building products and services,
including installed panels and trusses.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
3.1 Amended and Restated Bylaws of the Company.
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.
4.1 First amendment to Amended and Restated Credit
Agreement dated August 13, 1998, among Payless, the
Banks listed on the signature pages thereof and
Canadian Imperial Bank of Commerce, New York Agency, as
Coordinating and Collateral Agent.
10.1* Employment agreement, dated as of August 31, 1998,
between Payless and Millard E. Barron.
10.2* Employment agreement, dated as of August 25, 1998,
between Payless and Richard G. Luse.
10.3* Employment agreement, dated as of August 25, 1998,
between Payless and Robert S. Islinger.
10.4* Employment agreement, dated as of August 24, 1998,
between Payless and Stanley K. Boyd.
10.5* Employment agreement, dated as of August 24, 1998,
between Payless and Louise R. Iennaccaro.
10.6* 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.
No reports on Form 8-K were filed by Payless during the quarter
ended August 29, 1998.
* Represents a management contract or a compensatory plan or arrangement.
<PAGE> 13
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: October 12, 1998 By: s/Richard G. Luse
------------------------------------------
Richard G. Luse, Senior Vice President,
Finance and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
EXHIBIT 3.1
AMENDED AND RESTATED BYLAWS
OF
PAYLESS CASHWAYS, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be located at The Corporation Trust Center, 1209
Orange Street, Wilmington, New Castle County, Delaware 19801. The name of the
corporation's registered agent at such address shall be The Corporation Trust
Company. The registered office and/or registered agent of the corporation may be
changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may have additional offices at
such other places, both within and without the State of Delaware, as the board
of directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meetings. Annual meetings of stockholders for the
election of directors, and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and at such time and date as the board of directors, by
resolution, shall determine and as set forth in the notice of the meeting. If
the board of directors fails so to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the principal
executive office of the corporation on the first Tuesday in April. If the date
of the annual meeting shall fall upon a legal holiday, the meeting shall be held
on the next succeeding business day.
Section 2. Special Meetings. Except as otherwise required by law, special
meetings of the stockholders for any purpose or purposes may be called by the
Chairman or Chief Executive Officer, by resolution of the board of directors
adopted by the affirmative vote of a majority of the directors or by the written
request of the holders of record representing at least 25% of the voting power
of all of the shares of the corporation entitled to vote on the issue or issues
to be presented to the meeting.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting. The person or persons calling a special meeting may
designate any place,
<PAGE>2
either within or without the State of Delaware, as the place of meeting for such
special meeting. If no designation is made, the place of the annual or special
meeting shall be in the State of the corporation's principal executive offices.
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date and time
of such meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of the meeting. All such notices shall be delivered, either personally or by
mail, by or at the direction of the board of directors, the chief executive
officer or the secretary. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
corporation. Attendance of a stockholder at a meeting shall constitute a waiver
of notice of such meeting, except when the stockholder attends for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock ledger
of the corporation shall make, at least ten days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock of the corporation, present in person or represented by proxy at a
meeting of the stockholders and entitled to vote thereat, shall constitute a
quorum at such meeting, except as otherwise provided by statute or by the
certificate of incorporation. If a quorum is not present, the holders of a
majority of the shares present in person or represented by proxy at the meeting
and entitled to vote thereat may adjourn the meeting to another time and/or
place, without further notice to the stockholders other than an announcement at
such meeting until holders of the number of shares required to constitute a
quorum shall be present in person or by proxy. When a quorum is once present to
commence a meeting of stockholders, it is not broken by the subsequent
withdrawal of any stockholders or their proxies.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and/or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
The
<PAGE>3
corporation may transact any business at the adjourned meeting which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote of
a majority of votes cast by holders of shares entitled to vote on the subject
matter shall be the act of the stockholders, unless the question is one upon
which, by express provisions of an applicable law, the certificate of
incorporation or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
Section 9. Voting Rights. Except as otherwise provided by the Delaware
General Corporation Law or by the certificate of incorporation, and subject to
Section 3 of Article VI hereof, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
capital stock having voting power held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him or her by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A proxy may be made irrevocable regardless of whether the interest with
which it is coupled is an interest in the stock itself or an interest in the
corporation generally. Any proxy is suspended when the person executing the
proxy is present at a meeting of stockholders and elects to vote, except that
when such proxy is coupled with an interest and the fact of the interest appears
on the face of the proxy, the agent named in the proxy shall have all voting and
other rights referred to in the proxy, notwithstanding the presence of the
person executing the proxy. At each meeting of the stockholders, and before any
voting commences, all proxies filed at or before the meeting shall be submitted
to and examined by the secretary of the corporation or a person designated by
the secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid or irregular.
Section 11. Proposed Business for Annual Meetings. Except as may otherwise
be required by applicable law or regulation or be expressly authorized by the
entire board of directors, a stockholder may make a nomination or nominations
for director of the corporation at an annual meeting of stockholders or may
bring up any other matter for consideration and action by the stockholders at an
annual meeting of stockholders, only if the provisions of subsections A, B, C
and D hereto shall have been satisfied. If such provisions shall not have been
satisfied, any nomination sought to be made or other business sought to be
presented by a stockholder for consideration
<PAGE>4
and action by the stockholders at such a meeting shall be deemed not properly
brought before the meeting, shall be ruled by the chairman of the meeting to be
out of order, and shall not be presented or acted upon at the meeting.
A. The stockholder must be a stockholder of record on the record date for
such annual meeting, must continue to be a stockholder of record at
the time of such meeting, and must be entitled to vote thereat.
B. The stockholder must deliver or cause to be delivered a written notice
to the secretary of the corporation. Such notice must be received by
the secretary no less than sixty days prior to the first anniversary
of the previous year's annual meeting; provided, however, that if the
date of the annual meeting has been changed by more than thirty days
from the date of the previous year's annual meeting, such notice must
be received by the secretary not later than ten days following the
date on which public announcement of the date of such meeting is first
made. The notice shall specify (a) the name and address of the
stockholder as they appear on the books of the corporation, (b) the
number of shares of the corporation which are beneficially owned by
the stockholder; (c) any material interest of the stockholder in the
proposed business described in the notice; (d) if such business is a
nomination for director, each nomination sought to be made, together
with the reasons for each nomination, a description of the
qualifications and business or professional experience of each
proposed nominee and a statement signed by each nominee indicating his
or her willingness to serve if elected, and disclosing the information
about him or her that is required by the Securities Exchange Act of
1934, as amended (the "1934 Act"), and the rules and regulations
promulgated thereunder to be disclosed in the proxy materials for the
meeting involved if he or she were a nominee of the corporation for
election as one of its directors; (e) if such business is other than a
nomination for director, the nature of the business, the reasons why
it is sought to be raised and submitted for a vote of the stockholders
and if and why it is deemed by the stockholder to be beneficial to the
corporation, and (f) if so requested by the corporation, all other
information that would be required to be filed with the Securities and
Exchange Commission if, with respect to the business proposed to be
brought before the meeting, the person proposing such business was a
participant in a solicitation subject to Section 14 of the 1934 Act.
C. Notwithstanding satisfaction of the provisions of subsection A and
subsection B, the proposed business described in the notice may be
deemed not to be properly brought before the meeting if, pursuant to
state law or to any rule or regulation of the Securities and Exchange
Commission, it was offered as a stockholder proposal and was omitted
<PAGE>5
from the notice of, and proxy material for, the meeting (or any
supplement thereto) authorized by the board of directors.
D. In the event such notice is timely given pursuant to subsection B and
the business described therein is not disqualified pursuant to
subsection C, such business may be presented by, and only by, the
stockholder who shall have given the notice required by subsection B
or a representative of such stockholder who is qualified under the law
of the State of Delaware to present the proposal on the stockholder's
behalf at the meeting.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under
the direction of the board of directors.
Section 2. Number, Election and Term of Office. Upon the effective date of
these bylaws, the number of directors which shall constitute the board of
directors shall be nine. Thereafter, the number of directors which shall
constitute the board of directors shall be established from time to time by, and
only by, resolution duly adopted by a majority of the directors then
constituting the entire board of directors. Except as otherwise provided in the
certificate of incorporation or in Section 3 of this Article III, a director
shall be elected at an annual meeting of the stockholders by a plurality of the
votes of the shares present in person or represented by proxy at the meeting and
entitled to vote in the election of directors. A director's term of office shall
be as provided in the certificate of incorporation and, to the extent
applicable, the order of the United States Bankruptcy Court for the Western
District of Missouri confirming the First Amended Plan of Reorganization of
Payless Cashways, Inc., an Iowa corporation, as a debtor and a
debtor-in-possession in a Chapter 11 proceeding in such Court. A director shall
hold office until the annual meeting for the year in which such director's term
expires and until a successor shall be duly elected and qualified, or until such
director's earlier death, resignation, disqualification or removal as
hereinafter provided. Directors need not be stockholders of the corporation.
Section 3. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled only by
the board of directors and in the manner provided in the certificate of
incorporation. The term of office of a director so chosen shall be as provided
in the certificate of incorporation. Each director so chosen shall hold office
until the annual meeting for the year in which such director's term expires and
until a successor shall be duly elected and qualified, or until such director's
earlier death, resignation, disqualification or removal as hereinafter provided.
<PAGE>6
Section 4. Removal and Resignation. Any director or the entire board of
directors may be removed at such time and in such manner as provided in the
certificate of incorporation. Any director who is also an officer of the
corporation who resigns his or her position as an officer of the corporation, or
is terminated, disqualified or removed as an officer of the corporation, or
otherwise ceases to serve in such capacity, shall also be deemed to have
resigned as a director of the corporation. Any director may resign at any time
upon written notice to the corporation.
Section 5. Regular Meetings. The annual meeting of each newly elected board
of directors shall be held without notice other than this bylaw immediately
after, and at the same place as, the annual meeting of stockholders. Other
regular meetings of the board of directors may be held without notice at such
time and at such place, either within or without the State of Delaware, as shall
from time to time be determined by resolution of the board of directors.
Section 6. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the Chairman, Chief Executive Officer,
President or a majority of the board of directors. The person or persons so
calling such special meeting shall designate the time and place for the holding
of such meeting. The place so designated may be any place in the United States,
either within or without the State of Delaware. Notice of any special meeting
shall be given at least two days prior to the date fixed for such meeting by
written notice delivered personally, by mail, or by a nationally recognized
overnight delivery service to each director at his business address, or by telex
or telecopy. If notice is given by mail, such notice shall be deemed to be
delivered three days after such notice is deposited with the United States mail
properly addressed, postage prepaid. If notice is given by overnight delivery
service, such notice shall be deemed delivered one day after such notice is
delivered during business hours to such overnight delivery service properly
addressed, postage prepaid. If notice is given personally or by telex or
telecopy, such notice shall be deemed to be delivered when received. Neither the
business to be transacted at nor the purpose of any special meeting of the board
of directors need be specified in the notice or waiver of notice of such
meeting. Any member of the board of directors or any committee thereof who is
present at a meeting shall be conclusively presumed to have waived notice of
such meeting except when such member attends for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total
number of directors then in office shall constitute a quorum for the transaction
of business at any meeting of the board of directors. Except as otherwise
provided by the certificate of incorporation, the vote of a majority of
directors present at a meeting at which a quorum is present shall be the act of
the board of directors. A majority of the directors present, whether or not a
quorum is present, may adjourn any regular or special meeting of the board of
directors to another time and place. Notice need not be given of the adjourned
meeting if the time and place to which the meeting is adjourned
<PAGE>7
are announced at the meeting at which adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted at the
original meeting.
Section 8. Committees. The board of directors may, by resolution or
resolutions adopted by a majority of the whole board, designate an audit
committee, a compensation committee, and a corporate governance and nominating
committee, each such committee to consist of one or more directors of the
corporation. The audit committee shall monitor and review the adequacy of
financial, operating and system controls, financial reporting, compliance with
legal, ethical and regulatory requirements, and the performance of the external
and internal auditors, serving as the conduit for communication between the
board of directors and external and internal auditors. The audit committee shall
recommend to the board of directors the independent public accountants to
conduct the annual examination of financial statements and shall also review the
proposed scope and fees of the examination, as well as its results, and any
significant, non-audit services and fees. The compensation committee shall
review the compensation (wages, salaries, supplemental compensation and
benefits) of the executive officers of the corporation, including approval of
compensation and benefit policies, approval of direct and indirect executive
officer compensation, administration of stock programs, and oversight of the
corporation's executive development plan. The compensation committee shall make
recommendations to the board of directors regarding compensation and benefits
for directors. The corporate governance and nominating committee shall review
the size, composition and effectiveness of the board of directors, including
retention, tenure and retirement policies, criteria for selection of nominees to
the board of directors, qualifications of candidates, membership and structure
of board committees, and developments in corporate governance.
In addition to the committees specifically provided for in these bylaws,
the board of directors of the corporation, by resolution or resolutions adopted
by a majority of the whole board of directors, may designate any other
committees, each such committee to consist of one or more of the directors of
the corporation. To the extent provided in such resolution or resolutions, each
such committee shall have and may exercise all of the authority of the board of
directors in the management of the corporation. Notwithstanding the foregoing,
no committee established hereunder shall have the power or authority to (a)
approve, adopt or recommend to the stockholders any action or matter expressly
required by the Delaware General Corporation Law to be submitted to the
stockholders for approval, (b) amend the certificate of incorporation or adopt,
amend or repeal any bylaw of the corporation, (c) authorize dividends or other
distributions, (d) fill vacancies on the board of directors, (e) adopt an
agreement of merger or consolidation under Section 251 or 252 of the Delaware
General Corporation Law or a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law; (f) recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets or recommend to the stockholders a dissolution
of the corporation or a revocation of a
<PAGE>8
dissolution of the corporation, (g) authorize or approve a reacquisition of
shares, except according to a formula or method prescribed by the board of
directors, and (h) authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences,
and limitations of a class or series of shares, except that the board of
directors may authorize a committee or a senior executive officer of the
corporation to do so within limits specifically prescribed by the board of
directors.
The designation of any such committee and the delegation thereto of
authority shall not operate to relieve the board of directors, or any member
thereof, of any responsibility imposed upon the board or any director by law.
The board of directors shall elect the members of any such committee, which
members shall serve at the pleasure of the board. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee.
Section 9. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, a majority of the members of the committee shall constitute a
quorum. In the event that a member and that member's alternate, if alternates
are designated by the board of directors as provided in Section 8 of this
Article III, of such committee is or are absent or disqualified, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in place of any
such absent or disqualified member.
Each committee shall keep regular minutes of its proceedings, which minutes
shall be recorded in the minute book of the corporation. The secretary or an
assistant secretary of the corporation may act as secretary for any committee if
the committee so requests.
Section 10. Lead Director; Chairman. In an effort to enhance efficiency,
independence and informed decision-making, the board of directors may designate
a Lead Director when the Chairman of the Board and the Chief Executive Officer
are the same person, who shall perform a number of tasks, including: acting as
Chairman of the Board when the Chairman/CEO is unable or it is inadvisable for
the Chairman/CEO to chair the Board; acting as Chairman of the Corporate
Governance and Nominating Committee; convening meetings of the independent
directors'; coordinating and communicating CEO performance evaluations; and
representing independent directors in communications with stockholders, as
appropriate. When the Chief Executive Officer is not the Chairman, the board of
directors may select one of its number to serve as Chairman. The Chairman of the
Board shall preside at all
<PAGE>9
meetings of stockholders and of the board of directors and shall have and
perform such other duties as may be assigned by the board of directors
Section 11. Meetings of Independent Directors. The independent directors of
the corporation shall meet at least annually to discuss significant corporate
governance matters, executive review, management succession and other items.
Section 12. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 13. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to such action unless his or
her dissent shall be entered in the minutes of the meeting or unless such
director shall file his or her written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered or certified mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 14. Action by Written Consent. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing. Such written consents shall be filed with the
minutes of proceedings of the board or committee.
Section 15. Compensation. The board of directors shall fix the compensation
of directors. The directors may be paid their expenses, if any, of attendance at
each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings. Any Lead Director and any director serving as the chairman
of a committee may receive additional compensation for serving as such.
<PAGE>10
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be a Chief
Executive Officer, a President, one or more Vice Presidents, a Treasurer and a
Secretary, all of whom shall be elected by the board of directors and shall hold
office until their successors are elected and qualified. In addition, the board
of directors may elect such Assistant Secretaries and Assistant Treasurers as it
may deem proper. The board of directors may appoint such other officers and
agents as it may deem advisable, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the board of directors. Any number of offices may be held by the
same person except that neither the chairman of the board nor the chief
executive officer shall also hold the office of secretary. In its discretion,
the board of directors may choose not to fill any office for any period as it
may deem advisable, except that the offices of chief executive officer and
secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as may be
practicable. Vacancies may be filled or new offices created and filled at any
meeting of the board of directors. Each officer shall hold office until a
successor is duly elected and qualified or until such officer's earlier death,
resignation, disqualification or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of directors
may be removed by the board of directors whenever in its judgment the best
interests of the corporation would be served thereby.
Section 4. Vacancies. Any vacancy occurring in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Compensation. Compensation of all executive officers shall be
fixed by the board of directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a director of the
corporation.
Section 6. The Chief Executive Officer. The Chief Executive Officer shall
have general charge and management of the business , affairs, administration and
operations of the corporation, shall carry out such duties as are delegated by
the board of directors, shall see that all orders and resolutions of the board
of directors are carried out, shall have power to execute all contracts and
agreements authorized by the board of directors, shall make reports to the board
of directors and stockholders, and shall perform such other duties as are
incident to the office or are properly required by the board of directors. The
Chief Executive Officer shall be responsible for the direction and supervision
of all personnel within his or her appointive powers and shall
<PAGE>11
also have the power to discipline or discharge such personnel. The Chief
Executive Officer shall sit with the board of directors in deliberation upon all
matters pertaining to the general business and policies of the corporation.
Section 7. President. The President shall have such powers and shall
perform such duties as shall be assigned to him or her by the board of directors
or the Chairman as appropriate. Except as the board of directors shall authorize
execution thereof in some other manner, the President shall execute bonds,
mortgages and other contracts on behalf of the corporation.
Section 8. Vice Presidents. Each Vice President shall have such powers and
shall perform such duties as shall be assigned to him or her by the board of
directors or Chief Executive Officer, as appropriate.
Section 9. Treasurer. The Treasurer shall be the custodian of all the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation, shall deposit
all moneys and other valuables in the name and to the credit of the corporation
in such depositaries as may be designated by the board of directors, shall
disburse the funds of the corporation as may be ordered by the board of
directors, or the Chairman, Chief Executive Officer or President, taking proper
vouchers for such disbursement, and shall render to the board of directors at
the regular meetings of the board of directors, or whenever they may request it,
an account of all transactions as Treasurer and of the financial condition of
the corporation. The Treasurer shall at all reasonable times exhibit the
corporation's books and accounts to any director of the corporation upon
application at the principal office of the corporation during business hours.
The Treasurer shall have such other powers and shall perform such other duties
as may from time to time be assigned to him or by her by the Chief Executive
Officer or the board of directors, as appropriate. If required by the board of
directors, the Treasurer shall give the corporation a bond for the faithful
discharge of the Treasurer's duties in such amount and with such surety as the
board shall prescribe.
Section 10. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these bylaws, and in case of the absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman, Chief Executive Officer, or President, or by the directors,
upon whose request the meeting is called as provided in these bylaws. The
Secretary shall be the custodian of, and shall make or cause to be made the
proper entries in, the minute book of the corporation and such other books and
records as the board of directors may direct. The Secretary shall be the
custodian of the corporate seal for the corporation and shall affix or cause to
be affixed such seal to such contracts and other instruments as the board of
directors may direct and shall perform such other duties as may from time to
time be assigned to him or her by the Chief Executive Officer or the board of
directors, as appropriate.
<PAGE>12
Section 11. Assistant Treasurers and Assistant Secretaries. Assistant
Treasurers and Assistant Secretaries, if any, shall be appointed by the Chief
Executive Officer and shall have such powers and shall perform such duties as
shall be assigned to them, respectively, by the Chief Executive Officer or the
board of directors, as appropriate.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 13. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and that of any person hereby
authorized to act in such officer's place during such officer's absence or
disability or for any other reason the board of directors may deem sufficient,
the board of directors may by resolution delegate the powers and duties of such
officer to any other officer, to any director, or to any other person whom it
may select.
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
<PAGE>13
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.
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>14
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be entitled
to have a certificate signed by, or in the name of, the corporation by the chief
executive officer or a vice-president of the corporation and by the secretary or
an assistant secretary of the corporation, certifying the number of shares of
the corporation owned by such holder. The signature of any such chief executive
officer, vice-president, secretary or assistant secretary may be facsimiles. In
case any officer or officers who have signed, or whose facsimile signature or
signatures have been used on, any such certificate or certificates shall cease
to be such officer or officers of the corporation, whether because of death,
resignation or otherwise, before such certificate or certificates have been
delivered by the corporation, such certificate or certificates may nevertheless
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the corporation. Shares of stock of the corporation shall be
transferred on the books of the corporation only by the holder of record thereof
or by such holder's attorney duly authorized in writing, upon surrender to the
corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer, authorization and other matters as the corporation may
reasonably require, and accompanied by all necessary stock transfer stamps. In
that event, it shall be the duty of the corporation to issue a new certificate
or certificates and record the transaction on its books. The board of directors
may appoint a bank or trust company organized under the laws of the United
States or any state thereof to act as its transfer agent or registrar, or both,
in connection with the transfer of any class or series of securities of the
corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of the fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any
<PAGE>15
meeting of stockholders or any adjournment thereof, the board of directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the board of directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of the stockholders shall be the close of business on the next day
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 5. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation
may be declared by the board of directors at any regular or special meeting,
subject to and in the manner provided by law and the applicable provisions of
the certificate of incorporation, if any. Dividends may be paid in cash, in
property, or in shares of the capital stock. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the board of directors from time to time, in its
absolute discretion, think proper as a reserve or reserves to meet
contingencies, to equalize dividends, to repair or maintain any property of the
corporation, or to accomplish any other purpose, and the board of directors may
modify or abolish any such reserve in the manner in which it was created.
<PAGE>16
Section 2. Checks, Drafts or Orders. All checks, drafts or other orders for
the payment of money by or to the corporation and all notes and other evidences
of indebtedness issued in the name of the corporation shall be signed by such
officer or officers, agent or agents of the corporation, and in such manner, as
shall from time to time be determined by resolution of the board of directors or
a duly authorized committee thereof. In the absence thereof, the signature of
the Chief Executive Officer shall suffice.
Section 3. Contracts. The board of directors may authorize any officer or
officers, or any agent or agents, of the corporation to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances. In the absence thereof, the signature of the Chief Executive Officer
shall suffice.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the board of directors. In the absence of a
resolution by the board of directors, the fiscal year of the corporation shall
end on the last Saturday in the month of November.
Section 5. Corporate Seal. The board of directors shall provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the corporation, the year of its incorporation and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed, affixed or otherwise reproduced.
Section 6. Voting Securities Owned by Corporation. Voting securities in any
other corporation held by the corporation shall be voted by the chief executive
officer, unless the board of directors specifically confers authority to vote
with respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 7. Section Headings. Section headings in these bylaws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 8. Inconsistent Provisions. In the event that any provision of
these bylaws is or becomes inconsistent with any provision of the certificate of
incorporation, the Delaware General Corporation Law or any other applicable law,
the provision of these bylaws shall not be given any effect to the extent of
such inconsistency but shall otherwise be given full force and effect.
<PAGE>17
ARTICLE VIII
AMENDMENTS
These bylaws may be amended, altered, or repealed and new bylaws adopted in
the manner provided in the certificate of incorporation.
Certificate of Secretary
The above and foregoing is a true and correct copy of the Amended and
Restated Bylaws of Payless Cashways, Inc. as of August 11, 1998.
/s/ Gary D. Gilson
-----------------------------------
Gary D. Gilson, Corporate Secretary
EXHIBIT 4.1
FIRST AMENDMENT
TO AMENDED AND RESTATED
CREDIT AGREEMENT
FIRST AMENDMENT, dated as of August 13, 1998 (the "Amendment"), to the
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 2, 1997, among
PAYLESS CASHWAYS, INC., a Delaware corporation (the "Borrower"), each of the
financial institutions from time to time party thereto as lenders (together with
their successors and assigns, the "Lenders"), the Underwriters (as therein
defined), CANADIAN IMPERIAL BANK OF COMMERCE (acting through one or more of its
agencies, branches, or affiliates, "CIBC"), as the issuer of standby letters of
credit, U.S. BANK NATIONAL ASSOCIATION, in its capacity as the issuer of
documentary letters of credit and CIBC, as coordinating and collateral agent (in
such capacity, the "Agent") for the Lenders, the Fronting Banks (as therein
defined), the Underwriters and the other Secured Parties (as therein defined):
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Underwriters and the Agent are
parties to that certain Amended and Restated Credit Agreement, dated as of
December 2, 1997 (as the same may be further amended, amended and restated,
supplemented or otherwise modified from time to time, the "Credit Agreement");
and
WHEREAS, the Borrower, the Lenders, the Underwriters and the Agent have
agreed, on the terms and conditions set forth herein, to certain modifications
to the Credit Agreement; and
WHEREAS, from and after the Effective Date (as hereinafter defined) of this
Amendment, the Credit Agreement shall be amended, subject to and upon the terms
and conditions set forth herein, as follows:
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Unless otherwise defined herein, all terms that are defined in the Credit
Agreement shall have the same meanings when used herein.
2. The definition of the term "Required Inventory" set forth in Section 1.1 of
the Credit Agreement is hereby amended in its entirety to read as follows:
"Required Inventory" shall mean Inventory in the Borrower's
possession and not subject to any Liens (except Liens in favor of
the Agent and other Liens permitted by Section 6.1) (such
Inventory hereafter being referred to as the "Qualifying Required
Inventory") which shall have a minimum aggregate FIFO Value, at
least equal to $325
<PAGE>2
million, after deduction of all amounts secured by such other
Liens permitted by Section 6.1; provided, that no Inventory
subject to Liens created pursuant to the GE Credit Program
Documents or Liens on Inventory subject to a purchase money
security interest of the type described in clause (v) of the
definition of Permitted Liens shall have any value ascribed to it
for purposes of calculating Required Inventory; and provided,
further, that the $325 million Required Inventory amount referred
to herein shall be reduced by $1.5 million for each store the
Borrower permanently closes; provided, however, that regardless
of the number of stores closed by the Borrower, the Qualifying
Required Inventory shall have a minimum aggregate FIFO value, at
least equal to $300 million, after deduction of all amounts
secured by other Liens permitted by Section 6.1.
3. Section 1.1 of the Credit Agreement is hereby amended by inserting the
following new definition in the appropriate alphabetical order:
"Qualifying Required Inventory" shall have the meaning set forth
in the definition of the term "Required Inventory."
4. The first sentence of Section 2.1(b) of the Credit Agreement is hereby
amended in its entirety to read as follows:
The outstanding principal amount of New Term Loans shall be
payable in semi-annual installments of $5 million each on
September 15 and May 15 of each year, commencing September 15,
1998.
5. Section 2.4 of the Credit Agreement is hereby amended by (i) changing
subsection (c) to subsection (e) and (ii) replacing subsections (a) and (b) in
their entirety with the following new subsections (a), (b), (c) and (d):
(a) Subject to the provisions of Section 2.8, each New Term Loan
which is an ABR Loan shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) at
a rate per annum equal to the Alternate Base Rate plus 1-1/2%.
(b) Subject to the provisions of Section 2.8, each New Term Loan
which is a Eurodollar Loan shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal, during each Interest Period
applicable thereto, to the Adjusted LIBOR Rate for such Interest
Period in effect for such New Term Loan plus 2-1/2%.
<PAGE>3
(c) Subject to the provisions of Section 2.8, each New Revolving
Loan which is an ABR Loan shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal to the Alternate Base Rate plus
2%.
(d) Subject to the provisions of Section 2.8, each New Revolving
Loan which is a Eurodollar Loan shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum equal, during each Interest Period
applicable thereto, to the Adjusted LIBOR Rate for such Interest
Period in effect for such New Revolving Loan plus 3%.
6. Section 2.8(a) of the Credit Agreement is hereby amended by replacing clauses
(x) and (y) appearing in lines eight through eleven therein in their entirety
with the following:
(w) in the case of (i) Borrowings which are both New Term Loans
and ABR Loans, and (ii) all other amounts due hereunder, the
Alternate Base Rate plus 3-1/2%, (x) in the case of Borrowings
which are both New Term Loans and Eurodollar Loans, the Adjusted
LIBOR Rate in effect for such Borrowings plus 4-1/2%, (y) in the
case of (i) Borrowings which are both New Revolving Loans and ABR
Loans, and (ii) Letter of Credit Outstandings, the Alternate Base
Rate plus 4%, and (z) in the case of Borrowings which are both
New Revolving Loans and Eurodollar Loans, the Adjusted LIBOR Rate
in effect for such New Revolving Loan plus 5%.
7. Section 2.12 of the Credit Agreement is hereby amended by (a) changing
subsection (i) to subsection (j) and (b) inserting the following as a new
subsection (i):
(i) Notwithstanding any of the foregoing, the Total Commitments
shall be automatically and irrevocably reduced by (x) $10 million
upon the expiration of the Unsupported Trade Standby Letter of
Credit and (ii) $5 million on May 15, 1999.
8. Section 5.1(f) of the Credit Agreement is hereby amended by adding the
following immediately following the words "balance of such fiscal year"
appearing in the seventh line thereof:
"and quarterly balance sheet, income statement and cash flow
projections for such period"
9. Section 6.7(a) of the Credit Agreement is hereby amended in its
entirety to read as follows:
<PAGE>4
(a) Permit cumulative EBITDA for the four consecutive fiscal
quarters ending nearest to the last day of the months listed
below to be less than the amount specified opposite such month
(increased, in the case of the first three periods set forth
below, by the amount, if any, by which EBITDA for the fourth
quarter of the Borrower's 1997 fiscal year exceeds $11.5
million):
Fiscal Quarter Ending EBITDA
February 1998 $43,200,000
May 1998 $33,600,000
August 1998 $39,200,000
November 1998 $44,600,000
February 1999 $47,400,000
May 1999 $44,300,000
August 1999 $44,900,000
November 1999 $59,000,000
February 2000 $78,800,000
May 2000 $87,000,000
August 2000 $95,700,000
November 2000 $101,000,000
February 2001 $103,000,000
May 2001 $106,200,000
August 2001 $109,100,000
November 2001 $113,400,000
February 2002 $113,700,000
May 2002 $113,100,000
August 2002 $115,800,000.
10. Section 6.7(b) of the Credit Agreement is hereby amended in its
entirety to read as follows:
(b) Permit the Debt to EBITDA Ratio to be more, on the last day
of any fiscal quarter of the Borrower ending during any month set
<PAGE>5
forth below, than the ratio set forth opposite the applicable
month below:
Month Ratio
February 1998 11.9 to 1
May 1998 15.0 to 1
August 1998 11.9 to 1
November 1998 9.0 to 1
February 1999 9.8 to 1
May 1999 10.5 to 1
August 1999 10.2 to 1
November 1999 7.5 to 1
February 2000 5.6 to 1
May 2000 4.9 to 1
August 2000 4.2 to 1
November 2000 3.7 to 1
February 2001 4.0 to 1
May 2001 3.9 to 1
August 2001 3.6 to 1
November 2001 3.3 to 1
February 2002 3.7 to 1
May 2002 3.7 to 1
August 2002 3.4 to 1.
11. Section 9.10 of the Credit Agreement is hereby amended by adding the
following sentence at the end thereof:
Notwithstanding any of the foregoing provisions of this Section
9.10 or anything to the contrary contained in this Agreement, any
Lender which has requested that it not receive material,
non-public information concerning the Borrower and which is
therefore unable or unwilling to vote with respect to an issue
arising under the Credit Agreement will agree to vote and will be
deemed to have voted its
<PAGE>6
Loans and Participating Interests under the Credit Agreement pro
rata in accordance with the percentages of Loans and
Participating Interests in favor of and the percentages of Loans
and Participating Interests against any such issue under the
Credit Agreement.
12. The Credit Agreement is hereby further amended by replacing Exhibit M (form
of Inventory Compliance Certificate) to the Credit Agreement with Schedule M1
hereto.
13. The Borrower hereby agrees to pay an amendment fee in connection with the
execution of this Amendment in an amount equal to $1,500,000 (the "Amendment
Fee"), which fee shall be payable to the Agent for the account of the New
Revolving Lenders (or their respective successors and assigns, as the case may
be). The Borrower also agrees that its obligations set forth in Section 9.5 of
the Credit Agreement shall extend to the preparation, execution and delivery of
this Amendment, including the reasonable fees and disbursements of counsel to
the Agent.
14. The Borrower represents and warrants to the Agent and the Lenders
that:
(a) the execution, delivery and performance by the Borrower of this
Amendment and the performance by the Borrower of the Credit Agreement as amended
by this Amendment (i) have been duly authorized by all requisite corporate
action on the part of the Borrower; and (ii) will not (x) violate (A) any
provision of any statute, rule or regulation or the Certificate of Incorporation
or By-laws (or similar governing documents) of the Borrower, (B) any applicable
order of any court or any rule, regulation or order of any other agency of
government or (C) any indenture, agreement or other instrument to which the
Borrower is a party or by which it or any of its property is bound, (y) be in
conflict with, result in a breach of or constitute (with notice or lapse of time
or both) a default under any such indenture, agreement or other instrument (z)
result in the creation or imposition of any Lien upon any property or assets of
the Borrower except as contemplated by the Security and Pledge Agreement or any
of the other Security Documents executed in connection with the Credit Agreement
in favor of the Agent or the Lenders;
(b) upon the occurrence of the Effective Date (as hereinafter defined),
this Amendment will constitute the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms, except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization or
other similar laws affecting creditors' rights generally and by general
equitable principles (regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law);
(c) the representations and warranties set forth in Article 3 of the Credit
Agreement are true and correct in all material respects on and as of the date
hereof, as if made on and as of the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date; and
<PAGE>7
(d) after giving effect to this Amendment, the Borrower is in compliance
with all of the terms and provisions set forth in the Credit Agreement to be
observed and performed and no Default or Event of Default has occurred and is
continuing.
15. This Amendment shall not become effective until the date (the " Effective
Date") on which this Amendment shall have been executed by the Borrower, the
Agent and the Majority Lenders and the following conditions precedent shall have
been satisfied:
(i) Receipt by the Agent of fully executed original counterparts of this
Amendment, together with delivery of other closing documentation, all in form
and substance satisfactory to the Agent and the Majority Lenders.
(ii) Payment by the Borrower (x) to the Agent (for the account of the New
Revolving Lenders) of the Amendment Fee and (y) of the costs and expenses of the
Agent (including reasonable attorneys' fees and expenses) incurred in connection
with the negotiation and preparation of this Amendment.
(iii) The Borrower shall have delivered to the Agent and the Lenders its
quarterly balance sheet, income statement and cash flow projections through
December 1999 in form satisfactory to the Agent and the Majority Lenders.
(iv) After giving effect to this Amendment, the Borrower shall be in compliance
with all of the terms and provisions set forth in the Credit Agreement to be
performed and no Default or Event of Default shall have occurred and be
continuing.
(v) All representations and warranties contained in this Amendment, the Credit
Agreement and the documents executed in connection herewith and therewith shall
be true and correct in all material respects on and as of the Effective Date,
except to the extent that such representations and warranties relate to an
earlier date.
(vi) The Agent shall have received such other instruments, documents and
assurances as the Agent or its counsel may reasonably request.
16. Except to the extent hereby amended, the Credit Agreement and each of the
Loan Documents remain in full force and effect and are hereby ratified and
affirmed.
17. This Amendment shall be limited precisely as written and shall not be deemed
(a) to be a consent granted pursuant to, or a waiver or modification of, any
other term or condition of the Credit Agreement or any of the instruments or
agreements referred to therein or (b) to prejudice any right or rights which the
Agent or the Lenders may now have or have in the future under or in connection
with the Credit Agreement or any of the instruments or agreements referred to
therein.
<PAGE>8
Whenever the Credit Agreement is referred to in the Credit Agreement or any of
the instruments, agreements or other documents or papers executed or delivered
in connection therewith, such reference shall be deemed to mean the Credit
Agreement as modified by this Amendment.
18. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
19. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
[The remainder of this page intentionally left blank]
<PAGE>9
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and the year first above written.
PAYLESS CASHWAYS, INC.
By: /s/ Richard G. Luse
---------------------------------
Title: Sr. V.P. Finance
CANADIAN IMPERIAL BANK OF COMMERCE,
as Coordinating and Collateral Agent
By: /s/ R. B. Layman
---------------------------------
Title: General Manager
By:_/s/ Robert N. Greer
Title: Assistant General Manager
CIBC INC., as a New Term Lender and a New
Revolving Lender
By: /s/ Robert N. Greer
---------------------------------
Title: Executive Director
Nationsbank, N.A. f/k/a
NATIONSBANK OF TEXAS, N.A., as a New Term
Lender and a New Revolving Lender
By: /s/ Jay T. Wampler
---------------------------------
Title: Senior Vice President
LEHMAN COMMERCIAL PAPER INC. , as a
New Term Lender and a New Revolving Lender
By: /s/ Michele Swanson
---------------------------------
Title: Authorized signatory
<PAGE>10
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as a New Term Lender and a New Revolving Lender
By: /s/ John Urban
---------------------------------
Title: Authorized signatory
FREMONT FINANCIAL CORPORATION,
as a New Revolving Lender
By: /s/ John P. Neher
---------------------------------
Title: SVP
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST, as a New Term
Lender and a New Revolving Lender
By: /s/ Jeffrey W. Maillet
---------------------------------
Title: Sr. Vice Pres. & Director
U.S. BANK NATIONAL ASSOCIATION,
as a New Term Lender
By: /s/ Jack L. Quitmeyer
---------------------------------
Title: Vice President
ABN AMRO BANK N.V., as a New Term Lender
By: /s/
---------------------------------
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a New Term Lender
By: /s/
---------------------------------
Title:
<PAGE>11
THE BANK OF NOVA SCOTIA, as a New Term Lender
By: /s/
---------------------------------
Title:
BEAR, STEARNS & CO. INC., as a New Term Lender
By: /s/ Gregory A. Hanley
---------------------------------
Title: Senior Managing Director
NATIONAL CITY BANK, INDIANA,
as a New Term Lender
By: /s/
---------------------------------
Title:
MORGENS WATERFALL DOMESTIC
PARTNERS II, L.L.C., a New Term Lender
By: /s/
---------------------------------
Title:
NATIONSBANK, N.A., as a New Term Lender
By: /s/ Jay T. Wampler
---------------------------------
Title: Senior Vice President
OAKTREE CAPITAL MANAGEMENT, LLC,
as a New Term Lender
By: /s/
---------------------------------
Title:
<PAGE>12
TRANSAMERICA BUSINESS CREDIT CORPORATION,
as a New Revolving Lender
By: /s/ Perry Vavoules
---------------------------------
Title: SVP
WAYLAND INVESTMENT FUND, LLC., as a New Term
Lender and a New Revolving Lender
By: CFSC Wayland Advisers, INC., its Manager
By: /s/ Steven Adams
---------------------------------
Title: A.V.P.
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of August 31, 1998 between
PAYLESS CASHWAYS, INC., a Delaware corporation (the "Company"), and MILLARD E.
BARRON, President and Chief Executive Officer (the "Executive").
WHEREAS, the Company desires to employ the Executive in the capacity of
President and Chief Executive Officer, and the Executive desires to be employed
by the Company in such capacity and on the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants of the parties
herein made, it is hereby agreed:
1. Term of Agreement. The term of this Agreement shall be one year,
commencing August 31, 1998 and ending August 31, 1999, unless sooner terminated
as provided in Paragraph 6 of this Agreement; PROVIDED, however, that the
Agreement shall be automatically renewed for an additional term of one year, at
the end of the initial one-year term and of each succeeding one-year term,
unless either the Company or the Executive shall serve notice on the other at
least ninety (90) days prior to the expiration of the term, in accordance with
the procedures set out in Paragraph 12 of this Agreement, that the party giving
notice intends to end the Agreement at the conclusion of the then-current term.
The Company shall not be required to show Cause, and the Executive shall not be
required to show Good Reason, to require the expiration of the Agreement under
the terms of this Paragraph.
2. Employment and Duties. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts employment, to perform such duties
and responsibilities of President and Chief Executive Officer as are, from time
to time, assigned to the Executive by the Board of Directors or its designee.
The Executive agrees to devote full business time and effort to the diligent and
faithful performance of the Executive's duties under the direction of such
person as is designated by the Company's Board of Directors.
3. Compensation.
(a) Base Salary. As compensation for the Executive's services, the
Executive shall be paid a base salary at a minimum annual rate of $450,000
payable in equal bi-weekly installments, which salary shall be reviewed annually
and may be adjusted from time to time at the discretion of the Board of
Directors (the "Base Salary"); provided that the Base Salary shall not be less
than the amount stated in this Paragraph 3(a).
(b) Incentive Compensation. The Executive shall, in addition to the
Base Salary, also be eligible to receive incentive compensation under the
Company's Corporate
<PAGE>2
Management Incentive Plan dated June 1998 (the "CMIP") or such other management
and executive incentive compensation program or plan for officers of the Company
as from time to time may be in effect, if any (the "Incentive Compensation").
The existence and terms of any such program or plan shall be determined solely
at the discretion of the Compensation Committee of the Board of Directors.
Notwithstanding the foregoing, the Executive's "Annual Incentive Target
Percentage of Base Compensation," as used in the CMIP, shall be sixty percent
(60%) of Base Salary, and neither the Company's percentage of budgeted EBITDA
attained nor the Executive's earned EBITDA award percentage under the CMIP shall
be subject to any cap or limitation. For the period ending December 31, 1998
only, the Executive shall be unconditionally entitled to receive Incentive
Compensation of not less than sixty percent (60%) of his Base Salary, prorated
to reflect Executive's period of 1998 employment beginning June 17, 1998.
(c) Other Benefits. The Executive shall be entitled to participate in
the Company's regular health, life, pension, vacation and disability plans in
accordance with their respective terms. The Company will also provide employee
benefits to the Executive in respect of the Executive's employment as the
Company customarily provides, from time to time, to its officers, as described
in Exhibit A attached to this Agreement. Nothing herein shall be construed to
limit the Company's discretion to amend, terminate or otherwise modify any such
plans or benefits, subject to the Executive's rights under Paragraph 6(c)(iii)
below.
4. Confidentiality, Non-Solicitation, and Non-Disparagement.
(a) Confidentiality of Proprietary Information. The Executive agrees
that, at all times, both during the Executive's employment with the Company and
after the expiration or termination thereof for any reason, the Executive shall
not divulge to any person, firm, corporation, or other entity, or in any way use
for the Executive's own benefit, except as required in the conduct of the
Company's business or as authorized in writing on behalf of the Company, any
trade secrets or confidential information (the "Proprietary Information")
obtained during the course of the Executive's employment with the Company. The
Proprietary Information includes, but is not limited to, customer or client
lists (including the names and/or positions of persons employed by such
customers or clients who play a role in the decisions of such customers or
clients concerning products or services of the type provided by the Company),
financial matters, inventory techniques and programs, Company records of
accounts, business projections, Company contracts, sales, merchandising or
marketing plans and strategies, pricing information and formulas, matters
contained in unpublished records and correspondence, planned expansion programs
(including areas of expansion and potential customer lists) and any and all
information concerning the business or affairs of the Company which is not known
by or generally available to the public. All papers and records of every kind
relating to the Proprietary Information, including any such papers and records
which shall at any time come into the possession of the Executive, shall be the
sole and exclusive property of the Company and shall be surrendered to the
Company upon termination of the Executive's employment for any reason or upon
request by the Company at any time either during or after the termination of
such employment. All information relating to or owned by customers of the
Company of which the Executive becomes
<PAGE>3
aware or with which the Executive becomes familiar through the Executive's
employment with the Company shall be kept confidential and not disclosed to
others or used by the Executive directly or indirectly except in the course of
the Company's business. It is agreed that Proprietary Information as herein
described shall be protected from disclosure under the terms of this Agreement,
to the maximum extent permitted by law, whether or not entitled to protection as
a trade secret.
(b) Solicitation Prohibition. During the Executive's employment with
the Company and for a period of one (1) year after the expiration or termination
of this Agreement or of the Executive's employment with the Company for any
reason, the Executive shall not directly or indirectly, whether as an individual
for the Executive's own account, or on behalf of any other person, firm,
corporation, partnership, joint venture or entity whatsoever, solicit or
endeavor to entice away from the Company any employee who is employed by the
Company. Additionally, the Executive shall not, during the Executive's
employment with the Company or for a period of one (1) year after the expiration
or termination of this Agreement or of Executive's employment with the Company
for any reason, directly or indirectly through any other individual or entity,
solicit the business of any customer of the Company, or solicit, entice,
persuade or induce any individual or entity to terminate, reduce or refrain from
forming, renewing or extending its relationship, whether actual or prospective,
with the Company.
(c) Disparagement Prohibition. The Executive acknowledges and agrees
that as a result of his position with the Company, disparaging or critical
statements made by the Executive may be uniquely detrimental to the Company's
interests and well-being. Therefore, the Executive agrees to use his best
efforts to assist the Company in promoting and preserving the good will and
other business interests of the Company. To this end, the Executive agrees to
refrain at all times, both during the Executive's employment and after the
termination thereof for any reason, from making disparaging comments or remarks
about the Company or its officers, employees, or directors.
(d) Definition of "Company". For the purposes of Paragraph 4, the term
"Company" shall mean the Company and any of its direct or indirect parent or
subsidiary organizations.
5. Covenant Not to Compete. During the Executive's employment with the
Company and for a period of one year after the expiration or termination of this
Agreement or of the Executive's employment with the Company (the "Noncompetition
Period"), if such termination is as a result of the expiration of this Agreement
under Paragraph 6(h), a termination for Good Reason by the Executive under
Paragraph 6(c), or a termination by the Company without Cause under Paragraph
6(d), the Executive agrees not to act as an owner or operator, officer or
director, employee, consultant or agent of any other person, firm, corporation,
partnership, joint venture or other entity which is engaged in the business of
building materials retailing in any state in which the Company is so engaged, or
has plans to be so engaged during the Noncompetition Period. The foregoing
provisions shall not prohibit the Executive from investing in any securities of
any
<PAGE>4
corporation whose securities, or any of them, are listed on a national
securities exchange or traded in the over-the-counter market if the Executive
shall own less than one percent 1% of the outstanding voting stock of such
corporation. The Executive agrees that a breach of the covenants contained
herein will result in irreparable and continuing damage to the Company for which
there will be no adequate remedy at law, and in the event of any breach of such
agreement, the Company shall be entitled to injunctive and such other and
further relief, including damages, attorneys' fees, and litigation costs, as may
be proper.
6. Termination.
(a) Death or Disability. In the event of the Executive's death or if
the Executive should become unable to perform the essential functions of the
position of President and Chief Executive Officer, with or without reasonable
accommodation by the Company, this Agreement, and the Company's obligation to
make further Base Salary payments under the Agreement, shall terminate, and
Executive shall not be entitled to receive severance benefits. Executive shall
be entitled to receive any Incentive Compensation which the Executive has
earned, if any, prorated to the date of the termination of the Executive's
employment by reason of death or the date of termination, due to disability, of
Executive's performance as President and Chief Executive Officer under this
Agreement. The Executive's rights to other compensation and benefits shall be
determined under the Company's benefit plans and policies applicable to
Executive then in effect.
(b) Termination for Cause by the Company. By following the procedure
set forth in Paragraph 6(e) the Company shall have the right to terminate this
Agreement and the employment of the Executive for "Cause" in the event
Executive:
(i) has committed a significant act of dishonesty, deceit or
breach of fiduciary duty in the performance of the Executive's duties
as an employee of the Company;
(ii) has neglected or failed to perform substantially the
duties of the Executive's employment under this Agreement, including
but not limited to an act of insubordination;
(iii) has acted or failed to act in any other way that
reflects materially and adversely upon the Company, including but not
limited to the Executive's conviction of, guilty plea, or plea of nolo
contendere to (A) any felony, or any misdemeanor involving moral
turpitude, or (B) any crime or offense involving dishonesty with
respect to the Company; or
(iv) has knowingly failed to comply with the covenants
contained in Paragraphs 4 or 5 of this Agreement.
<PAGE>5
If the employment of the Executive is terminated by the Company for Cause,
this Agreement and the Company's obligation to make further Base Salary and
Incentive Compensation payments hereunder shall thereupon immediately terminate,
and the Executive shall not be entitled to receive severance benefits. The
Executive's rights to other compensation and benefits shall be determined under
the Company's benefit plans and policies applicable to the Executive then in
effect.
(c) Termination for Good Reason by the Executive. By following the
procedure set forth in Paragraph 6(e), the Executive shall have the right to
terminate this Agreement and the Executive's employment with the Company for
"Good Reason" in the event:
(i) the Executive is not at all times a duly elected
President and Chief Executive Officer of the Company;
(ii) there is any material reduction in the scope of the
Executive's authority and responsibility (provided, however, in the
event of any illness or injury which prevents the Executive from
performing the Executive's duties, Good Reason shall not exist if the
Company reassigns the Executive's duties to one or more other
employees until the Executive is able to perform such duties);
(iii) there is a reduction in the Executive's Base Salary
below the minimum amount specified in Paragraph 3(a) above; a material
reduction in the Incentive Compensation opportunity of the Executive,
if any, under Paragraph 3(b) above; or a material reduction in the
other benefits to which Executive is entitled under Paragraph 3(c)
above, as compared to the benefits available to Executive at the time
of execution of this Agreement.
(iv) the Company requires the Executive's principal place of
employment be relocated fifty (50) miles from its location as of the
date of this Agreement;
(v) the Company otherwise fails to perform its material
obligations under this Agreement.
If the employment of the Executive is terminated by the Executive for Good
Reason, the Executive shall be entitled to the severance benefits set forth in
Paragraph 6(f) below, but the Company's obligation to make further Base Salary
payments and incentive compensation payments shall cease on the effective date
of such termination. The Executive's rights to other compensation and benefits
shall be determined under the Company's benefit plans and policies applicable to
the Executive then in effect.
(d) Termination Without Cause or Without Good Reason. The Company may
terminate this Agreement and the Executive's employment without Cause at any
time, and in such event the Executive shall be entitled to the severance
benefits set forth in Paragraph 6(f) below.
<PAGE>6
The Executive may voluntarily terminate this Agreement and the Executive's
employment without Good Reason at any time, but in such event the Executive
shall not be entitled to the severance benefits set forth in Paragraph 6(f)
below. If the Executive voluntarily terminates this Agreement and the
Executive's employment without Good Reason, or if the Company terminates this
Agreement and the Executive's employment without Cause, then the Company's
obligation to make further Base Salary payments and Incentive Compensation
payments shall cease on the effective date of such termination. The Executive's
rights to other compensation and benefits shall be determined under the
Company's benefit plans and policies applicable to the Executive then in effect.
(e) Notice and Right to Cure. The party proposing to terminate this
Agreement and the employment of the Executive for Cause or Good Reason, as the
case may be, under Paragraph 6(b) or 6(c) above shall give written notice to the
other, specifying the reason therefor with particularity. In the case of a
termination pursuant to Paragraphs 6(b)(i), (iii) or (iv), or 6(c)(i), such
termination shall be effective immediately upon delivery of such notice. In the
case of any other proposed termination for Cause or Good Reason, as the case may
be, the notice shall be given with sufficient particularity so that the other
party will have an opportunity to correct any curable situation to the
reasonable satisfaction of the party giving the notice within the period of time
specified in the notice, which shall not be less than thirty (30) days. If such
correction is not so made or the circumstances or situation are not curable, the
party giving such notice may, within thirty (30) days after the expiration of
the time fixed to correct such situation, give written notice to the other party
that the employment is terminated as of the date of that writing. Where the
Agreement and the Executive's employment are terminated by the Executive without
Good Reason or by the Company without Cause, the termination date shall be the
date on which notification of termination shall be mailed in accordance with
Paragraph 12 of this Agreement, unless a different termination date shall be
designated by the party giving notice or agreed upon by the Executive and the
Company.
(f) Severance Benefits. If this Agreement and the Executive's
employment with the Company are terminated by reason of the Executive's death or
disability, or by the Company with Cause or by the Executive without Good Reason
then the Executive shall receive no severance benefits. If this Agreement and
the Executive's employment with the Company are terminated due to the expiration
of the Agreement, by the Company without Cause, or by the Executive for Good
Reason, then the Executive shall be entitled to the following benefits (the
"Severance Benefits"):
(i) Base Salary. The Company shall continue to pay to the
Executive the Executive's Base Salary for a period of one (1) year
after the date the Executive's employment with the Company is
terminated (the "Severance Period"), when and as such Base Salary
would have been paid, and as if the Executive continued to be employed
during such period and regardless of the death or disability of the
Executive after the date of termination.
<PAGE>7
(ii) Incentive Compensation. In the event the Compensation
Committee of the Board of Directors determines that Incentive
Compensation is to be paid in the year in which the Executive's
employment and this Agreement are terminated under circumstances in
which this Agreement provides for the payment of Severance Benefits,
then the Executive will receive Incentive Compensation prorated for
the time during which services were rendered in the year of
termination, to the extent provided by the Compensation Committee for
the calculation of Incentive Compensation for that year.
(iii) Continuation of Benefits. During the Severance Period,
the Company shall provide the Executive with medical, dental, vision,
and regular and supplemental life insurance coverage substantially
similar to the coverage which the Executive was receiving or entitled
to receive immediately prior to the date of the termination of the
Executive's employment. In addition, during the Severance Period, the
Company shall pay on behalf of the Executive the cost of one annual
physical examination and the cost of the preparation of the
Executive's federal, state and local tax returns in accordance with
the terms set out in Exhibit A. The Company shall provide such
benefits to the Executive at Company expense, subject to the same
cost-sharing provisions, if any, applicable to the Executive
immediately prior to the date of the termination of employment.
Notwithstanding the foregoing, the Executive shall not be entitled to
receive such benefits to the extent that the Executive obtains other
employment which provides comparable benefits during the Severance
Period.
(iv) Outplacement Benefits. The Company, at its expense,
will provide to the Executive outplacement services, at a maximum cost
of $30,000, to be provided by an outplacement service provider
selected solely by the Company.
(v) Termination of Benefits. Notwithstanding any other
provision of this Agreement, in the event that the Executive at any
time violates the provisions of Paragraph 4(a), 4(b), 4(c), or 5 of
this Agreement, then the Company's obligations, if any, to provide
base salary continuation and other severance benefits as set out in
Paragraph 6(f) of this Agreement shall cease, and such payments and
benefits shall immediately cease.
(g) Change of Control. Subject to the Executive's compliance with the
terms and conditions of this Agreement, if during the term of the Agreement the
Executive's employment is terminated without Cause as a result of a Change of
Control (as defined below) of the Company, and if the Executive is not offered a
comparable position by the Company, then the Severance Period shall be extended
to the second anniversary of the date of the termination of employment, and the
Executive shall be entitled to receive continued payments of Base Salary during
the second year of the Severance Period. All Severance Benefits other than
continued payments of Base
<PAGE>8
Salary shall cease on the first anniversary of the termination of employment in
the event of a Change in Control. For purposes of this Paragraph 6(g), a Change
in Control shall mean:
(i) The acquisition by any person, entity or "group," within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act") (excluding, for this purpose, (A) the
Company or its subsidiaries or (B) any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of
voting securities of the Company), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty
percent (30%) or more of either the then outstanding shares of common
stock or the combined voting power of the Company's then outstanding
voting securities entitled to vote generally in the election of
directors; or
(ii) During any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constituted the
Company's Board of Directors (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board, provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the then Incumbent Board (other than
an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of (A) a
reorganization, merger, or consolidation of the Company with any other
company other than (I) a reorganization, merger, or consolidation in
which persons who were the stockholders of the company immediately
prior to such reorganization, merger, or consolidation, immediately
thereafter, own more than fifty percent (50%) of the combined voting
power of the reorganized, merged, or consolidated company's then
outstanding voting securities, or (II) a reorganization, merger, or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" acquires more than
thirty percent (30%) of the combined voting power of the Company's
then outstanding securities; or (B) a liquidation or dissolution of
the Company; or (c) the sale of all or substantially all of the assets
of the Company.
(h) Expiration of Term of Agreement. At the expiration of the term of
this Agreement as defined in Paragraph 1 above, if the Agreement has not been
previously terminated under Paragraph 6(a), (b), (c) or (d) of this Agreement,
all duties and obligations of the parties
<PAGE>9
under this Agreement, except those set out in Paragraphs 4, 5 and 6(f), when
applicable, shall cease.
(i) Survival of Certain Provisions. Notwithstanding the expiration or
termination of this Agreement, and the Executive's employment with the Company
for any reason under this Agreement, the provisions of Paragraphs 4, 5 and 6(f),
when applicable, to the extent provided therein, survive any such termination
and shall be binding upon the Executive and the Company in accordance with the
provisions of Paragraphs 4, 5 and 6(f).
(j) Participation in Retention Plan. The Executive shall participate
in the Reorganization Retention Plan adopted by the Company as of August 20,
1997, as amended, subject to the terms and conditions of such plan. For purposes
of participation in the Reorganization Retention Plan, Executive shall be
considered a Participant with a separate employment agreement with the Company
and thus shall not be a Severance Participant under the terms of the
Reorganization Retention Plan.
(k) Retention Payments Excluded from Severance. Any retention payments
paid pursuant to the terms of the August 20, 1997 Reorganization Retention Plan
shall be excluded from the calculation of severance payments provided for under
other Paragraphs of this Agreement.
7. Arbitration. The parties hereby agree that any dispute arising under
this Agreement or any claim for breach or violation of any provision of this
Agreement shall be submitted to arbitration, pursuant to the National Rules for
the Resolution of Employment Disputes of the American Arbitration Association
("AAA"), to a single arbitrator selected by mutual agreement of the parties or,
if the parties do not mutually agree on the arbitrator, in accordance with the
rules of the AAA. The award determination of the arbitrator shall be final and
binding upon the parties. Either party shall have the right to bring an action
in any court of competent jurisdiction to enforce this Paragraph and to enforce
any arbitrator's award rendered pursuant to this Paragraph. The venue for all
proceedings in arbitration under this provision, and for any judicial
proceedings related to the arbitration, shall be in Kansas City, Missouri.
8. Business Expenses. The Company shall reimburse the Executive for
entertainment and travel expenses related to the Company's business in
accordance with the policies of the Company applicable to the Executive on the
date of this Agreement, subject to the right of the Company to modify its
general policies relating to expense reimbursement for employees.
9. Severability. If any one or more of the provisions of this Agreement
shall be held invalid or unenforceable, the remaining provisions shall remain
valid and enforceable to the maximum extent permitted by law.
10. Entire Agreement. This Agreement contains a statement of all agreements
and understandings between the Executive and the Company on the subject matters
covered by the
<PAGE>10
Agreement, and it replaces and supersedes all prior contracts and agreements
between the Executive and the Company concerning such matters. No additions or
modifications to this Agreement will be effective unless made in writing and
signed by the Executive and the Company.
11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the personal representatives, heirs and assigns of the Executive and
to any successors in interest and assigns of the Company.
12. Notices. All notices required or permitted to be given hereunder shall
be registered or certified mail addressed to the respective parties at their
addresses set forth below:
To the Executive: Millard E. Barron
13006 Walmer Street
Overland Park, KS 66209
To the Company: Payless Cashways, Inc.
Two Pershing Square
2300 Main, P. 0. Box 419466
Kansas City, MO 64141-0466
Attn: Vice President - Human Resources
Blackwell Sanders Peper Martin LLP
Two Pershing Square
2300 Main, Suite 1000
Kansas City, MO 64108
Attn: Gary Gilson
or such other address as a party hereto may notify the other in writing.
13. Applicable Law. This Agreement, or any portion thereof, shall be
interpreted in accordance with the laws of the State of Missouri.
14. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. Executive may not assign any of his rights or
delegate any of his duties or obligations under this Agreement without the
Company's express written consent.
15. Non-Waiver Provision. The failure of either party of this Agreement to
insist upon strict adherence to any term of this Agreement, or to object to any
failure to comply with any provision of this Agreement, shall not (a) constitute
or operate as a waiver of that terms or provision, (b) estop that party from
enforcing that term or provision, or (c) preclude that party from enforcing that
term or provision or any other term or provision. The receipt of a party to
<PAGE>11
this Agreement of any benefit from this Agreement shall not effect a waiver or
estoppel of the right of that party to enforce any provision of this Agreement.
16. Golden Parachute Savings Provision. If, in the absence of this
provision, any amount received or to be received by the Executive pursuant to
this Agreement would be subject to the "Excise Tax" imposed on "excess parachute
payments" by Section 4999 of the Internal Revenue Code of 1986 or any
corresponding provision of any later Federal tax law, the Company shall, in its
reasonable discretion, reduce the amounts payable to the largest amount that
will result in elimination of any Excise Tax liability.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first written above.
MILLARD E. BARRON PAYLESS CASHWAYS, INC.
/s/ Millard E. Barron By: /s/ Louise R. Iennaccaro
- ------------------------- ------------------------------
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of Agust 25, 1998 between
PAYLESS CASHWAYS, INC., a Delaware corporation (the "Company"), and RICHARD G.
LUSE (the "Executive").
WHEREAS, the Company desires to employ the Executive in the capacity of
Senior Vice President - Finance, Chief Financial Officer, Controller, Corporate
Assistant Secretary, and the Executive desires to be employed by the Company in
such capacity and on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants of the parties
herein made, it is hereby agreed:
1. Term of Agreement. The term of this Agreement shall be one year,
commencing August 25, 1998 and ending August 25, 1999, unless sooner terminated
as provided in Paragraph 6 of this Agreement; PROVIDED, however, that the
Agreement shall be automatically renewed for an additional term of one year, at
the end of the initial one-year term and of each succeeding one-year term,
unless either the Company or the Executive shall serve notice on the other at
least ninety (90) days prior to the expiration of the term, in accordance with
the procedures set out in Paragraph 12 of this Agreement, that the party giving
notice intends to end the Agreement at the conclusion of the then-current term.
The Company shall not be required to show Cause, and the Executive shall not be
required to show Good Reason, to require the expiration of the Agreement under
the terms of this Paragraph.
2. Employment and Duties. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts employment, to perform such duties
and responsibilities of Senior Vice President - Finance, Chief Financial
Officer, Controller, Corporate Assistant Secretary as are, from time to time,
assigned to the Executive by the Board of Directors or its designee. The
Executive agrees to devote full business time and effort to the diligent and
faithful performance of the Executive's duties under the direction of such
person as is designated by the Company's Board of Directors.
3. Compensation.
(a) Base Salary. As compensation for the Executive's services, the
Executive shall be paid a base salary at a minimum annual rate of $225,000
payable in equal bi-weekly installments, which salary shall be reviewed annually
and may be adjusted from time to time at the discretion of the Board of
Directors (the "Base Salary"); provided that the Base Salary shall not be less
than the amount stated in this Paragraph 3(a).
<PAGE>2
(b) Incentive Compensation. The Executive shall, in addition to the
Base Salary, also be eligible to receive incentive compensation under the
Company's management and executive incentive compensation program or such other
program or plan for officers of the Company as may be from time to time in
effect, if any, the existence and terms of which shall be determined solely at
the discretion of the Compensation Committee of the Board of Directors (the
"Incentive Compensation").
(c) Other Benefits. The Executive shall be entitled to participate in
the Company's regular health, life, pension, vacation and disability plans in
accordance with their respective terms. The Company will also provide employee
benefits to the Executive in respect of the Executive's employment as the
Company customarily provides, from time to time, to its officers, as described
in Exhibit A attached to this Agreement. Nothing herein shall be construed to
limit the Company's discretion to amend, terminate or otherwise modify any such
plans or benefits, subject to the Executive's rights under Paragraph 6(c)(iii)
below.
4. Confidentiality, Non-Solicitation, and Non-Disparagement.
(a) Confidentiality of Proprietary Information. The Executive agrees
that, at all times, both during the Executive's employment with the Company and
after the expiration or termination thereof for any reason, the Executive shall
not divulge to any person, firm, corporation, or other entity, or in any way use
for the Executive's own benefit, except as required in the conduct of the
Company's business or as authorized in writing on behalf of the Company, any
trade secrets or confidential information (the "Proprietary Information")
obtained during the course of the Executive's employment with the Company. The
Proprietary Information includes, but is not limited to, customer or client
lists (including the names and/or positions of persons employed by such
customers or clients who play a role in the decisions of such customers or
clients concerning products or services of the type provided by the Company),
financial matters, inventory techniques and programs, Company records of
accounts, business projections, Company contracts, sales, merchandising or
marketing plans and strategies, pricing information and formulas, matters
contained in unpublished records and correspondence, planned expansion programs
(including areas of expansion and potential customer lists) and any and all
information concerning the business or affairs of the Company which is not known
by or generally available to the public. All papers and records of every kind
relating to the Proprietary Information, including any such papers and records
which shall at any time come into the possession of the Executive, shall be the
sole and exclusive property of the Company and shall be surrendered to the
Company upon termination of the Executive's employment for any reason or upon
request by the Company at any time either during or after the termination of
such employment. All information relating to or owned by customers of the
Company of which the Executive becomes aware or with which the Executive becomes
familiar through the Executive's employment with the Company shall be kept
confidential and not disclosed to others or used by the Executive directly or
indirectly except in the course of the Company's business. It is agreed that
Proprietary Information as herein described shall be protected from disclosure
under the terms of this
<PAGE>3
Agreement, to the maximum extent permitted by law, whether or not entitled to
protection as a trade secret.
(b) Solicitation Prohibition. During the Executive's employment with
the Company and for a period of one (1) year after the expiration or termination
of this Agreement or of the Executive's employment with the Company for any
reason, the Executive shall not directly or indirectly, whether as an individual
for the Executive's own account, or on behalf of any other person, firm,
corporation, partnership, joint venture or entity whatsoever, solicit or
endeavor to entice away from the Company any employee who is employed by the
Company. Additionally, the Executive shall not, during the Executive's
employment with the Company or for a period of one (1) year after the expiration
or termination of this Agreement or of Executive's employment with the Company
for any reason, directly or indirectly through any other individual or entity,
solicit the business of any customer of the Company, or solicit, entice,
persuade or induce any individual or entity to terminate, reduce or refrain from
forming, renewing or extending its relationship, whether actual or prospective,
with the Company.
(c) Disparagement Prohibition. The Executive acknowledges and agrees
that as a result of his position with the Company, disparaging or critical
statements made by the Executive may be uniquely detrimental to the Company's
interests and well-being. Therefore, the Executive agrees to use his best
efforts to assist the Company in promoting and preserving the good will and
other business interests of the Company. To this end, the Executive agrees to
refrain at all times, both during the Executive's employment and after the
termination thereof for any reason, from making disparaging comments or remarks
about the Company or its officers, employees, or directors.
(d) Definition of "Company". For the purposes of Paragraph 4, the term
"Company" shall mean the Company and any of its direct or indirect parent or
subsidiary organizations.
5. Covenant Not to Compete. During the Executive's employment with the
Company and for a period of one year after the expiration or termination of this
Agreement or of the Executive's employment with the Company (the "Noncompetition
Period"), if such termination is as a result of the expiration of this Agreement
under Paragraph 6(h), a termination for Good Reason by the Executive under
Paragraph 6(c), or a termination by the Company without Cause under Paragraph
6(d), the Executive agrees not to act as an owner or operator, officer or
director, employee, consultant or agent of any other person, firm, corporation,
partnership, joint venture or other entity which is engaged in the business of
building materials retailing in any state in which the Company is so engaged, or
has plans to be so engaged during the Noncompetition Period. The foregoing
provisions shall not prohibit the Executive from investing in any securities of
any corporation whose securities, or any of them, are listed on a national
securities exchange or traded in the over-the-counter market if the Executive
shall own less than one percent 1% of the outstanding voting stock of such
corporation. The Executive agrees that a breach of the covenants contained
herein will result in irreparable and continuing damage to the Company for which
there
<PAGE>4
will be no adequate remedy at law, and in the event of any breach of such
agreement, the Company shall be entitled to injunctive and such other and
further relief, including damages, attorneys' fees, and litigation costs, as may
be proper.
6. Termination.
(a) Death or Disability. In the event of the Executive's death or if
the Executive should become unable to perform the essential functions of the
position of Senior Vice President - Finance, Chief Financial Officer,
Controller, Corporate Assistant Secretary, with or without reasonable
accommodation by the Company, this Agreement, and the Company's obligation to
make further Base Salary payments under the Agreement, shall terminate, and
Executive shall not be entitled to receive severance benefits. Executive shall
be entitled to receive any Incentive Compensation which the Executive has
earned, if any, prorated to the date of the termination of the Executive's
employment by reason of death or the date of termination, due to disability, of
Executive's performance as Senior Vice President - Finance, Chief Financial
Officer, Controller, Corporate Assistant Secretary under this Agreement. The
Executive's rights to other compensation and benefits shall be determined under
the Company's benefit plans and policies applicable to Executive then in effect.
(b) Termination for Cause by the Company. By following the procedure
set forth in Paragraph 6(e) the Company shall have the right to terminate this
Agreement and the employment of the Executive for "Cause" in the event
Executive:
(i) has committed a significant act of dishonesty, deceit or
breach of fiduciary duty in the performance of the Executive's duties
as an employee of the Company;
(ii) has neglected or failed to perform substantially the
duties of the Executive's employment under this Agreement, including
but not limited to an act of insubordination;
(iii) has acted or failed to act in any other way that
reflects materially and adversely upon the Company, including but not
limited to the Executive's conviction of, guilty plea, or plea of nolo
contendere to (A) any felony, or any misdemeanor involving moral
turpitude, or (B) any crime or offense involving dishonesty with
respect to the Company; or
(iv) has knowingly failed to comply with the covenants
contained in Paragraphs 4 or 5 of this Agreement.
If the employment of the Executive is terminated by the Company for Cause,
this Agreement and the Company's obligation to make further Base Salary and
Incentive Compensation payments hereunder shall thereupon immediately terminate,
and the Executive shall not be entitled
<PAGE>5
to receive severance benefits. The Executive's rights to other compensation and
benefits shall be determined under the Company's benefit plans and policies
applicable to the Executive then in effect.
(c) Termination for Good Reason by the Executive. By following the
procedure set forth in Paragraph 6(e), the Executive shall have the right to
terminate this Agreement and the Executive's employment with the Company for
"Good Reason" in the event:
(i) the Executive is not at all times a duly elected Senior
Vice President Finance, Chief Financial Officer, Controller, Corporate
Assistant Secretary of the Company;
(ii) there is any material reduction in the scope of the
Executive's authority and responsibility (provided, however, in the
event of any illness or injury which prevents the Executive from
performing the Executive's duties, Good Reason shall not exist if the
Company reassigns the Executive's duties to one or more other
employees until the Executive is able to perform such duties);
(iii) there is a reduction in the Executive's Base Salary
below the minimum amount specified in Paragraph 3(a) above; a material
reduction in the Incentive Compensation opportunity of the Executive,
if any, under Paragraph 3(b) above; or a material reduction in the
other benefits to which Executive is entitled under Paragraph 3(c)
above, as compared to the benefits available to Executive at the time
of execution of this Agreement.
(iv) the Company requires the Executive's principal place of
employment be relocated fifty (50) miles from its location as of the
date of this Agreement;
(v) the Company otherwise fails to perform its material
obligations under this Agreement.
If the employment of the Executive is terminated by the Executive for Good
Reason, the Executive shall be entitled to the severance benefits set forth in
Paragraph 6(f) below, but the Company's obligation to make further Base Salary
payments and incentive compensation payments shall cease on the effective date
of such termination. The Executive's rights to other compensation and benefits
shall be determined under the Company's benefit plans and policies applicable to
the Executive then in effect.
(d) Termination Without Cause or Without Good Reason. The Company may
terminate this Agreement and the Executive's employment without Cause at any
time, and in such event the Executive shall be entitled to the severance
benefits set forth in Paragraph 6(f) below. The Executive may voluntarily
terminate this Agreement and the Executive's employment without Good Reason at
any time, but in such event the Executive shall not be entitled to the severance
<PAGE>6
benefits set forth in Paragraph 6(f) below. If the Executive voluntarily
terminates this Agreement and the Executive's employment without Good Reason, or
if the Company terminates this Agreement and the Executive's employment without
Cause, then the Company's obligation to make further Base Salary payments and
Incentive Compensation payments shall cease on the effective date of such
termination. The Executive's rights to other compensation and benefits shall be
determined under the Company's benefit plans and policies applicable to the
Executive then in effect.
(e) Notice and Right to Cure. The party proposing to terminate this
Agreement and the employment of the Executive for Cause or Good Reason, as the
case may be, under Paragraph 6(b) or 6(c) above shall give written notice to the
other, specifying the reason therefor with particularity. In the case of a
termination pursuant to Paragraphs 6(b)(i), (iii) or (iv), or 6(c)(i), such
termination shall be effective immediately upon delivery of such notice. In the
case of any other proposed termination for Cause or Good Reason, as the case may
be, the notice shall be given with sufficient particularity so that the other
party will have an opportunity to correct any curable situation to the
reasonable satisfaction of the party giving the notice within the period of time
specified in the notice, which shall not be less than thirty (30) days. If such
correction is not so made or the circumstances or situation are not curable, the
party giving such notice may, within thirty (30) days after the expiration of
the time fixed to correct such situation, give written notice to the other party
that the employment is terminated as of the date of that writing. Where the
Agreement and the Executive's employment are terminated by the Executive without
Good Reason or by the Company without Cause, the termination date shall be the
date on which notification of termination shall be mailed in accordance with
Paragraph 12 of this Agreement, unless a different termination date shall be
designated by the party giving notice or agreed upon by the Executive and the
Company.
(f) Severance Benefits. If this Agreement and the Executive's
employment with the Company are terminated by reason of the Executive's death or
disability, or by the Company with Cause or by the Executive without Good Reason
then the Executive shall receive no severance benefits. If this Agreement and
the Executive's employment with the Company are terminated due to the expiration
of the Agreement, by the Company without Cause, or by the Executive for Good
Reason, then the Executive shall be entitled to the following benefits (the
"Severance Benefits"):
(i) Base Salary. The Company shall continue to pay to the
Executive the Executive's Base Salary for a period of one (1) year
after the date the Executive's employment with the Company is
terminated (the "Severance Period"), when and as such Base Salary
would have been paid, and as if the Executive continued to be employed
during such period and regardless of the death or disability of the
Executive after the date of termination.
(ii) Incentive Compensation. In the event the Compensation
Committee of the Board of Directors determines that Incentive
Compensation is to
<PAGE>7
be paid in the year in which the Executive's employment and this
Agreement are terminated under circumstances in which this Agreement
provides for the payment of Severance Benefits, then the Executive
will receive Incentive Compensation prorated for the time during which
services were rendered in the year of termination, to the extent
provided by the Compensation Committee for the calculation of
Incentive Compensation for that year.
(iii) Continuation of Benefits. During the Severance Period,
the Company shall provide the Executive with medical, dental, vision,
and regular and supplemental life insurance coverage substantially
similar to the coverage which the Executive was receiving or entitled
to receive immediately prior to the date of the termination of the
Executive's employment. In addition, during the Severance Period, the
Company shall pay on behalf of the Executive the cost of one annual
physical examination and the cost of the preparation of the
Executive's federal, state and local tax returns in accordance with
the terms set out in Exhibit A. The Company shall provide such
benefits to the Executive at Company expense, subject to the same
cost-sharing provisions, if any, applicable to the Executive
immediately prior to the date of the termination of employment.
Notwithstanding the foregoing, the Executive shall not be entitled to
receive such benefits to the extent that the Executive obtains other
employment which provides comparable benefits during the Severance
Period.
(iv) Outplacement Benefits. The Company, at its expense,
will provide to the Executive outplacement services, at a maximum cost
of $30,000, to be provided by an outplacement service provider
selected solely by the Company.
(v) Termination of Benefits. Notwithstanding any other
provision of this Agreement, in the event that the Executive at any
time violates the provisions of Paragraph 4(a), 4(b), 4(c), or 5 of
this Agreement, then the Company's obligations, if any, to provide
base salary continuation and other severance benefits as set out in
Paragraph 6(f) of this Agreement shall cease, and such payments and
benefits shall immediately cease.
(g) Change of Control. Subject to the Executive's compliance with the
terms and conditions of this Agreement, if during the term of the Agreement the
Executive's employment is terminated without Cause as a result of a Change of
Control (as defined below) of the Company, and if the Executive is not offered a
comparable position by the Company, then the Severance Period shall be extended
to the second anniversary of the date of the termination of employment, and the
Executive shall be entitled to receive continued payments of Base Salary during
the second year of the Severance Period. All Severance Benefits other than
continued payments of Base Salary shall cease on the first anniversary of the
termination of employment in the event of a Change in Control. For purposes of
this Paragraph 6(g), a Change in Control shall mean:
<PAGE>8
(i) The acquisition by any person, entity or "group," within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act") (excluding, for this purpose, (A) the
Company or its subsidiaries or (B) any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of
voting securities of the Company), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty
percent (30%) or more of either the then outstanding shares of common
stock or the combined voting power of the Company's then outstanding
voting securities entitled to vote generally in the election of
directors; or
(ii) During any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constituted the
Company's Board of Directors (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board, provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the then Incumbent Board (other than
an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of (A) a
reorganization, merger, or consolidation of the Company with any other
company other than (I) a reorganization, merger, or consolidation in
which persons who were the stockholders of the company immediately
prior to such reorganization, merger, or consolidation, immediately
thereafter, own more than fifty percent (50%) of the combined voting
power of the reorganized, merged, or consolidated company's then
outstanding voting securities, or (II) a reorganization, merger, or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" acquires more than
thirty percent (30%) of the combined voting power of the Company's
then outstanding securities; or (B) a liquidation or dissolution of
the Company; or (C) the sale of all or substantially all of the assets
of the Company.
(h) Expiration of Term of Agreement. At the expiration of the term of
this Agreement as defined in Paragraph 1 above, if the Agreement has not been
previously terminated under Paragraph 6(a), (b), (c) or (d) of this Agreement,
all duties and obligations of the parties under this Agreement, except those set
out in Paragraphs 4, 5 and 6(f), when applicable, shall cease.
<PAGE>9
(i) Survival of Certain Provisions. Notwithstanding the expiration or
termination of this Agreement, and the Executive's employment with the Company
for any reason under this Agreement, the provisions of Paragraphs 4, 5 and 6(f),
when applicable, to the extent provided therein, survive any such termination
and shall be binding upon the Executive and the Company in accordance with the
provisions of Paragraphs 4, 5 and 6(f).
(j) Participation in Retention Plan. The Executive shall participate
in the Reorganization Retention Plan adopted by the Company as of August 20,
1997, as amended, subject to the terms and conditions of such plan. For purposes
of participation in the Reorganization Retention Plan, Executive shall be
considered a Participant with a separate employment agreement with the Company
and thus shall not be a Severance Participant under the terms of the
Reorganization Retention Plan.
(k) Retention Payments Excluded from Severance. Any retention payments
paid pursuant to the terms of the August 20, 1997 Reorganization Retention Plan
shall be excluded from the calculation of severance payments provided for under
other Paragraphs of this Agreement.
7. Arbitration. The parties hereby agree that any dispute arising under
this Agreement or any claim for breach or violation of any provision of this
Agreement shall be submitted to arbitration, pursuant to the National Rules for
the Resolution of Employment Disputes of the American Arbitration Association
("AAA"), to a single arbitrator selected by mutual agreement of the parties or,
if the parties do not mutually agree on the arbitrator, in accordance with the
rules of the AAA. The award determination of the arbitrator shall be final and
binding upon the parties. Either party shall have the right to bring an action
in any court of competent jurisdiction to enforce this Paragraph and to enforce
any arbitrator's award rendered pursuant to this Paragraph. The venue for all
proceedings in arbitration under this provision, and for any judicial
proceedings related to the arbitration, shall be in Kansas City, Missouri.
8. Business Expenses. The Company shall reimburse the Executive for
entertainment and travel expenses related to the Company's business in
accordance with the policies of the Company applicable to the Executive on the
date of this Agreement, subject to the right of the Company to modify its
general policies relating to expense reimbursement for employees.
9. Severability. If any one or more of the provisions of this Agreement
shall be held invalid or unenforceable, the remaining provisions shall remain
valid and enforceable to the maximum extent permitted by law.
10. Entire Agreement. This Agreement contains a statement of all agreements
and understandings between the Executive and the Company on the subject matters
covered by the Agreement, and it replaces and supersedes all prior contracts and
agreements between the Executive and the Company concerning such matters.
<PAGE>10
11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the personal representatives, heirs and assigns of the Executive and
to any successors in interest and assigns of the Company.
12. Notices. All notices required or permitted to be given hereunder shall
be registered or certified mail addressed to the respective parties at their
addresses set forth below:
To the Executive: Richard G. Luse
5016 W. 128th Street
Leawood, KS 66209
To the Company: Payless Cashways, Inc.
Two Pershing Square
2300 Main, P. 0. Box 419466
Kansas City, MO 64141-0466
Attn: Vice President - Human Resources
Blackwell Sanders Peper Martin LLP
Two Pershing Square
2300 Main, Suite 1000
Kansas City, MO 64108
Attn: Gary Gilson
or such other address as a party hereto may notify the other in writing.
13. Applicable Law. This Agreement, or any portion thereof, shall be
interpreted in accordance with the laws of the State of Missouri.
14. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. Executive may not assign any of his rights or
delegate any of his duties or obligations under this Agreement without the
Company's express written consent.
15. Non-Waiver Provision. The failure of either party of this Agreement to
insist upon strict adherence to any term of this Agreement, or to object to any
failure to comply with any provision of this Agreement, shall not (a) constitute
or operate as a waiver of that terms or provision, (b) estop that party from
enforcing that term or provision, or (c) preclude that party from enforcing that
term or provision or any other term or provision. The receipt of a party to this
Agreement of any benefit from this Agreement shall not effect a waiver or
estoppel of the right of that party to enforce any provision of this Agreement.
<PAGE>11
16. Golden Parachute Savings Provision. If, in the absence of this
provision, any amount received or to be received by the Executive pursuant to
this Agreement would be subject to the "Excise Tax" imposed on "excess parachute
payments" by Section 4999 of the Internal Revenue Code of 1986 or any
corresponding provision of any later Federal tax law, the Company shall, in its
reasonable discretion, reduce the amounts payable to the largest amount that
will result in elimination of any Excise Tax liability.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first written above.
RICHARD G. LUSE PAYLESS CASHWAYS, INC.
/s/ Richard G. Luse By: /s/ Millard E. Barron
- ---------------------- ------------------------------
Millard E. Barron, Chief Executive Officer
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of August 25, 1998 between
PAYLESS CASHWAYS, INC., a Delaware corporation (the "Company"), and ROBERT S.
ISLINGER (the "Executive").
WHEREAS, the Company desires to employ the Executive in the capacity of
Senior Vice President Strategic Planning and Business Development, and the
Executive desires to be employed by the Company in such capacity and on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants of the parties
herein made, it is hereby agreed:
1. Term of Agreement. The term of this Agreement shall be one year,
commencing August 25, 1998 and ending August 25, 1999, unless sooner terminated
as provided in Paragraph 6 of this Agreement; PROVIDED, however, that the
Agreement shall be automatically renewed for an additional term of one year, at
the end of the initial one-year term and of each succeeding one-year term,
unless either the Company or the Executive shall serve notice on the other at
least ninety (90) days prior to the expiration of the term, in accordance with
the procedures set out in Paragraph 12 of this Agreement, that the party giving
notice intends to end the Agreement at the conclusion of the then-current term.
The Company shall not be required to show Cause, and the Executive shall not be
required to show Good Reason, to require the expiration of the Agreement under
the terms of this Paragraph.
2. Employment and Duties. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts employment, to perform such duties
and responsibilities of Senior Vice President - Strategic Planning and Business
Development as are, from time to time, assigned to the Executive by the Board of
Directors or its designee. The Executive agrees to devote full business time and
effort to the diligent and faithful performance of the Executive's duties under
the direction of such person as is designated by the Company's Board of
Directors.
3. Compensation.
(a) Base Salary. As compensation for the Executive's services, the
Executive shall be paid a base salary at a minimum annual rate of $235,000
payable in equal bi-weekly installments, which salary shall be reviewed annually
and may be adjusted from time to time at the discretion of the Board of
Directors (the "Base Salary"); provided that the Base Salary shall not be less
than the amount stated in this Paragraph 3(a).
<PAGE>2
(b) Incentive Compensation. The Executive shall, in addition to the
Base Salary, also be eligible to receive incentive compensation under the
Company's management and executive incentive compensation program or such other
program or plan for officers of the Company as may be from time to time in
effect, if any, the existence and terms of which shall be determined solely at
the discretion of the Compensation Committee of the Board of Directors (the
"Incentive Compensation").
(c) Other Benefits. The Executive shall be entitled to participate in
the Company's regular health, life, pension, vacation and disability plans in
accordance with their respective terms. The Company will also provide employee
benefits to the Executive in respect of the Executive's employment as the
Company customarily provides, from time to time, to its officers, as described
in Exhibit A attached to this Agreement. Nothing herein shall be construed to
limit the Company's discretion to amend, terminate or otherwise modify any such
plans or benefits, subject to the Executive's rights under Paragraph 6(c)(iii)
below.
4. Confidentiality, Non-Solicitation, and Non-Disparagement.
(a) Confidentiality of Proprietary Information. The Executive agrees
that, at all times, both during the Executive's employment with the Company and
after the expiration or termination thereof for any reason, the Executive shall
not divulge to any person, firm, corporation, or other entity, or in any way use
for the Executive's own benefit, except as required in the conduct of the
Company's business or as authorized in writing on behalf of the Company, any
trade secrets or confidential information (the "Proprietary Information")
obtained during the course of the Executive's employment with the Company. The
Proprietary Information includes, but is not limited to, customer or client
lists (including the names and/or positions of persons employed by such
customers or clients who play a role in the decisions of such customers or
clients concerning products or services of the type provided by the Company),
financial matters, inventory techniques and programs, Company records of
accounts, business projections, Company contracts, sales, merchandising or
marketing plans and strategies, pricing information and formulas, matters
contained in unpublished records and correspondence, planned expansion programs
(including areas of expansion and potential customer lists) and any and all
information concerning the business or affairs of the Company which is not known
by or generally available to the public. All papers and records of every kind
relating to the Proprietary Information, including any such papers and records
which shall at any time come into the possession of the Executive, shall be the
sole and exclusive property of the Company and shall be surrendered to the
Company upon termination of the Executive's employment for any reason or upon
request by the Company at any time either during or after the termination of
such employment. All information relating to or owned by customers of the
Company of which the Executive becomes aware or with which the Executive becomes
familiar through the Executive's employment with the Company shall be kept
confidential and not disclosed to others or used by the Executive directly or
indirectly except in the course of the Company's business. It is agreed that
Proprietary Information as herein described shall be protected from disclosure
under the terms of this
<PAGE>3
Agreement, to the maximum extent permitted by law, whether or not entitled to
protection as a trade secret.
(b) Solicitation Prohibition. During the Executive's employment with
the Company and for a period of one (1) year after the expiration or termination
of this Agreement or of the Executive's employment with the Company for any
reason, the Executive shall not directly or indirectly, whether as an individual
for the Executive's own account, or on behalf of any other person, firm,
corporation, partnership, joint venture or entity whatsoever, solicit or
endeavor to entice away from the Company any employee who is employed by the
Company. Additionally, the Executive shall not, during the Executive's
employment with the Company or for a period of one (1) year after the expiration
or termination of this Agreement or of Executive's employment with the Company
for any reason, directly or indirectly through any other individual or entity,
solicit the business of any customer of the Company, or solicit, entice,
persuade or induce any individual or entity to terminate, reduce or refrain from
forming, renewing or extending its relationship, whether actual or prospective,
with the Company.
(c) Disparagement Prohibition. The Executive acknowledges and agrees
that as a result of his position with the Company, disparaging or critical
statements made by the Executive may be uniquely detrimental to the Company's
interests and well-being. Therefore, the Executive agrees to use his best
efforts to assist the Company in promoting and preserving the good will and
other business interests of the Company. To this end, the Executive agrees to
refrain at all times, both during the Executive's employment and after the
termination thereof for any reason, from making disparaging comments or remarks
about the Company or its officers, employees, or directors.
(d) Definition of "Company". For the purposes of Paragraph 4, the term
"Company" shall mean the Company and any of its direct or indirect parent or
subsidiary organizations.
5. Covenant Not to Compete. During the Executive's employment with the
Company and for a period of one year after the expiration or termination of this
Agreement or of the Executive's employment with the Company (the "Noncompetition
Period"), if such termination is as a result of the expiration of this Agreement
under Paragraph 6(h), a termination for Good Reason by the Executive under
Paragraph 6(c), or a termination by the Company without Cause under Paragraph
6(d), the Executive agrees not to act as an owner or operator, officer or
director, employee, consultant or agent of any other person, firm, corporation,
partnership, joint venture or other entity which is engaged in the business of
building materials retailing in any state in which the Company is so engaged, or
has plans to be so engaged during the Noncompetition Period. The foregoing
provisions shall not prohibit the Executive from investing in any securities of
any corporation whose securities, or any of them, are listed on a national
securities exchange or traded in the over-the-counter market if the Executive
shall own less than one percent 1% of the outstanding voting stock of such
corporation. The Executive agrees that a breach of the covenants contained
herein will result in irreparable and continuing damage to the Company for which
there
<PAGE>4
will be no adequate remedy at law, and in the event of any breach of such
agreement, the Company shall be entitled to injunctive and such other and
further relief, including damages, attorneys' fees, and litigation costs, as may
be proper.
6. Termination.
(a) Death or Disability. In the event of the Executive's death or if
the Executive should become unable to perform the essential functions of the
position of Senior Vice President - Strategic Planning and Business Development,
with or without reasonable accommodation by the Company, this Agreement, and the
Company's obligation to make further Base Salary payments under the Agreement,
shall terminate, and Executive shall not be entitled to receive severance
benefits. Executive shall be entitled to receive any Incentive Compensation
which the Executive has earned, if any, prorated to the date of the termination
of the Executive's employment by reason of death or the date of termination, due
to disability, of Executive's performance as Senior Vice President - Strategic
Planning and Business Development under this Agreement. The Executive's rights
to other compensation and benefits shall be determined under the Company's
benefit plans and policies applicable to Executive then in effect.
(b) Termination for Cause by the Company. By following the procedure
set forth in Paragraph 6(e) the Company shall have the right to terminate this
Agreement and the employment of the Executive for "Cause" in the event
Executive:
(i) has committed a significant act of dishonesty, deceit or
breach of fiduciary duty in the performance of the Executive's duties
as an employee of the Company;
(ii) has neglected or failed to perform substantially the
duties of the Executive's employment under this Agreement, including
but not limited to an act of insubordination;
(iii) has acted or failed to act in any other way that
reflects materially and adversely upon the Company, including but not
limited to the Executive's conviction of, guilty plea, or plea of nolo
contendere to (A) any felony, or any misdemeanor involving moral
turpitude, or (B) any crime or offense involving dishonesty with
respect to the Company; or
(iv) has knowingly failed to comply with the covenants
contained in Paragraphs 4 or 5 of this Agreement.
If the employment of the Executive is terminated by the Company for
Cause, this Agreement and the Company's obligation to make further Base Salary
and Incentive Compensation payments hereunder shall thereupon immediately
terminate, and the Executive shall not be entitled to receive severance
benefits. The Executive's rights to other compensation and benefits shall be
<PAGE>5
determined under the Company's benefit plans and policies applicable to the
Executive then in effect.
(c) Termination for Good Reason by the Executive. By following the
procedure set forth in Paragraph 6(e), the Executive shall have the right to
terminate this Agreement and the Executive's employment with the Company for
"Good Reason" in the event:
(i) the Executive is not at all times a duly elected Senior
Vice President Strategic Planning and Business Development of the
Company;
(ii) there is any material reduction in the scope of the
Executive's authority and responsibility (provided, however, in the
event of any illness or injury which prevents the Executive from
performing the Executive's duties, Good Reason shall not exist if the
Company reassigns the Executive's duties to one or more other
employees until the Executive is able to perform such duties);
(iii) there is a reduction in the Executive's Base Salary
below the minimum amount specified in Paragraph 3(a) above; a material
reduction in the Incentive Compensation opportunity of the Executive,
if any, under Paragraph 3(b) above; or a material reduction in the
other benefits to which Executive is entitled under Paragraph 3(c)
above, as compared to the benefits available to Executive at the time
of execution of this Agreement.
(iv) the Company requires the Executive's principal place of
employment be relocated fifty (50) miles from its location as of the
date of this Agreement;
(v) the Company otherwise fails to perform its material
obligations under this Agreement.
If the employment of the Executive is terminated by the Executive for Good
Reason, the Executive shall be entitled to the severance benefits set forth in
Paragraph 6(f) below, but the Company's obligation to make further Base Salary
payments and incentive compensation payments shall cease on the effective date
of such termination. The Executive's rights to other compensation and benefits
shall be determined under the Company's benefit plans and policies applicable to
the Executive then in effect.
(d) Termination Without Cause or Without Good Reason. The Company may
terminate this Agreement and the Executive's employment without Cause at any
time, and in such event the Executive shall be entitled to the severance
benefits set forth in Paragraph 6(f) below. The Executive may voluntarily
terminate this Agreement and the Executive's employment without Good Reason at
any time, but in such event the Executive shall not be entitled to the severance
benefits set forth in Paragraph 6(f) below. If the Executive voluntarily
terminates this Agreement and the Executive's employment without Good Reason, or
if the Company terminates this
<PAGE>6
Agreement and the Executive's employment without Cause, then the Company's
obligation to make further Base Salary payments and Incentive Compensation
payments shall cease on the effective date of such termination. The Executive's
rights to other compensation and benefits shall be determined under the
Company's benefit plans and policies applicable to the Executive then in effect.
(e) Notice and Right to Cure. The party proposing to terminate this
Agreement and the employment of the Executive for Cause or Good Reason, as the
case may be, under Paragraph 6(b) or 6(c) above shall give written notice to the
other, specifying the reason therefor with particularity. In the case of a
termination pursuant to Paragraphs 6(b)(i), (iii) or (iv), or 6(c)(i), such
termination shall be effective immediately upon delivery of such notice. In the
case of any other proposed termination for Cause or Good Reason, as the case may
be, the notice shall be given with sufficient particularity so that the other
party will have an opportunity to correct any curable situation to the
reasonable satisfaction of the party giving the notice within the period of time
specified in the notice, which shall not be less than thirty (30) days. If such
correction is not so made or the circumstances or situation are not curable, the
party giving such notice may, within thirty (30) days after the expiration of
the time fixed to correct such situation, give written notice to the other party
that the employment is terminated as of the date of that writing. Where the
Agreement and the Executive's employment are terminated by the Executive without
Good Reason or by the Company without Cause, the termination date shall be the
date on which notification of termination shall be mailed in accordance with
Paragraph 12 of this Agreement, unless a different termination date shall be
designated by the party giving notice or agreed upon by the Executive and the
Company.
(f) Severance Benefits. If this Agreement and the Executive's
employment with the Company are terminated by reason of the Executive's death or
disability, or by the Company with Cause or by the Executive without Good Reason
then the Executive shall receive no severance benefits. If this Agreement and
the Executive's employment with the Company are terminated due to the expiration
of the Agreement, by the Company without Cause, or by the Executive for Good
Reason, then the Executive shall be entitled to the following benefits (the
"Severance Benefits"):
(i) Base Salary. The Company shall continue to pay to the
Executive the Executive's Base Salary for a period of one (1) year
after the date the Executive's employment with the Company is
terminated (the "Severance Period"), when and as such Base Salary
would have been paid, and as if the Executive continued to be employed
during such period and regardless of the death or disability of the
Executive after the date of termination.
(ii) Incentive Compensation. In the event the Compensation
Committee of the Board of Directors determines that Incentive
Compensation is to be paid in the year in which the Executive's
employment and this Agreement are terminated under circumstances in
which this Agreement provides for the payment
<PAGE>7
of Severance Benefits, then the Executive will receive Incentive
Compensation prorated for the time during which services were rendered
in the year of termination, to the extent provided by the Compensation
Committee for the calculation of Incentive Compensation for that year.
(iii) Continuation of Benefits. During the Severance Period,
the Company shall provide the Executive with medical, dental, vision,
and regular and supplemental life insurance coverage substantially
similar to the coverage which the Executive was receiving or entitled
to receive immediately prior to the date of the termination of the
Executive's employment. In addition, during the Severance Period, the
Company shall pay on behalf of the Executive the cost of one annual
physical examination and the cost of the preparation of the
Executive's federal, state and local tax returns in accordance with
the terms set out in Exhibit A. The Company shall provide such
benefits to the Executive at Company expense, subject to the same
cost-sharing provisions, if any, applicable to the Executive
immediately prior to the date of the termination of employment.
Notwithstanding the foregoing, the Executive shall not be entitled to
receive such benefits to the extent that the Executive obtains other
employment which provides comparable benefits during the Severance
Period.
(iv) Outplacement Benefits. The Company, at its expense,
will provide to the Executive outplacement services, at a maximum cost
of $30,000, to be provided by an outplacement service provider
selected solely by the Company.
(v) Termination of Benefits. Notwithstanding any other
provision of this Agreement, in the event that the Executive at any
time violates the provisions of Paragraph 4(a), 4(b), 4(c), or 5 of
this Agreement, then the Company's obligations, if any, to provide
base salary continuation and other severance benefits as set out in
Paragraph 6(f) of this Agreement shall cease, and such payments and
benefits shall immediately cease.
(g) Change of Control. Subject to the Executive's compliance with the
terms and conditions of this Agreement, if during the term of the Agreement the
Executive's employment is terminated without Cause as a result of a Change of
Control (as defined below) of the Company, and if the Executive is not offered a
comparable position by the Company, then the Severance Period shall be extended
to the second anniversary of the date of the termination of employment, and the
Executive shall be entitled to receive continued payments of Base Salary during
the second year of the Severance Period. All Severance Benefits other than
continued payments of Base Salary shall cease on the first anniversary of the
termination of employment in the event of a Change in Control. For purposes of
this Paragraph 6(g), a Change in Control shall mean:
(i) The acquisition by any person, entity or "group," within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934 (the
<PAGE>8
"Exchange Act") (excluding, for this purpose, (A) the Company or its
subsidiaries or (B) any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting securities
of the Company), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of thirty percent (30%) or
more of either the then outstanding shares of common stock or the
combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors; or
(ii) During any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constituted the
Company's Board of Directors (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board, provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the then Incumbent Board (other than
an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of (A) a
reorganization, merger, or consolidation of the Company with any other
company other than (I) a reorganization, merger, or consolidation in
which persons who were the stockholders of the company immediately
prior to such reorganization, merger, or consolidation, immediately
thereafter, own more than fifty percent (50%) of the combined voting
power of the reorganized, merged, or consolidated company's then
outstanding voting securities, or (II) a reorganization, merger, or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" acquires more than
thirty percent (30%) of the combined voting power of the Company's
then outstanding securities; or (B) a liquidation or dissolution of
the Company; or (c) the sale of all or substantially all of the assets
of the Company.
(h) Expiration of Term of Agreement. At the expiration of the
term of this Agreement as defined in Paragraph 1 above, if the Agreement has not
been previously terminated under Paragraph 6(a), (b), (c) or (d) of this
Agreement, all duties and obligations of the parties under this Agreement,
except those set out in Paragraphs 4, 5 and 6(f), when applicable, shall cease.
(i) Survival of Certain Provisions. Notwithstanding the expiration or
termination of this Agreement, and the Executive's employment with the Company
for any reason
<PAGE>9
under this Agreement, the provisions of Paragraphs 4, 5 and 6(f), when
applicable, to the extent provided therein, survive any such termination and
shall be binding upon the Executive and the Company in accordance with the
provisions of Paragraphs 4, 5 and 6(f).
(j) Participation in Retention Plan. The Executive shall participate
in the Reorganization Retention Plan adopted by the Company as of August 20,
1997, as amended, subject to the terms and conditions of such plan. For purposes
of participation in the Reorganization Retention Plan, Executive shall be
considered a Participant with a separate employment agreement with the Company
and thus shall not be a Severance Participant under the terms of the
Reorganization Retention Plan.
(k) Retention Payments Excluded from Severance. Any retention payments
paid pursuant to the terms of the August 20, 1997 Reorganization Retention Plan
shall be excluded from the calculation of severance payments provided for under
other Paragraphs of this Agreement.
7. Arbitration. The parties hereby agree that any dispute arising under
this Agreement or any claim for breach or violation of any provision of this
Agreement shall be submitted to arbitration, pursuant to the National Rules for
the Resolution of Employment Disputes of the American Arbitration Association
("AAA"), to a single arbitrator selected by mutual agreement of the parties or,
if the parties do not mutually agree on the arbitrator, in accordance with the
rules of the AAA. The award determination of the arbitrator shall be final and
binding upon the parties. Either party shall have the right to bring an action
in any court of competent jurisdiction to enforce this Paragraph and to enforce
any arbitrator's award rendered pursuant to this Paragraph. The venue for all
proceedings in arbitration under this provision, and for any judicial
proceedings related to the arbitration, shall be in Kansas City, Missouri.
8. Business Expenses. The Company shall reimburse the Executive for
entertainment and travel expenses related to the Company's business in
accordance with the policies of the Company applicable to the Executive on the
date of this Agreement, subject to the right of the Company to modify its
general policies relating to expense reimbursement for employees.
9. Severability. If any one or more of the provisions of this Agreement
shall be held invalid or unenforceable, the remaining provisions shall remain
valid and enforceable to the maximum extent permitted by law.
10. Entire Agreement. This Agreement contains a statement of all agreements
and understandings between the Executive and the Company on the subject matters
covered by the Agreement, and it replaces and supersedes all prior contracts and
agreements between the Executive and the Company concerning such matters.
<PAGE>10
11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the personal representatives, heirs and assigns of the Executive and
to any successors in interest and assigns of the Company.
12. Notices. All notices required or permitted to be given hereunder shall
be registered or certified mail addressed to the respective parties at their
addresses set forth below:
To the Executive: Robert S. Islinger
14616 Eby
Overland Park, KS 66221
To the Company: Payless Cashways, Inc.
Two Pershing Square
2300 Main, P. 0. Box 419466
Kansas City, MO 64141-0466
Attn: Vice President - Human Resources
Blackwell Sanders Peper Martin LLP
Two Pershing Square
2300 Main, Suite 1000
Kansas City, MO 64108
Attn: Gary Gilson
or such other address as a party hereto may notify the other in writing.
13. Applicable Law. This Agreement, or any portion thereof, shall be
interpreted in accordance with the laws of the State of Missouri.
14. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. Executive may not assign any of his rights or
delegate any of his duties or obligations under this Agreement without the
Company's express written consent.
15. Non-Waiver Provision. The failure of either party of this Agreement to
insist upon strict adherence to any term of this Agreement, or to object to any
failure to comply with any provision of this Agreement, shall not (a) constitute
or operate as a waiver of that terms or provision, (b) estop that party from
enforcing that term or provision, or (c) preclude that party from enforcing that
term or provision or any other term or provision. The receipt of a party to this
Agreement of any benefit from this Agreement shall not effect a waiver or
estoppel of the right of that party to enforce any provision of this Agreement.
<PAGE>11
16. Golden Parachute Savings Provision. If, in the absence of this
provision, any amount received or to be received by the Executive pursuant to
this Agreement would be subject to the "Excise Tax" imposed on "excess parachute
payments" by Section 4999 of the Internal Revenue Code of 1986 or any
corresponding provision of any later Federal tax law, the Company shall, in its
reasonable discretion, reduce the amounts payable to the largest amount that
will result in elimination of any Excise Tax liability.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first written above.
ROBERT S. ISLINGER PAYLESS CASHWAYS, INC.
/s/ Robert S. Islinger By: /s/ Millard E. Barron
- -------------------------- ------------------------------------------
Millard E. Barron, Chief Executive Officer
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of August 24, 1998, 1998 between
PAYLESS CASHWAYS, INC., a Delaware corporation (the "Company"), and STANLEY K.
BOYD (the "Executive").
WHEREAS, the Company desires to employ the Executive in the capacity of
Senior Vice President - Store Operations, and the Executive desires to be
employed by the Company in such capacity and on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants of the parties
herein made, it is hereby agreed:
1. Term of Agreement. The term of this Agreement shall be one year,
commencing August 24, 1998 and ending August 24, 1999, unless sooner terminated
as provided in Paragraph 6 of this Agreement; PROVIDED, however, that the
Agreement shall be automatically renewed for an additional term of one year, at
the end of the initial one-year term and of each succeeding one-year term,
unless either the Company or the Executive shall serve notice on the other at
least ninety (90) days prior to the expiration of the term, in accordance with
the procedures set out in Paragraph 12 of this Agreement, that the party giving
notice intends to end the Agreement at the conclusion of the then-current term.
The Company shall not be required to show Cause, and the Executive shall not be
required to show Good Reason, to require the expiration of the Agreement under
the terms of this Paragraph.
2. Employment and Duties. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts employment, to perform such duties
and responsibilities of Senior Vice President - Store Operations as are, from
time to time, assigned to the Executive by the Board of Directors or its
designee. The Executive agrees to devote full business time and effort to the
diligent and faithful performance of the Executive's duties under the direction
of such person as is designated by the Company's Board of Directors.
3. Compensation.
(a) Base Salary. As compensation for the Executive's services, the
Executive shall be paid a base salary at a minimum annual rate of $275,000
payable in equal bi-weekly installments, which salary shall be reviewed annually
and may be adjusted from time to time at the discretion of the Board of
Directors (the "Base Salary"); provided that the Base Salary shall not be less
than the amount stated in this Paragraph 3(a).
(b) Incentive Compensation. The Executive shall, in addition to the
Base Salary, also be eligible to receive incentive compensation under the
Company's management and
<PAGE>2
executive incentive compensation program or such other program or plan for
officers of the Company as may be from time to time in effect, if any, the
existence and terms of which shall be determined solely at the discretion of the
Compensation Committee of the Board of Directors (the "Incentive Compensation").
(c) Other Benefits. The Executive shall be entitled to participate in
the Company's regular health, life, pension, vacation and disability plans in
accordance with their respective terms. The Company will also provide employee
benefits to the Executive in respect of the Executive's employment as the
Company customarily provides, from time to time, to its officers, as described
in Exhibit A attached to this Agreement. Nothing herein shall be construed to
limit the Company's discretion to amend, terminate or otherwise modify any such
plans or benefits, subject to the Executive's rights under Paragraph 6(c)(iii)
below.
4. Confidentiality, Non-Solicitation, and Non-Disparagement.
(a) Confidentiality of Proprietary Information. The Executive agrees
that, at all times, both during the Executive's employment with the Company and
after the expiration or termination thereof for any reason, the Executive shall
not divulge to any person, firm, corporation, or other entity, or in any way use
for the Executive's own benefit, except as required in the conduct of the
Company's business or as authorized in writing on behalf of the Company, any
trade secrets or confidential information (the "Proprietary Information")
obtained during the course of the Executive's employment with the Company. The
Proprietary Information includes, but is not limited to, customer or client
lists (including the names and/or positions of persons employed by such
customers or clients who play a role in the decisions of such customers or
clients concerning products or services of the type provided by the Company),
financial matters, inventory techniques and programs, Company records of
accounts, business projections, Company contracts, sales, merchandising or
marketing plans and strategies, pricing information and formulas, matters
contained in unpublished records and correspondence, planned expansion programs
(including areas of expansion and potential customer lists) and any and all
information concerning the business or affairs of the Company which is not known
by or generally available to the public. All papers and records of every kind
relating to the Proprietary Information, including any such papers and records
which shall at any time come into the possession of the Executive, shall be the
sole and exclusive property of the Company and shall be surrendered to the
Company upon termination of the Executive's employment for any reason or upon
request by the Company at any time either during or after the termination of
such employment. All information relating to or owned by customers of the
Company of which the Executive becomes aware or with which the Executive becomes
familiar through the Executive's employment with the Company shall be kept
confidential and not disclosed to others or used by the Executive directly or
indirectly except in the course of the Company's business. It is agreed that
Proprietary Information as herein described shall be protected from disclosure
under the terms of this Agreement, to the maximum extent permitted by law,
whether or not entitled to protection as a trade secret.
<PAGE>3
(b) Solicitation Prohibition. During the Executive's employment with
the Company and for a period of one (1) year after the expiration or termination
of this Agreement or of the Executive's employment with the Company for any
reason, the Executive shall not directly or indirectly, whether as an individual
for the Executive's own account, or on behalf of any other person, firm,
corporation, partnership, joint venture or entity whatsoever, solicit or
endeavor to entice away from the Company any employee who is employed by the
Company. Additionally, the Executive shall not, during the Executive's
employment with the Company or for a period of one (1) year after the expiration
or termination of this Agreement or of Executive's employment with the Company
for any reason, directly or indirectly through any other individual or entity,
solicit the business of any customer of the Company, or solicit, entice,
persuade or induce any individual or entity to terminate, reduce or refrain from
forming, renewing or extending its relationship, whether actual or prospective,
with the Company.
(c) Disparagement Prohibition. The Executive acknowledges and agrees
that as a result of his position with the Company, disparaging or critical
statements made by the Executive may be uniquely detrimental to the Company's
interests and well-being. Therefore, the Executive agrees to use his best
efforts to assist the Company in promoting and preserving the good will and
other business interests of the Company. To this end, the Executive agrees to
refrain at all times, both during the Executive's employment and after the
termination thereof for any reason, from making disparaging comments or remarks
about the Company or its officers, employees, or directors.
(d) Definition of "Company". For the purposes of Paragraph 4, the term
"Company" shall mean the Company and any of its direct or indirect parent or
subsidiary organizations.
5. Covenant Not to Compete. During the Executive's employment with the
Company and for a period of one year after the expiration or termination of this
Agreement or of the Executive's employment with the Company (the "Noncompetition
Period"), if such termination is as a result of the expiration of this Agreement
under Paragraph 6(h), a termination for Good Reason by the Executive under
Paragraph 6(c), or a termination by the Company without Cause under Paragraph
6(d), the Executive agrees not to act as an owner or operator, officer or
director, employee, consultant or agent of any other person, firm, corporation,
partnership, joint venture or other entity which is engaged in the business of
building materials retailing in any state in which the Company is so engaged, or
has plans to be so engaged during the Noncompetition Period. The foregoing
provisions shall not prohibit the Executive from investing in any securities of
any corporation whose securities, or any of them, are listed on a national
securities exchange or traded in the over-the-counter market if the Executive
shall own less than one percent 1% of the outstanding voting stock of such
corporation. The Executive agrees that a breach of the covenants contained
herein will result in irreparable and continuing damage to the Company for which
there will be no adequate remedy at law, and in the event of any breach of such
agreement, the Company shall be entitled to injunctive and such other and
further relief, including damages, attorneys' fees, and litigation costs, as may
be proper.
<PAGE>4
6. Termination.
(a) Death or Disability. In the event of the Executive's death or if
the Executive should become unable to perform the essential functions of the
position of Senior Vice President - Store Operations, with or without reasonable
accommodation by the Company, this Agreement, and the Company's obligation to
make further Base Salary payments under the Agreement, shall terminate, and
Executive shall not be entitled to receive severance benefits. Executive shall
be entitled to receive any Incentive Compensation which the Executive has
earned, if any, prorated to the date of the termination of the Executive's
employment by reason of death or the date of termination, due to disability, of
Executive's performance as Senior Vice President - Store Operations under this
Agreement. The Executive's rights to other compensation and benefits shall be
determined under the Company's benefit plans and policies applicable to
Executive then in effect.
(b) Termination for Cause by the Company. By following the procedure
set forth in Paragraph 6(e) the Company shall have the right to terminate this
Agreement and the employment of the Executive for "Cause" in the event
Executive:
(i) has committed a significant act of dishonesty, deceit or
breach of fiduciary duty in the performance of the Executive's duties
as an employee of the Company;
(ii) has neglected or failed to perform substantially the
duties of the Executive's employment under this Agreement, including
but not limited to an act of insubordination;
(iii) has acted or failed to act in any other way that
reflects materially and adversely upon the Company, including but not
limited to the Executive's conviction of, guilty plea, or plea of nolo
contendere to (A) any felony, or any misdemeanor involving moral
turpitude, or (B) any crime or offense involving dishonesty with
respect to the Company; or
(iv) has knowingly failed to comply with the covenants
contained in Paragraphs 4 or 5 of this Agreement.
If the employment of the Executive is terminated by the
Company for Cause, this Agreement and the Company's obligation to make further
Base Salary and Incentive Compensation payments hereunder shall thereupon
immediately terminate, and the Executive shall not be entitled to receive
severance benefits. The Executive's rights to other compensation and benefits
shall be determined under the Company's benefit plans and policies applicable to
the Executive then in effect.
<PAGE>5
(c) Termination for Good Reason by the Executive. By following the
procedure set forth in Paragraph 6(e), the Executive shall have the right to
terminate this Agreement and the Executive's employment with the Company for
"Good Reason" in the event:
(i) the Executive is not at all times a duly elected Senior
Vice President - Store Operations of the Company;
(ii) there is any material reduction in the scope of the
Executive's authority and responsibility (provided, however, in the
event of any illness or injury which prevents the Executive from
performing the Executive's duties, Good Reason shall not exist if the
Company reassigns the Executive's duties to one or more other
employees until the Executive is able to perform such duties);
(iii) there is a reduction in the Executive's Base Salary
below the minimum amount specified in Paragraph 3(a) above; a material
reduction in the Incentive Compensation opportunity of the Executive,
if any, under Paragraph 3(b) above; or a material reduction in the
other benefits to which Executive is entitled under Paragraph 3(c)
above, as compared to the benefits available to Executive at the time
of execution of this Agreement.
(iv) the Company requires the Executive's principal place of
employment be relocated fifty (50) miles from its location as of the
date of this Agreement;
(v) the Company otherwise fails to perform its material
obligations under this Agreement.
If the employment of the Executive is terminated by the Executive for Good
Reason, the Executive shall be entitled to the severance benefits set forth in
Paragraph 6(f) below, but the Company's obligation to make further Base Salary
payments and incentive compensation payments shall cease on the effective date
of such termination. The Executive's rights to other compensation and benefits
shall be determined under the Company's benefit plans and policies applicable to
the Executive then in effect.
(d) Termination Without Cause or Without Good Reason. The Company may
terminate this Agreement and the Executive's employment without Cause at any
time, and in such event the Executive shall be entitled to the severance
benefits set forth in Paragraph 6(f) below. The Executive may voluntarily
terminate this Agreement and the Executive's employment without Good Reason at
any time, but in such event the Executive shall not be entitled to the severance
benefits set forth in Paragraph 6(f) below. If the Executive voluntarily
terminates this Agreement and the Executive's employment without Good Reason, or
if the Company terminates this Agreement and the Executive's employment without
Cause, then the Company's obligation to make further Base Salary payments and
Incentive Compensation payments shall cease on the effective date of such
termination. The Executive's rights to other compensation and benefits shall
<PAGE>6
be determined under the Company's benefit plans and policies applicable to the
Executive then in effect.
(e) Notice and Right to Cure. The party proposing to terminate this
Agreement and the employment of the Executive for Cause or Good Reason, as the
case may be, under Paragraph 6(b) or 6(c) above shall give written notice to the
other, specifying the reason therefor with particularity. In the case of a
termination pursuant to Paragraphs 6(b)(i), (iii) or (iv), or 6(c)(i), such
termination shall be effective immediately upon delivery of such notice. In the
case of any other proposed termination for Cause or Good Reason, as the case may
be, the notice shall be given with sufficient particularity so that the other
party will have an opportunity to correct any curable situation to the
reasonable satisfaction of the party giving the notice within the period of time
specified in the notice, which shall not be less than thirty (30) days. If such
correction is not so made or the circumstances or situation are not curable, the
party giving such notice may, within thirty (30) days after the expiration of
the time fixed to correct such situation, give written notice to the other party
that the employment is terminated as of the date of that writing. Where the
Agreement and the Executive's employment are terminated by the Executive without
Good Reason or by the Company without Cause, the termination date shall be the
date on which notification of termination shall be mailed in accordance with
Paragraph 12 of this Agreement, unless a different termination date shall be
designated by the party giving notice or agreed upon by the Executive and the
Company.
(f) Severance Benefits. If this Agreement and the Executive's
employment with the Company are terminated by reason of the Executive's death or
disability, or by the Company with Cause or by the Executive without Good Reason
then the Executive shall receive no severance benefits. If this Agreement and
the Executive's employment with the Company are terminated due to the expiration
of the Agreement, by the Company without Cause, or by the Executive for Good
Reason, then the Executive shall be entitled to the following benefits (the
"Severance Benefits"):
(i) Base Salary. The Company shall continue to pay to the
Executive the Executive's Base Salary for a period of one (1) year
after the date the Executive's employment with the Company is
terminated (the "Severance Period"), when and as such Base Salary
would have been paid, and as if the Executive continued to be employed
during such period and regardless of the death or disability of the
Executive after the date of termination.
(ii) Incentive Compensation. In the event the Compensation
Committee of the Board of Directors determines that Incentive
Compensation is to be paid in the year in which the Executive's
employment and this Agreement are terminated under circumstances in
which this Agreement provides for the payment of Severance Benefits,
then the Executive will receive Incentive Compensation prorated for
the time during which services were rendered in the year of
<PAGE>7
termination, to the extent provided by the Compensation Committee for
the calculation of Incentive Compensation for that year.
(iii) Continuation of Benefits. During the Severance Period,
the Company shall provide the Executive with medical, dental, vision,
and regular and supplemental life insurance coverage substantially
similar to the coverage which the Executive was receiving or entitled
to receive immediately prior to the date of the termination of the
Executive's employment. In addition, during the Severance Period, the
Company shall pay on behalf of the Executive the cost of one annual
physical examination and the cost of the preparation of the
Executive's federal, state and local tax returns in accordance with
the terms set out in Exhibit A. The Company shall provide such
benefits to the Executive at Company expense, subject to the same
cost-sharing provisions, if any, applicable to the Executive
immediately prior to the date of the termination of employment.
Notwithstanding the foregoing, the Executive shall not be entitled to
receive such benefits to the extent that the Executive obtains other
employment which provides comparable benefits during the Severance
Period.
(iv) Outplacement Benefits. The Company, at its expense,
will provide to the Executive outplacement services, at a maximum cost
of $30,000, to be provided by an outplacement service provider
selected solely by the Company.
(v) Termination of Benefits. Notwithstanding any other
provision of this Agreement, in the event that the Executive at any
time violates the provisions of Paragraph 4(a), 4(b), 4(c), or 5 of
this Agreement, then the Company's obligations, if any, to provide
base salary continuation and other severance benefits as set out in
Paragraph 6(f) of this Agreement shall cease, and such payments and
benefits shall immediately cease.
(g) Change of Control. Subject to the Executive's compliance with the
terms and conditions of this Agreement, if during the term of the Agreement the
Executive's employment is terminated without Cause as a result of a Change of
Control (as defined below) of the Company, and if the Executive is not offered a
comparable position by the Company, then the Severance Period shall be extended
to the second anniversary of the date of the termination of employment, and the
Executive shall be entitled to receive continued payments of Base Salary during
the second year of the Severance Period. All Severance Benefits other than
continued payments of Base Salary shall cease on the first anniversary of the
termination of employment in the event of a Change in Control. For purposes of
this Paragraph 6(g), a Change in Control shall mean:
(i) The acquisition by any person, entity or "group," within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act") (excluding, for this purpose, (A) the
Company or its subsidiaries or (B) any employee benefit plan of the
Company or its subsidiaries which acquires
<PAGE>8
beneficial ownership of voting securities of the Company), of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or more of either the
then outstanding shares of common stock or the combined voting power
of the Company's then outstanding voting securities entitled to vote
generally in the election of directors; or
(ii) During any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constituted the
Company's Board of Directors (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board, provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the then Incumbent Board (other than
an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of (A) a
reorganization, merger, or consolidation of the Company with any other
company other than (I) a reorganization, merger, or consolidation in
which persons who were the stockholders of the company immediately
prior to such reorganization, merger, or consolidation, immediately
thereafter, own more than fifty percent (50%) of the combined voting
power of the reorganized, merged, or consolidated company's then
outstanding voting securities, or (II) a reorganization, merger, or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" acquires more than
thirty percent (30%) of the combined voting power of the Company's
then outstanding securities; or (B) a liquidation or dissolution of
the Company; or (C) the sale of all or substantially all of the assets
of the Company.
(h) Expiration of Term of Agreement. At the expiration of the term of
this Agreement as defined in Paragraph 1 above, if the Agreement has not been
previously terminated under Paragraph 6(a), (b), (c) or (d) of this Agreement,
all duties and obligations of the parties under this Agreement, except those set
out in Paragraphs 4, 5 and 6(f), when applicable, shall cease.
(i) Survival of Certain Provisions. Notwithstanding the expiration or
termination of this Agreement, and the Executive's employment with the Company
for any reason under this Agreement, the provisions of Paragraphs 4, 5 and 6(f),
when applicable, to the extent
<PAGE>9
provided therein, survive any such termination and shall be binding upon the
Executive and the Company in accordance with the provisions of Paragraphs 4, 5
and 6(f).
(j) Participation in Retention Plan. The Executive shall participate
in the Reorganization Retention Plan adopted by the Company as of August 20,
1997, as amended, subject to the terms and conditions of such plan. For purposes
of participation in the Reorganization Retention Plan, Executive shall be
considered a Participant with a separate employment agreement with the Company
and thus shall not be a Severance Participant under the terms of the
Reorganization Retention Plan.
(k) Retention Payments Excluded from Severance. Any retention payments
paid pursuant to the terms of the August 20, 1997 Reorganization Retention Plan
shall be excluded from the calculation of severance payments provided for under
other Paragraphs of this Agreement.
7. Arbitration. The parties hereby agree that any dispute arising under
this Agreement or any claim for breach or violation of any provision of this
Agreement shall be submitted to arbitration, pursuant to the National Rules for
the Resolution of Employment Disputes of the American Arbitration Association
("AAA"), to a single arbitrator selected by mutual agreement of the parties or,
if the parties do not mutually agree on the arbitrator, in accordance with the
rules of the AAA. The award determination of the arbitrator shall be final and
binding upon the parties. Either party shall have the right to bring an action
in any court of competent jurisdiction to enforce this Paragraph and to enforce
any arbitrator's award rendered pursuant to this Paragraph. The venue for all
proceedings in arbitration under this provision, and for any judicial
proceedings related to the arbitration, shall be in Kansas City, Missouri.
8. Business Expenses. The Company shall reimburse the Executive for
entertainment and travel expenses related to the Company's business in
accordance with the policies of the Company applicable to the Executive on the
date of this Agreement, subject to the right of the Company to modify its
general policies relating to expense reimbursement for employees.
9. Severability. If any one or more of the provisions of this Agreement
shall be held invalid or unenforceable, the remaining provisions shall remain
valid and enforceable to the maximum extent permitted by law.
10. Entire Agreement. This Agreement contains a statement of all agreements
and understandings between the Executive and the Company on the subject matters
covered by the Agreement, and it replaces and supersedes all prior contracts and
agreements between the Executive and the Company concerning such matters.
11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the personal representatives, heirs and assigns of the Executive and
to any successors in interest and assigns of the Company.
<PAGE>10
12. Notices. All notices required or permitted to be given hereunder shall
be registered or certified mail addressed to the respective parties at their
addresses set forth below:
To the Executive: Stanley K. Boyd
5720 Widmer
Shawnee, KS 66216
To the Company: Payless Cashways, Inc.
Two Pershing Square
2300 Main, P. 0. Box 419466
Kansas City, MO 64141-0466
Attn: Vice President - Human Resources
Blackwell Sanders Peper Martin LLP
Two Pershing Square
2300 Main, Suite 1000
Kansas City, MO 64108
Attn: Gary Gilson
or such other address as a party hereto may notify the other in writing.
13. Applicable Law. This Agreement, or any portion thereof, shall be
interpreted in accordance with the laws of the State of Missouri.
14. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. Executive may not assign any of his rights or
delegate any of his duties or obligations under this Agreement without the
Company's express written consent.
15. Non-Waiver Provision. The failure of either party of this Agreement to
insist upon strict adherence to any term of this Agreement, or to object to any
failure to comply with any provision of this Agreement, shall not (a) constitute
or operate as a waiver of that terms or provision, (b) estop that party from
enforcing that term or provision, or (c) preclude that party from enforcing that
term or provision or any other term or provision. The receipt of a party to this
Agreement of any benefit from this Agreement shall not effect a waiver or
estoppel of the right of that party to enforce any provision of this Agreement.
16. Golden Parachute Savings Provision. If, in the absence of this
provision, any amount received or to be received by the Executive pursuant to
this Agreement would be subject to the "Excise Tax" imposed on "excess parachute
payments" by Section 4999 of the Internal Revenue Code of 1986 or any
corresponding provision of any later Federal tax law, the Company
<PAGE>11
shall, in its reasonable discretion, reduce the amounts payable to the largest
amount that will result in elimination of any Excise Tax liability.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first written above.
STANLEY K. BOYD PAYLESS CASHWAYS, INC.
/s/ Stanley K. Boyd By: /s/ Millard E. Barron
- ------------------------- ------------------------------------------
Millard E. Barron, Chief Executive Officer
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of August 24, 1998 between
PAYLESS CASHWAYS, INC., a Delaware corporation (the "Company"), and LOUISE R.
IENNACCARO (the "Executive").
WHEREAS, the Company desires to employ the Executive in the capacity of
Vice President - Human Resources, and the Executive desires to be employed by
the Company in such capacity and on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants of the parties
herein made, it is hereby agreed:
1. Term of Agreement. The term of this Agreement shall be one year,
commencing August 24, 1998 and ending August 24, 1999, unless sooner terminated
as provided in Paragraph 6 of this Agreement; PROVIDED, however, that the
Agreement shall be automatically renewed for an additional term of one year, at
the end of the initial one-year term and of each succeeding one-year term,
unless either the Company or the Executive shall serve notice on the other at
least ninety (90) days prior to the expiration of the term, in accordance with
the procedures set out in Paragraph 12 of this Agreement, that the party giving
notice intends to end the Agreement at the conclusion of the then-current term.
The Company shall not be required to show Cause, and the Executive shall not be
required to show Good Reason, to require the expiration of the Agreement under
the terms of this Paragraph.
2. Employment and Duties. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts employment, to perform such duties
and responsibilities of Vice President - Human Resources as are, from time to
time, assigned to the Executive by the Board of Directors or its designee. The
Executive agrees to devote full business time and effort to the diligent and
faithful performance of the Executive's duties under the direction of such
person as is designated by the Company's Board of Directors.
3. Compensation.
(a) Base Salary. As compensation for the Executive's services, the
Executive shall be paid a base salary at a minimum annual rate of $135,000
payable in equal bi-weekly installments, which salary shall be reviewed annually
and may be adjusted from time to time at the discretion of the Board of
Directors (the "Base Salary"); provided that the Base Salary shall not be less
than the amount stated in this Paragraph 3(a).
(b) Incentive Compensation. The Executive shall, in addition to the
Base Salary, also be eligible to receive incentive compensation under the
Company's management and
<PAGE>2
executive incentive compensation program or such other program or plan for
officers of the Company as may be from time to time in effect, if any, the
existence and terms of which shall be determined solely at the discretion of the
Compensation Committee of the Board of Directors (the "Incentive Compensation").
(c) Other Benefits. The Executive shall be entitled to participate in
the Company's regular health, life, pension, vacation and disability plans in
accordance with their respective terms. The Company will also provide employee
benefits to the Executive in respect of the Executive's employment as the
Company customarily provides, from time to time, to its officers, as described
in Exhibit A attached to this Agreement. Nothing herein shall be construed to
limit the Company's discretion to amend, terminate or otherwise modify any such
plans or benefits, subject to the Executive's rights under Paragraph 6(c)(iii)
below.
4. Confidentiality, Non-Solicitation, and Non-Disparagement.
(a) Confidentiality of Proprietary Information. The Executive agrees
that, at all times, both during the Executive's employment with the Company and
after the expiration or termination thereof for any reason, the Executive shall
not divulge to any person, firm, corporation, or other entity, or in any way use
for the Executive's own benefit, except as required in the conduct of the
Company's business or as authorized in writing on behalf of the Company, any
trade secrets or confidential information (the "Proprietary Information")
obtained during the course of the Executive's employment with the Company. The
Proprietary Information includes, but is not limited to, customer or client
lists (including the names and/or positions of persons employed by such
customers or clients who play a role in the decisions of such customers or
clients concerning products or services of the type provided by the Company),
financial matters, inventory techniques and programs, Company records of
accounts, business projections, Company contracts, sales, merchandising or
marketing plans and strategies, pricing information and formulas, matters
contained in unpublished records and correspondence, planned expansion programs
(including areas of expansion and potential customer lists) and any and all
information concerning the business or affairs of the Company which is not known
by or generally available to the public. All papers and records of every kind
relating to the Proprietary Information, including any such papers and records
which shall at any time come into the possession of the Executive, shall be the
sole and exclusive property of the Company and shall be surrendered to the
Company upon termination of the Executive's employment for any reason or upon
request by the Company at any time either during or after the termination of
such employment. All information relating to or owned by customers of the
Company of which the Executive becomes aware or with which the Executive becomes
familiar through the Executive's employment with the Company shall be kept
confidential and not disclosed to others or used by the Executive directly or
indirectly except in the course of the Company's business. It is agreed that
Proprietary Information as herein described shall be protected from disclosure
under the terms of this Agreement, to the maximum extent permitted by law,
whether or not entitled to protection as a trade secret.
<PAGE>3
(b) Solicitation Prohibition. During the Executive's employment with
the Company and for a period of one (1) year after the expiration or termination
of this Agreement or of the Executive's employment with the Company for any
reason, the Executive shall not directly or indirectly, whether as an individual
for the Executive's own account, or on behalf of any other person, firm,
corporation, partnership, joint venture or entity whatsoever, solicit or
endeavor to entice away from the Company any employee who is employed by the
Company. Additionally, the Executive shall not, during the Executive's
employment with the Company or for a period of one (1) year after the expiration
or termination of this Agreement or of Executive's employment with the Company
for any reason, directly or indirectly through any other individual or entity,
solicit the business of any customer of the Company, or solicit, entice,
persuade or induce any individual or entity to terminate, reduce or refrain from
forming, renewing or extending its relationship, whether actual or prospective,
with the Company.
(c) Disparagement Prohibition. The Executive acknowledges and agrees
that as a result of his position with the Company, disparaging or critical
statements made by the Executive may be uniquely detrimental to the Company's
interests and well-being. Therefore, the Executive agrees to use his best
efforts to assist the Company in promoting and preserving the good will and
other business interests of the Company. To this end, the Executive agrees to
refrain at all times, both during the Executive's employment and after the
termination thereof for any reason, from making disparaging comments or remarks
about the Company or its officers, employees, or directors.
(d) Definition of "Company". For the purposes of Paragraph 4, the term
"Company" shall mean the Company and any of its direct or indirect parent or
subsidiary organizations.
5. Covenant Not to Compete. During the Executive's employment with the
Company and for a period of one year after the expiration or termination of this
Agreement or of the Executive's employment with the Company (the "Noncompetition
Period"), if such termination is as a result of the expiration of this Agreement
under Paragraph 6(h), a termination for Good Reason by the Executive under
Paragraph 6(c), or a termination by the Company without Cause under Paragraph
6(d), the Executive agrees not to act as an owner or operator, officer or
director, employee, consultant or agent of any other person, firm, corporation,
partnership, joint venture or other entity which is engaged in the business of
building materials retailing in any state in which the Company is so engaged, or
has plans to be so engaged during the Noncompetition Period. The foregoing
provisions shall not prohibit the Executive from investing in any securities of
any corporation whose securities, or any of them, are listed on a national
securities exchange or traded in the over-the-counter market if the Executive
shall own less than one percent 1% of the outstanding voting stock of such
corporation. The Executive agrees that a breach of the covenants contained
herein will result in irreparable and continuing damage to the Company for which
there will be no adequate remedy at law, and in the event of any breach of such
agreement, the Company shall be entitled to injunctive and such other and
further relief, including damages, attorneys' fees, and litigation costs, as may
be proper.
<PAGE>4
6. Termination.
(a) Death or Disability. In the event of the Executive's death or if
the Executive should become unable to perform the essential functions of the
position of Vice President - Human Resources, with or without reasonable
accommodation by the Company, this Agreement, and the Company's obligation to
make further Base Salary payments under the Agreement, shall terminate, and
Executive shall not be entitled to receive severance benefits. Executive shall
be entitled to receive any Incentive Compensation which the Executive has
earned, if any, prorated to the date of the termination of the Executive's
employment by reason of death or the date of termination, due to disability, of
Executive's performance as Vice President - Human Resources under this
Agreement. The Executive's rights to other compensation and benefits shall be
determined under the Company's benefit plans and policies applicable to
Executive then in effect.
(b) Termination for Cause by the Company. By following the procedure
set forth in Paragraph 6(e) the Company shall have the right to terminate this
Agreement and the employment of the Executive for "Cause" in the event
Executive:
(i) has committed a significant act of dishonesty, deceit or
breach of fiduciary duty in the performance of the Executive's duties
as an employee of the Company;
(ii) has neglected or failed to perform substantially the
duties of the Executive's employment under this Agreement, including
but not limited to an act of insubordination;
(iii) has acted or failed to act in any other way that
reflects materially and adversely upon the Company, including but not
limited to the Executive's conviction of, guilty plea, or plea of nolo
contendere to (A) any felony, or any misdemeanor involving moral
turpitude, or (B) any crime or offense involving dishonesty with
respect to the Company; or
(iv) has knowingly failed to comply with the covenants
contained in Paragraphs 4 or 5 of this Agreement.
If the employment of the Executive is terminated by the Company for
Cause, this Agreement and the Company's obligation to make further Base Salary
and Incentive Compensation payments hereunder shall thereupon immediately
terminate, and the Executive shall not be entitled to receive severance
benefits. The Executive's rights to other compensation and benefits shall be
determined under the Company's benefit plans and policies applicable to the
Executive then in effect.
<PAGE>5
(c) Termination for Good Reason by the Executive. By following the
procedure set forth in Paragraph 6(e), the Executive shall have the right to
terminate this Agreement and the Executive's employment with the Company for
"Good Reason" in the event:
(i) the Executive is not at all times a duly elected Vice
President - Human Resources of the Company;
(ii) there is any material reduction in the scope of the
Executive's authority and responsibility (provided, however, in the
event of any illness or injury which prevents the Executive from
performing the Executive's duties, Good Reason shall not exist if the
Company reassigns the Executive's duties to one or more other
employees until the Executive is able to perform such duties);
(iii) there is a reduction in the Executive's Base Salary
below the minimum amount specified in Paragraph 3(a) above; a material
reduction in the Incentive Compensation opportunity of the Executive,
if any, under Paragraph 3(b) above; or a material reduction in the
other benefits to which Executive is entitled under Paragraph 3(c)
above, as compared to the benefits available to Executive at the time
of execution of this Agreement.
(iv) the Company requires the Executive's principal place of
employment be relocated fifty (50) miles from its location as of the
date of this Agreement;
(v) the Company otherwise fails to perform its material
obligations under this Agreement.
If the employment of the Executive is terminated by the Executive for Good
Reason, the Executive shall be entitled to the severance benefits set forth in
Paragraph 6(f) below, but the Company's obligation to make further Base Salary
payments and incentive compensation payments shall cease on the effective date
of such termination. The Executive's rights to other compensation and benefits
shall be determined under the Company's benefit plans and policies applicable to
the Executive then in effect.
(d) Termination Without Cause or Without Good Reason. The Company may
terminate this Agreement and the Executive's employment without Cause at any
time, and in such event the Executive shall be entitled to the severance
benefits set forth in Paragraph 6(f) below. The Executive may voluntarily
terminate this Agreement and the Executive's employment without Good Reason at
any time, but in such event the Executive shall not be entitled to the severance
benefits set forth in Paragraph 6(f) below. If the Executive voluntarily
terminates this Agreement and the Executive's employment without Good Reason, or
if the Company terminates this Agreement and the Executive's employment without
Cause, then the Company's obligation to make further Base Salary payments and
Incentive Compensation payments shall cease on the effective date of such
termination. The Executive's rights to other compensation and benefits shall
<PAGE>6
be determined under the Company's benefit plans and policies applicable to the
Executive then in effect.
(e) Notice and Right to Cure. The party proposing to terminate this
Agreement and the employment of the Executive for Cause or Good Reason, as the
case may be, under Paragraph 6(b) or 6(c) above shall give written notice to the
other, specifying the reason therefor with particularity. In the case of a
termination pursuant to Paragraphs 6(b)(i), (iii) or (iv), or 6(c)(i), such
termination shall be effective immediately upon delivery of such notice. In the
case of any other proposed termination for Cause or Good Reason, as the case may
be, the notice shall be given with sufficient particularity so that the other
party will have an opportunity to correct any curable situation to the
reasonable satisfaction of the party giving the notice within the period of time
specified in the notice, which shall not be less than thirty (30) days. If such
correction is not so made or the circumstances or situation are not curable, the
party giving such notice may, within thirty (30) days after the expiration of
the time fixed to correct such situation, give written notice to the other party
that the employment is terminated as of the date of that writing. Where the
Agreement and the Executive's employment are terminated by the Executive without
Good Reason or by the Company without Cause, the termination date shall be the
date on which notification of termination shall be mailed in accordance with
Paragraph 12 of this Agreement, unless a different termination date shall be
designated by the party giving notice or agreed upon by the Executive and the
Company.
(f) Severance Benefits. If this Agreement and the Executive's
employment with the Company are terminated by reason of the Executive's death or
disability, or by the Company with Cause or by the Executive without Good Reason
then the Executive shall receive no severance benefits. If this Agreement and
the Executive's employment with the Company are terminated due to the expiration
of the Agreement, by the Company without Cause, or by the Executive for Good
Reason, then the Executive shall be entitled to the following benefits (the
"Severance Benefits"):
(i) Base Salary. The Company shall continue to pay to the
Executive the Executive's Base Salary for a period of one (1) year
after the date the Executive's employment with the Company is
terminated (the "Severance Period"), when and as such Base Salary
would have been paid, and as if the Executive continued to be employed
during such period and regardless of the death or disability of the
Executive after the date of termination.
(ii) Incentive Compensation. In the event the Compensation
Committee of the Board of Directors determines that Incentive
Compensation is to be paid in the year in which the Executive's
employment and this Agreement are terminated under circumstances in
which this Agreement provides for the payment of Severance Benefits,
then the Executive will receive Incentive Compensation prorated for
the time during which services were rendered in the year of
<PAGE>7
termination, to the extent provided by the Compensation Committee for the
calculation of Incentive Compensation for that year.
(iii) Continuation of Benefits. During the Severance Period,
the Company shall provide the Executive with medical, dental, vision,
and regular and supplemental life insurance coverage substantially
similar to the coverage which the Executive was receiving or entitled
to receive immediately prior to the date of the termination of the
Executive's employment. In addition, during the Severance Period, the
Company shall pay on behalf of the Executive the cost of one annual
physical examination and the cost of the preparation of the
Executive's federal, state and local tax returns in accordance with
the terms set out in Exhibit A. The Company shall provide such
benefits to the Executive at Company expense, subject to the same
cost-sharing provisions, if any, applicable to the Executive
immediately prior to the date of the termination of employment.
Notwithstanding the foregoing, the Executive shall not be entitled to
receive such benefits to the extent that the Executive obtains other
employment which provides comparable benefits during the Severance
Period.
(iv) Outplacement Benefits. The Company, at its expense,
will provide to the Executive outplacement services, at a maximum cost
of $30,000, to be provided by an outplacement service provider
selected solely by the Company.
(v) Termination of Benefits. Notwithstanding any other
provision of this Agreement, in the event that the Executive at any
time violates the provisions of Paragraph 4(a), 4(b), 4(c), or 5 of
this Agreement, then the Company's obligations, if any, to provide
base salary continuation and other severance benefits as set out in
Paragraph 6(f) of this Agreement shall cease, and such payments and
benefits shall immediately cease.
(g) Change of Control. Subject to the Executive's compliance with the
terms and conditions of this Agreement, if during the term of the Agreement the
Executive's employment is terminated without Cause as a result of a Change of
Control (as defined below) of the Company, and if the Executive is not offered a
comparable position by the Company, then the Severance Period shall be extended
to the second anniversary of the date of the termination of employment, and the
Executive shall be entitled to receive continued payments of Base Salary during
the second year of the Severance Period. All Severance Benefits other than
continued payments of Base Salary shall cease on the first anniversary of the
termination of employment in the event of a Change in Control. For purposes of
this Paragraph 6(g), a Change in Control shall mean:
(i) The acquisition by any person, entity or "group," within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act") (excluding, for this purpose, (A) the
Company or its subsidiaries or (B) any employee benefit plan of the
Company or its subsidiaries which acquires
<PAGE>8
beneficial ownership of voting securities of the Company), of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or more of either the
then outstanding shares of common stock or the combined voting power
of the Company's then outstanding voting securities entitled to vote
generally in the election of directors; or
(ii) During any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constituted the
Company's Board of Directors (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board, provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the then Incumbent Board (other than
an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of (A) a
reorganization, merger, or consolidation of the Company with any other
company other than (I) a reorganization, merger, or consolidation in
which persons who were the stockholders of the company immediately
prior to such reorganization, merger, or consolidation, immediately
thereafter, own more than fifty percent (50%) of the combined voting
power of the reorganized, merged, or consolidated company's then
outstanding voting securities, or (II) a reorganization, merger, or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" acquires more than
thirty percent (30%) of the combined voting power of the Company's
then outstanding securities; or (B) a liquidation or dissolution of
the Company; or (C) the sale of all or substantially all of the assets
of the Company.
(h) Expiration of Term of Agreement. At the expiration of the term of
this Agreement as defined in Paragraph 1 above, if the Agreement has not been
previously terminated under Paragraph 6(a), (b), (c) or (d) of this Agreement,
all duties and obligations of the parties under this Agreement, except those set
out in Paragraphs 4, 5 and 6(f), when applicable, shall cease.
(i) Survival of Certain Provisions. Notwithstanding the expiration or
termination of this Agreement, and the Executive's employment with the Company
for any reason under this Agreement, the provisions of Paragraphs 4, 5 and 6(f),
when applicable, to the extent
<PAGE>9
provided therein, survive any such termination and shall be binding upon the
Executive and the Company in accordance with the provisions of Paragraphs 4, 5
and 6(f).
(j) Participation in Retention Plan. The Executive shall participate
in the Reorganization Retention Plan adopted by the Company as of August 20,
1997, as amended, subject to the terms and conditions of such plan. For purposes
of participation in the Reorganization Retention Plan, Executive shall be
considered a Participant with a separate employment agreement with the Company
and thus shall not be a Severance Participant under the terms of the
Reorganization Retention Plan.
(k) Retention Payments Excluded from Severance. Any retention payments
paid pursuant to the terms of the August 20, 1997 Reorganization Retention Plan
shall be excluded from the calculation of severance payments provided for under
other Paragraphs of this Agreement.
7. Arbitration. The parties hereby agree that any dispute arising under
this Agreement or any claim for breach or violation of any provision of this
Agreement shall be submitted to arbitration, pursuant to the National Rules for
the Resolution of Employment Disputes of the American Arbitration Association
("AAA"), to a single arbitrator selected by mutual agreement of the parties or,
if the parties do not mutually agree on the arbitrator, in accordance with the
rules of the AAA. The award determination of the arbitrator shall be final and
binding upon the parties. Either party shall have the right to bring an action
in any court of competent jurisdiction to enforce this Paragraph and to enforce
any arbitrator's award rendered pursuant to this Paragraph. The venue for all
proceedings in arbitration under this provision, and for any judicial
proceedings related to the arbitration, shall be in Kansas City, Missouri.
8. Business Expenses. The Company shall reimburse the Executive for
entertainment and travel expenses related to the Company's business in
accordance with the policies of the Company applicable to the Executive on the
date of this Agreement, subject to the right of the Company to modify its
general policies relating to expense reimbursement for employees.
9. Severability. If any one or more of the provisions of this Agreement
shall be held invalid or unenforceable, the remaining provisions shall remain
valid and enforceable to the maximum extent permitted by law.
10. Entire Agreement. This Agreement contains a statement of all agreements
and understandings between the Executive and the Company on the subject matters
covered by the Agreement, and it replaces and supersedes all prior contracts and
agreements between the Executive and the Company concerning such matters.
11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the personal representatives, heirs and assigns of the Executive and
to any successors in interest and assigns of the Company.
<PAGE>10
12. Notices. All notices required or permitted to be given hereunder shall
be registered or certified mail addressed to the respective parties at their
addresses set forth below:
To the Executive: Louise R. Iennaccaro
7909 N. Park
Kansas City, MO 64118
To the Company: Payless Cashways, Inc.
Two Pershing Square
2300 Main, P. 0. Box 419466
Kansas City, MO 64141-0466
Attn: Vice President - Human Resources
Blackwell Sanders Peper Martin LLP
Two Pershing Square
2300 Main, Suite 1000
Kansas City, MO 64108
Attn: Gary Gilson
or such other address as a party hereto may notify the other in writing.
13. Applicable Law. This Agreement, or any portion thereof, shall be
interpreted in accordance with the laws of the State of Missouri.
14. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. Executive may not assign any of his rights or
delegate any of his duties or obligations under this Agreement without the
Company's express written consent.
15. Non-Waiver Provision. The failure of either party of this Agreement to
insist upon strict adherence to any term of this Agreement, or to object to any
failure to comply with any provision of this Agreement, shall not (a) constitute
or operate as a waiver of that terms or provision, (b) estop that party from
enforcing that term or provision, or (c) preclude that party from enforcing that
term or provision or any other term or provision. The receipt of a party to this
Agreement of any benefit from this Agreement shall not effect a waiver or
estoppel of the right of that party to enforce any provision of this Agreement.
16. Golden Parachute Savings Provision. If, in the absence of this
provision, any amount received or to be received by the Executive pursuant to
this Agreement would be subject to the "Excise Tax" imposed on "excess parachute
payments" by Section 4999 of the Internal Revenue Code of 1986 or any
corresponding provision of any later Federal tax law, the Company
<PAGE>11
shall, in its reasonable discretion, reduce the amounts payable to the largest
amount that will result in elimination of any Excise Tax liability.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first written above.
LOUISE R. IENNACCARO PAYLESS CASHWAYS, INC.
/s/ Louise R. Iennaccaro By: /s/ Millard E. Barron
- -------------------------- ------------------------------------------
Millard E. Barron, Chief Executive Officer
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
This Agreement, dated as of __________, 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 and the Amended and
Restated Bylaws of the Company; and
WHEREAS, Indemnitee regards the protection extended by Delaware law, the
Certificate of Incorporation, and the Amended and Restated Bylaws 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 and the Amended and Restated Bylaws 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
<PAGE>3
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.
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
<PAGE>4
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.
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
<PAGE>5
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 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.
<PAGE>6
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 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.
<PAGE>7
9.4. The 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.
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 Street
Kansas City, MO 64108
Attention: Secretary/Assistant Secretary
with a copy to:
Blackwell Sanders Peper Martin LLP
2300 Main Street, Suite 1000
Kansas City, MO 64108
Attention: Gary D. Gilson
<PAGE>8
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 and the Amended
and Restated Bylaws of the Company. Such invalidity or unenforceability shall
not otherwise affect the validity or enforceability of the other provisions
hereof.
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
<PAGE>9
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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INDEMNITEE PAYLESS CASHWAYS, INC.
- ------------------------------ -----------------------------
Name:________________ By:______________________
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 August 29, 1998 and August 30, 1997 and the related condensed
statements of operations and cash flows for the thirteen and thirty-nine 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. As discussed in note A to the financial statements, 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. 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.
s/ KPMG Peat Marwick LLP
Kansas City, Missouri
September 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the August
29, 1998, financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-END> AUG-29-1998
<CASH> 8984
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 376739
<CURRENT-ASSETS> 410303
<PP&E> 364832
<DEPRECIATION> (24194)
<TOTAL-ASSETS> 781336
<CURRENT-LIABILITIES> 174774
<BONDS> 381000
0
0
<COMMON> 200
<OTHER-SE> 160385
<TOTAL-LIABILITY-AND-EQUITY> 781336
<SALES> 1423698
<TOTAL-REVENUES> 1426386
<CGS> 1059901
<TOTAL-COSTS> 1059901
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29144
<INCOME-PRETAX> (30830)
<INCOME-TAX> (7615)
<INCOME-CONTINUING> (23215)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23215)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
