<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 Secu-
rities Exchange Act of 1934
For the quarterly period ended February 26, 2000
Or
/ / Transition report pursuant to Section 13 or 15(d) of the Secu-
rities 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) tification No.)
800 NW Chipman Road, Suite 5900
P.O. Box 648001
Lee's Summit, Missouri 64064-8001
(Address of Principal Executive Offices) (Zip Code)
(816) 347-6000
(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 regis-
trant 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 20,000,000 shares of Common Stock, $.01 par value, outstanding as of
March 31, 2000.
<PAGE>2
PAYLESS CASHWAYS, INC.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF OPERATIONS (Unaudited) (1)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------------------------------------
February 26, February 27,
2000 1999
---------------------------------------------------
<S> <C> <C>
Income
Net sales $ 347,113 $ 391,873
Other income 464 345
---------------------------------------------------
347,577 392,218
Costs and Expenses
Cost of merchandise sold 249,706 285,939
Selling, general and administrative 93,823 106,517
Provision for depreciation and amortization 8,936 8,936
Interest expense 10,086 8,612
---------------------------------------------------
362,551 410,004
---------------------------------------------------
LOSS BEFORE INCOME TAXES (14,974) (17,786)
Federal and state income taxes (9,732) (7,826)
----------------------------------------------------
NET LOSS $ (5,242) $ (9,960)
====================================================
Net loss per common share-basic and diluted (2) $ (0.26) (0.50)
====================================================
Weighted average common shares outstanding (2) 20,000 20,000
===================================================
See notes to condensed financial statements
</TABLE>
<PAGE>3
CONDENSED BALANCE SHEETS (Unaudited) (1)
<TABLE>
<CAPTION>
February 26, November 27, February 27,
(In thousands) 2000 1999 1999
----------------------------------------------------------
<S> <C> <C> <C
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,150 $ 1,111 $ 3,967
Merchandise inventories (3) 377,305 349,332 374,908
Prepaid expenses and other current assets 15,669 22,013 20,395
Income taxes receivable 675 679 1,164
Deferred income taxes -- -- 5,376
--------------------------------------------------------
TOTAL CURRENT ASSETS 394,799 373,135 405,810
OTHER ASSETS
Real estate held for sale 6,312 8,851 11,286
Deferred financing costs 3,707 3,944 2,992
Other 1,538 1,549 1,653
LAND, BUILDINGS, EQUIPMENT AND SOFTWARE 410,703 407,812 391,024
Allowance for depreciation and amortization (75,737) (66,900) (42,391)
--------------------------------------------------------
TOTAL LAND, BUILDINGS AND EQUIPMENT 334,966 340,912 348,633
--------------------------------------------------------
$ 741,322 $ 728,391 $ 770,374
========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt (4) $ 168 $ 3,265 $ 10,150
Trade accounts payable 63,866 51,480 55,323
Other current liabilities 78,725 88,645 105,876
Income taxes payable 1,846 1,851 2,171
Deferred income taxes 4,682 2,157 --
--------------------------------------------------------
TOTAL CURRENT LIABILITIES 149,287 147,398 173,520
LONG-TERM DEBT, less portion
classified as current liability (4) 402,345 374,154 390,707
NON-CURRENT LIABILITIES
Deferred income taxes 19,006 31,263 36,666
Other 22,629 22,279 18,008
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, 50,000,000 shares
authorized, 20,000,000 shares issued 200 200 200
Additional paid-in capital 183,600 183,600 183,600
Accumulated deficit (35,745) (30,503) (32,327)
--------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 148,055 153,297 151,473
--------------------------------------------------------
$ 741,322 $ 728,391 $ 770,374
========================================================
See notes to condensed financial statements
</TABLE>
<PAGE>4
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------------
February 26, February 27,
(In thousands) 2000 1999
--------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (5,242) $ (9,960)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 8,936 8,936
Deferred income taxes (9,732) (7,826)
Non-cash interest 330 377
Other (489) 191
Changes in assets and liabilities (19,164) (39,138)
----------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (25,361) (47,420)
Cash Flows from Investing Activities
Additions to land, buildings and equipment (2,522) (8,684)
Proceeds from sale of land, buildings and equipment 2,998 5,101
(Increase) decrease in other assets 11 (162)
----------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 487 (3,745)
Cash Flows from Financing Activities
Principal payments on long-term debt (5,493) (4,768)
Net proceeds from revolving credit facility 30,587 58,000
Other (181) (50)
----------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,913 53,182
---------------------------------------------
Net increase in cash and cash equivalents 39 2,017
Cash and cash equivalents, beginning of period 1,111 1,950
---------------------------------------------
Cash and cash equivalents, end of period $ 1,150 $ 3,967
=============================================
See notes to condensed financial statements
</TABLE>
<PAGE>5
NOTES TO CONDENSED FINANCIAL STATEMENTS
Thirteen weeks ended February 26, 2000, and February 27, 1999
(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 27,
1999, 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 27, 1999,
condensed balance sheet has been derived from the audited financial
statements as of that date. Certain reclassifications have been made to
the February 27, 1999, financial statements to conform to the November
27, 1999, and February 26, 2000, presentation.
(2) Basic earnings per common share has been computed based on the
weighted-average number of common shares outstanding during the period.
Dilutive earnings 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 in the first quarters of fiscal 2000
and 1999, the impact of such stock options would be antidilutive.
(3) Approximately 79% 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 $3.3 million, $3.3 million, and $1.9 million
lower than reported at February 26, 2000, November 27, 1999, and February
27, 1999, respectively.
(4) Long-term debt consisted of the following:
<TABLE>
<CAPTION>
February 26, November 27, February 27,
(In thousands) 2000 1999 1999
----------------------------------------------------------
<S> <C> <C> <C>
1999 Credit Agreement, variable interest rate $ 213,973 $ 183,386 $ --
1997 Credit Agreement, variable interest rate 107,314 109,415 308,138
Mortgage loan, variable interest rate 80,310 83,686 91,653
Other senior debt 916 932 1,066
---------------------------------------------------------
402,513 377,419 400,857
Less portion classified as current liability (168) (3,265) (10,150)
---------------------------------------------------------
$ 402,345 $ 374,154 $ 390,707
=========================================================
</TABLE>
<PAGE>6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Income
Net sales for the quarter ended February 26, 2000, decreased 8.4% on a
same-store sales basis and decreased 11.4% from the same period of 1999 in
total. (Same stores are those open one full year.) The same-store sales decrease
for the first quarter is primarily due to inclement weather, competitive
pressures and certain actions taken during the quarter to develop a sustainable
profit model. These actions included a shift in product mix to higher margin
products, as well as the elimination of unprofitable items, and the collection
of fees for value-added services, such as special orders and delivery.
Same-store sales to professional customers decreased 3.4% while same-store sales
to do-it-yourself customers declined 14.3%. During 1999, the Company closed 12
stores and closed an additional store in the first quarter of 2000. Sales from
these 13 stores were $1.3 million and $15.6 million in the first quarter of 2000
and 1999, respectively.
Costs and Expenses
Cost of merchandise sold, as a percent of sales, was 71.9% and 73.0% for the
first quarter of 2000 and 1999, respectively. The improvement for the first
quarter of 2000 was due to a shift in product mix to higher margin products, as
well as the elimination of unprofitable items.
Selling, general and administrative expenses were 27.0% and 27.3% of sales for
the first quarter of 2000 and 1999, respectively. Selling, general and
administrative expenses for the first quarter of 2000 decreased approximately
$12.7 million compared to the same period of the prior year. This decrease
primarily reflects the impact of closed stores and expense control measures,
including the freezing of the pension program.
The provision for depreciation and amortization was 2.6% and 2.2% of sales for
the first quarter of 2000 and 1999, respectively.
Interest expense for the first quarter of 2000 increased compared to the same
period of 1999 primarily due to higher interest rates and, to a lesser extent,
higher borrowing levels in 2000.
The income tax benefit for the first quarter of 2000 was $9.7 million compared
to $7.8 million for the first quarter of 1999. The effective tax rates for 2000
and 1999 were different from the 35% statutory rate primarily due to various
expenses that are permanently non-deductible for income tax purposes. In
addition, the effective tax rate for 2000 reflects the utilization of a
long-term capital loss carry-forward resulting from the sale of a certain
partnership interest. Such tax benefits reflect management's estimates of the
annual effective tax rates at the end of each quarter, and are subject to change
throughout the year.
Net Loss
Net loss for the quarter ended February 26, 2000, was $5.2 million compared to
$10.0 million for the same period of 1999. The decrease in net loss was
primarily the result of improved gross margin management, continued expense
control, and the tax benefit from the capital loss carry-forward. Loss per
common share was $0.26 for the first quarter of fiscal 2000, a decrease from a
loss of $.50 per common share for the same period of fiscal 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative instruments and all hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities at their fair market values. Accounting for changes in the fair
value of a derivative depends on its designation and effectiveness. For
derivatives that qualify as effective hedges, the change in fair value will have
no impact on earnings until the hedged item affects earnings. For derivatives
that are not designated as hedging instruments, or for the
<PAGE>7
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
ineffective portion of a hedging instrument, the change in fair value will
affect current period earnings. The Company will adopt SFAS 133 during the first
quarter of fiscal 2001 and does not presently believe that it will have a
significant effect on its financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $25.4 million for the first quarter of
2000 compared to $47.4 million for the same period of 1999. The decrease in cash
used in operating activities was primarily due to a lower net loss and an
increase in accounts payable due to improved vendor terms. During the first
quarters of 2000 and 1999, the Company used cash of approximately $1.0 million
and $3.8 million, respectively, in operating activities related to the execution
of the 1999 and 1998 restructuring plans. Due to seasonally lower sales in the
winter months, cash flow in the first quarter represents a small amount of
annual operating cash flow.
Borrowings are available under the 1999 Credit Agreement to supplement cash
generated by operations. At February 26, 2000, $8.5 million was available for
borrowing under the 1999 Credit Agreement. On March 8, 2000, availability under
the 1999 Credit Agreement was increased for a 90-day period covering March,
April and May 2000 by increasing the inventory advance rate from 65% to 70%. The
purpose of this increase is to permit the Company to expand inventory levels in
several categories in anticipation of heightened customer demand for the coming
spring selling season. At February 26, 2000, working capital was $245.5 million
compared to $225.7 million and $232.3 million at November 27, 1999, and February
27, 1999, respectively. The current ratios at February 26, 2000, November 27,
1999, and February 27, 1999, were 2.64 to 1, 2.53 to 1, and 2.34 to 1,
respectively.
The Company's primary investing activities are capital expenditures for the
renovation of existing stores, improved technology and additional equipment. The
Company spent approximately $2.5 million and $8.7 million during the first
quarter of 2000 and 1999, respectively, for renovation of existing stores,
improved technology and additional equipment. The Company intends to finance the
remaining fiscal 2000 capital expenditures of approximately $26 million,
consisting primarily of improved technology, 30 to 35 store remodels, new
stores, additional manufacturing capabilities and routine maintenance with funds
generated from operations, sales of real estate, and borrowings under the 1999
Credit Agreement. During the first quarter of 2000, the Company sold two real
estate properties related to stores previously closed for approximately $2.8
million of cash proceeds.
The Company's most significant financing activity is and will continue to be the
retirement of indebtedness. Although the Company's consolidated indebtedness is
and will continue to be substantial, management believes that, based upon its
analysis of the Company's financial condition, the cash flow generated from
operations during the past 12 months and the expected results of operations in
the future, cash flow from operations and borrowing availability under the 1999
Credit Agreement should provide sufficient liquidity to meet all cash
requirements for the next 12 months without additional financing. As a result of
the Chapter 11 filing in July 1997, trade creditors significantly shortened
credit terms. The Company believes that progress with regard to lengthening
terms and reestablishing trade credit is continuing, but availability of trade
credit cannot be assured.
FORWARD-LOOKING STATEMENTS
Statements above in the subsections of this report entitled "Costs and
Expenses," "New Accounting Pronouncements" and "Liquidity and Capital Resources"
such as "unlikely", "intend", "estimates", "believe", "expect", "anticipate" 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. These statements are
based on the current plans and expectations of the Company and investors are
cautioned that all forward-looking statements involve risks and uncertainty.
Among the factors that could
<PAGE>8
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
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; weather; an
excess of retail space devoted to the sale of building materials; the successful
implementation of an Internet ordering system; and the success of the Company's
strategy, including its e-commerce opportunities. 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, www.payless.cashways.com.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
No material changes in the Company's exposure to certain market risks have
occurred from the discussion contained in Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, filed as part of the Company's Annual Report to
Stockholders on Form 10-K for the fiscal year ended November 27, 1999.
REVIEW BY INDEPENDENT AUDITORS
The condensed financial statements of Payless Cashways, Inc. for the thirteen
week periods ended February 26, 2000, and February 27, 1999, have been reviewed
by KPMG LLP, independent auditors. Their report is included in this filing.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
There are presently no material legal proceedings to which Payless is a
party or of which its property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
The Company has appointed Richard B. Witaszak as Senior Vice President
of Finance and Chief Financial Officer. Mr. Witaszak joins the Company
with over 15 years of experience in all areas of accounting and
finance, including both retail and wholesale operations. Most re-
cently he served as executive vice president and chief financial
officer of Fred's, Inc., a multi-unit retailer.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
4.1 Letter agreement with Congress Financial Corporation
(Central) dated March 8, 2000.
10.1(a)* Form of Employment Agreement (Form A) between Payless
and certain executive officers.
10.1(b)* Form of Employment Agreement (Form B) between Payless
and certain executive officers.
15.1 Letter re unaudited financial information - KPMG LLP.
27.1 Financial data schedule.
b. Reports on Form 8-K.
None
*Represents a management contract or a compensatory plan or
arrangement.
<PAGE>9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAYLESS CASHWAYS, INC.
(Registrant)
Date: April 6, 2000 By: /s/ Timothy R. Mertz
Timothy R. Mertz, Acting Chief
Financial Officer and Vice President-Treasury
(Principal Financial Officer and Principal
Accounting Officer)
Exhibit 4.1
[Letterhead of Congress Financial Corporation]
March 8, 2000
Mr. Timothy Mertz
Vice President - Treasury
Payless Cashways
777 NW Blue Parkway
Suite 5900
Lee's Summit, MO 64086
Dear Tim:
Please use this letter as notification that Congress has approved a
temporary and discretionary increase in the inventory advance rate by 5%
to 70%. This increase is available to the company through May 31, 2000,
and is subject to all terms and conditions of the Loan Agreement. On
June 1, 2000, the inventory advance rate reduces to 65%.
All other terms and conditions of the Loan Agreement remain in full
force and effect. If you have any questions, please do not hesitate to
call me.
Sincerely,
Steve Linderman
First Vice President
cc: G. Kalesnik
<PAGE>1
EXHIBIT 10.1(a)
FORM OF
EMPLOYMENT AGREEMENT (Form A)
THIS AGREEMENT is made and entered into as of ___________________
between PAYLESS CASHWAYS, INC., a Delaware corporation (the "Company"), and
___________________ (the "Executive").
WHEREAS, the Company desires to employ the Executive in the capacity of
____________________________, 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 ____________________ and ending ___________________, 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 ____________________________ 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
$__________ 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 Management Incentive Plan (the "CMIP"), or such other
program or plan for officers of the Company as from time to time may be in
effect, if any (the "Incentive Compensation"). The
<PAGE>2
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. For
fiscal year 1999, the Executive's "Annual Incentive Target Percentage of Base
Compensation," as used in the CMIP, shall be _______ percent (___%) of Base
Salary.
(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.
(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
<PAGE>3
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, 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, the Executive shall not, 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, as may be proper, including damages, attorneys' fees, and
litigation costs.
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 _________________________, with or without reasonable
accommodation by the Company,
<PAGE>4
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
_________________________ 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.
(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
______________________ 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
<PAGE>5
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 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
<PAGE>6
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 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.
<PAGE>7
(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 of
Control. For purposes of this Paragraph 6(g), a Change of Control shall be
deemed to have occurred if:
(i) any "person" (as defined in Sections 13(d) and
14(d)(2) of the Exchange Act) become the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company (not including in the securities beneficially
owned by such person any securities acquired directly from the Company
or its affiliates other than in connection with the acquisition by the
Company or its affiliates of a business) having 30% or more of the
voting power in the election of directors of the Company;
(ii) the occurrence within any twenty-four month
period of a change in the Board of Directors of the Company with the
result that the Incumbent Members (as defined below) do not constitute
a majority of the Company's Board of Directors. The term "Incumbent
Members" shall mean the members of the Board on the date immediately
preceding the commencement of such twenty-four month period, provided
that any person becoming a director during such twenty-four month
period whose election or nomination for election was approved by a
majority of the directors who, on the date of such election or
nomination for election, comprised the Incumbent Members shall be
considered one of the Incumbent Members in respect of such twenty-four
month period;
(iii) the stockholders of the Company approve a
merger or consolidation of the Company or approve the issuance of
voting securities of the Company in connection with a merger or
consolidation of the Company (or direct or indirect subsidiary of the
Company), other than (A) a merger or consolidation which
<PAGE>8
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding under an employee benefit plan of the Company, at least 66 2/3%
of the combined voting power of the voting securities of the Company or
such surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined above) is or becomes the
"beneficial owner" (as defined above), directly or indirectly, of
securities of the Company (not including in the securities beneficially
owned by such person any securities acquired directly from the Company
or its subsidiaries other than in connection with the acquisition by
the Company or its subsidiaries of a business) representing 30% or more
of the voting power in the election of directors of the Company; or
(iv) the stockholders of the Company approve a plan a
complete liquidation or dissolution of the Company or a sale, lease,
exchange or other disposition of all or substantially all of the
Company's assets, other than a sale, lease, exchange or other
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 66 2/3% of the combined voting power of
the voting securities of which are owned by "persons" (as defined
above) in substantially the same proportion as their ownership of the
Company immediately prior to such sale.
(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
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).
7. Arbitration. Except as otherwise provided in this Paragraph, 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
<PAGE>9
be in Kansas City, Missouri. Nothing in this Paragraph, however, shall prevent
the Company from seeking injunctive relief to preserve its rights under
Paragraph 4 or 5 of this Agreement.
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.
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: ____________________________
____________________________
____________________________
To the Company: Payless Cashways, Inc.
800 NW Chipman Road, P.0. Box 648001
Lee's Summit, MO 64064-8001
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.
<PAGE>10
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 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.
[INDIVIDUAL] PAYLESS CASHWAYS, INC.
___________________________ By:___________________________
Name: ________________________
Title: _______________________
<PAGE>11
Schedule for Exhibit 10.1(a)
The following executive officers of Payless Cashways, Inc. have entered
into an employment agreement with Payless Cashways, Inc., in substantially the
form hereto:
<TABLE>
<CAPTION>
Annual Incentive
Base Target Percentage of
Name Title Salary Base Compensation
- -------------------- ---------------------------------------- -------- --------------------
<S> <C> <C> <C>
Millard E. Barron President and Chief Executive Officer $550,000 75%
Frank Chambers Executive Vice President - Professional $250,000 50%
Business Development
David J. Krumbholz Senior Vice President - Store Operations $235,000 50%
Edward L. Zimmerlin Senior Vice President - Merchandising $225,000 50%
and Marketing
Kelly R. Abney Vice President - Logistics and Facilities $212,000 50%
James L. Deats Vice President - Information Systems $180,000 50%
Louise R. Iennaccaro Vice President - Human Resources $145,000 40%
Timothy R. Mertz Vice President - Treasury $165,000 40%
</TABLE>
<PAGE>1
EXHIBIT 10.1(b)
FORM OF
EMPLOYMENT AGREEMENT (Form B)
THIS AGREEMENT is made and entered into as of __________________
between PAYLESS CASHWAYS, INC., a Delaware corporation (the "Company"), and
_________________________ (the "Executive").
WHEREAS, the Company desires to employ the Executive in the capacity of
______________________________, 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 (1) year,
commencing ___________________ and ending __________________, 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 (1)
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 ___________________________ as are, from time to time,
assigned to the Executive by ________________________________________. 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 $________
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 Management Incentive Plan (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. For fiscal year ____, the Executive's "Annual Incentive Target
Percentage of Base Compensation," as used in the CMIP, shall be __________
percent (____%) of Base Salary.
<PAGE>2
(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.
(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, 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
<PAGE>2
Company for any reason, the Executive shall not, 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 Para-
graph 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 as may be proper, including damages, attorneys' fees, and
litigation costs.
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 Executive's position, 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 under
this Agreement. The
<PAGE>4
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 dis-
honesty, deceit or breach of fiduciary duty in the performance of
the Executive's duties as an employee of the Company; or
(ii) has neglected or failed to perform substan-
tially the duties of the Executive's employment under this Agreement,
including but not limited to an act of insubordination; or
(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.
(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
officer of the Company; or
(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); or
(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)
<PAGE>5
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; or
(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; or
(v) the Company otherwise fails to perform its
material obligations under this Agreement.
Any notification of the Executive's intent to terminate the
Agreement and the Executive's employment for Good Reason under this Paragraph
must be given, pursuant to Paragraph 6(e), no later than thirty (30) days after
the Executive learns, or reasonably should become aware, of the occurrence of
the event giving rise to the right to terminate for Good Reason.
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 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
<PAGE>6
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, at the discretion of the Chief Executive
Officer, the Executive may receive Incentive Compensation prorated for
the time during which services were rendered in the year of
termination, at the rate determined 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.
<PAGE>7
(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) 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.
(h) 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).
7. Arbitration. Except as otherwise provided in this Paragraph, 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. Nothing in this Paragraph,
however, shall prevent the Company from seeking injunctive relief to preserve
its rights under Paragraph 4 or 5 of this Agreement.
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.
<PAGE>8
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. 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 here-
under shall be sent registered or certified mail, addressed to the respective
parties at their addresses set forth below:
To the Executive: ______________________________
To the Company: Payless Cashways, Inc.
P. O. Box 648001
Lee's Summit, MO 64064-8001
Attn: Vice President - Human Resources
or
800 Northwest Chipman Road, Suite 5900
Lee's Summit, MO 64063
Attn: Vice President - Human Resources
Blackwell Sanders Peper Martin LLP
Two Pershing Square
2300 Main, Suite 1000
Kansas City, MO 64108
Attn: Gary D. 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 term or provision, (b) estop that
party from enforcing that term or provision, or (c) preclude that party
<PAGE>9
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 provi-
sion 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.
[EXECUTIVE NAME] PAYLESS CASHWAYS, INC.
By:_________________________
_____________________________________ Name:_______________________
Title:______________________
<PAGE>10
Schedule for Exhibit 10.1(b)
The following executive officers of Payless Cashways, Inc. have entered
into an employment agreement with Payless Cashways, Inc., in substantially the
form hereto:
<TABLE>
<CAPTION>
Annual Incentive
Base Target Percentage of
Name Title Salary Base Compensation
- -------------------- ---------------------------------------- -------- --------------------
<S> <C> <C> <C>
Clifford Caldwell Vice President - Professional Builder $180,000 50%
Operations
Renae G. Gonner Vice President - Marketing and $145,000 40%
Advertising
Dennis R. Knowles Regional Vice President $142,000 40%
Ronald D. Long Vice President - Merchandising, Building $200,000 40%
Products
</TABLE>
Exhibit 15.1
[Letterhead of KPMG LLP]
Independent Auditors' Report
The Board of Directors
Payless Cashways, Inc.:
We have reviewed the accompanying condensed balance sheets of Payless
Cashways, Inc. as of February 26, 2000 and February 27, 1999 and the
related condensed statements of operations and cash flows for the
thirteen-week periods then ended. These condensed financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Payless Cashways, Inc. as of November 27,
1999 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 14, 2000, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set forth in
the accompanying condensed balance sheet as of November 27, 1999 is fairly
presented, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/KPMG LLP
Kansas City, Missouri
March 10, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the February
26, 2000, financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-25-2000
<PERIOD-END> FEB-26-2000
<CASH> 1150
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 377305
<CURRENT-ASSETS> 394799
<PP&E> 410703
<DEPRECIATION> (75737)
<TOTAL-ASSETS> 741322
<CURRENT-LIABILITIES> 149287
<BONDS> 402345
0
0
<COMMON> 200
<OTHER-SE> 147855
<TOTAL-LIABILITY-AND-EQUITY> 741322
<SALES> 347113
<TOTAL-REVENUES> 347577
<CGS> 249706
<TOTAL-COSTS> 249706
<OTHER-EXPENSES> 102759
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10086
<INCOME-PRETAX> (14974)
<INCOME-TAX> (9732)
<INCOME-CONTINUING> (5242)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5242)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
