-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TUBZEPd2teGsQbQgPJqI2J3r7g3cB9nREFcNHarDLHWPDQb1Vdb6r9AyiBsD81CY YazTey9FYo7+eftKTAXC2Q== 0000076744-00-000006.txt : 20000411 0000076744-00-000006.hdr.sgml : 20000411 ACCESSION NUMBER: 0000076744-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000226 FILED AS OF DATE: 20000410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAYLESS CASHWAYS INC CENTRAL INDEX KEY: 0000076744 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-LUMBER & OTHER BUILDING MATERIALS DEALERS [5211] IRS NUMBER: 420945849 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08210 FILM NUMBER: 596966 BUSINESS ADDRESS: STREET 1: 800 NW CHIPMAN ROAD STREET 2: P O BOX 648001 CITY: LEES SUMMIT STATE: MO ZIP: 64064-8001 BUSINESS PHONE: 8163476000 10-Q 1 FORM 10-Q 2/26/00 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. 2 PAYLESS CASHWAYS, INC. PART I -- FINANCIAL INFORMATION Item 1. Financial Statements STATEMENTS OF OPERATIONS (Unaudited) (1) (In thousands, except per share amounts)
Thirteen Weeks Ended --------------------------------------------------- February 26, February 27, 2000 1999 --------------------------------------------------- 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
3 CONDENSED BALANCE SHEETS (Unaudited) (1)
February 26, November 27, February 27, (In thousands) 2000 1999 1999 ---------------------------------------------------------- 4 CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1)
Thirteen Weeks Ended -------------------------------------------- February 26, February 27, (In thousands) 2000 1999 -------------------------------------------- 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
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:
February 26, November 27, February 27, (In thousands) 2000 1999 1999 ---------------------------------------------------------- 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 =========================================================
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 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 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. 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) EX-4 2 LETTER AGREEMENT WITH CONGRESS FINANCIAL 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 EX-10 3 FORM OF EMPLOYMENT AGREEMENT-FORM A 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 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 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, 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 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 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. 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 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 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. 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: _______________________ 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:
Annual Incentive Base Target Percentage of Name Title Salary Base Compensation - -------------------- ---------------------------------------- -------- -------------------- 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%
EX-10 4 FORM OF EMPLOYMENT AGREEMENT-FORM B 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. 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 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 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) 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 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. 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. 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 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:______________________ 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:
Annual Incentive Base Target Percentage of Name Title Salary Base Compensation - -------------------- ---------------------------------------- -------- -------------------- 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
EX-15 5 AUDITOR'S LETTER 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 EX-27 6 FINANCIAL DATA SCHEDULE
5 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. 1000 3-MOS NOV-25-2000 FEB-26-2000 1150 0 0 0 377305 394799 410703 (75737) 741322 149287 402345 0 0 200 147855 741322 347113 347577 249706 249706 102759 0 10086 (14974) (9732) (5242) 0 0 0 (5242) (0.26) (0.26)
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