<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1996
REGISTRATION NO. 333-11739
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
MAZEL STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS ARTICLES OF INCORPORATION)
------------------------
<TABLE>
<S> <C> <C>
OHIO 5995 34-1830097
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
31000 AURORA ROAD
SOLON, OHIO 44139
(216) 248-5200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
REUVEN D. DESSLER, CHIEF EXECUTIVE OFFICER
31000 AURORA ROAD
SOLON, OHIO 44139
(216) 248-5200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARC H. MORGENSTERN, ESQ. DAVID D. GATCHELL, ESQ.
KAHN, KLEINMAN, YANOWITZ & ARNSON CO., L.P.A. SONNENSCHEIN NATH & ROSENTHAL
1301 EAST NINTH STREET, SUITE 2600 4520 MAIN STREET, SUITE 1100
CLEVELAND, OHIO 44114-1824 KANSAS CITY, MISSOURI 64111
(216) 696-3311 (816) 932-4400
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement has become effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1996
PROSPECTUS
2,145,000 SHARES
COMMON STOCK
All of the 2,145,000 shares of Common Stock offered hereby (the "Offering")
are being sold by Mazel Stores, Inc. (the "Company"). Prior to the Offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$13.00 and $15.00 per share. See "Underwriting" for information relating to the
determination of the initial public offering price. The Common Stock has been
approved for quotation, subject to official notice of issuance, on the Nasdaq
National Market under the symbol "MAZL."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share.......................... $ $ $
Total(3)........................... $ $ $
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</TABLE>
(1) The Company and certain of its existing shareholders have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses of $750,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 321,750 shares of Common Stock, solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount, and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by them and subject to their right to reject
orders in whole or in part. It is expected that delivery of the certificates for
the Common Stock will be made on or about , 1996.
WILLIAM BLAIR & COMPANY SALOMON BROTHERS INC
THE DATE OF THIS PROSPECTUS IS , 1996
LOGO
<PAGE> 3
[STORE LOCATIONS AND PHOTOS]
[PICTURES (INSIDE FRONT & BACK COVER AND GATEFOLD)
EXTERIOR OF NEW YORK CITY STORE
WITH NEW YORK SKYLINE IN BACKGROUND
AERIAL VIEW OF SOLON WAREHOUSE
STORE FRONT GRAND OPENING
EXTERIOR/INTERIOR OF STORES
COPIES OF MAIL ADVERTISEMENTS
LOGO
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET SYSTEM, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and with quarterly reports containing
unaudited summary financial information for each of the first three quarters of
each fiscal year.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless indicated otherwise, the information contained in this
Prospectus: (i) assumes that the Underwriters' over-allotment option is not
exercised; and (ii) has been adjusted to reflect the 1996 Restructuring
described in "Significant Corporate Transactions -- 1996 Restructuring." The
Company's fiscal year ended December 31 in 1991 and 1992 and January 31 in 1994,
1995 and 1996. References to fiscal years by date refer to the fiscal year
beginning in January or February of that calendar year: for example, "fiscal
year 1995" began on February 1, 1995 and ended on January 31, 1996. Commencing
with fiscal 1996, the Company converted to a 52- or 53-week fiscal year and the
Company's fiscal year ends on the Saturday closest to January 31 in the
following calendar year.
THE COMPANY
Mazel Stores, Inc. (the "Company") consists of two complementary
operations: (i) a major regional closeout retail business; and (ii) one of the
nation's largest closeout wholesale businesses. The Company sells quality,
value-oriented consumer products at a broad range of price points offered at a
substantial discount to the original retail or wholesale price. The Company
acquired its retail operations in December 1995 as a platform for significant
future retail growth, with plans to expand upon the 19 stores currently
operating in the New York metropolitan area under the "Odd Job" name. In fiscal
1995, the pro forma net sales of the Company were approximately $133.9 million,
including $73.8 million for the wholesale operations.
In 1995, to strengthen and broaden the management team for future retail
expansion, the Company hired Brady Churches, President, and Jerry Sommers,
Executive Vice President -- Retail, who had served as President and Executive
Vice President, respectively, of Consolidated Stores Corporation
("Consolidated"), a leading national retailer and wholesaler of closeout
merchandise. During their tenure at Consolidated, the number of Consolidated
stores grew from one to over 800. The Company believes that the combination of
its wholesale operations and the Odd Job retail operations, together with its
new retail management team, will result in significant synergies, particularly
in purchasing, that will enable the Company to expand its retail operations and
increase sales and net income of both the wholesale and retail operations.
The Company was founded in 1975 as a wholesaler of closeout merchandise by
Reuven Dessler, Chairman of the Board and Chief Executive Officer, and Jacob
Koval, Executive Vice President -- Wholesale. In its wholesale operations, the
Company sells merchandise, including nationally recognized brand-name products,
at a substantial discount to their original retail or wholesale prices. The
Company's wholesale buyers purchase merchandise from more than 700 suppliers
throughout the world and continually seek opportunities created by
manufacturers' overproduction and other closeout circumstances such as packaging
changes, the overstock inventory of wholesalers and retailers, financially
distressed businesses and other sources.
The Company's Odd Job stores offer substantial savings on a large
assortment of quality consumer items, which are frequently brand-name.
Merchandise categories include housewares, stationery, books, party supplies,
health and beauty aids, food, toys, hardware, electronics and garden supplies.
Brands carried by the Company's stores may include, at any given time, Black and
Decker, Enesco, Farberware, Hershey, Keebler, Mars, Mattel, Mikasa, Rubbermaid
and Sony. The Company believes that the constantly changing variety, attractive
values and wide assortment of merchandise creates a significant amount of
customer loyalty. The Odd Job stores range in size from 6,500 to 25,000 square
feet and are located in high traffic urban and suburban areas. The Company's net
sales of approximately $320 per gross square foot is among the highest in the
closeout retail sector.
BUSINESS STRENGTHS
Experienced Management Team. The Company's senior retail and wholesale
management teams have substantial operating knowledge, vendor contacts and
closeout industry experience. The wholesale manage-
3
<PAGE> 5
ment team has a long track record of building a growing and profitable
operation. Furthermore, with the recent addition of Brady Churches and Jerry
Sommers to the retail operations, the Company now has one of the most
experienced retail management teams in the closeout industry.
Experienced Buying Team. The Company believes that it has assembled one of
the strongest and most experienced buying teams in the closeout industry. The
Company's 21 senior buyers in its retail and wholesale operations have an
average of over 15 years of closeout merchandise buying experience. In view of
the highly specialized skills involved in closeout buying, the Company believes
that the size and experience of its buying team is a significant competitive
advantage.
Integrated Wholesale and Retail Purchasing. The combination of the
wholesale and retail operations provides the Company with substantial purchasing
expertise, vendor contacts, purchasing capacity and cross-purchasing
opportunities. The Company believes these competitive advantages enable it to:
(i) have more direct access to sources of closeout merchandise, providing price
and opportunity advantages; (ii) purchase larger quantities and a wider variety
of closeout merchandise; and (iii) negotiate better terms due to higher
quantities of orders for merchandise manufactured to the Company's
specifications. The combination of these factors allows the Company to provide
its customers with an excellent mix of value-oriented merchandise at attractive
prices.
Responsive to Sources of Closeout Merchandise. The Company believes that
establishing and maintaining excellent relationships with vendors is essential
to the success of its retail and wholesale closeout operations. By remaining
flexible and responsive to the needs of its vendors, the Company believes it is
a preferred customer of many key vendors. Specifically, the Company accommodates
the needs of its vendors by: (i) making rapid purchasing decisions; (ii) taking
immediate delivery of large quantities of closeout merchandise; (iii) purchasing
the entire product assortment offered by a particular vendor; (iv) minimizing
disruption to the supplier's ordinary distribution channels; and (v) making
prompt and reliable payments.
Broad Merchandise Mix. The Company seeks to provide its retail consumers
maximum value by offering a wide variety of quality merchandise at substantial
discounts. The Company's retail stores offer consumer items which are frequently
brand-name and emphasize housewares, stationery, books, party supplies, health
and beauty aids, food, toys, hardware, electronics and garden supplies. Although
the Company continuously offers these general categories of merchandise,
specific products and product lines carried change frequently, depending upon
the purchases the Company is able to negotiate. The Company believes that its
changing variety of value-oriented merchandise from one day to the next results
in customers shopping at the stores more frequently than they might otherwise.
GROWTH STRATEGIES
New Store Openings. The Company anticipates opening or acquiring
approximately 40 new stores through the end of fiscal 1999 and believes there is
a potential for the Company to operate approximately 100 stores in the Northeast
and Mid-Atlantic targeted market. These stores would be easily serviced from the
Company's Englewood, New Jersey warehouse and distribution facility. The Company
plans to open nine stores in fiscal 1997, 12 stores in fiscal 1998 and 15 stores
in fiscal 1999. The Company has opened or acquired six stores in fiscal 1996,
and two additional stores are scheduled to open in November. The Company may
also open stores in other geographic areas if favorable real estate
opportunities and conditions exist. The Company's strategy is to open stores in
high-traffic urban areas or suburban strip shopping centers. The Company sells
its merchandise in a variety of store configurations and locations, currently
ranging from 6,500 to 25,000 square feet. This flexibility in store
configurations provides a competitive advantage in selecting desirable store
locations.
Enhancing Store Sales. The Company's management has expanded the
merchandise mix of the acquired Odd Job operations, including the addition of
more health and beauty aids, toys, greeting cards, hardware, food and seasonal
items. These additional items supplement Odd Job's existing extensive selection
of electronics, luggage, china, perfume and giftware. A targeted merchandise
approach has been instituted in
4
<PAGE> 6
recognition of the differences between the Company's urban and suburban
locations. Management has also instituted an advertising program consisting of
the periodic publication of multi-color mailing or newspaper circulars promoting
up to 35 value-oriented, easily recognizable items. Due to the program's initial
success, management plans to expand the use of advertising circulars in the
future.
Leveraging the Company's Investment in Infrastructure. To support the
Company's planned growth and expansion, which began in the second half of 1995,
the Company hired Brady Churches and Jerry Sommers, increased the number of its
experienced closeout buyers and committed to the expansion of its Solon, Ohio
and Englewood, New Jersey warehouse and distribution facilities. These
expenditures are expected to increase the Company's overall selling, general and
administrative expenses. The Company believes that such expenditures will enable
it to achieve its growth objectives and will result in significant operating
leverage as it expands.
Acquisitions. The closeout retail industry in the Northeast and
Mid-Atlantic targeted market is highly fragmented. The Company believes that by
focusing its retail operations in this geographic market, it will be able to
take advantage of acquisition opportunities which will further enable the
Company to implement its growth strategy. In addition, the Company may also
examine acquisition opportunities in other geographic areas. The Company seeks
to acquire closeout retail operations which will further enable it to leverage
its management, purchasing and distribution infrastructure and that can be
effectively integrated into the Company's retail operations. Furthermore, the
Company may pursue acquisition opportunities in the closeout wholesale industry.
The Company is incorporated under the laws of the State of Ohio. The
Company's principal executive offices are located at 31000 Aurora Road, Solon,
Ohio 44139 and its telephone number is (216) 248-5200. Unless the context
otherwise indicates: (i) the term the "Company" refers to Mazel Stores, Inc., a
holding company incorporated in Ohio in 1996, its subsidiary Odd Job Holdings,
Inc. and their predecessors; (ii) the term "ZS Fund" refers to ZS Fund L.P., its
affiliated partnerships and corporations that are shareholders of the Company,
as well as its predecessors and other investment entities in which the
principals of ZS Fund are or were principals; and (iii) "Odd Job" refers to Odd
Job Trading Corp., POW Trading Corp., HIA Trading Associates, Central Processing
Associates, their affiliates, subsidiaries and predecessors.
THE OFFERING
<TABLE>
<S> <C>
Shares offered by the Company............. 2,145,000
Shares to be outstanding after
the Offering............................ 8,355,000(1)
Use of Proceeds........................... To repay approximately $19.7 million of
outstanding indebtedness to the Company's senior
institutional lender, to pay promissory notes
aggregating $3.6 million representing
undistributed cumulative net income previously
allocated to the partners of the Company's
predecessor and to make certain payments to the
Company's officers and other entities aggregating
approximately $1.0 million in compensation and
$2.9 million in tax loans pursuant to con-
tractual provisions in their employment and other
agreements. See "Use of Proceeds."
Nasdaq National Market Symbol............. MAZL
</TABLE>
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(1) Excludes 900,000 shares of Common Stock reserved for issuance under the
Company's Stock Option Plan, including 655,500 shares issuable pursuant to
options outstanding at an exercise price equal to the initial public
offering price per share. See "Management -- Compensatory Plans."
5
<PAGE> 7
SUMMARY COMBINED FINANCIAL AND SELECTED OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The statement of combined operations data below consists of: (i) Mazel
Company L.P.'s wholesale operations, the Ohio Stores and Peddlers Mart (after
December 9, 1994) for the fiscal year ended January 31, 1995; (ii) Mazel Company
L.P.'s wholesale operations, the Ohio Stores (through October, 1995), Peddlers
Mart, and Odd Job's operations (after December 7, 1995) for the fiscal year
ended January 31, 1996; (iii) Mazel Company L.P.'s wholesale operations, the
Ohio Stores and Peddlers Mart for the six months ended July 31, 1995; and (iv)
Mazel Company L.P.'s wholesale operations, Peddlers Mart and Odd Job's
operations for the six months ended July 27, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JANUARY 31, ---------------------------------------
----------------------------------- PRO FORMA
PRO FORMA AS ADJUSTED
STATEMENT OF COMBINED AS ADJUSTED JULY 31, JULY 27, JULY 27,
OPERATIONS DATA: 1995 1996 1996(1) 1995 1996 1996(2)
-------- -------- ----------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 76,254 $ 98,106 $ 133,881 $ 41,696 $ 85,165 $ 85,165
Gross profit................... 21,071 27,898 42,858 12,445 26,651 26,651
Selling, general and
administrative ("SG&A")
expense...................... 15,317 20,753 32,093 9,163 20,822 19,999
Special charges................ -- 2,203(3) 632 -- -- --
Operating profit............... 5,754 4,942 10,133 3,282 5,829 6,652
Income before income taxes..... 4,886 3,118 9,633 2,769 4,567 6,293
Net income..................... 4,815 3,099 5,683 2,731 4,533 3,713
Pro forma earnings per share... $ 0.31(4) $ 0.68 $ 0.43(4) $ 0.44
Pro forma shares outstanding... 5,883(4) 8,355 6,210(4) 8,355
SELECTED STORE OPERATING DATA:
Number of stores............... 12 13 13 17
Total square footage........... 164,386 188,361 186,386 252,861
Total store sales growth....... 12.8% 6.3% 14.2% 24.2%
Comparable store sales
growth(5).................... 7.9% (4.4%) 2.1% 14.2%
Average annual net sales per
unit......................... $ 4,709 $ 4,620 $ 2,170 $ 2,336
Average net sales per gross sq.
ft........................... $ 344 $ 319 $ 157 $ 178
</TABLE>
<TABLE>
<CAPTION>
JULY 27, 1996
--------------------------
PRO FORMA
AS
BALANCE SHEET DATA: ACTUAL ADJUSTED(6)
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<S> <C> <C>
Working capital............................................................... $37,976 $42,577
Total assets.................................................................. 75,903 81,440
Total debt.................................................................... 33,753 13,053
Total liabilities............................................................. 55,018 34,318
Shareholders' equity and partners' capital.................................... 20,885 47,122
</TABLE>
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(1) The pro forma as adjusted statement of combined operations data for the
fiscal year ended January 31, 1996 have been adjusted to: (i) reflect the
combination of Mazel Company L.P.'s wholesale operations and Odd Job's
operations as if it had occurred at the beginning of the period presented;
(ii) eliminate the discontinued Ohio Stores retail operations; and (iii)
give effect to the Offering. See "Pro Forma Financial Data."
(2) The pro forma as adjusted statement of combined operations data for the six
months ended July 27, 1996 gives effect to the Offering as if it had
occurred at the beginning of the period presented. See "Pro Forma Financial
Data."
(3) Consists of special charges of $632 in executive signing bonuses and a
$1,571 loss on the disposal of the Ohio Stores.
(4) See Note 15 of Notes to Combined Financial Statements for an explanation of
the method of calculation.
(5) Comparable store sales growth is defined as the annual percentage change in
aggregate net sales from stores that were open at the beginning of both
fiscal periods.
(6) The pro forma as adjusted balance sheet data: (i) give effect to the
Offering as if it had been completed on July 27, 1996, and the application
of the estimated net proceeds; and (ii) give effect to transactions between
the Company and its partners, employees, debt holders and other related
entities occurring in conjunction with the Offering.
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby.
LIMITED OPERATING HISTORY OF COMBINED OPERATIONS
The Company acquired the Odd Job chain of 12 stores in December 1995 and
has been operating as a combined entity with integrated operations since that
time. Accordingly, the Company's operating history with both wholesale and
retail operations is brief and may not be an accurate indication of the
Company's future performance. There can be no assurance that growth in the
Company's sales and net income will occur, or if it occurs, that it will be
sustained. See "Significant Corporate Transactions." As the Company's retail
operations grow, the Company's combined operating margin will decline and more
closely resemble the operating margins of other closeout retailers, which are
less than the operating margins experienced by the Company in its wholesale
operations.
CUSTOMER CONCENTRATION
Sales to the largest customer of the Company's wholesale operations
accounted for approximately 18.6% of pro forma total sales in fiscal 1995 and
24.3% in the first six months of fiscal 1996. The Company believes its
relationship with such customer is good. However, sales to such customer, or any
other significant customer, could be affected by events beyond the Company's
control, including a significant decline in the customer's sales or a
deterioration in the customer's financial condition. A substantial reduction in
sales to such customer could have a material adverse effect on the Company's
total sales and operating income. See "Business -- Wholesale Operations."
EXPANSION PLANS
The Company currently operates a total of 19 stores in the New York
metropolitan area under the name "Odd Job," including six stores opened or
acquired to date in fiscal 1996. The Company anticipates opening two additional
stores in fiscal 1996, nine stores in fiscal 1997, 12 stores in fiscal 1998 and
15 stores in fiscal 1999 in its Northeast and Mid-Atlantic targeted market,
which will be serviced from the Company's Englewood, New Jersey warehouse and
distribution facility. The success of the Company's expansion strategy is
dependent upon many factors, including identifying suitable markets and sites
for new stores, negotiating leases with acceptable terms, appropriately
upgrading its financial and management information systems and controls and
managing its operating expenses. In addition, the Company must be able to
continue to hire, train, motivate and retain competent managers and store
personnel. Many of these factors are influenced by variables beyond the
Company's control. As a result, there can be no assurance that the Company will
be able to achieve its expansion goals. Any failure of the Company to achieve
its expansion goals on a timely basis, obtain acceptance in markets in which it
currently has limited or no presence, attract and retain qualified management
and other personnel, appropriately upgrade its financial and management
information systems and controls or manage operating expenses could adversely
affect the Company's future operating results and its ability to execute its
expansion strategy.
The Company may add more stores (including stores outside its targeted
market) if a favorable acquisition opportunity is presented. In the event the
Company makes one or more acquisitions, this may affect the number and timing of
new store openings. There can be no assurance that the Company will be able to
locate suitable store locations or acquire operations that can be effectively
and profitably integrated into the Company's existing operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
In February 1996, the Company entered into an agreement with Consolidated
resolving certain issues which arose in connection with the hirings by the
Company of Messrs. Churches and Sommers and another officer (the "Consolidated
Settlement"). The agreement generally provides that until April 25, 1997, the
Company will not open new stores located within 10 miles of Consolidated stores
that were open or planned as
7
<PAGE> 9
of February 20, 1996. The Company believes that the terms of the Consolidated
Settlement will not affect its planned expansion strategy, although it could
restrict acquisition opportunities prior to April 25, 1997.
DEPENDENCE ON KEY INDIVIDUALS
The Company is dependent on its ability to retain the services of its
senior executives: Reuven Dessler, Brady Churches, Jacob Koval and Jerry
Sommers. The loss of one or more of these individuals could have a material
adverse effect on the Company. The Company maintains employment contracts and
non-competition agreements with each of these senior executives. See
"Management -- Executive Compensation." The Company is also dependent upon its
ability to retain the services of its buyers.
INVENTORY MANAGEMENT RISK
The Company's success depends in large part upon its ability to locate and
purchase quality closeout merchandise at attractive prices in order to maintain
its broad selection of merchandise, which includes many brand-name products.
There can be no assurance that such merchandise will continue to be available in
the future or will be available in quantities necessary to accommodate the
Company's expansion strategy. In general, the Company has no continuing
contracts for the purchase of merchandise and must continuously seek out buying
opportunities from both its existing suppliers and new sources, for which it
competes with numerous other wholesalers, retailers, jobbers, dealers and others
which sell many of the items sold by the Company. The Company's results of
operations could be adversely affected by a disruption in the availability of
closeout merchandise.
Following the acquisition of the Odd Job retail operations, the Company
recognized the need to replace Odd Job's existing management information systems
and integrate the new system with that of its wholesale operations. The Company
is in the early stages of installing an upgraded IBM AS400-based computer system
and related software packages that will be fully integrated with the AS400-based
system used by its wholesale operations. The Company intends to install a
point-of-sale (POS) system to fully capture store transactions and provide
updated data to its purchasing staffs, as well as additional retail software and
hardware, at an estimated cost of approximately $2.0 million. Installation of
the new systems is expected to occur by the end of fiscal 1997. The failure to
timely complete such installation and integration could affect the Company's
ability to properly manage its inventory which could, in turn, reduce sales and
operating income, or limit the Company's expansion plans. See
"Business -- Management Information Systems."
The Company takes advantage of large volume purchases, closeouts and other
special situations to obtain inventory at favorable prices. At July 27, 1996,
the net book value of the Company's inventory was approximately $40.9 million.
The Company periodically reviews the net realizable value of its inventory and
records adjustments to its carrying value when appropriate. The current carrying
value of the Company's inventory reflects management's belief that the Company
will realize the net values recorded on the Company's balance sheet. A sale by
the Company of any material portion of its inventory at an amount less than its
carrying value may have a material adverse effect on the Company's results of
operations or financial condition during the period in which such event or
events occur. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
COMPETITION
Competition for the purchase of quality closeout merchandise is intense.
The Company's wholesale operations compete with numerous national and regional
wholesalers, retailers, jobbers and dealers for closeout buying opportunities.
The Company's retail operations compete for customers with other closeout
retailers as well as discount stores, deep discount drugstore chains,
supermarkets and other value-oriented specialty retailers. Certain of the
Company's competitors have financial and operating resources exceeding those of
the Company. See "Risk Factors -- Expansion Plans" and
"Business -- Competition."
8
<PAGE> 10
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, Odd Job's highest net sales and operating income have been
experienced during the fourth quarter, which includes the holiday selling
season. During fiscal 1994 and 1995, approximately 34% and 31%, respectively, of
Odd Job's net sales and approximately 79% and 65%, respectively, of its
operating income (excluding special charges) were generated during the fourth
quarter. Historically, net sales and operating income (excluding special
charges) from the Company's wholesale operations have been slightly higher
during the second half of the year. Accordingly, any adverse trend in net sales
for such period could have a material adverse effect upon the Company's overall
profitability and adversely affect the Company's results of operations for the
entire fiscal year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Quarterly Fluctuation."
In addition to seasonality, the Company's results of operations may
fluctuate from quarter to quarter as a result of the amount and timing of sales
generated by new stores, the level of advertising and pre-opening expenses
associated with the opening of new stores, the integration of new stores into
the operations of the Company and the timing of large, opportunistic purchases
and sales in the Company's wholesale operations, as well as other factors.
DISRUPTIONS IN RECEIVING AND DISTRIBUTION
During the six months ended July 27, 1996, approximately 79% of the
Company's inventory was shipped or picked up directly from suppliers and
delivered to the Company's warehouse and distribution facilities. The Company's
success depends in large part on the orderly operation of this receiving and
distribution process, which depends, in turn, on adherence to shipping schedules
and effective management of the warehouse operations. Although management
believes that the Company's receiving and distribution procedures are efficient
and well positioned to support the Company's expansion plans, there can be no
assurance that the Company has anticipated, or will anticipate, all of the
changing demands its expanding operations will impose on its receiving and
distribution system or that events beyond the control of the Company will not
result in delays in the delivery of merchandise to the warehouses or from the
warehouses to the stores. In addition, a fire or other disaster at either of the
Company's warehouse and distribution facilities could materially and adversely
affect its business and results of operations. The Company maintains property
and business interruption insurance on its facilities and business. See
"Business -- Warehousing and Distribution."
CAPITAL REQUIREMENTS RELATING TO EXPANSION PLANS
The Company's strategy includes growth through the opening of new stores,
as well as potential acquisitions. This strategy will require significant
capital resources. The Company believes that while its cash generated from
operations and its existing and proposed credit facilities will be adequate to
support its planned capital requirements, certain large acquisitions, if any,
may require funds exceeding the capacity of its credit facility. There can be no
assurance that acceptable financing for certain future acquisitions or for the
integration, expansion and operation of the Company's existing business can be
obtained. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
GEOGRAPHIC CONCENTRATION OF OPERATIONS
The Company's stores are located in the New York metropolitan area. The
Company's current retail expansion plans anticipate that its new stores will be
located in its Northeast and Mid-Atlantic targeted market. Consequently, the
Company's results of operations and financial condition are dependent upon
general trends in the economy of the Northeast and Mid-Atlantic market. In the
event of a recession in this market, retail spending may decline, resulting in a
decrease in the Company's retail sales.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
8,355,000 shares of Common Stock, including 5,769,092 shares beneficially owned
by senior executives and ZS Fund. All of the shares of Common Stock held by ZS
Fund and the Company's senior executives are subject to lock-up agreements under
which the holders of such shares have agreed not to sell or otherwise dispose of
any of their shares for a
9
<PAGE> 11
period of 180 days after the date of this Prospectus without the prior written
consent of William Blair & Company, L.L.C. Sales of a substantial number of
shares of the Company's Common Stock in the public market following the Offering
could adversely affect the market price of the Common Stock. See "Principal
Shareholders," "Shares Eligible for Future Sale" and "Underwriting."
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon completion of the Offering, ZS Fund and the four senior executives of
the Company will beneficially hold approximately 69% of the Common Stock
(approximately 66% if the Underwriters' over-allotment option is exercised in
full). Consequently, in the event these shareholders vote together, they may be
able to exercise effective control over the Company, including having the power
to elect or remove the Company's Board of Directors and approve certain actions
requiring shareholder approval. See "Principal Shareholders."
TRANSACTIONS WITH AFFILIATED PARTIES
The Company from time to time has entered into transactions with affiliated
persons, including Messrs. Dessler and Koval and entities owned by such
individuals or members of their families, and members of the families of the
former owners of Odd Job. Such transactions have included the lease of
facilities to the Company, capital obligations and debt incurred in connection
with the 1992 Recapitalization and the Odd Job Acquisition. See "Significant
Corporate Transactions" and "Certain Transactions."
PREFERRED STOCK; STATE ANTI-TAKEOVER LAWS
The Board of Directors of the Company is authorized to issue, from time to
time, without any further action on the part of the Company's shareholders, up
to 2,000,000 shares of preferred stock ("Preferred Stock") in one or more
series, with such relative rights, powers, preferences, and conversion rights as
determined by the Board of Directors at the time of issuance. The issuance of
Preferred Stock could adversely affect the holders of Common Stock. The Company
has no present plans to issue any Preferred Stock. In addition, certain
statutory provisions of Ohio law and the Company's charter documents could have
the effect of delaying, deferring or preventing a change in control of the
Company. See "Description of Capital Stock -- Preferred Stock" and "-- Certain
Provisions of Ohio Law."
DILUTION
Purchasers of shares of Common Stock offered hereby will experience an
immediate and substantial dilution in net tangible book value of approximately
$9.59 per share of their investment. See "Dilution."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Although the shares of Common Stock have been approved for
quotation on the Nasdaq National Market, there can be no assurance that an
active trading market will develop or be sustained for the Common Stock or that
the market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives of the
Underwriters. The stock market has from time to time experienced extreme price
and volume fluctuations which in some circumstances have been unrelated to the
operating performance of particular companies. The market price for the Common
Stock may be highly volatile depending on various factors, including, but not
limited to, the state of the national economy, stock market conditions, industry
research reports, actions by governmental agencies, litigation involving the
Company, earnings and other announcements by the Company or its competitors and
general conditions in the closeout industry. See "Underwriting."
The Representatives have advised the Company that they intend to make a
market for the Common Stock, although they are under no obligation to do so.
Were such market making to be discontinued, investors would encounter difficulty
effecting purchase or sale transactions in the absence of alternative market
makers.
10
<PAGE> 12
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Prospectus contains various forward-looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in this document, the
words "believe," "expect," "anticipate," "estimate," and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions including those identified above.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. In addition to the other risk factors
set forth above, among the key factors that may have a direct bearing on the
Company's results are competitive practices in the closeout merchandising
industry generally and particularly in the Company's targeted market, the
availability to the Company of store locations on competitive lease terms and
the ability of the Company to fund future expansion in the event of adverse
industry or economic conditions.
11
<PAGE> 13
SIGNIFICANT CORPORATE TRANSACTIONS
HISTORY
The Company was founded as a wholesaler of closeout merchandise in 1975 by
Messrs. Dessler and Koval and certain other individuals. The Company began its
operations as The Mazel Company, an Ohio corporation ("Old Mazel"). In 1981, the
Company initiated its Just Closeouts retail operations in Ohio. In 1992, Mazel
Company L.P. (the Company's predecessor) acquired substantially all of the
assets of Old Mazel, Just Closeouts and certain of their affiliates, in a
transaction which was treated as a recapitalization for accounting purposes (the
"1992 Recapitalization"). The consideration for the assets acquired by the
Company consisted of the payment to Old Mazel of approximately $20.4 million in
cash, the issuance to Old Mazel of contingent notes providing for additional
payments totaling $4.0 million upon the completion of the Offering (the "1992
Old Mazel Contingent Notes"), the issuance to Old Mazel of subordinated notes
providing for payments totaling $1.5 million (which have subsequently been
repaid), the assumption by the Company of substantially all of the liabilities
of Old Mazel and indemnities by the Company in favor of Old Mazel with respect
to certain liabilities of Old Mazel assumed by the Company.
Mazel Company L.P. was capitalized with $13.5 million of equity, consisting
of $9.0 million of equity contributed by ZS Fund (including $4.5 million of
preferred equity (the "ZS Preferred Return")) and $4.5 million contributed by
Messrs. Dessler and Koval. ZS Fund is a private investment fund with over $125
million under management. Messrs. Ned Sherwood and Robert Horne, two of the
Company's directors, are directors and officers of ZS Fund. To provide for the
balance of the cash payment for the 1992 Recapitalization, the Company borrowed
from its institutional lender $14.8 million, including $9.8 million under a
revolving credit facility.
In connection with the 1992 Recapitalization, the Company entered into
employment agreements with Messrs. Dessler and Koval. The Company also agreed to
pay ZS Fund an annual investment advisory fee of $100,000 (the "ZS Management
Fee"). Concurrent with the completion of the Offering, the Company will pay to
ZS Fund $200,000 to terminate the ZS Management Fee. See
"Management -- Executive Compensation" and "Certain Transactions."
PEDDLERS MART ACQUISITION
In December 1994, ZS Fund acquired Peddlers Mart, Inc. ("Peddlers Mart"),
which operated one store in Nanuet, New York. The Company and ZS Fund identified
Peddlers Mart as a potential acquisition candidate at a time when the Company
was in negotiations with Odd Job regarding a possible acquisition. Although such
discussions with Odd Job were terminated prior to the Peddlers Mart acquisition,
ZS Fund completed the Peddlers Mart acquisition. Odd-Job Holdings, Inc.
(together with its affiliates, "Odd Job Holdings") acquired Peddlers Mart from
ZS Fund at the time of the Odd Job Acquisition. The name of the store has
subsequently been changed to "Odd Job," and the store has been integrated with
the Odd Job operations.
SALE OF OHIO RETAIL OPERATIONS
In October 1995, the Company sold its Just Closeouts retail operations
consisting of seven closeout stores and four "$1.00" stores operated in Ohio
(the "Ohio Stores") to an unaffiliated third party. The Ohio Stores had
aggregate losses of $2.2 million from February 1, 1993 through the date of sale.
The Company received approximately $1.8 million in cash, plus a contingent note
from the purchaser whereby it could be paid up to an additional $500,000 based
upon the operating performance of the Ohio Stores over the next several years.
The Company made the determination to sell its Ohio Stores, in part, to
facilitate the Consolidated Settlement. The Company realized a loss on this
disposal of approximately $1.6 million. The Company remains contingently liable
for the lease obligations of six of the Ohio Stores in the event the buyer
should default on its lease payments. See Note 13 to Combined Financial
Statements.
ODD JOB ACQUISITION
On December 7, 1995, a wholly-owned subsidiary of Odd Job Holdings acquired
all of the stock and equity interests of Odd Job and certain of its affiliates
(the "Odd Job Acquisition"). The stock of Odd Job was
12
<PAGE> 14
owned by Howard Snyder and Israel Horowitz (the co-founders of Odd Job) and Old
Mazel. Prior to the Odd Job Acquisition, Odd Job was a significant customer of
the Company. Odd Job Holdings was a wholly-owned subsidiary of a limited
partnership, the general partner of which is an affiliate of ZS Fund.
The consideration for the equity interests of Odd Job acquired by Odd Job
Holdings totaled approximately $10.5 million, consisting of approximately $9.0
million in cash, the issuance of a subordinated promissory note in the principal
amount of $1.0 million to Old Mazel (the "1995 Old Mazel Note"), and the
issuance of contingent subordinated promissory notes to Messrs. Snyder and
Horowitz and to Old Mazel in a maximum aggregate amount of $450,000 (the "Odd
Job Contingent Notes"). In addition, Odd Job Holdings assumed approximately $2.8
million of Odd Job's debt outstanding as of the closing. Odd Job Holdings was
capitalized with $1.4 million of equity contributed by ZS Fund ($1.35 million of
which was loaned to ZS Fund by Mazel Company L.P.) and a $2.1 million loan from
Mazel Company L.P. To provide for the balance of the cash payment for the
acquisition, Odd Job Holdings borrowed approximately $9.3 million pursuant to a
senior credit facility from an institutional lender. As additional consideration
for its agreement to provide loans in connection with the Odd Job Acquisition,
Mazel Company L.P. acquired an option to acquire 100% of Odd Job Holdings (the
"Mazel Option"), which option will be exercised immediately prior to the
Offering.
In connection with the Odd Job Acquisition, Odd Job Holdings entered into
employment agreements with Messrs. Snyder and Horowitz providing for the payment
of employment bonuses of $150,000 each at the time of the acquisition, as well
as a payment based on the earnings of the Odd Job operations in the amount of
approximately $360,000 each, payable in shares of Common Stock at the initial
public offering price. Messrs. Snyder and Horowitz's employment agreements
include non-competition provisions relating to the retail operations of Odd Job
effective through January 31, 2001, or for a period of two or three years
following the termination of employment, depending on the date of such
termination.
Odd Job Holdings also indemnified the principals of Odd Job with respect to
litigation filed by individuals claiming damages based upon an alleged oral
agreement entered into by Messrs. Snyder and Horowitz and Old Mazel with respect
to the sale of Odd Job to such individuals (the "Odd Job Litigation"). However,
the Odd Job Contingent Notes provide that the amount payable by the Company
pursuant thereto (an aggregate of $450,000) will be reduced by all costs and
expenses related to the Odd Job Litigation incurred following the Odd Job
Acquisition. The parties have reached a settlement of the case, which will not
have a material adverse effect on the results of operations or the financial
condition of the Company.
As part of the Odd Job Acquisition, Odd Job Holdings entered into a license
and purchase agreement with two stores which currently use the "Odd Job" name.
Odd Job purchases merchandise for such stores, each of which are operated by
relatives of Messrs. Snyder and Horowitz. The license and purchase agreement
provides that such stores will discontinue the use of the "Odd Job" name by
January 1998 and will continue to purchase at least seventy-five percent (75%)
of their merchandise from Odd Job for a period of five years.
In March 1996, Mazel Company L.P. received a $4.0 million capital
contribution from two of its partners. Such funds were loaned to Odd Job
Holdings to provide for working capital needs.
THE CLOSEOUT STORE ACQUISITION
Effective March 1, 1996, Odd Job Holdings acquired the operations of its
two Staten Island retail stores from Melen Trading Corp. (such stores were
formerly operated under the name "The CloseOut Store"). As consideration for the
assets acquired, Odd Job Holdings assumed certain liabilities of Melen Trading
Corp. owing to third parties and forgave liabilities owing from Melen Trading
Corp. to Odd Job Holdings totaling in the aggregate approximately $1.1 million.
Messrs. Snyder, Horowitz and the owners of Old Mazel owned, in the aggregate,
50% of Melen Trading Corp. (the remaining 50% is owned by a relative of Mr.
Snyder, who managed the operations of the two stores). In connection with the
acquisition, Odd Job Holdings entered into a consulting agreement with the 50%
owner of Melen Trading Corp. pursuant to which such individual will receive an
aggregate of $100,000, payable in monthly installments, through February 1998.
As a condition to completing the acquisition, Odd Job and Mr. Snyder agreed to
reduce his annual salary by $25,000 in both fiscal 1996 and fiscal 1997.
13
<PAGE> 15
1996 RESTRUCTURING
Immediately prior to the Offering being declared effective, Mazel Company
L.P. will exercise the Mazel Option and acquire 100% of Odd Job Holdings for a
cash payment of approximately $1.4 million to ZS Fund, which will then
immediately repay the $1.35 million loan (together with accrued interest) from
Mazel Company L.P. advanced in connection with the Odd Job Acquisition. In
addition, Mazel Company L.P. will make a distribution of a promissory note
bearing interest at the applicable federal rate to each partner representing the
partner's pro rata share of undistributed cumulative net income previously
allocated to the partners, an amount estimated at $3.6 million (collectively,
the "Partners Notes"). All of the assets of Mazel Company L.P., including 100%
of Odd Job Holdings, subject to all liabilities, including the Partners Notes,
will be contributed to Mazel Stores, Inc. in exchange for 5,613,554 shares of
Common Stock. Mazel Company L.P. will be liquidated and such shares of Common
Stock will be distributed to its partners. In addition, the 1992 Old Mazel
Contingent Notes and the 1995 Old Mazel Note will be converted into 285,714 and
71,429 shares of Common Stock, respectively (based upon an assumed initial
public offering price of $14.00 per share).
The following timeline graphically represents the Company's development:
1. Mazel Company L.P. is a limited partnership managed by ZS Fund, a private
investment company, and Mazel/D&K, Inc., a corporation owned by Messrs.
Dessler and Koval.
2. Messrs. Dessler and Koval and others own the stock of The Mazel Company.
3. ZS Peddler's Mart, Inc. was formed by ZS Fund to acquire the assets of
Peddler's Mart, Inc.
4. Odd Job Holdings, Inc. was formed by ZS Fund to acquire the stock of Odd Job
Trading Corp. and related entities.
5. Odd Job Trading Corp. and related entities were owned equally by H. Snyder,
I. Horowitz and The Mazel Company.
6. Melen Trading Co. was one-half owned by H. Snyder, I. Horowitz and The Mazel
Company, with the remaining half owned by a relative of H. Snyder.
7. Mazel Stores, Inc.'s stock ownership prior to the Offering is substantially
identical to ownership of Mazel Company L.P.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,145,000 shares of Common Stock being offered are estimated to be approximately
$27.2 million assuming an initial public offering price of $14.00 per share and
after deducting the underwriting discount and estimated offering expenses
payable by the Company. The Company intends to use approximately $19.7 million
of the net proceeds to repay indebtedness of the Company to its senior
institutional lender under its existing credit facilities (the Company's credit
facilities bear interest at a weighted average borrowing rate of 8.68% per
annum), as of July 27, 1996. The Company will use $3.6 million of the net
proceeds to pay the Partners Notes. The Partners Notes represent the
undistributed cumulative net income of Mazel Company L.P. previously allocated
to the partners. Prior to the 1996 Restructuring, the Company was taxed as a
partnership for income tax purposes. As a result, the Company paid no federal
and minimal state income tax as earnings of the Company were taxed directly at
the partner level. The Company intends to make cash payments totaling
approximately $763,000 to two of its senior executives pursuant to provisions of
their respective employment agreements and $200,000 to ZS Fund to terminate the
ZS Management Fee. The Company will loan, on a recourse basis, approximately
$2.9 million to certain of its executives and other entities to provide for the
payment of tax obligations resulting from the Common Stock issued to them by the
Company in connection with amendments to officers' and other employees'
employment agreements and payment of the 1992 Old Mazel Contingent Notes and
1995 Old Mazel Note. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Management -- Executive Compensation" and "Certain Transactions."
DIVIDEND POLICY
Prior to the effectiveness of the Offering, the Company was a partnership
that made cash distributions from time to time to its partners primarily for the
payment of taxes and to satisfy the ZS Preferred Return. Except for such
distributions, the Company has not paid cash distributions on its capital stock
or equity interests and does not anticipate paying cash dividends on its capital
stock in the foreseeable future. The Company currently intends to retain all
earnings from its operations to finance the growth and development of its
operations. The Company anticipates that its new credit facility will contain
restrictions on its ability to pay dividends.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth: (i) the short-term debt and combined
capitalization of the Company as of July 27, 1996; (ii) the pro forma combined
capitalization giving effect to the transactions between the Company and its
partners, employees, debt holders and other related entities resulting in the
issuance of 6,210,000 shares; and (iii) the pro forma combined capitalization,
as adjusted to give effect to the sale of 2,145,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $14.00 per share
and the application of the estimated net proceeds from the Offering. See "Use of
Proceeds" and "Pro Forma Condensed Balance Sheet" and notes thereto.
<TABLE>
<CAPTION>
JULY 27, 1996
--------------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt.............. $ 1,354 $ 1,354 $ 22
======= ======= =========
Long-term debt:
Borrowings under revolving credit facility..... $20,637 $20,637 $12,579
Other long-term debt, excluding current
portion..................................... 10,372 10,372 62
Notes payable to related parties............... 1,390 390 390
------- -------- -----------
Total long-term debt...................... 32,399 31,399 13,031
------- -------- -----------
Shareholders' equity and partners' capital:
Partners' capital.............................. 19,585 -- --
Preferred stock, 2,000,000 shares authorized;
no shares issued or outstanding -- -- --
Common stock, 14,000,000 shares authorized;
1,000 shares issued and outstanding, actual;
6,210,000 shares issued and outstanding, pro
forma; and 8,355,000 shares issued and
outstanding, pro forma as adjusted(1)....... 1 -- --
Additional paid in capital..................... 1,499 24,474 48,074
Retained earnings (deficit).................... (200) (952) (952)
------- -------- -----------
Total shareholders' equity and partners'
capital................................... 20,885 23,522 47,122
------- -------- -----------
Total capitalization...................... $53,284 $54,921 $60,153
======= ======= =========
<FN>
- ---------------
(1) Excludes 900,000 shares of Common Stock reserved for issuance under the
Company's Stock Option Plan, including 655,500 shares issuable pursuant to
options outstanding at an exercise price equal to the initial public
offering price per share. See "Management -- Compensatory Plans."
</TABLE>
16
<PAGE> 18
DILUTION
As of July 27, 1996, the combined pro forma net tangible book value of the
Company (after giving effect to transactions between the Company and its
partners, employees, debt holders and other related entities occurring in
conjunction with the Offering) was approximately $13.2 million, or $2.13 per
share. "Combined pro forma net tangible book value per share" represents the
total tangible assets of the Company, including Odd Job, less all liabilities,
divided by the number of pro forma shares of Common Stock outstanding. After
giving effect to the sale by the Company of 2,145,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $14.00 per share
and the application of the estimated net proceeds as set forth under "Use of
Proceeds," the pro forma net tangible book value of the Company as of July 27,
1996 would be approximately $36.8 million or $4.41 per share. This represents an
immediate increase in net tangible book value per share of approximately $2.28
to current shareholders and an immediate dilution of $9.59 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $14.00
Combined pro forma net tangible book value per share before
the Offering................................................ 2.13
Increase per share attributable to new investors............. 2.28
------
Combined pro forma net tangible book value per share after the
Offering........................................................ 4.41
------
Dilution per share to new investors............................... $ 9.59
======
</TABLE>
The following table summarizes, on a pro forma basis as of July 27, 1996,
the difference between existing shareholders and new shareholders with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing shareholders and by the purchasers of the shares offered by the Company
(at an assumed initial public offering price of $14.00 before deducting the
underwriting discount and estimated offering expenses):
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED(1) TOTAL CONSIDERATION PRICE
--------------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ------
<S> <C> <C> <C> <C> <C>
Existing shareholders......... 6,210,000 74.3% $19,986,000(2) 40.0% $ 3.22
New shareholders.............. 2,145,000 25.7 30,030,000 60.0 14.00
--------- ------- ----------- -------
Total....................... 8,355,000 100.0% $50,016,000 100.0%
======== ======= ========== =======
<FN>
- ---------------
(1) Excludes 900,000 shares of Common Stock reserved for issuance under the
Company's Stock Option Plan including 655,500 shares issuable pursuant to
options outstanding at an exercise price equal to the initial public
offering price per share. See "Management -- Compensatory Plans."
(2) Consists of $19,585,000 of partners' capital, plus $3,021,000 of Common
Stock issued in lieu of cash compensation, plus the $1,000,000 1995 Old
Mazel Note converted to Common Stock, less the $3,620,000 payment of the
Partners Notes from the estimated net proceeds of the Offering. See "Certain
Corporate Transactions -- 1996 Restructuring."
</TABLE>
17
<PAGE> 19
PRO FORMA FINANCIAL DATA
The following pro forma financial data of the Company present the Company's
unaudited pro forma condensed statement of combined operations for the year
ended January 27, 1996, the six months ended July 27, 1996 and the unaudited pro
forma condensed combined balance sheet data as of July 27, 1996. The pro forma
as adjusted statement of combined operations data for the fiscal year ended
January 31, 1996 has been adjusted to: (i) reflect the combination of Mazel
Company L.P.'s wholesale operations and Odd Job's operations as if it had
occurred at the beginning of the period presented; (ii) eliminate the
discontinued Ohio Stores retail operations; and (iii) give effect to the
Offering. The pro forma as adjusted statement of combined operations data for
the six months ended July 27, 1996 gives effect to the Offering.
The pro forma financial data appearing herein do not purport to represent
what the Company's results of operations would have been had such transactions
in fact occurred on the dates or at the beginning of the periods indicated or to
project the results of operations of the Company for the present year or for any
future period or the Company's financial condition on January 27, 1996, July 27,
1996 or on any other date. In the fourth quarter of fiscal 1996, the Company
will take a one-time, pre-tax charge of approximately $4.4 million representing
the compensation and other charges arising in connection with the Offering. See
"Certain Transactions -- Miscellaneous." The Company also expects to realize a
one-time $1.6 million tax benefit in fiscal 1996 arising from cumulative
differences between the net book and tax basis of Mazel Company L.P.'s assets
and liabilities. These items have not been reflected in the pro forma amounts.
PRO FORMA CONDENSED STATEMENT OF COMBINED OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 27, 1996 SIX MONTHS ENDED JULY 27, 1996
--------------------------------- ---------------------------------
PRO FORMA PRO FORMA
AS AS
COMBINED(1) ADJUSTMENTS ADJUSTED COMBINED(2) ADJUSTMENTS ADJUSTED
-------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $98,106 $35,775(4) $133,881 $85,165 $ -- $ 85,165
Cost of sales............... 70,208 20,815(5) 91,023 58,514 -- 58,514
-------- --------- ---------- -------- --------- ----------
Gross profit................ 27,898 14,960 42,858 26,651 -- 26,651
SG&A expense................ 20,753 11,340(6) 32,093 20,822 (823)(11) 19,999
Special charges............. 2,203 (3) (1,571)(7) 632 -- -- --
-------- --------- ---------- -------- --------- ----------
Operating profit............ 4,942 5,191 10,133 5,829 823 6,652
Interest expense............ 1,265 (724)(8) 541 1,284 (903)(12) 381
Other expense (income)...... 559 (600)(9) (41) (22 ) -- (22)
-------- --------- ---------- -------- --------- ----------
Income before income
taxes..................... 3,118 6,515 9,633 4,567 1,726 6,293
Income taxes................ 19 3,931(10) 3,950 34 2,546 2,580
-------- --------- ---------- -------- --------- ----------
Net income.................. $ 3,099 $ 2,584 $ 5,683 $ 4,533 $ (820) $ 3,713
======== ========= ========== ======== ========= ==========
Pro forma earnings per
share..................... $ 0.31 (13) $ 0.68(14) $ 0.43 (13) $ 0.44(14)
Pro forma shares
outstanding............... 5,883 (13) 8,355(14) 6,210 (13) 8,355(14)
</TABLE>
- ---------------
(1) Consists of Mazel Company L.P.'s wholesale operations, the Ohio Stores
through October 1995, Peddlers Mart, and Odd Job's operations after
December 7, 1995.
(2) Consists of Mazel Company L.P.'s wholesale operations and Odd Job's
operations, including Peddlers Mart.
(3) Consists of special charges of $632 in executive signing bonuses and a
$1,571 loss on the disposal of the Ohio Stores.
(4) Reflects Odd Job sales prior to its acquisition of $45,289; eliminates
pre-acquisition intercompany sales made from the Company's wholesale
operations to Odd Job of $1,835; and eliminates the sales of the Company's
discontinued Ohio Stores of $7,679.
(5) Includes cost of sales of $27,904 pertaining to Odd Job pre-acquisition
sales and eliminates pre-acquisition intercompany cost of sales of $1,835
and cost of sales pertaining to the discontinued Ohio Stores of $5,254.
18
<PAGE> 20
(6) Includes Odd Job pre-acquisition expenses of $16,199 and an additional $225
of goodwill amortization, less a $1,404 adjustment to senior management
salaries, discontinued Ohio Stores expenses of $3,064 and certain
depreciation and lease expenses of $464 and $152, respectively.
(7) Eliminates the loss on the disposal of the Ohio Stores.
(8) Reflects the adjustment of additional interest expense of $796 to reflect a
full year of Odd Job operations reduced by $1,641 due to debt reduction of
$19,700 (at a weighted average borrowing rate of 8.25% per annum) from the
estimated net proceeds of the Offering and conversion into Common Stock of
the $1,000 1995 Old Mazel Note, offset by additional interest expense on
accrued leases of $121.
(9) Eliminates $600 of special charges related to the Consolidated litigation.
(10) Provides for income tax at a rate of 41%.
(11) Reflects the adjustment to senior management salaries.
(12) Reflects reduced interest expense due to debt reduction of $19,700 (at a
weighted average borrowing rate of 8.68% per annum) and the conversion into
Common Stock of the $1,000 1995 Old Mazel Note.
(13) See Note 15 of Notes to Combined Financial Statements for an explanation of
the method of calculation.
(14) Computed by dividing pro forma net income into 8,355 pro forma shares
outstanding after giving effect to the Offering assuming that such shares
were outstanding at the beginning of each period shown.
19
<PAGE> 21
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 27, 1996
-------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(1)
------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................ $ 2,312 $ 1,312(2) $ 2,312(2)
Accounts receivable -- trade, less allowance for doubtful
accounts of $195............................................... 13,496 13,496 13,496
Notes and other receivables...................................... 672 672 672
Inventories...................................................... 40,894 40,894 40,894
Prepaid expenses................................................. 880 880 880
Deferred income tax benefit...................................... 314 3,583(3) 3,583
------- ----------- -------------
Total current assets...................................... 58,568 60,837 61,837
Equipment, furniture and leasehold improvements, net............... 3,695 3,695 3,695
Other assets....................................................... 1,086 1,086 1,086
Notes receivable -- related parties................................ 1,350 --(4) 2,900(9)
Goodwill, net...................................................... 9,509 10,227(5) 10,227
Deferred income tax benefit........................................ 1,695 1,695 1,695
------- ----------- -------------
$75,903 $ 77,540 $81,440
======== ============ =============
LIABILITIES, SHAREHOLDERS' EQUITY AND PARTNERS' CAPITAL
Current liabilities
Long-term debt, current portion.................................. $ 1,354 $ 1,354 $ 22(9)
Accounts payable................................................. 15,174 15,174 15,174
Accrued expenses................................................. 3,704 3,704 3,704
Other current liabilities........................................ 360 360 360
------- ----------- -------------
Total current liabilities................................. 20,592 20,592 19,260
Revolving line of credit........................................... 20,637 20,637 12,579(9)
Long-term debt, net of current portion............................. 11,762 10,762(6) 452(9)
Other liabilities.................................................. 1,983 1,983 1,983
Deferred income taxes.............................................. 44 44 44
------- ----------- -------------
Total liabilities......................................... 55,018 54,018 34,318
Shareholders' equity and partners' capital......................... 21,085 24,474(7) 48,074(9)
Retained earnings (deficit)........................................ (200) (952)(8) (952)
------- ----------- -------------
Total shareholders' equity and partners' capital.......... 20,885 23,522 47,122
------- ----------- -------------
$75,903 $ 77,540 $81,440
======== ============ =============
<FN>
- ---------------
(1) The pro forma balance sheet data reflects transactions between the Company
and its partners, employees, debt holders and other related entities arising
in conjunction with the Offering as if it had been completed on July 27,
1996. The pro forma as adjusted balance sheet data additionally reflects the
Offering as if it had been completed on July 27, 1996 and the application of
the estimated net proceeds.
(2) Reflects $1,000 cash buyout of contractual compensation arrangements and the
related use of proceeds.
(3) Reflects: (i) $1,620 in deferred tax benefits arising from cumulative
differences between the net book and tax basis of Mazel Company L.P.'s
assets and liabilities; and (ii) $1,649 in tax benefits resulting from
compensation transactions in conjunction with the Offering.
(4) Reflects collection of the note from ZS Fund in conjunction with the
exercise of the Mazel Option.
(5) Reflects $718 in additional goodwill relating to the Odd Job Acquisition
arising in conjunction with the Offering.
(6) Reflects exchange of the $1,000 1995 Old Mazel Note for shares of Common
Stock.
(7) Reflects $3,021 of Common Stock issued in lieu of cash compensation, $1,000
relating to exchange of the 1995 Old Mazel Note for Common Stock, $718 of
Common Stock relating to additional consideration in connection with the Odd
Job Acquisition, less $1,350 payment to ZS Fund relating to the exercise of
the Mazel Option.
(8) Reflects $4,021 of compensation less related income taxes at 41% of $1,649
and $1,620 in deferred tax benefits.
(9) Reflects net proceeds of $27,200 less a $3,600 payment of the Partners
Notes, $2,900 of tax loans, and $19,700 for repayment of indebtedness.
</TABLE>
20
<PAGE> 22
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected historical financial data of Mazel Company L.P. for each of
the years ended December 31, 1992 and January 31, 1994, 1995 and 1996, of Odd
Job Holdings as of January 27, 1996 and its Predecessor and Successor periods
from February 1, 1995 to December 7, 1995 and December 7, 1995 to January 21,
1996, respectively, and for Mazel Company L.P. and Odd Job Holdings as combined
as of January 31, 1995 and 1996 and for each of the three years in the period
ended January 31, 1996, are derived from the financial statements of Mazel
Company L.P., Odd Job Holdings, and Mazel Company L.P. and Odd Job Holdings as
combined, respectively, which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The financial
statements of Mazel Company L.P. as of January 31, 1996 and 1995, and for each
of the years in the three-year period ended January 31, 1996, and of Odd Job
Holdings and Mazel Company L.P. and Odd Job Holdings as combined as of and for
the periods noted above, and the reports thereon are included elsewhere in this
Prospectus. The financial statements of Odd Job Trading Corp. and its affiliates
for each of the years ended January 31, 1992, 1993, 1994 and 1995 are derived
from the financial statements of Odd Job Trading Corp. and its affiliates. The
January 31, 1995 and 1994 financial statements of Odd Job Trading Corp. and its
affiliates which are included herein have been audited by Deloitte & Touche LLP,
independent auditors. The selected data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and financial statements and related notes. The information
presented under the caption "Selected Operating Data" is unaudited.
The selected unaudited data presented for the six months ended July 31,
1995 and July 27, 1996 and as of such dates are derived from the unaudited
financial statements of Mazel Company L.P., Odd Job Holdings and the combined
entity included elsewhere in this Prospectus. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of the
normal recurring adjustments, necessary for the fair presentation thereof.
Operating results for the six months ended July 27, 1996 are not necessarily
indicative of the results that may be expected for the year ending January 25,
1997.
The statement of combined operations data consists of: (i) Mazel Company
L.P.'s wholesale operations and the Ohio Stores retail operations for the fiscal
years ended December 31, 1991, December 31, 1992 and January 31, 1994; (ii)
Mazel Company L.P.'s wholesale operations, the Ohio Stores retail operations and
Peddlers Mart operations (after December 9, 1994) for the fiscal year ended
January 31, 1995; (iii) Mazel Company L.P.'s wholesale operations, the Ohio
Stores retail operations (through October, 1995), Peddlers Mart and Odd Job
Holdings' operations (after December 7, 1995) for the fiscal year ended January
31, 1996; (iv) Mazel Company L.P.'s wholesale operations, the Peddlers Mart
operations and the Ohio Stores retail operations for the six months ended July
31, 1995; and (v) Mazel Company L.P.'s wholesale operations and Odd Job
Holdings' operations which includes Peddlers Mart for the six months ended July
27, 1996.
The pro forma data has been prepared on the basis of certain assumptions
and estimates and may not be indicative of the results that would have been
achieved if the 1996 Restructuring and the Offering had been effected on the
dates indicated or that may be achieved in the future.
21
<PAGE> 23
SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------
SIX MONTHS ENDED PRO FORMA
DECEMBER 31, JANUARY 31, PRO FORMA --------------------- AS ADJUSTED
----------------- --------------------------- AS ADJUSTED JULY 31, JULY 27, JULY 27,
1991 1992 1994 1995 1996 1996(1) 1995 1996 1996(2)
------- ------- ------- ------- ------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF COMBINED
OPERATIONS DATA:
Net sales................ $70,051 $71,156 $74,954 $76,254 $98,106 $ 133,881 $41,696 $85,165 $ 85,165
Cost of sales............ 49,965 52,111 54,201 55,183 70,208 91,023 29,251 58,514 58,514
------- ------- ------- ------- ------- ------------ --------- --------- ------------
Gross profit............. 20,086 19,045 20,753 21,071 27,898 42,858 12,445 26,651 26,651
SG&A expense............. 14,589 13,703 15,094 15,317 20,753 32,093 9,163 20,822 19,999
Special charges.......... -- 8,100 1,285 -- 2,203(3) 632 -- -- --
------- ------- ------- ------- ------- ------------ --------- --------- ------------
Operating profit
(loss)................. 5,497 (2,758) 4,374 5,754 4,942 10,133 3,282 5,829 6,652
Interest expense......... 14 650 1,130 894 1,265 541 544 1,284 381
Other expense (income)... (828) (459) 43 (26) 559 (41) (31) (22) (22)
------- ------- ------- ------- ------- ------------ --------- --------- ------------
Income (loss) before
income taxes........... 6,311 (2,949) 3,201 4,886 3,118 9,633 2,769 4,567 6,293
Income taxes............. 93..... 63 21 71 19 3,950 38 34 2,580
Extraordinary loss....... -- -- (455) -- -- -- -- -- --
------- ------- ------- ------- ------- ------------ --------- --------- ------------
Net income (loss)........ $ 6,218 $(3,012) $ 2,725 $ 4,815 $ 3,099 $ 5,683 $ 2,731 $ 4,533 $ 3,713
======= ======= ======= ======= ======= ============ ======== ======== ============
Pro forma earnings per
share.................. $ 0.31(4) $ 0.68 $ 0.43(4) $ 0.44
Pro forma shares
outstanding............ 5,883(4) 8,355 6,210(4) 8,355
Supplemental pro forma
earnings per share..... $ 0.38(4) $ 0.42(4)
Supplemental pro forma
shares outstanding..... 7,290(4) 7,617(4)
</TABLE>
<TABLE>
<CAPTION>
AT JULY 27, 1996
AT DECEMBER 31, AT JANUARY 31, -------------------------
------------------ ----------------------------- PRO FORMA
1991 1992 1994 1995 1996 ACTUAL AS ADJUSTED(5)
------- ------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $21,119 $20,469 $18,373 $17,439 $26,193 $37,976 $ 42,577
Total assets.............................. 29,632 30,589 28,450 31,129 58,034 75,903 81,440
Long-term debt............................ -- 17,168 12,303 10,649 27,382 33,753 13,053
Total liabilities......................... 5,096 22,848 18,997 19,567 43,764 55,018 34,318
Shareholders' equity and partners'
capital................................. 24,537 7,741 9,453 11,562 14,270 20,885 47,122
</TABLE>
- ---------------
(1) The pro forma as adjusted statement of combined operations data for the
fiscal year ended January 31, 1996 have been adjusted to: (i) reflect the
combination of Mazel Company L.P.'s wholesale operations and Odd Job's
operations as if it had occurred at the beginning of the period presented;
(ii) eliminate the discontinued Ohio Stores; and (iii) give effect to the
Offering. See "Pro Forma Financial Data."
(2) The pro forma as adjusted statement of combined operations data for the six
months ended July 27, 1996 gives effect to the Offering as if it had
occurred at the beginning of the period presented. See "Pro Forma Financial
Data."
(3) Consists of special charges of $632 in executive signing bonuses and a
$1,571 loss on the disposal of the Ohio Stores.
(4) See Note 15 of Notes to Combined Financial Statements for an explanation of
the method of calculation.
(5) The pro forma as adjusted balance sheet data: (i) give effect to the
Offering, as if it had been completed on July 27, 1996, and the application
of the estimated net proceeds; and (ii) give effect to transactions between
the Company and its partners, employees, debt holders and other related
entities occurring in conjunction with the Offering.
22
<PAGE> 24
SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
(IN THOUSANDS, EXCEPT SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR -----------
------------------------------------------------------- SIX MONTHS ENDED
FEBRUARY 1, DECEMBER 7,
YEARS ENDED JANUARY 31,(1) 1995 TO 1995 TO --------------------
STATEMENT OF OPERATIONS DATA ---------------------------------------- DECEMBER 7, JANUARY 27, JULY 31, JULY 27,
ODD JOB HOLDINGS (RETAIL): 1992 1993 1994 1995 1995 1996(2) 1995 1996
------- ------- ------- ------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $47,140 $47,538 $50,085 $56,511 $45,289 $14,775 $ 25,770 $ 35,039
Cost of sales................... 29,135 29,468 30,782 35,481 27,904 9,637 15,878 21,368
------- ------- ------- ------- ----------- ----------- -------- --------
Gross profit.................... 18,005 18,070 19,303 21,030 17,385 5,138 9,892 13,671
SG&A expense.................... 15,681 16,251 17,487 18,907 16,199 4,658 9,102 12,810
Special charges................. -- -- -- -- -- 300 -- --
------- ------- ------- ------- ----------- ----------- -------- --------
Operating profit................ 2,324 1,819 1,816 2,123 1,186 180 790 861
Interest expense................ 184 224 210 180 213 287 91 853
------- ------- ------- ------- ----------- ----------- -------- --------
Income (loss) before income
taxes......................... 2,140 1,595 1,606 1,943 973 (107) 699 8
Income taxes (benefit).......... 221 163 150 225 14 (7) 78 4
Cumulative effect of a change in
accounting principle.......... -- -- (39) -- -- -- -- --
------- ------- ------- ------- ----------- ----------- -------- --------
Net income (loss)............... $ 1,919 $ 1,432 $ 1,417 $ 1,718 $ 959 $ (100) $ 621 $ 4
======= ======= ======= ======= =========== ========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JANUARY 31, ----------------------
---------------------------------------------------------------- JULY 31, JULY 27,
SELECTED OPERATING DATA: 1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of stores.................. 10 10 11 12 13 13 17
Total square footage.............. 139,718 139,718 153,718 164,386 188,361 186,386 252,861
Total store sales growth.......... 14.3% 0.8% 5.4% 12.8% 6.3 % 14.2% 24.2%
Comparable store sales growth..... 6.7% 0.8% (2.6)% 7.9% (4.4 )% 2.1% 14.2%
Avg. annual net sales per unit.... $ 4,714 $ 4,754 $ 4,553 $ 4,709 $ 4,620 $ 2,170 $ 2,336
Avg. net sales per gross sq.
ft.............................. $ 337 $ 340 $ 326 $ 344 $ 319 $ 157 $ 178
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31, JANUARY 31, ----------------------
STATEMENT OF OPERATIONS DATA -------------------- --------------------------------- JULY 31, JULY 27,
MAZEL COMPANY L.P. (WHOLESALE): 1991 1992 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $59,169 $57,434 $62,744 $62,748 $77,313 $ 33,648 $ 54,175
Cost of sales..................... 42,452 42,578 45,703 45,790 56,877 23,866 40,862
------- ------- ------- ------- ------- -------- --------
Gross profit...................... 16,717 14,856 17,041 16,958 20,436 9,782 13,313
SG&A expense...................... 11,505 9,540 10,546 10,478 13,031 6,063 8,012
Special charges................... -- 8,100 1,285 -- 332 -- --
------- ------- ------- ------- ------- -------- --------
Operating profit (loss)........... 5,212 (2,784) 5,210 6,480 7,073 3,719 5,301
Interest expense, net............. -- 673 1,130 883 978 499 431
Other expense (income)............ (716) (409) 72 (15) 571 (24) (22)
------- ------- ------- ------- ------- -------- --------
Income (loss) before income
taxes........................... 5,929 (3,048) 4,008 5,612 5,524 3,244 4,892
Income taxes...................... 83 61 21 73 26 37 32
Extraordinary loss................ -- -- (455) -- -- -- --
Discontinued operations........... 372 97 (807) (724) (2,202) (458) --
------- ------- ------- ------- ------- -------- --------
Net income (loss)................. $ 6,218 $(3,012) $ 2,725 $ 4,815 $ 3,296 $ 2,749 $ 4,860
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Reflects a freight reclassification of $839, $737, $705 and $698 for the
years ended January 31, 1995, 1994, 1993 and 1992, respectively, from cost
of sales to selling, general and administrative expense.
(2) As a result of the purchase accounting method applied to the Odd Job
Acquisition, the financial information for the periods after the Odd Job
Acquisition is presented on a different cost basis than for the periods
before the Odd Job Acquisition; accordingly, post-acquisition and
pre-acquisition information is not comparable. The Company information
post-acquisition includes the results of Peddlers Mart for the 12 months
ended January 27, 1996 and Odd Job for the period from December 7, 1995 to
January 27, 1996.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company and its retail and wholesale operations
should be read in conjunction with the information set forth under "Selected
Financial and Operating Data" and the financial statements of Mazel Company
L.P., Odd Job Holdings and their combined operations and the accompanying notes
thereto included elsewhere in this Prospectus.
GENERAL
Mazel was founded as a wholesaler of closeout merchandise in 1975 by
Messrs. Dessler and Koval. In 1981, the Company initiated its Just Closeouts
retail operations in Ohio, which were subsequently sold in October 1995. In
1992, Mazel Company L.P. (the predecessor to the Company) acquired substantially
all of the assets of Mazel's wholesale business, as well as the Ohio Stores.
In December 1995, Odd Job Holdings, a wholly-owned subsidiary of ZS Fund,
acquired Odd Job, which operated a chain of 12 retail stores in the New York
metropolitan area, and acquired Peddlers Mart, which operated one store. Odd Job
Holdings completed the acquisition of two Staten Island retail stores in March
1996 and has opened four new stores this year. Immediately prior to the
Offering, Odd Job Holdings was acquired by the Company in the 1996
Restructuring. The Company plans to open an additional two stores in fiscal
1996, nine stores in fiscal 1997, 12 stores in fiscal 1998 and 15 stores in
fiscal 1999.
The 1996 Restructuring will involve the contribution by Mazel Company L.P.
of all of its assets to the Company, a newly created corporation, in exchange
for 5,613,554 shares of Common Stock. Among the transferred assets will be the
option to acquire the stock of Odd Job Holdings from ZS Fund, the managing
general partner of Mazel Company L.P. The Company will exercise this option
immediately prior to the Offering being declared effective. The option price
will consist of the cash payment of $50,000 to ZS Fund, plus the cancellation of
the $1.35 million indebtedness due by ZS Fund to the Company, as successor to
Mazel Company L.P. The $1.35 million was initially loaned to ZS Fund in
connection with the capitalization of Odd Job Holdings at the time of the Odd
Job Acquisition. The 1996 Restructuring will also include the conversion of the
1992 Old Mazel Contingent Notes ($4.0 million) and the 1995 Old Mazel Note ($1.0
million) into 285,714 and 71,429 shares of Common Stock, respectively, at a
conversion price equal to the initial offering price (assumed to be $14.00 per
share). See "Significant Corporate Transactions."
The Combined Financial Statements of Mazel Company L.P. and Odd Job
Holdings, Inc. represent the historical assets, liabilities and results of
operations of the Company.
In the fourth quarter of fiscal 1996, the Company will take a one-time,
pre-tax charge of approximately $4.4 million representing the compensation and
other charges arising in connection with the Offering. Included as part of the
charge are the effects of the issuance, prior to completion of the Offering, of
a total of 239,303 shares of Common Stock to certain employees of the Company as
salary reduction and bonus compensation payments. See "Certain
Transactions -- Miscellaneous."
The Company believes that it generally requires approximately $600,000 to
open a new store of 17,000 square feet, including the cost of leasehold
improvements, store equipment and fixtures and inventory (net of associated
accounts payable) and pre-opening costs. The Company anticipates that new stores
generally become profitable (excluding the store's share of interest carrying
charges or corporate overhead) within the first six to nine months of operation,
with stores opened in the third and fourth quarters achieving profitability more
quickly than stores opened in the first and second quarters.
On a continuous basis, the Company remodels and refurbishes stores at a
modest cost. Because the first full year of operations includes unusually strong
sales in the opening quarter associated with grand opening promotions, second
year net sales may be lower than first year net sales, but generally increase
thereafter. Store opening expenses are charged to operations as incurred. The
timing of store openings and the number of stores in the maturation process will
have an effect on quarter-to-quarter comparisons. Comparable store net sales
means a comparison of net sales from all stores open at the beginning of both
fiscal periods compared.
24
<PAGE> 26
Wholesale net sales reflect both warehouse and drop shipment sales. Drop
shipment sales generally have lower gross margins than sales requiring
distribution from the Company's warehouses; however, they also have lower
associated selling, general and administrative costs. In addition, sales to the
Company's retail operations have lower margins than sales to third parties.
The Company's wholesale operations have grown from $59.2 million in fiscal
1991 to $77.3 million in fiscal 1995, a compound annual growth rate of 6.9%. The
Company anticipates that net sales of the retail operations should grow more
quickly than those of its wholesale operations because of an emphasis on opening
and acquiring new stores and anticipated increases in comparable store sales. As
the Company's retail operations grow, the wholesale operations will sell a
larger percentage of its products to the Company's retail stores. Because the
gross margin on sales from the wholesale to retail operations are below the
margin on sales to third parties, to the extent that sales to the retail
operations becomes a higher percentage of wholesale's net sales, wholesale's
margin will be negatively affected. The wholesale operations gross margin on
sales to the Company's retail operations of inventory remaining on the retail
operations books at the end of a reporting period is eliminated in the combined
statements. Consequently, the wholesale operations gross margins will be
slightly affected on a quarter-to-quarter basis based on the level of any
changes to retail inventory.
In the past year, the Company has made a substantial investment in
executive personnel and infrastructure to accommodate the Company's anticipated
growth, particularly with respect to its retail operations. The Company has
hired three senior executives and six buyers, and is in the process of expanding
its Solon, Ohio and Englewood, New Jersey warehouse and distribution facilities
by an aggregate of 208,000 square feet. The Company believes that this level of
investment in senior management and distribution facilities will be sufficient
to support its growth until the Company's retail operations expands to
approximately 60 stores.
RESULTS OF OPERATIONS
The results of operations set forth below describe: (i) the Company's
retail operations; and (ii) its wholesale operations. Retail operations include
the results of the Odd Job operations both prior and subsequent to its
acquisition by the Company on December 7, 1995. In addition, retail operations
results include the Peddlers Mart operations for the six months ended July 27,
1996 and for fiscal 1995 (but not the six months ended July 31, 1995). Wholesale
operations include the results of Mazel Company L.P. for each of the periods.
The Ohio Stores, which were sold on October 30, 1995, are treated as a
discontinued operation.
RETAIL
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------------------------------------------------------------
PREDECESSOR SUCCESSOR PREDECESSOR SUCCESSOR
---------------------------------- ----------------- ------------ ------------
YEARS ENDED SIX MONTHS ENDED
JANUARY 31, FEBRUARY 1, 1995 DECEMBER 7, 1995 ---------------------------
--------------- TO TO JULY 31, JULY 27,
1994 1995 DECEMBER 7, 1995 JANUARY 27, 1996 1995 1996
------ ------ ---------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......... 61.5 62.8 61.6 65.2 61.6 61.0
------ ------ ------ ------ ------ ------
Gross margin........... 38.5 37.2 38.4 34.8 38.4 39.0
SG&A expense........... 34.9 33.5 35.8 31.5 35.3 36.6
Special charges........ -- -- -- 2.0 -- --
------ ------ ------ ------ ------ ------
Operating margin....... 3.6 3.8 2.6 1.2 3.1 2.5
Interest expense....... 0.4 0.3 0.5 1.9 0.4 2.4
------ ------ ------ ------ ------ ------
Income (loss) before
income taxes......... 3.2 3.4 2.1 (0.7) 2.7 --
Income taxes........... 0.3 0.4 -- -- 0.3 --
------ ------ ------ ------ ------ ------
Net income (loss)...... 2.8% 3.0% 2.1% (0.7%) 2.4% --
====== ====== ================== =================== ============ ==============
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
PERCENTAGE INCREASE (DECREASE)
------------------------------------------------------------
SIX MONTHS
ENDED
----------
YEARS ENDED JULY 31,
--------------------------------------------- 1995
JANUARY 31, 1994 JANUARY 31, 1995 TO
TO TO JULY 27,
JANUARY 31, 1995 JANUARY 27, 1996(1) 1996
------------------- --------------------- ----------
<S> <C> <C> <C>
Net sales..................................... 12.8% 6.3% 36.0%
Cost of sales................................. 15.3 5.8 34.6
Gross margin.................................. 8.9 7.1 38.2
SG&A expense.................................. 8.1 10.3 40.7
Operating profit.............................. 16.9 (35.7) 9.0
Interest expense.............................. (14.3) nmf nmf
Income (loss) before income taxes............. 21.0 (55.4) (98.9)
Income taxes.................................. 50.0 (96.9) (94.9)
Net income (loss)............................. 21.2 (50.0) (99.4)
<FN>
- ---------------
(1) Combines Predecessor and Successor results
nmf = not meaningful
</TABLE>
Six Months Ended July 27, 1996, versus Six Months Ended July 31, 1995
Net sales increased $9.3 million, or 36.0%, to $35.0 million in the six
months ended July 27, 1996, from $25.8 million for the six months ended July 31,
1995. Comparable store net sales increased approximately 14.2%, contributing
$4.0 million of the increase in net sales. Comparable store net sales increased
primarily due to expanded weekend hours and seven-day-a-week operation following
the Odd Job Acquisition, as well as an expanded product mix and enhanced
merchandising techniques. The remaining $5.3 million increase is attributable to
the addition of Peddlers Mart, two stores acquired March 1, 1996 and two
additional stores opened in the second quarter of fiscal 1996. Net sales in the
first six months of fiscal 1995 were marginally negatively affected by the
relocation of one of the Company's Manhattan stores at the end of the period.
Gross profit increased $3.8 million, or 38.2%, to $13.7 million in the six
months ended July 27, 1996, from $9.9 million in the six months ended July 31,
1995. Gross margin increased to 39.0% in the six months ended July 27, 1996,
from 38.4% in the six months ended July 31, 1995. This increase was due to
increased purchasing opportunities resulting from the ability to buy for both
the retail and wholesale operations, as well as the efforts of the Company's
eight new senior buyers in acquiring higher margin products.
Selling, general and administrative expenses increased $3.7 million, or
40.7%, to $12.8 million in the six months ended July 27, 1996, from $9.1 million
in the six months ended July 31, 1995. Selling, general and administrative
expenses, as a percentage of net sales, increased to 36.6% in the fiscal 1996
period from 35.3% in the comparable 1995 period. This $3.7 million increase
primarily resulted from $2.0 million of increased store level expenses
(decreasing as a percentage of net sales to 25.7% for the six months ended July
27, 1996, from 27.4% for the six months ended July 31, 1995). Approximately $1.2
million of the increase resulted primarily from an increase in administrative
cost, principally attributable to costs associated with the new senior
management team, costs associated with store management trainees, and reduced
levels of outside commission income resulting from the March 1, 1996 acquisition
of two stores. In addition, warehouse and store delivery costs increased
$575,000 due to costs associated with increased inventory levels, new store
opening support costs, and costs associated with setup of the expanded warehouse
square footage.
Operating profit increased to $861,000 for the six months ended July 27,
1996, from $790,000 for the six months ended July 31, 1995. As a percentage of
net sales, operating margin decreased to 2.5% from 3.1%. This decrease was
primarily due to the factors described above.
Fiscal 1995 (Combined Predecessor and Successor results) versus Fiscal 1994
Net sales increased $3.6 million, or 6.3%, to $60.1 million in fiscal 1995,
from $56.5 million in fiscal 1994. Comparable store net sales decreased 4.4%, or
$2.2 million. Comparable store net sales decreased primarily due to the Company
carrying lower levels of inventory in anticipation of a difficult retail
environment in the
26
<PAGE> 28
last half of fiscal 1995 and additionally reflects the impact of the predecessor
management's focus on the Odd Job Acquisition. Fiscal 1995 net sales include
$5.2 million of sales attributable to Peddlers Mart.
Gross profit increased $1.5 million, or 7.1%, to $22.5 million in fiscal
1995, from $21.0 million in fiscal 1994. Gross margin remained relatively
constant, increasing modestly to 37.5% in fiscal 1995, from 37.2% in fiscal
1994.
Selling, general and administrative expenses increased $2.0 million, or
10.3%, to $20.9 million in fiscal 1995, from $18.9 million in fiscal 1994.
Selling, general and administrative expenses as a percentage of net sales
increased to 34.7% in fiscal 1995, from 33.5% in fiscal 1994. The increase in
selling, general and administrative expenses was due primarily to $1.7 million
of increased store operating expenses due to the inclusion of Peddlers Mart in
fiscal 1995, a $300,000 increase in Odd Job store payroll due in part to the
relocation of one Manhattan store, and a $200,000 expense incurred in connection
with on-going defense in the Odd Job Litigation. Additionally, fiscal 1995
selling, general and administrative expenses included an allocation of
approximately $100,000 of charges relating to the new senior management team.
Special charges were $300,000 in fiscal 1995, reflecting signing bonuses
paid to former owners of Odd Job payable upon completion of the Odd Job
Acquisition. There were no special charges in fiscal 1994.
Operating profit decreased $757,000, or 35.7% in fiscal 1995, to $1.4
million versus $2.1 million in fiscal 1994. As a percentage of net sales,
operating margin decreased to 2.3% in fiscal 1995, versus 3.8% in fiscal 1994.
This decrease was a result of all of the factors described above.
Fiscal 1994 versus Fiscal 1993
Net sales increased $6.4 million, or 12.8%, to $56.5 million in fiscal
1994, from $50.1 million in fiscal 1993. Comparable store net sales increased
7.9%, or $3.7 million. The comparable store net sales increase was due to higher
levels of inventory available for sales. The remaining increase in net sales of
$2.7 million was due to the full year effect of one location open in June 1993
and the opening of a second location in November 1994.
Gross profit increased $1.7 million, or 8.9%, to $21.0 million in fiscal
1994, from $19.3 million in fiscal 1993. Gross margin decreased to 37.2% in
fiscal 1994, from 38.5% in fiscal 1993. The Company believes this decrease in
gross margin was a result of higher levels of inventory shrink in the retail
stores in fiscal 1994.
Selling, general and administrative expenses increased $1.4 million, or
8.1%, to $18.9 million in fiscal 1994, from $17.5 million in fiscal 1993.
Selling, general and administrative expenses as a percentage of net sales,
decreased to 33.5% in fiscal 1994, from 34.9% in fiscal 1993. The increase in
selling, general and administrative expenses was due primarily to the full year
operation of one location opened in June 1993 and the store expenses relating to
another location opened in November 1994. The decrease in selling, general and
administrative expenses as a percentage of net sales was attributable to the
higher level of net sales in fiscal 1994 and reflects the "semi-fixed" nature of
store operating costs which decreased 1.1% of net sales in fiscal 1994.
Operating profit increased $307,000, or 16.9%, in fiscal 1994, to $2.1
million versus $1.8 million in fiscal 1993. As a percentage of net sales,
operating margin increased to 3.8% in fiscal 1994, versus 3.6% in fiscal 1993.
This increase was a result of all of the factors described above.
27
<PAGE> 29
WHOLESALE
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------------------------
SIX MONTHS ENDED
YEARS ENDED JANUARY 31, -----------------------
---------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0 % 100.0 % 100.0 % 100.0% 100.0%
Cost of sales...................................... 72.8 73.0 73.6 70.9 75.4
------ ------ ------ --------- ---------
Gross margin....................................... 27.2 27.0 26.4 29.1 24.6
SG&A expense....................................... 16.8 16.7 16.9 18.0 14.8
Special charges.................................... 2.0 -- 0.4 -- --
------ ------ ------ --------- ---------
Operating margin................................... 8.3 10.3 9.1 11.1 9.8
Interest expense, net.............................. 1.8 1.4 1.3 1.5 0.8
Other expense (income)............................. 0.1 -- 0.7 (0.1) --
------ ------ ------ --------- ---------
Income before income taxes......................... 6.4 8.9 7.1 9.6 9.0
Income taxes....................................... -- 0.1 -- 0.1 0.1
Extraordinary loss................................. (0.7 ) -- -- -- --
Discontinued operations............................ (1.3 ) (1.2 ) (2.8 ) (1.4) --
------ ------ ------ --------- ---------
Net income......................................... 4.3 % 7.7 % 4.3 % 8.2% 9.0%
====== ====== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE INCREASE (DECREASE)
----------------------------------------------------------------
YEARS ENDED SIX MONTHS ENDED
------------------------------------------- ----------------
JANUARY 31, 1994 JANUARY 31, 1995 JULY 31, 1995
TO TO TO
JANUARY 31, 1995 JANUARY 31, 1996 JULY 27, 1996
------------------- ------------------- ----------------
<S> <C> <C> <C>
Net sales.................................. -- 23.2% 61.0%
Cost of sales.............................. 0.2% 24.2 71.2
Gross margin............................... (0.5) 20.5 36.1
SG&A expense............................... (0.6) 24.4 32.1
Operating profit........................... 24.4 9.2 42.5
Interest expense, net...................... (21.9) 10.8 (13.6)
Other expense (income)..................... nmf nmf (8.3)
Income (loss) before income taxes.......... 40.0 (1.6) 50.8
Income taxes............................... nmf (64.4) (13.5)
Discontinued operations.................... (10.3) nmf nmf
Net income (loss).......................... 76.7 (31.5) 76.8
</TABLE>
- ---------------
nmf = not meaningful
Six Months Ended July 27, 1996, versus Six Months Ended July 31, 1995
Net sales increased $20.5 million, or 61.0%, to $54.2 million in the first
six months of fiscal 1996, from $33.6 million in the first six months of fiscal
1995. Fiscal 1996 net sales were positively affected by a $2.7 million increase
in sales to the Odd Job retail operation and higher levels of sales to existing
customers, including one key customer whose secondary distribution center had
been damaged early in the second quarter of 1996. The Company also benefited
from the addition of new customers.
Gross profit increased $3.5 million, or 36.1%, to $13.3 million in the
first six months of fiscal 1996, from $9.8 million in the first six months of
fiscal 1995. Gross margin decreased to 24.6% in the first six months of fiscal
1996, from 29.1% in the first six months of fiscal 1995. The increase in gross
profit was driven by the large increase in sales volume, while the gross margin
decline resulted from the slightly higher percentage of drop shipment sales and,
due to a change in merchandise mix, reduced gross margins on stock sales in the
first half of fiscal 1996.
Selling, general and administrative expenses increased $1.9 million, or
32.1%, to $8.0 million in the first six months of fiscal 1996, from $6.1 million
in the comparable 1995 period. The increase in selling, general and
administrative expenses was principally due to increases in variable expense
(such as sales commission and
28
<PAGE> 30
travel) and approximately $1.2 million of charges attributable to the new senior
executives who joined the Company in the last six months of fiscal 1995. As a
percentage of net sales, selling, general and administrative expenses decreased
to 14.8% in the first six months of 1996, from 18.0% in the first six months of
1995, as the Company benefited from higher leverage of its fixed overhead.
Operating profit increased to $5.3 million in the first six months of 1996,
from $3.7 million in the first six months of 1995. As a percentage of net sales,
operating margin decreased to 9.8% in the 1996 period from 11.1% in the
comparable 1995 period, due to the factors described above.
Fiscal 1995 versus Fiscal 1994
Net sales increased $14.6 million, or 23.2% to $77.3 million in fiscal
1995, from $62.7 million in fiscal 1994. Fiscal 1995 net sales were positively
affected by a $4.5 million increase in levels of inventory available for sale, a
$1.2 million increase in sales to the Company's retail operations and higher
levels of sales to existing customers, as well as the addition of new customers.
Gross profit increased $3.5 million, or 20.5%, to $20.4 million in fiscal
1995, from $17.0 million in fiscal 1994. Gross margin decreased slightly to
26.4% in fiscal 1995, from 27.0% in fiscal 1994. Gross profit dollars increased
due to the higher level of net sales. Gross margin declined due to a lower gross
margin on drop shipment sales in fiscal 1995.
Selling, general and administrative expenses increased $2.6 million, or
24.4%, to $13.0 million in fiscal 1995, from $10.5 million in fiscal 1994.
Selling, general and administrative expenses as a percentage of net sales
remained relatively flat at 16.9% in fiscal 1995 and 16.7% in fiscal 1994. The
increase in selling, general and administrative expenses was due principally to
variable expenses such as warehouse expenses, sales commission and travel that
increase in relation to sales growth, a $300,000 increase in professional fees,
and approximately $1.0 million of charges, such as payroll and related office
and travel expenses for new senior executives who joined the Company in the last
half of fiscal 1995 and the setup of a Columbus, Ohio office and showroom.
Special charges of $332,000 in fiscal 1995 resulted from one-time
contractual obligations relating to the hiring of senior executives. There were
no special charges in 1994.
Operating profit increased $593,000, or 9.2%, in fiscal 1995, to $7.1
million, versus $6.5 million in fiscal 1994. Operating margin decreased to 9.1%
in fiscal 1995, versus 10.3% in fiscal 1994. This decrease was primarily a
result of the special charges. Excluding the special charges, operating margin
would have been 9.6% in fiscal 1995.
Fiscal 1994 versus Fiscal 1993
Net sales remained relatively unchanged at $62.7 million in both fiscal
1994 and fiscal 1993. The Company elected to reduce sales to certain customers
based on the Company's concerns regarding their creditworthiness.
Gross profit remained relatively unchanged at $17.0 million in both fiscal
1994 and fiscal 1993. Gross margin decreased to 27.0% in fiscal 1994, from 27.2%
in fiscal 1993.
Selling, general and administrative expenses remained relatively unchanged
at approximately $10.5 million in both fiscal 1994 and fiscal 1993. Selling,
general and administrative expenses as a percentage of net sales, decreased to
16.7% in fiscal 1994, from 16.8% in fiscal 1993.
While there were no special charges in fiscal 1994, the Company incurred
$1.3 million of special charges in fiscal 1993 due to the bankruptcy of Value
Merchants, a trade customer of the Company.
Operating profit increased $1.3 million, or 24.4%, in fiscal 1994, to $6.5
million versus $5.2 million in fiscal 1993. Operating margin increased to 10.3%
in fiscal 1994, versus 8.3% in fiscal 1993. This increase was primarily a result
of the absence of special charges in fiscal 1994. Excluding the special charges
in fiscal 1993, operating profit and operating margin would have been
approximately flat at $6.5 million and 10.4%, respectively.
29
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of purchases of
inventory, expenditures related to new store openings and the working capital
requirements for new and existing stores. The Company takes advantage of
closeout and other special-situation purchasing opportunities which frequently
result in large volume purchases, and as a consequence, its cash requirements
are not constant or predictable during the year and can be affected by the
timing and size of its purchases. The Company maintains a high level of
committed credit, so that it can take immediate advantage of special situation
purchasing opportunities. Having such credit availability provides the Company
with a competitive advantage measured against many of its competitors.
For the six months ended July 27, 1996, on an actual basis, cash used by
combined operating activities increased to $6.8 million, from $842,000 in the
comparable period in 1995, primarily because of increased trade accounts
receivable due to wholesale business growth and increased inventory levels,
partially offset by increases in trade accounts payable. Cash used in investing
activities increased to $857,000 in the six months ended July 27, 1996, from
$200,000 in the comparable 1995 period, due to increased capital expenditures
relating to new stores and increased warehouse capacity. Cash provided by
financing activities increased to $8.5 million in the first six months of fiscal
1996 from $1.0 million in the comparable 1995 period, reflecting a $4.0 million
equity contribution and increased bank borrowings.
Capital expenditures for fiscal 1996 and 1997 are budgeted at approximately
$4.0 million, primarily for new stores, the management information systems
upgrade and the warehouse and distribution facilities' expansion.
Historically, the Company's growth has been financed through cash flow from
operations, borrowings under its bank credit facility and the extension of trade
credit. At July 27, 1996, the outstanding balance of the Company's $38.5 million
credit facility ("Credit Facility") was approximately $32.2 million. Most of the
net proceeds of the Offering will be used to repay outstanding indebtedness of
$19.7 million under the Credit Facility. Borrowings under the Credit Facility
bear interest at variable rates with a weighted average borrowing rate at July
27, 1996, of 8.68% per annum and are secured by a lien on substantially all of
the Company's assets. The Company expects to enter into a new $40.0 million
credit facility, conditioned on completion of the Offering. The Company expects
its effective borrowing rate to decline modestly and to achieve a modification
of current restrictive covenants; however, the new facility will include
covenants, still to be negotiated, on minimum net worth levels, maintenance of
certain financial ratios, limitations on capital expenditures and limitation on
dividends.
The Company currently anticipates opening new stores in each of the next
few years. In addition to new store openings, the Company may increase the
number of stores it operates through acquisitions. Management believes that from
time to time acquisition opportunities will arise. Possible acquisitions will
vary in size and the Company will consider larger acquisitions that could be
material to the Company. In order to finance any such possible acquisitions, the
Company may use cash flow from operations, may borrow additional amounts under
its revolving credit facility, may seek to obtain additional debt or equity
financing or may use its equity securities as consideration. The availability
and attractiveness of any outside sources of financing will depend on a number
of factors, some of which will relate to the financial condition and performance
of the Company, and some of which will be beyond the Company's control, such as
prevailing interest rates and general economic conditions. There can be no
assurance that such additional financing will be available or, if available,
will be on terms acceptable to the Company.
Management believes that the proceeds of the Offering, together with cash
flow from operations and additional borrowings under its proposed new loan
facility, will be adequate to fund the operations and internal expansion plans
of the Company for at least the next twelve months.
INFLATION
During the six months ended July 27, 1996 and the years ended January 31,
1996 and 1995 lease expense and salaries and wages have increased modestly. The
increases have not had a significant effect on the
30
<PAGE> 32
Company's results of operations because the impact of rising costs has been
offset by price increases. As a result, inflation has not had nor is it expected
to have a significant impact on the Company's operations.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued two
pronouncements effective for financial statements for years beginning after
December 15, 1995, that would apply to the Company. The Company has considered
the requirements of Statement No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of and has determined that
it will not require recognition of any impairment losses. The Company has also
determined to remain within the accounting prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees, and accordingly the implementation of
Statement No. 123, Accounting for Stock-Based Compensation, will result in
additional disclosures without any impact on the statements of operations or
financial condition.
SEASONALITY AND QUARTERLY FLUCTUATION
Historically, the Company's retail stores have experienced their highest
net sales and operating income levels during the fourth quarter, which includes
the holiday selling season. The Company's wholesale operations have historically
experienced slightly higher sales and operating income levels in the second half
of the year.
The Company's quarterly results of operations may also fluctuate from
quarter to quarter as a result of the amount and timing of sales contributed by
new stores, the level of advertising and pre-opening expenses associated with
the opening of new stores, the integration of new stores into the operations of
the Company and the timing of large opportunistic purchases and sales in the
Company's wholesale operations as well as other factors.
QUARTERLY RESULTS
The following table represents certain selected unaudited financial
information of the Company's wholesale and retail operations for the quarters
indicated. For purposes of analysis, the wholesale operations consists of Mazel
Company L.P. and the retail operations consists of Odd Job and Peddlers Mart for
each quarter in the year ended January 27, 1996. Peddlers Mart operating results
following its acquisition in the fourth quarter of fiscal 1994 are not material
and have been excluded from the results of that quarter.
<TABLE>
<CAPTION>
4TH
RETAIL 1ST QUARTER 2ND QUARTER 3RD QUARTER QUARTER(1)
----------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal 1996
Net sales.................................. $16,882 $18,157
Gross profit............................... 6,501 7,170
Operating income........................... 500 360
Income (loss) before income taxes.......... 150 (142)
Net income (loss).......................... 87 (82)
Fiscal 1995
Net sales.................................. $13,975 $14,238 $13,249 $ 18,602
Gross profit............................... 5,324 5,423 4,970 6,806
Special charges............................ -- -- -- 300
Operating income (loss).................... 385 439 (239) 781
Income (loss) before income taxes.......... 326 363 (353) 529
Net income (loss).......................... 296 315 (326) 574
Fiscal 1994
Net sales.................................. $11,619 $13,087 $12,573 $ 19,232
Gross profit(2)............................ 4,324 4,870 4,679 7,157
Operating income (loss).................... (18) 292 175 1,674
Income (loss) before income taxes.......... (56) 239 118 1,642
Net income (loss).......................... (66) 192 85 1,507
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
WHOLESALE 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal 1996
Net sales.................................. $27,185 $26,990
Gross profit............................... 6,553 6,760
Operating income........................... 2,655 2,646
Income before income taxes................. 2,422 2,470
Net income................................. 2,406 2,454
Fiscal 1995
Net sales.................................. $17,474 $16,174 $21,176 $ 22,489
Gross profit............................... 4,928 4,854 5,691 4,963
Special charges............................ -- -- -- 332
Operating income........................... 1,966 1,753 2,374 980
Discontinued operations.................... (233) (225) (1,744) --
Income (loss) before income taxes.......... 1,508 1,278 (155) 692
Net income (loss).......................... 1,485 1,264 (155) 702
Fiscal 1994
Net sales.................................. $14,267 $14,769 $16,228 $ 17,484
Gross profit............................... 4,056 3,921 4,539 4,442
Operating income........................... 1,474 1,438 1,797 1,771
Discontinued operations.................... (156) (101) (224) (243)
Income before income taxes................. 1,132 1,119 1,336 1,302
Net income................................. 1,115 1,102 1,316 1,282
<FN>
- ---------------
(1) As a result of the purchase accounting method applied to the Odd Job
Acquisition, certain financial information for the period subsequent to the
Odd Job Acquisition is not comparable to the period prior to the
acquisition. Such differences relate principally to fair market value
adjustments for goodwill, fixed assets and leases. The estimated impact of
such adjustments in the post-acquisition period was to reduce selling,
general and administrative expenses by approximately $80.
(2) Reflects a freight reclassification of $839 from cost of sales to selling,
general and administrative expense.
</TABLE>
32
<PAGE> 34
BUSINESS
GENERAL
The Company consists of two complementary operations: (i) a major regional
closeout retail business; and (ii) one of the nation's largest closeout
wholesale businesses. The Company sells quality, value-oriented consumer
products at a broad range of price points offered at a substantial discount to
the original retail or wholesale price. The Company's merchandise primarily
consists of new, frequently brand-name products that are available to the
Company for a variety of reasons, including overstock positions of a
manufacturer, wholesaler or retailer; the discontinuance of merchandise due to a
change in style, color, shape or repackaging; a decrease in demand for a product
through traditional channels; or the termination of business by a manufacturer,
wholesaler or retailer. The Company operates a chain of 19 closeout retail
stores, including 11 in New York (five of which are in Manhattan) and eight in
New Jersey. The Company had, on a pro forma basis, fiscal 1995 retail sales of
$60.1 million and wholesale sales (excluding intercompany sales between Odd Job
and the Company's wholesale operation) of approximately $73.8 million.
The Company was founded in 1975 as a wholesaler of closeout merchandise.
Management's business strategy has expanded from a primary focus on wholesale
operations to an emphasis on growth of its newly-acquired Odd Job stores. The
Company's goal is to establish itself as the leading closeout retailer in its
Northeast and Mid-Atlantic targeted market, which are easily serviced from the
Company's retail distribution and warehouse facility in Englewood, New Jersey.
In furtherance of its retail growth strategy, in 1995 the Company acquired
the Odd Job stores and hired Messrs. Churches and Sommers. Mr. Churches was
employed by Consolidated for approximately 19 years, the last two of which were
as President. Mr. Sommers worked closely with Mr. Churches at Consolidated for
approximately 12 years, the last two of which were as its Executive Vice
President -- Merchandising. Following the hiring of its retail management team,
the Company completed the Odd Job Acquisition and the related acquisitions of
three stores.
The Company opened its 19th store on October 12, 1996 and is scheduled to
open two additional stores in November 1996. The Company believes that the
combination of its existing wholesale operations and the Odd Job retail
operations will result in significant synergies that will enable the Company to
expand its retail operations and increase sales and net income of both the
wholesale and retail operations.
INDUSTRY OVERVIEW
Closeout retailing is one of the fastest-growing segments of the retailing
industry in the United States. Closeout retailers and wholesalers provide a
valuable service to manufacturers by purchasing excess products. Closeout
merchandisers also take advantage of generally lower prices in the off-season by
buying and warehousing seasonal merchandise for future sale. As a result of
acquiring merchandise at a deeper discount, closeout merchandisers can offer
merchandise at prices significantly lower than those offered by traditional
retailers and wholesalers.
The closeout sector has benefitted from several recent industry trends.
Consolidation in the retail industry and the expansion of just-in-time inventory
requirements have generally had the effect of shifting inventory risk from
retailers to manufacturers. In addition, a trend toward shorter product cycles,
particularly in the consumer goods sector, has increased the frequency of new
product and new product packaging introductions. These factors have increased
the reliance of manufacturers on closeout retailers and wholesalers like the
Company, who frequently are able to purchase larger quantities of excess
inventory and successfully control the distribution of such goods.
BUSINESS STRENGTHS
Experienced Management Team. The Company's senior retail and wholesale
management teams have significant operating knowledge, vendor contacts and
closeout industry experience. Messrs. Churches and Sommers have significant
experience directing a rapid retail expansion and the associated purchasing,
33
<PAGE> 35
merchandising, advertising, distribution and real estate functions. During their
tenure at Consolidated, the number of Consolidated stores increased from one to
approximately 800. Similarly, Messrs. Dessler and Koval are widely considered to
be pioneers in the closeout wholesale industry and have a long track record of
building a growing and profitable operation.
Experienced Buying Team. The Company believes that it has assembled one of
the strongest and most experienced buying teams in the closeout industry. The
Company's 21 senior buyers in its retail and wholesale operations have an
average of over 15 years of closeout merchandise buying experience. The Company
maintains two distinct buying departments: (i) the wholesale buying staff
operating under the direction of Mr. Dessler in Solon, Ohio and New York City;
and (ii) the retail buying staff operating under the direction of Messrs.
Churches and Sommers in Columbus, Ohio and New York City. Each of these groups
maintains relationships with a wide range of sources of closeout and promotional
merchandise and maintains and coordinates regular contact between groups.
Integrated Wholesale and Retail Operations. The combination of the
wholesale and retail operations provides the Company with substantial purchasing
expertise, vendor contacts, purchasing capacity and cross-purchasing
opportunities. The Company believes these competitive advantages enable it to:
(i) have more direct access to sources of closeout merchandise, providing price
and opportunity advantages; (ii) purchase larger quantities and a wider variety
of closeout merchandise; and (iii) negotiate better terms due to higher
quantities of orders for merchandise manufactured to the Company's
specifications. The combination of these factors allows the Company to provide
its customers with an excellent mix of value-oriented merchandise at attractive
prices.
Responsive to Sources of Closeout Merchandise. The Company believes that
establishing and maintaining excellent relationships with vendors is essential
to the success of its retail and wholesale closeout operations. By remaining
flexible and responsive to the needs of its vendors, the Company believes it is
a preferred customer of many key vendors. Specifically, the Company accommodates
the needs of its vendors by: (i) making rapid purchasing decisions; (ii) taking
immediate delivery of larger quantities of closeout merchandise than many of its
competitors; (iii) purchasing the entire product assortment offered by a
particular vendor; (iv) minimizing disruption to the supplier's ordinary
distribution channels; and (v) making prompt and reliable payments.
Broad Merchandise Mix. The Company seeks to provide its retail consumers
maximum value by offering a wide variety of quality merchandise at substantial
discounts. The Company's retail stores offer consumer items which are frequently
brand-name and emphasize housewares, stationery, books, party supplies, health
and beauty aids, food, toys, hardware, electronics and garden supplies. Although
the Company continuously offers these general categories of merchandise,
specific products and product lines carried change frequently, depending upon
the purchases the Company is able to negotiate. Brands carried by the Company's
stores may include, at any given time, Black and Decker, Enesco, Farberware,
Hershey, Keebler, Mars, Mattel, Mikasa, Rubbermaid and Sony. The Company
believes that its changing variety of value-oriented merchandise from one day to
the next results in customers shopping at the stores more frequently than they
might otherwise. The Company refers to such frequent shoppers as "treasure
hunters" due to their regular visits to the Company's stores in an effort to
seek out bargains. The stores also carry, on a consistent basis, value-oriented
selected goods manufactured to the Company's specifications. These
manufactured-to-order goods provide cost-effective merchandise for the Company,
primarily in the areas of seasonal items, party goods and certain basic
houseware items. In addition, the Company offers products at a broad range of
price points from less than $1.00 to several hundred dollars. The Company's
stores feature message boards indicating newly arrived merchandise, adaptable
merchandising fixtures and displays and attractive signage, all designed to
emphasize the changing variety of merchandise and to communicate value and
quality to its customers.
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<PAGE> 36
GROWTH STRATEGIES
New Store Openings. The Company anticipates opening or acquiring
approximately 40 new stores through the end of fiscal 1999 and believes there is
a potential for the Company to operate approximately 100 stores in the Northeast
and Mid-Atlantic targeted market. These stores would be easily serviced from the
Company's Englewood, New Jersey warehouse and distribution facility. The Company
plans to open nine stores in fiscal 1997, 12 stores in fiscal 1998 and 15 stores
in fiscal 1999. The Company has opened or acquired six stores this fiscal year
and two additional stores are scheduled to open in November. The Company may
also open stores in other geographic areas if favorable real estate
opportunities and conditions exist. The Company's strategy is to open stores in
high-traffic urban areas or suburban strip shopping centers. The Company sells
its full range of products and merchandise mix in a variety of store
configurations and locations, currently ranging from 6,500 to 25,000 square
feet. This flexibility in store configurations provides a competitive advantage
in selecting desirable store locations.
Enhancing Store Sales. The Company's management has expanded the
merchandise mix of the acquired Odd Job operations, including the addition of
more health-and-beauty aids, toys, greeting cards, hardware, food and seasonal
items. These additional items supplement Odd Job's existing extensive selection
of electronics, luggage, china, perfume and giftware. A targeted merchandise
approach has been instituted in recognition of the differences between the
Company's urban and suburban locations. Management has also instituted an
advertising program consisting of the periodic publication of multi-color
mailing or newspaper circulars promoting up to 35 value-oriented, easily
recognizable items. Due to the program's initial success, management plans to
expand the use of advertising circulars in the future.
Leveraging the Company's Investment in Infrastructure. To support the
Company's planned growth and expansion, beginning in the second half of 1995,
the Company hired Brady Churches and Jerry Sommers, increased the number of its
experienced closeout buyers, committed to the expansion of its Solon, Ohio and
Englewood, New Jersey warehouse and distribution facilities and instituted an
advertising program to support increased store sales in its new and existing
stores. These expenditures have and are expected to increase the Company's
overall selling, general and administrative expenses. The Company believes that
such expenditures will enable it to achieve its growth objectives and will
result in significant operating leverage as it expands.
Acquisitions. The closeout retail industry in the Northeast and
Mid-Atlantic market is highly fragmented. The Company believes that by focusing
its retail operations in this geographic market, it will be able to take
advantage of acquisition opportunities which will further enable the Company to
implement its growth strategy. In addition, the Company may also examine
acquisition opportunities in other geographic areas. The Company seeks to
acquire closeout retail operations which will further enable the Company to
leverage its management, purchasing and distribution infrastructure and that can
be effectively integrated into the Company's retail operations. Furthermore, the
Company may also pursue acquisition opportunities in the closeout wholesale
industry.
RETAIL OPERATIONS
General. The Company's chain of 19 retail stores operating under the "Odd
Job" name are located in Manhattan (5), New Jersey (8), Westchester County, N.Y.
(2), Staten Island (3) and Rockland County, N.Y. (1). Odd Job opened its first
store in 1974.
Expansion Plans. The Company plans to expand upon the 19 stores currently
operating by opening new stores in the Northeast and Mid-Atlantic targeted
market, which are serviceable from the Company's Englewood, New Jersey warehouse
and distribution facility. Stores may be opened in other geographic areas if
favorable conditions exist. The Company anticipates opening or acquiring
approximately 40 new stores through the end of fiscal 1999. The Company opened
two new stores in the third quarter of fiscal 1996 and plans to open two
additional stores in November.
In choosing specific sites for expansion, the Company considers numerous
factors including demographics, traffic patterns, location of competitors and
overall retail activity. The Company's standards for
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<PAGE> 37
evaluating these factors are flexible and are based on the nature of the market.
The Company will seek to expand in both suburban and urban markets. Due to its
broader selection of closeout merchandise than other closeout retailers, the
Company seeks areas with a concentration of upper middle-class households for
its suburban store locations, such as Westchester County, New York. See
"Business -- Retail Operations -- Store Locations."
In addition, the Company may add stores through the acquisition of other
closeout businesses if favorable opportunities are presented. The Company has
successfully integrated the Peddlers Mart store and the two "The CloseOut Store"
outlets acquired in March 1996 into the Odd Job organization and believes that
it can continue to do so with future acquisitions.
Merchandising and Marketing. The Company believes that its customers are
attracted to its stores principally because of the availability of a large
assortment of quality consumer items, which are frequently brand-name, at
attractive prices. The Company offers certain general categories of merchandise
on a continual basis, although specific lines, products and manufacturers change
frequently. Inventories depend primarily on the types of merchandise which the
Company is able to acquire at any given time. The Company believes that this
changing variety of merchandise from one day to the next results in customers
shopping at the stores more frequently than they might otherwise. The Company
refers to such frequent shoppers as "treasure hunters" due to their regular
visits to the Company's stores in an effort to seek out bargains. Historically,
the Company's stores have offered substantial savings on merchandise categories,
including housewares, stationery, books, party supplies, health and beauty aids,
food, toys, hardware, electronics and garden supplies. Brands carried by the
Company's stores may include, at any given time, Black and Decker, Enesco,
Farberware, Hershey, Keebler, Mars, Mattel, Mikasa, Rubbermaid and Sony.
Following the Odd Job Acquisition, the Company has developed and
implemented a new merchandising approach. As a result of the purchasing
expertise and vendor contacts of Messrs. Dessler, Churches, Sommers and the
Company's senior purchasing executives, the Company has increased the number of
brand-name products which it offers, particularly toys, books, greeting cards,
health and beauty aids, party supplies and food. In addition, the Company has
increased the breadth and quality of its seasonal merchandise and has sought to
promote these items through in-store displays designed around specific holidays.
The Company believes its large selection of brand-name products often
attracts a customer seeking a particular brand or product, who will check the
Company's stores in search of the lowest price before resorting to a large
discount store where the customer assumes the product is in stock. In addition,
Odd Job stores carry, on a consistent basis, selected goods manufactured to the
Company's specifications. The Company is able to negotiate competitive prices
with manufacturers of these products, many of whom are located outside the
United States. Such products provide cost-effective merchandise on certain items
for which continuity is important to customers.
Management believes the presentation of its merchandise is critical to
communicating value and quality to its customers. The Company uses a variety of
adaptable merchandising fixtures and displays, including mobile racks that allow
flexibility in the presentation of a merchandise mix which changes daily. Some
merchandise is displayed in its initial packaging, stacked floor-to-ceiling. A
message board appears in every store, indicating both new arrivals and coming
merchandise, in an effort to appeal to "treasure hunters." The Company relies on
attractive exterior signage and in-store merchandising as its primary form of
advertising. While Odd Job historically had not utilized other forms of
advertising, the Company has initiated an advertising program particularly for
the Company's suburban locations, using mailers and in-paper circulars, on a
periodic basis, to promote up to 35 value-oriented, easily recognizable items.
As a result of its merchandise mix, visual merchandising methods and
high-traffic store locations, the Company's average inventory turn rate is
approximately four times per year, which the Company believes is greater than
the average for other major closeout retailers.
Purchasing. The Company believes that the primary factor contributing to
the success of its business is its ability to locate and take advantage of
opportunities to purchase large quantities of quality brand-name merchandise at
prices which allow the Company to resell the merchandise at prices that are
substantially
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<PAGE> 38
below traditional retail prices. Its retail operations maintain a buying staff
of ten individuals under the direction of Messrs. Churches and Sommers in
Columbus, Ohio and New York City. The retail purchasing staff works closely with
the wholesale operation to identify the most attractive closeout purchasing
opportunities available. The Company believes its acquisition of the retail
operations has created significant synergies in purchasing. The combined buying
power and expertise of the retail and wholesale purchasing staffs enable the
Company to identify and purchase large quantities of quality, brand-name
closeout merchandise and then sell the merchandise through its retail stores,
its wholesale distribution channels or both. The Company believes the
combination of wholesale and retail operations has enabled the Odd Job buying
staff to broaden the scope and the quantities of quality merchandise that it
purchases and offer better value to its customers. For example, the Odd Job
stores historically purchased seasonal items through importers or other
middlemen. Following the Odd Job Acquisition, such items are now purchased
primarily from manufacturers, at substantial savings. The Company's retail
buyers purchase merchandise from more than 1,300 suppliers throughout the world.
Store Operations. Each store is staffed with section managers who have
primary responsibility for helping customers and monitoring sales floor
inventory in several merchandise categories. Section managers continually
replenish the shelves, communicate information as to fast-selling items to store
managers and identify slow-moving products for clearance. Each store has between
seven and 14 check-out stations and provides sales personnel for customer
assistance. Sales are primarily for cash, although personal checks and bank
credit cards are accepted. The Company's Manhattan stores offer free daily
storage, which enables customers to pick up items purchased during the day on
their way home from work. Following the Odd Job Acquisition, the Odd Job stores
moved to expanded weekend hours and seven-day-a-week operation. As the number of
stores increases, the Company intends to create an infrastructure consisting of
regional managers responsible for the operations of approximately 20 stores,
reporting directly to the Vice President -- Retail Operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Store Locations. The Company's 14 suburban stores are each located in
strip shopping centers. The five Manhattan stores are each located in
high-traffic urban corridors (e.g., near Grand Central Station, Rockefeller
Center and Wall Street) which provide access to large numbers of commuters. As a
result, the Manhattan stores generate higher volumes during the work week. The
Company's suburban stores are generally in close proximity to shopping malls,
department stores and other retail operations and in most cases are near a major
highway or thoroughfare, making them easily accessible to customers. The
suburban stores generate higher sales volumes during the weekends. The Company
attempts to tailor its merchandising and marketing strategies to respond to the
differences in its urban and suburban stores. The Company's stores range in size
from 6,500 to 25,000 square feet. On average, approximately 60% of the area of
each store represents selling space. All of the stores are located in leased
facilities.
In selecting its new store locations, the Company seeks suitable existing
structures which it can refurbish in a manner consistent with its merchandising
concept. This strategy, which requires minimal leasehold improvements by the
Company, enables the Company to open stores in new locations generally within
six to ten weeks following execution of a lease.
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The locations of the Company's stores, and stores expected to open in
fiscal 1996, are as follows:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET DATE OPENED
------------------------------------------------------- ----------- ----------------
<S> <C> <C>
New York City (W. 48th St.)............................ 15,000 November 1977
New York City (W. 32nd St.)............................ 15,000 August 1984
Port Chester, New York................................. 10,500 September 1987
Lakewood, New Jersey................................... 13,450 September 1987
Manalapan, New Jersey.................................. 12,300 November 1987
Edison, New Jersey..................................... 12,000 December 1987
Toms River, New Jersey................................. 12,000 March 1988
Scarsdale, New York.................................... 19,500 June 1988
New York City (Cortland St.)........................... 15,000 November 1990
New York City (Lexington Ave.)......................... 14,000 June 1993
Woodbridge, New Jersey................................. 10,700 November 1994
Nanuet, New York....................................... 22,000 December 1994*
New York City (5th Ave.)............................... 17,000 August 1995
Staten Island (Richmond Ave.).......................... 6,500 March 1996*
Staten Island (Hyland Blvd.)........................... 10,000 March 1996*
Succasunna, New Jersey................................. 23,000 May 1996
Staten Island (Richmond Ave.).......................... 25,000 July 1996
East Brunswick, New Jersey............................. 14,500 September 1996
Parsippany, New Jersey................................. 16,300 October 1996
Poughkeepsie, New York................................. 15,000 November 1996**
Linden, New Jersey..................................... 16,100 November 1996**
</TABLE>
*Date of acquisition.
**Scheduled to open.
Warehousing and Distribution. Merchandise is distributed to the retail
stores from the Company's Englewood, New Jersey warehouse and distribution
facility. The Englewood facility has recently been expanded from 140,000 square
feet to approximately 253,000 square feet. The Company believes the expanded
Englewood facility has the capacity to support the warehousing and distribution
needs of approximately 60 stores.
Substantially all of the Company's retail inventory is shipped directly
from suppliers to the Company's Englewood, New Jersey warehouse and distribution
facility or the Company's Solon, Ohio warehouse and distribution facility. Since
the Englewood, New Jersey warehouse and distribution facility maintains back-up
inventory and provides delivery several times per week to each store, in-store
inventory requirements are reduced and the Company is able to operate with
smaller stores. Off-hours stocking and off-site storage space are utilized to
support the store's inventory turnover, particularly during the busy fourth
quarter. The majority of the Company's inventory is delivered to the stores by a
contract carrier, as well as by direct vendor shipments.
Distribution to the stores is controlled by the Company's buyers and senior
management. The Company's merchandise is distributed based on variables such as
store volume and certain demographic and physical characteristics of the stores.
Each store has monthly budgeted inventory levels based on its projected sales
for the year and its existing inventory levels. Stores receive shipments of
merchandise several times per week from distribution centers based on their
anticipated inventory requirements and communications between store managers and
the distribution group.
WHOLESALE OPERATIONS
General. The Company is one of the nation's largest wholesalers of
closeout merchandise, with 1995 wholesale sales of approximately $77.3 million,
including approximately $3.5 million of sales to Odd Job. The Company's
wholesale operations purchase and resell many of the same lines of merchandise
sold through the
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<PAGE> 40
Company's retail operations. The wholesale operations acquire closeout
merchandise at prices substantially below traditional wholesale prices and sell
such merchandise through a variety of channels. In general, the Company does not
have long-term or exclusive arrangements with any manufacturer or supplier for
the wholesale distribution of specified products. Rather, the Company's
wholesale inventory, like its retail inventory, consists primarily of
merchandise obtained through specific purchase opportunities.
Purchasing. The Company's wholesale buyers purchase merchandise from more
than 700 suppliers throughout the world and continually seek opportunities
created by manufacturers' overproduction and other closeout circumstances (e.g.,
packaging changes), the overstock inventory of wholesalers and retailers,
buybacks, receiverships, bankruptcies and financially distressed businesses, as
well as other sources. The Company's experience and expertise in buying
merchandise from such suppliers has enabled it to develop relationships with
many manufacturers and wholesalers who offer some or all of their closeout
merchandise to the Company prior to attempting to dispose of it through other
channels. By selling their inventories to the Company, suppliers can reduce
warehouse expenses and avoid the sale of products at concessionary prices
through their normal distribution channels. In addition to closeout merchandise
purchased from suppliers, approximately 25.6% and 22.0% of the Company's
wholesale purchases for fiscal 1995 and the first six months of 1996,
respectively, consisted of selected items manufactured to the Company's
specifications by domestic and foreign suppliers.
The Company's primary sources of merchandise are manufacturers, barter
agents, distributors and retailers. The Company accommodates the needs of its
vendors by: (i) making rapid purchasing decisions; (ii) taking immediate
delivery of larger quantities of closeout merchandise than many of its
competitors; (iii) purchasing the entire product assortment offered by a
particular vendor; (iv) minimizing disruption to the supplier's ordinary
distribution channels; and (v) making prompt and reliable payments. The Company
believes that its flexibility and expertise has established the Company as a
preferred customer of many key sources of closeout merchandise. In many cases,
the Company has developed valuable sources from which it obtains certain lines
of merchandise on a continuing basis.
The Company's wholesale and retail buyers work closely together to identify
attractive purchasing opportunities and negotiate and complete the purchase of
significant quantities of closeout consumer items. The Company believes the
expertise and resources of the retail operations have enabled the wholesale
operations to broaden the categories and quantities of merchandise offered to
its customers.
Sales and Marketing. The Company maintains a direct sales force of 16
persons in its wholesale operations and also sells its merchandise through 22
independent representatives. In addition to a showroom at its Solon, Ohio
facility, the Company or its representatives maintain showrooms in New York
City, Columbus, Boston and Philadelphia. The Company sells to over 1,000
wholesale customers, which include a wide range of major regional and national
retailers as well as smaller retailers, manufacturers and other wholesalers and
distributors. Sales to the Company's single largest wholesale customer accounted
for approximately 18.6% of total sales on a pro forma basis in fiscal 1995 and
24.3% of total sales in the first six months of 1996. No other customer
accounted for more than 10% of total sales in either period. See "Risk
Factors -- Customer Concentration."
Warehousing and Distribution. The Company conducts its wholesale
operations primarily from a leased, single-story office and warehouse and
distribution facility in Solon, Ohio, at which the Company currently occupies
approximately 645,000 square feet. The Solon facility is currently being
expanded to approximately 740,000 square feet, which expansion is scheduled to
be completed by the end of fiscal 1996. From time to time, the Company leases
space at public warehouses. Generally, the Company does not have a prospective
customer prior to purchasing merchandise, although in some cases a customer
willing to purchase part or all of the goods will be found immediately prior to,
or soon after, a purchase. In the latter case, the Company attempts, whenever
possible, to drop ship the goods directly to the customer from the point of
purchase. In other cases, the Company ships the merchandise to its warehouse and
distribution facility via back haulers and common carriers. For fiscal 1995,
approximately 58.6% of the Company's wholesale sales
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were of merchandise shipped through its warehouse and distribution facility, and
approximately 41.4% of such sales were of merchandise drop shipped directly to
customers.
MANAGEMENT INFORMATION SYSTEMS
The Company's wholesale operations is currently supported by an IBM
AS400-based computer system, which system is being upgraded to support the
Company's combined operations. The system utilizes proprietary software which
allows the Company to monitor and integrate its distribution, order entry,
showroom, product management, purchasing, inventory control, shipping and
accounting systems. The Company is exploring the use of radio frequency
equipment in its warehouse and showrooms.
The Company is in the early stages of installing an upgraded IBM
AS400-based system and related software packages for use in its retail
operations. The Company intends to install a point-of-sale (POS) system to fully
capture store transactions and provide updated data to its purchasing staffs and
other corporate personnel, and for transfer into the Company's accounting,
merchandising and distribution systems. The Company intends to fully integrate
such retail system with its wholesale computer system. The Company estimates
that it will spend approximately $2.0 million in implementing and integrating
its retail management information systems and that installation will be
completed by the end of fiscal 1997. Cash from operations and borrowings under
the Company's credit facility will be utilized to fund the cost of the
management information systems upgrade and the project is not dependent on
proceeds from the Offering.
COMPETITION
In its retail operations, the Company competes with other closeout
retailers, discount stores, deep discount drugstore chains, supermarkets and
other value-oriented specialty retailers. In its wholesale operations, the
Company competes with numerous national and regional wholesalers, retailers,
jobbers, dealers and others which sell many of the items sold by the Company.
Certain of these competitors have substantially greater financial resources and
wider distribution capabilities than those of the Company, and competition is
often intense. Competition is based primarily on product selection and
availability, price and customer service. The Company believes that by reason of
its ability to make purchases of closeout, bulk and surplus items, its prices
compare favorably with those of its competitors.
In addition to competition in the sale of merchandise at wholesale and
retail, the Company encounters significant competition in locating and obtaining
closeout, overproduction and similar merchandise for its operations. There is
increasing competition for the purchase of such merchandise. However, the
Company believes that it will have sufficient sources to enable it to continue
purchasing such merchandise in the future. Furthermore, the Company believes
that as the number and capacity of its stores grow, its ability to take
advantage of purchase opportunities of larger quantities of merchandise at
favorable prices will increase accordingly.
EMPLOYEES
At July 27, 1996, the Company had 794 employees, including 614 in direct
retail operations, 102 in direct wholesale operations and 78 in general
management and administrative positions. The Company considers its relationship
with its employees to be good. Approximately 60 of the Company's Solon, Ohio
hourly warehouse employees are subject to a five year collective bargaining
agreement expiring December 31, 1999. The Company is not a party to any other
labor agreements.
PRINCIPAL PROPERTIES
The Company leases its offices and a warehouse and distribution facility in
Solon, Ohio from a partnership in which certain of its shareholders are
partners. The Company currently occupies approximately 645,000 square feet at
such facility, of which approximately 22,000 square feet are used as office and
showroom space and the remainder of which are used as warehouse space for the
Company's wholesale operations. The Solon facility is currently being expanded
to approximately 740,000 square feet, which expansion is scheduled to be
completed by the end of fiscal year 1996. The lease for the facility, as
amended,
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<PAGE> 42
expires December 31, 2008. The Company leases its warehouse and distribution
facility in Englewood, New Jersey. This facility has recently been expanded to
253,000 square feet from 140,000 square feet. A revised 10-year lease for the
expanded facility is currently being drafted. In addition, the Company leases
space at several public warehouses depending on its needs at a particular point
in time. The Company believes that the office and warehouse facilities described
above are generally adequate for the present and reasonably foreseeable
requirements of its present retail stores and wholesale business. As the number
of stores expands, additional warehouse and distribution facilities will be
required for the Company's retail operations. See "Certain
Transactions -- Leases."
The Company leases its offices and showrooms in Columbus, Ohio and New York
City and the current leases expire (assuming exercise of outstanding options) on
March 31, 1997 and December 31, 2001.
The Company leases all of its stores. Store leases generally provide for
fixed monthly rental payments, plus the payment, in most cases, of real estate
taxes, utilities, liability insurance and common area maintenance. In certain
locations, the leases provide formulas requiring the payment of a percentage of
sales as additional rent. Such payments are generally only required when sales
reach a specified level. The typical store lease is for an initial term of five
or ten years, with certain leases having renewal options. In addition, the
Company remains contingently liable with respect to six store leases relating to
its Ohio Stores. See "Significant Corporate Transactions -- Sale of Ohio Retail
Operations."
LITIGATION
The Company and various related parties have been named as defendants in
the Odd Job Litigation, filed on February 27, 1995 under the caption DeFusco v.
Horowitz et al. (95 Civ. 1366, U.S. District Court, S.D. New York). The lawsuit
alleges that the owners of Odd Job Trading Corp. had an oral agreement to sell
Odd Job to the plaintiff, and that this alleged agreement was breached when Odd
Job entered into a letter of intent in October 1994 to be acquired by an entity
formed by ZS Fund. The Company was also named a defendant in the complaint
alleging tortious interference with plaintiff's contract right. The Company
agreed to indemnify all parties with respect to expenses, liabilities and
damages of the litigation, provided that the Company may offset the initial
$450,000 of expenses incurred after the Odd Job Acquisition against the Odd Job
Contingent Notes. The parties have reached a settlement of the case, which will
not have a material adverse effect on the results of operations or the financial
condition of the Company.
In February 1996, the Company, ZS Fund and Messrs. Churches, Sommers and
Mark Hanners entered into the Consolidated Settlement resolving certain issues
arising in connection with the hirings by the Company of Messrs. Churches,
Sommers and Hanners. The Consolidated Settlement provides that until April 25,
1997, the Company will not open new stores located within ten miles of
Consolidated stores that were open or planned as of February 20, 1996 or hire
certain employees of Consolidated.
The Company is also subject to various legal proceedings and claims that
arise in the ordinary course of business. The Company believes that the amount
of any ultimate liability with respect to these actions will not have a material
adverse effect on the Company's liquidity or results of operations.
TRADEMARKS
The Company has filed an application to register "Odd Job" as a trademark
in the United States. The Company has registered certain other trademarks and
trade names.
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<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The persons listed below are the executive and certain other officers and
directors of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---------------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Reuven Dessler.................... 49 Chairman of the Board and Chief Executive Officer
Brady Churches.................... 38 President, Director
Jacob Koval....................... 49 Executive Vice President -- Wholesale, Director
Jerry Sommers..................... 46 Executive Vice President -- Retail, Director
Susan Atkinson.................... 45 Senior Vice President -- Chief Financial Officer and
Treasurer
Ned L. Sherwood................... 47 Director
Robert Horne...................... 37 Director
Marc H. Morgenstern............... 45 Secretary
</TABLE>
Reuven Dessler is Chairman of the Board and Chief Executive Officer of the
Company. Mr. Dessler co-founded the Company in 1975 and served as its President
until the 1996 Restructuring.
Brady Churches has served as the Company's President and a Director since
the 1996 Restructuring and has served as President -- Retail since August 14,
1995. Mr. Churches was employed by Consolidated for 19 years until he resigned
in April 1995. He held various senior management positions in the merchandising
area at Consolidated, and was President from August 1993 until his resignation.
During such period the acquisition, merchandising, distribution and advertising
areas reported to him. During his tenure, the number of stores operated by
Consolidated grew from one to approximately 800. Mr. Churches is currently a
member of the Board of Directors of Sun Television & Appliance, Inc.
Jacob Koval is Executive Vice President -- Wholesale and a Director of the
Company. Mr. Koval co-founded the Company in 1975 and served as its Vice
President until the 1996 Restructuring.
Jerry Sommers has served as Executive Vice President -- Retail of the
Company since November 1995, and as a Director since the 1996 Restructuring,
with direct responsibility for all purchasing of merchandise for the Company's
retail operations. He was employed by Consolidated from 1984 until he resigned
in April 1995. At the time of his resignation from Consolidated, he was
responsible for the acquisition, merchandising and advertising of all
merchandise for Consolidated's approximately 800 stores.
Susan Atkinson has served as Senior Vice President -- Chief Financial
Officer and Treasurer of the Company since January 1993. From August 1988 until
joining the Company, she was employed by Harris Wholesale Company, a
pharmaceutical wholesaler, serving as Chief Financial Officer and Vice
President -- Finance/Administration since January 1991. Prior to joining Harris
Wholesale, Ms. Atkinson served as Assistant Treasurer of Riser Foods (formerly
known as Fisher Foods), a publicly traded company.
Ned L. Sherwood has served as a Director of the Company since the 1996
Restructuring. Mr. Sherwood has been a principal and President of ZS Fund, a
company engaged in making private investments, for more than the past five
years. Mr. Sherwood previously served as a principal of AEA Investors, Inc.,
which was an investor in and led the initial public offering of Consolidated
(AEA later liquidated its interest in Consolidated). Mr. Sherwood is currently a
member of the Boards of Directors of Sun Television & Appliance, Inc. and Kaye
Group, Inc.
Robert Horne has served as a Director of the Company since the 1996
Restructuring. Mr. Horne has been a principal of ZS Fund since March 1992. Prior
to joining ZS Fund, Mr. Horne was employed by Salomon Brothers Inc as a Vice
President in its Mergers and Acquisitions Group.
Marc H. Morgenstern has served as Secretary of the Company since the 1996
Restructuring. He has been a principal in the Cleveland, Ohio law firm of Kahn,
Kleinman, Yanowitz & Arnson Co., L.P.A. for more than five years, and has been
President of the law firm and Chairman of its Executive Committee since June
1992.
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BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Company's
Board of Directors. The number of Directors is currently fixed at nine. The
Company intends to name three additional directors within 60 days of the
completion of the Offering to serve with Messrs. Dessler, Churches, Koval,
Sommers, Sherwood and Horne. The Company's Amended and Restated Code of
Regulations ("Code of Regulations") divides the Board of Directors into three
classes. The Directors serve staggered terms of three years, with the members of
one class being elected in any year, as follows: (i) Jacob Koval and Jerry
Sommers have been designated as Class I Directors and will serve until the 1997
annual meeting; (ii) Brady Churches and Robert Horne have been designated as
Class II Directors and will serve until the 1998 annual meeting; and (iii)
Reuven Dessler and Ned L. Sherwood have been designated as Class III Directors
and will serve until the 1999 annual meeting; and in each case until their
respective successors are elected and qualified.
The Board of Directors will have two standing committees: a Compensation
Committee and an Audit Committee. At least a majority of the membership of both
the Audit and Compensation Committees will include independent directors. The
Audit Committee will have general responsibility for supervision of financial
controls as well as accounting and audit activities of the Company. The Audit
Committee will annually review the qualifications of the Company's independent
certified public accountants, make recommendations to the Board of Directors
concerning the selection of the accountants and review the planning, fees and
results of the accountants' audit.
The Compensation Committee will have the authority to: (i) administer the
Company's stock option plan and restricted stock plan; and (ii) review and
monitor key employee compensation and benefits policies and administer the
Company's management compensation plans.
INSIDER PARTICIPATION IN COMPENSATION COMMITTEE
Prior to the 1996 Restructuring, Mazel Company L.P. had no compensation
committee. Decisions concerning compensation of executive officers for fiscal
1996 and prior years were made by ZS Mazel L.P., the partnership's managing
general partner, and Reuven Dessler on behalf of the other general partner.
COMPENSATION OF DIRECTORS
Following completion of the Offering, the Company intends to pay each
outside director a fee of $15,000 for attendance at four meetings per year,
together with reimbursement of out-of-pocket expenses incurred in connection
with the directors' attendance at such meetings. In addition, each outside
director will receive $1,500 per meeting for each meeting attended in excess of
four per year. No additional compensation is to be paid for committee meetings
held on the same day as a Board of Directors' meeting. Officers of the Company
who are also directors will receive no additional compensation for serving as
directors.
43
<PAGE> 45
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation earned during the fiscal year ended January 31, 1996 by the Chief
Executive Officer and certain other named executive officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ----------------
NAME AND ---------------------- RESTRICTED STOCK ALL OTHER
PRINCIPAL POSITION SALARY BONUS AWARDS(1) COMPENSATION(2)
- ---------------------------------------- ---------- ------- ---------------- ---------------
<S> <C> <C> <C> <C>
Reuven Dessler.......................... $1,406,836 -- $ 33,750 --
Chief Executive Officer
Brady Churches.......................... $ 196,885(3) $80,000 $110,250 $ 122,500
President
Jacob Koval............................. $ 432,356 -- $ 11,250 --
Executive Vice President --
Wholesale
Jerry Sommers........................... $ 25,957(3) $80,000 $110,250 --
Executive Vice President -- Retail
Susan Atkinson.......................... $ 121,564 $25,000 $ 6,750 --
Senior Vice President--
Chief Financial Officer and Treasurer
<FN>
- ---------------
(1) The foregoing named executive officers each purchased partnership units in
Mazel Company L.P. as part of the Company's Employee Equity Plan. Messrs.
Churches and Sommers each purchased 490 units on November 1, 1995, and
Messrs. Dessler and Koval and Ms. Atkinson purchased 150, 50 and 30 units,
respectively, on January 1, 1996. The purchase price for such units was
$25.00 per unit. The issuances have been included here as the difference
between their fair market value of $250.00 on the date of purchase and the
purchase price. The Company's Restricted Stock Plan serves as the successor
to the Employee Equity Plan. See "Management -- Compensatory Plans."
(2) Mr. Churches received a consulting fee in the amount of $122,500.
(3) Represents partial year payments made to Mr. Churches effective April 1995
and to Mr. Sommers effective November 1995.
</TABLE>
Mr. Dessler has entered into an amended and restated employment agreement
terminating October 31, 2000. Under the terms of the agreement, Mr. Dessler's
annual salary is $425,000 (subject to annual cost-of-living adjustments). On the
effective date of the Offering, Mr. Dessler will receive non-qualified options
to purchase 75,000 shares of the Common Stock of the Company at the initial
public offering price, with 20% of such options vesting each year and
terminating ten years after the grant date. Mr. Dessler is entitled to receive
an annual bonus of up to 88.2% of his base salary subject to the Company
achieving pre-determined annual performance targets, provided that the maximum
bonus for fiscal 1996 and fiscal 1997 is $125,000 per year. Under the agreement,
Mr. Dessler is also entitled to receive, at the time of closing of the Offering,
shares of Common Stock having a value of approximately $674,000 (calculated at
the initial public offering price) and to receive approximately $662,000 in cash
(assuming a November 1, 1996 effective date). The Company may terminate the
agreement without cause provided it makes a severance payment to Mr. Dessler
equal to one-year's salary and bonus, except that, if the termination occurs
after or in contemplation of a "change in control" (as defined in the agreement)
that Mr. Dessler voted against, the severance payment is two-years' salary and
bonus. Pursuant to the terms of his agreement, Mr. Dessler has agreed not to
compete with the Company's operations for a period expiring on the later of (i)
two years following his termination of employment or (ii) October 31, 2000,
provided that in the event of a termination by the Company for reasons other
than for "cause" (as defined in the agreement), the noncompetition period is one
year.
Mr. Koval has entered into an amended and restated four-year employment
contract terminating on October 31, 2000. Under the terms of the agreement, Mr.
Koval's annual salary is $225,000 (subject to annual
44
<PAGE> 46
cost-of-living adjustments). On the effective date of the Offering, Mr. Koval
will receive non-qualified options to purchase 30,000 shares of Common Stock of
the Company at the initial public offering price, with 20% of such options
vesting each year and terminating ten years after the grant date. Mr. Koval is
entitled to receive an annual bonus of up to 66.7% of his base salary subject to
the Company achieving pre-determined annual performance targets, provided that
the maximum bonus for fiscal 1996 is $80,000 and the maximum bonus for fiscal
1997 is $125,000. Under the agreement, Mr. Koval will be issued, at the closing
of the Offering, shares of Common Stock having a value of approximately $375,000
(calculated at the initial public offering price) and approximately $101,000 in
cash (assuming a November 1, 1996 closing). The Company may terminate the
agreement without cause provided it makes a severance payment to Mr. Koval equal
to one-year's salary and bonus, except that, if the termination occurs after or
in contemplation of a change in control that Mr. Koval voted against, the
severance payment is two-years' salary and bonus. Pursuant to the terms of his
agreement, Mr. Koval has agreed not to compete with the Company's wholesale
operations for a period expiring on the later of (i) two years following a
termination of employment or (ii) October 31, 2000, provided that in the event
of termination by the Company for reasons other than "cause", the noncompetition
period is one year.
Brady Churches has entered into an amended employment agreement terminating
October 31, 2000, and providing him an annual base salary of $360,000 (subject
to annual cost-of-living adjustments). Mr. Churches is entitled to receive an
annual bonus up to 58.3% of his annual base salary, subject to the Company
achieving pre-determined annual performance targets provided that the maximum
annual bonus in both fiscal 1996 and fiscal 1997 is $125,000. In fiscal 1995,
Mr. Churches received a $450,000 signing bonus (payable quarterly over a
two-year period) and the right to participate in the Company's Employee Equity
Plan. The signing bonus vests on the earlier of the second anniversary of the
date of Mr. Churches employment with the Company or the effective date of its
initial public offering. Mr. Churches executed a promissory note to evidence his
obligation to repay half of the signing bonus in the event of his departure
prior to vesting. As a result of the Offering, the signing bonus vests and the
promissory note will be canceled. In addition, Mr. Churches purchased interests
in Mazel Company L.P. from certain of its partners for $405,000. On the
effective date of the Offering, Mr. Churches will receive non-qualified options
to purchase 100,000 shares of Common Stock of the Company at the initial public
offering price, with 20% of such options vesting each year and terminating ten
years after the grant date. Mr. Churches will also be issued, at the closing of
the Offering, shares of Common Stock having a value of approximately $548,500
(calculated at the initial public offering price). Under his agreement, Mr.
Churches is entitled to two-years' salary and bonus in the event of his
termination of employment without cause or in the event he elects to terminate
employment following a change in control. The agreement also contains a one-year
covenant not to compete with the Company following termination of Mr. Churches
employment with the Company.
Jerry D. Sommers has entered into an amended employment agreement
terminating on October 31, 2000 and providing him an annual base salary of
$265,000 (subject to annual cost-of-living adjustments). Mr. Sommers is entitled
to receive an annual bonus of up to 59.4% of his annual base salary, subject to
the Company achieving pre-determined annual performance targets provided that
the maximum annual bonus in both fiscal 1996 and fiscal 1997 is $125,000. In
fiscal 1995, Mr. Sommers also received a signing bonus of $215,000 (payable
quarterly over a two-year period) and the right to participate in the Company's
Employee Equity Plan. The signing bonus vests on the earlier of the second
anniversary of the date of Mr. Sommers employment with the Company or the
effective date of its initial public offering. Mr. Sommers executed a promissory
note to evidence his obligation to repay half of the signing bonus in the event
of his departure prior to vesting. As a result of the Offering, the signing
bonus vests and the promissory note will be canceled. In addition, Mr. Sommers
purchased interests in Mazel Company L.P. from certain of its partners for
$405,000. On the effective date of the Offering, Mr. Sommers will receive
non-qualified options to purchase 100,000 shares of Common Stock of the Company
at the initial public offering price, with 20% of such options vesting each year
and terminating ten years after the grant date. Mr. Sommers will also be issued
shares of Common Stock having a value of approximately $331,000 (calculated at
the initial public offering price) upon the completion of the Offering. Mr.
Sommers is entitled to receive two-years' salary and bonus in the event of his
termination of employment without cause or in the event he elects to terminate
employment following a change in control. Mr. Sommers is bound by a one-year
non-competition provision following a termination of employment, under certain
conditions.
45
<PAGE> 47
Susan Atkinson has an employment agreement terminating January 31, 1999 and
providing her an annual base salary of $117,600. Ms. Atkinson is entitled to
receive an annual bonus of up to 48.4% of her annual base salary, subject to the
Company achieving pre-determined annual performance targets. On the effective
date of the Offering, Ms. Atkinson will receive non-qualified options to
purchase 30,000 shares of Common Stock of the Company at the initial public
offering price, with 20% of such options vesting per year and terminating ten
years after the grant date. Ms. Atkinson will also be issued shares of Common
Stock having a value of approximately $126,500 (calculated at the initial public
offering price) upon the completion of the Offering. Under her agreement, Ms.
Atkinson is entitled to receive one-year's salary in the event of her
termination of employment other than for cause.
Each of Messrs. Dessler, Koval, Churches and Sommers and Ms. Atkinson will
be receiving the shares of Common Stock referred to in each of their respective
employment agreements pursuant to Rule 701 promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), in transactions that are exempt from
the registration requirements of the Securities Act. Although shares acquired
under Rule 701 are generally available for resale beginning 90 days after the
initial public offering, subject to certain provisions of Rule 144, each of
these individuals has agreed in their employment agreements not to offer, sell
or otherwise dispose of any shares of Common Stock beneficially owned by them
for a period of 180 days after the date of this Prospectus. See "Shares Eligible
For Future Sale."
COMPENSATORY PLANS
The Mazel Stores, Inc. 1996 Stock Option Plan ("Stock Option Plan") was
adopted by the Board of Directors and approved by the shareholders of the
Company effective October 1, 1996. Pursuant to the provisions of the Stock
Option Plan, employees of the Company may be offered the opportunity to acquire
Common Stock by the grant of stock options ("Options"), including both incentive
stock options ("ISOs") and nonqualified stock options ("NQSOs"). Consultants may
receive only NQSOs under the Stock Option Plan. A total of 900,000 shares of
Common Stock have been reserved for Options under the Stock Option Plan. The
purchase price of a share of Common Stock pursuant to an ISO shall not be less
than the fair market value of a share of Common Stock at the grant date. As of
the date of this Prospectus, non-qualified options have been granted to certain
employees of the Company, including Options for 75,000 shares to Mr. Dessler,
100,000 shares to Mr. Churches, 100,000 shares to Mr. Sommers, 30,000 shares to
Mr. Koval and 30,000 shares to Ms. Atkinson. The Options have an exercise price
equal to the initial public offering price, vest in five equal annual
installments of 20% of the grant, and have a term of ten years. Pursuant to the
provisions of the Stock Option Plan, non-employee directors of the Company
automatically receive, upon the later of the effective date of the Offering or
the date they first become directors, a grant of Options to purchase 15,000
shares of Common Stock of the Company. The directors' Options vest at the rate
of 20% per year beginning on the first anniversary of the date of grant. The
exercise price per share of Common Stock is the closing price at which the
Company's Common Stock trades on the Nasdaq National Market on the date of
grant. Options expire ten years after the date of grant. The Options granted to
Messrs. Sherwood and Horne and those that will be granted to the new directors
will have an exercise price equal to the initial public offering price.
The Mazel Stores, Inc. Restricted Stock Plan ("Restricted Stock Plan" and,
collectively, with the Stock Option Plan, the "Compensatory Plans") was adopted
by the Board of Directors and approved by the Company's shareholders effective
October 1, 1996. The Restricted Stock Plan serves as the successor to the Mazel
Company L.P. Employee Equity Plan. The Restricted Stock Plan relates to 209,314
unvested shares of Common Stock issued, initially as partnership units under the
Employee Equity Plan. Shares have the same vesting terms as provided in the
Employee Equity Plan. The Employee Equity Plan provided for the purchase of
partnership units (at a share equivalent price of $0.083 per share) by key
executives of the Company, with exercisability subject to vesting restrictions,
generally over a five-year period. Employees of the Company purchased a total of
1,660 units (representing 502,246 shares of Common Stock) under the Employee
Equity Plan during the year ended January 31, 1996, resulting in a total of
1,730 units outstanding. A total of 588 units were vested at such date, and an
additional 450 units will vest upon the effectiveness of the Offering. As part
of the 1996 Restructuring, all vested units (aggregating 314,123 shares of
Common Stock) will be
46
<PAGE> 48
distributed to plan participants and all unvested units (aggregating 209,314
shares of Common Stock) will be held pursuant to the Restricted Stock Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL 1995
The table below sets forth awards made in fiscal 1995 under the Mazel
Company L.P. Employee Equity Plan, the predecessor to the Restricted Stock Plan.
<TABLE>
<CAPTION>
PERFORMANCE OR
OTHER PERIOD UNTIL
NAME NUMBER OF SHARES MATURATION OR PAYOUT
- --------------------------------------------- ---------------- ----------------------------
<S> <C> <C>
Reuven Dessler............................... 45,411 Fully vested
Brady Churches............................... 148,343 Vest through August 1999
Jacob Koval.................................. 15,137 Fully vested
Jerry Sommers................................ 148,343 Vest through August 1999
Susan Atkinson............................... 9,082 Vest through January 1999
All other employees (16 persons)............. 135,930 Vest through January 2001
----------------
Total.............................. 502,246
================
</TABLE>
47
<PAGE> 49
CERTAIN TRANSACTIONS
LEASES
Messrs. Dessler, Koval and certain other shareholders of the Company are
partners in Aurora Road Realty Development Company, a partnership which leases
the office and warehouse facility located in Solon, Ohio, to the Company.
Messrs. Dessler and Koval own 40.0% and 6.0% interests, respectively, in such
partnership. The Company made payments totaling approximately $1.5 million, $1.6
million and $1.2 million pursuant to the lease for fiscal 1995, 1994 and 1993,
respectively. Messrs. Dessler and Koval are minority shareholders in entities
that operate public warehouses in which the Company periodically leases space.
The Company made payments totaling approximately $1.7 million, $1.7 million,
$1.5 million and $975,000 to such entities in fiscal 1995, 1994 and 1993, and
the first six months of 1996, respectively. The Company believes the payments
under these leases are not in excess of those which could be obtained from
unaffiliated sources. The recent addition of warehouse space at both the
Company's New Jersey and Ohio facilities is expected to reduce, but not
eliminate, the occasional need for public warehouse space. See
"Business -- Principal Properties."
ZS MANAGEMENT FEE
In connection with the 1992 Recapitalization, the Company entered into a
Financial Advisory Agreement with ZS Fund L.P., of which Ned Sherwood and Robert
Horne are principals, which provides for an annual financial advisory fee of
$100,000 payable in equal quarterly installments of $25,000 through the earlier
of June, 1997 or the date the Company notifies ZS Fund of its election to
terminate the agreement. The Company made payments of $100,000 to ZS Fund
pursuant to the Financial Advisory Agreement during each of fiscal 1995, 1994
and 1993, respectively. The Company intends to terminate the Financial Advisory
Agreement by making a payment of $200,000 to ZS Fund at the completion of this
Offering. See "Use of Proceeds."
CONVERSION OF 1992 RECAPITALIZATION, ODD JOB ACQUISITION AND 1996 RESTRUCTURING
DEBT; PAYMENT OF ODD JOB CONTINGENT NOTES
In connection with the 1992 Recapitalization, the Company issued to Old
Mazel the 1992 Old Mazel Contingent Notes providing for additional payments
totaling $4.0 million upon the completion of the Offering. In connection with
the Odd Job Acquisition, Odd Job Holdings issued to Old Mazel the 1995 Old Mazel
Note in the principal amount of $1.0 million. Each of the above obligations will
be converted into shares of Common Stock of the Company (at a conversion price
equal to the initial offering price). In addition, Odd Job Holding issued the
Odd Job Contingent Notes providing for the payment to Messrs. Snyder and
Horowitz and to Old Mazel of an aggregate amount equal to $450,000 less all
costs and expenses related to the Odd Job Litigation incurred following the Odd
Job Acquisition, such payment to be due 60 days following the final disposition
of the Odd Job Litigation. As a result of the settlement of the litigation, no
payment will be made to Messrs. Snyder and Horowitz and Old Mazel.
PURCHASES AND SALES OF MERCHANDISE BETWEEN MAZEL AND ODD JOB
Prior to the Odd Job Acquisition, Mazel Company L.P. both purchased from
and sold merchandise to Odd Job. Such sales and purchases totaled approximately
$3.5 million and $900,000, respectively, in fiscal 1995. Messrs. Dessler and
Koval owned 10.5% and 8.3%, respectively, of Odd Job.
LICENSE AND PURCHASE AGREEMENT WITH RELATED STORES
In connection with the Odd Job Acquisition, the Company, as licensor,
entered into licensing and purchasing agreements (the "License Agreements") with
corporations (the "Licensees") owned by relatives of Messrs. Snyder and
Horowitz, the prior owners of Odd Job Trading Corp. Under the License
Agreements, the Licensees are permitted to continue to use the "Odd Job" trade
name on their two New York stores
48
<PAGE> 50
through January, 1998. Thereafter, the Licensees must cease to use the "Odd Job"
name, and they may not utilize the trade name on any other stores, without the
Company's consent. Additionally, the Licensees must purchase at least 75% of
their store merchandise from the Company for a period not to exceed the earlier
of five years or the date Messrs. Snyder or Horowitz cease to be employed by the
Company.
PEDDLERS MART CONSULTING FEE
The Company provided consulting services to ZS Peddler's Mart, Inc.
beginning in December 1994 and ending at the time of Odd Job Holding's
acquisition of Peddlers Mart in December 1995. Fees paid pursuant to such
agreement, together with interest, totaled approximately $96,000 in fiscal 1995.
NOTES FROM RELATED PARTIES
Messrs. Churches and Sommers have executed promissory notes to the Company
in exchange for $225,000 and $107,500, respectively, advanced by the Company to
such individuals as bonus payments pursuant to their respective employment
agreements. Pursuant to the terms of such individual's employment agreement, the
Company is forgiving such indebtedness upon the completion of the Offering.
THE CLOSEOUT STORE ACQUISITION
Effective March 1, 1996, Odd Job Holdings acquired the operations of its
two Staten Island retail stores from Melen Trading Corp. (such stores were
formerly operated under the name "The CloseOut Store"). As consideration for the
assets acquired, Odd Job Holdings assumed liabilities of Melen Trading Corp.
owing to third parties and forgave liabilities owing from Melen Trading Corp. to
Odd Job Holdings totaling in the aggregate approximately $1.1 million. Messrs.
Snyder, Horowitz and Old Mazel owned, in the aggregate, 50% of Melen Trading
Corp. (the remaining 50% was owned by a relative of Mr. Snyder, who managed the
operations of the two stores). In connection with the acquisition, Odd Job
Holdings entered into a consulting agreement with the 50% owner of Melen Trading
Corp. pursuant to which such individual will receive monthly payments totaling
$100,000 through February 28, 1998. As a condition to completing the
acquisition, Odd Job and Mr. Snyder agreed to reduce his annual salary by
$25,000 in both fiscal 1996 and fiscal 1997.
MISCELLANEOUS
Pursuant to the terms of their respective employment agreements, Messrs.
Dessler and Koval will receive payments of $661,921 and $100,898, respectively,
(assuming a November 1, 1996 closing of the Offering) concurrent with the
Offering. The foregoing represents the present value of the difference between
the current salaries of Messrs. Dessler and Koval and their salaries, pursuant
to their respective employment agreements. Messrs. Dessler, Churches, Koval,
Sommers, Snyder and Horowitz and Ms. Atkinson will be issued shares of Common
Stock having values of approximately $674,000, $548,500, $375,000, $331,000,
$570,000, $470,000 and $126,500 (calculated at the initial public offering
price), respectively, as salary reduction and bonus compensation pursuant to
their respective employment agreements. The Company has also loaned
approximately $2.9 million to executives and other individuals to provide for
payment of tax obligations arising from the issuance of such stock, including
approximately $323,500, $263,000, $180,000, $159,000, $101,000, $54,000 and
$61,000 to Messrs. Dessler, Churches, Koval, Sommers, Snyder and Horowitz and
Ms. Atkinson, respectively. Such loans are to be repaid on the earlier of five
years from the effective date of the loan or the date of the individual's first
sale of shares of Common Stock of the Company, but only to the extent of net
sale proceeds. The loans will bear interest at the applicable federal rate.
Under the Company's Employee Equity Plan, 21 employees of the Company, including
Ms. Atkinson and Messrs. Dessler, Koval, Churches and Sommers have purchased
limited partnership units in Mazel Company L.P. which, as part of the 1996
Restructuring, will be distributed as 523,437 shares of Common Stock, of which
209,314 shares will be held pursuant to the Restricted Stock Plan. See
"Management -- Compensatory Plans."
The Company has adopted a policy that future transactions with affiliates,
if any, will be on terms no less favorable than could be obtained from unrelated
parties, and that such transactions shall be subject to the approval of a
majority of the disinterested members of the Company's Board of Directors.
49
<PAGE> 51
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock on the date of this Prospectus
(assuming an initial public offering price of $14.00 and a closing on November
1, 1996). Unless otherwise indicated below, the persons named below have the
sole voting and investment power with respect to the number of shares set forth
opposite their names. All information with respect to beneficial ownership has
been furnished by the respective director, officer or 5% or more shareholder, as
the case may be.
SHARES BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PRIOR TO OFFERING
--------------------------------- AFTER THE OFFERING
NUMBER OF SHARES ---------------------
NAMES OF BENEFICIAL OWNERS BENEFICIALLY OWNED PERCENTAGE PERCENTAGE(1)
- ------------------------------------------------------ ------------------ ---------- ---------------------
<S> <C> <C> <C>
ZS Fund(2)............................................ 2,745,770 44.2% 32.9%
54 Morris Lane
Scarsdale, NY 10583
Reuven Dessler(4)..................................... 1,564,417 25.2 18.7
31000 Aurora Road
Solon, Ohio 44139
Jacob Koval(5)........................................ 799,647 12.9 9.6
31000 Aurora Road
Solon, Ohio 44139
Mazel/D&K, Inc.(3).................................... 2,228,601 35.9 26.7
31000 Aurora Road
Solon, Ohio 44406
Brady Churches........................................ 317,731 5.1 3.8
540 Officenter Place, Suite 260
Gahanna, OH 43230
Jerry Sommers......................................... 302,213 4.9 3.6
540 Officenter Place, Suite 260
Gahanna, OH 43230
Susan Atkinson........................................ 39,314 0.6 0.5
31000 Aurora Road
Solon, Ohio 44139
Ned Sherwood(6)....................................... 2,745,770 44.2 32.9
54 Morris Lane
Scarsdale, NY 10583
Robert Horne(6)....................................... 2,745,770 44.2 32.9
54 Morris Lane
Scarsdale, NY 10583
All Current Directors and 5,769,092 92.9 69.0
Executive Officers of the Company (10 Persons)......
</TABLE>
- ---------------
(1) The table set forth above assumes that the over-allotment option is not
exercised by the Underwriters. The Company has granted the Underwriters a
30-day option to purchase up to 321,750 additional shares, solely for the
purpose of covering over-allotments.
(2) The shares beneficially owned by ZS Fund include 1,996,956 shares held by ZS
Mazel L.P., 458,997 shares held by ZS Mazel II L.P., and 289,817 shares held
by ZS Mazel, Inc. Messrs. Horne and Sherwood are directors and officers of
ZS Fund.
(3) Mazel/D&K, Inc. is a corporation owned by Messrs. Dessler and Koval and
members of their families. Messrs. Dessler and Koval are the directors and
officers of Mazel/D&K, Inc.
(4) Includes 1,470,877 shares owned by Mazel/D&K, Inc. for the benefit of Mr.
Dessler and family members.
(5) Includes 757,724 shares owned by Mazel/D&K, Inc. for the benefit of Mr.
Koval and family members.
(6) Includes the shares beneficially owned by ZS Fund (See Note 2 above). As
officers and/or equity owners of the entities holding such shares, Messrs.
Sherwood and Horne have voting power with respect to such shares. Except to
the extent of their equity interests in the entities holding such shares,
Messrs. Sherwood and Horne disclaim beneficial ownership in such shares.
(7) Messrs. Churches and Sommers and Ms. Atkinson own 50,028, 50,028, and 9,203
shares of Common Stock, respectively, that are unvested and held under the
Company's Restricted Stock Plan. These shares are included in the
individuals respective totals.
50
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The Company's Amended and Restated Articles of Incorporation (the "Articles
of Incorporation") provide that the authorized capital stock of the Company
consists of 2,000,000 shares of Preferred Stock, without par value, issuable in
series, and 14,000,000 shares of Common Stock, without par value.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of shares of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of outstanding shares of Preferred Stock. Upon the liquidation, dissolution or
winding up of the Company, the holders of shares of Common Stock are entitled to
receive ratably the net assets of the Company available after the payment of all
debts and other liabilities and subject to the prior rights of holders of any
outstanding shares of Preferred Stock. Holders of shares of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in the
Offering will be, when issued and paid for, fully paid and nonassessable.
PREFERRED STOCK
The Articles of Incorporation provide that the Board of Directors is
authorized, subject to certain limitations prescribed by law, without further
shareholder approval, to issue from time to time up to an aggregate of 2,000,000
shares of Preferred Stock in one or more series and to fix or alter the
designations, preferences, rights and any qualifications, limitations or
restrictions of shares of each such series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
such series. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change of control of the Company. The rights,
preferences and privileges of holders of shares of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future. The Company has no present plans to issue any Preferred Stock.
LIMITATION OF DIRECTOR LIABILITY
Under Ohio law, a director's liability to the Company or its shareholders
for damages is limited to those situations where it is proved by clear and
convincing evidence that the director's action or failure to act involved an act
or omission undertaken with deliberate intent to cause injury to the Company or
undertaken with reckless disregard for the best interests of the Company, and
those situations involving unlawful loans, asset distributions, dividend
payments or share repurchases. As a result, shareholders may be unable to
recover monetary damages against directors for actions which constitute gross
negligence or which are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with respect to such
actions.
The Company's Code of Regulations contains provisions indemnifying
Directors and officers of the Company to the fullest extent permitted by law and
providing for the advancement of expenses incurred in connection with an action
upon the receipt of an appropriate undertaking to repay said amount if it is
determined that the individual in question is not entitled to indemnification.
CERTAIN PROVISIONS OF OHIO LAW
As an Ohio corporation, the Company is subject to certain provisions of
Ohio law which may discourage or render more difficult an unsolicited takeover
of the Company. Among these are provisions that: (i) prohibit certain mergers,
sales of assets, issuances or purchases of securities, liquidation or
dissolution, or reclassification of the then outstanding shares of an Ohio
corporation involving certain holders of stock representing 10%
51
<PAGE> 53
or more of the voting power, unless such transactions are either approved by the
Directors in office prior to the 10% shareholder becoming such or involve a 10%
shareholder which has been such for at least three years and certain
requirements related to the price and form of consideration to be received by
shareholders are met; and (ii) provide Ohio corporations with the right to
recover profits realized under certain circumstances by persons engaged in
"greenmailing" or who otherwise sell securities of a corporation within 18
months of proposing to acquire such corporation.
In addition, pursuant to Section 1701.831 of the Ohio Revised Code, the
purchase of certain levels of voting power of the Company (one-fifth or more,
one-third or more, or a majority) can be made only with the prior authorization
of the holders of at least a majority of the total voting power of the Company
and the separate prior authorization of the holders of at least a majority of
the voting power held by shareholders other than the proposed purchaser,
officers of the Company and Directors of the Company who are also employees. In
light of the fact that, upon completion of the Offering, the officers and
directors of the Company will beneficially own more than 69% of the Company's
outstanding shares of Common Stock, acquisition of the foregoing levels of
voting power by third parties may not be possible unless the current
shareholders vote in favor thereof.
The Code of Regulations establishes an advance notice procedure with regard
to the nomination, other than by or at the direction of the Board of Directors,
of candidates for election as directors of the Company. In general, notice must
be received by the Company not less than 90 days prior to the first anniversary
of the prior year's annual meeting and must contain certain specified
information concerning the person to be nominated and the shareholder submitting
the nomination.
It is possible that these provisions, as well as the classification of the
Board of Directors, the ability of the Board to issue additional shares of
Common Stock or Preferred Stock and the percentage of ownership held by the
executive officers, will discourage other persons from making a tender offer
for, or acquisitions of, substantial amounts of the Company's Common Stock, or
may delay changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be American
Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 8,355,000 shares of Common
Stock of the Company outstanding (assuming the over-allotment option is not
exercised). Of these shares, the 2,145,000 shares sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the Company,
as that term is defined in Rule 144 ("Rule 144") promulgated under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below.
The remaining 6,210,000 shares of Common Stock are deemed "Restricted
Shares" as defined under Rule 144. Restricted Shares may be sold in the public
market only if registered, or if they qualify for an exemption from
registration, under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which rules are summarized below. Subject to the lock-up agreements
described below and the provisions of Rules 144, 144(k) and 701, additional
shares will be available for sale in the public market (subject in the case of
shares held by affiliates to compliance with certain volume restrictions) as
follows: (i) no shares will be available for immediate sale in the public market
on the date of the Prospectus; (ii) 239,303 shares will be eligible for resale
upon expiration of lock-up agreements 180 days after the date of this
Prospectus; and thereafter, (iii) 5,970,697 shares will be eligible for sale
upon expiration of their respective two-year holding periods.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years (and, with respect to non-affiliates of the
52
<PAGE> 54
Company, a person who has beneficially owned Restricted Shares for at least two
years and less than three years), will be entitled to sell in any three-month
period a number of shares that does not exceed the greater of: (i) 1% of the
then outstanding shares of the Company's Common Stock (approximately 83,550
shares immediately after the Offering); or (ii) the average weekly trading
volume of the Company's Common Stock on the Nasdaq National Market during the
four calendar weeks immediately preceding the date on which notice of the sale
is filed with the Securities and Exchange Commission (the "Commission"). Such
sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed to
have been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned Restricted Shares for at least
three years is entitled to sell such shares pursuant to Rule 144(k) without
regard to the limitations described above. The Commission has recently proposed
to reduce the two- and three-year holding periods under Rule 144 to one and two
years, respectively. If enacted, such modification will have a material effect
on the timing of when certain shares of Common Stock become eligible for resale.
Rule 701 promulgated under the Securities Act provides that shares of
Common Stock acquired pursuant to written agreements such as the employment
agreements of the Company's senior executives may be resold by persons other
than affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by affiliates, beginning
90 days after the date of this Prospectus, subject to all provisions of Rule 144
except its two-year minimum holding period.
The Company has agreed, subject to certain exceptions, not to offer, sell
or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus, except that the Company may issue, and grant
options to purchase, shares of Common Stock under its Stock Option Plan and
Restricted Stock Plan. In addition, the Company may issue shares of Common Stock
in connection with any acquisition of another company if the terms of such
issuance provide that such Common Stock shall not be resold prior to the
expiration of the 180 day period referenced in the preceding sentence.
The Company's executive officers, directors, ZS Fund, and its other
shareholders have agreed pursuant to written agreements (the "Lock-up
Agreements"), subject to certain exceptions, not to offer, sell or otherwise
dispose of any shares of Common Stock beneficially owned by them for a period of
180 days after the date of this Prospectus.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the Stock
Option Plan and Restricted Stock Plan. The registration statements are expected
to be filed shortly after the effective date of the Registration Statement of
which this Prospectus is a part and will be effective upon filing. Shares issued
upon the exercise of stock options after the effective date of the Form S-8
registration statements will be eligible for resale in the public market without
restriction, subject to Rule 144 limitations applicable to affiliates and the
Lock-up Agreements.
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
REGISTRATION RIGHTS
The Company plans to grant certain shareholders the right to require the
Company to register their stock under the Securities Act. The Company intends to
enter into a Registration Rights Agreement prior to the completion of the
Offering, providing each of ZS Fund and Mazel/D&K two demand registration
rights; provided, however, that the Company shall have the right to delay a
demand registration under certain circumstances for a period not to exceed 90
days. In addition, ZS Fund, Mazel/D&K, Messrs. Snyder and Horowitz and certain
former owners of Old Mazel shall have a right to include shares of Common Stock
which they own in any registration statement under the Securities Act filed in
connection with the proposed
53
<PAGE> 55
offering for cash of any of the Company's capital stock by it or any of its
shareholders (other than on Form S-4 or Form S-8 promulgated under the
Securities Act); provided, however, that if the managing underwriter, in the
case of an underwritten public offering, determines and advises in writing that
the inclusion in the registration statement of all of the capital stock of the
Company proposed to be included in the Offering would interfere with the
successful marketing of the securities proposed to be registered by the Company,
then the number of shares of capital stock to be included in the registration
statement shall be reduced pro rata among all such holders of capital stock
included in the Offering. Each shareholder requesting registration pursuant to
the Registration Rights Agreement shall bear the expenses of any such filing pro
rata in the proportion that the shares of Common Stock owned by such shareholder
included in the filing relate to all the securities included in the filing.
54
<PAGE> 56
UNDERWRITING
The several underwriters named below (the "Underwriters") for whom William
Blair & Company, L.L.C. and Salomon Brothers Inc are acting as representatives
(the "Representatives"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement by and among the Company and
the Underwriters, to purchase from the Company, and the Company has agreed to
sell to each of the Underwriters, the aggregate number of shares of Common Stock
set forth opposite each Underwriter's name:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
William Blair & Company, L.L.C................................................
Salomon Brothers Inc..........................................................
----------------
Total......................................................................... 2,145,000
=============
</TABLE>
The nature of the Underwriters' obligations under the Underwriting
Agreement is such that all shares of Common Stock offered hereby (excluding
shares covered by the over-allotment options granted therein) must be purchased
if any are purchased. In the event of a default by any Underwriter, the
Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Representatives have advised the Company that the several Underwriters
propose to offer the shares of Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus and to
selected dealers at such price less a concession of not more than $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
321,750 shares of Common Stock at the same price per share to be paid by the
Underwriters for the other shares offered hereby. If the Underwriters purchase
any of such additional shares pursuant to this option, each Underwriter will be
committed to purchase such additional shares in approximately the same
proportion as set forth in the table above. The Underwriters may exercise the
option only for the purpose of covering over-allotments, if any, made in
connection with the distribution of shares of Common Stock offered hereby.
The Company, its executive officers and directors and its shareholders have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock of the Company for a period of 180 days after the date of this
Prospectus without the written consent of William Blair & Company, L.L.C. See
"Shares Eligible for Future Sale."
There has been no public market for the Common Stock prior to the Offering.
The initial public offering price of the Common Stock will be determined by
negotiation among the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and earnings of the Company, estimates
of the business potential and prospects of the Company, the present state of the
Company's business operations, an assessment of the Company's management and the
consideration of the above factors in relation to market valuations of certain
publicly traded companies and related businesses.
55
<PAGE> 57
The Company and certain existing shareholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect hereof.
The Representatives have informed the Company that the Underwriters do not
intend to confirm, without customer authorization, sales to any accounts over
which they exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., Cleveland, Ohio. Marc
H. Morgenstern, a principal of the firm, is the Secretary of the Company.
Certain attorneys in the firm indirectly own shares of Common Stock. Certain
legal matters will be passed upon for the Underwriters by Sonnenschein Nath &
Rosenthal, Chicago, Illinois.
EXPERTS
The audited combined financial statements of Mazel Company L.P. and Odd Job
Holdings, Inc. and of Mazel Company L.P. as of January 31, 1996 and 1995 and for
each of the years in the three-year period ended January 31, 1996, and the
audited consolidated financial statements of Odd Job Holdings, Inc. as of
January 27, 1996, and its Predecessor and Successor periods from February 1,
1995 to December 7, 1995 and December 7, 1995 to January 27, 1996, respectively,
included herein and elsewhere in the Registration Statement have been included
herein and in the Registration Statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The audited combined financial statements of Odd Job Trading Corp. and its
affiliates as of January 31, 1995 and 1994, and for each of the years ended
January 31, 1995 and 1994, respectively, included herein and elsewhere in the
Registration Statement have been included herein and in the Registration
Statement in reliance upon the report of Deloitte & Touche LLP, independent
auditors, appearing elsewhere herein, given upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (of which this Prospectus is a part) under the Securities Act with respect
to the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in the Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules which may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60601; and Seven World Trade Center, New York, New York
10048. The Commission maintains a Web site, located at http://www.sec.gov,
containing reports, proxy or information statements and other information
regarding registrants, including the Company's Registration Statement, that file
electronically with the Commission.
56
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Mazel Company L.P. and Odd Job Holdings, Inc. Combined Financial Statements: F-2
Independent Auditors' Report.................................................. F-3
Combined Balance Sheets as of January 31, 1995 and 1996 and July 27, 1996
(unaudited)................................................................ F-4
Combined Statements of Operations for the years ended January 31, 1994, 1995
and 1996 and the six months ended July 31, 1995 and July 27, 1996
(unaudited)................................................................ F-5
Combined Statements of Stockholders Equity and Partners' Capital for the years
ended January 31, 1994, 1995 and 1996 and the six months ended July 27,
1996 (unaudited)........................................................... F-6
Combined Statements of Cash Flows for the years ended January 31, 1995 and
1996 and the six months ended July 31, 1994, 1995 and July 27, 1996
(unaudited)................................................................ F-7
Notes to Combined Financial Statements........................................ F-8
Mazel Company L.P. Consolidated Financial Statements: F-17
Independent Auditors' Report.................................................. F-18
Consolidated Balance Sheets as of January 31, 1995 and 1996 and July 27, 1996
(unaudited)................................................................ F-19
Consolidated Statements of Operations for the years ended January 31, 1994,
1995 and 1996 and the six months ended July 31, 1995 and July 27, 1996
(unaudited)................................................................ F-20
Consolidated Statements of Partners' Equity for the years ended January 31,
1994, 1995 and 1996 and the six months ended July 27, 1996 (unaudited)..... F-21
Consolidated Statements of Cash Flows for the years ended January 31, 1994,
1995 and 1996 and the six months ended July 31, 1995 and July 27, 1996
(unaudited)................................................................ F-22
Notes to Consolidated Financial Statements.................................... F-23
Odd Job Holdings, Inc. and Subsidiary Consolidated Financial Statements: F-28
Independent Auditors' Report.................................................. F-29
Consolidated Balance Sheets as of January 27, 1996 and July 27, 1996
(unaudited)................................................................ F-30
Combined Statement of Operations February 1, 1995 to December 7, 1995,
(predecessor period) and Consolidated Statements of Operations December 8,
1995 to January 31, 1996, (successor period) and the six months ended July
31, 1995 and July 27, 1996 (unaudited)..................................... F-31
Consolidated Statements of Stockholders Equity December 7, 1995 to January 27,
1996 and the six months ended July 27, 1996 (unaudited).................... F-32
Combined Statement of Cash Flows February 1, 1995 to December 7, 1995,
(predecessor period) and Consolidated Statements of Cash Flows December 8,
1995 to January 31, 1996 (successor period) and the six months ended July
31, 1995 and July 27, 1996 (unaudited)..................................... F-33
Notes to Consolidated Financial Statements.................................... F-35
Odd Job Trading Corp., POW Trading Corp., HIA Trading Associates and Central
Processing Associates Combined Financial Statements for the Years ended
January 31, 1995 and 1994..................................................... F-42
<FN>
- ---------------
Note: No separate financial statements for Mazel Stores, Inc. have been
presented because the Company has nominal assets, liabilities and equity.
</TABLE>
F-1
<PAGE> 59
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
Combined Financial Statements
January 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
F-2
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Partners and Stockholder of
Mazel Company L.P. and Odd-Job Holdings, Inc.:
We have audited the accompanying combined balance sheets of Mazel Company
L.P. and Odd-Job Holdings, Inc. (the "Company"), both of which are under common
control and management, as of January 31, 1995 and 1996, and the related
combined statements of operations, stockholder's equity and partners' capital,
and cash flows for each of the years in the three year period ended January 31,
1996. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
January 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the years in the three year period ended January 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
May 22, 1996
F-3
<PAGE> 61
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31, JULY 27,
----------------- JULY 27, 1996
1995 1996 1996 PRO FORMA
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................... $ 143 $ 1,470 $ 2,312 $ 1,312
Accounts receivable -- trade, less allowance for
doubtful accounts of $195 in 1995 and 1996... 7,268 10,067 13,496 13,496
Notes and other receivables..................... 136 352 672 672
Inventories..................................... 20,245 29,212 40,894 40,894
Prepaid expenses................................ 428 440 880 880
Deferred income tax benefit..................... -- 314 314 3,583
------- ------- ----------- -----------
Total current assets.................... 28,220 41,855 58,568 60,837
Equipment, furniture, and leasehold improvements,
net............................................. 1,954 3,097 3,695 3,695
Other assets...................................... 675 1,037 1,086 1,086
Notes receivable -- related parties............... -- 1,350 1,350 --
Goodwill, net..................................... 280 9,000 9,509 10,227
Deferred income tax benefit....................... -- 1,695 1,695 1,695
------- ------- ----------- -----------
$31,129 58,034 75,903 77,540
======= ======= =========== ===========
LIABILITIES, STOCKHOLDER'S EQUITY
AND PARTNERS' CAPITAL
Current liabilities
Long-term debt, current portion................. $ 1,868 1,361 1,354 1,354
Accounts payable................................ 7,449 11,732 15,174 15,174
Accrued expenses................................ 1,464 2,376 3,704 3,704
Other current liabilities....................... -- 193 360 360
------- ------- ----------- -----------
Total current liabilities............... 10,781 15,662 20,592 20,592
Revolving line of credit.......................... 7,244 13,496 20,637 20,637
Long-term debt, net of current portion............ 1,537 12,525 11,762 10,762
Other liabilities................................. -- 2,037 1,983 1,983
Deferred income taxes............................. 5 44 44 44
------- ------- ----------- -----------
Total liabilities....................... 19,567 43,764 55,018 54,018
Stockholder's equity and partners' capital
Mazel Company L.P.
Partners' capital............................ 11,456 12,974 19,585 --
Odd-Job Holdings, Inc.
Common stock ($1 par value; 1,000 shares
issued and outstanding).................... 1 1 1 --
Additional paid-in capital................... 99 1,499 1,499 --
Retained earnings (deficit).................. 6 (204) (200) --
Mazel Stores, Inc.
Common stock (no par value), 14,000,000
shares authorized; 6,210,000 shares issued
and outstanding............................ -- -- -- --
Additional paid in capital................... -- -- -- 24,474
Accumulated deficit.......................... -- -- -- (952)
------- ------- ----------- -----------
Total stockholder's equity and partners'
capital............................... 11,562 14,270 20,885 23,522
------- ------- ----------- -----------
Commitments and contingencies.....................
$31,129 $58,034 $75,903 $77,540
======= ======= =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 62
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED -------------------
JANUARY 31, JULY JULY
------------------------------- 31, 27,
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $74,954 $76,254 $98,106 $41,696 $85,165
Cost of sales........................... 54,201 55,183 70,208 29,251 58,514
------- ------- ------- ------- -------
Gross profit.................. 20,753 21,071 27,898 12,445 26,651
Selling, general & administrative
expense............................... 15,094 15,317 20,753 9,163 20,822
Special charges......................... 1,285 -- 2,203 -- --
------- ------- ------- ------- -------
Operating profit.............. 4,374 5,754 4,942 3,282 5,829
Other income (expense)
Interest expense, net................. (1,130) (894) (1,265) (544) (1,284)
Other................................. (43) 26 (559) 31 22
------- ------- ------- ------- -------
Income before income taxes.... 3,201 4,886 3,118 2,769 4,567
Income taxes............................ 21 71 19 38 34
Extraordinary loss...................... 455 -- -- -- --
------- ------- ------- ------- -------
Net income.................... $ 2,725 $ 4,815 $ 3,099 $ 2,731 $ 4,533
======= ======= ======= ======= =======
Unaudited pro forma data (note 15)
Income before provision for income
taxes................................. 3,118 4,567
Provision for income taxes.............. 1,278 1,872
------- -------
Net income.............................. 1,840 2,695
======= =======
Net income per share.................... $ 0.31 $ 0.43
======= =======
Shares outstanding...................... 5,883 6,210
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 63
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY AND PARTNERS' CAPITAL
YEARS ENDED JANUARY 31, 1994, 1995 AND 1996,
AND SIX MONTHS ENDED JULY 27, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAZEL
COMPANY ODD-JOB HOLDINGS, INC. TOTAL
L.P. ------------------------------------------ STOCKHOLDER'S
------- ADDITIONAL RETAINED EQUITY AND
PARTNERS' COMMON PAID-IN EARNINGS PARTNERS'
CAPITAL STOCK CAPITAL (DEFICIT) TOTAL CAPITAL
------- ------ ---------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 31,
1993.................... $ 7,678 $ -- $ -- $ -- $ -- $ 7,678
Partners' withdrawals..... (950) -- -- -- -- (950)
Net income................ 2,725 -- -- -- -- 2,725
------- ------ ---------- -------- ------ -------------
Balance as of January 31,
1994.................... 9,453 -- -- -- -- 9,453
Capital contributed....... -- 1 99 -- 100 100
Partners' withdrawals..... (2,806) -- -- -- -- (2,806)
Net income................ 4,809 -- -- 6 6 4,815
------- ------ ---------- -------- ------ -------------
Balance as of January 31,
1995.................... 11,456 1 99 6 106 11,562
Capital contributed....... 92 -- 1,400 -- 1,400 1,492
Partners' withdrawals..... (1,773) -- -- -- -- (1,773)
Dividends paid............ -- -- -- (110) (110) (110)
Net income (loss)......... 3,199 -- -- (100) (100) 3,099
------- ------ ---------- -------- ------ -------------
Balance as of January 31,
1996.................... 12,974 1 1,499 (204) 1,296 14,270
Capital contributed
(unaudited)............. 4,000 -- -- -- -- 4,000
Partners' withdrawals
(unaudited)............. (1,918) -- -- -- -- (1,918)
Net income (unaudited).... 4,529 -- -- 4 4 4,533
------- ------ ---------- -------- ------ -------------
Balance as of July 27,
1996 (unaudited)........ $19,585 $ 1 $1,499 $ (200) $1,300 $20,855
======= ======== ========= ======== ====== ============
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE> 64
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED --------------------
JANUARY 31, JULY JULY
---------------------------------- 31, 27,
1994 1995 1996 1995 1996
------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income............................... $ 2,725 $ 4,815 $ 3,099 $2,731 $4,533
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities
Depreciation and amortization....... 641 475 646 303 465
Deferred income taxes............... -- 5 (12) -- --
Allowance for doubtful accounts..... 105 (55) -- -- --
Extraordinary loss.................. 455 -- -- -- --
Loss on sale of retail operations... -- -- 1,571 -- --
Noncash charges on sale of retail
operations........................ -- -- (3,038) -- --
Changes in operating assets and
liabilities
Accounts receivable -- trade...... 825 (1,077) (672) (558) (4,419)
Notes and other receivables....... 252 31 (196) 84 (320)
Inventories....................... 1,814 (57) (1,686) (3,825) (11,402)
Prepaid expenses.................. 128 (135) 266 (8) (398)
Other assets...................... (80) (82) 63 55 (9)
Accounts payable.................. 433 1,668 (2,107) 201 3,355
Accrued expenses and other
liabilities..................... 341 81 (178) 175 1,441
Income taxes payable.............. -- 5 -- -- --
------- -------- ------- ------- -------
Total adjustments............ 4,914 859 (5,343) (3,573) (11,287)
------- -------- ------- ------- -------
Net cash provided by (used
in) operating activities... 7,639 5,674 (2,244) (842) (6,754)
------- -------- ------- ------- -------
Cash flows from investing activities
Capital expenditures, net................ (217) (497) (450) (200) (927)
Cash paid for acquisition, net of cash
acquired............................... -- 23 (8,395) -- --
Cash received at acquisition, net of cash
expenses incurred...................... -- -- -- -- 70
Issuance of notes receivable -- related
parties................................ -- -- (1,350) -- --
Security deposits........................ -- (16) -- -- --
Proceeds from sale of retail
operations............................. -- -- 1,818 -- --
------- -------- ------- ------- -------
Net cash used in investing
activities................. (217) (490) (8,377) (200) (857)
------- -------- ------- ------- -------
Cash flows from financing activities
Proceeds from term loan.................. -- 4,000 10,925 -- --
Repayment of debt........................ (5,790) (12,636) (4,151) (1,187) (800)
Net borrowings under credit facility..... -- 6,858 6,220 3,627 7,171
Repayment of subordinated notes
payable................................ (500) (500) (500) -- --
Equity contributions..................... -- 100 1,492 -- 4,000
Partners' withdrawals.................... -- (2,806) (1,773) (1,424) (1,918)
Dividends paid........................... (950) -- (110) -- --
Loan fees................................ (280) (75) (155) -- --
------- -------- ------- ------- -------
Net cash provided by (used
in) financing activities... (7,520) (5,059) 11,948 1,016 8,453
------- -------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents.............................. (98) 125 1,327 (26) 842
Cash and cash equivalents at beginning of
period................................... 116 18 43 143 1,470
------- -------- ------- ------- -------
Cash and cash equivalents at end of
period................................... $ 18 $ 143 $ 1,470 $ 117 $2,312
======== ========== ======== ======== ========
Supplemental disclosure
Interest paid............................ $ 1,129 $ 887 $ 1,225 $ 499 $1,251
======== ========== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE> 65
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 31, 1995 AND 1996
(1) ORGANIZATION
Mazel Company L.P. (Mazel) is a partnership engaged in the wholesale of
closeout merchandise to closeout retailers. Odd-Job Holdings, Inc. (Holdings) is
a corporation engaged in the retail sale of high-quality closeout merchandise
through 13 retail stores operating in the New York metropolitan area. Mazel is
controlled by ZS Mazel L.P. (ZS), a limited partnership that is also the sole
stockholder of Holdings. Holdings owns all of the outstanding common stock of
Odd Job Acquisition Corp. (OJAC), which was organized to acquire all of the
outstanding capital stock of Odd Job Trading Corp. (OJT) and POW Trading Corp.
(POW), and all of the partnership units of HIA Trading Associates (HIA) and
Central Processing Associates (CPA), a group of corporations and partnerships
related by common control (collectively, Odd Job). Holdings and OJAC were both
formed in November 1994 in contemplation of the Odd Job acquisition and had no
activity prior to the acquisition. On December 9, 1994, ZS acquired Peddler's
Mart, Inc. (Peddlers), which was merged with Odd Job upon its acquisition on
December 7, 1995 (Acquisition). Accordingly, combined financial statements have
been presented on an as-if pooling basis to reflect the common control of Mazel
and Holdings by ZS. The combined financial statements reflect the annual
operations of Mazel, the operations of Peddlers from December 9, 1994, and the
operations of Odd Job from December 7, 1995 (collectively the "Company").
In April 1996, in preparation for an initial public offering, Mazel Stores,
Inc. (Mazel Stores) was incorporated as a wholly owned subsidiary of Mazel.
Immediately prior to the public offering, Mazel will contribute all of its
assets and liabilities to Mazel Stores in exchange for 5,613,554 shares of
Common Stock. Mazel Stores will then exercise its option to acquire the stock of
Holdings from ZS for $1,400,000, which included the cancellation of a $1,350,000
note due Mazel. It is anticipated that Mazel will then liquidate and distribute
the Mazel Stores' stock to its partners.
(2) ODD JOB ACQUISITION
Odd Job was acquired by ZS on December 7, 1995 for $10,500,000 and an
additional $1,013,000 in related expenses, in a transaction accounted for by the
purchase accounting method. In connection with the Acquisition, the purchase
price allocation and liabilities assumed were as follows (in thousands):
<TABLE>
<S> <C>
Current assets........................................................... $12,197
Equipment furniture and leasehold improvements........................... 1,568
Goodwill................................................................. 8,801
Other non current assets................................................. 1,866
Expenses incurred in connection with the Acquisition..................... (1,013)
Cash paid for stock and partnership units................................ (9,050)
-------
Liabilities assumed............................................ $14,369
=======
</TABLE>
The following unaudited pro forma combined results of operations assume
that the combination had occurred at the beginning of the year ended January 31,
1995 (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Net sales.................................................... $120,860 $133,881
Net income................................................... 6,324 5,683
</TABLE>
The unaudited pro forma information is not necessarily indicative either of
results of operations that would have occurred had the combination been made at
the beginning of the year ended January 31, 1995 or of future results of
operations of the combined Company.
F-8
<PAGE> 66
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF COMBINATION
The financial statements of the Company are presented on a combined basis
to reflect the economic substance of activities arising from their common
management and control. All significant intercompany balances and transactions
have been eliminated in the combined financial statements.
(B) CASH AND CASH EQUIVALENTS
For financial reporting purposes, the Company considers all investments
purchased with an original maturity of three months or less to be cash
equivalents.
(C) INVENTORIES
Mazel inventories are valued at the lower of cost or market, with cost
determined by the first-in, first-out (FIFO) method, and retail inventories are
valued by use of the retail method.
(D) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
Depreciation and amortization are provided for the cost of depreciable
properties at rates based on their estimated useful lives, which range from 3 to
10 years for furniture and equipment or, for leasehold improvements, extending
to the life of the related lease. The rates so determined are applied on a
straight-line basis. Maintenance and repairs are charged to expense as incurred.
(E) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(F) GOODWILL
Goodwill consists of the excess of purchase price over the estimated fair
value of net assets acquired and is amortized on a straight-line basis over
40 years in connection with the Acquisition and over 8 years for Peddlers. At
January 31, 1996, goodwill for the Acquisition and Peddlers amounted to
approximately $8,756,000 and $244,000, respectively, net of approximately
$45,000 and $42,000, respectively, of accumulated amortization. The Company
assesses the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operations.
(G) INCOME TAXES
Income taxes for the corporations in the Holdings consolidated group are
accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and any operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
For Mazel, the allocated share of the taxable income or loss for the period
is includable in the income tax returns of the partners; accordingly, federal
and state income taxes are not reflected in Mazel's financial statements. City
income taxes are the responsibility of Mazel.
F-9
<PAGE> 67
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(H) ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense was
approximately $712,000, $464,000 and $470,000 in the years ended January 31,
1994, 1995 and 1996, respectively.
(I) INTERIM INFORMATION (UNAUDITED)
The interim information presented in the combined financial statements has
been prepared by management without audit and, in the opinion of management,
includes all adjustments of a normal recurring nature that are necessary for the
fair presentation of financial position, results of operations, and cash flows
for the periods shown, in accordance with generally accepted accounting
principles.
(4) PARTNERS' CAPITAL
In 1992, Mazel was funded by a $13,500,000 initial capital contribution by
two of its three partners, who funded $4,500,000 and $9,000,000, respectively.
Of the $9,000,000 contribution, $4,500,000 represents preferred capital. Terms
of the Mazel partnership agreement prioritize cash distributions as follows:
First--In 1993, a mandatory distribution of $225,000, which was made.
Second--Beginning in 1993, mandatory distributions equal to 10 percent
of the preferred capital, which have been made.
Third--A mandatory distribution to all partners in proportion to their
respective profit percentages to cover their income tax liabilities
resulting from Mazel's income which have been made.
Fourth--Distributions providing for a return of the preferred capital.
Fifth--After complete distribution of preferred capital, distributions
to partners on a pro rata basis in proportion to their respective capital
percentages until the partners shall have received an amount equal to their
aggregate capital contributions.
Sixth--The balance to all partners on a pro rata basis in proportion
to their respective positive capital account balances.
The Mazel partnership agreement calls for redemption of the preferred
capital in July 2002. If Mazel shall not have funds legally available to redeem
all the preferred capital, then Mazel shall redeem the remaining preferred
capital on later dates when the funds are legally available.
The cash distributions and preferred capital redemption provisions made
above are subject to restrictions between Mazel and its lender (note 6).
(5) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
At January 31, 1995 and 1996, the major classes of equipment, furniture,
and leasehold improvements are summarized at cost, as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Furniture, fixtures, and equipment............................... $2,887 $2,687
Leasehold improvements........................................... 1,067 2,203
------ ------
3,954 4,890
Less accumulated depreciation and amortization................... 2,000 1,793
------ ------
$1,954 3,097
====== ======
</TABLE>
F-10
<PAGE> 68
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(6) LONG-TERM DEBT
(A) MAZEL
Term Loan and Revolving Line of Credit
Mazel has a term loan and revolving line of credit with The Provident Bank
(Provident) secured by all the assets of Mazel.
The $5,500,000 term loan has a maturity date of December 1, 2000, with a
portion bearing interest at 2.95 percentage points above the Treasury rate as
defined and a portion bearing interest at one-half percent above the prime rate
as published by Provident. At January 31, 1996, the interest rate charged to
Mazel was 6.49 percent on $1,446,889 and 9.0 percent on the remainder. Principal
payments are due in the amount of $111,000 per month through February 1, 1997
and $85,402 per month thereafter through maturity.
The revolving credit facility has a maturity date of January 31, 1998,
bears interest at the prime rate as published by Provident or a "LIBOR Rate" as
defined, and is subject to a commitment fee on the unused portion. At January
31, 1996, the interest rate charged to Mazel was 8.2 percent on $5,000,000 of
borrowings and 8.5 percent on the remainder. Availability on the revolving
credit facility is the lesser of $20,000,000 or a borrowing base computation
based on accounts receivable and inventories.
As of January 31, 1995 and 1996, amounts outstanding under the term loan
totaled $2,779,000 and $5,342,000, respectively, and outstanding borrowings on
the revolving line of credit totaled $7,244,000 and $12,084,000, respectively.
In addition to the regularly scheduled term loan payments, Mazel is
required, on an annual basis, to make certain prepayments in accordance with a
defined formula beginning June 1, 1995.
Subordinated Notes Payable
Notes payable originally aggregating $1,500,000 were payable to individuals
who own or who owned interests in Mazel. The final installments totaling
$500,000 were made in July 1995, and the notes were retired.
(B) HOLDINGS
Senior Debt
In conjunction with the Acquisition, Holdings entered into a term loan and
revolving line of credit agreement with Provident whereby Holdings' debt
pursuant to the agreement is secured by all assets of Holdings.
The $7,000,000 term loan has a maturity date of December 31, 2002 and bears
interest, which is due quarterly, at 1.25 percent above the prime rate as
published by Provident, or the Treasury rate. At January 31, 1996, the
applicable interest rate was 9.75 percent. Principal payments on the term loan
are due in quarterly amounts commencing on January 1, 1998 and continuing
through December 31, 2001 as follows: 1998, $300,000 per quarter; 1999, $350,000
per quarter; 2000, $400,000 per quarter; 2001, $450,000 per quarter. A final
principal payment of $1,000,000 is due on December 31, 2002.
The revolving credit facility has a maturity date of April 30, 1998 and
bears interest at 1 percent above the prime rate as published by Provident or a
"LIBOR Rate" as defined. Interest payments are due monthly; the applicable
interest rate was 9.5 percent at January 31, 1996. Availability on the revolving
credit facility is the lesser of $6,000,000 or a borrowing base computation
based on eligible inventory and accounts receivable, as defined. In addition,
the maximum available is reduced by letters of credit issued under the letter of
credit
F-11
<PAGE> 69
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
facility (see note 11(b)). The loan is subject to certain prepayment penalties.
As of January 31, 1996, outstanding borrowings on the revolving line of credit
totaled approximately $1,412,000.
In addition to the regularly scheduled term loan payments, Holdings is
required to pay, on an annual basis, 25 percent of a prepayment surplus, as
defined, beginning June 1, 1998 for 1997.
The senior debt is subject to certain restrictive covenants, with whose
terms Holdings is in compliance as of January 31, 1996.
Senior Subordinated Debt
As part of the consideration for the Acquisition, OJAC issued a $1,000,000
senior subordinated note to a former owner, secured by all assets of Holdings
and OJAC, with a claim on assets subordinated to the senior debt. The note has a
maturity date on the earlier of December 5, 1998, an initial public offering, or
a change in control as defined. The note bears interest, which is payable
annually, at 1 percent above the prime rate as published by Provident; the
applicable interest rate was 9.5 percent at January 31, 1996. The principal is
due in total at maturity.
Contingent Subordinated Debt
As part of the Acquisition consideration, OJAC issued three $150,000
contingent subordinated notes to the former Odd Job owners for a total of
$450,000, secured by all assets of OJAC and subordinated to the senior
subordinated debt and senior debt. The notes have a contingent maturity date 60
days subsequent to the settlement of a lawsuit against the owners and bear
interest at the prime rate as published by Provident; the applicable interest
rate was 8.5 percent at January 31, 1996. The principal and interest are due in
total at maturity, if at all, depending upon the outcome of the lawsuit.
Peddlers Notes Payable
o Contingent Subordinated "A" Note -- Payments to Peddlers' former owner
under this note, which matures on December 31, 2002, are to be made
annually, to a maximum of $675,000, based on Peddlers' distribution
profits, as defined. No amounts have been paid or are payable on this
note through January 31, 1996.
o Contingent Subordinated "B" Note -- Payments to Peddlers' former owner
under this note, which matures on December 31, 2002, are to be made
annually, to a maximum of $275,000, based on Peddlers' distribution
profits, as defined. No amounts have been paid or are payable on this
note through January 31, 1996.
o Subordinated "C" Note -- As part of the acquisition consideration,
Peddlers issued a $136,000 subordinated note to its former owner,
payable in quarterly installments of $4,250 commencing on December 31,
1994 with a final payment due on September 30, 2002. The amounts payable
under this note are to be reduced by payments made under the Contingent
Subordinated "A" Note, as defined. As of January 31, 1996, $114,750 was
outstanding on this note. The present value of the outstanding amount,
discounted at a rate of 10 percent, is $83,439, consisting of a current
portion of $17,000 and long-term portion of $66,439.
o Subordinated "D" Note -- As part of the acquisition consideration,
Peddlers also issued a $34,800 subordinated note to its former owner,
payable in quarterly installments of $4,350 commencing on December 31,
1994 with a final payment due on September 30, 1996. As of January 31,
1996, $11,540 was outstanding, all of which is current.
F-12
<PAGE> 70
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(7) RELATED PARTY TRANSACTIONS
(A) HOLDINGS
Holdings procured certain merchandise for related parties that were passed
through at cost. Such transactions aggregated approximately $711,000 and are not
reflected in net sales or cost of goods sold in the accompanying combined
statement of operations. Holdings charged these related parties fees aggregating
approximately $38,000 for warehousing and administration and $57,000 for
commissions. Included in accounts receivable at January 31, 1996 was
approximately $1,500,000 due from these related parties.
(B) MAZEL
Prior to the acquisition of OJAC by Holdings, Mazel conducted transactions
with Odd Job as both vendor and customer. During the years ended January 31,
1994, 1995 and 1996, sales by Mazel to Odd Job amounted to approximately
$2,506,000, $2,051,000 and $1,835,000, respectively, and purchases from Odd Job
approximated $2,992,000, $2,653,000 and $909,000, respectively, for such
pre-Acquisition periods. At January 31, 1994 and 1995, approximately $296,000
and $285,000 were due from Odd Job and included in accounts receivable -- trade,
and approximately $128,000 was due to Odd Job and included in accounts payable
at January 31, 1995.
Also included in Mazel's notes and other receivables are amounts due from
executives for approximately $166,000 at January 31, 1996.
During each of the years ended January 31, 1994, 1995 and 1996, Mazel paid
a management fee of $100,000 to its managing partner.
Mazel has a note from a related party bearing interest at 7.34 percent.
Interest is paid annually. During the year ended January 31, 1996, Mazel
recorded $15,203 of interest income as an offset to interest expense on these
notes. As of January 31, 1996, interest of $15,203 related to these notes was
due and included in accounts receivable -- trade.
(8) EMPLOYEE EQUITY PLAN
Mazel maintains an Employee Equity Plan (Plan) eligible to key executives
of Mazel. Terms of the Plan call for the awarding of units, entitling key
executives to purchase Mazel units for a stated purchase price, with
exercisability subject to certain vesting restrictions, generally over a
five-year period. Pursuant to exercise of the purchase option, such key
executives become limited partners of Mazel. No more than 2,000 units can be
issued under the Plan; on a fully diluted basis the Plan would represent a 15.3
percent profits interest in Mazel. During the year ended January 31, 1996, Mazel
issued 1,660 units to key executives, leaving a total of 1,730 units outstanding
at January 31, 1996, of which 338 units were vested. Such units were issued for
a purchase price of $25.00 per unit, at a discount of $225.00 per unit from fair
market value established by an independent appraisal. The resulting compensation
expense for the years ended January 31, 1994, 1995 and 1996, was not material.
(9) FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable, notes
and other receivables, accounts payable, and accrued expenses is considered to
approximate their fair value due to the short maturity of these instruments.
Debt instruments and notes receivable are carried at cost which approximates
market.
(10) INCOME TAXES
As a result of the Company's pretax income being attributable principally
to the Mazel partnership, income tax expense is not significant and principally
reflects local taxes for which Mazel is liable.
F-13
<PAGE> 71
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of January
31, 1996 are presented below (in thousands):
<TABLE>
<S> <C>
Deferred tax assets
Equipment, furniture, and leasehold basis differences................... $1,035
Accrued lease obligations............................................... 660
Inventory capitalization................................................ 235
Net loss carryforward................................................... 72
Allowance for doubtful accounts......................................... 7
------
Total gross deferred tax assets................................. 2,009
Deferred tax liabilities
Other................................................................... 44
------
Net deferred tax asset.......................................... $1,965
======
</TABLE>
A valuation allowance for the net deferred tax asset is not considered to
be necessary.
A net operating loss carryforward of approximately $205,000 is available to
offset future taxable income. This loss carryforward expires in 15 years.
(11) COMMITMENTS AND CONTINGENCIES
(A) LEASES
Mazel is obligated under operating leases with rental arrangements for
various periods of time providing for fixed rents. A majority of this commitment
(which expires on December 31, 2002) is for Mazel's office and warehouse
facilities where the lessor is a company in which certain partners of Mazel have
a minority ownership interest.
Holdings is obligated for office, warehouse, and retail space under
operating lease agreements which expire at various dates through fiscal 2009.
These leases are subject to certain escalation clauses based upon real estate
taxes and other occupancy expense. Also, several leases provide for additional
rent based on a percentage of sales.
At January 31, 1996, minimum annual rental commitments under noncancelable
leases for the Company as a whole are as follows (in thousands), for the fiscal
year ending:
<TABLE>
<S> <C>
1997..................................................................... $ 6,021
1998..................................................................... 5,710
1999..................................................................... 4,617
2000..................................................................... 4,655
2001..................................................................... 4,557
Thereafter............................................................... 15,360
-------
Total minimum lease payments............................................. $40,920
=======
</TABLE>
Rent expense for the aforementioned operating leases (excluding disposed of
retail operations (note 13)) was approximately $1,087,000, $1,345,000 and
$2,469,000 for the years ended January 31, 1994, 1995 and 1996, respectively.
Rent paid to the related party lessor by Mazel was approximately $1,229,000,
$1,241,000 and $1,330,000 for 1994, 1995 and 1996, respectively.
F-14
<PAGE> 72
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
In conjunction with the Acquisition, a portion of the purchase price was
assigned to leases based on the excess of the contractual lease payments over
the estimated current market rentals in the amount of approximately $1,891,000.
This amount is shown with other liabilities and will be reduced as lease
payments are made.
(B) LETTERS OF CREDIT
The Company has letters of credit facilities totaling $6,000,000 to be used
in the normal operations of the business. At January 31, 1996, the Company had
outstanding letters of credit issued to various parties aggregating
approximately $914,000.
(C) CONTINGENT SUBORDINATED NOTE AGREEMENTS
In the event of a sale or qualified public offering occurring during the
five-year period ending on July 14, 1997, in which the aggregate price paid by
the public is in excess of $10,000,000, contingent notes amounting to $4,000,000
become payable to owners of the predecessor entity to Mazel.
(D) INDEMNIFICATION AGREEMENT
Mazel has agreed to indemnify certain defendants against damages in the
amount of $5,000,000 with respect to an attempted acquisition by the plaintiff.
A claim for $20,000,000 against Mazel alleging tortious interference with
respect to the attempted acquisition has been dismissed but remains subject to
an amended filing. Discovery with respect to this lawsuit has not commenced. The
defendants believe the action to be without merit and intend to contest the
matter vigorously. Based upon the facts of the matter and discussions with legal
counsel, Mazel does not believe that the ultimate resolution of this matter will
have a material adverse impact on the results of operations or the financial
condition of Mazel.
(E) CONTINGENT BONUSES
Holdings has agreed to pay an incentive employment bonus to two key
executives of Holdings on the earlier of January 31, 1999, a qualified initial
public offering (as defined), or the sale of Holdings. These bonuses are to be
calculated based on earnings of Holdings, as defined.
(F) CONTINGENT STOCK OPTION
In the event of an initial public offering, Holdings is committed to grant
two key executives stock options for a number of shares of stock at a price
equal to $150,000 divided by the initial public offering price per share.
(12) RETIREMENT AND SAVINGS PLAN
Mazel maintains a contributory savings plan under Section 401(k) of the
Internal Revenue Code for the benefit of all collectively bargained employees
meeting certain minimum age and service requirements. Mazel's contribution under
the savings plan, which amounts to 25 percent of the employees' contributions up
to a maximum of $250 per employee, was $4,589, $4,786 and $5,619 for the years
ended January 31, 1994, 1995 and 1996, respectively.
(13) DISPOSAL OF MAZEL RETAIL BUSINESS
In October 1995, Mazel sold its retail business, which consisted of 11
closeout stores (Just Closeouts, Inc. and It's A Dollar, Inc.), for
approximately $1,818,000. Under terms of the agreement, Mazel sold all the
assets of the retail business (primarily inventory and fixed assets) to the
buyer, and the buyer assumed the
F-15
<PAGE> 73
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
operating liabilities, including the store leases, maintenance contracts, and
accrued expenses. Mazel realized a loss on this disposal of approximately
$1,571,000. No assets of the disposed of retail business segment are included in
the combined balance sheet as of January 31, 1996. Mazel remains contingently
liable for the retail store lease obligations in the event that the buyer should
default on its lease payments. The lease obligations, for fiscal years ending
January 31, are as follows: 1997 -- $609,000; 1998 -- $575,000; 1999 --
$418,000; 2000 -- $212,000; 2001 -- $157,000; and $214,000 thereafter.
(14) SUBSEQUENT EVENTS
In March of 1996, Mazel received a $4,000,000 capital contribution from two
of its partners. Also in March 1996, Holdings acquired certain assets and
liabilities of two stores from a related party in exchange for the related
party's accounts receivable balance for $969,000.
(15) PRO FORMA INFORMATION (UNAUDITED)
Below is the pro forma shareholders' equity section for capital changes at
January 27, 1996 and July 27, 1996.
<TABLE>
<CAPTION>
JANUARY 27, 1996 JULY 27, 1996
---------------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Common stock 14,000,000
shares authorized,
6,210,000 shares issued
and outstanding.......... -- --
Additional Paid in
Capital.................. 24,474 24,474
Retained Earnings
(deficit)................ (956) (952)
</TABLE>
Below is the pro forma and supplemental earnings per share information (in
thousands except share data)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 27, 1996 SIX MONTHS ENDED JULY 27, 1996
----------------------------------- -----------------------------------
EARNINGS EARNINGS
SHARES EARNINGS PER SHARE SHARES EARNINGS PER SHARE
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares issued with respect
to existing capital and
debt holders pretax
income.................... 5,882,890 3,118 6,210,000 4,567
Pro forma income taxes...... 1,278(A) 1,872(A)
-------- -------- -------- ---
Pro forma earnings per share
information after taxes... 5,882,890 1,840 .31 6,210,000 2,695 .43
======= =======
Adjustment for debt
repayment from proceeds... 1,407,143(B) 959(C) 1,407,143(B) 504(C)
-------- -------- -------- ---
Supplemental earnings per
share information......... 7,290,033 2,799 .38 7,617,143 3,199 .42
======== ====== ======= ======== ====== =======
</TABLE>
- ---------------
(A) Provides for income tax rate at 41%.
(B) Represents shares issued from the Offering used to repay debt ($19,700
of debt)
--------------- .
( $14/share )
(C) Represents the net tax effect elimination of interest expense using the
weighted average borrowing rate of 8.25% for the year and 8.68% for the
six-month period on a principal balance of $19,700.
(16) PRO FORMA BALANCE SHEET DATA
The unaudited pro forma balance sheet data reflects transactions between
the Company and its partners, employees, debt holders and other related entities
arising in conjunction with the Offering as if it had been completed on July 27,
1996.
F-16
<PAGE> 74
MAZEL COMPANY L.P.
Consolidated Financial Statements
January 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
F-17
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
The Partners
Mazel Company L.P.:
We have audited the accompanying consolidated balance sheets of Mazel
Company L.P. as of January 31, 1995 and 1996, and the related consolidated
statements of operations, partners' equity, and cash flows for each of the years
in the three-year period ended January 31, 1996. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mazel
Company L.P. as of January 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended January
31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
May 22, 1996
F-18
<PAGE> 76
MAZEL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1995 1996
------- ------- JULY 27,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 19 $ 2 $ 2
Accounts receivable -- trade, less allowance for doubtful
accounts of $175 in 1995 and 1996 (note 5)............. 7,267 10,190 13,701
Notes and other receivables (note 5)...................... 136 448 806
Inventories............................................... 19,744 24,290 26,867
Prepaid expenses.......................................... 313 70 368
------- ------- ------------
Total current assets.............................. 27,479 35,000 41,744
Equipment, furniture, and leasehold improvements, net (note
3)........................................................ 1,746 1,369 1,464
Other assets................................................ 604 720 692
Notes receivable -- related parties (note 5)................ 560 4,420 8,390
------- ------- ------------
$30,389 $41,509 $ 52,290
======= ======= =========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities
Long-term debt, current portion (note 4).................. $ 1,833 $ 1,332 $ 1,332
Accounts payable (note 5)................................. 7,115 9,508 9,970
Accrued expenses.......................................... 1,289 1,280 2,089
Other current liabilities................................. -- -- --
------- ------- ------------
Total current liabilities......................... 10,237 12,120 13,391
Revolving line of credit (note 4)........................... 7,244 12,084 15,475
Long-term debt, net of current portion (note 4)............. 1,446 4,010 3,280
Other liabilities........................................... -- 166 73
------- ------- ------------
Total liabilities................................. 18,927 28,380 32,219
Partners' equity (notes 2 and 6)............................ 11,462 13,129 20,071
Commitments and contingencies (notes 7 and 10)..............
------- ------- ------------
$30,389 $41,509 $ 52,290
======= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 77
MAZEL COMPANY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, ---------------------
------------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $62,744 $62,748 $77,313 $ 33,648 $ 54,175
Cost of sales............................ 45,703 45,790 56,877 23,866 40,862
------- ------- ------- -------- --------
Gross profit................... 17,041 16,958 20,436 9,782 13,313
Selling, general & administrative
expense................................ 10,546 10,478 13,031 6,063 8,012
Special charges.......................... 1,285 -- 332 -- --
------- ------- ------- -------- --------
Operating profit............... 5,210 6,480 7,073 3,719 5,301
Other income (expense)
Interest expense, net.................. (1,130) (883) (978) (499) (431)
Other.................................. (72) 15 (571) 24 22
------- ------- ------- -------- --------
Income from continuing
operations before income
taxes and extraordinary
loss......................... 4,008 5,612 5,524 3,244 4,892
Income taxes............................. 21 73 26 37 32
------- ------- ------- -------- --------
Income from continuing
operations before
extraordinary loss........... 3,987 5,539 5,498 3,207 4,860
Extraordinary loss (note 4).............. (455) -- -- -- --
------- ------- ------- -------- --------
Income from continuing
operations................... 3,532 5,539 5,498 3,207 4,860
Discontinued operations (note 10)
Loss from operations of discontinued
retail business segment............. (807) (724) (631) (458) --
Loss on disposal of retail business
segment............................. -- -- (1,571) -- --
------- ------- ------- -------- --------
Net income..................... $ 2,725 $ 4,815 $ 3,296 $ 2,749 $ 4,860
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 78
MAZEL COMPANY L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED JANUARY 31, 1994, 1995, AND 1996,
AND SIX MONTHS ENDED JULY 27, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance as of January 31, 1993..................................... $ 7,678
Distributions...................................................... (950)
Net income......................................................... 2,725
-------
Balance as of January 31, 1994..................................... 9,453
Distributions...................................................... (2,806)
Net income......................................................... 4,815
-------
Balance as of January 31, 1995..................................... 11,462
Equity contributions............................................... 92
Distributions...................................................... (1,721)
Net income......................................................... 3,296
-------
Balance as of January 31, 1996..................................... 13,129
Equity contributions (unaudited)................................... 4,000
Distributions (unaudited).......................................... (1,918)
Net income (unaudited)............................................. 4,860
-------
Balance as of July 27, 1996 (unaudited)............................ $20,071
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 79
MAZEL COMPANY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, ---------------------
------------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income............................. $ 2,725 $ 4,815 $ 3,296 $ 2,749 $ 4,860
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities
Depreciation and amortization....... 641 466 497 256 179
Extraordinary loss.................. 455 -- -- -- --
Allowance for doubtful accounts..... 105 (55) -- -- --
Loss on sale of discontinued
operations........................ -- -- 1,571 -- --
Changes in operating assets and
liabilities
Accounts receivable -- trade..... 817 (1,093) (2,916) (566) (3,511)
Notes and other receivables....... 148 (56) (349) 19 (358)
Inventories....................... 1,541 (331) (7,236) (3,241) (2,577)
Prepaid expenses.................. 119 (86) 181 (65) (298)
Other assets...................... (80) (82) (134) 55 28
Accounts payable.................. 782 2,190 2,828 250 462
Accrued expenses and other
liabilities 279 139 359 234 716
Discontinued operations -- noncash
charges and working capital
changes........................... 107 312 (893) (308) --
------- ------- ------- -------- --------
Total adjustments.............. 4,914 1,404 (6,092) (3,366) (5,359)
------- ------- ------- -------- --------
Net cash provided by (used in)
operating activities......... 7,639 6,219 (2,796) (617) (499)
------- ------- ------- -------- --------
Cash flows from investing activities
Capital expenditures, net.............. (217) (497) (436) (169) (274)
Issuance of notes receivable --
related parties..................... -- (560) (3,860) (250) (3,970)
Proceeds from sale of discontinued
operations.......................... -- -- 1,818 -- --
------- ------- ------- -------- --------
Net cash used in investing
activities................... (217) (1,057) (2,478) (419) (4,244)
------- ------- ------- -------- --------
Cash flows from financing activities
Proceeds from term loan................ -- 4,000 3,925 -- --
Repayment of debt...................... (5,790) (12,636) (1,362) (667) (730)
Net borrowings under revolving credit
facility............................ -- 6,856 4,840 3,627 3,391
Repayment of subordinated notes
payable............................. (500) (500) (500) (500) --
Equity contributions................... -- -- 92 -- 4,000
Distributions.......................... (950) (2,806) (1,721) (1,424) (1,918)
Loan fees.............................. (280) (75) (17) -- --
------- ------- ------- -------- --------
Net cash provided by (used in)
financing activities......... (7,520) (5,161) 5,257 1,036 4,743
------- ------- ------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................ (98) 1 (17) -- --
Cash and cash equivalents at beginning of
period................................. 116 18 19 19 2
------- ------- ------- -------- --------
Cash and cash equivalents at end of
period................................. $ 18 $ 19 $ 2 $ 19 $ 2
======= ======= ======= ======= =======
Supplemental disclosure
Interest paid.......................... $ 1,129 $ 882 $ 1,127 $ 499 $ 799
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 80
MAZEL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1994, 1995, AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF OPERATIONS
Mazel Company L.P. (Partnership) is a wholesaler of closeout merchandise.
The Partnership's principal market is closeout retailers.
(B) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Partnership
include the accounts of Blue Grass Premium Corp.; Oxford Imports Co.; Oxford
Products Co.; and The Mazel Company of New York, Inc. All significant
interdivisional transactions have been eliminated.
(C) CASH AND CASH EQUIVALENTS
For financial reporting purposes, the Partnership considers all investments
purchased with an original maturity date of three months or less to be cash
equivalents.
(D) INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
by the first-in, first-out (FIFO) method.
(E) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
Depreciation and amortization are provided for the cost of depreciable
properties at rates based on their estimated useful lives. The rates so
determined are applied on a straight-line basis. Maintenance and repairs are
charged to expense as incurred.
(F) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(G) INCOME TAXES
As a partnership, the allocated share of the taxable income or loss for the
period is includable in the income tax returns of the partners; accordingly,
federal and state income taxes are not reflected in the Partnership's financial
statements. City income taxes are the responsibility of the Partnership.
(H) INTERIM INFORMATION (UNAUDITED)
The interim information presented in the consolidated financial statements
has been prepared by management without audit and, in the opinion of management,
includes all adjustments of a normal recurring nature that are necessary for the
fair presentation of financial position, results of operations, and cash flows
for the periods shown, in accordance with generally accepted accounting
principles.
F-23
<PAGE> 81
MAZEL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(2) PARTNERS' CAPITAL
In 1992, the Partnership was funded by a $13,500,000 initial capital
contribution by two of the three partners of the Partnership, who funded
$4,500,000 and $9,000,000, respectively. Of the $9,000,000 contribution,
$4,500,000 represents preferred capital. Terms of the Partnership agreement
prioritize cash distributions as follows:
First--in 1993, a mandatory distribution of $225,000, which was made.
Second--Beginning in 1993, mandatory distributions equal to 10 percent
of the preferred capital, which have been made.
Third--A mandatory distribution to all partners in proportion to their
respective profit percentages to cover their income tax liabilities
resulting from Partnership income.
Fourth--Distributions providing for a return of the preferred capital.
Fifth--After complete distribution of preferred capital, distributions
to partners on a pro rata basis in proportion to their respective capital
percentages until the partners shall have received an amount equal to their
aggregate capital contributions.
Sixth--The balance to all partners on a pro rata basis in proportion
to their respective positive capital account balances.
The Partnership agreement calls for redemption of the preferred capital in
July 2002. If the Partnership shall not have funds legally available to redeem
all the preferred capital, then the Partnership shall redeem the remaining
preferred capital on later dates when the funds are legally available.
The cash distributions and preferred capital redemption provisions made
above are subject to restrictions between the Partnership and its lender (note
4).
(3) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
At January 31, 1995 and 1996, the major classes of equipment, furniture,
and leasehold improvements are summarized at cost, as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Equipment........................................................ $1,214 $1,334
Furniture........................................................ 1,673 972
Leasehold improvements........................................... 854 780
------ ------
3,741 3,086
Less accumulated depreciation and amortization................... 1,995 1,717
------ ------
$1,746 $1,369
====== ======
</TABLE>
(4) LONG-TERM DEBT
(A) TERM LOAN AND REVOLVING LINE OF CREDIT
The Partnership has a term loan and revolving line of credit with The
Provident Bank (Provident) secured by all the assets of the Partnership.
The $5,500,000 term loan has a maturity date of December 1, 2000, with a
portion bearing interest at 2.95 percentage points above the Treasury rate as
defined and a portion bearing interest at one-half percent above the prime rate
as published by Provident. At January 31, 1996, the interest rate charged to the
Partnership was
F-24
<PAGE> 82
MAZEL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6.49 percent on $1,446,889 and 9.0 percent on the remainder. Principal payments
are due in the amount of $111,000 per month through February 1, 1997 and $85,402
per month thereafter through maturity.
The revolving credit facility has a maturity date of January 31, 1998,
bears interest at the prime rate as published by Provident or a "LIBOR Rate" as
defined, and is subject to a commitment fee on the unused portion. At January
31, 1996, the interest rate charged to the Partnership was 8.2 percent on
$5,000,000 of borrowings and 8.5 percent on the remainder. Availability on the
revolving credit facility is the lesser of $20,000,000 or a borrowing base
computation based on accounts receivable and inventories.
As of January 31, 1995 and 1996, amounts outstanding under the term loan
totaled $2,779,000 and $5,342,000, respectively, and outstanding borrowings on
the revolving line of credit totaled $7,244,000 and $12,084,000, respectively.
In addition to the regularly scheduled term loan payments, the Partnership
is required, on an annual basis, to make certain prepayments in accordance with
a defined formula beginning June 1, 1995.
In 1994 the Partnership refinanced its term loan and revolving line of
credit. Pursuant to such refinancing, unamortized financing fees relating to the
old debt of $455,000 were written off and have been reported as an extraordinary
loss for financial reporting purposes.
(B) SUBORDINATED NOTES PAYABLE
Notes payable originally aggregating $1,500,000 were payable to individuals
who own or who owned interests in the Partnership. The final installments
totaling $500,000 were made in July 1995, and the notes were retired.
(5) RELATED PARTY TRANSACTIONS
Certain partners have ownership interests in parties which are both vendors
and customers of the Partnership. During the years ended January 31, 1994, 1995,
and 1996, sales to these parties amounted to approximately $2,506,000,
$2,216,000, and $3,462,000, respectively, and purchases from these parties
approximated $2,992,000, $2,653,000, and $909,000, respectively. At January 31,
1995 and 1996, approximately $285,000 and $1,180,000, respectively, was due from
these parties and included in accounts receivable -- trade. In addition, at
January 31, 1995, approximately $128,000 was due to these parties and included
in accounts payable.
Beginning in December 1995, the Partnership provided consulting services to
a related party. Total fees earned for the year ended January 31, 1996 were
approximately $96,000 and are included in notes and other receivables. The
revenue is reflected as a reduction of operating, selling, and administrative
expense.
Also included in notes and other receivables are amounts due from
executives for approximately $166,000 at January 31, 1996.
During each of the years ended January 31, 1994, 1995 and 1996, the
Partnership paid a management fee of $100,000 to its managing partner.
Notes from related parties bear interest at 7.34 percent to 14.5 percent;
the interest is paid annually or monthly. During the year ended January 31,
1996, the Partnership recorded $141,933 of interest income as an offset to
interest expense on these notes. As of January 31, 1996, interest of $34,278
related to these notes was due and included in accounts receivable -- trade. The
Partnership has agreed to provide $530,000 of additional funds to one of the
related parties.
In April 1996, the Partnership loaned an additional $4,000,000 to a related
party. In order to provide this loan to the related party, the Partnership
received the funds as a capital contribution from two of its partners.
F-25
<PAGE> 83
MAZEL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(6) EMPLOYEE EQUITY PLAN
The Partnership maintains an Employee Equity Plan (Plan) eligible to key
executives of the Partnership. Terms of the Plan call for the awarding of units,
entitling key executives to purchase Partnership units for a stated purchase
price, with exercisability subject to certain vesting restrictions, generally
over a five-year period. Pursuant to exercise of the purchase option, such key
executives become limited partners of the Partnership. No more than 2,000 units
can be issued under the Plan; on a fully diluted basis the Plan would represent
a 15.3 percent profits interest in the Partnership. During the year ended
January 31, 1996, the Partnership issued 1,660 units to key executives, leaving
a total of 1,730 units outstanding at January 31, 1996, of which 338 units were
vested. Such units were issued for a purchase price of $25.00 per unit, at a
discount of $225.00 per unit from fair market value established by an
independent appraisal. The resulting compensation expense for the years ended
January 31, 1995 and 1996, was not material.
(7) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Partnership is obligated under operating leases with rental
arrangements for various periods of time providing for fixed rents. A portion of
this commitment (which expires on December 31, 2002) is for the Partnership's
office and warehouse facilities where the lessor is a company in which certain
partners of the Partnership have a minority ownership interest.
At January 31, 1996, future minimum rental payments applicable to the
aforementioned operating leases were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997................................................................. $1,317
1998................................................................. 1,263
1999................................................................. 1,252
2000................................................................. 1,246
2001................................................................. 1,163
Thereafter........................................................... 2,228
-------
Total minimum lease payments......................................... $8,469
===========
</TABLE>
Rent expense for the aforementioned operating leases (excluding retail
operations [note 10]) was approximately $1,229,000, $1,260,000, and $1,344,000
for the years ended January 31, 1994, 1995, and 1996, respectively. Rent paid to
the related party lessor was approximately $1,087,000, $1,241,000, and
$1,330,000 for 1994, 1995, and 1996, respectively.
(B) LETTERS OF CREDIT
The Partnership has a letter of credit facility of $3,000,000 to be used
for the purchase of inventory overseas. At January 31, 1996, there was a letter
of credit issued for the purchase of inventory for approximately $134,000.
(C) CONTINGENT SUBORDINATED NOTE AGREEMENTS
In the event of a sale or qualified public offering occurring during the
five-year period ending on July 14, 1997, in which the aggregate price paid by
the public is in excess of $10,000,000, contingent notes amounting to $4,000,000
become payable to owners of the predecessor entity to the Partnership.
F-26
<PAGE> 84
MAZEL COMPANY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(D) INDEMNIFICATION AGREEMENT
The Partnership has agreed to indemnify certain defendants against damages
in the amount of $5,000,000 with respect to an attempted acquisition by the
plaintiff. A claim for $20,000,000 against the Partnership alleging tortious
interference with respect to the attempted acquisition has been dismissed but
remains subject to an amended filing. Discovery with respect to this lawsuit has
not commenced. The defendants believe the action to be without merit and intend
to contest the matter vigorously. Based upon the facts of the matter and
discussions with legal counsel, the Partnership does not believe that the
ultimate resolution of this matter will have a material adverse impact on the
results of operations or the financial condition of the Partnership.
(8) RETIREMENT AND SAVINGS PLAN
The Partnership maintains a contributory savings plan under Section 401(k)
of the Internal Revenue Code for the benefit of all collectively bargained
employees meeting certain minimum age and service requirements. The
Partnership's contribution under the savings plan, which amounts to 25 percent
of the employees' contributions up to a maximum of $250 per employee, was
$4,589, $4,786, and $5,619 for the years ended January 31, 1994, 1995, and 1996,
respectively.
(9) FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses is considered to approximate their fair
value due to the short maturity of these instruments. Debt instruments and
related party notes receivable are carried at cost which approximates market.
(10) DISPOSAL OF RETAIL BUSINESS SEGMENT
In October 1995, the Partnership sold its retail business, which consisted
of 11 closeout stores (Just Closeouts, Inc. and It's A Dollar, Inc.), for
approximately $1,818,000. Under terms of the agreement, the Partnership sold all
the assets of the retail business (primarily inventory and fixed assets) to the
buyer, and the buyer assumed the operating liabilities, including the store
leases, maintenance contracts, and accrued expenses. The Partnership realized a
loss on this disposal of approximately $1,571,000. No assets of the retail
business segment are included in the consolidated balance sheet as of January
31, 1996. The Partnership remains contingently liable for the retail store lease
obligations in the event that the buyer should default on its lease payments.
The lease obligations, for fiscal years ending January 31, are as follows:
1997 -- $609,000; 1998 -- $575,000; 1999 -- $418,000; 2000 -- $212,000;
2001 -- $157,000; and $214,000 thereafter.
The Partnership is anticipating a public offering within the next fiscal
year. Immediately prior to the public offering, the Partnership will merge with
other entities, some of which operate retail business. Upon consummation of the
public offering, the above discontinued retail operations will be retroactively
reclassified to continuing operations.
F-27
<PAGE> 85
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Financial Statements
January 27, 1996
(With Independent Auditors' Report Thereon)
F-28
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Odd-Job Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Odd-Job
Holdings, Inc. and subsidiary (Successor) as of January 27, 1996, and the
related consolidated statements of operations, stockholder's equity, and cash
flows from December 7, 1995 to January 27, 1996 (Successor period) and the
combined statements of operations and cash flows of Odd Job (Predecessor) for
the period from February 1, 1995 to December 7, 1995 (Predecessor period). These
consolidated and combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated and combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the aforementioned Successor consolidated financial
statements present fairly, in all material respects, the financial position of
Odd-Job Holdings, Inc. and subsidiary as of January 27, 1996, and the results of
their operations and cash flows for the Successor period in conformity with
generally accepted accounting principles. Further, in our opinion, the
aforementioned Predecessor combined financial statements present fairly, in all
material respects, the results of operations and cash flows of Odd Job for the
Predecessor period in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, on
December 7, 1995, Odd-Job Holdings, Inc. acquired, in a business combination
accounted for as a purchase, stock and partnership units in several entities. As
a result of the acquisition, the financial information for the periods after the
acquisition is presented on a different cost basis than for the periods before
the acquisition and, therefore, is not comparable.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
March 29, 1996, except for Note 4(c),
which is as of April 8, 1996
F-29
<PAGE> 87
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27,
1996
----------- JULY 27,
1996
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (including restricted cash of $100)...... $ 1,468 $ 2,310
Accounts receivable, less allowance for doubtful accounts of $20
(note 5)........................................................ 1,486 1,332
Inventories........................................................ 5,020 14,457
Prepaid expenses, income taxes, and other current assets........... 370 512
Deferred income taxes (note 6)..................................... 314 314
----------- -----------
Total current assets....................................... 8,658 18,925
Equipment, furniture, and leasehold improvements, net (note 3)....... 1,728 2,231
Other assets
Goodwill, net...................................................... 9,000 9,509
Deferred income taxes (note 6)..................................... 1,695 1,695
Security deposits.................................................. 234 273
Other.............................................................. 134 171
----------- -----------
Total other assets......................................... 11,063 11,648
----------- -----------
$21,449 $32,804
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable (note 5).......................................... $ 3,834 $ 6,683
Accrued expenses (note 5).......................................... 1,191 1,807
Current maturities of long-term debt (note 4)...................... 28 22
Other current liabilities (note 8[a]).............................. 193 360
----------- -----------
Total current liabilities.................................. 5,246 8,872
Long-term debt (note 4).............................................. 12,998 20,684
Other noncurrent liabilities (note 8[a])............................. 1,871 1,910
Deferred income taxes (note 6)....................................... 44 44
----------- -----------
Total liabilities.......................................... 20,159 31,510
Stockholder's equity
Common stock (authorized 10,000 shares, issued 1,000).............. 1 1
Additional paid-in capital......................................... 1,389 1,389
Accumulated deficit................................................ (100) (96)
----------- -----------
Total stockholder's equity................................. 1,290 1,294
Commitments and contingencies (note 8)...............................
----------- -----------
$21,449 $32,804
======== ========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-30
<PAGE> 88
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (SUCCESSOR) AND
COMBINED STATEMENTS OF OPERATIONS (PREDECESSOR)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR PREDECESSOR ---------
----------- ----------- SIX
FEBRUARY 1, SIX MONTHS MONTHS
1995 TO SUCCESSOR ENDED ENDED
DECEMBER 7, --------- JULY 31, JULY 27,
1995 NOTE 1 1995 1996
----------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales......................................... $45,289 $14,775 $25,770 $35,039
Cost of sales..................................... 27,904 9,637 15,878 21,368
----------- --------- ----------- ---------
Gross profit............................ 17,385 5,138 9,892 13,671
Selling, general, and administrative expenses
(note 5)........................................ 16,199 4,658 9,102 12,810
Employee signing bonuses.......................... -- 300 -- --
----------- --------- ----------- ---------
Income from operations.................. 1,186 180 790 861
Interest expense.................................. 213 287 91 853
----------- --------- ----------- ---------
Income (loss) before income taxes................. 973 (107) 699 8
Income tax (benefit) expense (note 6)............. 14 (7) 78 4
----------- --------- ----------- ---------
Net income (loss)....................... $ 959 (100) 621 4
========= ======= ======== =======
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-31
<PAGE> 89
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (SUCCESSOR)
DECEMBER 7, 1995 TO JANUARY 27, 1996
AND SIX MONTHS ENDED JULY 27, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
NUMBER PAR VALUE CAPITAL DEFICIT TOTAL
------ --------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 7, 1995................ 1,000 $ 1 $ 1,389 $ -- $1,390
Net loss................................... -- -- -- (100) (100)
------ ------- ---------- ----------- ------
Balance at January 27, 1996................ 1,000 1 1,389 (100) 1,290
Net income (unaudited)..................... -- -- -- 4 4
------ ------- ---------- ----------- ------
Balance at July 27, 1996 (unaudited)....... 1,000 $ 1 $ 1,389 $ (96) $1,294
====== ======= ======= ========= ======
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-32
<PAGE> 90
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (SUCCESSOR) AND
COMBINED STATEMENTS OF CASH FLOWS (PREDECESSOR)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR PREDECESSOR ---------
----------- ----------- SIX
FEBRUARY 1, SIX MONTHS MONTHS
1995 TO SUCCESSOR ENDED ENDED
DECEMBER 7, --------- JULY 31, JULY 27,
1995 NOTE 1 1995 1996
----------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)............................... $ 959 $ (100) $ 621 $ 4
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization.............. 677 149 430 286
Loss on disposal of property and
equipment............................... 11 -- -- --
Deferred income taxes...................... (2) (12) -- --
Changes in operating assets and liabilities
Accounts receivable..................... (949) 661 (603) (836)
Inventories............................. (1,767) 2,762 (1,814) (9,157)
Other current assets.................... 113 170 (182) (100)
Cash surrender value of officers' life
insurance............................. 333 -- (16) --
Accounts payable and accrued expenses... 2,062 (2,890) 295 3,378
Other current liabilities............... 109 (239) 8 167
Other liabilities....................... -- -- 46 39
----------- --------- ----------- ---------
Total adjustments.................. 587 601 (1,836) (6,223)
----------- --------- ----------- ---------
Net cash provided by (used in)
operating activities............. 1,546 501 (1,215) (6,219)
----------- --------- ----------- ---------
Cash flows from investing activities
Cash paid for acquisition, net of cash
acquired..................................... -- (8,395) -- --
Cash received at acquisition, net of cash
expenses incurred............................ -- -- -- 70
Additions to property and equipment, net........ (1,025) (15) (683) (653)
Additions to other assets....................... (163) -- (27) (36)
----------- --------- ----------- ---------
Net cash used in investing
activities....................... (1,188) (8,410) (710) (619)
----------- --------- ----------- ---------
Cash flows from financing activities
Principal payments on debt...................... (600) (2,789) (400) (70)
Proceeds from term loan......................... -- 7,000 1,900 --
Net proceeds from revolving lines of credit..... 1,988 1,790 -- 3,750
Debt issuance costs............................. -- (138) -- --
Proceeds from subordinated debt................. -- 2,100 -- 4,000
Proceeds from capital stock..................... -- 1,400 -- --
Withdrawals from partners' capital.............. (772) -- (125) --
Dividends paid to stockholders.................. (216) (110) -- --
----------- --------- ----------- ---------
Net cash provided by financing
activities....................... 400 9,253 1,375 7,680
----------- --------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 758 1,344 (550) 842
Cash and cash equivalents at beginning of
period.......................................... 909 124 909 1,468
----------- --------- ----------- ---------
Cash and cash equivalents at end of period........ $ 1,667 $ 1,468 $ 359 $ 2,310
========= ======= ======== =======
Supplemental disclosure of cash flow information
Income taxes paid............................... $ 77 $ 7 $ 107 $ --
Interest paid................................... 213 98 83 452
========= ======= ======== =======
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-33
<PAGE> 91
NON-CASH INVESTING ACTIVITIES
In March 1996 Odd Job Holdings acquired certain assets and liabilities of
two stores from a related party in exchange for the forgiveness of the related
party's accounts receivable balance.
The transaction is summarized as follows:
<TABLE>
<S> <C>
Fair value of assets acquired..................................... 1,077
Accounts receivable exchanged..................................... (990)
------
Liabilities assumed............................................. 87
=====
</TABLE>
F-34
<PAGE> 92
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR)
JANUARY 27, 1996
(1) ORGANIZATION AND NATURE OF OPERATIONS
Odd-Job Holdings, Inc. (Company or Successor) is a holding company that was
formed in November 1994 and is wholly owned by ZS Mazel L.P. (ZS), a limited
partnership. The Company owns all of the outstanding common stock of Odd Job
Acquisition Corp. (OJAC), which was also organized in November 1994 in
contemplation of acquiring all of the outstanding capital stock of Odd Job
Trading Corp. (OJT) and POW Trading Corp. (POW), and all of the partnership
units of HIA Trading Associates (HIA) and Central Processing Associates (CPA), a
group of corporations and partnerships related by common control (collectively,
Odd Job or Predecessor). The acquisition of Odd Job for $10,500,000 and
$1,013,000 of related expenses occurred on December 7, 1995 (Acquisition) and
has been accounted for by the purchase method of accounting. Neither the Company
nor OJAC had any activities prior to the acquisition. Concurrently with the
Acquisition, ZS merged OJAC with Peddler's Mart, Inc. (Peddlers), a wholly owned
subsidiary, in a transaction that has been reflected as an as-if-pooling by
virtue of the common control of Peddlers and Odd Job. Peddlers was acquired by
ZS on December 9, 1994. In connection with the Acquisition, the purchase price
allocation and liabilities assumed were as follows (in thousands):
<TABLE>
<S> <C>
Current assets........................................................... $12,197
Equipment, furniture and leasehold improvements.......................... 1,568
Goodwill................................................................. 8,801
Other non-current assets................................................. 1,866
Expenses incurred in connection with the Acquisition..................... (1,013)
Cash paid for stock and partnership units................................ (9,050)
-------
Liabilities assumed............................................ $14,369
=======
</TABLE>
The following unaudited pro forma combined results of operations assume
that the combination had occurred at the beginning of the year ended January 31,
1995 (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Net sales.................................................... $120,860 $133,881
Net income................................................... 6,324 5,683
</TABLE>
The unaudited pro forma information is not necessarily indicative either of
results of operations that would have occurred had the combination been made at
the beginning of the year ended January 31, 1995 or of future results of
operations of the combined Company.
Odd Job and Peddlers are engaged in the retail sale of high-quality
closeout merchandise through 13 retail stores operating in the New York
metropolitan area.
As a result of the purchase accounting method applied to the Acquisition,
the financial information for the periods after the Acquisition is presented on
a different cost basis than for the periods before the Acquisition; accordingly,
such Successor and Precedessor financial information is not comparable.
F-35
<PAGE> 93
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
The Successor company information includes the results of Peddlers for the
12 months ending January 27, 1996 and Odd Job for the period from December 7,
1995 to January 27, 1996, as follows (in thousands):
<TABLE>
<CAPTION>
ODD JOB PEDDLERS
----------- -----------
DECEMBER 7, FEBRUARY 1,
1995 TO 1995 TO
JANUARY 27, JANUARY 27,
1996 1996 TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................ $ 9,621 $ 5,154 $14,775
Gross profit..................................... 3,485 1,653 5,138
Special charges.................................. 300 -- 300
Operating profit (loss).......................... 198 (18) 180
Net income (loss)................................ 8 (108) (100)
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
Prior to the Acquisition, the financial statements of Odd Job were
presented on a combined basis to reflect the economic substance of their
activities arising from their common management and control. Subsequent to the
Acquisition, the financial statements of OJAC, Peddlers, and Odd Job have been
consolidated with the financial statements of the Company reflecting a full year
of Peddlers' operations in the Successor period. All significant intercompany
balances and transactions have been eliminated in the consolidated and combined
financial statements.
(B) CASH AND CASH EQUIVALENTS
For financial reporting purposes, the Company considers all investments
purchased with an original maturity of three months or less to be cash
equivalents.
(C) INVENTORIES
Inventories are stated at the lower of cost or market, with cost for the
Predecessor determined on the specific identification or first-in, first-out
method and cost for the Successor valued by use of the retail method.
(D) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
Depreciation and amortization are provided for the cost of depreciable
properties at rates based on their estimated useful lives, which range from 3 to
10 years for furniture and equipment or, for leasehold improvements, extending
to the life of the related lease. The rates so determined are applied on a
straight-line basis. Maintenance and repairs are charged to expense as incurred.
(E) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(F) GOODWILL
Goodwill consists of the excess of purchase price over the estimated fair
value of net assets acquired and is amortized on a straight-line basis over 40
years in connection with the Acquisition and over 8 years for Peddlers. At
January 27, 1996, goodwill for the Acquisition and Peddlers amounted to
approximately $8,756,000 and $244,000, respectively, net of approximately
$45,000 and $42,000, respectively, of accumu-
F-36
<PAGE> 94
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
lated amortization. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operations.
(G) INCOME TAXES
Income taxes for the corporations in the consolidated group are accounted
for under the asset and liability method, except that during the Predecessor
period no federal or state income taxes were provided for HIA or CPA as the
taxable income for these partnerships was passed through to their respective
partners. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and any operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(H) ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense was
approximately $145,000 and $77,000 in the Predecessor and Successor periods,
respectively.
(I) CHANGE IN FISCAL YEAR
Prior to the Acquisition, the Predecessor's fiscal year ended on January 31
of each year. The Successor has adopted a 52-53 week fiscal year ending on the
Saturday nearest to the last day of January.
(J) INTERIM INFORMATION (UNAUDITED)
The interim information presented in the consolidated and combined
financial statements has been prepared by management without audit and, in the
opinion of management, includes all adjustments of a normal recurring nature
that are necessary for the fair presentation of financial position, results of
operations, and cash flows for the periods shown, in accordance with generally
accepted accounting principles.
(3) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
At January 27, 1996, the major classes of equipment, furniture, and
leasehold improvements are summarized at cost, as follows (in thousands):
<TABLE>
<S> <C>
Leasehold improvements.................................................... $1,423
Furniture, fixtures, and equipment........................................ 381
------
1,804
Less accumulated depreciation and amortization............................ 76
------
$1,728
======
</TABLE>
(4) LONG-TERM DEBT
(A) SENIOR DEBT
In conjunction with the Acquisition, the Company entered into a term loan
and revolving line of credit agreement with The Provident Bank (Provident)
whereby the Company's debt pursuant to the agreement is secured by all assets of
the Company.
The $7,000,000 term loan has a maturity date of December 31, 2002 and bears
interest, which is due quarterly, at 1.25 percent above the prime rate as
published by Provident, or the Treasury rate. At January 27,
F-37
<PAGE> 95
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
1996, the applicable interest rate was 9.75 percent. Principal payments on the
term loan are due in quarterly amounts commencing on January 1, 1998 and
continuing through December 31, 2001 as follows: 1998, $300,000 per quarter;
1999, $350,000 per quarter; 2000, $400,000 per quarter; 2001, $450,000 per
quarter. A final principal payment of $1,000,000 is due on December 31, 2002.
The revolving credit facility has a maturity date of April 30, 1998 and
bears interest at 1 percent above the prime rate as published by Provident or a
"LIBOR Rate" as defined. Interest payments are due monthly; the applicable
interest rate was 9.5 percent at January 27, 1996. Availability on the revolving
credit facility is the lesser of $6,000,000 or a borrowing base computation
based on eligible inventory and accounts receivable, as defined. In addition,
the maximum available is reduced by letters of credit issued under the letter of
credit facility (see note 8[b]). The loan is subject to certain prepayment
penalties. As of January 27, 1996, outstanding borrowings on the revolving line
of credit totaled approximately $1,412,000.
In addition to the regularly scheduled term loan payments, the Company is
required to pay, on an annual basis, 25 percent of a prepayment surplus, as
defined, beginning June 1, 1998 for 1997.
The senior debt is subject to certain restrictive covenants, with whose
terms the Company is in compliance as of January 27, 1996.
(B) SENIOR SUBORDINATED DEBT
As part of the consideration for the Acquisition, OJAC issued a $1,000,000
senior subordinated note to a former owner, secured by all assets of the Company
and OJAC, with a claim on assets subordinated to the senior debt. The note has a
maturity date on the earlier of December 5, 1998, an initial public offering, or
a change in control as defined. The note bears interest, which is payable
annually, at 1 percent above the prime rate as published by Provident; the
applicable interest rate was 9.5 percent at January 27, 1996. The principal is
due in total at maturity.
(C) SUBORDINATED DEBT
The Company issued a $2,100,000 subordinated note to Mazel Company L.P.
(Mazel), a related party. The note is secured by all assets of the Company and
subordinated to all other long-term debt. The note has a maturity date of
February 28, 2003, and bears interest at 6 percent above the prime rate as
published by Provident; the applicable interest rate was 14.5 percent at January
27, 1996. The principal is due in total at maturity. In 1996, the Company
borrowed an additional $4,000,000 from Mazel which was contributed to OJAC as
additional paid-in capital. Mazel also holds an option to acquire OJAC from ZS,
who serves as the managing partner of Mazel.
(D) CONTINGENT SUBORDINATED DEBT
As part of the Acquisition consideration, OJAC issued three $150,000
contingent subordinated notes to the former Odd Job owners for a total of
$450,000, secured by all assets of OJAC and subordinated to the senior
subordinated debt and senior debt. The notes have a contingent maturity date 60
days subsequent to the settlement of a lawsuit against the owners and bear
interest at the prime rate as published by Provident; the applicable interest
rate was 8.5 percent at January 27, 1996. The principal and interest are due in
total at maturity, if at all, depending upon the outcome of the lawsuit.
(E) PEDDLERS NOTES PAYABLE
- Senior Subordinated Revolving Credit Note -- Peddlers has a $1,500,000
senior subordinated revolving credit note with a related party expiring
at the sale of Peddlers to a third party or a qualified public offering,
as defined, bearing interest at a rate of 10 percent, payable monthly.
As of January 27, 1996, the amount outstanding was $970,000.
F-38
<PAGE> 96
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
- Contingent Subordinated "A" Note -- Payments to Peddlers' former owner
under this note, which matures on December 31, 2002, are to be made
annually, to a maximum of $675,000, based on Peddlers' distribution
profits, as defined. No amounts have been paid or are payable on this
note through January 27, 1996.
- Contingent Subordinated "B" Note -- Payments to Peddlers' former owner
under this note, which matures on December 31, 2002, are to be made
annually, to a maximum of $275,000, based on Peddlers' distribution
profits, as defined. No amounts have been paid or are payable on this
note through January 27, 1996.
- Subordinated "C" Note -- As part of the acquisition consideration,
Peddlers issued a $136,000 subordinated note to its former owner,
payable in quarterly installments of $4,250 commencing on December 31,
1994 with a final payment due on September 30, 2002. The amounts payable
under this note are to be reduced by payments made under the Contingent
Subordinated "A" Note, as defined. As of January 27, 1996, $114,750 was
outstanding on this note. The present value of the outstanding amount,
discounted at a rate of 10 percent, is $83,439, consisting of a current
portion of $17,000 and long-term portion of $66,439.
- Subordinated "D" Note -- As part of the acquisition consideration,
Peddlers also issued a $34,800 subordinated note to its former owner,
payable in quarterly installments of $4,350 commencing on December 31,
1994 with a final payment due on September 30, 1996. As of January 27,
1996, $11,540 was outstanding, all of which is current.
(5) RELATED PARTY TRANSACTIONS
During the Predecessor period, Odd Job purchased merchandise from a company
with whom it shared certain common ownership. Such purchases aggregated
approximately $1,835,000. During the Successor period, the Company continued to
be related to this supplier. Purchases during the Successor period were
approximately $1,813,000. At January 27, 1996, amounts payable to this supplier
amounted to approximately $747,000 and are included in accounts payable.
Also during the Predecessor period, Odd Job procured certain merchandise
for the above-mentioned supplier and for other related parties. Such
transactions aggregated approximately $5,733,000 and are not reflected in net
sales or cost of goods sold in the accompanying Predecessor combined statement
of operations.
Odd Job charged these related parties a fee to cover warehousing and
administrative costs aggregating approximately $249,000 for the Predecessor
period, in addition to purchase commissions aggregating approximately $459,000
for the period. These revenues are shown as a reduction of selling, general, and
administrative expenses in the accompanying Predecessor combined statement of
operations.
During the Successor period, purchases for these related parties aggregated
approximately $711,000, and the Company charged these related parties fees
aggregating approximately $38,000 for warehousing and administration and $57,000
for commissions. Included in accounts receivable at January 27, 1996 was
approximately $1,500,000 due from these related parties.
During the Successor period, the Company incurred interest expense to
related parties totaling approximately $61,000 on various debt arrangements. Of
this amount, approximately $49,000 is payable at January 27, 1996 and is
included with accrued expenses.
During the Successor period, the Company was allocated payroll costs of
approximately $91,000 from a related party for services provided. The full
amount is payable at January 27, 1996 and is included with accrued expenses.
F-39
<PAGE> 97
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
(6) INCOME TAXES
The components of income tax (benefit) expense for the two months ended
January 27, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred federal income tax benefit -- current.............................. $(29)
Deferred federal income tax expense -- noncurrent........................... 17
State and local income tax expense.......................................... 5
----
$ (7)
====
</TABLE>
During the Predecessor period, Odd Job's income was attributable to the HIA
and CPA partnerships; accordingly, the related federal and state income tax
liabilities were passed through to their respective partners. During the
Successor period, the difference in the effective tax rate benefit of 19 percent
from the statutory rate benefit of 35 percent is due primarily to state and
local income tax expense.
The components of the deferred income tax benefit are as follows (in
thousands):
<TABLE>
<S> <C>
Net loss carryforward....................................................... $(72)
Inventory capitalization.................................................... 44
Equipment, furniture, and leasehold improvements............................ 9
Goodwill.................................................................... 7
----
$(12)
====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of January
27, 1996 are presented below (in thousands):
<TABLE>
<S> <C>
Deferred tax assets
Equipment, furniture, and leasehold basis differences................... $1,035
Accrued lease obligations............................................... 660
Inventory capitalization................................................ 235
Net loss carryforward................................................... 72
Allowance for doubtful accounts......................................... 7
------
Total gross deferred tax assets................................. 2,009
Deferred tax liabilities
Other................................................................... 44
------
Net deferred tax asset.......................................... $1,965
======
</TABLE>
A net operating carryforward of approximately $205,000 is available to
offset future taxable income. This loss carryforward expires in 15 years.
(7) FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses is considered to approximate their fair
value due to the short maturity of these instruments. Debt instruments are
carried at cost which approximates market.
(8) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company is obligated for office, warehouse, and retail space under
operating lease agreements which expire at various dates through fiscal 2009.
These leases are subject to certain escalation clauses based upon
F-40
<PAGE> 98
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
real estate taxes and other occupancy expense. Also, several leases provide for
additional rent based on a percentage of sales.
At January 27, 1996, minimum annual rental commitments under noncancelable
leases are as follows (in thousands), for the fiscal year ending:
<TABLE>
<S> <C>
1997..................................................................... $ 4,704
1998..................................................................... 4,447
1999..................................................................... 3,365
2000..................................................................... 3,409
2001..................................................................... 3,394
Thereafter............................................................... 13,132
-------
Total minimum lease payments............................................. $32,451
=======
</TABLE>
Rent expense relating to these leases for the Predecessor and Successor
periods amounted to approximately $4,290,000 and $715,000, respectively.
In conjunction with the Acquisition, a portion of the purchase price was
assigned to leases based on the excess of the contractual lease payments over
the estimated current market rentals in the amount of approximately $1,891,000.
This amount is shown with other liabilities and will be reduced as lease
payments are made.
(B) LETTERS OF CREDIT
The Company has a letter of credit facility of $3,000,000 to be used in the
normal operations of the business. At January 27, 1996, the Company had
outstanding letters of credit issued to various parties aggregating
approximately $780,000.
(C) CONTINGENT BONUSES
The Company has agreed to pay an incentive employment bonus to two key
executives of the Company on the earlier of January 31, 1999, a qualified
initial public offering (as defined), or the sale of the Company. These bonuses
are to be calculated based on earnings of the Company, as defined.
(D) CONTINGENT STOCK OPTION
In the event of an initial public offering, the Company is committed to
grant two key executives stock options for a number of shares of stock at a
price equal to $150,000 divided by the initial public offering price per share.
(9) SUBSEQUENT EVENT
In March 1996, the Company acquired certain assets and liabilities of two
stores from a related party in exchange for the related party's accounts
receivable balance for $969,000.
F-41
<PAGE> 99
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED JANUARY 31, 1995 AND 1994,
INDEPENDENT AUDITORS' REPORT
F-42
<PAGE> 100
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT........................................................ F-44
FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1995 AND 1994:
Combined Balance Sheets........................................................... F-45
Combined Statements of Operations................................................. F-46
Combined Statements of Stockholders' Equity and Partners' Capital................. F-47
Combined Statements of Cash Flows................................................. F-48
Notes to Combined Financial Statements............................................ F-49
</TABLE>
F-43
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Partners of
Odd Job Trading Corp.,
POW Trading Corp.,
HIA Trading Associates and
Central Processing Associates:
We have audited the accompanying combined balance sheets of Odd Job Trading
Corp., POW Trading Corp., HIA Trading Associates and Central Processing
Associates (the "Company"), all of which companies are under common ownership
and common management, as of January 31, 1995 and 1994, and the related combined
statements of operations, stockholders' equity and partners' capital and of cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Company at January 31, 1995 and
1994, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, in the year ended
January 31, 1994, the Company changed its method of accounting for income taxes
to conform with Statement of Financial Accounting Standards No. 109.
DELOITTE TOUCHE LLP
New York, New York
August 11, 1995
F-44
<PAGE> 102
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
COMBINED BALANCE SHEETS
JANUARY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................... $ 909,175 $ 807,583
Accounts receivable (Less allowance for doubtful accounts of
$20,000 and $130,000, respectively) (Note 7)................ 1,642,309 1,665,982
Inventories (Note 2)........................................... 5,933,623 5,160,322
Prepaid expenses and other current assets (Note 2)............. 553,368 687,323
Prepaid income taxes (Note 2).................................. 902 118,653
Deferred income tax benefits................................... 37,831 34,921
----------- -----------
Total current assets................................... 9,077,208 8,474,784
----------- -----------
PROPERTY AND EQUIPMENT -- Net (Notes 2 and 3).................... 3,400,696 3,775,678
----------- -----------
OTHER ASSETS:
Security deposits.............................................. 165,397 216,085
Cash surrender value of officers' life insurance............... 332,996 300,236
Deferred income tax benefits................................... 19,261 26,337
Other (Note 2)................................................. 87,698 117,060
----------- -----------
Total other assets..................................... 605,352 659,718
----------- -----------
TOTAL ASSETS................................................... $13,083,256 $12,910,180
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 7)................. $ 5,521,072 $ 5,058,832
Current maturities of long-term debt (Note 5).................. 600,000 800,000
Income taxes payable........................................... 31,590 2,734
Other current liabilities...................................... 266,823 219,217
----------- -----------
Total current liabilities.............................. 6,419,485 6,080,783
----------- -----------
LONG-TERM DEBT -- Less current maturities (Note 5)............... 800,000 1,400,000
----------- -----------
ACCRUED RENT (Note 8)............................................ 172,502 131,266
----------- -----------
DEFERRED INCOME TAXES............................................ 15,904 17,242
----------- -----------
STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL:
Common stock:
Odd Job Trading Corp., no par value -- authorized, 200 shares;
outstanding, 200 shares..................................... 6,800 6,800
POW Trading Corp., no par value -- authorized, 200 shares:
outstanding, 200 shares..................................... 20,000 20,000
Additional paid-in capital..................................... 58,800 58,800
Retained earnings.............................................. 1,904,261 1,688,738
HIA Trading Associates partners' capital (Note 6).............. 3,685,504 3,506,551
----------- -----------
Total stockholders' equity and partners' capital....... 5,675,365 5,280,889
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS'
CAPITAL........................................................ $13,083,256 $12,910,180
========== ==========
</TABLE>
See notes to combined financial statements.
F-45
<PAGE> 103
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
NET SALES........................................................ $56,510,863 $50,085,255
COST OF GOODS SOLD (Note 7)...................................... 36,319,500 31,519,011
----------- -----------
Gross profit........................................... 20,191,363 18,566,244
----------- -----------
OPERATING EXPENSES (Note 7):
Occupancy...................................................... 6,077,394 5,656,830
Selling, general and administrative expense.................... 11,174,761 10,402,492
Depreciation and amortization.................................. 815,495 691,440
----------- -----------
Total.................................................. 18,067,650 16,750,762
----------- -----------
INCOME FROM OPERATIONS........................................... 2,123,713 1,815,482
INTEREST EXPENSE -- Net (Note 5)................................. 179,995 209,620
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE............................... 1,943,718 1,605,862
PROVISION FOR INCOME TAXES (Note 4).............................. 225,396 150,298
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE...................................................... 1,718,322 1,455,564
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR INCOME
TAXES.......................................................... -- 38,584
----------- -----------
NET INCOME....................................................... $ 1,718,322 $ 1,416,980
========== ==========
</TABLE>
See notes to combined financial statements.
F-46
<PAGE> 104
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
YEARS ENDED JANUARY 31, 1995 AND 1994
<TABLE>
<CAPTION>
NET INCOME NET INCOME
YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, PARTNERS' PARTNERS' JANUARY 31, JANUARY 31, PARTNERS' JANUARY 31,
1993 1994 CONTRIBUTIONS WITHDRAWALS 1994 1995 WITHDRAWALS 1995
----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HIA TRADING
ASSOCIATES:
Partners'
capital..... $2,904,256 $1,257,806 $ 200,000 $(855,511) $3,506,551 $1,502,799 $(1,323,846) $3,685,504
----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
ODD JOB TRADING
CORP.:
Common
stock....... 6,800 -- -- -- 6,800 -- -- 6,800
Paid-in
capital..... 58,800 -- -- -- 58,800 -- -- 58,800
Retained
earnings.... 765,356 23,202 -- -- 788,558 49,587 -- 838,145
----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
Total....... 830,956 23,202 -- -- 854,158 49,587 -- 903,745
----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
POW TRADING
CORP.:
Common
stock....... 20,000 -- -- -- 20,000 -- -- 20,000
Retained
earnings.... 764,208 135,972 -- -- 900,180 165,936 -- 1,066,116
----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
Total....... 784,208 135,972 -- -- 920,180 165,936 -- 1,086,116
----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
CENTRAL
PROCESSING
ASSOCIATES..... -- -- -- -- -- -- -- --
----------- ----------- ------------- ----------- ----------- ----------- ----------- -----------
TOTAL
STOCKHOLDERS'
EQUITY AND
PARTNERS'
CAPITAL.... $4,519,420 $1,416,980 $ 200,000 $(855,511) $5,280,889 $1,718,322 $(1,323,846) $5,675,365
========== ========== ============ =========== ========== ========== =========== ==========
</TABLE>
See notes to combined financial statements.
F-47
<PAGE> 105
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before cumulative effect of a change in accounting
principle................................................... $ 1,718,322 $ 1,455,564
Adjustments to reconcile income before cumulative effect of a
change in accounting principle to net cash provided by
operating activities:
Reduction in allowance for doubtful accounts................ (110,000) --
Provision for losses on accounts receivable................. -- 100,000
Depreciation and amortization............................... 815,495 691,440
Loss on disposal of property and equipment.................. 801 --
Deferred income taxes....................................... 2,828 (21,603)
Change in operating assets and liabilities:
Accounts receivable....................................... 133,673 (126,706)
Inventories............................................... (773,301) (1,407,933)
Prepaid expenses and other current assets................. 133,956 (18,245)
Prepaid income taxes...................................... 117,751 (106,589)
Security deposits......................................... 50,688 --
Cash surrender value of officers' life insurance.......... (32,760) (33,224)
Accounts payable and accrued expenses..................... 462,240 1,547,967
Income taxes payable...................................... 28,856 2,734
Other current liabilities................................. 47,606 26,371
Accrued rent.............................................. 41,236 17,302
----------- -----------
Net cash provided by operating activities........................ 2,637,391 2,127,078
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............................ (341,866) (1,179,780)
Additions to other assets...................................... (73,587) (32,175)
Proceeds received for sale of property or equipment............ 3,500 --
----------- -----------
Net cash used in investing activities.................. (411,953) (1,211,955)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................................... -- 700,000
Principal payments on long-term debt........................... (800,000) (800,000)
Withdrawals from partners' capital............................. (1,323,846) (998,111)
----------- -----------
Net cash used in financing activities.................. (2,123,846) (1,098,111)
----------- -----------
NET INCREASE (DECREASE) IN CASH.................................. 101,592 (182,988)
CASH, BEGINNING OF YEAR.......................................... 807,583 990,571
----------- -----------
CASH, END OF YEAR................................................ $ 909,175 $ 807,583
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................... $ 179,995 $ 209,669
========== ==========
Income taxes................................................ $ 105,362 $ 240,205
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of subordinated debt to partners' capital........... $ -- $ 200,000
========== ==========
Partners' withdrawals payable.................................... $ -- $ (142,600)
========== ==========
</TABLE>
See notes to combined financial statements.
F-48
<PAGE> 106
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1995 AND 1994
(1) ORGANIZATION
Odd Job Trading Corp. and POW Trading Corp. are New York corporations
organized in August 1974 and August 1984, respectively. HIA Trading Associates
and Central Processing Associates are New York partnerships formed in December
1986 and July 1987, respectively. The companies are engaged in the retail sale
of high quality closeout merchandise and currently operate twelve retail stores
and maintain warehouse and office space in the New York metropolitan area.
Odd Job Trading Corp., POW Trading Corp. and HIA Trading Associates operate
the retail stores and Central Processing Associates acts as a conduit for
administrative and warehouse expenses, which are ultimately charged to the other
companies within the group.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination -- The combined financial statements include the
accounts of Odd Job Trading Corp., POW Trading Corp., HIA Trading Associates and
Central Processing Associates (collectively the "Company"). As these companies
are under the common control of the principal stockholders and partners, it is
the opinion of management that presenting the financial statements of the
companies on a combined basis more accurately reflects the economic substance of
their activities.
All material intercompany transactions have been eliminated in the combined
financial statements.
Inventory Valuation -- Inventories are stated at the lower of cost or
market, with cost determined on the specific identification or first-in,
first-out method.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are computed on the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Leasehold improvements.................... life of the related lease, which is not in
excess of the estimated useful life
Furniture, fixtures and office 3 to 10 years
equipment...............................
</TABLE>
Other Assets -- Other assets - Other consists of pre-opening costs related
to the various stores. Such costs are capitalized and amortized over the lives
of the related store leases. At January 31, 1995 and 1994, other assets are
shown net of accumulated amortization of $279,340 and $320,328, respectively.
Amortization expense for the years ended January 31, 1995 and 1994 aggregated
$97,952 and $66,283, respectively.
The current portion of pre-opening costs, representing one year's
amortization, is included in prepaid expenses and other current assets in the
accompanying combined balance sheets and is $89,740 and $84,744 at January 31,
1995 and 1994, respectively.
Income Taxes -- HIA Trading Associates and Central Processing Associates,
the partnerships, do not incur any Federal or state income tax liability as any
taxable income is passed through to the partners. Accordingly, no Federal or
state income provision has been recorded in the accompanying combined financial
statements. HIA Trading Associates and Central Processing Associates are liable,
however, for certain local unincorporated business taxes. Federal, state and
local taxes are provided on the income of Odd Job Trading Corp. and POW Trading
Corp.
F-49
<PAGE> 107
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED JANUARY 31, 1995 AND 1994
In the year ended January 31, 1994, the Company adopted the method of
accounting for income taxes pursuant to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." As detailed in Note 4, the
Company provides for deferred income taxes under the asset and liability method,
whereby deferred income taxes result from temporary differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements.
Fair Value of Financial Instruments -- SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure about the fair value
of financial instruments. The carrying amounts reported in the balance sheet for
accounts receivable, accounts payable and long-term debt approximate fair value
because of the short-term maturity of these financial instruments.
(3) PROPERTY AND EQUIPMENT
Property and equipment at January 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Leasehold improvements....................................... $4,150,188 $4,071,299
Furniture, fixtures and equipment............................ 2,677,603 2,430,086
---------- ----------
6,827,791 6,501,385
Less accumulated depreciation and amortization............... 3,427,095 2,725,707
---------- ----------
Property and equipment -- net................................ $3,400,696 $3,775,678
========= =========
</TABLE>
(4) INCOME TAXES
As discussed in Note 2, Federal, state and local income taxes are provided
on the income before provision for income taxes of Odd Job Trading Corp. and POW
Trading Corp. Local unincorporated business taxes are provided on the income
before provision for income taxes of HIA Trading Associates and Central
Processing Associates.
The components of such income tax provision for the years ended January 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current:
Federal....................................................... $121,114 $ 65,240
State and local............................................... 101,453 106,661
Deferred:
Federal....................................................... 4,109 (8,739)
State and local............................................... (1,280) (12,864)
-------- --------
$225,396.. $150,298
======== ========
</TABLE>
F-50
<PAGE> 108
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED JANUARY 31, 1995 AND 1994
The components of the deferred tax accounts as of January 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current deferred tax asset:
Inventory capitalization...................................... $ 29,032 $ 23,837
Allowance for doubtful accounts............................... 65 11,084
Accrual for medical claims.................................... 8,734 --
-------- --------
37,831 34,921
-------- --------
Noncurrent deferred tax asset:
Excess of financial reporting depreciation
over depreciation for tax return purposes.................. 18,703 11,328
Accrued rent.................................................. 558 15,009
-------- --------
19,261 26,337
-------- --------
Noncurrent deferred tax liability:
Excess of depreciation for tax return purposes
over financial reporting depreciation...................... (15,904) (17,242)
-------- --------
$ 41,188 $ 44,016
======== ========
</TABLE>
As discussed in Note 2, the Company changed its method of accounting for
income taxes by adopting the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in the year ended January 31,
1994 and recorded a cumulative effect of $38,584. The adoption of this statement
had no material effect on the provision for income taxes for the year ended
January 31, 1994.
(5) LONG-TERM DEBT
Long-term debt at January 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Term loan payable to a bank, with interest at 1 percent above
the prime rate (prime rate being 8.5 percent at January 31,
1995); due in quarterly installments of $100,000 through
June 1995.................................................. $ 200,000 $ 600,000
Term loan payable to a bank, with interest at 1 percent above
the prime rate (prime rate being 8.5 percent at January 31,
1995); due in quarterly installments of $100,000 beginning
March 1, 1993 through December 1996, and $400,000 due March
1, 1997.................................................... 1,200,000 1,600,000
---------- ----------
Total.............................................. 1,400,000 2,200,000
Less current maturities...................................... 600,000 800,000
---------- ----------
Long-term debt less current maturities....................... $ 800,000 $1,400,000
========= =========
</TABLE>
The loans are collateralized by all personal property and fixtures of the
Company and are guaranteed by the stockholders and partners of the Company. The
Company is required to meet certain financial ratios and covenants as described
in the agreements. At January 31, 1995, the Company was not in compliance with
F-51
<PAGE> 109
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED JANUARY 31, 1995 AND 1994
certain loan covenants primarily relating to report deadlines and tangible net
worth ratios. On July 13, 1995, the bank issued waivers for the violations of
these loan covenants. Additionally, on July 31, 1994, the term loan agreements
were amended, eliminating, as of July 31, 1994, a requirement to maintain
minimum cash balances, and reducing the requirements under the tangible net
worth ratios provisions.
Long-term debt matures in each of the years subsequent to January 31, 1995
as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31, AMOUNT
----------------------- ----------
<S> <C>
1996.................................................................... $ 600,000
1997.................................................................... 800,000
----------
Total................................................................... $1,400,000
==========
</TABLE>
(6) SUBORDINATED DEBT
During 1992, capital in the amount of $200,000 was converted to
subordinated debt. Such debt was noninterest-bearing and was due January 1995.
In January 1994, the subordinated debt outstanding amounting to $200,000 was
contributed to capital by the partners.
(7) RELATED PARTY TRANSACTIONS
During the years ended January 31, 1995 and 1994, the Company purchased
merchandise from a company that has certain common ownership with the various
entities which comprise the Company. Such purchases aggregated approximately
$1,918,019 and $2,231,000, respectively. At January 31, 1995 and 1994, amounts
payable to this company amounted to approximately $183,965 and $296,000,
respectively, and are included in accounts payable and accrued expenses in the
accompanying combined balance sheets.
Also during the years ended January 31, 1995 and 1994, the Company procured
certain merchandise for the above-mentioned company and other companies whose
stockholders are related to certain stockholders and partners of the Company.
Such transactions aggregated approximately $7,448,009 and $6,584,322,
respectively, and are not reflected in net sales or cost of goods sold in the
accompanying combined statements of operations. Accounts receivable at January
31, 1995 and 1994 related to such transactions amounted to approximately
$1,605,994 and $1,680,524, respectively.
The Company has charged these companies a fee to cover warehousing and
administrative costs aggregating approximately $294,862 and $320,000 for the
years ended January 31, 1995 and 1994, respectively, and commencing December 1,
1994, commissions as a percentage of these purchases aggregating approximately
$123,006. These revenues are included as a reduction of operating expenses in
the accompanying combined statements of operations.
(8) ACCRUED RENT
Accrued rent is composed of (i) unincurred liability relating to a real
estate lease for which the Company is recording rent on a straight-line basis,
while the lease terms are for an initial free rent period and increasing rent
payments thereafter and, (ii) imputed liability relating to a capitalized
equipment lease where the leased equipment becomes the Company's property at the
end of the lease.
F-52
<PAGE> 110
ODD JOB TRADING CORP.,
POW TRADING CORP.,
HIA TRADING ASSOCIATES AND
CENTRAL PROCESSING ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED JANUARY 31, 1995 AND 1994
(9) COMMITMENTS AND CONTINGENCIES
The Company is obligated under lease agreements for office, warehouse and
retail store space, which expire at various dates through September 2006. These
leases are subject to certain escalation clauses based upon real estate taxes
and other occupancy expenses. In addition, several leases provide for additional
rent based on a percentage of sales.
At January 31, 1995, minimum annual rental commitments under noncancellable
leases are as follows:
<TABLE>
<CAPTION>
MINIMUM
YEAR ENDING JANUARY 31, RENTALS
----------------------- -----------
<S> <C>
1996................................................................... $ 3,810,099
1997................................................................... 3,868,056
1998................................................................... 3,437,746
1999................................................................... 2,356,787
2000................................................................... 2,390,826
Thereafter............................................................. 9,965,846
-----------
Total.................................................................. $25,829,360
===========
</TABLE>
Rent expense relating to these leases for the years ended January 31, 1995
and 1994 amounted to $4,807,410 and $4,479,280, respectively.
The Company currently provides medical insurance benefits to eligible
employees and their dependents. The Company is liable for medical claims
submitted (after the deductible and any copayment by the employee) up to a
specific amount per person insured. Any claims in excess of the specified amount
are covered by an insurance policy. During the years ended January 31, 1995 and
1994, the Company incurred expenses aggregating approximately $341,154 and
$320,910, respectively, related to such medical claims. Additionally, the
Company has reserved approximately $91,511 included in accrued expenses for
claims incurred not reported at January 31, 1995.
At January 31, 1995, the Company had a credit agreement with a bank
providing for a line of credit in the amount of $1,500,000. Borrowings under the
credit agreement are secured by the accounts receivable, inventory, personal
property and fixtures of the Company and bear interest at prime plus .75%. At
January 31, 1995 and 1994, the Company was contingently liable for open letters
of credit, in lieu of lease security, in the amount of $679,525.
(10) SUBSEQUENT EVENT
On August 2, 1995, the Company entered into a new term loan agreement with
a bank effective June 30, 1995 for a principal amount of $1,800,000 replacing
the then existing term loans described in Note 5. The note provides for fifteen
consecutive quarterly principal payments commencing on October 1, 1995 in the
amount of $112,500 and a sixteenth payment of the remaining outstanding
principal balance. The note bears interest at one percent above the prime rate.
The Company is required to meet certain financial ratios and covenants as
described in the new agreement. Additionally, on August 2, 1995, the Company's
credit agreement with a bank was renewed with an increase of the Company's line
of credit to a maximum of $2,500,000. The credit agreement is effective until
July 31, 1996.
F-53
<PAGE> 111
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 3
The Offering.......................... 5
Summary Combined Financial and
Selected Operating Data............. 6
Risk Factors.......................... 7
Significant Corporate Transactions.... 12
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Pro Forma Financial Data.............. 18
Selected Financial and Operating
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 33
Management............................ 42
Certain Transactions.................. 48
Principal Shareholders................ 50
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 52
Underwriting.......................... 55
Legal Matters......................... 56
Experts............................... 56
Available Information................. 56
Index to Financial Statements......... F-1
</TABLE>
------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,145,000 SHARES
LOGO
COMMON STOCK
--------------------------
PROSPECTUS
, 1996
--------------------------
WILLIAM BLAIR & COMPANY
SALOMON BROTHERS INC
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 112
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock being registered hereby, other than underwriting discounts and
commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 12,759
National Association of Securities Dealers, Inc. Filing Fee....... 4,200
Nasdaq National Market Entry Fee.................................. 37,750
Transfer Agent and Registrar Fees................................. 5,000
Printing Costs.................................................... 205,000
Accounting Fees and Expenses...................................... 185,000
Legal Fees and Expenses (not including Blue Sky).................. 245,000
Blue Sky Fees and Expenses........................................ 7,500
Miscellaneous..................................................... 47,791
--------
Total................................................... $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under certain circumstances provided in Article V of the Registrant's Code
of Regulations and subject to Section 1701.13 of the Ohio General Corporation
Law (which sets forth the conditions and limitations governing the
indemnification of officers, directors and other persons), the Registrant will
indemnify any Director or officer or any former Director or officer of the
Registrant against losses, damages, or liabilities reasonably incurred by such
Director or officer by reason of the fact that he is or was such Director or
officer in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative. A copy of
the Registrant's Code of Regulations, as amended, is included herein as Exhibit
3.2.
Reference is made to Section 11 of the Underwriting Agreement (Exhibit 1.1
to this Registration Statement) which provides for indemnification of the
Registrant's officers, Directors and controlling persons by the Underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
A. In January 1994, Ms. Atkinson purchased 50 partnership units ("Units")
in Mazel Company L.P., at a purchase price of $25 per Unit as part of Mazel
Company L.P.'s Employee Equity Plan. The 50 Units were converted into 15,137
shares of Common Stock of the Company immediately prior to the effectiveness of
the Offering.
B. In June, 1994, Ms. Atkinson purchased 20 Units in Mazel Company L.P., at
a purchase price of $25 per Unit as part of Mazel Company L.P.'s Employee Equity
Plan. The 20 Units were converted into 6,055 shares of Common Stock of the
Company immediately prior to the effectiveness of the Offering.
C. On November 1, 1995 and January 1, 1996, an aggregate of 1,670 Units
were purchased by employees of Mazel Company L.P., at a purchase price of $25.00
per Unit as part of Mazel Company L.P.'s Employee Equity Plan. The 1,660 Units
were converted into 502,246 shares of Common Stock of the Company immediately
prior to the effectiveness of the Offering.
D. On March 11, 1996, an additional $4.0 million in equity was contributed
to Mazel Company L.P. by ZS Mazel II, L.P. This contribution, together with
partnership earnings since the date of contribution were converted into 288,925
shares of Common Stock of the Company immediately prior to the effectiveness of
the Offering.
II-1
<PAGE> 113
E. Immediately prior to the effectiveness of the Offering, all Units will
be converted into an aggregate of 5,613,554 shares of Common Stock of the
Company. This share total includes the shares of Common Stock listed in items A
through D above.
F. Immediately prior to the effectiveness of the Offering, a total of
239,303 shares of Common Stock will be issued to certain employees of the
Company as salary reduction and bonus compensation totaling an aggregate of
$3,350,000 pursuant to their respective employment agreements.
G. Immediately prior to the effectiveness of the Offering, a total of
357,143 shares of Common Stock will be issued in connection with conversion of
the $4.0 million 1992 Old Mazel Contingent Notes and the $1.0 million 1995 Old
Mazel Note.
All of the foregoing sales were made without registration under the
Securities Act based on the exemptions provided in either Section 4(2) or, in
the case of the issuances reported in Item F, Rule 701 of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation*
3.2 Form of Amended and Restated Code of Regulations*
4.1 Specimen certificate for the Common Stock, without par value, of the Registrant
4.2 Loan and Security Agreement dated as of January 31, 1994 by and between The
Provident Bank and the Registrant, as amended
5.1 Opinion of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. as to the validity of the
securities being offered
10.1 Amended and Restated Employment Agreement of Reuven Dessler dated September 30,
1996
10.2 Amended and Restated Employment Agreement of Jacob Koval dated September 30, 1996
10.3 Employment Agreement of Brady Churches dated November 1, 1995*
10.4 Amendment to Brady Churches Employment Agreement dated September 30, 1996
10.5 Employment Agreement of Jerry D. Sommers dated November 1, 1995*
10.6 Amendment to Jerry D. Sommers Employment Agreement dated September 30, 1996
10.7 Amended and Restated Employment Agreement of Susan Atkinson dated September 30,
1996
10.8 Option to Purchase Stock of Odd Job, dated December 5, 1996*
10.9 Form of Capital Contribution Agreement
10.10 1996 Stock Option Plan
10.11 Restricted Stock Plan
10.12 Solon, Ohio Facility Lease, dated as of January 1, 1998, including three amendments
thereto*
10.13 Omitted
10.14 Consolidated Settlement Agreement, dated February 1996*
10.15 Form of Registration Rights Agreement
10.16 Odd Job Stock Purchase Agreement*
11 Statement re Computation of Per Share Earnings
21 List of Subsidiaries
23.1 Consent of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
</TABLE>
II-2
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
23.3 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney*
27 Financial Data Schedule*
<FN>
- ---------------
* Previously filed.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES.
None
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide public offering thereof.
II-3
<PAGE> 115
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CLEVELAND, STATE OF OHIO, ON OCTOBER 18, 1996.
MAZEL STORES, INC.
By: /s/ SUSAN ATKINSON
------------------------------
Susan Atkinson, Senior Vice
President, Chief Financial Officer
and Treasurer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON OCTOBER 18, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------ ----------------------------------------------------
<S> <C>
/s/ REUVEN DESSLER* Chairman and Chief Executive Officer
Reuven Dessler
/s/ BRADY J. CHURCHES* President and Director
Brady J. Churches
/s/ JACOB KOVAL* Executive Vice President -- Wholesale and Director
Jacob Koval
/s/ JERRY D. SOMMERS* Executive Vice President -- Retail and Director
Jerry D. Sommers
/s/ SUSAN ATKINSON* Senior Vice President -- Chief Financial Officer and
Susan Atkinson Treasurer
/s/ NED L. SHERWOOD* Director
Ned L. Sherwood
/s/ ROBERT HORNE* Director
Robert Horne
</TABLE>
* The undersigned, by signing her name hereto, does hereby sign this
Amendment No. 1 to Registration Statement on Form S-1 on behalf of Mazel Stores,
Inc. and the above named directors and officers of Mazel Stores, Inc. pursuant
to a Power of Attorney, executed on behalf of Mazel Stores, Inc. and each of
such directors and officers, and which has been filed with the Commission.
By: /s/ SUSAN ATKINSON*
-------------------------------
Susan Atkinson,
Attorney-in-Fact
II-4
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ---------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation*
3.2 Form of Amended and Restated Code of Regulations*
4.1 Specimen certificate for the Common Stock, without par value, of the Registrant
4.2 Loan and Security Agreement dated as of January 31, 1994 by and between The
Provident Bank and the Registrant, as amended
5.1 Opinion of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. as to the validity of
the securities being offered
10.1 Amended and Restated Employment Agreement of Reuven Dessler dated September 30,
1996
10.2 Amended and Restated Employment Agreement of Jacob Koval dated September 30, 1996
10.3 Employment Agreement of Brady Churches dated November 1, 1995*
10.4 Amendment to Brady Churches Employment Agreement dated September 30, 1996
10.5 Employment Agreement of Jerry D. Sommers dated November 1, 1995*
10.6 Amendment to Jerry D. Sommers Employment Agreement dated September 30, 1996
10.7 Amended and Restated Employment Agreement of Susan Atkinson dated September 30,
1996
10.8 Option to Purchase Stock of Odd Job, dated December 5, 1995*
10.9 Form of Capital Contribution Agreement
10.10 1996 Stock Option Plan
10.11 Restricted Stock Plan
10.12 Solon, Ohio Facility Lease, dated as of January 1, 1998, including three
amendments thereto*
10.13 Omitted
10.14 Consolidated Settlement Agreement, dated February 1996*
10.15 Form of Registration Rights Agreement
10.16 Odd Job Stock Purchase Agreement*
11 Statement re Computation of Per Share Earnings
21 List of Subsidiaries
23.1 Consent of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. (included in Exhibit
5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney*
27 Financial Data Schedule*
<FN>
- ---------------
* Previously filed
</TABLE>
<PAGE> 1
Exhibit 1.1
MAZEL STORES, INC.
2,145,000 Shares Common Stock(1)
UNDERWRITING AGREEMENT
_____________, 1996
William Blair & Company, L.L.C.
Salomon Brothers Inc
As Representatives of the Several
Underwriters Named in Schedule A
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
SECTION 1. INTRODUCTORY. Mazel Stores, Inc., an Ohio corporation
("Company"), has an authorized capital stock consisting of 2,000,000 shares of
Preferred Stock, no par value per share, of which no shares will be outstanding
as of the First Closing Date hereinafter defined, and 14,000,000 shares of
Common Stock, no par value per share ("Common Stock"), of which ________ shares
will be outstanding as of such date. The Company proposes to issue and sell
2,145,000 shares of its authorized but unissued Common Stock ("Firm Shares") to
the several underwriters named in SCHEDULE A as it may be amended by the Pricing
Agreement hereinafter defined ("Underwriters"), who are acting severally and not
jointly. In addition, the Company proposes to grant to the Underwriters an
option to purchase up to 321,750 additional shares of Common Stock ("Option
Shares") as provided in Section 5 hereof. The Firm Shares and, to the extent
such option is exercised, the Option Shares, are hereinafter collectively
referred to as the "Shares."
You have advised the Company that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon as you deem
advisable after the registration statement hereinafter referred to becomes
effective, if it has not yet become effective, and the Pricing Agreement
hereinafter defined has been executed and delivered.
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Company and the Representatives, acting on behalf of the
several Underwriters, shall enter into an agreement substantially in the form of
EXHIBIT A hereto (the "Pricing Agreement"). The Pricing Agreement may take the
form of an exchange of any standard form of written
- --------
1 Plus an option to acquire up to 321,750 additional shares to cover
over-allotments.
<PAGE> 2
telecommunication between the Company and the Representatives and shall specify
such applicable information as is indicated in EXHIBIT A hereto. The offering of
the Shares will be governed by this Agreement, as supplemented by the Pricing
Agreement. From and after the date of the execution and delivery of the Pricing
Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-11739)
and a related preliminary prospectus with respect to the Shares have
been prepared and filed with the Securities and Exchange Commission
("Commission") by the Company in conformity with the requirements of
the Securities Act of 1933, as amended, and the rules and regulations
of the Commission thereunder (collectively, the "1933 Act;" unless
indicated to the contrary, all references herein to specific rules are
rules promulgated under the 1933 Act); and the Company has so prepared
and has filed such amendments thereto, if any, and such amended
preliminary prospectuses as may have been required to the date hereof
and will file such additional amendments thereto and such amended
prospectuses as may hereafter be required. There have been or will
promptly be delivered to the Representatives three signed copies of
such registration statement and amendments, three copies of each
exhibit filed therewith, and, for each of the Underwriters, conformed
copies of such registration statement and amendments (but without
exhibits) and of the related preliminary prospectus or prospectuses and
final forms of prospectus.
Such registration statement (as amended, if applicable)
at the time it becomes effective and the prospectus constituting a
part thereof (including the information, if any, deemed to be part
thereof pursuant to Rule 430A(b) and/or Rule 434), as from time to
time amended or supplemented, are hereinafter referred to as the
"Registration Statement," and the "Prospectus," respectively, except
that if any revised prospectus shall be provided to the Underwriters
by the Company for use in connection with the offering of the Shares
which differs from the Prospectus on file at the Commission at the
time the Registration Statement became or becomes effective (whether
or not such revised prospectus is required to be filed by the Company
pursuant to Rule 424(b)), the term Prospectus shall refer to such
revised prospectus from and after the time it was provided to the
Underwriters for such use. If the Company elects to rely on Rule 434 of
the 1933 Act, all references to "Prospectus" shall be deemed to
include, without limitation, the form of prospectus and the term sheet,
taken together, provided to the Underwriters by the Company in
accordance with Rule 434 of the 1933 Act ("Rule 434 Prospectus"). Any
registration statement (including any amendment or supplement thereto
or information which is a deemed part thereof) filed by the Company
under Rule 462(b) ("Rule 462(b) Registration Statement") shall be
deemed to be part of the
-2-
<PAGE> 3
"Registration Statement" as defined herein, and any prospectus
(including any amendment or supplement thereto or information which is
deemed a part thereof) included in such registration statement shall be
deemed to be part of the "Prospectus," as defined herein, as
appropriate. The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder are hereinafter
collectively referred to as the "Exchange Act."
(b) The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus, and each preliminary
prospectus has conformed in all material respects with the requirements
of the 1933 Act and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements therein not misleading; and when the
Registration Statement became or becomes effective, and at all times
subsequent thereto, up to the First Closing Date or the Second Closing
Date hereinafter defined, as the case may be, the Registration
Statement, including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule
430A(b), if applicable, and the Prospectus and any amendments or
supplements thereto, contained or will contain all statements that are
required to be stated therein in accordance with the 1933 Act and in
all material respects conformed or will in all material respects
conform to the requirements of the 1933 Act, and neither the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, included or will include any untrue statement of a
material fact or omitted or will omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company makes no representation
or warranty as to information contained in or omitted from any
preliminary prospectus, the Registration Statement, the Prospectus or
any such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of
any Underwriter through the Representatives specifically for use in the
preparation thereof.
(c) The Company and its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective places of incorporation, with the
corporate power and authority to own their properties and conduct their
business as described in the Prospectus; the Company and each of its
subsidiaries are duly qualified to do business as foreign corporations
under the corporation law of, and are in good standing as such in, each
jurisdiction in which they own or lease properties, have an office, or
in which business is conducted and such qualification is required
except in any such case where the failure to so qualify or be in good
standing would not have a material adverse effect upon the condition
(financial or otherwise), business, assets, results of operations or
prospects of the Company and its subsidiaries taken as a whole; or upon
the Company's ability to perform its obligations under this Agreement
or the transactions contemplated hereby (a "Material Adverse Effect");
and no proceeding of which the Company has knowledge has been
instituted in any such jurisdiction, revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such
-3-
<PAGE> 4
power and authority or qualification. All references herein to a
subsidiary of the Company shall mean each corporation, partnership,
limited liability company or other entity in which the Company
beneficially owns, directly or indirectly, capital stock or other
equity interests representing in the aggregate ten percent or more of
the total combined voting power of such entity, specifically including
the entities listed on Exhibit 21 to the Registration Statement.
(d) Except as disclosed in the Registration Statement, the
Company owns, directly or indirectly, 100 percent of the issued and
outstanding capital stock of each of its subsidiaries, free and clear
of any claims, liens, encumbrances or security interests and all of
such capital stock has been duly authorized and validly issued and is
fully paid and nonassessable.
(e) As of the date of this Agreement, the Company has an
authorized and outstanding capitalization as described under the
caption "Capitalization" in the Prospectus. The issued and outstanding
shares of capital stock of the Company as set forth in the Prospectus
have been duly authorized and validly issued, are fully paid and
nonassessable, and conform to the description thereof contained in the
Prospectus; and except as described in the Prospectus, there is no
commitment, plan or arrangement to issue, and no outstanding option,
warrant or other right calling for the issuance of, any share of
capital stock of the Company or any of its subsidiaries; and except as
described in the Prospectus, there is outstanding no security or other
instrument that by its terms is convertible into or exchangeable for
capital stock of the Company or any of its subsidiaries, and there is
no commitment, plan or arrangement to issue such a security or
instrument.
(f) The Shares to be sold by the Company have been duly
authorized and when issued, delivered and paid for pursuant to this
Agreement, will be validly issued, fully paid and nonassessable, and
will conform to the description thereof contained in the Prospectus.
(g) The making and performance by the Company of this
Agreement and the Pricing Agreement have been duly authorized by all
necessary corporate action and will not violate any provision of the
Company's charter or bylaws and will not result in the breach, or be in
contravention, of any provision of any agreement, franchise, License
(as hereinafter defined), indenture, mortgage, deed of trust, or other
instrument to which the Company or any subsidiary is a party or by
which the Company, any subsidiary or the property of any of them may be
bound or affected, or any order, rule or regulation applicable to the
Company or any subsidiary of any court (foreign, federal, state, local
or otherwise), arbitration or other alternative dispute forum, foreign,
federal, state, local or other government or governmental department,
agency, board, commission, bureau or instrumentality or other
regulatory authority (collectively, "Governmental Authority") having
jurisdiction over the Company or any subsidiary or any of their
respective
-4-
<PAGE> 5
properties, or any order of any Governmental Authority entered in any
proceeding to which the Company or any subsidiary was or is now a party
or by which it is bound. No consent, approval, authorization or other
order of any Governmental Authority is required for the execution and
delivery of this Agreement or the Pricing Agreement or the consummation
of the transactions contemplated herein or therein, except for
compliance with the 1933 Act and state or province securities laws
applicable to the public offering of the Shares by the several
Underwriters and clearance of such offering with the National
Association of Securities Dealers, Inc. ("NASD"). This Agreement has
been duly executed and delivered by the Company.
(h) Each of KPMG Peat Marwick LLP and Deloitte & Touche LLP,
who have expressed their respective opinions with respect to certain of
the financial statements and schedules included in the Registration
Statement, are independent accountants as required by the 1933 Act.
(i) The consolidated and combined financial statements of the
Company included in the Registration Statement, including the notes
thereto, present fairly the consolidated or combined financial position
of the Company as of the respective dates of such financial statements,
and the consolidated or combined results of operations and cash flows
of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed in the
Prospectus; and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein.
The financial information set forth in the Prospectus under the
captions "Summary Combined Financial and Operating Data" and "Selected
Financial and Operating Data" presents fairly on the basis stated in
the Prospectus, the information set forth therein; and the pro forma
financial statements and other pro forma information included under the
caption "Pro Forma Financial Data" and elsewhere in the Prospectus
present fairly the information shown therein, have been prepared in
accordance with generally accepted accounting principles and the
Commission's rules and guidelines with respect to pro forma financial
statements and other pro forma information, have been properly compiled
on the pro forma basis described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable
and the adjustments used therein are appropriate under the
circumstances.
(j) Neither the Company nor any subsidiary is in violation of
its charter or bylaws or in default under any consent decree, order,
writ, judgment, award or injunction of any Governmental Authority, or
in default with respect to any material provision of any lease, loan
agreement, note, franchise, License (as hereinafter defined), permit,
provider agreement, employer group agreement, third-party payor
agreement, or other contract obligation to which it is a party, except
where violation would not have a Material Adverse Effect; and there
does not exist any state of facts which constitutes an event of default
as defined in such documents or which, with notice or lapse of time
-5-
<PAGE> 6
or both, would constitute such an event of default, in each case,
except for defaults which neither singly nor in the aggregate would
have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole.
(k) There are no material legal or governmental proceedings
pending, or to the Company's knowledge, threatened to which the Company
or any subsidiary is or may be a party or of which material property
owned or leased by the Company or any subsidiary is or may be the
subject, or which are related to environmental or discrimination
matters of a character required to be disclosed in the Prospectus which
are not so disclosed, or which question the validity of this Agreement
or the Pricing Agreement or any action taken or to be taken pursuant
hereto or thereto.
(l) Except as described in the Prospectus, there are no
holders of securities of the Company having rights to registration
thereof, preemptive rights or rights of first refusal to purchase
Common Stock from the Company.
(m) The Company and each of its subsidiaries have good and
marketable title to all the properties and assets reflected as owned in
the financial statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those, if any, reflected in such
financial statements (or elsewhere in the Prospectus) or which are not
material to the Company and its subsidiaries taken as a whole. The
Company and each of its subsidiaries hold their respective leased
properties which are material to the Company and its subsidiaries taken
as a whole under valid and binding leases.
(n) The Company has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Exchange Act
or otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(o) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as
contemplated by the Prospectus, the Company and its subsidiaries, taken
as a whole, have not incurred any material liabilities or obligations,
direct or contingent, nor entered into any material transactions not in
the ordinary course of business and there has not been any material
adverse change in their condition (financial or otherwise), business,
assets, results of operations or prospects, taken as a whole, nor any
material change in their capital stock, short-term debt or long-term
debt, taken as a whole. Neither the Company nor any of its subsidiaries
has received notice (either formally or informally) of the non-renewal
or anticipated non-renewal of one or more agreements or contracts
currently maintained by the Company or any of its subsidiaries with any
of its customers, which non-renewal(s) would or could be expected to
have a Material Adverse Effect.
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<PAGE> 7
(p) There is no material document of a character required to
be described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement which is not
described or filed as required.
(q) The Company together with its subsidiaries own and possess
all right, title and interest in and to, or has duly licensed from
third parties a valid, enforceable right to use, all patents, patent
rights, trade secrets, inventions, know-how, trademarks, trade names,
copyrights, service marks and other proprietary rights ("Trade Rights")
material to the business of the Company and each of its subsidiaries
taken as a whole. Neither the Company nor any of its subsidiaries has
received any notice of infringement, misappropriation or conflict from
any third party as to such material Trade Rights which has not been
resolved or disposed of and neither the Company nor any of its
subsidiaries, to the best knowledge of the Company, has infringed,
misappropriated or otherwise conflicted with material Trade Rights of
any third parties, which infringement, misappropriation or conflict
would have a Material Adverse Effect.
(r) The conduct of the business of Mazel Company, L.P. (the
"Partnership"), the Company and each of the Company's subsidiaries is
and has been at all times in compliance in all respects with applicable
foreign, federal, state, local and other laws and regulations, except
where the failure to be in compliance would not have a Material Adverse
Effect. The Company has no knowledge of, nor has the Company received
notice of, any violation or alleged violation by the Partnership, the
Company or any of the Company's subsidiaries of any such laws or
regulations.
(s) All offers and sales of the Partnership's, the Company's
and each of the Company's subsidiaries' partnership interests, capital
stock or other securities prior to the date hereof were at all relevant
times exempt from the registration requirements of the 1933 Act and
were duly registered with or the subject of an available exemption from
the registration requirements of the applicable state or province
securities laws.
(t) The Company and each of its subsidiaries have filed all
necessary foreign, federal and state income, franchise, value-added,
sales and use tax returns and have paid all taxes shown as due thereon,
and there is no tax deficiency that has been, or to the knowledge of
the Company might be, asserted against the Company, or any of its
subsidiaries, or any of their respective properties or assets that
would or could be expected to have a Material Adverse Effect.
(u) The Company has filed a registration statement pursuant to
Section 12(g) of the Exchange Act to register the Common Stock
thereunder, has filed an application to list the Shares on the Nasdaq
National Market and has received notification that the listing has been
approved, subject to notice of issuance or sale of the Shares, as the
case may be.
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<PAGE> 8
(v) The Company and each of its subsidiaries are not, and do
not intend to conduct their respective businesses in a manner in which
any of them would become, an "investment company" as defined in Section
3(a) of the Investment Company Act of 1940, as amended ("Investment
Company Act").
(w) The Company confirms as of the date hereof that it and
each of its subsidiaries is in compliance with all provisions of
Section 1 of Laws of Florida, Chapter 92-198, AN ACT RELATING TO
DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company further agrees
that if it or any of its subsidiaries commences engaging in business
with the government of Cuba or with any person or affiliate located in
Cuba after the date the Registration Statement becomes or has become
effective with the Commission or with the Florida Department of Banking
and Finance (the "Department"), whichever date is later, or if the
information reported in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
(x) The Company and each of its subsidiaries has obtained all
licenses, permits, certificates, authorizations, accreditations,
approvals or consents which, to best knowledge of the Company, are
required by any Governmental Authority and which if not obtained would
have a Material Adverse Effect (collectively, the "Licenses"). Each
License has been duly obtained, is valid and in full force and effect,
is renewable by its terms or in the ordinary course of business without
the need to comply with any special qualifications or procedures or to
pay any amount other than routine filing fees. Neither the Company nor
any of its subsidiaries (i) is subject to any pending, or to the best
knowledge of the Company, threatened administrative or judicial
proceeding to revoke, cancel or declare any License granted to it
invalid in any respect, (ii) is acting outside the scope and authority
granted to it pursuant to any such License, or otherwise is in default
or in violation with respect to any such License, and no event has
occurred which constitutes, or with due notice or lapse of time or both
may constitute, a default by it or a violation of, any License and
(iii) has permitted any License granted to it to lapse since its
original effective date, except where such lapse did not have a
Material Adverse Effect. The Company and its subsidiaries have
completed and submitted, on a timely basis, all reports and filings
associated with their businesses as are required by any Governmental
Authority and which if not timely filed would have a Material Adverse
Effect.
(y) The Company is the successor in interest to all of the
assets, liabilities and business of the Partnership pursuant to that
certain Capital Contribution Agreement by and between the Company and
the Partnership dated as of _____________________ (the "Contribution
Agreement"). The Contribution Agreement and the performance of the
Company's obligations thereunder have been duly authorized by all
necessary corporate action and the Contribution Agreement has been duly
executed and delivered by and on
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<PAGE> 9
behalf of the Company, and is the legal, valid and binding agreement of
the Company, and no approval, authorization or consent of any
Governmental Authority is necessary in connection with the consummation
by the Company of any of the transactions contemplated thereby.
Pursuant to the Contribution Agreement, the Company acquired all of the
assets and liabilities of the Partnership, including, but not limited
to, acquisition of all of the issued and outstanding capital stock of
Odd Job Holdings, Inc., a Delaware corporation, and assumption of
liabilities of $___________ pursuant to promissory notes issued to the
partners of the Partnership representing each Partner's pro rata share
of undistributed cumulative taxable income of the Partnership through
[DATE]. Pursuant to the Contribution Agreement, the Company issued
additional shares of Common Stock to the Partnership.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP AND THE
PRINCIPAL STOCKHOLDERS. The Partnership and each of the persons named on
SCHEDULE B attached hereto (each, a "Principal Stockholder"), severally and not
jointly, represents and warrants to, and agrees with, the Company and the
Underwriters as follows:
(a) The making and performance by the Partnership of this
Agreement and the Contribution Agreement, and the making and
performance by such Principal Stockholder of this Agreement will not
result in the breach, or be in contravention, of any provision of any
trust agreement, franchise, license, indenture, mortgage, deed of
trust, or other instrument to which the Partnership or such Principal
Stockholder is a party or by which the Partnership or such Principal
Stockholder or the property of the Partnership or such Principal
Stockholder may be bound or affected, or any order, rule or regulation
applicable to the Partnership or such Principal Stockholder of any
court or regulatory body, administrative agency or other governmental
body having jurisdiction over the Partnership or such Principal
Stockholder or any of the Partnership's or such Principal Stockholder's
properties, or any order of any court or governmental agency or
authority entered in any proceeding to which the Partnership or such
Principal Stockholder was or is now a party or by which it is bound,
and which would have a material adverse effect on the Partnership's or
such Principal Stockholder's ability to perform its obligations under
this Agreement (or, with respect to the Partnership, under the
Contribution Agreement). No consent, approval, authorization or other
order of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement by the Partnership or such Principal Stockholder (or, with
respect to the Partnership, the execution and delivery of the
Contribution Agreement) or the consummation of the transactions
contemplated herein (or, with respect to the Partnership, the
Contribution Agreement). This Agreement (and, with respect to the
Partnership, the Contribution Agreement) has been duly executed and
delivered by or on behalf of the Partnership and such Principal
Stockholder.
(b) The Partnership and such Principal Stockholder has not
taken and will not take, directly or indirectly, any action designed
to or which might be reasonably expected
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<PAGE> 10
to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares.
(c) Each preliminary prospectus, insofar as it relates to the
Partnership and such Principal Stockholder and, to the actual knowledge
of the Partnership and such Principal Stockholder, in all other
respects, at the time of filing thereof, conformed in all material
respects with the requirements of the 1933 Act and, as of its date, to
the actual knowledge of the Partnership and such Principal Stockholder
did not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and the Registration Statement at the time of effectiveness, and at all
times subsequent thereto, up to the First Closing Date or the Second
Closing Date as hereinafter as defined, as the case may be, (i) as to
such parts of the Registration Statement and the Prospectus and any
amendments or supplements thereto as relate to the Partnership and such
Principal Stockholder, and the Registration Statement and the
Prospectus and any amendments or supplements thereto, to the actual
knowledge of the Partnership and such Principal Stockholder, in all
other respects, contained or will contain all statements that are
required to be stated therein in accordance with the 1933 Act and in
all material respects conformed or will in all material respects
conform to the requirements of the 1933 Act; and (ii) neither the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, as it relates to the Partnership and such Principal
Stockholder, and, to the actual knowledge of the Partnership and such
Principal Stockholder, in all other respects, included or will include
any untrue statement of a material fact or omitted or will omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(d) The Partnership and such Principal Stockholder agrees with
the Company and the Underwriters not to sell, contract to sell or
otherwise dispose of any Common Stock for a period of 180 days after
this Agreement becomes effective without the prior written consent of
the Representatives.
(e) Each Principal Stockholder and the Partnership, severally
and not jointly, represents and warrants to, and agrees with the
Underwriters that, to the actual knowledge of the Partnership and such
Principal Stockholder, the representations and warranties of the
Company as set forth in Section 2 of this Agreement are true and
correct in all material respects.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company that the information set forth (a) on the cover page of the
Prospectus with respect to price, underwriting discount and terms of the
offering and (b) under "Underwriting" in the Prospectus was furnished to the
Company by and on behalf of the Underwriters for use in connection with the
preparation of the Registration Statement and is correct and complete in all
material respects.
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<PAGE> 11
SECTION 5. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters named in SCHEDULE A hereto, and the Underwriters agree, severally
and not jointly, to purchase the Firm Shares from the Company at the price per
share set forth in the Pricing Agreement. The obligation of each Underwriter to
the Company shall be to purchase from the Company that number of full shares
which (as nearly as practicable, as determined by you) bears to 2,145,000, the
same proportion as the number of Shares set forth opposite the name of such
Underwriter in SCHEDULE A hereto bears to the total number of Firm Shares to be
purchased by all Underwriters under this Agreement. The initial public offering
price and the purchase price shall be set forth in the Pricing Agreement.
At 9:00 A.M., Chicago Time, on the fourth business day, if permitted
under Rule 15c6-1 under the Exchange Act, (or the third business day if required
under Rule 15c6-1 under the Exchange Act or unless postponed in accordance with
the provisions of Section 12) following the date the Registration Statement
becomes effective (or, if the Company has elected to rely upon Rule 430A, the
fourth business day, if permitted under Rule 15c6-1 under the Exchange Act, (or
the third business day if required under Rule 15c6-1 under the Exchange Act)
after execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Representatives and
the Company, the Company and the Custodian will deliver to you at the offices of
counsel for the Underwriters or through the facilities of The Depository Trust
Company for the accounts of the several Underwriters, certificates representing
the Firm Shares to be sold by them, respectively, against payment of the
purchase price therefor by delivery of federal or other immediately available
funds, by wire transfer or otherwise, to the Company and the Custodian. Such
time of delivery and payment is herein referred to as the "First Closing Date."
The certificates for the Firm Shares so to be delivered will be in such
denominations and registered in such names as you request by notice to the
Company and the Custodian prior to 10:00 A.M., Chicago Time, on the second
business day preceding the First Closing Date, and will be made available at the
Company's expense for checking and packaging by the Representatives at 10:00
A.M., Chicago Time, on the business day preceding the First Closing Date.
Payment for the Firm Shares so to be delivered shall be made at the time and in
the manner described above at the offices of Sonnenschein Nath & Rosenthal, 8000
Sears Tower, Chicago, Illinois.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 321,750 Option
Shares, at the same purchase price per share to be paid for the Firm Shares, for
use solely in covering any over-allotments made by the Underwriters in the sale
and distribution of the Firm Shares. The option granted hereunder may be
exercised at any time (but not more than once) within 30 days after the date of
the initial public offering upon written notice by you to the Company setting
forth the aggregate number of Option Shares as to which the Underwriters are
exercising the option, the names and denominations in which the
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<PAGE> 12
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date, shall not be earlier than three nor later than ten full
business days after delivery of such notice of exercise. The number of Option
Shares to be purchased by each Underwriter shall be determined by multiplying
the number of Option Shares to be sold by the Company pursuant to such notice of
exercise by a fraction, the numerator of which is the number of Firm Shares to
be purchased by such Underwriter as set forth opposite its name in SCHEDULE A
and the denominator of which is the total number of Firm Shares (subject to such
adjustments to eliminate any fractional share purchases as you in your absolute
discretion may make). Certificates for the Option Shares will be made available
at the Company's expense for checking and packaging at 10:00 A.M., Chicago time,
on the business day preceding the Second Closing Date. The manner of payment for
and delivery of the Option Shares shall be the same as for the Firm Shares as
specified in the preceding paragraph.
You have advised the Company that each Underwriter has authorized you
to accept delivery of its Shares, to make payment and receipt therefor. You,
individually and not as the Representatives of the Underwriters, may make
payment for any Shares to be purchased by any Underwriter whose funds shall not
have been received by you by the First Closing Date or the Second Closing Date,
as the case may be, for the account of such Underwriter, but any such payment
shall not relieve such Underwriter from any obligation hereunder.
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees
that:
(a) The Company will advise you promptly of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for
that purpose, or of any notification of the suspension of qualification
of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceedings for that purpose, and will also advise
you promptly of any request of the Commission for amendment or
supplement of the Registration Statement, of any preliminary prospectus
or of the Prospectus, or for additional information.
(b) The Company will give you notice of its intention to file
or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any Rule 462(b) Registration Statement or
any amendment or supplement to the Prospectus (including any revised
prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Shares which differs from the
prospectus on file at the Commission at the time the Registration
Statement became or becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) and any term
sheet as contemplated by Rule 434) and will furnish you with copies of
any such amendment or supplement a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file any
such amendment
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<PAGE> 13
or supplement or use any such prospectus to which you or counsel for
the Underwriters shall reasonably object.
(c) If the Company elects to rely on Rule 434 of the 1933 Act,
the Company will prepare a term sheet that complies with the
requirements of Rule 434. If the Company elects not to rely on Rule
434, the Company will provide the Underwriters with copies of the form
of prospectus, in such numbers as the Underwriters may reasonably
request, and file with the Commission such prospectus in accordance
with Rule 424(b) of the 1933 Act by the close of business in New York
City on the second business day immediately succeeding the date of the
Pricing Agreement. If the Company elects to rely on Rule 434, the
Company will provide the Underwriters with copies of the form of Rule
434 Prospectus, in such numbers as the Underwriters may reasonably
request, by the close of business in New York on the business day
immediately succeeding the date of the Pricing Agreement.
(d) If at any time when a prospectus relating to the Shares is
required to be delivered under the 1933 Act any event occurs as a
result of which the Prospectus, including any amendments or
supplements, would include an untrue statement of a material fact, or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend or supplement the Prospectus, including
any amendments or supplements thereto and including any revised
prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Shares which differs from the
prospectus on file with the Commission at the time of effectiveness of
the Registration Statement, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) to comply with the 1933
Act, the Company promptly will advise you thereof and will promptly
prepare and file with the Commission an amendment or supplement (in
form and substance satisfactory to counsel for the Underwriters) which
will correct such statement or omission or an amendment which will
effect such compliance; and, in case any Underwriter is required to
deliver a prospectus nine months or more after the effective date of
the Registration Statement, the Company upon request, but at the
expense of such Underwriter, will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the 1933 Act.
(e) Neither the Company nor any of its subsidiaries will,
prior to the earlier of the Second Closing Date or termination or
expiration of the option relating to the Option Shares, incur any
liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business,
except as contemplated by the Prospectus.
(f) Neither the Company nor any of its subsidiaries will
acquire any capital stock of the Company prior to the earlier of the
Second Closing Date or termination or
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<PAGE> 14
expiration of the option relating to the Option Shares nor will the
Company declare or pay any dividend or make any other distribution upon
the Common Stock payable to stockholders of record on a date prior to
the earlier of the Second Closing Date or termination or expiration of
the option relating to the Option Shares, except in either case as
contemplated by the Prospectus or as required pursuant to the Company's
Restricted Stock Plan upon termination of employment by an employee
holding restricted stock. Except as bona fide consideration in an arm's
length transaction, neither the Company nor any of its subsidiaries
will forgive or acquire any promissory note representing any loans made
by the Company to any person which are described under the caption "Use
of Proceeds" in the Prospectus.
(g) As soon as practicable, but in any event not later than 15
months after the effective date of the Registration Statement, the
Company will make generally available to its security holders an
earnings statement (which need not be audited) covering a period of at
least 12 months beginning after the effective date of the Registration
Statement, which will satisfy the provisions of the last paragraph of
Section 11(a) of the 1933 Act.
(h) During such period as a prospectus is required by law to
be delivered in connection with offers and sales of the Shares by an
Underwriter or dealer, the Company will furnish to you at its expense,
subject to the provisions of subsection (d) hereof, copies of the
Registration Statement, the Prospectus, each preliminary prospectus and
all amendments and supplements to any such documents in each case as
soon as available and in such quantities as you may reasonably request,
for the purposes contemplated by the 1933 Act.
(i) The Company will cooperate with the Underwriters in
qualifying or registering the Shares for sale under the state or
province securities laws of such jurisdictions as you designate, and
will continue such qualifications in effect so long as reasonably
required for the distribution of the Shares. In connection with such
qualification or registration of the Shares, the Company shall not be
required to qualify as a foreign corporation or to file a general
consent to service of process in any such jurisdiction where it is not
currently qualified or where it would be subject to taxation as a
foreign corporation.
(j) During the period of five years hereafter, the Company
will furnish each of the Representatives with a copy (i) as soon as
practicable after the filing thereof, of each report filed by the
Company with the Commission, any securities exchange or the NASD, (ii)
as soon as practicable after the release thereof, of each material
press release in respect of the Company, (iii) as soon as available, of
each report of the Company mailed to stockholders and (iv) any
additional information of a public nature concerning the Company or its
business that you may reasonably request.
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<PAGE> 15
(k) The Company will use the net proceeds received by it from
the sale of the Shares being sold by it in the manner specified in the
Prospectus.
(l) If, at the time of effectiveness of the Registration
Statement, any information shall have been omitted therefrom in
reliance upon Rule 430A and/or Rule 434, then immediately following the
execution of the Pricing Agreement, the Company will prepare, and file
or transmit for filing with the Commission in accordance with such Rule
430A, Rule 424(b) and/or Rule 434, copies of an amended Prospectus, or,
if required by such Rule 430A and/or Rule 434, a post-effective
amendment to the Registration Statement (including an amended
Prospectus), containing all information so omitted. If required, the
Company will prepare and file, or transmit for filing, a Rule 462(b)
Registration Statement not later than the date of the execution of the
Pricing Agreement. If a Rule 462(b) Registration Statement is filed,
the Company shall make payment of, or arrange for payment of, the
additional registration fee owing to the Commission required by Rule
111.
(m) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act and the Nasdaq National
Market which may from time to time be applicable to the Company and
will file with the Commission in a timely manner all reports on Form SR
required by Rule 463 and will furnish you copies of any such reports as
soon as practicable after the filing thereof.
(n) The Company agrees not to sell, contract to sell or
otherwise dispose of any Common Stock or securities convertible into
Common Stock (except Common Stock issued pursuant to (i) currently
outstanding options, warrants or convertible securities or (ii) the
Company's Restricted Stock Plan) for a period of 180 days after this
Agreement becomes effective without the prior written consent of the
Representatives. The Company has obtained similar agreements from each
of the holders of Common Stock.
(o) The Company will promptly deliver to the Representatives
copies of all correspondence to and from, and all documents issued to
and by, the Commission in connection with the registration of the
Shares under the 1933 Act.
(p) Prior to the First Closing Date, the Company will issue no
press release or other communication to the public, directly or
indirectly, with respect to the Company or any of its subsidiaries or
with respect to the financial condition, results of operations,
business, properties, assets or liabilities of any of them, or the
offering of the Shares, without your prior consent, which consent shall
not be unreasonably withheld.
SECTION 7. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective as to
all of its provisions or is terminated, the Company agrees to pay (i) all costs,
fees and expenses (other than legal fees and disbursements of counsel for the
Underwriters and the expenses incurred by the
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<PAGE> 16
Underwriters) incurred in connection with the performance of the Company's
obligations hereunder, including without limiting the generality of the
foregoing, all fees and expenses of legal counsel for the Company and of the
Company's independent accountants, all costs and expenses incurred in connection
with the printing, filing and distribution of the Registration Statement, each
preliminary prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Pricing Agreement and the blue sky memorandum, (ii) all costs,
fees and expenses (including legal fees and disbursements of counsel for the
Underwriters) incurred by the Underwriters in connection with qualifying or
registering all or any part of the Shares for offer and sale under applicable
state or province securities laws, including the preparation of a blue sky
memorandum relating to the Shares and clearance of such offering with the NASD;
and (iii) all fees and expenses of the Company's transfer agent, printing of the
certificates for the Shares and all transfer taxes, if any, with respect to the
sale and delivery of the Shares to the several Underwriters.
SECTION 8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Firm Shares
on the First Closing Date and the Option Shares on the Second Closing Date shall
be subject to the accuracy of the representations and warranties on the part of
the Company, the Principal Stockholders and the Partnership herein set forth as
of the date hereof and as of the First Closing Date or the Second Closing Date,
as the case may be, to the accuracy of the statements of officers of the Company
made pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective
either prior to the execution of this Agreement or not later than 1:00
P.M., Chicago Time, on the first full business day after the date of
this Agreement, or such later time as shall have been consented to by
you but in no event later than 1:00 P.M., Chicago Time, on the third
full business day following the date hereof; and prior to the First
Closing Date or the Second Closing Date, as the case may be, no stop
order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company or
you, shall be contemplated by the Commission. If the Company has
elected to rely upon Rule 430A and/or Rule 434, the information
concerning the initial public offering price of the Shares and
price-related information shall have been transmitted to the Commission
for filing pursuant to Rule 424(b) within the prescribed period and the
Company will provide evidence satisfactory to the Representatives of
such timely filing (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance
with the requirements of Rules 430A and 424(b)). If a Rule 462(b)
Registration Statement is required, such Registration Statement shall
have been transmitted to the Commission for filing and become effective
within the prescribed time period and, prior to the First Closing Date,
the Company shall have provided evidence of such filing and
effectiveness in accordance with Rule 462(b).
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<PAGE> 17
(b) The Shares shall have been qualified for or exempted from
sale under the state securities and insurance laws of such states as
shall have been specified by the Representatives.
(c) The legality and sufficiency of the authorization,
issuance and sale or transfer and sale of the Shares hereunder, the
validity and form of the certificates representing the Shares, the
execution and delivery of this Agreement and the Pricing Agreement, and
all corporate proceedings and other legal matters incident thereto, and
the form of the Registration Statement and the Prospectus (except
financial statements) shall have been approved by counsel for the
Underwriters.
(d) You shall not have advised the Company that the
Registration Statement or the Prospectus or any amendment or supplement
thereto, contains an untrue statement of fact, which, in the opinion of
counsel for the Underwriters, is material or omits to state a fact
which, in the opinion of such counsel, is material and is required to
be stated therein or necessary to make the statements therein not
misleading.
(e) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred any change, or any development
involving a prospective change, in or affecting particularly the
business or properties of the Company or its subsidiaries, whether or
not arising in the ordinary course of business, which, in the
reasonable judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or purchase of the
Shares as contemplated hereby.
(f) There shall have been furnished to you, as Representatives
of the Underwriters, on the First Closing Date or the Second Closing
Date, as the case may be, except as otherwise expressly provided below:
(i) An opinion of Kahn, Kleinman, Yanowitz and Arnson,
L.P.A., counsel for the Company, the Partnership and the
Principal Stockholders, addressed to the Underwriters and
dated the First Closing Date or the Second Closing Date, as
the case may be, to the effect that:
(1) the Company has been duly incorporated and
is validly existing as a corporation in good standing
under the laws of the State of Ohio with corporate
power and authority to own its properties and conduct
its business as described in the Prospectus; and the
Company has been duly qualified to do business as a
foreign corporation under the corporation law of, and
is in good standing as such in, every jurisdiction
where it owns or leases property;
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<PAGE> 18
(2) an opinion to the same general effect as
clause (1) of this subparagraph (i) in respect of each
direct and indirect subsidiary of the Company;
(3) the authorized capital stock of the Company,
of which there is outstanding the amount set forth in
the Registration Statement and Prospectus (except for
subsequent issuances, if any, pursuant to stock
options or other rights referred to in the
Prospectus), conforms as to legal matters in all
material respects to the description thereof in the
Registration Statement and Prospectus; the issued and
outstanding capital stock of the Company has been duly
authorized and validly issued and is fully paid and
nonassessable and free of statutory preemptive rights;
(4) the issued and outstanding capital stock of
each subsidiary of the Company has been duly
authorized, validly issued and is fully paid and
nonassessable and free of statutory preemptive rights,
and the Company owns directly or indirectly 100
percent of the outstanding capital stock of each
subsidiary, and to the best knowledge of such counsel,
such stock is owned free and clear of any claims,
liens, encumbrances or security interests.
(5) the certificates for the Shares to be
delivered hereunder are in due and proper form,
and when duly countersigned by the Company's
transfer agent and delivered to you or upon your
order against payment of the agreed consideration
therefor in accordance with the provisions of this
Agreement and the Pricing Agreement, the Shares
represented thereby will be duly authorized and
validly issued, fully paid and nonassessable and will
be free of any pledge, lien, encumbrance, claim or
preemptive rights of, or rights of first refusal in
favor of, stockholders with respect to any of the
Shares or the issuance or sale thereof which are
created by or arise under the certificate of
incorporation or bylaws of the Company; to the best
knowledge of such counsel, there are no contractual
preemptive rights, rights of first refusal, rights of
co-sale or other similar rights which exist with
respect to any of the Shares or the issuance and sale
thereof; and the Shares have been duly and validly
authorized and Market, subject to official notice of
issuance;
(6) the Registration Statement has become
effective under the 1933 Act, and, to the best
knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under
the 1933 Act, and the Registration
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<PAGE> 19
Statement (including the information deemed to
be part of the Registration Statement at the
time of effectiveness pursuant to Rule 430A(b)
and/or Rule 434, if applicable), the Prospectus
and each amendment or supplement thereto (except
for the financial statements and other
statistical or financial data included therein
as to which such counsel need express no
opinion) comply as to form in all material
respects with the requirements of the 1933 Act;
such counsel have no reason to believe that
either the Registration Statement (including the
information deemed to be part of the
Registration Statement at the time of
effectiveness pursuant to Rule 430A(b) and/or
Rule 434, if applicable) or the Prospectus, or
the Registration Statement or the Prospectus as
amended or supplemented (except for the
financial statements and other statistical or
financial data included therein as to which such
counsel need express no opinion), as of their
respective effective or issue dates, contained
any untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary to make the
statements therein not misleading or that the
Prospectus as amended or supplemented, if
applicable, as of the First Closing Date or the
Second Closing Date, as the case may be,
contained any untrue statement of a material
fact or omitted to state any material fact
necessary to make the statements therein not
misleading in light of the circumstances under
which they were made; the statements in the
Registration Statement and the Prospectus
summarizing statutes, rules and regulations are
accurate and fairly and correctly present the
information required to be presented by the 1933
Act or the rules and regulations thereunder, in
all material respects and such counsel does not
know of any statutes, rules and regulations
required to be described or referred to in the
Registration Statement or the Prospectus that
are not described or referred to therein as
required; and such counsel does not know of any
legal or governmental proceedings pending or
threatened required to be described in the
Prospectus which are not described as required,
nor of any contracts or documents of a character
required to be described in the Registration
Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are
not described or filed, as required;
(7) the statements under the captions
"Certain Corporate Transactions,""Management,"
"Certain Transactions," "Description of Capital
Stock" and "Shares Eligible for Future Sale" in
the Prospectus, insofar as such statements
constitute a summary of transactions or
documents referred to therein or matters of law,
are to the best knowledge of such counsel
accurate summaries of such transactions or
documents and are accurate summaries of matters
of law and fairly and
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<PAGE> 20
correctly present, in all material respects, the
information required to be disclosed with
respect to such transactions, documents and
matters by the 1933 Act and the rules and
regulations thereunder;
(8) this Agreement and the Pricing
Agreement and the performance of the Company's
obligations hereunder have been duly authorized
by all necessary corporate action and this
Agreement and the Pricing Agreement have been
duly executed and delivered by and on behalf of
the Company, and are legal, valid and binding
agreements of the Company, except as
enforceability of the same may be limited by
bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting
creditors' rights and by the exercise of
judicial discretion in accordance with general
principles applicable to equitable and similar
remedies and except as to those provisions
relating to indemnities for liabilities arising
under the 1933 Act, or contribution obligations
with respect thereto, as to which no opinion
need be expressed; and no approval,
authorization or consent of any Governmental
Authority is necessary in connection with the
issue or sale of the Shares by the Company
pursuant to this Agreement (other than under the
1933 Act, applicable state or province
securities and the rules of the NASD) or the
consummation by the Company of any other
transactions contemplated hereby;
(9) to the best of such counsel's
knowledge, neither the Company nor any of its
subsidiaries is in violation of its charter or
is in breach of, or in default under (nor has
any event occurred which, with notice, lapse
of time or both would constitute a breach of,
or default under) any indenture, lease, credit
agreement or other agreement or instrument to
which the Company or any of its subsidiaries
is a party and which are filed as exhibits to
the Registration Statement or which are leases
of real property, where such violation or
breach or default could have a Material Adverse
Effect;
(10) the execution, delivery and
performance of this Agreement, the issuance and
sale of the Shares, and the consummation of the
transactions herein contemplated by the Company,
will not contravene any of the provisions of, or
result in a default under, any agreement,
franchise, License, indenture, mortgage, deed of
trust, or other instrument to which the Company
or any of its subsidiaries is a party or by
which the property of any of them is based and
which are filed as exhibits to the Registration
Statement or which are leases of real property
where such contravention or default could have a
Material Adverse Effect; or violate any of the
provisions of the charter or bylaws
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<PAGE> 21
of the Company or any of its subsidiaries or, so
far as is known to such counsel, violate any
statute, order, rule or regulation of any
Governmental Authority having jurisdiction over
the Company or any of its subsidiaries;
(11) to the best of such counsel's
knowledge, except as disclosed in the Prospectus
no person has the right, contractual or
otherwise, to cause the Company or any of its
subsidiaries to issue, or register pursuant to
the 1933 Act, any shares of capital stock of the
Company or any of its subsidiaries, upon the
issue and sale of the Shares to be sold by the
Company to the Underwriters pursuant to this
Agreement;
(12) to the best of such counsel's
knowledge, all offers and sales of the Company's
[AND THE PARTNERSHIP'S] capital stock or other
equity interests prior to the date hereof were
at all relevant times exempt from the
registration requirements of the 1933 Act and
were duly registered or the subject of an
available exemption from the registration
requirements of applicable state or province
securities laws;
(13) with respect to the Partnership and
to each Principal Stockholder, this Agreement
(and, with respect to the Partnership, the
Contribution Agreement), has been duly
authorized, executed and delivered by or on
behalf of each of the Partnership and such
Principal Stockholder; and the performance of
this Agreement (and, with respect to the
Partnership, the Contribution Agreement), and
the consummation of the transactions herein (or,
with respect to the Contribution Agreement,
therein) contemplated by the Partnership and
such Principal Stockholders will not result in a
breach or violation of any of the terms and
provisions of, or constitute a default under,
any statute, agreement, franchise, indenture,
mortgage, deed of trust, note agreement or other
agreement or instrument known to such counsel to
which the Partnership or any of such Principal
Stockholders is a party or by which any of them
are bound or to which any of the property of the
Partnership and such Principal Stockholders is
subject, or any order, rule or regulation known
to such counsel of any Governmental Authority
having jurisdiction over the Partnership and
such Principal Stockholders or any of their
properties;
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<PAGE> 22
(14) The Partnership and each Principal Stockholder has
full right, power and authority to enter into this Agreement
(and, with respect to the Partnership, the Contribution
Agreement); and this Agreement (and, with respect to the
Partnership, the Contribution Agreement) is the legal, valid
and binding agreement of the Partnership and each Principal
Stockholder except as enforceability of the same may be
limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights
and by the exercise of judicial discretion in accordance
with general principles applicable to equitable and similar
remedies and except with respect to those provisions
relating to indemnities for liabilities arising under the
1933 Act, as to which no opinion need be expressed; and
(15) Neither the Company nor any of its subsidiaries is
an "investment company" or a person "controlled by" an
"investment company" within the meaning of the Investment
Company Act;
In rendering such opinion, such counsel may state that they
are relying upon the certificate of ___________, the transfer
agent for the Common Stock, as to the number of shares of Common
Stock at any time or times outstanding, and that insofar as
their opinion under clause (6) above relates to the accuracy and
completeness of the Prospectus and Registration Statement, it is
based upon a general review with the Company's representatives
and independent accountants of the information contained
therein, without independent verification by such counsel of the
accuracy or completeness of such information. Such counsel may
also rely upon the opinions of competent local counsel
satisfactory to counsel to the Underwriters as to legal matters
in jurisdictions other than those in which they are domiciled
and, as to factual matters, on certificates of officers of the
Company and of state or province officials, in which case their
opinion is to state that they are so doing and copies of such
opinions or certificates are to be attached to the opinion
unless such opinions or certificates (or, in the case of
certificates, the information therein) have been furnished to
the Representatives in other form.
(ii) Such opinion or opinions of Sonnenschein Nath &
Rosenthal, counsel for the Underwriters, dated the First Closing
Date or the Second Closing Date, as the case may be, with respect
to the incorporation of the Company, the validity of the Shares
to be sold by the Company, the Registration Statement and the
Prospectus and other related matters as you may reasonably
require, and the Company shall have furnished to such counsel
such documents and shall have exhibited to them such papers and
records as they request for the purpose of enabling them to pass
upon such matters.
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<PAGE> 23
(iii) A certificate of the chief executive officer or
President and the principal financial officer of the Company,
dated the First Closing Date or the Second Closing Date, as
the case may be, to the effect that:
(1) the representations and warranties of the
Company set forth in Section 2 of this Agreement are
true and correct in all material respects as of the
date of this Agreement and as of the First Closing
Date or the Second Closing Date, as the case may be,
and the Company has complied with all the agreements
and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing
Date; and
(2) the Commission has not issued an order
preventing or suspending the use of the Prospectus or
any preliminary prospectus filed as a part of the
Registration Statement or any amendment thereto; no
stop order suspending the effectiveness of the
Registration Statement has been issued; and to the
best knowledge of the respective signers, no
proceedings for that purpose have been instituted or
are pending or contemplated under the 1933 Act.
The delivery of the certificate provided for in
this subparagraph shall be and constitute a representation and
warranty of the Company as to the facts required in the
immediately foregoing clauses (1) and (2) of this subparagraph
to be set forth in such certificate.
(iv) At the time the Pricing Agreement is executed and
also on the First Closing Date or the Second Closing Date, as
the case may be, there shall be delivered to you a letter
addressed to you, as Representatives of the Underwriters, from
KPMG Peat Marwick LLP, independent accountants, the first one
to be dated the date of the Pricing Agreement, the second one
to be dated the First Closing Date and the third one (in the
event of a second closing) to be dated the Second Closing
Date, to the effect set forth in SCHEDULE C. There shall not
have been any material change or decrease specified in the
letters referred to in this subparagraph which makes it
impractical or inadvisable in the judgment of the
Representatives to proceed with the public offering or
purchase of the Shares as contemplated hereby.
(v) At the time the Pricing Agreement is executed,
there shall be delivered to you a letter addressed to you, as
Representatives of the Underwriters, from Deloitte & Touche
L.L.P., independent accountants, to be dated the date of the
Pricing Agreement confirming that as of January 31, 1995, and
during the period covered by the financial statements on which
they reported, they were independent accountants with respect
to Odd Job Trading Corp., POW Trading Corp., HIA Trading
Associates and Central Processing
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<PAGE> 24
Associates within the meaning of the Act and the applicable
published rules and regulations thereunder, and that the
financial statements audited by them and included in the
Registration Statement comply as to form in all material
respect with the applicable accounting requirements of the Act
and the published rules and regulations thereunder with
respect to Registration Statements on Form S-1.
(vi) At or before the time the Pricing Agreement is
executed, there shall be delivered to you a letter
substantially in the form of EXHIBIT B hereto from each person
who holds shares of Common Stock or options which may be
exercised to acquire shares of Common Stock within 180 days of
such date, in which each such person agrees not to (1) sell,
contract to sell or otherwise dispose of any Common Stock for
a period of 180 days after the date of such letter without the
prior written consent of the Representatives, or (2) announce
an intent to sell any shares of the Company's Common Stock, or
execute any registration rights with respect to any shares of
the Company's Common Stock, for a period of 180 days after the
date of such letter without the prior written consent of the
Representatives.
(vii) Such further certificates and documents as you
may reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Sonnenschein Nath & Rosenthal, counsel for the Underwriters, which approval
shall not be unreasonably withheld. The Company shall furnish you with such
manually signed or conformed copies of such opinions, certificates, letters and
documents as you request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon written notification to the
Company without liability on the part of any Underwriter or the Company, except
for the expenses to be paid or reimbursed by the Company pursuant to Sections 7
and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 9. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale to the
Underwriters of the Shares on the First Closing Date is not consummated because
any condition of the Underwriters' obligations hereunder is not satisfied or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or to comply with any provision hereof, unless such
failure to satisfy such condition or to comply with any provision hereof is due
to the default or omission of any Underwriter, the Company agrees to reimburse
you and the other Underwriters upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
reasonably incurred by you and them in connection with the proposed purchase
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<PAGE> 25
and sale of the Shares. Any such termination shall be without liability of any
party to any other party except that the provisions of this Section, Section 7
and Section 11 shall at all times be effective and shall apply.
SECTION 10. EFFECTIVENESS OF REGISTRATION STATEMENT. You and the
Company will use your and its best efforts to cause the Registration Statement
to become effective, if it has not yet become effective, and to prevent the
issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible the
lifting thereof.
SECTION 11. INDEMNIFICATION. (a) The Company and each Principal
Stockholder, severally and not jointly, agree to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the 1933 Act or the Exchange Act against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the 1933 Act, the Exchange Act or
other foreign, federal or state statutory law or regulation, at common law or
otherwise (including in settlement of any litigation if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that neither the Company
nor any Principal Stockholder will be liable in any such case to the extent that
(i) any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, including the information deemed to be part
of the Registration Statement at the time of effectiveness pursuant to Rule 430A
and/or Rule 434, if applicable, any preliminary prospectus, the Prospectus or
any amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any Underwriter
through the Representatives, specifically for use therein; or (ii) if such
statement or omission was contained or made in any preliminary prospectus and
corrected in the Prospectus and (1) any such loss, claim, damage or liability
suffered or incurred by any Underwriter (or any person who controls any
Underwriter) resulted from an action, claim or suit by any person who purchased
Shares which are the subject thereof from such Underwriter in the offering and
(2) such Underwriter failed to deliver or provide a copy of the Prospectus to
such person at or prior to the confirmation of the sale of such Shares in any
case where such delivery is required by the 1933 Act; and further provided, that
no Principal Stockholder will be liable in any such case in respect of any such
losses, claims, damages, liabilities or expenses unless the Underwriter or
controlling person seeking
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<PAGE> 26
indemnification from such Principal Stockholder hereunder shall
contemporaneously seek indemnification from the Company in respect thereof
(except that the foregoing condition preceding requiring an Underwriter or a
controlling person to seek indemnification from the Company shall not be
applicable if the Underwriter or controlling person has previously sought
indemnification from the Company with respect to such matters or if such
Underwriter or controlling person is prohibited from being indemnified by the
Company (or from seeking such indemnification) by the effect of any order,
decree, stay, injunction, statute, legal process or other matter of law). In
addition to their other obligations under this Section 11(a), the Company and
each Principal Stockholder agree that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding arising out of
or based upon any statement or omission, or any alleged statement or omission,
described in this Section 11(a), they will reimburse the Underwriters on a
monthly basis for all reasonable legal and other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's and the Principal
Stockholders' obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction; provided, however, that all amounts paid to the
Underwriters in advance of final disposition of any claim for which
indemnification is sought from the Company and the Principal Stockholders
pursuant to this Section 11(a) shall be repaid if there is final judicial
determination that the Underwriters are not entitled to indemnification as
provided herein. This indemnity agreement will be in addition to any liability
which the Company and the Principal Stockholders may otherwise have.
Without limiting the full extent of the Company's agreement to
indemnify each Underwriter, as herein provided, each Principal Stockholder shall
be liable under the indemnity agreements contained in this Section 11(a) only
for an amount not exceeding the amount set forth opposite such Principal
Stockholder's name on SCHEDULE B, and the several liability of each Principal
Stockholder shall be determined in the same ratio that the amount set forth
opposite such Principal Stockholder's name on SCHEDULE B bears to the total
price paid to the Company for the Shares by the Underwriters (net of
underwriting discount but before deducting expenses).
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the 1933 Act or the Exchange Act, against any losses, claims, damages or
liabilities to which the Company, or any such director, officer or controlling
person may become subject under the 1933 Act, the Exchange Act or other foreign,
federal or state statutory law or regulation, at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of such Underwriter), insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, including the
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<PAGE> 27
information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A and/or Rule 434, if applicable, any
preliminary prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus, or any amendment or supplement thereto in reliance
upon and in conformity with Section 4 of this Agreement or any other written
information furnished to the Company by such Underwriter through the
Representatives specifically for use in the preparation thereof; and will
reimburse any legal or other expenses reasonably incurred by the Company, or any
such director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. In addition to
their other obligations under this Section 11(b), the Underwriters agree that,
as an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 11(b),
they will reimburse the Company on a monthly basis for all reasonable legal and
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction; provided, however, that all amounts paid to the
Company in advance of final disposition of any claim for which indemnification
is sought from the Underwriters pursuant to this Section 11(b) shall be repaid
if there is final judicial determination that the Company is not entitled to
indemnification as provided herein. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent that
the indemnifying party was prejudiced by such failure to notify. In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
all other indemnifying parties similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, or the indemnified and indemnifying parties may have
conflicting interests which would make it inappropriate for the same
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<PAGE> 28
counsel to represent both of them, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defense and otherwise
to participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed such
counsel in connection with the assumption of legal defense in accordance with
the proviso to the next preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Representatives in the case of paragraph (a)
representing all indemnified parties not having different or additional defenses
or potential conflicting interest among themselves who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity or contribution
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability arising out of such proceeding.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under paragraphs (a) or
(b) hereof in respect of any losses, claims, damages or liabilities referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company, the Principal Stockholders and the Underwriters from the
offering of the Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company, the Principal Stockholders and the Underwriters
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company and the
Principal Stockholders and the Underwriters shall be deemed to be in the same
proportion in the case of the Company and the Principal Stockholders, as the
total price paid to the Company for the Shares by the Underwriters (net of
underwriting discount but before deducting expenses), and in the case of the
Underwriters as the underwriting discount received by them bears to the total of
such amounts paid to the Company and received by the Underwriters as
underwriting discount in each case as contemplated by the Prospectus. The
relative fault of the Company, the Principal Stockholders and the Underwriters
shall be determined by reference to, among
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<PAGE> 29
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Company or the Principal Stockholders or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim.
The Company, the Principal Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section,
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute pursuant to this Section are several in proportion to their
respective underwriting commitments and not joint.
(e) The provisions of this Section shall survive any termination of
this Agreement.
SECTION 12. DEFAULT OF UNDERWRITERS. It shall be a condition to the
agreement and obligation of the Company to sell and deliver the Shares
hereunder, and of each Underwriter to purchase the Shares hereunder, that,
except as hereinafter in this paragraph provided, each of the Underwriters shall
purchase and pay for all Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Representatives of all such Shares in accordance
with the terms hereof. If any Underwriter or Underwriters default in their
obligations to purchase Shares hereunder on the First Closing Date and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed 10 percent of the total number of
Shares which the Underwriters are obligated to purchase on the First Closing
Date, the Representatives may make arrangements satisfactory to the Company for
the purchase of such Shares by other persons, including any of the Underwriters,
but if no such arrangements are made by such date the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Shares which such defaulting Underwriters
agreed but failed to purchase on such date. If any Underwriter or Underwriters
so default and the aggregate number of Shares with respect to which such default
or defaults occur is more than the above percentage and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Shares by other persons are not made within 36 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting
Underwriter
-29-
<PAGE> 30
or the Company, except for the expenses to be paid by the Company pursuant to
Section 7 hereof and except to the extent provided in Section 11 hereof.
In the event that Shares to which a default relates are to be purchased
by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
SECTION 13. EFFECTIVE DATE. This Agreement shall become effective
immediately as to Sections 7, 9, 11 and 14 and as to all other provisions at
10:00 A.M., Chicago time, on the day following the date upon which the Pricing
Agreement is executed and delivered, unless such a day is a Saturday, Sunday or
holiday (and in that event this Agreement shall become effective at such hour on
the business day next succeeding such Saturday, Sunday or holiday); but this
Agreement shall nevertheless become effective at such earlier time after the
Pricing Agreement is executed and delivered as you may determine on and by
notice to the Company or by release of any Shares for sale to the public. For
the purposes of this Section, the Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Shares or upon the release by you of telegrams (i) advising
Underwriters that the Shares are released for public offering, or (ii) offering
the Shares for sale to securities dealers, whichever may occur first.
SECTION 14. TERMINATION. Without limiting the right to terminate
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice
to you or by you by notice to the Company at any time prior to the time
this Agreement shall become effective as to all its provisions, and any
such termination shall be without liability on the part of the Company
to any Underwriter (except for the expenses to be paid or reimbursed
pursuant to Section 7 hereof and except to the extent provided in
Section 11 hereof) or of any Underwriter to the Company.
(b) This Agreement may also be terminated by you prior to the
First Closing Date, and the option referred to in Section 5, if
exercised, may be cancelled at any time prior to the Second Closing
Date, if (i) trading in securities on the New York Stock Exchange or
the Nasdaq National Market shall have been suspended or minimum prices
shall have been established on such exchange, or (ii) a banking
moratorium shall have been declared by Illinois, New York, or United
States authorities, or (iii) there shall have been any change in
financial markets or in political, economic or financial conditions
which, in the opinion of the Representatives, either renders it
impracticable or inadvisable to proceed with the
-30-
<PAGE> 31
offering and sale of the Shares on the terms set forth in the
Prospectus or materially and adversely affects the market for the
Shares, or (iv) there shall have been an outbreak of major armed
hostilities between the United States and any foreign power which in
the opinion of the Representatives makes it impractical or inadvisable
to offer or sell the Shares. Any termination pursuant to this paragraph
(b) shall be without liability on the part of any Underwriter to the
Company or on the part of the Company to any Underwriter (except for
expenses to be paid or reimbursed pursuant to Section 6 hereof and
except to the extent provided in Section 10 hereof).
SECTION 15. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, principals, members, officers or
directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Shares sold hereunder.
SECTION 16. NOTICES. All communications hereunder will be in writing
and, if sent to the Underwriters will be mailed, delivered, telecopied or
telegraphed and confirmed to you c/o William Blair & Company, L.L.C., 222 West
Adams Street, Chicago, Illinois 60606, Attn: Michelle L. Collins, Fax (312)
368-9418, with a copy to David D. Gatchell, Sonnenschein Nath & Rosenthal,
Twentieth Century Tower II, 4520 Main St., Suite 1100, Kansas City, Missouri
64111, Fax (816) 531-7545, if sent to the Company will be mailed, delivered or
telegraphed and confirmed to the Company at its corporate headquarters with a
copy to Mark H. Morgenstern, Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., The
Tower at Erieview, Suite 2600, Cleveland, Ohio 44114, Fax (216) 696-1009.
SECTION 16. SUCCESSORS. This Agreement and the Pricing Agreement will
inure to the benefit of and be binding upon the parties hereto and their
respective successors, personal representatives and assigns, and to the benefit
of the officers and directors and controlling persons referred to in Section 10,
and no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Shares as such from any of
the Underwriters merely by reason of such purchase.
SECTION 17. REPRESENTATION OF UNDERWRITERS. You will act as
Representatives for the several Underwriters in connection with this financing,
and any action under or in respect of this Agreement taken by you will be
binding upon all the Underwriters.
SECTION 18. PARTIAL UNENFORCEABILITY. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
-31-
<PAGE> 32
SECTION 19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
SECTION 20. APPLICABLE LAW. This Agreement and the Pricing Agreement shall
be governed by and construed in accordance with the laws of the State of
Illinois.
[This space intentionally left blank.]
-32-
<PAGE> 33
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters including you, all in accordance with its terms.
Very truly yours,
MAZEL STORES, INC.
By:
----------------------------
Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
WILLIAM BLAIR & COMPANY, L.L.C.
SALOMON BROTHERS INC
Acting as Representatives of the
several Underwriters named in
SCHEDULE A.
WILLIAM BLAIR & COMPANY, L.L.C.
By:
--------------------------
A Principal
-33-
<PAGE> 34
SCHEDULE A
Number of Firm
Shares to be
Underwriter Purchased
- ----------- ---------
William Blair & Company, L.L.C. ....................
Salomon Brothers Inc................................
---------
TOTAL ..............................................
=========
<PAGE> 35
SCHEDULE B
Maximum Liability
Name of Principal Stockholder Under Section 11
- -------------------------------- ----------------
<PAGE> 36
SCHEDULE C
Comfort Letter for Mazel Stores, Inc.
To Be Delivered by KPMG Peat Marwick LLP
(1) They are independent public accountants with respect to the Company
and its subsidiaries within the meaning of the 1933 Act.
(2) In their opinion the consolidated financial statements and
schedules of the Company and its subsidiaries included in the Registration
Statement and the consolidated financial statements of the Company from which
the information presented under the captions "Summary Financial Data" and
"Selected Financial Data" has been derived which are stated therein to have been
examined by them comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act.
(3) On the basis of specified procedures (but not an examination in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company and its subsidiaries responsible for financial
and accounting matters as to transactions and events subsequent to January 31,
1996, a reading of minutes of meetings of the stockholders and directors of the
Company and its subsidiaries since January 31, 1996, a reading of the latest
available interim unaudited consolidated financial statements of the Company and
its subsidiaries (with an indication of the date thereof) and other procedures
as specified in such letter, nothing came to their attention which caused them
to believe that (i) the unaudited consolidated financial statements of the
Company and its subsidiaries included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act or that such unaudited financial statements are not
fairly presented in accordance with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement, (ii) the amounts in "Summary
Financial Data" and "Selected Financial Data" included in the Prospectus do not
agree with or are not derivable from the corresponding amounts in the audited
consolidated financial statements or unaudited consolidated financial statements
(as applicable) from which such amounts were derived, (iii) the pro forma
information included in the Prospectus does not comply in all material respects
with the applicable accounting requirements of Rule 11-02 of Regulation S-X and
the pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such information and (iv) at a specified date not
more than five days prior to the date thereof in the case of the first letter
and not more than two business days prior to the date thereof in the case of the
second and third letters, there was any change in the capital stock or long-term
debt or short-term debt (other than normal payments) of the Company and its
subsidiaries on a consolidated basis or any decrease in consolidated net current
assets or consolidated stockholders' equity as compared with amounts shown on
the latest unaudited
<PAGE> 37
balance sheet of the Company included in the Registration Statement or for the
period from the date of such balance sheet to a date not more than five days
prior to the date thereof in the case of the first letter and not more than two
business days prior to the date thereof in the case of the second and third
letters, there were any decreases, as compared with the corresponding period of
the prior year, in consolidated net sales, consolidated income before income
taxes or in the total or per share amounts of consolidated net income except, in
all instances, for changes or decreases which the Prospectus discloses have
occurred or may occur or which are set forth in such letter.
(4) They have carried out specified procedures, which have been agreed
to by the Representatives, with respect to certain information in the Prospectus
specified by the Representatives, and on the basis of such procedures, they have
found such information to be in agreement with the general accounting records of
the Company and its subsidiaries.
<PAGE> 38
EXHIBIT A
MAZEL STORES, INC.
2,145,000 Shares Common Stock(1)
PRICING AGREEMENT
-----------------
William Blair & Company, L.L.C.
Salomon Brothers Inc
As Representatives of the Several
Underwriters
c/o William Blair & Company
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated September __,
1996 (the "Underwriting Agreement") relating to the sale by the Company and the
purchase by the several Underwriters for whom William Blair & Company and
Salomon Brothers Inc are acting as representatives (the "Representatives"), of
the above Shares. All terms herein shall have the definitions contained in the
Underwriting Agreement except as otherwise defined herein.
Pursuant to Section 4 of the Underwriting Agreement, the Company agrees
with the Representatives as follows:
1. The initial public offering price per share for the Shares shall
be $__________.
2. The purchase price per share for the Shares to be paid by the several
Underwriters shall be $_________, being an amount equal to the initial public
offering price set forth above less $________ per share.
- --------
1 Plus an option to acquire up to 321,750 additional shares to cover over-
allotments.
<PAGE> 39
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters, including you, all in accordance with its terms. This Agreement
may be executed in two or more counterparts, each of which shall be deemed an
original and all of which together shall be considered one and the same
agreement.
Very truly yours,
MAZEL STORES, INC.
By:
------------------------------------
Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
WILLIAM BLAIR & COMPANY, L.L.C.
SALOMON BROTHERS INC
Acting as Representatives of the
several Underwriters named in
SCHEDULE A.
WILLIAM BLAIR & COMPANY, L.L.C.
By:
------------------------------
A Principal
<PAGE> 40
EXHIBIT B
[Letterhead of stockholders
and optionholders of the Company]
September __, 1996
William Blair & Company, L.L.C.
Salomon Brothers Inc
As Representatives of the Several
Underwriters
c/o William Blair & Company
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement") among Mazel Stores, Inc.,
an Ohio corporation (the "Company"), and each of you as representatives of a
group of Underwriters named therein, relating to an underwritten public offering
of Common Stock, no par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned agrees not to (1) sell, contract to sell
or otherwise dispose of any Common Stock or securities convertible into Common
Stock for a period of 180 days after the date hereof without the prior written
consent of the Representatives, or (2) announce an intent to sell any shares of
the Company's Common Stock or exercise any registration rights with respect to
any shares of the Company's Common Stock for a period of 180 days after the date
hereof without the prior written consent of the Representatives.
If for any reason the Underwriting Agreement shall be terminated prior to
the First Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Very truly yours,
[Signature of stockholder or optionholder of the
Company]
[Name and address of stockholder or optionholder
of the Company]
<PAGE> 1
EXHIBIT 4.1
MAZEL STORES, INC.
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
COMMON STOCK THE STATE OF OHIO CERTAIN DEFINITIONS
- -------------------------------------------------------------------------------
THIS CERTIFIES that CUSIP 578792 10 3
S P E C I M E N
is the owner of
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK WITHOUT PAR VALUE
MAZEL STORES, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed in facsimile by its duly authorized officers.
Dated:
Corporate Seal
Susan Atkinson Reuven D. Dessler
Sr. Vice President CFO/Treasurer Chairman and Chief Executive Officer
Countersigned: [SEAL]
AMERICAN STOCK TRANSFER & TRUST COMPANY
New York, N.Y. Transfer Agent
By:
AUTHORIZED SIGNATURE
<PAGE> 2
MAZEL STORES, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- Custodian
---------- -----------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-----------
(State)
Additional abbreviations may also be used though not in the above list
For Value Received, hereby sell, assign, and transfer unto
------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
| |
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:
---------------------------
-----------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
- -------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.2
ASSET BASED LOAN AND SECURITY AGREEMENT
---------------------------------------
THIS AGREEMENT, dated as of January 31, 1994, between MAZEL COMPANY
L.P., a Delaware limited partnership, doing business in Ohio as Mazel Company
Limited Partnership and/or The Mazel Company ("Borrower"), whose mailing address
is 31000 Aurora Road, Solon, Ohio 44139, and THE PROVIDENT BANK ("Bank"), an
Ohio banking corporation, whose mailing address is 1111 Superior Avenue,
Cleveland, Ohio 44114-2522.
SECTION 1. DEFINITIONS. As used herein, the following terms, when initial
capital letters are used, shall have the respective meanings set forth below. In
addition, all terms defined in the Uniform Commercial Code as adopted in Ohio
(hereinafter the "Uniform Commercial Code") shall have the meanings given
therein unless otherwise defined herein.
1.1 ACCOUNTS shall mean all of Borrower's accounts (as that term is
defined in the Uniform Commercial Code), accounts receivable, chattel paper,
contract rights, documents and instruments; all other obligations or
indebtedness owed to Borrower from whatever source arising; all guarantees of
any of the foregoing and all security therefor; all of the right, title and
interest of Borrower in and with respect to the goods, services or other
property which gave rise to or which secure any of the foregoing and all
insurance policies and proceeds relating thereto; all of the foregoing whether
now owned by Borrower or hereafter acquired or in existence.
1.2 ADVANCE shall mean an advance made by Bank to Borrower (including
without limitation, any advance under any Letter of Credit), pursuant to the
provisions, terms and conditions of Section 2 of this Agreement.
1.3 AFFILIATE shall mean (i) Reuven Dessler, Jacob Koval, any
individual who is a partner in Borrower, or who is an officer, director or
managing agent of Borrower, and any member of the immediate family of such
persons (collectively, the "Affiliated Individuals"); (ii) any corporation,
partnership or entity that is a partner in Borrower (collectively, the
"Affiliated Entities"); and (iii) any Person who directly or indirectly
controls, is controlled by or is under common control or ownership with
Borrower, any Affiliate Entities or any Affiliated Individuals; provided,
however, that notwithstanding the foregoing, the term "Affiliate" (I) SHALL NOT
INCLUDE any of the following, in the capacity indicated: (A) any Person who is a
limited partner of Borrower, or (B) who is a limited partner of any partner in
Borrower, (C) an officer, director or employee of the foregoing (A) and (B) and
(D) Odd Job Trading Corp., its successors and assigns; and (II) SHALL INCLUDE
the following: (A) ZS Fund L.P. and (B) the holders of the Subordinated Notes
and Contingent Notes. For the purposes of this definition, the term "control"
shall mean the ownership of twenty percent (20%) or more of the beneficial
interest in the entity being referred to, and the term "immediate family" shall
mean spouses, ancestors, lineal descendants, and brothers and sisters of the
person in questions including those adopted.
1.4 CASH COLLATERAL ACCOUNT shall mean that deposit account maintained
by Borrower at Bank, without liability by Bank to pay interest thereon, into
which all collections on the Collateral shall be deposited and over which Bank
shall have the sole power of withdrawal until all Obligations are paid,
performed, satisfied, enforced, and observed in full, and any outstanding
Letters of Credit issued by Bank on behalf of Borrower have been cancelled or
expired
1
<PAGE> 2
1.5 CASH SURPLUS shall mean that sum, determined as to each fiscal year
of the Borrower, which represents net income (determined according to GAAP) plus
depreciation, amortization and all other noncash expenses.
1.6 COLLATERAL shall mean (a) all of the Borrower's Equipment, General
Intangibles, Inventory, Accounts and all other items of personal property,
including all motor vehicles, now owned or hereafter acquired by the Borrower or
in which the Borrower has granted or may in the future grant a security interest
to the Bank hereunder or in any supplement hereto or otherwise; (b) all proceeds
and products of any of the foregoing in whatever form, including cash,
negotiable instruments and other evidences of indebtedness, chattel paper,
security agreements or other documents and all rights of Borrower in, to and
under all leases and rental agreements relating to the foregoing; (c) all of the
Borrower's right, title and interest in and to all goods or other property
represented by or securing any of the Accounts, including all goods that may be
reclaimed or repossessed from or returned by Debtors; (d) all of the Borrower's
rights as an unpaid seller, including stoppage in transit, detinue and
reclamation; (e) all additional amounts due to the Borrower from any Debtor (as
defined in Section 1.10), irrespective of whether such additional amounts have
been specifically assigned to the Bank; (f) all guaranties, or other agreements
or property securing or relating to any of the items referred to in (a) above,
or acquired for the purpose of securing and enforcing any of such items; (g) all
instruments, documents, securities, cash, property, deposit accounts (including
but not limited to deposits made to Borrower's Cash Collateral Account), and the
proceeds of any of the foregoing, owned by the Borrower or in which it has an
interest, which are now or may hereafter be in the possession or control of the
Bank or in transit by mail or carrier to or from the Bank, or in possession of
any third party acting on behalf of Bank, without regard to whether Bank
received same in pledge, for safekeeping, as agent for collection or
transmission or otherwise or whether Bank had conditionally released the same;
(h) all ledger sheets, files, records, documents, blueprints, drawings and
instruments (including, without limitation, computer programs, tapes and related
electronic data processing software) evidencing an interest in or relating to
the foregoing; and (i) all proceeds and products of the collateral described
above, including, without limitation, all claims against third parties for
damage to or loss or destruction of any of the foregoing, including insurance
proceeds, and accounts, contract rights, chattel paper and general intangibles
arising out of any sale, lease or other disposition of any of the foregoing.
1.7 CONTINGENT NOTES shall mean those four (4) certain Contingent
Subordinated Notes dated July 14, 1992, made by Mazel Company L.P. and payable
to Reuven Dessler, Jacob Koval, Nathan Levitansky and David Lipins,
respectively.
1.8 CURRENT ASSETS and CURRENT LIABILITIES shall mean, at any time, all
assets or liabilities, respectively, that should, in accordance with GAAP
(Generally Accepted Accounting Principles), be classified as current assets or
current liabilities, respectively, on a balance sheet of Borrower.
1.9 DEBT SERVICE RATIO shall mean that ratio of (a) Borrower's net
income (determined in accordance with GAAP), plus depreciation, plus
amortization, plus any other noncash charges, plus the unamortized charges in
respect of Borrower's financing completed in
2
<PAGE> 3
July 1992, minus capital expenditures and minus Distributions to (b) the sum of
Scheduled Principal Payments.
1.10 DEBTOR shall mean the account debtor with respect to any of the
Borrower's Accounts and/or the prospective purchaser with respect to any
contract right, and/or any party who enters into or proposes to enter into any
contract or other arrangement with the Borrower pursuant to which the Borrower
is to deliver any personal property or perform any service.
1.11 DEFAULT RATE shall mean a variable rate of interest comprised of
the sum of (A)(i) the Prime Rate or the Libor Rate in the case of the Revolving
Loan or (ii) the Treasury Rate or the Prime Rate plus one-half (1/2) percent in
the case of the Term Loan (in either case as selected by Bank from time to time
in its absolute discretion), plus (B) two and one-half percent (2-1/2%).
1.12 DISTRIBUTIONS shall mean (i) any payment made, liability incurred
(except for any liability incurred for a Distribution which was prohibited by
6.5(b)), or other consideration or property, given for the purchase of any
partnership interest of Borrower, or (ii) as a distribution in respect of any
partnership interest of Borrower, or (iii) any return of capital to any partner
of Borrower, or (iv) any payment to such a partner in respect of any
Indebtedness of Borrower to such partner.
1.13 ELIGIBLE ACCOUNTS shall mean such Accounts which are and at all
times shall continue to be acceptable to the Bank in all respects. Criteria for
eligibility shall be fixed for the term that the Revolving Loan is in effect,
but may be revised by the Bank at the time of any renewal or extension thereof
pursuant to Section 2.1(e). As of the Closing of the Loans, the following
criteria shall be in effect as to the Eligible Accounts, which shall be Accounts
which:
(a) are not subject to any claim for credit, allowance, or
adjustment by the account Debtor or any set off or
counter claim; provided, however, that the portion of
any Account which is not subject to such claim for
credit, allowance, adjustment, setoff or counterclaim,
shall be deemed an Eligible Account;
(b) arose in the ordinary course of Borrower's business
from the performance (fully completed) of services or
bona fide sale of Inventory which have been shipped to
the Debtor (excluding any portion of an Account which
is attributable to finance charges, advertising charges
or the like), and not more than ninety (90) days have
elapsed since the due date in respect of such Account
(but in no circumstances more than one hundred twenty
(120) days from the invoice date), less any unused
credit owed such Debtor by Borrower;
3
<PAGE> 4
(c) no notice of any bankruptcy or insolvency proceeding
(pending or threatened) in respect of a Debtor, any
discontinuation of such Debtor's business, or any other
information reasonably calling into question the
ability of such Debtor to perform its obligations has
been received by Borrower or Bank;
(d) is not subject to an assignment, pledge, claim,
mortgage, lien, or security interest of any type except
that granted to or in favor of Bank;
(e) the Debtor has not rejected, returned, revoked
acceptance of, or refused to accept any of the
Inventory which are the subject of the Account;
provided, however, that the portion of any Account
which is not subject to such rejection, return,
revocation or refusal, shall be deemed an Eligible
Account;
(f) Borrower has not received any Instrument or chattel
paper with respect to or in payment of the Account;
(g) is not an Account which arises out of contracts with or
orders from the United States or any of its
departments, agencies or instrumentalities, UNLESS
Bank's security interest in such Account is perfected
according to the Federal Assignment of Claims Act in a
manner satisfactory to Bank;
(h) is not an Account due from any Affiliate, partner or
employee of Borrower or an "intercompany" or
"interdivisional" receivable;
(i) is not an Account which arises out of contracts with or
orders from a Debtor which is not a resident of the
United States (unless such Account is secured by a
letter of credit acceptable to the Bank) provided,
however, that the Bank will consider, on a case by case
basis, Accounts of Debtors which are residents of
Canada and may determine, in its discretion, whether
such Accounts shall constitute Eligible Accounts;
(j) is not evidenced by a promissory note or any other
negotiable instrument;
(k) is not an Account owed to Borrower by a Debtor which
has failed to pay more than twenty-five percent
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(25 %) of its currently outstanding Accounts in
accordance with the requirements set forth in (b) above
or such Account does not otherwise comply with the
requirements set forth in (b) of this Section 1.14;
(1) does not arise from the shipment or conditional sale of
Inventory on consignment;
(m) a Debtor's Account balance (together with any Accounts
owing by an Affiliate of such Debtor) in the aggregate
does not exceed thirty percent (30%) of the aggregate
total of Borrower's Eligible Accounts; provided,
however, that only the portion in excess of such
limitation shall be deemed ineligible, and further
provided that this subsection (m) shall not limit or
exclude any amount of the Account owed by MacFrugal
Pic-N-Save, dba West Coast Liquidators;
(n) is not an Account owed to Borrower by Debtor which is a
creditor of Borrower for goods sold or services
rendered by such Debtor to Borrower, but only to the
extent of the value of such goods or services at any
time outstanding and unpaid;
(o) is not subject to a reduction for a discrepancy
pursuant to Section 7.5 hereof, provided, however, that
only the amount of the discrepancy shall be deemed
ineligible;
(p) Borrower has not exercised or attempted to exercise any
seller's remedies with regard to any Account,
including, without limitation, stoppage in transit or
right of reclamation; and
(q) is not an Account for which unapplied funds have been
received by Borrower or Bank.
1.14 ELIGIBLE INVENTORY shall mean such of Borrower's Inventory in
which Bank shall have a perfected first priority security interest. Eligible
Inventory will not include Inventory:
(a) located outside the United States;
(b) in the possession of an Affiliate, bailee or a third
party, unless such Inventory is subject to a perfected
first priority security interest in favor of Bank to
secure the Loans and then only to the extent not
subject to any lien or claim, setoff, credit, or
allowance for amounts
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due and unpaid to the Person in possession of such
Inventory;
(c) which is work in process;
(d) which is damaged, defective, unmerchantable or spoiled;
(e) held for twenty-four (24) or more months, as determined
by the monthly wholesale Inventory aging report
prepared by Borrower in the ordinary course, or which
is obsolete;
(f) held by Borrower or a third party on consignment;
(g) which is Inventory from vendors or suppliers with
corresponding liens or purchase money security
interests against such Inventory, whether or not such
liens are Permitted Liens;
(h) which Bank, in its reasonable discretion, has
determined is unsatisfactory in any respect and has
given Borrower not less than thirty (30) days prior
written notice of the reason therefor, unless the
providing of such notice under the circumstances would
materially adversely affect the Bank's interest in the
Collateral;
(i) which is Inventory consisting of goods not held for
sale, including, without limitation, any labels (except
for private label purchasers who have agreed to
purchase or buy back such labels), maintenance items
and supplies, packing materials, cartons and any and
all inventory associated with or used in connection
with the research and development, experimental,
laboratory or related activities;
(j) which is inventory owned by another Person and in
Borrower's possession;
(k) which is prepaid, in transit Inventory not yet received
by Borrower; or
(l) which is subject to a purchase money security interest.
1.15 EQUIPMENT shall mean all of Borrower's equipment (as that term is
defined in the Uniform Commercial Code), including, without limitation, all
furniture, fixtures,
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machinery and other equipment of any kind and all substitutions and replacements
thereof and accessories and parts therefor, all whether now owned or hereafter
acquired by Borrower.
1.16 EVENT OF DEFAULT shall mean any event described in Section 10.1.
1.17 INDEBTEDNESS shall mean:
(a) indebtedness created, issued or incurred by Borrower
for borrowed money (whether by loan or the issuance and
sale of debt securities) whether or not recourse is
limited to specific assets of Borrower;
(b) obligations of Borrower to pay the deferred purchase or
deferred acquisition price of property or services,
other than trade accounts payable arising in the
ordinary course of business so long as such trade
accounts payable are not for borrowed money and are
paid within the later of (i) ninety (90) days after the
date the goods are delivered or the services are
rendered or (ii) ten (10) business days after the due
date (unless such trade account payable is being
contested in good faith pursuant to appropriate
proceedings and a sufficient reserve, as reasonably
determined by Bank, has been established in respect
thereof);
(c) indebtedness of others secured by a lien on the
property of Borrower, whether or not the indebtedness
so secured has been assumed by Borrower;
(d) obligations of Borrower in respect of letters of credit
or similar instruments issued or accepted by banks and
other financial institutions for the account of
Borrower;
(e) capitalized lease obligations of Borrower; and
(f) indebtedness of others guaranteed by Borrower.
1.18 INTEREST COVERAGE RATIO shall mean that ratio of (a) Borrower's
net income (determined in accordance with GAAP), plus depreciation, plus
amortization, plus interest expense, plus taxes, plus any other noncash charges,
plus the unamortized charges in respect of Borrower's financing completed in
July 1992, and minus capital expenditures and minus Distributions to (b)
Borrower's total interest expense.
1.19 GENERAL INTANGIBLES shall mean all of Borrower's general
intangibles (as that term is defined in the Uniform Commercial Code), including,
without limitation, all goodwill, patents, formulas, blueprints, proprietary
manufacturing processes, trademarks, trade
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names, licenses, franchises, beneficial interests in trusts, joint venture
interests, partnership interests, rights to tax refunds, pension plan
overfundings, literary rights and other contractual rights of Borrower, all
whether now owned or hereafter acquired by Borrower.
1.20 INTEREST DETERMINATION DATE shall mean the third to last
Eurodollar Business Day of any then current Interest Period with respect to any
outstanding Advance, or in the case of funds constituting a new Advance, that
date which is two (2) Eurodollar Business Days prior to the date such funds are
actually advanced. If such date is not a Eurodollar Business Day (as defined in
Section 1.21), then the immediately preceding Eurodollar Business Day shall be
utilized.
1.21 INTEREST PERIOD means, with respect to any Libor Rate Loan, the
period commencing on the date such Loan is made, continued or converted or on
the last day of the immediately preceding Interest Period applicable to such
Libor Rate Loan, as the case may be, and ending on the same day in the first,
second or third calendar month thereafter, as the Borrower may elect in advance
in accordance with the requirements of this Agreement; provided, however, that
whenever the last day of any Interest Period would otherwise occur on a day
other than a Eurodollar Business Day, the last day of such Interest Period shall
occur on the next succeeding Eurodollar Business Day, provided that if such
extension of time would cause the last day of such Interest Period for a Libor
Rate Loan to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Eurodollar Business Day. If
any Interest Period ends on a day during a month in which there is no
numerically corresponding day to the first day of the Interest Period, then the
Interest Period shall end on the last Eurodollar Business Day of such calendar
month. For all purposes herein, a "Eurodollar Business Day" shall be any day on
which major commercial banks in London, England are open for the regular conduct
of business. Interest shall accrue from and including the first day of an
Interest Period to but excluding the last day of such Interest Period.
1.22 INVENTORY shall mean all of Borrower's inventory (as that term is
defined in the Uniform Commercial Code), including, without limitation, all
goods, merchandise and other personal property which are held for sale or lease,
or are furnished or to be furnished under any contract of service by Borrower,
or are raw materials, work-in-progress, supplies or materials used or consumed
in Borrower's business, and all products thereof, and all substitutions,
replacements, additions and accessories thereto, all whether now owned or
hereafter acquired by Borrower; and all of Borrower's right, title and interest
in and to any leases or rental agreements for such inventory.
1.23 LC FACILITY shall have the meaning set forth in Section 2.3
hereof.
1.24 LETTER OF CREDIT shall mean any one or more letters of credit
issued under the LC Facility.
1.25 LIABILITIES shall mean all indebtedness, obligations and other
liabilities of Borrower, whether matured or unmatured, liquidated or
unliquidated, direct or contingent or joint or several, that should, in
accordance with GAAP, be classified as liabilities on a balance sheet of
Borrower.
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1.26 LIBOR RATE shall mean with respect to a Libor Rate Loan the
arithmetic mean of the offered rates for deposits in U.S. dollars having a
maturity coterminous with the Interest Period designated in the applicable Libor
Rate Loan request commencing on the second London business day immediately
following the Interest Determination Date, as reported on the Bloomberg L.P.
Financial Markets System as of 11:00 A.M., London time, on such Interest
Determination Date plus two hundred sixty (260) basis points. If Bank terminates
its subscription to the Bloomberg L.P. Financial Markets System, the Libor Rate
shall be determined by Bank utilizing any other reasonable system selected by
Bank as a reference service to determine Libor rates. The Bank will use
reasonable efforts to confirm in writing any Libor Rate selected by the
Borrower; however, Bank shall have no liability to Borrower for failing to send
such confirmation.
1.27 LIBOR RATE LOAN means any Advance under Section 2 of this
Agreement that bears interest with reference to the Libor Rate.
1.28 LOAN DOCUMENTS shall mean this Agreement, the Notes, and all other
documents, agreements, instruments or certificates executed or delivered by
Borrower in connection herewith or relating hereto, and any amendments or
modifications thereto.
1.29 LOANS shall mean all Advances made pursuant to Section 2 of this
Agreement.
1.30 MATERIAL AGREEMENTS shall mean those contracts, agreements,
documents or other arrangements set forth on Schedule 4.21.
1.31 MAXIMUM LOAN AMOUNT shall have the meaning set forth in Section
2.1.
1.32 NET WORKING CAPITAL shall mean, at any time, the amount by which
Current Assets exceed Current Liabilities.
1.33 NOTES shall mean one or more promissory notes evidencing the Loans
pursuant to Section 2 hereof.
1.34 OBLIGATIONS shall, without limitation, mean all Loans and all
other debts, obligations, or liabilities of every kind and description of
Borrower to Bank, now due or to become due, direct or indirect, absolute or
contingent, presently existing or hereafter arising, joint or several, secured
or unsecured, whether for payment or performance, regardless of how the same
arise or by what instrument, agreement or book account they may be evidenced, or
whether evidenced by any instrument, agreement or book account, including,
without limitation, all loans (including any loan by renewal or extension), all
overdrafts, all guarantees, all bankers acceptances, all agreements, all letters
of credit issued by Bank for Borrower and the applications relating thereto, all
indebtedness of Borrower to Bank, all undertakings to take or refrain from
taking any action and all indebtedness, liabilities and obligations owing from
Borrower to others which Bank may obtain by purchase, negotiation, discount,
assignment or otherwise. Obligations shall also include all interest and other
charges chargeable to the Borrower or due from the Borrower to the Bank from
time to time under the Lean Documents, including but not limited to, all costs
and expenses referred to in Section 8 and Section 11 of this Agreement.
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1.35 PERMITTED INDEBTEDNESS shall mean only the following Indebtedness:
(a) Trade payables and other current liabilities occurred
in the ordinary course of business;
(b) Any Indebtedness which is subordinated to the
satisfaction of Bank;
(c) Payments under leases of real property or personal
property (having a term in excess of two (2) years)
pursuant to which Borrower is liable provided the
aggregate annual payments thereunder do not exceed Four
Million Dollars ($4,000,000.00) and capitalized leases
in accordance with Section 6.14;
(d) Such other Indebtedness as hereinafter approved by
Lender in writing; and
(e) Purchase money Indebtedness not to exceed Two Hundred
Fifty Thousand Dollars ($250,000.00) in the aggregate.
1.36 PERMITTED LIENS shall mean the liens and interests in favor of
Bank granted in connection herewith and, to the extent reflected on Borrower's
books and records and not impairing the operations of Borrower or any
performance hereunder or contemplated hereby:
(a) liens arising by operation of law for taxes not yet due
and payable;
(b) inchoate statutory liens of mechanics, materialmen,
shippers and warehousemen for services or materials for
which payment is not yet due;
(c) liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation,
unemployment insurance and other types of social
security;
(d) liens, if any, specifically permitted by Bank from time
to time in writing;
(e) the following if the validity or amount thereof is
being contested in good faith and by appropriate and
lawful proceedings promptly initiated and diligently
conducted of which Borrower has given prior notice to
Bank and for which appropriate reserves (in Bank's
reasonable judgment) have been established and so long
as levy and execution thereon have been and continue to
be stayed: claims and liens for taxes due and payable
and
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claims of mechanics, materialmen, shippers,
warehousemen, carriers and landlords;
(f) liens to secure purchase money Indebtedness not to
exceed Two Hundred Fifty Thousand Dollars ($250,000.00)
in the aggregate; and
(g) liens securing statutory obligations, surety, customs
and appeal bonds and other obligations of like nature,
incurred in the ordinary course of business.
1.37 PERSON shall mean an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, and a government or any
department or agency thereof.
1.38 PLAN shall have the meaning set forth in Section 4.21.
1.39 PREPAYMENT SURPLUS shall mean Borrower's annual net income
determined in accordance with GAAP (determined with Inventory valued on a "first
in-first out" basis), plus depreciation and amortization, plus any other noncash
charges, minus expenditures for capital expenditures permitted under Section
6.14 that are neither financed nor leased, minus the Scheduled Principal
Payments and accrued but unpaid interest expense for the applicable period minus
Distributions to the extent permitted under Section 6.5. The calculation of
Prepayment Surplus shall be based on information in Borrower's most current
audited financial statements.
1.40 PRIME RATE shall mean that annual percentage rate of interest
established by Bank from time to time as its prime rate (and disclosed to
Borrower), whether or not such rate is publicly announced and which provides a
base to which loan rates may be referenced. The Prime Rate is not necessarily
the lowest lending rate of the Bank.
1.41 PRIME RATE LOAN shall mean any Advance which bears interest at a
rate of interest equal to the Bank's Prime Rate.
1.42 RETAIL INVENTORY shall mean that portion of Eligible Inventory
which is located at any retail location operated by Borrower. In addition to the
exclusions set forth in Section 1.14, the aggregate value of Retail Inventory
shall, for purposes of determining the amount which can be borrowed under the
Revolving Loan, be reduced by (a) any intercompany mark-up or profit margin, and
(b) a factor of two percent (2%) to reserve for damaged or obsolete Retail
Inventory.
1.43 REVOLVING LOAN shall mean any Advance pursuant to Section 2.1.
1.44 REVOLVING LOAN NOTE shall mean the Revolving Loan Promissory Note
executed by Borrower to evidence the loan described in Section 2.1 hereof.
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1.45 SCHEDULED PRINCIPAL PAYMENTS shall mean those principal payments
on the Term Loan and the Subordinated Notes set forth on Schedule 1.45 attached
hereto.
1.46 SUBORDINATED NOTES shall mean those four (4) Subordinated Notes
dated July 14, 1992, made by Mazel Company L.P. and payable to Reuven Dessler,
Jacob Koval, Nathan Levitansky and David Lipins, respectively.
1.47 "TANGIBLE NET WORTH" shall mean, at any time, partner's equity (in
accordance with GAAP) plus the outstanding balance of the Subordinated Notes,
less the sum of (i) any surplus resulting from any write-up of assets, (ii)
goodwill, including any amounts, however designated on a balance sheet of
Borrower, representing the excess of the purchase price paid for assets or stock
acquired over the value assigned thereto on the books of the Borrower, (iii)
patents, trademarks, trade names and copyrights, (iv) any amount at which
partner's capital accounts appear as an asset on the Borrower's balance sheet,
(v) deferred expenses, (vi) any other amount in respect of an intangible that
should be classified as an asset on a balance sheet of Borrower in accordance
with GAAP, (vii) any receivables or other amount owed Borrower by any Affiliate,
and (viii) any investment by Borrower in any Affiliate.
1.48 TERM LOAN shall mean the Loan described in Section 2.2 hereof.
1.49 TERM LOAN NOTE shall mean the Term Loan Promissory Note executed
by Borrower to evidence the Term Loan as described in Section 2.2 hereof.
1.50 TREASURY RATE shall mean the auction average (non-investment) of
one (1) year United States Treasury Bills as published in the weekly Federal
Reserve Statistical Release Form H.15(519) in effect on the date hereof and as
of each anniversary of such date plus two hundred ninety-five (295) basis
points. In the event the Treasury Rate is no longer published on a weekly basis
in the Federal Statistical Release Form H.15(519), Bank shall have the right to
ascertain said rate from any other reasonable and comparable source as shall be
available, and upon selection of such source, Bank shall give notice thereof to
the Borrower. The Bank will use reasonable efforts to confirm in writing any
Treasury Rate selected by the Borrower. Bank shall have no liability to Borrower
for a failure to send any notice or confirmation pursuant to this Section 1.50.
SECTION 2. LOANS AND INTEREST.
2.1 REVOLVING CREDIT FACILITY.
(a) Subject to the terms and conditions of this Agreement,
and in reliance upon the representations and warranties
contained herein, the Bank will make Advances in the
form of loans to the Borrower in an aggregate amount
not to exceed the lesser of (i) Twenty Million Dollars
($20,000,000.00) minus the lesser of (A) the aggregate
face amount of the Letters of Credit issued under the
LC Facility or (B) the Available Draw under the
Letters of Credit (as defined in Section 2.3 hereof) or
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(ii) the sum of (A) sixty percent (60%) of the cost or
market value, whichever is lower, of Eligible Inventory
which is not Retail Inventory, (B) fifty-five percent (55%)
of the cost or market value, whichever is lower, of Retail
Inventory, (C) eighty five percent (85%) of the outstanding
amount of Eligible Accounts, (D) sixty percent (60%) of the
lesser of (x) the aggregate face amount of the Letters of
Credit issued under the LC Facility or (y) the Available
Draw under the Letters of Credit and (E) the amount of
collected funds in the Cash Collateral Account (the lesser
of (i) or (ii) being referred to hereinafter as the "Maximum
Loan Amount"). Should the outstanding amount of Loans at any
time exceed the Maximum Loan Amount, Borrower shall on
demand immediately repay such excess amount. Any such Loans
in excess of the Maximum Loan Amount will be made from time
to time in the sole and absolute discretion of the Bank, and
neither this Agreement nor any loans or other action by the
Bank shall obligate the Bank to make further loans to the
Borrower.
(b) The Bank shall automatically reimburse itself for amounts
drawn under any Letter of Credit issued pursuant to the LC
Facility. The automatic reimbursement described above shall
constitute, and be made in the form of, an Advance under the
Revolving Loan Note as a Prime Rate Loan.
(c) Advances under the Revolving Loan Note shall be made
pursuant to Borrower's written or telephonic request
therefor, given by Borrower to Bank, stating the date of the
requested borrowing, the amount of the requested Advance,
whether it will be a Prime Rate Loan or Libor Rate Loan, the
applicable Interest Period, if any, and the total amount to
be borrowed. Bank shall only be obligated to make Advances
in increments of Ten Thousand Dollars ($10,000.00). In
addition, all Advances to be made at the Libor Rate shall
equal or exceed Two Hundred Fifty Thousand Dollars
($250,000.00). Each written request for an Advance shall be
signed by an authorized representative of Borrower, and each
telephonic request for an advance shall be made, and
confirmed in writing within twenty-four (24) hours
thereafter, by such an authorized representative. Any
written request with respect to a Libor Rate Loan shall be
received by
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Bank on or before the applicable Interest Determination
Date. Any telephonic request for a Libor Rate Advance shall
be made on or before the applicable Interest Determination
Date, and confirmed in writing within twenty-four (24) hours
thereafter. No written request for an Advance shall become
effective until actually received by Bank.
(d) Borrower undertakes and agrees to pay to Bank on the first
day of each calendar month interest on the amount
outstanding under the Revolving Loan Note, at an annual rate
based upon a year of 360 days, with respect to each Advance
to be determined as follows:
(i) A rate per annum, at the option of Borrower, based on
either the Libor Rate or the Prime Rate.
(ii) The rate of interest on any Prime Rate Loan will
automatically and immediately increase or decrease on
the day of, and by an amount equal to, each increase or
decrease in the Prime Rate with no notice to Borrower.
(iii) Any Libor Rate Loan elected by Borrower under this
Section 2.1 shall, as to each such Advance, remain in
effect until the expiration of the applicable Interest
Period. Borrower may select a new Interest Period for
such Libor Rate Loan on the applicable Interest
Determination Date by delivery of written notice to
Bank on or before such date. In the event that Borrower
shall fail to give timely notice on or before the
applicable Interest Determination Date of its election
to continue any Libor Rate Loan as provided above or
convert such Loan to a Prime Rate Loan, or in the event
of any such conversion or continuation shall be
prohibited by the terms of this Agreement, such Advance
(unless repaid) shall automatically be deemed to be
refinanced with a Prime Rate Loan at the end of the
Interest Period then in effect with respect to such
Libor Rate Loan.
(iv) Notwithstanding any provision in this Agreement to the
contrary, if an Event of
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Default shall have occurred, the unpaid principal and
accrued interest under the Revolving Loan Note shall
bear interest at the Default Rate. Prior to maturity,
if any payment of principal or interest is not paid
when due, Borrower shall pay a late fee of an amount
equal to the lesser of five percent (5%) of such
payment or One Hundred Dollars ($100.00).
(e) The Revolving Loan shall mature on January 31, 1996. On
April 30, 1995, and each anniversary of such date until this
Agreement terminates, the Bank may, subject to the Bank's
then existing credit and lending policy requirements, and
provided no Event of Default has occurred hereunder, extend
and renew the term of the Revolving Loan for an additional
one (1) year period, in the Bank's sole discretion. If the
Bank does not extend and renew the term of the Revolving
Loan, then the Bank will consider, in its discretion,
extending the then current maturity date of the Revolving
Loan for a period of ninety (90) days during which Borrower
may obtain replacement financing. If the Bank does not
notify the Borrower that it has elected to renew and extend
the Revolving Loan, then Bank shall be deemed to have
declined to so renew and extend the Revolving Loan.
2.2 TERM LOAN.
(a) Subject to the terms and conditions of this Agreement, and
in reliance upon the representations and warranties
contained herein being true as of the date of the funding of
the Term Loan, the Bank agrees to make an Advance in the
form of a Loan to Borrower in the principal amount of Four
Million Dollars ($4,000,000.00) on a term loan basis (the
"Term Loan"). Borrower shall execute and deliver to the Bank
that certain Term Loan Promissory Note (the "Term Loan
Note") to evidence the Term Loan. The Borrower shall repay
the principal of the Term Loan Note in thirty-six (36)
equal, consecutive monthly payments of principal in the
amount of One Hundred Eleven Thousand One Hundred Eleven
Dollars ($111,111.00), which payment shall be due and
payable on the first day of each month commencing on March
1, 1994, and continuing until January 31, 1997,
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on which date all amounts of outstanding principal and
accrued interest shall be due and payable in full. Together
with such principal payments, Borrower shall make payments
of accrued interest under the Term Loan Note equal to the
Prime Rate plus one-half percent (1/2%) or the Treasury
Rate, at the option of Borrower exercised in the manner set
forth in Section 2.1(c). Such interest rate, when elected,
shall continue in effect for a twelve-month period until the
next anniversary date of the funding of the Term Loan, on
which date Borrower shall be permitted to make another
election as to the interest rate to be applicable for the
succeeding year. In the case of an Event of Default which is
continuing, the Default Rate of interest shall apply to the
Term Loan.
(b) Notwithstanding any provision in this Agreement to the
contrary, if an Event of Default shall have occurred and is
continuing, the unpaid principal and accrued interest under
the Term Loan Note shall bear interest at the Default Rate.
Prior to maturity, if any payment of principal or interest
is not paid when due, Borrower shall pay a late fee of an
amount equal to the lesser of five percent (5%) of such
payment or One Hundred Dollars ($100.00).
(c) The Term Loan Note may be prepaid in whole or in part prior
to maturity without premium or penalty.
(d) In addition to any regularly scheduled payments due under
the Term Loan Note, Borrower shall pay Bank, on an annual
basis, twenty percent (20%) of the Prepayment Surplus. Such
payments shall be due not later than June 1st of each
calendar year continuing until the Term Loan is repaid in
full. The first such payment shall be due June 1, 1995. Such
payments shall be applied to the Term Loan, in inverse order
of maturity.
2.3 LETTER OF CREDIT FACILITY.
(a) Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties contained
herein being true as of the date of issuance of the letters
of credit described herein, the Bank may, in its absolute
discretion, at the request of Borrower, issue for the
account of Borrower one or more letters
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of credit (each a "Letter of Credit" and collectively the
"Letters of Credit") upon such terms (including, without
limitation, the execution and delivery by Borrower of such
applications, notes and other instruments [not inconsistent
with the terms of this Agreement] as Bank may require) and
in such form and substance as are satisfactory to Bank in
connection with the Borrower's purchase of goods in foreign
markets intended to become Eligible Inventory which require
the delivery of a letter of credit as a condition of
shipment thereof. In no event shall the aggregate
outstanding amount under all Letters of Credit (that is,
that portion which has not already been drawn upon by the
beneficiary thereof (the "Available Draw")) exceed Three
Million Dollars ($3,000,000.00) (the "LC Facility"). Any
portion of a Letter of Credit which has been drawn against
shall constitute an Advance under the Revolving Loan
pursuant to Section 2.1 for all purposes of this Agreement.
The LC Facility shall be available to Borrower for a period
concurrent with that of the Revolving Loan, shall only bear
interest if, as, and when the LC Facility is drawn upon, and
is subject to Borrower satisfying the terms, covenants, and
conditions set forth in this Agreement and the Loan
Documents.
(b) For purposes of determining the Maximum Loan Amount
permitted pursuant to Section 2.1, the issuance of a Letter
of Credit by Bank shall limit the availability of Advances
under the Revolving Loan as set forth in Section 2.1. In
connection with the issuance and maintenance of each Letter
of Credit, Borrower shall pay to the Bank fees and
commissions as set forth in Section 8 hereof.
(c) Borrower shall be obligated to reimburse Bank for any
additional amounts, if any law, regulation or guideline
which becomes effective after the date hereof or change in
any law or regulation or in the interpretation thereof or
any ruling, decree, judgment or recommendation by any
regulatory body, court or any administrative or governmental
authority charged or claiming to be charged with the
administration thereof, shall either (i) impose upon,
modify, require, make or deem applicable to the Bank or any
of its affiliates any reserve requirement based upon the
deeming of Letters of Credit to be deposits held by the
Bank, special
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deposit requirement, insurance assessment or similar costs
or requirement against or affecting letters of credit issued
or to be issued hereunder or (ii) subject the Bank or any of
its affiliates to any tax, charge, fee, deduction,
withholding or similar costs of any kind whatsoever or (iii)
impose any condition upon or cause in any manner the
addition of any supplement to or increase of any kind to the
Bank's or an affiliate's capital or cost base for issuing
such Letters of Credit which results in an increase in the
capital requirement supporting such Letters of Credit or
(iv) impose upon, modify, require, make or deem applicable
to the Bank or any of its affiliates any capital
requirement, increased capital requirement or similar
requirement such as the deeming of such Letters of Credit to
be assets held by the Bank or any of its affiliates for
capital calculation or other purposes, and the result of any
events referred to in (i), (ii), (iii) or (iv) above shall
be to increase the costs or decrease the benefit in any way
to the Bank or any affiliate of issuing, maintaining or
participating in such Letters of Credit, then the Borrower
shall, on the tenth business day after receipt of written
notice of such increased costs or decreased benefits or both
to the Borrower by the Bank, pay to the Bank all such
additional amounts which, in the Bank's sole good faith
calculation as allocated to such Letters of Credit:
(i) in the case of events referred to in (i) and (ii)
above, shall be sufficient to compensate it for all
such increased costs, decreased benefits or both; or
(ii) in the case of events referred to in (iii) and (iv)
above, shall be an amount per annum, payable quarterly,
equal to the product obtained by multiplying (i) the
minimum percentage (expressed as a decimal) capital
required by the appropriate regulatory bodies to be
maintained for letter of credit risks of the type
issued hereunder (taking into account any risk
allocation percentage or weighing factor), times (ii)
the amount of the Letters of Credit; and
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(iii) all as certified by the Bank in said written notice to
the Borrower, which certification shall be conclusive
absent manifest error.
The Bank agrees not to seek reimbursement pursuant to this
Section 2.3(c) unless the Bank is seeking similar type
reimbursement from its other borrowers or customers for whom
it has issued letters of credit or has established a letter
of credit facility.
2.4 EVIDENCE OF LOANS. The Loans shall be evidenced by the Revolving
Loan Note, the Term Loan Note, or any other promissory notes (collectively, the
"Notes") in form satisfactory to Bank and shall bear interest on the daily
outstanding balance thereof at the rate set forth herein. In case of any change
in law or governmental rules, regulations, guidelines or orders (or any
interpretations thereof) or the introduction of new laws, regulations or
guidelines which become effective after the date hereof, which require Bank to
reserve for unfunded credit commitments, Bank may charge Borrower an additional
fee which will compensate Bank for such requirements, unless the Borrower
reduces the amount of the unfunded commitment sufficient to obviate the need for
such fee.
The Bank shall make entries in its accounting system for the amount of
each Advance made under the Agreement and all interest and fees as they accrue
and shall credit such account for each payment of principal and interest and
other amounts. Such accounts shall constitute rebuttably correct evidence of all
amounts outstanding and all amounts advanced by the Bank pursuant to this
Agreement.
2.5 LOAN PAYMENTS. All payments of interest, principal and all other
amounts owing hereunder or under the Notes shall be made by the Borrower to the
Bank in immediately available funds at its principal office in Cincinnati, Ohio
or at such other place as the Bank may designate in writing, at such times as
shall be set forth herein or in the Notes or if not so set forth, such amounts
shall be payable on demand. Borrower hereby authorizes Bank, at Bank's option,
to charge any account or change or increase any Loan balance of Borrower at Bank
for the payment or repayment of any interest or principal of the Loans or any
fees, charges or other amounts due to Bank hereunder. Bank shall be permitted to
apply funds in the Cash Collateral Account to the Obligations in such order of
payment as it deems appropriate.
SECTION 3. GRANT OF SECURITY INTEREST. To secure the payment and
performance of all of the Obligations, as herein defined, the Borrower hereby
grants to the Bank a continuing security interest in and assigns to the Bank all
of the Collateral. The foregoing interest granted by Borrower to Bank shall be a
first priority security interest and superior to all other liens and
encumbrances with respect to all Collateral owned by Borrower, subject only to
the Permitted Liens.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Bank that:
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4.1 ORGANIZATION AND AUTHORITY. (a) The Borrower is a partnership duly
organized, validly existing and in good standing under the laws of the State of
its organization and has the power and authority to conduct its business as now
conducted and as proposed to be conducted while this Agreement is in effect;
(b) the execution and delivery of this Agreement, the Notes and the other Loan
Documents and the performance of the transactions contemplated hereby and
thereby are within the authority of the Borrower and have been duly authorized
by all proper and necessary partnership action; (c) the execution and delivery
of this Agreement, the Notes and the other Loan Documents and the performance of
the transactions contemplated hereby and thereby will not violate or contravene
any provisions of law or the partnership agreement of the Borrower, or result in
a breach or default in respect of the terms of any other agreement to which the
Borrower is a party or by which it is bound, which breach or default would
result in the creation, imposition or enforcement of any lien against any of the
Collateral, or would have a material adverse affect on the conduct of the
Borrower's business as it is now being conducted and proposed to be conducted
while this Agreement is in effect, or would otherwise impair the value of the
security interest granted to the Bank hereunder; and (d) the Borrower is duly
qualified and is in good standing and duly authorized to do business in every
jurisdiction where the nature of its properties or the conduct of its business
requires such qualification and authorization, as shown on Schedule 4.1 attached
hereto, and where the failure to qualify would have a material adverse effect on
the Borrower.
4.2 BINDING EFFECT OF DOCUMENTS. This Agreement, the Notes and the
other Loan Documents are legal and binding obligations of the Borrower
enforceable in accordance with their terms.
4.3 GOVERNMENT CONSENT. The execution and delivery of this Agreement,
the Notes and the other Loan Documents and the performance of the transactions
contemplated hereby and thereby do not require any approval or consent of any
governmental agency or authority, or of any other party.
4.4 FINANCIAL STATEMENTS. The Borrower has delivered to the Bank copies
of its financial statements as of and for the year or other period ending
December 31, 1992, prepared by KPMG Peat Marwick. All of these financial
statements are true and correct, are in accordance with the respective books of
account and records of the Borrower and have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior periods, and fairly present the financial condition of the Borrower and
its assets and liabilities and the results of its operations as at such date.
4.5 NO CHANGE IN FINANCIAL CONDITION. Since the ending date of the
financial statement described in Section 4.4, there has been no change in the
assets, liabilities, financial condition or operation of the Borrower, other
than changes in the ordinary course of business, the effect of which have not,
individually or in the aggregate, been materially adverse.
4.6. NO OTHER LIABILITIES. Except to the extent reflected in the
financial statements described in Section 4.4, the Borrower, as of the date of
this Agreement, does not know or have reasonable grounds to know of any basis
for the assertion against it of any material liabilities or obligations of any
nature, direct or indirect, accrued, absolute or contingent, including, without
limitation, liabilities for taxes then due or to become due whether incurred
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in respect of or measured by the income of the Borrower for any period prior to
the date of this Agreement or arising out of transactions entered into, or any
state of facts existing prior thereto.
4.7 TAXES. The Borrower has filed all federal, state, local and other
tax returns and reports required to be filed by it and such returns and reports
are true and correct. The Borrower has paid all taxes, assessments and other
governmental charges lawfully levied or imposed on or against it or its
properties, other than those presently payable without penalty or interest.
4.8 NO LITIGATION. Except as described in the attached Schedule 4.8 and
disclosed from time to time pursuant to Section 5.9(g) hereof, there is no
litigation or proceeding or governmental investigation pending or, to the
knowledge of the Borrower, threatened against or relating to the Borrower, its
properties or business which involves a claim or dispute which exceeds One
Hundred Thousand Dollars ($100,000.00).
4.9 COMPLIANCE WITH LAWS. The Borrower is not, to its knowledge, in
violation of or default under any statute, law, ordinance, regulation, license,
permit, order, writ, injunction or decree of any government, governmental
department, commission, board, bureau, agency, instrumentality or court, which
violation or default would have a material adverse effect on the business,
properties or condition, financial or otherwise, of the Borrower.
4.10 NO DEFAULTS. The Borrower is not, to its knowledge, in default
under a material order, writ, judgment, injunction, decree, indenture,
agreement, lease or other instrument or contract, which default would have a
material adverse effect on the business, properties or condition, financial or
otherwise, of the Borrower, or in the performance of any covenants or conditions
respecting any of its indebtedness, and no holder of any indebtedness of the
Borrower has given notice of any asserted default thereunder, and no liquidation
or dissolution of the Borrower and no receivership, insolvency, bankruptcy,
reorganization or other similar proceedings relative to the Borrower or its
properties is pending or, to the knowledge of the Borrower, is threatened
against Borrower.
4.11 LOCATION OF COLLATERAL. The Borrower maintains places of business
and owns Collateral only at those locations shown on Schedule 4.11 attached
hereto (other than certain locations disclosed in writing to Bank or as
otherwise permitted by Section 5.9(g) hereof) and incorporated by reference
herein and maintains its chief executive office, and its books of account and
records, including all records concerning Collateral, only at 31000 Aurora Road,
Solon, Ohio 44139. All of such locations are locations where Borrower is a
tenant leasing space or has a contractual arrangement to store Inventory.
4.12 TITLE TO COLLATERAL. With respect to the Collateral, at the time
the Collateral becomes subject to the Bank's security interest, the Borrower is
and at all times will be the sole owner of and have good and marketable title to
the Collateral, free from all liens, encumbrances and security interests in
favor of any Person other than the Bank except Permitted Liens, and has full
right and power to grant the Bank a security interest therein. All information
furnished to Bank concerning the Collateral is and will be complete, accurate
and correct in all material respects when furnished.
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4.13 RIGHTS OF BORROWER TO ACCOUNTS. As to each and every Account (a)
it is a bona fide existing obligation, valid and enforceable against the Debtor
for a sum certain for sales of goods shipped or delivered, or goods leased, or
services rendered in the ordinary course of business; (b) all supporting
documents, instruments, chattel paper and other evidence of indebtedness, if
any, delivered to the Bank are complete and correct and valid and enforceable in
accordance with their terms, and all signatures and endorsements that appear
thereon are genuine, and all signatories and indorsers have full capacity to
contract; (c) the Debtor is liable for and the Borrower has no reason to believe
that Debtor will not make payment of the amount expressed in such Account
according to its terms; (d) it will be subject to no discount, allowance or
special terms of payment except in the ordinary course of business without the
prior approval of the Bank; (e) it is subject to no dispute, defense or offset,
real or claimed; (f) it is not subject to any prohibition or limitation upon
assignment; (g) the Borrower has full right and power to grant the Bank a
security interest therein and the security interest granted in such Accounts to
the Bank in Section 3 hereof, when perfected, will be a valid first security
interest which will inure to the benefit of the Bank without further action. The
warranties set out herein shall be deemed to have been made with respect to each
and every Account now owned or hereafter acquired by the Borrower.
4.14 RIGHTS OF BORROWER IN INVENTORY. The Inventory is and will be
saleable in the ordinary course of business and none of the inventory is or will
be stored at a location (a) other than set forth on Schedule 4.11 or (b) with a
bailee without the prior written consent of Bank.
4.15 ACCURACY OF REPRESENTATION. No representation or warranty by or
with respect to the Borrower contained herein or in any certificate or other
document furnished by the Borrower pursuant hereto contains any untrue statement
of a material fact or omits to state a material fact necessary to make such
representation or warranty not misleading in light of the circumstances under
which it was made.
4.16 REPRESENTATIONS AS INDUCEMENT TO BANK. The foregoing
representations and warranties are made by the Borrower with the knowledge and
intention that the Bank will rely thereon, and shall survive the execution and
delivery of this Agreement and the making of all Loans hereunder. The receipt of
Borrower of each Loan Advance shall constitute a representation and warranty by
Borrower that the representations and warranties of Borrower contained in this
Section 4 are true and correct as of the date of such Loan Advance, except to
the extent such representations and warranties expressly relate to an earlier
date.
4.17 ENVIRONMENTAL PROTECTION. The Borrower (a) has no actual knowledge
of the permanent placement, burial or disposal of any Hazardous Substances (as
hereinafter defined) on any real property leased, owned or occupied by the
Borrower (the "Premises"), or any spills, releases, discharges, leaks, or
disposal of Hazardous Substances that have occurred or are presently occurring
on, under, or onto the Premises, or of any spills, releases, discharges, leaks
or disposal of Hazardous Substances that have occurred or are occurring off the
Premises as a result of the Borrower's improvement, operation, or use of the
Premises which would result in non-compliance with any of the Environmental Laws
(as hereinafter defined); (b) is and has been in compliance with all applicable
Environmental Laws, except for such non-compliance which would not have a
material adverse effect on Borrower, its financial condition, its
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operations, or properties; (c) knows of no pending or threatened environmental
civil, criminal or administrative proceedings against the Borrower relating to
Hazardous Substances; (d) knows of no facts or circumstances that would give
rise to any future civil, criminal or administrative proceeding against the
Borrower relating to Hazardous Substances; and (e) will not permit any of its
employees, agents, contractors, subcontractors, or any other person occupying or
present on the Premises to generate, manufacture, store, dispose or release on,
about or under the Premises any Hazardous Substances which would result in the
Premises not complying with the Environmental Laws.
As used herein, "Hazardous Substances" shall mean and include all
hazardous and toxic substances, wastes, materials, compounds, pollutants and
contaminants (including, without limitation, asbestos, polychlorinated
biphenyls, and petroleum products) which are included under or regulated by the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. 9601, et seq., the Toxic Substances Control Act, 15 U.S.C.
2601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et
seq., the Water Quality Act of 1987,33 U.S.C. 1251, et seq., and the Clean Air
Act, 42 U.S.C. 7401, et seq., and any other federal, state or local statute
ordinance, law, code, rule, regulation or order regulating or imposing liability
(including strict liability) or standards of conduct regarding Hazardous
Substances (hereinafter the "Environmental Laws"), but does not include such
substances as are permanently incorporated into a structure or any part thereof
in such a way as to preclude their subsequent release into the environment, or
the permanent or temporary storage or disposal of household hazardous substances
by tenants and which are thereby exempt from or do not give rise to any
violation of the aforementioned Environmental Laws.
Further, the Company hereby indemnifies the Bank and holds the Bank
harmless from and against any loss, damage, cost, expense or liability
(including strict liability) directly or indirectly arising out of or
attributable to the generation, storage, release, threatened release, discharge,
disposal or presence (whether prior to or during the term of the Loan) of
Hazardous Substances on, under or about the Premises (whether by the Company or
any employees, agents, contractor or subcontractors of the Company or any
predecessor in title or any third persons occupying or present on the Premises),
or the breach of any of the representations and warranties regarding the
Premises, including, without limitation: (a) those damages or expenses arising
under the Environmental Laws; (b) the costs of any required or necessary repair,
cleanup or detoxification of the Premises, including the soil and ground water
thereof, and the preparation and implementation of any closure, remedial or
other required plans; (c) damage to any natural resources; and (d) all
reasonable costs and expenses incurred by the Bank in connection with clauses
(a), (b) and (c) including, but not limited to reasonable attorneys' fees.
The indemnification provided for herein shall not apply to any losses,
liabilities, damages, injuries, expenses or costs which: (i) arise from the
gross negligence or willful misconduct of the Bank, or (ii) relate to Hazardous
Substances placed or disposed of on the Premises after the Bank acquires
Borrower's interest in the Premises through foreclosure or otherwise.
4.18 EMPLOYEE BENEFIT PLANS. Other than as set forth on Schedule 4.18
hereto, Borrower has no Plans which are subject to regulation under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Borrower has not
received any notice to the
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effect that it is not in full compliance with any of the requirements of ERISA,
and no fact or situation, including but not limited to any "Reportable Event,"
or "Prohibited Transaction," as such terms are defined in ERISA, exists which is
or could in any way be construed as a violation of ERISA in connection with any
Plan. Borrower has complied with all applicable provisions of ERISA, including
minimum funding requirements, has made all filings required to be made by
Borrower or any of its Plans under ERISA, has not applied for any extensions of
time in which to make contributions to any Plan maintained by it or to which it
is required to contribute, has timely made all contributions and paid all
premiums required to be paid to the Pension Benefit Guaranty Corporation, and no
matters are presently pending before the United States Labor Department or the
Internal Revenue Service concerning any Plan maintained by Borrower to which it
is required to contribute.
4.19 EMPLOYEE RELATIONS. Other than as set forth on Schedule 4.19,
Borrower is not a party to any collective bargaining agreement, there are no
material grievances, disputes or controversies with any union or any other
organization of Borrower's employees, or threats of strikes, work stoppages or
any asserted pending demands for collective bargaining by any union or
organization.
4.20 INTELLECTUAL PROPERTY. Other than as set forth on Schedule 4.20,
Borrower does not own or utilize any patents, trademarks, trade names,
copyrights or similar intellectual property rights, whether by license or
otherwise.
4.21 MATERIAL AGREEMENTS. Except as disclosed on Schedule 4.21 hereto,
Borrower is not a party to nor is Borrower or any of its property bound by (a)
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality which, if violated could have a material adverse
effect on Borrower, its financial condition, operations or properties, (b) any
debt instrument which, if violated, could have a material adverse effect on
Borrower, its financial condition, operations or properties, (c) any security
agreement, mortgage, deed of trust, pledge, assignment or other document or
arrangement where any lien upon any of Borrower's property exists in favor of
any person other than Bank which, if violated, could have a material adverse
effect on Borrower, its financial condition, operations or properties, (d) any
lease (capital, operating or otherwise), whether as lessee or lessor thereunder,
(e) any contract, commitment, agreement or other arrangement involving the
purchase or sale of any of its property by Borrower, or the license of any right
to or by Borrower, which, if terminated for any reason, could result in a
material adverse effect on Borrower, its financial conditions, operations or
properties, (f) any contract, commitment, agreement or other arrangement with
any Affiliate which, if violated, could have a material adverse effect on
Borrower, its financial condition, operations or properties, (g) any management
or employment contract or contract for personal services with any Person, not
otherwise an Affiliate, which is not otherwise terminable at will or on less
than ninety (90) days notice without liability which, if violated, could have a
material adverse effect on Borrower, its financial condition, operations or
properties, (h) any collective bargaining agreement which, if violated, could
have a material adverse effect on Borrower, its financial condition, operations
or properties, (i) any pension plan, retirement plan, profit sharing plan,
defined benefit or contribution plan, bonus plan, other compensatory or similar
plan, other qualified or nonqualified plan, or "employee pension benefit plan"
as defined in Section 3(2) of ERISA and all rules and regulations promulgated
thereunder ("Plan") which, if violated, could have a material adverse effect on
Borrower, its financial condition, operations
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or properties, or (j) any other contract, agreement, understanding or
arrangement which, if violated, could have a material adverse effect on
Borrower, its financial condition, operations or properties.
SECTION 5. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that
until all of the Obligations have been paid in full, unless the Bank shall
otherwise consent in writing, it shall:
5.1 BOOKS AND RECORDS. Maintain complete and accurate books of account
and records pertaining to the Collateral and the operations of the Borrower, and
all such books of account and records shall be kept and maintained at the
location specified in Section 4.11. The Borrower shall not move such books of
account and records or change its chief executive office without giving the Bank
at least thirty (30) days prior written notice. Prior to moving any of such
books of account and records or changing the location of its chief executive
office, the Borrower shall execute and deliver to the Bank financing statements
satisfactory to the Bank. All such books of account and records and all
financial statements and reports furnished to the Bank shall be maintained and
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods.
5.2 ACCESS TO INFORMATION. Grant the Bank, or its representatives, full
and complete access to the Collateral and to all books of account, records,
correspondence and other papers relating to the Collateral during normal
business hours and the right to inspect, examine, verify and make abstracts from
the copies of such books of account, records, correspondence and other papers,
and to investigate such other records, activities and business of the Borrower
as they may deem necessary or appropriate at the time. Borrower acknowledges and
agrees that Bank shall have the absolute right, in addition to any other
inspection or request pursuant hereto, to conduct two (2) audits during any
fiscal year of the Borrower's facilities, its books and records and the
Collateral, and such additional audits as Bank deems necessary or appropriate
after an Event of Default occurs and is continuing.
5.3 EVIDENCE OF ACCOUNTS. From time to time as the Bank may require,
deliver to the Bank schedules of all outstanding Accounts. Such schedules shall
be in form satisfactory to the Bank and shall show the age of such Accounts from
date of invoice in intervals of not more than thirty (30) days (current and past
due amounts), and contain such other information and be accompanied by such
supporting documents as the Bank may from time to time prescribe. The Borrower
shall also deliver to the Bank such other schedules and information as the Bank
may reasonably request. The items to be provided under this Section are to be
prepared and delivered to the Bank from time to time solely for its convenience
in maintaining records of the Collateral and the Borrower's failure to give any
of such items to the Bank shall not affect, terminate, modify or otherwise limit
the Bank's security interest granted herein.
5.4 FINANCIAL INFORMATION. During the term of the Loans, Borrower shall
deliver the following to Bank:
(a) Deliver to the Bank within forty-five (45) days after
the close of each fiscal quarter of the Borrower, a
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statement of condition and statement of income and cash
flows of Borrower for such period, accompanied by a
calculation of the financial ratios in this Agreement,
certified as complete and correct by the chief financial
officer or general partner of Borrower, as well as a
compliance certificate signed by the chief financial officer
or a general partner of Borrower certifying that Borrower is
in compliance with all the terms and conditions of this
Agreement and that all representations and warranties of
Borrower hereunder (other than Section 4.21) are true and
accurate and further showing Borrower's compliance with all
financial covenants herein;
(b) within thirty (30) days after the end of each calendar
month, an interim, unaudited balance sheet and related
profit and loss statement and a report or schedule, as the
case may be, of (i) wholesale Inventory with aging,
(ii) joint venture Inventory, (iii) a statement in such
form as Bank may require of the current status and value
of all Accounts and Inventory, including a breakdown of such
Inventory and Accounts as are not Eligible Inventory or
Eligible Accounts, respectively;
(c) within forty five (45) days after the close of each fiscal
quarter of Borrower, a schedule of all retail store
locations operated by Borrower indicating the dates of
opening of such stores, and reporting on gross sales from
each location, the net income from each location and all
direct and allocated expenses for each location;
(d) deliver to the Bank not more than one hundred twenty (120)
days after the close of each fiscal year of the Borrower, or
within such further time as the Bank may permit, audited
financial statements for Borrower including a balance sheet,
a related income statement and statement of cash flows,
prepared in accordance with generally accepted accounting
principles by independent certified public accountants
acceptable to the Bank, who shall give their unqualified
opinion with respect thereto as well as an internally
prepared and the auditors' unaudited schedule of selling,
general and administrative expenses and, if any, the
auditor's letter to management, provided that such financial
statements shall be accompanied by a certified schedule of
the Material Agreements as of the date of such financial
statements;
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(e) within ten (10) days after the end of each month, a
month-end reconciliation of the borrowing base reports
together with an Accounts aging;
(f) no less than thirty (30) days prior to the end of each
fiscal year of Borrower, a plan of operations and budget for
the following fiscal year, including a monthly breakdown of
all categories, together with projections of income
statements, balance sheets, cash flow budgets and related
expenditures, which shall be accompanied by a description of
the assumptions upon which such projections are based.
5.5 OTHER INFORMATION. Furnish to the Bank such other financial and
business information and reports in form and substance satisfactory to the Bank
as and when the Bank may from time to time request.
5.6 MAINTENANCE OF EXISTENCE AND LICENSES. While this Agreement remains
in effect and until the Obligations have been paid in full, (a) maintain its
existence in good standing; (b) make no change in the nature or character of its
business as a wholesaler and retailer of non-durable consumer products;
(c) maintain and keep in full force and effect all licenses and permits neces-
sary to the proper conduct of its business where the failure to do so would have
a material adverse effect on Borrower, its financial condition, operations or
properties and (d) at the request of the Bank, qualify as a foreign business and
obtain all requisite licenses and permits in each state (other than the state of
its organization) where the Borrower does business where the failure to do so
would have a material adverse effect on Borrower, its financial condition,
operations or properties.
5.7 MAINTENANCE AND INSURANCE OF PROPERTIES. Maintain and keep all of
its properties, real and personal, in good working order, condition and repair
and insure and keep insured all such properties at all times against loss of
damage by fire, theft, and such other risks and hazards as are customarily
insured against by businesses in similar circumstances, or as the Bank may
specify from time to time, with insurers and in amounts acceptable to the Bank
(including coverage, equal to twice the Borrower's book value of Inventory owned
by Borrower and jointly purchased). If the Borrower fails to do so, the Bank may
obtain such insurance and charge the cost thereof to the Borrower's account and
add it to the Obligations. Bank shall be named as an additional insured and loss
payee on such insurance policies to the extent that such policies insure the
Collateral. All policies shall provide for at least ten (10) days prior written
notice of cancellation to the Bank. Borrower shall deliver at least annually to
Bank, or sooner if Bank shall request, certificates of insurance evidencing the
Borrower's compliance herewith. After the occurrence and during the continuance
of an Event of Default, any and all sums received by Bank in payment of
insurance losses, returns or unearned premiums or any other proceeds of
insurance may, at the option of Bank, be applied to the payment of all or any
part of the Obligations whether or not the same is then due and payable, as the
Bank may direct but, prior thereto, Borrower may receive and be entitled to
apply such proceeds in the ordinary course of business. After the occurrence and
during the continuance of an Event of Default, Borrower hereby assigns to Bank
any return or unearned premium which may be due upon
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cancellation of any such policies for any reason and directs the insurers to pay
Bank any amount so due. Bank or Bank's designated agent is hereby constituted
and appointed Borrower's attorney-in-fact to (either in the name of Borrower or
in the name of Bank) make adjustments of all insurance losses, sign all
applications, receipts, releases and other papers necessary for the collection
of any such loss, and any return or unearned premium, execute proof of loss,
make settlements and endorse and collect all instruments payable to Borrower or
issued in connection therewith. Notwithstanding any action by Bank hereunder,
any and all risk of loss or damage to Borrower's inventory, equipment and other
assets, including any risk as to the extent of any and all deficiencies in the
effective insurance coverage thereof, is hereby expressly assumed by Borrower.
5.8 LIABILITY INSURANCE. At all times, maintain in full force and
effect such liability insurance with respect to its activities and business
interruption and other insurance as may be reasonably required by Bank, such
insurance to be provided by insurer(s) acceptable to Bank, and if requested by
Bank, such insurance shall name Bank as an additional insured. Copies of such
policies or certificates of insurance shall be provided to Bank immediately upon
issuance, or upon the request of Bank.
5.9 NOTICE OF CERTAIN EVENTS. Give prompt notice in writing to the
Bank of any of the following:
(a) Thirty (30) days prior written notice of any proposed change
in any location where Borrower's Inventory is maintained and
any new locations where Borrower's Inventory is to be
maintained, and a notice confirming the occurrence of any
such change;
(b) The location of any new places of business and the change in
or close of any of its existing places of business;
(c) Thirty (30) days prior notice of any proposed change in
Borrower's name or any trade name of Borrower, and a notice
confirming the occurrence of any such change;
(d) Any incident of loss or damage to Borrower's Equipment,
Inventory or other physical assets, the cost of replacement
of which exceeds Two Hundred Fifty Thousand Dollars
($250,000.00);
(e) Any event occurring after the execution hereof which, if it
had existed on the date of this Agreement, would have
required qualification of the representations and warranties
set forth herein and any material adverse change in
financial condition, operations or properties of the
Borrower or the ability of the Borrower to
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perform its obligations under this Agreement or the Loan
Documents including, but not limited to; a default or
receipt of a notice of default under any Material Agreement;
(f) Any Event of Default hereunder, or any fact or circumstance
or a combination thereof which with the delivery of notice
or the passage of time would constitute an Event of Default
hereunder; or
(g) Notwithstanding Section 5.9(a) above, Borrower will provide
five (5) business days prior written notice of the location
of any Inventory purchased jointly with any other Person,
provided however, such notice is not required if Borrower
reasonably anticipates that such Inventory will be held at
such location for less than thirty (30) days after the date
Borrower pays for such Inventory and the fair market value
of such Inventory does not exceed Seven Hundred Fifty
Thousand Dollars ($750,000.00).
5.10 PAYMENT OF TAXES. Pay all taxes, assessments or governmental
charges lawfully levied or imposed on or against it and its properties prior to
the date when such taxes, assessments or charges shall become delinquent, unless
the Borrower shall contest the validity thereof in good faith with appropriate
proceedings diligently pursued and shall post any bond or other security
required by applicable law or adequate book reserves in accordance with GAAP
have been established and are reasonably acceptable to Bank.
5.11 DEALINGS IN INVENTORY. With respect to the Inventory, sell or
dispose of the Inventory only to buyers in the ordinary course of business. In
the event of any change in location of any of the Inventory, Borrower will,
prior to any such change, execute and deliver to the Bank such financing
statements satisfactory to the Bank as the Bank may request.
5.12 CLAIMS AGAINST BORROWER. Immediately upon learning thereof, report
to the Bank any claim or dispute asserted by any Debtor or other obligor, and
any other matters materially affecting the value and enforceability or
collectibility of any of the Collateral and shall report to Bank, upon its
request, any reclamation, return or repossession of goods. In addition, the
Borrower shall , at its sole cost and expense (including attorney's fees),
settle any and all such claims and disputes and indemnify and protect the Bank
against any liability, loss or expense arising therefrom or out of any such
reclamation, return or repossession of goods, provided, however, if the Bank
shall so elect, it shall have the right upon and during the continuance of an
Event of Default to settle, compromise; adjust or litigate all claims or
disputes directly with the Debtor or other obligor upon such terms and
conditions as it deems advisable and charge all costs and expenses thereof
(including attorneys' fees) to the Borrower's account and add them to the
Obligations.
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5.13 DEFENSE OF COLLATERAL. Defend the Collateral against all claims
and demands of all persons at any time claiming the same or any interest therein
and pay all costs and expenses (including attorneys' fees) incurred in
connection with such defense.
5.14 FINANCING STATEMENTS. At the request of the Bank, execute and
deliver such financing statements, documents and instruments, and perform all
other acts as the Bank deems necessary or desirable, to carry out and perform
the intent and purpose of this Agreement, and pay, upon demand, all expenses
(including attorneys' fees) incurred by the Bank in connection therewith. A
photocopy of this Agreement shall be sufficient as a financing statement and may
be filed in any appropriate office in lieu thereof.
5.15 FINANCIAL COVENANTS. Maintain the following financial covenants:
(a) Tangible Net Worth at all times greater than Nine Million
Five Hundred Thousand Dollars ($9,500,000.00) through
December 31, 1994 and increasing each calendar year
thereafter (on a cumulative basis) in the amount of One
Hundred Thousand Dollars ($100,000.00).
(b) A ratio of Liabilities (excluding the Subordinated Notes,
the Contingent Notes and any accrued but unpaid
Distributions during the prior twelve (12) month period) to
Tangible Net Worth at all times of not more than 2.5 to 1.0.
(c) A Debt Service Ratio of 1.05 to 1.0 for the fiscal year to
date periods ending June 30, 1994 and September 30, 1994;
1.25 to 1.0 for the fiscal year to date period ending
December 31, 1994 and 1.5 to 1.0 thereafter for each
immediately preceding twelve (12) month period.
(d) An Interest Coverage Ratio of 2.50 to 1.0 for the fiscal
year to date periods ending June 30, 1994, September 30,
1994 and December 31, 1994; and 2.5 to 1.0 thereafter for
each immediately preceding twelve (12) month period.
(e) Net Working Capital at all times of not less than Nine
Million Five Hundred Thousand Dollars ($9,500,000.00).
(f) A ratio of Current Assets to Current Liabilities (excluding
that portion of the Scheduled Principal Payments in respect
of the Subordinated Notes which come due during the twelve
(12) month period
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immediately subsequent to the date of determining Current
Liabilities) at all times of not less than 1.5 to 1.0.
5.16 MAINTENANCE OF BANK ACCOUNTS. Except as otherwise agreed from time
to time in writing, maintain all of its depository accounts with Bank, including
without limitation, all demand deposit, lock box, time deposit, concentration
and zero balance accounts except, however, certain accounts need not be
maintained at the Bank provided arrangements acceptable to the Bank have been
established for the immediate transfer of funds to accounts maintained at Bank
or Bank no longer maintains local branch offices in the Greater Cleveland area..
5.17 COMPLIANCE WITH LEASES. Borrower will comply in all material
respects with the provisions of all leases to which it is a party or under which
it occupies property, so as to prevent any loss or forfeiture thereof or
thereunder; PROVIDED, HOWEVER, that the Borrower may cancel, surrender or modify
any lease or leases or contest in good faith any provision thereof if such
action is reasonably deemed by the Borrower advantageous to its business and if
no forfeiture, other than reasonable settlement payments in connection with such
surrenders or cancellations, under any such lease results therefrom.
5.18 ERISA. The Borrower shall with respect to any pension plan or
profit-sharing plan in effect now or in the future:
(a) at all times make prompt payment of contributions required
to meet the minimum funding standards set forth in Section
302 through 305 of ERISA with respect to its plan,
(b) promptly, after the filing thereof, furnish to the Bank
copies of each annual report required to be filed pursuant
to Section 103 of ERISA in connection with its plan for the
plan year, including any certified financial statements or
actuarial statements required pursuant to said Section 103,
(c) notify the Bank immediately of any fact, including, but not
limited to, any "Reportable Event," as that term is defined
in Section 4043 of ERISA, arising in connection with the
plan which might constitute grounds for termination thereof
by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court
of a Trustee to administer the plan,
(d) notify the Bank of any "Prohibited Transaction" as that term
is defined in Section 406 of ERISA.
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The Borrower will not:
(e) engage in any "Prohibited Transaction," or
(f) terminate any such plan in a manner which could result in
the imposition of a lien on the property of the Borrower
pursuant to Section 4068 of ERISA.
5.19 KEY-MAN LIFE INSURANCE. Borrower shall obtain and maintain a
Key-Man Life Insurance policy on each of Reuven Dessler and Jacob Koval in an
amount not less than One Million Five Hundred Thousand Dollars ($1,500,000.00)
each. Each such policy shall be collaterally assigned to the Bank. After an
Event of Default any proceeds received by Bank in respect of such insurance may
be applied to the Loans in an order determined by Bank in its sole discretion,
however, prior to an Event of Default, such proceeds shall be applied to the
Term Loan.
SECTION 6. NEGATIVE COVENANTS. The Borrower covenants and agrees that until
the Obligations have been paid in full, unless the Bank shall consent in advance
in writing, it shall not:
6.1 SALE OF ASSETS OR MERGER. Discontinue its business or liquidate,
sell, transfer, assign or otherwise dispose of a material part of its assets or
of the Collateral, by sale, merger, consolidation or otherwise, provided,
however, that it may (a) sell in the ordinary course of business and for a full
consideration in money or money's worth, any product, merchandise or service
produced, marketed or furnished by it and (b) sell any equipment owned by
Borrower which becomes obsolete.
6.2 LIENS AND ENCUMBRANCES. Sell, assign, pledge, grant or suffer to
exist a security interest, lien, mortgage or other encumbrance on any of the
Collateral to any person other than the Bank, or permit any lien, encumbrance or
security interest to attach to any of the Collateral, except in favor of the
Bank and except Permitted Liens.
6.3 CONTINGENT LIABILITIES. Endorse, guarantee or become surety for the
obligations of any Person, firm or corporation, except that the Borrower may
endorse checks and negotiable instruments for collection or deposit in the
ordinary course of business and except with respect to Inventory not owned by
Borrower but in Borrower's possession and for which the risk of loss is born by
Borrower, provided Borrower maintains the insurance set forth in Section 5.7
hereof.
6.4 LOANS. Make any loans or other advances of money, or grant
extensions of credit which in the aggregate exceed Five Thousand Dollars
($5,000.00) during any fiscal year (other than normal extensions of trade credit
in the ordinary course of business and reasonable salary, travel or relocation
advances, and other similar advances in the ordinary course of business) to any
Person. Borrower also shall not repay any existing loans made to it by its
Affiliates, except for scheduled payments of the Subordinated Notes and
Contingent Notes, in accordance with their terms, this Agreement,the
Subordination Agreement between Borrower and Bank dated as of the date of this
Agreement and in accordance with Section 6.9 hereof.
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Notwithstanding any other provisions contained herein, Borrower shall make no
payments due under the Subordinated Notes or the Contingent Notes (a) if there
has occurred and is continuing an Event of Default and (b) in the case of the
Contingent Notes, except in accordance with Section 6.9 hereof. Furthermore,
Borrower shall not make any payments under the Subordinated Notes (i.e.
prepayments), other than the Scheduled Principal Payments with respect to the
Subordinated Notes, except in accordance with the terms of this Agreement and
the other Loan Documents and after payment in full of the Term Loan.
6.5 DISTRIBUTIONS. Make any Distribution or other payments (by way of
redemption or otherwise) to any of its partners, provided, however, that
Borrower shall be permitted to make (a) Distributions in an amount equal to any
tax liability of the partners of Borrower due solely as a result of being a
partner of Borrower or if such partner is an S corporation equal to the tax
liability of the shareholders of such partner in respect of the Borrower's
operations, (b) Distribution to employees of Borrower (other than Reuven Dessler
or Jacob Koval) as a redemption of such employees' equity interests in Borrower
pursuant to Borrower's Employee Equity Plan, provided such Distribution does not
exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate per
calendar year, (c) Distributions equal to the "Preferred Return", as such term
is defined in Borrower's Amended and Restated Agreement of Limited Partnership
and (d) any other Distribution provided such Distribution does not exceed fifty
percent (50%) of the Borrower's annual Cash Surplus, less the Scheduled
Principal Payments. Notwithstanding the foregoing, no Distributions pursuant to
(c) or (d) shall be permitted if there is any Event of Default or if such
payment would cause an Event of Default or cause a violation of any of the
financial covenants contained in this Agreement.
6.6 DEALINGS WITH ACCOUNTS. Compromise or discount any Account except
for ordinary trade discounts or allowances for prompt payment, or other
discounts or credits in the ordinary course of business.
6.7 INVESTMENTS. Change its name or consolidate or merge with any other
entity or acquire or purchase any equity interest in any other entity, including
shares of stock of other corporations, or acquire or purchase any assets or
assume any obligations, except that the Borrower is permitted to (a) own notes
and other receivables acquired in the ordinary course of business, (b) maintain
its investment as of the date hereof in Star Plast and (c) and acquire any other
equity interest in any Person in an amount not to exceed Two Hundred Fifty
Thousand Dollars ($250,000.00) in the aggregate.
6.8 CHANGE IN MANAGEMENT OR BUSINESS. Change its management or make any
material change in any of its business objectives, purposes and operations which
might in any way adversely affect the repayment of the Loans, as determined by
the Bank. Reuven Dessler shall continue to hold the position of President of
Borrower and perform the duties of that position and Jacob Koval shall continue
to hold the position of Vice President of Borrower and perform the duties of
that position, provided, however, if Reuven Dessler or Jacob Koval is terminated
as a result of death, long-term disability or otherwise, Borrower shall be in
compliance with this Section 6.8 if within ninety (90) days thereafter Borrower
appoints a replacement reasonably acceptable to Bank.
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6.9 CHANGE IN OWNERSHIP. Notwithstanding the terms of the Subordinated
Notes and/or the Contingent Notes to the contrary, no payment shall be due from
Borrower under either the Subordinated Notes or the Contingent Notes as a result
of "Qualified Public Offering" or "Sale" as such terms are defined in the
Contingent Notes except as provided in this Section 6.9. If (a)(i) Borrower or
any successor to Borrower successfully completes a "Qualified Public Offering"
as that term is defined in the Contingent Notes (herein an "IPO") at any time
prior to July 14, 1997, or (ii) a "Sale" occurs as defined in the Contingent
Notes at any time prior to July 14, 1997 and (b) provided the net cash proceeds
to Borrower as a result of such IPO or Sale are at least Ten Million Dollars
($10,000,000.00) (or at least Five Million Dollars ($5,000,000.00) after the
Term Note has been indefeasibly repaid in full in accordance with the terms of
the Provident Loan Agreement), then the holders of the Subordinated Notes and
the Contingent Notes shall be entitled to receive a payment from the proceeds of
such IPO or Sale equal to the amounts due thereunder at the time of such IPO or
Sale in the order set forth below, provided no Event of Default has occurred and
is continuing under the Provident Loan Agreement. All proceeds from such IPO or
Sale will be applied in the following order and to the extent available,
provided no Event of Default has occurred and is continuing under the Provident
Loan Agreement:
(i) Payment of the Subordinated Notes;
(ii) Payment of the Term Loan;
(iii) Payment of the Contingent Notes; and
(iv) Redemption of Preferred Capital as defined in Borrower's
Amended and Restated Agreement of Limited Partnership.
6.10 TRANSACTIONS WITH AFFILIATES. Enter into, or be a party to, any
transaction with any of Borrower's Affiliates, except in the ordinary course of
business, pursuant to the reasonable requirements of Borrower's business, and
upon fair and reasonable terms which are fully disclosed to Bank and are no less
favorable to Borrower than Borrower could obtain in a comparable arm's length
transaction with a person not an Affiliate of Borrower. The Financial Advisory
Agreement dated July 14, 1992 by and between Borrower and ZS Fund L.P.
("Advisory Agreement") shall not be amended, revised or otherwise modified
without the prior written consent of the Bank. In addition, no payments pursuant
to the Advisory Agreement shall be made by Borrower after an Event of Default,
or if such payment would cause an Event of Default, or such payment otherwise
would cause a violation of Section 5.15 of this Agreement.
6.11 AMENDMENTS TO PARTNERSHIP AGREEMENT AND NOTES. Borrower will not
cause or permit any material amendment to the terms and provisions of its
partnership agreement or permit any amendment to the Subordinated Notes and/or
the Contingent Notes which amendment contains terms less favorable to the Bank
and/or the Borrower.
6.12 INDEBTEDNESS. Borrower shall not directly or indirectly create,
incur, assume, guaranty or be or remain liable with respect to any Indebtedness,
except for (a) any Indebtedness to Bank pursuant to this Agreement; (b) other
Permitted Indebtedness; (c) purchase
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money indebtedness not to exceed Two Hundred Fifty Thousand Dollars
($250,000.00) per year; (d) the Contingent Notes; (e) the Subordinated Notes;
and (f) the existing Indebtedness listed in Schedule 6.12 of this Agreement.
6.13 OTHER LETTERS OF CREDIT. Borrower will not request or obtain any
letters of credit from any financial institution or other provider of letters of
credit other than Bank.
6.14 CAPITAL EXPENDITURES. Borrower shall not expend funds or accrue
expense for any machinery, equipment, real or personal property or any other
type of property, including through direct purchases and capitalized lease
obligations, in excess of One Million Dollars ($1,000,000.00) in any fiscal
year.
6.15 COMPENSATION TO PRINCIPALS. Borrower shall not pay or otherwise
compensate, directly or indirectly, Reuven Dessler, Jacob Koval and/or Sruly
Wolf for services rendered as employees of Borrower an amount in excess of the
compensation set forth in their respective Employment Agreements dated July 14,
1992. Borrower shall not amend, revise or modify such Employment Agreements or
the Borrower's Key Employee Incentive Compensation Plan as in effect on the date
hereof unless the terms of such amendments, revision or modification contain
terms more favorable to Borrower.
SECTION 7. COLLECTION OF COLLATERAL AND NOTICE OF ASSIGNMENT.
7.1 RECEIPTS IN RESPECT OF COLLATERAL. All collections on the
Collateral shall be directed to a lock box at Bank. All collections on the
Collateral received by Borrower shall be as an agent of the Bank. All
collections on the Collateral shall be the property of the Bank, shall be held
in trust for the Bank by the Borrower and shall not be commingled with the
Borrower's other funds or be deposited in any bank account of the Borrower
(except for the Cash Collateral Account or any bank account permitted pursuant
to Section 5.16), or used in any manner except to pay the Obligations. Borrower
shall immediately deposit all collections on the Collateral in the Cash
Collateral Account of Borrower maintained at Bank for that purpose, over which
the Bank alone shall have the sole power of withdrawal. On a daily basis, Bank
will apply all or part of the collected balance of the Cash Collateral Account
against the Obligations, the amount, order and method of such application to be
in the sole discretion of Bank provided the Bank shall not utilize such funds as
a prepayment of the Term Loan prior to an Event of Default. The Bank shall apply
any funds deposited in the Cash Collateral Account on the next business day
after the day of deposit. Any part of the collected balance in the Cash
Collateral Account which the Bank elects not to apply to Borrower's Obligations
may be paid over and deposited by Bank to the Borrower's commercial account. The
crediting of items deposited in the Cash Collateral Account to the reduction of
the Obligations shall be conditioned upon final payment of the item and if any
item is not so paid, the amount of any credit given for it may be charged to the
Obligations or to any other deposit account of the Borrower, whether or not the
item is returned.
7.2 NOTICE OF ASSIGNMENT. After the occurrence and during the
continuance of an Event of Default the Bank shall have the right at any time to
notify Debtors of its security interest in the Accounts and to require payments
to be made directly to the Bank. Upon request of the Bank after the occurrence
and during the continuance of an Event of Default Borrower
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will so notify the Account Debtors and will indicate on all billings to the
Account Debtors that the Accounts are payable to the Bank. To facilitate direct
collection, the Borrower hereby appoints the Bank and any officer or employee of
the Bank, as the Bank may from time to time designate, as attorney-in-fact for
the Borrower to (a) receive, open and dispose of all mail addressed to the
Borrower and take therefrom any payments on or proceeds of Accounts; (b) take
over the Borrower's post office boxes or make other arrangements, in which the
Borrower shall cooperate, to receive the Borrower's mail, including notifying
the post office authorities to change the address for delivery of mall addressed
to the Borrower to such address as the Bank shall designate; (c) endorse the
name of the Borrower in favor of the Bank upon any and all checks, drafts, money
orders, notes, acceptances or other evidences or payment or Collateral that may
come into the Bank's possession; (d) sign and endorse the name of the Borrower
on any invoice or bill of lading relating to any of the Accounts, on
verifications of Accounts sent to any Debtor, to drafts against Debtors, to
assignments of Accounts and to notices to Debtors; and (e) do all acts and
things necessary to carry out this Agreement, including signing the name of the
Borrower on any instruments required by law in connection with the transactions
contemplated hereby and on financing statements as permitted by the Uniform
Commercial Code. The Borrower hereby ratifies and approves all acts of such
attorneys-in-fact, and neither the Bank nor any other such attorney-in-fact
shall be liable for any acts of commission or omission, or for any error of
judgment or mistake of fact or law. This power, being coupled with an interest,
is irrevocable so long as any of the Obligations remain unsatisfied.
7.3 ENFORCEMENT OF ACCOUNTS. The Bank shall not, under any
circumstances, be liable for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any Accounts or any
instruments received in payment thereof or for any damage resulting therefrom.
The Bank may, after the occurrence and during the continuance of an Event of
Default and without notice to or consent from the Borrower, sue upon or
otherwise collect, extend the time of payment of, or compromise or settle for
cash, credit or otherwise upon any terms, any of the Accounts or any securities,
instruments or insurance applicable thereto and/or release the obligator
thereon. The Bank is authorized to accept the return of the goods represented by
any of the Accounts, without notice to or consent by the Borrower, or without
discharging or any way affecting the Obligations hereunder.
7.4 RETURNED OR REJECTED GOODS. After the occurrence and during the
continuance of an Event of Default or upon receipt of any returned or rejected
goods in an amount in excess of One Hundred Thousand Dollars ($100,000.00) the
Borrower shall immediately issue and deliver a copy of a credit memo to the Bank
with respect thereto. Or, at the Bank's election, the Borrower shall set aside
such goods, mark them in the Bank's name and hold them in trust for the Bank at
the Borrower's expense, and, upon request, shall pay the Bank the sales price
thereof. If the Bank shall request the Borrower to pay the sales price of such
goods and the Borrower fails to forthwith pay the sales price to the Bank, the
Bank may take possession of such goods and sell or cause the goods to be sold,
at public or private sale, at such prices, to such purchasers and upon such
terms as the Bank deems advisable. The Borrower shall remain liable to the Bank
for any deficiency and shall pay the costs and expenses of such sale, including
reasonable attorneys' fees.
7.5 ACCOUNT VERIFICATION. The Bank may confirm and verify all Accounts
in any reasonable manner after an Event of Default has occurred. Further, the
Bank shall at any
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other time be permitted to confirm and verify Accounts in accordance with the
following procedure:
(a) such verifications by the Bank will occur not more than once
per year;
(b) verification letters substantially in the form of Exhibit
7.5 will be addressed by the Bank, but typed on the
Borrower's letterhead, signed (unaddressed) by an authorized
representative of the Borrower and be mailed by the Bank,
but not contain any reference to the Bank;
(c) verification letters will contain a return envelope
addressed to "Auditors" at a post office box, but not
contain the Bank's name; and
(d) the Bank will not otherwise contact any Debtors without
prior consent of the Borrower.
Bank shall have no obligation to disclose or discuss with Borrower the names or
identities of any customers from whom the Bank obtains or requests information
as to Accounts. Borrower agree to cooperate with Bank at the confirmation and
verification of any such accounts, or reconciling any discrepancy between those
amounts verified by the Bank and information provided to the Bank by Borrower.
After notifying Borrower, Bank may exclude the amount of any such discrepancy
from Eligible Accounts until it is satisfied as to the correct balance of such
Account.
7.6 LIMITATION OF BANK'S LIABILITY. The Bank shall not be liable for or
prejudiced by any loss, depreciation or other damage to Accounts or other
Collateral unless caused by the Bank's willful and malicious act, and the Bank
shall have no duty to take any action to preserve or collect any Account or
other Collateral.
SECTION 8. SERVICE CHARGES. In addition to the principal and interest on
the Loans and the reimbursement of expenses to Bank pursuant to this Agreement,
the Borrower shall pay to the Bank a monthly service charge for the services
provided by Bank in connection with this Agreement in the amount of Four Hundred
Dollars ($400.00), which service charge may be increased (by not more than
twenty-five percent (25%)) or decreased more than once per year in the sole
discretion of Bank upon ninety 90 days prior written notice to Borrower, payable
monthly with the loan payments hereunder. In addition to the monthly service
charge, Borrower shall pay to Bank (i) an annual facility fee of 3/8 of one
percent (1%) of the unused portion of the Revolving Loan (determined at the end
of each fiscal quarter based upon the average daily balance outstanding under
the Revolving Loan Note during the preceding quarter) payable quarterly in
arrears; (ii) a negotiation commission of one quarter (1/4) of one percent (1%)
of the stated amount of any Letter of Credit issued pursuant hereto payable upon
issuance, plus an issuance fee of Forty Dollars ($40.00) for each such Letter of
Credit; and (iii) any fees due under the Lock Box Service Agreement between Bank
and Borrower. All such fees shall be payable in full within ten (10) days of a
billing from Bank in respect thereof.
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SECTION 9. ONE GENERAL OBLIGATION: CROSS COLLATERAL. All loans and
advances by Bank to Borrower under this Agreement and under all other agreements
constitute one loan, and all indebtedness and obligations of Borrower to Bank
under this and under all other agreements, present and future, constitute one
general obligation secured by the Collateral and security held and to be held by
Bank hereunder and by virtue of all other assignments and security agreements
between Borrower and Bank now and hereafter existing. It is expressly understood
and agreed that all of the rights of Bank contained in this Agreement shall
likewise apply insofar as applicable to any modification of or supplement to
this Agreement and to any other agreements, present and future, between Bank and
Borrower. In the event that this Agreement is terminated, the Bank agrees to
release its liens and security interest in the Collateral and the Obligations
shall no longer be secured by the Collateral.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.
10.1 EVENTS OF DEFAULT. The following shall constitute Events of
Default under this Agreement, it being agreed that time is of the essence
hereof: (a) failure of the Borrower to pay when due any of the Obligations;
(b) failure of the Borrower to observe or perform any covenant contained in this
Agreement or in any other agreement between the Borrower and the Bank;
(c) discovery that any representation or warranty at any time made by the
Borrower to the Bank in this Agreement or in any other agreement between the
Borrower and the Bank, or in any document or instrument delivered to the Bank
pursuant to this Agreement or any such other agreement is, or becomes, untrue
or misleading in any material respect; (d) acceleration of the maturity of any
of the Obligations; (e) any misrepresentation by the Borrower, orally or in
writing, to the Bank for the purpose of obtaining credit or an extension of
credit; and (f) suspension by the Borrower of the operation of its present
business, or the insolvency of the Borrower, or the inability of the Borrower
to meet its debts as they mature, or its admission in writing to such effect,
or its calling any meeting of all or any of its creditors or committing any act
of bankruptcy, or the filing by or against the Borrower of any petition under
any provision of the Bankruptcy Act, as amended, or the entry of any judgment
or filing of any lien against the Borrower. Notwithstanding the foregoing,
Bank shall provide Borrower with (i) two (2) business days' notice and
opportunity to cure any default arising from the failure of Borrower to pay
when due any of the monetary Obligations owed to Bank, (ii) fifteen (15)
calendar days' notice and opportunity to cure any violation of the covenants
contained in Section 5.15 and (iii) thirty (30) calendar days' notice and
opportunity to cure any other act or omission constituting an Event of Default
under the Loan Documents OTHER THAN as set forth in Section 10.1(c), (d), (e)
and (f) and Sections 6 and 7 of this Agreement for which no notice is required
and no opportunity to cure is available without the written consent of Bank.
10.2 RIGHTS OF BANK UPON DEFAULT. Upon the occurrence of an Event of
Default described in Section 10.1, the Bank at its option may: (a) declare the
Obligations of the Borrower immediately due and payable, without presentment,
notice, protest or demand of any kind for the payment of all or any part of the
Obligations (all of which are expressly waived by Borrower) and exercise all of
its rights and remedies against the Borrower and any Collateral provided herein
or in any other agreement between Borrower and Bank and (b) exercise all rights
granted to a secured parry under the Ohio Uniform Commercial Code or otherwise.
Upon the occurrence of an Event of Default, Bank may take possession of the
Collateral, or any part thereof, and Borrower hereby grants Bank authority to
enter upon any premises on which the
38
<PAGE> 39
Collateral may be situated, and remove the Collateral from such premises or use
such premises, together with the materials, supplies, books and records of
Borrower, to maintain possession and/or the condition of the Collateral and to
prepare the Collateral for sale. Borrower shall, upon demand by Bank, assemble
the Collateral and make it available at a place designated by Bank which is
reasonably convenient to both parties. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Bank will give Borrower reasonable notice of the time and
place of any public sale thereof or of the time after which any private sales or
other intended disposition thereof is to be made. The requirement of reasonable
notice shall be met if such notice is mailed, postage prepaid, to the address of
the Borrower shown at the beginning of this Agreement at least 5 days prior to
the time of such sale or disposition.
10.3 APPLICATION OF PROCEEDS. The Bank shall have the right to apply
the proceeds of any disposition of the Collateral to the payment of the
Obligations in such order of application as the Bank may, in its sole
discretion, elect.
10.4 REMEDIES CUMULATIVE. The rights, options and remedies of the Bank
shall be cumulative and no failure or delay by the Bank in exercising any right,
option or remedy shall be deemed a waiver thereof or of any other right, option
or remedy, or waiver of any Event of Default hereunder, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. Bank shall not be deemed to have waived any of the Bank's rights
hereunder or under any other agreement, instrument or paper signed by Borrower
unless such waiver be in writing and signed by the Bank.
SECTION 11. MISCELLANEOUS.
11.1 GOVERNING LAW; JURISDICTION AND VENUE. The provisions of this
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Ohio. The Bank and Borrower hereby designate all courts of record
sitting in Cleveland, Ohio, both state and federal, as forums where any action,
suit or proceeding in respect of or arising out of this Agreement or the
transactions contemplated by this Agreement may be prosecuted as to all parties,
their successors and assigns, and by the foregoing designation the Bank and
Borrower consent to the jurisdiction and venue of such courts.
11.2 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
THE BANK TO EXTEND CREDIT TO BORROWER, AND AFTER HAVING THE OPPORTUNITY TO
CONSULT COUNSEL, BORROWER HEREBY EXPRESSLY WAIVES ThE RIGHT TO TRIAL BY JURY IN
ANY LAWSUIT OR PROCEEDING RELATING TO THIS AGREEMENT OR ARISING IN ANY WAY FROM
THE OBLIGATIONS.
11.3 OTHER WAIVERS. The Borrower waives notice of nonpayment, demand,
notice of demand, presentment, protest and notice of protest with respect to the
Obligations, or notice of acceptance hereof, notice of Loans made, credit
extended, Collateral received or delivered, or any other action taken in
reliance hereon, and all other demands and notices of any description, except
such as are expressly provided for herein.
39
<PAGE> 40
11.4 COLLECTION COSTS. All costs and expenses incurred by the Bank to
obtain, enforce or preserve the security interests granted by this Agreement and
to collect the Obligations, including, without limitation, stationery and
postage, telephone and telegraph, secretarial and clerical expenses, the fees or
salaries of any collection agents utilized, all costs to maintain and preserve
the Collateral and all attorneys' fees and legal expenses incurred in obtaining
or enforcing payment of any of the Obligations or foreclosing the Bank's
security interest in any of the Collateral, whether through judicial proceedings
or otherwise, or in enforcing or protecting its rights and interests under this
Agreement or under any other instrument or document delivered pursuant hereto,
or in protecting the rights of any holder or holders with respect thereto, or in
defending or prosecuting any actions or proceedings arising out of or relating
to the Bank's transactions with the Borrower, shall be paid by the Borrower to
the Bank, upon demand, or, at the Bank's election, charged to the Borrower's
account and added to the Obligations, and the Bank may take judgment against the
Borrower for all such costs, expense and fees in addition to all other amounts
due from the Borrower hereunder.
11.5 EXPENSES. The Borrower shall reimburse the Bank for all
out-of-pocket costs and expenses incurred by the Bank in connection with the
preparation of this Agreement and the making of the Loans hereunder, including
the reasonable fees and expenses of the Bank's counsel (which Bank agrees shall
not exceed Thirty Five Thousand ($35,000.00)), and for all Uniform Commercial
Code searches, filing, recording and other costs connected with the perfection
of the Bank's security interest in the Collateral.
11.6 NOTICES. All notices, requests, directions, demands, waivers and
other communications provided for herein shall be in writing and shall be deemed
to have been given or made when delivered personally or sent by registered or
certified mail, postage prepaid and return receipt requested, addressed to the
Borrower or the Bank, as the case may be, at their respective addresses set
forth at the beginning of this Agreement. Notices of changes of address shall be
given in the same manner.
11.7 SEVERABILITY. Any provision of this Agreement which is prohibited
and unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
11.8 ENTIRE AGREEMENT, MODIFICATION, BENEFIT. This Agreement shall
constitute the entire agreement of the parties and no provision of this
Agreement, including the provisions of this Section, may be modified, deleted or
amended in any manner except by agreement in writing executed by the parties.
All terms of this Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
assigns, provided, however, that (a) the Borrower shall not assign or transfer
its rights hereunder, and (b) Bank shall not assign the Loans or its rights
hereunder, (i) provided the foregoing will not result in any violation of law,
rule or regulation applicable to Bank and (ii) unless an Event of Default
occurs and is continuing for a period of sixty (60) days and after written
notice to Borrower.
40
<PAGE> 41
11.9 CONSTRUCTION. All references in this Agreement to the single
number and neuter gender shall be deemed to mean and include the plural number
and all genders, and vice versa, unless the context shall otherwise require.
11.10 HEADINGS. The underlined headings contained herein are for
convenience only and shall not affect the interpretation of this Agreement.
11.11 COUNTERPARTS. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original.
11.12 NONLIABILITY OF BANK. The relationship between the Borrower and
the Bank shall be solely that of borrower and lender. The Bank shall not have
any fiduciary responsibilities to the Borrower. The Bank undertakes no
responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
11.13 WARRANT OF ATTORNEY. The Borrower(s) authorize any attorney at
law, including an attorney engaged by the Bank, to appear in any court of record
in the State of Ohio or any other State or Territory of the United States, after
the indebtedness evidenced hereby, or any part thereof, becomes due and waive
the issuance and service of process and confess judgment against the Borrower(s)
or any one of them in favor of the Bank, for the amount then appearing due,
together with costs of suit and, thereupon, to release all errors and waive all
rights of appeal and stay of execution, but no such judgment or judgments
against any one of the Borrower(s) shall be a bar to a subsequent judgment or
judgments against any one or more than one of such persons against whom judgment
has not been obtained hereon. The Borrower(s) hereby expressly waive any
conflict of interest that the Bank may have in confessing such judgment against
Borrower(s) and expressly consent to the confessing attorney receiving a legal
fee from the holder for confessing such judgment against Borrower(s). This
warrant of attorney to confess judgment is a joint and several warrant of
attorney. The foregoing warrant of attorney shall survive any judgment; and if
any judgment be vacated for any reason, the Bank nevertheless may thereafter use
the foregoing warrant of attorney to obtain an additional judgment or judgments
against the Borrower(s) or any one or more of them.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers.
BANK:
THE PROVIDENT BANK
By: /s/ LEW GOODMAN
----------------------------------
Its: Key V.P.
---------------------------------
41
<PAGE> 42
WARNING-BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
- --------------------------------------------------------------------------------
IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT
- ----------------------------------------------------------------------------
YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
- ------------------------------------------------------------------------------
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
- -------------------------------------------------------------------------------
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY
- ----------------------------------------------------------------------------
OTHER CAUSE.
- ------------
BORROWER:
MAZEL COMPANY L.P.,
a Delaware limited partnership
By: ZS MAZEL L.P.,
a Delaware limited partnership
General Partner of Mazel Company L.P.
By: ZS MAZEL, INC.
a Delaware corporation,
General Partner of ZS Mazel L.P.
By: /s/ Ned L. Sherwood
-----------------------------------
Name: Ned L. Sherwood
---------------------------------
Its: Secretary
----------------------------------
And By: MAZEL/D&K INC.,
an Ohio corporation
By: /s/ Reuven D. Dessler
-----------------------------------
Name: Reuven D. Dessler
---------------------------------
Its: President
----------------------------------
42
<PAGE> 43
FIRST AMENDMENT TO ASSET BASED
LOAN AND SECURITY AGREEMENT
This First Amendment to Asset Based Loan and Security
Agreement (the "Amendment"), dated as of December 14, 1994, between MAZEL
COMPANY L.P. (the "Borrower") and PROVIDENT BANK (the "Lender").
RECITALS:
---------
A. The Borrower and the Lender have entered into that certain Asset
Based Loan and Security Agreement (the "Original Agreement"), dated as of
January 31, 1994.
B. The Borrower and the Lender now desire to amend the Original
Agreement as hereinafter set forth (the Original Agreement as amended by this
Amendment being referred to as the "Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
Section 1.01. DEFINITIONS. Capitalized terms used in this Amendment to
the extent not otherwise defined herein shall have the same meanings as given to
them in the Agreement.
Section 2.01. AMENDMENT TO SUBSECTION 1.9. Subsection 1.9 of the
Original Agreement is hereby amended by adding the following language thereto:
"For purposes of calculating the Debt Service Ratio,
Distributions made by Borrower that are permitted pursuant to clause
(a) of subsection 6.5 ("Tax Distributions") will be deemed to have been
made (regardless of when actually made) quarterly based on Borrower's
income during such quarter. Additionally, any Tax Distributions paid by
Borrower in respect of tax liabilities of partners of Borrower for any
period that precedes the period for which the Debt Service Ratio is
being calculated will not be included in such calculation of the Debt
Service Ratio, nor will any Tax Distributions made as a result of
adjustments to taxable income due to the effect of Section 263A of the
Internal Revenue Code."
<PAGE> 44
Section 2.02. AMENDMENT TO CLAUSE (c) OF SUBSECTION 5.15. Clause (c) of
subsection 5.15 of the Original Agreement is hereby deleted in its entirety and
replaced with the following:
"A Debt Service Ratio of 1.05 to 1.0 for the fiscal year to
date periods ending June 30, 1994 and September 30, 1994; 1.15 to 1.0
for the fiscal year to date periods ending December 31, 1994; 1.15 for
each immediately preceding twelve (12) month period ending on and prior
to December 31, 1995; and 1.5 to 1.0 thereafter for each immediately
preceding twelve (12) month period."
Section 3.01. AGREEMENT AND RELATED DOCUMENTS TO REMAIN IN FULL FORCE
AND EFFECT. Except as expressly set forth herein, all of the terms and
conditions of the Original Agreement and all agreements, documents, instruments
and certificates executed thereunder are and shall remain in full force and
effect.
IN WITNESS WHEREOF, this agreement has been executed by the duly
elected and authorized officers of the parties, as of the day and year first
above written.
MAZEL COMPANY L.P.
By /s/ Susan Atkinson
---------------------------
Chief Financial Officer
PROVIDENT BANK
By /s/ Theodore J. Karle, V.P.
---------------------------
Vice President
2
<PAGE> 45
FIRST AMENDMENT TO LOAN AGREEMENT
---------------------------------
This FIRST AMENDMENT TO LOAN AGREEMENT is entered into as of the day
of December, 1995, by and between MAZEL COMPANY L.P. (herein called the
"Borrower") and THE PROVIDENT BANK (herein called the "Bank").
WHEREAS, Borrower and Bank entered into a certain Asset Based Loan and
Security Agreement dated as of January 31, 1994 (herein called the "Loan
Agreement") pursuant to which Bank agreed to make certain loans to Borrower on
the terms and conditions contained therein.
WHEREAS, the Borrower and the Bank have agreed to amend the Loan
Agreement to modify certain of the provisions thereof.
NOW, THEREFORE, for valuable consideration received to their mutual
satisfaction, the Borrower and the Bank hereby agree as follows:
1. AMENDMENT TO DEFINED TERMS. The following definitions set forth in
the Loan Agreement are hereby deleted, and the following substituted therefor:
1.26 LIBOR RATE shall mean with respect to a Libor Rate Loan the
arithmetic mean of the offered rates for deposits in U.S.
dollars having a maturity coterminous with the Interest Period
designated in the applicable Libor Rate Loan request
commencing on the second London business day immediately
following the Interest Determination Date, as reported on the
Bloomberg L.P. Financial Markets System as of 11:00 A.M.,
London time, on such Interest Determination Date plus two
hundred fifty (250) basis points. If Bank terminates its
subscription to the Bloomberg L.P. Financial Markets System,
the Libor Rate shall be determined by Bank utilizing any other
reasonable system selected by Bank as a reference service to
determine Libor rates. The Bank will use reasonable efforts to
confirm in writing any Libor Rate selected by the Borrower;
however, Bank shall have no liability to Borrower for failing
to send such confirmation.
1.31 NET WORKING CAPITAL shall mean, at any time, the amount by
which Current Assets exceed Current Liabilities (determined by
including the full amount outstanding under the Revolving
Loan).
1.49 TERM LOAN NOTE shall mean the Amended and Restated Term Loan
Promissory Note executed by Borrower to evidence the Term
Loan as described in Section 2.2 hereof.
1.50 TREASURY RATE shall mean, with respect to any period during
which the Term Loan is to bear interest by reference to the
<PAGE> 46
Treasury Rate, the auction average (non-investment) of one (1)
year United States Treasury Bills as published in the weekly
Federal Reserve Statistical Release Form H.15(519) in effect
on the first day of such period plus two hundred seventy-five
(275) basis points. In the event the Treasury Rate is no
longer published on a weekly basis in the Federal Statistical
Release Form H.15(519), Bank shall have the right to ascertain
said rate from any other reasonable and comparable source as
shall be available, and upon selection of such source, Bank
shall give notice thereof to the Borrower. The Bank will use
reasonable efforts to confirm in writing any Treasury Rate
selected by the Borrower. Bank shall have no liability to
Borrower for a failure to send any notice or confirmation
pursuant to this Section 1.50.
2. ADDITION OF DEFINED TERMS. The following definitions are hereby
added to the Loan Agreement:
1.51 ODD-JOB SUBORDINATED NOTES shall mean the Subordinated Note
dated December 1, 1995 made by Odd-Job Acquisition Corp.
payable to the Borrower and the Subordinated Note dated
December 4, 1995 made by ZS Mazel L.P. payable to the Borrower
and the Revolving Subordinated Note dated December 5, 1994
made by ZS Peddler's Mart, Inc. payable to the Borrower.
1.52 ODD-JOB LOAN AGREEMENTS shall mean that certain Asset Based
Loan and Security Agreement dated as of December 4, 1995 among
Odd-Job Acquisition Corp., Odd Job Trading Corp., POW Trading
Corp., HIA Trading Associates, Central Processing Associates,
ZS Peddler's Mart, Inc. and the Bank, and each of the other
Loan Documents (as defined in the Odd-Job Loan Agreement),
including but not limited to the Unconditional Guaranty and
Contribution Agreement dated as of December 4, 1995 between
the Borrower and the Bank.
1.53 ODD-JOB OPTION AGREEMENT shall mean that certain Option
Agreement dated as of December 1, 1995 by and between ZS Mazel
L.P. and the Borrower.
3. INCREASE OF TERM LOAN. a. Effective on the date hereof, and subject
to the Borrower's performance of its obligations hereunder, the Term Loan shall
be increased to Five Million Five Hundred Thousand Dollars ($5,500,000.00). Upon
execution of this Amendment, Borrower shall pay a loan fee to Bank of Seventeen
Thousand Five Hundred Dollars ($17,500.00), and Bank shall advance that amount
necessary to increase the outstanding balance
-2-
<PAGE> 47
under the Term Loan to Five Million Five Hundred Thousand Dollars
($5,500,000.00) to Borrower.
b. Section 2.2(a) of the Agreement is hereby deleted in its entirety
and the following substituted in lieu thereof:
(a) Subject to the terms and conditions of this Agreement, and in
reliance upon the representations and warranties contained
herein being true as of the date of the funding of the Term
Loan, the Bank agrees to make an Advance in the form of a Loan
to Borrower in the principal amount of Five Million Five
Hundred Thousand Dollars ($5,500,000.00) on a Term Loan basis
(the "Term Loan"). Borrower shall execute and deliver to the
Bank that certain Amended and Restated Term Loan Promissory
Note to evidence the Term Loan. The Borrower shall repay the
principal of the Term Loan Note in sixty (60) equal,
consecutive monthly payments of principal and interest in the
amount of One Hundred Forty Thousand Dollars ($140,000.00),
which payment shall be due and payable on the first day of
each month commencing on December 1, 1995, and continuing
until December 1, 2000, on which date all amounts of
outstanding principal and accrued interest shall be due and
payable in full. Interest under the Term Loan Note will accrue
at a rate equal to the Prime Rate plus one-half percent (1/2%)
or the Treasury Rate, at the option of Borrower exercised in
writing signed by an authorized representative of Borrower and
delivered to Bank two (2) business days prior to the
expiration of any existing rate option. Such interest rate,
when elected, shall continue in effect for a twelve-month
period at the end of which Borrower shall be permitted to make
another election as to the applicable interest rate. Borrower
shall not be permitted to elect the Treasury Rate option if
the Term Loan Note will mature within one year of such
election. In the case of an Event of Default which is
continuing, the Default Rate of interest shall apply to the
Term Loan.
4. REVOLVING LOAN MATURITY DATE. Section 2.1(e) of the Loan Agreement
is hereby deleted in its entirety and the following substituted therefor:
(e) The Revolving Loan shall mature on January 31, 1996, and shall
automatically be renewed and extended for an additional two
(2) year period thereafter so long as there is no then
existing Event of Default. Notwithstanding the stated term of
the Revolving Loan and the automatic renewal thereof, Bank
shall have an absolute right, in its
-3-
<PAGE> 48
sole discretion, to make a demand for repayment and
cancellation of the Revolving Loan which demand shall be
contained in a written notice to Borrower stating a maturity
date for its repayment no sooner than twenty-four (24) months
after the date of such notice.
5. PREPAYMENT PREMIUM. Section 2.2(c) of the Loan Agreement is hereby
deleted in its entirety and the following substituted therefor:
(c) the Term Loan shall be prepayable and cancelable (voluntarily
or involuntarily) only upon the payment to the Bank of a
prepayment premium equal to the sum of (i) one percent (1%) of
the outstanding balance of the Term Loan if prepaid during the
first loan year or (ii) one-half percent (1/2%) of the
outstanding balance of the Term Loan if prepaid after the
first loan year but prior to April 30, 1998. Notwithstanding
the foregoing, in the event of a prepayment of the Term Loan
which is made from the proceeds of an initial public offering
by the Borrower or any Affiliate of Borrower, the prepayment
premium shall be equal to one-half percent (1/2%) of the
outstanding balance of the Term Loan. The prepayment premium
will not apply after (i) April 30, 1998 or (ii) a notice of
non-renewal of the Revolving Loan from Bank.
6. LOANS. Sec tion 6.4 of the Loan Agreement is hereby amended to add
the following to the end of that Section:
Notwithstanding the foregoing, Bank hereby consents to (i) the
loans evidenced by the Odd-Job Subordinated Notes and (ii) any
loans made to Affiliates as may be required from time to time
pursuant to the Odd-Job Loan Agreements.
7. INVESTMENTS. Section 6.7 of the Loan Agreement is hereby amended
to add clauses (d), (e) and (f) to the end of the only sentence of Section 6.7
to read as follows:
(d) to hold an option to acquire all of the outstanding common
stock of Odd-Job Holdings, Inc. from ZS Mazel L.P. pursuant to
the Odd-Job Option Agreement and to exercise such option under
the Odd-Job Option Agreement, (e) to purchase, own and hold
the Odd-Job Subordinated Notes, (f) to purchase debt, equity
or other securities of Odd-Job Holdings, Inc. or Odd-Job
Acquisition Corp. as may be
-4-
<PAGE> 49
required from time to time pursuant to the Odd-Job Loan
Agreements.
8. TRANSACTIONS WITH AFFILIATES. Section 6.10 of the Loan Agreement
is hereby amended to add the following sentences to the end of such Section
6.10:
Notwithstanding anything contained in this Section 6.10 to the
contrary, the Borrower may execute, deliver and perform its
duties and obligations under the Odd-Job Subordinated Notes,
the Odd-Job Option Agreement and any agreements or other
documents (or purchase such debt, equity or similar
instruments) which may be required from time to time in order
for the Borrower to satisfy its obligations, or the
obligations to be performed by Borrower, pursuant to the
Odd-Job Loan Agreements, without violation of the provisions
of this Section 6.10. Further, transfers of Inventory at cost,
between the Borrower and its Affiliates, shall not be deemed
a violation of this provision.
9. AMENDMENTS TO LOAN COVENANTS. Sections 5.15(a) and 5.15(c)
through (f), inclusive, are hereby deleted and the following substituted
therefor:
(a) Tangible Net Worth at all times greater than Nine Million Five
Hundred Thousand Dollars ($9,500,000.00) through December 31,
1994, and Eleven Million Dollars ($11,000,000.00) at all times
thereafter.
(c) A Debt Service Ratio of 1.05:1.0 for the fiscal year to date
periods ending June 30, 1994 and September 30, 1994; 1.25:1.0
for the fiscal year to date period ending December 31, 1994;
1.25:1.0 on June 30, 1996; and for all periods thereafter, for
each immediately preceding twelve (12) month period.
(d) Net Working Capital at all times of not less than Nine Million
Five Hundred Thousand Dollars ($9,500,000.00).
(e) A ratio of Current Assets to Current Liabilities (excluding
that portion of the Scheduled Principal Payments in respect of
the subordinated notes which come due during the twelve (12)
month period immediately subsequent to the date of determing
current liabilities) as follows:
-5-
<PAGE> 50
FISCAL YEAR ENDING RATIO
December 1996 1.25:1.0
December 1997 1.50:1.0
and all periods thereafter
10. AUDIT FEE. In addition to the service charges provided in
Section 8 of the Loan Agreement, Borrower shall pay to Bank an annual
audit-based loan fee of Two Thousand Five Hundred Dollars ($2,500.00), payable
in monthly installments of Two Hundred Eight Dollars and 33/100 Cents
($208.33).
11. EXECUTION OF DOCUMENTS. The Borrower hereby agrees that it will,
contemporaneously with the execution of this Agreement, execute and deliver to
the Bank an Amended and Restated Term Loan Note and such other documents and
instruments as are necessary to effect the intent hereof.
12. REPRESENTATIONS. Borrower represents and warrants to Bank that
(a) Borrower has the legal power and authority to execute and deliver this
Amendment; (b) the officials executing this Amendment have been duly authorized
to execute and deliver the same and bind Borrower with respect to the
provisions hereof; (c) the execution and delivery hereof by Borrower and the
performance and observance by Borrower of the provisions hereof do not violate
or conflict with the organizational agreements of Borrower or any law
applicable to Borrower or result in a breach of any provisions of or constitute
a default under any other agreement, instrument or document binding upon or
enforceable against Borrower; and (d) this Amendment constitutes a valid and
binding obligation upon Borrower, except as limited by bankruptcy, insolvency,
or other laws relating to the enforcement of creditor's rights and general
equitable principles.
13. FUTURE NOTICES. All future references to the Loan Agreement in
communications between the parties subsequent to the date of this Amendment,
including any notices required to be given under the Loan Agreement or any
related loan document, need only reference the Loan Agreement without need of
referring to this Amendment, it being understood that any reference to the Loan
Agreement shall include this Amendment and any other amendments subsequently
made and entered into.
14. NO SETOFFS OR CLAIMS. Borrower hereby declares that to its
knowledge as of the date hereof, Borrower has no setoffs, counterclaims,
defenses or other causes of action against Lender arising out of the Loan
Agreement or any documents mentioned herein.
-6-
<PAGE> 51
15. CONFIRMATION AND RATIFICATION OF AGREEMENT. Except as herein
specifically amended, all of the terms and conditions set forth in the Loan
Agreement are confirmed and ratified and shall remain in full force and effect.
16. WAIVER AND CONSENT BY BANK. Bank hereby waives any right to claim
an Event of Default arising from any violation of the provisions of Section
5.15 of the Loan Agreement as of September 30, 1995, as revealed by Borrower's
financial statements as of such date. Bank hereby consents to the sale by
Borrower of its "Just Closeouts" stores in the Cleveland, Ohio area.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this First
Amendment to Loan Agreement to be executed by their duly authorized officers as
of the date first set forth above.
THE PROVIDENT BANK
By:
----------------------------------
John R. Mirlisena,
Senior Vice President
MAZEL COMPANY L.P.,
a Delaware limited partnership
By: ZS MAZEL L.P.,
a Delaware limited partnership,
General Partner of Mazel Company
L.P.
By: ZS MAZEL, INC.,
a New York corporation,
General Partner of ZS Mazel L.P.
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
And By: MAZEL/D&K INC.,
an Ohio corporation,
General Partner of Mazel Company
L.P.
By:
----------------------------------
Name:
----------------------------------
Its:
-----------------------------------
-7-
<PAGE> 52
SECOND AMENDMENT TO LOAN AGREEMENT
----------------------------------
This SECOND AMENDMENT TO LOAN AGREEMENT is entered into as of the day
______of September, 1996, by and between MAZEL COMPANY L.P. (herein called the
"Borrower") and THE PROVIDENT BANK (herein called the "Bank").
WHEREAS, Borrower and Bank entered into a certain Asset Based Loan and
Security Agreement dated as of January 31, 1994, as amended by First Amendment
to Loan Agreement dated December 8, 1995 (herein called the "Loan Agreement")
pursuant to which Bank agreed to make certain loans to Borrower on the terms and
conditions contained therein.
WHEREAS, the Borrower and the Bank have agreed to amend the Loan
Agreement to modify certain of the provisions thereof.
NOW, THEREFORE, for valuable consideration received to their mutual
satisfaction, the Borrower and the Bank hereby agree as follows:
1. AMENDMENT TO DEFINED TERMS. The following definitions set forth in
the Loan Agreement are hereby deleted, and the following substituted therefor:
1.44 REVOLVING LOAN NOTE shall mean the Amended and Restated
Revolving Promissory Note executed by Borrower to evidence the
Revolving Loan as described in Section 2.1 hereof.
2. INCREASE OF REVOLVING LOAN. a. Effective on the date hereof, and
subject to the Borrower's performance of its obligations hereunder, the
Revolving Loan shall be increased to Twenty-Five Million Dollars
($25,000,000.00). Upon execution of this Amendment, Borrower shall pay a loan
fee to Bank of -0- Dollars ($-0-).
b. Section 2.1(a) of the Agreement is hereby deleted in its entirety
and the following substituted in lieu thereof:
(a) Subject to the terms and conditions of this Agreement, and in
reliance upon the representations and warranties contained
herein, the Bank will make Advances in the form of loans to
the Borrower in an aggregate amount not to exceed the lesser
of (i) Twenty-Five Million Dollars ($25,000,000.00) minus the
lesser of (A) the aggregate face amount of the Letters of
Credit issued under the LC Facility or (B) the Available Draw
under the letters of Credit (as defined in Section 2.3 hereof)
or (ii) the sum of (A) sixty percent (60%) of the cost or
market value, whichever is lower, of Eligible Inventory which
is not Retail Inventory, (B) fifty-five percent (55%) of the
cost or market value, whichever is lower, of Retail
Inventory, (C) eighty five percent (85%) of the outstanding
amount
<PAGE> 53
of Eligible Accounts, (D) sixty percent (60%) of the lesser of
(x) the aggregate face amount of the Letters of Credit issued
under the LC Facility or (y) the Available Draw under the
Letters of Credit and (E) the amount of collected funds in the
Cash Collateral Account (the lesser of (i) or (ii) being
referred to hereinafter as the "Maximum Loan Amount"). Should
the outstanding amount of Loans at any time exceed the
Maximum Loan Amount, Borrower shall on demand immediately
repay such excess amount. Any such Loans in excess of the
Maximum Loan Amount will be made from time to time in the sole
and absolute discretion of the Bank, and neither this
Agreement nor any loans or other action by the Bank shall
obligate the Bank to make further loans to the Borrower.
3. EXECUTION OF DOCUMENTS. The Borrower hereby agrees that it will,
contemporaneously with the execution of this Agreement, execute and deliver to
the Bank an Amended and Restated Revolving Loan Promissory Note in the amount of
$25,000,000.00 and such other documents and instruments as are necessary to
effect the intent hereof. Bank agrees that it will return to Borrower the
executed original $20,000,000.00 Revolving Loan Promissory Note previously
delivered to Bank to evidence the Revolving Loan.
4. AFFILIATE LOANS. Notwithstanding anything contained in Section 6.4
of the Loan Agreement, provided Borrower is not in default under the Loan
Agreement and the making of such loan would not cause Borrower to come into
default under the Loan Agreement, Borrower shall be permitted to make one or
more loans to Odd-Job Holdings, Inc., a Delaware corporation, in an amount not
to exceed $5,000,000.00, in the aggregate, outstanding at any time.
5. REPRESENTATIONS. Borrower represents and warrants to Bank that
(a) Borrower has the legal power and authority to execute and deliver this
Amendment; (b) the officials executing this Amendment have been duly authorized
to execute and deliver the same and bind Borrower with respect to the provisions
hereof; (c) the execution and delivery hereof by Borrower and the performance
and observance by Borrower of the provisions hereof do not violate or conflict
with the organizational agreements of Borrower or any law applicable to Borrower
or result in a breach of any provisions of or constitute a default under any
other agreement, instrument or document binding upon or enforceable against
Borrower; and (d) this Amendment constitutes a valid and binding obligation upon
Borrower, except as limited by bankruptcy, insolvency, or other laws relating to
the enforcement of creditor's rights and general equitable principles.
6. FUTURE NOTICES. All future references to the Loan Agreement in
communications between the parties subsequent to the date of this Amendment,
including any notices required to be given under the Loan Agreement or any
related loan document, need only reference the Loan Agreement without need of
referring to this Amendment, it being understood that any
2
<PAGE> 54
reference to the Loan Agreement shall include this Amendment and any other
amendments subsequently made and entered into.
7. NO SETOFFS OR CLAIMS. Borrower hereby declares that to its knowledge
as of the date hereof, Borrower has no setoffs, counterclaims, defenses or other
causes of action against Lender arising out of the Loan Agreement or any
documents mentioned herein.
8. CONFIRMATION AND RATIFICATION OF AGREEMENT. Except as herein
specifically amended, all of the terms and conditions set forth in the Loan
Agreement are confirmed and ratified and shall remain in full force and effect.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Second
Amendment to Loan Agreement to be executed by their duly authorized officers as
of the date first set forth above.
THE PROVIDENT BANK
By:
----------------------------------
John R. Mirlisena,
Senior Vice President
MAZEL COMPANY L.P.,
a Delaware limited partnership
By: ZS MAZEL L.P.,
a Delaware limited partnership,
General Partner of Mazel Company
L.P.
By: ZS MAZEL, INC.,
a Delaware corporation,
General Partner of ZS Mazel L.P.
By: /s/ Sue Atkinson
------------------------------------
Name: Sue Atkinson
----------------------------------
Its: Authorized Agent
-----------------------------------
<PAGE> 1
EXHIBIT 5.1
October 18, 1996
Mazel Stores, Inc.
31000 Aurora Road
Solon, Ohio 44139
In connection with the filing by Mazel Stores, Inc., an Ohio
corporation (the "Company"), with the Securities and Exchange Commission under
the provisions of the Securities Act of 1933, as amended, of a Registration
Statement on Form S-1 with respect to up to 2,466,750 Common Shares, without
par value, of the Company (the "Shares"), to be sold by the Company, we have
examined the following: (i) the Amended and Restated Articles of Incorporation
of the Company, as currently in effect; (ii) the Amended and Restated Code of
Regulations of the Company, as currently in effect; (iii) the Registration
Statement on Form S-1, as amended (including Exhibits thereto) filed with the
Securities and Exchange Commission; (iv) the form of Underwriting Agreement
pursuant to which the Shares are to be purchased by the Underwriters and resold
in a public offering; and (v) the records relating to the organization of the
Company and such other documents as we deem it necessary to examine as a basis
for the opinions hereinafter expressed.
Based on the foregoing, we are of the opinion that:
(i) The Company is incorporated and validly existing under
the laws of the State of Ohio.
(ii) The Shares to be issued and sold by the Company, when
issued and sold in the manner contemplated by the
Registration Statement, will be legally issued, fully
paid and non-assessable.
<PAGE> 2
Mazel Stores, Inc.
October 18, 1996
Page 2
We consent to the filing of this opinion with the Registration
Statement and to the use of our name therein under the caption "Legal Matters."
Very truly yours,
/s/ Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Amendment"), made and
entered into this 30th day of September, 1996 by and among MAZEL COMPANY L.P.,
a Delaware limited partnership (the "Partnership"), MAZEL STORES, INC., an Ohio
corporation (the "Company"), and REUVEN DESSLER (the "Employee"), is to evidence
the following agreements and understandings:
WITNESSETH:
-----------
WHEREAS, the Employee made and entered into an Employment Agreement
with the Partnership, effective July 14, 1992 (the "Agreement");
WHEREAS, the Company has acquired all of the assets and assumed
substantially all of the liabilities of the Partnership in exchange for all of
the capital stock in the Company; and
WHEREAS, the Company is now contemplating an initial public offering of
its Common Stock (the "Initial Public Offering") and the parties have agreed to
amend and restate the original Agreement to facilitate the Initial Public
Offering.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE> 2
1. TERM. The Company hereby employs the Employee, and the Employee
hereby accepts such employment, for an initial term commencing on the effective
date of the Initial Public Offering (the "Effective Date") and ending on October
31, 2000, unless sooner terminated in accordance with the provisions of Section
4 or Section 5; with such employment to continue in accordance with the terms of
this Agreement from year to year thereafter (subject to termination as
aforesaid) unless either party notifies the other party in writing not less than
thirty (30) days prior to the expiration of the initial term and each annual
renewal thereof (said initial term and any continuation thereof being
hereinafter referred to as the "TERM").
2. DUTIES. The Employee, in his capacity as Chairman of the Board and
Chief Executive Officer, shall faithfully perform for the Company the duties of
said offices and shall perform such other duties of an executive, managerial or
administrative nature as shall be specified and designated from time to time by
the Board of Directors. The Employee shall devote substantially all of his
business time and effort to the performance of his duties hereunder.
3. COMPENSATION.
3.1 SALARY. The Company shall pay the Employee during the Term
a salary at the rate of Four Hundred Twenty-five Thousand Dollars ($425,000) per
annum (the "ANNUAL SALARY"). Commencing on each anniversary of the commencement
date of the Term, the Annual Salary shall be increased by an amount (if a
positive number) equal to the
2
<PAGE> 3
product of (i) the Annual Salary in effect immediately prior to such date,
multiplied by (ii) 1.18 times the percentage, if any, by which the Consumer
Price Index (All Items less Shelter), Urban Wage Earners and Clerical Workers,
for the North Central Region/Population Size B, published by the United States
Government for the month preceding such date exceeds such index for the
comparable month in the preceding year. The Annual Salary shall be payable in
equal semi-monthly installments, less such deductions as shall be required to be
withheld by applicable law and regulations.
3.2 ANNUAL BONUS. During the Term, the Employee shall be
entitled to receive an annual bonus (the "ANNUAL BONUS") based upon the
Company's pre-tax income for each fiscal year of the Company ending during the
Term, commencing with the fiscal year ending January 25, 1997. Subject to the
terms, conditions and limitations set forth below, the maximum Annual Bonus for
any fiscal year shall be an amount equal to eighty-eight and two-tenths percent
(88.2%) of the Annual Salary in effect at the beginning of the relevant fiscal
year in the event that the Company's pre-tax income, calculated in accordance
with generally accepted accounting principles consistently applied, equals or
exceeds the "TARGET AMOUNT" (as hereinafter defined) for such fiscal years;
PROVIDED, HOWEVER, that the maximum Annual Bonus for the fiscal year ending
January 25, 1997 ("Fiscal 1996") and the fiscal year ending January 31, 1998
("Fiscal 1997") shall be One Hundred Twenty-Five Thousand Dollars ($125,000). If
the Company's pre-tax income for any fiscal year is less than the Target Amount
for such fiscal year, the Annual Bonus shall be the amount, if any, equal to
3
<PAGE> 4
(i) (A) the percentage of the Target Amount that such pre-tax income represents,
minus eighty percent (80%), divided by (B) twenty percent (20%), multiplied by
(ii) eighty-eight and two/tenths percent (88.2%) of the Employee's Annual Salary
in effect at the beginning of such fiscal year (or, in the case of fiscal 1996
or 1997, $125,000). For example, if the Company's pre-tax income for Fiscal 1997
is ninety-six percent (96%) of the Target Amount and Employee's Annual Salary is
$425,000, the Annual Bonus shall be calculated as follows:
(96%-80%)
--------- X $125,000 = $100,000
20%
If the Company's pre-tax income for any fiscal year is less than eighty percent
(80%) of the Target Amount for such fiscal year, no Annual Bonus shall be
payable for such fiscal year. For purposes of this Agreement, the term "TARGET
AMOUNT" shall mean an amount to be determined by the Compensation Committee of
the Board of Directors prior to the end of the first quarter of such year after
consulting with the Employee except that the Target Amount with respect to
Fiscal 1996 shall be $9,500,000, which will be adjusted to reflect both charges
and credits attributable or otherwise resulting from the Initial Public
Offering. The Annual Bonus for each fiscal year shall be paid in full to the
Employee as soon as practicable (but not later than thirty (30) days) after the
Company's audited financial statement for such fiscal year is available to the
Company. In the event Employee's employment terminates due to death, disability
or expiration of the Term as provided in Section 1 hereof, then Employee shall
be entitled to a pro rata share of an Annual Bonus with the percentage equal to
the number of full weeks of employment during the fiscal year divided by 52. No
bonus shall
4
<PAGE> 5
be paid for any year during which the Employee is terminated for "cause" or the
Employee voluntarily elects to terminate his employment.
3.3 OPTIONS. On the effective date of the Public Offering, the
Employee shall be granted under the Mazel Stores, Inc. 1996 Stock Option Plan a
non-qualified option to purchase up to 75,000 Common Shares of the Company at an
exercise price equal to the initial public offering price (the "OFFERING
PRICE"). The option shall expire on the tenth (10th) anniversary of the
Effective Date. The option shall vest at a rate of twenty percent (20%) per
year, assuming the Employee remains an employee of the Company, commencing with
the first anniversary of the Effective Date.
3.4 CASH AND STOCK SALARY REDUCTION AWARDS; MAXIMUM ANNUAL
BONUS REDUCTION AWARDS; ADJUSTMENT TO ANNUAL BONUS.
A. In consideration of the salary reductions effected at the time of
the Initial Public Offering, in lieu of the salary amount payable under the
original Agreement: (i) the Company agrees to pay to Employee, on the Effective
Date, an amount in cash equal to the difference between $1,451,753 (Employee's
current annual salary) and $500,000, prorated for the period between the
Effective Date and July 14, 1997, and discounted at the current rate of interest
charged by The Provident Bank as its prime rate, and (ii) the Company grants
Employee the number of Common Shares as equal (A) 1.25 times the sum of $75,000
times the number of years (rounded to the nearest tenth) in the period between
the Effective Date and October 31, 2000, DIVIDED BY (B) the Offering Price.
5
<PAGE> 6
B. In consideration of the Annual Bonus reductions effected at the time
of the Initial Public Offering, the Company agrees to grant Employee an
additional number of Common Shares (rounded up to the nearest whole share)
calculated as follows: $298,828.75 divided by the Offering Price. The award of
securities under this Section 3.4 shall be deemed exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Rule 701
promulgated under such Act, but shall be subject to any lock-up agreement
required of officers and directors by the underwriting agreement between the
Company and the underwriters. In addition to the foregoing, the Company agrees
to lend the Employee, if requested, an amount that will cover the Employee's
income tax obligations arising from the grant of the Common Shares. The loan
principal and accrued interest shall be due on the earlier of (i) five years
after the Effective Date or (ii) five (5) days following the date the Employee
first sells any of the Company's Common Stock, but only to the extent of net
proceeds from such sale. Interest on the loan shall accrue at the applicable
federal rate for mid-term loans in effect on the date of the loans.
C. Notwithstanding anything contained in Section 3.2 to the contrary,
in the event the actual pre-tax income of the Company during either Fiscal 1996
or Fiscal 1997, or in both years, is less than the Target Amount for such fiscal
years, then the actual Annual Bonus to which Employee may be entitled in respect
of Fiscal 1998 shall be reduced, on a dollar for dollar basis, by an amount
(herein referred to as the "Unearned Bonus") equal to the
6
<PAGE> 7
unearned bonus, if any, for Fiscal 1996 and Fiscal 1997, in the aggregate. The
Unearned Bonus is determined as follows:
1. If the Fiscal 1996 actual Annual Bonus is not $125,000, then
the Unearned Bonus for such year shall be the difference
between (a) $75,000 and (b) $75,000 times a fraction, the
numerator of which is the actual Annual Bonus earned and the
denominator of which is $125,000. To illustrate the foregoing,
assuming the Example in Section 3.4B above involved Fiscal
1996, the Unearned Bonus for Fiscal 1996 would be:
$75,000 - (100,000 X 75,000) or $15,000
-------
125,000
2. If the Fiscal 1997 actual Annual Bonus is not $125,000, then
the Unearned Bonus for such year shall be the difference
between (a) $164,063 and (b) $164,063 times the fraction, the
numerator of which is the actual Annual Bonus earned and the
denominator of which is $125,000. To illustrate the foregoing,
using the example in Section 3.4B, the Fiscal 1997 Unearned
Bonus is:
$164,063 - (100,000) X $164,063)
-------
125,000
In the event the Unearned Bonus exceeds the Fiscal 1998 Annual Bonus, the Annual
Bonuses for future fiscal years shall be reduced until the deficiency is
eliminated. Employee shall have no obligation to reimburse the Company any
Unearned Bonus in the event of his
7
<PAGE> 8
termination of employment at the end of the Term, termination due to death or
disability, or an earlier termination by the Company for any reason other than
"cause."
3.5 BENEFITS. The Employee shall be permitted during the Term
to participate in any group life, hospitalization or disability insurance plans,
health programs, pension plans or similar benefits that may be available to
other senior executives of the Company generally, on the same terms as such
other executives, in each case to the extent that the Employee is eligible under
the terms of such plans or programs. The Employee shall also be entitled to
receive vacation of six (6) weeks per year. Additionally, during the Term, the
Company agrees to continue to pay the premium (approximately $17,200 per annum)
on the current $2 million insurance policy on the life of the Employee and
Employee shall have the right to designate the beneficiary or beneficiaries of
such policy. The Employee shall also have the right, at any time during the Term
or within sixty (60) days of its expiration, to purchase the insurance policy
for its cash value and the Company agrees to continue to make the premium
payments during the Term.
3.6 EXPENSES. The Company shall pay or reimburse the Employee
for all reasonable expenses actually incurred or paid by the Employee during the
Term in the performance of the Employee's services under this Agreement.
3.7 OTHER EXECUTIVES. The Company agrees that Employee's
Annual Salary at all times during the Term will be at least as high as the
Annual Salary paid or payable to any other executive employee hired directly by
the Company; PROVIDED, HOWEVER; that the
8
<PAGE> 9
foregoing shall not apply with respect to executive employees who become
employed by the Company through a merger with any other company; PROVIDED,
FURTHER, that the foregoing will not limit the Company's ability to pay other
executive employees cash bonuses or other non-cash compensation (Stock Options)
as a result of which such other executive employees would receive higher overall
annual compensation than Employee.
4. TERMINATION UPON DEATH OR DISABILITY. If the Employee dies during
the term, this Agreement shall terminate as of the date of the Employee's death.
If the Employee by virtue of ill health or other disability is unable to perform
substantially and continuously the duties assigned to him for more than 180
consecutive or non-consecutive days out of any consecutive 12 month period, the
Company shall have the right to terminate the employment of the Employee upon
notice in writing to the Employee. Upon termination, the Employee (or the
Employee's estate or beneficiaries in the case of the death of the Employee)
shall be entitled to receive any Annual Salary, Annual Bonus and other benefits
earned and accrued under this Agreement, and reimbursement under this Agreement
for expenses incurred, prior to the date of termination. No provision of this
Agreement shall limit any of Employee's rights under any insurance, pension or
other benefit programs of the Company for which the Employee shall be eligible
at the time of such death or disability.
5. TERMINATION FOR CAUSE. If the Employee (i) is convicted of a felony,
a crime of moral turpitude or any crime involving the Company (other than
pursuant to actions taken at the direction or with the approval of the Board of
Directors); (ii) is found by reasonable
9
<PAGE> 10
determination of the Board of Directors made in good faith, to have engaged in
(A) willful misconduct, (B) willful or gross neglect, (C) fraud, (D)
misappropriation or (E) embezzlement in the performance of his duties hereunder;
or (iii) breaches in any material respect the terms and provisions of this
Agreement and fails to cure such breach within ten days following written notice
from the Company specifying such breach, the Company may terminate the
Employee's employment hereunder on written notice given to the Employee at any
time following the occurrence of any of the events described in clauses (i) and
(ii) above and on written notice given to the Employee at any time not less than
30 days following the occurrence of any of the events described in clause (iii)
above. The Employee shall have no right to receive any compensation or benefit
hereunder on and after the effective date of the notice provided in the
preceding sentence other than Annual Salary, Annual Bonus and other benefits
earned and accrued under this Agreement, and reimbursement under this Agreement
for expenses incurred, prior to the effective date of such notice.
6. COVENANT OF THE EMPLOYEE.
6.1 COVENANT AGAINST COMPETITION. The Employee acknowledges
that (i) the principal businesses of the Company and its affiliates are the
retail and wholesale sales of closeout merchandise (collectively, the "COMPANY
BUSINESS"); (ii) the Employee is among only a limited number of persons who have
developed the Company Business; (iii) the Company Business is, in part, national
in scope; (iv) the Employee's work for the Company
10
<PAGE> 11
and its affiliates has given and will continue to give him access to the
confidential affairs and proprietary information of the Company; (v) the
agreements and covenants of the Employee contained in this Section 6 are
essential to the business and goodwill of the Company; (vi) the Company would
not have entered into this Agreement but for the covenants and agreements set
forth in this Section 6; and (vii) the cash and stock compensation to be
received by Employee under this Agreement is, in part, in payment for the
covenants and agreements set forth in this Section 6. Accordingly, the Employee
covenants and agrees that:
(a) During the period commencing on the Effective
Date and ending on the later of (i) two year following the
date upon which the Employee shall cease to be an employee of
the Company and (ii) October 31, 2000 (the "RESTRICTED
PERIOD"), the Employee shall not in the United States of
America, directly or indirectly, (1) engage in the Company
Business for the Employee's own account; (2) render any
services to any person (other than the Company) engaged in
such activities; or (3) become interested in any such person
(other than the Company) as a partner, shareholder, principal,
agent consultant or in any other relationship or capacity;
PROVIDED, HOWEVER, that notwithstanding the above, the
Employee may own, directly or indirectly, solely as an
investment, securities of any such person that are traded on
any national securities exchange or the NASDAQ National Market
if the Employee (A) is not a controlling person of, or a
member of a group which controls, such person and (B) does
not, directly or indirectly, own four percent (4%) or more of
any class
11
<PAGE> 12
of securities of such person. Notwithstanding the foregoing,
in the event Employee's employment is terminated by the
Company other than for "cause" (as defined in Section 5), the
Restricted Period will terminate on the date one year
following the date of termination.
(b) During and after the Restricted Period, the
Employee shall not use for his benefit or the benefit of
others, except in connection with the business and affairs of
the Company and its affiliates, any confidential matters
relating to the Company Business and to the Company and its
affiliates learned by the Employee heretofore or hereafter
directly or indirectly from the Company or its predecessors
and its affiliates, including, without limitation, information
with respect to (1) prospective store locations, (2) sales
figures (whether per store or otherwise), (3) profit or loss
figures (whether per store or otherwise), and (4) customers,
clients, suppliers, sources of supply and customer lists (the
"Confidential Company Information ") and shall not disclose
such Confidential Company Information to anyone outside of the
Company or its affiliates except with the Company's express
written consent and except for Confidential Company
Information that (1) is at the time of receipt or thereafter
becomes publicly known through no wrongful act of the Employee
or (2) is received from a third party not under an obligation
to keep such information confidential and without breach of
this Agreement.
12
<PAGE> 13
(c) During the Restricted Period, the Employee shall
not, without the Company's prior written consent, directly or
indirectly, knowingly solicit or encourage to leave the
employment of the Company, any employee of the Company or hire
any employee who has left the employment of the Company after
the date of this Agreement within one year of the termination
of such employee's employment with the Company.
(d) All memoranda, notes, lists, records and other
documents (and all copies thereof) made or compiled by the
Employee or made available to the Employee concerning the
Company Business or the Company and its affiliates shall be
the Company's property and shall be delivered to the Company
at any time on request.
6.2 RIGHTS AND REMEDIES UPON BREACH. If the Employee breaches,
or threatens to commit a breach of, any of the provisions of Section 6.1 (the
"RESTRICTIVE COVENANTS"), the Company shall have the following rights and
remedies (upon compliance with any necessary prerequisites imposed by law upon
the availability of such remedies), each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to, and not in lieu of any other rights and
remedies available to the Company under law or in equity:
(a) The right and remedy to have the Restrictive
Covenants specifically enforced (without posting bond) by any
court having equity jurisdiction, including, without
limitation, the right to an entry against the
13
<PAGE> 14
Employee of restraining orders and injunctions (preliminary,
mandatory, temporary and permanent) against violations,
threatened or actual, and whether or not then continuing, of
such covenants, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to
the Company and that money damages will not provide an
adequate remedy to the Company.
7. EARLY TERMINATION. Notwithstanding any provision of this Agreement
to the contrary, the Company may terminate this Agreement at any time for any
reason other than "cause", provided that the Company shall continue to pay the
Employee his current compensation until the earlier of October 31, 2000 or one
(1) year after the date of termination. The compensation, including an amount
equal to the prior year's bonus, shall be payable in twelve (12) equal monthly
installments, net of applicable withholding taxes. Employee shall be entitled to
receive all benefits, including life insurance, payable under this Agreement for
the duration of such twelve (12) months or until October 31, 2000, whichever is
earlier. In the event of termination under this paragraph, the "Restricted
Period" under Section 6.1 shall expire one (1) year after the date of such
termination.
In the event the Employee elects to terminate this Agreement prior to
the expiration of the Term, his noncompetition covenant shall expire on the
later of October 31, 2000 or two (2) years after the date of such termination.
The Company covenants and agrees with Employee that the Company will
not relocate the Company's corporate headquarters or Employee's principal office
from the
14
<PAGE> 15
Cleveland, Ohio area during the Term. The Company further agrees that it will
maintain and not change the present business hours or policy on business hours
of the Company's wholesale operations, provided that this sentence shall not
apply to any businesses that the Company may acquire in the future. Accordingly,
the Company agrees that should the Company (i) relocate the corporate
headquarters or Employee's principal office from the Cleveland, Ohio
metropolitan area or (ii) modify the business hours or policy or business hours
of the current wholesale operations, at any time during the Term, such
relocation or modification shall entitle Employee, at his sole election and
effective upon notice to the Company, to terminate this Agreement, and such
termination shall be deemed a termination by the Company other than for "cause"
for purposes of this Section 7.
8. CHANGE OF CONTROL
A. In the event of a "Change in Control," then the Employee may elect to
terminate his employment hereunder effective upon the consummation of
such Change of Control, and such termination shall be deemed for
purposes of this Agreement as a termination by the Company without
"cause." In lieu of the compensation payable under Section 7, Employee
shall be entitled to twenty-four (24) equal monthly installments, net
of applicable withholding taxes, the aggregate amount of which payments
equals the sum of his salary on the date of termination and his prior
year's bonus. Additionally, in the event the Company elects to
terminate the Employee's employment under Section 7 of this Agreement,
and a "Change-of-Control" occurs within six (6) months of Employee's
termination, then Employee shall be entitled to receive the additional
15
<PAGE> 16
one-year's salary and bonus provided in this Section 8.A. unless the
Company can demonstrate, by clear and convincing evidence, that such
termination did not occur in contemplation of the Change-in-Control.
B. The term "Change in Control" shall mean, but not be limited to: (a) the
first purchase of shares pursuant to a tender offer or exchange (other
than a tender offer or exchange by the Company, ZS Fund, Reuven
Dessler, and/or any affiliate thereof) for all or part of the Company's
Common Shares of any class or any securities convertible into such
Common Shares and Employee has elected not to tender or exchange his
Common Shares; (b) the receipt by the Company of a Schedule 13D or
other advice indicating that a person (other than ZS Fund, Mazel/D&K,
Inc., Reuven Dessler and/or any affiliate thereof) is the "beneficial
owner" (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of twenty percent (20%) or more of the Company's
Common Shares calculated as provided in paragraph (d) of said Rule 13d-
3; (c) the date of approval by shareholders of the Company (which
shareholder approval did not include the affirmative vote of the Common
Shares beneficially owned by Employee) of an agreement providing for
any consolidation or merger of the Company in which the Company will
not be the continuing or surviving corporation or pursuant to which
shares of capital stock, of any class or any securities convertible
into such capital stock, of the Company would be converted into cash,
securities, or other property, other than a merger of the Company in
which the holders of common stock of all classes of the Company
immediately prior to the merger would have the same proportion of
ownership of common stock of the surviving
16
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corporation immediately after the merger; (d) the date of the approval
by shareholders of the Company (which shareholder approval did not
include the affirmative vote of the Common Shares beneficially owned by
Employee) of any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Company; (e) the adoption of any
plan or proposal for the liquidation (but not a partial liquidation) or
dissolution of the Company, AND Employee shall have voted his Common
Shares against adoption of such plan or proposal; or (f) the date (the
"Measurement Date") on which the individual who at the beginning of a
two consecutive year period ending on the Measurement Date, cease, for
any reason, to constitute at least a majority of the Board of Directors
of the Company, unless the election, or the nomination for election by
the Company's shareholders, of each new director during such two-year
period was approved by an affirmative vote of the directors (including
Employee) then still in office who were directors at the beginning of
said two-year period.
C. Notwithstanding any other provision of this Agreement, in the event
that any payment or benefits provided by the Company (or an affiliate)
to the Employee under or outside of the terms of this Agreement would
constitute a "parachute payment" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), the
payments or benefits provided hereunder shall be reduced to the extent
necessary so that no portion thereof shall be subject to the excise tax
imposed by Section 4999 of the Code, but only if, by reason of such
reduction, the Employee's net
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after tax benefit shall exceed the net after tax benefit if such
reduction were not made. "Net after tax benefit" for purposes of this
Section 8 shall mean the sum of:
(i) the total amount payable to the Employee under this Agreement,
PLUS
(ii) all other payments and benefits which the Employee receives or
is then entitled to receive from the Company and any of its
affiliates that would constitute a "parachute payment" within
the meaning of Section 280G of the Code, LESS
(iii) the amount of federal income taxes payable with respect to the
payments and benefits described in clauses (i) and (ii) above
calculated at the maximum marginal income tax rate for each
year in which such payments and benefits shall be paid to the
Employee (based upon the rate in effect for such year as set
forth in the Code at the time of the first payment of the
foregoing), LESS
(iv) the amount of excise taxes imposed with respect to the
payments and benefits described in clauses (i) and (ii) above
by Section 4999 of the Code.
All calculations under this Section 8 shall be made by the Company in
consultation with its outside auditors.
9. OTHER PROVISIONS.
9.1 SEVERABILITY. The Employee acknowledges and agrees that
(i) he has had an opportunity to seek advice of counsel in connection with this
Agreement and (ii) the Restrictive Covenants are reasonable in geographical and
temporal scope and in all other respects. If it is determined that any of the
provisions of this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable,
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the remainder of the provisions of this Agreement shall not thereby be affected
and shall be given full effect, without regard to the invalid portions.
9.2 BLUE-PENCILLING. If any court determines that any of the
covenants contained in this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provision, the duration or scope of such
provision, as the case may be, shall be reduced so that such provision becomes
enforceable and, in its reduced form, such provision shall then be enforceable
and shall be enforced.
9.3 ENFORCEABILITY; JURISDICTIONS. The Company and the
Employee intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such jurisdiction
hold the Restrictive Covenants wholly unenforceable by reason of breadth of
scope or otherwise, it is the intention of the Company and the Employee that
such determination not bar or in any way affect the Company's right to the
relief provided above in the courts of any other jurisdiction within the
geographical scope of such Restrictive Covenants, as to breaches of such
Restrictive Covenants in such other respective jurisdictions, such Restrictive
Covenants as they relate to each jurisdictions being, for this purpose,
severable, diverse and independent covenants, subject, where appropriate, to the
doctrine of RES JUDICATA.
9.4 SET-OFF. The Employee acknowledges and agrees that the
Company may set-off against any or all amounts payable to the Employee hereunder
any or all amounts
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<PAGE> 20
payable by the Employee to the Company in respect of a breach by the Employee of
any of the provisions of Section 6.
9.5 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, or sent by facsimile transmission or, if mailed, five days after the
date of deposit in the United States mails as follows:
(i) If to the Company, to:
Mazel Stores, Inc.
31200 Aurora Road
Solon, Ohio 44139
Attention: President
with a copy to:
ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, New York 10036
Attention: Ned L. Sherwood
(ii) If to the Employee to:
Reuven Dessler
3666 Shannon Road
Cleveland Heights, Ohio 44118
with a copy to:
Bennett Yanowitz, Esq.
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
Suite 2600
The Tower at Erieview
Cleveland, Ohio 44114-1824
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<PAGE> 21
Any such person may by notice given in accordance with this Section to the other
parties hereto designate another address or person for receipt by such person of
notices hereunder.
9.6 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto,
including, but not limited to, the original Agreement, which shall become null
and void and of no further force and effect on the Effective Date. Without
limiting the generality of the preceding sentence, the Employee hereby waives
any and all rights to compensation which he has or may have had under the
original Agreement in respect of the fiscal year ending January 31, 1997;
PROVIDED, HOWEVER, that such waiver shall not become effective until the
Effective Date and shall be inoperative until such date.
9.7 WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in exercising
any rights, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege
nor any single or partial exercise of any such right, power or privilege,
preclude any other or further exercise thereof or the exercise of any other such
right, power or privilege.
9.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio without regard to
principles of conflicts of law.
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9.9 ASSIGNMENT. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee; any purported
assignment by the Employee in violation hereof shall be null and void. In the
event of any sale, transfer or other disposition of all or substantially all of
the Company's assets or business, whether by merger, consolidation or otherwise,
the Company may assign this Agreement and its rights hereunder.
9.10 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, permitted
assigns, heirs, executors and legal representatives.
9.11 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of two
copies hereof each signed by one of the parties thereto.
9.12 SURVIVAL. Anything contained in this Agreement to the
contrary notwithstanding, the provisions of Sections 6.1, 6.2, 8.1, 8.2, 8.3 and
8.4 shall survive termination of this Agreement.
9.13 HEADINGS. The headings in this Agreement are for
reference only and shall not affect the interpretation of this Agreement.
9.14 INVALIDITY. This Agreement shall be deemed void and of no
effect if the Initial Public Offering fails to occur prior to December 31, 1996.
In the event this
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<PAGE> 23
Agreement is deemed null and void, the July 14, 1992 (original) Agreement shall
still be effective.
IN WITNESS WHEREOF, the parties hereto have signed their names as of
the day and year first above written.
MAZEL COMPANY L.P. MAZEL STORES, INC.
By: ZS Mazel L.P.,
its Managing Partner By: /s/ Susan Atkinson
------------------------
Susan Atkinson
By: ZS Mazel, Inc., General Partner of Chief Financial Officer
ZS Mazel L.P.
By: /s/ Robert Horne /s/ REUVEN DESSLER
----------------------------- ----------------------------
Robert Horne REUVEN DESSLER
Vice President
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<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Amendment"), made and
entered into this 30th day of September, 1996 by and among MAZEL COMPANY L.P.,
a Delaware limited partnership (the "Partnership"), MAZEL STORES, INC., an Ohio
corporation (the "Company"), and JACOB KOVAL (the "Employee"), is to evidence
the following agreements and understandings:
WITNESSETH:
-----------
WHEREAS, the Employee made and entered into an Employment Agreement
with the Partnership, effective July 14, 1992 (the "Agreement");
WHEREAS, the Company has acquired all of the assets and assumed
substantially all of the liabilities of the Partnership in exchange for all of
the capital stock in the Company; and
WHEREAS, the Company is now contemplating an initial public offering of
its Common Stock (the "Initial Public Offering") and the parties have agreed to
amend and restate the original Agreement to facilitate the Initial Public
Offering.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. TERM. The Company hereby employs the Employee, and the Employee
hereby accepts such employment, for an initial term commencing on the effective
date of the Initial Public Offering (the "Effective Date") and ending on October
31, 2000, unless sooner terminated in accordance with the provisions of Section
4 or Section 5; with such employment to continue in accordance with the terms of
this Agreement from year to year thereafter (subject to termination as
aforesaid) unless either party notifies the other party in writing not less than
thirty (30) days prior to the expiration of the initial term and each annual
renewal thereof (said initial term and any continuation thereof being
hereinafter referred to as the "TERM").
2. DUTIES. The Employee, in his capacity as Executive Vice President --
Wholesale, shall faithfully perform for the Company the duties of said offices
and shall perform such other duties of an executive, managerial or
administrative nature as shall be specified and designated from time to time by
the Board of Directors. The Employee shall devote substantially all of his
business time and effort to the performance of his duties hereunder.
3. COMPENSATION.
3.1 SALARY. The Company shall pay the Employee during the Term a
salary at the rate of Two Hundred Twenty-five Thousand Dollars ($225,000) per
annum (the
2
<PAGE> 3
"ANNUAL SALARY"). Commencing on each anniversary of the commencement date of the
Term, the Annual Salary shall be increased by an amount (if a positive number)
equal to the product of (I) the Annual Salary in effect immediately prior to
such date, multiplied by (ii) 1.18 times the percentage, if any, by which the
Consumer Price Index (All Items less Shelter), Urban Wage Earners and Clerical
Workers, for the North Central Region/Population Size B, published by the United
States Government for the month preceding such date exceeds such index for the
comparable month in the preceding year. The Annual Salary shall be payable in
equal semi-monthly installments, less such deductions as shall be required to be
withheld by applicable law and regulations.
3.2 ANNUAL BONUS. During the Term, the Employee shall be entitled
to receive an annual bonus (the "ANNUAL BONUS") based upon the Company's pre-tax
income for each fiscal year of the Company ending during the Term, commencing
with the fiscal year ending January 25, 1997. Subject to the terms, conditions
and limitations set forth below, the maximum Annual Bonus for any fiscal year
shall be an amount equal to sixty-six and seven-tenths percent (66.7%) of the
Annual Salary in effect at the beginning of the relevant fiscal year in the
event that the Company's pre-tax income, calculated in accordance with generally
accepted accounting principles consistently applied, equals or exceeds the
"TARGET AMOUNT" (as hereinafter defined) for such fiscal years; PROVIDED,
HOWEVER, that the maximum Annual Bonus for the fiscal year ending January 25,
1997 ("Fiscal 1996") shall be Seventy- Five Thousand Dollars ($75,000) and the
maximum Annual Bonus for the fiscal year ending January 31, 1998 ("Fiscal 1997")
shall be One Hundred Fifteen Thousand Dollars
3
<PAGE> 4
($115,000). If the Company's pre-tax income for any fiscal year is less than the
Target Amount for such fiscal year, the Annual Bonus shall be the amount, if
any, equal to (I) (A) the percentage of the Target Amount that such pre-tax
income represents, minus eighty percent (80%), divided by (B) twenty percent
(20%), multiplied by (ii) sixty-six and seven/tenths percent (66.7%) of the
Employee's Annual Salary in effect at the beginning of such fiscal year (or, in
the case of fiscal 1996 or 1997, $75,000 or $115,000, respectively.) For
example, if the Company's pre-tax income for Fiscal 1997 is ninety-six percent
(96%) of the Target Amount, the Annual Bonus shall be calculated as follows:
(96%-80%)
---------
20% X $115,000 = $92,000
If the Company's pre-tax income for any fiscal year is less than eighty percent
(80%) of the Target Amount for such fiscal year, no Annual Bonus shall be
payable for such fiscal year. For purposes of this Agreement, the term "TARGET
AMOUNT" shall mean an amount to be determined by the Compensation Committee of
the Board of Directors prior to the end of the first quarter of such year after
consulting with the Employee except that the Target Amount with respect to
Fiscal 1996 shall be $9,500,000, which will be adjusted to reflect both charges
and credits attributable or otherwise resulting from the Initial Public
Offering. The Annual Bonus for each fiscal year shall be paid in full to the
Employee as soon as practicable (but not later than thirty (30) days) after the
Company's audited financial statement for such fiscal year is available to the
Company. In the event Employee's employment terminates due to death, disability
or expiration of the Term as provided in Section 1 hereof, then Employee shall
be entitled to a pro rata share of an Annual Bonus with the percentage equal to
the
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<PAGE> 5
number of full weeks of employment during the fiscal year divided by 52. No
bonus shall be paid for any year during which the Employee is terminated for
"cause" or the Employee voluntarily elects to terminate his employment.
3.3 OPTIONS. On the effective date of the Public Offering, the
Employee shall be granted under the Mazel Stores, Inc. 1996 Stock Option Plan a
non-qualified option to purchase up to 30,000 Common Shares of the Company at an
exercise price equal to the initial public offering price (the "OFFERING
PRICE"). The option shall expire on the tenth (10th) anniversary of the
Effective Date. The option shall vest at a rate of twenty percent (20%) per
year, assuming the Employee remains an employee of the Company, commencing with
the first anniversary of the Effective Date.
3.4 CASH AND STOCK SALARY REDUCTION AWARDS; MAXIMUM ANNUAL BONUS
REDUCTION AWARDS; ADJUSTMENT TO ANNUAL BONUS.
A. In consideration of the salary reductions effected at the time of
the Initial Public Offering, in lieu of the salary amount payable under the
original Agreement: (I) the Company agrees to pay to Employee, on the Effective
Date, an amount in cash equal to the difference between $446,471 (Employee's
current annual salary) and $300,000, prorated for the period between the
Effective Date and July 14, 1997, and discounted at the current rate of interest
charged by The Provident Bank as its prime rate, and (ii) the Company grants
Employee the number of Common Shares as equal (A) 1.25 times the sum of $75,000
times the number of years (rounded to the nearest tenth) in the period between
the Effective Date and October 31, 2000, DIVIDED BY (B) the Offering Price.
B. The award of securities under this Section 3.4 shall be deemed
exempt from
5
<PAGE> 6
the registration requirements of the Securities Act of 1933, as amended,
pursuant to Rule 701 promulgated under such Act, but shall be subject to any
lock-up agreement required of officers and directors by the underwriting
agreement between the Company and the underwriters. In addition to the
foregoing, the Company agrees to lend the Employee, if requested, an amount that
will cover the Employee's income tax obligations arising from the grant of the
Common Shares. The loan principal and accrued interest shall be due on the
earlier of (I) five years after the Effective Date or (ii) five (5) days
following the date the Employee first sells any of the Company's Common Stock,
but only to the extent of net proceeds from such sale. Interest on the loan
shall accrue at the applicable federal rate for mid-term loans in effect on the
date of the loans.
3.5 BENEFITS. The Employee shall be permitted during the Term to
participate in any group life, hospitalization or disability insurance plans,
health programs, pension plans or similar benefits that may be available to
other senior executives of the Company generally, on the same terms as such
other executives, in each case to the extent that the Employee is eligible under
the terms of such plans or programs. The Employee shall also be entitled to
receive vacation of six (6) weeks per year.
3.6 EXPENSES. The Company shall pay or reimburse the Employee for
all reasonable expenses actually incurred or paid by the Employee during the
Term in the performance of the Employee's services under this Agreement.
4. TERMINATION UPON DEATH OR DISABILITY. If the Employee dies during
the term, this Agreement shall terminate as of the date of the Employee's death.
If the Employee by
6
<PAGE> 7
virtue of ill health or other disability is unable to perform substantially and
continuously the duties assigned to him for more than 180 consecutive or
non-consecutive days out of any consecutive 12 month period, the Company shall
have the right to terminate the employment of the Employee upon notice in
writing to the Employee. Upon termination, the Employee (or the Employee's
estate or beneficiaries in the case of the death of the Employee) shall be
entitled to receive any Annual Salary, Annual Bonus and other benefits earned
and accrued under this Agreement, and reimbursement under this Agreement for
expenses incurred, prior to the date of termination. No provision of this
Agreement shall limit any of Employee's rights under any insurance, pension or
other benefit programs of the Company for which the Employee shall be eligible
at the time of such death or disability.
5. TERMINATION FOR CAUSE. If the Employee (I) is convicted of a felony,
a crime of moral turpitude or any crime involving the Company (other than
pursuant to actions taken at the direction or with the approval of the Board of
Directors); (ii) is found by reasonable determination of the Board of Directors
made in good faith, to have engaged in (A) willful misconduct, (B) willful or
gross neglect, (C) fraud, (D) misappropriation or (E) embezzlement in the
performance of his duties hereunder; or (iii) breaches in any material respect
the terms and provisions of this Agreement and fails to cure such breach within
ten days following written notice from the Company specifying such breach, the
Company may terminate the Employee's employment hereunder on written notice
given to the Employee at any time following the occurrence of any of the events
described in clauses (I) and (ii) above and on written notice given to the
Employee at any time not less than 30 days following the
7
<PAGE> 8
occurrence of any of the events described in clause (iii) above. The Employee
shall have no right to receive any compensation or benefit hereunder on and
after the effective date of the notice provided in the preceding sentence other
than Annual Salary, Annual Bonus and other benefits earned and accrued under
this Agreement, and reimbursement under this Agreement for expenses incurred,
prior to the effective date of such notice.
6. COVENANT OF THE EMPLOYEE.
6.1 COVENANT AGAINST COMPETITION. The Employee acknowledges that
(I) the principal businesses of the Company and its affiliates are the retail
and wholesale sales of closeout merchandise (collectively, the "COMPANY
BUSINESS"); (ii) the Employee is among only a limited number of persons who have
developed the Company Business; (iii) the Company Business is, in part, national
in scope; (iv) the Employee's work for the Company and its affiliates has given
and will continue to give him access to the confidential affairs and proprietary
information of the Company; (v) the agreements and covenants of the Employee
contained in this Section 6 are essential to the business and goodwill of the
Company; (vi) the Company would not have entered into this Agreement but for the
covenants and agreements set forth in this Section 6; and (vii) the cash and
stock compensation to be received by Employee under this Agreement is, in part,
in payment for the covenants and agreements set forth in this Section 6.
Accordingly, the Employee covenants and agrees that:
(a) During the period commencing on the Effective Date and
ending on the later of (I) two year following the date upon which
the Employee shall cease to be an employee of the Company and
(ii) October 31, 2000 (the
8
<PAGE> 9
"RESTRICTED PERIOD"), the Employee shall not in the United States
of America, directly or indirectly, (1) engage in the Company
Business for the Employee's own account; (2) render any services
to any person (other than the Company) engaged in such
activities; or (3) become interested in any such person (other
than the Company) as a partner, shareholder, principal, agent
consultant or in any other relationship or capacity; PROVIDED,
HOWEVER, that notwithstanding the above, the Employee may own,
directly or indirectly, solely as an investment, securities of
any such person that are traded on any national securities
exchange or the NASDAQ National Market if the Employee (A) is not
a controlling person of, or a member of a group which controls,
such person and (B) does not, directly or indirectly, own four
percent (4%) or more of any class of securities of such person.
Notwithstanding the foregoing, in the event Employee's employment
is terminated by the Company other than for "cause" (as defined
in Section 5), the Restricted Period will terminate on the date
one year following the date of termination.
(b) During and after the Restricted Period, the Employee shall
not use for his benefit or the benefit of others, except in
connection with the business and affairs of the Company and its
affiliates, any confidential matters relating to the Company
Business and to the Company and its affiliates learned by the
Employee heretofore or hereafter directly or indirectly from the
Company or its predecessors and its affiliates, including,
without limitation,
9
<PAGE> 10
information with respect to (1) prospective store locations, (2)
sales figures (whether per store or otherwise), (3) profit or
loss figures (whether per store or otherwise), and (4) customers,
clients, suppliers, sources of supply and customer lists (the
"Confidential Company Information ") and shall not disclose such
Confidential Company Information to anyone outside of the Company
or its affiliates except with the Company's express written
consent and except for Confidential Company Information that (1)
is at the time of receipt or thereafter becomes publicly known
through no wrongful act of the Employee or (2) is received from a
third party not under an obligation to keep such information
confidential and without breach of this Agreement.
(c) During the Restricted Period, the Employee shall not,
without the Company's prior written consent, directly or
indirectly, knowingly solicit or encourage to leave the
employment of the Company, any employee of the Company or hire
any employee who has left the employment of the Company after the
date of this Agreement within one year of the termination of such
employee's employment with the Company.
(d) All memoranda, notes, lists, records and other documents
(and all copies thereof) made or compiled by the Employee or made
available to the Employee concerning the Company Business or the
Company and its affiliates shall be the Company's property and
shall be delivered to the Company at any time on request.
10
<PAGE> 11
6.2 RIGHTS AND REMEDIES UPON BREACH. If the Employee breaches, or
threatens to commit a breach of, any of the provisions of Section 6.1 (the
"RESTRICTIVE COVENANTS"), the Company shall have the following rights and
remedies (upon compliance with any necessary prerequisites imposed by law upon
the availability of such remedies), each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to, and not in lieu of any other rights and
remedies available to the Company under law or in equity:
(a) The right and remedy to have the Restrictive Covenants
specifically enforced (without posting bond) by any court having
equity jurisdiction, including, without limitation, the right to
an entry against the Employee of restraining orders and
injunctions (preliminary, mandatory, temporary and permanent)
against violations, threatened or actual, and whether or not then
continuing, of such covenants, it being acknowledged and agreed
that any such breach or threatened breach will cause irreparable
injury to the Company and that money damages will not provide an
adequate remedy to the Company.
7. EARLY TERMINATION. Notwithstanding any provision of this Agreement
to the contrary, the Company may terminate this Agreement at any time for any
reason other than "cause", provided that the Company shall continue to pay the
Employee his current compensation until the earlier of October 31, 2000 or one
(1) year after the date of termination. The compensation, including an amount
equal to the prior year's bonus, shall
11
<PAGE> 12
be payable in twelve (12) equal monthly installments, net of applicable
withholding taxes. Employee shall be entitled to receive all benefits, including
life insurance, payable under this Agreement for the duration of such twelve
(12) months or until October 31, 2000, whichever is earlier. In the event of
termination under this paragraph, the "Restricted Period" under Section 6.1
shall expire one (1) year after the date of such termination.
In the event the Employee elects to terminate this Agreement prior to
the expiration of the Term, his noncompetition covenant shall expire on the
later of October 31, 2000 or two (2) years after the date of such termination.
The Company covenants and agrees with Employee that the Company will
not relocate the Company's corporate headquarters or Employee's principal office
from the Cleveland, Ohio area during the Term. The Company further agrees that
it will maintain and not change the present business hours or policy on business
hours of the Company's wholesale operations, provided that this sentence shall
not apply to any businesses that the Company may acquire in the future.
Accordingly, the Company agrees that should the Company (i) relocate the
corporate headquarters or Employee's principal office from the Cleveland, Ohio
metropolitan area or (ii) modify the business hours or policy or business hours
of the current wholesale operations, at any time during the Term, such
relocation or modification shall entitle Employee, at his sole election and
effective upon notice to the Company, to terminate this Agreement, and such
termination shall be deemed a termination by the Company other than for "cause"
for purposes of this Section 7.
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<PAGE> 13
8. CHANGE OF CONTROL.
A. In the event of a "Change in Control," then the Employee may
elect to terminate his employment hereunder effective upon the
consummation of such Change of Control, and such termination
shall be deemed for purposes of this Agreement as a
termination by the Company without "cause." In lieu of the
compensation payable under Section 7, Employee shall be
entitled to twenty-four (24) equal monthly installments, net
of applicable withholding taxes, the aggregate amount of which
payments equals the sum of his salary on the date of
termination and his prior year's bonus. Additionally, in the
event the Company elects to terminate the Employee's
employment under Section 7 of this Agreement, and a
"Change-of-Control" occurs within six (6) months of Employee's
termination, then Employee shall be entitled to receive the
additional one-year's salary and bonus provided in this
Section 8.A. unless the Company can demonstrate, by clear and
convincing evidence, that such termination did not occur in
contemplation of the Change-in-Control.
B. The term "Change in Control" shall mean, but not be limited
to: (a) the first purchase of shares pursuant to a tender
offer or exchange (other than a tender offer or exchange by
the Company, ZS Fund, Reuven Dessler, and/or any affiliate
thereof) for all or part of the Company's
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Common Shares of any class or any securities convertible into
such Common Shares and Employee has elected not to tender or
exchange his Common Shares; (b) the receipt by the Company of
a Schedule 13D or other advice indicating that a person (other
than ZS Fund, Mazel/D&K, Inc., Reuven Dessler and/or any
affiliate thereof) is the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Securities Exchange Act of
1934) of twenty percent (20%) or more of the Company's Common
Shares calculated as provided in paragraph (d) of said Rule
13d-3; (c) the date of approval by shareholders of the Company
(which shareholder approval did not include the affirmative
vote of the Common Shares beneficially owned by Employee) of
an agreement providing for any consolidation or merger of the
Company in which the Company will not be the continuing or
surviving corporation or pursuant to which shares of capital
stock, of any class or any securities convertible into such
capital stock, of the Company would be converted into cash,
securities, or other property, other than a merger of the
Company in which the holders of common stock of all classes of
the Company immediately prior to the merger would have the
same proportion of ownership of common stock of the surviving
corporation immediately after the merger; (d) the date of the
approval by shareholders of the Company (which shareholder
approval did not
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include the affirmative vote of the Common Shares beneficially
owned by Employee) of any sale, lease, exchange, or other
transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the
Company; (e) the adoption of any plan or proposal for the
liquidation (but not a partial liquidation) or dissolution of
the Company, AND Employee shall have voted his Common Shares
against adoption of such plan or proposal; or (f) the date
(the "Measurement Date") on which the individual who at the
beginning of a two consecutive year period ending on the
Measurement Date, cease, for any reason, to constitute at
least a majority of the Board of Directors of the Company,
unless the election, or the nomination for election by the
Company's shareholders, of each new director during such
two-year period was approved by an affirmative vote of the
directors (including Employee) then still in office who were
directors at the beginning of said two-year period.
C. Notwithstanding any other provision of this Agreement, in the
event that any payment or benefits provided by the Company (or
an affiliate) to the Employee under or outside of the terms of
this Agreement would constitute a "parachute payment" within
the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), the payments or benefits
provided hereunder shall be reduced to the extent
15
<PAGE> 16
necessary so that no portion thereof shall be subject to the
excise tax imposed by Section 4999 of the Code, but only if,
by reason of such reduction, the Employee's net after tax
benefit shall exceed the net after tax benefit if such
reduction were not made. "Net after tax benefit" for purposes
of this Section 8 shall mean the sum of:
(i) the total amount payable to the Employee under this
Agreement, PLUS
(ii) all other payments and benefits which the Employee
receives or is then entitled to receive from the Company
and any of its affiliates that would constitute a
"parachute payment" within the meaning of Section 280G
of the Code, LESS
(iii) the amount of federal income taxes payable with respect
to the payments and benefits described in clauses (i)
and (ii) above calculated at the maximum marginal income
tax rate for each year in which such payments and
benefits shall be paid to the Employee (based upon the
rate in effect for such year as set forth in the Code at
the time of the first payment of the foregoing), LESS
(iv) the amount of excise taxes imposed with respect to the
payments and benefits described in clauses (i) and (ii)
above by Section 4999 of the Code.
16
<PAGE> 17
All calculations under this Section 8 shall be made by the Company in
consultation with its outside auditors.
9. OTHER PROVISIONS.
9.1 SEVERABILITY. The Employee acknowledges and agrees that
(I) he has had an opportunity to seek advice of counsel in connection with this
Agreement and (ii) the Restrictive Covenants are reasonable in geographical and
temporal scope and in all other respects. If it is determined that any of the
provisions of this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the provisions of this Agreement shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
9.2 BLUE-PENCILLING. If any court determines that any of the
covenants contained in this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provision, the duration or scope of such
provision, as the case may be, shall be reduced so that such provision becomes
enforceable and, in its reduced form, such provision shall then be enforceable
and shall be enforced.
9.3 ENFORCEABILITY; JURISDICTIONS. The Company and the
Employee intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such jurisdiction
hold the Restrictive Covenants wholly unenforceable by reason of breadth of
scope or otherwise, it is the intention of the Company and the Employee
17
<PAGE> 18
that such determination not bar or in any way affect the Company's right to the
relief provided above in the courts of any other jurisdiction within the
geographical scope of such Restrictive Covenants, as to breaches of such
Restrictive Covenants in such other respective jurisdictions, such Restrictive
Covenants as they relate to each jurisdictions being, for this purpose,
severable, diverse and independent covenants, subject, where appropriate, to the
doctrine of RES JUDICATA.
9.4 SET-OFF. The Employee acknowledges and agrees that the
Company may set-off against any or all amounts payable to the Employee hereunder
any or all amounts payable by the Employee to the Company in respect of a breach
by the Employee of any of the provisions of Section 6.
9.5 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, or sent by facsimile transmission or, if mailed, five days after the
date of deposit in the United States mails as follows:
(i) If to the Company, to:
Mazel Stores, Inc.
31200 Aurora Road
Solon, Ohio 44139
Attention: President
18
<PAGE> 19
with a copy to:
ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, New York 10036
Attention: Ned L. Sherwood
(ii) If to the Employee to:
Jacob Koval
3708 Severn Road
Cleveland Heights, Ohio 44118
with a copy to:
Bennett Yanowitz, Esq.
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
Suite 2600
The Tower at Erieview
Cleveland, Ohio 44114-1824
Any such person may by notice given in accordance with this Section to the other
parties hereto designate another address or person for receipt by such person of
notices hereunder.
9.6 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto,
including, but not limited to, the original Agreement, which shall become null
and void and of no further force and effect on the Effective Date. Without
limiting the generality of the preceding sentence, the Employee hereby waives
any and all rights to compensation which he has or may have had under the
original Agreement in respect of the fiscal year ending January 31, 1997;
PROVIDED, HOWEVER, that such waiver shall not become effective until the
Effective Date and shall be inoperative
19
<PAGE> 20
until such date.
9.7 WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in exercising
any rights, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege
nor any single or partial exercise of any such right, power or privilege,
preclude any other or further exercise thereof or the exercise of any other such
right, power or privilege.
9.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio without regard to
principles of conflicts of law.
9.9 ASSIGNMENT. This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee; any purported
assignment by the Employee in violation hereof shall be null and void. In the
event of any sale, transfer or other disposition of all or substantially all of
the Company's assets or business, whether by merger, consolidation or otherwise,
the Company may assign this Agreement and its rights hereunder.
9.10 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, permitted
assigns, heirs, executors and legal representatives.
20
<PAGE> 21
9.11 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of two
copies hereof each signed by one of the parties thereto.
9.12 SURVIVAL. Anything contained in this Agreement to the
contrary notwithstanding, the provisions of Sections 6.1, 6.2, 9.1, 9.2, 9.3 and
9.4 shall survive termination of this Agreement.
9.13 HEADINGS. The headings in this Agreement are for
reference only and shall not affect the interpretation of this Agreement.
9.14 INVALIDITY. This Agreement shall be deemed void and of no
effect if the Initial Public Offering fails to occur prior to December 31, 1996.
In the event this Agreement is deemed null and void, the July 14, 1992
(original) Agreement shall still be effective.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have signed their names as of
the day and year first above written.
MAZEL COMPANY L.P. MAZEL STORES, INC.
By: ZS Mazel L.P., /s/ Reuven Dessler
its Managing Partner By: ______________________________
Reuven Dessler
By: ZS Mazel, Inc., Chairman
General Partner of
ZS Mazel L.P.
/s/ JACOB KOVAL
______________________________
JACOB KOVAL
/s/ Robert Horne
By: _________________________
Robert Horne,
Vice President
22
<PAGE> 1
EXHIBIT 10.4
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment"), made and
entered into this 30th day of September, 1996, by and among MAZEL COMPANY L.P.,
a Delaware limited partnership (the "Partnership"), MAZEL STORES, INC., an Ohio
corporation (the "Company"), and BRADY J. CHURCHES (the "Employee") is to
evidence the following agreements and understandings:
WITNESSETH:
-----------
WHEREAS, the Employee made and entered into an Employment Agreement
with the Partnership effective November 1, 1995 (the "Agreement"); [capitalized
terms not defined herein shall have the meanings ascribed to them in the
Agreement]
WHEREAS, the Company has acquired all of the assets and assumed
substantially all of the liabilities of the Partnership in exchange for capital
stock in the Company;
WHEREAS, the Company is now contemplating an Initial Public Offering of
its Common Stock (the "Initial Public Offering");
WHEREAS, in order to facilitate the consummation of the Initial Public
Offering, Employee has agreed to adjust his Annual Salary and Annual Bonus; and
WHEREAS, the parties have agreed to amend the Agreement in the manner
set forth below.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt, adequacy, and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE> 2
1. ANNUAL SALARY.
On the effective date of the Initial Public Offering (the
"Effective Date"), the Annual Salary as defined in Section 3.1 of the Agreement
shall be Three Hundred and Sixty Thousand Dollars ($360,000).
2. ANNUAL BONUS.
Section 3.6 of the Agreement is hereby amended to provide that
the maximum Annual Bonus for the fiscal year ending January 25, 1997 ("Fiscal
1996") and the fiscal year ending January 31, 1998 ("Fiscal 1997") shall be One
Hundred Twenty-five Thousand Dollars ($125,000). For each fiscal year
thereafter, the maximum Annual Bonus shall be fifty eight and three-tenths
percent (58.3%) of the Annual Salary. Further, for Fiscal 1996 and subsequent
years, the "Target Amount" shall be based on "pre-tax income" in lieu of
"operating income." The Target Amount for fiscal 1996 shall be $9,500,000, which
will be adjusted to reflect both charges and credits attributable to the Initial
Public Offering.
3. STOCK SALARY REDUCTION AWARD, MAXIMUM ANNUAL BONUS REDUCTION
AWARD; ADJUSTMENT TO ANNUAL BONUS.
New sections Section 3.10 and Section 3.11 are added to read as
follows:
3.10 Stock Salary Reduction Award; Maximum Annual Bonus Reduction
Award:
A. In consideration of the salary reduction effected at
the Effective Date, Company grants Employee the
number of Common Shares as equals: (i) 1.25 times the
sum of Sixty Thousand Dollars ($60,000) times the
number of years (or fractional years) in the period
between the
2
<PAGE> 3
Effective Date and October 31, 2000, DIVIDED BY (ii)
the Initial Public Offering price (the "Offering
Price").
B. In consideration of the Annual Bonus reductions
effected at the time of the Initial Public Offering,
the Company agrees to grant to Employee an additional
number of Common Shares (rounded up to the nearest
whole share) calculated as follows: Two Hundred
Twelve Thousand Five Hundred Dollars ($212,500)
DIVIDED BY the Offering Price.
C. The award of securities under Paragraphs A and B of
this Section 3.10 shall be deemed exempt from the
registration requirements of the Securities Act of
1933, as amended, pursuant to Rule 701 promulgated
under such Act, but shall be subject to any lock-up
agreement required of officers and directors by the
underwriting agreement between the Company and the
underwriters. In furtherance of such agreement, the
Employee agrees, for a period of 180 days following
the Effective Date, not to offer, sell or contract to
sell, or otherwise dispose of any Common Shares of
the Company, without the prior written consent of the
Initial Public Offering's underwriters. In addition
to the foregoing, the Company agrees to lend to
Employee, if requested, an amount that will cover the
Employee's income tax obligations arising from the
grant of the Common Shares. The loan principal and
accrued interest shall be due on the earliest of (i)
five (5) years after the Effective Date; (ii)
3
<PAGE> 4
ten (10) days following the date the Employee first
sells any of the Company's Common Stock , but only to
the extent of net proceeds from such sale; and (iii)
thirty (30) days following the date of Employee's
voluntary termination of employment with the Company
or any affiliate. Interest on the loan shall accrue
at the applicable federal rate in effect on the date
of such loans.
D. Notwithstanding anything contained in Section 3.6 to
the contrary, in the event the actual pre-tax income
of the Company during either Fiscal 1996 or Fiscal
1997, or in both years, is less than the Target
Amount for such fiscal years, then the actual Annual
Bonus to which Employee may be entitled in respect of
Fiscal 1998 shall be reduced, on a dollar for dollar
basis, by an amount (herein referred to as the
"Unearned Bonus") equal to the unearned bonus, if
any, for Fiscal 1996 and Fiscal 1997, in the
aggregate. The Unearned Bonus is determined as
follows:
1. If the Fiscal 1996 actual Annual Bonus is
not $125,000, then the Unearned Bonus for
such year shall be the difference between
(a) $85,000 and (b) $85,000 times a
fraction, the numerator of which is the
actual Annual Bonus earned and the
denominator of which is $125,000. To
illustrate the foregoing, assuming the
actual Fiscal 1996 Annual Bonus is $100,000,
the Unearned Bonus for Fiscal 1996 would be:
4
<PAGE> 5
$85,000 - (100,000 X 85,000) = $17,000
-------
125,000
2. If the Fiscal 1997 actual Annual Bonus is
not $125,000, then the Unearned Bonus for
such year shall be the difference between
(A) $85,000 and (b) $85,000 times the
fraction, the numerator of which is the
actual Annual Bonus earned and the
denominator of which is $125,000. To
illustrate the foregoing, assuming the
actual Fiscal 1997 bonus is $100,000, the
Fiscal 1997 Unearned Bonus is:
$85,000 - (100,000 X 85,000) = $17,000
-------
125,000
In the event the Unearned Bonus exceeds the
Fiscal 1998 Annual Bonus, the Annual Bonuses
for future fiscal years shall be reduced
until the deficiency is eliminated. Employee
shall have no obligation to reimburse the
Company any Unearned Bonus in the event of
his termination of employment at the end of
the Term, termination due to death or
disability, or an earlier termination by the
Company for any reason other than "cause".
3.11 OPTIONS
On the Effective Date, the Employee shall be granted
under the Mazel Stores, Inc. 1996 Stock Option Plan a
non-qualified option to purchase up to One Hundred
Thousand (100,000) Common Shares of the
5
<PAGE> 6
Company at an exercise price equal to the Offering
Price. The option shall expire on the tenth (10th)
anniversary of the Effective Date. The option shall
vest at a rate of twenty percent (20%) per year,
assuming the Employee remains an employee of the
Company, commencing with the first anniversary of the
Effective Date.
4. ENTIRE AGREEMENT.
This Amendment, together with the Agreement, contains the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, with respect thereto. In
the event of any conflict or inconsistency, whether latent or patent, between
the terms and conditions of this Amendment and the terms and conditions of the
Agreement, the terms and conditions of this Amendment shall control. Except as
expressly provided in this Amendment, the terms and conditions of the Agreement
are and shall remain in full force and effect.
5. GOVERNING LAW.
This Amendment shall be governed by and issued in accordance with the
laws of the State of Ohio without regard to principles of conflicts of law.
6. BINDING EFFECT.
This Amendment shall be binding upon and inure to the benefit of the
parties and their respective successors, permitted assigns, heirs, executors and
legal representatives.
6
<PAGE> 7
7. COUNTERPARTS.
Counterparts to this Amendment may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such documents together shall constitute one and the same
instrument. Each counterpart may consist of two copies hereof, each signed by
one of the parties thereto.
8. VALIDITY.
This Amendment shall be deemed void and of no effect if the Initial
Public Offering fails to occur prior to December 31, 1996.
IN WITNESS WHEREOF, the parties hereto have signed their names as of
the day and year first above written.
MAZEL COMPANY L.P. MAZEL STORES, INC.
By: ZS Mazel L.P.,
its Managing Partner By: /s/ Reuven Dessler
-------------------------
Reuven Dessler
By: ZS Mazel, Inc., Chairman/CEO
General Partner of
ZS Mazel L.P. /s/ BRADY J. CHURCHES
-----------------------
BRADY J. CHURCHES
By: /s/ Robert Horne
--------------------
Robert Horne
Vice President
7
<PAGE> 1
EXHIBIT 10.6
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment"), made and
entered into this 30th day of September, 1996, by and among MAZEL COMPANY L.P.,
a Delaware limited partnership (the "Partnership"), MAZEL STORES, INC., an Ohio
corporation (the "Company"), and JERRY D. SOMMERS (the "Employee") is to
evidence the following agreements and understandings:
WITNESSETH:
-----------
WHEREAS, the Employee made and entered into an Employment Agreement
with the Partnership effective November 1, 1995 (the "Agreement"); [capitalized
terms not defined herein shall have the meanings ascribed to them in the
Agreement]
WHEREAS, the Company has acquired all of the assets and assumed
substantially all of the liabilities of the Partnership in exchange for capital
stock in the Company;
WHEREAS, the Company is now contemplating an Initial Public Offering of
its Common Stock (the "Initial Public Offering");
WHEREAS, in order to facilitate the consummation of the Initial Public
Offering, Employee has agreed to adjust his Annual Salary and Annual Bonus; and
WHEREAS, the parties have agreed to amend the Agreement in the manner
set forth below.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt, adequacy, and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1
<PAGE> 2
1. ANNUAL SALARY.
On the effective date of the Initial Public Offering (the
"Effective Date"), the Annual Salary as defined in Section 3.1 of the Agreement
shall be Two Hundred and Sixty- Five Thousand Dollars ($265,000).
2. ANNUAL BONUS.
Section 3.6 of the Agreement is hereby amended to provide that
the maximum Annual Bonus for the fiscal year ending January 25, 1997 ("Fiscal
1996") and the fiscal year ending January 31, 1998 ("Fiscal 1997") shall be One
Hundred Twenty-five Thousand Dollars ($125,000). For each fiscal year
thereafter, the maximum Annual Bonus shall be fifty-nine and four-tenths percent
(59.4%) of the Annual Salary. Further, for Fiscal 1996 and subsequent years,
the "Target Amount" shall be based on "pre-tax income" in lieu of "operating
income." The Target Amount for fiscal 1996 shall be $9,500,000, which will be
adjusted to reflect both charges and credits attributable to the Initial
Public Offering.
3. STOCK SALARY REDUCTION AWARD, MAXIMUM ANNUAL BONUS REDUCTION
AWARD; ADJUSTMENT TO ANNUAL BONUS.
New sections Section 3.10 and Section 3.11 are added to read as
follows:
3.10 Stock Salary Reduction Award; Maximum Annual Bonus Reduction
Award:
A. In consideration of the salary reduction effected at
the Effective Date, Company grants Employee the
number of Common Shares as equals: (i) 1.25 times the
sum of Fifty Thousand Dollars ($50,000) times the
number of years (or fractional years) in the period
between the
2
<PAGE> 3
Effective Date and October 31, 2000, DIVIDED BY (ii)
the Initial Public Offering price (the "Offering
Price").
B. In consideration of the Annual Bonus reductions
effected at the time of the Initial Public Offering,
the Company agrees to grant to Employee an additional
number of Common Shares (rounded up to the nearest
whole share) calculated as follows: Eighty-one
Thousand Five Hundred Dollars ($81,500) DIVIDED BY
the Offering Price.
C. The award of securities under Paragraphs A and B of
this Section 3.10 shall be deemed exempt from the
registration requirements of the Securities Act of
1933, as amended, pursuant to Rule 701 promulgated
under such Act, but shall be subject to any lock-up
agreement required of officers and directors by the
underwriting agreement between the Company and the
underwriters. In furtherance of such agreement, the
Employee agrees, for a period of 180 days following
the Effective Date, not to offer, sell or contract to
sell, or otherwise dispose of any Common Shares of
the Company, without the prior written consent of the
Initial Public Offering's underwriters. In addition
to the foregoing, the Company agrees to lend to
Employee, if requested, an amount that will cover the
Employee's income tax obligations arising from the
grant of the Common Shares. The loan principal and
accrued interest shall be due on the earliest of (i)
five (5) years after the Effective Date; (ii)
3
<PAGE> 4
ten (10) days following the date the Employee first
sells any of the Company's Common Stock, but only to
the extent of net proceeds from such sale; and (iii)
thirty (30) days following the date of Employee's
voluntary termination of employment with the Company
or any affiliate. Interest on the loan shall accrue
at the applicable federal rate in effect on the date
of such loans.
D. Notwithstanding anything contained in Section 3.6 to
the contrary, in the event the actual pre-tax income
of the Company during either Fiscal 1996 or Fiscal
1997, or in both years, is less than the Target
Amount for such fiscal years, then the actual Annual
Bonus to which Employee may be entitled in respect of
Fiscal 1998 shall be reduced, on a dollar for dollar
basis, by an amount (herein referred to as the
"Unearned Bonus") equal to the unearned bonus, if
any, for Fiscal 1996 and Fiscal 1997, in the
aggregate. The Unearned Bonus is determined as
follows:
1. If the Fiscal 1996 actual Annual Bonus is
not $125,000, then the Unearned Bonus for
such year shall be the difference between
(a) $32,500 and (b) $32,500 times a
fraction, the numerator of which is the
actual Annual Bonus earned and the
denominator of which is $125,000. To
illustrate the foregoing, assuming the
actual Fiscal 1996 Annual Bonus is $100,000,
the Unearned Bonus for Fiscal 1996 would be:
4
<PAGE> 5
$32,500 - (100,000 X 32,500) = $6,500
-------
125,000
2. If the Fiscal 1997 actual Annual Bonus is
not $125,000, then the Unearned Bonus for
such year shall be the difference between
(A) $32,500 and (b) $32,500 times the
fraction, the numerator of which is the
actual Annual Bonus earned and the
denominator of which is $125,000. To
illustrate the foregoing, assuming the
actual Fiscal 1997 bonus is $100,000, the
Fiscal 1997 Unearned Bonus is:
$32,500 - (100,000 X 32,500) = $6,500
-------
125,000
In the event the Unearned Bonus exceeds the
Fiscal 1998 Annual Bonus, the Annual Bonuses
for future fiscal years shall be reduced
until the deficiency is eliminated. Employee
shall have no obligation to reimburse the
Company any Unearned Bonus in the event of
his termination of employment at the end of
the Term, termination due to death or
disability, or an earlier termination by the
Company for any reason other than "cause".
3.11 OPTIONS
On the Effective Date, the Employee shall be granted
under the Mazel Stores, Inc. 1996 Stock Option Plan a
non-qualified option to purchase up to One Hundred
Thousand (100,000) Common Shares of the Company at an
exercise price equal to the Offering Price. The
option
5
<PAGE> 6
shall expire on the tenth (10th) anniversary of the
Effective Date. The option shall vest at a rate of
twenty percent (20%) per year, assuming the Employee
remains an employee of the Company, commencing with
the first anniversary of the Effective Date.
4. ENTIRE AGREEMENT.
This Amendment, together with the Agreement, contains the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, with respect thereto. In
the event of any conflict or inconsistency, whether latent or patent, between
the terms and conditions of this Amendment and the terms and conditions of the
Agreement, the terms and conditions of this Amendment shall control. Except as
expressly provided in this Amendment, the terms and conditions of the Agreement
are and shall remain in full force and effect.
5. GOVERNING LAW.
This Amendment shall be governed by and issued in accordance with the
laws of the State of Ohio without regard to principles of conflicts of law.
6. BINDING EFFECT.
This Amendment shall be binding upon and inure to the benefit of the
parties and their respective successors, permitted assigns, heirs, executors and
legal representatives.
7. COUNTERPARTS.
Counterparts to this Amendment may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such
6
<PAGE> 7
documents together shall constitute one and the same instrument. Each
counterpart may consist of two copies hereof, each signed by one of the parties
thereto.
8. VALIDITY.
This Amendment shall be deemed void and of no effect if the Initial
Public Offering fails to occur prior to December 31, 1996.
IN WITNESS WHEREOF, the parties hereto have signed their names as of
the day and year first above written.
MAZEL COMPANY L.P. MAZEL STORES, INC.
By: ZS Mazel L.P.,
its Managing Partner By: /s/ Reuven Dessler
------------------------
Reuven Dessler
By: ZS Mazel, Inc., Chairman/CEO
General Partner of
ZS Mazel L.P. /s/ JERRY D. SOMMERS
-----------------------
JERRY D. SOMMERS
By: /s/ Robert Horne
----------------------
Robert Horne
Vice President
7
<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Amendment"), made and
entered into this 30th day of September, 1996 by and among MAZEL COMPANY L.P., a
Delaware limited partnership (the "Partnership"), MAZEL STORES, INC., an Ohio
corporation (the "Company"), and SUE ATKINSON (the "Employee"), is to evidence
the following agreements and understandings:
WITNESSETH:
-----------
WHEREAS, the Employee made and entered into an Employment Agreement
with the Partnership, effective March 28, 1996 (the "Agreement");
WHEREAS, the Company has acquired all of the assets and assumed
substantially all of the liabilities of the Partnership in exchange for all of
the capital stock in the Company; and
WHEREAS, the Company is now contemplating an initial public offering of
its Common Stock (the "Initial Public Offering") and the parties have agreed to
amend and restate the original Agreement to facilitate the Initial Public
Offering.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. TERM. The Company hereby employs the Employee, and the Employee
hereby accepts such employment, for an initial term commencing on the effective
date of the Initial Public Offering (the "Effective Date") and ending on January
31, 1999, unless sooner
<PAGE> 2
terminated in accordance with the provisions of Section 4 or Section 5; with
such employment to continue in accordance with the terms of this Agreement from
year to year thereafter (subject to termination as aforesaid) unless either
party notifies the other party in writing not less than thirty (30) days prior
to the expiration of the initial term and each annual renewal thereof (said
initial term and any continuation thereof being hereinafter referred to as the
"TERM").
2. DUTIES. The Employee, in her capacity as Senior Vice
President--Chief Financial Officer and Treasurer, shall faithfully perform for
the Company the duties of said offices and shall perform such other duties of an
executive, managerial or administrative nature as shall be specified and
designated from time to time by the Board of Directors. The Employee shall
devote substantially all of her business time and effort to the performance of
her duties hereunder.
3. COMPENSATION.
3.1 SALARY. The Company shall pay the Employee during the Term
a salary at the rate of One Hundred Seventeen Thousand Six Hundred Dollars
($117,600) per annum (the "ANNUAL SALARY"). The Annual Salary shall be payable
in equal semi-monthly installments, less such deductions as shall be required to
be withheld by applicable law and regulations. Commencing on each anniversary of
the commencement date of the Term, the Annual Salary shall be increased by an
amount (if a positive number) equal to the product of (i) the Annual Salary in
effect immediately prior to such date, multiplied by (ii) the
2
<PAGE> 3
percentage, if any, by which the Consumer Price Index (all items less Shelter),
Urban Wage Earners and Clerical Workers, for the North Central
Region/Populations Size B, published by the United States Government for the
month preceding such date exceeds such index for the comparable month in the
preceding year.
3.2 ANNUAL BONUS. During the Term, the Employee shall be
entitled to receive an annual bonus (the "ANNUAL BONUS") based upon the
Company's pre-tax income for each fiscal year of the Company ending during the
Term, commencing with the fiscal year ending January 25, 1997 ("Fiscal 1996").
Subject to the terms, conditions and limitations set forth below, the Annual
Bonus for any fiscal year shall be an amount equal to forty-eight and
four-tenths percent (48.4%) of the Annual Salary in effect at the beginning of
the relevant fiscal year in the event that the Company's pre-tax income,
calculated in accordance with generally accepted accounting principles
consistently applied, equals or exceeds the "TARGET AMOUNT" (as hereinafter
defined) for such fiscal years. If the Company's pre-tax income for any fiscal
year is less than the Target Amount for such fiscal year, the Annual Bonus shall
be the amount, if any, equal to (i) (A) the percentage of the Target Amount that
such pre-tax income represents, minus eighty percent (80%), divided by (B)
twenty percent (20%), multiplied by (ii) forty-eight and four-tenths percent
(48.4%) of the Employee's Annual Salary in effect at the beginning of such
fiscal year. For example, if the Company's pre-tax income for Fiscal 1996 is
ninety percent (90%) of the Target Amount and Employee's Annual Salary is
$117,600, the Annual Bonus shall be calculated as follows:
3
<PAGE> 4
(90%-80%)
--------- X $56,918 = $28,459
20%
If the Company's pre-tax income for any fiscal year is less than eighty percent
(80%) of the Target Amount for such fiscal year, no Annual Bonus shall be
payable for such fiscal year. For purposes of this Agreement, the term "TARGET
AMOUNT" shall mean an amount to be determined by the Compensation Committee of
the Board of Directors prior to the end of the first quarter of such year after
consulting with the Employee except that the Target Amount with respect to
Fiscal 1996 shall be $9,500,000, which shall be adjusted to reflect both charges
and credits attributable or otherwise resulting from the Initial Public
Offering. The Annual Bonus for each fiscal year shall be paid in full to the
Employee as soon as practicable (but not later than thirty (30) days) after the
Company's audited financial statement for such fiscal year is available to the
Company. In the event Employee's employment terminates in the second half of any
fiscal year, due to death, disability or expiration of the Term as provided in
Section 1 hereof, then Employee shall be entitled to a pro rata share of an
Annual Bonus with the percentage equal to the number of full weeks of employment
during the fiscal year divided by 52. No bonus shall be paid for any year in
which the Employee is terminated for "cause" or the Employee voluntarily elects
to terminate her employment.
3.3 OPTIONS. On the effective date of the Initial Public
Offering, the Employee shall be granted under the Mazel Stores, Inc. 1996 Stock
Option Plan a non-qualified option to purchase up to 30,000 Common Shares of the
Company at an exercise price equal to the initial public offering price (the
"OFFERING PRICE"). The option shall expire
4
<PAGE> 5
on the tenth (10th) anniversary of the Effective Date. The options shall vest at
a rate of twenty percent (20%) per year, assuming the Employee remains an
employee of the Company, commencing with the first anniversary of the Effective
Date.
3.4 STOCK SALARY REDUCTION AWARDS.
In consideration of the salary reductions effected at the time of the
Initial Public Offering, in lieu of the salary amount payable under the original
Agreement, the Company grants Employee the number of Common Shares as equal (A)
1.25 times the sum of $45,000 times the number of years (or fractional years) in
the period between the Effective Date and January 31, 1999, DIVIDED BY (B) the
Offering Price.
The award of securities under this Section 3.4 shall be deemed exempt
from the registration requirements of the Securities Act of 1933, as amended,
pursuant to Rule 701 promulgated under such Act, but shall be subject to any
lock-up agreement required of officers and directors by the underwriting
agreement between the Company and the underwriters. In furtherance of such
agreement, the Employee agrees, for a period of one hundred and eighty (180)
days following the Effective Date, not to offer, sell or contract to sell, or
otherwise dispose of any Common Shares of the Company, without the prior written
consent of the representatives of the Initial Public Offering's underwriters. In
addition to the foregoing, the Company agrees to lend the Employee, if
requested, an amount that will cover the Employee's income tax obligations
arising from the grant of the Common Shares. The loan principal and accrued
interest shall be due on the earliest of (i) five (5) years after the
5
<PAGE> 6
Effective Date, (ii) ten (10) days following the date the Employee first sells
any of the Company's Common Stock, but only to the extent of net proceeds from
such sale or (iii) thirty (30) days following the date of Employee's voluntary
termination of employment by the Company or any affiliate. Interest on the loan
shall accrue at the applicable federal rate in effect on the date of the loans.
3.5 BENEFITS. The Employee shall be permitted during the Term
to participate in any group life, hospitalization or disability insurance plans,
health programs, pension plans or similar benefits that may be available to
other senior executives of the Company generally, on the same terms as such
other executives, in each case to the extent that the Employee is eligible under
the terms of such plans or programs.
3.6 EXPENSES. The Company shall pay or reimburse the Employee
for all reasonable expenses actually incurred or paid by the Employee during the
Term in the performance of the Employee's services under this Agreement.
4. TERMINATION UPON DEATH OR DISABILITY. If the Employee dies during
the term, this Agreement shall terminate as of the date of the Employee's death.
If the Employee by virtue of ill health or other disability is unable to perform
substantially and continuously the duties assigned to her for more than 180
consecutive or non-consecutive days out of any consecutive 12 month period, the
Company shall have the right to terminate the employment of the Employee upon
notice in writing to the Employee. Upon termination, the Employee (or the
Employee's estate or beneficiaries in the case of the death of the Employee)
shall be
6
<PAGE> 7
entitled to receive any Annual Salary, Annual Bonus and other benefits earned
and accrued under this Agreement, and reimbursement under this Agreement for
expenses incurred, prior to the date of termination. No provision of this
Agreement shall limit any of Employee's rights under any insurance, pension or
other benefit programs of the Company for which the Employee shall be eligible
at the time of such death or disability.
5. TERMINATION FOR CAUSE. If the Employee (i) is convicted of a felony,
a crime of moral turpitude or any crime involving the Company (other than
pursuant to actions taken at the direction or with the approval of the Board of
Directors); (ii) is found by reasonable determination of the Board of Directors
made in good faith, to have engaged in (A) willful misconduct, (B) willful or
gross neglect, (C) fraud, (D) misappropriation or (E) embezzlement in the
performance of her duties hereunder; or (iii) breaches in any material respect
the terms and provisions of this Agreement and fails to cure such breach within
ten days following written notice from the Company specifying such breach, the
Company may terminate the Employee's employment hereunder on written notice
given to the Employee at any time following the occurrence of any of the events
described in clauses (i) and (ii) above and on written notice given to the
Employee at any time not less than 30 days following the occurrence of any of
the events described in clause (iii) above. The Employee shall have no right to
receive any compensation or benefit hereunder on and after the effective date of
the notice provided in the preceding sentence other than Annual Salary, Annual
Bonus and other benefits earned and accrued under this Agreement, and
7
<PAGE> 8
reimbursement under this Agreement for expenses incurred, prior to the effective
date of such notice.
6. EARLY TERMINATION. In the event the Company elects not to renew the
Term of this Agreement or the Company elects to terminate this Agreement at any
time for any reason other than "cause", the Company shall continue to pay the
Employee her then Annual Salary for one (1) year after the date of termination.
Employee shall be entitled to receive all health care benefits, including health
insurance, payable under this Agreement until the earlier of the (i) the end of
such twelve (12) month period or (ii) the date Employee commences other
employment and is eligible for health care benefits from her new employer.
7. OTHER PROVISIONS.
7.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, or sent by facsimile transmission or, if mailed, five days after the
date of deposit in the United States mails as follows:
(i) If to the Company, to:
Mazel Stores, Inc.
31200 Aurora Road
Solon, Ohio 44139
Attention: President
8
<PAGE> 9
with a copy to:
ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, New York 10036
Attention: Ned L. Sherwood
(ii) If to the Employee, to:
Sue Atkinson
11560 Robin Wood Lane
Burton, Ohio 44021
Any such person may by notice given in accordance with this Section to the other
parties hereto designate another address or person for receipt by such person of
notices hereunder.
7.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto,
including, but not limited to, the original Agreement, which shall become null
and void and of no further force and effect on the Effective Date.
7.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance.
7.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio without regard to
principles of conflicts of law.
9
<PAGE> 10
7.5 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, permitted
assigns, heirs, executors and legal representatives.
7.6 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of two
copies hereof each signed by one of the parties thereto.
7.7 INVALIDITY. This Agreement shall be deemed void and of no
effect if the Initial Public Offering fails to occur prior to December 31, 1996.
In the event this Agreement is deemed null and void, the March 28, 1996
(original) Agreement shall still be effective.
IN WITNESS WHEREOF, the parties hereto have signed their names as of
the day and year first above written.
MAZEL COMPANY L.P. MAZEL STORES, INC.
By: ZS Mazel L.P.,
its Managing Partner By: /s/ Reuven Dessler, Chairman
----------------------------
Reuven Dessler, Chairman
By: ZS Mazel, Inc.,
General Partner of
ZS Mazel L.P. /s/ SUE ATKINSON
---------------------------------
SUE ATKINSON
By: /s/ Robert Horne, Vice President
--------------------------------
Robert Horne,
Vice President
10
<PAGE> 1
EXHIBIT 10.9
CAPITAL CONTRIBUTION AGREEMENT
by and between
MAZEL COMPANY L.P.
and
MAZEL STORES, INC.
dated as of
__________________________, 1996
<PAGE> 2
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
ARTICLE 1 - CONTRIBUTIONS TO CAPITAL........................................2
Section 1.1. Capital Contribution of Mazel, L.P. ......................2
ARTICLE 2 - CLOSING.........................................................2
Section 2.1. Closing...................................................2
Section 2.2. Third-Party Consents......................................2
ARTICLE 3 - REPRESENTATIONS OF MAZEL L.P. ..................................3
Section 3.1. Execution and Validity of Agreement: Existence and
Good Standing. ...........................................3
Section 3.2. Books and Records.........................................3
ARTICLE 4 - ACTIONS AT CLOSING..............................................4
Section 4.1. Required Approvals, Notices and Consents..................4
Section 4.2. Proceedings...............................................4
ARTICLE 5 - MISCELLANEOUS...................................................4
Section 5.1. Binding Effect............................................4
Section 5.2. Recitals. ...............................................4
Section 5.3. Governing Law.............................................4
Section 5.4. Entire Agreement..........................................4
Section 5.5. Waivers...................................................5
Section 5.6. Third Party Beneficiaries.................................5
i
<PAGE> 3
CAPITAL CONTRIBUTION AGREEMENT
------------------------------
THIS CAPITAL CONTRIBUTION AGREEMENT (the "Agreement") dated as of
____________________, 1996, is by and between MAZEL COMPANY, L.P., a Delaware
limited partnership ("Mazel L.P.") and MAZEL STORES, INC. (formerly known as MZ
HOLDINGS, INC.), an Ohio corporation ("Mazel Stores").
WITNESSETH:
-----------
WHEREAS, Mazel L.P. has heretofore been engaged in business primarily
as a national wholesaler of quality closeout merchandise (the "Business");
WHEREAS, Mazel L.P. has caused the formation of Mazel Stores for the
purpose of succeeding to the ownership and operation of the assets and Business
of Mazel L.P., including the ownership of the common stock of Odd-Job Holdings,
Inc., a Delaware corporation, and for the purpose of effecting a public offering
of the common stock of Mazel Stores;
WHEREAS, Mazel L.P. presently owns 100 issued and outstanding shares of
common stock of Mazel Stores (the "Mazel Stores Stock"), representing all of the
currently outstanding shares of Mazel Stores;
WHEREAS, Mazel L.P. desires to contribute, transfer, convey, assign and
deliver to Mazel Stores all of the assets, properties and rights of Mazel L.P.
(other than the Mazel Stores Stock) and further desires that Mazel Stores assume
and pay in full all of the obligations and liabilities of Mazel L.P.; and
WHEREAS, Mazel Stores has agreed to accept the foregoing contribution,
transfer, conveyance, assignment and delivery of all of the assets, properties
and rights of Mazel L.P. (other than the Mazel Stores Stock) and has agreed to
assume and pay in full all of the obligations and liabilities of Mazel L.P.
subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
<PAGE> 4
ARTICLE 1
---------
CONTRIBUTION TO CAPITAL
-----------------------
SECTION 1.1. CAPITAL CONTRIBUTION OF MAZEL, L.P. On the Closing Date
(as defined in Section 2.1), Mazel L.P. will contribute, transfer, convey,
assign and deliver to Mazel Stores, all of Mazel L.P.'s right, title and
interest in, to and under all of the assets, properties and rights of Mazel L.P.
other than the Mazel Stores Stock, (collectively, the "Assets"), subject,
however, to all mortgages, liens, security interests, encumbrances, claims,
charges and restrictions of any kind or character, if any (collectively,
"Liens").
1.2. ASSUMED LIABILITIES. At the Closing, Mazel Stores will assume and
agrees to pay, perform and discharge when due all of the obligations and
liabilities of Mazel L.P. (the "Assumed Liabilities").
1.3. SHARES ISSUANCE. In consideration of the transfer of Assets, Mazel
Stores hereby issues to Mazel L.P. an additional 5,613,454 shares of Common
Stock, which shares shall be fully paid and non-assessable.
ARTICLE 2
---------
CLOSING
-------
SECTION 2.1. CLOSING. The Closing under this Agreement (the "Closing")
will occur on such date as the parties hereto shall agree, but not prior to the
effective date of the Registration Statement on Form S-1 of Mazel Stores and
such date is herein referred to as the "Closing Date." At the Closing, Mazel
L.P. shall deliver to Mazel Stores one or more written instruments of assignment
to effect the assignment to Mazel Stores of all of the Assets and Mazel Stores
shall deliver to Mazel L.P. one or more written instruments of assumption to
effect the assumption by Mazel Stores of all of the Assumed Liabilities.
SECTION 2.2. THIRD-PARTY CONSENTS. Anything in this Agreement to the
contrary notwithstanding, in the event an assignment or purported assignment to
Mazel Stores of any of the agreements, contracts or commitments of Mazel L.P.
(sometimes collectively referred to as a contract or the "contracts"), or any
claim, right or benefit arising thereunder or
2
<PAGE> 5
resulting therefrom, without the consent of other parties thereto, would
constitute a breach thereof or would not result in Mazel Stores receiving all of
the rights of Mazel L.P. thereunder, such contract shall be deemed not to have
been assigned by Mazel L.P. to Mazel Stores. In those circumstances, Mazel L.P.
will use its best efforts to obtain any such consent. If such consent is not
obtained and is required to effectively assign a contract to Mazel Stores, Mazel
L.P. will cooperate with Mazel Stores in any arrangement to provide Mazel Stores
with the full claims, rights and benefits under any such contract, including
enforcement at the cost and for the benefit of Mazel Stores of any and all
rights of Mazel L.P., as the case may be, against a third party thereto arising
out of the breach or cancellation by such third party or otherwise, and any
amount received by Mazel L.P. in respect thereof shall be held for and paid over
to Mazel Stores.
SECTION 2.3. FURTHER ASSURANCES. Mazel L.P. will, from time to time,
execute and deliver such other and further instruments of conveyance,
assignment, transfer and consent as Mazel Stores may require for the most
effectual conveyance and transfer of the Assets to Mazel Stores.
ARTICLE 3
---------
REPRESENTATIONS OF MAZEL L.P.
-----------------------------
Mazel L.P. represents, warrants and agrees as follows:
SECTION 3.1. EXECUTION AND VALIDITY OF AGREEMENT: EXISTENCE AND GOOD
STANDING. Mazel L.P. has full power and authority to enter into this Agreement
and to perform its obligations hereunder. The execution and delivery of this
Agreement by Mazel L.P. and the consummation by Mazel L.P. of the transactions
contemplated hereby have been duly authorized by all required action on behalf
of Mazel L.P. This Agreement has been duly and validly executed and delivered by
Mazel L.P. and constitutes the legal, valid and binding obligation of Mazel L.P.
enforceable against it in accordance with its terms, subject to the
qualifications that enforcement of the rights and remedies created hereby is
subject to (i) bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting the rights and remedies of creditors, and (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law). Mazel L.P. is a limited
partnership duly organized and validly existing and in good standing under the
laws of the State of Delaware, with the full power and authority to own its
property and to carry on its Business all as and in the places where such
properties are now owned or operated.
3
<PAGE> 6
SECTION 3.2. BOOKS AND RECORDS. All accounts, books, ledgers and
official and other records material to the Business of Mazel L.P. maintained by
or on behalf of Mazel L.P. of whatsoever kind have been properly and accurately
kept and completed in all material respects, and there are no material
inaccuracies or discrepancies of any kind contained or reflected therein.
ARTICLE 4
---------
MISCELLANEOUS
-------------
SECTION 4.1. BINDING EFFECT. This Agreement shall be binding upon, and
the benefit thereof shall inure to the parties hereto and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by either party without the prior written consent of the other, which
consent shall not be unreasonably withheld.
SECTION 4.2. RECITALS. The recitals contained at the beginning of this
Agreement, shall be deemed an integral part of this Agreement and shall be
incorporated herein by reference.
SECTION 4.3. GOVERNING LAW. This Agreement is made and entered into,
and shall be governed by, and construed in accordance with, the laws of the
State of Ohio.
SECTION 4.4. ENTIRE AGREEMENT. Except for other agreements or
instruments executed by the parties hereto in connection herewith, this
Agreement constitutes the entire agreement among the parties pertaining to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations, and discussions whether oral or written.
SECTION 4.5. WAIVERS. No waiver of any of the provisions of this
Agreement shall constitute a waiver of any other provisions (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
SECTION 4.6. THIRD PARTY BENEFICIARIES. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto and their respective
successors and assigns as permitted under Section 5.1.
4
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MAZEL COMPANY L.P.
By: ZS Mazel L.P.,
Its Managing General Partner
By: ZS Mazel, Inc.,
General Partner of ZS Mazel L.P.
By:_____________________________________
Robert A. Horne, Assistant Secretary
MAZEL STORES, INC.
By:_____________________________________
Reuven Dessler, Chairman and Chief
Executive Officer
5
<PAGE> 1
EXHIBIT 10.10
MAZEL STORES, INC.
1996 STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Purpose of the Plan................................................2
Definitions........................................................2
Administration of the Plan.........................................6
Stock Subject to the Plan..........................................7
Limit on Fair Market Value of Incentive Stock Options..............7
Participants to Whom Options May Be Granted........................8
Stock Options......................................................8
Exercise Rights Under Option......................................11
Rights of Option Holders..........................................12
Transferability of Options........................................12
Date of Grant.....................................................12
Adjustments Upon Changes in Capitalization........................12
Termination of Options Upon Change in Control.....................12
Notice of Grant; Option Agreement. ..............................13
Withholding for Taxes. ..........................................13
Amendment of the Plan.............................................13
Delivery of Shares on Exercise....................................14
Fees and Costs....................................................14
Other Provisions..................................................14
Effectiveness of the Plan.........................................14
</TABLE>
1
<PAGE> 3
MAZEL STORES, INC.
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. This Mazel Stores, Inc. 1996 Stock Option Plan
is intended to promote the interests of the Company and its shareholders. The
purposes of the Plan are to encourage directors, officers, employees and
consultants of the Company to acquire or increase their proprietary interest in
the Company, to foster in participants a strong motivation to put forth maximum
effort for the continued success and growth of the Company, to aid in retaining
individuals who put forth such efforts, and to assist in attracting the best
available individuals to the Company in the future.
2. DEFINITIONS. When used herein, the following terms shall have the
meanings set forth below:
2.1 "Affiliate" means, with respect to any specified person or
entity, a person or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person or entity specified.
2.2 "Board" means the Board of Directors of the Company.
2.3 A "Change in Control" shall have occurred if at any time, or
from time to time, after the date of adoption of this Plan, any of the following
events occurs:
(a) a report is filed with the Securities and Exchange Commission
(the "SEC") on Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any "person" (as the term "person" is
used in Section 13(d) or Section 14(d)(2) of the Exchange Act) is or
has become a beneficial owner, directly or indirectly, in one
transaction or a series of transactions, of securities of the
Company representing 30% or more of the combined voting power of the
Company's then outstanding securities; provided, however, that the
term "person" shall not include (i) any "affiliate" of the Company
(as the term "affiliate" is defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act) or any individual who
is considered to own stock of the Company owned, directly or
indirectly, by such an "affiliate" under the rules of Section
267(c)(2) of the Code or (ii) any person or persons who owned 30% or
more of the combined voting power of the Company's securities at the
time of adoption of this Plan;
(b) the Company files a report or proxy statement with the SEC
pursuant to the Exchange Act disclosing in response to Item 1 of
Form 8-K
2
<PAGE> 4
thereunder that a Change in Control of the Company has or may
have occurred or will or may occur in the future pursuant to any
then-existing contract or transaction;
(c) the Company is merged or consolidated with another
corporation and, as a result thereof, securities representing less
than 50% of the combined voting power of the surviving or resulting
corporation's securities (or of the securities of a parent
corporation in case of a merger in which the surviving or resulting
corporation becomes a wholly-owned subsidiary of the parent
corporation) are owned in the aggregate by holders of the Company's
securities immediately prior to such merger or consolidation;
(d) during any period of 24 consecutive months, individuals who
were Directors of the Company at the beginning of such period cease
for any reason to constitute at least a majority of the Company's
Board; provided, however, that a person shall not be considered to
be a new Director if that person is nominated or elected as a
Director by a vote of at least two-thirds of the Directors of the
Company who were Directors at the beginning of such 24 month period;
(e) there is a sale, lease, exchange or other transfer (in one
transaction or a series of transactions) of all or substantially all
of the assets of the Company; or
(f) the shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company.
Notwithstanding anything in this Section 2.3 to the contrary, an
event or occurrence (or a series of events or occurrences) which would otherwise
constitute a Change in Control under the foregoing shall not constitute a Change
in Control for purposes of this Plan if the Board, by majority vote, determines
that a Change in Control does not result therefrom; but only if Continuing
Directors constitute a majority of the directors voting in favor of such
determination. Further, an event or occurrence (or a series of events or
occurrences) which would not otherwise constitute a Change in Control under the
foregoing shall be deemed to constitute a Change in Control for purposes of this
Plan if the Board, by majority vote, determines that a Change in Control does
result therefrom; but only if Continuing Directors constitute a majority of the
directors voting in favor of such determination. A determination by Directors
under the provisions of this paragraph shall be made solely for purposes of this
Plan and shall not directly or indirectly affect any determination or analysis
of whether a Change in Control results for any other purpose. Any determination
made with respect to whether a Change in Control results for purposes of any
other plan or agreement of the Company shall have no effect for purposes of this
Plan.
3
<PAGE> 5
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and reference to any specific provisions of the Code shall refer
to the corresponding provisions of the Code as it may hereafter be amended or
replaced.
2.5 "Committee" means the Compensation Committee of the Board or any
other committee appointed by the Board whose members meet the requirements for
eligibility to serve set forth in Section 3 of this Plan and which is invested
by the Board with responsibility for the administration of this Plan; PROVIDED,
HOWEVER, that only those members of the Compensation Committee of the Board who
participate in decisions relative to Options under this Plan shall be deemed to
be part of the "Committee" for purposes of this Plan.
2.6 "Company" means Mazel Stores, Inc., an Ohio corporation,
collectively with its Subsidiaries, if any, where consistent with the context.
2.7 "Continuing Director" shall mean a member of the Board who
either was a member of the Board on the date of the adoption of this Plan or who
subsequently became a director of the Company and whose initial appointment,
election or nomination for election by the Company's shareholders subsequent to
such date was approved by a vote of two-thirds of the Continuing Directors then
on the Board.
2.8 "Directors" means members of the Company's Board.
2.9 "ERISA" means the Employee Retirement Income Security Act of
1974, as in effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of ERISA shall refer to the corresponding provisions of ERISA as it
may hereafter be amended or replaced.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time and reference to any specific provisions of the
Exchange Act shall refer to the corresponding provisions of the Exchange Act as
it may hereafter be amended or replaced.
2.11 "Employee" or "Employees" means any key employee or employees
of the Company, including any individual employed by the Company who is also a
member of the Board.
2.12 "Fair Market Value" means, except as otherwise determined by
the Committee, with respect to the Shares, the closing sales price for the
Shares as reported on the national securities exchange on which the Shares are
traded, or, if applicable, as reported on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") National Market, on the date for
which the determination of fair market value is made, or if there are no sales
of Shares on that date, then on the next preceding date on which there were
4
<PAGE> 6
any sales of Shares. If the Shares are not or cease to be traded on a national
securities exchange or on the Nasdaq National Market, the "Fair Market Value" of
Shares shall be determined in the manner prescribed by the Committee.
2.13 "Incentive Stock Option" means an Option meeting the
requirements and containing the limitations and restrictions set forth in
Section 422 of the Code or any successor provision.
2.14 "Non-Employee Director" means a person who is a member of the
Board and who is not an Employee of the Company or an Affiliate of the Company.
2.15 "Non-Qualified Stock Option" means an Option other than an
Incentive Stock Option.
2.16 "Option" means the right to purchase, at a price and for a term
fixed by the Committee in accordance with this Plan, and subject to such other
limitations and restrictions as this Plan and the Committee impose, the number
of Shares specified by the Committee.
2.17 "Option Agreement" means a written agreement in such form as
may from time to time be hereafter approved by the Committee, which Option
Agreement shall set forth the terms and conditions of an Option under this Plan,
and be duly executed by the Company and the Participant.
2.18 "Parent" means any corporation, other than the employer
corporation of a Participant, in an unbroken chain of corporations ending with
the employer corporation of a Participant if each of the corporations other than
such employer corporation owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
2.19 "Participant" means directors (including Non-Employee
Directors), officers (including officers who are Directors), employees and
consultants of the Company.
2.20 "Plan" means the Company's 1996 Stock Option Plan.
2.21 "Regulation T" means Part 220, Chapter II, Title 12 of the Code
of Federal Regulations, issued by the Board of Governors of the Federal Reserve
System pursuant to the Exchange Act, as amended from time to time, or any
successor regulation which may hereafter be adopted in lieu thereof.
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<PAGE> 7
2.22 "Rule 16b-3" means Rule 16b-3 of the General Rules and
Regulations of the Exchange Act, as effective August 15, 1996, as amended from
time to time thereafter and as it may hereafter be amended or replaced.
2.23 "Share" or "Shares" means Common Shares, without par value, of
the Company or, if by reason of the adjustment provisions contained herein, any
rights under an Option under this Plan pertaining to any other security, such
other security.
2.24 "Subsidiary" or "Subsidiaries" means any corporation other than
the employer corporation of the Participant in an unbroken chain of corporations
beginning with the employer corporation of the Participant if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
2.25 "Successor" means the legal representative of the estate of a
deceased Participant or the person or persons who shall acquire the right to
exercise an Option by transfer, bequest or inheritance or by reason of the death
of the Participant.
2.26 "Term" means the period during which a particular Option may be
exercised.
3. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of not less than three (3) members of the Board, who meet
both the definition of a "non-employee director" as defined in Rule 16b-3, as
well as the definition of an "outside director" pursuant to Treasury Regulations
promulgated under Section 162(m) of the Code. Subject to the provisions of the
Plan, the Committee shall have full authority, in its sole and absolute
discretion, to determine the Participants to whom Options shall be granted, the
number of Shares to be covered by each of the Options, and the terms and
provisions (including vesting schedule and restrictions on exercise) of the
Option Agreements by which Options shall be evidenced; to amend or cancel
Options (subject to Section 17 of the Plan); to accelerate the vesting of
Options; to require the cancellation or surrender of any Options or any other
awards previously granted under any other plans of the Company as a condition to
the granting of an Option; to interpret the Plan; to determine the requirements
with respect to the transferability of Options; and to prescribe, amend, and
rescind rules and regulations relating to it, and generally to interpret and
determine any and all matters whatsoever relating to the administration of the
Plan and the granting of Options hereunder. The construction and interpretation
by the Committee of any provision of the Plan or any Option Agreement delivered
pursuant to the Plan and any determination by the Committee pursuant to any
provision of the Plan or any Option Agreement delivered pursuant to the Plan
shall be final and conclusive. The Board may, from time to time, appoint members
to the Committee in substitution for or in addition to members previously
6
<PAGE> 8
appointed and may fill vacancies, however caused, in the Committee. Any action
of the Committee may be taken by a written instrument signed by all of the
members, and any action so taken shall be fully as effective as if it had been
taken by a vote of a majority of the members at a meeting duly called and held.
The Committee shall make such rules and regulations for the conduct of its
business as it shall deem advisable and shall appoint a secretary who shall keep
minutes of its meetings and records of all action taken in writing without a
meeting. In addition, the Committee may authorize any one or more of their
number or any officer of the Company to execute and deliver documents on behalf
of the Committee and the Committee may delegate to one or more employees, agents
or officers of the Company, or to one or more third party consultants,
accountants, lawyers or other advisors, such ministerial duties related to the
operation of the Plan as it may deem appropriate. No member of the Committee
shall be liable in the absence of bad faith, for any act or omission with
respect to such member's service on the Committee. The Committee shall from time
to time adopt policies and procedures applicable to Options that will govern the
rights of Participants and Successors in the event of death, disability, or
retirement of Participants or upon the occurrence of any other event determined
by the Committee, in its sole and absolute discretion, to be appropriate. The
Committee shall have authority to define disability and retirement and other
similar terms, and the Committee's policies and procedures may differ with
respect to Options granted at different times. A Participant's rights in the
event of death, disability, or retirement or such other events shall be set
forth in the Option Agreement that evidences an Option to the Participant.
4. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon the
exercise of Options to be granted from time to time under the Plan an aggregate
of Nine Hundred Thousand (900,000) Shares, which Shares may be, in whole or in
part, as the Board shall from time to time determine, authorized but unissued
Shares, issued Shares which shall have been reacquired by the Company, or Shares
acquired on the open market specifically for distribution under the Plan. Any
Shares subject to issuance upon exercise of an Option, but which are not issued
because of a surrender, lapse, expiration or termination of any such Option
prior to issuance of the Shares shall once again be available for issuance in
satisfaction of Options under the Plan.
5. LIMIT ON FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS. In any
calendar year, no Employee may be granted an Incentive Stock Option hereunder to
the extent that the aggregate Fair Market Value (such Fair Market Value being
determined as of the date of grant of the option in question), of the Shares
with respect to which Incentive Stock Options first become exercisable by the
Employee during any calendar year (under all such plans of the Employee's
employer corporation, its Parent, if any, and its Subsidiaries, if any) exceeds
the sum of One Hundred Thousand Dollars ($100,000). For purposes of the
preceding sentence, Options shall be taken into account in the order in which
they were granted. Any Option granted under the Plan which is intended to be an
Incentive Stock Option, but which exceeds the limitation set forth in this
Section 5, shall be a Non-Qualified Stock Option.
7
<PAGE> 9
6. PARTICIPANTS TO WHOM OPTIONS MAY BE GRANTED.
6.1 EMPLOYEES AND CONSULTANT. Options may be granted in each
calendar year or portion thereof while the Plan is in effect to such of the
Participants as the Committee, in its sole and absolute discretion, shall
determine. In determining the Participants to whom Options shall be granted and
the number of Shares subject to purchase under such Options, the Committee shall
take into account the duties of the respective Participants, their present and
potential contributions to the success of the Company, and such other factors as
the Committee shall deem relevant in connection with accomplishing the purposes
of the Plan. Incentive Stock Options shall only be granted to Participants who
are also Employees. The maximum number of Shares with respect to which any
Participant may receive an Option under this Plan shall be 225,000 Shares
(taking into account for this purpose any option previously granted to such
Participant that has been canceled or repriced).
6.2 NON-EMPLOYEE DIRECTORS. Non-Qualified Stock Options for _____
Shares shall automatically be granted to each Non-Employee Director of the
Company upon his or her initial election or appointment as a director of the
Company; provided, however, that any Non-Employee Director who was a director on
the effective date of the Company's initial registration statement on Form S-1
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, shall automatically be granted Non-Qualified Stock Options to
purchase _____ Shares effective as of such date and, unless the expire earlier
in accordance with the terms of this Plan, shall expire ten (10) years after
grant. The Options granted to Non-Employer Directors shall become exercisable
with respect to twenty percent (20%) of the total number of Shares subject to
the Option one (1) year after the effective date of grant with the balance of
the Option becoming exercisable in twenty percent (20%) increments on each of
the next four anniversaries of such date.
7. STOCK OPTIONS.
7.1 TYPES OF OPTIONS. Options granted under this Plan may be (i)
Incentive Stock Options, (ii) Non-Qualified Stock Options, or (iii) a
combination of the foregoing. The Option Agreement shall designate whether an
Option is an Incentive Stock Option or a Non-Qualified Stock Option and separate
Option Agreements shall be issued for each type of Option granted to a
particular Employee. Any Option which is designated as a Non-Qualified Stock
Option shall not be treated by the Company or the Participant to whom the Option
is granted as an Incentive Stock Option for federal income tax purposes.
7.2 OPTION PRICE.
(a) INCENTIVE STOCK OPTION. The option price per Share of any
Incentive Stock Option granted under the Plan shall not be less than the Fair
Market Value of the Shares covered by the Incentive Stock Option on the date
the Incentive
8
<PAGE> 10
Stock Option is granted. Notwithstanding anything herein to the contrary, in
the event an Incentive Stock Option is granted to an Employee who, at the
time such Incentive Stock Option is granted, owns as defined in Section 424
of the Code, stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of:
(i) the Company; or
(ii) if applicable, a Subsidiary; or
(iii) if applicable, a Parent,
the option price per Share of such Incentive Stock Option shall not be less
than one hundred ten percent (110%) of the Fair Market Value of the Shares
covered by the Incentive Stock Option on the date the Incentive Stock Option
is granted.
(b) NON-QUALIFIED STOCK OPTIONS. Unless otherwise determined by
the Committee, in its sole and absolute discretion, the option price per
Share of any Non-Qualified Stock Option granted under this Plan shall be
equal to the Fair Market Value of the Shares covered by the Non-Qualified
Stock Option on the date the Non-Qualified Stock Option is granted.
7.3 TERM OF OPTIONS. Options granted hereunder shall be exercisable
for a Term of not more than ten (10) years from the date of grant, but shall be
subject to earlier termination as hereinafter provided. Each Option Agreement
issued hereunder shall specify the Term of the Option, which Term shall be
determined by the Committee in accordance with its discretionary authority
hereunder. In the event the Committee fails to specify the term of an Option,
such option shall have a term of ten (10) years.
Notwithstanding anything herein to the contrary, in the event an
Incentive Stock Option is granted to an Employee who, at the time such Incentive
Stock Option is granted, owns, as defined in Section 424 of the Code, stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of:
(i) the Company; or
(ii) if applicable, a Subsidiary; or
(iii) if applicable, a Parent,
then such Incentive Stock Option shall not be exercisable more than five (5)
years from the date of grant, but shall be subject to earlier termination as
hereinafter provided.
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<PAGE> 11
7.4 TERMINATION OF OPTIONS. Unless otherwise expressly provided in
an Option Agreement with the Participant to whom an Option is granted, and then
only in such instance, the following terms apply to Options granted under the
Plan:
(a) TERMINATION OF UNVESTED OPTIONS. If the employment of, or
services to, the Company of a Participant to whom an Option shall
have been granted under this Plan terminates, then to the extent any
Option is not yet exercisable in accordance with its terms on the
date notice is given either to or from the Company of termination of
employment by or services to the Company, such Option shall
terminate.
(b) IMMEDIATE TERMINATION OF ENTIRE OPTION. If the employment
of, or rendering services to, the Company of a Participant to whom
an Option shall have been granted under this Plan terminates: (i)
for any reason prior to the first date the Option becomes
exercisable; (ii) as a result of such person's willful misconduct,
gross negligence, or any other termination for cause; or (iii) as a
result of the voluntary termination of employment or service by the
Participant, then anything to the contrary herein notwithstanding,
all such Options or portions of Options then held by such
Participant shall terminate on the date notice is given either to or
from the Company of termination of employment by or service to the
Company; provided, however, that in the event of a termination under
clause (iii) above, the Committee may, but shall not be required to,
allow the Participant to exercise the Option (to the extent
exercisable on the date of termination) at any time within three
months after the date of termination (but not beyond the original
term of the Option). All factual determinations with respect to the
termination of a Participant's employment of, or rendering of
services to, the Company that may be relevant under this Section 7.4
shall be made by the Committee in its sole discretion.
(c) DEATH OF PARTICIPANT. If a Participant shall die while still
employed by or rendering services to the Company, then any Option
exercisable as of the date of death may be exercised by the
Participant's Successor at any time within one (1) year after the
date of such Participant's death (but not beyond the original term
of the Option).
(d) TERMINATION OF EMPLOYMENT OR SERVICES. If the employment of,
or rendering of services by, a Participant to whom an Option shall
have been granted shall terminate, other than as provided in Section
7.4 (a), (b) or (c) hereof, then the Option (to the extent
exercisable on the date of termination) may be exercised at any time
within three (3) months after the date of such termination of
employment or rendering of services to the Company (but not
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<PAGE> 12
beyond the original term of the Option). Notwithstanding the
foregoing to the contrary, if the termination is on account of the
Participant's having become "disabled", as defined in Section
22(e)(3) of the Code, the Option (to the extent exercisable on the
date of termination) may be exercised at any time within one (1)
year after such termination date (but not beyond the original term
of the Option).
8. EXERCISE RIGHTS UNDER OPTION.
8.1 EXERCISE OF OPTIONS. Except as otherwise provided in Section
7.4, an Option may be exercised only while the Employee to whom the Option was
granted is in the employ of the Company or of a Subsidiary. Subject to this
requirement, and unless otherwise specified by the Committee in the relevant
Option Agreement, each Option shall become exercisable with respect to twenty
percent (20%) of the total number of Shares subject to the Option one (1) year
after the effective date of the grant with the balance of the Option becoming
exercisable in twenty percent (20%) increments on each of the next four
anniversaries of such date.
8.2 NOTICE OF EXERCISE. A Participant entitled to exercise an Option
may do so by delivery of a written notice to that effect specifying the number
of Shares with respect to which the Option is being exercised and any other
information the Committee may prescribe. Except as provided in Section 8.3
below, the notice shall be accompanied by payment in full of the purchase price
of any Shares to be purchased, which payment may be made in cash or, with the
Committee's approval (and subject to the requirements of Rule 16b-3), in Shares
valued at Fair Market Value at the time of exercise or, with the Committee's
approval (and subject to the requirements of Rule 16b-3), a combination thereof.
No Shares shall be issued upon exercise of an Option until full payment has been
made therefor. The notice of exercise of an Option shall be accompanied by the
Participant's copy of the Option Agreement evidencing the grant of the Option.
All notices or requests provided for herein shall be delivered to the Secretary
of the Company.
8.3 CASHLESS EXERCISE PROCEDURES. The Committee, in its sole and
absolute discretion, may, but shall not be obligated to, establish procedures
whereby a Participant, subject to the requirements of Rule 16b-3, Regulation T,
federal income tax laws, and other federal, state and local tax and securities
laws, can exercise an Option or a portion thereof without making a direct
payment of the option price to the Company. If the Committee so elects to
establish a cashless exercise program, the Committee shall determine, in its
sole and absolute discretion, and from time to time, such administrative
procedures and policies as it deems appropriate and such procedures and policies
shall be binding on any Participant wishing to utilize the cashless exercise
program.
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9. RIGHTS OF OPTION HOLDERS. The holder of an Option shall not have any
of the rights of a shareholder with respect to the Shares subject to purchase or
issuance under such Option, except to the extent that one or more certificates
for such Shares shall be delivered to the holder upon due exercise of the
Option.
10. TRANSFERABILITY OF OPTIONS. An Option shall not be transferable by
the Participant, other than by will or the laws of descent and distribution, and
such Option may be exercised, during the lifetime of the Participant, only by
such Participant, or in the event of the Participant's death or disability, by
the Participant's Successor or personal representative. Notwithstanding the
forgoing, at the discretion of the Committee, an Option shall be transferable
(i) pursuant to a qualified domestic relations order, as defined in the Code or
ERISA or the rules thereunder (except in the case of an Incentive Stock Option
if such transfer would be deemed to violate the restrictions on transferability
contained in Section 422(b)(5) of the Code under the then current interpretation
of such Code section) or (ii) to a Participant's spouse, lineal descendants,
spouses of lineal descendants or to a trust for their benefit.
11. DATE OF GRANT. The date of grant of an Option granted hereunder
shall be the date on which the Committee acts in granting the Option, unless
otherwise specifically indicated by the Committee as part of its action granting
the Option.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in all of the outstanding Shares by reason of stock dividends, stock splits,
reclassifications, recapitalizations, mergers, consolidations, combinations, or
exchanges of shares, separations, reorganizations or liquidations, or similar
events, or in the event of extraordinary cash or noncash dividends being
declared with respect to outstanding Shares or other similar transactions or
events, the number and class of Shares available under the Plan in the
aggregate, the number and class of Shares subject to Options theretofore
granted, applicable option prices and all other applicable provisions, subject
to the provisions of the Plan, shall be equitably adjusted by the Committee
(which adjustment may, but need not, include payment to the holder of an Option,
in cash or in Shares, in an amount equal to the difference between the then
current Fair Market Value of the Shares subject to such Option, as equitably
determined by the Committee, and the option price of such Option) to the extent
necessary and in such manner that the benefits of Participants under all then
outstanding Options shall be maintained substantially as before the occurrence
of such event. The foregoing adjustment and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole and
absolute discretion. Any such adjustment may provide for the elimination of any
fractional Shares which might otherwise become subject to an Option.
13. TERMINATION OF OPTIONS UPON CHANGE IN CONTROL. Notwithstanding
anything to the contrary herein, and except as otherwise specified in the
relevant Option Agreement, upon the occurrence of a Change in Control, each
Option granted under the Plan shall
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<PAGE> 14
terminate ninety (90) days after the occurrence of such Change in Control, but,
in the event of any such termination, the Option holder shall have the right,
commencing at least five (5) days prior to such Change in Control and subject to
any other limitation on the exercise of such Option in effect on the date of
exercise, to immediately exercise any Option in full, without regard to any
vesting limitations, to the extent it shall not have been theretofore exercised.
The foregoing adjustment and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole and
absolute discretion.
14. NOTICE OF GRANT; OPTION AGREEMENT. Nothing contained in the Plan
nor any resolution adopted or to be adopted by the Board or the shareholders of
the Company shall constitute the granting of any Option. An Option shall be
granted hereunder at such date or dates as the Committee may determine, subject
to the Plan. Whenever the Committee determines to grant an Option, the Chief
Executive Officer or President of the Company, or such other person as the
Committee appoints, shall forthwith send notice thereof to the Participant, in
such form as the Committee approves, stating the number of Shares subject to an
Option, its Term, and the other provisions (including restrictions) and
conditions thereof provided by the terms of the Plan or the Option Agreement.
The notice shall be accompanied by a written Option Agreement which shall have
been duly executed by or on behalf of the Company. If the surrender of
previously issued Options granted under this Plan, or stock appreciation rights
or restricted stock awards previously granted under any other plans of the
Company is made a condition of the grant, the notice shall set forth the
pertinent details of such condition. Execution of an Option Agreement by the
recipient Participant in accordance with the provisions of the Plan shall be a
condition precedent to the exercise of any Option.
15. WITHHOLDING FOR TAXES. The Company shall have the right to require
a Participant entitled to receive Shares pursuant to the exercise of an Option
under the Plan to pay the Company the amount of any taxes which the Company is
or will be required to withhold with respect to such Shares before the
certificate for such Shares is delivered pursuant to the Option. Furthermore,
the Company may elect to deduct such taxes from any other amounts payable then
or any time thereafter in cash or Shares or other property to the Participant.
If the Participant disposes of Shares acquired pursuant to an Incentive Stock
Option in any transaction considered to be a disqualifying transaction under
Sections 421 and 422 of the Code, the Participant must give the Company written
notice of such transfer and the Company shall have the right to deduct any taxes
required by law to be withheld from any amounts otherwise payable to the
Participant.
16. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
shareholders of the Company shall be made if shareholder approval under Rule
16b-3 or Section 422 of the Code
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<PAGE> 15
would be required. Notwithstanding the discretionary authority granted to the
Committee in Section 3 of the Plan, no amendment of the Plan or any Option
granted under the Plan shall impair any of the rights of any holder, without
such holder's consent, under any Option theretofore granted under the Plan.
17. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for Shares
pursuant to the grant or exercise of an Option may be postponed by the Company
for such period as may be required for it with reasonable diligence to comply
with any applicable requirements of any federal, state or local law or
regulation or any administrative or quasi-administrative requirement (including
stock exchange requirements) applicable to the sale, issuance, distribution or
delivery of such Shares. The Committee may, in its sole and absolute discretion,
require a Participant to furnish the Company with appropriate representations
that he or she is acquiring the Shares as an investment and not with a view to
distribution thereof, if the Company, in its sole discretion determines that
such representation is required to insure that a resale or other disposition of
the Shares would not involve a violation of the Securities Act of 1933, as
amended, or of applicable blue sky laws. Any investment representation shall no
longer be applicable at any time such representation is no longer necessary for
such purposes.
18. FEES AND COSTS. The Company shall pay all original issue taxes on
the exercise of any Option granted under the Plan and all other fees and
expenses necessarily incurred by the Company in connection therewith.
19. OTHER PROVISIONS. As used in the Plan, and in Options and other
documents prepared in implementation of the Plan, references to the masculine
pronoun shall be deemed to refer to the feminine or neuter, and references in
the singular or the plural shall refer to the plural or the singular, as the
identity of the person or persons or entity or entities being referred to may
require. The captions used in the Plan and in such Options and other documents
prepared in implementation of the Plan are for convenience only and shall not
affect the meaning of any provision hereof or thereof.
20. LAW TO GOVERN. This Plan shall be governed by and construed in
accordance with the laws of the State of Ohio.
21. EFFECTIVENESS OF THE PLAN. The Plan was approved by the Company's
shareholders on September ___, 1996, and became effective on that date. Unless
sooner terminated by the Board, the Plan shall terminate ten (10) years from its
effective date and no Options may be granted under the Plan after such
termination date. Any Options outstanding at the time of termination of the Plan
shall continue in full force and effect according to the terms and conditions of
the Option and this Plan.
14
<PAGE> 1
EXHIBIT 10.11
MAZEL STORES, INC.
RESTRICTED STOCK PLAN
Dated October 1, 1996
<PAGE> 2
MAZEL STORES, INC. RESTRICTED STOCK PLAN
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - STATEMENT OF PURPOSE.............................................................................1
Section 1.01 Purpose and Background.................................................................1
Section 1.02 Nature of the Plan.....................................................................1
ARTICLE II - DEFINITIONS.....................................................................................1
ARTICLE III - TERMS AND CONDITIONS...........................................................................2
Section 3.01 Vesting and Other Conditions...........................................................2
Section 3.02 Purchase Price.........................................................................3
Section 3.03 Adjustment in Number of Shares.........................................................3
Section 3.04 Termination of Participation in the Plan...............................................4
Section 3.05 Employer Withholding...................................................................4
ARTICLE IV - TERMINATION OF PARTICIPANT'S EMPLOYMENT.........................................................4
Section 4.01 Termination Date.......................................................................4
Section 4.02 Redemption.............................................................................4
Section 4.03 Beneficiary Designations...............................................................4
Section 4.04 Distribution of Vested Shares to Incapacitated Persons.................................5
ARTICLE V - ADMINISTRATION...................................................................................5
ARTICLE VI - AMENDMENTS......................................................................................5
ARTICLE VII - GENERAL PROVISIONS.............................................................................6
Section 7.01 Employment Relationship................................................................6
Section 7.02 Controlling Law........................................................................6
Section 7.03 Restrictions on Transfer...............................................................6
Section 7.04 Regulations and Approvals..............................................................6
Section 7.05 Notices................................................................................7
Section 7.06 Binding Effect.........................................................................7
Section 7.07 Instrument Complete....................................................................7
Section 7.08 Action by Company; Liability...........................................................7
Section 7.09 Participants' Consent..................................................................7
Section 7.10 Severability of Provisions.............................................................7
Section 7.11 Headings and Captions..................................................................8
Section 7.12 Gender and Number......................................................................8
</TABLE>
<PAGE> 3
MAZEL STORES, INC.
RESTRICTED STOCK PLAN
This Mazel Stores, Inc. Restricted Stock Plan is dated October 1, 1996.
Capitalized terms used herein without definition have the respective meanings
given to such terms in Article II below.
ARTICLE I
STATEMENT OF PURPOSE
--------------------
Section 1.01 PURPOSE AND BACKGROUND. The purpose of this Restricted
Stock Plan (the "Plan") is to provide long term incentive to those persons with
significant responsibility for the success and growth of Mazel Stores, Inc. (the
"Company") and to associate the interests of such employees with the interests
of the Company's shareholders. This Plan is the successor to the First Amended
and Restated Mazel Company L.P. Employee Equity Plan dated November 1, 1995 (the
"Predecessor Plan"), and supersedes in all respects the Predecessor Plan. This
Plan will become effective as of the effective date of the initial public
offering of the Company's common stock (the "Effective Date"). As of the date
hereof, units under the Predecessor Plan have been awarded to those persons
described in EXHIBIT "A" attached hereto and incorporated herein by reference,
in the amounts (converted to Company shares) and subject to the vesting
limitations set opposite such persons' respective names in EXHIBIT "A". No
further awards will be made by the Company under the Plan, whether to the
persons described in EXHIBIT "A" or to any other persons who are or may become
associated with the Company.
Section 1.02 NATURE OF THE PLAN. The Plan is an equity appreciation
plan that entitles a Participant to share, as a shareholder of the Company, in
future profits and appreciation of the Company.
ARTICLE II
DEFINITIONS
-----------
"AFFILIATE" means any corporation or partnership, or any successor
thereof, which is controlling, controlled by or under common control with the
Company and the Key Executives of which have been determined by the Committee to
be in a position, indirectly, to make a contribution to the earnings and success
of the Company.
"COMMITTEE" has the meaning specified in Article V.
<PAGE> 4
"COMPANY" means Mazel Stores, Inc., an Ohio corporation, or any
successor thereof.
"DISABILITY," unless otherwise defined in the employment agreement
between the Participant and the Company, means the complete and permanent
inability of a Participant to perform all of his or her duties under the terms
of his or her employment with the Company, as determined by the Committee upon
the basis of such evidence, including independent medical reports and data, as
the Committee deems appropriate or necessary.
"PARTICIPANT" means, individually and collectively, those persons
identified in EXHIBIT "A" attached hereto.
"PLAN" means this Mazel Stores, Inc. Restricted Stock Plan, as the same
may be amended from time to time.
"SALE OF THE COMPANY" means the sale of the Company to an independent
third party or an affiliated group of independent third parties pursuant to
which such party or parties acquire (i) all or substantially all of the assets
of the Company and all of any of its subsidiaries or (ii) more than 50% of the
outstanding voting securities of the Company.
"UNVESTED SHARES" means Shares of the Company that have not vested
under the terms of their award to the Participant (including, if applicable, the
Participant's employment agreement with the Company in respect of which an award
of Shares was made).
"VESTED SHARES" means Shares of the Company that have vested under the
terms of their award to the Participant (including, if applicable, the
Participant's employment agreement with the Company in respect of which an Award
of Shares was made).
ARTICLE III
TERMS AND CONDITIONS
--------------------
Section 3.01 VESTING AND OTHER CONDITIONS.
(a) The Shares awarded hereunder shall become vested as to
each Participant in accordance with the schedule attached hereto as
EXHIBIT "A".
(b) In the event of a Sale of the Company, all Unvested Shares
outstanding at that time shall automatically vest. Notwithstanding the
foregoing, if the automatic vesting, either alone or together with
other payments or benefits
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which the Participant receives or is then entitled to receive from the
Company, would constitute a "parachute payment" within the meaning of
Section 280G of the Code, such payments or benefits provided to the
Participant under this Section 3.01 shall be reduced to the extent
necessary so that no portion thereof shall be subject to the excise tax
imposed by Section 4999 of the Code, but only if, by reason of such
reduction, the Participant's net after tax benefit shall exceed the net
after tax benefit if such reduction were not made. "NET AFTER TAX
BENEFIT" for purposes of this Section 3.01 shall mean the sum of (i)
the total amount payable to the Participant under this Section 3.01,
PLUS (ii) all other payments and benefits which the Participant
receives or is then entitled to receive from the Company and any of its
subsidiaries that would constitute a "parachute payment" within the
meaning of Section 280G of the Code, LESS (iii) the amount of federal
income taxes payable with respect to the payment and benefits described
in clauses (i) and (ii) above calculated at the maximum marginal income
tax rate for each year in which such payments and benefits shall be
paid to the Participant (based upon the rate in effect for such year as
set forth in the Code at the time of the first payment of the
foregoing), LESS (iv) the amount of excise taxes imposed with respect
to the payments and benefits described in clauses (i) and (ii) above by
Section 4999 of the Code. All calculations under this Section 3.01
shall be initially made by the Company and shall be delivered to the
Participant at least five (5) days prior to the consummation of the
Sale of the Company (as applicable).
(c) Any Unvested Shares as of the Termination Date shall be
redeemed at the Redemption Price, returned to the Company, and
cancelled.
Section 3.02 PURCHASE PRICE. The purchase price for Units awarded to
each Participant under the Predecessor Plan, as adjusted to reflect the
conversion of Units under the Predecessor Plan to Shares under this Plan is
$0.083 per share (the "Purchase Price"). The Purchase Price has been paid by
each Participant either in cash or by a recourse promissory note, due on the
earlier of the fifth anniversary of issuance of Units under the Predecessor Plan
or on the Termination Date of the Participant's Shares.
Section 3.03 ADJUSTMENT IN NUMBER OF SHARES. In the event of any change
in the outstanding shares of capital stock by reason of any split, stock
dividend, recapitalization, merger, consolidation, combination or exchange of
shares or other similar corporate change, such equitable adjustments shall be
made in the Plan and the awards thereunder as the Committee determines are
necessary and appropriate, including, if necessary, an adjustment in the maximum
number or kind of Shares subject to the Plan or which may be or have been
awarded to any Participant. Such adjustment shall be conclusive and binding for
all purposes of the Plan.
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Section 3.04 TERMINATION OF PARTICIPATION IN THE PLAN. A Participant
shall cease to be a Participant on the date on which the last Share previously
awarded to such person has been distributed to the Participant or is redeemed on
the Termination Date pursuant to Article IV hereof.
Section 3.05 EMPLOYER WITHHOLDING. The Company, in the discretion of
the Board of Directors or the Committee shall be entitled to withhold the amount
of taxes the Company deems necessary to satisfy any applicable Federal, state
and local income and employment tax withholding obligations arising in
connection with the Plan or to make other appropriate arrangements with the
Participant to satisfy such obligations. Without limiting the generality of the
foregoing, the satisfaction by the Participant of any withholding-tax-related
requirements imposed by the Company (including, without limitation, requirements
on the Participant to forward cash in connection with tax withholding) shall be
a condition to the awards and purchases contemplated hereby, and no Shares
awarded and purchased hereunder shall be valid in the absence of the
Participant's satisfaction of such requirements.
ARTICLE IV
TERMINATION OF PARTICIPANT'S EMPLOYMENT
---------------------------------------
Section 4.01 TERMINATION DATE. "Termination Date" means, with respect
to an individual or Participant, the termination of the Participant's employment
with the Company and all of its Affiliates for any reason other than death or
Disability. All Unvested Shares of a Participant shall be redeemed on the
Termination Date and, returned to the Company, and cancelled. The Plan shall
terminate when the last Participant's Unvested Shares vest or are forfeited.
Section 4.02 REDEMPTION. On the Termination Date, or within ten (10)
days thereafter, the Company shall redeem any Unvested Shares at a redemption
price per share (the "Redemption Price") equal to the Purchase Price. The
Redemption Price shall be paid in cash, provided that the Company can offset
against such payments and sums due to the Company by the Participant.
Section 4.03 BENEFICIARY DESIGNATIONS. Each Participant may designate
one or more primary beneficiaries to receive Vested Shares hereunder by reason
of the death of the Participant and the proportion of such benefits to be
received by each such beneficiary. Each Participant also may designate, with
respect to each such primary beneficiary, one or more contingent beneficiaries
to receive Vested Shares not yet distributed to such primary beneficiary at the
time of the death of such primary beneficiary. Each such beneficiary designation
will revoke all prior designations by the Participant and, in order
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to be valid, must be (i) in a form prescribed by the Committee, (ii) witnessed
by a party other than a beneficiary named therein and (iii) delivered to the
Committee, or its designee, during the Participant's lifetime. If a Participant
fails to designate a beneficiary in the manner provided above, or if all
beneficiaries designated by the Participant die before the date of the
Participant's death or before complete distribution of the Participant's Vested
Shares, the Committee will distribute the Participant's Vested Shares to the
legal representative of the estate of the last to die of the Participant and the
Participant's designated beneficiaries.
Section 4.04 DISTRIBUTION OF VESTED SHARES TO INCAPACITATED PERSONS.
Any Vested Shares distributable to or for the benefit of a person who is a
minor, is under a legal disability or, in the opinion of the Committee, is in
any way incapacitated so as to be unable to manage his affairs, shall be deemed
paid when paid for the benefit of such person to such person's guardian or to
the party providing or reasonably appearing to provide for the care of such
person. Any payment made in accordance with the preceding sentence shall fully
discharge the Company, and all other parties of any liability for such payment
under the Plan.
ARTICLE V
ADMINISTRATION
--------------
The Plan shall be administered by the Compensation Committee of the
Board of Directors, which shall have full power and authority to construe and
administer the Plan and to adopt such rules and regulations for the
administration of the Plan as it may deem advisable. The acts of a majority of
the members present at any meeting of the Committee at which a quorum is
present, or acts approved in writing by a majority of the entire Committee,
shall be the acts of the Committee for purposes of the Plan. Any action taken
under the provisions of the Plan by the Committee arising out of, or in
connection with, the administration of the Plan or any rules adopted thereunder
shall be, in each case, within the sole discretion of the Committee and
conclusive and binding upon the Company, all Participants, all beneficiaries of
Participants, and all persons and entities having an interest therein. All
expenses of administering the Plan shall be paid by the Company.
ARTICLE VI
AMENDMENTS
----------
The Board of Directors or the Committee may amend the Plan at any time
and from time to time without prior notice to any person or entity. However,
unless required by
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law, no such amendment shall adversely affect the rights of Participants to
receive, or diminish the Company's obligations hereunder to provide, benefits
attributable to awards made prior to the effective date of such amendment. With
the consent of the Participant affected, the Board of Directors or the Committee
may amend outstanding agreements evidencing awards under the Plan in a manner
not inconsistent with the terms of the Plan.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 7.01 EMPLOYMENT RELATIONSHIP. Under no circumstances shall the
terms of employment or of any employment agreement of any Participant be
modified or affected in any way by the establishment or continuance of the Plan.
Nothing contained in the Plan shall be deemed to constitute a contract of
employment or to give any person the right to remain in the employ of the
Company.
Section 7.02 CONTROLLING LAW. The provisions of the Plan shall be
construed and applied under the laws of the State of Ohio, except to the extent
superseded by federal law (which then shall prevail).
Section 7.03 RESTRICTIONS ON TRANSFER. No Participant or beneficiary
thereof may assign, alienate, pledge, transfer or otherwise dispose of all or
any part of such person's right, title and interest in any Shares. The Committee
shall have the right to condition any issuance of Shares made to any Participant
upon such Participant's written undertaking to comply with such restrictions on
his or her subsequent disposition of such shares as the Committee shall deem
necessary or advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such shares may be
legended to reflect any such restrictions.
Section 7.04 REGULATIONS AND APPROVALS.
(a) The obligation of the Company to distribute Vested Shares
with respect to awards made under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or
appropriate by the Committee.
(b) If the disposition of Shares acquired pursuant to the Plan
is not covered by a then current registration statement under the
Securities Act and any applicable state securities laws, and is not
otherwise exempt from such registration, such Shares shall be
restricted against transfer to the extent required by the
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Securities Act or regulations thereunder and such state laws, and the
Committee may require any individual receiving Shares pursuant to the
Plan, as a condition precedent to receipt of such Shares, to represent
to the Company in writing that the Shares acquired by such individual
are acquired for investment only and not with a view to distribution.
Section 7.05 NOTICES. All notices under the Plan shall be in writing,
and if to the Company, shall be delivered to the Chairman or mailed to the
Company's principal office, addressed to the attention of the Chairman; and if
to the Participant, shall be delivered personally or mailed to the Participant
at the address appearing in the records of the Company. Such addresses may be
changed at any time by written notice to the other party given in accordance
with this paragraph 7.05.
Section 7.06 BINDING EFFECT. This Plan is binding on all persons
entitled to benefits hereunder, their respective heirs and legal
representatives, and the Company and its successors and assigns.
Section 7.07 INSTRUMENT COMPLETE. This instrument contains a full and
complete recitation of the terms and provisions of the Plan and supersede any
prior understandings and representations, oral or written, which were or may
have been made regarding the Plan and its terms and provisions (including, but
not limited to, the Predecessor Plan, which is amended and restated in its
entirety by the Plan and is null and void and of no further force or effect).
Section 7.08 ACTION BY COMPANY; LIABILITY. Any action required or
permitted to be taken by the Company under the Plan may be taken by or performed
by any director, officer or employee duly authorized by the Company. To the
extent permitted by law, no person (including, without limitation, any Partner,
or any director, officer or employee of the Company) shall be personally liable
for any act done or omission made in good faith in the administration of the
Plan.
Section 7.09 PARTICIPANTS' CONSENT. Each Participant, in consideration
of the benefits conferred hereunder, agrees to be bound by all the terms and
conditions of the Plan as presently constituted and as they may be amended from
time to time.
Section 7.10 SEVERABILITY OF PROVISIONS. If any provision of the Plan
shall be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect any other provisions hereof, and the Plan
shall be construed and enforced as if the invalid or unenforceable provision had
not been included herein.
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Section 7.11 HEADINGS AND CAPTIONS. The headings and captions herein
are provided for convenience only and shall not be considered a part of the Plan
or in any way affect its interpretation.
Section 7.12 GENDER AND NUMBER. Except where otherwise clearly
indicated by context, as used herein the masculine, feminine or neuter gender
shall be deemed to include the other genders, the singular number shall be
deemed to include the plural and the plural the singular.
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<PAGE> 1
EXHIBIT 10.15
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made and
entered into as of the 1st day of October, 1996, by and among MAZEL STORES,
INC., an Ohio corporation (the "Company"), MAZEL/D&K, INC., an Ohio corporation
("Mazel/D&K"), ZS MAZEL L.P., a Delaware limited partnership ("ZSM"), ZS MAZEL
II L.P., a Delaware limited partnership ("ZSMII") and ZS MAZEL, INC., a Delaware
corporation ("ZSMI," and together with ZSM and ZSMII, "ZS Fund") to evidence the
following agreements and understandings:
WITNESSETH:
-----------
WHEREAS, on September 11, 1996, the Company filed with the Commission,
under the Securities Act, a registration statement on Form S-1 (the
"Registration Statement") with respect to an aggregate of 2,466,750 shares of
Common Stock (including 321,750 shares of Common Stock which certain
underwriters have the option to purchase to cover over-allotments, if any). The
public distribution of the shares of Common Stock described in the Registration
Statement is hereinafter referred to as the "Initial Public Offering");
WHEREAS, immediately following the completion of the Initial Public
Offering, and assuming all of the shares of Common Stock offered for sale
pursuant to the Initial Public Offering have been sold and assuming further that
the over-allotment option granted to certain underwriters have not been
exercised Mazel/D&K and ZS Fund will own approximately 2,228,601 and 2,745,770
shares of Common Stock, respectively, representing 26.7% and 32.9%,
respectively, of the issued and outstanding shares of Common Stock of the
Company, on a post-offering basis; and
WHEREAS, the Company has agreed to grant certain registration rights to
Mazel/D&K and ZS Fund on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
1.1 "COMMISSION" shall mean the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities Act and the
Exchange Act.
<PAGE> 2
1.2 "COMMON STOCK" shall mean the Common Stock, without par value,
of the Company.
1.3 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect at the time.
1.4 "HOLDERS" shall mean Mazel/D&K and ZS Fund and their permitted
successors and assigns, heirs and personal representatives. Holders shall
include (a) with respect to any Holder which is an individual, such Holder's
spouse or descendants (including through adoption and by marriage), parents,
siblings and descendants of siblings or any trust established by such Holder for
the benefit of any of the foregoing, or any person receiving Registrable
Securities pursuant to the laws of descent and distribution, (b) with respect to
any Holder that is an entity, affiliates (within the meaning of Rule 144) of
such entity, (c) with respect to an estate, the persons entitled to receive
Registrable Securities pursuant to the laws effecting such estate, (d) such
charitable organizations that the Company may approve, such approval not to be
unreasonably withheld and (e) any Person receiving Registrable Securities
pursuant to Section 6(a).
1.5 "PUBLIC SECURITIES" means shares of Common Stock which: (a)
have been sold pursuant to an effective registration statement, (b) have
otherwise been transferred (including transfers pursuant to Rule 144) in a
transaction in which new certificates not bearing a legend restricting further
transfer have been delivered by the Company or (c) due to the passage of time or
other circumstances can be sold publicly without volume or other restrictions
and without registration under the Securities Act.
1.6 "REGISTRABLE SECURITIES" shall mean collectively, the shares
of Common Stock held by the Holders and any other securities (other than Public
Securities) issued or issuable by the Company, into which, or for which, the
shares of Common Stock will be converted or exchanged pursuant to the terms
thereof or resulting from any other reorganization, combination,
recapitalization, restructuring, or the like of the Company, and any security
into which or for which such security may be converted or exchanged.
1.7 "PERSON" shall mean an individual, corporation, partnership,
joint venture, trust or unincorporated organization, or a government or any
agency or political subdivision thereof.
1.8 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect at the time.
2. DEMAND REGISTRATION.
2.1 REQUEST TO REGISTER. Each of the Holders of Registrable
Securities then outstanding may request the Company to register for sale under
the Securities Act all or any portion
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of its Registrable Securities held by such Holder, PROVIDED, HOWEVER, that no
such request for registration may be made at any time prior to 180 days
following completion of the Initial Public Offering. Each Holder may make two
(2) requests only, unless the Company is unable to register the requested shares
pursuant to Section 2.7.
2.2. OBLIGATION TO REGISTER. Upon receipt of such request, the
Company shall use its best efforts to cause the shares of Common Stock held by
the requesting Holder to be registered under the Securities Act. The Company
shall be obligated to register the shares of Common Stock for any requesting
Holder on two (2) occasions only. In the event the offering pursuant to
Section 2.1 is not completed, the Company's obligations pursuant to this Section
2 shall not be deemed to have been satisfied. No registration request may be
made under Section 2.1 within one hundred and eighty (180) days after the
effective date of a registration statement filed by the Company covering a firm
commitment underwritten public offering in which the Holders of Registrable
Securities shall have been entitled to participate pursuant to Section 3 and in
which there shall have been effectively registered the entire amount of shares
of Common Stock as to which registration shall have been so requested.
2.3 DELAY IN REGISTRATION. Notwithstanding anything to the
contrary contained herein, the Company shall have the right to delay a demand
registration under Section 2.1 for a period not to exceed ninety (90) days if,
in the reasonable judgment of the Company's Board of Directors taken in good
faith, such registration would be detrimental to the Company, and the Company's
Board of Directors certifies to the Holders in writing that such registration
would be detrimental to the Company.
2.4 UNDERWRITING ARRANGEMENTS. The Company shall have the right to
require that the registration and sale pursuant to this Section 2 be
underwritten by one or more investment banking firms of national reputation
selected by the Company, subject to the approval of the participating Holders,
which approval will not be unreasonably withheld, delayed or conditioned.
2.5 CUSTOMARY AGREEMENTS. Each of the Holders participating in
such registration and the Company agrees to enter into such customary agreements
(including underwriting agreements in customary form) and to take such other
actions as the Company or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of the shares of Common Stock included
therein.
2.6 NOTICE TO OTHER HOLDER. Following receipt of any request
under Section 2.1, the Company shall promptly notify in writing the other Holder
from whom a request has not been received and shall use its best efforts to
register under the Securities Act, for public sale, together with the shares of
Common Stock specified in such notice, all shares of Common Stock requested to
be registered by the other Holder.
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2.7 PRO RATA REDUCTION. Notwithstanding the foregoing, if, and to
the extent that the managing underwriter of the offering determines and advises
in writing that the inclusion of all of the shares of Common Stock desired to be
included by the Holders would interfere with the successful marketing of the
shares of Common Stock to be sold, the number of shares of Common Stock to be
included in the offering for the account of the Holders shall be reduced on a
PRO RATA basis, based on the number of shares of Common Stock desired to be
included in the registration statement by each Holder, PROVIDED, HOWEVER, that
such number of shares of Common Stock desired to be included by the Holders
shall not be reduced if any shares are to be included in such underwriting for
the account of the Company or any other Person with registration rights other
than the requesting Holders. In the event the number of shares of Common Stock
of each Holder is reduced by 20% or more, the Company's obligation pursuant to
this Section 2 shall not be deemed to have been satisfied.
2.8 EXCEPTION. Notwithstanding anything in this Agreement to
the contrary, the Company will have no obligation to register any shares which
can be sold without restriction pursuant to Rule 144 of the Securities Act,
including, but not limited to, Rule 144(k).
3. "PIGGY-BACK" REGISTRATION.
3.1 NOTICE OF REGISTRATION. The Company shall give thirty (30) days
prior written notice to all Holders of outstanding Registrable Securities if, at
any time, it proposes to file a registration statement under the Securities Act
for sale for cash to the public of Common Stock for its own account or the
account of any other holder of securities of the Company (except with respect to
registrations pursuant to a registration statement on Form S-4, Form S-8, or
another form at the time not available for registering the Registrable
Securities for sale to the public or such other registrations in connection with
any acquisition of another Person or in connection with option or employee
benefit plans of the Company).
3.2 OBLIGATION TO REGISTER. Upon the written request of any Holder,
received by the Company within fourteen (14) days after the receipt of notice
from the Company pursuant to Section 3.1 hereof, to register shares of Common
Stock held by the Holder (which request shall specify the Registrable Securities
intended to be disposed of by such Holder and the intended method of disposition
thereof), the Company will use its best efforts to include the shares of Common
Stock as to which registration shall have been so requested to be included in
the securities to be covered by the registration statement proposed to be filed
by the Company.
3.3 PRO RATA REDUCTION. In the event that any registration pursuant
to this Section 3 shall be, in whole or in part, an underwritten public offering
of the Company's securities other than pursuant to Section 2 of this Agreement,
if and to the extent that the managing underwriter of that offering determines
and advises in writing that the inclusion of all shares of Common Stock
requested to be registered by the Holder and by any other Person with similar
"piggyback" registration rights would interfere with the successful marketing of
the shares of Common Stock to be sold by the Company or such other security
holders, then the amount of shares of Common Stock
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to be included in such an underwriting for the accounts of the requesting Holder
and any other Person with similar "piggyback" registration rights may be reduced
by reducing the number of shares of Common Stock offered by the Holder and any
other Person with similar "piggyback" registration rights pro rata, based on the
number of shares of Common Stock desired to be included in the registration
statement by each Holder and by any other Person with similar "piggyback"
registration rights.
3.4 WITHDRAWAL OR DELAY. Notwithstanding the foregoing provisions,
the Company may withdraw or delay any registration statement referred to in this
Section 3 without thereby incurring any liability to the Holders of Registrable
Securities.
4. HOLDBACK ("STANDOFF") AGREEMENTS.
4.1 Except as part of such underwritten registration, each Holder
agrees not to offer for public sale or effect any public sale or distribution
(including sales pursuant to Rule 144 or Rule 144A under the Securities Act) of
Registrable Securities, or any securities convertible into or exchangeable or
exercisable for such securities during the one hundred-eighty (180) day period
(or such longer period as may be agreed to between the managing underwriter of
the public offering and such Holder, provided the period shall not be longer
than the period imposed on the Company pursuant to Section 4.2 below) beginning
on the effective date of any underwritten registration of the Company's
Registrable Securities unless the managing underwriter of the registered public
offering otherwise agrees.
4.2 The Company agrees not to offer for public sale or effect any
public sale or distribution of its Registrable Securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
one hundred-eighty (180) day period (or such longer period as may be agreed to
between the managing underwriter of the public offering and the Company)
beginning on the effective date of any underwritten demand registration (except
pursuant to registrations on Form S-8 or any successor form or pursuant to
registrations on Form S-4 or any successor form), unless the managing
underwriter otherwise agrees.
5. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of Sections 2 or 3 herein to use its best efforts (excluding
the institution of litigation) to effect the registration of shares of Common
Stock under the Securities Act, the Company will, as soon as is reasonably
practicable:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become effective, provided that as far in advance as
practicable before filing such registration statement or any amendments or
supplements hereto, the Company will furnish to each Holder registering
Registrable Securities pursuant to such registration statement copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits), and any such Holder shall have the opportunity to object to any
information pertaining solely to such Holder that is contained therein and the
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Company will make corrections reasonably requested by such Holder with respect
to such information prior to filing any such registration statement or amendment
or supplement thereto.
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the earlier of (a) such time as all of such securities have been disposed
of in accordance wit the intended methods of disposition by the Holder or
Holders thereof set forth in the registration statement and (b) ninety (90) days
after such registration statement becomes effective, and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each such Holder (or such Holder's designated
representative), copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such selling
Holder may reasonably request in order to facilitate the disposition of the
shares of Common Stock;
(d) use its best efforts to register or qualify the Registrable
Securities under such other securities or blue sky laws of such United States
jurisdictions as any Holder (or the managing underwriter in the event the
registration relates to a public offering to be underwritten) reasonably
requests at the cost and expense of the Company and do any and all other acts
and things which may be reasonably necessary or advisable to enable such Holder
to consummate the disposition in such jurisdictions of the securities owned by
such Holder (provided that the Company will not be required to: (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to so qualify for this subparagraph, or (ii) subject itself to taxation
in any jurisdiction where it will not otherwise be taxable);
(e) notify each selling Holder, at any time when such registration
statement related thereto is effective under the Securities Act, of the
occurrence of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact required to be stated therein or necessary to make the statements
therein not misleading, and, at the request of any Holder, the Company will
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact required to be
stated therein or necessary to make the statements therein not misleading;
(f) if the securities are quoted on the Nasdaq National Market or
listed on a national securities exchange, cause all such securities to be
listed, upon official notice of issuance, on the Nasdaq National Market or such
other exchange on which the Company's securities are then listed;
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(g) provide a transfer agent and registrar for all such securities
not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) or take any other reasonable action in order to
expedite or facilitate the disposition of such securities;
(i) make available for inspection by any selling Holder, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
Holder or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's respective
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement; and
(j) obtain a cold comfort letter, addressed to the selling Holders,
from the Company's independent public accountants in customary form and covering
matters of the type customarily covered by cold comfort letters.
(k) take all other steps necessary to effect the registration of
the Registerable Securities contemplated hereby.
6. COVENANTS OF HOLDERS. Each of the Holders agrees that the
obligation of the Company to register the Registrable Securities pursuant to
Sections 2 or 3 is conditioned upon the following covenants and agreements:
(a) Each Holder agrees that it will dispose of the Registrable
Securities in compliance with all applicable laws. Registrable Securities may be
transferred to any Person, Provided that any such transfer permitted by this
Section 6(a) may only be made by compliance with the provisions contained
herein. Any purported transfer in violation hereof shall be null and void. Each
Holder agrees to be bound by the provisions of this Section 6(a) and to
indemnify and hold harmless the Company against loss or liability arising from
the transfer of Registrable Securities in violation of the provisions of this
Section 6(a). Prior to any transfer or purported transfer of Registrable
Securities in accordance with the terms hereof, each Holder shall give written
notice to the Company of such Holder's intention to effect such transfer. Each
such notice shall be in sufficient detail, and may be accompanied by an opinion
of counsel to such Holder.
(i) If, in the opinion of counsel to such Holder reasonably
satisfactory in form and substance to the Company, or if such notice
was not accompanied by an opinion of counsel of such Holder, then, if,
in the opinion of counsel to the Company, the proposed transfer may be
effected without registration under the Securities Act and under state
securities law, such Holder shall be entitled to transfer such
Registrable Securities in accordance with the terms of the notice
delivered to the Company. The Company will advise
7
<PAGE> 8
such Holder within twenty (20) days after submission of such notice
whether such Holder is entitled to effect such transfer;
(ii) If in the reasonable opinion of either of such counsel,
the proposed transfer cannot be effected without registration under the
Securities Act and state securities laws, the Company shall, as
promptly as practicable, so notify such Holder, and such Holder shall
not effectuate the proposed transfer;
(iii) All expenses of obtaining any opinions of counsel
referred to in this Section 6 (a) shall be borne by the Holder
proposing to transfer the Registrable Securities;
(iv) Except as otherwise provided in this Agreement, the
Company shall have no obligation to any Holder to cause or consent to
the registration of Registrable Securities under the Securities Act or
state securities laws;
(v) Except in the case of sale of Registrable Securities
pursuant to a registration statement which is declared effective under
the Securities Act or sold pursuant to Rule 144, as a condition to the
transfer, any proposed transferee must agree in writing (in form and
substance reasonably acceptable to the Company) to be bound by the
terms and conditions of this Agreement; and
(vi) Each certificate for Registrable Securities shall be
stamped or otherwise imprinted with legends in substantially the
following form:
The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended, or under the securities laws of any
state; and may not be sold, assigned, transferred,
pledged or otherwise disposed of except in compliance
with, or pursuant to an exemption from, the
requirements of such Act or such laws.
The Securities represented by this certificate are
subject to restrictions on transfer contained in a
Registration Rights Agreement of the Company dated as
of October 1, 1996, a copy of which is on file at the
principal office of the Company.
(b) Each Holder agrees that it will provide the Company with
information with respect to such Holder and such Holder's intended method of
distribution of such Registrable Securities as (i) may be necessary for the
Company to comply with its obligations under this Agreement, or any agreement,
document or instrument executed in connection herewith and (ii) the Company may
from time to time reasonably request in order to minimize the effect of any
offering
8
<PAGE> 9
of Registrable Securities on the market price of its Common Stock. Each Holder
agrees (x) to notify the Company as promptly as practicable of any inaccuracy or
change in information previously furnished by such Holder to the Company or of
the occurrence of any event in either case as a result of which any prospectus
relating to such registration contains or would contain an untrue statement of a
material fact regarding such Holder or such Holder's intended method of
distribution of such Registrable Securities or omits or would omit to state any
fact regarding such Holder or such Holder's intended method of distribution of
such Registrable Securities required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing and (y) promptly to furnish to the Company any additional information
required to correct and update any previously furnished information or required
so that such prospectus shall not contain, with respect to such Holder or the
distribution of such Registrable Securities, an untrue statement of a material
fact or omit to state a material fact required ro be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
(c) Each Holder of Registrable Securities to be registered
pursuant to Sections 2 or 3 agrees that, upon receipt of a reasonable request
from the Company that such Holder discontinue use of the registration statement
covering the Registrable Securities for a reasonable length of time that will
not exceed [ninety (90)] days (the "Delay Period"), or (ii) any notice from the
Company of the happening of any event described in Section 5(e) hereof, such
Holder will forthwith discontinue disposition of the Registrable Securities
pursuant to the registration statement until such Holder shall have received (x)
in the case of clause (i) of this sentence, notice form the Company of the end
of the Delay Period and, if applicable, copies of any supplemental or amended
prospectus, and (y) in the case of clause (ii) of this sentence, copies of the
supplemental or amended prospectus contemplated by Section 5(e).
7. REGISTRATION EXPENSES. All expenses incurred in complying with
Section 2 and 3, including, without limitation, all registration filing and
qualification fees, printing expenses, fees and disbursements of counsel,
independent public accountants and other experts for the Company, fees and
expenses (including counsel fees) incurred in connection with complying with
state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., exchange listing fees, transfer taxes, fees of
transfer agents and registrars, costs of issuance (excluding any and all Selling
Expenses (as defined below) are called "Registration Expenses, " and shall be
borne by the Company. "Selling Expenses" include, without limitation, all fees
and disbursements of counsel for, or consultants to, the participating Holders
and all underwriting discounts and selling commissions applicable to the sale of
the Registrable Securities. Selling Expenses shall be borne by the Holders.
8. INDEMNIFICATION AND CONTRIBUTION.
8.1 The Company will indemnify and hold harmless, to the fullest
extent permitted by law, each Holder participating in any registration, and such
Holder's officers, directors, partners and controlling persons (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses, joint or several (or actions in respect thereof) arising out of or
caused by any untrue or alleged untrue statement of material fact contained in
any registration
9
<PAGE> 10
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto, or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each such individual for any legal and other
expenses as such expenses are reasonably incurred by them in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; PROVIDED, HOWEVER, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon (i) an untrue statement or
alleged untrue statement or omission or alleged omission in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto in reliance upon and in conformity with the information
furnished to the Company by any such individual specifically for use therein
(ii) such Holder's failure to send or give a copy of the final prospectus to the
Person asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. In connection with an underwritten offering,
the Company will indemnify such underwriters, their officers and directors and
each person who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the indemnification of
the Holders.
8.2 In connection with any registration in which a Holder is
participating, each such Holder will furnish to the Company in writing such
information relating to disclosure concerning the Holder required by the
Securities Act to be included in such registration statement for use in
connection with any such registration statement or the prospectus contained
therein and, to the fullest extent permitted by law, will indemnify and hold
harmless the Company and the underwriter(s), the directors and officers and each
person who controls the Company and the underwriter(s), as applicable, (within
the meaning of the Securities Act) and any other participating Holder against
any losses, claims, damages, liabilities and expenses, joint or several,
resulting from any untrue or alleged untrue statement of material fact contained
in such registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading; PROVIDED, HOWEVER, that such Holder will be
liable hereunder in any such case if and only to the extent that such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in strict conformity with information pertaining to such Holder, as such,
furnished in writing to the Company by such Holder stated to be specifically for
use in such registration statement and prospectus; and, PROVIDED FURTHER,
however, that the liability of each such Holder hereunder shall be limited to
the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the shares sold by
such Holder under such registration statement bears to the total public offering
price of all securities sold thereunder, but not in any event to exceed the
proceeds received by such Holder from the sale of the shares of Registrable
Securities covered by such registration statement.
8.3 Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made
10
<PAGE> 11
against the indemnifying party hereunder, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
such indemnified party for contribution or otherwise other than under this
Section 8 and shall only relieve it from any liability which it may have to such
indemnified party under this Section 8 if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and such indemnified party seeks or intends to
seek indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in and, to the extent it may wish, jointly with all
other indemnifying parties similarly notified, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party; PROVIDED,
HOWEVER, if the defendants in any such action include both the indemnified party
and indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (a) the indemnified party shall have
employed such counsel in connection with the assumption of legal defenses in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel) or (b) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement of
the action, in each of which cases the fees and expenses of counsel shall be at
the expense of the indemnifying party. If the defense is assumed by the
indemnifying party, such indemnifying party will not be subject to any liability
for any settlement made by the indemnified party without its consent (but such
consent will not be unreasonably withheld).
8.4 In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either: (a) any Holder
exercising rights under this Agreement, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 8 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 8 provides for indemnification in
such case or (b) contribution under the Securities Act may be required on the
part of any such Holder or any such controlling person in circumstances for
which indemnification is provided under this Section 8; then, and in each such
case, the Company and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others): (i) in such proportion as is appropriate to reflect the relative
fault of such Holder, on the one hand, and the Company on the other in
connection with the
11
<PAGE> 12
statements or omissions that resulted in such losses, claims, damages or
liabilities, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion so that such Holder is
responsible for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, and the Company is responsible for the remaining portion; PROVIDED,
HOWEVER, that, in any such case, (x) no selling Holder will be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement and (y) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
8.5 The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director, or
controlling person of such indemnified party and will survive the transfer of
securities. The Company also agrees to make such provisions as are reasonably
requested by any indemnified party, for contribution to such party in the event
the Company's indemnification is unavailable for any reason.
9. CHANGES IN COMMON STOCK. If, and as often as, there is any
change in the Common Stock by way of a stock split, stock dividend, combination
or reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustments shall be made
in the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
10. RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, at
all times after ninety (90) days after any registration statement covering a
public offering of securities of the Company under the Securities Act shall have
become effective, the Company agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act ("Rule 144");
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(c) furnish to each holder of Registrable Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 and of the Securities Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the Company, and
such other reports and documents so filed by the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such Holder to sell any Registrable Securities without
registration.
12
<PAGE> 13
11. TERM.
11.1 The obligations of the Company to register Registrable
Securities pursuant to this Agreement shall terminate after five (5) years
following the Initial Public Offering.
11.2 The obligations of the Company to register shares of Common
Stock pursuant to this Agreement may also terminate on an earlier date if agreed
to in writing by the Company and all of the Holders who still hold shares of
Registrable Securities.
12. ASSIGNMENT.
12.1 The registration rights and covenants conferred herein on the
Holders bind and inure to the benefit of the Holders and their successors and
assigns, subject to the termination provisions set forth in Section 11.
12.2 All covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the successors and assigns of the Company, whether so expressed or not. Any
failure by the Company to fulfill a covenant or obligation hereunder which is
the result of a failure by a Holder to provide such notice shall not be deemed
to be a breach of any covenant or obligation hereunder.
12.3 Without limiting the generality of the foregoing, nothing in
this Agreement shall be construed to create any right or obligations except
among the parties hereto and their respective and permitted successors and
assigns, and no person or entity shall be regarded as a third-party beneficiary
of this Agreement, except as provided herein.
13. NOTICES. Any consent, request, waiver, notice or other
communication or document required or permitted to be given pursuant to any
provision of this Agreement ("Notice") shall be deemed duly given only when in
writing, signed by or on behalf of the person giving such Notice, and: (a)
personally delivered (with receipt acknowledged by the recipient or its agent),
(b) deposited in a designated U.S. mail depository, registered or certified
mail, return receipt requested, postage prepaid, or (c) sent by overnight
courier (with receipt acknowledged by the recipient or its agent), addressed, if
to the Company, to its principal office, or, if to any Holder, at the address of
such Holder as shown on the records of the Company. Any such Notice shall be
deemed received (i) upon personal delivery, (ii) three (3) days after mailing as
provided above or (iii) upon delivery by overnight courier (with receipt
acknowledged by the recipient or its agent).
14. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the law of the State of Ohio, without giving effect to the
conflict of laws principles thereof.
15. NO WAIVERS; REMEDIES CUMULATIVE. No failure or delay on the
part of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or
13
<PAGE> 14
further right, power or remedy hereunder. The remedies hereunder are cumulative
and not exclusive of any remedies provided by law.
16. AMENDMENT. This Agreement may not be amended or modified, and
no provision hereof may be waived, in whole or in part, without the written
agreement of the Company and by the record Holders holding at least a majority
of the Registrable Securities or their permitted successors and assigns.
17. HEADINGS. The headings and captions of the various subdivisions
of this Agreement are for convenience of reference only and shall in no way
modify, or affect the meaning or construction of any of, the terms or provisions
hereof.
18. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
19. SEVERABILITY. In the event that any court of competent
jurisdiction shall determine that any provision, or any portion thereof,
contained in this Agreement shall be unreasonable or unenforceable in any
respect, then such provision shall be deemed limited to the extent that such
court deems it reasonable and enforceable, and the provision and this Agreement
as so limited shall remain in full force and effect.
20. FURTHER ASSURANCES. From and after the date of this Agreement,
upon the request of any Holder or the Company, the Company and the Holders shall
execute and deliver such instruments, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
MAZEL STORES, INC.
By:_____________________________
Name: Rueven Dessler
Title: Chairman and Chief Executive
Officer
MAZEL/D&K, INC.
By:_____________________________
Name: Rueven Dessler
Title: President
ZS MAZEL L.P.
By: ZS Mazel, Inc.,
its General Partner
By:_____________________________
Name: Robert Horne
Title: Vice President
ZS MAZEL II L.P.
By: ZS Mazel, Inc.,
its General Partner
By:_____________________________
Name: Robert Horne
Title: Vice President
ZS MAZEL INC.
By:_____________________________
Name: Robert Horne
Title: Vice President
15
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPILATION OF PER SHARE EARNINGS
Below is the pro forma shareholders' equity section for capital changes at
January 27, 1996 and July 27, 1996.
<TABLE>
<CAPTION>
JANUARY 27, 1996 JULY 27, 1996
---------------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C>
Common stock 14,000,000
shares authorized,
6,210,000 shares issued
and outstanding.......... -- --
Additional Paid in
Capital.................. 24,474 24,474
Retained Earnings
(deficit)................ (956) (952)
</TABLE>
Below is the pro forma and supplemental earnings per share information (in
thousands except share data)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 27, 1996 SIX MONTHS ENDED JULY 27, 1996
----------------------------------- -----------------------------------
EARNINGS EARNINGS
SHARES EARNINGS PER SHARE SHARES EARNINGS PER SHARE
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares issued with respect
to existing capital and
debt holders' pretax
income.................... 5,882,890 3,118 6,210,000 4,567
Pro forma income taxes...... 1,278(A) 1,872(A)
--------- ------ --------- ----- ---
Pro forma earnings per share
information after taxes... 5,882,890 1,840 .31 6,210,000 2,695 .43
======= =======
Adjustment for debt
repayment from proceeds... 1,407,143(B) 959(C) 1,407,143(B) 504(C)
--------- ------ ----- ---
Supplemental earnings per
share information......... 7,290,033 2,799 .38 7,617,143 3,199 .42
========= ====== ====== ========= ===== ======
</TABLE>
- ---------------
(A) Provides for income tax rate at 41%.
(B) Represents shares issued from the Offering used to repay debt 19,700 of debt
--------------
$14/share
(C) Represents the net tax effect elimination of interest expense using the
weighted average borrowing rate of 8.25% for the year and 8.68% for the
six-month period on a principal balance of $19,700.
<PAGE> 1
Exhibit 21
MAZEL STORES, INC.
MAZEL STORES, INC. SUBSIDIARY LIST
<TABLE>
<CAPTION>
Percentage State of
Subsidiary Owned Organization
---------- ---------- ------------
<S> <C> <C>
Odd-Job Holdings, Inc. 100% Delaware
Odd-Job Acquisition, Inc.(1) 100% Delaware
Odd-Job Trading Corp.(2) 100% New York
ZS Peddlers Mart, Inc.(2) 100% Delaware
HIA Trading Associates(3) 100% New York
<FN>
- -----------
(1) 100% Owned by Odd Job Holdings, Inc.
(2) 100% Owned by Odd Job Acquisition, Inc.
(3) A partnership owned 99% by Odd Job Acquisition, Inc. and 1% by
Odd-Job Trading Corp.
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of Mazel Stores, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the Prospectus.
/S/ KPMG PEAT MARWICK LLP
Cleveland, Ohio
October 18, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Mazel Stores, Inc.
on Form S-1 of our report dated August 11, 1995 relating to the combined
financial statements of Odd Job Trading Corp., POW Trading Corp., HIA Trading
Associates and Central Processing Associates appearing in the Prospectus, which
is part of this Registration Statement.
We also consent to the reference to us under the heading "Selected
Financial and Operating Data" and "Experts" in such Prospectus.
/S/ DELOITTE & TOUCHE LLP
New York, New York
October 18, 1996
