<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER , 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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>
------------------------
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ----------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(2)
- ----------------------------------------------------------------------------------------------
Common Shares, without
par value.............. 2,466,750 $15.00 $37,001,250 $12,759
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<FN>
(1) Includes 321,750 shares which the Underwriters have the option to purchase
to cover the over-allotment, if exercised. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) and based upon a bona fide estimate of the maximum
offering price.
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
MAZEL STORES, INC.
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(b) OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM
NO. FORM S-1 ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROSPECTUS
- ---- ------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors;
Significant Corporate Transactions
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................. Prospectus Summary; Description of Capital
Stock
10. Interests of Named Experts and Counsel..... Experts
11. Information with Respect to the
Registrant................................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Significant Corporate Transactions; Use of
Proceeds; Dividend Policy; Capitalization;
Dilution; Pro Forma Financial Data;
Selected Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal Shareholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Underwriting;
Available Information; Index to Financial
Statements
12. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
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 SEPTEMBER , 1996
PROSPECTUS
2,145,000 SHARES
MAZEL STORES, INC.
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>
<S> <C> <C> <C>
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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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<FN>
(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 $ 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."
</TABLE>
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
<PAGE> 4
[STORE LOCATIONS AND PHOTOS]
[PICTURES (INSIDE FRONT & BACK COVER AND GATEFOLD)
AERIAL VIEW OF SOLON WAREHOUSE
INTERIOR OF SHOWROOM
STORE FRONT GRAND OPENING
EXTERIOR/INTERIOR OF STORES]
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> 5
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 the last Wednesday in
January.
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 17 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 has also established a
reputation as an industry leader in terms of customer service, innovative
product packaging and displays, and breadth of quality, value-oriented
merchandise.
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> 6
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 an additional three stores in fiscal 1996, nine stores in fiscal
1997, 12 stores in fiscal 1998 and 15 stores in fiscal 1999. The Company has
opened or acquired four stores in fiscal 1996, and two of the three additional
stores planned for fiscal 1996 are scheduled to open in October. 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> 7
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 which are shareholders of the Company,
as well as its predecessors and other investment entities in which the
principals of ZS Fund are or were also 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 $19.8 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."
Proposed Nasdaq National Market Symbol.... MAZL
<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>
5
<PAGE> 8
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.
The pro forma financial information for fiscal 1995 and the six months
ended July 27, 1996 include the wholesale operations and retail operations, as
if they were combined at the beginning of the periods presented, and gives
effect to the Offering.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JANUARY 31, ---------------------------------------
--------------------------------- PRO FORMA
STATEMENT OF COMBINED PRO FORMA 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) 332 -- -- --
Operating profit................ 5,754 4,942 10,433 3,282 5,829 6,652
Income before income taxes...... 4,886 3,118 9,942 2,769 4,567 6,297
Net income...................... 4,815 3,099 5,866 2,731 4,533 3,715
Pro forma earnings per share.... $0.70 $0.44
Pro forma shares outstanding.... 8,355 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... 7.9% (4.4%) 2.1% 14.2%
Average annual net sales per
unit.......................... $ 4,709 $ 4,620 $ 2,148 $ 2,336
Average net sales per gross sq.
ft............................ $ 344 $ 319 $ 157 $ 178
</TABLE>
<TABLE>
<CAPTION>
JULY 27, 1996
----------------------
PRO
BALANCE SHEET DATA: ACTUAL FORMA(4)
------- ---------
<S> <C> <C>
Working capital........................................................... $37,976 $42,536
Total assets.............................................................. 75,903 81,399
Total debt................................................................ 33,753 12,953
Total liabilities......................................................... 55,018 34,218
Shareholders' equity and partners' capital................................ 20,885 47,181
<FN>
- ---------------
(1) The pro forma 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 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) The pro forma 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.
</TABLE>
6
<PAGE> 9
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 17 stores in the New York
metropolitan area under the name "Odd Job," including four stores opened or
acquired in the first half of 1996. The Company anticipates opening three
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 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.
7
<PAGE> 10
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."
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
8
<PAGE> 11
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 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."
9
<PAGE> 12
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. 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.
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
10
<PAGE> 13
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> 14
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. 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, of which Ned Sherwood and Robert Horne (members of the Company's
Board of Directors) are officers, 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 owned by Howard Snyder and
Israel Horowitz (the co-founders of Odd Job) and Old Mazel. Prior to the Odd
12
<PAGE> 15
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 Company believes the Odd Job Litigation is without merit and
intends to vigorously defend such claim. The Company believes that the ultimate
resolution of such matter 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.
13
<PAGE> 16
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).
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 by the Company 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 $19.8 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 blended 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, 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.
14
<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 $12,479
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 12,931
------- -------- -----------
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) (893) (893)
------- -------- -----------
Total shareholders' equity and partners'
capital................................... 20,885 23,581 47,181
------- -------- -----------
Total capitalization...................... $53,284 $54,980 $60,112
======= ======= =========
<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>
15
<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>
16
<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
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
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.
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
--------------------------------- ---------------------------------
COMBINED(1) ADJUSTMENTS PRO FORMA COMBINED(2) ADJUSTMENTS PRO FORMA
-------- --------- ---------- -------- --------- ----------
<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) (1,871)(7) 332 -- -- --
-------- --------- ---------- -------- --------- ----------
Operating profit............ 4,942 5,491 10,433 5,829 823 6,652
Interest expense............ 1,265 (733)(8) 532 1,284 (907)(12) 377
Other expense (income)...... 559 (600)(9) (41) (22) -- (22)
-------- --------- ---------- -------- --------- ----------
Income before income
taxes..................... 3,118 6,824 9,942 4,567 1,730 6,297
Income taxes................ 19 4,057(10) 4,076 34 2,548 2,582
-------- --------- ---------- -------- --------- ----------
Net income.................. $ 3,099 $ 2,767 $ 5,866 $ 4,533 $ (818) $ 3,715
======== ========= ========== ======== ========= ==========
Pro forma earnings per
share(13)................. $ 0.70 $ 0.44
Pro forma shares
outstanding............... 8,355 8,355
<FN>
- ---------------
(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.
(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.
</TABLE>
17
<PAGE> 20
(7) Eliminates the $1,571 loss on the disposal of the Ohio Stores and $300 of
executive signing bonuses.
(8) Reflects the adjustment of additional interest expense of $796 to reflect a
full year of Odd Job operations reduced by $1,650 due to debt reduction of
$19,800 (at a blended 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 $19,800 (at a
blended borrowing rate of 8.68% per annum) and the conversion into Common
Stock of the $1,000 1995 Old Mazel Note.
(13) 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.
* Nonrecurring items -- The Company expects to recognize on a pre-tax basis
in fiscal 1996 approximately $4,262 in one-time charges relating
principally to $4,059 of compensation costs arising in conjunction with the
Offering that have not been reflected in the pro forma amounts. The Company
also expects to realize a $1,620 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, which has not been reflected in the pro
forma amounts.
18
<PAGE> 21
PRO FORMA CONDENSED 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 $ 1,412(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 3,542(3) 3,542
------- ----------- -------------
Total current assets...................................... 58,568 60,896 61,796
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 $ 77,599 $81,399
======== ============ =============
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 12,479(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 34,218
Shareholders' equity and partners' capital......................... 21,085 24,474(7) 48,074(9)
Retained earnings (deficit)........................................ (200) (893)(8) (893)
------- ----------- -------------
Total shareholders' equity and partners' capital.......... 20,885 23,581 47,181
------- ----------- -------------
$75,903 $ 77,599 $81,399
======== ============ =============
<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 $900 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) $1,608 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 $693 of compensation net of income taxes at 41% in conjunction with
the Offering.
(9) Reflects net proceeds of $27,200 less a $3,600 payment of the Partners
Notes, $2,900 of tax loans, and $19,800 for repayment of indebtedness.
</TABLE>
19
<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, 1991 and 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 the years then ended 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 below under the caption "Selected
Operating Data" is unaudited.
The selected unaudited data presented below 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 below 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), the 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.
<TABLE>
<CAPTION>
SIX
YEARS ENDED MONTHS
------------------------------------------------------- ENDED
DECEMBER 31, JANUARY 31, PRO ---------
------------------- ------------------------------- FORMA JULY 31,
1991 1992 1994 1995 1996 1996(1) 1995
------- ------- ------- ------- ------- ---------- ---------
<S> <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
Cost of sales.................. 49,965 52,111 54,201 55,183 70,208 91,023 29,251
------- ------- ------- ------- ------- ---------- ---------
Gross profit................... 20,086 19,045 20,753 21,071 27,898 42,858 12,445
SG&A expense................... 14,589 13,703 15,094 15,317 20,753 32,093 9,163
Special charges................ -- 8,100 1,285 -- 2,203(3) 332 --
------- ------- ------- ------- ------- ---------- ---------
Operating profit (loss)........ 5,497 (2,758) 4,374 5,754 4,942 10,433 3,282
Interest expense............... 14 650 1,130 894 1,265 532 544
Other expense (income)......... (828) (459) 43 (26) 559 (41 ) (31)
------- ------- ------- ------- ------- ---------- ---------
Income (loss) before income
taxes........................ 6,311 (2,949) 3,201 4,886 3,118 9,942 2,769
Income taxes................... 93 63 21 71 19 4,076 38
Extraordinary loss............. -- -- (455) -- -- -- --
------- ------- ------- ------- ------- ---------- ---------
Net income (loss).............. $ 6,218 $(3,012) $ 2,725 $ 4,815 $ 3,099 $ 5,866 $ 2,731
======= ======= ======= ======= ======= ========== ========
Pro forma earnings per share... $ 0.70
Pro forma shares outstanding... 8,355
<CAPTION>
SIX
MONTHS
ENDED
--------- PRO FORMA
JULY 27, JULY 27,
1996 1996(2)
--------- ----------
<S> <C> <C>
STATEMENT OF COMBINED OPERATION
Net sales...................... $85,165 $ 85,165
Cost of sales.................. 58,514 58,514
--------- ----------
Gross profit................... 26,651 26,651
SG&A expense................... 20,822 19,999
Special charges................ -- --
--------- ----------
Operating profit (loss)........ 5,829 6,652
Interest expense............... 1,284 377
Other expense (income)......... (22) (22)
--------- ----------
Income (loss) before income
taxes........................ 4,567 6,297
Income taxes................... 34 2,582
Extraordinary loss............. -- --
--------- ----------
Net income (loss).............. $ 4,533 $ 3,715
======== ===========
Pro forma earnings per share... $ 0.44
Pro forma shares outstanding... 8,355
</TABLE>
20
<PAGE> 23
SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JANUARY 31, AT JULY 27, 1996
------------------ ----------------------------- -----------------------
1991 1992 1994 1995 1996 ACTUAL PRO FORMA(4)
------- ------- ------- ------- ------- ------- ------------
<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 $ 42,536
Total assets.............................. 29,632 30,589 28,450 31,129 58,034 75,903 81,399
Long-term debt............................ -- 17,168 12,303 10,649 27,382 33,753 12,953
Total liabilities......................... 5,096 22,848 18,997 19,567 43,764 55,018 34,218
Shareholders' equity and partners'
capital................................. 24,537 7,741 9,453 11,562 14,270 20,885 47,181
<FN>
- ---------------
(1) The pro forma 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 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) The pro forma 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.
</TABLE>
21
<PAGE> 24
SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
(IN THOUSANDS, EXCEPT SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------- SIX MONTHS ENDED
DECEMBER 31, JANUARY 31, ----------------------
STATEMENT OF OPERATIONS DATA -------------------- --------------------------------- JULY 31, JULY 27,
MAZEL COMPANY L.P.: 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>
<TABLE>
<CAPTION>
PREDECESSOR
FEBRUARY 1, SIX MONTHS ENDED
YEARS ENDED JANUARY 31,(1) 1995 TO ----------------------
STATEMENT OF OPERATIONS DATA ---------------------------------------- DECEMBER 7, JULY 31, JULY 27,
ODD JOB HOLDINGS: 1992 1993 1994 1995 1995 SUCCESSOR(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 $ 2,148 $ 2,336
Avg. net sales per gross sq.
ft......................... $ 337 $ 340 $ 326 $ 344 $ 319 $ 157 $ 178
<FN>
- ---------------
(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.
</TABLE>
22
<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 two 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 three stores in fiscal 1996, nine stores in
fiscal 1997, 12 stores in fiscal 1998 and 15 stores in fiscal 1999. See
"Significant Corporate Transactions" for a detailed explanation of the Company's
history.
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.
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
23
<PAGE> 26
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.
Sales of 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>
<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>
24
<PAGE> 27
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 the former Peddlers Mart store, 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 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
$550,000 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 sales decreased primarily due to the Company
carrying lower levels of inventory in anticipation of a difficult retail
environment in the 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 increased to 37.5% in
fiscal 1995, from 37.2% in fiscal 1994. The Company believes this increase was a
result of lower levels of inventory shrink in the retail stores.
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.
25
<PAGE> 28
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 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
$2.6 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 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.
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>
26
<PAGE> 29
<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
<FN>
- ---------------
nmf = not meaningful
</TABLE>
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 fist 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 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 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.
27
<PAGE> 30
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.
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
28
<PAGE> 31
$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.
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 blended 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 $35 million credit facility,
conditioned on completion of the Offering. The Company expects its effective
borrowing rate to decline modestly, and expects to achieve a modification of
current restrictive covenants which require 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
agreement, 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 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.
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.
29
<PAGE> 32
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
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........................... 500 361
Income (loss) before income taxes.......... 150 (142)
Net income (loss).......................... 78 (74)
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>
<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>
30
<PAGE> 33
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 17 closeout retail
stores, including 11 in New York (five of which are in Manhattan) and six 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 17th store on July 26, 1996 and is scheduled to open
two additional stores in October 1996. The Company is in negotiations with
lessors that may result in an additional store opening in fiscal 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
31
<PAGE> 34
Sommers have significant experience directing a rapid retail expansion and the
associated purchasing, 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> 35
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 an additional three stores in fiscal 1996, nine stores in fiscal
1997, 12 stores in fiscal 1998 and 15 stores in fiscal 1999. The Company has
opened or acquired four stores this fiscal year and two of the three additional
stores planned for fiscal 1996 are scheduled to open in October. 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 17 retail stores operating under the "Odd
Job" name are located in Manhattan (5), New Jersey (6), 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 17 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 plans to
open two new stores in October 1996, and one additional new store by the end of
the 1996 fiscal year.
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<PAGE> 36
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 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 recently acquired
"The CloseOut Store" outlets 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.
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<PAGE> 37
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 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 12 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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<PAGE> 38
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)............................... 14,000 June 1993
Woodbridge, New Jersey.................................. 10,700 November 1994
Nanuet, New York........................................ 22,000 December 1994*
New York City (5th Avenue).............................. 17,000 August 1995
Staten Island (Richmond Avenue)......................... 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
Parsippany, New Jersey.................................. 16,300 October 1996**
East Brunswick, New Jersey.............................. 14,500 October 1996**
<FN>
*Date of acquisition.
**Scheduled to open.
</TABLE>
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 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
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<PAGE> 39
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, Mazel 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.
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 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.
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<PAGE> 40
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.
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, 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. The lease for the
facility expires August 31, 2006. 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
38
<PAGE> 41
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.
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
September 30, 1996 and December 31, 2001, respectively.
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, a lawsuit alleging 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 has 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 Company does not
believe that the ultimate resolution of this matter will 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> 42
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....................... 48 Executive Vice President -- Wholesale, Director
Jerry Sommers..................... 45 Executive Vice President -- Retail, Director
Susan Atkinson.................... 45 Senior Vice President -- Chief Financial Officer and
Treasurer
Ned L. Sherwood................... 46 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 TV.
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 L.P.,
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 TV and Southern Electronics.
Robert Horne has served as a Director of the Company since the 1996
Restructuring. Mr. Horne has been a principal of ZS Fund L.P. since March 1992.
Prior to joining ZS Fund L.P., 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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<PAGE> 43
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 has two standing committees: a Compensation
Committee and an Audit Committee. The Audit Committee has general responsibility
for supervision of financial controls as well as accounting and audit activities
of the Company. The Audit Committee annually reviews the qualifications of the
Company's independent certified public accountants, makes recommendations to the
Board of Directors concerning the selection of the accountants and reviews the
planning, fees and results of the accountants' audit.
The Compensation Committee has 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.
41
<PAGE> 44
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
42
<PAGE> 45
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 ending one year following a termination of employment.
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. 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. 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.
Susan Atkinson has an employment agreement terminating January 31, 1999 and
providing her an annual base salary of $117,650. 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
43
<PAGE> 46
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.
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 , 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 date they first become directors, a grant of
Options to purchase 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 director designees will receive, in the aggregate,
Options under the Stock Option Plan upon their appointment to the Board,
immediately following the Offering at 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
, 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 558 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 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>
44
<PAGE> 47
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 $1,729,000, $1,697,000,
$1,545,000 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 L. 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 addition, the
investment of ZS Fund in the Company includes the $4.5 million ZS Preferred
Note. 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.
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 purchases and sales 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 through January, 1998. Thereafter, the
Licensees must cease to use the "Odd Job" name, and they may not
45
<PAGE> 48
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 this 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.
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.
46
<PAGE> 49
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%
120 West 45th Street
New York, NY 10036
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 L. Sherwood(6).................................... 2,745,770 44.2 32.9
120 West 45th Street
New York, NY 10036
Robert Horne(6)....................................... 2,745,770 44.2 32.9
120 West 45th Street
New York, NY 10036
All Current Directors and 5,769,092 92.9 69.0
Executive Officers of the Company (10 Persons)......
<FN>
- ---------------
(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.
(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.
</TABLE>
47
<PAGE> 50
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%
48
<PAGE> 51
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 .
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 of 1933, as amended (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) 5,968,697 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 Company, a person
who has beneficially owned Restricted Shares for at least two years and less
than three
49
<PAGE> 52
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 the 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, Inc., 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 offering for cash of any of the
Company's capital stock by it or any of its shareholders (other than on Form S-4
50
<PAGE> 53
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.
51
<PAGE> 54
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.
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.
52
<PAGE> 55
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. as of January 31, 1996 and 1995 and for each of the years then
ended, and the audited consolidated financial statements of Mazel Company L.P.
as of January 31, 1996, 1995 and 1994, respectively, 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.
53
<PAGE> 56
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, 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, 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, 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 Statement 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
</TABLE>
F-1
<PAGE> 57
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
Combined Financial Statements
January 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
F-2
<PAGE> 58
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 the years then ended. 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 the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
May 22, 1996
F-3
<PAGE> 59
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
--------------------- JULY 27,
1995 1996 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................ $ 143 $ 1,470 $ 2,312
Accounts receivable -- trade, less allowance for
doubtful accounts of $195 in 1995 and 1996........ 7,268 10,067 13,496
Notes and other receivables.......................... 136 352 672
Inventories.......................................... 20,245 29,212 40,894
Prepaid expenses..................................... 428 440 880
Deferred income tax benefit.......................... -- 314 314
------- ------- -------
Total current assets......................... 28,220 41,855 58,568
Equipment, furniture, and leasehold improvements,
net.................................................. 1,954 3,097 3,695
Other assets........................................... 675 1,037 1,086
Notes receivable -- related parties.................... -- 1,350 1,350
Goodwill, net.......................................... 280 9,000 9,509
Deferred income tax benefit............................ -- 1,695 1,695
------- ------- -------
$31,129 58,034 75,903
======= ======= =======
LIABILITIES, STOCKHOLDER'S EQUITY
AND PARTNERS' CAPITAL
Current liabilities
Long-term debt, current portion...................... $ 1,868 1,361 1,354
Accounts payable..................................... 7,449 11,732 15,174
Accrued expenses..................................... 1,464 2,376 3,704
Other current liabilities............................ -- 193 360
------- ------- -------
Total current liabilities.................... 10,781 15,662 20,592
Revolving line of credit............................... 7,244 13,496 20,637
Long-term debt, net of current portion................. 1,537 12,525 11,762
Other liabilities...................................... -- 2,037 1,983
Deferred income taxes.................................. 5 44 44
------- ------- -------
Total liabilities............................ 19,567 43,764 55,018
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)
------- ------- -------
Total stockholder's equity and partners'
capital.................................... 11,562 14,270 20,885
------- ------- -------
Commitments and contingencies..........................
$31,129 $58,034 $75,903
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 60
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,
1995 1996 1995 1996
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.......................................... $76,254 $98,106 $41,696 $85,165
Cost of sales...................................... 55,183 70,208 29,251 58,514
------- ------- ------- -------
Gross profit............................. 21,071 27,898 12,445 26,651
Selling, general & administrative expense.......... 15,317 20,753 9,163 20,822
Special charges.................................... -- 2,203 -- --
------- ------- ------- -------
Operating profit......................... 5,754 4,942 3,282 5,829
Other income (expense)
Interest expense, net............................ (894) (1,265) (544) (1,284)
Other............................................ 26 (559) 31 22
------- ------- ------- -------
Income before income taxes............... 4,886 3,118 2,769 4,567
Income taxes....................................... 71 19 38 34
------- ------- ------- -------
Net income............................... $ 4,815 $ 3,099 $ 2,731 $ 4,533
======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 61
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY AND PARTNERS' CAPITAL
YEARS ENDED JANUARY 31, 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,
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> 62
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,
1995 1996 1995 1996
-------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income...................................... $ 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.............. 475 646 303 465
Deferred income taxes...................... 5 (12) -- --
Allowance for doubtful accounts............ (55) -- -- --
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............ (1,077) (672) (558) (4,419)
Notes and other receivables............. 31 (196) 84 (320)
Inventories............................. (57) (1,686) (3,825) (11,402)
Prepaid expenses........................ (135) 266 (8) (398)
Other assets............................ (82) 63 55 (9)
Accounts payable........................ 1,668 (2,107) 201 3,355
Accrued expenses and other
liabilities........................... 81 (178) 175 1,441
Income taxes payable.................... 5 -- -- --
-------- ------- ------- -------
Total adjustments.................. 859 (5,343) (3,573) (11,287)
-------- ------- ------- -------
Net cash provided by (used in)
operating activities............. 5,674 (2,244) (842) (6,754)
-------- ------- ------- -------
Cash flows from investing activities
Capital expenditures, net....................... (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....................... (490) (8,377) (200) (857)
-------- ------- ------- -------
Cash flows from financing activities
Proceeds from term loan......................... 4,000 10,925 -- --
Repayment of debt............................... (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) -- --
Equity contributions............................ 100 1,492 -- 4,000
Partners' withdrawals........................... (2,806) (1,773) (1,424) (1,918)
Dividends paid.................................. -- (110) -- --
Loan fees....................................... (75) (155) -- --
-------- ------- ------- -------
Net cash provided by (used in)
financing activities............. (5,059) 11,948 1,016 8,453
-------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents..................................... 125 1,327 (26) 842
Cash and cash equivalents at beginning of
period.......................................... 18 43 143 1,470
-------- ------- ------- -------
Cash and cash equivalents at end of period........ $ 143 $ 1,470 $ 117 $ 2,312
======== ======= ======= =======
Supplemental disclosure
Interest paid................................... $ 887 $ 1,225 $ 499 $ 1,251
======== ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE> 63
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). 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, 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").
The Company expects to be merged into a Corporation under the name of Mazel
Stores, Inc. at the time of a contemplated initial public offering.
(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, liabilities were
assumed as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired............................................ $24,432
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 $134,257
Net income................................................... 6,324 4,054
</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.
(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.
F-8
<PAGE> 64
MAZEL COMPANY L.P.
ODD-JOB HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(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> 65
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 $464,000 and $470,000 in the years ended January 31, 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> 66
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> 67
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
- 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.
- 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.
- 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.
- 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> 68
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,
1995 and 1996, sales by Mazel to Odd Job amounted to approximately $2,051,000
and $1,835,000, respectively, and purchases from Odd Job approximated $2,653,000
and $909,000, respectively, for such pre-Acquisition periods. At January 31,
1995, approximately $285,000 was due from Odd Job and included in accounts
receivable -- trade, and approximately $128,000 was due to Odd Job and included
in accounts payable.
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, 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, 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> 69
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 $1,345,000 and $2,469,000 for the
years ended January 31, 1995 and 1996, respectively. Rent paid to the related
party lessor by Mazel was approximately $1,241,000 and $1,330,000 for 1995 and
1996, respectively.
F-14
<PAGE> 70
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 $4,786 and $5,619 for the years ended
January 31, 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> 71
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.
F-16
<PAGE> 72
MAZEL COMPANY L.P.
Consolidated Financial Statements
January 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
F-17
<PAGE> 73
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> 74
MAZEL COMPANY L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31, JULY 27,
------------------- 1996
1995 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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Financial Statements
January 27, 1996
(With Independent Auditors' Report Thereon)
F-28
<PAGE> 84
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> 85
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, JULY 27,
1996 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> 86
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> 87
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> 88
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> 89
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> 90
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 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 organized to acquire for $10,500,000 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). In addition, $1,013,000
of expenses in connection with the Acquisition were incurred. The acquisition of
Odd Job occurred on December 7, 1995 (Acquisition) and has been accounted for by
the purchase method of accounting. 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 a quasi-pooling by virtue of the common
ownership of Peddlers and Odd Job. Peddlers was acquired by ZS on December 9,
1994. In connection with the Acquisition, liabilities were assumed as follows
(in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired............................................ $24,432
Expenses incurred in connection with the Acquisition..................... (1,013)
Cash paid for stock and partnership units................................ (9,050)
-------
Liabilities assumed............................................ $14,369
=======
</TABLE>
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.
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
F-35
<PAGE> 91
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
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 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 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.
F-36
<PAGE> 92
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
(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, 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.
F-37
<PAGE> 93
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
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.
- 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
F-38
<PAGE> 94
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
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.
(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>
F-39
<PAGE> 95
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
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 real estate
taxes and other occupancy expense. Also, several leases provide for additional
rent based on a percentage of sales.
F-40
<PAGE> 96
ODD-JOB HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SUCCESSOR) AND
COMBINED FINANCIAL STATEMENTS (PREDECESSOR) -- CONTINUED
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> 97
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> 98
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> 99
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.
/s/ DELOITTE TOUCHE LLP
August 11, 1995
F-44
<PAGE> 100
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> 101
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> 102
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> 103
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> 104
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
equipment............................... 3 to 10 years
</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> 105
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> 106
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> 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
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> 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
(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> 109
- ------------------------------------------------------
- ------------------------------------------------------
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 Consolidated Financial and
Selected Operating Data............. 6
Risk Factors.......................... 7
Significant Corporate Transactions.... 12
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Pro Forma Financial Data.............. 17
Selected Financial and Operating
Data................................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 31
Management............................ 40
Certain Transactions.................. 45
Principal Shareholders................ 47
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 49
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 53
Available Information................. 53
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
MAZEL STORES, INC.
COMMON STOCK
--------------------------
PROSPECTUS
, 1996
--------------------------
WILLIAM BLAIR & COMPANY
SALOMON BROTHERS INC
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 110
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.................................
Printing Costs....................................................
Accounting Fees and Expenses......................................
Legal Fees and Expenses (not including Blue Sky)..................
Blue Sky Fees and Expenses........................................
Miscellaneous.....................................................
--------
Total................................................... $
========
</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> 111
E. Immediately prior to the effectiveness of the Offering, all Units will
be converted into an aggregate of 5,613,553 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 $4.5 million ZS Preferred Note, 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
- ------- -----------------------------------------------------------------------------------
<C> <S>
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 by and between The Provident
Bank and the Registrant*
5.1 Opinion of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. as to the validity of the
securities being offered*
10.1 Form of Amended and Restated Employment Agreement of Reuven Dessler dated
, 1996*
10.2 Form of Amended and Restated Employment Agreement of Jacob Koval dated ,
1996*
10.3 Employment Agreement of Brady Churches dated November 1, 1995
10.4 Amendment to Brady Churches Employment Agreement dated , 1996*
10.5 Employment Agreement of Jerry D. Sommers dated November 1, 1995
10.6 Amendment to Jerry D. Sommers Employment Agreement dated , 1996*
10.7 Amended and Restated Employment Agreement of Susan Atkinson dated , 1996*
10.8 Option to Purchase Stock of Odd Job, dated December 5, 1996
10.9 Capital Contribution Agreement dated , 1996*
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 Englewood, NJ Facility Lease*
10.14 Consolidated Settlement Agreement, dated February 1996
10.15 Registration Rights Agreement dated as of , 1996*
10.16 Odd Job Stock Purchase Agreement
21 List of Subsidiaries
23.1 Consent of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. (included in Exhibit 5.1)*
</TABLE>
II-2
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------
<S> <C>
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>
- ---------------
* To be filed by amendment
</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> 113
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO,
ON SEPTEMBER 10, 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
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE 10TH DAY OF SEPTEMBER, 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
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 is being filed with the Commission.
By: /s/ SUSAN ATKINSON*
----------------------
Susan Atkinson, Attorney-in-Fact
II-4
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ---------------------------------------------------------------------------------
<S> <C> <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 by and between The
Provident Bank and the Registrant*
5.1 Opinion of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. as to the validity of
the securities being offered*
10.1 Form of Amended and Restated Employment Agreement of Reuven Dessler dated
, 1996*
10.2 Form of Amended and Restated Employment Agreement of Jacob Koval dated
, 1996*
10.3 Employment Agreement of Brady Churches dated November 1, 1995
10.4 Amendment to Brady Churches Employment Agreement dated , 1996*
10.5 Employment Agreement of Jerry D. Sommers dated November 1, 1995
10.6 Amendment to Jerry D. Sommers Employment Agreement dated , 1996*
10.7 Amended and Restated Employment Agreement of Susan Atkinson dated ,
1996*
10.8 Option to Purchase Stock of Odd Job, dated December 5, 1995
10.9 Capital Contribution Agreement dated , 1996*
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 Englewood, NJ Facility Lease*
10.14 Consolidated Settlement Agreement, dated February 1996
10.15 Registration Rights Agreement dated as of , 1996*
10.16 Odd Job Stock Purchase Agreement
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>
- ---------------
* To be filed by amendment
</TABLE>
<PAGE> 1
Exhibit 3.1
FORM OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MAZEL STORES, INC.
ARTICLE I
- ---------
The name of the Corporation is Mazel Stores, Inc.
ARTICLE II
----------
The principal office of the Corporation is located in Cuyahoga County,
the State of Ohio.
ARTICLE III
-----------
The purposes of the Corporation are and shall be as follows:
To carry on any lawful business whatsoever in connection with
the business of the Corporation or which is calculated,
directly or indirectly, to promote the interests of the
Corporation or to enhance the value of its properties; and to
have and exercise all rights, powers and privileges which are
now or may hereafter be conferred upon corporations by the
laws of Ohio.
ARTICLE IV
----------
The authorized number of shares of capital stock of the Corporation
shall consist of Sixteen Million (16,000,000) shares, of which Fourteen Million
(14,000,000) shall be Common Shares, without par value and Two Million
(2,000,000) shall be Serial Preferred Shares, without par value. The Serial
Preferred Shares shall be divided into two classes: Voting Serial Preferred
Shares, consisting of One Million (1,000,000) shares ("Voting Preferred Shares")
and Non-voting Serial Preferred Shares, consisting of One Million (1,000,000)
shares ("Non-voting Preferred Shares").
Subdivision A - Provisions Applicable to Voting Preferred Shares
- ----------------------------------------------------------------
1. General
-------
1.1. The Voting Preferred Shares may be issued, from time to time,
in one or more series. Subject to the provisions of
paragraph 1.2 of this Subdivision, the Board of Directors,
in a resolution or resolutions (a copy of which shall be
<PAGE> 2
filed and recorded as required by law) providing for the issue
of a series of Voting Preferred Shares, is expressly
authorized to fix:
a. The distinctive serial designations and the division
of such shares into series and the number of shares
of a particular series, which may be increased or
decreased, but not below the number of shares thereof
then outstanding, by a certificate made, signed,
filed and recorded as required by law;
b. The annual dividend rate for the particular series,
the date or dates from which dividends on all
shares of such series shall be paid, and whether or
not dividends on shares of the particular series
shall be cumulative;
c. The redemption rights and price or prices, if any,
for the particular series;
d. The right, if any, of the holders of a particular
series to convert such stock into other classes of
shares, and the terms and conditions of such
conversions;
e. The obligation, if any, of the Corporation to
purchase and retire and redeem shares of a particular
series as a sinking fund or redemption or purchase
account, the terms thereof and the redemption price
or price per share for such series redeemed pursuant
to the sinking fund or redemption or purchase
account; and
f. The amounts payable on shares of the series and the
priority among series in the event of the voluntary
or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation.
The Board of Directors is authorized to adopt from time to
time amendments to these Amended and Restated Articles of
Incorporation fixing, with respect to each such series, the
matters specified in clauses (a) through (f) of this paragraph
1.1 of this Subdivision or any other matter permitted by law.
1.2. All shares of any one series of Voting Preferred Shares shall
be alike in every particular and all series shall rank equally
and be identical in all respects except insofar as they may
vary with respect to the matters which the Board of Directors
is hereby expressly authorized to determine in the resolution
or resolutions providing for the issue of any series of the
Voting Preferred Shares.
2
<PAGE> 3
2. Rights on Liquidation
---------------------
In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation, before any distribution or payment
shall have been made to the holders of the Common Shares, the holders
of the Serial Preferred Shares of each series, whether Voting or
Non-voting Preferred Shares, shall be entitled to be paid, or to have
set apart in trust for payment, an amount from the net assets of the
Corporation equal, in the aggregate, to that stated and expressed in
the resolutions adopted by the Board of Directors which provides for
the issue of each series. Such portion of the net assets of the
Corporation shall be distributed among the Serial Preferred Shares in
the order of priority established in such Board of Directors'
resolutions. Unless otherwise provided by the terms of a series of
Serial Preferred Shares, the remaining net assets of the Corporation
shall be distributed solely among the holders of the Common Shares
according to their respective shares.
3. Voting
------
3.1 The holders of Voting Preferred Shares shall be entitled to
one vote for each Voting Preferred Share upon all matters
presented to the shareholders, and, except as otherwise
provided by these Amended and Restated Articles of
Incorporation or required by law, the holders of Voting
Preferred Shares and the holders of Common Shares shall vote
together as one class on all matters. Unless otherwise
provided by the terms of a series of Voting Preferred Shares,
no adjustment of the voting rights of holders of Voting
Preferred Shares shall be made in the event of an increase or
decrease in the number of Common Shares authorized or issued
or in the event of a share split or combination of the Common
Shares or in the event of a share dividend on any class of
shares payable solely in Common Shares.
3.2 The following matters shall require the vote or consent of the
holders of a majority of the then outstanding Voting Preferred
Shares voting separately as a class:
a. Any amendment, alteration or repeal of any of the
provisions of the Articles of Incorporation or of
the Code of Regulations of the Corporation that
affects adversely the voting powers or liquidation
preferences of the holders of Voting Preferred
Shares; PROVIDED, HOWEVER, that for the purpose of
this clause (a) only, neither the amendment of the
Articles of Incorporation of the Corporation to
authorize, or to increase the authorized number of
shares of, Voting Preferred Shares or of any shares
of any class ranking on a parity with or junior to
the Voting Preferred Shares, nor the increase by the
3
<PAGE> 4
shareholders pursuant to the Code of Regulations of
the number or classes of directors of the Corporation
shall be deemed to affect adversely the voting powers
or liquidation preferences of the holders of Voting
Preferred Shares; and PROVIDED FURTHER, that if such
amendment, alteration or repeal affects adversely the
liquidation preferences of one or more, but not all,
of the then outstanding series of Voting Preferred
Shares, only the vote or consent of the holders of at
least a majority of the number of the then
outstanding shares of the series so affected shall be
required.
b. The purchase or redemption (whether for sinking
fund purposes or otherwise) of less than all of a
series of outstanding Voting Preferred Shares,
except in accordance with a purchase offer made to
all holders of record of such series of Voting
Preferred Shares if, at the time of such purchase
offer, all dividends on such series of Voting
Preferred Shares then outstanding for all previous
quarterly dividend periods shall have been declared
and paid or funds therefor set apart and all accrued
sinking fund obligations applicable to all such
shares shall have been complied with.
4. Ranking
-------
Whenever reference is made herein to shares "ranking prior to
the Voting Preferred Shares," such reference shall mean and include all
shares of the Corporation in respect of which the rights of the holders
thereof either as to the payment of dividends or as to distributions in
the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation are given preference over the rights of
the holders of a specified series of Voting Preferred Shares; whenever
reference is made to shares "on a parity with the Voting Preferred
Shares," such reference shall mean and include all shares of the
Corporation in respect of which the rights of the holders thereof
either as to the payment of dividends or as to distributions in the
event of a voluntary or involuntary liquidation, dissolution or winding
up of the Corporation rank equally (except as to the amounts fixed
therefor) with the rights of the holders of a specified series of
Voting Preferred Shares; and whenever reference is made to shares
"ranking junior to the Voting Preferred Shares," such reference shall
mean and include all shares of the Corporation in respect of which the
rights of the holders thereof both as to the payment of dividends and
as to distribution in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation are junior
and subordinate to the rights of the holders of a specified series of
Voting Preferred Shares.
4
<PAGE> 5
Subdivision B - Provisions Applicable to Non-voting Preferred Shares.
- ---------------------------------------------------------------------
1. General
-------
1.1. The Non-voting Preferred Shares may be issued, from time to
time, in one or more series. Subject to the provisions of
paragraph 1.2 of this Subdivision, the Board of Directors, in
a resolution or resolutions ( a copy of which shall be filed
and recorded as required by law) providing for the issue of a
series of Non-voting Preferred Shares, is expressly authorized
to fix:
a. The distinctive serial designations and the division
of such shares into series and the number of shares
of a particular series, which may be increased or
decreased, but not below the number of shares thereof
then outstanding, by a certificate made, signed,
filed and recorded as required by law;
b. The annual dividend rate for the particular series,
the date or dates from which dividends on all shares
of such series shall be paid, and whether or not
dividends on shares of the particular series shall
be cumulative;
c. The redemption rights and price or prices, if any,
for the particular series;
d. The right, if any, of the holders of a particular
series to convert such stock into other classes of
shares, and the terms and conditions of such
conversions;
e. The obligation, if any, of the Corporation to
purchase and retire and redeem shares of a particular
series as a sinking fund or redemption or purchase
account, the terms thereof and the redemption price
or prices per share for such series redeemed pursuant
to the sinking fund or redemption or purchase
account; and
f. The amounts payable on shares of the series and the
priority among series in the event of the voluntary
or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation.
The Board of Directors is authorized to adopt from time to
time amendments to these Amended Articles of Incorporation
fixing, with respect to each such series, the matters
specified in clauses (a) through (f) of this paragraph 1.1 of
this Subdivision or any other matter permitted by law.
5
<PAGE> 6
1.2. All shares of any one series of Non-voting Preferred Shares
shall be alike in every particular and all series shall rank
equally and be identical in all respects except insofar as
they may vary with respect to the matters which the Board of
Directors is hereby expressly authorized to determine in the
resolution or resolutions providing for the issue of any
series of the Non-voting Preferred Shares.
2. Rights on Liquidation
---------------------
In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation, before any distribution or payment
shall have been made to the holders of the Common Shares, the holders
of the Serial Preferred Shares of each series, whether Voting or
Non-voting Preferred Shares, shall be entitled to be paid, or to have
set apart in trust for payment, an amount from the net assets of the
Corporation equal, in the aggregate, to that stated and expressed in
the resolutions adopted by the Board of Directors which provides for
the issue of each series. Such portion of the net assets of the
Corporation shall be distributed among the Serial Preferred Shares in
the order of priority established in such Board of Directors'
resolutions. Unless otherwise provided by the terms of a series of
Serial Preferred Shares, the remaining net assets of the Corporation
shall be distributed solely among the holders of the Common Shares
according to their respective shares.
3. Non-voting
----------
3.1 The holders of Non-voting Preferred Shares shall NOT be
entitled to vote on any matter, except as expressly required
pursuant to paragraph 3.2 of this Subdivision B or applicable
law.
3.2 The following matters shall require the vote or consent of the
holders of a majority of the then outstanding Non-voting
Preferred Shares voting separately as ONE class:
a. Any amendment, alteration or repeal of any of the
provisions of the Articles of Incorporation or of
the Code of Regulations of the Corporation that
affects adversely the voting powers or liquidation
preferences of the holders of Non-voting Preferred
Shares; PROVIDED, HOWEVER, that for the purpose of
this clause (a) only, neither the amendment of the
Articles of Incorporation of the Corporation to
authorize, or to increase the authorized number of
shares of, Nonvoting Preferred Shares or of any
shares of any class ranking on a parity with or
junior to the Non-voting Preferred Shares, nor the
increase by the shareholders pursuant to the
Code of Regulations of the number or
6
<PAGE> 7
classes of directors of the Corporation shall be
deemed to affect adversely the voting powers or
liquidation preferences of the holders of Non-voting
Preferred Shares; and PROVIDED FURTHER, that if such
amendment, alteration or repeal affects adversely the
liquidation preferences of one or more, but not all,
of the then outstanding series of Non-voting
Preferred Shares, only the vote or consent of the
holders of at least a majority of the number of the
then outstanding shares of the series so affected
shall be required.
b. The purchase or redemption (whether for sinking
fund purposes or otherwise) of less than all of a
series of outstanding Non-voting Preferred Shares,
except in accordance with a purchase offer made to
all holders of record of such series of Non-voting
Preferred Shares if, at the time of such purchase
offer, all dividends on such series of Non-voting
Preferred Shares then outstanding for all previous
quarterly dividend periods shall have been declared
and paid or funds therefor set apart and all accrued
sinking fund obligations applicable to all such
shares shall have been complied with.
4. Ranking
-------
Whenever reference is made herein to shares "ranking prior to
the Non-voting Preferred Shares," such reference shall mean and include
all shares of the Corporation in respect of which the rights of the
holders thereof either as to the payment of dividends or as to
distributions in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation are given preference over
the rights of the holders of a specified series of Non-voting Preferred
Shares; whenever reference is made to shares "on a parity with the
Non-voting Preferred Shares," such reference shall mean and include all
shares of the Corporation in respect of which the rights of the holders
thereof either as to the payment of dividends or as to distributions in
the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation rank equally (except as to the amounts
fixed therefor) with the rights of the holders of a specified series of
Non-voting Preferred Shares; and whenever reference is made to shares
"ranking junior to the Non-voting Preferred Shares," such reference
shall mean and include all shares of the Corporation in respect of
which the rights of the holders thereof both as to the payment of
dividends and as to distribution in the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
are junior and subordinate to the rights of the holders of a specified
series of Non-voting Preferred Shares.
7
<PAGE> 8
Subdivision C - Provisions Applicable to Common Shares
- ------------------------------------------------------
The Common Shares shall be subject to the express terms of the Serial
Preferred Shares and of any class or series thereof and shall have the following
rights:
1. Dividends
---------
Whenever the full dividends upon any outstanding Serial
Preferred Shares for all past dividend periods and for the then current
dividend periods shall have been paid, or declared and a sum sufficient
for the respective payments thereof set apart, the holders of the
Common Shares shall be entitled to receive such dividends and
distributions, payable in cash or otherwise, as may be declared thereon
by the Board of Directors from time to time out of assets or funds of
the Corporation legally available therefor.
2. Rights on Liquidation
---------------------
In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, after the payment or
setting apart for payment to the holders of any outstanding Serial
Preferred Shares of the full preferential amounts (including accrued,
but unpaid dividends) to which such holders are entitled as herein
provided or referred to, all of the remaining assets of the Corporation
shall, except as otherwise provided by the terms of the Serial
Preferred Shares, belong to and be distributable in equal amounts per
share to the holders of the Common Shares.
3. Voting
------
Each Common Share shall entitle the holder thereof to one
vote.
Subdivision D - Provisions Applicable to All Shares of Capital Stock
- --------------------------------------------------------------------
For purposes of this Article III, a consolidation or merger of the
Corporation with any other corporation, or the sale, transfer or lease of all or
substantially all of its assets shall not constitute or be deemed a liquidation,
dissolution or winding up of the Corporation.
ARTICLE V
---------
The preemptive right to purchase additional shares or any other
securities of the Corporation is hereby expressly denied to all shareholders of
all classes.
8
<PAGE> 9
ARTICLE VI
----------
The right of shareholders to vote cumulatively in the election of
directors of the Corporation is expressly denied to all shareholders of all
classes.
ARTICLE VII
-----------
A director or officer of the Corporation shall not be disqualified by
such director's or officer's office from dealing or contracting with the
Corporation as a vendor, purchaser, employee, agent or otherwise.
No transaction, contract or other act of the Corporation shall be
voided or voidable or in any way be affected or invalidated by reason of the
fact that any director or officer, or any corporation, partnership, trust or
other enterprise in which such director or officer is a shareholder, director,
officer, trustee, or partner or is in any way interested in such transaction,
contract or other act, provided that the interest of such director, officer,
corporation, partnership, trust or other enterprise is disclosed or known to the
Board of Directors or such members thereof as shall take action upon any such
transaction, contract or other act; nor shall any such director or officer be
accountable or responsible to the Corporation for or in respect of any such
transaction, contract or other act of the Corporation or for any gains or
profits realized by reason of the fact that such director or officer, or any
firm of which such director or officer is a member, or any corporation or other
enterprise of which such director or officer is a shareholder, director,
officer, trustee, or partner, is interested in such transaction, contract or
other act; and any such director may be counted in determining the existence of
a quorum at any meeting of the Board of Directors of the Corporation which shall
authorize or take action in respect of any such transaction, contract or other
act, and, subject to the provisions of Section 1701.60 of the Ohio Revised Code,
may vote thereat to authorize, ratify or approve any such transaction, contract
or other act with like force and effect as if such director or officer or any
firm of which such director or officer is a member or any corporation or
business enterprise of which such director or officer is a shareholder,
director, officer, trustee, or partner were not interested in such transaction,
contract or other act.
9
<PAGE> 10
ARTICLE VIII
------------
Subject to the express terms of any series of outstanding Serial
Preferred Shares, the Corporation may purchase, from time to time and to the
extent permitted by the laws of the State of Ohio, shares of any class of stock
issued by it. Such purchases may be made either in the open market or at private
or public sale, and in such manner and amounts, from such holder or holders of
outstanding shares of the Corporation and at such prices as the Board of
Directors of the Corporation shall determine, and the Board of Directors is
hereby empowered to authorize such purchases from time to time without any vote
of the holders of any class of shares now or hereafter authorized and
outstanding at the time of any such purchase.
ARTICLE IX
----------
Notwithstanding any provision of the laws of the State of Ohio now or
hereafter in force requiring for any purpose the vote of the holders of shares
entitling them to exercise two-thirds (2/3) or any other proportion (but less
than all) of the voting power of the Corporation or any class or classes of
shares thereof, such action (unless otherwise expressly prohibited by statute or
unless otherwise expressly required by these Amended and Restated Articles of
Incorporation) may be taken by vote of the holders of shares entitling them to
exercise a majority of the voting power of the Corporation or of such class or
classes.
ARTICLE X
---------
These Amended and Restated Articles of Incorporation supersede the
existing Articles of Incorporation of the Corporation and any and all subsequent
amendments thereto, to the date hereof.
10
<PAGE> 1
Exhibit 3.2
MAZEL STORES, INC.
FORM OF AMENDED AND RESTATED CODE OF REGULATIONS
Adopted: ________, 1996
ARTICLE I
---------
SHAREHOLDERS
------------
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of
the Company for the election of directors, the consideration of reports to be
laid before the meeting, and the transaction of such other business as may
properly be brought before the meeting shall be held in the place described in
the Articles of Incorporation (the "Articles") as the place where the principal
office of the Company is or is to be located, or at such other place either
within or without the State of Ohio as may be designated by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer, or the
President and specified in the notice of the meeting, at 10:00 a.m., on the
second Tuesday in June of each year, or at such other time and on such other
date as the Board of Directors may determine.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders of
the Company may be held on any business day when called by the Chairman of the
Board, the Chief Executive Officer, the President, the Board of Directors acting
at a meeting, a majority of the directors acting without a meeting, or the
persons who hold fifty percent of all the shares outstanding and entitled to
vote at the meeting. Upon request in writing delivered either in person or by
registered mail to the President or the Secretary by any person entitled to call
a meeting of the shareholders, that officer shall forthwith cause to be given to
the shareholders entitled thereto notice of a meeting to be held on a date not
less than fourteen (14) or more than sixty (60) days after receipt of the
request, as that officer may fix. If the notice is not given within fifteen (15)
days after the delivery or mailing of the request, the person calling the
meeting may fix the time of the meeting and give notice thereof in the manner
provided by law or as provided in these Regulations or cause the notice to be
given by any designated representative. Each special meeting shall be held at
the principal office of the Company unless the meeting is called by the Chairman
of the Board, the Chief Executive Officer, the President, or the directors, in
which case the meeting may be held at any place either within or without the
State of Ohio as designated by the party calling the meeting and specified in
the notice of the meeting.
SECTION 3. NOTICE OF MEETINGS. Not less than fourteen (14) or more than
sixty (60) days before the date fixed for a meeting of the shareholders, written
notice stating the time, place, and
<PAGE> 2
purposes of the meeting shall be given by or at the direction of the Secretary
or an Assistant Secretary. The notice shall be given by personal delivery or by
mail to each shareholder entitled to notice of the meeting who is of record as
of the day next preceding the date on which notice is given or, if a record date
therefor is duly fixed, of record as of that date. If mailed, the notice shall
be addressed to the shareholders at their respective addresses as they appear on
the records of the Company. Notice of the time, place, and purposes of any
meeting of the shareholders may be waived in writing, either before or after the
holding of the meeting, by any shareholder, which writing shall be filed with or
entered upon the records of the Company. Attendance of any shareholder at any
meeting without protesting, prior to or at the commencement of the meeting, the
lack of proper notice shall be deemed to be a waiver by such shareholder of
notice of the meeting.
SECTION 4. QUORUM; ADJOURNMENT. Except as may be otherwise provided by
law or by the Articles of Incorporation, at any meeting of the shareholders the
holders of shares entitled to exercise a majority of the voting power of the
Company present in person or by proxy shall constitute a quorum for the meeting,
except that no action required by law, the Articles, or these Regulations to be
authorized or taken by a designated proportion of the shares of any particular
class or of each class of the Company may be authorized or taken by a lesser
proportion and except that the holders of a majority of the voting shares
represented at the meeting, whether or not a quorum is present, may adjourn the
meeting from time to time. If any meeting is adjourned, notice of adjournment
need not be given if the time and place to which the meeting is adjourned are
fixed and announced at the meeting.
SECTION 5. ACTION WITHOUT A MEETING. Except as provided in Article X
with respect to the amendment of these Regulations or the adoption of new
Regulations by written consent, any other action that may be authorized or taken
at a meeting of the shareholders may be authorized or taken without a meeting
with the affirmative vote or approval of, and in a writing or writings signed by
or on behalf of, all of the shareholders who would be entitled to notice of a
meeting of the shareholders held for the purpose specified in the written
action, which writing or writings shall be filed with or entered upon the
records of the Company.
SECTION 6. INSPECTORS OF ELECTION. Inspectors of Election may be
appointed to act at any meeting of shareholders in accordance with the
provisions of the Ohio General Corporation Law.
SECTION 7. LIST OF SHAREHOLDERS. At any meeting of shareholders, an
alphabetically arranged list, or classified lists, of the shareholders of record
as of the applicable record date who are entitled to vote, showing their
respective addresses and the number and classes of shares held by each, shall be
produced on the request of any shareholder.
SECTION 8. PROXIES. Persons entitled to vote shares or to act with
respect to shares may vote or act in person or by proxy. The person appointed as
proxy need not be a shareholder. Unless the writing appointing a proxy otherwise
provides, the presence at a meeting of the person who appointed a proxy shall
not automatically operate to revoke the appointment. Notice to the
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<PAGE> 3
Company, in writing or in open meeting, of the revocation of the appointment of
a proxy shall not affect any vote or act previously taken or authorized.
SECTION 9. APPROVAL AND RATIFICATION OF ACTS OF OFFICERS AND DIRECTORS.
Except as otherwise provided by the Articles or by law, any contract, action, or
transaction, prospective or past, of the Company or of the Board of Directors or
of any director or officer may be approved or ratified by the affirmative vote
in person or by proxy of the holders of record of a majority of the shares held
by persons not interested in the contract, action, or transaction and entitled
to vote in the election of directors (without regard to voting powers that may
thereafter exist upon a default, failure, or other contingency), which approval
or ratification shall be as valid and binding as though affirmatively voted for
or consented to by every shareholder of the Company.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
SECTION 1. CLASSES AND ELECTION. The Board of Directors shall be
divided into three classes. The number of directors in each class may be fixed
or changed: (a) by the shareholders, at any annual or special meeting called for
the purpose of electing directors at which a quorum is present, by the
affirmative vote of the holders of a majority of the shares that are represented
at the meeting and entitled to vote on the proposal, or (b) by the directors at
any meeting of the Board of Directors by the vote of a majority of the directors
then in office. Notwithstanding the foregoing, after the number of directors in
any class has been fixed by the shareholders, the directors may not increase or
decrease the number of directors in that class by more than one. No class shall
consist of less than three directors. Unless so determined by the shareholders
or by the directors, one class (the initial term of which will expire in 1997)
shall consist of three directors; the second class (the initial term of which
will expire in 1998) shall consist of three directors; and the third class (the
initial term of which will expire in 1999) shall consist of three directors.
SECTION 2. NOMINATIONS FOR DIRECTORS. A shareholder entitled to vote
for the election of directors who intends to nominate a person for election as a
director must deliver written notice to the Secretary of the Company no later
than: (a) with respect to an election to be held at an annual meeting of
shareholders, 90 days in advance of the anniversary of the date on which the
notice of the annual meeting for the prior year was given to shareholders, and
(b) with respect to an election to be held at a special meeting of shareholders,
the close of business on the seventh (7th) day following the date on which
notice of such special meeting is first given to shareholders. The notice from
the shareholder must contain the following:
(a) the name and address of the shareholder and each director
nominee;
(b) a representation that the shareholder is entitled to vote and
intends to appear in person or by proxy at the meeting;
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<PAGE> 4
(c) a description of any and all arrangements or understandings
between the shareholder and each nominee;
(d) such other information regarding the nominee that would have
been required to be included by the Securities and Exchange
Commission in a proxy statement had the nominee been named in
a proxy statement;
(e) a brief description of the nominee's qualifications to be a
director; and
(f) the written consent of the nominee to serve as a director if
so elected.
SECTION 3. RESIGNATIONS. Any director may resign at any time by
providing a written notice to that effect delivered to the Secretary, such
resignation to take effect immediately or at such future date, but not later
than the next annual meeting of shareholders, as the director may specify in the
director's notice of resignation.
SECTION 4. VACANCIES. In the event of the occurrence of any vacancy in
the Board of Directors, however caused, the remaining directors, though less
than a majority of the whole authorized number of directors, may, by the vote of
a majority of their number, fill the vacancy for the unexpired term.
SECTION 5. REGULAR MEETINGS. Upon notice duly given, regular meetings
of the Board of Directors may be held at such times and places within or without
the State of Ohio (or through use of telephone or other communications equipment
if all persons participating can hear each other) as may be provided for in
bylaws or resolutions adopted by the Board of Directors. Unless otherwise
indicated in the notice of a regular meeting, any business may be transacted at
a regular meeting.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held at any time within or without the State of Ohio (or through use of
telephone or other communications equipment if all persons participating can
hear each other) upon call by the Chairman of the Board, the President, or any
two directors.
SECTION 7. NOTICE OF MEETING AND WAIVER OF NOTICE. Written notice of
the time and place of each regular or special meeting shall be given to each
director either by personal delivery (which, for purposes of these Regulations,
includes notice by electronic transmission of a written notice) or by mail,
telegram, or cablegram at least forty-eight (48) hours before the meeting. The
notice need not specify the purposes of the meeting. The attendance of any
director at any meeting (and participation in a meeting employing telephone or
other communications equipment) without, prior to or at the commencement of the
meeting, protesting the lack of proper notice shall be deemed to be a waiver by
the director of notice of the meeting. Further, notice of a meeting may be
waived in writing, either before or after the holding of the meeting, by any
director, which writing shall be filed
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<PAGE> 5
with or entered upon the records of the Company. Unless otherwise indicated in
the notice of a meeting, any business may be transacted at such meeting.
SECTION 8. QUORUM; ADJOURNMENT. A quorum of the Board of Directors at
any meeting shall consist of a majority of the directors then in office, except
that a majority of the directors present at a meeting duly held, whether or not
a quorum is present, may adjourn the meeting from time to time. If any meeting
is adjourned, notice of adjournment need not be given if the time and place to
which the meeting is adjourned are fixed and announced at the meeting. At each
meeting of the Board of Directors at which a quorum is present, unless otherwise
provided by law, the Articles, or these Regulations, all matters requiring the
approval of the Board of Directors shall be determined by a majority vote of
those present.
SECTION 9. ACTION WITHOUT A MEETING. Any action that may be authorized
or taken at a meeting of the Board of Directors may be authorized or taken
without a meeting with the affirmative vote or approval of, and in a writing or
writings signed by, all of the directors, which writing or writings shall be
filed with or entered upon the records of the Company.
SECTION 10. COMMITTEES. The Board of Directors may at any time appoint
from its members an Audit, Compensation, Nominating, or other committee or
committees, consisting of such number of members, not less than three, as the
Board of Directors may deem advisable, together with such alternates as the
Board of Directors may deem advisable, to take the place of any absent member or
members at any meeting of the committee. Each member and each alternate may be
appointed or removed, at any time, by the Board of Directors. Any committee
shall act only in the intervals between meetings of the Board of Directors and
shall have such authority of the Board of Directors (other than the authority to
fill vacancies in the Board of Directors or in any committee of the Board of
Directors) as may, from time to time, be delegated by the Board of Directors.
Subject to these exceptions, any person dealing with the Company shall be
entitled to rely upon any act or authorization of an act by any committee to the
same extent as an act or authorization of the Board of Directors. Unless
otherwise ordered by the Board of Directors, any committee may prescribe its own
rules of procedure and may act at a meeting, by a majority of its members, or
without a meeting by a writing or writings signed by all of its members.
ARTICLE III
-----------
OFFICERS
--------
SECTION 1. ELECTION AND DESIGNATION OF OFFICERS. The Board of Directors
shall elect a Chief Executive Officer, President, a Secretary, and a Treasurer
and, in its discretion, may elect a Chairman of the Board or multiple
Co-Chairmen, one or more Vice Presidents, one or more Assistant Secretaries, one
or more Assistant Treasurers, and such other officers as the Board of Directors
may deem necessary. Any Person occupying the position of Chairman of the Board,
if any, shall be a director, but no one of the other officers need be a
director. Any two or more offices may be held by the same person, but no officer
shall execute, acknowledge, or verify any instrument
- 5 -
<PAGE> 6
in more than one capacity if the instrument is required to be executed,
acknowledged, or verified by two or more officers.
SECTION 2. TERM OF OFFICE; VACANCIES. Each officer of the Company shall
hold office until the officer's successor is elected or until the officer's
earlier resignation, removal from office, or death. The Board of Directors may
remove any officer at any time with or without cause by a majority vote of the
directors then in office. Any vacancy in any office may be filled by the Board
of Directors.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and all meetings of the
shareholders. The Chairman may have such additional authority and shall perform
such other duties as may be determined by the Board of Directors. The Company
may elect Co-Chairmen and, for purposes of these Regulations, the term Chairman
shall mean any one of the Co-Chairmen.
SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer is the
general manager of the Company. The Chief Executive Officer shall have
supervising authority over and may exercise general executive power concerning
the direction and control of the business and officers of the Company, with the
authority to delegate, from time to time, to other officers of the Company such
executive powers and duties as the Chief Executive Officer deems advisable. The
Chief Executive Officer may execute all authorized leases, bonds, contracts and
other obligations in the name of the Company and shall have such additional
powers as the Board of Directors may prescribe. In the absence of a Chairman,
the Chief Executive Officer shall preside at meetings of the Board of Directors
and shareholders.
SECTION 5. PRESIDENT. Subject to directions of the Board of Directors
and to the delegation by the Board of Directors to the Chairman of the Board or
Chief Executive Officer of specific or general duties, the President shall have
primary responsibility for store operations, site selection, advertising and
merchandising. The President may execute all authorized leases, bonds,
contracts, and other obligations in the name of the Company and shall have such
other authority and shall perform such other duties as may be determined by the
Board of Directors.
SECTION 6. VICE PRESIDENTS. The Vice Presidents, if any, shall,
respectively, have such authority and perform such duties as may be determined
by the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall keep the minutes of meetings
of the shareholders and of the Board of Directors. The Secretary shall keep such
additional corporate records as may be required by the Board of Directors, shall
give notices of meetings of the shareholders and of meetings of the Board of
Directors required by law or by these Regulations or otherwise, and shall have
such authority and shall perform such other duties as may be determined by the
Board of Directors.
- 6 -
<PAGE> 7
SECTION 8. TREASURER. Unless the authority is granted by the Board of
Directors to another financial officer, the Treasurer shall receive and have
control over all money, notes, bonds, securities of other corporations, and
similar property belonging to the Company, and shall do with this property as
may be ordered by the Board of Directors. The Treasurer shall keep accurate
financial accounts and hold them open for the inspection and examination of the
directors and shall have such authority and shall perform such other duties as
may be determined by the Board of Directors.
SECTION 9. OTHER OFFICERS. The Assistant Secretaries and Assistant
Treasurers, if any, and any other officers whom the Board of Directors may elect
shall, respectively, have such authority and perform such duties as may be
determined by the Board of Directors.
SECTION 10. DELEGATION OF AUTHORITY AND DUTIES. The Board of Directors
is authorized to delegate the authority and duties of any officer to any other
officer and generally to control the action of the officers and to require the
performance of duties in addition to those mentioned herein.
ARTICLE IV
----------
COMPENSATION OF AND TRANSACTIONS WITH
-------------------------------------
DIRECTORS, OFFICERS, AND EMPLOYEES
----------------------------------
SECTION 1. DIRECTORS AND MEMBERS OF COMMITTEES. Members of the Board of
Directors and members of any committee of the Board of Directors shall, as such,
receive such compensation, which may be either a fixed sum for attendance at
each meeting of the Board of Directors or Board committee or a stated amount
payable at intervals, or shall otherwise be compensated as may be determined by,
or pursuant to authority conferred by, the Board of Directors, which
compensation may be in different amounts for various members of the Board of
Directors or of any committee. No member of the Board of Directors and no member
of any committee of the Board of Directors shall be disqualified from being
counted in the determination of the presence of a quorum or from acting at any
meeting of the Board of Directors or of a committee of the Board of Directors by
reason of the fact that matters affecting the director's own compensation as a
director, member of a committee of the Board of Directors, officer, or employee
are to be determined.
SECTION 2. OFFICERS AND EMPLOYEES. The compensation of officers and
employees of the Company, or the method of fixing their compensation, shall be
determined by, or pursuant to authority conferred by, the Board of Directors.
Compensation may include pension, disability, and death benefits, and may be by
way of fixed salary, on the basis of earnings of the Company, any combination
thereof, or otherwise, as may be so determined or authorized.
ARTICLE V
---------
INDEMNIFICATION
---------------
SECTION 1. THIRD PARTY ACTIONS. The Company shall indemnify any person
(the "Indemnified Party") who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (other
- 7 -
<PAGE> 8
than an action, suit, or proceeding by or in the right of the Company), by
reason of the fact that the Indemnified Party is or was a director, officer,
employee, or agent of the Company, or is or was serving at the request of the
Company as a director, trustee, officer, employee, member, manager, or agent of
another corporation (profit or non-profit), partnership, joint venture, trust,
limited liability company, or other enterprise, against expenses (including
professional fees, e.g., attorneys' fees and accountants' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by the
Indemnified Party in connection with the action, suit, or proceeding if the
Indemnified Party acted in good faith and in a manner the Indemnified Party
reasonably believed to be in or not opposed to the best interests of the Company
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe the Indemnified Party's conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Indemnified Party did not act in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Company or that, with respect to any criminal action or proceeding, such
person had reasonable cause to believe that their conduct was unlawful.
SECTION 2. DERIVATIVE ACTIONS. Other than in connection with an action
or suit in which the liability of a director under Section 1701.95 of the Ohio
Revised Code is the only liability asserted, the Company shall indemnify any
person (the "Indemnified Party") who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action or suit by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that the Indemnified Party is or was a director, officer, employee, member,
manager, or agent of the Company, or is or was serving at the request of the
Company as a director, trustee, officer, employee, member, manager, or agent of
another corporation (profit or non-profit), partnership, joint venture, trust,
limited liability company, or other enterprise, against expenses (including
professional fees, e.g., attorneys' fees and accountants' fees) actually and
reasonably incurred by the Indemnified Party in connection with the defense or
settlement of the action or suit if the Indemnified Party acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the Company, except that:
(a) no indemnification of a director shall be made if it is
proved by clear and convincing evidence in a court of competent
jurisdiction 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
(b) no indemnification of an officer, employee, or agent,
regardless of such person's status as a director, shall be made in
respect of any claim, issue, or matter as to which such person is
adjudged to be liable for negligence or misconduct in the performance
of their duty to the Company;
unless and only to the extent that a court of common pleas or the court in which
the action or suit was brought determines that, notwithstanding the adjudication
of liability, in view of all the
- 8 -
<PAGE> 9
circumstances of the case, the Indemnified Party is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
SECTION 3. RIGHTS AFTER SUCCESSFUL DEFENSE. To the extent an
Indemnified Party has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in Section 1 or Section 2 of this
Article V, or in defense of any claim, issue, or matter therein, the Indemnified
Party shall be indemnified against expenses (including professional fees, e.g.,
attorneys' and accountants' fees) actually and reasonably incurred in connection
with the action, suit, or proceeding.
SECTION 4. OTHER DETERMINATIONS OF RIGHTS. Other than in a situation
governed by Section 3 of this Article V, any indemnification under Section 1 or
Section 2 of this Article V (unless ordered by a court) shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 1 or Section 2. The determination shall be made: (a) by a
majority vote of those directors who, in number, constitute a quorum of the
directors and who also were not and are not parties to or threatened with any
such action, suit, or proceeding, (b) if such a quorum is not obtainable or a
majority of disinterested directors requests, in a written opinion by
Independent Counsel, (c) by the affirmative vote of a majority of the shares
held by persons who were not and are not parties to or threatened with any such
action, suit, or proceeding and entitled to vote in the election of directors,
without regard to voting power that may thereafter exist upon a default,
failure, or other contingency or (d) by the court of common pleas or the court
in which the action, suit, or proceeding was brought. For purposes of this
Section 4, "Independent Counsel" shall mean any attorney or firm other than an
attorney or a firm having associated with it an attorney who has been retained
by or who has performed services for the Company or the proposed Indemnified
Party within the past five (5) years.
SECTION 5. ADVANCES OF EXPENSES. Unless the action or suit is one in
which liability under Section 1701.95 of the Ohio Revised Code is the only
liability asserted:
(a) expenses (including professional fees, e.g., attorneys'
fees and accountants' fees) incurred by a director in defending any
action, suit, or proceeding referred to in Section 1 or Section 2 of
this Article V shall be paid by the Company, as they are incurred, in
advance of final disposition of the action, suit, or proceeding upon
receipt of an undertaking by or on behalf of the director in which the
director agrees in writing both: (i) to repay the amount if it is
proved by clear and convincing evidence in a court of competent
jurisdiction 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 (ii) to cooperate with the Company
concerning the action, suit, or proceeding, and
- 9 -
<PAGE> 10
(b) expenses (including professional fees, e.g., attorneys'
and accountants' fees) incurred by an officer, employee, or agent in
defending any action, suit, or proceeding referred to in Section 1 or
Section 2 of this Article V may be paid by the Company, as they are
incurred, in advance of final disposition of the action, suit, or
proceeding, as authorized by the Board of Directors in the specific
case, upon receipt of a written undertaking by or on behalf of the
officer, employee, or agent to repay the amount if it is ultimately
determined as provided in this Article V that such party is not
entitled to be indemnified by the Company.
SECTION 6. PURCHASE OF INSURANCE. The Company may purchase and maintain
insurance or furnish similar protection, including trust funds, letters of
credit, and self insurance, on behalf of or for any person who is or was a
director, officer, employee, or agent of the Company, or is or was serving at
the request of the Company as a director, trustee, officer, employee, member,
manager, or agent of another corporation (profit or non-profit), partnership,
joint venture, trust, limited liability company, or other enterprise, against
any liability asserted against such person and incurred by such party in any
capacity, or arising out of such status, whether or not the Company would have
the power to indemnify the individual against liability under the provisions of
this Article V or of the Ohio General Corporation Law. Insurance may be
purchased from or maintained with a person in which the Company or any of its
directors, officers, employees or shareholders has a financial interest.
SECTION 7. MERGERS. Unless otherwise provided in the applicable
agreement of merger, if a constituent corporation other than the Company would
have been required to indemnify directors, officers, employees, member, manager,
or agents in specified situations, any person who served as a director, officer,
employee, member, manager, or agent of the constituent corporation, or served at
the request of the constituent corporation as a director, trustee, officer,
employee, member, manager, or agent of another corporation, partnership, joint
venture, trust, limited liability company, or other enterprise, shall be
entitled to indemnification by this Company (as the surviving corporation) to
the same extent the individual would have been entitled to indemnification by
the constituent corporation had the constituent corporation's separate existence
continued.
SECTION 8. HEIRS; NON-EXCLUSIVITY. The indemnification provided by this
Article shall continue as to a person who has ceased to be a director, officer,
employee, or agent of the Company and shall inure to the benefit of the heirs,
executors, and administrators of such a person and shall not be deemed exclusive
of, and shall be in addition to, any other rights granted to a person seeking
indemnification as a matter of law or under the Articles, these Regulations, any
agreement, a vote of shareholders or disinterested directors, any insurance
benefitting by the Company, any action by the directors to take into account
amendments to the Ohio General Corporation Law that expand the authority of the
Company to indemnify a director, officer, employee, or agent of the Company, or
otherwise, both as to actions in their official capacity and as to actions in
another capacity while holding an office.
- 10 -
<PAGE> 11
ARTICLE VI
----------
RECORD DATES
------------
For any lawful purpose, including the determination of the shareholders
who are entitled to receive notice of or to vote at a meeting of the
shareholders, the Board of Directors may fix a record date in accordance with
the provisions of the Ohio General Corporation Law. The record date for the
purpose of determining shareholders who are entitled to receive notice of or to
vote at a meeting of the shareholders shall continue to be the record date for
all adjournments of the meeting unless the Board of Directors or the persons who
shall have fixed the original record date shall, subject to the limitations set
forth in the Ohio General Corporation Law, fix another date and shall cause
notice thereof and of the date to which the meeting shall have been adjourned to
be given to shareholders of record as of the newly fixed date in accordance with
the same requirements as those applying to a meeting newly called. The Board of
Directors may close the share transfer books against transfers of shares during
the whole or any part of the period provided for in this Article, including the
date of the meeting of the shareholders and the period ending with the date, if
any, to which adjourned. If no record date is fixed therefor, the record date
for determining the shareholders who are entitled to receive notice of and to
vote at a meeting of the shareholders shall be the date next preceding the day
on which notice is given.
ARTICLE VII
-----------
CERTIFICATES FOR SHARES
-----------------------
SECTION 1. FORM OF CERTIFICATES AND SIGNATURES. Each holder of shares
shall be entitled to one or more certificates, signed by: (a) the Chairman of
the Board, the President, or a Vice President and (b) the Secretary, an
Assistant Secretary, the Treasurer, or an Assistant Treasurer of the Company.
Each certificate shall set forth the number and class of shares held by the
holder of shares in the Company, but no certificate for shares shall be executed
or delivered until the shares are fully paid. When a certificate is
countersigned by an incorporated transfer agent or registrar, the signature of
any officer of the Company may be facsimile, engraved, stamped, or printed.
Although an officer of the Company whose manual or facsimile signature is
affixed to a certificate ceases to hold that office before the certificate is
delivered, the certificate nevertheless shall be effective in all respects when
delivered.
SECTION 2. TRANSFER OF SHARES. Subject to the restriction on transfers
of shares hereinafter set forth, or in the Articles, shares of the Company shall
be transferable, upon the books of the Company by the holders thereof, in
person, or by a duly authorized attorney, upon surrender and cancellation of
certificates for a like number of shares of the same class or series, with duly
executed assignment and power of transfer endorsed thereon or attached thereto,
and with such proof of the authenticity of the signatures to such assignment and
power of transfer as the Company or its agents may reasonably require.
- 11 -
<PAGE> 12
SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Company may
issue a new certificate for shares in place of any certificate theretofore
issued by it and alleged to have been lost, stolen, or destroyed. The Board of
Directors, however, in its discretion, may require the owner, or the owner's
legal representatives, to give the Company a bond containing such terms as the
Board of Directors may require to protect the Company or any person injured by
the execution and delivery of a new certificate.
SECTION 4. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint, or revoke the appointment of, transfer agents and registrars and may
require all certificates for shares to bear the signatures of the transfer
agents and registrars, or any of them.
ARTICLE VIII
------------
AUTHORITY TO TRANSFER AND VOTE SECURITIES
-----------------------------------------
The Chairman of the Board, Chief Executive Officer, the President, any
Vice President, the Secretary, the Treasurer of the Company, and each such
officer are authorized to sign the name of the Company and to perform all acts
necessary to effect on behalf of the Company a sale, transfer, assignment, or
other disposition of any shares, bonds, other evidences of indebtedness or
obligations, subscription rights, warrants, or other securities of another
corporation and to issue the necessary powers of attorney. Each officer is
authorized, on behalf of the Company, to vote the securities, to appoint proxies
with respect thereto, to execute consents, waivers, and releases with respect
thereto, or to cause any such action to be taken.
ARTICLE IX
----------
CORPORATE SEAL
--------------
The Ohio General Corporation Law provides that the absence of a
corporate seal from any instrument executed on behalf of the Company does not
affect the validity of the instrument. If, in spite of such provision, a seal is
imprinted on or attached, applied, or affixed to an instrument by embossment,
engraving, stamping, printing, typing, adhesion, or other means, the impression
of the seal on the instrument shall be circular in form and shall contain the
words "corporate seal."
- 12 -
<PAGE> 13
ARTICLE X
---------
AMENDMENTS
----------
These Regulations may be amended, or new Regulations may be adopted, by
the shareholders at a meeting held for that purpose, by the affirmative vote of
the holders of shares entitling them to exercise a majority of the voting power
on that proposal or without a meeting by the written consent of the holders of
shares entitling them to exercise two-thirds of the voting power on that
proposal. If the Regulations are amended, or new Regulations are adopted,
without a meeting of the shareholders, the Secretary of the Company shall mail a
copy of the amendment or the new Regulations to each shareholder who would have
been entitled to vote thereon but did not participate in the adoption thereof.
ARTICLE XI
----------
SUPERSEDES PRIOR REGULATIONS
----------------------------
These Regulations supersede the existing Regulations of the Company and
any and all subsequent amendments thereto, to the date hereof.
- 13 -
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT OF BRADY CHURCHES, dated 11/1/95
-----------------------------------------------------
EMPLOYMENT AGREEMENT dated Nov. 1, 1995, effective as of
August 14, 1995, by and between MAZEL COMPANY L.P., a Delaware
limited partnership, with its principal place of business at 31000
Aurora Road, Solon, Ohio 44139 (hereinafter referred to as the
"PARTNERSHIP"), and Brady J. Churches, an individual residing at
1677 Taylor Corners Circle, Columbus, Ohio 43004 (hereinafter
referred to as the "EMPLOYEE").
WHEREAS, the Partnership wishes to employ the Employee,
and the Employee wishes to accept such employment, on the terms
contained herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. TERM. The Partnership hereby employs the Employee,
and the Employee hereby accepts such employment, for an initial
term commencing as of the effective date hereof and ending on the
fifth anniversary of such date, 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
prior to thirty (30) days before the expiration of the initial term
and each annual renewal thereof (said initial term and any
continuation thereof (but not after any such termination) being
hereinafter referred to as the "TERM").
2. DUTIES. The Employee, in his capacity as President-
Mazel Retail Division (or such other and comparable titles and
positions as shall be given the Employee by ZS Mazel L.P., a
<PAGE> 2
Delaware limited partnership and the Managing Partner of the
Partnership (the "MANAGING PARTNER")), shall faithfully perform for
the Partnership 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
Managing Partner. The Employee shall devote substantially all of
his business time and effort to the performance of his duties
hereunder. The Employee shall have the right (after consultation
with the President of the Partnership) to hire and terminate all
employees of the Partnership's Retail Division who are subordinate
to the Employee.
3. COMPENSATION.
3.1 SALARY. (a) The Partnership shall pay
the Employee during the Term a salary at the rate of Four Hundred
Twenty Thousand Dollars ($420,000) per annum (the "ANNUAL SALARY").
Commencing on the first anniversary of the effective date of this
Agreement and on each such anniversary thereafter during 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 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 may also
be increased by such greater amount as the General Partners of the
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<PAGE> 3
Partnership shall determine in their sole discretion. The Annual Salary shall
be payable in equal semi-monthly installments.
(b) Notwithstanding Section 3.1(a), the Employee shall not
be entitled to the Annual Salary otherwise payable under Section 3.1(a) for any
period for which the Employee is receiving compensation or other remuneration
from Consolidated Stores Corporation, a Delaware corporation, and its
subsidiaries (collectively "CONSOLIDATED"); provided that, at such time as the
amount of Annual Salary that is not received by virtue of this Section 3.1(b),
together with the annual salaries not received by Mark N. Hanners and Jerry D.
Sommers under the provisions of their employment agreements similar to this
Section 3.1(b), equals the amount paid by the Partnership pursuant to Section
7.16 (or any predecessor understanding or arrangement), together with the
amounts paid by the Partnership under the provisions of Messrs. Hanners' and
Sommers' employment agreements similar to Section 7.16 (or any predecessor
understanding or arrangement), the Employee shall be entitled to receive fifty
percent (50%) of the Annual Salary otherwise payable under Section 3.1(a) for
any period for which the Employee is receiving compensation or other
remuneration from Consolidated.
3.2 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 Partnership generally, on the same terms as
such other
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<PAGE> 4
executives, in each case to the extent that the Employee is eligible under the
terms of such plans or programs.
3.3 EXPENSES - IN GENERAL. The Partnership shall pay or
reimburse the Employee for all reasonable out-of-pocket expenses actually
incurred or paid by the Employee during the Term in the performance of the
Employee's services under this Agreement; provided that the Employee submits
proof of such expenses, with the properly completed forms as prescribed from
time to time by the Partnership, no later than thirty (30) days after such
expenses have been so incurred.
3.4 LEGAL EXPENSES. The Partnership shall reimburse
the Employee for all reasonable legal fees and legal expenses incurred by the
Employee for legal services performed in 1995 in negotiating this Agreement up
to a total of Ten Thousand Dollars ($10,000); provided that the Employee submits
proof of such expenses, with the properly completed forms as prescribed from
time to time by the Partnership.
3.5 SIGNING BONUSES. (a) In order to induce the Employee
to enter into this Agreement and commence employment hereunder, the Partnership
agrees to pay to the Employee (if the Employee has commenced employment
hereunder) a signing bonus in an amount equal to Six Hundred Twenty Thousand
Dollars ($620,000) (the "DEFERRED SIGNING BONUS"), payable on the terms and
conditions set forth below.
(i) On each of November 1, 1996, December 31, 1996, March 31,
1997 and June 30, 1997, the Partnership shall pay to the
Employee an amount equal to Seventy-Seven Thousand Five
Hundred Dollars ($77,500).
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<PAGE> 5
(ii) If the Employee has not terminated his employment hereunder
during the "VESTING PERIOD" (as defined below), other than a
termination under Section 5.2 because of a "MATERIAL ADVERSE
MODIFICATION" (as defined below), then, on the last day of the
Vesting Period, the Partnership shall pay to the Employee an
amount equal to Three Hundred Ten Thousand Dollars ($310,000) by
delivering, at the Partnership's option, either cash or an
equivalent principal amount of "PROMISSORY NOTES" (as defined
below) in cancellation.
(b) Notwithstanding clause (a) above, if (i) Employee's
employment hereunder is terminated pursuant to Section 5.1
(including, but not limited to, any termination under Section 5.1
on account of a termination by the Employee of his employment
hereunder other than as described in Section 5.2) or (ii) the
Employee violates the provisions of Section 6 at any time, then the
Partnership shall not be obligated to pay any unpaid installment of
the Deferred Signing Bonus which would otherwise have been payable
had there been no termination pursuant to Section 5.1 and no
violation of Section 6.
(c) Subject to clauses (a) and (b) above, the Deferred
Signing Bonus shall be payable to the Employee whether or not the
Employee is an employee of the Partnership at the time any
installment of the Deferred Signing Bonus is then payable. The
Employee may designate in writing to the Partnership a beneficiary
to receive the Deferred Signing Bonus.
(d) For purposes of this Section 3.5 and the other
provisions of the Agreement:
(i) "MATERIAL ADVERSE MODIFICATION" means any material adverse
modification or diminution of the Employee's duties or material
diminution in the Employee's authority, title or office, which
modification or diminution is not cured
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<PAGE> 6
by the Partnership within fifteen (15) days' written notice from
the Employee.
(ii) "PROMISSORY NOTE" has the meaning given to such term in that
certain Note Purchase Agreement, dated as of November 1, 1995, by
and between the Employee and the Partnership.
(iii) "VESTING PERIOD" means the period beginning on the date on which
the Employee commences employment with the Partnership hereunder
and ending upon the earliest to occur of (A) the Employee's
having worked for the Partnership for two (2) years, (B) May 1,
1999 or (C) the consummation of an Initial Public Offering under
Section 9.1 of the Third Amended and Restated Agreement of
Limited Partnership of Mazel Company L.P. dated as of November 1,
1995 (the "PARTNERSHIP AGREEMENT") among Mazel/D&K, Inc. and the
Managing Partner, as general partners, and ZS Mazel, Inc. and the
Employee and certain other individuals, as limited partners.
3.6 ANNUAL BONUS. During the Term, the Employee shall be
entitled to receive an annual bonus (the "Annual Bonus") based upon the
Partnership's operating income for each fiscal year of the Partnership ending
during the Term, commencing with the 1995 fiscal year. The Annual Bonus for
1995 shall be Eighty Thousand Dollars ($80,000) paid on or before January 31,
1996. The Annual Bonus for the following fiscal years shall be an amount equal
to fifty percent (50%) of the Annual Salary in effect for the relevant fiscal
year in the event that the Partnership's operating income, calculated in
accordance with generally accepted accounting principles consistently
applied, equals or exceeds the "TARGET AMOUNT" (as hereinafter defined) for such
fiscal year. If the Partnership's operating 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
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<PAGE> 7
Amount which such operating income represents, minus eighty percent
(80%), divided by (B) twenty percent (20%), multiplied by (ii)
fifty percent (50%) of the Employee's Annual Salary in effect for
such fiscal year. For example, if the Partnership's operating
income is ninety percent (90%) of the Target Amount for the 1996
fiscal year, the Annual Bonus shall be calculated as follows:
(90%-80%)
------- X $210,000 = $105,000
20%
If the Partnership's operating 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 General Partners after consulting
with the Employee (if the Employee is then employed hereunder).
The Annual Bonus for each fiscal year shall be paid in full to the
Employee as soon as practicable after (but not later than thirty
(30) days) the Partnership's audited financial statement for such
fiscal year is available to the Partnership.
3.7 ADDITIONAL EQUITY INVESTMENT; REPURCHASE
BY PARTNERSHIP. Simultaneously with the parties' execution and
delivery of this Agreement, the Employee has also made an
investment of Four Hundred Five Thousand Dollars ($405,000) in cash
in connection with his admission as a limited partner of the
Partnership pursuant to the Partnership Agreement (the limited
partnership interest so acquired by the Employee in the Partnership
is herein referred to as the "PARTNERSHIP INTEREST"). In the event
of the occurrence of a "TRIGGER EVENT" (as defined in the Purchase
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<PAGE> 8
and Sale Agreement (the "Purchase Agreement"), dated as of November
1, 1995, among the Employee, the Managing Partner, Mazel/D&K, Inc.,
and the Partnership), the Partnership shall have the right, on
written notice to the Employee, to redeem and cancel the Employee's
Partnership Interest (whether such Partnership Interest is then
held by the Employee or has been transferred in a "PERMITTED
TRANSFER" (as defined in the Partnership Agreement) to another
Person) in consideration of the payment to the Employee (or, in the
case of a Permitted Transfer, the applicable holder of the
Partnership Interest) by the Partnership of the "PURCHASE PRICE"
(as defined in the Purchase Agreement). The Purchase Price shall
be payable in the manner specified in Section 8.7 of the
Partnership Agreement.
3.8 EMPLOYEE EQUITY PLAN. During the Term, the
Employee shall be entitled to participate in the "EMPLOYEE EQUITY
PLAN" (as such term is defined in the Partnership Agreement) and
has purchased Four Hundred Ninety (490) "UNITS" (as such term is
defined in the Partnership Agreement) pursuant to the Award
Agreement executed and delivered by the parties hereto
simultaneously with the execution and delivery of this Agreement,
a copy of which is attached as EXHIBIT A to this Agreement.
3.9 AUTOMOBILE. During the Term, the Employee
shall be entitled to usage of an automobile of his choice which
shall be leased by the Partnership, provided that the monthly lease
payments thereon do not exceed Five Hundred Dollars ($500) and the
Partnership shall be responsible for the insurance, gasoline and
maintenance required for such automobile.
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<PAGE> 9
4. TERMINATION UPON DEATH OR DISABILITY. If the
Employee dies during the Term, the obligations of the Partnership
to or with respect to the Employee shall terminate in their
entirety except as otherwise provided under this Section 4. If the
Employee by virtue of ill health or other physical or mental
disability is unable to perform substantially and continuously any
material portion of the duties assigned to him for ninety (90) days
in the aggregate during any twelve (12) month period, or for any
sixty (60) consecutive days, the Partnership shall have the right
to terminate the employment of the Employee upon notice in writing
to the Employee; provided that (i) after receipt of notice from the
Partnership, the Employee shall have the right within ten (10) days
after such notice to dispute the Partnership's ability to terminate
him under this Section 4, (ii) within ten (10) days after
exercising such right he shall submit to a physical examination by
the Chief of Medicine of any major hospital in the metropolitan
Columbus, Ohio area, and (iii) unless such physician shall issue
his written statement to the effect that in his opinion, based on
his diagnosis, the Employee is capable of resuming his employment
and devoting his full time and energy to discharging his duties
within ten (10) days after the date of such statement the
Partnership shall have the right to terminate the Employee under
this Section 4 without further dispute. Upon termination under
this Section 4, 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
9
<PAGE> 10
under this Agreement for expenses incurred, prior to the date of
termination (for these purposes, if such termination occurs during
a fiscal year, the Annual Bonus for such fiscal year shall be
prorated based upon the number of days in such fiscal year which
elapsed before such termination and shall be paid at the time
provided for in Section 3.6); thereafter, the Partnership shall
have no further liability to the Employee except for payment of the
Deferred Signing Bonus to the extent, in the manner and at the
times set forth in Section 3.5. No provision of this Agreement
shall limit any of the Employee's (or his beneficiaries') rights
under any insurance, pension or other benefit programs of the
Partnership for which the Employee shall be eligible at the time of
such death or disability.
5. CERTAIN TERMINATIONS OF EMPLOYMENT.
5.1 TERMINATION FOR CAUSE. "CAUSE" shall be deemed
to exist if the Employee (i) is convicted of (or pleads nolo
contendere to) a felony, a crime of moral turpitude or any crime
involving the Partnership (other than pursuant to actions taken at
the direction or with the approval of the Managing Partner),
(ii) is found by reasonable determination of the Managing Partner,
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 (including, but not limited to, any termination by
the Employee of his employment hereunder otherwise than as
described in Section 5.2). The Partnership may terminate the
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<PAGE> 11
Employee's employment hereunder for Cause on written notice (which
notice shall specify the reasons for such termination) given to the
Employee at any time following the occurrence of any of the events
described in clauses (i) through (iii) of the foregoing sentence.
Upon such termination, 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 such
termination (provided that, for these purposes and for all other
purposes of this Agreement, if such termination occurs after the
last day of a fiscal year then the unpaid Annual Bonus (if any)
otherwise payable under Section 3.6 for such fiscal year shall be
deemed to have been earned and accrued, but in no event shall any
portion of any other subsequent Annual Bonus be deemed to have been
earned or accrued); thereafter, the Partnership shall have no
further liability to the Employee (including but not limited to any
liability for the Deferred Signing Bonus) .
5.2 TERMINATION BY THE PARTNERSHIP WITHOUT CAUSE;
CERTAIN TERMINATIONS BY THE EMPLOYEE. During the Term, the
Partnership may terminate the Employee's employment hereunder for
any reason on at least thirty (30) days' written notice given to
the Employee. If (i) the Partnership so terminates the Employee
during the Term, and such termination is not described in Section
4 or 5.1, or (ii) at a time at which no Cause exists, the Employee
terminates his employment hereunder during the Term and such
termination (A) is described in Section 5.3 or (B) is because of
any Material Adverse Modification, then
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<PAGE> 12
(I) 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 such termination;
(II) during the twenty-four (24) month period following such termination,
the Employee shall also be entitled to
(A) continue to receive the Annual Salary payable in the amounts and
at the times provided for in Section 3.1 as if such employment
had not otherwise been so terminated;
(B) continue to receive the Annual Bonus or, if applicable, Annual
Bonuses (if any) payable at the times provided for in Section 3.6
as if such employment had not otherwise been so terminated;
provided, however, that, for these purposes, and notwithstanding
Section 3.6, the amount of each Annual Bonus (if any) otherwise
payable under the foregoing provisions of this clause (B) shall
be an amount equal to (x) if the termination occurs on or before
the last day of the fiscal year which includes the effective date
hereof, the Annual Bonus (if any) payable in the amount provided
for in Section 3.6 for the fiscal year of termination as if such
employment had not otherwise been so terminated, and (y) if the
termination occurs after the last day of the fiscal year which
includes the effective date hereof, the average of the Annual
Bonuses (including, but not limited to, Annual Bonuses of $0)
actually payable under Section 3.6 for the three fiscal years
ending before such termination (or if less, the number of fiscal
years ending before such termination); and
(C) continuation of any group life, health and automobile-related
benefits to which the Employee is otherwise entitled hereunder on
substantially the same terms and conditions (including with
respect to the cost, if any, to the Employee), subject to
generally applicable changes to the level (and cost) of coverage
that may be made with respect to senior executives generally;
provided that such continuation shall not be required hereunder
to the extent that the Employee is entitled (absent any
individual waivers or other arrangements) to receive during such
period the same type of coverage from another employer or
recipient of the Employee's services;
provided that no amounts shall be payable under this clause (II)
if the Employee's employment is terminated by
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<PAGE> 13
the Partnership or by him after the issuance of a court order
that restricts the Employee's ability to work for the
Partnership.
Thereafter, the Partnership shall have no further liability to the
Employee except for the payment of the Deferred Signing Bonus to
the extent, in the manner and at the times set forth in Section
3.5; provided, however, that such payment of the Deferred Signing
Bonus shall in no event be made if the Employee's employment is
terminated by the Partnership or by him after the issuance of a
court order that restricts the Employee's ability to work for the
Partnership .
5.3 CHANGE IN CONTROL. (a) The Partnership shall make
its best efforts to give the Employee notice of a Change in Control
at least thirty (30) days before the Change in Control is
consummated; provided that such notice may be given at such time as
the Partnership becomes aware of the proposed Change in Control
within such thirty (30) day period. If the Employee elects to
terminate his employment hereunder effective upon the consummation
of such Change in Control, then such termination shall be deemed
for purposes of this Agreement to be described by Section 5.2 if
(i) the termination occurs at a time at which no Cause exists, (ii)
neither the Partnership nor any of its subsidiaries or other
"AFFILIATES" (which shall include any entity directly or indirectly
controlling or controlled by the Partnership or any of its
subsidiaries or by the partners of the Partnership (or the partners
of such partners)) shall have become a reporting company pursuant
to Section 12 or 15 of the Securities Exchange Act of 1934, as
amended, or any successor statute, and (iii) the Employee has
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<PAGE> 14
reasonably determined, after a diligent and good-faith review of
all relevant, objective facts and circumstances, that his authority
has been adversely modified or diminished (provided that in no
event shall there be deemed to have occurred such a modification or
diminution solely because the business of the Partnership becomes
part of a larger business, and the Employee's responsibilities do
not extend to the other aspects of such larger business). For
these purposes, "CHANGE IN CONTROL" means an event or series of
events in respect of which the Partnership is no longer directly or
indirectly controlled by one or more of ZS Fund L.P., ZS Mazel
L.P., ZS Mazel, Inc., Mazel/D&K, Inc. and Reuven Dessler and each
of the affiliates of any of the foregoing; provided that a Change
in Control shall in no event be deemed to have occurred on account
of the death or disability of Reuven Dessler.
(b) Notwithstanding any other provision of this
Agreement, in the event that any payment or benefits provided by
the Partnership (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 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 5.3 shall mean the sum of
(i) the total amount payable to the Employee under this Agreement, PLUS
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<PAGE> 15
(ii) all other payments and benefits which the Employee receives or is then
entitled to receive from the Partnership 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 5.3(b) shall be made by the
Partnership in consultation with its outside auditors.
6. COVENANT OF THE EMPLOYEE.
6.1 COVENANT AGAINST COMPETITION. The Employee
acknowledges that (i) the principal businesses of the Partnership
and its subsidiaries and other Affiliates are the "WHOLESALE
BUSINESS" (as defined below) and the "RETAIL CLOSEOUT BUSINESS" (as
defined below) (such businesses, and any and all other businesses
that, after the effective date hereof and from time to time during
the Term, are engaged in by the Partnership or its subsidiaries or
other Affiliates, herein being collectively referred to as the
"COMPANY BUSINESS"); (ii) the value of all goodwill resulting from
the operation of the Company Business of the Partnership and its
subsidiaries and other Affiliates should properly belong to the
Partnership and its subsidiaries and other Affiliates; (iii) upon
repurchase of any portion of the Employee's interest in the
Partnership by the Partnership pursuant to the Award Agreement or
by the Partnership, Mazel/D&K, Inc. or the Managing Partner
pursuant to the Purchase Agreement and the Partnership Agreement,
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<PAGE> 16
the Employee will have no right or interest to such goodwill; (iv)
the covenants and agreements of the Employee in this Section 6 are
necessary to preserve the value of such goodwill for the benefit of
the Partnership and its subsidiaries and other Affiliates; and (v)
the Partnership would not have entered into this Agreement or any
other arrangements regarding the sale of equity of the Partnership
or its Affiliates to the Employee but for the covenants and
agreements set forth in this Section 6. Accordingly, the Employee
covenants and agrees that:
(a) If there is a repurchase of any portion of
the Employee's interest in the Partnership in accordance with this
Agreement, the Award Agreement, the Purchase Agreement, or the
Partnership Agreement, and if, prior to such repurchase date the
Partnership or any of its subsidiaries shall have become a
reporting company pursuant to Section 12 or 15 of the Securities
Exchange Act of 1934, as amended, or any successor statute, then,
during the twelve (12) month period following the expiration of the
Term (the "RESTRICTED PERIOD"), provided that the Restricted Period
with respect, directly or indirectly, to Consolidated shall in all
events extend through such twelve (12) month period, the Employee
shall not in the United States of America (1) engage in the Company
Business, whether as part of a division or otherwise, for the
Employee's own account; (2) render any services to any person or
entity (other than the Partnership or its subsidiaries) engaged in
such activities, whether as part of a division or otherwise; or
(3) become interested in any such person or entity (other than the
Partnership or its subsidiaries) as a partner, officer, director,
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<PAGE> 17
shareholder, principal, agent, employee, 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 or entity which are
traded on any national securities exchange or the National
Association of Securities Dealers, Inc. Automated Quotation System
if the Employee (A) is not a controlling person of, or a member of
a group which controls, such person or entity and (B) does not,
directly or indirectly, own four percent (4%) or more of any class
of securities of such person or entity.
(b) During and after the Restricted Period,
the Employee shall keep secret and retain in strictest confidence,
and shall not use for his benefit or the benefit of others, except
in connection with the business and affairs of the Partnership and
its subsidiaries, all confidential matters relating to the Company
Business and to the Partnership and its subsidiaries learned by the
Employee on or after the effective date hereof directly or
indirectly from the Partnership and its subsidiaries, including,
without limitation, information with respect to (a) prospective
store locations, (b) sales figures (whether per store or
otherwise), (c) profit or loss figures (whether per store or
otherwise), and (d) customers, clients, suppliers, sources of
supply and customer lists (the "CONFIDENTIAL COMPANY INFORMATION")
and shall not disclose the Confidential Company Information to
anyone outside of the Partnership or its subsidiaries except with
the Partnership's express written consent and except for
Confidential Company Information which (1) is at the time of
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<PAGE> 18
receipt or thereafter becomes publicly known through no wrongful
act of the Employee, (2) is received from a third party not under
an obligation to keep such information confidential and without
breach of this Agreement or (3) was previously known by the
Employee before being employed by the Partnership.
(c) During the Restricted Period, the Employee
shall not, without the Partnership's prior written consent,
directly or indirectly, knowingly solicit or encourage to leave the
employment of the Partnership or its subsidiaries, any employee of
the Partnership or its subsidiaries or hire any employee who has
left the employment of the Partnership or its subsidiaries after
the effective date of this Agreement within one year of the
termination of such employee's employment with the Partnership and
its subsidiaries.
(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 Partnership and its subsidiaries shall be the
Partnership's property and shall be delivered to the Partnership at
any time on request, provided such property is then possessed by
the Employee and can be readily identified as such by him; provided
that, notwithstanding the foregoing, the Employee may retain a copy
of his rolodex.
(e) For purposes hereof, "WHOLESALE BUSINESS"
shall mean any business involving (i) the wholesale distribution of
merchandise acquired through purchases of (A) overstocks, (B)
closeouts, (C) items liquidated by a manufacturer or by a retail
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<PAGE> 19
store, (D) merchandise available in connection with bankruptcies or
other distress situations, (E) merchandise at or below regular
price primarily as a result of the production of the merchandise
occurring during periods in which the production facilities
otherwise would be idle or would have underutilized capacity or (F)
buybacks made by a manufacturer of a competitor's or its own
merchandise, or (ii) the importing of types or categories of
merchandise with respect to which, at the time the Employee
terminates employment or at any time during the Term, the
Partnership (A) transacts (or has transacted) wholesale business,
or otherwise sells or purchases (or has sold or purchased) or (B)
has committed to sell or purchase; provided that a business shall
be deemed to be a Wholesale Business only if it has Ten Million
Dollars ($10,000,000) or more in sales from activities described
from clauses (i) and (ii) in the aggregate during either of the
following periods: (1) the twelve (12) most recently completed
calendar months prior to the Employee's involvement with such
business or (2) the Restricted Period.
(f) For purposes hereof, "RETAIL CLOSEOUT
BUSINESS" shall mean any retail business (i) fifty percent (50%) or
more of the inventory of which, in the aggregate, is acquired
through purchases of (A) overstocks, (B) closeouts, (C) items
liquidated by a manufacturer or by a retail store, (D) merchandise
available in connection with bankruptcies or other distress
situations, (E) merchandise at below regular price primarily as a
result of the production of the merchandise occurring during
periods in which the production facilities otherwise would be idle
19
<PAGE> 20
or would have underutilized capacity or (F) buybacks made by a
manufacturer of a competitor's or its own merchandise, and (ii)
which owns or operates a location within a ten (10) mile radius of
any location owned or operated by the Partnership or its
subsidiaries or other Affiliates; provided that in no event shall
the business of operating discount stores, specialty stores or
deep-discount drug store businesses be considered to be a Retail
Closeout Business at any particular time unless (A) the Partnership
is engaged in such business at such time or (B) the business is
part of an operation which, taking into account such business and
the other aspects of the operation in the aggregate, is a Retail
Closeout Business as a result of purchases of merchandise described
in clauses (i) (A) through (i) (F) .
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 Partnership and
its subsidiaries 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
Partnership or its subsidiaries 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
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<PAGE> 21
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 Partnership and that money
damages will not provide an adequate remedy to the Partnership.
(b) The right and remedy to require the
Employee to account for and pay over to the Partnership and its
subsidiaries all compensation, profits, monies, accruals,
increments or other benefits (collectively, "BENEFITS") derived or
received by him as the proximate result - i.e. actual damages - of
a breach of the Restrictive Covenants, and the Employee shall
account for and pay over such Benefits to the Partnership and, if
applicable, its affected subsidiaries.
7. OTHER PROVISIONS.
7.1 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.
7.2 BLUE-PENCILLING. If any court determines that
any of the covenants contained in this Agreement, including,
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<PAGE> 22
without limitation, any of the Restrictive Covenants, or any part
thereof, is unenforceable because of the duration or geographical
scope of such provision, then, after such determination has become
final and unappealable, 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.
7.3 ENFORCEABILITY; JURISDICTIONS . The Partnership
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 jurisdictions
hold the Restrictive Covenants wholly unenforceable by reason of
breadth of scope or otherwise, it is the intention of the
Partnership and the Employee that such determination not bar or in
any way affect the Partnership's right or the right of its
subsidiaries 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 jurisdiction being, for this purpose,
severable, diverse and independent covenants, subject, where
appropriate, to the doctrine of RES JUDICATA.
7.4 SET-OFF. The Employee acknowledges and agrees
that the Partnership may set-off against any or all amounts payable
to the Employee hereunder any or all amounts payable by the
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<PAGE> 23
Employee to the Partnership in respect of a breach by the Employee
of any of the provisions of Section 6.
7.5 NOTICES. Any notice or other communication
required or permitted hereunder shall be in writing and shall be
delivered personally, telegraphed, telexed, 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, telegraphed, telexed 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 Partnership, to:
Mazel Company L.P.
31000 Aurora Road
Solon, Ohio 44139
Attention: Managing Partner
with a copy to:
ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, New York 10036
Attention: Ned L. Sherwood
and
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Steven A. Hobbs
23
<PAGE> 24
(ii) If to the Employee to:
Brady J. Churches
1677 Taylor Corners Circle
Columbus, Ohio 43004
with a copy to:
James G. Ryan, Esq.
Schwartz, Kelm, Warren & Ramirez
41 South High Street
Columbus, Ohio 43215
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.
7.6 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.
7.7 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 right, 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.
7.8 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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<PAGE> 25
7.9 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 Partnership's assets or
business, whether by merger, consolidation or otherwise, the
Partnership may assign this Agreement and its rights hereunder.
7.10 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.
7.11 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 hereto.
7.12 HEADINGS. The headings in this Agreement are
for reference only and shall not affect the interpretation of this
Agreement.
7.13 CHANGE OF LOCATION. During the Term, the
Partnership's Retail Division shall be headquartered in the Columbus
Metropolitan Area, Ohio. In the event that the Managing Partner shall
explicitly, in writing, request or demand to the Employee that such
headquarters be relocated outside of the Columbus Metropolitan Area,
the Employee may on thirty (30) days
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<PAGE> 26
prior written notice to the Partnership elect to terminate his
employment hereunder in the event that the Partnership does not
rescind its request or demand, in which case the Employee's
employment hereunder shall be deemed to have been terminated by the
Partnership pursuant to Section 5.2 and he shall be entitled to
receive the amounts set forth in such Section, and Section 6 shall
no longer apply.
7.14 EQUITY INVESTMENTS. During the Term, the
Partnership will reserve Two Thousand (2,000) Units thereof for
issuance to officers of the Partnership employed in the Partnership's
Retail or Wholesale Divisions.
7.15 EXPENSES. In the event that the Employee
commences any legal proceeding against the Partnership to enforce the
Employee's rights under this Agreement and the Employee prevails in
such legal proceeding, the Partnership shall reimburse the Employee
for the reasonable fees and disbursements of the Employee's attorneys
incurred with respect to that portion of the legal proceeding with
respect to which the Employee is the prevailing party.
7.16 INDEMNIFICATION. (a) The Employee represents
and warrants to the Partnership that: (i) the Employee's execution,
delivery and performance of this Agreement does not and will not
violate, conflict with or constitute a default (with notice or
lapse of time or both) under any written agreement or instrument to
which the Employee is a party and (ii) prior to the effective date
of this Agreement, the Employee has disclosed to the Managing
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<PAGE> 27
Partner all material facts regarding the circumstances concerning
the Employee's previous employment with Consolidated.
(b) Subject to the provisions of this Section 7.16,
to the fullest extent permitted by law, the Partnership shall
indemnify the Employee if he is a party or is threatened to be made
a party to any legal proceeding (other than a legal proceeding
against the Employee by the Partnership) (a "PROCEEDING"),
threatened or pending, whether civil, criminal, administrative or
investigative, by reason of his service to the Partnership as a
director, officer, trustee, employee or agent, or service at the
written request of the Partnership as a director, officer, trustee,
employee or agent of another corporation, partnership, joint
venture, trust or enterprise, against the Employee's reasonable
attorneys' fees and disbursements, reasonable out-of-pocket travel
expenses to and from the forum of the Proceeding and judgments,
fines and amounts paid in settlement in connection with the
Proceeding. Such attorneys' fees and expenses shall be paid by the
Partnership as they are incurred upon receipt, in each case, of an
undertaking by the Employee to repay such amounts if it is
ultimately determined, as provided below, that the Employee is not
entitled to indemnification hereunder. The Employee shall not
settle any Proceeding without the prior written consent of the
Partnership unless, as a condition thereof, the Partnership
receives a full and unconditional release of all liability in
respect of the Proceeding. The Employee shall provide the
Partnership with prompt written notice of any Proceeding in respect
of which he is entitled to indemnification hereunder, provided that
27
<PAGE> 28
the Employee shall not lose his rights to indemnification hereunder
for failure to give such notice unless the Partnership is
prejudiced by such failure.
(c) Except as provided in Section 7.16(d), the
indemnification provided for in Section 7.16(b) (i) shall apply in all
cases except where the Employee did not act or failed to act in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Partnership or where the Employee's
action or failure to act constituted gross negligence or willful
misconduct, or, with respect to any criminal action or proceeding,
where he did not have reasonable cause to believe his conduct was
lawful (collectively, the "STANDARD OF CARE") and (ii) may be denied
by the Partnership only if a court of competent jurisdiction
determines that the Employee did not meet the Standard of Care.
(d) The indemnification provided for in Section
7.16(b) shall also apply to any Proceedings brought by Consolidated
which result from or relate to the Employee's vacating his previous
employment with Consolidated and entering into this Agreement,
including without limitation the lawsuit styled CONSOLIDATED STORES
CORPORATION V. MARK HANNERS AND BRADY CHURCHES filed in the Common
Pleas Court of Franklin County, Ohio on July 3, 1995, except where
such Proceedings arise to any extent out of matters the existence (or
lack of disclosure) of which constitute a breach of the
representations and warranties of the Employee contained in Section
7.16 (a).
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<PAGE> 29
(e) The indemnification provided by this Section
shall survive termination of the Employee's employment with the
Partnership; provided, however, that indemnification with respect to
the matters set forth in Section 7.16(d) shall terminate in the event
that the Employee's employment with the Partnership is terminated
pursuant to Section 5.1 hereof (including, but not limited to, any
termination under Section 5.1 on account of a termination by the
Employee of his employment otherwise than as described in Section
5.2).
(f) The provisions of this Section 7.16 shall not
be deemed to be exclusive of any other rights to which the Employee
may be entitled under applicable law, the Partnership Agreement or any
other written agreement between the Partnership and the Employee.
7.17 INDEMNIFICATION BY EMPLOYEE. The Employee
acknowledges and agrees that the Partnership and its Affiliates
incurred legal expenses in connection with the Employee's employment
dispute with Consolidated. The Employee acknowledges that the
Partnership would not have incurred such expenses but for the
Partnership's expectation that the Employee would become an employee
and remain an employee of the Partnership for the entirety of the
Vesting Period. Accordingly, if the Employee has terminated his
employment hereunder before the end of the Vesting Period (other than
a termination under Section 5.2 because of a Material Adverse
Modification), then, no later than fifteen (15) days after such
termination, the Employee shall pay to the Partnership an amount equal
to the lesser of (i) the excess (if any) of (A) Three Hundred Ten
Thousand Dollars ($310,000) over (B) the amount of
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<PAGE> 30
reduction in Annual Salary under Section 3.1(b) or (ii) the sum of
(A) One Hundred Thousand Dollars ($100,000) plus (B) the aggregate
principal amount of all Promissory Notes outstanding at such time;
provided that, if the termination of employment is pursuant to a
court order that restricts the Employee's ability to work for the
Partnership, then the Employee only will be liable for payments
under this Section 7.17 on account of such termination (but may be
so liable in the event of a subsequent termination, if otherwise
liable under this Section 7.17) if (x) such restriction is removed
prior to the end of the Vesting Period and (y) he does not
recommence employment with the Partnership within three (3)
business days of the removal of such restriction (in which case the
Employee's payment under this Section 7.17 shall be made no later
than fifteen (15) days after the expiration of such three (3) day
period). The parties acknowledge that such amount is in partial
reimbursement of such legal expenses. If the Employee shall fail
to pay the foregoing amount when due, and without limitation of the
right of the Partnership to exercise its legal rights to require
repayment, the Employee shall be required to pay interest thereon
from the last day of the Vesting Period to the date when paid at
the rate of the prime rate of Citibank, N.A. as from time to time
in effect plus five hundred (500) basis points.
7.18 WITHHOLDING. The Partnership shall be
entitled to withhold from any payments or deemed payments any amount
of withholding required by law.
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<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have signed their
names as of the day and year first above written effective as of
August 14, 1995.
MAZEL COMPANY L.P.
By: ZS MAZEL L.P.,
its Managing Partner
By: ZS MAZEL, INC.,
General Partner of ZS Mazel L.P.
By: /s/ Ned Sherwood
-----------------------------------
Name:
Title:
/s/ Brady J. Churches
--------------------------------------
BRADY J. CHURCHES
NC5218
31
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT OF JERRY D. SOMMERS, dated 11/1/95
-------------------------------------------------------
EMPLOYMENT AGREEMENT dated as of November 1, 1995, by and between MAZEL
COMPANY L.P., a Delaware limited partnership, with its principal place of
business at 31000 Aurora Road, Solon, Ohio 44139 (hereinafter referred to as the
"PARTNERSHIP"), and Jerry D. Sommers, an individual residing at 8634
Pickerington Road, Pickerington, Ohio 43147-9663 (hereinafter referred to as the
"EMPLOYEE").
WHEREAS, the Partnership wishes to employ the Employee, and the Employee
wishes to accept such employment, on the terms contained herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. TERM. The Partnership hereby employs the Employee, and the Employee
hereby accepts such employment, for an initial term commencing as of the date
hereof and ending on the fifth anniversary of such date, 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 prior to thirty (30) days before the
expiration of the initial term and each annual renewal thereof (said initial
term and any continuation thereof (but not after any such termination) being
hereinafter referred to as the "TERM").
<PAGE> 2
2. DUTIES. The Employee, in his capacity as Executive Vice
President-Mazel Retail Division (or such other and comparable titles and
positions as shall be given the Employee by ZS Mazel L.P., a Delaware limited
partnership and the Managing Partner of the Partnership (the "MANAGING
PARTNER")), shall faithfully perform for the Partnership 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 Managing Partner. The Employee shall devote substantially all of his
business time and effort to the performance of his duties hereunder. The
Employee shall have the right (after consultation with the President of the
Partnership) to hire and terminate all employees of the Partnership's Retail
Division who are subordinate to the Employee.
3. COMPENSATION.
3.1 SALARY. (a) The Partnership shall pay the Employee during the Term
a salary at the rate of Three Hundred Fifteen Thousand Dollars ($315,000) per
annum (the "ANNUAL SALARY") . Commencing on the first anniversary of the date of
this Agreement and on each such anniversary thereafter during 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 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
2
<PAGE> 3
comparable month in the preceding year. The Annual Salary may also be increased
by such greater amount as the General Partners of the Partnership shall
determine in their sole discretion. The Annual Salary shall be payable in equal
semi-monthly installments.
(b) Notwithstanding Section 3.1(a), the Employee shall not be entitled
to the Annual Salary otherwise payable under Section 3.1(a) for any period for
which the Employee is receiving compensation or other remuneration from
Consolidated Stores Corporation, a Delaware corporation, and its subsidiaries
(collectively "CONSOLIDATED"); provided that, at such time as the amount of
Annual Salary that is not received by virtue of this Section 3.1(b), together
with the annual salaries not received by Brady J. Churches and Mark N. Hanners
under the provisions of their employment agreements similar to this Section
3.1(b), equals the amount paid by the Partnership pursuant to Section 7.15 (or
any predecessor understanding or arrangement), together with the amounts paid by
the Partnership under the provisions of Messrs. Churches' and Hanners'
employment agreements similar to Section 7.15 (or any predecessor understanding
or arrangement), the Employee shall be entitled to receive fifty percent (50%)
of the Annual Salary otherwise payable under Section 3.1(a) for any period for
which the Employee is receiving compensation or other remuneration from
Consolidated.
3.2 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
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<PAGE> 4
of the Partnership 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.
3.3 EXPENSES - IN GENERAL. The Partnership shall pay or reimburse the
Employee for all reasonable out-of-pocket expenses actually incurred or paid by
the Employee during the Term in the performance of the Employee's services under
this Agreement; provided that the Employee submits proof of such expenses, with
the properly completed forms as prescribed from time to time by the Partnership,
no later than thirty (30) days after such expenses have been so incurred.
3.4 LEGAL EXPENSES. The Partnership shall reimburse the Employee for
all reasonable legal fees and legal expenses incurred by the Employee for legal
services performed in 1995 in negotiating this Agreement up to a total of Ten
Thousand Dollars ($10,000); provided that the Employee submits proof of such
expenses. with the properly completed forms as prescribed from time to time by
the Partnership.
3.5 SIGNING BONUSES. (a) In order to induce the Employee to enter into
this Agreement and commence employment hereunder, the Partnership agrees to pay
to the Employee (if the Employee has commenced employment hereunder) a signing
bonus in an amount equal to Two Hundred Fifteen Thousand Dollars ($215,000) (the
"DEFERRED SIGNING BONUS") , payable on the terms and conditions set forth
below.
(i) On each of November 1, 1996, December 31, 1996, March 31,
1997 and June 30, 1997, the Partnership shall pay to the
Employee an
4
<PAGE> 5
amount equal to Twenty-Six Thousand Eight Hundred
Seventy-Five Dollars ($26,875).
(ii) If the Employee has not terminated his employment hereunder
during the "VESTING PERIOD" (as defined below), other than a
termination under Section 5.2 because of a "MATERIAL ADVERSE
MODIFICATION" (as defined below), then, on the last day of
the Vesting Period, the Partnership shall pay to the
Employee an amount equal to One Hundred Seven Thousand Five
Hundred Dollars ($107,500) by delivering, at the
Partnership's option, either cash or an equivalent principal
amount of "PROMISSORY NOTES" (as defined below) in
cancellation.
(b) Notwithstanding clause (a) above, if (i) Employee's employment
hereunder is terminated pursuant to Section 5.1 (including, but not limited to,
any termination under Section 5.1 on account of a termination by the Employee of
his employment hereunder other than as described in Section 5.2) or (ii) the
Employee violates the provisions of Section 6 at any time, then the Partnership
shall not be obligated to pay any unpaid installment of the Deferred Signing
Bonus which would otherwise have been payable had there been no termination
pursuant to Section 5.1 and no violation of Section 6.
(c) Subject to clauses (a) and (b) above, the Deferred Signing Bonus
shall be payable to the Employee whether or not the Employee is an employee of
the Partnership at the time any installment of the Deferred Signing Bonus is
then payable. The Employee may designate in writing to the Partnership a
beneficiary to receive the Deferred Signing Bonus.
(d) For purposes of this Section 3.5 and the other provisions of the
Agreement:
5
<PAGE> 6
(i) "MATERIAL ADVERSE MODIFICATION" means any material adverse
modification or diminution of the Employee's duties or
material diminution in the Employee's authority, title or
office, which modification or diminution is not cured by the
Partnership within fifteen (15) days' written notice from
the Employee.
(ii) "PROMISSORY NOTE" has the meaning given to such term in that
certain Note Purchase Agreement, dated as of the date
hereof, by and between the Employee and the Partnership.
(iii) "VESTING PERIOD" means the period beginning on the date on
which the Employee commences employment with the Partnership
hereunder and ending upon the earliest to occur of (A) the
Employee's having worked for the Partnership for two (2)
years, (B) May 1, 1999 or (C) the consummation of an Initial
Public Offering under Section 9.1 of the Third Amended and
Restated Agreement of Limited Partnership of Mazel Company
L.P. dated as of November 1, 1995 (the "PARTNERSHIP
AGREEMENT") among Mazel/D&K, Inc. and the Managing Partner,
as general partners, and ZS Mazel, Inc. and the Employee and
certain other individuals, as limited partners.
3.6 ANNUAL BONUS. During the Term, the Employee shall be entitled to
receive an annual bonus (the "ANNUAL BONUS") based upon the Partnership's
operating income for each fiscal year of the Partnership ending during the Term,
commencing with the 1995 fiscal year. The Annual Bonus for 1995 shall be Eighty
Thousand Dollars ($80,000) paid on or before January 31, 1996. The Annual Bonus
for the following fiscal years shall be an amount equal to fifty percent (50%)
of the Annual Salary in effect for the relevant fiscal year in the event that
the Partnership's operating income, calculated in accordance with generally
accepted accounting principles consistently applied, equals or exceeds the
"TARGET AMOUNT" (as hereinafter defined) for such fiscal year. If the
Partnership's operating income for any fiscal year is less than the
6
<PAGE> 7
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 which such operating
income represents, minus eighty percent (80%), divided by (B) twenty percent
(20%), multiplied by (ii) fifty percent (50%) of the Employee's Annual Salary in
effect for such fiscal year. For example, if the Partnership's operating income
is ninety percent (90%) of the Target Amount for the 1996 fiscal year, the
Annual Bonus shall be calculated as follows:
(90%-80%)
------- x $157,500 = $78,750
20%
If the Partnership's operating 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 General Partners
after consulting with the Employee (if the Employee is then employed
hereunder). The Annual Bonus for each fiscal year shall be paid in full to the
Employee as soon as practicable after (but not later than thirty (30) days) the
Partnership's audited financial statement for such fiscal year is available to
the Partnership.
3.7 ADDITIONAL EQUITY INVESTMENT; REPURCHASE BY PARTNERSHIP.
Simultaneously with the parties' execution and delivery of this Agreement, the
Employee has also made an investment of Four Hundred Five Thousand Dollars
($405,000) in cash in connection with his admission as a limited partner of the
Partnership pursuant to the Partnership Agreement (the limited partnership
interest so acquired by the Employee in the Partnership
7
<PAGE> 8
is herein referred to as the "PARTNERSHIP INTEREST"). In the event of the
occurrence of a "TRIGGER EVENT" (as defined in the Purchase and Sale Agreement
(the "Purchase Agreement"), dated as of the date hereof, among the Employee, the
Managing Partner, Mazel/D&K, Inc., and the Partnership), the Partnership shall
have the right, on written notice to the Employee, to redeem and cancel the
Employee's Partnership Interest (whether such Partnership Interest is then held
by the Employee or has been transferred in a "PERMITTED TRANSFER" (as defined in
the Partnership Agreement) to another Person) in consideration of the payment to
the Employee (or, in the case of a Permitted Transfer, the applicable holder of
the Partnership Interest) by the Partnership of the "Purchase Price" (as defined
in the Purchase Agreement). The Purchase Price shall be payable in the manner
specified in Section 8.7 of the Partnership Agreement.
3.8 EMPLOYEE EOUITY PLAN. During the Term, the Employee shall be
entitled to participate in the "EMPLOYEE EQUITY PLAN" (as such term is defined
in the Partnership Agreement) and has purchased Four Hundred Ninety (490)
"UNITS" (as such term is defined in the Partnership Agreement) pursuant to the
Award Agreement executed and delivered by the parties hereto simultaneously with
the execution and delivery of this Agreement, a copy of which is attached as
EXHIBIT A to this Agreement.
3.9 AUTOMOBILE. During the Term, the Employee shall be entitled to usage
of an automobile of his choice which shall be leased by the Partnership,
provided that the monthly lease payments thereon do not exceed Five Hundred
Dollars ($500) and the
8
<PAGE> 9
Partnership shall be responsible for the insurance, gasoline and maintenance
required for such automobile.
4. TERMINATION UPON DEATH OR DISABILITY. If the Employee dies during the
Term, the obligations of the Partnership to or with respect to the Employee
shall terminate in their entirety except as otherwise provided under this
Section 4. If the Employee by virtue of ill health or other physical or mental
disability is unable to perform substantially and continuously any material
portion of the duties assigned to him for ninety (90) days in the aggregate
during any twelve (12) month period, or for any sixty (60) consecutive days, the
Partnership shall have the right to terminate the employment of the Employee
upon notice in writing to the Employee; provided that (i) after receipt of
notice from the Partnership, the Employee shall have the right within ten (10)
days after such notice to dispute the Partnership's ability to terminate him
under this Section 4, (ii) within ten (10) days after exercising such right he
shall submit to a physical examination by the Chief of Medicine of any major
hospital in the metropolitan Columbus, Ohio area, and (iii) unless such
physician shall issue his written statement to the effect that in his opinion,
based on his diagnosis, the Employee is capable of resuming his employment and
devoting his full time and energy to discharging his duties within ten (10) days
after the date of such statement the Partnership shall have the right to
terminate the Employee under this Section 4 without further dispute. Upon
termination under this Section 4, the Employee (or the Employee's estate or
beneficiaries in the case of the death of the Employee) shall be
9
<PAGE> 10
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 (for these purposes, if such
termination occurs during a fiscal year, the Annual Bonus for such fiscal year
shall be prorated based upon the number of days in such fiscal year which
elapsed before such termination and shall be paid at the time provided for in
Section 3.6); thereafter, the Partnership shall have no further liability to the
Employee except for payment of the Deferred Signing Bonus to the extent, in the
manner and at the times set forth in Section 3.5. No provision of this Agreement
shall limit any of the Employee's (or his beneficiaries') rights under any
insurance, pension or other benefit programs of the Partnership for which the
Employee shall be eligible at the time of such death or disability.
5. CERTAIN TERMINATIONS OF EMPLOYMENT.
5.1 TERMINATION FOR CAUSE. "CAUSE" shall be deemed to exist if the
Employee (i) is convicted of (or pleads nolo contendere to) a felony, a crime of
moral turpitude or any crime involving the Partnership (other than pursuant to
actions taken at the direction or with the approval of the Managing Partner),
(ii) is found by reasonable determination of the Managing Partner, 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 (including, but not limited to, any termination by
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<PAGE> 11
the Employee of his employment hereunder otherwise than as described in Section
5.2). The Partnership may terminate the Employee's employment hereunder for
Cause on written notice (which notice shall specify the reasons for such
termination) given to the Employee at any time following the occurrence of any
of the events described in clauses (i) through (iii) of the foregoing sentence.
Upon such termination, 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 such termination (provided that, for these purposes and for all other
purposes of this Agreement, if such termination occurs after the last day of a
fiscal year then the unpaid Annual Bonus (if any) otherwise payable under
Section 3.6 for such fiscal year shall be deemed to have been earned and
accrued, but in no event shall any portion of any other subsequent Annual Bonus
be deemed to have been earned or accrued); thereafter, the Partnership shall
have no further liability to the Employee (including but not limited to any
liability for the Deferred Signing Bonus).
5.2 TERMINATION BY THE PARTNERSHIP WITHOUT CAUSE; CERTAIN TERMINATIONS
BY THE EMPLOYEE. During the Term, the Partnership may terminate the Employee's
employment hereunder for any reason on at least thirty (30) days' written notice
given to the Employee. If (i) the Partnership so terminates the Employee during
the Term, and such termination is not described in Section 4 or 5.1, or (ii) at
a time at which no Cause exists, the Employee terminates his employment
hereunder during the Term and such
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termination (A) is described in Section 5.3 or (B) is because of any Material
Adverse Modification, then
(I) 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 sudh termination;
(II) during the twenty-four (24) month period following such termination,
the Employee shall also be entitled to
(A) continue to receive the Annual Salary payable in the amounts and
at the times provided for in Section 3.1 as if such employment
had not otherwise been so terminated;
(B) continue to receive the Annual Bonus or, if applicable, Annual
Bonuses (if any) payable at the times provided for in Section 3.6
as if such employment had not otherwise been so terminated;
provided, however, that, for these purposes, and notwithstanding
Section 3.6, the amount of each Annual Bonus (if any) otherwise
payable under the foregoing provisions of this clause (B) shall
be an amount equal to (x) if the termination occurs on or before
the last day of the fiscal year which includes the date hereof,
the Annual Bonus (if any) payable in the amount provided for in
Section 3.6 for the fiscal year of termination as if such
employment had not otherwise been so terminated, and (y) if the
termination occurs after the last day of the fiscal year which
includes the date hereof, the average of the Annual Bonuses
(including, but not limited to, Annual Bonuses of $0) actually
payable under Section 3.6 for the three fiscal years ending
before such termination (or if less, the number of fiscal years
ending before such termination); and
(C) continuation of any group life, health and automobile-related
benefits to which the Employee is otherwise entitled hereunder on
substantially the same terms and conditions (including with
respect to the cost, if any, to the Employee), subject to
generally applicable changes to the level (and cost) of coverage
that may be made with respect to senior executives generally;
provided that such continuation shall not be required hereunder
to the extent that the Employee is entitled (absent any
individual waivers or other arrangements) to receive during such
period the
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same type of coverage from another employer or recipient of the
Employee's services;
provided that no amounts shall be payable under this clause (II) if
the Employee's employment is terminated by the Partnership or by him
after the issuance of a court order that restricts the Employee's
ability to work for the Partnership.
Thereafter, the Partnership shall have no further liability to the Employee
except for the payment of the Deferred Signing Bonus to the extent, in the
manner and at the times set forth in Section 3.5; provided, however, that such
payment of the Deferred Signing Bonus shall in no event be made if the
Employee's employment is terminated by the Partnership or by him after the
issuance of a court order that restricts the Employee's ability to work for the
Partnership.
5.3 CHANGE IN CONTROL. (a) The Partnership shall make its best efforts to
give the Employee notice of a Change in Control at least thirty (30) days before
the Change in Control is consummated; provided that such notice may be given at
such time as the Partnership becomes aware of the proposed Change in Control
within such thirty (30) day period. If the Employee elects to terminate his
employment hereunder effective upon the consummation of such Change in Control,
then such termination shall be deemed for purposes of this Agreement to be
described by Section 5.2 if (i) the termination occurs at a time at which no
Cause exists, (ii) neither the Partnership nor any of its subsidiaries or other
"AFFILIATES" (which shall include any entity directly or indirectly controlling
or controlled by the Partnership or any of its subsidiaries or by the partners
of the Partnership (or the partners of such partners)) shall have become a
reporting company pursuant
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to Section 12 or 15 of the Securities Exchange Act of 1934, as amended, or any
successor statute, and (iii) the Employee has reasonably determined, after a
diligent and good-faith review of all relevant, objective facts and
circumstances, that his authority has been adversely modified or diminished
(provided that in no event shall there be deemed to have occurred such a
modification or diminution solely because the business of the Partnership
becomes part of a larger business, and the Employee's responsibilities do not
extend to the other aspects of such larger business). For these purposes,
"CHANGE IN CONTROL" means an event or series of events in respect of which the
Partnership is no longer directly or indirectly controlled by one or more of ZS
Fund L.P., ZS Mazel L.P., ZS Mazel, Inc., Mazel/D&K, Inc. and Reuven Dessler and
each of the affiliates of any of the foregoing; provided that a Change in
Control shall in no event be deemed to have occurred on account of the death or
disability of Reuven Dessler.
(b) Notwithstanding any other provision of this Agreement, in the
event that any payment or benefits provided by the Partnership (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 after tax benefit shall
exceed the net after tax
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<PAGE> 15
benefit if such reduction were not made. "NET AFTER TAX BENEFIT" for purposes of
this Section 5.3 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 Partnership 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 5.3(b) shall be made by the Partnership in
consultation with its outside auditors.
6. COVENANT OF THE EMPLOYEE.
6.1 COVENANT AGAINST COMPETITION. The Employee acknowledges that (i) the
principal businesses of the Partnership and its subsidiaries and other
Affiliates are the "WHOLESALE BUSINESS" (as defined below) and the "RETAIL
CLOSEOUT BUSINESS" (as defined below) (such businesses, and any and all other
businesses that, after the date hereof and from time to time during the Term,
are engaged in by the Partnership or its subsidiaries or other Affiliates,
herein being collectively referred to as the "COMPANY BUSINESS"); (ii) the value
of all goodwill resulting from the operation of the Company Business of the
Partnership and its subsidiaries and other Affiliates should properly belong to
the Partnership and its subsidiaries and other Affiliates; (iii) upon
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<PAGE> 16
repurchase of any portion of the Employee's interest in the Partnership by the
Partnership pursuant to the Award Agreement or by the Partnership, Mazel/D&K,
Inc. or the Managing Partner pursuant to the Purchase Agreement and the
Partnership Agreement, the Employee will have no right or interest to such
goodwill; (iv) the covenants and agreements of the Employee in this Section 6
are necessary to preserve the value of such goodwill for the benefit of the
Partnership and its subsidiaries and other Affiliates; and (v) the Partnership
would not have entered into this Agreement or any other arrangements regarding
the sale of equity of the Partnership or its Affiliates to the Employee but for
the covenants and agreements set forth in this Section 6. Accordingly, the
Employee covenants and agrees that:
(a) If there is a repurchase of any portion of the Employee's
interest in the Partnership in accordance with this Agreement, the Award
Agreement, the Purchase Agreement, or the Partnership Agreement, and if, prior
to such repurchase date the Partnership or any of its subsidiaries shall have
become a reporting company pursuant to Section 12 or 15 of the Securities
Exchange Act of 1934, as amended, or any successor statute, then, during the
twelve (12) month period following the expiration of the Term (the "RESTRICTED
PERIOD"), provided that the Restricted Period with respect, directly or
indirectly, to Consolidated shall in all events extend through such twelve (12)
month period, the Employee shall not in the United States of America (1) engage
in the Company Business, whether as part of a division or otherwise, for the
Employee's own account; (2) render any services to any person or
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<PAGE> 17
entity (other than the Partnership or its subsidiaries) engaged in such
activities, whether as part of a division or otherwise; or (3) become interested
in any such person or entity (other than the Partnership or its subsidiaries) as
a partner, officer, director, shareholder, principal, agent, employee,
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 or entity which are traded on
any national securities exchange or the National Association of Securities
Dealers, Inc. Automated Quotation System if the Employee (A) is not a
controlling person of, or a member of a group which controls, such person or
entity and (B) does not, directly or indirectly, own four percent (4%) or more
of any class of securities of such person or entity.
(b) During and after the Restricted Period, the Employee
shall keep secret and retain in strictest confidence, and shall not use for his
benefit or the benefit of others, except in connection with the business and
affairs of the Partnership and its subsidiaries, all confidential matters
relating to the Company Business and to the Partnership and its subsidiaries
learned by the Employee on or after the date hereof directly or indirectly from
the Partnership and its subsidiaries, including, without limitation,
information with respect to (a) prospective store locations, (b) sales figures
(whether per store or otherwise), (c) profit or loss figures (whether per store
or otherwise), and (d) customers, clients, suppliers, sources of supply and
customer lists (the "CONFIDENTIAL COMPANY INFORMATION") and shall not
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<PAGE> 18
disclose the Confidential Company Information to anyone outside of the
Partnership or its subsidiaries except with the Partnership's express written
consent and except for Confidential Company Information which (1) is at the time
of receipt or thereafter becomes publicly known through no wrongful act of the
Employee, (2) is received from a third party not under an obligation to keep
such information confidential and without breach of this Agreement or (3) was
previously known by the Employee before being employed by the Partnership.
(c) During the Restricted Period, the Employee shall not, without
the Partnership's prior written consent, directly or indirectly, knowingly
solicit or encourage to leave the employment of the Partnership or its
subsidiaries, any employee of the Partnership or its subsidiaries or hire any
employee who has left the employment of the Partnership or its subsidiaries
after the date of this Agreement within one year of the termination of such
employee's employment with the Partnership and its subsidiaries.
(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 Partnership and its subsidiaries
shall be the Partnership's property and shall be delivered to the Partnership at
any time on request, provided such property is then possessed by the Employee
and can be readily identified as such by him; provided that, notwithstanding the
foregoing, the Employee may retain a copy of his rolodex.
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<PAGE> 19
(e) For purposes hereof, "WHOLESALE BUSINESS" shall mean any
business involving (i) the wholesale distribution of merchandise acquired
through purchases of (A) overstocks, (B) closeouts, (C) items liquidated by a
manufacturer or by a retail store, (D) merchandise available in connection with
bankruptcies or other distress situations, (E) merchandise at or below regular
price primarily as a result of the production of the merchandise occurring
during periods in which the production facilities otherwise would be idle or
would have underutilized capacity or (F) buybacks made by a manufacturer of a
competitor's or its own merchandise, or (ii) the importing of types or
categories of merchandise with respect to which, at the time the Employee
terminates employment or at any time during the Term, the Partnership (A)
transacts (or has transacted) wholesale business, or otherwise sells or
purchases (or has sold or purchased) or (B) has committed to sell or purchase;
provided that a business shall be deemed to be a Wholesale Business only if it
has Ten Million Dollars ($10,000,000) or more in sales from activities described
from clauses (i) and (ii) in the aggregate during either of the following
periods: (1) the twelve (12) most recently completed calendar months prior to
the Employee's involvement with such business or (2) the Restricted Period.
(f) For purposes hereof, "RETAIL CLOSEOUT BUSINESS" shall mean
any retail business (i) fifty percent (50%) or more of the inventory of which,
in the aggregate, is acquired through purchases of (A) overstocks, (B)
closeouts, (C) items liquidated by a manufacturer or by a retail store, (D)
merchandise
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<PAGE> 20
available in connection with bankruptcies or other distress situations, (E)
merchandise at below regular price primarily as a result of the production of
the merchandise occurring during periods in which the production facilities
otherwise would be idle or would have underutilized capacity or (F) buybacks
made by a manufacturer of a competitor's or its own merchandise, and (ii) which
owns or operates a location within a ten (10) mile radius of any location owned
or operated by the Partnership or its subsidiaries or other Affiliates; provided
that in no event shall the business of operating discount stores, specialty
stores or deep-discount drug store businesses be considered to be a Retail
Closeout Business at any particular time unless (A) the Partnership is engaged
in such business at such time or (B) the business is part of an operation which,
taking into account such business and the other aspects of the operation in the
aggregate, is a Retail Closeout Business as a result of purchases of merchandise
described in clauses (i) (A) through (i) (F).
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 Partnership and its subsidiaries 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
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<PAGE> 21
remedies available to the Partnership or its subsidiaries 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
Partnership and that money damages will not provide an adequate remedy to the
Partnership.
(b) The right and remedy to require the Employee to account for
and pay over to the Partnership and its subsidiaries all compensation, profits,
monies, accruals, increments or other benefits (collectively, "BENEFITS")
derived or received by him as the proximate result - i.e. actual damages - of a
breach of the Restrictive Covenants, and the Employee shall account for and pay
over such Benefits to the Partnership and, if applicable, its affected
subsidiaries.
7. OTHER PROVISIONS.
7.1 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
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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.
7.2 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, then, after such determination
has become final and unappealable, 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.
7.3 ENFORCEABILITY; JURISDICTIONS. The Partnership 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 jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of breadth of scope or
otherwise, it is the intention of the Partnership and the Employee that such
determination not bar or in any way affect the Partnership's right or the right
of its subsidiaries 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 jurisdiction being, for this
purpose,
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severable, diverse and independent covenants, subject, where appropriate, to the
doctrine of RES JUDICATA.
7.4 SET-OFF. The Employee acknowledges and agrees that the Partnership may
set-off against any or all amounts payable to the Employee hereunder any or all
amounts payable by the Employee to the Partnership in respect of a breach by the
Employee of any of the provisions of Section 6.
7.5 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, 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, telegraphed, telexed 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 Partnership, to:
Mazel Company L.P.
31000 Aurora Road
Solon, Ohio 44139
Attention: Managing Partner
with a copy to:
ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, New York 10036
Attention: Ned L. Sherwood
and
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Steven A. Hobbs
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(ii) If to the Employee to:
Jerry D. Sommers
8634 Pickerington Road
Pickerington, Ohio 43147-9663
with a copy to:
James G. Ryan, Esq.
Schwartz, Kelm, Warren & Ramirez
41 South High Street
Columbus, Ohio 43215
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.
7.6 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.
7.7 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
right, 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.
7.8 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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7.9 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 Partnership's
assets or business, whether by merger, consolidation or otherwise, the
Partnership may assign this Agreement and its rights hereunder.
7.10 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.
7.11 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 hereto.
7.12 HEADINGS. The headings in this Agreement are for reference only and
shall not affect the interpretation of this Agreement.
7.13 CHANGE OF LOCATION. During the Term, the Partnership's Retail Division
shall be headquartered in the Columbus Metropolitan Area, Ohio. In the event
that the Managing Partner shall explicitly, in writing, request or demand to
the Employee that such headquarters be relocated outside of the Columbus
Metropolitan Area, the Employee may on thirty (30) days
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prior written notice to the Partnership elect to terminate his employment
hereunder in the event that the Partnership does not rescind its request or
demand, in which case the Employee's employment hereunder shall be deemed to
have been terminated by the Partnership pursuant to Section 5.2 and he shall be
entitled to receive the amounts set forth in such Section, and Section 6 shall
no longer apply.
7.14 EXPENSES. In the event that the Employee commences any legal
proceeding against the Partnership to enforce the Employee's rights under this
Agreement and the Employee prevails in such legal proceeding, the Partnership
shall reimburse the Employee for the reasonable fees and disbursements of the
Employee's attorneys incurred with respect to that portion of the legal
proceeding with respect to which the Employee is the prevailing party.
7.15 INDEMNIFICATION. (a) The Employee represents and warrants to the
Partnership that: (i) the Employee's execution, delivery and performance of this
Agreement does not and will not violate, conflict with or constitute a default
(with notice or lapse of time or both) under any written agreement or instrument
to which the Employee is a party and (ii) prior to the date of this Agreement,
the Employee has disclosed to the Managing Partner all material facts regarding
the circumstances concerning the Employee's previous employment with
Consolidated.
(b) Subject to the provisions of this Section 7.15, to the fullest
extent permitted by law, the Partnership shall indemnify the Employee if he is a
party or is threatened to be made
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a party to any legal proceeding (other than a legal proceeding against the
Employee by the Partnership) (a "PROCEEDING"), threatened or pending, whether
civil, criminal, administrative or investigative, by reason of his service to
the Partnership as a director. officer, trustee, employee or agent, or service
at the written request of the Partnership as a director, officer, trustee,
employee or agent of another corporation, partnership, joint venture, trust or
enterprise, against the Employee's reasonable attorneys' fees and disbursements,
reasonable out-of-pocket travel expenses to and from the forum of the Proceeding
and judgments, fines and amounts paid in settlement in connection with the
Proceeding. Such attorneys' fees and expenses shall be paid by the Partnership
as they are incurred upon receipt, in each case, of an undertaking by the
Employee to repay such amounts if it is ultimately determined, as provided
below, that the Employee is not entitled to indemnification hereunder. The
Employee shall not settle any Proceeding without the prior written consent of
the Partnership unless, as a condition thereof, the Partnership receives a full
and unconditional release of all liability in respect of the Proceeding. The
Employee shall provide the Partnership with prompt written notice of any
Proceeding in respect of which he is entitled to indemnification hereunder,
provided that the Employee shall not lose his rights to indemnification
hereunder for failure to give such notice unless the Partnership is prejudiced
by such failure.
(c) Except as provided in Section 7.15(d), the indemnification
provided for in Section 7.15(b) (i) shall apply in
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all cases except where the Employee did not act or failed to act in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Partnership or where the Employee's action or failure to act
constituted gross negligence or willful misconduct, or, with respect to any
criminal action or proceeding, where he did not have reasonable cause to believe
his conduct was lawful (collectively, the "STANDARD OF CARE") and (ii) may be
denied by the Partnership only if a court of competent jurisdiction determines
that the Employee did not meet the Standard of Care.
(d) The indemnification provided for in Section 7.15(b) shall also
apply to any Proceedings brought by Consolidated which result from or relate to
the Employee's vacating his previous employment with Consolidated and entering
into this Agreement, except where such Proceedings arise to any extent out of
matters the existence (or lack of disclosure) of which constitute a breach of
the representations and warranties of the Employee contained in Section 7.15(a).
(e) The indemnification provided by this Section shall survive
termination of the Employee's employment with the Partnership; provided,
however, that indemnification with respect to the matters set forth in Section
7.15(d) shall terminate in the event that the Employee's employment with the
Partnership is terminated pursuant to Section 5.1 hereof (including, but not
limited to, any termination under Section 5.1 on account of a termination by the
Employee of his employment otherwise than as described in Section 5.2).
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(f) The provisions of this Section 7.15 shall not be deemed to be
exclusive of any other rights to which the Employee may be entitled under
applicable law, the Partnership Agreement or any other written agreement between
the Partnership and the Employee.
7.16 INDEMNIFICATION BY EMPLOYEE. The Employee acknowledges and agrees that
the Partnership and its Affiliates may incur legal expenses in connection with
the Employee's possible employment dispute with Consolidated of which
Consolidated has made the Employee aware. The Employee acknowledges that the
Partnership would not have incurred such expenses but for the Partnership's
expectation that the Employee would become an employee and remain an employee of
the Partnership for the entirety of the Vesting Period. Accordingly, if the
Employee has terminated his employment hereunder before the end of the Vesting
Period (other than a termination under Section 5.2 because of a Material Adverse
Modification), then, no later than fifteen (15) days after such termination, the
Employee shall pay to the Partnership an amount equal to the lesser of (i) the
excess (if any) of (A) One Hundred Seven Thousand Five Hundred Dollars
($107,500) over (B) the amount of reduction in Annual Salary under Section
3.1(b) or (ii) the sum of (A) Fifty Thousand Dollars ($50,000) plus (B) the
aggregate principal amount of all Promissory Notes outstanding at such time;
provided that, if the termination of employment is pursuant to a court order
that restricts the Employee's ability to work for the Partnership, then the
Employee only will be liable for payments under this Section 7.16 on account of
such termination (but may be so liable in the event of a subsequent termination,
if otherwise
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liable under this Section 7.16) if (x) such restriction is removed prior to the
end of the Vesting Period and (y) he does not recommence employment with the
Partnership within three (3) business days of the removal of such restriction
(in which case the Employee's payment under this Section 7.16 shall be made no
later than fifteen (15) days after the expiration of such three (3) day
period). The parties acknowledge that such amount is in partial reimbursement
of such legal expenses. If the Employee shall fail to pay the foregoing amount
when due, and without limitation of the right of the Partnership to exercise
its legal rights to require repayment, the Employee shall be required to pay
interest thereon from the last day of the Vesting Period to the date when paid
at the rate of the prime rate of Citibank, N.A. as from time to time in effect
plus five hundred (500) basis points.
7.17 WITHHOLDING. The Partnership shall be entitled to withhold from any
payments or deemed payments any amount of withholding required by law.
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IN WITNESS WHEREOF, the parties hereto have signed their names as of the
day and year first above written.
MAZEL COMPANY L.P.
By: ZS MAZEL L.P.,
its Managing Partner
By: ZS MAZEL, INC.,
General Partner of ZS Mazel L.P.
By: /s/ Ned Sherwood
-------------------------------------
Name:
Title:
/s/ JERRY D. SOMMERS
-------------------------------------
JERRY D. SOMMERS
NC 84520
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<PAGE> 1
Exhibit 10.8
OPTION TO PURCHASE STOCK OF ODD JOB
THIS OPTION AGREEMENT, dated as of December 5, 1995, is by and between
MAZEL COMPANY L.P., a Delaware limited partnership ("MAZEL"), and ZS MAZEL L.P.,
a Delaware limited partnership ("ZS MAZEL").
RECITALS:
--------
WHEREAS, ZS Mazel owns all of the currently outstanding shares of Common
Stock (the "ODD JOB STOCK"), par value $1.00 per share, of Odd-Job Holdings,
Inc., a Delaware corporation ("HOLDINGS");
WHEREAS, Odd-Job Acquisition Corp., a Delaware corporation ("Newco") is
a wholly-owned subsidiary of Holdings;
WHEREAS, ZS Mazel wishes to sell an option in favor of Mazel and Mazel
wishes to purchase an option from ZS Mazel, to purchase the Odd Job Interests
(as defined herein), upon the terms and conditions hereinafter set forth;
WHEREAS, simultaneously with the execution and delivery of this
Agreement, in partial consideration for the grant of the option herein
contained, Mazel has agreed to purchase a Subordinated Note of ZS Mazel (the
"SUBORDINATED NOTE") for a purchase price of $1,350,000; and
WHEREAS, capitalized terms used herein which are otherwise not defined
shall have the meaning set forth in Section 7.1 hereof;
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, Mazel and ZS Mazel hereby agree as follows:
<PAGE> 2
ARTICLE I.
OPTION AND PURCHASE PRICE
-------------------------
1.1. PURCHASE OF OPTION. On the terms and subject to the conditions set
forth in this Agreement, Mazel Shall purchase from ZS Mazel and ZS Mazel shall
sell to Mazel the Odd Job Option (as defmed below) for a purchase price of
$50,000, payable by bank or wire transfer of immediately available funds to
such account as has been designated by Mazel to ZS Mazel.
1.2. ODD JOB OPTION. On the terms and subject to the conditions set
forth in this Agreement, ZS Mazel hereby irrevocably grants an option (the "ODD
JOB OPTION") to Mazel, and upon exercise of the Odd Job Option by Mazel as
hereinafter provided, ZS Mazel agrees to sell, transfer, assign, convey and
deliver to Mazel all of the right, title and interest now or hereafter owned or
held by ZS Mazel in and to (the interests held by ZS Mazel in Holdings described
below are sometimes hereinafter collectively referred to as the "ODD JOB
INTERESTS"):
(a) all shares of Odd Job Stock owned by ZS Mazel; and
(b) all other shares of capital stock, into which the Odd Job Stock
may be converted or changed by reason of any stock split,
recapitalization, merger, consolidation, or otherwise of
Holdings.
1.3. PURCHASE PRICE. Subject to adjustment as provided in Section 1.5,
the purchase price (as adjusted pursuant to Section 1.5, the "PURCHASE PRICE")
for the Odd Job Interests to be purchased by Mazel upon exercise of the Odd Job
Option hereunder shall be an amount equal to $1,400,000, payable, at the
election of Mazel, (i) by bank wire transfer in immediately available funds to
a bank account designated in writing by ZS Mazel not less than five (5) Business
Days before the Closing Date, (ii) by delivery of all or a portion of the
Subordinated Note, in cancellation of unpaid principal and accrued interest
thereon equal to the Purchase Price, or (iii) by any combination of (i) or (ii).
1.4. EXERCISE OF OPTION. The Odd Job Option may be exercised by Mazel at
any time on or prior to February 28, 2003 (the "EXPIRATION DATE") by giving
written notice of exercise (the "EXERCISE NOTICE") of the Odd Job Option on or
prior to such date to ZS Mazel.
1.5. PURCHASE PRICE ADJUSTMENTS. The Purchase Price shall increase at a
rate per annum (computed on the basis of 365 or 366 days per year, as the case
may be) equal to seven and 34/100 per cent (7.34%), compounding annually on each
anniversary of the date of this Agreement.
1.6. CLOSING DATE. The consummation of the purchase and sale of the Odd
Job Interests upon exercise of the Odd Job Option (the "CLOSING") shall be held
at 10:00 a.m. (New York City time) on (i) the later to occur of five (5)
Business Days after the receipt of the
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<PAGE> 3
Exercise Notice or after the satisfaction or waiver of each party's condition to
consummate the closing specified in Article IV or (ii) at such other time and
date as shall be mutually agreed to by the parties hereto (such date and time of
the Closing being herein referred to as the "CLOSING DATE") at the offices of
Rogers & Wells, 200 Park Avenue, New York, New York.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF ZS MAZEL
------------------------------------------
ZS Mazel represents and warrants to Mazel as follows:
2.1. ORGANIZATION AND QUALIFICATION. ZS Mazel is a limited partnership
duly organized, validly existing and in good standing under the laws of the
state of Delaware and has all requisite partnership power and authority to own
the Odd Job Interests.
2.2. TITLE TO THE SECURITIES. The Odd Job Interests specified in Section
1.1 are owned directly and of record by ZS Mazel, free and clear of all Liens.
At the Closing, ZS Mazel will convey to Mazel good title to the Odd Job
Interests to be sold hereunder, free and clear of all Liens.
2.3. VALIDITY AND EXECUTION OF AGREEMENT. ZS Mazel has the full legal
right, capacity and power and ZS Mazel has all requisite partnership authority
and approval required to enter into, execute and deliver this Agreement and to
perform fully its obligations hereunder. The General Partner of ZS Mazel has
approved the transactions contemplated pursuant to this Agreement and each of
the other agreements required to be entered into pursuant hereto by such
parties. This Agreement has been duly executed and delivered by ZS Mazel and
constitutes the valid and binding obligation of ZS Mazel 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).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF MAZEL
---------------------------------------
MazeI represents and warrants to ZS Mazel:
3.1. ORGANIZATION AND CAPITALIZATION. Mazel is a duly organized and
validly existing limited partnership, in good standing under the laws of the
State of Delaware, and has all requisite partnership power and lawful authority
to enter into this Agreement and to perform its obligations hereunder.
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<PAGE> 4
3.2. VALIDITY AND EXECUTION OF AGREEMENT. Mazel has the full legal right
and power and all authority and approval required to enter into, execute and
deliver this Agreement and to perform fully its obligations hereunder. The
person or persons executing this Agreement and all related agreements, documents
and certificates on behalf of Mazel have been specifically authorized to do so
by appropriate corporate or partnership proceedings. This Agreement has been
duly executed and delivered by Mazel and constitutes the valid and binding
obligation of Mazel enforceable against Mazel 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).
3.3. PURCHASE FOR INVESTMENT. The Odd Job Option and any Odd Job
Interests acquired by Mazel upon exercise of the Odd Job Option are or will be,
as the case may be, acquired by Mazel for its own account for the purpose of
investment and Mazel will refrain from transferring or otherwise disposing of
all or any portion of the Odd Job Option, any Odd Job Interests acquired upon
exercise of the Odd Job Option, or any interest therein, in such manner as to
cause ZS Mazel or Holdings to be in violation of the registration requirements
of the Securities Act of 1933, as amended, or applicable state securities or
blue sky laws.
ARTICLE IV.
CONDITIONS PRECEDENT TO THE CLOSING
-----------------------------------
4.1. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MAZEL TO COMPLETE THE
CLOSING. The obligations of Mazel to enter into and complete the Closing are
subject to the fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by Mazel:
(a) THIRD PARTY CONSENTS. All consents, permits and approvals from
parties to contracts or other agreements with ZS Mazel that may be required in
connection with the performance by ZS Mazel of its obligations under this
Agreement or the consummation of the transactions contemplated by this
Agreement after the Closing shall have been obtained, except where the failure
to obtain any of the foregoing (or in lieu thereof waivers) could not reasonably
be expected, individually or in the aggregate with other such failures, to
materially adversely affect the Odd Job Interests or otherwise result in a
material diminution of the benefits of the transactions contemplated by this
Agreement to Mazel. All approvals of or filings with Governmental or Regulatory
Bodies necessary to consurmate the Closing shall have been obtained or made and,
if applicable, the waiting period under the HSR Act shall have expired.
(b) INJUNCTION, ETC. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that prevents
consummation of the transactions contemplated by this Agreement or any of the
conditions to the consummation of the transactions contemplated by this
Agreement or would be likely to have any material adverse effect on the Odd Job
Interests to be purchased by Mazel hereunder.
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(c) STOCK CERTIFICATES OF ZS MAZEL. ZS Mazel shall have delivered to
Mazel Stock certificates evidencing the Odd Job Interests, accompanied by stock
powers duly executed in blank.
4.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ZS MAZEL TO COMPLETE THE
CLOSING. The obligations of ZS Mazel to enter into and complete the Closing are
subject to the fulfiliment on or prior to the Closing Date, of the following
conditions, any one or more of which may be waived by the general partner of ZS
Mazel:
(a) THIRD PARTY CONSENTS. All consents, permits and approvals from
parties to contracts or other agreements with ZS Mazel that may be required in
connection with the performance by ZS Mazel of its obligations under this
Agreement or the consummation of the transactions contemplated by this Agreement
after the Closing shall have been obtained, except where the failure to obtain
any of the foregoing (or in lieu thereof waivers) could not reasonably be
expected, individually or in the aggregate with other such failures, to
materially adversely affect the Odd Job Interests or otherwise result in a
material diminution of the benefits of the transactions contemplated by this
Agreement to Mazel. All approvals of or filings with Governmental or Regulatory
Bodies necessary to consummate the Closing shall have been obtained or made and,
if applicable, the waiting period under the HSR Act shall have expired.
(b) INJUNCTION, ETC. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that prevents
consummation of the transactions contemplated by this Agreement or any of the
conditions to the consummation of the transaction contemplated by this
Agreement.
(c) DELIVERV OF FUNDS. Mazel shall have delivered to ZS Mazel the
Purchase Price in accordance with Section 1.3 hereof.
ARTICLE V.
MISCELLANEOUS
-------------
5.1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:
"BUSINESS DAY" means any day on which commercial banks are not
authorized or required by law to close in New York, New York.
"GOVERNMENTAL OR REGULATORV BODY" means court, tribunal, arbitrator or
any government or political subdivision thereof, whether federal, state, county,
local or foreign, or any agency, authority, official or instrumentality of any
such government or political subdivision.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
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<PAGE> 6
"LAW" means any law, statute, rule, regulation, ordinance and other
pronouncement having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Body.
"LIEN" means any lien, pledge, hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"ORDER" means any writ, judgment, decree, injunction or similar order of
any Governmental or Regulatory Body, in each case whether preliminary or final.
"PERSON" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental or Regulatory Body or other entity.
5.2. FURTHER ASSURANCES. At any time and from time to time after the
exercise of the Odd Job Option, at the request of Mazel, and without further
consideration, zS Mazel will execute and deliver such other instruments of sale,
transfer, conveyance, assignment and confirmation and take such other action as
Mazel may reasonably deem necessary or desirable in order to transfer, convey
and assign more effectively to Mazel, the Odd Job Interests.
5.3. NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telexed, sent by facsimile transmission or sent
by prepaid air courier or certified, registered or express mail, postage
prepaid. Any such notice shall be deemed to have been given (a) when received,
if delivered in person, telegraphed, telexed, sent by facsimile transmission
and, in the case of facsimile, confirmed in writing within three (3) Business
Days thereafter or sent by prepaid air courier or (b) three (3) Business Days
following the mailing thereof, if mailed by registered or certified first class
mail, postage prepaid, return receipt requested, in any such case as follows (or
to such other address or addresses as a party may have advised the other in the
manner provided in this Section 5.3):
If to Mazel:
Mazel Company L.P.
31200 Aurora Road
Solon, Ohio 44139
Attention: Reuven Dessler
Telephone: (216) 248-5200
Telecopier: (216) 349-1931
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If to ZS Mazel:
c/o ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, New York 10036
Attention: Ned L. Sherwood
Telephone: (212) 398-6200
Telecopier: (212) 398-1808
With a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Steven A. Hobbs, Esq.
Telephone: (212) 878-8005
Telecopier: (212) 878-8375
5.4. PUBLICITY. No publicity release or public announcement concerning
this Agreement or the transactions contemplated hereby shall be made by Mazel,
on the one hand, or by ZS Mazel on the other hand, without advance approval
thereof by each other.
5.5. ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
5.6. WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded,
cancelled, 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
right, power or privilege hereunder shall operate as a waiver thereof. The
rights and remedies of any parties based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representation, warranty, covenant
or agreement contained in this Agreement shall in no way be limited by the fact
that the act, omission, occurrence or other state of facts upon which any claim
of any such inaccuracy or breach is based may also be the subject matter of any
other representation, warranty, covenant or agreement contained in this
Agreement (or in any other agreement between the parties as to which there is no
inaccuracy or breach).
5.7. GOVERNING LAW: JURISDICTION AND VENUE. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of law. Jurisdiction and venue for any
action arising under this Agreement shall lie exclusively in the courts of the
State of New York or the federal district court for the Southern District of New
York, and all parties irrevocably consent to the personal and subject matter
jurisdiction of said courts.
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5.8. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable by any party hereto
without the prior written consent of the other parties hereto except by
operation of law and any other purported assignment shall be null and void.
5.9. VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
5.10. 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 shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
5.11. EXHIBIT AND SCHEDULES. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
5.12. HEADINGS. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
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<PAGE> 9
5.13. SEYERABILITY OF PROVISIONS. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
thereof to any Person or circumstance, shall be held invalid or unenforceable,
the remaimng portion of much provision and the remaining provisions of this
Agreement, or the application of such provision or portion of such provision as
is held invalid or unenforceable to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ZS MAZEL L.P.
By: ZS Mazel, Inc.
its general partner
By: /s/ Reuven Dessler
----------------------------
Name:
Title:
MAZEL CQMPANY L.P.
By: ZS Mazel L.P., its
general partner
By: ZS Mazel, Inc.,
its general partner
By: /s/ Reuven Dessler
-----------------------------
Name:
Title:
By: Mazel/D&K, Inc.,
its general partner
By: /s/ Reuven Dessler
------------------------------
Name:
Title:
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Exhibit 10.12
SOLON, OHIO FACILITY LEASE
--------------------------
THIS LEASE (the "Lease"), dated as of January 1, 1988, is made and entered
into by and between AURORA ROAD REALTY DEVELOPERS CO., an Ohio corporation
("Lessor") and THE MAZEL CO., an Ohio corporation ("Lessee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lessor holds the leasehold estate in and to the parcel of real
property located at 31000 Aurora Road, Solon, Ohio 44139, consisting of
approximately 37 acres, as more particularly described in EXHIBIT "A" attached
hereto and made a part hereof (the "Property"), together with all buildings,
improvements and fixtures of whatsoever kind or nature situated upon the
Property, including without limitation all landscaping, electrical, heating, air
conditioning and plumbing equipment and systems, elevators and canopies (the
"Leasehold Improvements") (the Property and the Leasehold Improvements are
collectively referred to the "Leased Premises");
WHEREAS, Lessor has obtained the leasehold estate pursuant to the Interim
Sublease dated August 5, 1986 between Lessor and The Kroger Co. ("Landlord"), a
copy of which is attached hereto and made a part hereof as EXHIBIT "B" (the
"Sublease");
WHEREAS, Landlord acquired the leasehold estate in and to the Leased
Premises pursuant to the Lease dated July 2, 1957, as amended by amendments
dated December 2, 1957, September 16, 1960, July 1, 1967, and March 31, 1971
(collectively, the "Master Lease"); and
WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to rent from
Lessor, a portion of the Leased Premises, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
the parties hereto hereby agree as follows:
1. THE PREMISES. Upon and subject to the terms and conditions herein set
forth, Lessor hereby agrees to Lessee, and Lessee hereby rents from Lessor, that
portion of the Leased Premises described in EXHIBIT "C", attached hereto and
made a part hereof, and as outlined in red on EXHIBIT "D", attached hereto and
made a part hereof, consisting of approximately five hundred fifty-four thousand
(554,000) square feet (the "Premises").
<PAGE> 2
2. TERM. The term of this Lease commenced on January 1, 1988 (the
"Commencement Date") and shall end on December 31, 1997, unless sooner
terminated pursuant to any provision hereof. Lessor hereby covenants and agrees
that it shall take all appropriate actions pursuant to the Sublease to cause
Landlord to timely exercise all renewal options provided for in Article XVII of
the Master Lease. Lessor further agrees that it will not permit any termination
of the Master Lease by Master Landlord pursuant to Article XVIII of the Master
Lease.
3. RENT.
(a) During the term of this Lease, Lessee shall pay to Lessor rent for
the Premises in the sum of:
(i) Six Hundred Sixty-Four Thousand Eight Hundred Dollars
($664,800.00) per annum, payable in equal monthly installments of
Fifty-Five Thousand Four Hundred Dollars ($55,400.00) during the first
and second years of the Lease term;
(ii) Eight Hundred Thirty-one Thousand Dollars ($831,000.00) per
annum, payable in equal monthly installments of Sixty-Nine Thousand
Two Hundred Fifty Dollars ($69,250.00) during the third, fourth and
fifth years of the Lease term;
(iii) Nine Hundred Sixty-Nine Thousand Five Hundred Dollars
($969,500.00) per annum, payable in equal monthly installments of
Eighty Thousand Seven Hundred Ninety-One and 67/100 Dollars
($80,791.67) during the sixth, seventh and eighth years of the Lease
term; and
(iv) One Million One Hundred Eight Thousand Dollars
($1,108,000.00) per annum, payable in equal monthly installments of
Ninety-Two Thousand Three Hundred Thirty-Three and 33/100 Dollars
($92,333.33) during the ninth and tenth years of the Lease term.
(b) Rental due for any period during the term hereof which is for less
than one (1) month shall be a pro rata portion of the monthly installment.
Rent shall be payable in lawful money of the United States to Lessor at the
address stated herein or to such other persons or at such other places as
Lessor may designate to Lessee in writing.
4. COMPLIANCE WITH SUBLEASE.
(a) Lessor shall perform, comply with, keep and observe the covenants,
agreements, provisions, terms, restrictions, limitations and conditions to
be performed, complied with, kept and observed by Lessor under the
Sublease.
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(b) All of the terms and conditions of the Sublease which are
applicable to Lessor with respect to the Premises shall become applicable
to Lessee hereunder as though Lessee were substituted instead of Lessor,
except that when the provisions of the Sublease are inconsistent with the
provisions of this Lease, the provisions of this Lease shall control.
5. REPAIRS AND IMPROVEMENTS.
(a) Lessee, at its sole expense, shall keep the Premises in good
condition and repair, including the repair or replacement of all broken and
cracked glass, excepting normal wear and tear, repairs, replacements and
maintenance that are the obligations of Lessor hereunder, and all repairs
and replacements made necessary by reason of damage due to fire or other
casualty.
(b) Lessor shall maintain and repair, at its sole expense, the
foundation, outer walls, roof, floor, ceiling, all other structural
portions of the Premises, and fixtures, systems (including plumbing,
electrical, heating, and air conditioning), and equipment (except for trade
fixtures owned by Lessee) on the Premises in good condition and repair. In
addition, Lessee shall maintain, repair, and keep in good condition and
repair all remaining portions of the Leasehold Improvements and the Leased
Premises in accordance with Section 7 of the Sublease and Article VII of
the Master Lease.
(c) During the term hereof, Lessee shall pay to Lessor Lessee's Pro
Rata Share (defined below) of all Maintenance Costs (defined below)
incurred by Lessor. Lessee shall pay its Pro Rata Share to Lessor within
thirty (30) days after receipt by Lessee of Lessor's statement therefor,
which statement shall include copies of all invoices in connection with
such Maintenance Costs and evidence of payment therefor by Lessor.
(i) Lessee's "Pro Rata Share" shall be a fraction, the numerator
of which shall be the gross square footage of all floor area contained
within the Premises, and the denominator of which shall be the gross
square footage of all floor area contained within the Leasehold
Improvements. Lessor and Lessee acknowledge and agree that as of the
Commencement Date, Lessee's Pro Rata Share is eighty-four percent
(84%).
(ii) For purposes of this Lease, "Maintenance Costs" means those
maintenance costs incurred by Lessor in connection with the
maintenance of landscaping for the Leased Premises, the removal of
snow from any parking and common areas within the Leased Premises, and
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<PAGE> 4
any paving, maintenance, striping, and repair of any parking areas,
driveways, or other common areas located within the Leased Premises.
6. REAL ESTATE TAXES. During the term hereof, Lessee shall pay to Lessor
Lessee's Pro Rata Share of all general real estate taxes and assessments
("Taxes") for the Leased Premises which become due and payable during the term
hereof and which are in excess of the Taxes payable for the Leased Premises for
the 1988 tax year (the "Base Taxes"). Upon receipt by Lessor of notice of any
increase in the Taxes above the Base Taxes, Lessor shall promptly notify Lessee
thereof. Lessee shall pay its Pro Rata Share of any such increase to Lessor
within thirty (30) days after receipt of Lessor's statement therefor, which
statement shall include a copy of the applicable tax bill for the Leased
Premises and evidence of payment therefor by Lessor. To the extent any such
Taxes are permitted by law to be paid in installments, Lessor hereby agrees to
pay such taxes in such manner. Lessor shall pay all special taxes and
assessments which may be imposed against the Leased Premises.
7. UTILITIES. Lessor and Lessee acknowledge and agree that submeters have
been installed for the Premises for water, gas, and electricity. During the term
hereof, Lessee shall pay for all utilities consumed by Lessee in connection with
its occupancy of the Premises. Lessee shall pay such utility cost to Lessor
within fifteen (15) days after receipt of Lessor's statement therefor, which
statement shall include a copy of all utility bills for the Leased Premises,
including Lessee's share thereof, and evidence of payment therefor by Lessor.
8. ALTERATIONS. Lessee shall have the right at any time during the term of
this Lease to make, at its sole cost and expense, any nonstructural changes or
alterations in or to the Premises to the same extent Lessor is permitted to do
so under, but subject to the terms and conditions of, Article IX of the Master
Lease.
9. USE OF PREMISES.
(a) During the term hereof, the Premises may be used for any lawful
purpose.
(b) During the term hereof, Lessee will comply, at Lessee's sole cost
and expense, with all laws, ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments; provided,
however, to the extent that any such compliance would require structural
alterations to the Premises or other repairs to the Premises which are
required to be performed by Lessor hereunder, Lessor, at its sole cost and
expense, shall comply with such laws, ordinances, orders, rules,
regulations and requirements .
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<PAGE> 5
(c) Lessee and its employees, agents, invitees, permitees,
contractors, and representatives shall have the right to use all common
areas, driveways, and parking areas located within the Leased Premises in
common with all other tenants of the Leased Premises. During the term
hereof, Lessor shall provide at all times sufficient parking for Lessee and
its agents, employees, invitees, permitees, contractors, and
representatives. Lessor shall use its best efforts to not interfere, and to
cause other tenants of the Leased Premises to not interfere, with Lessee's
use of the truck docks in the Premises.
10. INDEMNIFICATION AND INSURANCE.
(a) During the term of this Lease, Lessor, at its sole cost and
expense, shall keep in full force and effect:
(i) Public liability insurance with minimum limits of One Million
Dollars ($1,000,000.00) on account of bodily injury to or death of any
person and One Million Dollars ($1,000,000.00) on account of bodily
injury to or death of more than one (1) person as the result of any
one (1) accident, and Three Hundred Fifty Thousand Dollars
($350,000.00) on account of damage to property; and
(ii) Insurance on the Leasehold Improvements against loss or
damage by fire or by other risks now embraced by the "broad form
extended coverage endorsement" in amounts at all times sufficient to
prevent Lessor from becoming a co-insurer under the terms of the
applicable policies.
All such policies of insurance shall name Lessee as an additional insured
or loss payee as its respective interest may appear. In addition, such
policies shall provide that such policies shall not be cancelled or
modified without at least thirty (30) days prior written notice to Lessee.
(b) (i) Lessee will indemnify Lessor and save Lessor harmless
from and against any and all claims, actions, damages, liability and
expenses in connection with laws, damage or injury to persons or
property occurring, in, on or about, arising out of the Premises, or
occasioned wholly or in part by any act or omission of Lessee,
Lessee's agents, contractors, customers or employees.
(ii) Lessor will indemnify Lessor and save Lessee harmless from
and against any and all claims, actions, damages, liability and
expenses in connection with laws, damage or injury to persons or
property occurring, in, on or about, arising out of the Leased
Premises, or occasioned wholly or in part by any act or omission of
-5-
<PAGE> 6
Lessor, Lessor's agents, contractors, customers or employees.
(iii) Lessor will defend, indemnify and hold Lessee harmless from
and against any and all liabilities, obligations, losses, demands,
claims, damages, liens, penalties, actions, judgments, suits, costs or
expenses of any kind which may be imposed on or incurred by or
asserted against Lessee for or on account of any matter with respect
to the Premises arising prior to the Commencement Date.
11. REPAIR AFTER CASUALTY.
(a) In the event of damage or destruction to the Premises by fire or
otherwise, Lessee's rental obligations shall continue and Lessor shall
promptly, at its sole cost and expense, restore, repair, replace, rebuild
and alter the same as nearly as possible to the condition they were in
immediately prior to such damage or destruction. Such obligation of Lessor
to restore, repair or rebuild is mot conditioned upon the recovery of any
insurance proceeds for such damage or destruction. Such restoration,
repairs, replacements, rebuilding or alteration shall be commenced promptly
and prosecuted with reasonable diligence (unavoidable delays accepted).
(b) Notwithstanding the provisions of Section 11(a) above, if the
Premises or any part thereof shall be damaged or destroyed by fire or
otherwise to the extent that Lessee is substantially prevented from
carrying on its normal operations in the Premises and such damage or
destruction cannot be repaired so as to permit resumption of Lessee's
operations within six (6) months of such damage or destruction, Lessee
shall have the option to terminate this Lease, exercisable within ninety
(90) days of such damage or destruction, by serving upon Lessor written
notice of Lessee's election to so terminate, and upon giving such notice,
this Lease shall terminate as of the end of the calendar month following
the month in which notice is given. Unless Lessee exercises such right to
terminate this Lease, Lessor shall not exercise its right to terminate the
Sublease under Section 13 of the Sublease.
12. CONDEMNATION.
(a) In the event that the entire Premises shall be taken or condemned
by any competent authority for any public or quasi-public purpose, this
Lease shall cease and terminate as of the date of such taking.
(b) If less than all of the Premises shall be taken or condemned by
any competent authority for any public or
-6-
<PAGE> 7
quasi-public use or purpose and as a result thereof (i) Lessee is
substantially prevented by reason of the area taken or permanent loss of
access from carrying on its normal operations in the Premises, or (ii) the
damage or destruction cannot be repaired to permit resumption of Lessee's
operations within six (6) months of such taking, Lessee shall have the
option to terminate this Lease, exercisable within ninety (90) days of such
taking by serving upon Lessor written notice of Lessee's election to so
terminate and upon giving such notice, this Lease shall cease and terminate
as of the end of the calendar month following the month in which such
notice is given. Unless Lessee exercises its right to terminate this Lease,
Lessor shall not exercise its right to terminate the sublease under Section
14 of the Sublease.
(c) In the event of a taking or condemnation of less than all of the
Premises and Lessee is not entitled to or does not elect to terminate this
Lease under Section 12(b) above, Lessee's rental obligations shall continue
and Lessee shall promptly, at its sole cost and expense, restore, repair
and replace, rebuild or alter the same as nearly as possible to the
condition they were in immediately prior to such partial taking. Such
obligation of Lessor to restore, repair or rebuild is not conditional upon
the recovery of any award as a result of such taking, but Lessor shall be
entitled, to the extent permitted pursuant to the terms of the Lease, to
the proceeds of any such award to the extent needed for such restoration,
repair or rebuilding. Such restoration, repair or rebuilding shall be
commenced promptly and prosecuted with reasonable diligence (unavoidable
delays accepted).
(d) All damages awarded in connection with the taking of all or any
portion of the Premises, whether allowed as compensation for diminution in
value to the leasehold or to the fee of the Premises, shall be distributed
to the Landlord, and Lessor in accordance with Article XV of the Master
Lease and Section 14 of the Sublease; provided, however, that Lessee shall
be entitled to make a claim for, and receive, an award for any diminution
in Lessee's leasehold interest in the Premises and for the cost of removing
and relocating of fixtures or equipment from the Premises as a result of
such condemnation.
13. LESSOR'S REMEDIES UPON DEFAULT.
(a) If Lessee shall at any time be in default in the payment of rent
or other sums of money required to be paid by Lessee, or in the performance
of any of the covenants, terms, conditions, provisions, rules and
regulations of this Lease, and Lessee shall fail to remedy such default
within (i) ten (10) days after written notice from Lessor, if such default
is in the payment of rent or any other monetary obligation of Lessee
hereunder, or (ii) within thirty (30) days after
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<PAGE> 8
receipt of written notice thereof, if the default relates to matters other
than the payment of rent and other sums of money (but Lessee shall not be
deemed to be in default if Lessee commences to remedy said defaults other
than relate to payment of rent and other sums of money within said thirty
(30) day period, and proceeds therewith with due diligence), or if Lessee
shall become insolvent or make an assignment for the benefit of creditors,
or if a receiver or trustee of Lessee's property shall be appointed, or if
proceedings under the Bankruptcy Code shall be instituted by or against
Lessee and shall not be dismissed by the Court within ninety (90) days
after such filing, or if any event shall happen which, aside from this
provision, would cause any assignment or devolution of Lessee's interest or
occupancy hereunder by operation of law, Lessor, in addition to all other
remedies given to Lessor in law or in equity, may by written notice to
Lessee terminate this Lease, or without terminating this Lease re-enter the
Premises by summary proceedings or otherwise, and in any event may
dispossess the Lessee, it being the understanding and agreement of the
parties that under no circumstances is the Lease to be an asset for
Lessee's creditors by operation of law or otherwise. In the event of such
re-entry, Lessor may relet the Premises, and in the event of a reletting
may apply the rent therefrom first to the payment of Lessor's expenses of
reletting, and then to the amount of rent and all other sums due from
Lessee hereunder, Lessee remaining liable for any deficiency. Any and all
deficiencies shall be payable by the Lessee monthly on the date herein
provided for the payment of rent.
(b) In the event of a default by Lessee of any of the terms,
provisions, covenants, conditions, rules and regulations of this Lease,
Lessor shall have the right to invoke any remedy permitted to Lessor in law
or in equity. All remedies available to Lessor are declared to be
cumulative and concurrent. No termination of this Lease nor any taking or
recovering of possession of the Premises shall deprive Lessor of any of its
remedies or actions against Lessee and Lessee shall remain liable for all
past or future rent, including all additional rent, taxes, and all other
charges and rent payable by Lessee under this Lease, during and for the
balance of the original term hereof, nor shall the bringing of any action
for rent or other default be construed as a waiver of the right to obtain
possession of the Premises.
(c) In addition to the above, Lessor shall have all the rights and
remedies provided to the Landlord under the Sublease as though Lessor were
substituted for the Landlord under the Sublease.
(d) All rights and remedies provided herein or otherwise existing at
law or in equity are cumulative, and
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<PAGE> 9
the exercise of one or more rights or remedies by either party shall not
preclude or waive its right to the exercise of any or all of the others.
14. DISCHARGE OF LIENS. Lessee shall not do or suffer anything to be done
whereby the Leased Premises and the Leasehold Improvements may be encumbered by
any liens of mechanics, laborers, or materialmen, chattel mortgages or any other
liens and shall, whenever and as often as any such liens are filed against the
said land and building purporting to be for labor or material furnished or to be
furnished to the Lessee, discharge the same of record within ten (10) days after
the date of filing by payment, bonding or otherwise, as provided by law. The
Lessee, upon reasonable notice and request in writing from the Lessor shall also
defend for the Lessor at the Lessee's sole cost and expense, any action, suit or
proceeding which may be brought on or for the enforcement of any such lien and
will pay any damages and satisfy and discharge any judgments entered in such
action, suit or proceeding and save harmless the Lessor from any liability,
claim or damages resulting therefrom.
15. RIGHTS OF LESSOR.
(a) Lessor reserves the right at all reasonable times and upon
reasonable notice to Lessee, by itself, or its duly authorized agents, to
go upon and inspect the Premises and every part thereof.
(b) If Lessor shall make any payments on behalf of Lessee which are
Lessee's obligation, in order to fulfill Lessee's covenants, then any
amounts so paid by Lessor are agreed and declared to be "additional rent"
and shall be due and payable to Lessor from Lessee with the next
installment of rent due thereafter under this Lease.
16. ASSIGNMENT AND SUBLETTING. Lessee shall not assign, convey, mortgage,
encumber, or otherwise transfer this Lease or any interest herein without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, Lessee shall have the right to sublet
all or any part of the Premises and to collect and retain the rentals therefrom.
Notwithstanding any such assignment or subletting, Lessee shall at all times
remain liable for the performance of all the covenants and conditions in its
part to be performed hereunder, unless released therefrom by Lessor.
17. ESTOPPEL CERTIFICATES.
(a) Lessee agrees to deliver to Lessor, within twenty (20) days after
receipt of request therefor, a statement in writing certifying (i) that
this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified
and
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<PAGE> 10
stating the modifications); (ii) whether or not there are then existing
any offsets or defenses against enforcement of any of the terms, covenants
or conditions hereof upon the part of Lessee to be performed (and if so,
specifying the same); and (iii) the dates to which rent and other charges
have been paid in advance, if any.
(b) Lessor agrees to deliver to Lessee, within twenty (20) days after
receipt of request therefor, a written statement certifying (i) that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and
stating the modifications); (ii) the dates to which rent and other charges
have been paid in advance, if any; and (iii) to the best knowledge of
Lessor, whether Lessee is in default in the performance of any covenant,
agreement or condition contained herein, or whether any default exists
under the Sublease or the Master Lease (and if so, stating such default in
detail).
18. NON-DISTURBANCE. Within thirty (30) days after the date hereof, Lessor
shall use its best efforts to obtain from the Landlord and the owner of the
Leased Premises a Non-Disturbance Agreement in form and substance satisfactory
to Lessee so that, upon any default by Lessor under the Sublease, or by Landlord
under the Master Lease, Lessee shall have the right to continue in possession of
the Premises under the terms and conditions of this Lease so long as Lessee is
not in default hereunder.
19. SIGNS. Lessee shall have the right to install signs upon the exterior
walls of the Premises and/or upon the Leased Premises as may be necessary for
identification purposes. The location and design of any such signs shall be
subject to Lessor's prior written approval, which approval shall not be
unreasonably withheld.
20. QUIET ENJOYMENT. Lessor covenants and agrees that Lessee, upon paying
the rent and all other charges herein provided for and observing and keeping the
covenants, agreements and conditions of this Lease on its part to be kept, shall
lawfully and quietly hold, occupy and enjoy the Premises during the term of this
Lease without hindrance or molestation of anyone claiming by, through, or under
Lessor.
21. NO WAIVER. No waiver of any of the terms, covenants, provisions,
conditions, rules and regulations required by this Lease, and no waiver of any
legal or equitable relief or remedy shall be implied by the failure of Lessor or
Lessee to assert any rights, or to declare any forfeiture, or for any other
reason, and no waiver of any of said terms, provisions, covenants, rules and
regulations shall be valid unless it shall be in writing signed by the Lessor or
Lessee. The waiver of any pledge of this Lease or the forgiveness of performance
of any one or more of the terms,
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<PAGE> 11
provisions, conditions, rules and regulations of this Lease shall not be claimed
or pleaded by Lessee or Lessee to excuse a subsequent pledge or failure of
performance of any of the terms, provisions, conditions, covenants, rules and
regulations of this Lease.
22. VACATION OF PREMISES. Upon the expiration or termination of this Lease,
Lessee shall deliver up and surrender to Lessor possession of the Premises,
including all improvements thereon and additions or alterations thereto
(excluding Lessee's trade fixtures, equipment, and other personal property) in
as good condition and repair as the same shall be as of the Commencement Date
(loss by fire or other casualty which is covered by a Standard Extended Coverage
Insurance Policy and ordinary wear and tear and decay only excepted) and deliver
the keys at the office of Lessor or Lessor's agent.
23. MEMORANDUM OF LEASE. This Lease shall not be recorded, but either party
may record a Memorandum of Lease in which shall be described the Premises, the
term of this Lease, and reference to this Lease. The party requesting that the
Memorandum of Lease be recorded shall prepare and pay all costs of recording the
Memorandum of Lease, and the other party agrees to execute at any and all times
such instruments as may be required for such recording.
24. NOTICES. Any notices or consent requited to be given by or on behalf of
either party upon the other shall be in writing and shall be either
hand-delivered or given by mailing such notices or consent by Registered or
Certified Mail, return receipt requested, addressed as follows:
If to Lessor: Aurora Road Realty Developers Co.
31000 Aurora Road
Solon, Ohio 44139
Attention: Irving J. Chelm
If to Lessee: The Mazel Co.
31000 Aurora Road
Solon, Ohio 44139
Attention: Reuven Dessler
or at such other address as may be specified from time to time, in writing,
delivered to the other party, and the time of the rendition of such notice shall
be two (2) days after it is deposited in an official United States Post Office,
postage prepaid.
25. APPLICABLE LAW AND CONSTRUCTION. The laws of the State of Ohio shall
govern the validity, performance and enforcement of this Lease. The invalidity
or unenforceability of any provision of this Lease shall not affect or impair
any other provision. The submission of this document for examination does not
constitute an offer to lease, or a reservation of or option for the Premises and
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<PAGE> 12
becomes effective only upon execution and delivery thereof by Lessor and Lessee.
All negotiations, considerations, representations and understandings between the
parties are incorporated herein and may be modified or altered only by agreement
in writing between the parties.
26. FORCE MAJEURE. In the event that either party hereto shall be delayed
or hindered in or prevented from the performance of any act required hereunder
by reason of strikes, lockouts, inability to procure materials, failure of
power, restrictive governmental laws or regulations, riots, insurrection, war or
any other reason of a like nature not the fault of the party delayed in
performing work or doing any act required under the terms of this Lease, then
performance of such act shall be excused from the period of the delay and the
period of the performance of any such act shall be extended for a period
equivalent to the period of such delay. Notwithstanding anything contained
herein to the contrary, Lessee shall not be excused from the payment of rent or
other sums of money which may become due under the terms of this Lease.
27. NO PARTNERSHIP. Lessor does not, in any way or for any purpose, become
a partner of the Lessee in the conduct of Lessee's business or otherwise, or
joint venturer, or a member of a joint enterprise with Lessee.
28. HOLDING OVER. If at the expiration of the term of this Lease or any
renewal thereof, Lessee continues to occupy the Premises, such holding over
shall not constitute a renewal of this Lease, but Lessee shall be a tenant from
month to month upon all of the terms, provisions, covenants, and agreements
hereof.
29. BROKERS. Lessee and Lessor each represent and warrant that they have
not dealt with any broker in connection with this Lease and agree to indemnify
each other against, and hold each other harmless from, all liabilities arising
from any claim resulting from its having dealt with any broker in connection
with this Lease.
30. CAPTIONS. Any paragraph titles or captions contained in this Lease are
for convenience only and shall not be deemed part of the context of this Lease.
31. VARIATION IN PRONOUNS. All the terms and words used in this Lease,
regardless of the number and gender in which they are used, shall be deemed and
construed to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context or sense of this Lease or any
paragraph or clause herein may require, the same as if such words had been fully
and properly written in the number and gender.
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<PAGE> 13
32. COUNTERPARTS. This Lease may be executed in counterparts, each of which
shall be an original but all of which, when taken together, shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Lease this 20th
day of April, 1988, as to the Lessor, and this 20th day of April, 1988, as to
Lessee.
SIGNED IN THE PRESENCE OF: AURORA ROAD REALTY DEVELOPERS
/s/ Nate Plotnik CO., an Ohio corporation
- ----------------------------
By: /s/ Kerry Chelm
/s/ Kara Velotta -----------------------------
- ----------------------------
"Lessor"
/s/ Nate Plotnik THE MAZEL CO., an Ohio
- ---------------------------- corporation
By: /s/ Jacob Koval, Vice President
/s/ Kara Velotta -----------------------------
- ----------------------------
"Lessee"
STATE OF OHIO :
: SS
CUYAHOGA COUNTY :
Before me, a Notary Public in and for said county and state, personally
appeared AURORA ROAD REALTY DEVELOPERS CO., by Karry Chelm, who acknowledged
that he did sign the foregoing Lease and that the same is his free act and deed,
individually and as such officer.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Cleveland, Ohio, this 20th day of April, 1988.
/s/ Bennet Yanowitz
--------------------------------
Notary Public
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<PAGE> 14
Aurora Road Realty Developers Co.
31000 Aurora Road
Solon, Ohio
[plans]
<PAGE> 15
LEASE AMENDMENT
---------------
THIS AGREEMENT entered into by and between AURORA ROAD REALTY DEVELOPERS
CO., an Ohio corporation ("Lessor") and THE MAZEL CO., an Ohio corporation
("Lessee").
WITNESSETH:
-----------
WHEREAS, the parties hereto have entered into a Lease for the premises
occupied by Lessee known as 31000 Aurora Road, Solon, Ohio (the "Lease");
WHEREAS, The premises is part of a total complex owned by Lessor, portions
of which are leased to other tenants;
WHEREAS, Lessor and Lessee desire to modify said Lease as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
(1) Notwithstanding the provisions contained in the Lease, the rent for the
Leased Premises as defined in the said Lease shall be as follows:
(a) Commencing as of May 1, 1989, Lessee shall pay to Lessor as rent
for the premises for the balance of the term of said Lease fixed minimum
monthly payments of $62,500. Each such monthly installment shall be due and
payable in advance on the first day of each month.
(b) The monthly rental provided herein for the balance of the term
of the Lease shall be increased as of January 1st of each year commencing
January 1, 1991 by the percentage increase in the Consumer Price Index for
November of each year, commencing with the November, 1990 Index over the
Consumer Price Index for November, 1988 as the base, as promulgated by the
Bureau of Labor Statistics of the United States Department of Labor, being
the average for "all items" shown on the U.S. City Average for Urban Wage
Earners and using the November Cost of Living Index of each year commencing
in November, 1990 as a reference for comparison purposes to the base. In no
event shall the rental for any
<PAGE> 16
year be less than the rental provided for in the preceding calendar year.
Lessor shall give Lessee written notice of the rents due hereunder for
each year as soon as the applicable Consumer Price Index is available for
said year.
(2) Except as expressly modified herein, said Lease shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Lease Amendment this
26th day of December, 1989.
Signed in the Presence of:
AURORA ROAD REALTY DEVELOPERS
/s/ Barbara A. Bell
- ----------------------------
By: /s/ I.J. Chelm, President
/s/ Kerry Chelm -----------------------------
- ----------------------------
THE MAZEL CO.
- ----------------------------
By: /s/ Reuven Dessler
-----------------------------
- ----------------------------
STATE OF OHIO :
: SS
CUYAHOGA COUNTY :
Before me, a Notary Public in and for said County and State, personally
appeare d AURORA ROAD REALTY DEVELOPERS CO., by I.J. Chelm & Reuven Dessler, its
Shareholder & Tenant, who acknowledged that he did sign the foregoing instrument
and that the same is his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal at
Solon, Ohio, this 26th day of December, 1989.
/s/ Irvin M. Chesler
------------------------------------
Notary Public
IRVIN M. CHESLER, Notary Public
STATE OF OHIO
My Commission Expires June 16, 1992
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<PAGE> 17
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE entered into this 25th day of November,
1991, by and between AURORA ROAD REALTY DEVELOPERS CO., an Ohio corporation
("Lessor") and THE MAZEL CO., an Ohio corporation ("Lessee").
WITNESSETH:
-----------
WHEREAS, the parties hereto have entered into a lease dated as of January
1, 1988 for the Premises occupied by Lessee known as 31000 Aurora Road, Solon,
Ohio and a lease amendment dated December 26, 1989, said lease, as amended,
being hereinafter referred to as the "Lease".
WHEREAS, Lessee now desires to construct an addition to the building leased
by it being part of the Premises and further desires to increase the space
leased by it and to extend the term of the Lease, all as provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
(1) CONSTRUCTION OF ADDITION TO PREMISES. Lessee may construct, at its sole
cost and expense, an addition to the Premises immediately adjacent to the
existing showroom for the purpose of expanding the showroom. Said addition shall
be constructed in accordance with the plans and specifications which have been
approved by Lessor. Lessee shall comply with all building and zoning laws and
ordinances, shall complete
<PAGE> 18
construction of the said addition free of liens and shall indemnify Lessor
against any claims arising out of the construction of the said addition. Said
addition shall upon completion be subject to all of the terms and conditions of
the Lease.
(2) INCREASE IN AREA OF LEASED PREMISES. The Premises shall be increased to
include the approximately 12,000 square feet of space heretofore occupied by
Harris Wholesale Drug as well as to occupy an additional 2,950 square feet of
office space now vacant, effective as of April 1, 1992. The occupancy of said
additional space shall be subject to all of the terms and conditions of the
Lease and shall become part of the Premises.
(3) RENT. The rent for the balance of the term of the Lease to December 31,
1997 shall, effective as of January 1, 1992, be computed at the rate of $1.75
per square foot used by Lessee. Lessee currently occupies 551,178 square feet.
(4) EXTENSION OF TERM OF LEASE. The term of the Lease is extended for an
additional five (5) year term commencing January 1, 1998 and ending December 31,
2002.
(5) RENTAL DURING EXTENDED TERM. Rent for the Premises during the first
year of the extended term shall be computed at the rate of $2.00 per square foot
annually payable in equal monthly installments of one-twelfth (1/12) the annual
rent, in advance.
Rent during each subsequent year of the extended term of the Lease shall be
increased from the rental payable during the
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<PAGE> 19
preceding lease year by the percentage increase in the Consumer Price Index For
All Urban Consumers, All Items Indexed (1982-1984 Base) U.S. City Average,
popularly known as the Cost of Living Index presently published monthly by the
Bureau of Labor Statistics of the U.S. Department of Labor, but in no event
shall the increase in the annual rental for any lease year be more than Ten
Cents ($.10) per square foot over the rental applicable for the preceding lease
year. The rent during each subsequent lease year of the extended term shall be
increased by the increase in the Consumer Price Index for November of the second
year preceding such lease year and November of the year immediately preceding
such lease year. In no event shall the rent payable during each lease year of
the extended term be less than the rent payable during the preceding lease year.
If the base year selected by the U.S. Department of Labor shall be changed, then
the resultant Index shall be readjusted so as to reflect the base initially
established under this Lease. If the said Index shall no longer be published or
cannot be adjusted, then another index generally recognized as authoritative
shall be substituted by agreement between the parties.
Rent during each month of the extended term shall be payable in equal
monthly installments of one-twelfth (1/12) the annual rent, in advance.
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<PAGE> 20
(6) Except as amended herein, the Lease shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Lease this 25th day of November, 1991.
AURORA ROAD REALTY DEVELOPERS CO .
Witness
- ----------------------- By /s/ I.J. Chelm
--------------------------------------
- ----------------------- "Lessor"
THE MAZEL CO.
By /s/ Reuven Dessler
--------------------------------------
Reuven Dessler, President
see "Lessee"
STATE OF OHIO :
: SS
CUYAHOGA COUNTY :
BEFORE ME a Notary Public in and for said County and State, personally
appeared AURORA ROAD REALTY DEVELOPERS CO., by Irving J. Chelm, its President,
who acknowledged that he did sign the foregoing instrument and that the same is
his free act and deed, individually and as such officer.
SWORN TO BEFORE ME AND SUBSCRIBED in my presence this 25th day of
November, 1991.
/s/ JACK SCHULZ
------------------------------------
Notary Public
JACK SCHULZ, Notary Public
STATE OF OHIO
My Commission Expires Nov. 3, 1996
(Recorded in Lake County)
-4-
<PAGE> 21
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE, effective the 19th day of July, 1996, by and
between AURORA ROAD REALTY DEVELOPERS CO., an Ohio corporation ("Lessor") and
MAZEL COMPANY L.P., a Delaware limited partnership, formerly THE MAZEL CO., an
Ohio Corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor and Lessee have entered into a Lease (the "Lease") dated as
of January 1, 1988, for the premises occupied by a Lessee known as 31000 Aurora
Road, Solon, Ohio, which premises is part of a total complex owned by Lessor
(the "Complex"), a portion of which are leased to other tenants; and
WHEREAS, the Lease was amended by a document entitled "Lease Amendment",
dated December 26, 1989; and
WHEREAS, the Lease was further amended by a document entitled "Second
Amendment to Lease", dated November 25, 1991; and
WHEREAS, currently the Lessee is leasing five hundred sixty-three thousand
one hundred seventy-eight (563,178) square feet of floor area from the Lessor
(the "Initial Leased Premises"); and
WHEREAS, Lessee desires to lease additional space from Lessor, and Lessor
and Lessee further desire to amend the Lease.
NOW THEREFORE, by mutual agreement of the parties and in consideration of
One Dollar ($1.00), each paid to the other, the receipt and sufficiency of which
is hereby acknowledged, the Lease is hereby amended and modified as follows:
1. INCREASE IN AREA OF LEASED PREMISES. Effective January 1, 1997, (the
"Commencement Date") the size of the Premises shall be increased to include (a)
approximately ninety-five thousand four hundred sixty-nine (95,469) square feet
of floor area to be constructed by Lessor pursuant to Section 9 below (the
"Additional Premises") and (b) eighty-two thousand one hundred ninety-six
(82,196) square feet of floor area (the "Expansion Space"). The Initial Leased
Premises and the Expansion Space are collectively referred to herein as the
"Original Premises". Commencing on the Commencement Date, the Original Premises
and Additional Premises shall " collectively be referred to as the "Leased
Premises" or "Premises.
2. TERM. Section 2 of the Lease is hereby deleted in its entirety and
replaced with the following:
<PAGE> 22
"The term of this Lease shall commence on the Commencement Date and shall
end on December 31, 2008, unless sooner terminated pursuant to any provision
hereof. Lessor hereby covenants and agrees that it shall take all appropriate
actions pursuant to the Sublease to cause Landlord to timely exercise all
renewal options provided for in Article XVII of the Master Lease. Lessor further
agrees that it will not permit any termination of the Master Lease by Master
Landlord pursuant to Article XVIII of the Master Lease."
3. RENT. Effective January 1, 1997, Section 3(a) of the Lease shall be
deleted in its entirety and replaced with the following:
"Commencing as of the Commencement Date, and continuing through the term
of the Lease, Lessee shall pay Lessor, at such place as Lessor shall from time
to time direct by written notice to Lessee, rent for the Leased Premises during
the term of this Lease at the monthly rate of:
(a) One Hundred Fifty-Four Thousand Three Hundred Forty-Two and
29/100ths Dollars ($154,342.29) ($2.52 per square foot), for the first
twenty-four (24) months after the Commencement Date;
(b) One Hundred Sixty-Two Thousand Three Hundred Sixty-Eight and
09/100ths Dollars ($162,368.09) ($2.70 per square foot), for the
twenty-fifth (25th) through seventy-second (72nd) months after the
Commencement Date;
(c) Adjusted Rent (defined below), for the seventy-third (73rd)
through one hundred forty-fourth (144th) months of the Lease Term. For
purposes of this Section 3(c), "Adjusted Rent" shall be calculated by
increasing the rent in effect during the seventy-third (73rd) month after
the Commencement Date in accordance with the percentage increase in the
Index (defined below) from December 1, 2000 to November 30, 2002. For
purposes of this Section 3(c), "Index" means the Consumer Price Index For
All Urban Consumers All Items Indexed, as published by the Bureau of Labor
Statistics, United States Department of Labor (1982-84 = 100). If the
United States Department of Labor no longer publishes the Index, Lessor and
Lessee shall mutually agree upon a substitute index. Notwithstanding the
foregoing, in no event shall the Adjusted Rent for the seventy-third (73rd)
through one hundred forty-fourth (144th) months of this lease (i) exceed,
on a square foot basis, Two and 84/100ths Dollars ($2.84) or (ii) be less
than the rent payable during the immediately preceding lease year."
4. REPAIRS AND MAINTENANCE.
(A) Paragraph (a) of Section 5 shall be amended by deleting Paragraph
(a) and substituting therefor the following:
"(a) Lessee, at its sole expense, shall keep the Leased Premises
in good condition, including the maintenance, repair and/or
replacement of the floor, ceiling, fixtures, systems (including
plumbing, electrical, heating, and air conditioning), equipment, and
all broken and cracked glass, excepting normal wear and tear, repairs,
replacements and maintenance that are the obligations DRK\DRW\5 1282.4
2
<PAGE> 23
of Lessor hereunder, and all repairs and replacements made necessary
by reason of damage due to fire or other casualty. In addition, Lessee
shall maintain, and keep in good condition and repair, all remaining
portions of the Leasehold Improvements of the Leased Premises in
accordance with Section 7 of the Sublease and Article VII of the
Master Lease."
(B) Paragraph (b) of Section 5 shall be amended by deleting Paragraph
(b) and substituting therefor the following:
"(b) Lessor, at its sole expense (except as set forth below),
shall maintain and repair and keep in good condition the foundation,
outer walls, roof, and all other structural portions of the Leased
Premises that are not the obligations of Lessee hereunder.
Notwithstanding the foregoing Lessee shall reimburse Lessor, within
thirty (30) days after receipt by Lessee of Lessor's written demand
therefor, of all costs and expenses incurred by Lessor in maintaining
and repairing the foundation, outer walls, roof, and other structural
portions of the Additional Premises."
(C) Section 5(c)(i) shall be amended by deleting the words and
figures: "eighty-four percent (84%)", and substituting the following words
and figures: "ninety-eight and one-tenth percent (98.1%)".
(D) Section 5(c)(ii) shall be amended by adding the following words to
the end of this subparagraph: "and the maintenance, repair and replacement
of any parts or portion of the exterior and interior of the Leased
Premises, maintenance repair and replacement of the electrical distribution
system contained in the Leased Premises, and maintenance, repair and
replacement of the sprinkler system servicing the Leased Premises."
5. INDEMNIFICATION AND INSURANCE. Section 10(a) of the Lease shall be
amended by adding the following subparagraphs to this Section 10(a) as follows:
"(iii) During the term hereof, Lessee shall pay to Lessor Lessee's
Proportionate Share (as defined below) of all insurance premiums for the
insurance the Lessor is required to keep in full force and effect (as set
forth in this Section 10(a)) for the Original Premises which become due and
payable during the term hereof and which are in excess of the insurance
premiums payable for the calendar year 1988 (the "Base Insurance"). Upon
receipt by Lessor of notice of any increase in the insurance premiums over
the Base Insurance, Lessor shall notify Lessee thereof. Lessee shall pay
its Proportionate Share of any such increase to Lessor within thirty (30)
days after receipt of Lessor's statement therefor, which statement shall
include a copy of the applicable insurance premiums for the Leased Premises
and evidence of payment thereof by Lessor. For purposes of this Section 1
0(a)(iii) Lessee's Proportionate Share shall be a fraction, the numerator
of which is the floor area of the Original Premises and the denominator of
which is the gross floor area of the Leasehold Improvements.
3
<PAGE> 24
(iv) During the term hereof, Lessee shall pay to Lessor all insurance
premiums for the insurance that Lessor is required to keep in full force
and effect (as set forth in Section 10(a)) for the Additional Premises
which become due and payable during the term hereof. Lessee shall pay such
insurance premiums to Lessor within thirty (30) days after receipt of
Lessor's statement therefor, which statement shall include a copy of the
applicable insurance premiums for the Additional Premises and evidence of
payment by Lessor. If the insurance bill received by Lessor for the Leased
Premises does not allocate insurance premiums between the Original Premises
and the Additional Premises, then the portion insurance premiums allocable
to the Additional Premises shall be a fraction, the numerator of which is
the floor area of the Additional Premises, and the denominator of which is
the gross floor area contained within the Leasehold Improvements.
6. GUARD SERVICE FEES. So long as the Lessee shall not be in default of any
of the terms and conditions of this Lease, Lessor shall cause any payments
received by Lessor from Rider Lease Trucks or any other tenants of the Complex
to be delivered to Lessee; provided, however, that Lessor shall have no
obligation to pursue, or demand or collect from Rider Lease Trucks or any other
tenants of the Complex such guard service fees, and the failure of Rider Lease
Trucks or any other tenants of the Complex to pay such guard service fees, and
the failure of Lessor to pay such guard service fees to Lessee as a result of
Rider Lease Trucks or any other tenants of the Complex failing to pay such guard
service fees to Lessor, shall not be construed or deemed to be a default of
Lessor under any of the terms and conditions of the Lease. Notwithstanding the
foregoing, Lessor hereby agrees to notify Lessee if Lessor's lease with Rider
Lease Trucks is modified or amended to eliminate the requirement of Rider Lease
Trucks to pay guard service fees.
7. REAL ESTATE TAXES. Section 6 of the Lease should be deleted in its
entirety, and the following inserted in its place:
"(a) During the term hereof, Lessee shall pay to Lessor, Lessee's
Proportionate Share of all general real estate taxes and assessments
("Taxes") of the Lease for the Original Premises which should become due
and payable during the term hereof and which are in excess of the Taxes
payable for the Original Premises for the 1988 tax year (the "Base Taxes").
Thus, upon receipt by Lessor of notice of an increase in the Taxes of both
the Base Taxes, Lessor shall promptly notify Lessee thereof. Lessee shall
pay its pro rata share of any such increase to Lessor within thirty (30)
days after receipt of Lessor's statement therefor, which statement shall
include a copy of the applicable tax bill for the Leased Premises and
evidence of payment therefor by Lessor. To the extent any such Taxes are
permitted by law to be paid in installments, Lessor hereby agrees to pay
such Taxes in such manner. Lessor shall pay all special taxes and
assessments which may be imposed against the Original Premises. For
purposes of this Section 6 Lessee's Proportionate Share shall be a
fraction, the numerator of which is the floor area of the Original Premises
and the denominator of which is the gross floor area of the Leasehold
Improvements.
(b) During the term hereof, Lessee shall pay to Lessor, real estate taxes,
general or special assessments, and other governmental impositions imposed
upon or against the Additional Premises, of every kind and nature
whatsoever, extraordinary as well as ordinary,foreseen and unforeseen, in
each and every installment thereof, which shall or may during
4
<PAGE> 25
the term of this Lease, be levied, assessed or imposed upon or against the
Additional Premises, including, any tax and/or assessment of any kind or
nature upon or measured by with respect to the rentals payable by Lessee
hereunder, either by way of substitution for an addition to all or part of
the real estate taxes and assessments levied or assessed against the
Additional Premises (the "Additional Premises Taxes"). Lessee shall pay
such Additional Premises Taxes to Lessor within thirty (30) days after
receipt of Lessor's statement therefor, which statement shall include a
copy of the applicable tax bill for the Additional Premises and evidence of
payment therefor by Lessor. To the extent that any such Additional Premises
Taxes are permitted by law to be paid in installments, Lessor hereby agrees
to pay such Additional Premises Taxes in such manner. Notwithstanding the
foregoing, if the tax bill received by Lessor for the Leasehold
Improvements does not separately allocate taxes to the Additional Premises,
then the share of Additional Premises Taxes attributable to the Additional
Premises shall be based on the County Auditor's appraisal of the Additional
Premises.
(c) Lessor and Lessee shall comply with the terms of the Enterprise Zone
Agreement ("Agreement") dated March 4, 1996 by and among Lessor, Lessee and
the City of Solon, and Lessor shall reasonably cooperate with Lessee to
maintain the tax abatement set forth in the Agreement.
8. The first recital in the Lease shall be amended by deleting the words
"(the Property and the Leasehold Improvements are collectively referred to the
"Leased Premises")", and substituting therefor the following "(the Property and
the Leasehold Improvements are collectively referred to herein as the "Leased
Premises" or "Premises")".
9. CONSTRUCTION BY LESSOR. Prior to the Commencement Date, Lessor shall, at
Lessor's cost and expense (except as provided below), construct the Additional
Premises substantially in accordance with the plans and specifications prepared
by Davison, Smith, Certo Architects and dated the 6th day of May, 1996 (the
"Plans"). If Lessee requests any changes to the Plans, and such changes reduce
the construction costs to be incurred by Lessor in the construction of the
Additional Premises, the annual rent payable by Lessee during the term of this
Lease shall be reduced by an annual amount necessary to amortize such savings in
equal monthly installments over the term of the Lease. If Lessee requests any
changes to the plans which result in an increase in construction costs incurred
by Lessor, then Lessee shall pay to Lessor the costs incurred by such change
within ten (10) days after receipt of a written demand therefor. Lessor shall be
responsible for obtaining the necessary approvals from the City of Solon of the
Plans for the Additional Premises. Notwithstanding anything herein contained to
the contrary, in no event shall Lessor be liable for any delay or failure to
deliver the building addition for reasons of force majeure or delays caused by
Lessee.
10. ALL THE TERMS AND CONDITIONS. All the terms and conditions of the Lease
and of any previous modifications thereof and amendments thereto, except as
herein modified and amended, shall remain unchanged. The provisions of this
Third Amendment to Lease shall bind and inure to the benefit of the parties
hereto, their heirs, executors, administrators, successors and assigns,
respectively.
5
<PAGE> 26
11. INTEGRATION. This represents the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, understandings, discussions and negotiations. This Third
Amendment Lease may not be amended, supplemented or otherwise modified except in
a writing signed by the parties hereto.
12. COUNTERPARTS. This Third Amendment to Lease may be executed in one (1)
or more counterparts, which together shall constitute one (1) document.
IN WITNESS WHEREOF, the parties hereto have set their hands to four (4)
counterparts hereof, each of which shall have the same force and effect as if
the original, this day of 1996, as to the Lessor, and this day of___, 1996, as
to the Lessee.
In the presence of:
AURORA ROAD REALTY DEVELOPERS CO.
/s/ Patricia Schriner By: /s/ Kerry Chelm
- ----------------------------- --------------------------------
PRINT NAME: Patricia Schriner
----------------------,---------
/s/ Barbara Bell
- ----------------------------- "Lessor"
PRINT NAME: Barbara Bell
MAZEL COMPANY L.P.,
a Delaware limited partnership
By: Z.S. MAZEL, L.P., a Delaware limited
partnership, its Managing Partner
By: Z.S. MAZEL, INC., a Delaware
corporation, General Partner
of Z.S. MAZEL, L.P.
/s/ Lee Fosco By: /s/ Reuven Dessler
- ----------------------------- ------------------------
PRINT NAME: Lee Fosco , Authorized Agent
-------
/s/ Barbara Giesey
- -----------------------------
PRINT NAME: Barbara Giesey "Lessee"
6
<PAGE> 27
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above-named AURORA ROAD REALTY DEVELOPERS CO., an Ohio Corporation,
by Kerry Chelm, its partner, who acknowledged that he did sign the foregoing
instrument, and that the same is the free act and deed of said Corporation and
his free act and deed personally and as such officer.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Solon, Ohio, this 19th day of July 1996.
/s/ PATRICIA A. SCHRINER
------------------------------
NOTARY PUBLIC
PATRICIA A. SCHRINER
Notary Public, State of Ohio, Cuy. Cty.
My Commission Expires Dec.21, 2000
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said County and State, appeared the
above-named MAZEL COMPANY L.P., a Delaware limited partnership, by Z.S. MAZEL,
L.P., a Delaware limited partnership, its Managing Partner, by Z.S. MAZEL,
INC., a Delaware corporation, General Partner of Z.S. MAZEL L.P. by Reuven
Dessler, its Authorized Agent, who acknowledged that he did sign the foregoing
instrument and that the same is his free act and deed personally and in such
capacity.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Solon , Ohio, this day 19th of July, 1996.
/s/ PATRICIA A. SCHRINER
------------------------------
NOTARY PUBLIC
PATRICIA A. SCHRINER
Notary Public, State of Ohio, Cuy. Cty.
My Commission Expires Dec.21, 2000
<PAGE> 1
Exhibit 10.14
CONSOLIDATED SETTLEMENT AGREEMENT
---------------------------------
SETTLEMENT AGREEMENT
AND
MUTUAL RELEASE
This Settlement Agreement and Mutual Release (the
"Agreement") is entered into this ____ day of February, 1996, by and among
CONSOLIDATED STORES CORPORATION, a Delaware corporation, CONSOLIDATED STORES
CORPORATION, an Ohio corporation (collectively "CSC"), BRADY J. CHURCHES
("Churches"), MARK N. HANNERS ("Hanners"), JERRY SOMMERS ("Sommers"), MAZEL
COMPANY L.P. ("Mazel") and ODD-JOB HOLDINGS, INC. ("Odd-Job").
WHEREAS, CSC has commenced litigation against Churches,
Hanners and Sommers in the Common Pleas Court of Franklin County, Ohio, Case No.
95CVH07-4520 (the "Lawsuit") asserting various claims including specific
performance of agreement not to solicit employees, specific performance of
covenants not to compete, breach of contract, breach of fiduciary duty, and
claims for an accounting and disgorgement of benefits, and
WHEREAS, Churches, Hanners and Sommers have asserted
counterclaims for declaratory judgment, injunctive relief, breach of contract
and tortious interference with prospective contractual relations, and
WHEREAS, these claims and counterclaims relate to the former
employment of Churches, Hanners and Sommers with CSC, their written employment
agreements, and their discussions with representatives of Mazel and/or ZS Fund
L.P. about leaving CSC's employment to become employed by or provide services to
various business entities, and
WHEREAS, the parties have reached agreement as to settlement
of the Lawsuit and a release of all claims arising from the employment of
Churches, Hanners and Sommers with
<PAGE> 2
CSC, their employment agreements, and the employment of Churches, Hanners and
Sommers by Mazel and/or related business entities,
NOW, THEREFORE, in consideration of the execution of this
Agreement, the promises and releases provided for herein and the dismissal with
prejudice of all claims and counterclaims in the Lawsuit, the parties agree as
follows:
1. The restrictions provided in paragraphs two, three and four
of this Agreement shall remain in place and effect until April 25, 1997.
2. Churches, Hanners and Sommers shall not, directly or
indirectly, be employed by, render services to or buy merchandise for
MacFrugals, Schottenstein Stores Corporation, Value City Stores, Value City
Furniture, Tuesday Morning, Inc., Family Dollar, Dollar General and Drug
Emporium, or any "Affiliates" (as hereinafter defined), subsidiaries, parents,
brother or sister entities, or any successors or assigns of any of these
companies. Defendants may wholesale goods to the above listed entities as well
as other entities, as long as such sales occur in the ordinary course of
business. For all purposes under this Agreement, the term "Affiliate" shall have
the definition given in paragraph (a)(1) of Rule 144 promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
3. Churches, Hanners and Sommers shall not, directly or
indirectly, for the benefit of themselves or others, either as principals,
agents, managers, consultants, owners or part owners, employees, officers,
directors, distributors, dealers, representatives, joint venturers, or
otherwise, (a) open or acquire any general merchandise closeout store within ten
miles of any Odd Lots/Big Lots store which was open or under construction at the
date of execution of this Agreement, (b) open or acquire any general merchandise
closeout store within ten miles of any
2
<PAGE> 3
All for One, It's Really $1.00 or Itzadeal! Store which was open or under
construction at the date of execution of this Agreement, or (c) open or acquire
any toy store or similar concept within ten miles or any Toy Liquidators, Toys
Unlimited or The Amazing Toy Store which was open or under construction at the
date of execution of this Agreement. The opening or acquisition of any such
store by Mazel or any of its Affiliates, Odd-Job or any of its Affiliates, or
any other entity by whom Churches, Hanners or Sommers are employed or with whom
Churches, Hanners or Sommers is affiliated shall be deemed to be the opening or
acquisition of any such store by Churches, Hanners and Sommers. Further, CSC has
provided Churches, Hanners and Sommers with a list of all existing stores and
those under construction; the list is attached hereto and marked as Exhibit A
and shall be kept confidential.
4. Churches, Hanners and Sommers shall not, directly or
indirectly, for the benefit of themselves or others, either as principals,
agents, managers, consultants, owners or part owners, employees, officers,
directors, distributors, dealers, representatives, joint ventures, or otherwise,
solicit to hire or hire or employ in any fashion, any current or future employee
of CSC (or any of CSC's existing Affiliates) or any employee who terminates his
or her employment with CSC (or any of CSC's existing Affiliates). Employees
shall be defined as "any General Office employee or any individual employed by
CSC or its related entities at the manager level or higher." Hiring or
soliciting to hire any such employee by Mazel or Odd-Job or any other entity by
whom Churches, Hanners or Sommers are employed or with whom Churches, Hanners or
Sommers are affiliated shall be deemed to be hiring or soliciting to hire by
Churches, Hanners and Sommers.
3
<PAGE> 4
5. Churches, Hanners and Sommers shall not disclose any of
CSC's confidential information acquired by them during, or as a result of, their
employment with CSC to any person, or otherwise use this confidential
information in any way at any time. All confidential information shall remain
the exclusive property of CSC, and any confidential information in the form of
documents or other tangible materials or items in the possession of Churches,
Hanners and Sommers shall be returned to CSC simultaneously with the execution
of this Agreement. Confidential information shall include trade secrets and
other proprietary information of CSC which is not in the public domain and which
relates to the business or the contemplated business of CSC or any of its
subsidiaries or affiliated companies. For purposes of this paragraph, the mere
identity of a vendor or purchaser of wholesale or retail goods shall not be
deemed to be confidential information.
6. Sommers and Hanners may retain all salary payments they
have received from CSC for the period through and including October 31, 1995.
All salary in excess of these amounts that has been paid to Sommers and Hanners
as of the date of this Agreement shall be returned to CSC immediately upon
execution of this Agreement. All salary paid into escrow by CSC on behalf of
Churches shall be immediately released and returned to CSC upon execution of
this Agreement. CSC shall, within five (5) days of execution of this Agreement,
issue corrected W-2 forms to Churches, Hanners and Sommers. For W-2 purposes,
the value of the vehicle delivered by CSC to Churches shall be the fair market
value of the vehicle, which CSC and Churches understand and agree is $19,175.
7. The parties to the Lawsuit shall dismiss it with prejudice,
shall pay their respective attorney fees and shall divide the court costs
equally between plaintiff and defendants.
4
<PAGE> 5
8. CSC and its subsidiaries, affiliates, principals, agents,
managers, consultants, owners, employees, officers, partners, and directors and
Mazel, Odd-Job, and their respective affiliates, principals, agents, managers,
consultants, owners, employees, partners, and directors, and officers, including
Churches, Sommers and Hanners agree that, from and after the date of this
Agreement, they, and their present and future officers, directors, and
management level employees shall not make any disparaging or derogatory
statements with respect to the parties past business relationships or each
other's integrity, business or professional qualifications, or status.
9. Subject to paragraph 11 hereof, CSC, for itself and its
subsidiaries, affiliates, principals, agents, managers, consultants, owners,
employees, officers, partners and directors, hereby release and forever
discharge Churches, Hanners, Sommers, Mazel and OddJob, their respective
affiliates, principals, agents, managers, consultants, owners, employees,
partners, directors and officers, from any and all liabilities, claims, demands,
damages, expenses, actions and/or causes of action of any kind or description,
in any manner, directly or indirectly, arising from or relating to the Lawsuit,
arising from or relating the former employment of Churches, Hanners and Sommers
with CSC, arising from or relating to the written employment agreements which
are the subject of the Lawsuit, or arising from or relating to any solicitation
of Churches, Hanners and Sommers by or on behalf of Mazel, its subsidiaries,
affiliates, principals, agents, managers, consultants, owners, employees,
officers, partners and directors. For purpose of this paragraph 9, Mazel's
affiliates, principals, agents, managers, consultants, owners, employees,
partners, directors and officers shall include, without limitation, ZS Mazel
L.P., ZS
5
<PAGE> 6
Mazel II L.P., ZS Fund L.P., ZS Mazel, Inc., Odd-Job Holdings, Inc. (and
Affiliates), Reuven D. Dessler, Ned L. Sherwood and Robert A. Horne.
10. Subject to paragraph 11 hereof, Churches, Hanners,
Sommers, Mazel and Odd-Job, and their respective subsidiaries, Affiliates,
principals, agents, managers, consultants, owners, employees, partners,
directors and officers, hereby release and forever discharge CSC, and its
subsidiaries, affiliates, principals, agents, managers, consultants, owners,
employees, officers, partners and directors, from any and all liabilities,
claims, demands, damages, expenses, actions and/or causes of action of any kind
or description, in any manner, directly or indirectly, arising from or relating
to the Lawsuit, arising from or relating to the employment of Churches, Hanners
and Sommers with CSC or arising from or relating to the written employment
agreements which are the subject of the Lawsuit.
11. Notwithstanding the foregoing two paragraphs and/or
anything else in this Agreement, it is expressly understood and agreed that this
Agreement does not release or in any way affect any rights or claims which may
arise or accrue hereafter as a result of a breach of this Agreement.
12. Each of the parties hereto further states that it or he,
as the case may be, has read and understands this Agreement and has freely and
voluntarily and without duress or compulsion executed this Agreement and fully
and knowingly intends to be legally bound by the same.
13. The parties agree that this Agreement shall be governed by
and construed in accordance with Ohio law. Any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, shall be submitted to
the Court of Common Pleas for Franklin
6
<PAGE> 7
County, Ohio, and each party hereto hereby waives any and all challenges to
jurisdiction and venue in that court.
14. The parties agree that this Agreement shall not be
modified except in a writing signed by all parties hereto.
IN WITNESS WHEREOF, each of the parties has executed this
Settlement Agreement and Mutual Release as of the day and year first above
written.
CONSOLIDATED STORES CORPORATION,
A DELAWARE CORPORATION
By: /s/ William G. Kelley
----------------------------------------
WILLIAM G. KELLEY
Chairman and Chief Executive Officer
CONSOLIDATED STORES CORPORATION,
AN OHIO CORPORATION
By: /s/ William G. Kelley
----------------------------------------
WILLIAM G. KELLEY
Chairman and Chief Executive Officer
/s/ Brady J. Churches
-------------------------------------------
BRADY J. CHURCHES
/s/ Mark N. Hanners
-------------------------------------------
MARK N. HANNERS
7
<PAGE> 8
/s/ Jerry D. Sommers
-------------------------------------
JERRY D. SOMMERS
MAZEL COMPANY L.P.
By: /s/ Robert A. Horne
----------------------------------
Authorized Agent
ODD-JOB HOLDINGS, INC.
By: /s/ Robert A. Horne
----------------------------------
Authorized Agent
COLUMBUS/212031.04
8
<PAGE> 1
Exhibit 10.16
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of
________________, 1996, is by and between MAZEL COMPANY L.P., a Delaware limited
partnership ("Mazel"), and ZS MAZEL L.P., a Delaware limited partnership ("ZS
MAZEL") to evidence the following agreements and understandings.
WITNESSETH:
-----------
WHEREAS, ZS Mazel owns all of the currently outstanding shares of
Common Stock (the "Odd Job Stock"), par value $1.00 per share, of Odd-Job
Holdings, Inc., a Delaware corporation ("Holdings");
WHEREAS, Odd-Job Acquisition Corp., a Delaware corporation ("Newco") is
a wholly-owned subsidiary of Holdings;
WHEREAS, Mazel acquired from ZS Mazel an option (the "Odd Job Option")
to purchase all shares of the Odd Job Stock pursuant to an Option Agreement by
and between Mazel and ZS Mazel dated as of December 5, 1995 ("Option
Agreement");
WHEREAS, simultaneously with the execution and delivery of the Option
Agreement, in partial consideration for the grant of the Odd Job Option, Mazel
agreed to purchase a Subordinated Note of ZS Mazel (the "Subordinated Note") for
a purchase price of $1,350,000;
WHEREAS, Mazel desires to exercise the Odd Job Option and purchase all
shares of Odd Job Stock owned by ZS Mazel and ZS Mazel has agreed to sell such
stock pursuant to the terms of the Option Agreement;
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, Mazel and ZS Mazel hereby agree as follows:
ARTICLE I.
----------
PURCHASE PRICE OF ODD JOB STOCK
-------------------------------
Subject to the terms and conditions herein set forth, at the Closing,
ZS Mazel shall sell to Mazel and Mazel shall purchase the Odd Job Stock for the
aggregate "Purchase Price" of $1,400,000 payable (i) by cashier's check or bank
wire transfer in immediately available funds in the amount of $_______ and (ii)
by delivery of the Subordinated Note, in
1
<PAGE> 2
cancellation of unpaid principal and accrued interest thereon equal to
$__________ as of the Closing Date.
ARTICLE II
----------
CLOSING
-------
2.1 TIME, DATE AND PLACE OF CLOSING. The consummation of the purchase
and sale of the Odd Job Stock (the "Closing") shall be held at the offices of
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., Cleveland, Ohio on
______________, 1996 ("Closing Date").
2.2 DELIVERIES OF ZS MAZEL. At the Closing, ZS Mazel shall deliver to
Mazel stock certificates evidencing the Odd Job Stock, accompanied by stock
powers duly executed in blank.
2.3 DELIVERIES OF MAZEL. At the Closing, Mazel shall deliver the
Purchase Price in accordance with Article I hereof.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF ZS MAZEL
------------------------------------------
ZS Mazel represents and warrants to Mazel as follows:
3.1 ORGANIZATION. ZS Mazel is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware.
3.2 TITLE TO THE SECURITIES. The Odd Job Stock is owned directly and of
record by ZS Mazel, free and clear of all liens, pledges, hypothecations,
mortgages, security interests, claims, encumbrances or any other restrictions or
limitations whatsoever ("Liens"). At the Closing, ZS Mazel will convey to Mazel
good title to the Odd Job Stock to be sold hereunder, free and clear of all
Liens.
3.3 VALIDITY AND EXECUTION OF AGREEMENT. ZS Mazel has the full legal
right, capacity and power and ZS Mazel has all requisite partnership authority
and approval required to enter into, execute and deliver this Agreement and to
perform fully its obligations hereunder. The General Partner of ZS Mazel has
approved the transactions contemplated pursuant to this Agreement. This
Agreement has been duly executed and delivered by ZS Mazel and constitutes the
valid and binding obligations of ZS Mazel enforceable against it in accordance
with its terms, subject to the qualifications that enforcement of the rights and
2
<PAGE> 3
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).
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF MAZEL
---------------------------------------
Mazel represents and warrants to ZS Mazel as follows:
4.1 ORGANIZATION. Mazel is a duly organized and validly existing
limited partnership, in good standing under the laws of the State of Delaware.
4.2 VALIDITY AND EXECUTION OF AGREEMENT. Mazel has the full legal right
and power and all authority and approval required to enter into, execute and
deliver this Agreement and to perform fully its obligations hereunder. The
person or persons executing this Agreement and all related agreements, documents
and certificates on behalf of Mazel have been specifically authorized to do so
by appropriate corporate or partnership proceedings. This Agreement has been
duly executed and delivered by Mazel and constitutes the valid and binding
obligation of Mazel enforceable against Mazel 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).
4.3 PURCHASE FOR INVESTMENT. The Odd Job Stock acquired by Mazel upon
exercise of the Odd Job Option will be acquired by Mazel for its own account for
the purpose of investment and Mazel will refrain from transferring or otherwise
disposing of all or any portion of the Odd Job Stock in such manner as to cause
ZS Mazel or Holdings to be in violation of the registration requirements of the
Securities Act of 1933, as amended, or applicable state securities or blue sky
laws.
ARTICLE V
---------
MISCELLANEOUS
-------------
6.1 FURTHER ASSURANCES. At any time, and from time to time, after the
purchase of the Odd Job Stock pursuant to this Agreement, at the request of
Mazel or its successors and assigns, and without further consideration, ZS Mazel
will execute and deliver such other instruments of sale, transfer, conveyance,
assignment and confirmation and take such other
3
<PAGE> 4
action as Mazel may reasonably deem necessary or desirable in order to transfer,
convey and assign more effectively to Mazel the Odd Job Stock.
6.2 NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telexed, sent by facsimile transmission or sent
by prepaid air courier or certified, registered or express mail, postage
prepaid. Any such notice shall be deemed to have been given (a) when received,
if delivered in person, telegraphed, telexed, sent by facsimile transmission
and, in the case of facsimile, confirmed in writing within three (3) business
days thereafter or sent by prepaid air courier or (b) three (3) business days
following the mailing thereof, if mailed by registered or certified first class
mail, postage prepaid, return receipt requested, in any such case as follows (or
to such other address or addresses as a party may have advised the other in the
manner provided in this Section 6.2):
If to Mazel: Mazel Company L.P.
31000 Aurora Road
Solon, Ohio 44139
Attention: Mr. Reuven Dessler
(216) 248-5200
(216) 349-1931 (facsimile)
With a copy to: Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
The Tower at Erieview, Suite 2600
1301 East Ninth Street
Cleveland, Ohio 44114-1824
Attention: Marc H. Morgenstern, Esq.
(216) 696-3311
(216) 696-1009 (facsimile)
If to ZS Mazel: c/o ZS Fund L.P.
120 West 45th Street, Suite 2600
New York, New York 10036
Attention Mr. Ned. L. Sherwood
(212) 398-6200
(212) 398-1808 (facsimile)
With a Copy to: Rogers & Wells
200 Park Avenue
New York, New York 10166
4
<PAGE> 5
Attention: Steven A. Hobbs, Esq.
(212) 878-8005
(212) 878-8375 - (facsimile)
6.3 PUBLICITY. No publicity release or public announcement concerning
this Agreement or the transactions contemplated hereby shall be made by Mazel or
by ZS Mazel, without advance approval thereof by the other.
6.4 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
6.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of law.
6.6 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and legal
representatives.
6.7 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 shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ZS MAZEL L.P.
By: ZS Mazel, Inc., its General Partner
By: /s/ Robert A. Horne
------------------------------
Name: Robert A. Horne,
Assistant Secretary
5
<PAGE> 6
MAZEL COMPANY L.P.
By: ZS Mazel L.P., its Managing General Partner
By: ZS Mazel, Inc., General Partner
By: /s/ Robert A. Horne
____________________________
Name: Robert A. Horne,
Assistant Secretary
And By: MAZEL/D&K, INC., its General Partner
By: /s/ Reuven Dessler
l ____________________________
Name: Reuven Dessler,
President
6
<PAGE> 1
Exhibit 21
MAZEL STORES, INC.
MAZEL STORES, INC. SUBSIDIARY LIST
Percentage
Subsidiary Owned Incorporated d/b/a/
---------- ---------- ------------ ------
Odd-Job Acquisition, Inc. 100% Delaware Odd-Job
<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
KPMG PEAT MARWICK LLP
Cleveland, Ohio
September 9, 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
September 10, 1996
<PAGE> 1
Exhibit 24.1
POWERS OF ATTORNEY
MAZEL STORES, INC.
KNOW ALL MEN BY THESE PRESENTS, that MAZEL STORES, INC., an Ohio
Corporation, and each person whose name is signed below hereby constitutes and
appoints Reuven Dessler, Robert Horne, Susan Atkinson, Marc H. Morgenstern,
Michael A. Ellis and Margaret P. VanBuskirk, and each of them, their
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for and on behalf of Mazel Stores, Inc. and the undersigned
directors and/or officers of Mazel Stores, Inc., and each of such directors and
officers, to sign the Mazel Stores, Inc.'s Registration Statement on Form S-1,
relating to the offering of up to 2,466,750 shares of common stock of the
Company and any and all amendments thereto, and related documents, and to file
the same, with Exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, and any and all applications or
other documents in connection with inclusion on the Nasdaq National Market of
the Company's shares of Common Stock or any and all other applications or other
documents to be filed with any governmental agency or official relating to the
offering, granting such attorneys-in-fact and agents full power and authority to
do and perform each and every act and thing requisite and necessary in
connection with such matters and hereby ratifying and confirming all that such
attorneys-in-fact and agents or their substitute or substitutes may do or cause
to be done by virtue hereof.
This Power of Attorney of Mazel Stores, Inc., and the directors and
officers of Mazel Stores, Inc. may be executed in multiple counterparts, each of
which shall be deemed an original with respect to the person executing it.
IT WITNESS WHEREOF, this Power of Attorney has been signed this 6th day of
September, 1996.
MAZEL STORES, INC.
By: /s/ Susan Atkinson
_________________________________
Susan Atkinson,
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
DIRECTORS AND OFFICERS:
/s/ Reuven Dessler /s/ Brady Churches
- ------------------------------------- -------------------------------------
Reuven Dessler, Brady Churches
Chairman of the Board and President and Director
Chief Executive Officer
/s/ Jacob Koval /s/ Jerry Sommers
- ------------------------------------- -------------------------------------
Jacob Koval Jerry Sommers,
Executive Vice President-Wholesale Executive Vice President-Retail
and Director and Director
/s/ Susan Atkinson /s/ Ned L. Sherwood
- ------------------------------------- -------------------------------------
Susan Atkinson Ned L. Sherwood, Director
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
/s/ Robert Horne
- -------------------------------------
Robert Horne, Director
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001022536
<NAME> MAZEL STORES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> JUL-27-1996
<CASH> 2,312
<SECURITIES> 0
<RECEIVABLES> 13,691
<ALLOWANCES> 195
<INVENTORY> 40,894
<CURRENT-ASSETS> 58,568
<PP&E> 5,813
<DEPRECIATION> 2,118
<TOTAL-ASSETS> 75,903
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0
0
<OTHER-SE> 20,884
<TOTAL-LIABILITY-AND-EQUITY> 75,903
<SALES> 85,165
<TOTAL-REVENUES> 85,165
<CGS> 58,514
<TOTAL-COSTS> 20,822
<OTHER-EXPENSES> 22
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<INTEREST-EXPENSE> 1,284
<INCOME-PRETAX> 4,567
<INCOME-TAX> 34
<INCOME-CONTINUING> 4,533
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<EXTRAORDINARY> 0
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<NET-INCOME> 4,533
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
