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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year ended: January 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from __________________ to ________________.
Commission File No. 0-21597
MAZEL STORES, INC.
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(Exact name of Registrant as specified in its charter)
OHIO 34-1830097
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31000 Aurora Road
Solon, Ohio 44139
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(Address of principal executive offices)
(Zip Code)
440-248-5200
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
- ------------------- -----------------------------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $56,147,000 at April 3, 2000. The number of common
shares outstanding at April 3, 2000 was 9,141,798.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be mailed to
stockholders in connection with the registrant's 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III, Items 10-13.
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TABLE OF CONTENTS
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PART I
Page
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Item 1. Business 4
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosures 24
PART III
Item 10. Directors and Executive Officers of the Company 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 26
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PART I
ITEM 1. BUSINESS
GENERAL
Mazel Stores, Inc. (the "Company") consists of two complementary
operations: (i) a major regional closeout retail business; and (ii) the nation's
largest closeout wholesale business. 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. At January 29, 2000 (1999 fiscal year-end), the Company
operated a chain of 64 closeout retail stores in New York, New Jersey,
Pennsylvania, Connecticut, Delaware and Ohio. The Company had fiscal 1999 sales
of $284.7 million, including retail sales of $203.8 million and wholesale sales
of $80.9 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 Odd Job stores, a chain
founded in 1974, and the initial 12 of which were acquired in 1995. The
Company's goal is to establish itself as the leading closeout retailer in its
Northeast, Mid-Atlantic and Midwest markets.
The Company believes that the combination of its wholesale operation
and the Odd Job retail operation have resulted in significant synergies that
have enabled the Company to expand its retail operation 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 benefited 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
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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.
RETAIL OPERATIONS
General. The Company's chain of 67 retail stores as of March 31, 2000
operate under the names "Odd Job," "Odd Job Trading" and "Mazel's" and are
located in New York (30, including eight in Manhattan), New Jersey (23),
Pennsylvania (6), Connecticut (3), Ohio (3), Delaware (1), and Kentucky (1). The
retail stores generated sales in fiscal 1999 of $203.8 million.
Expansion Plans. The Company plans to expand its retail operation by
opening new stores in the Northeast, Mid-Atlantic and Midwest markets, which are
serviceable from the Company's South Plainfield, New Jersey warehouse and
distribution facility and other warehouse facilities used on an as needed basis.
Stores may be opened in other geographic areas if favorable conditions exist.
The Company anticipates opening 16 to 18 new stores through the end of fiscal
2000. In addition, the Company may add stores through the acquisition of other
closeout businesses if favorable opportunities are presented.
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 high volume regional centers with a strong anchor tenant.
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
continuously. 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. The Company's
stores offer substantial savings on housewares, cards and stationery, books,
candles, party supplies, health and beauty aids, food, toys, hardware, giftware,
electronics and garden supplies. Brands carried by the Company's stores may
include, at any given time, Enesco, American Greetings, Sunbeam, Keebler, M&M
Mars, Mattel, Mikasa, Newell/Rubbermaid and Sony. 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.
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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,
the Company's 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 enable the Company to provide high-quality,
cost-effective merchandise on a continuity basis.
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 that adds flexibility in the
presentation of a changing merchandise mix. 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 the "treasure hunters." The Company relies on attractive exterior
signage and in-store merchandising as primary forms of advertising. The
Company's print advertising program uses mailers, in-paper ads, and circulars,
on a periodic basis, to promote up to 40 value-oriented and easily recognizable
items. At times, the Company also utilizes targeted radio spots to promote the
Odd Job and Mazel's name and concept. As a result of its merchandise mix,
visual merchandising methods and high-traffic store locations, the retail
operation's average inventory turn rate is approximately 3.5 per year, which
the Company believes is greater than the average for other major closeout
retailers.
Purchasing. The Company believes that the primary factor contributing
to the success of its business is its ability to locate and take advantage of
opportunities to purchase large quantities of quality brand-name merchandise at
prices that allow the Company to resell the merchandise at prices that are
substantially below traditional retail prices. Its retail operations maintain a
buying staff 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. Synergies created through 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
combined wholesale and retail operations enable the retail buying staff to
broaden the scope and the quantities of quality merchandise that it purchases
and offer better value to its customers. The Company's retail buyers purchase
merchandise from approximately 2,000 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
six and 14 check-out stations and provides sales personnel for customer
assistance.
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Sales are primarily for cash, although personal checks and credit cards are
accepted. The Company's Manhattan stores offer free daily storage that enables
customers to pick up items purchased during the day on their way home from work,
and UPS shipment for larger purchases. The Company's stores have seven
day-a-week operations and have extended weekend hours. The Company has created
an infrastructure consisting of Regional Vice Presidents and District Managers
each responsible for the operations of approximately 12 stores, reporting
directly to the Senior Vice President-Store Operations.
Store Locations. The Company's 59 suburban stores at March 31, 2000 are
located in strip shopping centers. The eight Manhattan stores are located in
high-traffic urban corridors (i.e. near Grand Central Station, Rockefeller
Center, Port Authority, Wall Street, Penn Station, Empire State Building, City
Hall Park, and Union Square) that provide access to large numbers of commuters.
As a result, the Manhattan stores generate higher sales volumes during the work
week. The Company's suburban stores are generally 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 29,000 square feet. On average, approximately 65% of the area of each store
represents selling space. All of the stores are located in leased facilities.
In selecting new store locations, the Company seeks suitable existing
structures which it can refurbish in a manner consistent with its merchandising
concept. This strategy, which typically requires minimal leasehold improvements
by the Company, enables the Company to open stores in new locations generally
within six to twelve weeks following occupancy of the space.
Warehousing and Distribution. Merchandise is distributed to the retail
stores primarily from the Company's 535,000 square foot South Plainfield, New
Jersey warehouse and distribution facility. The Company relocated to this
facility in the third quarter of 1998 from its former 253,000 square foot
facility located in Englewood, New Jersey. The Company believes the South
Plainfield facility has the capacity to support its longer-term retail expansion
plans. The Company also utilizes public warehouse space to store inventory on an
as needed basis.
The majority of the Company's retail inventory is shipped directly from
suppliers to the Company's South Plainfield, New Jersey warehouse and
distribution facility. At times, product is shipped to and stored at the
Company's wholesale warehouse and distribution facility located in Solon, Ohio.
Since the South Plainfield, New Jersey warehouse and distribution facility
maintains back-up inventory and provides deliveries 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 Company's inventory is delivered to the stores by a
contract carrier, as well as by direct vendor shipments.
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During fiscal 1999, the Company commenced an automation initiative at
the South Plainfield warehouse and distribution facility. The first phase of the
project was to install product storage racking. This phase was complete by
fiscal 1999 year-end. The second phase is the installation of a computerized
conveyor system, that is expected to be complete in July 2000. The combination
of the racking and conveyor are expected to increase the facility's productivity
and reduce its operating costs.
Distribution to the stores is controlled by the Company's product
allocators, buyers and senior management. The Company's merchandise is
distributed based on variables such as store volume and certain demographic and
physical characteristics of each store. Stores receive shipments of merchandise
several times per week based on budgeted inventory requirements, distribution
models, available storage and direct communications between store managers,
product allocators and the Company's buyers and senior management.
WHOLESALE OPERATIONS
General. The Company is the nation's largest wholesaler of closeout
merchandise, with fiscal 1999 sales of $80.9 million. 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 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
approximately 1,000 suppliers throughout the world and continually seek
opportunities created by manufacturers and other closeout circumstances, such as
packaging changes, the overstock inventory of wholesalers and retailers,
buybacks, receiverships, bankruptcies and financially distressed businesses. 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 38% of
the Company's wholesale purchases for fiscal years 1999 and 1998 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
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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 12
people in its wholesale operations and also sells its merchandise through 8
independent representatives. In addition to a showroom at its Solon, Ohio
facility, the Company and its representatives maintain showrooms in New York
City, Columbus, Chicago, and Boston. The Company sells to approximately 2,000
wholesale customers, which include a wide range of major regional and national
retailers as well as smaller retailers and other wholesalers and distributors.
No customer accounted for more than 10% of total sales in fiscal years 1999 or
1998.
Warehousing and Distribution. The Company conducts its wholesale
operations primarily from a 740,000 square foot leased warehouse and
distribution facility in Solon, Ohio. The Company operates a 113,000 square
foot secondary leased facility in Solon, Ohio. In addition, the Company leases
space at public warehouses on an as needed basis. 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 1999, approximately 78% of the Company's wholesale
sales were of merchandise shipped through its warehouse and distribution
facility, with the remainder drop shipped directly to customers.
VALUE CITY JOINT VENTURE
On August 3, 1997, the Company commenced operation of VCM, Ltd.
("VCM"), a 50 percent owned joint venture with Value City Department Stores.
VCM operates the toy, sporting goods, health and beauty care and other
departments in the Value City department store chain. The Company coordinates
merchandise purchasing on behalf of VCM, some of which is sourced from the
Company's wholesale segment. The Company's initial investment in VCM was
$9,637,000. In addition to its 50 percent share of VCM's net profit or loss,
the Company receives a management fee equal to three percent of sales.
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MANAGEMENT INFORMATION SYSTEMS
The Company's retail and wholesale operations are supported by an IBM
AS400-based computer system. The system utilizes proprietary software that
allows the Company to monitor and integrate its distribution, order entry,
showroom, product management, purchasing, inventory control, shipping, and
accounts receivable systems. The Company uses a vendor purchased general ledger
accounting system. The Company has installed radio frequency equipment in its
wholesale warehouse and showrooms to expedite order processing.
The Company has installed point-of-sale (POS) systems in all retail
locations to fully capture store transactions and provide updated data to its
purchasing staff and other corporate personnel, and for transfer into the
Company's accounting, merchandising and distribution systems.
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 virtue 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 retail stores grow, its ability to take
advantage of purchase opportunities of larger quantities of merchandise at
favorable prices will increase accordingly.
In March 2000, the Company announced it was evaluating several Internet
business-to-business (B2B) ventures. The Company has discussed strategic
relationships with these B2B exchanges that could potentially market the
Company's wholesale inventory. In addition, the exchange could serve as a source
of product for the Company's retail and wholesale operations.
TRADEMARKS
The Company has registered "Odd Job" and "Mazel's" as trademarks in the
United States. The Company has registered or has filed registration applications
for certain other
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trademarks and trade names.
EMPLOYEES
At January 29, 2000, the Company had 2,199 employees. Retail employees
included 1,962 in direct retail and warehouse operations, and 102 in support
operations. Wholesale employees included 122 in direct wholesale, support and
warehouse operations. Corporate employees included 13 in general management and
administrative positions. The Company considers its relationship with its
employees to be good. Approximately 75 of the Company's Solon, Ohio hourly
warehouse employees are subject to a five-year collective bargaining agreement
that expired on December 31, 1999. In April 2000, the Company agreed to a
five-year contract expiring on December 31, 2004. Approximately 157 of the
warehouse employees in South Plainfield, New Jersey, are subject to a 42-month
collective bargaining agreement expiring January 28, 2001. The Company is not a
party to any other labor agreements.
ITEM 2. PROPERTIES
The Company leases its office and warehouse and distribution facility
in Solon, Ohio from a corporation in which certain of the Company's executive
officers are minority owners. The Company currently occupies approximately
740,000 square feet at such facility, of which approximately 22,000 square feet
is used as office and showroom space and the remainder of which is used as
warehouse space for the Company's wholesale operations. The lease for the
facility, as amended, expires December 31, 2008. The wholesale operation also
utilizes a 113,000 square foot secondary facility in Solon, Ohio, with the
lease expiring March 31, 2002. The Company leases a 535,000 square foot
facility in South Plainfield, New Jersey from a limited liability company which
certain of the Company's executive officers are minority owners. Housing the
Company's retail operations, approximately 510,000 square feet of the facility
is utilized by the warehouse and distribution operation, with the remainder
used for office space. The lease for the facility expires November 30, 2010. In
addition, the Company leases space at several public warehouses depending on
its needs at a particular point in time. The Company believes its facilities
will be generally adequate for its retail and wholesale operational
requirements for the foreseeable future.
The Company leases its offices and showrooms in Columbus, Ohio, Chicago
and New York City. The Columbus lease expires on July 31, 2008, the Chicago
lease expires on October 21, 2002, and the New York City lease expires on
December 31, 2001.
The Company leases all of its stores. Store leases generally provide
for fixed monthly rental payments, plus the payment, in most cases, of real
estate taxes, utilities, liability insurance and common area maintenance. In
certain locations, the leases provide formulas requiring the payment of a
percentage of sales as additional rent. Such payments are generally only
required when sales reach a specified level. The typical store lease is for an
initial term of five or ten years, with certain leases having renewal options.
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ITEM 3. LEGAL PROCEEDINGS
The Company is 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 all actions will not have a material
adverse effect on the Company's liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as
of April 3, 2000 are as follows:
NAME AGE POSITION
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Reuven D. Dessler 52 Chairman of the Board and Chief
Executive Officer
Brady Churches 41 President, Director
Jacob Koval 52 Executive Vice President - Wholesale,
Director
Jerry Sommers 49 Executive Vice President - Retail,
Director
Susan Atkinson 49 Senior Vice President - Chief Financial
Officer and Treasurer
Charles Bilezikian 63 Director
Phillip Cohen 81 Director
Robert Horne 41 Director
Ned L. Sherwood 50 Director
Mark Miller 47 Director
Marc H. Morgenstern 50 Secretary
Reuven Dessler is Chairman of the Board and Chief Executive Officer of
the Company since November 1996. Mr. Dessler co-founded the Company in 1975 and
served as its President until November 1996.
Brady Churches has served as the Company's President and a Director
since November 1996 and served as President - Retail from August 1995 until such
date. From 1978 until April
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1995, Mr. Churches held various senior management positions at Consolidated
Stores, Inc., a large national retailer, including President from August 1993
until April 1995.
Jacob Koval is Executive Vice President - Wholesale and a Director of
the Company. Mr. Koval co-founded the Company in 1975.
Jerry Sommers has served as Executive Vice President - Retail of the
Company since November 1995, and as a Director since November 1996. From 1984
through April 1995, Mr. Sommers held various senior management positions with
Consolidated Stores, including Executive Vice President from August 1993 until
April 1995.
Susan Atkinson has served as Senior Vice President - Chief Financial
Officer and Treasurer of the Company since January 1993. From August 1988
through December 1992, she was employed by Harris Wholesale Company, a
pharmaceutical wholesaler, serving as Chief Financial Officer and Vice President
- - Finance/Administration from January 1991 until December 1992.
Charles Bilezikian, has served as Director since January 1997. Mr.
Bilezikian has been the President of Christmas Tree Shops, Inc., a specialty New
England retailer, since its formation in 1971.
Phillip Cohen has served as a Director of the Company since November
1996. From 1947 to his retirement in 1989, Mr. Cohen was Chairman and CEO of
Wisconsin Toy and Novelty, Inc., a Midwest distributor of closeout toy and
novelty items.
Robert Horne has served as a Director of the Company since November
1996. Mr. Horne has been a principal of ZS Fund L.P., a Company engaged in
making private investments, for more than five years.
Ned L. Sherwood has served as a Director of the Company since November
1996. Mr. Sherwood has been a principal and President of ZS Fund L.P. for more
than five years. Mr. Sherwood is currently a member of the Board of Directors of
Kaye Group, Inc.
Mark Miller has served as a Director of the Company since November
1999. Mr. Miller has been Executive Vice President and Chief Operating Officer
for the Home Products Division of Value City Department Stores since July 1999.
Previously, Mr. Miller became President of the Closeout Division of Consolidated
Stores, Inc. upon their acquisition of MacFrugal's Bargain Close-out's, Inc. in
1998. Mr Miller was MacFrugal's Executive Vice President of Merchandise and
Stores since 1995.
Marc H. Morgenstern has served as Secretary of the Company since
November 1996. He has been a principal in the Cleveland, Ohio law firm of Kahn,
Kleinman, Yanowitz & Arnson Co., L.P.A. serving as President of the firm and
Chairman of its Executive Committee, for more than five years.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market sm under
the symbol "MAZL." The following table shows the quarterly high and low closing
sale prices of the Common Stock for the periods presented.
Fiscal Year 1999 Fiscal Year 1998
---------------- ----------------
Fiscal Quarter High Low High Low
- -------------- ---- --- ---- ---
First Quarter $ 14.000 $ 8.750 $ 20.250 $ 13.875
Second Quarter 10.875 8.875 17.500 15.750
Third Quarter 10.188 8.500 15.625 8.875
Fourth Quarter 9.813 8.938 16.000 8.375
As of April 3, 2000, the Company believes that there were 600
beneficial owners of the Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain its future earnings to finance
the expansion of its business and for general corporate purposes and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any payment of cash dividends in the future will be at the discretion of
the Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
factors that the Company's Board of Directors deems relevant. In addition, the
Company's credit facility prohibits declaring or paying any dividends without
the prior written consent of the Lender.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data of the Company presented under
the captions Statement of Operations Data and Balance Sheet Data as of and for
the year ended January 31, 1996 (fiscal year 1995) have been derived from the
consolidated financial statements of Mazel Company L.P. ("Partnership"), which
during 1996 was restructured as the Company. The financial statements of the
Partnership include the operations of the Odd Job operations from December 7,
1995. The selected historical financial data presented under the captions
Statement of Operations Data and Balance Sheet Data for the fiscal years ended
January 25, 1997, January 31, 1998, January 30, 1999 and January 29, 2000
(fiscal years 1996, 1997, 1998 and 1999, respectively) were derived from the
consolidated financial statements of the Company. The selected data referred to
above should be read in conjunction with the consolidated financial statements
and related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this filing.
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<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------------------------------
PRO FORMA,
AS ADJUSTED
1995 1996 1996 (1) 1997 1998 1999
-------- ------- --------- ------- ------- -------
STATEMENT OF OPERATIONS DATA (DOLLARS IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 98,106 179,877 179,877 208,326 237,134 284,673
Cost of sales 70,208 121,382 121,382 136,446 152,792 178,705
-------- ------- ------- ------- ------- -------
Gross profit 27,898 58,495 58,495 71,880 84,342 105,968
SG & A expense 20,753 45,802 44,567 55,839 71,643 93,251
Special charges 2,203 4,243 - - 1,387 -
-------- ------- ------- ------- ------- -------
Operating profit 4,942 8,450 13,928 16,041 11,312 12,717
Interest expense (income) 1,265 2,254 (206) 943 2,062 2,795
Other expense (income) 559 (34) (34) 662 627 (1,338)
-------- ------- ------- ------- ------- -------
Income before
income taxes 3,118 6,230 14,168 14,436 8,623 11,260
Income tax expense
(benefit) 19 (1,987) 5,667 5,919 3,450 4,503
-------- ------- ------- ------- ------- -------
Net income $ 3,099 8,217 8,501 8,517 5,173 6,757
======== ======= ======= ======= ======= =======
Net income per share (basic) $ 0.93 0.93 0.57 0.74
Net income per share (diluted) $ 0.91 0.92 0.57 0.74
Shares outstanding (basic) 9,170,100 9,162,100 9,141,600 9,141,800
Shares outstanding (diluted) 9,386,000 9,265,400 9,146,800 9,154,700
BALANCE SHEET DATA (DOLLARS IN THOUSANDS):
Working capital $26,193 44,473 44,473 55,862 53,960 62,152
Total assets 56,634 86,361 86,644 113,884 129,754 149,101
Long term debt 27,382 70 70 19,781 24,002 32,083
Total liabilities 43,764 21,599 21,599 41,045 51,724 64,314
Stockholders' equity and
partners' capital 12,870 64,762 65,045 72,839 78,030 84,787
SELECTED RETAIL OPERATIONS DATA:
Number of stores 13 23 32 47 64
Total square footage 188,361 336,905 466,716 689,750 943,545
Total store sales growth 6.3% 40.2% 34.4% 38.0% 30.4%
Comparable store net sales -4.4% 15.8% 1.8% 0.1% 4.1%
Avg. net sales per gross sqft. $319 $354 $294 $258 $257
</TABLE>
(1) Pro forma as adjusted data gives effect to the Company's initial public
offering (IPO) as of the beginning of the periods presented, and
includes the combination of: (i) the Mazel wholesale operations and
(ii) the Odd Job retail operations, as if the combination of entities
had occurred at the beginning of fiscal 1996. Pro forma as adjusted
data excludes certain non-recurring charges, and gives effect to the
use of proceeds resulting from the Company's IPO, as well as certain
adjustments to compensation expense.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company consists of two complementary operations: (i) a major
regional closeout retail business; and (ii) the nation's largest
closeout wholesale business. 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 was founded in 1975 as a wholesaler of closeout
merchandise. In fiscal 1996, the Company purchased the established Odd
Job retail business (founded in 1974), consisting of 12 retail stores
and a warehouse and distribution facility, from an affiliate of ZS Fund
L.P., a shareholder of the Company. The Company's business strategy has
expanded from a primary focus on wholesale operations to an emphasis on
the growth of its retail operations. At the end of fiscal 1999, the
Company operated 64 closeout retail stores, including 30 in New York
(eight of which are in Manhattan), 23 in New Jersey, six in
Pennsylvania, three in Connecticut, and one each in Delaware and Ohio.
The growth of the Company's retail operations, coupled with the fiscal
1997 investment in VCM, Ltd., has transformed the Company into a
"retailer", with quarterly sales and earnings patterns similar to other
retail operations. The Company's retail expansion plan is to open 16 to
18 new stores in fiscal 2000.
16
<PAGE> 17
MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
The results of operations set forth below describe the Company's retail and
wholesale segments and the Company's combined corporate structure.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Fiscal 1999 Fiscal 1998 Fiscal 1997
---------------------- ---------------------- -----------------------
Percent of Percent of Percent of
Amount Net Sales Amount Net Sales Amount Net Sales
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales
Retail $203,799 71.59% $156,242 65.89% $113,205 54.34%
Wholesale 80,874 28.41% 80,892 34.11% 95,121 45.66%
-------- ------ -------- ------ -------- ------
284,673 100.00% 237,134 100.00% 208,326 100.00%
Gross profit
Retail 81,776 40.13% 61,153 39.14% 44,608 39.40%
Wholesale 24,192 29.91% 23,189 28.67% 27,272 28.67%
-------- ------ -------- ------ -------- ------
105,968 37.22% 84,342 35.57% 71,880 34.50%
Segment operating profit
Retail 3,643 1.79% 3,618 2.31% 5,393 4.76%
Wholesale 9,403 11.63% 9,600 11.87% 12,821 13.48%
Corporate (329) -0.12% (519) -0.22% (2,173) -1.04%
Special charges - - (1,387) -0.58% - -
-------- ------ -------- ------ -------- ------
12,717 4.47% 11,312 4.77% 16,041 7.70%
Interest expense, net 2,795 0.98% 2,062 0.87% 943 0.45%
Other (income) expense (1,338) -0.47% 627 0.26% 662 0.32%
Income tax expense 4,503 1.58% 3,450 1.46% 5,919 2.84%
-------- ------ -------- ------ -------- ------
Net income $ 6,757 2.37% $ 5,173 2.18% $ 8,517 4.09%
======== ====== ======== ====== ======== ======
Net income per share
Basic $ 0.74 $ 0.57 $ 0.93
Diluted $ 0.74 $ 0.57 $ 0.92
</TABLE>
17
<PAGE> 18
RETAIL SEGMENT
Fiscal 1999 Results versus Fiscal 1998
Net sales were $203.8 million for fiscal 1999, compared to $156.2 million for
fiscal 1998, an increase of $47.6 million, or 30.4%. The increase in net sales
was attributable to the increase in comparable store sales, the full year impact
of the 15 stores opened during fiscal 1998, and the partial year sales from the
17 stores opened during fiscal 1999. Comparable store (32 stores for fiscal
1999) net sales increased approximately 4.1%.
Gross profit was $81.8 million for fiscal 1999, compared to $61.2 million for
fiscal 1998, an increase of $20.6 million, or 33.7%. Gross margin increased to
40.1% in fiscal 1999, from 39.1% in fiscal 1998, due primarily to higher initial
product markup and vendor allowances, partially offset by higher inventory
shrink results.
Selling, general and administrative expense reflects the four-wall cost of the
stores, the warehouse and distribution facility, and administrative support.
During fiscal 1999, selling, general and administrative expense was $78.1
million, compared to $57.5 million for fiscal 1998, an increase of $20.6
million, or 35.8%. The increase resulted primarily from a $17.2 million increase
in store level and distribution costs, attributable mostly to the full year
operation of 15 stores opened in fiscal 1998, plus expenses relating to the 17
stores opened during fiscal 1999. Store level expenses include preopening costs,
which are expensed as incurred, and totaled $3.1 million in fiscal 1999,
compared to $1.9 million in fiscal 1998. Also included in store level costs is
advertising expense, which increased $1.2 million primarily due to the larger
store base and the cost of additional circulars, also in support of the larger
store base. Warehouse costs increased $2.2 million, primarily due to the higher
level of shipments in support of the larger store base, and continued start-up
inefficiencies based on the relocation to the current facility in the fiscal
1998 third quarter. Administrative support expenses increased $3.4 million,
reflecting added support personnel costs and higher levels of incentive based
compensation, legal expenses and merchandise contributions. Selling, general and
administrative expense also includes approximately $200,000 for ongoing costs of
the former warehouse and distribution facility. Selling, general and
administrative expense, as a percentage of net sales, increased to 38.3% in
fiscal 1999, from 36.8% in fiscal 1998.
Operating profit was unchanged at $3.6 million for fiscal 1999 and 1998. As a
percentage of net sales, operating profit decreased to 1.8% from 2.3%. This
decrease was primarily due to the factors described above.
Fiscal 1998 Results versus Fiscal 1997
Net sales were $156.2 million for fiscal 1998 (52 weeks), compared to $113.2
million for fiscal 1997 (53 weeks), an increase of $43.0 million, or 38.0%.
Comparable store (23
18
<PAGE> 19
stores for fiscal 1998) net sales increased approximately 0.1% on a 52 week
basis. The increase in net sales was attributable to the full year impact of the
nine stores opened during fiscal 1997, as well as the partial year sales from
the 15 stores opened during fiscal 1998.
Gross profit was $61.2 million for fiscal 1998, compared to $44.6 million for
fiscal 1997, an increase of $16.6 million, or 37.1%. Gross margin decreased to
39.1% in fiscal 1998, from 39.4% in fiscal 1997, due to increased promotional
activity and a reduction in commission and allowances.
Selling, general and administrative expense was $57.5 million for fiscal 1998,
compared to $39.2 million for fiscal 1997, an increase of $18.3 million, or
46.8%. The increase resulted primarily from a $14.6 million increase in store
level and distribution costs, $3.6 million of which was attributable to the full
year operation of nine stores opened in fiscal 1997, plus expenses relating to
the 15 stores opened during fiscal 1998. Additionally, warehouse costs increased
$1.6 million, due to costs and inherent start-up inefficiencies resulting from
the third quarter 1998 relocation of the Company's retail distribution facility
to South Plainfield, New Jersey. Store level expenses include preopening costs,
which are expensed as incurred, and totaled $1.9 million in fiscal 1998,
compared to $1.0 million in fiscal 1997. Also included in store level costs is
advertising expense, which increased $1.4 million as the Company expanded its
advertising program during fiscal 1998 to include a targeted radio campaign.
Administrative support expenses increased $2.2 million reflecting the impact of
salary, fringe benefits and personnel costs for key individuals added to the
back office and field support infrastructure. Selling, general and
administrative expense, as a percentage of net sales, increased to 36.8% in
fiscal 1998, from 34.6% in fiscal 1997.
Operating profit decreased to $3.6 million for fiscal 1998, from $5.4 million
for fiscal 1997. As a percentage of net sales, operating profit decreased to
2.3% from 4.8%. This decrease was primarily due to the factors described above.
WHOLESALE SEGMENT
Fiscal 1999 Results versus Fiscal 1998
Net sales were unchanged at $80.9 million for fiscal 1999 and 1998. However,
excluding sales to the former largest customer that was acquired by a competitor
in 1998, sales increased 24.9%.
Gross profit was $24.2 million for fiscal 1999, compared to $23.2 million for
fiscal 1998, an increase of $1.0 million, or 4.3%. The increase in gross profit
is due to a strong deal flow. Gross margin improved to 29.9% in fiscal 1999,
from 28.7% in fiscal 1998.
Selling, general and administrative expense was $14.8 million for fiscal 1999,
compared to $13.6 million for fiscal 1998, an increase of $1.2 million, or 8.8%.
The increase includes higher rent expense, incentive based compensation, sales
commissions and
19
<PAGE> 20
bad debt expense. As a percentage of net sales, selling, general and
administrative expense increased to 18.3% in fiscal 1999, from 16.8% in fiscal
1998.
Wholesale operating profit was $9.4 million for fiscal 1999, compared to $9.6
million for fiscal 1998, a decrease of $197,000, or 2.1%. As a percentage of net
sales, operating profit decreased to 11.6% in fiscal 1999, from 11.9% in fiscal
1998, due to the factors described above.
Fiscal 1998 Results versus Fiscal 1997
Net sales, excluding intercompany sales, for fiscal 1998 were $80.9 million,
compared to $95.1 million for fiscal 1997, a decrease of $14.2 million, or
15.0%. The decline was primarily attributable to a decrease in sales to a large
wholesale customer which was acquired early in 1998. The Company expects further
declines in sales to this customer.
Gross profit was $23.2 million for fiscal 1998, compared to $27.3 million for
fiscal 1997, a decrease of $4.1 million, or 15.0%. Gross margin was unchanged at
28.7%.
Selling, general and administrative expense was $13.6 million for fiscal 1998,
compared to $14.5 million for fiscal 1997, a decrease of $862,000, or 6.0%. The
decrease in selling, general and administrative expense was attributable to
lower levels of payroll and bonus payments, sales commissions, and product sales
program development costs, partially offset by higher warehouse rent expense
attributable to the 100,000 square foot addition completed in third quarter
1997. As a percentage of net sales, selling, general and administrative expense
increased to 16.8% in fiscal 1998, from 15.2% in fiscal 1997.
Wholesale operating profit was $9.6 million for fiscal 1998, compared to $12.8
million for fiscal 1997, a decrease of $3.2 million, or 25.1%. As a percentage
of net sales, operating profit decreased to 11.9% in fiscal 1998, from 13.5% in
fiscal 1997, due to the factors described above.
CORPORATE EXPENSES AND SPECIAL CHARGES
Fiscal 1999 Results versus Fiscal 1998
Corporate expenses consist of the cost of senior management and shared
administrative resources which are utilized by both segments of the business.
Corporate expense also includes management fee revenue received from VCM, Ltd.,
the 50% owned joint venture with Value City Department Stores, Inc., and other
buying commissions. Corporate expense was $329,000 for fiscal 1999, compared to
$519,000 for fiscal 1998. The decrease was due primarily to higher VCM
management fee revenue, which increased to $3.4 million for fiscal 1999, from
$3.1 million in fiscal 1998. As a result, net corporate expense
20
<PAGE> 21
decreased as a percentage of total Company sales to 0.1% in fiscal 1999 from
0.2% in fiscal 1998.
Special charges for fiscal 1998 totaling $1.4 million resulted from the
relocation of the Company's retail warehouse and distribution facility to South
Plainfield, New Jersey. The charges reflect the estimated costs of exiting the
former retail warehouse located in Englewood, New Jersey, and related long-lived
asset write-offs and employee severance.
Interest expense was $2.8 million for fiscal 1999, compared to $2.1 million for
fiscal 1998, reflecting higher average borrowings primarily in support of retail
store growth. Other income was $1.3 million for fiscal 1999, comprising the
Company's 50% equity share in VCM. Ltd. Other expense was $627,000 for fiscal
1998, which includes VCM net loss of $477,000 and a $150,000 charge relating to
contingent obligations for retail operations disposed of in 1995.
Fiscal 1998 Results versus Fiscal 1997
Corporate expense for fiscal 1998 was $0.5 million, compared to $2.2 million
for fiscal 1997. The decrease was due to higher VCM management fee revenue,
which increased to $3.1 million for fiscal 1998, from $1.8 million in fiscal
1997, and lower expense levels, particularly in bonus expense. As a result, net
corporate expense decreased as a percentage of total Company sales to 0.2% in
fiscal 1998 from 1.0% in fiscal 1997.
Special charges for fiscal 1998 totaling $1.4 million resulted from the
relocation of the Company's retail warehouse and distribution facility to South
Plainfield, New Jersey, as discussed above.
Interest expense was $2.1 million for fiscal 1998, compared to $943,000 for
fiscal 1997, primarily reflecting higher average borrowings in support of retail
store growth and management information system initiatives. Other expense was
$627,000 for fiscal 1998, compared to $662,000 for fiscal 1997. Other expense
includes the Company's 50% share in the net loss of VCM, Ltd., $477,000 for
fiscal 1998 and $758,000 for fiscal 1997, and for fiscal 1998, a $150,000 charge
relating to contingent obligations for retail operations disposed of in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of inventory purchases,
expenditures related to new store openings, existing store remodeling, warehouse
enhancements, MIS initiatives, and other working capital needs. 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's high level of
committed credit allows it to take immediate
21
<PAGE> 22
advantage of special situation purchasing opportunities. Having such credit
availability provides the Company with a competitive advantage measured against
many of its competitors.
The Company's growth has been financed through cash flow from operations,
borrowings under its revolving credit facility and the extension of trade
credit. The Company has a $60.0 million credit facility comprised of a $50.0
million revolving line of credit and a $10.0 million term loan, expiring on
November 15, 2002. The term loan requires 20 consecutive quarterly payments of
$500,000 plus accrued interest that commenced in May 1998. Borrowings under the
facility bear interest, at the Company's option, at either the banks' prime rate
less 50 basis points or LIBOR plus a spread. Availability on the facility is the
lesser of the total credit commitment or a borrowing base calculation based upon
the Company's accounts receivable and inventories. The facility contains
restrictive covenants which require minimum net worth levels, maintenance of
certain financial ratios and limitations on capital expenditures and
investments. At January 29, 2000, the Company had $20.1 million available under
the facility. In fiscal 2000, the Company expects to amend the credit facility
to increase the credit facility to provide for increased seasonal inventory
levels in fiscal third and fourth quarters.
For fiscal years 1999 and 1998, cash provided by operating activities was $3.9
million and $5.6 million, respectively. An increase in accrued and other
liabilities, partially offset by increases in accounts receivable and
inventories, comprised the majority of the cash provided for fiscal 1999. A
decrease in accounts receivable and an increase in accounts payable, partially
offset by increases in inventories and other assets comprised the majority of
cash provided in fiscal 1998. Cash used in investing activities increased to
$11.3 million in fiscal 1999, from $9.4 million in fiscal 1998. Fiscal 1999
investing activities comprised capital expenditures of $11.1 million and
investment in lease acquisitions of $225,000, compared to fiscal 1998 captial
expenditures of $8.1 million and lease acquisitions of $1.3 million. Cash
provided by financing activities of $8.1 million for fiscal 1999 and $4.2
million for fiscal 1998 was the result of net borrowings from the Company's
credit facility.
Total assets increased 14.8% to $149.1 million at fiscal year end 1999, from
$129.8 million at year end 1998. Working capital increased to $62.2 million in
fiscal 1999, from $54.0 million at the prior year end, primarily as a result of
increases in accounts receivable and inventories, partially offset by an
increase in accrued expenses. The current ratio was 3.0 to 1 at fiscal year-end
1999 and 1998. Net fixed assets were $25.1 million at the end of fiscal 1999,
an increase of $7.8 million over fiscal year end 1998, primarily related to
capital expenditures for fixtures, equipment, leasehold improvements related to
new store openings, and improvements at existing stores and the new retail
warehouse and distribution facility.
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
22
<PAGE> 23
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, borrow additional amounts under its revolving credit
facility, seek to obtain additional debt or equity financing or 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.
SEASONALITY
The Company, with the growth of its retail operations and the retail orientation
of the VCM, Ltd. joint venture, has shifted its business mix more toward retail.
This shift has and will continue to effect the net sales and earnings pattern of
the Company, with a greater weighting toward the second half of the fiscal year.
YEAR 2000 DISCLOSURE
The Company did not experience, nor does it expect, any significant malfunctions
or errors in its management information systems as a result of the "Year 2000
issue." In addition, the Company has not been adversely affected by Year 2000
problems from its customers or suppliers. The Company's cost for Year 2000
readiness was not material.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5, Reporting on the Costs of Start-up Activities.
SOP 98-5 requires that the cost of start-up activities be expensed as incurred.
The Company adopted SOP 98-5 effective January 31, 1999. The adoption of SOP
98-5 did not have a significant impact on the Company's results for the fiscal
year ended January 29, 2000.
During 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, "Deferral of Effective Date of
SFAS No. 133." This statement delays the required implementation of Accounting
for Derivative Instruments and Hedging Activities until fiscal quarters or
fiscal years beginning after June 15, 2000. SFAS No. 133 is currently not
applicable to the Company.
FORWARD LOOKING STATEMENTS
Forward looking statements in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ
23
<PAGE> 24
materially from those projected. Such risks and uncertainties include, but are
not limited to: the successful implementation and timing of the Company's retail
expansion plans; the ability to purchase quality closeout merchandise at prices
that allow the Company to maintain or exceed expected margins on sales; the
effect of comparable store sales and the disproportionate impact caused by
individual buying transactions; any unanticipated problems at the Company's
distribution facilities or in transportation of merchandise in general; and the
operating and financial results of the Value City joint venture. Please refer to
the Company's subsequent SEC filings under the Securities Exchange Act of 1934,
as amended, for further information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Part IV, Item 14 of this Form 10-K for the
information required by Item 8.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
24
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this Item (other than the information
regarding executive officers set forth at the end of Item 4(a) of Part I of this
Form 10-K) will be contained in the Company's definitive Proxy Statement for its
2000 Annual Meeting of Shareholders, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders, and is
incorporated herein by reference.
25
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of January 29, 2000 and January
30, 1999.
Consolidated Statements of Operations for the Fiscal Years Ended
January 29, 2000, January 30, 1999 and January 31, 1998.
Consolidated Statements of Stockholders' Equity for the Fiscal
Years Ended January 29, 2000, January 30, 1999 and January 31,
1998.
Consolidated Statements of Cash Flows for the Fiscal Years Ended
January 29, 2000, January 30, 1999 and January 31, 1998.
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or
because required information is included in the financial
statements or notes thereto.
(a) (3) Exhibits
See the Index to Exhibits included on page 45.
(b) Reports on Form 8-K
None
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mazel Stores, Inc.:
We have audited the consolidated financial statements of Mazel Stores, Inc. and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company'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 Stores, Inc.
and subsidiaries as of January 29, 2000 and January 30, 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended January 29, 2000, in conformity with generally accepted accounting
principles.
KPMG LLP
Cleveland, Ohio
March 13, 2000
27
<PAGE> 28
MAZEL STORES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 2,367 1,668
Receivables, less allowance for doubtful
accounts of $388 and $195, respectively 14,343 13,042
Inventories 70,178 60,789
Prepaid expenses 1,584 1,899
Deferred income taxes (note 6) 4,112 3,389
--------- ---------
Total current assets 92,584 80,787
Equipment, furniture, and leasehold improvements, net (note 2) 25,082 17,268
Other assets 3,959 4,205
Investment in VCM, Ltd. (note 13) 9,687 8,401
Notes and accounts receivable-related parties (notes 4 and 13) 6,208 6,953
Goodwill, net 10,074 10,388
Deferred income taxes (note 6) 1,507 1,752
--------- ---------
$149,101 129,754
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (note 3) $ 2,017 2,017
Accounts payable 20,769 20,641
Accrued expenses and other current liabilities 7,646 4,169
--------- ---------
Total current liabilities 30,432 26,827
Revolving line of credit (note 3) 25,542 15,448
Long-term debt, net of current portion (note 3) 4,524 6,537
Other liabilities 3,816 2,912
--------- ---------
Total liabilities 64,314 51,724
Stockholders' equity
Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, no par value; 14,000,000 shares authorized;
9,141,800 shares issued and
outstanding, respectively 64,320 64,320
Retained earnings 20,467 13,710
--------- ---------
Total stockholders' equity 84,787 78,030
--------- ---------
Commitments and contingencies (note 7) $149,101 129,754
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
28
<PAGE> 29
MAZEL STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Net sales $284,673 237,134 208,326
Cost of sales 178,705 152,792 136,446
-------- ------- -------
Gross profit 105,968 84,342 71,880
Selling, general, and administrative expense 93,251 71,643 55,839
Special charges (note 9) - 1,387 -
-------- ------- -------
Operating profit 12,717 11,312 16,041
Other income (expense)
Interest expense, net (2,795) (2,062) (943)
Other (notes 7 and 13) 1,338 (627) (662)
-------- ------- -------
Income before income taxes 11,260 8,623 14,436
Income tax expense (note 6) 4,503 3,450 5,919
-------- ------- -------
Net income $ 6,757 5,173 8,517
======== ======= =======
Net income per share (note 14)
As reported - basic $ 0.74 0.57 0.93
As reported - diluted $ 0.74 0.57 0.92
Average shares outstanding - basic 9,141,800 9,141,600 9,162,100
Average shares outstanding - diluted 9,154,700 9,146,800 9,265,400
</TABLE>
See accompanying notes to consolidated financial statements
29
<PAGE> 30
MAZEL STORES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common Common Retained
Shares Stock Earnings Total
------ ----- --------- -----
<S> <C> <C> <C> <C>
Balance as of January 25, 1997 9,170,100 $ 64,742 $ 20 $ 64,762
Stock retirement (25,900) (440) - (440)
Net income - - 8,517 8,517
--------- -------- -------- --------
Balance as of January 31, 1998 9,144,200 64,302 8,537 72,839
Stock retirement (3,800) (4) - (4)
Sale of common shares 1,400 22 - 22
Net income - - 5,173 5,173
--------- -------- -------- --------
Balance as of January 30, 1999 9,141,800 64,320 13,710 78,030
Net income - - 6,757 6,757
--------- -------- -------- --------
Balance as of January 29, 2000 9,141,800 $ 64,320 $ 20,467 $ 84,787
========= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
30
<PAGE> 31
MAZEL STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,757 5,173 8,517
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation and amortization 4,130 2,514 1,519
Deferred income taxes (478) (812) 379
Equity in net (income) loss from VCM, Ltd. (1,286) 478 758
Non cash retirement of shareholder loans
stock options, and restricted stock - (4) (440)
Changes in operating assets and liabilities
Receivables (1,301) 2,799 (5,180)
Inventories (9,389) (7,113) (13,277)
Prepaid expenses 1,556 (705) (8)
Other assets 665 (3,178) (1,633)
Accounts payable (1,113) 6,279 (1,085)
Accrued expenses and other liabilities 4,381 179 1,383
------- ------- -------
Net cash provided by (used in) operating activities 3,922 5,610 (9,067)
------- ------- -------
Cash flows from investing activities:
Capital expenditures (11,079) (8,155) (5,832)
Investment in VCM, Ltd. - - (9,637)
Cash paid for lease acquisitions (225) (1,270) (1,950)
------- ------- -------
Net cash used in investing activities (11,304) (9,425) (17,419)
------- ------- -------
Cash flows from financing activities:
Repayment of debt (63,060) (70,534) (44,065)
Net borrowings under credit facility 71,141 74,755 63,781
Net proceeds from sale of common shares - 22 -
------- ------- -------
Net cash provided by financing activities 8,081 4,243 19,716
------- ------- -------
Net increase (decrease) in cash and cash equivalents 699 428 (6,770)
Cash and cash equivalents at beginning of year 1,668 1,240 8,010
------- ------- -------
Cash and cash equivalents at end of year $ 2,367 1,668 1,240
======= ======= =======
Supplemental disclosures
Cash paid for interest $ 2,722 2,085 1,883
Cash paid for income taxes $ 3,230 4,892 5,441
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE> 32
MAZEL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
The Company consists of two complementary operations: (i) a major
regional closeout retail business; and (ii) the nation's largest
closeout wholesale business. 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 operates a chain of 64 closeout retail stores, including 30 in
New York (eight of which are in Manhattan), 23 in New Jersey, and six in
Pennsylvania, three in Connecticut, and one each in Delaware and Ohio.
(a) PRINCIPLES OF CONSOLIDATION
The financial statements of the Company are presented on a consolidated
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 consolidation.
(c) 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.
(d) INVENTORIES
Wholesale 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.
(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, 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.
32
<PAGE> 33
(f) GOODWILL
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized using the straight-line method over periods
not exceeding 40 years. 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 businesses.
At January 29, 2000 and January 30, 1999, accumulated amortization
amounted to $1,294 and $981, respectively.
(g) INCOME TAXES
The Company accounts for income taxes by the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized
for the estimated 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,
deduction, or 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 the period
that includes the enactment date.
(h) ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense
was $4,225, $3,107, and $1,724 for the fiscal years ended January 29,
2000, January 30, 1999, and January 31, 1998, respectively.
(i) FISCAL YEAR
The Company's fiscal year end is on the Saturday nearest to January
31st. Fiscal years 1999, 1998 and 1997 are defined as the fiscal years
ended January 29, 2000, January 30, 1999 and January 31, 1998,
respectively. Fiscal years 1999 and 1998 were 52-week years, while
fiscal 1997 was a 53-week year.
(j) 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 the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts
33
<PAGE> 34
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(k) RECLASSIFICATIONS
Certain reclassifications were made to the Company's prior period
financial statements to conform to the January 29, 2000 presentation.
(2) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
The major classes of equipment, furniture, leasehold improvements, and
construction in progress are summarized at cost, as follows:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
--------- ----------
<S> <C> <C>
Equipment and furniture $ 15,058 11,003
Leasehold improvements 15,969 9,501
Construction in progress 2,924 2,393
--------- ------
33,951 22,897
Less accumulated depreciation and amortization 8,869 5,629
--------- ------
$ 25,082 17,268
========= ======
</TABLE>
(3) LONG-TERM DEBT
The Company's long-term debt as of January 29, 2000 and January 30, 1999
consisted of the following:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- ------------
<S> <C> <C>
Revolving credit facility $ 25,542 15,448
Term debt 6,541 8,554
Less current portion (2,017) (2,017)
--------- ------
$ 30,066 21,985
========= ======
</TABLE>
The Company maintains a $60,000 credit facility with a bank syndicate
providing for a $50,000 revolving line of credit and a $10,000 term
loan. The credit facility is secured by substantially all of the
Company's assets and expires on November 15, 2002. The term loan
requires 20 consecutive quarterly payments of $500 plus accrued interest
that commenced in May 1998. Borrowings under the facility bear interest,
at the Company's option, at the banks' prime rate less 50 basis points
or LIBOR plus a spread, and are subject to a commitment fee on the
unused portion. Availability on the facilities is the lesser of the
total credit commitment or a
34
<PAGE> 35
borrowing base calculation based primarily on the Company's accounts receivable
and inventories. At January 29, 2000 and January 30, 1999, the Company had
availability of $20.1 million and $23.2 million, respectively, under the credit
facility. The facility contains restrictive covenants that require minimum net
worth levels, maintenance of certain financial ratios and limitations on capital
expenditures and investments. At January 29, 2000 and January 30, 1999, the
Company was in compliance with all restrictive covenants.
(4) RELATED PARTY TRANSACTIONS
As of January 29, 2000 and January 30, 1999, notes receivable consist
primarily of $2,822 and $2,663, respectively, relating to tax loans provided to
certain key executives related to stock issued in lieu of compensation
reductions and to former shareholders of the Company in payment of indebtedness
at the time of the Company's IPO. Such amounts include accrued interest of $415
and $257, respectively, at a rate of 6.6 percent.
(5) 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 their short maturity. The
interest rates on debt instruments and notes receivable are considered to
approximate market rates, and accordingly, their cost is reflective of fair
value.
(6) INCOME TAXES
Income tax expense attributable to income from operations is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
------- ----- -----
<S> <C> <C> <C>
Federal
Current $ 4,012 3,819 4,612
Deferred (25) (772) 375
------- ----- -----
3,987 3,047 4,987
State and local
Current 520 443 868
Deferred (4) (40) 64
------- ----- -----
516 403 932
------- ----- -----
$ 4,503 3,450 5,919
======= ===== =====
</TABLE>
35
<PAGE> 36
The income tax expense differed from the "expected" amount computed by
applying the U.S. federal tax rate of 35 percent to pretax income from
operations as a result of the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
------ ----- -----
<S> <C> <C> <C>
Computed "expected" tax expense $3,941 3,018 5,060
Corporate state and local taxes,
net of federal benefit 338 262 606
Other 224 170 253
------ ----- -----
$4,503 3,450 5,919
====== ===== =====
</TABLE>
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
------- -------
<S> <C> <C>
Deferred tax assets
Current
Inventory capitalization and reserve $ 2,335 2,112
Accrued expenses 581 579
Net operating loss carryforward 34 34
Other 1,162 664
------- -------
4,112 3,389
Noncurrent
Equipment, furniture, and leasehold
improvements basis differences 1,414 1,472
Accrued lease obligations 1,128 1,165
------- -------
2,542 2,637
Total gross deferred tax assets 6,654 6,026
Noncurrent deferred tax liabilities - goodwill (1,035) (885)
------- -------
Net deferred tax asset $ 5,619 5,141
======= =======
</TABLE>
A net operating loss of $84 from fiscal year ended January 31, 1996 is
available to offset future taxable income. The loss carryforward
expires in 10 years.
A valuation allowance is established to reduce the deferred tax asset
if it is more likely than not that the related tax benefit will not be
realized. In management's opinion, it is more likely that the tax
benefits will be realized; consequently, no valuation allowance has
been established as of January 29, 2000 and January 30, 1999.
36
<PAGE> 37
(7) 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 2017. Some of these leases are subject to
certain escalation clauses based upon real estate taxes and
other occupancy expense, and several leases provide for
additional rent based on a percentage of sales. Three of the
lessors are organizations that certain executives of the
Company have a minority ownership interest.
At January 29, 2000, minimum annual rental commitments under
noncancelable leases for the Company as a whole are as
follows, for the fiscal year ending:
<TABLE>
<S> <C> <C>
2001 $ 17,130
2002 17,021
2003 15,773
2004 13,218
2005 12,626
Thereafter 46,747
--------
$122,515
========
</TABLE>
Rent expense under all operating leases for the fiscal years
ended January 29, 2000, January 30, 1999, and January 31, 1998
was $16,203, $13,006, and $9,311, respectively. These amounts
include rent paid to a related party lessor of $1,892, $1,967,
and $1,533, respectively.
(b) LETTERS OF CREDIT
The $50,000 revolving line of credit includes a letter of
credit facility totaling $15,000 for use in the normal
operations of the business. At January 29, 2000 and January
30, 1999, the Company had outstanding letters of credit issued
to various parties aggregating $4,345 and $5,370,
respectively.
(c) CONTINGENT SUBORDINATED NOTES
The Company has two subordinated notes due to a former owner
of a retail store acquired in December 1995. Both notes mature
on December 31, 2002. Payments are to be made annually to a
maximum of $675 and $275, based on the store's profits, as
defined. No amounts have been paid or are payable on these
notes through January 29, 2000.
37
<PAGE> 38
(d) LITIGATION
At January 29, 2000, the Company was a party to certain
lawsuits incurred in the normal course of business, none of
which individually or in the aggregate is considered material
by management in relation to the Company's consolidated
financial position or results of operations.
(e) RETAIL LEASE OBLIGATIONS
In connection with the sale of the Company's Ohio retail
stores in October 1995, the Company was contingently liable
for the retail store lease obligations in the event that the
buyer should default on its lease payments. During fiscal
1998, the buyer ceased operation, therefore, the Company
recorded a charge of $150,000 representing expected future
obligations related to the operation, net of amounts due from
the buyer.
(8) RETIREMENT AND SAVINGS PLAN (DOLLARS AS STATED)
The Company maintains separate contributory savings plans,
under Section 401(k) of the Internal Revenue Code, for its
non-union and union employees who meet certain age and service
requirements. In early fiscal 1998, the Company amended its
Section 401(k) plan covering non-union employees. The
Company's contribution for the non-union plan is equal to 25
percent of employee contributions up to three percent of
employee compensation, with the Company's contributions
vesting ratably over five years. The Company contribution to
the union plan is equal to 25 percent of the employee
contributions, to an annual maximum of $325 in 1999 and $300
in 1998, and vests immediately. Contributions to these plans
by the Company have not been material.
(9) SPECIAL CHARGES
Special charges for the fiscal year ended January 30, 1999
resulted from the relocation of the Company's retail warehouse
and distribution facility to South Plainfield, New Jersey. The
charges totaling $1,387 reflect the estimated costs of exiting
the former retail warehouse located in Englewood, New Jersey,
and related long-lived asset write-offs and employee
severance.
(10) COMPENSATORY PLANS
(a) STOCK OPTION PLAN
The Mazel Stores, Inc. 1996 Stock Option Plan ("Stock
Option Plan") was adopted by the Board of Directors
and approved by the shareholders of the Company
effective October 1,
38
<PAGE> 39
1996. The Stock Option Plan, which was amended with a
shareholder vote at the 1998 Annual Meeting of Shareholders,
increased the shares for issuance by 600,000 to 1,500,000
stock options ("Options") to acquire common stock of the
Company. Pursuant to the provisions of the Stock Option Plan,
employees of the Company may be granted Options, including
both incentive stock options and nonqualified stock options
("NQSO"). Consultants may receive only NQSO under the Stock
Option Plan. Non-employee directors automatically receive,
upon the date they first become Directors, a grant of Options
to purchase 15,000 shares of common stock of the Company. The
purchase price of a share of common stock pursuant to an
Option shall not be less than the fair market value at the
grant date. The Options vest in five equal annual installments
of 20 percent of the grant, and have a term of 10 years.
The Company applies the intrinsic value method to account for
stock based compensation. Accordingly, no compensation expense
has been recognized. The following table provides net income
and net income per share reduced to the pro forma amounts
calculating compensation expense consistent with the fair
value method. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for
grants in the fiscal years ended January 29, 2000, January 30,
1999, and January 31, 1998, respectively: expected volatility
of 50 percent for fiscal 1999 and 40 percent for fiscal years
1998 and 1997, risk-free interest rates of 6.7, 5.0 and 6.0
percent, expected lives of 7.7, 8.2 and 9.6 years, and a
dividend yield of zero percent for all fiscal years.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
--------- ---------- -----------
<S> <C> <C> <C>
Net income
As reported $ 6,757 5,173 8,517
Pro forma 6,381 4,907 7,819
Basic net income per share
As reported $ 0.74 0.57 0.93
Pro forma 0.70 0.54 0.85
Diluted net income per share
As reported $ 0.74 0.57 0.92
Pro forma 0.70 0.54 0.84
</TABLE>
The above results may not be representative of the effect of
the fair value method on net income for future years.
39
<PAGE> 40
The following is a summary of option activity for the fiscal years ended
January 29, 2000 and January 30, 1999 and related weighted-average exercise
price:
<TABLE>
<CAPTION>
January 29, 2000 January 30, 1999
---------------------------- -------------------------
Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of fiscal year 926,125 $ 15.85 748,450 $ 16.30
Granted at market 271,650 9.04 223,975 15.14
Exercised -- -- (1,400) 16.00
Expired or forfeited (39,995) 14.37 (44,900) 20.30
--------- ----------- ------- -----------
Outstanding at end of fiscal year 1,157,780 $ 14.30 926,125 $ 15.85
========= =========== ======= ===========
Options available for grant at end of year 342,220 573,875
Weighted average fair value of options
granted during the year $ 4.77 $ 8.20
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------------
Weighted Avg.
No. of Options Remaining Weighted Avg. No. of Options Weighted Avg.
Outstanding Contractual Life Exercise Price Exercisable Exercise Price
----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Range of exercise prices:
Fiscal year 1996 grants at $16.00 657,150 6.81 $ 16.00 401,790 $ 16.00
Fiscal year 1997 grants at $13.87-25.75 31,000 7.67 20.07 12,400 16.83
Fiscal year 1998 grants at $10.00-17.50 205,880 8.32 15.14 49,176 15.46
Fiscal year 1999 grants at $9.00-9.63 263,750 9.34 9.04 - -
--------- ---- ------- ------- -------
1,157,780 7.68 $ 14.30 463,366 $ 15.96
========= ==== ======= ======= =======
</TABLE>
(b) RESTRICTED STOCK PLAN
The Company's Restricted Stock Plan ("Restricted
Stock Plan") was adopted by the Board of Directors
and approved by the Company's shareholders effective
October 1, 1996. The Restricted Stock Plan relates to
17,567 unvested shares of common stock issued at
January 29, 2000. In fiscal 1996, the Company
recorded compensation expense, in accordance with the
vesting provisions of the Restricted Stock Plan, that
represents the difference between the purchase price
and the fair value at the grant date as established
by an independent appraisal.
(11) BUSINESS SEGMENT INFORMATION
The Company's business segments are: retail, wholesale and corporate.
Both retail and wholesale purchase quality, frequently brand name,
value-oriented consumer products. Retail
40
<PAGE> 41
sells its product through its Odd Job store chain (64 stores at fiscal
1999 year-end) while wholesale sells to retailers, including Odd Job,
wholesalers and distributors. Corporate includes shared administrative
expenses net of management fee revenue from VCM, Ltd. and other buying
commission. Summarized financial information by business segment as of
the fiscal years ended January 29, 2000, January 30, 1999, and January
31, 1998 is as follows:
<TABLE>
<CAPTION>
Capital Depreciation
Operating Total Expen- and
Net Sales Profit Assets ditures Amortization
--------- ------ ------ ------- ------------
January 29, 2000
<S> <C> <C> <C> <C> <C>
Retail $ 203,799 3,643 77,242 10,809 3,622
Wholesale 91,246 9,403 55,964 270 508
Intersegment sales (10,372)
Corporate - (329) 15,895 - -
--------- ------ ------- ----- -----
$ 284,673 12,717 149,101 11,079 4,130
========= ====== ======= ====== =====
January 30, 1999
Retail $ 156,242 3,618 61,984 7,730 2,114
Wholesale 90,709 9,600 52,416 425 400
Intersegment sales (9,817)
Corporate - (519) 15,354 - -
Special charges - (1,387) - - -
--------- ------ ------- ----- -----
$ 237,134 11,312 129,754 8,155 2,514
========= ====== ======= ====== =====
January 31, 1998
Retail $ 113,205 5,393 44,598 4,786 1,102
Wholesale 107,535 12,821 56,455 1,046 417
Intersegment sales (12,414)
Corporate - (2,173) 12,831 - -
--------- ------ ------- ----- -----
$ 208,326 16,041 113,884 5,832 1,519
========= ====== ======= ====== =====
</TABLE>
Sales to one customer accounted for 14.9 percent of total sales for
fiscal year 1997. Corporate operating profit is shown net of VCM Ltd.
management fee revenue of $3,370, $3,085 and $1,789 for fiscal years
1999, 1998, and 1997, respectively.
41
<PAGE> 42
(12) UNAUDITED QUARTERLY FINANCIAL DATA
The following is a summary of unaudited quarterly results of operations
for the fiscal years ended January 29, 2000, January 30, 1999, and
January 31, 1998:
<TABLE>
<CAPTION>
Quarter
----------------------------------------
First Second Third Fourth
------- ------ ------ ------
<S> <C> <C> <C> <C>
Year ended January 29, 2000
Net sales $59,307 60,954 67,727 96,685
Gross profit 21,131 22,750 25,629 36,458
Net income 78 69 1,103 5,507
Net income per share - basic $ 0.01 0.01 0.12 0.60
Net income per share - diluted 0.01 0.01 0.12 0.60
Year ended January 30, 1999
Net sales $48,907 53,333 60,324 74,570
Gross profit 17,321 19,071 20,856 27,094
Net income 922 881 26 3,344
Net income per share - basic $ 0.10 0.10 0.00 0.37
Net income per share - diluted 0.10 0.10 0.00 0.37
Year ended January 31, 1998
Net sales $43,128 49,053 48,820 67,325
Gross profit 14,844 16,160 17,342 23,534
Net income 1,531 2,002 1,558 3,426
Net income per share - basic $ 0.17 0.22 0.17 0.37
Net income per share - diluted 0.16 0.22 0.17 0.37
</TABLE>
(13) VCM, LTD.
On August 3, 1997, the Company commenced operation of VCM, Ltd.
("VCM"), a 50 percent owned joint venture with Value City Department
Stores, whereby VCM operates the toy, sporting goods, expanded health
and beauty care, and other departments for the Value City department
store chain. The Company coordinates merchandise purchasing on behalf
of VCM, some of which is sourced from the Company's wholesale segment.
The Company's initial investment in VCM, which is accounted for under
the equity method, was $9,637. In addition to its 50 percent equity
share of VCM's net profit or loss, the Company receives a management
fee equal to three percent of net sales. Sales to VCM were $2,861,
$3,132, and $4,539 for fiscal years 1999, 1998, and 1997,
respectively. The Company recorded an account receivable from VCM of
$3,386 and $4,182 at January 29, 2000 and January 30, 1999,
respectively, representing sales, management fees and invoices paid on
behalf of VCM.
42
<PAGE> 43
(14) EARNINGS PER SHARE
The following data shows the amounts used in computing
earnings per share and the effect on the weighted-average
number of shares of dilutive potential common stock.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 29, January 30, January 31,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
NUMERATOR:
Net income available to common
shareholders used in basic and
diluted net income per share $ 6,757 5,173 8,517
========== ========== ==========
DENOMINATOR:
Weighted-average number of
common shares - basic 9,141,800 9,141,600 9,162,100
Net dilutive effect of stock options 12,900 5,200 103,300
---------- ---------- ----------
Weighted-average number of
common shares - diluted 9,154,700 9,146,800 9,265,400
========== ========== ==========
Net income per share - basic $ 0.74 0.57 0.93
Net income per share - diluted $ 0.74 0.57 0.92
</TABLE>
43
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MAZEL STORES, INC.
By: /s/ Reuven D. Dessler
-----------------------------------
Reuven D. Dessler
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on April 17, 2000.
Signatures Title
---------- -----
/s/ Reuven D. Dessler Chairman and Chief Executive Officer
- ----------------------- (Principal Executive Officer) and Director
Reuven D. Dessler
/s/ Susan Atkinson Chief Financial Officer (Principal Financial
- ---------------------- and Accounting Officer)
Susan Atkinson
/s/ Charles Bilezikian Director
- ----------------------
Charles Bilezikian
/s/ Brady Churches Director
- ----------------------
Brady Churches
/s/ Phillip Cohen Director
- ----------------------
Phillip Cohen
/s/ Robert Horne Director
- ----------------------
Robert Horne
/s/ Jacob Koval Director
- ----------------------
Jacob Koval
/s/ Ned L. Sherwood Director
- ----------------------
Ned L. Sherwood
/s/ Jerry Sommers Director
- ----------------------
Jerry Sommers
/s/ Mark Miller Director
- ----------------------
Mark Miller
44
<PAGE> 45
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
3.1 Amended and Restated Articles of Incorporation*
3.2 Amended and Restated Code of Regulations*
4.1 Asset Based Loan and Security Agreement dated March 10, 1998 by and
among the lending institutions and registrant and subsidiaries***
4.2 First Amendment dated August 16, 1999 to Asset Based Loan and Security
Agreement
10.1 Amended and Restated Employment Agreement of Reuven Dessler dated
September 30, 1996*
10.2 Amended and Restated Employment Agreement of Jacob Koval dated
September 30, 1996*
10.3 2000 Employment Agreement of Brady Churches dated February 25, 2000
10.4 2000 Employment Agreement of Jerry Sommers dated February 25, 2000
10.5 Amended and Restated Employment Agreement of Susan Atkinson dated
September 30, 1996*
10.6 Amendment to Susan Atkinson Employment Agreement dated February 1,
1998***
10.7 Second Amendment to Susan Atkinson Employment Agreement dated January
1, 2000
10.8 1996 Stock Option Plan*
10.9 Restricted Stock Plan*
10.10 Solon, Ohio Facility Lease, dated as of January 1, 1989, including
three amendments thereto*
10.11 South Plainfield, New Jersey Facility Lease****
10.12 VCM, Ltd. Agreement dated July 14, 1997**
21 List of Subsidiaries
23 Consent of Independent Auditors
24.1 Powers of Attorney
27 Financial Data Schedule
* Incorporated by reference to exhibit with same exhibit number included
in the Registrant's Registration Statement on Form S-1 (File
#333-11739) as amended.
** Incorporated by reference to an exhibit included in the Quarterly
Statement on Form 10-Q for the quarter ended October 26, 1997.
*** Incorporated by reference to an exhibit included in the Annual
Statement on Form 10-K for the fiscal year ended January 31, 1998.
**** Incorporated by reference to an exhibit included in the Annual
Statement on Form 10-K for the fiscal year ended January 30, 1999.
45
<PAGE> 1
EXHIBIT 4.2
FIRST AMENDMENT TO ASSET BASED LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO ASSET BASED LOAN AND SECURITY AGREEMENT, dated
as of ____________, 1999 ("First Amendment") is entered into by and between
MAZEL STORES, INC. ("Stores") an Ohio corporation, and ODD-JOB ACQUISITION CORP.
("Odd-Job"), a Delaware corporation, HIA TRADING ASSOCIATES, a New York General
Partnership, jointly and severally ("Borrower"), whose mailing address is 31000
Aurora Road, Solon, Ohio 44139, and THE PROVIDENT BANK ("Agent"), an Ohio
banking corporation, whose mailing address is 1111 Superior Avenue, Cleveland,
Ohio 44114-2522, LASALLE BANK NATIONAL ASSOCIATION ("LaSalle"), a national
banking association whose mailing address is 135 South LaSalle Street, Chicago,
Illinois 60603, and NATIONAL CITY BANK ("NCB," and together with Agent and
LaSalle,"Lenders"), a national banking association whose mailing address is
National City Center, P.O. Box 5756 Loc. 2104, Cleveland, Ohio 44101-0756.
W I T N E S S E T H:
-------------------
WHEREAS, Borrower and the Lenders are parties to that certain Asset
Based Loan and Security Agreement dated as of March 10, 1998 (hereinafter the
"Original Agreement");
WHEREAS, Borrower and the Lenders have agreed to amend the Original
Agreement in order to modify certain terms, provisions, definitions and
covenants contained in the Original Agreement all upon the terms and conditions
set forth in this First Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the Borrower and the Lenders agree as follows:
SECTION 1. AMENDMENT TO SECTION 2 - LOANS AND INTEREST.
A. Subsection 2.1(a) of the Original Agreement is hereby deleted in its
entirety and the following inserted in lieu thereof:
(a) Subject to the terms and conditions of this Agreement, and in
reliance upon the representations and warranties contained
herein, each Lender severally agrees to make Advances to or
for the account of Borrower in the form of loans to the
Borrower in an aggregate amount not to exceed the lesser of
(i) the amount of such Lender"s Revolving Credit Commitment,
minus the lesser of (A) the aggregate face amount such
Lender"s LC Exposure or (B) the Available Draw under such
Lender"s LC Exposure or (ii) such Lender"s Ratable portion of
the Borrowing Base, minus the lesser of (E) the aggregate face
amount such Lender"s LC Exposure or (F) the Available Draw
under such Lender"s LC Exposure (the lesser of (i) or (ii)
being referred to hereinafter as the "Maximum Loan Amount").
<PAGE> 2
Agent reserves the right to modify, in its reasonable
discretion, subject to Section 11.21 herein, the advance rates
stated in the definition of "Borrowing Base" upon ninety (90)
days prior notice to Borrower. Should the outstanding amount
of Loans at any time exceed the Maximum Loan Amount, Borrower
shall on demand immediately repay such excess amount. Each
Lender"s loan pursuant to this Section 2.1 shall be evidenced
by a properly executed promissory note in the form of Exhibit
C ("Revolving Loan Note"), with all blanks appropriately
filled in.
SECTION 2. AMENDMENT TO SECTION 5 - AFFIRMATIVE COVENANTS.
A. Subsection 5.15(d) of the Original Agreement is hereby deleted in
its entirety and the following inserted in lieu thereof:
(d) A ratio of Indebtedness owing to the Lenders to EBITDA at all
times not more than: (i) for fiscal quarters ending closest to
October 31, 4.25 to 1.0, and (ii) for all other fiscal
quarters, 4.0 to 1.0. This covenant shall be tested quarterly.
B. Section 5.19 of the Original Agreement are hereby deleted in its
entirety and the following inserted in lieu thereof:
5.19 LANDLORD WAIVER AND CONSENT AGREEMENTS. The Borrower
agrees to use its best efforts to cause all the owners and/or
landlord"s of retail store locations (i) leased by Borrower on or after
August 1, 1999, and (ii) which have their leases renewed on or after
August 1, 1999 to execute landlord waiver and consent agreements in
form acceptable to Agent, within sixty (60) days from the date such
retail store location is occupied or such lease is renewed.
SECTION 3. AMENDMENT TO SECTION 6 - NEGATIVE COVENANTS.
A. Section 6.13 of the Original Agreement is hereby deleted in its
entirety and the following inserted in lieu thereof:
6.13 CAPITAL EXPENDITURES. Borrower shall not expend funds or
accrue expense for any machinery, equipment, real or personal property
or any other type of property including leasehold improvements, whether
through direct purchases and capitalized lease obligations, in excess
of Thirteen Million Dollars ($13,000,000.00) in the aggregate during
fiscal year-end January, 2000, and an aggregate amount not to exceed
fifty percent (50%) of EBITDA in any fiscal year thereafter. The
capital expense limits contained herein are subject to the continued
compliance by the Borrower (prior to and after giving effect to the
expenditure) with the covenants and obligations herein. Borrower shall
be permitted to carry-forward as an additional capital expense
allowance the amount of any unexpended portion of the capital expense
limitation which had been designated for scheduled capital
expenditures.
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<PAGE> 3
SECTION 4. FEES AND EXPENSES.
In consideration of the modifications set forth herein, Borrower shall
pay all out-of-pocket fees and expenses incurred by the Lenders in connection
with the preparation, negotiation, execution and delivery of this First
Amendment and the agreements, documents and instruments executed in connection
therewith, including, without limitation, legal fees and other costs and
expenses of the Agent.
SECTION 5. REFERENCES.
On and after the Effective Date of this First Amendment each reference
in the Original Agreement to "this Agreement", "hereunder", "hereof", "thereof"
and each reference to the Original Agreement in any of the other Loan Documents
shall mean and refer to the Original Agreement, as amended by this First
Amendment. All references to exhibits or schedules in the Original Agreement
shall be deemed to refer to the exhibits or schedules attached hereto. The
Original Agreement, as amended by this First Amendment, is and shall continue to
be in full force and effect and is hereby and in all respects ratified and
confirmed. Except as amended by this First Amendment, all of the terms,
conditions and provisions of the Original Agreement are incorporated herein by
reference and Borrower agrees to be bound by all of the terms and conditions of
the Original Agreement as amended by this First Amendment. The Loan Documents
executed in connection with the Original Agreement shall remain in full force
and effect in all respects as if the unpaid balance of the principal
outstanding, together with interest accrued thereon, had originally been payable
and secured as provided for therein, as amended from time to time and as
modified by this First Amendment. Nothing herein shall affect or impair any
rights and powers which Lenders may have under the Original Agreement and any
and all related Loan Documents.
SECTION 6. APPLICABLE LAW.
This First Amendment shall be deemed to be a contract under the laws of
the State of Ohio, and for all purposes shall be construed in accordance with
the laws of the State of Ohio.
SECTION 7. COUNTERPARTS; CONFLICTS.
This First Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument, and any
one of the parties hereby may execute this First Amendment by signing any such
counterpart. In the event of any ambiguity of conflict between the terms,
conditions, or provisions of the Original Agreement and this First Amendment,
the terms, conditions and provisions of this First Amendment will control.
SECTION 8. EFFECTIVE DATE.
This First Amendment shall be effective as of __________, 1999
("Effective Date").
-3-
<PAGE> 4
SECTION 9. MISCELLANEOUS.
A. In consideration of this First Amendment, Borrower hereby
releases and discharges Lenders and their shareholders,
directors, officers, employees, attorneys, affiliates and
subsidiaries from any and all claims, demands, liability and
causes of action whatsoever, now known or unknown, arising
prior to the Effective Date of this First Amendment out of or
in any way related to the extension or administration of the
obligations, liabilities, and indebtedness of Borrower to
Lenders, the Original Agreement or any mortgage or security
interest related thereto.
B. Borrower and Lenders hereby agree to extend all liens and
security interests securing the obligations, liabilities, and
indebtedness of Borrower to Lenders, until said obligations,
liabilities, and indebtedness, as modified herein, and any and
all related promissory notes have been fully paid. The parties
hereto further agree that this First Amendment shall in no
manner affect or impair the liens and security interests
evidenced by the Original Agreement and/or any other
instruments evidencing, securing or related to the
obligations, liabilities, and indebtedness. Borrower hereby
acknowledges that all liens and security interests securing
the obligations, liabilities, and indebtedness of Borrower to
Lenders are valid and subsisting.
C. Borrower covenants and agrees (i) to pay the balance of any
principal, together with all accrued interest, as specified
above in connection with any promissory note executed and
evidencing any indebtedness incurred in connection with the
Original Agreement, as modified by this First Amendment, and
(ii) to perform and observe covenants, agreements,
stipulations and conditions on its part to be performed
hereunder or under the Original Agreement and all other
related Loan Documents executed in connection herewith or
therewith.
D. Borrower hereby declares and certifies to Lenders that as of
the Effective Date of this First Amendment, except as
previously reported to Lenders in writing or except as waived
in connection herewith, no Event of Default exists under the
Original Agreement, as amended by this First Amendment, nor
shall any event have occurred which, with the giving of notice
or the passage of time, or both, would constitute an Event of
Default. Borrower hereby declares that Borrower has no set
offs, counterclaims, defenses or other causes of action
against Lenders arising out of the Original Agreement or any
related loan documents, and to the extent any such set offs,
counterclaims, defenses or other causes of action may exist,
whether known or unknown, such items are hereby waived by
Borrower.
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<PAGE> 5
E. Borrower hereby represents and warrants to Lenders that (a)
Borrower has the legal power and authority to execute and
deliver this First Amendment; (b) the officials executing this
First Amendment have been duly authorized to execute and
deliver the same and bind Borrower with respect to the
provisions hereof; (c) the execution and delivery hereof by
Borrower and the performance and observance by Borrower of the
provisions hereof do not violate or conflict with the
organizational agreements of Borrower or any law applicable to
Borrower or result in a breach of any provisions of or
constitute a default under any other agreement, instrument or
document binding upon or enforceable against Borrower; and (d)
this First Amendment constitutes a valid and binding
obligation upon Borrower in every respect.
SECTION 10. MUTUAL WAIVER OF JURY TRIAL.
AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE LENDERS TO EXTEND CREDIT
TO BORROWER AND FOR BORROWER TO BORROW FROM LENDERS, AND AFTER HAVING THE
OPPORTUNITY TO CONSULT COUNSEL, BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO
TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO THIS FIRST AMENDMENT OR
THE OTHER LOAN DOCUMENTS OR ARISING IN ANY WAY FROM THE LOANS OR OTHER
OBLIGATIONS UNDER THE LOAN DOCUMENTS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers.
AGENT,
LETTER OF CREDIT LENDER, AND
LENDER:
THE PROVIDENT BANK
By:
-------------------------------
John R. Mirlisena, Jr.
Senior Vice President
LENDER:
NATIONAL CITY BANK LASALLE BANK
NATIONAL ASSOCIATION
By: By:
-------------------------- -----------------------
Gregory M. Jelinek Name: Henry J. Munez
Senior Vice President Its: Assistant Vice President
BORROWER:
HIA TRADING ASSOCIATES MAZEL STORES, INC.
a New York general partnership a Delaware corporation
By: ODD-JOB ACQUISITION CORP., By: ________________________
a Delaware corporation Name: ________________________
Its: ________________________
By: __________________________
Name: __________________________ ODD-JOB ACQUISITION CORP.,
Its: __________________________ a Delaware corporation
By: _______________________
Name: _______________________
Its: _______________________
-6-
<PAGE> 1
EXHIBIT 10.3
[EXECUTION]
2000 EMPLOYMENT AGREEMENT
2000 EMPLOYMENT AGREEMENT dated February 25, 2000, effective
as of August 14, 2000, by and between MAZEL STORES, INC., an Ohio corporation,
with its principal place of business at 31000 Aurora Road, Solon, Ohio 44139
(hereinafter referred to as the "COMPANY"), and Brady J. Churches, an individual
residing at 1677 Taylor Corners Circle, Columbus, Ohio 43004 (hereinafter
referred to as the "EMPLOYEE").
WHEREAS, the Company 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 Company hereby employs the Employee, and the
Employee hereby accepts such employment, for a term commencing as of the
effective date hereof and ending on October 31, 2003, unless sooner terminated
in accordance with the provisions of Section 4 or Section 5 (the "TERM").
2. DUTIES. The Employee, in his capacity as President-Mazel
Retail Division (or such other and comparable titles and position as shall be
given the Employee by the board of directors of the Company (the "BOARD")),
shall faithfully perform for the Company the duties of said offices and shall
perform such other duties of an executive, managerial or administrative nature
as shall be specified and designated from time to time by the Board. 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 Company) to hire and terminate all
employees of the Company's Retail Division who are subordinate to the Employee.
<PAGE> 2
3. COMPENSATION.
3.1 SALARY. The Company shall pay the Employee (a) for the
period August 14, 2000 through October 31, 2000, a salary at the rate of Four
Hundred Six Thousand Five Hundred Ten Dollars ($406,510) per annum, and (b) for
the portion of the Term commencing November 1, 2000, a salary at the rate of
Five Hundred Thirteen Thousand One Hundred Sixty One Dollars ($513,161) per
annum (the "ANNUAL SALARY"); PROVIDED, that on each of November 1, 2001 and
November 1, 2002, the Annual Salary shall be increased by four percent (4%) from
the Annual Salary in effect for the preceding 12-month period.
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 Company generally, on the same terms as such
other executives, in each case, to the extent that the Employee is eligible
under the terms of such plans or programs.
3.3 EXPENSES - IN GENERAL. The Company 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
Company, no later than thirty (30) days after such expenses have been so
incurred.
3.4 ANNUAL BONUS. During the Term, the Employee shall be
entitled to receive an annual bonus (the "ANNUAL BONUS") based upon the
Company's pre-tax income for each fiscal year of the Company (a "FISCAL YEAR")
ending during the Term, commencing with the Fiscal Year ending January 31, 2001.
The Annual Bonus shall be an amount equal to fifty percent (50%) of the Annual
Salary in effect at the end of the relevant Fiscal Year in the event that the
Company's pre-tax income,
-2-
<PAGE> 3
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 Company's pre-tax income for any Fiscal
Year is less than the Target Amount for such Fiscal Year, the Annual Bonus shall
be the amount, if any, equal to (i) (A) the percentage of the Target Amount
which such pre-tax 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 at the end of such Fiscal Year. For example, if the
Company's pre-tax is ninety percent (90%) of the Target Amount for the Fiscal
Year ending January 1, 2001, the Annual Bonus shall be calculated as follows:
(90%-80%)
_________ X $256,580.50 = $128,290.25
20%
If the Company's pre-tax income for any Fiscal Year is less than eighty percent
(80%) of the Target Amount for such Fiscal Year, no Annual Bonus shall be
payable for such Fiscal Year. For purposes of this Agreement, the term "TARGET
AMOUNT" shall mean an amount to be determined by the compensation committee of
the Board 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
Company's audited financial statement for such Fiscal Year is available to the
Company. The Employee hereby (i) acknowledges that the Annual Bonus payable
hereunder with respect to the Fiscal Year ending January 31, 2001 is in lieu of
any annual bonus payable with respect to such Fiscal Year pursuant to to the
Employment Agreement dated November 1, 1995 (as amended from time to time) by
and between Mazel Company L.P. (the "PARTNERSHIP"), the Employee and, pursuant
to an Amendment to Employment Agreement made and entered into on September 30,
1996, the Company (the "1995
-3-
<PAGE> 4
AGREEMENT"), and (ii) irrevocably waives any right to an annual bonus with
respect to such Fiscal Year under the 1995 Agreement.
3.5 AUTOMOBILE. During the Term, the Employee shall be
entitled to usage of an automobile of his choice which shall be leased by the
Company, provided that the monthly lease payments thereon do not exceed Five
Hundred Dollars ($500) and the Company 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 Company 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 Company 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 Company, the Employee shall have the right within ten (10)
days after such notice to dispute the Company'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 Company 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
-4-
<PAGE> 5
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 3.4);
thereafter, the Company shall have no further liability to the Employee. 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 Company 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 Company (other than pursuant
to actions taken at the direction or with the approval of the Board), (ii) is
found by reasonable determination of the Board, 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 Company
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
-5-
<PAGE> 6
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 3.4 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 Company shall have no further liability to the Employee.
5.2. TERMINATION BY THE COMPANY WITHOUT CAUSE; CERTAIN
TERMINATIONS BY THE EMPLOYEE. During the Term, the Company 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 Company 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 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 Company
within fifteen (15) days' written notice from the Employee, 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 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;
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<PAGE> 7
(B) continue to receive the Annual Bonus or, if
applicable, Annual Bonuses (if any) payable at the times provided for
in Section 3.4 as if such employment had not otherwise been so
terminated; provided, however, that, for these purposes, and
notwithstanding Section 3.4, the amount of each Annual Bonus (if any)
otherwise payable under the foregoing provisions of this clause (B)
shall be an amount equal to the average of the Annual Bonuses
(including, but not limited to, Annual Bonuses of $0) actually payable
under Section 3.4 of this Agreement or Section 3.6 of the 1995
Agreement, as applicable, 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 the Company or by him after the issuance
of a court order that restricts the Employee's ability to work for the Company.
Thereafter, the Company shall have no further liability to the
Employee.
5.3 CHANGE IN CONTROL. (a) The Company 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
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<PAGE> 8
consummated; provided that such notice may be given at such time as the Company
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 and (ii) 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
Company 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: (i) the first purchase of shares pursuant to a tender
offer or exchange for all or 20% or more of the Company's Common Shares of any
class or any securities convertible into such Common Shares; (ii) the receipt by
the Company of a Schedule 13D or other advise indicating that a person (other
than ZS Fund, L.P., Mazel/D&K, Inc., Reuven Dessler and/or any affiliate
thereof) is the "beneficial owner" (as that term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934) of thirty percent (30%) or more of the
Company's Common Shares calculated as provided in paragraph (d) of said Rule
13d-3; (iii) the date of consummation of any consolidation or merger of the
Company in which the Company will not be the continuing or surviving corporation
or pursuant to which shares of capital stock, of any class or any securities
convertible into such capital stock, of the Company would be converted into
cash, securities or other property, other than a merger of the Company in which
holders of common stock of all classes of the Company immediately prior to the
merger would have the same proportion of ownership of common stock of the
surviving corporation immediately after the merger; (iv) the date of
consummation of any sale, lease, exchange or other
-8-
<PAGE> 9
transfer (in one transaction or a series of related transactions) of all or
substantially all the assets of the Company; (v) the adoption of any plan or
proposal for the liquidation (but not a partial liquidation) or dissolution of
the Company; (vi) the date (the "MEASUREMENT DATE") on which the individuals who
at the beginning of a two-consecutive-year period ending on the Measurement
Date, cease, for any reason, to constitute at least a majority of the Board,
unless the election, or the nomination for election by the Company's
shareholders, of each new director during such two-year period was approved by
an affirmative vote of the directors then still in office who were directors at
the beginning of said two-year period.
(b) Notwithstanding any other provision of this Agreement, in
the event that any payment or benefits provided by the Company (or any entity
directly or indirectly controlling or controlled by the Company or any of its
subsidiaries, any such entity, 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 ----
(ii) all other payments and benefits which the
Employee receives or is then entitled to receive from the
Company and any of its Affiliates that would constitute a
"parachute payment" within the meaning of Section 280G of the
Code, LESS
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(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 Company 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 Company 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 Company 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
Company and its subsidiaries and other Affiliates should properly belong to the
Company and its subsidiaries and other Affiliates; (iii) upon the termination of
the Employee's employment, 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
Company and its subsidiaries and other Affiliates; (v) the Employee has had and
will have access to Confidential Company Information (as defined below); (vi)
the Company Business is the same business in which the Employee has and will
participate in
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and for which he has and will have responsibility while at the Company; (vii)
the length of the Restricted Period (as defined below) is necessary and
appropriate to protect the legitimate business interests of the Company because,
among other reasons, the Confidential Company Information he has had and will
have access to will continue to have competitive significance throughout the
Restricted Period; and (vii) the Company would not have entered into this
Agreement but for the covenants and agreements set forth in this Section 6.
Accordingly, the Employee covenants and agrees that:
(a) During the period commencing on the Effective Date and
ending on the date twelve (12) months following the expiration of the Term (the
"RESTRICTED 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 Company 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 Company 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 disclose, rely on
or otherwise use for his benefit or the benefit of others, except in connection
with the business and affairs of the Company and its
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<PAGE> 12
subsidiaries, all confidential matters relating to the Company Business and to
the Company and its subsidiaries learned by the Employee on or after the
effective date hereof directly or indirectly from the Company 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 Company or its subsidiaries except with the
Company'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 Company or the Partnership under this Agreement or the
1995 Agreement.
(c) During the Restricted Period, the Employee shall not,
without the Company's prior written consent, directly or indirectly, knowingly
solicit, recruit or encourage to leave the employment of the Company or its
subsidiaries, any employee of the Company or its subsidiaries or hire any
employee who has left the employment of the Company or its subsidiaries after
the effective date of this Agreement within one year of the termination of such
employee's employment with the Company 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 Company and its subsidiaries
shall be the Company's property and shall be delivered to the Company at any
time on request, provided such property is then possessed by the
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<PAGE> 13
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 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 Company (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 purchase 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 or would have underutilized capacity or (F) buybacks
made by a manufacturer of a competitor's or its own
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<PAGE> 14
merchandise, and (ii) which owns or operates a location within a ten (10) mile
radius of any location owned or operated by the Company 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 Company 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 Company 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 Company 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
Company and that money damages will not provide an adequate remedy to the
Company.
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<PAGE> 15
(b) The right and remedy to require the Employee to account
for and pay over to the Company 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 Company 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, 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 Company and the
Employee intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of
breadth of scope or
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<PAGE> 16
otherwise, it is the intention of the Company and the Employee that such
determination not bar or in any way affect the Company's right 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
Company may set-off against any or all amounts payable to the Employee hereunder
any or all amounts payable by the Employee to the Company in respect of a breach
by the Employee of any of the provisions of Section 6.
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 Company, to:
Mazel Stores, Inc.
31000 Aurora Road
Solon, Ohio 44139
Attention: Reuven Dessler
with a copy to:
ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, New York 10036
Attention: Robert A. Horne
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<PAGE> 17
and
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
The Tower at Erieview, Suite 2600
Cleveland, Ohio 44114-1824
Attention: Marc H. Morgenstern
(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.
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<PAGE> 18
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.
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 Company's assets or business, whether by merger, consolidation or otherwise,
the Company 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 Company's Retail Division
shall be headquartered in the Columbus Metropolitan Area, Ohio. In the event
that the Board 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 prior written notice to the Company elect
to terminate his employment hereunder in the event that the Company does not
rescind its request or demand, in which case the Employee's employment hereunder
shall be deemed
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<PAGE> 19
to have been terminated by the Company 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 Company to enforce the Employee's rights under this
Agreement and the Employee prevails in such legal proceeding, the Company 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 Company 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 Board 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 Company 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 Company) (a "PROCEEDING"),
threatened or pending, whether civil, criminal, administrative or investigative,
by reason of his service to the Company as a director, officer, trustee,
employee or agent, or service at the written request of the Company 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 Company as they are incurred
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<PAGE> 20
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 Company unless, as a
condition thereof, the Company receives a full and unconditional release of all
liability in respect of the Proceeding. The Employee shall provide the Company
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
Company is prejudiced by such failure.
(c) The indemnification provided for in Section 7.15(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 Company 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 Company only if a court of competent jurisdiction determines that
the Employee did not meet the Standard of Care.
(d) The indemnification provided by this Section shall survive
termination of the Employee's employment with the Company.
(e) 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 or any other written agreement between the Company and the
Employee.
7.16 WITHHOLDING. The Company shall be entitled to
withhold from any payments or deemed payments any amount of withholding required
by law.
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7.17 RELEASE. The Employee and the Company will execute
a release (to be agreed upon by the Employee and the Company) at the termination
of the Employee's employment.
* * * * *
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have signed their names
as of the day and year first above written.
MAZEL STORES, INC.
By:
-----------------------------
Name: Reuven Dessler
Title: Chief Executive Officer
----------------------------------
BRADY J. CHURCHES
<PAGE> 1
EXHIBIT 10.4
2000 EMPLOYMENT AGREEMENT
2000 EMPLOYMENT AGREEMENT dated February 25, 2000, effective
as of November 1, 2000, by and between MAZEL STORES, INC., an Ohio corporation,
with its principal place of business at 31000 Aurora Road, Solon, Ohio 44139
(hereinafter referred to as the "COMPANY"), and Jerry D. Sommers, an individual
residing at 8634 Pickerington Road, Pickerington, Ohio 43147-9663 (hereinafter
referred to as the "EMPLOYEE").
WHEREAS, the Company 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 Company hereby employs the Employee, and the
Employee hereby accepts such employment, for a term commencing as of the
effective date hereof and ending on October 31, 2003, unless sooner terminated
in accordance with the provisions of Section 4 or Section 5 (the "TERM").
2. DUTIES. The Employee, in his capacity as Executive Vice
President-Mazel Retail Division (or such other and comparable titles and
position as shall be given the Employee by the board of directors of the Company
(the "BOARD")), shall faithfully perform for the Company the duties of said
offices and shall perform such other duties of an executive, managerial or
administrative nature as shall be specified and designated from time to time by
the Board. 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 Company) to hire and
terminate all employees of the Company's Retail Division who are subordinate to
the Employee.
<PAGE> 2
3. COMPENSATION.
3.1 SALARY. The Company shall pay the Employee for the Term a
salary at the rate of Three Hundred Eighty Four Thousand Eight Hundred Seventy
One ($384,871) per annum (the "ANNUAL SALARY"); PROVIDED, that on each of
November 1, 2001 and November 1, 2002, the Annual Salary shall be increased by
four percent (4%) from the Annual Salary in effect for the preceding 12-month
period.
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 Company generally, on the same terms as such
other executives, in each case, to the extent that the Employee is eligible
under the terms of such plans or programs.
3.3 EXPENSES - IN GENERAL. The Company 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
Company, no later than thirty (30) days after such expenses have been so
incurred.
3.4 ANNUAL BONUS. During the Term, the Employee shall be
entitled to receive an annual bonus (the "ANNUAL BONUS") based upon the
Company's pre-tax income for each fiscal year of the Company (a "FISCAL YEAR")
ending during the Term, commencing with the Fiscal Year ending January 31, 2001.
The Annual Bonus shall be an amount equal to fifty percent (50%) of the Annual
Salary in effect at the end of the relevant Fiscal Year in the event that the
Company's pre-tax income, calculated in accordance with generally accepted
accounting principles consistently applied, equals or exceeds the "TARGET
AMOUNT" (as hereinafter defined) for such Fiscal Year. If the Company's pre-
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<PAGE> 3
tax income for any Fiscal Year is less than the Target Amount for such Fiscal
Year, the Annual Bonus shall be the amount, if any, equal to (i) (A) the
percentage of the Target Amount which such pre-tax 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 at the end of such
Fiscal Year. For example, if the Company's pre-tax is ninety percent (90%) of
the Target Amount for the Fiscal Year ending January 1, 2001, the Annual Bonus
shall be calculated as follows:
(90%-80%)
_________ X $192,435.50 = $96,217.75
20%
If the Company's pre-tax income for any Fiscal Year is less than eighty percent
(80%) of the Target Amount for such Fiscal Year, no Annual Bonus shall be
payable for such Fiscal Year. For purposes of this Agreement, the term "TARGET
AMOUNT" shall mean an amount to be determined by the compensation committee of
the Board 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
Company's audited financial statement for such Fiscal Year is available to the
Company. The Employee hereby (i) acknowledges that the Annual Bonus payable
hereunder with respect to the Fiscal Year ending January 31, 2001 is in lieu of
any annual bonus payable with respect to such Fiscal Year pursuant to to the
Employment Agreement dated November 1, 1995 (as amended from time to time) by
and between Mazel Company L.P. (the "PARTNERSHIP"), the Employee and, pursuant
to an Amendment to Employment Agreement made and entered into on September 30,
1996, the Company (the "1995 AGREEMENT"), and (ii) irrevocably waives any right
to an annual bonus with respect to such Fiscal Year under the 1995 Agreement.
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<PAGE> 4
3.5 AUTOMOBILE. During the Term, the Employee shall be
entitled to usage of an automobile of his choice which shall be leased by the
Company, provided that the monthly lease payments thereon do not exceed Five
Hundred Dollars ($500) and the Company 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 Company 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 Company 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 Company, the Employee shall have the right within ten (10)
days after such notice to dispute the Company'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 Company 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 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
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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 3.4); thereafter, the Company shall have no further
liability to the Employee. 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 Company 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 Company (other than pursuant
to actions taken at the direction or with the approval of the Board), (ii) is
found by reasonable determination of the Board, 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 Company
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 3.4 for such
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<PAGE> 6
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 Company shall have no further liability to
the Employee.
5.2. TERMINATION BY THE COMPANY WITHOUT CAUSE; CERTAIN
TERMINATIONS BY THE EMPLOYEE. During the Term, the Company 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 Company 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 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 Company
within fifteen (15) days' written notice from the Employee, 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 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 3.4 as if such employment had not otherwise been so
terminated; provided, however, that, for these purposes, and
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notwithstanding Section 3.4, the amount of each Annual Bonus (if any)
otherwise payable under the foregoing provisions of this clause (B)
shall be an amount equal to the average of the Annual Bonuses
(including, but not limited to, Annual Bonuses of $0) actually payable
under Section 3.4 of this Agreement or Section 3.6 of the 1995
Agreement, as applicable, 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 the Company or by him after the issuance
of a court order that restricts the Employee's ability to work for the Company.
Thereafter, the Company shall have no further liability to the
Employee.
5.3 CHANGE IN CONTROL. (a) The Company 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 Company 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,
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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 and (ii) 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 Company 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: (i) the first
purchase of shares pursuant to a tender offer or exchange for all or 20% or more
of the Company's Common Shares of any class or any securities convertible into
such Common Shares; (ii) the receipt by the Company of a Schedule 13D or other
advise indicating that a person (other than ZS Fund, L.P., Mazel/D&K, Inc.,
Reuven Dessler and/or any affiliate thereof) is the "beneficial owner" (as that
term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of
thirty percent (30%) or more of the Company's Common Shares calculated as
provided in paragraph (d) of said Rule 13d-3; (iii) the date of consummation of
any consolidation or merger of the Company in which the Company will not be the
continuing or surviving corporation or pursuant to which shares of capital
stock, of any class or any securities convertible into such capital stock, of
the Company would be converted into cash, securities or other property, other
than a merger of the Company in which holders of common stock of all classes of
the Company immediately prior to the merger would have the same proportion of
ownership of common stock of the surviving corporation immediately after the
merger; (iv) the date of consummation of any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all the assets of the Company; (v) the adoption of any plan or
proposal for the liquidation (but not a partial liquidation) or dissolution of
the Company; (vi) the date (the "MEASUREMENT DATE") on which the
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<PAGE> 9
individuals who at the beginning of a two-consecutive-year period ending on the
Measurement Date, cease, for any reason, to constitute at least a majority of
the Board, unless the election, or the nomination for election by the Company's
shareholders, of each new director during such two-year period was approved by
an affirmative vote of the directors then still in office who were directors at
the beginning of said two-year period.
(b) Notwithstanding any other provision of this Agreement, in
the event that any payment or benefits provided by the Company (or any entity
directly or indirectly controlling or controlled by the Company or any of its
subsidiaries, any such entity, 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
(ii) all other payments and benefits which
the Employee receives or is then entitled to receive from the Company
and any of its Affiliates that would constitute a "parachute payment"
within the meaning of Section 280G of the Code, LESS
(iii) the amount of federal income taxes payable with
respect to the payments and benefits described in clauses (i) and (ii)
above calculated at the maximum marginal income tax rate for each year
in which such payments and benefits shall be paid to
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<PAGE> 10
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 Company 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 Company 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 Company 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
Company and its subsidiaries and other Affiliates should properly belong to the
Company and its subsidiaries and other Affiliates; (iii) upon the termination of
the Employee's employment, 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
Company and its subsidiaries and other Affiliates; (v) the Employee has had and
will have access to Confidential Company Information (as defined below); (vi)
the Company Business is the same business in which the Employee has and will
participate in and for which he has and will have responsibility while at the
Company; (vii) the length of the Restricted Period (as defined below) is
necessary and appropriate to protect the legitimate business interests of the
Company because, among other reasons, the Confidential Company Information he
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<PAGE> 11
has had and will have access to will continue to have competitive significance
throughout the Restricted Period; and (vii) the Company would not have entered
into this Agreement but for the covenants and agreements set forth in this
Section 6. Accordingly, the Employee covenants and agrees that:
(a) During the period commencing on the Effective Date and
ending on the date twelve (12) months following the expiration of the Term (the
"RESTRICTED 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 Company 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 Company 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 disclose, rely on,
or otherwise use for his benefit or the benefit of others, except in connection
with the business and affairs of the Company and its subsidiaries, all
confidential matters relating to the Company Business and to the Company and its
subsidiaries learned by the Employee on or after the effective date hereof
directly or indirectly from the Company and its subsidiaries, including, without
limitation, information with respect to (a)
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<PAGE> 12
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 Company or its subsidiaries except with the
Company'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 Company or the Partnership under this Agreement or the
1995 Agreement.
(c) During the Restricted Period, the Employee shall not,
without the Company's prior written consent, directly or indirectly, knowingly
solicit, recruit or encourage to leave the employment of the Company or its
subsidiaries, any employee of the Company or its subsidiaries or hire any
employee who has left the employment of the Company or its subsidiaries after
the effective date of this Agreement within one year of the termination of such
employee's employment with the Company 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 Company and its subsidiaries
shall be the Company's property and shall be delivered to the Company 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> 13
(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 Company (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 purchase 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 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 Company or its subsidiaries or other Affiliates; provided
that in no event
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<PAGE> 14
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 Company 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 Company 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 Company 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
Company and that money damages will not provide an adequate remedy to the
Company.
(b) The right and remedy to require the Employee to account
for and pay over to the Company 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
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<PAGE> 15
damages - of a breach of the Restrictive Covenants, and the Employee shall
account for and pay over such Benefits to the Company 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, 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 Company and the
Employee intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of
breadth of scope or otherwise, it is the intention of the Company and the
Employee that such determination not bar or in any way affect the Company's
right 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
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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
Company may set-off against any or all amounts payable to the Employee hereunder
any or all amounts payable by the Employee to the Company in respect of a breach
by the Employee of any of the provisions of Section 6.
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 Company, to:
Mazel Stores, Inc.
31000 Aurora Road
Solon, Ohio 44139
Attention: Reuven Dessler
with a copy to:
ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, New York 10036
Attention: Robert A. Horne
and
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
The Tower at Erieview, Suite 2600
Cleveland, Ohio 44114-1824
Attention: Marc H. Morgenstern
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<PAGE> 17
(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.
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
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violation hereof shall be null and void. In the event of any sale, transfer or
other disposition of all or substantially all of the Company's assets or
business, whether by merger, consolidation or otherwise, the Company may assign
this Agreement and its rights hereunder.
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 Company's Retail
Division shall be headquartered in the Columbus Metropolitan Area, Ohio. In the
event that the Board 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 prior written notice to
the Company elect to terminate his employment hereunder in the event that the
Company does not rescind its request or demand, in which case the Employee's
employment hereunder shall be deemed to have been terminated by the Company
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 Company to enforce the Employee's rights under this
Agreement and the Employee prevails in such legal proceeding, the Company shall
reimburse the Employee for the reasonable fees
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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 Company 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 Board 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 Company 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 Company) (a "PROCEEDING"),
threatened or pending, whether civil, criminal, administrative or investigative,
by reason of his service to the Company as a director, officer, trustee,
employee or agent, or service at the written request of the Company 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 Company 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 Company unless, as a
condition thereof, the Company receives a full and unconditional release of all
liability in respect of the Proceeding. The Employee shall provide the Company
with prompt
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<PAGE> 20
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 Company
is prejudiced by such failure.
(c) The indemnification provided for in Section 7.15(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 Company 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 Company only if a court of competent jurisdiction determines that
the Employee did not meet the Standard of Care.
(d) The indemnification provided by this Section shall survive
termination of the Employee's employment with the Company.
(e) 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 or any other written agreement between the Company and the
Employee.
7.16 WITHHOLDING. The Company shall be entitled to withhold
from any payments or deemed payments any amount of withholding required by law.
7.17 RELEASE. The Employee and the Company will execute a
release (to be agreed upon by the Employee and the Company) at the termination
of the Employee's employment.
* * * * *
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<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have signed their names
as of the day and year first above written.
MAZEL STORES, INC.
By: ___________________________________
Name: Reuven Dessler
Title: Chief Executive Officer
__________________________________________
JERRY D. SOMMERS
<PAGE> 1
EXHIBIT 10.7
SECOND AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Second Amendment to the Employment Agreement (as defined below),
made and entered into as of January 1, 2000, by and between Mazel Stores, Inc.,
an Ohio corporation (the "Company"), and Sue Atkinson ("Employee"), is to
evidence the following agreements and understandings:
WITNESSETH
WHEREAS, Employee entered into an Amended and Restated Employment
Agreement with the Company and Mazel Company L.P., a Delaware partnership dated
as of September 30, 1996 (the "Employment Agreement");
WHEREAS, the Employment Agreement has been amended on one prior
occasion; and
WHEREAS, the parties hereto have agreed to further amend the Employment
Agreement in the manner set forth below.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt, adequacy and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. TERM. Section 1 of the Employment Agreement is hereby amended to
provide that the initial term of the Employment Agreement shall expire on
February 3, 2001.
2. CHANGE IN CONTROL. The Employment Agreement is amended by adding a
new Section 6A that provides as follows:
6A. CHANGE IN CONTROL.
6A.1 EMPLOYEE ELECTION. In the event of a "Change in Control,"
then the Employee may upon not less than 60 days prior written notice
elect to terminate her employment hereunder effective not less than six
months after the consummation of such Change in Control, and such
termination shall be deemed for purposes of this Agreement as a
termination by the Company without "cause." Employee shall be entitled
to the Annual Salary and benefits provided in Section 6 of this
Agreement.
6A.2. DEFINITION. The term "Change in Control" shall mean, but
not be limited to: (a) the first purchase of shares pursuant to a
tender offer or exchange for all or 20% or more of the Company's Common
Shares of any class or any securities convertible into such Common
Shares; (b) the receipt by the Company of a Schedule 13D or other
advise indicating that a person (other than ZS Fund, Mazel/D&K, Inc.,
Reuven Dessler and/or any
<PAGE> 2
affiliate thereof) is the "beneficial owner" (as that term is defined
in Rule 13d-3 under the Securities Exchange Act of 1934) of thirty
percent (30%) or more of the Company's Common Shares calculated as
provided in paragraph (d) of said Rule 13d-3; (c) the date of
consummation of any consolidation or merger of the Company in which the
Company will not be the continuing or surviving corporation or pursuant
to which shares of capital stock, of any class or any securities
convertible into such capital stock, of the Company would be converted
into cash, securities, or other property, other than a merger of the
Company in which the holders of common stock of all classes of the
Company immediately prior to the merger would have the same proportion
of ownership of common stock of the surviving corporation immediately
after the merger; (d) the date of consummation of any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company;
(e) the adoption of any plan or proposal for the liquidation (but not a
partial liquidation) or dissolution of the Company; or (f) the date
(the "Measurement Date") on which the individuals who at the beginning
of a two-consecutive-year period ending on the Measurement Date, cease,
for any reason, to constitute at least a majority of the Board of
Directors of the Company, unless the election, or the nomination for
election by the Company's shareholders, of each new director during
such two-year period was approved by an affirmative vote of the
directors then still in office who were directors at the beginning of
said two-year period.
6A.3 PARACHUTE PAYMENT. Notwithstanding any other provision of
this Agreement, in the event that any payment or benefits provided by
the Company (or an affiliate) to the Employee under or outside of the
terms of this Agreement would constitute a "parachute payment" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), the payments or benefits provided hereunder shall
be reduced to the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 4999 of the Code, but only
if, by reason of such reduction, the Employee's net 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 6A.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
Company and any of its affiliates that would
constitute a "parachute payment" within the meaning
of Section 280G of the Code, LESS
(iii) the amount of federal income taxes payable with
respect to the payments and benefits described in
clauses (i) and (ii) above calculated at the maximum
marginal income tax rate for each year in which such
payments and benefits shall be paid to the Employee
(based upon the rate in effect for such year as set
forth in the Code at the time of the first payment of
the foregoing), LESS
(iv) the amount of excise taxes imposed with respect to
the payments and benefits described in clauses (i)
and (ii) above by Section 4999 of the Code.
2
<PAGE> 3
All calculations under this Section 6A shall be made by the
Company in consultation with its outside auditors.
3. STOCK OPTION. Following a "Change-in-Control" of the Company, if the Company
elects to terminate Employee's employment without "cause" or not to renew the
Agreement, or Employee elects to terminate her employment under Section 6A.1,
all unvested stock options shall immediately vest in full on such date as the
Company or the Employee furnishes the other of its election to terminate or not
to renew. The acceleration of the vesting of such options, however, shall not
extend the termination or expiration date of such options.
4. ENTIRE AGREEMENT. Except as expressly provided in the Amendment, the terms
and conditions of the Employment Agreement are and shall remain in full force
and effect.
5. COUNTERPARTS. Counterparts to this Amendment may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such documents together shall constitute one and
the same instrument. Each counterpart may consist of two copies hereof, each
signed by one of the parties.
IN WITNESS WHEREOF, the parties hereto have signed their names as of
the day and year first written above.
MAZEL STORES, INC.
By: _______________________________
Reuven Dessler, Chairman, CEO
_____________________________________
Sue Atkinson
3
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name State of Organization Percentage Owned
---- --------------------- ----------------
<S> <C> <C>
Odd-Job Holdings, Inc. Delaware 100%
Odd-Job Acquisition Corp. Delaware 100% (1)
ZS Peddlers Mart, Inc. Delaware 100% (2)
Odd Job Trading Corp. New York 100% (2)
HIA Trading Associates New York 100% (3)
VCM, Ltd. Ohio 50%
</TABLE>
- ----------------------------------
(1) Wholly-owned subsidiary of Odd-Job Holdings, Inc.
(2) Wholly-owned subsidiary of Odd-Job Acquisition Corp.
(3) General Partnership with Odd-Job Acquisition Corp.
and Odd Job Trading Corp. as partners.
47
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mazel Stores, Inc.:
We consent to the incorporation by reference in the Registration Statement No.
333-32275 on Form S-8 of Mazel Stores, Inc. of our report dated March 13, 2000,
relating to the consolidated balance sheets of Mazel Stores, Inc. and
subsidiaries as of January 29, 2000 and January 30, 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended January 29, 2000, which report
appears in the January 29, 2000 Form 10-K of Mazel Stores, Inc.
KPMG LLP
Cleveland, Ohio
April 28, 2000
<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, Brady Churches and Sue Atkinson, 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 Annual Report on Form 10-K for the
fiscal year ended January 29, 2000, 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,
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 and counterparts,
each of which shall be deemed an original with respect to the person executing
it.
IN WITNESS WHEREOF, this Power of Attorney has been signed this 10th day
of April 2000.
MAZEL STORES, INC. By: /s/ Reuven Dessler
-------------------
Reuven Dessler,
Chairman of the Board and
Chief Executive Officer
DIRECTORS AND OFFICERS:
/s/ Reuven Dessler /s/ Brady Churches
- ---------------------- ------------------------------------
Reuven Dessler, Brady Churches
Chairman of the Board and
Chief Executive Officer
/s/ Jacob Koval /s/ Jerry Sommers
- ---------------------- ------------------------------------
Jacob Koval Jerry Sommers
/s/ Ned L. Sherwood /s/ Charles Bilezikian
- ---------------------- ------------------------------------
Ned L. Sherwood Charles Bilezikian
/s/ Robert Horne /s/ Phillip Cohen
- ---------------------- ------------------------------------
Robert Horne Phillip Cohen
/s/ Mark Miller /s/ Sue Atkinson
- ---------------------- ------------------------------------
Mark Miller Sue Atkinson
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
46
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 2,367
<SECURITIES> 0
<RECEIVABLES> 14,731
<ALLOWANCES> 388
<INVENTORY> 70,178
<CURRENT-ASSETS> 92,584
<PP&E> 25,082
<DEPRECIATION> 0
<TOTAL-ASSETS> 149,101
<CURRENT-LIABILITIES> 30,432
<BONDS> 0
0
0
<COMMON> 64,320
<OTHER-SE> 20,467
<TOTAL-LIABILITY-AND-EQUITY> 149,101
<SALES> 284,673
<TOTAL-REVENUES> 0
<CGS> 178,705
<TOTAL-COSTS> 93,251
<OTHER-EXPENSES> (1,338)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,795
<INCOME-PRETAX> 11,260
<INCOME-TAX> 4,503
<INCOME-CONTINUING> 6,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,757
<EPS-BASIC> .74
<EPS-DILUTED> .74
</TABLE>
