<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
D.I.Y. HOME WAREHOUSE, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
D.I.Y. HOME WAREHOUSE, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 28, 1999
----------------------------
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of
D.I.Y. Home Warehouse, Inc. (the "Company") will be held at the Sheraton Airport
Hotel, 5300 Riverside Drive, Cleveland, Ohio 44135, (216) 267-1500, on
Wednesday, April 28, 1999, at 10:00 a.m., local time, for the following
purposes:
(1) To elect a Board of seven Directors to serve until the
next Annual Meeting of Shareholders or until their
successors shall have been duly elected and qualified;
and
(2) To transact such other business as may properly come
before the meeting.
An Information Statement containing information relevant to the Annual
Meeting appears on the following pages.
Only holders of Common Stock of record at the close of business on
February 26, 1999, are entitled to notice of and to vote at the meeting or any
adjournments.
By Order of the Board of Directors
JOHN M. ERB
Secretary
Dated: March 22, 1999
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WE ARE NOT ASKING YOU FOR A PROXY OR WRITTEN CONSENT, AND YOU ARE
REQUESTED NOT TO SEND US A PROXY OR CONSENT.
<PAGE> 3
D.I.Y. HOME WAREHOUSE, INC.
INFORMATION STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 28, 1999
----------------------------
GENERAL
This Information Statement is furnished to shareholders in connection
with the election by the shareholders of D.I.Y. Home Warehouse, Inc. (the
"Company") at the Annual Meeting of Shareholders (the "Annual Meeting") of seven
(7) directors to serve until the next Annual Meeting or until their successors
shall have been duly elected and qualified.
It is anticipated that the holders of at least 60% of the outstanding
Common Stock of the Company will vote in favor of the election as directors of
the seven (7) nominees of the Board of Directors (the "Board") at the Annual
Meeting. Accordingly, the Company has determined not to solicit proxies from
additional shareholders for use at the Annual Meeting in connection with the
election of directors.
The executive offices of the Company are located at 5811 Canal Road,
Valley View, Ohio 44125. The approximate date of mailing of this Information
Statement to the Company's shareholders is March 22, 1999.
WE ARE NOT ASKING YOU FOR A PROXY OR WRITTEN CONSENT, AND YOU ARE
REQUESTED NOT TO SEND US A PROXY OR CONSENT.
TIME AND PLACE OF MEETING
The Annual Meeting will be held at the Sheraton Airport Hotel, 5300
Riverside Drive, Cleveland, Ohio 44135, (216) 267-1500, on Wednesday, April 28,
1999, at 10:00 a.m., local time.
VOTING RIGHTS AND
PRINCIPAL HOLDERS OF VOTING SECURITIES
Only shareholders of record at the close of business on February 26,
1999 are entitled to notice of and to vote at the Annual Meeting or at any
adjournments. As of that date, the Company had 7,276,059 shares of Common Stock
issued, outstanding and entitled to vote (which excludes 357,800 treasury
shares) held by approximately 211 holders of record. Based on information
provided to the Company by certain holders of record, the Company estimates that
there are in excess of 1,500 beneficial shareholders. Each outstanding share
entitles the record holder to one vote. Shares cannot be voted at the Annual
Meeting unless the holder is present in person or represented by proxy. The
presence, in person or by proxy, of shareholders entitled to vote a majority of
the voting shares that are outstanding and entitled to vote will constitute a
quorum.
Information concerning principal holders of the Common Stock is
discussed under "Security Ownership of Certain Beneficial Owners and
Management."
MATTERS TO COME BEFORE THE ANNUAL MEETING
ELECTION OF DIRECTORS
The first matter expected to be considered at the Annual Meeting will
be the election of seven (7) directors. It is proposed that these positions be
filled by persons nominated to the Board by management. Each director shall be
elected by a plurality of the votes cast at the Annual Meeting. Therefore, if a
quorum is present, abstentions and broker non-votes will have no effect on the
election of directors. Each director elected at the Annual Meeting will serve
for a term commencing on the date of the Annual Meeting and continuing until the
next Annual Meeting of Shareholders and until his successor is duly elected and
qualified. In March 1999, Mr. Dennis C. Hoff resigned as a director of the
Company. The Board did not nominate a candidate to fill the vacancy on the Board
created by Mr. Hoff's resignation. Accordingly, after the election of directors
at the Annual Meeting, a vacancy will exist on the Board. The Company's Amended
and Restated Code of Regulations provides that whenever a vacancy shall occur
among the directors, the remaining directors shall constitute the directors of
the Company until such vacancy is filled. The remaining directors may, by a
majority vote, fill any vacancy for the unexpired term.
<PAGE> 4
The following list identifies each nominee for election to the Board at
the Annual Meeting and describes each candidate's principal occupation for the
past five years. Each of the directors has served continuously from the date of
his election to the present time.
FRED A. ERB, age 76, is the Chairman of the Board of the Company. He
has been a Director of the Company since its inception. Mr. Erb is the Chief
Executive Officer and a Director of Edgemere Enterprises, Inc. He also serves as
an executive officer and director of Erb-D.I.Y. Center, Inc. and TQ10
Corporation. Edgemere Enterprises, Inc., Erb-D.I.Y. Center, Inc. and TQ10
Corporation are affiliates of the Company. Mr. Erb leases, and is a partner of
certain entities which lease, property to the Company. See "Compensation
Committee Interlocks and Insider Participation." Fred A. Erb is the father of
John M. Erb.
CLIFFORD L. REYNOLDS, age 52, has been a Director since February 1993.
He is the President and Chief Executive Officer of the Company and has served in
such capacity since October 1989. Mr. Reynolds has 28 years of experience in the
home improvement retailing business. From October 1984 until October 1989, Mr.
Reynolds served as the Senior Vice President and General Manager of the Company.
Prior to his involvement with the Company, Mr. Reynolds held various senior
management positions at other retail home improvement companies.
R. SCOTT EYNON, age 49, has been a Director since February 1993. He is
the Vice President-Operations of the Company and has served in that capacity
since January 1993. Between February 1988 and December 1992, Mr. Eynon served as
the Regional Manager for the Company. From January 1985 until February 1988, Mr.
Eynon held various management positions with the Company. Since 1977, Mr. Eynon
has served in a variety of management positions in the home center industry.
JOHN M. ERB, age 44, has been a Director since February 1993. He is the
Secretary of the Company and has served in such capacity since February 1993.
From February 1991 to February 1993, Mr. Erb was Assistant Secretary. Mr. Erb
also serves as an executive officer of Edgemere Enterprises, Inc., Erb Lumber,
Inc. and TQ10 Corporation. TQ10 Corporation and Edgemere Enterprises, Inc. are
affiliates of the Company. John M. Erb is the son of Fred A. Erb.
GREGORY K. JONES, age 38, has been a Director since August 1993. Mr.
Jones is President and Chief Executive Officer of uBid Online Auction. From
November 1995 to November 1997, Mr. Jones served as Senior Vice President of
APAC Corporation. From April 1993 to October 1995, Mr. Jones served as President
of Office 1 Superstore. Prior to that, he was President and Chief Operating
Officer of Reliable Corporation, an office products and supplies retailer.
JOHN A. SHIELDS, age 55, has been a Director since August 1993. Mr.
Shields is self-employed. From 1994 to 1997, Mr. Shields was the Chairman and
Chief Executive Officer of Delray Farms Fresh Markets. From 1983 to 1993, he was
President and Chief Executive Officer of First National Super Markets, Inc., a
retail grocery store chain. He is also Chairman of the Board and a Director of
Homeland Stores, Inc., a publicly reporting retail supermarket and Wild Oats
Markets, Inc., a publicly reporting health food supermarket and a Director of
Shore Bank Corp., a publicly reporting bank.
MARK A. TIMMERMAN, age 38, has been a Director since August 1993. He is
a principal at William Blair & Company, an investment banking firm, where he has
been employed since July 1986. He is also a Director of Prophet 21, a publicly
reporting provider of on-line business management systems.
COMMITTEES OF THE BOARD AND MEETINGS
The Board met nine times and took action by unanimous written consent
on three occasions during the fiscal year ended January 2, 1999.
Several important functions of the Board may be performed by committees
that are comprised of members of the Board. The Company's Bylaws authorize the
formation of these committees and grant the Board the authority to prescribe the
functions of each committee and the standards for membership of each committee.
In addition, the Board appoints the members of each committee. The Board has
four standing committees: an Audit Committee, a Compensation Committee, a Long
Term Incentive Plan Committee, and an Executive Committee.
The Audit Committee was established to (i) annually recommend a firm of
independent public accountants to the Board to act as auditors of the Company;
(ii) review the scope of the annual audit with the auditors in advance of the
audit; (iii) generally review the results of the audit and the adequacy of the
Company's accounting, financial and operating controls; (iv) review the
Company's accounting and reporting principles, policies and practices; and (v)
perform such other duties as may be delegated to it by the Board. The current
members of the Audit Committee are Messrs. Fred A. Erb, Mark A. Timmerman and
Gregory K. Jones. The Audit Committee held one formal meeting during the fiscal
year ended January 2, 1999.
2
<PAGE> 5
The Compensation Committee was established to (i) set, review and
modify the compensation (including salaries, bonuses and stock options) of the
Company's officers; and (ii) perform such other duties as may be delegated to it
by the Board. The members of the Compensation Committee during the fiscal year
ended January 2, 1999 were Messrs. Fred A. Erb, John M. Erb and John A. Shields.
The Compensation Committee took action without a meeting on two occasions and
held one formal meeting during the fiscal year ended January 2, 1999. See
"Compensation Committee's Report to Shareholders". The Long Term Incentive Plan
Committee (the "LTIP Committee") (composed of Messrs. Fred A. Erb and John M.
Erb) was established to administer the Company's 1993 Long Term Incentive Plan
(the "Plan"). The LTIP Committee took action by unanimous consent on one
occasion during the fiscal year ended January 2, 1999.
The Executive Committee was established to generally manage the
day-to-day business and affairs of the Company between regular Board meetings.
In no event may the Executive Committee, without the prior approval of the Board
acting as a whole, (i) recommend to the shareholders an amendment to the
Company's Articles of Incorporation, (ii) amend the Company's Code of
Regulations, (iii) adopt an agreement of merger or consolidation, (iv) recommend
to the shareholders the sale, lease or exchange of all or substantially all of
the Company's property and assets, (v) recommend to the shareholders a
dissolution of the Company or a revocation of a dissolution, (vi) fill vacancies
on the Board, (vii) fix compensation of the directors for serving on the Board
or on a committee of the Board, (viii) declare dividends or authorize the
issuance of the Company's stock, (ix) approve or take any action with respect to
any related party transaction involving the Company, or (x) take any other
action which is forbidden by the Company's Code of Regulations. All actions
taken by the Executive Committee must be promptly reported to the Board as a
whole and are subject to ratification, revision and alteration by the Board,
except that no rights of third persons created in reliance on authorized acts of
the Executive Committee can be affected by any such revision or alteration. The
current members of the Executive Committee are Messrs. Fred A. Erb, Clifford L.
Reynolds and John M. Erb. The Executive Committee did not hold any formal
meetings during the fiscal year ended January 2, 1999.
The Board does not have a standing committee responsible for nominating
individuals to become directors.
OUTSIDE DIRECTOR COMPENSATION
Fred A. Erb, John M. Erb and directors who are employees of the Company
do not receive compensation for serving on the Board or on the Board's
committees. Directors who are not employees of the Company are entitled to an
annual retainer fee of $5,000, a $1,000 fee for each regular or special meeting
of the Board and a $500 fee for each committee meeting attended on a day other
than a regular or special Board meeting date. For services during the fiscal
year ended January 2, 1999, Mark A. Timmerman, John A. Shields and Gregory K.
Jones received directors' fees of $10,500, $10,500 and $10,000, respectively,
which was paid in cash.
3
<PAGE> 6
MANAGEMENT AND COMPENSATION
EXECUTIVE OFFICERS
The persons listed below are the current executive officers of the
Company. Each is annually appointed by, and serves at the pleasure of, the
Board.
<TABLE>
<CAPTION>
APPROXIMATE
DATE
NAME AGE OFFICE SERVICE BEGAN
---- --- ------ -------------
<S> <C> <C> <C>
Fred A Erb(1).......................... 76 Chairman of the Board October 1984
Clifford L. Reynolds................... 52 President and Chief Executive Officer October 1984
R. Scott Eynon......................... 49 Vice President-Operations January 1985
Dennis C. Hoff......................... 55 Vice President-General Merchandising May 1988
Manager
John M. Erb(1)......................... 44 Secretary February 1991
Eric I. Glassman....................... 40 Vice President and Chief Financial Officer January 1997
</TABLE>
- ---------------------------------------------
(1) Fred A. Erb is the father of John M. Erb.
Each of the executive officers other than Eric I. Glassman has been
continuously employed by the Company for more than five (5) years, serving
in the capacities and since the date reflected above.
ERIC I. GLASSMAN has been Vice President and Chief Financial Officer
since July 1998. Mr. Glassman was Treasurer and Controller from January 1997 to
July 1998. Prior to joining the Company, Mr. Glassman was employed by BE-MAC
Transport Company, Inc. as Vice President, Treasurer and Controller from 1991 to
February 1993 and was employed by Photoco, Inc. as Chief Financial Officer from
February 1993 until joining the Company in January, 1997.
4
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid to the Chief
Executive Officer and each executive officer whose remuneration from the Company
exceeded $100,000 during the fiscal year ended January 2, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
LONG TERM
COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) OPTIONS(#) COMPENSATION($)(3)
- --------------------------- ---- ------------ -------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Clifford L. Reynolds,
President and Chief Executive
Officer........................... 1998 $256,226 $-0- -0- $7,590
1997 250,000 50,000 195,000(2) 6,371
1996 246,635 250,000 30,000 3,420
R. Scott Eynon,
Vice President - Operations........ 1998 $148,558 $-0- -0- $6,744
1997 143,654 30,000 107,500(2) 6,312
1996 137,981 112,000 20,000 3,052
Dennis C. Hoff,
Vice President - General
Merchandising Manager.............. 1998 $148,558 $-0- -0- $7,289
1997 143,654 30,000 107,500(2) 6,312
1996 137,981 112,000 20,000 3,052
<FN>
------------------------------------
(1) Includes amounts which were deferred at the election of the officer to the Company's 401(k) plan.
(2) Includes as issued in 1997 replacement options which were exchanged
for options surrendered by Messrs. Reynolds, Eynon and Hoff pursuant to
the Company's 1997 option repricing program. Mr. Reynolds received
replacement options on options exercisable for 195,000 shares
surrendered, Messrs. Eynon, and Hoff each received replacement options on
options exercisable for 107,500 shares surrendered. The Company's 1997
option repricing program allowed certain holders of certain
out-of-the-money options to surrender them to the Company and receive in
exchange therefore options exercisable for an equal number of shares at
an exercise price of $3.56 per share, which was the fair market value of
the shares on the date of issuance of the replacement options. The
replacement options vest equally over three (3) years commencing on the
first anniversary of the issuance of the replacement options, and expire
on the fifth anniversary of the issuance of the replacement options.
(3) Consists of contributions paid by the Company on behalf of the
officer to the Company's 401(k) plan and Company paid premium on life
insurance.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into amended and restated employment contracts
with Messrs. Reynolds, Eynon and Hoff dated as of January 1, 1995, which amend
and restate employment agreements originally dated as of March 24, 1993. In
1998, the Company entered into an employment agreement with Mr. Glassman dated
as of July 1, 1998. In March 1999, the employment agreements of Messrs.
Reynolds, Eynon and Glassman were amended to extend their termination dates two
(2) years to December 31, 2001, unless sooner terminated as provided therein.
The termination date of Mr. Hoff's employment contract was not extended and his
employment contract expires on December 31, 1999, unless sooner terminated as
provided therein. The agreements provide for payment of a base salary, as well
as a bonus to be determined in the discretion of the Compensation Committee,
together with certain fringe benefits. The agreements contain typical
confidentiality provisions, and preclude them from competing with the Company
during the term of the agreement and for certain periods of time after
termination under certain circumstances. In addition, the agreements provide for
severance compensation, at the executive's base salary rate plus continued
medical and insurance benefits, for termination of employment following a
"change of control" (as defined in the agreements) for certain periods of time
(18 months for Mr. Reynolds, and 12 months for Messrs. Eynon, Hoff and Glassman)
or following various other circumstances. However, the executives are required
to use their good faith efforts to obtain reasonable replacement employment from
and after such termination and any compensation and medical and insurance
benefits received by the executive during the severance payment period will
reduce the amount of severance pay and medical and insurance benefits due to the
executive from the Company under the employment agreement.
The Company has entered into agreements with Messrs. Reynolds, Eynon,
Hoff and Glassman, dated July 1, 1998 (the "Transaction Bonus Agreements"),
which provide that if the executives participate in bringing about a transaction
which is closed by December 31, 1999 and which results in a "change of control"
(as defined in the Transaction Bonus Agreements) and (i) are still employed by
the Company immediately prior to the transaction, or (ii) their employment was
terminated by the Company without cause after the execution of the definitive
5
<PAGE> 8
agreement governing the transaction, Messrs. Reynolds, Eynon and Hoff will be
entitled to receive a bonus (a "Transaction Bonus") equal to the greater of (y)
one (1) year of their respective base salaries, or (z) 1.11%, 0.64% and 0.64%,
respectively, of the value received by shareholders of the Company as a result
of the transaction, as determined by an independent evaluation obtained by the
Company, and Mr. Glassman will be entitled to receive $50,000.
The payment of a Transaction Bonus is in addition to any payment which
an executive may be entitled to receive pursuant to any employment agreement
that such executive may have with the Company as a result of termination of his
employment due to a change of control of the Company.
OPTIONS/SARS GRANTS
IN LAST FISCAL YEAR
The Company did not grant any options or stock appreciation rights to
the executive officers during its fiscal year ended January 2, 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES AND
FISCAL YEAR-END OPTION/SAR VALUES TABLE
==============================================================================================================================
No. of Unexercised Value of Unexercised
Options/SARs at In-The-Money Options/SARs
Fiscal Year-End at
Fiscal Year-End
------------------------------ ----------------------------
Shares Acquired
on Exercise Value Not Not
Name in 1998 Received Exercisable Exercisable Exercisable Exercisable
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Clifford L. Reynolds 0 n/a 65,000 130,000 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
R. Scott Eynon 0 n/a 35,833 71,667 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Dennis Hoff 0 n/a 35,833 71,667 0 0
==============================================================================================================================
</TABLE>
COMPENSATION COMMITTEE'S REPORT TO SHAREHOLDERS
The executive compensation program is administered by the Compensation
Committee of the Board (the "Committee") which was comprised of non-employee
directors Messrs. Fred A. Erb, John M. Erb and John A. Shields during the fiscal
year ended January 2, 1999. The Committee reviews the compensation (including
salaries, bonuses and stock options) of the Company's officers and performs such
other duties as may be delegated to it by the Board. The Committee held one
formal meeting and took action without a meeting on two occasions during the
fiscal year ended January 2, 1999.
In reviewing the compensation to be paid to the Company's executive
officers during the fiscal year ended January 2, 1999, the Committee sought to
ensure that executive officers were rewarded for long-term strategic management,
for increasing the Company's value for its shareholders, and for achieving
internal goals established by the Board.
The key components of executive officer compensation are salary,
bonuses and stock awards. Salary is generally based on factors such as an
individual officer's level of responsibility, prior years' compensation,
comparison to compensation of other officers in the Company, and compensation
provided at competitive companies and companies of similar size. Bonuses and
stock awards are intended to reward exceptional performances. In February, 1998,
the Committee approved increases in the base salaries of three of the principal
executive officers (Messrs. Reynolds, Eynon and Hoff) effective March 31, 1998
and in July, 1998, the Committee approved an increase in the base salary of Mr.
Glassman, effective as of July 1, 1998. The aggregate base salaries for Messrs.
Reynolds, Eynon and Hoff was increased by 3.5% and the base salary of Mr.
Glassman was increased 17.6%. Stock awards are also intended to increase an
officer's interest in the Company's long-term success as measured by the market
and book value of its stock. Stock awards may be granted to officers and
directors of the Company and to certain employees who have managerial or
supervisory responsibilities under the Company's Plan. Stock awards may be stock
options, stock appreciation rights or restricted share rights. No stock options
were issued under the Plan during the fiscal year ended January 2, 1999.
6
<PAGE> 9
The Committee reviewed the individual performances of the principal
executive officers and recognized the progress the Company has made toward
attaining its long-term goals. Based on its subjective evaluation of the
performance by the four principal officers (Messrs. Reynolds, Eynon, Hoff and
Glassman) and their perceived levels of contribution to attainment of the
Company's long-term goals, the Committee approved the salary increases described
above.
In February 1998, the Committee recommended to the Board that, in lieu
of an employee bonus percentage based compensation plan for the fiscal year
ended January 2, 1999, the Compensation Committee would consider discretionary
bonuses at the end of the fiscal year ended January 2, 1999, based upon mutually
agreed upon and shared goals established in writing between each executive
officer and the Compensation Committee. The Compensation Committee determined
not to award a discretionary bonus to any executive officer for the fiscal year
ended January 2, 1999.
In addition, the Committee seeks to point out that the Committee
believes that there are many relevant factors that should generally be
considered in determining a bonus plan including, but not limited to, return on
equity, earnings as a percentage of sales, margins, expenses, and other
designated targets and projects. The Committee further believes that earnings
per share in many instances should only be one component of a bonus plan or
possibly, under certain circumstances, not a component at all.
During the fiscal year ended January 2, 1999, the Compensation
Committee also approved agreements with Messrs. Reynolds, Eynon, Hoff and
Glassman, dated July 1, 1998 (the "Transaction Bonus Agreements"), which provide
that if an executive participates in bringing about a transaction which is
closed by December 31, 1999 and which results in a "change of control" (as
defined in the Transaction Bonus Agreements) and (i) are still employed by the
Company immediately prior to the transaction, or (ii) their employment was
terminated by the Company without cause after the execution of the definitive
agreement governing the transaction, Messrs. Reynolds, Eynon and Hoff will be
entitled to receive a bonus (a "Transaction Bonus") equal to the greater of (y)
one (1) year of their respective base salaries, or (z) 1.11%, 0.64% and 0.64%
respectively, of the value received by shareholders of the Company as a result
of the transaction, as determined by an independent evaluation obtained by the
Corporation, and Mr. Glassman will be entitled to receive $50,000.
Fred A. Erb John M. Erb John A. Shields
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Fred A. Erb and John M. Erb constituted the Compensation
Committee from August 9, 1993 to February 23, 1994. On February 23, 1994, Mr.
John A. Shields joined the Compensation Committee. Prior to August 9, 1993, Mr.
Fred A. Erb was solely responsible for determining executive officer
compensation. Mr. Fred A. Erb has served as a director and executive officer of
other entities which are, or have been, related to the Company. See "Directors
and Officers." Mr. Fred A. Erb also leases, and is a partner of certain entities
which lease, property to the Company.
The Company currently leases the Cleveland, North Randall and Eastlake
store locations from either Fred A. Erb (the Company's Chairman and controlling
stockholder) or entities affiliated with him. Each of the leases are "net"
leases, whereby DIY and its sublessors are responsible for all costs associated
with the premises. The Company believes that the rents payable under these
leases are at rates that are no less favorable to the Company than those that
could be obtained from unaffiliated third parties. The Company also leased the
Boardman store location from DIY Ohio (defined below) until it was sold to an
unrelated entity in October 1998.
The Company leases its Cleveland location from D.I.Y. Ohio Real Estate
Associates Limited Partnership ("DIY Ohio"), a limited partnership controlled by
Mr. Fred A. Erb and in which he and members of this immediate family are
partners. Pursuant to the terms of the lease, during 1999 the Company will pay
annual "Basic Rent" of $387,861. Each year the Company must pay an additional
amount equal to the Basic Rent multiplied by one-half of the percentage increase
in the Consumer Price Index from the previous January 31 to January 31 of that
year ("CPI Rent"). Each year, the Company must also pay "Percentage Rent" equal
to 1.5% of the amount by which the Company's gross sales for the year exceeds
the sum of the Basic Rent and the CPI Rent, if any, which sum is divided by
1.5%. The Company did not pay Percentage Rent in 1998. The Company paid $379,831
in rent in 1998, $386,796 in rent in 1997, and $388,340 in rent in 1996 to DIY
Ohio. The term of the lease ends on December 30, 2007, and the Company does not
have any renewal options.
The Company's North Randall location is leased from D.I.Y. Center
Associates, a general partnership in which Mr. Fred A. Erb is a partner. The
lease runs through October 31, 2002, and provides for annual rent of $511,000.
The Company has three ten-year renewal options, with annual rent for the first,
second and third renewal periods of $536,000, $561,000 and $586,000,
respectively. The amount of rent paid in each of 1998, 1997 and 1996 was
$511,000.
7
<PAGE> 10
The Company leases its Eastlake store from a partnership controlled by
Mr. Fred A. Erb. The lease term ends on February 28, 2002, and DIY does not have
any renewal options. In August, 1996, Basic Rent increased from $411,000 to
$456,600 per year. Each year, the Company must also pay Percentage Rent equal to
1.5% of the amount, if any, by which the Company's gross sales for the year
exceeds the Company's Basic Rent for that year divided by 1.5%. The Company did
not pay Percentage Rent in 1998, 1997 or 1996. On August 1 of 1999, the
Company's Basic Rent will be increased by a percentage equal to one-half of the
percentage increase in the Consumer Price Index over the preceding three year
period. The Company paid rent of $456,600 in each of 1998 and 1997 and $430,000
in 1996.
The Company also leased its Boardman, Ohio location from DIY Ohio
through October 22, 1998. The amount of rent paid to DIY Ohio in 1998 was
$433,000 and $519,600 in each of 1997 and 1996..
In 1985, Edgemere Enterprises, Inc. (formerly Erb Lumber Co.), a
company controlled by Mr. Fred A. Erb, advanced $3.0 million to the Company. In
April, 1998, the Company made a principal payment on the loan in the amount of
$300,000 in satisfaction of a demand for payment from Edgemere Enterprises, Inc.
The present balance outstanding is $300,000. The loan bears interest at the rate
of 3/4% over the prime rate per year, and is due on demand.
8
<PAGE> 11
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The following graph depicts a comparison of cumulative total returns,
assuming $100 was invested on May 18, 1993 (the date of the Company's initial
public offering) and reinvestment of dividends in (a) the Company, (b) the
entire Nasdaq stock market, and (c) a group of issuers which the Company
believes are the Company's peers in its line of business. This "peer group"
consists of Building Materials Holdings, Eagle Hardware & Garden, Home Depot,
Inc., HomeBase, Inc., Lowe's Companies, Inc., National Home Centers and Wolohan
Lumber Co.
[GRAPHIC]
<TABLE>
<CAPTION>
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG D.I.Y. HOME WAREHOUSE INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
D.I.Y. HOME WAREHOUSE, INC. $ $ $ $ $ $
PEER GROUP
NASDAQ MARKET INDEX
</TABLE>
ASSUMES $100 INVESTED ON JAN. 01, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1998
9
<PAGE> 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 26, 1999, the
shareholdings of (a) each person known to the Company to be the beneficial
owner of more than five (5%) percent of the Common Stock, (b) each director
of the Company, (c) each executive officer listed in the Summary
Compensation Table, and (d) all executive officers and directors of the
Company as a group, based upon information available to the Company.
<TABLE>
<CAPTION>
===============================================================================================================
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING SHARES (1)
- ------------------------------------ -------------------- ------------------
<S> <C> <C>
Fred A. Erb 4,410,000(2) 60.6%
Chairman of the Board of Directors
44 East Long Lake Road
Bloomfield Hills, Michigan 48304
Clifford L. Reynolds 160,000(3) 2.2%
Director and President and Chief Executive Officer
5811 Canal Road
Valley View, Ohio 44125
R. Scott Eynon 90,833(4) 1.2%
Director and Vice President - Operations
5811 Canal Road
Valley View, Ohio 44125
Dennis C. Hoff 60,933(5) 0.8%
Vice President - General
Merchandising Manager
5811 Canal Road
Valley View, Ohio 44125
John M. Erb 85,000(6) 1.2%
Director and Secretary
44 East Long Lake Road
Bloomfield Hills, Michigan 48304
Gregory K. Jones, Director 18,084(7) *
One Parkway North Center
Deerfield, Illinois 60015
John A. Shields, Director 77,411(8) 1.1%
2749 Landon Road
Shaker Heights, Ohio 44122
Mark A. Timmerman, Director 23,984(9) *
222 West Adams Street
Chicago, Illinois 60606
All current executive officers and directors as a group 4,929,578 67.8%
(9 persons)
==================================================================================================================
<FN>
* Less than one-half percent.
(1) Percentage calculations based on 7,276,059 shares of Common Stock
issued and outstanding as of February 26, 1999, which excludes
357,800 treasury shares. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange
Commission, which provide that shares of Common Stock subject to
options exercisable within 60 days are deemed outstanding for
computing the
10
<PAGE> 13
percentage of the person or group holding the particular option, but
are not outstanding for computing the percentage of any other person.
(2) Does not include 440,000 shares held by The Erb Foundation, the
trustees of which are Fred A. Erb, John M. Erb and Ira J. Jaffe.
(3) Consists of 95,000 shares now owned by Mr. Reynolds and 65,000 shares
which he may acquire within 60 days pursuant to his options under the
Plan.
(4) Consists of 55,000 shares now owned by Mr. Eynon and 35,833 shares
which he may acquire within 60 days pursuant to his options under the
Plan.
(5) Consists of 25,100 shares now owned by Mr. Hoff and 35,833 shares which
he may acquire within 60 days pursuant to his options under the Plan.
(6) Consists of 70,000 shares now owned by Mr. Erb and 15,000 shares which
he may acquire within 60 days pursuant to options under the Plan.
(7) Consists of 3,084 shares now owned by Mr. Jones and 15,000 shares which
he may acquire within 60 days pursuant to options under the Plan.
(8) Consists of 62,411 shares now owned by Mr. Shields and 15,000 shares
which he may acquire within 60 days pursuant to options under the Plan.
(9) Consists of 8,984 shares now owned by Mr. Timmerman and 15,000 shares
which he may acquire within 60 days pursuant to options under the Plan.
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company is required to identify each person who was an
officer, director or beneficial owner of more than 10% of the Company's
registered equity securities during the Company's most recent fiscal year
and who did not file on a timely basis reports required by Section 16(a) of
the Securities and Exchange Act of 1934. Based solely upon its review of
copies of such reports received by it during or with respect to the fiscal
year ended January 2, 1999, the Company believes that all officers,
directors and beneficial owners of more than 10% of the Company's
registered equity securities timely filed all required reports.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STORE LEASES
The Company leases the Cleveland, North Randall and Eastlake store
locations from either Fred A. Erb (the Company's Chairman and controlling
stockholder) or entities affiliated with him. The Company also leased the
Boardman store location from DIY Ohio until it was sold to an unrelated
party in October, 1998. See "Management - Compensation Committee Interlocks
and Insider Participation."
TRANSACTIONS WITH EDGEMERE ENTERPRISES, INC.
In 1985, Edgemere Enterprises, Inc. (formerly Erb Lumber Co.), a
company controlled by Mr. Fred A. Erb, advanced $3.0 million to the Company. In
April 1998, the Company made a principal payment on the loan in the amount of
$300,000 in satisfaction of a demand for payment from Edgemere Enterprises, Inc.
The present balance outstanding is $300,000. The loan bears interest at the rate
of 3/4% over the prime rate per year, and is due on demand. See "Management -
Compensation Committee Interlocks and Insider Participation."
TAX INDEMNIFICATION AGREEMENT
The Company and Fred A. Erb, John M. Erb, Clifford L. Reynolds, R.
Scott Eynon and Dennis C. Hoff entered into a mutual indemnification
agreement relating to federal and certain state and local income tax
liabilities of the Company and the shareholders for tax years during which
the Company had elected to be treated as an S Corporation. This agreement
generally provides that the Company will indemnify the shareholders, and
the shareholders will indemnify the Company, against any increase in the
indemnified party's income tax liabilities (including interest and
penalties and all expenses, attorneys' fees and accountants' fees incurred
in connection therewith) for those jurisdictions in which an S Corporation
election was made or deemed to have been made.
11
<PAGE> 14
PURCHASE OF STOCK FROM FRED A. ERB
On November 11, 1998, the Company received an unsolicited offer
from a brokerage firm on behalf of a shareholder of the Company to sell
357,800 shares of the Company's Common Stock at $9/16 ($0.563) per share.
At that time, due to the timing of the proposed sale, the Company did not
participate in the proposed sale, and the shares were acquired by Fred A.
Erb (the Company's Chairman and controlling stockholder). Mr. Erb
subsequently offered to sell such shares to the Company and on November 23,
1998, the Company accepted Mr. Erb's offer to sell such shares to the
Company at the price per share which Mr. Erb paid for them. The Company has
retained such shares as treasury shares.
GENERAL INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS
The Board selected PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ended January 2, 1999.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting, and will have the opportunity to make a statement if
they desire to do so and to respond to appropriate questions.
SHAREHOLDERS' PROPOSALS
Any and all shareholder proposals for inclusion in the materials
for the Company's next Annual Meeting of Shareholders must comply with the
rules and regulations promulgated under the Securities Exchange Act of
1934, as amended, and must be received by the Company, at its offices at
5811 Canal Road, Valley View, Ohio 44125, not later than November 19, 1999.
Such proposals should be addressed to the Company's Secretary.
The Company's Code of Regulations (the "Regulations") also contain
certain provisions which affect shareholder proposals. The Regulations
require that notice in writing of proposed shareholder nominations for the
election of directors be timely given to the Secretary of the Company prior
to the meeting. Such notice must contain certain information about the
non-incumbent nominee, including name, age, business and residence
addresses, principal occupation, the class and number of shares of the
Company beneficially owned by the nominee and such other information as
would be required to be included in a proxy statement soliciting proxies
for election of the nominee, as well as certain information about the
nominating shareholder. The Company may require any nominee to furnish
other information reasonably required by the Company to determine the
nominees eligibility to serve as a director. If the presiding officer of
any shareholders meeting determines that a person was not nominated in
accordance with the foregoing procedures, such person shall not be eligible
for election as a director.
In addition, the Regulations require that notice in writing from
any shareholder who proposes to bring business before any meeting of
shareholders must be timely given to the Secretary of the Company prior to
the meeting. Such notice must contain certain information, including a
brief description of the business proposed to be brought before the
meeting, the reasons for conducting such business at the meeting, the class
and number of shares of the Company beneficially owned by such shareholder
and any supporting shareholders and any material interest of the proposing
shareholder in the business so proposed. If the presiding officer of any
shareholders' meeting determines that any such business was not properly
brought before the meeting in accordance with the foregoing procedures,
such business will not be conducted at the meeting. Nothing in the Code of
Regulations will preclude discussion by any shareholder of any business
properly brought before the meeting in accordance with the above-mentioned
procedures.
To be timely, shareholder notice of a nomination for election of a
director or to bring business before any shareholders meeting must be
received by the Company not less than thirty days nor more than sixty days
prior to the meeting (or, if fewer than forty days' notice or prior public
disclosure of the meeting date is given or made to shareholders, not later
than the tenth day following the day of mailing notice of the meeting or
public disclosure thereof).
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<PAGE> 15
OTHER MATTERS
The Company's Annual Report for the year ended January 2, 1999 has
been mailed with this Information Statement or previously delivered to
shareholders.
Management knows of no matters which will be presented for
consideration at the Annual Meeting other than those stated in the Notice
of Meeting.
By Order of the Board of Directors
JOHN M. ERB
Secretary
Dated: March 22, 1999
13
