<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant: [X]
Filed by a party other than the registrant: [ ]
Check the appropriate box:
[ ] 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 Rule 14a-11(c) or Rule 14a-12
D.I.Y. HOME WAREHOUSE, INC.
(Name of registrant as specified in its charter)
(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)(4) 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 MAY 24, 2000
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, May 24, 2000, at 10:00 a.m., local time, for the following purposes:
(1) To elect a Board of four 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
March 3, 2000 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: April 26, 2000
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 MAY 24, 2000
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 four
(4) 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 four (4) 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 April 26, 2000.
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, May 24,
2000, 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 March 3, 2000
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 189 holders of record. Based on information
provided to the Company by certain holders of record, the Company estimates that
there are in excess of 1,000 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 four (4) directors. It is proposed that these positions be
filled by persons nominated to the Board by management. Each director shall
<PAGE> 4
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 has not nominated a candidate to fill the vacancy on the
Board created by Mr. Hoff's resignation. On April 12, 2000, April 13, 2000 and
April 12, 2000, Messrs. Gregory K. Jones, John A. Shields and Mark A. Timmerman,
respectively, all of the Company's outside directors (the "Outside Directors"),
resigned as members of the board of directors. The board has not nominated
candidates for election to the Board to fill the positions previously held by
the Outside Directors. During the February 16, 2000 meeting of the Company's
board of directors, the Directors discussed compensation levels (including stock
options) which are available to outside directors with the business experience
and success similar to the Outside Directors, for serving as directors of other
companies, and which would be appropriate for the Outside Directors, given the
abilities, experience and other business opportunities of the Outside Directors,
which have increased significantly since the Outside Directors joined the
Company's board of directors. While the Company values the contributions which
the Outside Directors have made to the Company in the past, the directors
concluded that, in light of the smaller size of the Company, compensating the
Outside Directors at such level was not justified at this time and would not be
in the best interests of shareholders. In light of that determination, the
directors concluded that it would be in the best interest of the Company and the
Outside Directors if the Outside Directors were given the opportunity to step
down as members of the board of directors to devote more of their time to other
ventures in which they are involved. Shareholders cannot vote for a greater
number of persons than the number of nominees named. 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.
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 77, 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." Mr. Fred A. Erb is the father
of Mr. John M. Erb.
CLIFFORD L. REYNOLDS, age 53, 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 29 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 50, 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 45, 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. Mr. John M. Erb is the son of Mr. Fred A. Erb.
2
<PAGE> 5
COMMITTEES OF THE BOARD AND MEETINGS
The Board met five times and took action by unanimous written consent
on two occasions during the fiscal year ended January 1, 2000.
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 members of
the Audit Committee during the fiscal year ended January 1, 2000 were Messrs.
Fred A. Erb, Mark A. Timmerman and Gregory K. Jones. The Audit Committee held
one formal meeting during the fiscal year ended January 1, 2000.
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 1, 2000 were Messrs. Fred A. Erb, John M. Erb and John A. Shields.
The Compensation Committee held one formal meeting during the fiscal year ended
January 1, 2000. 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 three occasions during the fiscal year ended January 1, 2000. During
the fiscal year ended January 1, 2000, Mr. John M. Erb attended four of the six
aggregate meetings of the Board of Directors and all committees of the Board on
which he served, which constituted fewer than 75% of the aggregate of the total
number of meetings of the Board of Directors and the total number of meetings by
all committees of the Board on which he served.
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.
During the fiscal year ended January 1, 2000, the members of the Executive
Committee were 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 1, 2000.
The Board does not have a standing committee responsible for nominating
individuals to become directors.
OUTSIDE DIRECTOR COMPENSATION
Mr. Fred A. Erb, Mr. 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
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<PAGE> 6
date. For services during the fiscal year ended January 1, 2000, Messrs. Mark A.
Timmerman, John A. Shields and Gregory K. Jones each received directors' fees of
$9,000, which were paid in cash.
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> <C>
Fred A Erb(1)........................... 77 Chairman of the Board October 1984
Clifford L. Reynolds.................... 53 President and Chief Executive Officer October 1984
R. Scott Eynon.......................... 50 Vice President-Operations January 1985
Todd R. Ayers (2)....................... 31 Controller July 1999
John M. Erb(1).......................... 45 Secretary February 1991
</TABLE>
_____________________
(1) Fred A. Erb is the father of John M. Erb.
(2) Todd R. Ayers has been Controller since July, 1999. Prior to joining the
Company, Mr. Ayers was employed by Telxon Corporation from July, 1994 to July,
1999, most recently as the Director of Financial Reporting.
Each of the executive officers, other than Mr. Ayers, has been continuously
employed by the Company for more than five (5) years, serving in the capacities
and since the date reflected above.
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<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 $100,000 during the fiscal year ended January 1, 2000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
LONG TERM
NAME AND PRINCIPAL POSITION COMPENSATION ALL OTHER
YEAR SALARY($)(1) BONUS($) OPTIONS(#) COMPENSATION($)(3)
---- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Clifford L. Reynolds,
President and Chief Executive
Officer....................... 1999 $261,725 $150,000 20,000 $6,985
1998 256,226 -0- -0- 7,590
1997 250,000 50,000 195,000(2) 6,371
R. Scott Eynon,
Vice President - Operations.... 1999 $151,726 $100,000 15,000 $6,681
1998 148,558 -0 -0- 6,744
1997 143,654 30,000 107,500(2) 6,312
Dennis C. Hoff, (4) 1999 $155,769 $-0- -0- $6,916
Vice President - General 1998 148,558 -0- -0- 7,289
Merchandising Manager.......... 1997 143,654 30,000 107,500(2) (5) 6,312
Eric I. Glassman (4)
Vice President and Chief 1999 $70,458 $-0- 10,000 (5) $2,859
Financial Officer
------------------------------------
</TABLE>
(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.
(4) Mr. Hoff's employment as an executive officer terminated on December 31,
1999. Mr. Glassman's employment as an executive officer terminated on July 6,
1999. Compensation set forth herein for Mr. Hoff is through December 31, 1999
and for Mr. Glassman is through August 14, 1999.
(5) Mr. Hoff's and Mr. Glassman's stock options have terminated as a result of
their termination of employment with the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into amended and restated employment contracts
with Messrs. Reynolds and Eynon dated as of January 1, 1995, which amend and
restate employment agreements originally dated as of March 24, 1993. In March
1999, the employment agreements of Messrs. Reynolds and Eynon were amended to
extend their termination dates two (2) years to December 31, 2001, unless sooner
terminated as provided therein. In
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<PAGE> 8
November, 1999, the employment agreements of Messrs. Reynolds and Eynon were
amended to extend their termination dates two (2) years to December 31, 2003,
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 Mr. Eynon) 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.
<TABLE>
<CAPTION>
OPTIONS/SARS GRANTS
IN LAST FISCAL YEAR
===========================================================================================================================
Individual Grants Grant Date Value
===========================================================================================================================
% of Total
Options/SARs
Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Expiration Date Present
Name Granted Fiscal Year Per Share Value (1)
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
Clifford L. Reynolds 20,000 27% $0.44 2/19/2004 $6,020
---------------------------------------------------------------------------------------------------------------------------
R. Scott Eynon 15,000 20% $0.44 2/19/2004 $4,515
---------------------------------------------------------------------------------------------------------------------------
Eric I. Glassman 10,000 13% $0.44 2/19/2004(2) $-0-(2)
---------------------------------------------------------------------------------------------------------------------------
Todd R. Ayers 10,000 13% $0.75 8/18/2004 $5,185
===========================================================================================================================
</TABLE>
(1) The present value at the date of grant during fiscal year 1999 has been
calculated using the Black-Scholes option pricing model, based upon the
following assumptions: risk-free interest rate of 5.1% for the options granted
to Messrs. Clifford L. Reynolds and R. Scott Eynon and 6.0% for the options
granted to Mr. Todd R. Ayers, no dividend yield, expected lives of five years
and volatility of 82%. The values which are calculated are not intended to
predict future prices of the Company's Common Stock. The values shown are
theoretical and do not necessarily reflect the actual values the recipients
may realize. Any actual value to the recipients will depend on the extent to
which the market value of the Company's Common Stock at a future date exceeds
the exercise price.
(2) All of Mr. Glassman's options have terminated as a result of his
termination of employment with the Company.
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<PAGE> 9
<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 1999 Received Exercisable Exercisable Exercisable Exercisable
============================== ================ ================== ============== =============== ============== =============
<S> <C> <C> <C> <C> <C> <C>
Clifford L. Reynolds 0 n/a 130,000 85,000 $0 $1,824
- ------------------------------ ---------------- ------------------ -------------- --------------- -------------- -------------
R. Scott Eynon 0 n/a 71,660 50,840 0 1,368
- ------------------------------ ---------------- ------------------ -------------- --------------- -------------- -------------
Dennis Hoff 0 n/a 71,660(1) 35,840(1) 0 0
- ------------------------------ ---------------- ------------------ -------------- --------------- -------------- -------------
Eric I. Glassman 0 n/a 0(1) 0(1) 0 0
- ------------------------------ ---------------- ------------------ -------------- --------------- -------------- -------------
Todd R. Ayers 0 n/a 0 10,000 0 0
============================== ================ ================== ============== =============== ============== =============
</TABLE>
(1) All of Mr. Hoff's and Mr. Glassman's options have terminated as a result of
their termination of employment with the Company.
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 1, 2000. 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 during the fiscal year ended January 1, 2000.
In reviewing the compensation to be paid to the Company's executive
officers during the fiscal year ended January 1, 2000, 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, 1999,
the Committee approved increases in the base salaries of three of the principal
executive officers (Messrs. Reynolds, Eynon and Glassman) effective March 31,
1999. The aggregate base salaries for Messrs. Reynolds, Eynon and Glassman were
increased by 1.6%, 1.6% and 7.0% respectively. 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. Six employees
received stock options under the Plan during the fiscal year ended January 1,
2000. During the fiscal year ended January 1, 2000, non-employee directors
Messrs. John M. Erb, Gregory K. Jones, John A. Shields and Mark A. Timmerman,
were granted stock options under the Plan for 20,000 shares each.
7
<PAGE> 10
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 three principal officers (Messrs. Reynolds, Eynon 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 and recommended that the Long Term Incentive Plan Committee award stock
options under the Plan in February, 1999 to Mr. Reynolds (20,000 shares), Mr.
Eynon (15,000 shares) and to Mr. Glassman (10,000 shares).
In February 1999, the Committee recommended to the Board that, in lieu
of an employee bonus percentage based compensation plan for the fiscal year
ended January 1, 2000, the Compensation Committee would consider discretionary
bonuses at the end of the fiscal year ended January 1, 2000, based upon mutually
agreed upon and shared goals established in writing between each executive
officer and the Compensation Committee. The Compensation Committee awarded
discretionary bonuses to Mr. Clifford L. Reynolds in the amount of $150,000 and
to Mr. R. Scott Eynon in the amount of $100,000 for the fiscal year ended
January 1, 2000.
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.
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 Mr. 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 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 2000 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 1999 or 1998. The Company paid
$382,907 in rent in 1999, $379,831 in rent in 1998 and $386,796 in rent in 1997
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 1999, 1998 and 1997 was
$511,000.
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. On August 1, 1999, Basic Rent increased
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<PAGE> 11
from $456,600 to $474,100 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 1999, 1998 or 1997. The
Company paid rent of $463,917 in 1999 and $456,600 in each of 1998 and 1997.
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, 1999, the Company made the final principal payment on the loan in the
amount of $300,000. During 1999, the Company paid $36,000 to Edgemere
Enterprises, Inc. for real estate consulting services.
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, Home Depot, Inc., HomeBase, Inc.,
Lowe's Companies, Inc., National Home Centers and Wolohan Lumber Co. The
Company's "peer group" has been changed from the Company's "peer group" used in
the 1999 Information Statement. Eagle Hardware & Garden has been deleted since
its stock is no longer quoted on a national securities exchange.
[GRAPH INSERTED HERE]
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG D.I.Y. HOME WAREHOUSE, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<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, 1995
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1999
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<PAGE> 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 3, 2000, 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 310,000(3) 4.3%
Director and President and Chief Executive Officer
5811 Canal Road
Valley View, Ohio 44125
R. Scott Eynon 227,500(4) 3.1%
Director and Vice President - Operations
5811 Canal Road
Valley View, Ohio 44125
Dennis C. Hoff 25,100(5) *
Vice President - General
Merchandising Manager
5811 Canal Road
Valley View, Ohio 44125
John M. Erb 135,000(6) 1.9%
Director and Secretary
44 East Long Lake Road
Bloomfield Hills, Michigan 48304
Gregory K. Jones, Director 68,084(7) *
8550 West Bryn Mawr Avenue
Suite 200
Chicago, Illinois 60631
John A. Shields, Director 275,204(8) 3.8%
2749 Landon Road
Shaker Heights, Ohio 44122
Mark A. Timmerman, Director 73,984(9) 1.0%
222 West Adams Street
Chicago, Illinois 60606
All current executive officers and directors as a group 5,524,872 75.9%
(9 persons)
.
==================================================================================================================
*Less than one percent.
</TABLE>
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(1) Percentage calculations based on 7,276,059 shares of Common Stock
issued and outstanding as of April 3, 2000, 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 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 290,000 shares held by The Erb Foundation, the
trustees of which are Messrs. Fred A. Erb, John M. Erb and Ira J.
Jaffe.
(3) Consists of 115,000 shares now owned by Mr. Reynolds and 195,000 shares
which he may acquire within 60 days pursuant to his options under the
Plan.
(4) Consists of 120,000 shares now owned by Mr. Eynon and 107,500 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.
(6) Consists of 70,000 shares now owned by Mr. Erb and 65,000 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 65,000 shares which
he may acquire within 60 days pursuant to options under the Plan.
(8) Consists of 210,204 shares now owned by Mr. Shields and 65,000 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 65,000 shares
which he may acquire within 60 days pursuant to options under the Plan.
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 1, 2000, 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
except that Mr. Todd R. Ayers, the Controller of the Company, did not file on a
timely basis one report on Form 3. A report on Form 5 was subsequently filed by
Mr. Ayers with respect to that transaction.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STORE LEASES
The Company leases the Cleveland, North Randall and Eastlake store
locations from either Mr. 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 1999, the Company made the final principal payment on the loan in
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<PAGE> 14
the amount of $300,000. During 1999, the Company paid $36,000 to Edgemere
Enterprises, Inc. for real estate consulting services. See "Management -
Compensation Committee Interlocks and Insider Participation."
TAX INDEMNIFICATION AGREEMENT
The Company and Messrs. 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.
GENERAL INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS
The Board selected PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ended January 1, 2000.
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 December 15, 2000. 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 1, 2000 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: April 26, 2000
13
