-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OKxe1XDEb0a17lD9u5kHH+fSAIi52Asv13aAnVL4BMBmN3AxQCmF7JuHSI6yXm7g JwxJ9tIefFjVWPcwG7nu8A== 0000950152-00-002596.txt : 20000403 0000950152-00-002596.hdr.sgml : 20000403 ACCESSION NUMBER: 0000950152-00-002596 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIY HOME WAREHOUSE INC CENTRAL INDEX KEY: 0000899595 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-LUMBER & OTHER BUILDING MATERIALS DEALERS [5211] IRS NUMBER: 382560752 STATE OF INCORPORATION: OH FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-21768 FILM NUMBER: 589879 BUSINESS ADDRESS: STREET 1: 5811 CANAL RD STE 180 CITY: VALLEY VIEW STATE: OH ZIP: 44125 BUSINESS PHONE: 2163285100 MAIL ADDRESS: STREET 1: 5811 CANAL ROAD STREET 2: SUITE 180 CITY: VALLEY VIEW STATE: OH ZIP: 44125 10-K405 1 D.I.Y. HOME WAREHOUSE, INC. FORM 10-K405 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (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 1, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO Commission File No. 0-21768 D.I.Y. HOME WAREHOUSE, INC. (Exact name of registrant as specified in its charter) STATE OF OHIO 38-2560752 (State of Incorporation) (I.R.S. Employer I.D. No.) 5811 CANAL ROAD VALLEY VIEW, OHIO 44125 (216) 328-5100 (Address of principal executive offices and telephone number) Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE 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 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. Yes X No --- --- 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 and Exchange Act of 1934 during the preceding 12 months (or for 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. Yes X No ---- ---- As of March 3, 2000, the aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant was $1,298,521 determined in accordance with the highest price at which the stock was sold on such date as reported by the OTC Bulletin Board. As of March 3, 2000, there were 7,276,059 outstanding shares of the Registrant's common stock. 2 DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Proxy Statement for its Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the close of the Registrant's fiscal year, is incorporated by reference in answer to Part III of this Annual Report on Form 10-K to the extent noted herein. In addition, pages 2 through 12 of D.I.Y. Home Warehouse, Inc.'s 1999 Annual Report to Shareholders are incorporated by reference in answer to Items 6, 7 and 8 of Part II and Item 14(a)(1) of Part IV of this report. PART I ITEM 1. BUSINESS GENERAL D.I.Y. Home Warehouse, Inc. ("DIY" or the "Company") operates eleven retail warehouse-format home improvement centers that sell products primarily to do-it-yourself home repair and remodeling customers. The Company's "DIY Home Warehouse" stores are located in Northeast Ohio and range in size from 66,000 to 109,000 square feet of enclosed selling space with an additional 12,000 to 20,000 square feet of outside selling space. Six of these retail centers are located in the Cleveland metropolitan area, three stores are in the Akron area and one store each is located in Warren and Ashtabula. DIY offers a high level of customer service, making shopping at its stores easy and convenient and, through its displays and trained staff, enabling do-it-yourself shoppers to conceptualize, design and complete their own home repair, maintenance and improvement projects. The Company also offers kitchen, bath and other product installation for its customers. MERCHANDISING DIY offers a wide selection of home improvement products at everyday low prices. Each store carries approximately 30,000 SKUs, including variations in color and size. Brand name products are carried throughout each store. In addition, the Company carries several private label products, including paints and doors. The Company seeks to carry a broad and deep product selection in its core product areas. Core product areas are characterized by a high need for specialized customer service. The Company's two core product areas consist of (a) Paint, Home Decorating, Floorcoverings and Ready To Assemble Furniture, and (b) Lawn and Garden. In its non-core product areas, DIY seeks to carry as deep a selection as its competitors, but does not seek to carry a broad selection of products within the same category. Non-core product areas are characterized by products which do not require a high level of specialized service, but which are better stocked and sold in traditional warehouse-format for customer convenience. The Company's non-core product areas are Electrical, Lighting and Fans, Hardware, Plumbing and Building Materials. The following table depicts the percentage of total net sales data for the periods indicated, by product area. 2 3
FISCAL YEAR ENDED -------------------------------------------------------------------------------- PRODUCT AREA JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998 - ------------ --------------- --------------- --------------- A. Kitchen, Plumbing and Bath 18.4% 20.2% 21.2% B. Paint, Home Decorating, Floorcoverings and Furniture 19.0 17.0 17.0 C. Lawn and Garden 18.9 18.0 15.0 D. Lumber, Building Materials and Doors and Windows 26.9 28.0 29.2 E. Electrical, Lighting and Fans 8.9 9.0 9.6 F. Hardware and Tools 7.9 7.8 8.0 ------- ------- ------- 100.0% 100.0% 100.0% ===== ===== =====
Kitchen, Plumbing, and Bath. The Company carries a wide selection of kitchen cabinets, sinks, toilets, bathtubs, faucets, bathroom vanities and tops, shower surrounds and related products utilized in kitchen and bath remodeling projects. DIY offers two complete lines of ready to assemble cabinets and two lines of assembled cabinets which are stocked for customer carryout. The Company offers products over a broad price range but focuses its presentation on the more popular price product group in this category. Sales associates are available to assist customers in planning and designing remodeling projects as well as assisting in product selection. Paint, Home Decorating, Floorcoverings, and Furniture. The Company offers a wide assortment of interior and exterior paints, stains, varnishes and other surface applications, as well as sundry related supplies such as paint brushes, sand paper, paint thinner, glues and other similar items. Blinds and window treatments, closet and storage materials, wall coverings, floorcoverings (rugs, tiles and similar items) and other home decorating items are also featured in this product area. In addition to budget priced DIY "house label" products, DIY offers products from manufacturers such as Dutch Boy, Enterprise, Behr, Levolor and Cuprinol. Salespeople are available to computer custom match and mix paint colors and otherwise assist customers in planning and selecting products for their home decorating projects. Lawn and Garden. The Company carries a wide selection of seasonal items relating to landscaping and yard beautification and maintenance, such as annual flowers and other nursery stock, fertilizers, lawn mowers and garden tractors, barbecues and grills, soils and mulches, lawn and garden maintenance tools and similar items. DIY has enhanced its selection of patio furniture to fill a void in its market area with regard to the mid range price points in this category. DIY seeks to provide a large selection of lawn and garden goods, at high quality and low prices. This department provides both significant sales primarily in the second and third quarters of the year and substantial traffic of potential customers for other departments. Lumber, Building Materials, and Doors and Windows. The Company carries a wide selection of exterior and interior doors, storm windows and doors, steel entry doors, pre-hung doors, window units, skylights, moldings and other related products. This product area also offers treated and dimensional lumber, plywood, pine boards and other wood products. Electrical, Lighting and Fans, and Hardware and Tools. The Company offers a selection of heaters and fans, lights, lighting fixtures, switch plates, light bulbs, outlets, switches, electrical wire and conduit, fuses and circuit breakers, related electrical products, hand and power tools and accessories, fasteners, chains and other related tools and items. The Company features a large, attractive lighting display area with working samples. The Company's Hardware and Tools product area provides all necessary equipment to complete a do-it-yourself customer project. 3 4 CUSTOMER SERVICE DIY seeks to provide superior service for every customer by hiring experienced personnel, including people with experience in the building trades such as plumbers and electricians, and by providing these employees with in-store and vendor-supported product training. Specially trained personnel are available in every product area (or "department"), particularly in the core departments, to help customers conceptualize and plan virtually any home improvement project. Customer questions, problems, returns and exchanges are handled at a convenient service desk near the main entrance to the store. Virtually all items offered by the Company carry the manufacturers' full product warranties. The Company has a "no-hassle" return policy for all of its products. If a customer is not satisfied, the Company will have the product repaired, exchange the product or refund the product purchase price. The Company does not operate a repair department. The Company accepts cash, check, Visa, MasterCard, American Express and Discover. DIY home centers are open seven days a week, from 7:30 a.m. to 9:00 p.m. on weekdays and Saturdays and from 9:00 a.m. to 6:00 p.m. on Sundays. PURCHASING AND DISTRIBUTION The Company purchases over 85% of its merchandise directly from manufacturers. The balance, which are generally high turnover but long lead time items, are purchased through and stocked by distributors. Product re-orders are initiated at the store department level, after review of available stock and applying local knowledge as to sales patterns for particular items. Merchandise selection is centrally handled by buyers at the headquarters level to attain the most attractive volume discounts and programs available. DIY has a staff of five merchandisers, who report to the Company's President and Chief Executive Officer. Each merchandiser has responsibility for specified product categories. During fiscal 1999, the Company's top 10 vendors accounted for approximately 26% of its purchases, with no single supplier accounting for more than 8% of Company purchases. The number of active vendors is approximately 620. The Company is not dependent on any one vendor for any significant product. The Company does not license or contract the operating of departments within its stores to outside providers. The majority of the merchandise purchased by the Company is shipped by the vendors directly to its stores. The Company thereby largely avoids the costs associated with maintaining a distribution center or warehouse, and does not incur costs of moving inventory from storage sites to the stores. However, a warehouse is used for situations involving import and/or seasonal product categories, for cross docking and/or temporary storage where a cost-benefit advantage exists. All merchandise is displayed on the sales floor in the lower levels of warehouse type racks, with stock stored in the upper racks. In this way, on-site storeroom space requirements are minimized, and utilization of available store space for sales is maximized. 4 5 The Company stocks inventory at levels appropriate to support its warehouse home center format and its wide product selection consisting of approximately 30,000 SKUs. The Company generally experiences its highest working capital requirements with respect to inventory during March and April when inventory quantities are increased in anticipation of higher spring and summer sales. MANAGEMENT INFORMATION SYSTEMS The Company's information system strategy is to provide excellent customer service and reliable, timely information to manage DIY. The infrastructure for the Company's Local Area Network (LAN) and Wide Area Networks (WAN) consists of the IBM AS/400 processor for its mission critical applications, Microsoft NT and Novell for its networked servers and personal computers. Margin, sales and inventory information is delivered through the DIY Network and processed at headquarters daily. The Company's strategic IT architecture is flexible enough to accommodate a mix of systems while retaining the ability to centralize or delegate management and control of these systems. MARKETING The Company's marketing program is designed to create an awareness of DIY's comprehensive selection of brand name merchandise, superior customer service and everyday low prices. The Company's primary advertising vehicle is local newspaper advertising, which currently consists of circulars, tablets or flyers included with the Sunday newspaper in its markets. The Company also engages in electronic advertising--both television and radio--in order to enhance consumer recognition of the DIY Home Warehouse name and product assortment or to promote a sense of urgency regarding the purchase of a particular product or group of products. COMPETITION The home improvement, hardware and garden businesses are all highly competitive. The Company competes against traditional hardware, plumbing, electrical and home supply retailers, as well as warehouse-format and discount retail stores and many of the Company's competitors have substantially greater resources than DIY. Builders Square and Lowe's Company have had stores in the Company's markets since 1985 and 1994, respectively. However, Builders Square filed for Chapter 7 bankruptcy protection and exited the Northeastern Ohio marketplace during fiscal 1999. Lowe's has continued to expand with additional locations in 1996, 1997 and 1998. Beginning in the fourth quarter of 1997 and continuing through 1999, Home Depot began operations in several of the Company's markets. Both Home Depot and Lowe's have announced further expansion plans in 2000. In addition, there has been increasing consolidation within the home improvement industry, which may provide certain entities increased competitive advantages. Specifically, increased competition including, but not limited to, additional competitors' store locations, price reductions, and advertising and marketing campaigns could have a material adverse effect on the Company's business, recoverability of asset values, financial condition and operating results. EMPLOYEES Each DIY home center employs approximately 50 to 80 employees, supervised by a store manager, three assistant managers and 4 to 8 department heads. As of January 1, 2000, the Company employed approximately 702 persons, approximately 471 of whom were full-time employees. DIY is not a party to any collective bargaining agreements. The Company considers its relations with its employees to be excellent. 5 6 ITEM 2. PROPERTIES Each DIY home center is individually designed based on the particular characteristics of the property, with the overall goal of achieving a relatively uniform "look" among all the stores, including the same product areas. All stores are conveniently located near major roads and each provides parking for customers. The following table sets forth the location, opening date and approximate size of each of the Company's home centers.
Leased Area in Square Feet Store Location Opening Date or Owned Interior Selling Garden - -------------- ------------ -------- ---------------- ------ Greenhouse - ---------- Cleveland, Ohio........... March 1985.................. Leased........... 109,000 12,000 -- North Randall, Ohio....... October 1985............... Leased........... 83,000 17,000 -- Eastlake, Ohio............ August 1990................. Leased........... 66,000 17,000 -- Elyria, Ohio.............. February 1992.............. Leased........... 72,000 16,200 -- Brook Park, Ohio.......... March 1993.................. Leased........... 93,000 18,000 -- Warren, Ohio.............. January 1994................ Owned, Land Lease 79,000 18,000 -- Akron, Ohio (Northeast).. September 1994........... Owned............ 89,800 18,000 -- Medina, Ohio.............. March 1995.................. Owned............ 83,200 20,000 3,200 Mentor, Ohio.............. April 1995..................... Leased........... 86,100 15,000 -- Akron, Ohio (Southeast)... June 1995.................... Owned............ 85,400 15,000 3,200 Ashtabula, Ohio........... November 1995............ Owned, Land Lease 84,200 15,750 3,200
The Company's headquarters consist of approximately 12,100 square feet of leased space in Valley View, Ohio, near Cleveland. The Company also leases 38,500 square feet of warehouse space near the Company's headquarters. The Company leases or subleases six of its retail properties. In addition, two of the Company's retail stores are subject to land leases. The various lease terms expire between 1 and 8 years, and have renewal options ranging from 2 to 45 years. The leases generally provide for additional rental payments based upon a percentage of gross or net store sales above various levels. The Company subleases portions of premises not being used by the Company to various third parties. The Company owns most of the equipment and trade fixtures throughout its stores and headquarters and has made leasehold improvements at most locations. Management believes all of the Company's facilities are in excellent condition. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K. 6 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS From 1985 to May 18, 1993, the Company's stock was privately held. From May 25, 1993, to December 2, 1998, the Company's Common Stock was traded on the National Market of Nasdaq. From December 3, 1998 to present the Company Stock has been traded on the OTC Bulletin Board under its symbol "DIYH." As of March 3, 2000, the closing price for the Company's Common Stock on the OTC Bulletin Board was $0.56 and there were approximately 189 holders of record of Common Stock. Based on information provided to the Company by certain holders of record, the Company estimates there are in excess of 1,000 beneficial shareholders. The Company has not paid any cash dividends on its Common Stock in the past four fiscal years. Management intends to follow a policy of retaining earnings in the foreseeable future in order to finance the development and operations of its business. The declaration and payment of dividends will be within the discretion of the Company's Board of Directors and would depend, among other factors, on the Company's earnings, financial condition, capital requirements, level of indebtedness and contractual restrictions with respect to payment of dividends. The following table sets forth a quarterly summary, for the years ended January 1, 2000, January 2, 1999, and January 3, 1998, of the high and low closing sales prices as reported by Nasdaq NNM or, after December 2, 1998, the OTC Bulletin Board. 1999 1998 1997 ------------------------------------------------- Fiscal Quarter High Low High Low High Low - -------------- ---- --- ---- --- ---- --- 1st $0.75 $0.19 $3.25 $2.69 $4.63 $3.50 2nd 0.84 0.56 3.13 2.00 4.63 3.25 3rd 0.97 0.63 2.06 1.06 4.06 2.38 4th 0.75 0.53 1.25 0.25 4.56 2.50 ITEM 6. SELECTED FINANCIAL DATA The information for the fiscal years 1995-1999 under the heading "Selected Financial Data and Operating Highlights" contained in the Company's Annual Report to Shareholders for the fiscal year ended January 1, 2000, on page 12 of Exhibit 13.1 hereto, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report to Shareholders for the fiscal year ended January 1, 2000, on pages 2 through 4 of Exhibit 13.1 hereto, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information under the headings "Statement of Operations, Statement of Shareholders' Equity, Balance Sheet, Statement of Cash Flows, Notes to Financial Statements and Report of Independent Accountants" contained in the Company's Annual Report to Shareholders for the fiscal year ended January 1, 2000, on pages 5 through 11 of Exhibit 13.1 hereto, is incorporated herein by reference. 7 8 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III To be provided by subsequent filing. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements: The following financial statements of D.I.Y. Home Warehouse, Inc. are filed herewith by incorporation by reference from pages 5 through 11 of the Registrant's Annual Report to Shareholders for the fiscal year ended January 1, 2000, as provided in Item 8 hereof: Statement of Operations for the Years Ended January 1, 2000, January 2, 1999 and January 3, 1998; Statement of Stockholders' Equity for the Years Ended January 1, 2000, January 2, 1999 and January 3, 1998; Balance Sheet as of January 1, 2000 and January 2, 1999; Statement of Cash Flows for the Years Ended January 1, 2000, January 2, 1999 and January 3, 1998; Notes to Financial Statements; Report of Independent Accountants. (2) Financial Statement Schedules: Financial Statement Schedules have been omitted because they are not required, are not applicable, or the required information is included in the financial statements or the notes thereto. (3) Exhibits required by Item 601 of Regulation S-K: 3.1 Articles of Incorporation of D.I.Y. Home Warehouse, Inc., as amended, incorporated herein by reference to Exhibit 3.1 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 3.2 Amended and Restated Code of Regulations of D.I.Y. Home Warehouse, Inc., incorporated herein by reference to Exhibit 3.2 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1 Compensation and Employee Benefit Plans of the Registrant 8 9 10.1.1 D.I.Y. Home Warehouse, Inc. 1993 Long Term Incentive Plan as Amended February 23, 1994 and Approved by Stockholders May 25, 1994, incorporated herein by reference to Exhibit 10.18 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1.2 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and Clifford L. Reynolds, incorporated herein by reference to Exhibit 10.22 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1.3 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and R. Scott Eynon, incorporated herein by reference to Exhibit 10.23 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1.4 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and Dennis C. Hoff, incorporated herein by reference to Exhibit 10.24 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1.5 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and John M. Erb, incorporated herein by reference to Exhibit 10.25 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1.6 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and Fred A. Erb, incorporated herein by reference to Exhibit 10.26 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1.7 Tax Indemnification Agreement among D.I.Y. Home Warehouse, Inc. and Fred A. Erb, Clifford L. Reynolds, R. Scott Eynon, Dennis C. Hoff and John M. Erb, incorporated herein by reference to Exhibit 10.27 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1.8 D.I.Y. Home Warehouse, Inc.'s 401K Plan, incorporated herein by reference to Exhibit 10.28 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1.9 1994 D.I.Y. Home Warehouse, Inc. Employee Bonus Plan dated May 25, 1994, incorporated herein by reference to Exhibit 10.48 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. 10.1.10 Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated January 1, 1995, incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended July 1, 1995. 10.1.10.a Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated November 21, 1996, incorporated herein by reference to Exhibit 10.51 to the Registrant's Report on Form 10-K for the fiscal year ended December 28, 1996. 10.1.10.b Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated May 28, 1998, incorporated herein by reference to Exhibit 10.4 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10.1.10.c Amendment No. 3 to Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated March 11, 1999, incorporated herein by reference to Exhibit 10.69 to the Registrant's Report on Form 10-K for the fiscal year ended January 2, 1999. 9 10 10.1.10.d Amendment No. 4 to Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated November 30, 1999, filed herewith. 10.1.11 Amended and Restated Employment Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated January 1, 1995, incorporated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter ended July 1, 1995. 10.1.11.a Amended and Restated Employment Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated May 28, 1998, incorporated herein by reference to Exhibit 10.5 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10.1.11.b Amendment No. 2 to Amended and Restated Employment Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated March 11, 1999, incorporated herein by reference to Exhibit 10.70 to the Registrant's Report on Form 10-K for the fiscal year ended January 2, 1999. 10.1.11.c Amendment No. 3 to Amended and Restated Employment Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated November 30, 1999, filed herewith. 10.1.12 Amended and Restated Employment Agreement between Dennis C. Hoff and D.I.Y. Home Warehouse, Inc. dated January 1, 1995, incorporated herein by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the quarter ended July 1, 1995. 10.1.12.a Amended and Restated Employment Agreement between Dennis C. Hoff and D.I.Y. Home Warehouse, Inc. dated May 28, 1998, incorporated herein by reference to Exhibit 10.6 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10.1.13 Form of Non-Qualified Stock Option Agreement under the D.I.Y. Home Warehouse, Inc. 1993 Long Term Incentive Plan as Amended, incorporated herein by reference to Exhibit 10.14 to Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 10.1.14 1995 D.I.Y. Home Warehouse, Inc. Employee Bonus Plan dated May 24, 1995, incorporated herein by reference to Exhibit 10.44 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 10.1.15 D.I.Y. Home Warehouse, Inc. 1996 Retainer Stock Plan for Non-Employee Directors, incorporated herein by reference to Exhibit 10.49 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 10.1.16 Employment Agreement between Eric I. Glassman and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.7 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10.1.17 Transaction Bonus Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.8 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10.1.18 Transaction Bonus Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.9 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10 11 10.1.19 Transaction Bonus Agreement between Dennis C. Hoff and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.10 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10.1.20 Transaction Bonus Agreement between Eric I. Glassman and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.11 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10.1.21 Amendment No. 1 to Amended and Restated Employment Agreement between Eric I. Glassman and D.I.Y. Home Warehouse, Inc. dated March 11, 1999, incorporated herein by reference to Exhibit 10.71 to the Registrant's Report on Form 10-K for the fiscal year ended January 2, 1999. 10.1.22 DIY Home Warehouse, Inc. 1993 Long Term Incentive Plan as Amended March 17, 1999 and Approved by the Board of Directors March 17, 1999, incorporated herein by reference to Exhibit 10.13 to the Registrant's Report on Form 10-Q for the quarter ended July 3, 1999. 10.2 Material Leases of the Registrant 10.2.1 Sublease between D.I.Y. Ohio Real Estate Associates Limited Partnership and D.I.Y. Home Warehouse, Inc., dated August 1, 1992, incorporated herein by reference to Exhibit 10.1 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.2 Indenture of Lease between Smith - D.I.Y. Center Limited Partnership and D.I.Y. Home Warehouse, Inc., dated December 27, 1985, incorporated herein by reference to Exhibit 10.2 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.3 Amendment to Lease between D.I.Y. Center Associates (successor in interest to Smith - D.I.Y. Center Limited Partnership) and D.I.Y. Home Warehouse, Inc., dated July 2, 1991, incorporated herein by reference to Exhibit 10.3 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.3.a Amendment to Lease between D.I.Y. Center Associates, L.P. and D.I.Y. Home Warehouse, Inc. dated March 21, 1995, incorporated herein by reference to Exhibit 10.51 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. 10.2.4 Lease between Fred A. Erb and D.I.Y. Home Warehouse, Inc., dated March 1, 1993, incorporated herein by reference to Exhibit 10.4 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.5 Lease Agreement between West Park Limited, Inc. and D.I.Y. Home Warehouse, Inc. dated August 2, 1991, incorporated herein by reference to Exhibit 10.5 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.5.a Addendum #1 to Lease Agreement between West Park Limited, Inc. and D.I.Y. Home Warehouse, Inc., dated September 2, 1991, incorporated herein by reference to Exhibit 10.6 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.5.b Addendum #2 to Lease Agreement between West Park Limited, Inc. and D.I.Y. Home Warehouse, Inc., dated September 16, 1991, 11 12 incorporated herein by reference to Exhibit 10.7 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.6 Sublease between The Wholesale Club, Inc. and D.I.Y. Home Warehouse, Inc., dated May 14, 1992, incorporated herein by reference to Exhibit 10.8 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.7 Sublease between The Wholesale Club, Inc. and D.I.Y. Home Warehouse, Inc., dated November 25, 1992, incorporated herein by reference to Exhibit 10.9 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.8 Lease between Myron S. Viny, dba Central Valley Properties, and D.I.Y. Home Warehouse, Inc., dated February 26, 1993, but effective beginning May 1, 1993, incorporated herein by reference to Exhibit 10.12 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.2.8.a Modification and Supplement to lease between the Estate of Myron S. Viny (formerly DBA Central Valley Properties) and D.I.Y. Home Warehouse, Inc. dated November 27, 1995, incorporated herein by reference to Exhibit 10.12 to Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 10.2.9 Agreement of Lease (Boardman Facility) between DIY Ohio Real Estate Associates Limited Partnership and D.I.Y. Home Warehouse, Inc. dated as of October 1, 1993, incorporated herein by reference to Exhibit 10.38 to Registrant's Report on Form 10-K for the fiscal year ended January 1, 1994. 10.2.9.a Second Amendment to Agreement Lease (Boardman facility) between D.I.Y. Home Warehouse, Inc. and D.I.Y. Ohio Real Estate Associated Limited Partnership (the Landlord) and assignment of the lease to V&V 224, Limited by the Landlord dated October 22, 1998, incorporated herein by reference to Exhibit 10.9 to Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. 10.2.10 Lease between Elmhurst Properties, Inc. and D.I.Y. Home Warehouse, Inc., dated May 26, 1993, incorporated herein by reference to Exhibit 10.39 to Registrant's Report on Form 10-K for the fiscal year ended January 1, 1994. 10.2.11 Assignment and Assumption of Lease and Sublease between Kmart Corporation and D.I.Y. Home Warehouse, Inc. dated December 22, 1994, incorporated herein by reference to Exhibit 10.49 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. 10.2.12 Shopping Center Lease between KCHGC, Inc. and D.I.Y. Home Warehouse, Inc. dated January 12, 1995, incorporated herein by reference to Exhibit 10.50 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. 10.3 Credit Agreements of the Registrant 10.3.1 $1,250,000 Promissory Note from D.I.Y. Home Warehouse, Inc. to Edgemere, Inc. f/k/a Erb Lumber Co., dated July 1, 1991, incorporated herein by reference to Exhibit 10.29 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 12 13 10.3.2 Security Agreement between D.I.Y. Home Warehouse and Erb Lumber Co., dated November 14, 1985, incorporated herein by reference to Exhibit 10.30 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.3.3 Revolving Credit Agreement and Security Agreement dated December 7, 1994 between D.I.Y. Home Warehouse, Inc. and National City Bank, Columbus, and Old Kent Bank and Trust Company, incorporated herein by reference to Exhibit 10.40 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. 10.3.4 Loan and Co-lender Agreement and Open-End Mortgage, Assignment of Rents and Security Agreement dated December 23, 1994 between D.I.Y. Home Warehouse, Inc. and National City Bank, Columbus, and Old Kent Bank and Trust Company, incorporated herein by reference to Exhibit 10.41 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. 10.3.4.a First Amendment to Loan and Co-Lender Agreement dated December 22, 1995 between D.I.Y. Home Warehouse, National City Bank, Columbus, and Old Kent Bank, incorporated herein by reference to Exhibit 10.41 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995 10.3.4.b Second Amendment to Loan and Co-Lender Agreement dated December 23, 1996 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.52 to the Registrant's Report on Form 10-K for the fiscal year ended December 28, 1996. 10.3.4.c Third Amendment to Loan and Co-Lender Agreement dated October 24, 1997 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter ended September 27, 1997. 10.3.4.d Fourth Amendment to Loan and Co-Lender Agreement dated April 4, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10.3.4.e Fifth Amendment to Loan and Co-Lender Agreement dated October 28, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.4 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. 10.3.5 Line of Credit Agreement for Real Estate Loans, Open-end Mortgage, Assignment of Rents and Security Agreement, and Mortgage Notes between D.I.Y. Home Warehouse, Inc. and National City Bank, Columbus and Old Kent Bank dated April 28, 1995, incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended April 1, 1995. 10.3.5.a First Amendment to Line of Credit Agreement; Open-end Mortgage, Assignment of Rents and Security Agreement (Leasehold) for Trumbull County; Open-end Mortgage, Assignment of Rents and Security Agreement for Summit County; Mortgage Note to National City Bank, Columbus dated September 15, 1995; Mortgage Note to Old Kent Bank 13 14 dated September 15, 1995, incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1995. 10.3.5.b Second Amendment to Line of Credit Agreement dated December 22, 1995 between D.I.Y. Home Warehouse, National City Bank, Columbus, and Old Kent Bank, incorporated herein by reference to Exhibit 10.39 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 10.3.5.c Third Amendment to Line of Credit Agreement Dated December 23, 1996 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.53 to the Registrant's Report on Form 10-K for the fiscal year ended December 28, 1996. 10.3.5.d Fourth Amendment to Line of Credit Agreement dated October 24, 1997 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the quarter ended September 27, 1997. 10.3.5.e Fifth Amendment to Line of Credit Agreement dated April 4, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. 10.3.5.f Sixth Amendment to Line of Credit Agreement dated October 28, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.5 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. 10.3.6 First Amendment to Security Agreement dated December 22, 1995 between D.I.Y. Home Warehouse, National City Bank, Columbus, and Old Kent Bank, incorporated herein by reference to Exhibit 10.38 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 10.3.7 First Amendment to Subordination Agreement dated December 22, 1995 between D.I.Y. Home Warehouse, National City Bank, Columbus, and Old Kent Bank, and Edgemere Enterprises, Inc., incorporated herein by reference to Exhibit 10.39 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 10.3.8 Partial Release of Mortgage to Open-End Mortgage Assignment of Rents and Security Agreement for Richland County, Stark County, Summit County, Trumball County and Medina County by Old Kent Bank dated October 28, 1998, incorporated herein by reference to Exhibit 10.6 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. 10.3.9 Modification to Revolving Credit Agreement, Line of Credit Agreement, and Loan and Co-lender Agreement between D.I.Y. Home Warehouse, Inc., National City Bank, Columbus, and Old Kent Bank dated February 20, 1996, incorporated herein by reference to Exhibit 10.42 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 14 15 10.3.10 General Business Lease Agreement with IBM Credit Corporation dated May 30, 1996, incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended June 29, 1996. 10.3.11 Amendment No. 1 to Open-End Mortgage, Assignment of Rents and Security Agreement for Richland County, Stark County, Summit County, Trumball County and Medina County between D.I.Y. Home Warehouse, Inc., National City Bank and Old Kent Bank dated October 28, 1998, incorporated herein by reference to Exhibit 10.7 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. 10.3.12 First Amendment to Mortgage Note between D.I.Y. Home Warehouse, Inc. and National City Bank dated October 28, 1998, incorporated herein by reference to Exhibit 10.8 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. 10.3.13 Second Amendment to Security Agreement dated October 28, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank and Old Kent Bank, incorporated herein by reference to Exhibit 10.9 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. 10.3.14 Second Amendment to Subordination Agreement dated October 28, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank and Old Kent Bank, incorporated herein by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. 10.3.15 Credit and Security Agreement dated October 27, 1998 among D.I.Y. Home Warehouse, Inc. and the Lenders which are signatures hereto and National City Commercial Finance, Inc, as agent and National City Bank as Letter of Credit Bank, incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. 10.4 Real Estate Purchase Agreement (Mansfield) between DIY Ohio Real Estate Associates Limited Partnership and D.I.Y. Home Warehouse, Inc. dated as of March 1, 1994, incorporated herein by reference to Exhibit 10.40 to the Registrant's Report on Form 10-K for the fiscal year ended January 1, 1994. 10.5 Real Estate Purchase Agreement (Mansfield and Canton) between D.I.Y. Home Warehouse, Inc. and Gabriel Brothers, Inc. dated March 3, 1999, filed herewith. 10.6 Sale of Merchandise Agreement (Mansfield and West Market) between D.I.Y Home Warehouse, Inc. and Schottenstein Bernstein Capital Group, LLC, dated June 3 1999, filed herewith. 10.7 Sale of Merchandise Agreement (Boardman) between D.I.Y Home Warehouse, Inc. and Schottenstein Bernstein Capital Group, LLC, dated June 11, 1999, filed herewith. 13.1 Annual Report to the Shareholders of D.I.Y. Home Warehouse, Inc. for the fiscal year ended January 1, 2000, certain portions of which are incorporated by reference herein. 23.1 Consent of PricewaterhouseCoopers LLP, filed herewith. 27.1 Financial Data Schedule for the fiscal year ended January 1, 2000, filed herewith. (b) Reports on Form 8-K: None. 15 16 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. Date: March 29, 2000 D.I.Y. HOME WAREHOUSE, INC. By: /s/ FRED A. ERB ------------------------------- Fred A. Erb, Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ FRED A. ERB /s/ GREGORY K. JONES - ----------------------------------- -------------------------- Fred A. Erb Gregory K. Jones Chairman of the Board of Directors Director Dated: March 29, 2000 Dated: March 29, 2000 /s/ CLIFFORD L. REYNOLDS /s/ JOHN A. SHIELDS - ----------------------------------- -------------------------- Clifford L. Reynolds John A. Shields Director and President Director (principal executive officer) Dated: March 29, 2000 Dated: March 29, 2000 /s/ R. SCOTT EYNON /s/ MARK A. TIMMERMAN - ----------------------------------- -------------------------- R. Scott Eynon Mark A. Timmerman Vice President-Operations and Director Director Dated: March 29, 2000 Dated: March 29, 2000 /s/ JOHN M. ERB /s/ TODD R. AYERS - ------------------------------------ -------------------------- John M. Erb Todd R. Ayers Secretary and Director Controller Dated: March 29, 2000 Dated: March 29, 2000 16 17 D.I.Y. Home Warehouse, Inc. Exhibits to Form 10-K for the Fiscal Year Ended January 1, 2000 Index to Exhibits Where Filed - ----- * 3.1 Articles of Incorporation of D.I.Y. Home Warehouse, Inc., as amended, incorporated herein by reference to Exhibit 3.1 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 3.2 Amended and Restated Code of Regulations of D.I.Y. Home Warehouse, Inc., incorporated herein by reference to Exhibit 3.2 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. 10.1 Compensation and Employee Benefit Plans of the Registrant * 10.1.1 D.I.Y. Home Warehouse, Inc. 1993 Long Term Incentive Plan as Amended February 23, 1994 and Approved by Stockholders May 25, 1994, incorporated herein by reference to Exhibit 10.18 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.1.2 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and Clifford L. Reynolds, incorporated herein by reference to Exhibit 10.22 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.1.3 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and R. Scott Eynon, incorporated herein by reference to Exhibit 10.23 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.1.4 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and Dennis C. Hoff, incorporated herein by reference to Exhibit 10.24 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.1.5 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and John M. Erb, incorporated herein by reference to Exhibit 10.25 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.1.6 Indemnification Agreement between D.I.Y. Home Warehouse, Inc. and Fred A. Erb, incorporated herein by reference to Exhibit 10.26 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.1.7 Tax Indemnification Agreement among D.I.Y. Home Warehouse, Inc. and Fred A. Erb, Clifford L. Reynolds, R. Scott Eynon, Dennis C. Hoff and John M. Erb, incorporated herein by reference to Exhibit 10.27 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.1.8 D.I.Y. Home Warehouse, Inc.'s 401K Plan, incorporated herein by reference to Exhibit 10.28 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.1.9 1994 D.I.Y. Home Warehouse, Inc. Employee Bonus Plan dated May 25, 1994, incorporated herein by reference to Exhibit 10.48 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. * 10.1.10 Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated January 1, 1995, incorporated herein by 17 18 reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended July 1, 1995. * 10.1.10.a Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated November 21, 1996, incorporated herein by reference to Exhibit 10.51 to the Registrant's Report on Form 10-K for the fiscal year ended December 28, 1996. * 10.1.10.b Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated May 28, 1998, incorporated herein by reference to Exhibit 10.4 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.1.10.c Amendment No. 3 to Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated March 11, 1999, incorporated herein by reference to Exhibit 10.69 to the Registrant's Report on Form 10-K for the fiscal year ended January 2, 1999. ** 10.1.10.d Amendment No. 4 to Amended and Restated Employment Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated November 30, 1999, filed herewith. * 10.1.11 Amended and Restated Employment Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated January 1, 1995, incorporated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter ended July 1, 1995. * 10.1.11.a Amended and Restated Employment Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated May 28, 1998, incorporated herein by reference to Exhibit 10.5 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.1.11.b Amendment No. 2 to Amended and Restated Employment Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated March 11, 1999, incorporated herein by reference to Exhibit 10.70 to the Registrant's Report on Form 10-K for the fiscal year ended January 2, 1999. ** 10.1.11.c Amendment No. 3 to Amended and Restated Employment Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated November 30, 1999, filed herewith. * 10.1.12 Amended and Restated Employment Agreement between Dennis C. Hoff and D.I.Y. Home Warehouse, Inc. dated January 1, 1995, incorporated herein by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the quarter ended July 1, 1995. * 10.1.12.a Amended and Restated Employment Agreement between Dennis C. Hoff and D.I.Y. Home Warehouse, Inc. dated May 28, 1998, incorporated herein by reference to Exhibit 10.6 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.1.13 Form of Non-Qualified Stock Option Agreement under the D.I.Y. Home Warehouse, Inc. 1993 Long Term Incentive Plan as Amended, incorporated herein by reference to Exhibit 10.14 to Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 18 19 * 10.1.14 1995 D.I.Y. Home Warehouse, Inc. Employee Bonus Plan dated May 24, 1995, incorporated herein by reference to Exhibit 10.44 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. * 10.1.15 D.I.Y. Home Warehouse, Inc. 1996 Retainer Stock Plan for Non-Employee Directors, incorporated herein by reference to Exhibit 10.49 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. * 10.1.16 Employment Agreement between Eric I. Glassman and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.7 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.1.17 Transaction Bonus Agreement between Clifford L. Reynolds and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.8 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.1.18 Transaction Bonus Agreement between R. Scott Eynon and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.9 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.1.19 Transaction Bonus Agreement between Dennis C. Hoff and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.10 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.1.20 Transaction Bonus Agreement between Eric I. Glassman and D.I.Y. Home Warehouse, Inc. dated July 1, 1998, incorporated herein by reference to Exhibit 10.11 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.1.21 Amendment No. 1 to Amended and Restated Employment Agreement between Eric I. Glassman and D.I.Y. Home Warehouse, Inc. dated March 11, 1999, incorporated herein by reference to Exhibit 10.71 to the Registrant's Report on Form 10-K for the fiscal year ended January 2, 1999. * 10.1.22 DIY Home Warehouse, Inc. 1993 Long Term Incentive Plan as Amended March 17, 1999 and Approved by the Board of Directors March 17, 1999, incorporated herein by reference to Exhibit 10.13 to the Registrant's Report on Form 10-Q for the quarter ended July 3, 1999. 10.2 Material Leases of the Registrant * 10.2.1 Sublease between D.I.Y. Ohio Real Estate Associates Limited Partnership and D.I.Y. Home Warehouse, Inc., dated August 1, 1992, incorporated herein by reference to Exhibit 10.1 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.2 Indenture of Lease between Smith - D.I.Y. Center Limited Partnership and D.I.Y. Home Warehouse, Inc., dated December 27, 1985, incorporated herein by reference to Exhibit 10.2 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.3 Amendment to Lease between D.I.Y. Center Associates (successor in interest to Smith - D.I.Y. Center Limited Partnership) and D.I.Y. Home Warehouse, Inc., dated July 2, 1991, incorporated herein by reference to Exhibit 10.3 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.3.a Amendment to Lease between D.I.Y. Center Associates, L.P. and D.I.Y. Home Warehouse, Inc. dated March 21, 1995, incorporated 19 20 herein by reference to Exhibit 10.51 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. * 10.2.4 Lease between Fred A. Erb and D.I.Y. Home Warehouse, Inc., dated March 1, 1993, incorporated herein by reference to Exhibit 10.4 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.5 Lease Agreement between West Park Limited, Inc. and D.I.Y. Home Warehouse, Inc. dated August 2, 1991, incorporated herein by reference to Exhibit 10.5 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.5.a Addendum #1 to Lease Agreement between West Park Limited, Inc. and D.I.Y. Home Warehouse, Inc., dated September 2, 1991, incorporated herein by reference to Exhibit 10.6 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.5.b Addendum #2 to Lease Agreement between West Park Limited, Inc. and D.I.Y. Home Warehouse, Inc., dated September 16, 1991, incorporated herein by reference to Exhibit 10.7 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.6 Sublease between The Wholesale Club, Inc. and D.I.Y. Home Warehouse, Inc., dated May 14, 1992, incorporated herein by reference to Exhibit 10.8 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.7 Sublease between The Wholesale Club, Inc. and D.I.Y. Home Warehouse, Inc., dated November 25, 1992, incorporated herein by reference to Exhibit 10.9 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.8 Lease between Myron S. Viny, dba Central Valley Properties, and D.I.Y. Home Warehouse, Inc., dated February 26, 1993, but effective beginning May 1, 1993, incorporated herein by reference to Exhibit 10.12 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.2.8.a Modification and Supplement to lease between the Estate of Myron S. Viny (formerly DBA Central Valley Properties) and D.I.Y. Home Warehouse, Inc. dated November 27, 1995, incorporated herein by reference to Exhibit 10.12 to Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. * 10.2.9 Agreement of Lease (Boardman Facility) between DIY Ohio Real Estate Associates Limited Partnership and D.I.Y. Home Warehouse, Inc. dated as of October 1, 1993, incorporated herein by reference to Exhibit 10.38 to Registrant's Report on Form 10-K for the fiscal year ended January 1, 1994. * 10.2.9.a Second Amendment to Agreement Lease (Boardman facility) between D.I.Y. Home Warehouse, Inc. and D.I.Y. Ohio Real Estate Associated Limited Partnership (the Landlord) and assignment of the lease to V&V 224, Limited by the Landlord dated October 22, 1998, incorporated herein by reference to Exhibit 10.9 to Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. * 10.2.10 Lease between Elmhurst Properties, Inc. and D.I.Y. Home Warehouse, Inc., dated May 26, 1993, incorporated herein by reference to Exhibit 10.39 to Registrant's Report on Form 10-K for the fiscal year ended January 1, 1994. 20 21 * 10.2.11 Assignment and Assumption of Lease and Sublease between Kmart Corporation and D.I.Y. Home Warehouse, Inc. dated December 22, 1994, incorporated herein by reference to Exhibit 10.49 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. * 10.2.12 Shopping Center Lease between KCHGC, Inc. and D.I.Y. Home Warehouse, Inc. dated January 12, 1995, incorporated herein by reference to Exhibit 10.50 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. 10.3 Credit Agreements of the Registrant * 10.3.1 $1,250,000 Promissory Note from D.I.Y. Home Warehouse, Inc. to Edgemere, Inc. f/k/a Erb Lumber Co., dated July 1, 1991, incorporated herein by reference to Exhibit 10.29 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.3.2 Security Agreement between D.I.Y. Home Warehouse and Erb Lumber Co., dated November 14, 1985, incorporated herein by reference to Exhibit 10.30 to Registrant's Registration Statement No. 33-60012 on Form S-1 filed May 18, 1993. * 10.3.3 Revolving Credit Agreement and Security Agreement dated December 7, 1994 between D.I.Y. Home Warehouse, Inc. and National City Bank, Columbus, and Old Kent Bank and Trust Company, incorporated herein by reference to Exhibit 10.40 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. * 10.3.4 Loan and Co-lender Agreement and Open-End Mortgage, Assignment of Rents and Security Agreement dated December 23, 1994 between D.I.Y. Home Warehouse, Inc. and National City Bank, Columbus, and Old Kent Bank and Trust Company, incorporated herein by reference to Exhibit 10.41 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. * 10.3.4.a First Amendment to Loan and Co-Lender Agreement dated December 22, 1995 between D.I.Y. Home Warehouse, National City Bank, Columbus, and Old Kent Bank, incorporated herein by reference to Exhibit 10.41 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995 * 10.3.4.b Second Amendment to Loan and Co-Lender Agreement dated December 23, 1996 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.52 to the Registrant's Report on Form 10-K for the fiscal year ended December 28, 1996. * 10.3.4.c Third Amendment to Loan and Co-Lender Agreement dated October 24, 1997 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter ended September 27, 1997. * 10.3.4.d Fourth Amendment to Loan and Co-Lender Agreement dated April 4, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.3.4.e Fifth Amendment to Loan and Co-Lender Agreement dated October 28, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank of 21 22 Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.4 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. * 10.3.5 Line of Credit Agreement for Real Estate Loans, Open-end Mortgage, Assignment of Rents and Security Agreement, and Mortgage Notes between D.I.Y. Home Warehouse, Inc. and National City Bank, Columbus and Old Kent Bank dated April 28, 1995, incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended April 1, 1995. * 10.3.5.a First Amendment to Line of Credit Agreement; Open-end Mortgage, Assignment of Rents and Security Agreement (Leasehold) for Trumbull County; Open-end Mortgage, Assignment of Rents and Security Agreement for Summit County; Mortgage Note to National City Bank, Columbus dated September 15, 1995; Mortgage Note to Old Kent Bank dated September 15, 1995, incorporated herein by reference to Exhibit 10.1 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1995. * 10.3.5.b Second Amendment to Line of Credit Agreement dated December 22, 1995 between D.I.Y. Home Warehouse, National City Bank, Columbus, and Old Kent Bank, incorporated herein by reference to Exhibit 10.39 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. * 10.3.5.c Third Amendment to Line of Credit Agreement Dated December 23, 1996 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.53 to the Registrant's Report on Form 10-K for the fiscal year ended December 28, 1996. * 10.3.5.d Fourth Amendment to Line of Credit Agreement dated October 24, 1997 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the quarter ended September 27, 1997. * 10.3.5.e Fifth Amendment to Line of Credit Agreement dated April 4, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended July 4, 1998. * 10.3.5.f Sixth Amendment to Line of Credit Agreement dated October 28, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank of Columbus and Old Kent Bank, incorporated herein by reference to Exhibit 10.5 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. * 10.3.6 First Amendment to Security Agreement dated December 22, 1995 between D.I.Y. Home Warehouse, National City Bank, Columbus, and Old Kent Bank, incorporated herein by reference to Exhibit 10.38 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. * 10.3.7 First Amendment to Subordination Agreement dated December 22, 1995 between D.I.Y. Home Warehouse, National City Bank, Columbus, and Old Kent Bank, and Edgemere Enterprises, Inc., incorporated herein by reference to Exhibit 10.39 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. 22 23 * 10.3.8 Partial Release of Mortgage to Open-End Mortgage Assignment of Rents and Security Agreement for Richland County, Stark County, Summit County, Trumball County and Medina County by Old Kent Bank dated October 28, 1998, incorporated herein by reference to Exhibit 10.6 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. * 10.3.9 Modification to Revolving Credit Agreement, Line of Credit Agreement, and Loan and Co-lender Agreement between D.I.Y. Home Warehouse, Inc., National City Bank, Columbus, and Old Kent Bank dated February 20, 1996, incorporated herein by reference to Exhibit 10.42 to the Registrant's Report on Form 10-K for the fiscal year ended December 30, 1995. * 10.3.10 General Business Lease Agreement with IBM Credit Corporation dated May 30, 1996, incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended June 29, 1996. * 10.3.11 Amendment No. 1 to Open-End Mortgage, Assignment of Rents and Security Agreement for Richland County, Stark County, Summit County, Trumball County and Medina County between D.I.Y. Home Warehouse, Inc., National City Bank and Old Kent Bank dated October 28, 1998, incorporated herein by reference to Exhibit 10.7 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. * 10.3.12 First Amendment to Mortgage Note between D.I.Y. Home Warehouse, Inc. and National City Bank dated October 28, 1998, incorporated herein by reference to Exhibit 10.8 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. * 10.3.13 Second Amendment to Security Agreement dated October 28, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank and Old Kent Bank, incorporated herein by reference to Exhibit 10.9 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. * 10.3.14 Second Amendment to Subordination Agreement dated October 28, 1998 between D.I.Y. Home Warehouse, Inc., National City Bank and Old Kent Bank, incorporated herein by reference to Exhibit 10.3 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. * 10.3.15 Credit and Security Agreement dated October 27, 1998 among D.I.Y. Home Warehouse, Inc. and the Lenders which are signatures hereto and National City Commercial Finance, Inc, as agent and National City Bank as Letter of Credit Bank, incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter ended October 3, 1998. * 10.4 Real Estate Purchase Agreement (Mansfield) between DIY Ohio Real Estate Associates Limited Partnership and D.I.Y. Home Warehouse, Inc. dated as of March 1, 1994, incorporated herein by reference to Exhibit 10.40 to the Registrant's Report on Form 10-K for the fiscal year ended January 1, 1994. ** 10.5 Real Estate Purchase Agreement (Mansfield and Canton) between D.I.Y. Home Warehouse, Inc. and Gabriel Brothers, Inc. dated March 3, 1999, filed herewith. ** 10.6 Sale of Merchandise Agreement (Mansfield and West Market) between D.I.Y Home Warehouse, Inc. and Schottenstein Bernstein Capital Group, LLC, dated June 3 1999, filed herewith. ** 10.7 Sale of Merchandise Agreement (Boardman) between D.I.Y Home Warehouse, Inc. and Schottenstein Bernstein Capital Group, LLC, dated June 11, 1999, filed herewith. 23 24 ** 13.1 Annual Report to the Shareholders of D.I.Y. Home Warehouse, Inc. for the fiscal year ended January 1, 2000, certain portions of which are incorporated by reference herein. ** 23.1 Consent of PricewaterhouseCoopers LLP, filed herewith. ** 27.1 Financial Data Schedule for the fiscal year ended January 1, 2000, filed herewith. - ------------------ * Previously filed ** Filed herewith 24 EX-10.1.10.D 2 EXHIBIT 10.1.10.D 1 EXH 10.01.10d AMENDMENT NO.4 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT --------------------------------- This Amendment No. 4 to Amended and Restated Employment Agreement is executed as of November 30th, 1999, by Clifford L. Reynolds (the "Executive") and D.I.Y. Home Warehouse, Inc., an Ohio corporation (the "Company"). RECITALS -------- A. Executive and the Company are parties to a certain Amended and Restated Employment Agreement, dated as of January 1, 1995, as amended by Amendment No. 1 to Amended and Restated Employment Agreement dated as of November 21, 1996, by Amendment No. 2 to Amended and Restated Employment Agreement dated as of May 28, 1998 and Amendment No. 3 to Amended and Restated Employment Agreement dated as of March 11, 1999 (collectively, the "Agreement"). B. The parties desire to amend the Agreement as set forth below. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Section 1 of the Agreement is hereby amended to read, in its entirety, as follows: 1. EMPLOYMENT. For a period of nine (9) years from and after January 1, 1995 (the "Effective Date") , unless sooner terminated as provided below or extended upon mutual agreement of the parties, the Company will employ Executive as the President of the Company, to perform such services for and on behalf of the Company as the Company's Board of Directors may from time to time direct consistent with Executive's title and position, and Executive hereby accepts such employment, upon the terms and conditions set forth in this Agreement. Executive's principal place of business will be located within a fifty (50) mile radius of downtown Cleveland, Ohio. 2. As amended hereby, the Agreement shall continue in full force and effect and is hereby ratified and confirmed. 2 3. This Amendment No. 4 may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 4 as of the date set forth above. EXECUTIVE /s/ Clifford L. Reynolds ----------------------------------- Clifford L. Reynolds COMPANY D.I.Y. Home Warehouse, Inc., an Ohio corporation By: /s/ Fred A. Erb ------------------------------- Fred A. Erb Its: Chairman EX-10.1.11.C 3 EXHIBIT 10.1.11.C 1 EXH 10.01.11c AMENDMENT NO.3 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT --------------------------------- This Amendment No. 3 to Amended and Restated Employment Agreement is executed as of November 30, 1999, by R. Scott Eynon (the "Executive") and D.I.Y. Home Warehouse, Inc., an Ohio corporation (the "Company"). RECITALS -------- A. Executive and the Company are parties to a certain Amended and Restated Employment Agreement, dated as of January 1, 1995, as amended by Amendment No.1 to Amended and Restated Employment Agreement dated as of May 28, 1998 and Amendment No.2 to Amended and Restated Employment Agreement dated as of March 11, 1999 (collectively, the "Agreement"). B. The parties desire to amend the Agreement as set forth below. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Section 1 of the Agreement is hereby amended to read, in its entirety, as follows: 1. EMPLOYMENT. For a period of nine (9) years from and after January 1, 1995 (the "Effective Date") , unless sooner terminated as provided below or extended upon mutual agreement of the parties, the Company will employ Executive as the Vice President - Operations of the Company, to perform such services for and on behalf of the Company as the Company's Board of Directors may from time to time direct consistent with Executive's title and position, and Executive hereby accepts such employment, upon the terms and conditions set forth in this Agreement. Executive's principal place of business will be located within a fifty (50) mile radius of downtown Cleveland, Ohio. 2. As amended hereby, the Agreement shall continue in full force and effect and is hereby ratified and confirmed. 3. This Amendment No.3 may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 2 IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 3 as of the date set forth above. EXECUTIVE /s/ R. Scott Eynon ----------------------------------- R. Scott Eynon COMPANY D.I.Y. Home Warehouse, Inc., an Ohio corporation By: /s/ Fred A. Erb ------------------------------- Fred A. Erb Its: Chairman EX-10.5 4 EXHIBIT 10.5 1 EXH 10.5 PURCHASE AGREEMENT ------------------ THIS PURCHASE AGREEMENT is made at Valley View, Ohio, this 3rd day of March, 1999, between D.I.Y. HOME WAREHOUSE, INC., an Ohio corporation (hereinafter called "Seller"), and GABRIEL BROTHERS, INC. a West Virginia corporation (hereinafter called "Buyer"). WHEREAS, Seller owns the real estate described on Exhibit A attached hereto (hereinafter referred to as the "'Mansfield Property"); and WHEREAS, Seller owns the real estate described on Exhibit B attached hereto (hereinafter referred to as the "Canton Property"); and WHEREAS, Seller desires to sell the Mansfield Property and the Canton Property (the Mansfield Property and the Canton Property are hereinafter collectively referred to as the "Properties") to Buyer and Buyer desires to purchase the Properties from Seller; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. PURCHASE AND SALE. Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase and pay for, the Properties. The Properties will include the land and any and all buildings, improvements, rights, privileges, and easements appertaining thereto. 2. PURCHASE PRICE. The total purchase price for the Properties is Eight Million Six Hundred Thousand Dollars ($8,600,000). The purchase price is payable by Buyer as follows: A. One Hundred Thousand Dollars ($100,000) receipt of which is hereby acknowledged by Seller, which sum will be non-refundable upon 2 satisfactory completion of the Due Diligence Investigation (except in the case of Seller's breach). B. A non-refundable (except in the case of Seller's breach) Four Hundred Forty Thousand Dollars ($440,000) deposit, to be paid, upon Buyer's satisfactory completion of the Due Diligence Investigation. C. The balance of the purchase price, namely Eight Million Sixty Thousand Dollars ($8,060,000) in cash, which shall be deposited into escrow on or before the closing date of this transaction. All deposits shall be held in an interest bearing account, and the deposits and any accrued interest shall be fully refundable to the Purchaser in the event of termination of the Agreement during or until the expiration of the "Due Diligence Investigation." Thereafter, the deposit and any accrued interest will be non-refundable in the event of a termination by Purchaser (except in the case of Seller's breach). 3. CLOSING. The closing date of this transaction shall be within thirty (30) days after the satisfactory completion of Buyer's Due Diligence Investigation, but in no event will the closing date be later than July 1, 1999. Possession to the Canton Property will be delivered at Closing and possession of the Mansfield Property will be delivered within ninety (90) days after the Closing. At closing, the parties will execute the Post Occupancy Agreement attached hereto as Exhibit C with respect to the Mansfield Property. 2 3 4. SELLER'S DISCLAIMER. BUYER ACKNOWLEDGES THAT EXCEPT AS IS SPECIFICALLY SET FORTH HEREIN THAT SELLER IS NOT MAKING ANY REPRESENTATIONS OR WARRANTIES EITHER EXPRESS OR IMPLIED REGARDING THE CONDITION, FITNESS OR USE OF THE PROPERTIES. SUBJECT TO BUYER APPROVING THE RESULTS OF ITS DUE DILIGENCE INVESTIGATION, BUYER HEREBY ACCEPTS THE PROPERTIES IN THEIR "AS IS" "WHERE IS" CONDITION WITH ALL FAULTS. 5. DUE DILIGENCE. This Agreement, and Buyer's obligation to purchase the Properties hereunder, is subject to Buyer satisfactorily completing to its sole reasonable discretion a diligent investigation and inspection of the Properties within ninety (90) days from the date hereof (the "Due Diligence Investigation"). Buyer's investigations and inspections may include, without limitation, tests of the subsurface soil conditions of the Properties, boundary surveys, engineering reports, feasibility studies (including, without limitation, economic feasibility studies), and environmental inspections. Buyer. and Buyer's agents will have reasonable access to the Properties for such inspections. Buyer hereby agrees to defend, indemnify and hold Seller harmless from the acts of Buyer or Buyer's agents resulting from access to the Properties during the Due Diligence Investigation. Buyer's failure to object in writing to Seller within such 90-day period shall be deemed to be satisfactory completion of the Buyer's Due Diligence Investigation. If within such ninety (90) day period, Buyer objects to an item relating to the Properties, and Seller does not remediate such item prior to the closing date, then this transaction will be null and void and any purchase price already paid will be returned to 3 4 Buyer. Buyer agrees to keep the results of its Due Diligence Investigation confidential, except that full disclosure will be made to Seller. 6. TITLE. Seller shall convey the Properties to Buyer by general warranty deed, warranting title to be free and clear of all liens, encumbrances, clouds and defects whatsoever caused by Seller, except restrictions, reservations, limitations, easements and conditions of record which are approved by Buyer in accordance with subparagraph 7.B. below, zoning ordinances, and taxes and assessments, both general and special, which are a lien but not yet due and payable. Said deed shall be deposited into escrow on or before the closing date. 7. TITLE INSURANCE. A. On the closing date, Buyer will obtain an Owner's Policy of Title Insurance in the full amount of the purchase price to be issued by the Akron office of Chicago Title Insurance Company (hereinafter called "title company") in its customary form, insuring marketable title to the Properties to be good in Buyer, subject only to any exceptions to be set forth in the deed which are approved by Buyer as set forth below. Prior to closing, each party will receive an insured closing letter from Chicago Title Insurance Company. B. A preliminary title report, with a special tax search included, in the form of a commitment to issue the required title policy requested by Buyer ("title report") will be ordered by Seller for the benefit of Buyer upon execution hereof. In addition, upon execution hereof, Buyer will order an ALTA survey of the Properties. The title report and the survey must be completed within forty-five (45) days from the date hereof. Within ten (10) days of Buyer's receipt of the title report and the ALTA survey for both Properties, Buyer will notify Seller and the title company of any restrictions, reservations, limitations, easements and conditions of 4 5 record (together herein called "title defects") disclosed in said title report or survey which are objectionable to Buyer. Buyer's failure to object in writing within such 10-day period shall be deemed to be an approval by Buyer for the items set forth therein and a waiver of any items so disclosed. If Buyer objects to a title defect, and Seller does not remove such title defect within twenty (20) days thereafter, then this transaction will be null and void and any purchase price already paid will be returned to Buyer. On the closing date, the escrow agent shall notify Seller and Buyer as to whether the title company is then in a position to issue its title insurance. If the escrow agent shall notify the parties that (a) the title company will issue the title insurance, this transaction shall be consummated in accordance with the terms and provisions of this Agreement; or (b) the title company will not issue the title insurance, and if Buyer does not forthwith waive the title defects that the escrow agent shall recite as preventing such issuance, or if Seller does not forthwith cure the same, then the closing of this transaction shall be postponed for a reasonable period of time not to exceed thirty (30) days until Seller shall remove said title defects. If Seller is unable to cure such title defects within said thirty (30) days, this Agreement shall be null and void, all funds and documents previously deposited in escrow shall be returned to the parties, and there shall be no further liability between the parties. If Buyer shall waive such title defects by so notifying the escrow agent in writing, or if Seller shall have cured such defects, as provided herein, the obligations of the parties hereunder shall not be affected by reason thereof, there shall be no abatement or reduction of the purchase price, and this transaction shall be consummated in 5 6 accordance with the terms and provisions of this Agreement, except that such title defects that are waived by Buyer, if any, shall be set forth as exceptions in the deed and in the title insurance. 8. SELLER'S INFORMATION. Seller, shall use reasonable efforts to furnish Buyer with copies of its existing surveys, building plans, environmental studies and other pertinent or relevant information or reports within its possession or control relating to the Properties (the "Information"). If the Information is too voluminous, Buyer will send a representative to Seller's office to review the Information. Buyer shall immediately review the Information and within twenty (20) days of Buyer's receipt of the Information, Buyer will notify Seller in writing of any item disclosed in the Information which is objectionable to Buyer and whether Buyer still intends to proceed with the transaction described herein or to abandon such transaction. NOTWITHSTANDING THE FOREGOING TO THE CONTRARY, SELLER IS NOT MAKING ANY REPRESENTATIONS OR WARRANTIES REGARDING THE ACCURACY OF THE INFORMATION AND SELLER HEREBY DISCLAIMS ANY SUCH WARRANTIES EITHER EXPRESS OR IMPLIED. THE PARTIES ACKNOWLEDGE THAT BUYER IS CONDUCTING THE DUE DILIGENCE INVESTIGATION OF THE PROPERTY AND THAT BUYER WILL RELY EXCLUSIVELY ON THE RESULTS THEREOF. 9. SELLER'S REPRESENTATIONS. Seller hereby represents, which representations shall be effective as of the closing date and shall survive the transfer of title to Buyer or Buyer's nominee, as follows: 6 7 (a) Seller has received no notices or orders from any governmental authority with respect to the condition of the Properties or repair of the same, or with respect to any claim of a violation of any laws, ordinances, zoning codes, building codes or orders applicable thereto; (b) that there are no actions, suits or proceedings against the Seller with respect to the Properties, and that, to its actual knowledge, there are no investigations pending or actions, suits or proceedings at law or in equity or investigations threatened against Seller that would adversely affect this transaction or the Properties being sold hereunder; (c) that, to its actual knowledge, all documents delivered or required hereunder to be delivered to Buyer and ail warranties herein made by Seller are accurate and complete and there has been no material change in any of the facts, circumstances or subject matter of this transaction of which Buyer has not been informed; and (d) that the sale and transfer of the Properties aforesaid is or shall be prior to the closing date duly authorized in accordance with law, and within the scope of authority of the party or parties conveying the Properties, and evidence of such authority shall be presented to Buyer prior to the closing of this transaction. 7 8 10. DAMAGE. From the date hereof, through the closing date, Seller agrees to maintain its existing property and casualty insurance relating to the Property. If there is any significant structural damage to the Properties prior. to transfer of record title then Buyer may, at Buyer's option, (i) elect to continue this Agreement In full force and effect, in which case Seller shall forthwith assign to Buyer all rights of Seller to the insurance recovery due by reason of said damage (if any); or (ii) elect to rescind and void this Agreement, and thereupon there shall be returned to Buyer all money, papers or documents deposited by Buyer, and there shall be returned to Seller all papers or documents deposited by Seller. After transfer of record title to the Properties to Buyer, the risk of loss shall be and is assumed by Buyer. 11. TAXES AND ASSESSMENTS. Real estate taxes and assessments, both general and special will be prorated as of the date of the transfer of title based upon the most recent tax duplicate. 12. BROKER. Seller and Buyer represent to each other, which representation shall survive the closing of this transaction, that no real estate broker was involved in this transaction and that no brokerage fees or other compensation is due any real estate broker or any other person because of this transaction except for Jim Cummins Real Estate and Petroplus & Associates, Inc. whose commission of two and one-half percent (2.5%) of the purchase price will be the responsibility of Seller. The commission will be split equally between such brokers and will be paid only in the event title to the Property transfers to Buyer and the purchase price is paid to Seller. The parties shall indemnify and hold each other harmless from any other broker claims made under their authority. 8 9 13. ESCROW. This transaction shall be placed in escrow with the title company ("escrow agent"). An executed counterpart of this Agreement shall be deposited with the escrow agent by Buyer, and this Agreement shall serve as the escrow instructions. The escrow agent may attach its standard conditions of acceptance thereto; provided, however, that in the event said standard conditions are inconsistent or in conflict with the terms of this Agreement, then this Agreement shall control. 14. CLOSING DATE. On the closing date, the escrow agent shall file for record the deed and any other instruments required to be recorded and shall thereupon deliver to each of the parties the funds and documents to which they shall be respectively entitled, together with its escrow statement, provided that the escrow agent shall then have on hand all funds and documents necessary to complete the within transaction and provided the title company has stated in writing that it shall be in a position to, and will issue and deliver, upon the filing of the deed for record, title insurance required hereunder. In closing this transaction, the escrow agent shall charge Seller with the following: (a) the cost of any transfer tax; (b) one-half (1/2) the escrow fee; (c) the brokerage commissions; and (d) all other charges properly borne by Seller consistent with the terms of this Agreement; and immediately thereafter shall deliver to Seller the balance of the funds in its hands due under the terms hereof, and any documents due Seller. On closing, said escrow agent shall charge Buyer with the following: 9 10 (a) any cost of financing this transaction which may be arranged for by Buyer; (b) the cost of filing the deed for record; (c) the cost of a title report, title search and the title insurance policy; (d) one-half (1/2) the escrow fee; and (e) all other charges properly borne by Buyer consistent with the terms of this Agreement; and immediately thereafter, said escrow agent shall deliver to Buyer the title policy, the recorded deed or Recorder's receipt therefor, any prorations to which Buyer is entitled, and any other funds or documents due Buyer. 15. NOTICES. Any notice which may be or is required to be given pursuant to the provisions of this Agreement shall be deemed to be sufficiently given if personally delivered or sent by certified or registered mail, postage prepaid, return receipt requested, and addressed as follows: If to Seller, to: D.I.Y. Home Warehouse, Inc. 5811 Canal Road Valley View, Ohio 44125 Attention: Clifford Reynolds, President With a copy to: Mr. Reynold Hendrickson Edgemere Enterprises, Inc. 44 E. Long Lake Road Bloomfield Hills, Michigan 48304 With a copy to: Mr. Harold O. Maxfield, Jr. Cavitch, Familo, Durkin & Frutkin Co., L.P.A. 14th Floor, The East Ohio Building Cleveland, Ohio 44114 10 11 If to Buyer, to: Gabriel Brothers, Inc. Real Estate Department 55 Scott Avenue Morgantown, West Virginia 26505 With a copy to: Mr. Parry Petroplus Petroplus & Associates, Inc. 1000 Hampton Center, Suite C Morgantown, West Virginia 26505 With a copy to: Mr. Eric H. London Jackson & Kelly 6000 Hampton Center Morgantown, West Virginia 26507 With a copy to: Mr. Robert Cooper Jim Cummins Real Estate One Cascade Plaza Akron, Ohio 44308 16. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Seller and Buyer and their respective administrators, successors and assigns. 17. CONFIDENTIAL NATURE OF TRANSFER. The parties agree to keep the existence of this transaction confidential until transfer of title. Buyer agrees to notify all employees and/or agents that have or will have knowledge of this transaction of the confidential nature of this transaction, including, without limitation, employees or agents that will conduct the Due Diligence Investigation. The parties agree that they will jointly approve any news release(s) regarding this transaction. Buyer acknowledges that Seller may suffer significant damages if the existence of this transaction becomes known to customers and/or employees prior to the transfer of title to Buyer. 18. CLOSING OF BOTH PROPERTIES. The parties acknowledge that this transaction contemplates the purchase of the Mansfield Property and the Canton Property and that the 11 12 Properties may not be separately purchased hereunder, and that this transaction is contingent upon Buyer acquiring both of the Properties. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the day and year first above written. SELLER: D.I.Y. HOME WAREHOUSE, INC. By: /s/ R. Scott Eynon ----------------------------------------- Title: V. P. Operations --------------------------------------- Printed Name: R. Scott Eynon ------------------------------- BUYER: GABRIEL BROTHERS, INC. By: /s/ James Gabriel ----------------------------------------- Title: Pres. --------------------------------------- Printed Name: James Gabriel ------------------------------- 12 13 PARCEL 1 -------- Located in the Southwest Quarter, Section 13, Springfield Township, Village of Ontario, Richland County, Ohio, being a part of an area formerly known as Gramac Allotment and recorded in Plat Volume 17, Page 158, consisting of inlot numbers 1694 through 1699, 1705 through 1718, of the consecutive numbered inlots in the Village of Ontario, together with portions of Sigrud Road, Edgar Road, and Cheryl Road, all now vacated. The same being more particularly described as follows: Beginning at the Northwest corner of inlot 1697, the same being located on the south right-of-way line of West Fourth Street Road (US 30 N); Thence South 75(degrees) 15' 00" East a distance of 104 feet, more or less, and continuing South 79(degrees) 56' 40" East a distance of 138.99 feet, all on and along the South right-of-way of West Fourth Street Road; Thence South 11(degrees) 16' 00" West 184 feet, more or less, to a point thence South 79(degrees) 56' 40" East 147 feet, more or less to point Thence South 11(degrees) 16' 00" West on and along the centerline of Cheryl Road a distance of 192.92 feet to a point on the westerly extension of the North line of inlot 1719; Thence South 89(degrees) 38' 00" East on and along the extension of the North line of inlot 1719, a distance of 25.03 feet to a point on the East right-of-way of Cherly Road; Thence South 00(degrees) 00' 20" West on and along the East right-of-way of Cherly Road, a distance of 255.74 feet to a point on the North right-of-way of US Route 20 S; Thence South 70(degrees) 20' 00" West a distance of 58.42 feet, and continuing South 62(degrees) 01' 20" West a distance of 200.70 feet all on and along the North right-of-way of US Route 30 S to a point on the South right-of-way on Edgar Road, now vacated; EXHIBIT A Page 1 of 4 14 PARCEL 1 CONTINUED - ------------------ Thence North 89(degrees) 05' 40" West on and along the South right-of-way of Edgar Road, the same also being the North right-of-way of US Route 30 S, a distance of 489.89 feet to Northeast corner of inlot 1756; Thence North 00(degrees) 54' 20" East on and along the northerly extension of the east line of inlot 1756, a distance of 25.00 feet to a point on centerline of Edgar Road, now vacated; Thence North 89(degrees) 05' 40" West a distance of 90.00 feet and continuing North 83(degrees) 41' 30" West a distance of 33.13 feet on and along the centerline of Edgar Road and the westerly extension thereof to a point on the West right-of-way of Edgar Road; Thence North 01(degrees) 59' 00" East on and along the West right-of-way of Edgar Road, now vacated, and the northerly extension thereof a distance of 280.50 feet to a point on the centerline of Sigrud Road, thence South 88(degrees) 02' 00" East a distance of 45.03 feet, and continuing North 87(degrees) 55' 24" East a distance of 180.45 feet all on and along the centerline of Sigrud Road, now vacated, to a point on the southerly extension of the west line of inlot 1705; Thence North 01(degrees) 59' 00" East on and along the west line of inlot 1705 1705 and the extension thereof a distance of 253.60 feet to the northwest corner of inlot 1705; Thence South 87(degrees) 54' 00" East on and along the north line of inlot numbers 1705 and 1706 a distance of 99.75 feet to the southwest corner of inlot 1699; Thence North 01(degrees) 39' 00" East on and along the west line of inlot 1699 a distance of 88 feet, more or less to a point; thence South 79(degrees) 56' 40" East 137 feet, more or less, thence South 11(degrees) 16' 00" West 180.00 feet, more or less to the northwest corner of inlot 1697, the same beginning the place of beginning of parcel of land herein described. EXHIBIT A Page 2 of 4 15 PARCEL 2 - -------- Located in the Southwest Quarter, Section 13, Springfield Township, Village of Ontario, Richland County, Ohio, being a part of an area formerly known as Framac Allotment and recorded in Plat Volume 17, Page 158, consisting of inlot numbers 1694 through 1700, 1705 through 1718, of the consecutive numbered inlots in the Village of Ontario, together with portions of Sigrud Road, Edgar Road, and Cheryl Road, all now vacated. The same being more particularly described as follows: Beginning at the Northwest corner of inlet 1697, the same being located on the South right-of-way line of West Fourth Street Road (US 30 N): thence, North 75(degrees) 15' 00" West 152.00 feet to a point, thence, North 76(degrees) 09' 00" West 13.65 feet to the corner of said lot, thence South 01(degrees) 39' 00" West a distance of 195.40 feet to a corner, thence South 79(degrees) 56' 40" East a distance of 132.74 feet to a corner, thence North 11(degrees) 16' 00" East a distance of 180.00 feet to the northwest corner of inlot 1697, the same being the place of beginning of the parcel of land herein described. SAVE AND EXCEPT THE FOLLOWING: Situated in the Village of Ontario, Township of Springfield, County of Richland, State of OH and being a part of the Southwest Quarter of Section 13, Range 19, Township 21, also known as part of the Gramac Allotment recorded in Plat Volume 17, Page 158, being a part of Inlot Numbers One Thousand Six Hundred Ninety-seven (#1697), One Thousand Six Hundred Ninety-eight (#1698) and One Thousand Six Hundred Ninety-nine (#1699), being more particularly described as follows: Beginning at a survey marker set at the Northwest corner of Inlot #1699 thence South 76 degrees 26 minutes 15 seconds East along the Southerly right of way of West Fourth Street, a distance of 13.65 feet to 3/4 inch water pipe found; thence South 75 degrees 22 minutes 43 seconds East along the Southerly right of way of West Fourth Street a distance of 190.83 feet to a survey marker set; thence South 14 degrees 17 minutes 46 seconds West distance of 187.84 feet to a railroad spike set; thence North 76 degrees 53 minutes 49 seconds West a distance of 160.81 feet to a railroad spike set on the East line of lands now or formerly owned by Joy Limited Partnership as recorded in Deed Volume 904, Page 265; thence North ??? degree 28 minutes 46 seconds East along the East line of said Joy Partnership Lands, a distance of 197.00 feet to the survey marker set at the point of beginning, containing 0.798 acres of land more or less, subject to all highways, easements, and use restrictions of record. This description is based upon an actual field survey. All bearings are based upon the South line of lands not or formerly owned by D.I.Y. Home Warehouse, Inc., as recorded in Official Record volume 295 Page 200, also being the Northerly right of way of U.S.R. 30-S, bearing being North 89 degrees 04 minutes 50 seconds West. Bearings are for the determination of angular measurement only. Survey markers set are 5/8 inch x 30 inch long reinforcing bar with plastic cap stamped "RICHLAND ENG. R.L.S. 4939". Deed References: Official Record Volume 295, Page 200 According to survey made by Robert A. Cunning, Registered Surveyor #4939. Permanent Parcel #______________________________________ EXHIBIT A Page 3 of 4 16 ALSO SAVE AND ACCEPT THE FOLLOWING: Located in the Village of Ontario, Township of Springfield, County of Richland, State of Ohio and being a part of the Southwest Quarter of Section 13, Township 21, Range 19, also known as part of the former Gramac Allotment recorded in Plat Volume 17, Page 158 and being a part of Lot Number 1711 together with portions of Sigrud and Edgar Roads now vacated and more particularly described as follows: Beginning at a point in the intersection of the centerline of Lexington- Springmill Rd. C.H. 133 with its intersection with the centerline of Sigrud Rd. Thence S 88 degrees 09' 21" E along the centerline of Sigrud Rd. a distance of 159.97 feet to a pk nail set and the True Place of Beginning. Thence continuing S 88 degrees 09' 21" E along the centerline of vacated Sigrud Rd. a distance of 41.73 feet to a pk nail set. Thence N 88 degrees 23' 06" E along the centerline of vacated Sigrud Rd. a distance of 38.35 feet to a pk nail set. Thence S 02 degrees 06' 38" W a distance of 284.17 feet to a pk nail set on the centerline of vacated Edgar Rd. Thence N 89 degrees 07' 48" W along the centerline of vacated Edgar Rd. a distance of 51.51 feet to an iron pin set. Thence N 83 degrees 41' 00" W a distance of 28.58 feet to an iron pin found on the west line of vacated Edgar Rd. Thence N 02 degrees 06' 38" E along the west line of vacated Edgar Rd. a distance of 280.50 feet to the True Place of Beginning and containing 22608.2650 square feet but subject to all legal highways also all easements of record. EXHIBIT A Page 4 of 4 17 [MAP] EXHIBIT B 18 POST-OCCUPANCY AGREEMENT This Post-Occupancy Agreement Made this ___ day of ____________, 1999, by and between DIY HOME WAREHOUSE, INC., an Ohio Corporation, party of the first part, ("Seller"), and GABRIEL BROTHERS, INC., a West Virginia Corporation, party of the second part, ("Purchaser"), the same parties under that Purchase and Sale Agreement regarding the real estate situate in the cities of Mansfield and Canton, State of Ohio, (collectively the "Property"), as more fully described on Exhibit A and Exhibit B attached hereto. WHEREAS, the Seller and the Purchaser have agreed to enter into this Occupancy Agreement, thereby permitting the continued occupancy of the Property by the Seller under the terms and conditions set forth herein and made a part of this Occupancy Agreement. WITNESSETH: That in and for valuable consideration, the sufficiency of which is hereby acknowledged by the parties, the Purchaser hereby agrees, and the Seller hereby accepts the following provisions of the Agreement: 1. The date of occupancy by the Seller shall be from the date of closing until midnight of the ninetieth (90th) day after the closing (the "90-day post-occupancy period"). 2. The Seller may at their option vacate the Property prior to expiration of the "90-day post-occupancy period". 3. Seller shall pay no rent during the "90-day post-occupancy period". 4. During the Seller's "90-day post-occupancy period", Purchaser shall be permitted free and full access to the Property. 5. The Seller agrees to hold the Purchaser harmless from any claims or actions which arise as a result of Seller's actions, the act of their agents, or any other persons entering upon the Property during the Seller's "90-day post-occupancy period". 6. The Seller agrees to maintain its existing property and casualty insurance on the Property during the "90-day post-occupancy period". 7. This Post-Occupancy Agreement is solely for the Seller's right of possession of the Property, pursuant to the provisions of this Agreement, and is not intended to establish a landlord/tenant relationship. EXHIBIT C 19 8. The Seller agrees to pay any and all bills for usage of available utilities on the Property incurred by Seller during the "90-day post-occupancy period". 9. The Seller agrees to pay its pro-rata share of the general and special real estate taxes assessed upon the Property during the "90-day post-occupancy period". 10. In the event Seller fails to vacate the Property at the expiration of the "90-day post occupancy period", Seller shall pay to purchaser the sum of Nine Thousand Dollars, ($9,000.00) per week. Payments shall be made only on a weekly basis, and payment shall not be subject to proration on a daily basis. WITNESS the following signatures and seals: WITNESSES: Gabriel Brothers, Inc., A West Virginia Corporation - ------------------------------ --------------------------------- By: ------------------------------ Its: ----------------------------- Date: ---------------------------- DIY Home Warehouse, Inc., An Ohio Corporation - ------------------------------ --------------------------------- By: ------------------------------ Its: ----------------------------- Date: ---------------------------- EX-10.6 5 EXHIBIT 10.6 1 EXH 10.6 Mr. Eric Glassman D.I.Y. Home Warehouse, Inc. 5811 Canal Road, Suite 180 Cleveland, Ohio 44125 June 3, 1999 Dear Eric: Upon execution by D.I.Y. Home Warehouse, Inc., having a principle place of business located at 5811 Canal Road, Valley View, Ohio 44125("Merchant"), this letter shall serve as the agreement (the "Agreement") between Merchant and Schottenstein Bernstein Capital Group, LLC having a principle place of business located at 1800 Moler Road, Columbus, Ohio 43207 (the "Agent") for Agent to act as Merchant's sole and exclusive agent to sell all of the merchandise (the "Merchandise") in Merchant's stores listed on Schedule A attached (the "Stores" and individually a "Store") by means of a "Store Closing," and or "Total Liquidation" sale (the "Sale"). In consideration of the mutual promises and covenants contained herein and other good and valuable consideration. Merchant and Agent agree as follows: 1. AGENCY. Merchant appoints Agent its exclusive agent for the purpose ot conducting the Sale of the Merchandise located at the Stores. Agent shall be responsible, with Merchant's assistance, for securing any required licenses and permits and complying with any "going-out-of-business" laws, rules, ordinances and regulations. Merchant shall pay any fees and expenses incurred in connection therewith and Agent will post any bonds required in connection with such licenses and permits. 2. INVENTORY. As soon as practicable after Merchant's acceptance of this Agreement, Merchant shall cause to be taken a "retail dollar" and or SKU physical inventory of the Merchandise in the Stores (the "Inventory Count"). The date that the Inventory Count is taken in each Store shall be referred to as to each Store as the "Inventory Date". The Inventory Count shall be taken by RGIS or another independent inventory service mutually designated by Merchant and Agent (the "Inventory Service") the cost of which shall be shared equally by Merchant and Agent. Each Store 2 shall be closed during the Inventory Count and during the Inventory Count, neither Merchant nor Agent shall enter such Store without each having a representative present, except in the case of an emergency. Merchant and Agent, will provide one or more representative at the store during the Inventory Count. The Inventory Count shall be taken on the basis of the lowest ticketed price of each item of Merchandise except for (i) out of season inventory which shall be valued at fifty (50%) percent of the lowest ticketed price and (ii) damaged, display and clearance Merchandise price for which Merchant and Agent shall agree upon a price. Merchant shall remove from the Sale any item of damaged, clearance, or display Merchandise for which a price cannot be agreed upon as well as Merchandise as to which Merchant and Agent cannot agree upon the seasonality. Notwithstanding any of the above, the reduction in the Retail Value, resulting from Merchant and Agent's pricing of damaged, display and clearance Merchandise, shall not exceed Fifty Thousand Dollars ($50,000) per Store. 3. RETAIL VALUE. The term "Retail Value" herein shall mean the aggregate of the item values of the respective items of all the Merchandise. Merchandise shall include all goods owned by Merchant and located at the Stores on the Inventory Date except: (i) goods which Merchant shall have reasonably shown to belong to sublessees, licensees or concessionaires of Merchant or to have been placed in the Stores on consignment; and (ii) furniture, fixtures, equipment and improvements to realty located in the Stores. The ticketed price of any item of Merchandise shall not include any sales or gross receipts taxes. If any item of Merchandise has more than one ticket, the lower retail price shall prevail unless Merchant establishes that such Merchandise was inadvertently priced incorrectly. Merchandise arriving at the Stores following the Start Date ("On Order Merchandise"), shall be valued at the lowest ticketed price less the discount then prevailing in the Stores. 4. SALE TERM. The Sale shall start no later than June 18,1999 (the "Start Date"), and shall end no later than the close of business at each Store, approximately ten weeks thereafter, on August 27, 1999, unless extended by agreement of the parties (the "End Date"). Agent may terminate the Sale prior to the End Date at any Store in its reasonable discretion. At the conclusion 2 3 of the Sale, Agent agrees to leave the Stores in "broom clean" condition, with all Merchandise (regardless of the condition) being removed by Agent, except for removal of furniture, fixtures, equipment and remaining Supplies (as defined in Section 10 hereof) and to leave the Stores in the same condition as on the Start Date, ordinary wear and tear excepted. 5. GUARANTEED PAYMENT. Agent guarantees that Merchant shall receive an amount equal to fifty three and one-half percent (53.5%) of the Retail Value (the "Guaranteed Payment") of the Merchandise. In the event that the aggregate value of all the Merchandise shall be less than Six Million Five Hundred Thousand Dollars ($6,500,000), the Guaranteed Payment shall be reduced in accordance with Schedule B. The Guaranteed Payment will be reduced pro rata for increments or partial increments in accordance with Schedule B. Moreover, in the event that Agent cannot start the Sale until (i) after June 18th but before June 25th, the Guaranteed Payment shall be reduced by one half of one percent (.5%) (e.g. from 53.5% to 53%), (ii) after June 25th but before July 2, the Guaranteed Payment shall be reduced by one percent (1%) (e.g. from 53.5% to 52.5%), and (iii) after July 2 but before July 9, the Guaranteed Payment shall be reduced by one and one half percent (1.5%) (e.g.53.5% to 52%). The parties agree to negotiate in good faith any further reduction in the Guaranteed Payment in the event Agent is prohibited from starting the Sale until after July 9th. Merchant shall retain all amounts collected during the Sale, as well as any insurance proceeds resulting from the loss of any Merchandise subject to this Agreement (the "Proceeds"), out of which it shall pay Expenses of Sale, as set forth below, and satisfy the Guaranteed Payment. After satisfaction of the Guaranteed Payment and payment of Expenses of Sale, Agent shall be entitled to receive all additional Proceeds as its commission herein. As security for the Guaranteed Payment and Expenses of Sale, Agent will deliver to Merchant an irrevocable Letter of Credit, in a form attached hereto as Schedule C from Wells Fargo Bank in the amount of $3,500,000 having an expiration date of not earlier than September 30, 1999. In the event, following the End Date, that Proceeds from the Sale are insufficient to satisfy the Guaranteed Amount and Expenses of Sale, Merchant shall be entitled to draw down upon the Letter of Credit for the amount of the deficiency. 3 4 6. SALE CONDUCT. Agent shall conduct the Sale in the name of Merchant in full and complete compliance with applicable laws, rules, or ordinances in the manner in which Agent in its discretion reasonably deems fit, including, but not limited to, advertising, pricing of Merchandise, number and type of personnel, Store hours, Store maintenance and security. Agent may advertise the Sale as a Store Closing, or Total Liquidation or similar type sale in accordance with applicable law and applicable leasehold agreements. Notwithstanding the Guaranteed Payment, Agent acknowledges that Merchant will after the End Date have a significant number of stores in Ohio which will continue to operate under Merchant's name. As a result, Agent will conduct the Sale using its best efforts and in such a manner as to minimize any bad publicity or loss of goodwill arising from the conduct of the Sale. Agent may use Merchant's employees to the extent Agent deems feasible, and Agent may select and schedule the number and type of Merchant's employees required for the Sale, however, Merchant's employees shall at all times remain employees of Merchant. On and after the Start Date, Merchant shall pay, as an Expense of Sale, as hereinafter defined, the gross wage payroll paid to Merchant's employees used in the Stores by the Agent during the Sale plus (a) the related payroll taxes (including FICA and Unemployment), (b) Worker's Compensation and (c) health care insurance benefits (subsections (a), (b) and (c) collectively, the "Benefits") not in excess of fifteen and 57/100 percent (15.57%) of said gross payroll (the "Fringe Benefit Cap"). Any amounts in excess of the Fringe Benefit Cap shall be at Merchant's Expense, as hereinafter defined. Merchant and Agent acknowledge and agree, that (i) nothing herein nor any of Agent's actions taken in respect hereto shall be deemed to constitute an assumption by Agent of any of Merchant's obligations relating to any of Merchant's employees including, without limitation, vacation, pension, withdrawal, severance pay, vacation pay, sick leave or pay, maternity leave or pay, Worker Adjustment Retraining Act ("WARN") claims (if any) and other termination type claims and obligations; and (ii) Merchant hereby indemnifies Agent in respect to any claims asserted by any of Merchant's employees, except as to claims arising out of the negligence or wrongful act 4 5 or omission of Agent, and Merchant is solely and specifically responsible for all of Merchant's obligations under any collective bargaining agreements and any purported oral service contracts. 7. EXPENSES OF SALE. Merchant shall collect all Proceeds out of which shall be paid all "Expenses of Sale." In the event that Proceeds are not sufficient to pay such Expenses of Sale, Merchant shall be entitled to draw down upon the Letter of Credit, as set forth in Paragraph 6, for the amount of the deficiency after the End Date. Expenses of Sale shall be (i) the actual gross wage payroll paid to Merchant's employees used in the Stores by the Agent during the Sale plus the cost of the Benefits for such employees not to exceed the Fringe Benefit Cap; (ii) advertising expense; (iii) signage for the Sale; (iv) security in the Stores; (v) bank card fees and charge backs; (vi) telephone charges for the Stores in excess of base charges; (vii) Agent's supervision expenses; (viii) any other expenses directly attributable to the Sale authorized by Agent and (ix) occupancy costs on a per diem per Store basis as per attached Schedule D. Agent shall bill Merchant weekly for any Expenses of Sale paid by Agent which shall be promptly paid from Proceeds collected by Merchant. 8. MERCHANT'S EXPENSES. During the Sale, Merchant shall be responsible for payment of the following items none of which shall be deemed an Expense of Sale: (i) all occupancy costs not included in Schedule D; (ii) any Benefits in excess of the Fringe Benefit Cap; (iii) all other employee benefits, including but not limited to union dues, termination pay, pension benefits, severance pay, vacation paY, sick leave or pay, maternity leave or pay and WARN claims (if any); (iv) major maintenance; and (v) costs not directly attributable to the Sale. 9. TAXES. Merchant shall collect all sales, excise and gross receipts taxes (and not income taxes) (collectively the "Sales Taxes") payable to any taxing authority having jurisdiction, which taxes shall be added to the sales price and be paid by the customer at the time Merchandise is purchased. Merchant shall indemnify and hold Agent harmless from and against any and all costs (including, but not limited to, reasonable attorneys' fees), assessments, fines or penalties which Agent may incur as a direct or indirect consequence of the failure by Merchant to pay Sales Taxes to the proper taxing authorities and/or the failure by Merchant to promptly file with taxing 5 6 authorities any and all returns, reports and other documents required by applicable law to be filed or delivered to such taxing authorities. 10. SUPPLIES. Agent shall have the right to use in connection with the Sale, without any charge, all signs and promotional materials, furniture, equipment, fixtures and supplies, including, but not limited to, bags, boxes, twine, paper and similar sales materials ("Supplies"), located at the Stores on the Start Date. Agent shall have no obligation to account to Merchant for any of the Supplies used during the Sale, but all Supplies remaining in the Stores on the End Date shall be left on the premises and remain Merchant's property. Should additional Supplies be required in any of the Stores during the Sale, Merchant agrees to promptly provide such additional Supplies to Agent, if available at Merchant's cost plus shipping costs, such cost to be an Expense of Sale. Merchant covenants and warrants that it has not and will not remove any Supplies from the Stores in contemplation of this Agreement. 11. CREDIT CARDS, GIFT CERTIFICATES AND RETURNS. All sales shall be for cash or upon bank credit cards (excluding private label cards). During the Sale, all bank credit card sales shall be through Merchant's bank credit card system. All bank card fees including charge backs in connection with the Sale shall be an Expense of Sale. Agent will be responsible for any reserves required by Merchant's bank credit card provider. For fourteen (14) days following the Start Date, Agent shall accept customer returns of first quality goods purchased prior to the Start Date. Items accepted for return shall be added to Merchandise for the purpose of calculating Retail Value, but shall not reduce Proceeds. All sales shall be advertised, "FINAL," and all sales receipts shall be marked "FINAL," by Agent. Agent shall accept Merchant's gift certificates during the Sale. Gift Certificates shall be treated as cash and the value thereof added to Proceeds. Agent shall, on behalf of Merchant, offer refunds to customers with goods on layaway. The amounts refunded to layaway customers shall not reduce Proceeds. 6 7 12. MERCHANT'S WARRANTIES. Merchant hereby warrants and represents: a. Merchant is a corporation, duly and validly existing and in good standing under the laws of the State of Ohio. Merchant is and during the Sale will be authorized and duly qualified as a corporation to do business and is in good standing in all jurisdictions in which the Stores are located. b. (i) This Agreement and all other documents executed by Merchant in accordance with this Agreement are the valid and binding obligations of Merchant enforceable in accordance with their terms; (ii) Merchant has taken all necessary corporate action required to authorize the execution, performance and delivery of this Agreement and the related documents; (iii) no court order or decree of any federal, state or local government authority, or other action known to Merchant, is in effect which will or may prevent or impair consummation of the transactions contemplated by this Agreement; and (iv) the consent of any person or entity, including any landlord, is not required with respect to the transaction contemplated herein; c. Except for the lien of National City Commercial Finance, Merchant owns and will own at the Start Date and during the Sale good and marketable title to all of the Merchandise (together with the proceeds and accounts receivable arising therefrom), free and clear of all liens, mortgages, pledges, charges, encumbrances, equities or claims whatsoever. Agent shall be entitled to retain all proceeds, subject to section 5, free and clear of all liens, mortgages, pledges, charges, encumbrances, equities or claims whatsoever. d. Merchant shall not ship goods into the Stores without Agent's consent, which consent will not be unreasonably withheld, nor raise any prices of the Merchandise in contemplation of the Sale. The mix of Merchandise in the Stores shall be comparable to that found in the Merchant's ongoing stores. 7 8 e. No actions or proceedings have been instituted against Merchant or have been threatened, preventing or which may prevent the consummation of the transactions contemplated by this Agreement. Merchant is reasonably current on all accounts payable, due and owing to parties whose cooperation is necessary for operation of the Sale, including but not limited to landlords, newspapers and utilities. f. No notice of terminable default under the leases, licenses or subleases relating to the Stores has been noticed thereunder, and such leases do not prohibit the transactions under this Agreement or of the Sale contemplated herein. g. Merchant represents and warrants that it will not prior to or during the Sale grant any lien or encumbrance on the Merchandise or the Proceeds. h. There is no outstanding order, judgment, injunction award or decree of any court, governmental or regulatory body or arbitration tribunal by which the Merchant or the Merchandise is bound which would materially interfere with the transactions herein, and as of the date of execution herein there is no action, suit, claim, legal, administrative or arbitral proceedings (whether or not the defense thereof or liabilities in respect thereof are covered by insurance) against the Merchant or the Merchandise which would, if determined adversely to the Merchant, be likely to have a material adverse effect upon the transactions contemplated hereby, nor to the best of Merchant's knowledge are there any facts which are likely to give rise to any such action, suit, claim or legal, administrative or arbitral proceeding or investigation. i. The Retail Value of the Merchandise shall be not less than Six Million Dollars ($6,000,000). j. Agent shall be permitted to pass on all applicable manufacturers warranties to customers. 8 9 k. Merchant represents and warrants that it has not raised any prices in contemplation of the Inventory Count and that all pricing, including pricing of On-Order merchandise and merchandise from the distribution center will be done in accordance with Merchant's historic practices. l. The Stores will have been operated up through the Start Date in a manner consistent with Merchant's ongoing Stores. m. No point of sale activity shall have occurred outside the ordinary course of business. n. Merchandise offered for Sale by Agent with a discount of no lower than ten percent (10%) shall be lower in price then the same Merchandise advertised in Merchant's circulars scheduled to run on June 13th and June 20th. In the event of any such discrepancy herein, Agent shall be entitled to offer customers the lower of the two prices. Agent's sole remedy shall be a credit from Merchant for the amount of the discrepancy. 13. AGENT'S WARRANTIES. Agent hereby warrants and represents: a. Agent is a limited liability corporation, duly and validly existing and in good standing under the laws of the State of Delaware. Agent is, and during the Sale will be, authorized and duly qualified to do business in each jurisdiction where the failure to so qualify would have a material adverse effect on Agent's ability to perform hereunder. b. (i) This Agreement and all other documents executed by Agent in accordance with this Agreement are the valid and binding obligations of Agent enforceable in accordance with their terms; (ii) Agent has taken all necessary action required to authorize the execution, performance and delivery of this Agreement and the related documents; (iii) no court order or decree of any 9 10 federal, state or local government authority, or other action known to Agent, is in effect which will or may prevent or impair consummation of the transactions contemplated by this Agreement; and (iv) the consent of any person or entity, is not required with respect to the transactions contemplated herein. c. There is no outstanding order, judgment, injunction award or decree of any court, governmental or regulatory body or arbitration tribunal by which the Agent is bound which would materially interfere with the transactions herein, and there shall be no action, suit, claim, legal, administrative or arbitral proceedings (whether or not the defense thereof or liabilities in respect thereof are covered by insurance) against the Agent which would, if determined adversely to the Agent, be likely to have a material adverse effect upon the transactions contemplated hereby, nor are there any facts which are likely to give rise to any such action, suit, claim or legal, administrative or arbitral proceeding or investigation. 14. NON COMPLETE. During the Sale, neither Merchant nor any affiliate of Merchant shall run a store closing, liquidation or similar sale in competition with the Sale at any store trading under the D.I.Y. Home Warehouse name within the advertising area of any of the Stores without the prior written approval of Agent. 15. INSURANCE. a. Merchant at its expense shall continue until the End Date, in such amounts as Merchant currently has in effect, all of Merchant's liability insurance policies, including but not limited to, comprehensive public liability policies covering injuries to persons and property in or in connection with Merchant's operation of the Stores and, from and after the acceptance by Merchant of this Agreement, shall cause Agent to be named as additional insured, as its interests may appear, with respect to all such policies. On or before the Start Date, Merchant shall deliver to Agent certificates evidencing such insurance policies, setting forth the duration thereof and the naming of Agent as an additional insured, as its interests may appear, in accordance with the provisions hereof, all in form reasonably satisfactory to Agent. Merchant shall be responsible for 10 11 the payment of all deductibles, retentions or self-insured amounts under such policies except in the event liability arises by reason of the negligence or wrongful act or omission of Agent or Agent's independent contractors. b. Merchant at its expense shall provide fire, theft and extended coverage casualty insurance on the Merchandise in a total amount at least equal to the retail value thereof. From and after the Start Date, said coverage will contain a loss payable clause in favor of Merchant's lender and Agent, as their interests may appear. In the event of a loss to the Merchandise included in the Inventory Count occurring on or after the Start Date, the proceeds of such insurance attributable to the Merchandise shall be paid to Agent and such proceeds shall be included as part of the Proceeds. On or before the Start Date, Merchant shall deliver to Agent certificates evidencing such insurance policies, setting forth the duration thereof and the naming of Agent as a loss payee in accordance with the provisions hereof, all in form reasonably acceptable to Agent. Merchant shall be responsible for the payment of all deductibles or self-insured amounts under such policies except in the event liability arises by reason of the negligence or wrongful act or omission of Agent or Agent's independent contractors. c. Merchant shall at all times during the Sale maintain in full force and effect Worker's Compensation Insurance in compliance with all statutory requirements. d. During the performance and length of this Agreement, Agent will maintain workers compensation, commercial general liability and automobile liability insurance and will name Merchant as an additional insured on all such policies. 16. PEACEFUL POSSESSION. Merchant agrees during the Sale to grant and provide Agent peaceful and quiet possession of the Stores and to take no action relating to the Stores which would disturb such possession, including, without limitation, any action to modify or terminate any existing ADT or similar security system or cash register maintenance agreements or remove any of 11 12 the furniture, fixtures or equipment from the Stores. Merchant agrees to maintain in operation at the expense of Merchant for the benefit of Agent (i) the point of sale equipment in the Stores and (ii) the management information systems. 17. INDEMNIFICATION. Agent and Merchant each agree to indemnify and defend and hold harmless the other from any and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including, without limitation, interest, penalties and reasonable attorneys' fees, costs and expenses, asserted against, resulting to or imposed upon Merchant or Agent, directly or indirectly, by reason of or resulting from either's (i) material breach or failure to comply with any of the agreements, covenants, representations or warranties contained in this Agreement, or (ii) any negligent or wrongful act or omission of either or its employees. 18. DEFAULT. a. For the purpose of this Agreement, an "Event of Default" shall be deemed to have occurred: (1) upon the failure by Merchant or Agent to perform promptly and fully any material obligation or covenant hereunder or any material obligation or covenant in any document delivered pursuant hereto or any collateral agreement to this Agreement after having received five (5) days' prior written notice, except in the case of a nonmonetary default which is incapable of being cured within such notice period and diligently proceeds to cure said default and (a) the party in default has taken all steps necessary to commence to cure such default within such notice period and (b) such failure to cure, in the case of a default by Merchant, will not adversely affect, in any material way, Agent's ability to conduct the Sale in the manner contemplated herein; (2) if any of the warranties or representations made by Merchant or Agent herein proves to be untrue or false in a material way; or (3) if any breach of this Agreement by Merchant results in the Agent being unable to conduct or complete the Sale at any Store as contemplated herein. 12 13 b. In the event of an interruption of the Sale and/or occurrence of an Event of Default resulting from any act or omission of Merchant which prevents Agent from conducting or completing the Sale at any Store as provided by this Agreement, Agent may, at its option, either (i) proceed with the Sale at the Store location(s) affected or (ii) require Merchant, at Merchant's expense, to move the Merchandise to another reasonably proximate Store designated by Agent, or (iii) notify Merchant as to the termination of the Sale as to the particular Store location, in which event, Agent shall be made whole and (i) Agent shall be reimbursed for all its out of pocket expenses referable to such Store, (ii) Merchant shall be entitled to retain all Proceeds at such Store prior to the interruption or Event of Default as well as any remaining Merchandise. Merchant and Agent agree that in the event that the (i) West Akron Store is the Store that is subject to interruption or an Event of Default and removed from the Sale as contemplated herein, the Guaranteed Payment for the remaining Mansfield Store shall be increased to fifty-three and 75/100 percent (53.75%) and (ii) if the Mansfield Store is the Store that is subject to interruption or an Event of Default and removed from the Sale as contemplated herein, the Guaranteed Payment for the remaining West Akron Store shall be decreased to fifty-three and 25/100 percent (53.25%). Merchant acknowledges that Agent would be irreparably injured in the event of any failure by Merchant to promptly and fully perform any obligation hereunder if such failure directly or indirectly interferes with the conduct by Agent of the Sale, and hereby consents, in the event of any such failure or in the event that any such failure is threatened or appears imminent, to the entry of an injunction specifically enforcing the terms of this Agreement. c. No right or remedy granted in or pursuant to this Agreement shall be exclusive of any other right or remedy so granted or otherwise available. Every such right or remedy shall be cumulative and shall be in addition to every other right or remedy so granted or existing at law or in equity or by statute, or created, granted or existing pursuant to any agreement to which Agent and/or Merchant is or may hereafter become a party. 13 14 19. JURISDICTION. This Agreement shall be governed and construed in accordance with the laws of the State of Ohio without regard to the conflicts of laws principles thereof. 20. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties with respect to these transactions and supersedes and cancels all prior agreements including, but not limited to all proposals, letters of intent or representations, written or oral, with respect thereto. 21. MODIFICATIONS. This Agreement may not be modified except in a writing executed by each of the parties. 22. ASSIGNMENT. Except as specifically provided in this Section, or upon written consent of the parties hereto, this Agreement shall not inure to the benefit of, or, shall not be assignable to, any person or entity other than Merchant and Agent. All of the terms and provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the successors in interest of the respective parties hereto. 23. NOTICES. All notices under this Agreement shall be sent by hand, by recognized overnight courier service or by certified mail, return receipt requested to: (a) Merchant at the address listed on the first page hereof, to the attention of Mr. Clifford Reynolds , President, with a copy to Mr. Harold O. Maxfield, Jr., Cavitch, Familo, Durkin and Frutkin Co. L.P.A, 14th Floor, East Ohio Building, Cleveland, Ohio 44114; (b) Agent, at the address listed on the first page hereof to the attention of Scott Bernstein, Esq. All notices delivered hereunder will be effective upon receipt. 24. CONFIDENTIAL NATURE OF TRANSACTION. The parties agree to keep the existence of this transaction confidential until Merchant completes the transfer of its properties in North Canton, Mansfield and Akron (the "Properties"). Agent agrees to notify all employees and/or agents that have or will have knowledge of this transaction of the confidential nature of this transaction. The parties agree that they will jointly approve any news release(s) regarding this 14 15 transaction. Agent acknowledges that Merchant may suffer significant damages if the existence of this transaction becomes known to customers and/or employees. 25. CONTINGENCIES. The parties acknowledge that this transaction is contingent upon the transfer of the Properties by Merchant and if the Properties are not transferred by June 30, 1999 then this Agreement will be null and void. 26. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Such execution may be by facsimile. Any party signing via facsimile shall forward an original hard copy of such signature to the other party, but the failure to send said original signature shall not affect the enforceability of this Agreement against such party, the parties hereto agreeing that a facsimile signature may be treated as an original signature hereunder. Please acknowledge your acceptance hereof by signing a copy and returning it to us. Very truly yours, SCHOTTENSTEIN BERNSTEIN CAPITAL GROUP, LLC By: Scott Bernstein -------------------------------------- Its: Vice President - General Counsel -------------------------------------- ACCEPTED THIS 3 DAY OF June, 1999. D.I.Y. Home Warehouse, Inc. By: /s/ Eric I Glassman ------------------------------ Printed Name: Eric I Glassman -------------------- Title: V/P-CFO --------------------------- 15 16 Schedules Schedule A - List of Stores Schedule B - Stepdown Schedule, Guaranteed Payment Schedule C - Form of Letter of Credit Schedule D - Per Diem Occupancy 16 17 MANSFIELD STORE --------------- 2063 West Fourth Street Mansfield, Ohio 44906 WEST MARKET STORE ----------------- 1890 West Market Street Akron, Ohio 44313. SCHEDULE A 18 D.I.Y. HOME WAREHOUSE, INC. SCHEDULE 1 SUGGESTED STEPDOWN SCHEDULE SUGG INVT LEVEL ADJ 7,000,000 CUM 7,053,356 0.00% 6,953,356 0.00% 6,853,356 0.00% 6,753,356 0.00% 6,653,356 0.00% 6,553,356 0.00% 6,500,000 0.00% 6,400,000 0.20% 6,300,000 0.40% 5,200,000 0.60% 6,100,000 0.80% 6,000,000 1.00% SCHEDULE B 19 LETTER OF CREDIT GUARANTEED PAYMENT IRREVOCABLE LETTER OF CREDIT Beneficiary Applicant - ----------- --------- Schottenstein Bernstein Capital Group, LLC 1800 Moler Road Columbus, Ohio 43207 Amount ------ USD ____________(U.S. Dollars) Expiry: September 30, 1999 Dear Sir(s): We hereby issue in your favor our Irrevocable Letter of in the amount of _________ U.S. dollars. We hereby irrevocably authorize you to draw on us, in an aggregate amount not to exceed the amount of this Letter of Credit, by your draft or drafts, payable at sight, drawn on Wells Fargo Bank bearing the clause: "Drawn under Wells Fargo Bank Letter of Credit No..--------" and accompanied by your certificate appropriately completed and signed by you in the form of the attached Annex A Special Conditions: 1. Wells Fargo Bank is not responsible for any calculations confirming the proper amount of the draft pursuant to the attached Annex A, Certificate for Drawing. SCHEDULE C 20 2. This original Letter of Credit must be returned with any drawing hereunder which results in the frill or partial payment of the amount of this Letter of Credit. 3. Upon delivery to us of a Reduction Certificate, the amount of this Letter of Credit shall be reduced by the amount set forth in such Reduction Certificate. 4. Upon delivery to us of a certificate from you in the form of Annex C, the expiry date shall be the date set forth in such certificate, which in no event shall be later than September 30, 1999. We certify that your draft drawn and in conformity with the terms of this Letter of Credit will be duly honored on presentation after receipt if presented to us on or before the expiry date. Payment upon the draft shall be made by us to you in immediately available funds by wire transfer to your account in the United States specified for payment in the draft presented to us at the earliest opportunity. We hereby undertake that we will not modify, revoke or terminate this Letter of Credit without your written consent. Yours Faithfully, Wells Fargo Bank -------------------- Authorized Signature ANNEX A CERTIFICATE FOR DRAWING 21 The undersigned, being the President of, hereby certifies with reference to Wells Fargo, Letter of Credit No. _____________ that: 1. The amount of the sight draft which accompanies this drawing certificate is $________ 2. _____________has determined that the Proceeds are insufficient to satisfy the Guaranteed Payment, Expenses of Sale as those terms are defined in the Agreement, dated (the "Agreement"), by and between and Schottenstein Bernstein Capital Group, LLC. 3. ___________default under the terms of the Agreement. 4. _______________ three (3) business days notice to the Agent of its intent to submit the sight draft which accompanies this certificate. 5. Capitalized terms used herein but not defined shall have the meanings set forth in the Agreement. IN WITNESS WHEREOF,________ d this Certificate for Drawing to be executed and delivered as of the ____day of _________, 1999. By: --------------------------- Name: ------------------------- President Sworn to before me this: ____day of _________, 1999. - ------------------------------ Notary Public 22
SCHEDULE D OCCUPANCY COSTS MANSFIELD WEST MARKET TOTAL Total Total Total Average Avg/ Total Average Avg/ Avg/ Avg/ 1998 1997 Week 1998 1997 Week Week Week/Store - ---------------------------------------------------------------------------------------------------------------------------------- Rent $ $ $ - $ - $ - $201,696 $201,696 $ 403,392 $201,696 $ 3,879 $ 3,879 $ 1,939 Mortgage Interest $196,901 $196,909 $ 393,802 $196,901 $3,787 $ - $ - $ - $ 3,787 $ 1,893 Disposal $ 3,388 $ 4,821 $ 8,009 $ 4,005 $ 77 $ 7,042 $ 13,439 $ 20,481 $ 10,241 $ 197 $ 274 $ 137 Real Estate Taxes $ 15,892 $ 17,804 $ 33,696 $ 16,848 $ 324 $ 39,264 $ 43,680 $ 82,944 $ 41,472 $ 798 $ 1,122 $ 561 R & M premise $ 14,944 $ 15,294 $ 30,238 $ 15,119 $ 291 $ 18,396 $ 18,348 $ 36,744 $ 18,372 $ 353 $ 644 $ 322 Utilities $114,214 $123,747 $ 237,961 $118,981 $2,288 $133,115 $141,651 $ 274,768 $137,383 $ 2,642 $ 4,930 $ 2,485 Equipment Rental $ 35,570 $ 37,319 $ 72,889 $ 36,445 $ 701 $ 21,975 $ 25,362 $ 47,337 $ 23,689 $ 455 $ 1,156 $ 578 Insurance $ 40,607 $ 50,804 $ 91,411 $ 45,706 $ 879 $ 40,607 $ 50,804 $ 91,411 $ 45,706 $ 879 $ 1,758 $ 879 Outside Service $ 22,263 $ 32,117 $ 54,380 $ 27,190 $ 523 $ 21,028 $ 22,342 $ 43,368 $ 21,684 $ 417 $ 940 $ 470 R & M Equipment $ 16,406 $ 15,209 $ 31,615 $ 15,808 $ 304 $ 16,250 $ 14,874 $ 31,124 $ 15,582 $ 299 $ 603 $ 30 Telephone $ 25,906 $ 27,098 $ 53,004 $ 26,502 $ 510 $ 16,949 $ 17,870 $ 34,819 $ 17,410 $ 335 $ 844 $ 422 Loss Prevention $ 13,689 $ 18,726 $ 32,415 $ 16,208 $ 312 $ 13,425 $ 15,763 $ 29,188 $ 14,594 $ 281 $ 592 $ 296 - ---------------------------------------------------------------------------------------------------------------------------------- Total Occupancy $499,780 $539,640 $1,039,420 $519,710 $9,994 $529,745 $565,829 $1,095,574 $547,787 $10,534 $20,529 $10,264 ==================================================================================================================================
EX-10.7 6 EXHIBIT 10.7 1 EXH 10.7 Mr. Eric Glassman D.I.Y. Home Warehouse, Inc. 5811 Canal Road, Suite 180 June 11, 1999 Cleveland, Ohio 44125 Dear Eric: Upon execution by D.I.Y. Home Warehouse, Inc., having a principle place of business located at 5811 Canal Road, Valley View, Ohio 44125 ("Merchant"), this letter shall serve as the agreement (the "Agreement") between Merchant and Schottenstein Bernstein Capital Group, LLC having a principle place of business located at 1800 Moler Road, Columbus, Ohio 43207 (the "Agent") for Agent to act as Merchant's sole and exclusive agent to sell all of the merchandise (the "Merchandise") in Merchant's store listed on Schedule A attached (the "Store") by means of a "Store Closing," and or "Total Liquidation," sale (the "Sale"). In consideration of the mutual promises and covenants contained herein and other good and valuable consideration, Merchant and Agent agree as follows: 1. AGENCY. Merchant appoints Agent its exclusive agent for the purpose of conducting the Sale of the Merchandise located at the Store. Agent shall be responsible, with Merchant's assistance, for securing any required licenses and permits and complying with any "going-out-of-business" laws, rules, ordinances and regulations. Merchant shall pay any fees and expenses incurred in connection therewith and Agent will post any bonds required in connection with such licenses and permits. 2. INVENTORY. As soon as practicable after Merchant's acceptance of this Agreement, Merchant shall cause to be taken a "retail dollar" and or SKU physical inventory of the Merchandise in the Store (the "Inventory Count"). The date that the Inventory Count is taken in each Store shall be referred to as to each Store as the "Inventory Date". The Inventory Count shall be taken by RGIS or another independent inventory service mutually designated by Merchant and Agent (the "Inventory Service") the cost of which shall be shared equally by Merchant and Agent. Each Store shall be closed during the Inventory Count and during the Inventory Count, neither Merchant nor 2 Agent shall enter such Store without each having a representative present, except in the case of an emergency. Merchant and Agent, will provide one or more representative at the store during the Inventory Count. The Inventory Count shall be taken on the basis of the lowest ticketed price of each item of Merchandise except for (i) out of season inventory which shall be valued at fifty (50%) percent of the lowest ticketed price and (ii) damaged, display and clearance Merchandise price for which Merchant and Agent shall agree upon a price. Merchant shall remove from the Sale any item of damaged, clearance, or display Merchandise for which a price cannot be agreed upon as well as Merchandise as to which Merchant and Agent cannot agree upon the seasonality. Notwithstanding any of the above, the reduction in the Retail Value, resulting from Merchant and Agent's pricing of damaged, display and clearance Merchandise, shall not exceed Fifty Thousand Dollars ($50,000) per Store. 3. RETAIL VALUE. The term "Retail Value" herein shall mean the aggregate of the item values of the respective items of all the Merchandise. Merchandise shall include all goods owned by Merchant and located at the Store on the Inventory Date except: (i) goods which Merchant shall have reasonably shown to belong to sublessees, licensees or concessionaires of Merchant or to have been placed in the Store on consignment; and (ii) furniture, fixtures, equipment and improvements to realty located in the Store. The ticketed price of any item of Merchandise shall not include any sales or gross receipts taxes. If any item of Merchandise has more than one ticket, the lower retail price shall prevail unless Merchant establishes that such Merchandise was inadvertently priced incorrectly. Merchandise arriving at the Store following the Start Date ("On Order Merchandise"), shall be valued at the lowest ticketed price less the discount then prevailing in the Store. 4. SALE TERM. The Sale shall start no later than June 18, 1999 (the "Start Date"), and shall end no later than the close of business at each Store, approximately ten weeks thereafter, on August 27, 1999, unless extended by agreement of the parties (the "End Date"). Agent may terminate the Sale prior to the End Date at any Store in its reasonable discretion. At the conclusion of the Sale, Agent agrees to leave the Store in "broom clean" condition, with all Merchandise (regardless of the condition) being removed by Agent, except for removal of furniture, fixtures, 2 3 equipment and remaining Supplies (as defined in Section 10 hereof) and to leave the Store in the same condition as on the Start Date, ordinary wear and tear excepted. 5. GUARANTEED PAYMENT. Agent guarantees that Merchant shall receive an amount equal to fifty one and one-half percent (51.5%) of the Retail Value (the "Guaranteed Payment") of the Merchandise. In the event that the aggregate value of all the Merchandise shall be less than Three Million Two Hundred Fifty Thousand Dollars ($3,250,000), the Guaranteed Payment shall be reduced in accordance with Schedule B. The Guaranteed Payment will be reduced pro rata for increments or partial increments in accordance with Schedule B. Moreover, in the event that Agent cannot start the Sale until (i) after June 18th but before June 25th, the Guaranteed Payment shall be reduced by one half of one percent (.5%) (e.g. from 51.5% to 51%), (ii) after June 25th but before July 2, the Guaranteed Payment shall be reduced by one percent (1%) (e.g. from 51.5% to 50.5%), and (iii) after July 2 but before July 9, the Guaranteed Payment shall be reduced by one and one half percent (1.5%) (e.g. 51.5% to 50.0%). The parties agree to negotiate in good faith any further reduction in the Guaranteed Payment in the event Agent is prohibited from starting the Sale until after July 9th. In addition to the Guaranteed Payment, Merchant will be entitled to fifty percent (50%) of the Net Profit of the Sale. For purposes of this Agreement, Net Profit of the Sale is the gross proceeds of the sale after payment of the Guaranteed Payment, Expenses of Sale and payment to Agent of an amount equal to two percent (2%) of the Retail Value. Merchant shall retain all amounts collected during the Sale, as well as any insurance proceeds resulting from the loss of any Merchandise subject to this Agreement (the "Proceeds"), out of which it shall pay Expenses of Sale, as set forth below, and satisfy the Guaranteed Payment. After satisfaction of the Guaranteed Payment and payment of Expenses of Sale, and subject to the sharing of the Net Profit of the Sale set forth above, Agent shall be entitled to receive its share of the Proceeds as its commission herein. As security for the Guaranteed Payment and Expenses of Sale, Agent will deliver to Merchant an irrevocable Letter of Credit, in a form attached hereto as Schedule C from Wells Fargo Bank in the amount of$1,250,000 having an expiration date of not earlier than 3 4 September 30, 1999. In the event, following the End Date, that Proceeds from the Sale are insufficient to satisfy the Guaranteed Amount and Expenses of Sale, Merchant shall be entitled to draw down upon the Letter of Credit for the amount of the deficiency. 6. SALE CONDUCT. Agent shall conduct the Sale in the name of Merchant in full and complete compliance with applicable laws, rules, or ordinances in the manner in which Agent in its discretion reasonably deems fit, including, but not limited to, advertising, pricing of Merchandise, number and type of personnel, Store hours, Store maintenance and security. Agent may advertise the Sale as a Store Closing, or Total Liquidation or similar type sale in accordance with applicable law and applicable leasehold agreements. Notwithstanding the Guaranteed Payment, Agent acknowledges that Merchant will after the End Date have a significant number of stores in Ohio which will continue to operate under Merchant's name. As a result, Agent will conduct the Sale using its best efforts and in such a manner as to minimize any bad publicity or loss of goodwill arising from the conduct of the Sale. Agent may use Merchant's employees to the extent Agent deems feasible, and Agent may select and schedule the number and type of Merchant's employees required for the Sale, however, Merchant's employees shall at all times remain employees of Merchant. On and after the Start Date, Merchant shall pay, as an Expense of Sale, as hereinafter defined, the gross wage payroll paid to Merchant's employees used in the Store by the Agent during the Sale plus (a) the related payroll taxes (including FICA and Unemployment), (b) Worker's Compensation and (c) health care insurance benefits (subsections (a), (b) and (c) collectively, the "Benefits") not in excess of fifteen and 57/100 percent (15.57%) of said gross payroll (the "Fringe Benefit Cap"). Any amounts in excess of the Fringe Benefit Cap shall be at Merchant's Expense, as hereinafter defined. Merchant and Agent acknowledge and agree, that (i) nothing herein nor any of Agent's actions taken in respect hereto shall be deemed to constitute an assumption by Agent of any of Merchant's obligations relating to any of Merchant's employees including, without limitation, vacation, pension, withdrawal, severance pay, vacation pay, sick leave or pay, maternity leave or pay, Worker Adjustment Retraining Act ("WARN") claims (if any) and other termination type 4 5 claims and obligations; and (ii) Merchant hereby indemnifies Agent in respect to any claims asserted by any of Merchant's employees, except as to claims arising out of the negligence or wrongful act or omission of Agent, and Merchant is solely and specifically responsible for all of Merchant's obligations under any collective bargaining agreements and any purported oral service contracts. 7. EXPENSES OF SALE. Merchant shall collect all Proceeds out of which shall be paid all "Expenses of Sale." In the event that Proceeds are not sufficient to pay such Expenses of Sale, Merchant shall be entitled to draw down upon the Letter of Credit, as set forth in Paragraph 6, for the amount of the deficiency after the End Date. Expenses of Sale shall be (i) the actual gross wage payroll paid to Merchant's employees used in the Store by the Agent during the Sale plus the cost of the Benefits for such employees not to exceed the Fringe Benefit Cap; (ii) advertising expense; (iii) signage for the Sale; (iv) security in the Store; (v) bank card fees and charge backs; (vi) telephone charges for the Store in excess of base charges; (vii) Agent's supervision expenses; (viii) any other expenses directly attributable to the Sale authorized by Agent and (ix) occupancy costs on a per diem per Store basis as per attached Schedule D. Agent shall bill Merchant weekly for any Expenses of Sale paid by Agent which shall be promptly paid from Proceeds collected by Merchant. 8. MERCHANT'S EXPENSES. During the Sale, Merchant shall be responsible for payment of the following items none of which shall be deemed an Expense of Sale: (i) all occupancy costs not included in Schedule D; (ii) any Benefits in excess of the Fringe Benefit Cap; (iii) all other employee benefits, including but not limited to union dues, termination pay, pension benefits, severance pay, vacation pay, sick leave or pay, maternity leave or pay and WARN claims (if any); (iv) major maintenance; and (v) costs not directly attributable to the Sale. 9. TAXES. Merchant shall collect all sales, excise and gross receipts taxes (and not income taxes) (collectively the "Sales Taxes") payable to any taxing authority having jurisdiction, which taxes shall be added to the sales price and be paid by the customer at the time Merchandise is purchased. Merchant shall indemnify and hold Agent harmless from and against any and all costs (including, but not limited to, reasonable attorneys' fees), assessments, fines or penalties which 5 6 Agent may incur as a direct or indirect consequence of the failure by Merchant to pay Sales Taxes to the proper taxing authorities and/or the failure by Merchant to promptly file with taxing authorities any and all returns, reports and other documents required by applicable law to be filed or delivered to such taxing authorities. 10. SUPPLIES. Agent shall have the right to use in connection with the Sale, without any charge, all signs and promotional materials, furniture, equipment, fixtures and supplies, including, but not limited to, bags, boxes, twine, paper and similar sales materials ("Supplies"), located at the Store on the Start Date. Agent shall have no obligation to account to Merchant for any of the Supplies used during the Sale, but all Supplies remaining in the Store on the End Date shall be left on the premises and remain Merchant's property. Should additional Supplies be required in the Store during the Sale, Merchant agrees to promptly provide such additional Supplies to Agent, if available at Merchant's cost plus shipping costs, such cost to be an Expense of Sale. Merchant covenants and warrants that it has not and will not remove any Supplies from the Store in contemplation of this Agreement. 11. CREDIT CARDS, GIFT CERTIFICATES AND RETURNS. All sales shall be for cash or upon bank credit cards (excluding private label cards). During the Sale, all bank credit card sales shall be through Merchant's bank credit card system. All bank card fees including charge backs in connection with the Sale shall be an Expense of Sale. Agent will be responsible for any reserves required by Merchant's bank credit card provider. For fourteen (14) days following the Start Date, Agent shall accept customer returns of first quality goods purchased prior to the Start Date. Items accepted for return shall be added to Merchandise for the purpose of calculating Retail Value, but shall not reduce Proceeds. All sales shall be advertised, "FINAL," and all sales receipts shall be marked "FINAL," by Agent. Agent shall accept Merchant's gift certificates during the Sale. Gift Certificates shall be treated as cash and the value thereof added to Proceeds. Agent shall, on behalf of Merchant, offer refunds to customers with goods on layaway. The amounts refunded to layaway customers shall not reduce Proceeds. 6 7 12. MERCHANT'S WARRANTIES. Merchant hereby warrants and represents: a. Merchant is a corporation, duly and validly existing and in good standing under the laws of the State of Ohio. Merchant is and during the Sale will be authorized and duly qualified as a corporation to do business and is in good standing in the jurisdiction in which the Store is located. b. (i) This Agreement and all other documents executed by Merchant in accordance with this Agreement are the valid and binding obligations of Merchant enforceable in accordance with their terms; (ii) Merchant has taken all necessary corporate action required to authorize the execution, performance and delivery of this Agreement and the related documents; (iii) no court order or decree of any federal, state or local government authority, or other action known to Merchant, is in effect which will or may prevent or impair consummation of the transactions contemplated by this Agreement; and (iv) the consent of any person or entity, including any landlord, is not required with respect to the transaction contemplated herein; c. Except for the lien of National City Commercial Finance, Merchant owns and will own at the Start Date and during the Sale good and marketable title to all of the Merchandise (together with the proceeds and accounts receivable arising therefrom), free and clear of all liens, mortgages, pledges, charges, encumbrances, equities or claims whatsoever. Agent shall be entitled to retain all proceeds, subject to section 5, free and clear of all liens, mortgages, pledges, charges, encumbrances, equities or claims whatsoever. d. Merchant shall not ship goods into the Store without Agent's consent, which consent will not be unreasonably withheld, nor raise any prices of the Merchandise in contemplation of the Sale. The mix of Merchandise in the Store shall be comparable to that found in the Merchant's ongoing stores. 7 8 e. No actions or proceedings have been instituted against Merchant or have been threatened, preventing or which may prevent the consummation of the transactions contemplated by this Agreement. Merchant is reasonably current on all accounts payable, due and owing to parties whose cooperation is necessary for operation of the Sale, including but not limited to landlords, newspapers and utilities. f. No notice of terminable default under the leases, licenses or subleases relating to the Store has been noticed thereunder, and subleases do not prohibit the transactions under this Agreement or of the Sale contemplated herein. g. Merchant represents and warrants that it will not prior to or during the Sale grant any lien or encumbrance on the Merchandise or the Proceeds. h. There is no outstanding order, judgment, injunction award or decree of any court, governmental or regulatory body or arbitration tribunal by which the Merchant or the Merchandise is bound which would materially interfere with the transactions herein, and as of the date of execution herein there is no action, suit, claim, legal, administrative or arbitral proceedings (whether or not the defense thereof or liabilities in respect thereof are covered by insurance) against the Merchant or the Merchandise which would, if determined adversely to the Merchant, be likely to have a material adverse effect upon the transactions contemplated hereby, nor to the best of Merchant's knowledge are there any facts which are likely to give rise to any such action, suit, claim or legal, administrative or arbitral proceeding or investigation. i. The Retail Value of the Merchandise shall be not less than Three Million Dollars ($3,000,000). j. Agent shall be permitted to pass on all applicable manufacturers warranties to customers. 8 9 k. Merchant represents and warrants that it has not raised any prices in contemplation of the Inventory Count and that all pricing, including pricing of On-Order merchandise and merchandise from the distribution center will be done in accordance with Merchant's historic practices. l. The Store will have been operated up through the Start Date in a manner consistent with Merchant's ongoing stores. m. No point of sale activity shall have occurred outside the ordinary course of business. n. Merchandise offered for Sale by Agent with a discount of no lower than ten percent (10%) shall be lower in price then the same Merchandise advertised in Merchant's circulars scheduled to run on June 13th and June 20th. In the event of any such discrepancy herein, Agent shall be entitled to offer customers the lower of the two prices. Agent's sole remedy shall be a credit from Merchant for the amount of the discrepancy. 13. AGENT'S WARRANTIES. Agent hereby warrants and represents: a. Agent is a limited liability corporation, duly and validly existing and in good standing under the laws of the State of Delaware. Agent is, and during the Sale will be, authorized and duly qualified to do business in each jurisdiction where the failure to so qualify would have a material adverse effect on Agent's ability to perform hereunder. b. (i) This Agreement and all other documents executed by Agent in accordance with this Agreement are the valid and binding obligations of Agent enforceable in accordance with their terms; (ii) Agent has taken all necessary action required to authorize the execution, performance and delivery of this Agreement and the related documents; (iii) no court order or decree of any federal, state or local government authority, or other action known to Agent, is in effect which will 9 10 or may prevent or impair consummation of the transactions contemplated by this Agreement; and (iv) the consent of any person or entity, is not required with respect to the transactions contemplated herein. c. There is no outstanding order, judgment, injunction award or decree of any court, governmental or regulatory body or arbitration tribunal by which the Agent is bound which would materially interfere with the transactions herein, and there shall be no action, suit, claim, legal, administrative or arbitral proceedings (whether or not the defense thereof or liabilities in respect thereof are covered by insurance) against the Agent which would, if determined adversely to the Agent, be likely to.have a material adverse effect upon the transactions contemplated hereby, nor are there any facts which are likely to give rise to any such action, suit, claim or legal, administrative or arbitral proceeding or investigation. 14. NON COMPETE. During the Sale, neither Merchant nor any affiliate of Merchant shall run a store closing, liquidation or similar sale in competition with the Sale at any store trading under the D.I.Y. Home Warehouse name within the advertising area of the Store without the prior written approval of Agent. 15. INSURANCE. a. Merchant at its expense shall continue until the End Date, in such amounts as Merchant currently has in effect, all of Merchant's liability insurance policies, including but not limited to, comprehensive public liability policies covering injuries to persons and property in or in connection with Merchant's operation of the Store and, from and after the acceptance by Merchant of this Agreement, shall cause Agent to be named as additional insured, as its interests may appear, with respect to all such policies. On or before the Start Date, Merchant shall deliver to Agent certificates evidencing such insurance policies, setting forth the duration thereof and the naming of Agent as an additional insured, as its interests may appear, in accordance with the provisions hereof, all in form reasonably satisfactory to Agent. Merchant shall be responsible for the payment of all deductibles, retentions or self-insured amounts under such policies except in the 10 11 event liability arises by reason of the negligence or wrongful act or omission of Agent or Agent's independent contractors. b. Merchant at its expense shall provide fire, theft and extended coverage casualty insurance on the Merchandise in a total amount at least equal to the retail value thereof. From and after the Start Date, said coverage will contain a loss payable clause in favor of Merchant's lender and Agent, as their interests may appear. In the event of a loss to the Merchandise included in the Inventory Count occurring on or after the Start Date, the proceeds of such insurance attributable to the Merchandise shall be paid to Agent and such proceeds shall be included as part of the Proceeds. On or before the Start Date, Merchant shall deliver to Agent certificates evidencing such insurance policies; setting forth the duration thereof and the naming of Agent as a loss payee in accordance with the provisions hereof, all in form reasonably acceptable to Agent. Merchant shall be responsible for the payment of all deductibles or self-insured amounts under such policies except in the event liability arises by reason of the negligence or wrongful act or omission of Agent or Agent's independent contractors. c. Merchant shall at all times during the Sale maintain in full force and effect Worker's Compensation Insurance in compliance with all statutory requirements. d. During the performance and length of this Agreement, Agent will maintain workers compensation, commercial general liability and automobile liability insurance and will name Merchant as an additional insured on all such policies. 16. PEACEFUL POSSESSION. Merchant agrees during the Sale to grant and provide Agent peaceful and quiet possession of the Store and to take no action relating to the Store which would disturb such possession, including, without limitation, any action to modify or terminate any existing ADT or similar security system or cash register maintenance agreements or remove any of the furniture, fixtures or equipment from the Store. Merchant agrees to maintain in operation at the 11 12 expense of Merchant for the benefit of Agent (i) the point of sale equipment in the Store and (ii) the management information Systems. 17. INDEMNIFICATION. Agent and Merchant each agree to indemnify and defend and hold harmless the other from any and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including, without limitation, interest, penalties and reasonable attorneys' fees, costs and expenses, asserted against, resulting to or imposed upon Merchant or Agent, directly or indirectly, by reason of or resulting from either's (i) material breach or failure to comply with any of the agreements, covenants, representations or warranties contained in this Agreement, or (ii) any negligent or wrongful act or omission of either or its employees. 18. DEFAULT. a. For the purpose of this Agreement, an "Event of Default" shall be deemed to have occurred: (1) upon the failure by Merchant or Agent to perform promptly and fully any material obligation or covenant hereunder or any material obligation or covenant in any document delivered pursuant hereto or any collateral agreement to this Agreement after having received five (5) days' prior written notice, except in the case of a nonmonetary default which is incapable of being cured within such notice period and diligently proceeds to cure said default and (a) the party in default has taken all steps necessary to commence to cure such default within such notice period and (b) such failure to cure, in the case of a default by Merchant, will not adversely affect, in any material way, Agent's ability to conduct the Sale in the manner contemplated herein; (2) if any of the warranties or representations made by Merchant or Agent herein proves to be untrue or false in a material way; or (3) if any breach of this Agreement by Merchant results in the Agent being unable to conduct or complete the Sale at any Store as contemplated herein. 12 13 b. In the event of an interruption of the Sale and/or occurrence of an Event of Default resulting from any act or omission of Merchant which prevents Agent from conducting or completing the Sale at any Store as provided by this Agreement, Agent may, at its option, either (i) proceed with the Sale at the Store location(s) affected or (ii) require Merchant, at Merchant's expense, to move the Merchandise to another reasonably proximate Store designated by Agent, or (iii) notify Merchant as to the termination of the Sale as to the particular Store location, in which event, Agent shall be made whole and (i) Agent shall be reimbursed for all its out of pocket expenses referable to such Store, (ii) Merchant shall be entitled to retain all Proceeds at such Store prior to the interruption or Event of Default as well as any remaining Merchandise. Merchant acknowledges that Agent would be irreparably injured in the event of any failure by Merchant to promptly and fully perform any obligation hereunder if such failure directly or indirectly interferes with the conduct by Agent of the Sale, and hereby consents, in the event of any such failure or in the event that any such failure is threatened or appears imminent, to the entry of an injunction specifically enforcing the terms of this Agreement. c. No right or remedy granted in or pursuant to this Agreement shall be exclusive of any other right or remedy so granted or otherwise available. Every such right or remedy shall be cumulative and shall be in addition to every other right or remedy so granted or existing at law or in equity or by statute, or created, granted or existing pursuant to any agreement to which Agent and/or Merchant is or may hereafter become a party. 19. JURISDICTION. This Agreement shall be governed and construed in accordance with the laws of the State of Ohio without regard to the conflicts of laws principles thereof. 20. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties with respect to these transactions and supersedes and cancels all prior agreements including, but not limited to all proposals, letters of intent or representations, written or oral, with respect thereto. 13 14 21. MODIFICATIONS. This Agreement may not be modified except in a writing executed by each of the parties. 22. ASSIGNMENT. Except as specifically provided in this Section, or upon written consent of the parties hereto, this Agreement shall not inure to the benefit of, or, shall not be assignable to, any person or entity other than Merchant and Agent. All of the terms and provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the successors in interest of the respective parties hereto. 23. NOTICES. All notices under this Agreement shall be sent by hand, by recognized overnight courier service or by certified mail, return receipt requested to: (a) Merchant at the address listed on the first page hereof, to the attention of Mr. Clifford Reynolds , President, with a copy to Mr. Harold O. Maxfield, Jr., Cavitch, Familo, Durkin and Frutkin Co. L.P.A, 14th Floor, East Ohio Building, Cleveland, Ohio 44114; (b) Agent, at the address listed on the first page hereof to the attention of Scott Bernstein, Esq. All notices delivered hereunder will be effective upon receipt. 24. CONFIDENTIAL NATURE OF TRANSACTION. The parties agree to keep the existence of this transaction confidential until Merchant completes the transfer of its properties in North Canton, Mansfield and Akron (the "Properties"). Agent agrees to notify all employees and/or agents that have or will have knowledge of this transaction of the confidential nature of this transaction. The parties agree that they will jointly approve any news release(s) regarding this transaction. Agent acknowledges that Merchant may suffer significant damages if the existence of this transaction becomes known to customers and/or employees. 25. CONTINGENCIES. The parties acknowledge that this transaction is contingent upon the transfer of the Properties by Merchant and if the Properties are not transferred by June 30, 1999 then this Agreement will be null and void. 14 15 26. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Such execution may be by facsimile. Any party signing via facsimile shall forward an original hard copy of such signature to the other party, but the failure to send said original signature shall not affect the enforceability of this Agreement against such party, the parties hereto agreeing that a facsimile signature may be treated as an original signature hereunder. Please acknowledge your acceptance hereof by signing a copy and returning it to us. Very truly yours, SCHOTTENSTEIN BERNSTEIN CAPITAL GROUP, LLC By: /s/ Thomas Mitchell 6/16/99 -------------------------------------- Its: Asst Corp. Controller ------------------------------------- ACCEPTED THIS 16 DAY OF June, 1999. D.I.Y. Home Warehouse, Inc. By: /s/ Eric I Glassman -------------------------------------- Printed Name: Eric I Glassman ---------------------------- Title: Vice Pres CFO ------------------------------------ 15 16 Schedules Schedule A - Store Schedule B - Stepdown Schedule, Guaranteed Payment Schedule C - Form of Letter of Credit Schedule D - Per Diem Occupancy 16 17 BOARDMAN STORE -------------- 550 Boardman-Poland Road Boardman, Ohio SCHEDULE A 18 Sheet 1 DIY HOME WAREHOUSE, INC. SCHEDULE 1 SUGGESTED STEP DOWN SCHEDULE Inventory Level SUGG Adj Cum - ----------------------------------------- 3,500,000 100% 0.00% 3,526,678 101% 0.00% 3,476.678 99% 0.00% 3,426,678 98% 0.00% 3,376,678 96% 0.00% 3,326,678 95% 0.00% 3,276,678 94% 0.00% 3,250,000 93% 0.00% 3,200,000 91% 0.20% 3,150,000 90% 0.40% 3,100,000 89% 0.60% 3,050.000 87% 0.80% 3,000,000 86% 1.00% SCHEDULE B 19 LETTER OF CREDIT GUARANTEED PAYMENT IRREVOCABLE LETTER OF CREDIT Beneficiary Applicant - ----------- --------- Schottenstein Bernstein Capital Group, LLC 1800 Moler Road Columbus, Ohio 43207 Amount ------ USD____________(U.S. Dollars) Expiry: September 30, 1999 Dear Sir(s): We hereby issue in your favor our Irrevocable Letter of in the amount of _______U.S. dollars. We hereby irrevocably authorize you to draw on us, in an aggregate amount not to exceed the amount of this Letter of Credit, by your draft or drafts, payable at sight, drawn on Wells Fargo Bank bearing the clause: "Drawn under Wells Fargo Bank Letter of Credit No..------" and accompanied by your certificate appropriately completed and signed by you in the form of the attached Annex A Special Conditions: 1. Wells Fargo Bank is not responsible for any calculations confirming the proper amount of the draft pursuant to the attached Annex A, Certificate for Drawing. SCHEDULE C 20 2. This original Letter of Credit must be returned with any drawing hereunder which results in the full or partial payment of the amount of this Letter of Credit. 3. Upon delivery to us of a Reduction Certificate, the amount of this Letter of Credit shall be reduced by the amount set forth in such Reduction Certificate. 4. Upon delivery to us of a certificate from you in the form of Annex C, the expiry date shall be the date set forth in such certificate, which in no event shall be later than September 30, 1999. We certify that your draft drawn and in conformity with the terms of this Letter of Credit will be duly honored on presentation after receipt if presented to us on or before the expiry date. Payment upon the draft shall be made by us to you in immediately available funds by wire transfer to your account in the United States specified for payment in the draft presented to us at the earliest opportunity. We hereby undertake that we will not modify, revoke or terminate this Letter of Credit without your written consent. Yours Faithfully, Wells Fargo Bank -------------------- Authorized Signature ANNEX A CERTIFICATE FOR DRAWING 21 The undersigned, being the President of, hereby certifies with reference to Wells Fargo, Letter of Credit No. ___________ that: 1. The amount of the sight draft which accompanies this drawing certificate is $________ 2. ______________has determined that the Proceeds are insufficient to satisfy the Guaranteed Payment, Expenses of Sale as those terms are defined in the Agreement, dated (the "Agreement"), by and between ___________ and Schottenstein Bernstein Capital Group, LLC. 3. ___________default under the terms of the Agreement. 4. ________________ three (3) business days notice to the Agent of its intent to submit the sight draft which accompanies this certificate. 5. Capitalized terms used herein but not defined shall have the meanings set forth in the Agreement. IN WITNESS WHEREOF,________ d this Certificate for Drawing to be executed and delivered as of the _______day of ___________ 1999. By: --------------------------- Name: -------------------------- President Sworn to before me this: ____day of _________, 1999. - -------------------------------- Notary Public 22 DIY OCCUPANCY COSTS
BOARDMAN Total Average Avg/ 1998 1997 Week ---------------------------------------------------------------------------------- Rent $ 525,740 $ 519,800 $1,045,340 $ 522,670 $ 10,051 Mortgate Interest $ -- $ -- $ -- Disposal $ 10,118 $ 11,912 $ 22,030 $ 11,015 $ 212 Real Estate Taxes $ 63,489 $ 66,199 $ 129,688 $ 64,844 $ 1,247 R & M premise $ 11,034 $ 15,911 $ 27,945 $ 13,973 $ 269 Utilities $ 135,667 $ 134,164 $ 259,831 $ 134,916 $ 2,595 Equipment Rental $ 34,939 $ 38,117 $ 73,056 $ 36,528 $ 702 Insurance $ 40,607 $ 50,804 $ 91,411 $ 45,706 $ 879 Outside Service $ 21,239 $ 24,807 $ 46,046 $ 23,023 $ 443 R & M Equipment $ 15,111 $ 19,675 $ 34,786 $ 17,393 $ 334 Telephone $ 27,436 $ 27,601 $ 55,037 $ 27,519 $ 529 Loss Prevention $ 7,606 $ 15,426 $ 23,032 $ 11,516 $ 221 ---------------------------------------------------------------------------------- Total Occupancy $ 892,986 $ 925,215 $1,818,202 $ 909,101 $ 17,483 ==================================================================================
SCHEDULE D EX-13.1 7 EXHIBIT 13.1 1 EXH 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------- RESULTS OF OPERATIONS The following table sets forth, for the years indicated, certain information derived from the Company's Statement of Operations expressed in dollars (000's) and as a percentage of net sales. The financial information and the discussion and analysis which follows should be read in conjunction with the accompanying consolidated financial statements, including the notes thereto, for each of the three years in the period ended January 1, 2000.
--------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ Net sales $ 128,478 100.0% $ 172,600 100.0% $ 210,200 100.0% Cost of sales 94,830 73.8 127,215 73.7 152,625 72.6 - ------------------------------------------------------------------------------------------------------------------------------ Gross profit 33,648 26.2 45,385 26.3 57,575 27.4 Store operating, general and administrative expenses 33,373 26.0 45,336 26.3 49,586 23.6 Store closing and development costs 2,082 1.6 2,143 1.2 1,436 0.7 - ------------------------------------------------------------------------------------------------------------------------------ Operating (loss) income (1,807) (1.4) (2,094) (1.2) 6,553 3.1 Other expense, net 918 0.7 1,761 1.0 1,701 0.8 - ------------------------------------------------------------------------------------------------------------------------------ (Loss) income before income tax (benefit) expense (2,725) (2.1) (3,855) (2.2) 4,852 2.3 Income tax (benefit) expense (1,093) (0.9) (1,556) (0.9) 1,980 0.9 - ------------------------------------------------------------------------------------------------------------------------------ Net (loss) income $ (1,632) (1.3)% $ (2,299) (1.3)% $ 2,872 1.4% ==============================================================================================================================
References to the years 1999, 1998 and 1997 relate to the fiscal years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively. Fiscal 1999 and 1998 consisted of 52 weeks while fiscal 1997 consisted of 53 weeks. Fiscal 1999 Compared to Fiscal 1998 Net sales decreased by $44.1 million or 25.6% to $128.5 million during 1999 from $172.6 million during 1998. Continuing store sales, which exclude the results of the two stores closed during the fourth quarter of 1998 and the three stores closed during the second quarter of 1999 for both periods, decreased $18.3 million or $13.4% to $118.1 million in 1999 to $136.4 million in 1998. The decrease in net sales between the two periods was the result of additional competition from national warehouse retailers in the Company's markets. The Company anticipates that net sales for fiscal year 2000 will be below the net sales recorded during 1999. Gross profit decreased by $11.7 million or 25.9% to $33.6 million in 1999 from $45.4 million in 1998. Negatively impacting gross profit during 1999 was $1.8 million of inventory markdown costs included in cost of sales related to the liquidation of the merchandise inventory at the three stores closed during the second quarter of 1999. In comparison, 1998's gross profit was negatively impacted by $.8 million of inventory markdown costs included in cost of sales related to the liquidation of the merchandise inventory at the two stores closed during the fourth quarter of fiscal 1998. Continuing store gross profit as a percentage of net sales, which excludes the results of the five closed stores for both periods, increased to 27.8% in 1999 from 27.0% in 1998. The increase in the continuing store gross profit percentage between the two periods reflects the positive impact of the Company's merchandising mix adjustment. The Company anticipates that gross profit as a percentage of net sales for fiscal year 2000 will be comparable with the gross profit as a percentage of net sales experienced during 1999. Store operating, general and administrative expenses decreased $12.0 million or 26.4% to $33.4 million in 1999 from $45.3 million in 1998. Continuing stores operating, general and administrative expenses as a percentage of net sales, which exclude the results of the five closed stores for both periods, decreased to 26.1% in 1999 from 26.4% in 1998. The decrease in the continuing stores operating, general and administrative expenses as a percentage of net sales between the two periods reflects the Company's continued management of controllable expenses despite lower sales volume against which to leverage such costs. This management of controllable expenses included lower personnel costs resulting from reduced store and corporate staffing levels, decreased advertising expenditures, a reduction in the utilization of outside services and an overall reduction in general operating expenses. The Company anticipates that store operating, general and administrative expenses for fiscal year 2000 will be below the store operating, general and administrative expenses recognized during 1999. During the first quarter of 1999, the Company recognized $.3 million of store closing costs from the Bedford, Ohio and Canton, Ohio stores that were closed during the fourth quarter of 1998. These expenses were recorded in the store closing and development costs line item of the Company's operating statement. During the second quarter of 1999, the Company announced the closure of three stores located in Boardman, Ohio; Mansfield, Ohio; and Akron, Ohio. Concurrent with the announcement, the Company sold the land and buildings of its Mansfield and Canton stores for $8.6 million, resulting in a pre-tax gain of $1.9 million. The gain on the sale of the property was offset by the expenses to close the three stores which included a $2.6 million write-off of leasehold improvements and property and equipment, a $.5 million lease termination fee and other store closing costs of $.2 million. The gain on the sale of property as well as the offsetting expenses were recorded in the store closing and development costs line item of the Company's operating statement. During the fourth quarter of 1999, the Company removed kitchen displays from its stores in connection with the repositioning of its merchandising mix, resulting in a $.4 million charge. These expenses were recorded in the store closing and development costs line item of the Company's operating statement. Other expense, net decreased $.8 million or 47.9% to $.9 million during 1999 from $1.8 million during 1998. The decrease in other expense, net primarily reflects the $1.0 million reduction in mortgage interest expense between the two periods. During 1999, the Company utilized the proceeds from the sale of property as well as its revolving credit facility to extinguish the remainder of its outstanding mortgage loans. The reduction in mortgage interest expense between 1999 and 1998 was partially offset by a $.2 million increase in revolving credit facility interest expense. The Company anticipates that other expense, net for fiscal year 2000 will be below the other expense, net recorded during 1999. The $1.1 million in income tax benefit recorded during 1999 was comprised of $.8 million of current federal income tax and $.3 million of deferred tax benefits. The Company has available net operating loss carryforwards of approximately $1.6 million and $5.6 million for federal and state income taxes, respectively. The federal income tax net operating loss carryforwards will expire principally in the year 2019. Similarly, of the $5.6 million in state income tax net operating loss carryforwards, approximately $2.0 million will expire principally in the year 2013 with the remainder expiring principally in the year 2014. In addition, the Company has available Alternate Minimum Tax credit carryforwards of approximately $.2 million which may be used indefinitely to reduce 2 2 federal income taxes. The effective tax benefit rate was 40.1% in 1999 compared to an effective tax benefit rate of 40.4% in 1998. Fiscal 1998 Compared to Fiscal 1997 Fiscal 1998 consisted of 52 weeks compared to 53 weeks in fiscal 1997. Net sales decreased by $37.6 million or 17.9%, from $210.2 million in 1997 to $172.6 million in 1998. Comparable store sales were impacted by additional national warehouse competition in a majority of the Company's markets. Gross profit decreased by $12.2 million, or 21.2%, from $57.6 million in 1997 to $45.4 million in 1998. Gross profit percentage, as a percentage of net sales, was 26.3% in 1998 compared to 27.4% in 1997. The decrease in gross margin percentage was impacted by the liquidation sales related to closing two stores during the fourth quarter of 1998. (See discussion below on store closings.) Also, a decrease in vendor rebates and discounts resulting from decreased inventory purchases in 1998 compared to 1997 impacted the 1998 gross margin. During 1998, the Company continued to focus on enhancing the balance sheet by reducing inventory levels. As a result, inventory purchases in 1998 were approximately $37.0 million lower than purchases during 1997. Store operating, general and administrative expenses decreased $4.3 million, or 8.6%, to $45.3 million in 1998 from $49.6 million in 1997. The decrease is due to the Company's ongoing efforts to reduce operating costs. As a percentage of net sales, store operating, general and administrative expenses increased to 26.3% in 1998 compared to 23.6% in 1997 due to lower sales on which to leverage these expenses. During the first quarter of 1998, the Company incurred approximately $.3 million in store development costs as part of completing new merchandising, marketing and other strategic initiatives implemented in year 1997. During the fourth quarter of 1998, the Company closed two of its stores. The Company incurred $1.8 million to close the two stores in the fourth quarter of 1998. Included in the costs are approximately $.7 million related to the write down of long lived assets of these two stores to their net realizable value. The remainder represents the operating costs incurred to close these stores. Other expense, net of $1.7 million, remained relatively the same in 1998 compared to 1997. However, interest expense decreased by approximately $.3 million from $2.2 million in 1997 to $1.9 million in 1998 due primarily to the benefit of reduced debt levels on average amounts outstanding under the Revolving Credit Agreement and Mortgage Loans which were approximately $18.2 million during 1998 compared to $22.5 million during 1997. The interest expense decrease was offset by the gain of $.2 million on the sale of property in 1997. The income tax benefit of $1.6 million for 1998 consisted of approximately $.6 million of current federal income taxes, and $1.0 million of deferred tax benefits. The Company has available net operating loss carryforwards of approximately $.6 million and $2.2 million for federal and state income taxes, respectively, which expire principally in year 2018 (federal) and in year 2013 (state). In addition, the Company has available Alternate Minimum Tax credit carryforwards of approximately $.2 million which may be used indefinitely to reduce federal income taxes. The effective tax benefit was 40.4% in 1998 compared to an effective tax expense rate of 40.8% in 1997. LIQUIDITY AND CAPITAL RESOURCES The Statement of Cash Flows reflects cash inflows and outflows from the Company's operating, investing, and financing activities. The Company's primary capital needs are to finance merchandise inventories. The Company believes its existing resources, including cash and cash equivalents, internally generated funds and bank credit facilities will be sufficient to meet working capital requirements for the next 12 months. Cash Flows from Operating Activities During the year ended January 1, 2000, operating activities provided net cash of $3.0 million. The primary sources of cash from operating activities included a $7.2 million reduction in merchandise inventories, $3.3 million from depreciation and amortization and a $2.6 million loss on the write-off of leasehold improvements and property and equipment related to the three stores closed during 1999. Partially offsetting these positive cash flow items were the $3.9 million decrease in accounts payable, the $3.3 million decrease in accrued expenses and other liabilities, the $1.9 million gain on the sale of certain closed stores' property and the Company's $1.6 million net loss for 1999. During the year ended January 2, 1999, operating activities provided net cash of approximately $7.6 million. The primary source of cash from operating activities was $3.7 million from depreciation and amortization and $8.9 million from reducing inventories, offset by $2.2 million to reduce accounts payable and the Company's net loss of $2.3 million. During the year ended January 3, 1998, operating activities provided net cash of $4.4 million. The primary source of cash from operating activities was $6.2 from net income plus depreciation and amortization. The primary use of cash was $1.7 million to fund the increase in merchandise inventories and $1.7 million to reduce accounts payable. Cash Flows from Investing Activities Net cash provided by investing activities increased by $9.2 million to $7.8 million during 1999 from net cash used in investing activities of $1.4 million during 1998. The increase in cash provided by investing activities between the two periods was due primarily to the $8.1 million in net proceeds from the sale of land and buildings of the Company's former Mansfield and Canton stores. Net cash provided by investing activities during 1999 was also positively impacted by the absence of $1.1 million in additional capital expenditures experienced during 1998. Net cash used in investing activities was $1.4 million and $2.7 million in 1998 and 1997, respectively. Capital expenditures incurred in 1998 and 1997 of $1.4 million and $3.6 million relate primarily to store development costs associated with the comprehensive renovations of certain store locations. Capital expenditures during 1997 were offset by $.8 million from the sale of several parcels of property. Cash Flows from Financing Activities Net cash used in financing activities increased by $4.4 million to $10.6 million during 1999 from $6.2 million during 1998. The increase in net cash used in financing activities between the two periods primarily reflects the $8.6 million increase in net payments against the Company's revolving credit facility, partially offset by a $4.0 million decrease in mortgage loan payments. As noted previously, the Company sold the land and buildings of its former Mansfield and Canton stores for $8.6 million during 1999. These proceeds, combined with an overall reduction in the utilization of the revolving credit facility due to lower inventory purchase levels, enabled the Company to reduce the outstanding balance of its revolving credit facility and extinguish the remaining outstanding balances on its mortgage loans. Net cash used in financing activities increased by $4.6 million from $1.6 million during 1997 to $6.2 million during 1998. The increase in net cash used in financing activities between the two periods was due primarily to the reduction in net borrowings under the revolving credit and mortgage loans of approximately $4.3 million as a result of lower inventory purchases. Net cash used in financing activities of $1.6 million in 1997 was primarily a result of net principal payments on the Company's mortgage loans, note payable and capital lease obligations. On October 27, 1998, the Company entered into a Credit and Security Agreement (Credit Agreement) with a bank. The Credit Agreement provides for borrowings up to $20.0 million pursuant to a formula based upon the Company's inventories with interest at the Company's option of either LIBOR or the prime rate for specified maturities adjusted by varying points in accordance with the Security Agreement. The Credit Agreement extends through October 27, 2001. A commitment fee of .375% per annum is charged on the unused credit facility. Borrowings under the new Credit Agreement are collateralized substantially by all of the Company's assets, other than real estate. The terms of the Credit Agreement require the Company to meet certain financial covenants, and limit the level of additional indebtedness. The Company was in compliance with all restrictive covenants of the Credit Agreement at January 1, 2000. The Company had $5.3 million and $10.1 million outstanding under its 3 revolving credit facilities at January 1, 2000 and January 2, 1999, respectively. 3 3 FORWARD-LOOKING STATEMENT This Annual Report may contain statements that are forward-looking, as that term is defined by the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases. The Company intends that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors. Accordingly, actual results may differ materially from those expressed in the forward-looking statements and the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed therein will be achieved. Important risk factors include, but are not limited to, the following: general economic conditions; consumer spending and debt levels; housing turnover; weather; impact on sales and margins from both existing and new competition; changes in operating expenses; changes in product mix; interest rates; changes in and the application of accounting policies and practices; adverse results in significant litigation matters; adverse state and federal regulations and legislation; the occurrence of extraordinary events including events and acts of nature or accidents; and the risks described from time to time in the Company's Securities and Exchange Commission filings. Dependence on Key Personnel The Company's operations depend on the continuing efforts of its executive officers and its senior management. Should the Company be unable to retain any of its executive officers or senior management, the Company's prospects could be adversely affected. Competition The home improvement, hardware and garden businesses are all highly competitive. The Company competes against traditional hardware, plumbing, electrical and home supply retailers, as well as warehouse-format and discount retail stores and many of the Company's competitors have substantially greater resources than the Company. Builders Square and Lowe's Company have had stores in the Company's markets since 1985 and 1994, respectively. However, Builders Square filed for Chapter 7 bankruptcy protection and exited the Northeastern Ohio marketplace during 1999. Lowe's has continued to expand, opening additional locations in 1996, 1997 and 1998. In the fourth quarter of 1997 and continuing through 1999, Home Depot began operations in several of the Company's markets. Both Home Depot and Lowe's have announced further expansion plans in 2000. In addition, there has been increasing consolidation within the home improvement industry, which may provide certain entities increased competitive advantages. Specifically, increased competition including, but not limited to, additional competitors' store locations, price reductions, and advertising and marketing campaigns could have a material adverse effect on the Company's business. Seasonality The Company's business is seasonal in nature. On a per store basis, the Company generally experiences its lowest sales during the first and fourth quarters of each fiscal year. The Company believes the seasonality is caused by the effect of winter weather on consumers' willingness to undertake outdoor home improvement projects and the lack of significant sales of lawn and garden products during the first and fourth fiscal quarters. In addition, a longer or harsher period of winter weather than is usual in the Company's markets, or an excessively rainy or unseasonably cold spring season, could have a material adverse effect on the Company's sales. On a per store basis, the Company generally experiences its highest sales during the second and third quarters. However, gross profit margins are lower during the second quarter than in the third quarter due to higher sales of lawn and garden and lumber and building materials which generally carry lower gross profit margins than the Company's average gross profit margin. The Company's gross profit margins on furniture, plumbing, electrical and hardware are generally higher than the Company's average gross profit margin, and sales of such products are not as seasonal as sales of lawn and garden and building material products. The Company's quarterly results of operations may also fluctuate materially depending on the timing of new store openings, closings and store development activities. Inflation General inflation has not had a significant impact on the Company during the past three years. The Company's commodity products, primarily lumber and certain building materials, experience unusual deflation or inflation due to a combination of price volatility, increased demand and supply levels. Resulting price increases or decreases are generally passed on to customers through retail price changes and, accordingly, do not significantly impact the Company. Year 2000 Issue BACKGROUND. Some computers, software, and other equipment include programming code in which calendar year data is abbreviated to only two digits. As a result of this design decision, some of these systems could fail to operate or fail to produce correct results if "00" is interpreted to mean 1900, rather than 2000. These problems were widely expected to increase in frequency and severity into and beyond 2000, and are commonly referred to as the "Millennium Bug" or "Year 2000 Problem." ASSESSMENT. The Company completed its review of its internal computer programs and systems prior to January 1, 2000 to ensure that the programs and systems would be Year 2000 compliant. Upon entering the 2000 calendar year, the Company did not encounter any significant Year 2000 problems and has been able to operate its business in the normal course without interruption. Additionally, the Company does not anticipate encountering any significant Year 2000 issues with its internal computer programs and systems as it continues to operate during the 2000 calendar year and beyond. The Company incurred approximately $.4 million to complete its Year 2000 efforts and does not anticipate incurring any additional expenditures related to Year 2000 issues. INTERNAL INFRASTRUCTURE. The Company believes that it identified and subsequently modified, upgraded or replaced substantially all of the major computers, software applications, and related equipment used in connection with its internal operations prior to January 1, 2000 to ensure that there would be no material disruption to its business. Upon entering the 2000 calendar year, the Company did not encounter any significant Year 2000 problems with its internal infrastructure and has been able to operate its business in the normal course without interruption. Additionally, the Company does not anticipate encountering any significant Year 2000 issues with its internal infrastructure as it continues to operate during the 2000 calendar year and beyond. As such, the Company does not anticipate incurring any additional expenditures related to Year 2000 issues. SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers and related systems, the operation of office and facilities equipment, such as fax machines, photocopiers, telephone switches, security systems, and other common devices may be affected by the Year 2000 Problem. Upon entering the 2000 calendar year, the Company did not experience any significant Year 2000 problems with its office and facilities equipment and has been able to operate its business in the normal course without interruption. Additionally, the Company does not anticipate encountering any significant Year 2000 problems with its office and facilities equipment as it continues to operate during the 2000 calendar year and beyond. The Company did not incur any material costs to address Year 2000 issues in its office and facilities equipment and does not anticipate incurring any additional expenditures related to Year 2000 issues. SUPPLIERS. The Company communicated with third party suppliers of the major computers, software, and other equipment used, operated, or maintained by the Company prior to January 1, 2000 and identified and, where necessary, resolved issues involving the Year 2000 Problem. Upon entering the 2000 calendar year, the Company did not experience any significant Year 2000 problems with these third party suppliers and has been able to operate its business in the normal course without interruption. Additionally, the Company does not anticipate encountering any significant Year 2000 issues with these third party suppliers as it continues to operate during the 2000 calendar year and beyond. Based on the procedures completed by the Company prior to January 1, 2000 and the absence of any significant Year 2000 problems since entering the 2000 calendar year, the Company does not foresee any significant risks associated with its Year 2000 compliance at this time. As such, the Company will continue to operate without developing a comprehensive contingency plan as it is deemed to be unnecessary. 4 4 STATEMENT OF OPERATIONS D.I.Y. Home Warehouse, Inc. - -----------------------
----------------------------------------------------- for the years ended January 1, 2000, January 2, 1999 and January 3, 1998 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- Net sales $ 128,477,523 $ 172,600,414 $ 210,199,898 Cost of sales 94,829,103 127,215,341 152,624,851 - ------------------------------------------------------------------------------------------------------------------------------- GROSS PROFIT 33,648,420 45,385,073 57,575,047 - ------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Store operating, general and administrative 33,372,877 45,336,514 49,585,529 Store closing and development costs 2,082,542 2,143,394 1,436,416 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 35,455,419 47,479,908 51,021,945 - ------------------------------------------------------------------------------------------------------------------------------- OPERATING (LOSS) INCOME (1,806,999) (2,094,835) 6,553,102 Other (expense) income: Interest expense, net (1,029,603) (1,860,892) (2,151,662) Other income, net 111,315 100,146 450,186 - ------------------------------------------------------------------------------------------------------------------------------- (Loss) income before income tax (benefit) expense (2,725,287) (3,855,581) 4,851,626 Income tax (benefit) expense (1,093,702) (1,556,130) 1,979,556 - ------------------------------------------------------------------------------------------------------------------------------- NET (LOSS) INCOME $ (1,631,585) $ (2,299,451) $ 2,872,070 =============================================================================================================================== NET (LOSS) EARNINGS PER COMMON SHARE, BASIC AND DILUTED $ (0.22) $ (0.30) $ 0.38 =============================================================================================================================== Weighted average common shares outstanding, basic and diluted 7,276,059 7,594,540 7,633,825 ===============================================================================================================================
STATEMENT OF STOCKHOLDERS' EQUITY - ---------------------------------
for the fiscal years ended January 1, 2000, January 2, 1999 and January 3, 1998 ------------------------------------------------------------------------------- Total Common Stock Retained Treasury Stockholders' --------------------------- Earnings Stock Equity Shares Amount ------------------------------------------------------------------------------- BALANCES, DECEMBER 28, 1996 7,630,685 $ 22,942,005 $ 14,312,025 $ -- $ 37,254,030 Shares issued under the Retainer Stock Plan for Non-Employee Directors 3,174 13,457 13,457 Net income 2,872,070 2,872,070 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES, JANUARY 3, 1998 7,633,859 22,955,462 17,184,095 -- 40,139,557 Net loss (2,299,451) (2,299,451) Purchase of common stock for treasury (357,800) (201,441) (201,441) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES, JANUARY 2, 1999 7,276,059 22,955,462 14,884,644 (201,441) 37,638,665 Net loss (1,631,585) (1,631,585) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES, JANUARY 1, 2000 7,276,059 $ 22,955,462 $ 13,253,059 $ (201,441) $ 36,007,080 ===================================================================================================================================
See Accompanying Notes to Financial Statements. 5 5 D.I.Y. Home Warehouse, Inc. BALANCE SHEET
-------------------------------------- as of January 1, 2000 and January 2, 1999 1999 1998 - --------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 309,349 $ 128,149 Refundable federal income taxes 606,170 706,545 Merchandise inventories 24,084,280 31,261,721 Deferred income taxes 1,636,875 1,542,590 Prepaid expenses and other assets 936,087 780,086 - --------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 27,572,761 34,419,091 - --------------------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT, AT COST: Land 2,409,742 4,275,402 Buildings 14,578,286 19,563,279 Furniture, fixtures and equipment 12,611,952 17,825,865 Capital lease assets 839,298 839,298 Leasehold improvements 8,739,049 11,246,915 - --------------------------------------------------------------------------------------------------------------- 39,178,327 53,750,759 Less accumulated depreciation and amortization 15,142,429 17,878,455 - --------------------------------------------------------------------------------------------------------------- Property and equipment, net 24,035,898 35,872,304 Other assets 196,437 385,910 - --------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 51,805,096 $ 70,677,305 =============================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Note payable, affiliate $ -- $ 300,000 Current maturities of long-term debt 188,900 1,288,330 Accounts payable 4,572,801 8,462,635 Accrued payroll and related expenses 1,264,433 1,935,110 Accrued expenses 871,332 2,143,569 Accrued sales and income taxes 554,043 1,151,434 Customer deposits 73,623 297,273 - --------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 7,525,132 15,578,351 Revolving credit 5,310,031 10,134,153 Long-term debt 100,055 4,438,867 Deferred income taxes 2,862,798 2,887,269 - --------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 15,798,016 33,038,640 - --------------------------------------------------------------------------------------------------------------- Commitments -- -- STOCKHOLDERS' EQUITY: Preferred stock, authorized 1,000,000 shares, none issued -- -- Common stock, no par value, 10,000,000 authorized shares, 7,633,859 shares issued at January 1, 2000 and January 2, 1999 22,955,462 22,955,462 - --------------------------------------------------------------------------------------------------------------- Retained earnings 13,253,059 14,884,644 Treasury stock, 357,800 shares at cost (201,441) (201,441) - --------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 36,007,080 37,638,665 - --------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 51,805,096 $ 70,677,305 ===============================================================================================================
See Accompanying Notes to Financial Statements. 6 6 STATEMENT OF CASH FLOWS D.I.Y. Home Warehouse, Inc. - -----------------------
for the fiscal years ended January 1, 2000, January 2, 1999 ------------------------------------------------- and January 3, 1998 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (1,631,585) $ (2,299,451) $ 2,872,070 Adjustments to reconcile net (loss )income to net cash provided by operating activities: Depreciation and amortization 3,282,134 3,655,549 3,372,876 Deferred income tax expense (118,756) (924,683) 1,037,230 Common shares issued under Retainer Stock Plan -- -- 13,457 Net gain on sale of property from closed stores (1,859,734) -- -- Loss on write-off of leasehold improvements and property and equipment from closed stores 2,619,701 848,551 -- Net loss (gain) on disposal of property 10,042 3,649 (214,675) Changes in operating assets and liabilities: Refundable federal income taxes 100,375 (340,582) (117,275) Merchandise inventories 7,177,441 8,895,035 (1,694,631) Prepaid expenses and other current assets (156,001) 66,264 55,575 Other assets 189,473 88,978 102,554 Accounts payable (3,889,834) (2,152,404) (1,663,416) Accrued sales and income taxes (597,391) (235,644) (177,980) Accrued expenses and other liabilities (2,166,564) (13,885) 765,396 - ----------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,959,301 7,591,377 4,351,181 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (312,478) (1,434,769) (3,599,180) Proceeds from sale of property 8,096,741 -- 850,911 - ----------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 7,784,263 (1,434,769) (2,748,269) - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments, notes payable (300,000) (300,000) (300,000) Principal payments under capital lease obligations (175,011) (160,739) (157,624) Principal payments of long-term debt (5,263,231) (9,266,833) (1,540,247) Proceeds from revolving credit 6,728,464 12,384,153 9,000,000 Principal payments, revolving credit (11,552,586) (8,625,000) (8,625,000) Purchase of treasury stock -- (201,441) -- - ----------------------------------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (10,562,364) (6,169,860) (1,622,871) - ----------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 181,200 (13,252) (19,959) Cash and cash equivalents, beginning of year 128,149 141,401 161,360 - ----------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 309,349 $ 128,149 $ 141,401 ======================================================================================================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 1,143,153 $ 1,907,064 $ 2,146,071 ======================================================================================================================= Cash Paid For Income Taxes $ 180,000 $ 456,288 $ 1,446,974 ======================================================================================================================= SUPPLEMENTAL INVESTING AND FINANCING INFORMATION: Capital lease obligations incurred $ -- $ -- $ 23,310 =======================================================================================================================
See Accompanying Notes to Financial Statements. 7 7 NOTES TO FINANCIAL STATEMENTS D.I.Y. Home Warehouse, Inc. - ----------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D.I.Y. Home Warehouse, Inc. ("DIY" or the "Company") operates retail warehouse-format home improvement centers that sell products primarily to do-it-yourself home repair and remodeling customers. The Company's "DIY Home Warehouse" stores are located in Northeast Ohio and range in size from 66,000 to 109,000 square feet of enclosed selling space and 12,000 to 20,000 square feet of outside selling space. The significant accounting policies followed in the preparation of the accompanying financial statements are summarized below. Fiscal Year The Company's fiscal year is comprised of 52 or 53 weeks, ending on the Saturday nearest December 31. Unless otherwise stated, references to the years 1999, 1998 and 1997 relate to the fiscal years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively. Fiscal 1999 and 1998 consisted of 52 weeks while fiscal 1997 consisted of 53 weeks. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Financial Instruments The Company has provided fair value estimates and information about valuation methodologies of financial instruments in this note and Note 2 - Debt to the accompanying financial statements. The Company's financial instruments consist of investments in cash and cash equivalents and obligations under notes payable and long-term debt. Cash and Cash Equivalents Cash equivalents consist of short-term, highly liquid investments, with a maturity of three months or less, carried at cost plus accrued interest, which are readily convertible into cash. The carrying value for cash and cash equivalents approximates fair value. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents. The Company places its cash equivalents with high quality financial institutions. Merchandise Inventories Merchandise inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out ("FIFO") method. Advertising Costs Advertising and promotion costs are charged to operations in the year incurred. Advertising expense was $1,387,964, $2,624,787 and $2,181,935 in 1999, 1998 and 1997, respectively. Store Closing Costs During the first quarter of 1999, the Company incurred $259,656 of additional closing costs associated with the closure of its Bedford, Ohio and Canton, Ohio stores announced during the fourth quarter of 1998. These expenses have been included in the store closing and development costs line item of the accompanying statement of operations. During the second quarter of 1999, the Company announced the closing of its Boardman, Ohio; Mansfield, Ohio and Akron, Ohio stores and incurred $1,472,887 in closing costs, net of a gain on the sale of property from closed stores of $1,859,734 (see Property, Equipment and Depreciation below). Included in these net costs are the $2,619,701 write down of long-lived assets of these three stores to their net realizable value, a $463,327 lease termination fee and miscellaneous other closing costs of $249,593. These expenses have been included in the store closing and development costs line item of the accompanying statement of operations. In addition to these operating expenses, the Company incurred $1,773,000 of inventory markdown costs related to the liquidation of the merchandise inventories of the three closed stores. These inventory markdown costs have been included in the cost of sales line item of the accompanying statement of operations. During the fourth quarter of 1998, the Company announced the closing of two of its Bedford and Canton stores and recorded $1,837,703 of expense to close these stores. Included in these costs are the write down of long-lived assets of these two stores to their net realizable value. These expenditures have been included in the store closing and development costs line item of the accompanying statement of operations. In addition to these operating expenses, the Company incurred $780,000 of inventory markdown costs related to the liquidation of the merchandise inventories of the two closed stores. These inventory markdown costs have been included in the cost of sales line item of the accompanying statement of operations. Store Development Costs In connection with the repositioning of its merchandising mix, the Company incurred $349,999 in store development expenses during the fourth quarter of 1999 to eliminate kitchen displays in its stores. These costs have been included in the store closing and development costs line item of the accompanying statement of operations. The Company incurred $305,691 and $1,436,416 in store development costs during 1998 and 1997. During 1997, management assessed the business strategies and opportunities available to the Company for it to differentiate itself in the warehouse-format home improvement retail market. This comprehensive process resulted in the development of new merchandising, marketing and other strategic initiatives to strengthen the Company's market position. Select marketing and merchandising programs were implemented on a Company-wide basis during 1997 and the first quarter of 1998. Certain of the costs incurred in 1997 and 1998 relate to the development and creative design of these strategic concepts while other costs pertain to implementation including marketing, advertising, promotions and payroll costs. These expenditures have been included in the store closing and development costs line item of the accompanying statement of operations. Property, Equipment and Depreciation Property and equipment are recorded at historical cost and are depreciated over the estimated useful lives of the assets using the straight-line method for financial reporting purposes. The ranges of the estimated useful lives are: buildings, 39 years; furniture, fixtures and equipment, 5-10 years; and leasehold improvements, over the shorter of the useful life of the asset or the initial term of the lease. At retirement or sale, the cost of the assets and related accumulated depreciation are removed from the appropriate accounts, and any resulting gain or loss is included in current income. Fully depreciated assets are written off against accumulated depreciation. Routine maintenance, repairs and renewals are expensed as incurred. Renewals and improvements which substantially increase the life of property and equipment are capitalized. In the second quarter of 1999, the Company sold the land and buildings of its closed Mansfield and Canton stores for net proceeds of $8,096,741. These sales resulted in a pre-tax gain of $1,859,734 which has been included in the store closing and development costs line item of the accompanying statement of operations. Depreciation expense for 1999, 1998 and 1997 amounted to $3,282,134, $3,655,549 and $3,372,876, respectively. Amortization of capital lease assets has been included in depreciation expense. Accumulated amortization related to capital leases amounted to $595,817, $429,364 and $261,504 in 1999, 1998 and 1997 respectively. 8 8 Earnings Per Share Earnings per share have been computed according to Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 128, "Earnings Per Share" as follows:
Fiscal Year Ended ---------------------------------------------------- January 1, 2000 January 2, 1999 January 3, 1998 ---------------------------------------------------- Net (loss) income applicable to common shares $(1,631,585) $(2,299,451) $ 2,872,070 ================================================================================================= Weighted average common shares outstanding for the period 7,276,059 7,594,540 7,633,825 Diluted effect of exercise of stock options -- -- -- - ------------------------------------------------------------------------------------------------- Weighted average common shares, assuming issuance of the above securities 7,276,059 7,594,540 7,633,825 ================================================================================================= Net (loss) earnings per common share: Basic $ (0.22) $ (0.30) $ 0.38 Diluted $ (0.22) $ (0.30) $ 0.38
Options to purchase 928,000 shares of common stock at a weighted average exercise price of $3.14 per share were outstanding at January 1, 2000 but were not included in the computation of diluted earnings per share for 1999 because the options would have an anti-dilutive effect on the net loss for the year. Options to purchase 885,000 shares of common stock at a weighted average exercise price of $3.63 per share were outstanding at January 2, 1999 but were not included in the computation of diluted earnings per share for 1998 because the options would have an anti-dilutive effect on the net loss for the year. Options to purchase 998,000 shares of common stock at a weighed average exercise price of $3.68 per share were outstanding at January 3, 1998 but were not included in the computation of diluted earnings per share for 1997 because the options' exercise prices were greater than the average market price for the common shares for the year. Reclassifications Certain items in the 1998 and 1997 financial statements and notes thereto have been reclassified to conform to the 1999 presentation. 2. DEBT The Company has a Credit and Security Agreement (the "Credit Agreement") with a bank. The Credit Agreement provides for borrowings up to $20,000,000 pursuant to a formula based upon the Company's inventories with interest at the Company's option of either LIBOR or the prime rate for specified maturities adjusted by varying points as specified in the Credit Agreement. The Credit Agreement extends through October 27, 2001. A commitment fee of .375% per annum is charged on the unused credit facility. Borrowings under the Credit Agreement are collateralized substantially by all of the Company's assets, except for real estate. The terms of the Credit Agreement require the Company to meet certain financial covenants and limit the level of additional indebtedness. The Company was in compliance with all restrictive covenants of the Credit Agreement at January 1, 2000. The Company had $5,310,031 and $10,134,153 outstanding under the Credit Agreement at January 1, 2000 and January 2, 1999, respectively, at weighted average annual interest rates of 7.4% during 1999 and 7.2% during 1998.
Long-term debt consists of the following: --------------------- 1999 1998 --------------------- Mortgage loans due in monthly installments of $98,206 including principal and interest at 10.3% per annum, due January 1, 2005, collateralized by certain real property. $ -- $3,821,737 Mortgage loans due in monthly installments of $34,796 including principal and interest at 9.28% per annum, due May 1, 2005, collateralized by certain real property. -- 1,441,494 Capital lease obligations (Note 4) 288,955 463,966 - -------------------------------------------------------------------------------------------------- Long-term debt 288,955 5,727,197 Less current maturities of long-term debt 188,900 1,288,330 - -------------------------------------------------------------------------------------------------- Long-term debt, net of current maturities $100,055 $4,438,867 ==================================================================================================
Principal amounts of long-term debt payable, including capital lease obligations in fiscal years 2000 and 2001 are $189,900 and $100,055, respectively. The carrying amount of the Company's borrowings under the Credit Agreement approximate fair value. The fair value of the Company's long-term debt outstanding at January 2, 1999 was estimated using a discounted cash flow analysis based on the Company's then-current incremental borrowing rate for similar types of borrowing arrangements. The carrying value of this debt, $5,727,197, was estimated to have a fair value of $6,100,000 at January 2, 1999. The Note payable, affiliate balance of $300,000 outstanding as of January 2, 1999 represented a demand note payable to Edgemere Enterprise, Inc., an entity owned by the Company's majority shareholder. The note bore interest at .75% above the base lending rate of Comerica Bank and was subordinated to the Company's revolving credit facility and other debt with its banks. During 1999, 1998 and 1997, the Company made principal payments of $300,000 each on the Note payable, affiliate in accordance with the terms of the subordination agreement with the Company's banks. Interest expense on the Note payable, affiliate was $7,650, $31,526, and $64,295 during 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997, interest expense was $1,032,114, $1,865,949 and $2,170,060, respectively. 3. INCOME TAXES The Company accounts for income taxes in accordance with the FASB Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the tax rates and laws that are currently in effect. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Income tax (benefit) expense include the following: ----------------------------------------------- 1999 1998 1997 ----------------------------------------------- Federal $ (800,464) $ (622,968) $ 935,053 Deferred (293,238) (933,162) 761,469 State and local -- -- 283,034 - ------------------------------------------------------------------- $(1,093,702) $(1,556,130) $ 1,979,556 =================================================================== A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate follows:
------------------------------ 1999 1998 1997 ------------------------------ Statutory federal income tax rate (34.0) % (34.0)% 34.0% State and local income taxes, net of federal benefit (5.9) (6.3) 6.2 Tax credits and other (0.2) (0.1) 0.6 - ---------------------------------------------------------------------------------------- Effective income tax (benefit) expense rate (40.1)% (40.4)% 40.8% ========================================================================================
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities. The deferred tax assets (liabilities) shown on the balance sheet are as follows: -------------------------------- 1999 1998 -------------------------------- Depreciation $(2,954,566) $(2,837,837) LIFO (110,511) (169,113) Accrued liabilities 470,244 876,045 State income tax 59,410 129,546 Net operating loss carry forwards 1,309,500 656,680 - ------------------------------------------------------------------------- Net deferred tax liability $(1,225,923) $(1,344,679) ========================================================================= The Company has available net operating loss carryforwards of approximately $1,553,000 and $5,585,000 for federal and state income taxes, respectively. The federal income tax net operating loss carryforwards will expire principally in the year 2019. Similarly, of the $5,585,000 in state income tax net operating loss carryforwards, approximately $2,011,000 will expire principally in the year 2013 with the remainder expiring principally in the year 2014. In addition, 9 9 the Company has available Alternate Minimum Tax credit carryforwards of approximately $171,000 which may be used indefinitely to reduce federal income taxes. 4. LEASES AND COMMITMENTS The Company leases six retail stores, its corporate offices and warehouse under operating leases. In addition, two of the Company's retail stores are subject to land leases. The Company's operating leases have remaining terms from 1 to 8 years and have renewal options varying from 2 to 45 years. Five of the Company's leases require additional lease payments based upon a percentage of sales above certain sales levels. There were no percentage lease payment requirements during 1999 or 1998. Percentage lease payments totaled $24,090 during 1997. Future minimum rental payments required under operating and capital leases that have non-cancelable lease terms in excess of one year and sublease rentals due the Company under non-cancelable subleases are as follows:
Capital Operating Leases Leases ------------------------------------------------------- Lease Sublease Net Lease Payments Rental Payments Payments Year ending: ------------------------------------------------------- 2000 $ 3,023,684 $ 190,695 $ 2,832,989 $207,900 2001 2,830,022 209,800 2,620,222 100,925 2002 1,860,579 131,500 1,729,079 -- 2003 1,065,147 -- 1,065,147 -- 2004 1,000,068 -- 1,000,068 -- Thereafter 1,480,235 -- 1,480,235 -- - ----------------------------------------------------------------------------- Total minimum lease payments $11,259,735 $ 531,995 $10,727,740 $308,825 ================================================================== Less amounts representing interest 19,870 - ----------------------------------------------------------------------------- Present value of net minimum lease payments $288,955 =============================================================================
Total net rental expense for all operating leases for 1999, 1998 and 1997 was approximately $4,130,985, $3,990,000 and $3,943,000, respectively. Total net rental expense is net of sublease rental income of $219,880, $187,500 and $185,510 for 1999, 1998, and 1997, respectively. Also included in total net rental expense for 1999 was $463,327 of lease termination fees associated with the closure of the Boardman store. The Company leased three of its retail stores from the Company's majority shareholder or affiliated entities during 1999 and four of its retail stores during 1998 and 1997. The majority shareholder sold one of the retail stores to a third party during the fourth quarter of 1998. Rents associated with these leases were $1,357,820, $1,784,555 and $1,873,992 during 1999, 1998 and 1997, respectively. 5. STOCK OPTIONS The Company has a Long Term Incentive Plan (the "Plan") which reserves 1,350,000 shares of the Company's authorized common stock for issuance. The Plan provides for the granting of incentive stock options to purchase shares of common stock at a price not less than 100% of the fair market value of the stock on the dates options are granted. Options granted under the Plan vest over three to five years at the rate of 33% to 20% each year and expire no more than ten years from the date of grant. On May 21, 1997, the Company's Board of Directors authorized an amendment to outstanding stock option awards to reprice such stock options at an exercise price equal to the fair market value of the stock as of that date. As a result, 796,000 options were repriced at the fair market value on May 21, 1997. The vesting period of such options was reestablished to vest over 3 years at a rate of one-third per year. A summary of the Company's stock option activity and related information for 1999, 1998 and 1997 is as follows:
----------------------------------- Average Option Stock Option Price Per Share ----------------------------------- Outstanding at December 28, 1996 801,000 $ 9.15 Granted 237,500 $ 3.75 Canceled (40,500) $ 7.76 Canceled in connection with stock option repricing (796,000) $ 8.88 Granted in connection with stock option repricing 796,000 $ 3.56 - --------------------------------------------------------------------------- Outstanding at January 3, 1998 998,000 $ 3.68 Canceled (113,000) $ 4.10 - --------------------------------------------------------------------------- Outstanding at January 2, 1999 885,000 $ 3.63 Granted 155,000 $ 0.79 Canceled (112,000) $ 3.73 - --------------------------------------------------------------------------- Outstanding at January 2, 1999 928,000 $ 3.14 ================================================================================================
--------- --------- --------- 1999 1998 1997 --------- --------- --------- Options exercisable at end of year 602,681 298,641 11,400 Weighted-average option price per share of options exercisable $ 3.23 $ 3.75 $ 11.66 Options available for future grant 422,000 465,000 352,000
Options Outstanding Options Exercisable - ---------------------------------------------------------------------------------------------------------- Range of Outstanding at Weighted Avg. Weighted Avg. Exercisable at Weighted Avg. Exercise Prices January 1, 2000 Contractual Life Exercise Price January 1, 2000 Exercise Price - ---------------------------------------------------------------------------------------------------------- $0.44 35,000 4.17 $0.44 -- -- $.075 30,000 4.67 $0.75 -- -- $1.00 80,000 4.50 $1.00 80,000 $1.00 $3.56 779,000 2.33 $3.56 519,281 $3.56 $4.69 3,000 1.67 $4.69 2,400 $4.69 $9.00 1,000 -- $9.00 1,000 $9.00 ------- ------- 928,000 602,681 $3.23 ======= =======
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock option plan. Accordingly, since all options are granted at a fixed price not less than the fair market value of the Company's common stock on the date of grant, no compensation expense has been recognized relative to its stock option plan. Had compensation expense for the Company's stock-based plan been determined based on the fair value at the 1999, 1998 and 1997 grant dates for awards under the plan consistent with the method of FASB Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation", the Company's net (loss) income and (loss) earnings per share would have been reduced to the pro forma amounts indicated below:
------------------------------------------ 1999 1998 1997 ------------------------------------------ Net (loss) income As Reported $(1,631,585) $ (2,299,451) $2,872,070 Pro Forma $(1,861,827) $ (2,565,906) $2,664,621 Net (loss) earnings per common share, basic and diluted As Reported $ (0.22) $ (0.30) $0.38 Pro Forma $ (0.26) $ (0.34) $0.35
The fair value of each option granted during 1999 and 1997 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions. There were no options granted in fiscal year 1998. ------------------------------------------------- 1999 1997 ------------------------------------------------- Shares Subject Shares Not Subject to Repricing to Repricing ------------------------------------------------- Risk free interest rates 5.1% - 6.0% 6.5% 6.2 - 6.5% Expected life (years) 5 4 5 Volatility 82% 37% 38% Dividend yield 0% 0% 0% Option valuation models, like the Black-Scholes model, require the input of highly subjective assumptions including the expected stock price volatility. Since changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options or the resultant compensation expense for stock option awards. 10 10 6. TREASURY STOCK TRANSACTIONS On November 11, 1998, the Company received an unsolicited offer from a brokerage firm on behalf of an existing shareholder to sell 357,800 shares of the Company's stock (the "Shares") at $9/16 ($0.563). At that time, due to the timing of the proposed transaction, the Company did not participate in the proposed sale and the shares were acquired by the Company's Chairman and Controlling Stockholder. On November 23, 1998, the Company accepted the Controlling Stockholder's offer to sell the Shares to the Company at the price per share which the Controlling Stockholder paid. The Company's decision to purchase the Shares was based on the Company's conclusion that the purchase would enhance shareholder value. The Company's lender approved the purchase of the Shares. The Company also announced that it has no present intention to acquire additional shares of its stock. 7. EMPLOYEE BENEFIT PLAN The Company has a contributory 401(k) savings and investment plan for all employees who have obtained certain age and length of service requirements. Eligible employees may contribute up to 15% of their compensation to the plan, subject to any limitations imposed by federal income tax regulations. In addition, the Company matches 66% of the participants' contributions up to 6% of their compensation. Each employee controls the investment of funds credited to their respective account. Company contributions to this plan were $387,676, $410,000 and $476,051 during 1999, 1998 and 1997, respectively. 8. QUARTERLY FINANCIAL DATA (UNAUDITED)
----------------------------------------------------------------------------------------- 1999 1st 2nd 3rd 4th(a) Total(b) ----------------------------------------------------------------------------------------- Net sales $ 29,162,507 $ 46,086,969 $ 29,309,501 $ 23,918,546 $ 128,477,523 Gross profit 8,410,291 10,273,571 8,086,499 6,878,059 33,648,420 Net (loss) income (733,005) (758,759) 328,455 (468,276) (1,631,585) Net (loss) earnings per common share, basic and diluted $ (0.10) $ (0.10) $ 0.05 $ (0.06) $ (0.22) Weighted average common shares outstanding, basic and diluted 7,276,059 7,276,059 7,276,059 7,276,059 7,276,059
(a) During the fourth quarter of 1999, the Company reduced its general liability reserve by $325,863 to better reflect its recent actual claims experience. Additionally, the Company recorded $349,999 in store development costs during the fourth quarter of 1999 to eliminate kitchen displays in its stores. (b) The sum of the 1999 quarterly earnings (loss) per common shares amounts do not equal the fiscal 1999 loss per common share due to the effects of rounding.
----------------------------------------------------------------------------------------- 1998 1st 2nd 3rd 4th(a) Total(b) ----------------------------------------------------------------------------------------- Net sales $ 37,412,172 $ 56,334,029 $ 42,900,050 $ 35,954,163 $ 172,600,414 Gross profit 10,684,252 14,458,674 11,267,626 8,974,521 45,385,073 Net (loss) income (797,045) 885,394 (337,491) (2,050,309) (2,299,451) Net (loss) earnings per common share, basic and diluted $ (0.10) $ 0.12 $ (0.04) $ (0.27) $ (0.30) Weighted average common shares outstanding, basic and diluted 7,633,859 7,633,859 7,633,859 7,476,584 7,594,540
(a) Fourth quarter adjustments were not material to the quarterly results of operations. (b) The sum of the 1998 quarterly earnings (loss) per common shares amounts do not equal the fiscal 1998 loss per common share due to the effects of rounding. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS - --------------------------------- To the Stockholders and Board of Directors D.I.Y. Home Warehouse, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, stockholders' equity and of cash flows present fairly, in all material respects, the financial position of D.I.Y. Home Warehouse, Inc. at January 1, 2000 and January 2, 1999, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2000, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PricewaterhouseCoopers LLP Cleveland, Ohio February 16, 2000 11 11 SELECTED FINANCIAL DATA AND OPERATING HIGHLIGHTS D.I.Y. Home Warehouse, Inc. - ------------------------------------------------
Fiscal Year ---------------------------------------------------------------- (Amounts in thousands, except per share data) 1999 1998 1997(1) 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net sales $ 128,478 $ 172,600 $ 210,200 $ 212,068 $ 178,008 Cost of sales 94,830 127,215 152,625 156,612 128,672 - ---------------------------------------------------------------------------------------------------------------------------------- Gross profit 33,648 45,385 57,575 55,456 49,336 Store operating, general and administrative expenses 33,373 45,336 49,586 46,954 40,935 Store preopening costs -- -- -- -- 1,778 Store development and closing costs 2,082 2,143 1,436 -- -- Other expense, net 918 1,761 1,701 2,147 1,431 - ---------------------------------------------------------------------------------------------------------------------------------- (Loss) income before income tax (benefit) expense (2,725) (3,855) 4,852 6,355 5,192 Income tax (benefit) expense (1,093) (1,556) 1,980 2,570 2,082 - ---------------------------------------------------------------------------------------------------------------------------------- Net (loss) income $ (1,632) $ (2,299) $ 2,872 $ 3,785 $ 3,110 ================================================================================================================================== Net (loss) earnings per common share, basic and diluted $ (0.22) $ (0.30) $ 0.38 $ 0.50 $ 0.41 ================================================================================================================================== Weighted average common shares outstanding, basic and diluted 7,276 7,595 7,634 7,627 7,625 ==================================================================================================================================
(1) Fiscal year 1997 consisted of 53 weeks; all other years reported consisted of 52 weeks.
--------------------------------------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- SELECTED OPERATING DATA Number of stores open at end of period 11 14 16 16 16 Interior selling square footage at end of period 930,700 1,189,000 1,369,000 1,353,000 1,353,000 Comparable store sales increase (decrease) (13.2)% (17.9)% (2)% 7% (5)% Number of employees 702 1,009 1,254 1,334 1,325 --------------------------------------------------------------------- (Amounts in thousands) 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA (at period end) Working capital $ 20,048 $ 18,841 $ 23,851 $ 20,889 $ 23,297 Total assets 51,805 70,677 81,209 79,764 83,500 Notes payable and current maturities of long-term debt 189 1,588 1,546 1,698 1,452 Long-term debt, less current maturities 5,410 14,573 20,584 22,031 29,415 Stockholders' equity 36,007 37,639 40,140 37,254 33,439
12 EX-23.1 8 EXHIBIT 23.1 1 EXH 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement of D.I.Y. Home Warehouse, Inc. on Form S-8 (File No. 33-87020) of our report, dated February 16, 2000, on our audits of the Financial Statements of D.I.Y. Home Warehouse, Inc. as of January 1, 2000 and January 2, 1999 and for each of the three years in the period ended January 1, 2000, which report is included in Exhibit 13.1 of this Form 10-K. /s/ PricewaterhouseCoopers, LLP Cleveland, Ohio March 29, 2000 EX-27 9 EXHIBIT 27
5 1 USD YEAR JAN-01-2000 JAN-03-1999 JAN-01-2000 1 309,349 0 355,419 0 24,084,280 27,572,761 39,178,327 15,142,429 51,805,096 7,525,132 5,410,086 0 0 22,955,462 13,051,618 51,805,096 128,477,523 128,477,523 94,829,103 94,829,103 35,455,419 0 1,029,603 (2,725,287) (1,093,702) (1,631,585) 0 0 0 (1,613,585) (0.22) (0.22)
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