SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14d-9
(RULE 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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ODD JOB STORES, INC.
(Name of Subject Company)
ODD JOB STORES, INC
(Name of Person Filing Statement)
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class of Securities)
578792-10-3
(CUSIP Number of Class of Securities)
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STEVE FURNER
CHIEF EXECUTIVE OFFICER
200 HELEN STREET
SOUTH PLAINFIELD, NJ 07080
(908) 222-1000
(Name, address and telephone number of person authorized to receive notices
and communications on behalf of the person(s) filing statement)
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COPIES TO:
MARC H. MORGENSTERN CHARLES W. HARDIN, JR.
KAHN KLEINMAN, JONES DAY
A LEGAL PROFESSIONAL ASSOCIATION NORTH POINT
2600 ERIEVIEW TOWER 901 LAKESIDE AVENUE
1301 EAST 9TH STREET CLEVELAND, OHIO 44145
CLEVELAND, OHIO 44114-1824
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (this "SCHEDULE 14D-9") relates is Odd Job Stores,
Inc., a corporation formed under the laws of the State of Ohio (the "COMPANY").
The address of the principal executive offices of the Company is 200 Helen
Street, South Plainfield, NJ 07080. The telephone number of the principal
executive offices of the Company is (908) 222-1000.
The title of the class of securities to which this Schedule 14D-9 relates
is the common stock, no par value, of the Company ("COMMON SHARES"). As of May
31, 2003, there were 9,060,695 Common Shares outstanding and 1,104,800 Common
Shares issuable upon exercise of outstanding stock options of the Company.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
This Schedule 14D-9 is being filed by the subject company, Odd Job Stores,
Inc. The contact information for the Company is listed in Item 1 above.
This Schedule 14D-9 relates to the tender offer by Amazing Savings
Holdings, LLC, a Delaware limited liability company ("AMAZING SAVINGS"), through
a newly formed, wholly owned subsidiary to acquire not less than two-thirds or
more than 96% of the outstanding Common Shares at a purchase price of $3.00 per
share, net to the seller in cash (subject to reduction as discussed below, the
"OFFER PRICE"), upon the terms and subject to the conditions set forth in
Amazing Savings' Offer to Purchase, dated June 10, 2003 (the "OFFER TO
PURCHASE"), and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "OFFER"). If the
Offer is not completed by July 15, 2003, Amazing Savings has the right to reduce
the Offer Price to $2.90 per share. In addition, Amazing Savings has the right
to reduce the minimum number of Common Shares purchased to a majority of the
outstanding Common Shares. If Amazing Savings reduces either the Offer Price or
the number of Common Shares sought in the Offer or both, the Offer will remain
open for a minimum of ten business days following such reduction to allow for
adequate disclosure to shareholders. The Offer is more fully described in the
Schedule TO filed by Amazing Savings with the Securities and Exchange Commission
(the "SEC") on June 10, 2003 (the "SCHEDULE TO"). The Offer to Purchase and the
related Letter of Transmittal are being mailed to the Company's shareholders
(the "SHAREHOLDERS") with this Schedule 14D-9, filed as EXHIBITS (a)(1)(A) and
(a)(1)(B) to the Schedule TO and incorporated herein by reference. The Offer is
being made pursuant to the Tender Agreement dated as of June 3, 2003, by and
between Amazing Savings and the Company (as such agreement may be amended and
supplemented from time to time, (the "TENDER AGREEMENT"), which is described in
Item 3 below. A copy of the Tender Agreement is filed as EXHIBIT (d)(1) to the
Schedule TO and is incorporated herein by reference. The Schedule TO can be
found on the Company's website at www.oddjobstores.com or the website of the SEC
at www.sec.gov.
The address of the principal executive offices of Amazing Savings is 20
Industry Drive, P.O. Box 25, Mountainville, NY 10953. The telephone number of
the principal executive offices of the Company is (845) 534-1000.
All information contained in this Schedule 14D-9 or incorporated herein by
reference concerning Amazing Savings or its affiliates, or actions or events
with respect to any of them, was provided for inclusion herein by Amazing
Savings or obtained from reports or statements filed by Amazing Savings with the
SEC, including, without limitation, the Schedule TO, and the Company takes no
responsibility for such information.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are described below or in the Information Statement attached hereto as Annex A
(the "INFORMATION STATEMENT"). Except as set forth in the response to this Item
3, in the Information Statement or as incorporated by reference herein, to the
knowledge of the Company, there are no material agreements, arrangements or
understandings and no actual or potential conflicts of interest between the
Company or its affiliates and (i) the Company, its executive officers, directors
or affiliates, or (ii) Amazing Savings, or its executive officers, members or
affiliates.
MATERIAL AGREEMENTS
CONFIDENTIALITY AGREEMENT
The Company and Amazing Savings entered into a Confidentiality Agreement,
dated January 6, 2003 (the "CONFIDENTIALITY AGREEMENT"), in connection with the
consideration of a possible negotiated transaction regarding the acquisition by
Amazing Savings of the Company's outstanding capital stock, pursuant to which
Amazing Savings and its representatives agreed to keep confidential certain
information provided by the Company or its representatives. A summary of certain
material terms of the Confidentiality Agreement is incorporated herein by
reference to Section 11 of the Offer to Purchase. Such summary and description
do not purport to be complete and are qualified in their entirety by reference
to the Confidentiality Agreement, which is filed as EXHIBIT (d)(3) to the
Schedule TO and which is incorporated herein by reference.
TENDER AGREEMENT
Amazing Savings and the Company have entered into the Tender Agreement. A
summary of certain material terms of the Offer and the Tender Agreement is
incorporated herein by reference to the Introduction and Section 11 of the Offer
to Purchase. Such summary and description do not purport to be complete and are
qualified in their entirety by reference to the Tender Agreement, which is filed
as EXHIBIT (d)(1) to the Schedule TO and which is incorporated herein by
reference.
PRINCIPAL SHAREHOLDERS' AGREEMENT
ZS Mazel, L.P., ZS Mazel II, L.P., ZS Mazel, Inc. (collectively, "ZS") and
Mazel/D&K, Inc. ("Mazel/D&K" and together with ZS, the "PRINCIPAL SHAREHOLDERS")
are the two largest beneficial owners of Common Shares and together beneficially
own approximately 53% of the outstanding Common Shares. Messrs. Sherwood, Horne,
Dessler and Koval, who are partners or executive officers of the Principal
Shareholders, voted as members of the Company Board of Directors to approve the
Tender Agreement. The Principal Shareholders have entered into an agreement with
Amazing Savings (the "PRINCIPAL SHAREHOLDERS' AGREEMENT") pursuant to which they
agreed to tender their Common Shares in the Offer. A summary of certain material
terms of the Principal Shareholders' Agreement is incorporated herein by
reference to the Introduction and Section 11 of the Offer to Purchase. Such
summary and description do not purport to be complete and are qualified in their
entirety by reference to the Principal Shareholders' Agreement, which is filed
as EXHIBIT (d)(2) to the Schedule TO and which is incorporated herein by
reference.
POTENTIAL CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors set forth in
Item 4 below, the Company's shareholders should be aware that certain members of
its management and certain members of its Board of Directors have interests in
the Offer in addition to their interests as shareholders generally, which
interests are described herein and in the Information Statement attached hereto
and which may present them with certain conflicts of interest. The Board of
Directors is aware of these potential conflicts and considered them along with
other factors described in Item 4 below.
STOCK OPTIONS
The Tender Agreement provides that, on the Purchase Date (as defined in
the Tender Agreement), each outstanding stock option (an "OPTION") issued under
the Company's 1996 Stock Option Plan (the "OPTION PLAN") whether or not then
exercisable or vested, will, immediately prior to the Purchase Date, be
cancelled and, in consideration of such cancellation, the Company will pay to
the holder of each such Option an amount in cash equal to the product of (i) the
excess, if any, of the Offer Price over the exercise price of each such Option,
and (ii) the number of Common Shares subject to such Option (such payment, if
any, to be net of applicable withholding and excise taxes). The executive
officers and directors of the Company who hold Options will receive the cash
payments for their Options on the same terms and conditions as are applicable to
all other holders of Options. As of June 1, 2003, assuming the Offer Price
remains $3.00 per share, the directors and executive officers of the Company are
expected to receive an aggregate of $87,125 in exchange for their 80,000 Options
with exercise prices below the Offer Price.
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SEVERANCE PAYMENTS
Under the terms of the employment agreement of Steve Furner, the Chief
Executive Officer, he will receive a compensatory payment of $300,000 in the
event of a "change of control" occurring before December 31, 2004. The
completion of the Tender Offer would constitute a change of control.
The Company has change of control agreements with 25 management and
administrative personnel, including all executive officers other than Mr. Furner
(whose change of control severance is provided in his employment agreement),
that provide severance payments to each such person ranging from three (3) to
nine (9) months' salary in the event within the two years ending March 31, 2005,
their employment is terminated without "cause" or for "good reason" (each as
defined in the agreement).
INDEMNIFICATION AND INSURANCE
The Tender Agreement provides that, from and after the Purchase Date, the
Company, or any successor thereto, will indemnify, defend and hold harmless the
present and former officers and directors of the Company and the Company's
subsidiaries, and persons who become any of the foregoing prior to the Purchase
Date, against all losses, claims, damages, liabilities, costs, fees and expenses
(including reasonable fees and disbursements of counsel and judgments, fines,
losses, claims, liabilities and amounts paid in settlement, provided that any
such settlement is effected with the written consent of Amazing Savings, or any
successor thereto, which consent will not unreasonably be withheld) arising out
of actions or omissions occurring at or prior to the Purchase Date, to the full
extent permissible under applicable provisions of the law, the terms of the
Company's articles of incorporation or code of regulations. The Tender Agreement
also permits the Company to spend up to $450,000 to purchase directors' and
officers' liability insurance with respect to matters occurring before the
Purchase Date for any actions commenced within six years of the Purchase Date.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board, at a meeting held on May 27, 2003, determined that the
terms of the Offer are fair to and in the best interests of the Company's
shareholders. All members of the Board were present at this meeting, at which
the Board unanimously approved the Offer and the other transactions contemplated
by the Tender Agreement and approved the Tender Agreement. The Board of
Directors recommends that those shareholders accept the Offer and tender their
Shares in the Offer.
A letter to the Company's shareholders communicating the Board of
Directors' recommendation is filed as Exhibit (a)(1) hereto, and is incorporated
herein by reference.
BACKGROUND
The Company's Board has periodically explored and assessed strategic
options with the objective of enhancing shareholder value both by initiating
contacts with, as well as responding to outside inquiries from, third parties
regarding a strategic transaction. In 2000, the Company hired an investment
advisor for the purposes of: (i) advising the Company on strategic alternatives
for Business-to-Business Internet initiatives; and (ii) subsequently to evaluate
a potential transaction with a strategic buyer. In 2001, the same financial
advisor was engaged by a Special Committee of the Board to: (i) perform a
strategic review of the Company, (ii) contact potential strategic partners,
financial buyers, and equity investors; (iii) evaluate the fairness of possible
offers, if any; and (iv) make recommendations with respect to ongoing
operations. After contacting potentially interested parties, further analysis,
and some preliminary discussions about a potential investment in (or acquisition
of) the Company with a strategic buyer, the strategic buyer determined not to
pursue the discussions. From time to time subsequent to the review of its
strategic options in 2001 and up to the time it executed the Tender Agreement
with Amazing Savings, the Company had been approached by, or initiated contact
with, several outside parties who expressed (or who the Company believed had)
varying degrees of interest in acquiring the Company or a significant stock
position in the Company. Some of these discussions resulted in signing
confidentiality agreements and responding to due diligence requests. None of
these discussions, however, progressed to the submission of an offer.
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In February, 2002, the Company sold its wholesale division to a related
party, MZ Wholesale Acquisition Inc. ("MZ WHOLESALE"), of which Messrs. Dessler
and Koval (members of the Board and among the Principal Shareholders) are major
shareholders and officers.
On December 2, 2002, Mr. Robert Horne, a director of the Company and a
principal of ZS, called Mr. Jeffrey Parker, a director of the managing member of
Amazing Savings. Mr. Horne indicated that the Company had accepted the
resignation of its CEO, Mr. Peter Hayes, and would be announcing such
resignation on December 3, 2002. In conjunction with Mr. Hayes' resignation, the
Company had a need for senior retail management and had retained an executive
search firm to conduct a formal CEO search. Mr. Horne indicated to Mr. Parker
that Mr. Friedland, the founder and President of Amazing Savings, was a
well-respected senior closeout industry executive and that a combination of the
companies might be beneficial. Mr. Parker then met with Mr. Horne in New York on
December 3, 2002. At the meeting, Messrs. Parker and Horne discussed senior
management and the possibility of a business combination of Amazing Savings with
the Company. Amazing Savings was familiar with the Company both because Amazing
Savings operates retail closeout stores similar to those of the Company, as well
as because Amazing Savings purchases goods from MZ Wholesale and had purchased
goods from the Company prior to the 2002 divestiture of the Wholesale Division
by the Company.
On December 10, 2002, Messrs. Parker and Friedland met with Mr. Horne to
discuss the business operations of the Company. Subsequently on January 6, 2003,
Amazing Savings entered into a confidentiality agreement with the Company and
began its due diligence review of the Company shortly thereafter.
On January 6, 2003, representatives of Amazing Savings, including Mr.
Moshael Straus, the managing member of a voting member of Amazing Savings and
Mr. Parker, met with Mr. Horne and Ned Sherwood, a director of the Company, and
discussed their interest in purchasing a majority interest in the Company. A
second meeting of the parties was held on January 16, 2003. The representatives
of Amazing Savings indicated that the acquisition of all of the shares of the
Company by Amazing Savings could result in the Company's inability to operate 7
days per week because Amazing Savings is owned by individuals who, for religious
reasons, are not permitted to operate businesses they wholly own on Saturdays.
They expressed a potential interest in buying substantially all of the Company's
shares for cash, but indicated that it was a precondition to any offer from
Amazing Savings that the Company remain public after such purchase. Messrs.
Horne and Sherwood, as shareholders, indicated that they would be interested in
further exploring a transaction, but only at a significant premium to the then
trading price.
On January 21, 2003, Mr. Sherwood held discussions with a representative of
Peter J. Solomon Company, L.P. ("PJSC"), investment advisor to Amazing Savings,
about the status of Amazing Savings' interest.
On January 22, 2003, the Board held a regularly scheduled telephonic Board
meeting. Mr. Horne furnished a summary of discussions with potential strategic
buyers or the potential desirability of a major capital infusion into the
Company from a third party.
Between January 22 and March 3, 2003, the Company and Amazing Savings,
working with their respective legal advisors and Messrs. Horne and Sherwood,
held ongoing discussions about price and the minimum and maximum amount of stock
that Amazing Savings might have an interest in purchasing, as well as engaged in
continued due diligence.
During the week of February 17, 2003, Mr. Dessler met with representatives
of Amazing Savings to discuss Amazing Savings purchases of inventory from MZ
Wholesale. At that meeting, the parties also discussed the Company's business
operations but not price or the potential transaction.
On February 20, 2003, representatives of Amazing Savings met with senior
management of the Company to discuss business operations of the Company.
On March 4, 2003, representatives of PJSC met with representatives of the
Company. At that meeting it was indicated that, subject to the completion of its
due diligence to its satisfaction, Amazing Savings was interested in acquiring
substantially all of the shares of the Company for $3.50 per share. Messrs.
Horne and Sherwood indicated that as shareholders their view was that the offer
was inadequate but that they would communicate the offer to the Board. In
addition, in a separate discussion that week, Mr. Dessler, a member of the
Company's Board of Directors and Chief
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Executive Officer of MZ Wholesale, indicated that in his capacity as a
shareholder he would not be interested in a price of less than $4.00 per share.
The value and timing of the Company's federal income tax refund due in March,
2003 was discussed.
During the remainder of that week Amazing Savings and its representatives
continued to evaluate the financial condition of the Company and Mr. Horne
called a representative of PJSC. Mr. Horne indicated that, subject to the other
terms, an offer by Amazing Savings to acquire up to 95% of the shares of the
Company at $3.75 per share might be acceptable to the Company's Board. During
this discussion, it was noted that the written commitment of the Principal
Shareholders to follow the Board's recommendation was an essential condition to
any offer by Amazing Savings.
On March 10, 2003, Amazing Savings provided a draft term sheet for a
transaction to Mr. Horne. Discussions ensued with respect to possible
transaction structures; in particular, the fact that any acquisition would be
subject to shareholder approval under the provisions of the Ohio Control Share
Acquisition Act. The parties agreed that speed, confidentiality and certainty
were extremely important to minimize uncertainty among the Company's employees,
customers and suppliers.
The Company's CEO and CFO were provided the term sheet of March 10, 2003,
and met with a principal of Kahn Kleinman, L.P.A. ("KAHN KLEINMAN") the
Company's legal counsel, to review the term sheet on March 11, 2003.
On March 12, 2003, at a regularly scheduled Board meeting, the Board
reviewed the terms contained in the draft term sheet. The Board discussed
whether it was the right time to consider a sale of the Company, and, if so,
what the appropriate process was to consider such a sale. At this meeting, a
principal of Kahn Kleinman discussed the directors' duties in considering a sale
transaction. The Board reviewed two alternative budgets and financial plans for
the Company's fiscal year ending December 31, 2003, which were prepared by
management based on different growth and margin assumptions. The Board
considered the Company's projected sales, margin, comparable store increases,
prospects, and the adverse factors that would make any potential turnaround in
the near future difficult. The adverse factors affecting the Company were
reviewed, including the weak retail environment, the uncertainty of global
geopolitical risk (including a potential war with Iraq), and the uncertain state
of the capital markets. The Board discussed the disadvantages to the Company of
an extended transaction process with resultant uncertainty. A discussion ensued
with respect to the Company's history of cumulative losses, operating risks,
credit risk, and the trend to lower margin and rates of return on capital. The
Company reviewed preliminary operating and financial results that had been
achieved with Mr. Furner as its interim CEO since December 2, 2002, and the
Company's prospects for growth and profitability.
The Board determined that to appropriately consider an offer the Company
needed to retain an outside advisor to evaluate the fairness of any offer. The
Board discussed alternative sales exploration processes ranging from a full
auction process to a more selective process and negotiation only with
financially capable and motivated buyers. The Board concluded that because the
Company and its prior investment advisor had previously explored operating and
sales strategies in 2000 and 2001, and the possibility of transactions with
strategic partners, financial buyers, and an equity investor during the prior
two years, a full auction process was both unnecessary and potentially
detrimental to the Company. The Board was concerned about the adverse impact of
uncertainty that a widespread auction process could have on its employees,
vendors, lenders, and landlords. Because of the need for certainty in any
transaction, the Board concluded that the Company's objectives of
confidentiality and certainty could be met only if Amazing Savings executed a
definitive agreement that: (i) had no financial or other contingencies, other
than routine closing conditions, and (ii) contained a "fiduciary-out" provision
with an acceptable breakup fee. Such an approach would provide a "market check"
allowing any other party to make an offer during the period between the public
announcement of a definitive agreement and completion of the Offer.
On March 12, 2003, the Board also created a Special Committee of the Board,
with Mr. Horne as its chair, and including Messrs. Phil Carter, Mark Miller, and
Joe Nusim, which was authorized to conduct day-to-day negotiations with Amazing
Savings or any other potential buyers and to provide ongoing analysis to the
Board. The Board, however, retained the ultimate decision as to whether to
consummate a transaction. The Board determined to explore a possible transaction
with Amazing Savings, but without any commitment to a transaction unless an
acceptable price, terms, conditions, and agreement were obtained following an
appropriate process.
5
On March 12, 2003, following the Board Meeting, representatives of the
Company advised a representative of PJSC that the Company Board had authorized a
special committee to hold further discussions with Amazing Savings. Throughout
the remainder of March the parties continued to negotiate the terms of a
potential offer from revised term sheets, including the terms of the Principal
Shareholders Agreement .During these negotiations, the Principal Shareholders
indicated their willingness to enter into the Principal Shareholders Agreement
requiring that they would tender their shares and vote in favor of a transaction
with Amazing Savings, so long as any such transaction is recommended by the
Company Board.
On March 27, 2003, a telephonic meeting of the Special Committee was held.
At the meeting, Mr. Horne indicated that the Company's investment advisor who
had assisted the Company in 2000 and 2001 and in connection with the sale of the
Wholesale Division no longer employed the personnel who had advised the Company
about potential transactions and valuations. Accordingly, Mr. Horne recommended
that the Company retain Morgan Joseph because of Morgan Joseph's qualifications,
including its familiarity with the Company based on analysis and prior meetings
with the Company's senior management, Morgan Joseph's analysis and coverage of
the retail industry, its experienced investment bankers, and its rendering of
other fairness opinions in the last 24 months in other sale transactions. The
Special Committee considered this information and the scope and business terms
of a proposed engagement letter. After reviewing Morgan Joseph's qualifications,
the Special Committee authorized the retention of Morgan Joseph.
At the March 27, 2003 meeting, the Special Committee reviewed advantages
and disadvantages to, and timing of, a transaction, and reviewed the basis for
the request from Amazing Savings that the transaction be structured as a tender
offer. Mr. Horne reviewed the economic terms of the proposed Principal
Shareholders' Agreement. The Principal Shareholders' Agreement provided that the
Principal Shareholders would agree to tender their shares, and agree to vote in
favor of the Control Share Acquisition as shareholders, but: (i) if a superior
bid is received, the Board votes in favor of another offer, and a subsequent
transaction occurs with another buyer (within a time period to be negotiated and
agreed to prior to execution of a definitive agreement), then (ii) Amazing
Savings would receive from the Principal Shareholders 40% of the excess over
$3.75 per share that the Principal Shareholders receive in such a transaction.
Additional business issues were also reviewed. Mr. Horne was directed to respond
to Amazing Savings and to continue providing due diligence materials.
On April 1, 2003, at a specially scheduled Board meeting, the Board
ratified the Special Committee's engagement of Morgan Joseph as the investment
banker to assist the Company in evaluating the fairness of a proposed
transaction with Amazing Savings. Also at the meeting, a representative of Kahn
Kleinman counseled the Board on its fiduciary duties and other issues, including
issues relating to the Company's shareholders, other constituencies, issues
relating to the Ohio laws regulating change of control transactions and the
possibility of being delisted from the Nasdaq.
At the April 1, 2003 Board meeting, Mr. Horne, Chair of the Special
Committee, and certain of the Company's advisors, also reviewed the activities
and discussions that had occurred with Amazing Savings since March 12, 2003.
They presented a summary of the proposed transaction terms. The Board reviewed
the Company's continuous operating losses for the fiscal years ended February 3,
2001, February 2, 2002, and December 31, 2002, interim financial and operating
results and plans since Mr. Furner became interim CEO on December 2, 2002,
short-term and long-term prospects, and the Company's strategic alternatives,
which included: (i) remaining an independent public company, or (ii) approving
the Offer and selling substantially all of the Company's shares to Amazing
Savings for cash at a premium to the Company's trading price. The Board
determined that based on the Company's continuing operating losses, the
depressed retail environment, the uncertainty created by recent changes in the
Company's senior management and buyers, and the adverse impact of the war with
Iraq, that a cash transaction with Amazing Savings, at a premium to the
Company's trading price was the best strategic alternative to maximize
shareholder value given all factors. Morgan Joseph provided the Board with a
presentation and analysis of the financial terms of the proposed transaction and
its fairness to the Company's shareholders from a financial point of view. After
considering the factors involved, the Board discussed Amazing Savings' proposal
and approved the Special Committee's analysis of the business issues to be
negotiated, including the Company's need for financial certainty that a Offer
would be completed if initiated.
The Board's position on the open matters, which included, among other
items, assurances about Amazing Savings' financing, Amazing Savings request for
consultation and approval of certain business operations and capital
expenditures pre-closing, the circumstances under which a termination fee would
be paid, the termination date of the Agreement, and the Company's need for some
independent directors post-Closing was communicated to Amazing Savings on April
1, 2003, following the Board meeting.
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Between April 4 and April 10, 2003, Messrs. Friedland and Dessler held
phone conferences with respect to due diligence, open business issues (including
leases), the Company's credit agreement, and MIS and computer capacities. During
that period, representatives from Amazing Savings' MIS consultants met with
representatives from the Company at MZ Wholesale's Cleveland office to review
MIS/computer integration issues.
A meeting of the Special Committee was held on April 14, 2003, to review
the current drafts of the Tender Agreement and the Company's Proxy Statement, as
well as to discuss progress on the open issues. Mr. Horne reported on progress
with respect to certain open issues, but indicated that no agreement had yet
been achieved on the issues of financial assurances, the "walk-away" date, or
certain covenants by the Company regarding operation of its business
pre-closing. The Special Committee authorized Mr. Horne to make certain
proposals on the open issues.
On April 15, 2003, Mr. Horne reported to the Special Committee that certain
investors in Amazing Savings would post a letter of credit payable to Amazing
Savings to secure Amazing Savings' obligation to fund the purchase of shares
tendered in the Offer, that Amazing Savings had withdrawn its request for
certain pre-closing operational covenants and had proposed a walk-away deadline
of 100 days.
On April 18, 2003, the Special Committee met and voted to recommend the
Tender Agreement in its then-current form, as supplemented by the changes
discussed on April 15, 2003, to the Board of Directors provided that the
"walk-away" date was 130 days.
On April 21, 2003, at a specially scheduled Board meeting, Mr. Horne,
indicated that Amazing Savings had accepted the 130-day walk-away deadline. The
Special Committee therefore recommended the transaction to the Board. The Board
determined to continue the negotiations, but elected to defer final approval
until: (i) Amazing Savings had confirmed that its due diligence, which was
focused, in part, on a review of the Company's leases, was complete; (ii)
confirmation that the Company's lenders would agree that the consummation of the
Offer would not cause the Credit Facility to terminate or trigger the Company's
obligation to pay an early termination fee; and (iii) receipt of a favorable
fairness opinion from Morgan Joseph.
Copies of the current draft of the Tender Agreement were circulated to the
Board on April 24, 2003.
On April 29, based on Amazing Savings due diligence analysis of the various
operating costs and financial and operating risks relating to the Company's
ongoing operations, the purchase price upon which the ongoing discussions were
based was lowered to $3.70 per share and the maximum percentage of shares that
would be purchased by Amazing Savings was increased to 96% of the Shares.
On April 30, 2003, the Special Committee met to review the results of
Amazing Savings' ongoing due diligence, negotiations, and requested revised
terms to the transaction. Copies of Morgan Joseph's draft fairness opinion were
circulated to the directors on April 30, 2003.
On April 30, 2003, at a specially scheduled Board meeting, representatives
of Morgan Joseph provided the Board with an updated detailed presentation and
analysis of the revised financial terms of the proposed transaction. They
confirmed that the revised financial terms of the transaction were fair to the
Company's shareholders from a financial point of view. Mr. Horne summarized the
Special Committee's meeting and analysis, the results of Amazing Savings due
diligence, and the open business issues. After considering the factors involved
and Morgan Joseph's analysis, the Board discussed Amazing Savings' revised
proposal and approved the Special Committee's analysis of the remaining business
issues to be negotiated. After discussion, the Board approved the revised terms
of the Offer, subject to the satisfactory completion of definitive
documentation.
Between April 30, 2003, and May 13, 2003, Amazing Savings continued to
perform due diligence. Amazing Savings believed that it was important to have
the Company's credit facility in place following the closing and, with the
consent of the Company, negotiated the post-closing terms so that, among other
things, the transaction would not trigger a change in control termination in
this facility. Subsequently, on May 13, 2003, representatives of the Company
indicated to representatives of Amazing Savings that, post-closing, the Company
would violate certain financial covenant ratios of the credit facility that
Amazing Savings had negotiated for the Company to take effect upon closing
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of the Offer. Amazing Savings had negotiated these financial covenant ratios
based on certain assumptions about the Company's performance post-closing.
Between May 13 and 19, 2003, representatives of the Company and Amazing
Savings discussed projected operational performance of the Company post-closing.
Based on these discussions, Amazing Savings requested a reduction in the
purchase price to $3.40 per share. In addition, the parties discussed, but did
not agree upon, additional pre-closing operational covenants with respect to the
Company's business.
Amazing Savings indicated to the Company that it was concerned by what it
perceived to be a continuing deterioration of the business and operations of the
Company, and informed management of the Company that it would not be willing to
proceed with any acquisition of the Shares unless it would be able to quickly
consummate a transaction to acquire control of the Company. The parties
discussed a revised structure in which Amazing Savings would immediately acquire
the Principal Shareholders' Common Shares in a private purchase, to be followed
by a tender offer for the outstanding Common Shares to acquire up to 96% of all
Common Shares outstanding. However, it was determined that an immediate purchase
of a voting control of the Company by Amazing Savings was not possible in view
of the need to either obtain a shareholder vote to approve such purchase under
the Ohio Control Share Acquisition Act or to opt out of such statutes through a
shareholder consent procedure.
Between May 20 and May 23, 2003, the parties determined that a transaction
could be completed most expeditiously by having at least two-thirds of the
Company's shareholders, including the Principal Shareholders, act by written
consent to opt out of the Ohio Control Share Acquisition Act and by providing an
information statement to shareholders in connection therewith concurrently with
Amazing Savings' commencement of a tender offer. However, because of Amazing
Savings concern that the Company's business and operations would continue to
deteriorate following the signing of the Tender Agreement and before the tender
offer could be completed, representatives of Amazing Savings proposed a further
reduction in the purchase price to $2.40 per share.
On May 23, 2003, the Special Committee met to review the revised proposal
from Amazing Savings. Mr. Horne discussed with the other members of the Special
Committee how the Company's interim April and May, 2003, operating results
continued to deviate significantly from the budgets and financial plans
presented to the full Board at its March 12 meeting, which financial plans had
already reflected weak performance. Mr. Horne also discussed the covenant
compliance issues related to the Company's current credit facility, which could
result in non-compliance by the Company by the end of Summer, and the adverse
consequences thereof to the Company and its stakeholders, as well as the
probability of completing a transaction with Amazing Savings. Mr. Horne then
updated the Special Committee on the parties' discussions regarding the
advantage in timing and certainty that would occur for the Company and its
shareholders if its shareholders opted out of the Ohio Control Share Acquisition
Statute. He then presented the revised terms proposed by Amazing Savings as a
result of the unfavorable outcome of these discussions, including Amazing
Savings reduced offer of $2.40 per share and Amazing Savings' proposal to infuse
$10 million of subordinated debt into the Company pre-closing on favorable,
market terms to the Company. The Special Committee also discussed the
potentially negative consequences to the Company and all its stakeholders if a
transaction were not completed with Amazing Savings. The Special Committee
authorized Mr. Horne to negotiate a transaction at or near $3.00 per share.
On May 23, 2003, Mr. Horne communicated to the representative from PJSC
that the Company would be willing to proceed with a transaction at a price of
$3.00 per share that had a high degree of certainty of closing, i.e., that was
not conditioned upon Amazing Savings obtaining post-closing financing for the
Company and that had a sufficiently long enough walk-away date. On May 25, 2003,
the representative of PJSC told Mr. Horne that Amazing Savings would be willing
to proceed with a transaction at $3.00 per share if the transaction were to
close within 25 business days after Amazing Savings commenced the tender offer.
Alternatively, if the Company wanted a longer walk-away date of 90 calendar days
from signing the Tender Agreement, Amazing Savings would be willing to proceed
at $2.90 per share. The representative of PJSC expressed Amazing Savings' belief
that, because of the revised structure of the transaction to opt out of the Ohio
Control Share Acquisition Statute, the Offer could be completed more
expeditiously and that the longer 130 walk-away date was no longer appropriate
and that, in any event, Amazing Savings was no longer willing to wait that long
to complete the Offer.
From May 25 to May 27, 2003, Mr. Horne continued to negotiate the terms of
the offer with a representative from PJSC and they reached a tentative
agreement, subject to final documentation and authorization by both the Company
8
and Amazing Savings, and the written consent of the shareholders of the Company
that collectively hold a sufficient percentage of the Shares to opt out of the
Ohio Control Share Acquisition Statute. These terms were as follows: that
Amazing Savings would commence the Tender Offer at $3.00 per share, and that if
the Tender Offer were not closed within 25 business days after commencement
under certain circumstances, Amazing Savings would then have the right to reduce
the offer price to $2.90 per share and extend the Tender Offer for incremental
periods until August 31, 2003. On May 26, 2003, the representative of PJSC told
Mr. Horne that Amazing Savings had accepted the Company's proposal, subject to
negotiation of the final documentation. During these discussions, Amazing
Savings retracted its proposal to infuse $10 million of subordinated debt into
the Company.
On May 27, 2003, at a special meeting of the Company's Board, the Board
reviewed the status of negotiations with Amazing Savings. At this meeting, the
Company's legal counsel updated the Board on the changes negotiated to the
Tender Agreement since the previous meeting of the Board. In addition, legal
counsel advised the Board that the parties believed there was a substantial
probability the Offer could be completed within 25 business days after the
tender offer was commenced, but that there could be no assurances it would be
completed in such time to maintain the $3.00 per share price. Also at this
meeting, Morgan Joseph rendered to the Board its oral opinion (subsequently
confirmed by delivery of a written opinion dated May 27, 2003) to the effect
that, as of the date of such opinion and based on and subject to certain matters
stated in its opinion, the per share cash consideration to be received in the
Offer by the holders of Common Shares was fair, from a financial point of view,
to such holders. Finally, management of the Company discussed the deviation of
the operational results of the Company's business from the budgets and financial
plans that had been discussed with the Board at its March 12 meeting. After a
full discussion of the matters considered by the Board at the meeting, the Board
unanimously approved the Tender Agreement substantially in the form presented to
the Board, subject to negotiation of the final documentation by the Special
Committee, and determined to recommend to the Company's shareholders that they
accept the Offer and tender their Shares in the Offer.
Between May 27, 2003, and June 3, 2003, the written consent of the
Company's shareholders to opt out of the Ohio Control Share Acquisition Statute
was obtained, Amazing Savings finalized the documentation by which it would
obtain the financing to complete the tender offer, the Company and Amazing
Savings finalized the Tender Agreement and the Principal Shareholders and
Amazing Savings finalized the Principal Shareholders Agreement.
On June 3, 2003, the Company and Amazing Savings executed the Tender
Agreement and issued a joint press release announcing the transaction. Also on
June 3, 2003, Amazing Savings and the Principal Shareholders executed the
Principal Shareholders Agreement.
On June 10, 2003, Amazing Savings commenced the Offer.
REASONS FOR THE BOARD'S FAVORABLE RECOMMENDATION
In reaching its decision to make its recommendation that the Company's
shareholders tender their Shares to Amazing Savings, the Board considered a
number of factors, both positive and negative, including the following material
factors:
- the Board's familiarity with (and presentations by Morgan Joseph
regarding) the business, operations, properties and assets, financial
condition, competitive position, business strategy, and prospects of
the Company (as well as the risks involved in achieving those
prospects), including the continuous and cumulative operating losses
for the Company's fiscal years ended February 3, 2001, February 2,
2002, and December 31, 2002, the operating losses for the interim
period through May, 2003, the current depressed retail industry, and
current economic and market conditions, both on an historical and on an
on-going basis, all of which the Board believed indicated the Company
would likely perform better as part of a larger organization operated
by proven management with greater resources than the Company;
- the fact that the offer price of $3.00 per share for the Common Shares
tendered represents approximately a 36.4% premium over the $2.20 per
share closing price of the Common Shares on May 23, 2003, the last full
trading day prior to the date Morgan Joseph circulated its final
opinion to the Board, and that the $2.90 per share price represents
approximately a 31.8% premium;
9
- that if the Offer is not completed within 35 calendar days of
commencement, Amazing Savings is committed to proceeding with the
Offer, albeit at a reduced price, instead of being able to terminate
the Offer;
- the opinion of Morgan Joseph dated May 27, 2003 and attached to this
proxy statement as ANNEX B, that, as of such date, the consideration to
be received by the Company's shareholders pursuant to the Tender Offer
was fair from a financial point of view to the holder of the Company's
shares;
- that the Company will likely be in violation of certain covenants under
its credit facility by the end of Summer 2003, and there were no
assurances that the Company could cure these violations or otherwise
obtain financing on terms favorable to the Company, if at all;
- the judgment of the Company's Board's that the lack of liquidity and
small public float of the Company's Common Shares currently limits
institutional investor interest in the Company going forward and
negatively affects the market value of the Common Shares;
- the fact that the consideration offered to the Company's shareholders
for the tendered Common Shares is all cash, which provides certainty of
value to the Company's shareholders with respect to the tendered Common
Shares;
- the Board's belief that the financing and cash necessary for Amazing
Savings to complete the proposed transaction is substantially assured
due to the fact that Amazing Savings has obtained a letter of credit to
secure its investors' obligation to fund Amazing Savings, which funds
are contractually committed to fund the Tender Offer;
- that the Tender Agreement was agreed to by the Board only after a
lengthy and extensive review by the Board of the strategic alternatives
available to the Company, including the fact that the Company had been
contacted by several strategic investors and buyers regarding a
possible investment in or acquisition of the Company, but that no such
contacts had progressed as far as discussions had with Amazing Savings;
- the Board's judgment, in view of the Company's prospects, that it is
unlikely that one or more strategic or financial acquirers would be
willing to pay, at the present time, a price for substantially all of
the Company or its assets that would be as high as the consideration
offered to the Company's shareholders pursuant to the Tender Offer;
- the fact that, as a result of Amazing Savings' due diligence regarding
the Company during the negotiation of the Tender Agreement, and the
operational difficulties experienced by the Company during that time,
Amazing Savings had reduced the offer price from $3.75 to the current
$3.00, with the possibility of being further reduced to $2.90 per
share, and the Board's belief that the offer price could be reduced
even further or that Amazing Savings may decide against an acquisition
at any price if the Company experienced further difficulties;
- the provisions of the Tender Agreement that allow the Company (under
certain circumstances) to furnish information to, and conduct
negotiations with, a third party, and terminate the Tender Agreement in
connection with a superior proposal for a business combination or
acquisition of the Company upon payment of a termination fee to Amazing
Savings which represents 5% of the maximum purchase price to be paid in
the Tender Offer, plus expenses of up to $500,000, none of which the
Board believes would unreasonable discourage offers from third parties;
- the provisions of the Tender Agreement that require Amazing Savings,
following completion of the Offer until the first anniversary of the
Purchase Date, to use its reasonable best efforts to ensure that the
Company's Board post-closing contains at least two members who are not
officers or employees of, or otherwise affiliated with (other than as a
director), the Company or Amazing Savings; and until the third
anniversary of the Purchase Date, that at least one member of the
Company's Board be similarly unaffiliated with the Company and Amazing
Savings;
- the provisions of the Tender Agreement that prohibit Amazing Savings,
following completion of the Offer until the third anniversary of the
Purchase Date, from effecting any merger, consolidation or other
business
10
combination with the Company unless (i) such transaction is approved by
a special committee of the Company's Board consisting solely of
independent directors and (ii) the special committee shall have
received a favorable opinion from an investment banking firm as to the
fairness to the Company's shareholders, from a financial point of view,
of any such transaction;
- the alternatives available to the Company, including the range of
potential values of the Company, and the Board's perception that the
risk associated with consummating the Tender Offer for cash was lower
than the risks associated with achieving a competitive value through
the implementation of the Company's long-term strategy and remaining an
independent corporation that would be subject to significant
uncertainties and risks beyond the Company's control, including
negative general business and economic conditions, a consolidating and
highly competitive retail environment, and tight financing markets; and
- the benefits to the Company's additional constituents (principally its
work force, vendors and the local communities in which it operates)
from Amazing Savings' intent to maintain the Company's current
operations generally.
Each of the factors set forth above was believed by the Board to support
its decision to recommend acceptance of the Offer.
The Board also identified and considered the following potentially negative
factors in its deliberations:
- the fact that the offer price of $3.00 per share for the Common Shares
tendered represents approximately a 3.6% discount over the $3.11 per
share average closing price of the Common Shares for the 30-day period
ending May 23, 2003, the last full trading day prior to the date Morgan
Joseph circulated its final opinion to the Board;
- the fact that the offer price could be reduced to $2.90 per share if
the Offer is not completed within 35 calendar days of commencement,
which represents approximately a 6.8% discount to the 30-day average
prior to May 23, 2003;
- the possible disruption to the Company's business that may result from
the announcement of the transaction, including the resulting
distraction of management's attention from the day-to-day operations of
the Company's business and the effect of the transaction on the
willingness of the Company's lenders and vendors to continue to do
business with the Company;
- the restrictions contained in the Agreement limiting the operation of
the Company's business during the period between the signing of the
Agreement and the completion of the Tender Offer;
- the termination fee of 5% of the maximum purchase price to be paid in
the Tender Offer plus up to $500,000 of expenses to be paid to Amazing
Savings if the Agreement is terminated under circumstances specified in
the Agreement;
- the possibility that the Tender Offer might not be completed, which
could cause the Company's stock price to decline to its pre-Tender
Offer announcement level or lower levels;
- the possibility that the Tender Offer might not be completed, and the
cost of a failed transaction to the Company's operating results and
business relationships;
- the fact that even if the maximum 96% of the Company's stock is
purchased by Amazing Savings, then at least 4% (and potentially a
larger percentage) of the Company's Common Shares will remain
outstanding, the Company's shares will be de-listed from Nasdaq, and
Common Shares will trade only in the "pink sheets" (an illiquid and
inefficient market), and that Amazing Savings contemplates the
possibility of a subsequent merger of Amazing Savings into the Company
at an unspecified time and upon uncertain terms (which, for a period of
three years from the closing, will be subject to the approval of the
Company's then independent directors);
- the Company's ability to attract and retain key personnel could be
impaired due to the uncertainty involved with the proposed transaction
and employees' concerns regarding job security; and
11
- the gains, if any, arising from receipt of the cash paid in the Tender
Offer would be taxable to the Company's shareholders for United States
federal income tax purposes.
The foregoing discussion of the factors considered by the Board is not
intended to be exhaustive. In view of the variety of factors considered in
connection with its evaluation of the Tender Offer and the transaction
contemplated by the Tender Offer the Board did not find it practicable to
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination, but rather considered all such factors as a
whole. In addition, individual members of the Board may have given different
weights to different factors.
THE COMPANY'S BOARD HAS UNANIMOUSLY DETERMINED THAT THE TENDER AGREEMENT
WITH AMAZING SAVINGS IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S
SHAREHOLDERS AND BELIEVES THAT THE TENDER AGREEMENT AND THE OFFER REPRESENTS AN
OPPORTUNITY TO ENHANCE VALUE FOR THE COMPANY'S SHAREHOLDERS.
ACCORDINGLY, THE COMPANY'S BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER.
INTENT TO TENDER
To the Company's knowledge, after reasonable inquiry, with the exception of
the Principal Shareholders who are obligated to tender their Shares pursuant to
the Principal Shareholders Agreement, none of the other directors or executive
officers or affiliates or subsidiaries of the Company have currently made a
decision whether to tender their Shares into the Offer or to sell or retain
them. See "Principal Shareholders' Agreement" in Item 3 above.
ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
The Board retained Morgan Joseph to render an opinion as to whether the
consideration per share to be received in connection with the Offer by the
Shareholders is fair to them from a financial point of view.
The Board retained Morgan Joseph based upon Morgan Joseph's qualifications,
including its familiarity with the Company based on analysis and prior meetings
with the Company's senior management, Morgan Joseph's analysis and coverage of
the retail industry, its experienced investment bankers, and its rendering of
other fairness opinions in the prior 24 months in other sale transactions.
The Company has agreed to pay Morgan Joseph $225,000 for the fairness
opinion. The Company also has agreed to reimburse Morgan Joseph for its
reasonable out-of-pocket expenses, and to indemnify Morgan Joseph and related
persons against liabilities in connection it its engagement, including
liabilities under the federal securities laws. In the event the Company elects
to utilize Morgan Joseph in responding to inquiries from other third parties or
to review an offer from such third party, if any, the parties have agreed to
negotiate a reasonable compensatory arrangement prior to the performance of such
additional services.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any person to make a solicitation or
recommendation on its behalf to shareholders concerning the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
Except as otherwise set forth in this Schedule 14D-9, no transactions in
Common Shares have been effected during the past 60 days by the Company or any
subsidiary of the Company or, to the best of the Company's knowledge, by any
executive officer, director or affiliate of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in this Schedule 14D-9, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to (i) a tender offer for or other acquisition of the Common Shares by the
Company, any subsidiary of the Company or any other person; (ii) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (iii) a purchase, sale,
or transfer of a material
12
amount of assets of the Company or any subsidiary of the Company; or (iv) any
material change in the present dividend rate or policy, or indebtedness or
capitalization of the Company.
Except as set forth in this Schedule 14D-9, there are no transactions,
resolutions of the Board, agreements in principle, or signed contracts in
response to the Offer that relate to one or more of the events referred to in
the preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION.
CONTROL SHARE ACQUISITION STATUTE
Section 1701.831 of the Ohio Revised Code, the so-called Control Share
Acquisition Statute (the "CONTROL SHARE ACQUISITION STATUTE"), provides that any
control share acquisition of shares of an issuing public corporation, such as
the Company, shall be made only upon prior approval of both a majority of the
voting power and a majority of the voting power excluding the voting power of
"interested shares" (as defined in the Ohio Revised Code) represented (in person
or in proxy) at a special meeting held within fifty days from the date the
issuing public corporation first received an "acquiring person statement." An
acquiring person statement is a statement that is required to be delivered by
the person proposing to make a control share acquisition to the issuing public
corporation. The acquiring person statement must disclose the identity of the
acquiring person, the number of shares held by such person directly or
indirectly and a description of the terms of the proposed control share
acquisition.
At least two-thirds of the Company's shareholders, including the Principal
Shareholders, have acted by written consent to approve an amendment to the
Company's Code of Regulations to opt out of the Control Share Acquisition
Statute. This amendment to the Company's Code of Regulations will become
effective June 30, 2003.
In connection with this amendment, the Company has prepared and filed with
the SEC on June 10, 2003, an information statement as required by the Exchange
Act, which information statement is filed as Exhibit (e)(5) to this Schedule
14D-9 and has been mailed to the Company's shareholders along with this Schedule
14D-9. Investors should read carefully the information statement regarding the
amendment to the Company's Code of Regulations to opt out of the Control Share
Acquisition Statute.
BUSINESS COMBINATION LAW
The Ohio Business Combination Law prohibits certain business combinations
and other transactions (each, a "CHAPTER 1704 TRANSACTION"), between an issuing
public corporation (such as the Company) and any "INTERESTED SHAREHOLDER"
(defined generally as any person that, directly or indirectly, is entitled to
exercise or direct the exercise of 10% or more of the outstanding voting power
of a corporation in the election of directors) for a period of three years after
the date the person becomes an Interested Shareholder. After such three-year
period, a Chapter 1704 Transaction between an issuing public corporation and
such Interested Shareholder is prohibited unless either certain "fair price"
provisions are complied with or the Chapter 1704 Transaction is approved by
certain supermajority shareholder votes.
The Ohio Business Combination Law restrictions do not apply to a Chapter
1704 Transaction with an Interested Shareholder if either the acquisition of the
corporation's shares that would cause the Interested Shareholder to become an
Interested Shareholder, or the Chapter 1704 Transaction is approved by a
resolution of the board of directors of the corporation adopted prior to the
date on which the Interested Shareholder became an Interested Shareholder. In
accordance with the Ohio Business Combination Law, the Company's Board has
approved the Tender Agreement and Amazing Savings' acquisition of Common Share
pursuant to the Offer and, therefore, the restrictions of the Ohio Business
Combination Law are inapplicable to the Offer and the other transactions
contemplated by the Tender Agreement.
OHIO TENDER OFFER STATUTE
Sections 1707.01, 1707.041, and 1707.042 of the Ohio Revised Code
(collectively, the "OHIO TAKEOVER STATUES") regulate tender offers for any
equity security of a subject company from a resident of Ohio if, after the
purchase, the offeror would directly or indirectly be the beneficial owner of
more than 10% of any class of issued and outstanding
13
equity securities of such company (a "CONTROL BID"). A subject company includes
an issuer, such as the Company, that either has its principal place of business
or principal executive offices located in Ohio or owns or controls assets
located in Ohio that have a fair market value of at least $1.0 million, and that
has more than 10% of its beneficial or record equity security holders resident
in Ohio, or has more than 10% of its equity securities owned, beneficially or of
record, by residents of Ohio, or has 1,000 beneficial or record equity security
holders who are resident in Ohio. A subject company, however, need not be
incorporated in Ohio.
The Ohio takeover statutes prohibit an offeror from making a control bid
for securities of a subject company pursuant to a tender offer until the offeror
has filed specified information with the Ohio Division of Securities (the "OHIO
DIVISION"). In addition, the offeror is required to deliver a copy of such
information to the subject company not later than the offeror's filing with the
Ohio Division and to send or deliver such information and the material terms of
the proposed offer to all offerees in Ohio as soon as practicable after the
offeror's filing with the Ohio Division.
Within five calendar days of such filing, the Ohio Division may, by order,
summarily suspend the continuation of the control bid if it determines that the
offeror has not provided all of the specified information or that the control
bid materials provided to offerees do not provide full disclosure of all
material information concerning the control bid. If the Ohio Division summarily
suspends a control bid, it must schedule and hold a hearing within 10 calendar
days of the date on which the suspension is imposed and must make its
determination within three calendar days after the hearing has been completed
but no later than 14 calendar days after the date on which the suspension is
imposed. The Ohio Division may maintain its suspension of the continuation of
the control bid if, based upon the hearing, it determines that all of the
information required to be provided by the Ohio takeover statutes has not been
provided by the offeror, that the control bid materials provided to offerees do
not provide full disclosure of all material information concerning the control
bid, or that the control bid is in material violation of any provision of the
Ohio securities laws. If, after the hearing, the Ohio Division maintains the
suspension, the offeror has the right to correct the disclosure and other
deficiencies identified by the Ohio Division and to reinstitute the control bid
by filing new or amended information pursuant to the Ohio takeover statutes.
Amazing Savings has filed the information required under the Ohio takeover
statutes.
SECTION 14(f) INFORMATION STATEMENT
The Information Statement attached as Annex A hereto is being furnished in
connection with the designation by Amazing Savings, pursuant to the Tender
Agreement, of certain persons to be appointed to the Board other than at a
meeting of the Shareholders.
In addition, the information contained in the Exhibits referred to in Item
9 below is incorporated herein by reference.
ITEM 9. EXHIBITS.
The following Exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(a)(1) Letter to Shareholders, dated June 10, 2003.*
(a)(2) Opinion of Morgan Joseph, dated May 27, 2003 (included as Annex
B to this Schedule 14D-9).*
(a)(3) Joint Press Release issued by Amazing Savings and the Company on
June 10, 2003 (incorporated by reference to Exhibit (a)(1)(G) of
the Schedule TO).
(a)(4) Offer to Purchase, dated June 10, 2003 (incorporated by
reference to Exhibit (a)(1)(A) of the Schedule TO).
(a)(5) Letter of Transmittal accompanying the Tender Offer
(incorporated by reference to Exhibit (a)(1)(B) of the Schedule
TO).
(a)(6) Notice of Guaranteed Delivery (incorporated by reference to
Exhibit (a)(1)(C) of the Schedule TO).
(a)(7) Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees (incorporated by reference to Exhibit
(a)(1)(D) of the Schedule TO).
14
(a)(8) Letter to Clients for Use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees (incorporated by reference to
Exhibit (a)(1)(E) of the Schedule TO).
(a)(9) Summary Publication issued by Amazing Savings, dated June 10,
2003 (incorporated by reference to Exhibit (a)(1)(F) of the
Schedule TO).
(e)(1) Tender Agreement, dated as of June 3, 2003, among Amazing
Savings and the Company (incorporated by reference to Exhibit
(d)(1) of the Schedule TO).
(e)(2) Principal Shareholders' Agreement, dated as of June 3, 2003 by
and among Amazing Savings and each of the Shareholders that is a
party thereto (incorporated herein by reference to Exhibit
(d)(2) of the Schedule TO).
(e)(3) Confidentiality Agreement, dated as of January 6, 2003, among
the Company and Amazing Savings (incorporated herein by
reference to Exhibit (d)(3) of the Schedule TO).
(e)(4) The Information Statement of the Company, dated June 10, 2003
(included as Annex A to this Schedule 14D-9).*
(e)(5) The definitive information statement of the Company regarding
the shareholders opting out of the Ohio Control Share
Acquisition Statute, filed with the SEC on June 10, 2003.
----------------
* Included in the Schedule 14D-9 mailed to shareholders.
15
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Schedule 14D-9 is true, complete and
correct.
ODD JOB STORES, INC.
By: /s/ Steve Furner
----------------------------
Name: Steve Furner
Title: Chief Executive Officer
Dated: June 10, 2003
16
ANNEX A
Odd Job Stores, Inc.
200 Hellen Street
Plainfield, NJ 07080
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about June 10, 2003 as Annex A
of the Solicitation/Recommendation Statement on Schedule 14D-9 (the "SCHEDULE
14D-9") of Odd Job Stores, Inc., a corporation formed under the laws of the
State of Ohio, (the "COMPANY"). You are receiving this Information Statement in
connection with the possible election of persons designated by Amazing Savings,
Inc., a Delaware limited liability company ("AMAZING SAVINGS" or the
"PURCHASER") to a majority of all seats on the board of directors of the Company
(the "BOARD").
On June 3, 2003, the Company entered into a Tender Agreement (the "TENDER
AGREEMENT") with the Purchaser, pursuant to which the Purchaser is required to
commence a tender offer to purchase not less than two-thirds (the "MINIMUM
CONDITION") nor more than 96% (the "MAXIMUM AMOUNT") of the outstanding shares
(the "SHARES") of the common stock, no par value, of the Company (the "COMMON
STOCK"), at a price per Share of $3.00, net to the seller in cash (the "OFFER
PRICE"), upon the terms and conditions set forth in the Purchaser's Offer to
Purchase, dated June 10, 2003 (the "OFFER TO PURCHASE"), and in the related
Letter of Transmittal (which, together with any amendments and supplements
thereto, collectively constitute the "OFFER"). If the Offer is not completed by
July 15, 2003, the Company has the option, in its sole discretion, to cause
Amazing Savings to extend the Offer until September 1, 2003, in which case
Amazing Savings may reduce the Offer Price to $2.90. In addition, Amazing
Savings has the right to reduce the minimum number of Common Shares purchased to
a majority of the outstanding Common Shares. If Amazing Savings reduces either
the Offer Price or the number of Common Share sought in the Offer, Amazing
Savings will provide at least ten business days' notice of the reduction. The
Offer and the Tender Agreement are more fully described in the Schedule 14D-9,
which was filed by the Company with the Commission on June 10, 2003 and is being
mailed to shareholders of the Company along with this Information Statement.
Copies of the Offer to Purchase and the Letter of Transmittal have been mailed
to shareholders of the Company (the "SHAREHOLDERS") and are filed as EXHIBITS
(a)(1)(A) and (a)(1)(B), respectively, to the Tender Offer Statement on Schedule
TO (as amended from time to time, the "SCHEDULE TO") filed by the Company and
Amazing Savings with the Securities and Exchange Commission (the "COMMISSION")
on June 10, 2003.
This Information Statement is being mailed to you in accordance with Section
14(f) of the Securities Exchange Act and Rule 14f-l promulgated thereunder.
Information set forth herein related to the Purchaser or the Amazing Savings
Designees (as defined herein) has been provided by Amazing Savings. You are
urged to read this Information Statement carefully. You are not, however,
required to take any action in connection with the matters set forth herein.
Pursuant to the Tender Agreement, the Purchaser commenced the Offer on June 10,
2003. The Offer is currently scheduled to expire at 8:00 A.M., EDT, on July 9,
2003, unless the Purchaser extends it in accordance with the terms of the Tender
Agreement.
GENERAL
The Common Stock is the only class of equity securities of the Company
outstanding that is entitled to vote at a meeting of the Shareholders. Holders
of Common Stock are entitled to cast one vote per share on matters presented for
a vote at such meetings. As of May 31, 2003, there were 9,060,695 shares of
Common Stock outstanding, none of which were owned by the Purchaser.
RIGHTS TO DESIGNATE DIRECTORS AND AMAZING DESIGNEES
The Tender Agreement provides that, promptly upon the satisfaction of the
Minimum Condition (as defined below) and the acceptance for payment of, and
payment by the Purchaser for, any Shares pursuant to the Offer, Purchaser will
be
A-1
entitled to designate a majority of the members of the Board (the "AMAZING
SAVINGS DESIGNEES"). Upon the successful completion of the Offer, the majority
of the existing members of the Board of Directors will resign and the remaining
members will elect the Amazing Savings Designees to the Board of Directors.
Thereafter, the Amazing Savings Designees will constitute a majority of the
Board of Directors.
The Minimum Condition will be satisfied if there shall have been validly
tendered and not withdrawn prior to the expiration of the Offer that number of
Shares of Common Stock which would represent at least two-thirds of the
outstanding shares of Common Stock. If the number of Shares tendered exceeds the
Maximum Amount, the Purchaser will take up the tendered Shares on a pro rata
basis. Amazing Savings has the right to reduce the minimum number of Common
Shares purchased to a majority of the outstanding Common Shares, in which case
Amazing Savings will provide at least ten business days' notice of this
reduction.
NOTWITHSTANDING THE FOREGOING, IF SHARES ARE PURCHASED PURSUANT TO THE OFFER,
THE PURCHASER EXPECTS THAT THERE WILL CONTINUE TO BE AT LEAST TWO MEMBERS OF THE
BOARD WHO ARE NOT OFFICERS OF THE COMPANY OR REPRESENTATIVES OF ANY AFFILIATES
OF THE COMPANY AND WHO ARE NOT DIRECTORS, OFFICERS, EMPLOYEES OR AFFILIATES OF
THE PURCHASER.
Amazing Savings has indicated to the Company that it will select the Amazing
Savings Designees from among the persons listed in Section E to Schedule A of
the Schedule TO. The information in such Schedule A is incorporated herein by
reference. Schedule A also includes certain information with respect to such
persons, including their business address, present principal occupation or
employment and five-year employment history. Amazing Savings has informed the
Company that each of the persons listed in Schedule A has consented to serve as
a director of the Company if appointed or elected. None of the Amazing Savings
Designees currently is a director of, or holds any positions with, the Company.
The Purchaser has advised the Company that, as of the date hereof, to the best
of the Purchaser's knowledge, except as set forth below, none of the Amazing
Savings Designees or any of their affiliates beneficially owns any equity
securities or rights to acquire any such securities of the Company nor has any
such person been involved in any transaction with the Company or any of its
directors, executive officers or affiliates that is required to be disclosed
pursuant to the rules and regulations of the Commission other than with respect
to transactions between the Purchaser and the Company that have been described
in the Schedule TO or the Schedule 14D-9.
BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain current information with respect to the
beneficial ownership of the Common Shares as of May 31, 2003 with respect to
Directors and officers of the Company and 5% or greater shareholders. Unless
otherwise indicated below, the persons named below have the sole voting and
investment power with respect to the number of shares set forth opposite their
names. All information with respect to beneficial ownership has been furnished
by the respective Director, officer or 5% or greater shareholder, as the case
may be.
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Name and, where necessary, Number of Shares
Addresses of Beneficial Owners Beneficially Owned Percentage
- ------------------------------ ------------------ ----------
ZS Fund L.P.
54 Morris Lane, Scarsdale, NY 10583 2,731,783 (1) 30.1%
Ned L. Sherwood
54 Morris Lane, Scarsdale, NY 10583 2,746,783 (2) 30.3
Robert Horne
54 Morris Lane, Scarsdale, NY 10583 2,746,783 (2) 30.3
Mazel/D&K, Inc.
31000 Aurora Road, Solon, Ohio 44139 2,058,105 (3) 22.7
Reuven D. Dessler
31000 Aurora Road, Solon, Ohio 44139 1,560,755 (4) 17.2
Jacob Koval
31000 Aurora Road, Solon, Ohio 44139 800,697 (5) 8.8
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, Santa Monica, CA 90401 691,300 (6) 7.6
William Shenk
464 Prospect St., Boulevard, LaJolla, CA 92037 637,000 (7) 7.0
Westport Asset Management
253 Riverside Avenue, Westport, CT 06880 617,090 (6) 6.8
Steve Furner -0- ---
Philip Carter -0- ---
Edward Cornell 23,000 (8) **
Charles Bilezikian 18,000 (9) **
Mark Miller 9,000 (10) **
Joseph Nusim 3,000 (11) **
All Current Directors and Executive Officers of the Company (11 persons) 5,810,933 (12) 63.7%
- ------------------------------
** Less than One Percent (1%).
(1) The shares beneficially owned by ZS Fund L.P. include 1,978,530 shares held
by ZS Mazel L.P., 450,698 shares held by ZS Mazel II L.P., and 302,555
shares held by ZS Mazel, Inc. Messrs. Horne and Sherwood are officers of ZS
Fund L.P.
(2) Includes the shares beneficially owed by ZS Fund L.P. as officers and/or
equity owners of the entities holding such shares. Messrs. Sherwood and
Horne have voting power with respect to such shares, but disclaim
beneficial ownership except to the extent of their equity interests in the
entities. Also includes 15,000 shares each subject to options currently
exercisable or exercisable within 60 days hereof.
(3) Mazel/D&K, Inc. is a corporation owned by Messrs. Dessler and Koval and
members of their families. Messrs. Dessler and Koval are the directors and
officers of Mazel/D&K, Inc.
(4) Includes 1,372,304 shares owned by Mazel/D&K, Inc. for the benefit of Mr.
Dessler and family members.
(5) Includes 685,801 shares owned by Mazel/D&K, Inc. for the benefit of Mr.
Koval and family members.
(6) Based on Schedule 13Gs filed with the SEC in February 2003.
(7) Includes 6,000 shares subject to options currently exercisable or
exercisable within 60 days hereof. National City Corp. is the shareholder
of record of Mr. Shenk's shares.
(8) Includes 20,000 shares subject to options currently exercisable or
exercisable within 60 days of the Record Date.
(9) Includes 15,000 shares subject to options currently exercisable or
exercisable within 60 days of the Record Date.
(10) Includes 9,000 shares subject to options currently exercisable or
exercisable within 60 days of the Record Date.
(11) Includes 3,000 shares subject to options currently exercisable or
exercisable within 60 days of the Record Date.
(12) Includes 73,000 shares subject to options currently exercisable or
exercisable within 60 days of the Record Date.
A-3
BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board. The
number of Directors is currently fixed at ten. The Company's Amended and
Restated Code of Regulations divides the Board into three classes of three or
four Directors each. The Directors serve staggered terms of three years, with
the members of one class being elected each year.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
Steve Furner, 54, has served as a member of the Board since June 2002. In March
2003, Mr. Furner was named Chief Executive Officer of the Company after holding
the position on an interim basis since December 2002. Since 1998, Mr. Furner has
been Vice President of Alliance Consulting, specializing in strategic
initiatives and operating programs for retail companies. From 1977 to 1998 he
served as President and Chief Operating Officer of Wal-Mart Argentina.
Edward Cornell, 54, has been Executive Vice President and Chief Financial
Officer of the Company since October 2001 having served since June 2001 as
interim Chief Financial Officer. From February 1992 until joining the Company,
he served as Executive Vice President and CFO as well as Executive Vice
President, Non-Retail for Office Max, Inc.
Charles Bilezikian, 65, has been the President of Christmas Tree Shops, Inc., a
specialty New England retailer, since its formation in 1971. He has served as a
Director since January 1997.
Philip Carter, 55, has been a member of the Board since December 2002. From 1998
to 2002, Mr. Carter served as Chief Executive Officer of Apria Healthcare and
has recently accepted the position of President and Chief Executive Officer of
Rotech Healthcare. From 1995 to 1998 he was President and Chief Executive
Officer of MacFrugal's Bargain Close-out's, Inc., a specialty retailer.
Reuven Dessler, 54, is Chief Executive Officer of MZ Wholesale Acquisition, LLC
d/b/a Mazel Company, which purchased the Company's Wholesale Division in
February 2002. Mr. Dessler served as Chairman of the Board from November 1996 to
February 2002 and as its Chief Executive Officer from November 1996 to May 2001.
He has served as a Director since November 1996.
Robert Horne, 43, has been a principal of ZS Fund L.P., a Company engaged in
making private investments, for more than five years. He has served as a
Director since November 1996.
Jacob Koval, 54, is Chief Operating Officer of MZ Wholesale Acquisition, LLC
d/b/a Mazel Company, which purchased the Company's Wholesale Division in
February 2002. Mr. Koval served as Executive Vice President -- Wholesale of the
Company from November 1996 to May 2001. He has served as a Director since
November 1996.
Mark Miller, 49, has been the Executive Vice President of RedTagBiz.com, since
2000. Previously, Mr. Miller was Executive Vice President and Chief Operating
Officer for the Home Products Division of Value City Department Stores from July
1999 to July 2000, and President of the Closeout Division of Consolidated Stores
from the 1998 acquisition of MacFrugal's Bargain Close-out's, Inc. through March
1999. Mr. Miller was MacFrugal's Executive Vice President of Merchandise and
Stores from 1995 until the acquisition by Consolidated Stores. He has served as
a Director since November 1999.
Joseph Nusim, 68, has been President of the Nusim Group, a retail consulting
company, since 1995. Mr. Nusim has been Co-Chairman of the Board for Woodworkers
Warehouse Stores since October 2001 and Co-Chairman of the Board for Loehmann's
Stores since October 2000. Mr. Nusim served as Acting Chief Executive Officer of
Frankel's Home Furnishings, Inc. from 1998 to 1999 and Rickel Home Centers from
1997 to 1998. Mr. Nusim had been Chairman, President and Chief Executive Officer
of Channel Home Centers from 1990 to 1995. He has served as a Director since
February 2002.
A-4
William A. Shenk, 59, has been a private investor for over five years. Prior
thereto, Mr. Shenk served as an attorney in Columbus and Atlanta, and previously
as Vice President and General Counsel for Consolidated Stores. He has served as
a Director since January 2001.
Ned L. Sherwood, 52, has been a principal and President of ZS Fund L.P. for more
than five years. Mr. Sherwood is currently a member of the board of directors of
Kaye Group, Inc. He has served as a Director since November 1996.
DIRECTOR COMPENSATION
The Company pays each outside Director an annual fee of $15,000, payable
quarterly in payments of $3,750, anticipating that each Director will attend
four meetings of the Board. In addition, each outside Director receives $1,500
per meeting for each meeting attended after the four quarterly meetings. No
additional compensation is paid for committee meetings held on the same day as a
Board Meeting. Officers of the Company who are also Directors will receive no
additional compensation for serving as Directors. Outside Directors also
received a grant of 15,000 options upon their initial election to the Board.
MEETINGS OF THE BOARD IN 2002
The Board held seven meetings in fiscal 2002. All of the current Directors
attended at least 75% of the Board and applicable committee meetings held during
fiscal 2002. In addition to holding regular Board and committee meetings, the
Board members also reviewed and considered matters and documents and
communicated with each other wholly apart from the meetings. Various actions
were taken by unanimous written consent.
COMMITTEES OF THE BOARD
The Board has established two standing committees: an Audit Committee and
Compensation Committee. The Board does not have a nominating committee.
Audit Committee. Members of the Audit Committee in fiscal 2002 consisted of
Messrs. Joseph Nusim, Charles Bilezikian and Mark Miller. During fiscal 2002,
the Committee held two meetings. The Committee operates pursuant to a written
charter (a copy of which was attached as Appendix A to the 2001 Proxy Statement
filed on July 31, 2001), and is responsible for monitoring and overseeing the
Company's internal controls and financial reporting processes, as well as the
independent audit of the Company's consolidated financial statements by the
Company's independent auditors, KPMG LLP. Each committee member is an
"Independent Director" as defined in Rule 4200(a)(15) of the National
Association of Securities Dealers' listing standards.
Compensation Committee. The Compensation Committee has the authority to: (i)
administer the Company's stock option plan; (ii) review and monitor key employee
compensation and benefits policies; and (iii) administer the Company's
management compensation plans. Members of the Compensation Committee in fiscal
2002 consisted of Messrs. Horne, Bilezikian, Miller and Shenk. The committee
held two meetings during fiscal 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Act of 1934 requires the Company's Directors,
executive officers and persons who own 10% or more of the Shares to file reports
of ownership and changes of ownership with the Securities and Exchange
Commission and the Company. Based upon a review of these filings and written
representations from such individuals, the Company understands that all such
filers have adhered to all applicable filing requirements.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation earned during the eleven months' fiscal year ended December 31,
2002 and the fiscal years ended, February 2, 2002 and February 3, 2001,
respectively, by the Chief Executive Officer and certain other named executive
officers of the Company.
A-5
Summary Compensation Table
--------------------------
Name and Fiscal Option All Other
Principal Position Year Salary Bonus Awards Compensation
------------------ ---- ------ ----- ------ ------------
Steven Furner 2002 $ --- $ --- $ --- $ 45,500 (1)
Chief Executive Officer
Edward Cornell 2002 252,083 --- --- 3,912
Executive Vice President 2001 191,154 41,250 100,000 ---
Chief Financial Officer
Peter J. Hayes 2002 489,850 --- --- 2,393
Former Chief Executive Officer 2001 412,500 --- 500,000 1,263
Brady Churches 2002 27,269 --- --- 500,000 (2)
Former President 2001 550,557 --- --- 7,661
2000 441,252 --- 22,000 1,703
Jerry Sommers 2002 91,391 (2) --- --- 728,346 (2)
Former Executive Vice President 2001 399,398 --- --- 2,108
- - Retail 2000 327,950 --- 23,000 904
(1) Includes compensation for consulting fees paid to Alliance Consulting Inc.
and fees paid as Director compensation.
(2) Includes severance payments described below.
Steven Furner entered into an at-will employment agreement, as Chief Executive
Officer, with the Company effective March 17, 2003 providing him an annual base
salary of $500,000. Mr. Furner is entitled to receive an annual bonus of up to
$250,000 per year, subject to the Company achieving predetermined annual
performance targets. Mr. Furner is also entitled to receive $300,000 additional
compensation in the event of a 'change of control' event as defined in the
employment agreement. In the event of his termination of employment, Mr. Furner
is precluded from working for the Company's competitors for a period of twelve
months. Prior to entering into his employment agreement, Mr. Furner served as
interim Chief Executive Officer, and compensation was paid to his consulting
company.
The Company has entered into an agreement with Mr. Cornell, its Chief Financial
Officer, that provides for payment of six months severance in the event of a
'change in control' or consolidation of management and administrative functions
in which, in either case, he is not offered a position similar to his current
position.
STOCK OPTION GRANTS IN FISCAL 2002
The Company granted no stock options to its executive officers during the eleven
months ended December 31, 2002; however options for 15,000 shares of Common
Stock were granted to Messrs. Carter, Furner and Nusim when they joined the
Board during 2002.
AGGREGATED OPTION EXERCISES IN FISCAL 2002 AND FISCAL YEAR-END OPTION VALUES
The following table summarizes the fiscal year-end value of unexercised options
for each of the executive officers identified in the Summary Compensation Table.
No options were exercised by any executive officer in fiscal 2002.
A-6
VALUE OF UNEXERCISABLE UNDERLYING NUMBER OF SECURITIES IN-THE-MONEY OPTION AT
UNEXERCISED OPTIONS AT DECEMBER 31, 2002 ($) DECEMBER 31, 2002 (#) (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Steve Furner $ -- $ 15,000 0 0
Peter Hayes 100,000 400,000 0 0
Edward Cornell 20,000 80,000 2,300 9,200
Brady Churches -- -- 0 0
Jerry Sommers -- -- 0 0
(1) The closing price of Odd Job Stores, Inc. Common Stock on December 31,
2002, was $1.90 per share.
CHANGE IN CONTROL AND SEVERANCE ARRANGEMENTS
Under Peter J. Hayes' employment agreement, dated May 7, 2001, he was entitled
to receive one year's salary, $559,350.48, upon his termination of employment in
December 2002. Payment was made in January 2003 and, accordingly, the payment is
not included in the Compensation Table shown above.
The Company and Brady Churches, former President of Mazel Stores, Inc., entered
into a severance agreement dated June 10, 2002 terminating his February 2000
employment agreement. Under this Agreement, Mr. Churches received a cash payment
of $500,000. The parties executed mutual releases and Mr. Churches'
non-competition restriction has expired.
The Company and Jerry D. Sommers, former Executive Vice President - Retail,
entered into a severance agreement dated May 3, 2002 terminating his February
2000 employment agreement. Under this Agreement, Mr. Sommers received a cash
payment of $728,000, and effected a sale to the Company of 100,000 shares of
Common Stock at $3.50 per share. The parties executed mutual releases and, in
general, Mr. Sommer's noncompetition restriction has expired.
The Company has change of control agreements with 25 management and
administrative personnel, including all executive officers other than Mr. Furner
(whose change of control severance is provided in his employment agreement),
that provide severance payments to each such person ranging from three (3) to
nine (9) months' salary in the event within the two years ending March 31, 2005,
their employment is terminated without "cause" or for "good reason" (each as
defined in the agreement).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the individuals who served as members of the Compensation Committee in
2002 was or has been an officer or employee of the Company or engaged in
transactions with the Company (other than in his capacity as director). None of
the Company's executive officers serves as a director or member of the
compensation committee of another entity, one of whose executive officers serves
as a member of the Compensation Committee or a director of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board is generally responsible for determining
the nature and amount of compensation for executive officers. The Compensation
Committee met twice during the eleven months ended December 31, 2002.
The Company's compensation philosophy ties a significant portion of executive
compensation to the Company's success in meeting specified profit growth and
performance goals and to appreciation in the Company's stock price. The
Company's compensation objectives include attracting and retaining the best
possible executive talent, motivating executive officers to achieve the
Company's performance objectives, rewarding individual performance and
contributions, and linking executive and shareholder interests through
equity-based plans.
A-7
The Company's executive compensation consists of three key components: base
salary, annual bonus and stock options and restricted stock awards, each of
which is intended to complement the others and, taken together, to satisfy the
Company's compensation objectives.
Base Salary: The salary for Mr. Hayes was negotiated at the time of his hire in
2001 and included in his contract, giving consideration to the salaries of chief
executive officers of other similar size retailers. The 2003 salary for Mr.
Furner was similarly negotiated at arms-length. The salaries for the other
executive officers were determined by the Compensation Committee also giving
consideration to salaries of officers at other retailers.
Annual Bonus: The Company had established a management incentive plan that based
its executives' annual bonuses on specified profit growth and performance goals.
The corporate target goals for fiscal 2002 were not met, therefore the
Compensation Committee elected not to pay executive bonuses for the year. The
2003 bonus program is again based on a corporate target, but contains elements
that would pay a portion of the bonus based solely on achievement of individual
goals.
Stock-Related Compensation: The Compensation Committee believes that
equity-based compensation ensures that the Company's executives have a
continuing stake in the long-term success of the Company. Stock option awards
contain vesting provisions that ensure the executives have a financial incentive
to remain with the Company during the vesting period and beyond. In determining
the size of option awards, the Committee looks at several measurements,
including the value of options awarded to individuals in comparable position in
peer group companies, individual and Company performance against plan, the
number of shares and options currently held by the officer and the relative
proportion of long-term incentives within the total compensation mix.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 11, 2002, the Company sold to MZ Wholesale Acquisition, LLC d/b/a
Mazel Company ("MZ WHOLESALE"), an enterprise involving Reuven Dessler, former
Chairman and Chief Executive Officer, and Jacob Koval, former Executive Vice
President, of the Company, the assets of its Wholesale Division and certain
other assets, including the notes receivable from Messrs. Dessler and Koval
valued (together with accrued interest at fiscal 2001 fiscal year end) at
$1,147,136 and $808,586, respectively. Under the sale agreement, Company
received cash payments to date totaling $26,218,000 based on the book value of
the acquired assets and assumed liabilities. There are approximately $300,000 in
closing date balance sheet adjustments in dispute, which the parties expect to
resolve through arbitration in accordance with the provisions of the sales
agreement. The arbitration action is also expected to resolve a dispute among
the parties over the contractual rights and obligations retained by the Company
under a third party license agreement transferred to MZ Wholesale in connection
with the sale of the wholesale division. Under the terms of the sale agreement,
the Company has agreed not to compete in the wholesale sale of closeout
merchandise, subject to certain limitations, for a period expiring on the
earlier of (i) the three-year anniversary of the sale or (ii) the sale of a
majority of the Company's stock or assets to a third-party (the "Restricted
Period"). In the event the Company purchases closeout merchandise in quantities
exceeding those required by its retail operations, during the Restricted Period,
it has the right to put up to $3.5 million of such merchandise annually to a
joint venture (equally owned by MZ Wholesale and Company and managed by MZ
Wholesale). The put option was not utilized in 2002. Under the sale agreement,
Company has assigned the "Mazel" name to MZ Wholesale, but may continue the use
of the name on its retail stores for up to five (5) years. Messrs. Dessler,
Koval and Jay L. Schottenstein ("MZ Related Parties") and ZS Fund LP., the
Company's largest beneficial shareholder, have entered into a Standstill
Agreement pursuant to which: (i) the MZ Related Parties have agreed not to
purchase additional shares of Common Stock that would cause their aggregate
ownership to exceed thirty-three percent (33%) of the outstanding shares of
Company without the consent of ZS Fund and a majority of the disinterested
directors of Company; and (ii) ZS Fund has agreed not to purchase additional
shares of Common Stock that would cause its aggregate ownership to exceed
thirty-six percent (36%) of the Company's outstanding shares without the consent
of MZ Wholesale's affiliates and a majority of the disinterested directors of
Company. The parties entered into an interim services agreement with respect to
certain transitional services, shared personnel and facilities which runs
through August 2003. During fiscal 2002, the Company paid $114,000 under this
agreement. Finally, as part of the sale, the Company, Messrs. Dessler and Koval,
each of whom remain Directors, executed mutual releases resolving various
compensation and other claims of the parties.
A-8
During fiscal 2002, the Company purchased approximately $4,241,000 in
merchandise from MZ Wholesale Acquisition LLC. Through June 9, 2003, the Company
purchased approximately $1,302,000 in merchandise from MZ Wholesale Acquisition
LLC and paid approximately an additional $153,000 for other related expenses.
The Company's warehouse in South Plainfield, New Jersey is leased from a limited
liability company in which Messrs. Dessler and Koval own approximately 34% and
10% membership interests, respectively. Neither Mr. Dessler nor Mr. Koval is
involved in the management of the lessor, and the Company believes the terms are
no less favorable than could be obtained from unrelated parties.
A-9
MORGAN
JOSEPH
May 27, 2003
Board of Directors
Odd Job Stores, Inc.
200 Helen Street
South Plainfield, NJ 07080
Gentlemen:
We understand that Amazing Savings Holding LLC ("ASH") proposes to
purchase not less than two-thirds (the "Minimum Condition") nor more than 96%
(the "Maximum Amount") of the outstanding shares of common stock (the "Common
Stock") of Odd Jobs Stores, Inc. (the "Company") in an all cash tender offer
transaction (the "Proposed Transaction") for $3.00 per share if completed within
35 days of the commencement of the tender offer or $2.90 if completed within 36
to 90 days of the commencement of the tender offer (the "Offer Consideration).
We also understand that the remaining outstanding shares, not acquired through
the Proposed Transaction, will remain outstanding and will trade in the public
market. The terms and conditions of the Proposed Transaction are set forth in
more detail in a preliminary tender agreement (the "Tender Agreement") dated May
26, 2003.
We understand that the Company is an Ohio Corporation and as such, the
holders of more than two-thirds of the outstanding shares of the Company have
elected to opt out of the Control Share Acquisition Statute set forth in Section
1701.831 of the General Corporation Law of Ohio. No further action by the
shareholders is required in as much as the amendment has been approved, without
a meeting, by the holders of 67.6% of the outstanding shares. We further
understand that opting out of the Control Share Acquisition Statute is a
condition to ASH's obligation to purchase the Company's common shares pursuant
to the Tender Agreement.
You have requested our opinion, as investment bankers, as to the
fairness, from a financial point of view, to the holders of the Common Stock, of
the Offer Consideration. We will receive a fee for our services upon the
rendering of this opinion that is not contingent on the opinion conclusion or
the consummation of the Proposed Transaction.
In conducting our analysis and arriving at our opinion as expressed
herein, we have reviewed and analyzed, among other things, the following:
(i) the May 26, 2003 draft of the Tender Agreement between the
Company and ASH;
(ii) the Company's Annual Reports on Form 10-K for each of the
fiscal years in the three year period ended December 31, 2002, February 2, 2002
and
Odd Job Stores, inc. MORGAN
May 27, 2003 JOSEPH
Page 2
February 3, 2001 and the Company's Quarterly Reports on Form l0-Q for the three
month periods ended March 31, 2003, November 2, 2002, August 3, 2002, and May 4,
2002;
(iii) certain other publicly available information concerning the
Company and the trading market for the Common Stock;
(iv) certain internal information, including unaudited monthly
financial statements and other data relating to the Company, its business and
prospects, including 2003 management budgets and financial plans, provided to us
by management of the Company;
(v) certain publicly available information concerning certain
other companies engaged in businesses which we believe to be generally
comparable to the Company and the trading markets for certain of such other
companies' securities; and
(vi) the financial terms of certain recent business combinations
which we believe to be relevant.
We have also met with certain officers and employees of the Company concerning
its business and operations, assets, present condition and prospects and
undertook such other studies, analyses and investigations as we deemed
appropriate. In connection with our engagement, we reviewed details of
discussions between the Company and third parties regarding their interest in a
possible acquisition or investment in the Company prior to the date hereof. We
were not authorized to and we did not solicit alternatives to the Proposed
Transaction.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us and
have not attempted independently to verify such information, nor do we assume
any responsibility to do so. We have assumed that the Company's forecasts and
projections provided to or reviewed by us have been reasonably prepared based on
the best current estimates and judgment of the Company's management as to the
future financial condition and results of operations of the Company. We have not
conducted a physical inspection of the properties and facilities of the Company,
nor have we made or obtained any independent evaluation or appraisal of the
assets or liabilities of the Company. We have also taken into account our
assessment of general economic, market and financial conditions and our
experience in similar transactions, as well as our experience in securities
valuation in general. Our opinion necessarily is based upon economic, market,
financial and other conditions as they exist and can be evaluated on the date
hereof and we assume no responsibility to update or revise our opinion based
upon events or circumstances occurring after the date hereof. We reserve,
however, the right to withdraw, revise or modify our opinion based upon
additional information
2
Odd Job Stores, Inc. MORGAN
May 27, 2003 JOSEPH
Page 3
which may be provided to or obtained by us, which suggests, in our judgment, a
material change in the assumptions upon which our opinion is based.
This letter and the opinion expressed herein are for the use of the
Board of Directors of the Company. This opinion does not address the Company's
underlying business decision to approve the Proposed Transaction or constitute a
recommendation to the shareholders of the Company as to whether or not they
should tender shares pursuant to the Proposed Transaction or how such
shareholders should vote or as to any other action such shareholders should take
regarding the Proposed Transaction. This opinion may not be reproduced,
summarized, excerpted from or otherwise publicly referred to or disclosed in any
manner without our prior written consent, except the Company may include this
opinion in its entirety in any filing by the Company with the Securities and
Exchange Commission or in any materials distributed to its shareholders in
connection with the Proposed Transaction.
Based upon and subject to the foregoing, it is our opinion as
investment bankers that, as of the date hereof, the Offer Consideration to be
received by the holders of the Common Stock in the Proposed Transaction is fair,
from a financial point of view, to such holders.
Very truly yours,
Morgan Joseph & Co. Inc.
By: /s/ Morgan Joseph & Co. Inc.
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Morgan Joseph & Co. Inc.
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