<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
HOUSE OF FABRICS, INC
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARVIN S. MALTZMAN
HOUSE OF FABRICS, INC.
13400 RIVERSIDE DRIVE
SHERMAN OAKS, CALIFORNIA 91423-2598
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:_________________________________________________
(2) Form, Schedule or Registration Statement No.:___________________________
(3) Filing Party:___________________________________________________________
(4) Date Filed:_____________________________________________________________
<PAGE>
PRELIMINARY COPY
HOUSE OF FABRICS, INC.
13400 Riverside Drive
Sherman Oaks, California 91423-2598
_____________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 22, 1994
To the Stockholders of House of Fabrics, Inc.
The Annual Meeting of Stockholders of HOUSE OF FABRICS, INC. (the
"Company") will be held on June 22, 1994 at 10:30 A.M., Pacific Daylight Time,
at the Sportsmen's Lodge, Starlight Room, 12833 Ventura Boulevard, Studio City,
California for the purpose of:
1. Electing two directors for three-year terms ending in 1997.
2. Considering and voting upon the issuance of $50,000,000 Convertible
Subordinated Notes, and the issuance of common stock upon conversion.
3. Ratifying the appointment of Deloitte & Touche as the Company's
independent auditors.
4. Transacting such other business as may properly come before the
meeting or any adjournments thereof.
Pursuant to the By-Laws, the Board of Directors has fixed the close of
business on April 25, 1994 as the time and date for the determination of
stockholders entitled to notice of, and to vote at, the meeting. Accordingly,
only stockholders of record on such date and at such time will be entitled to
vote at the meeting, notwithstanding the transfer of any stock on the books of
the Company thereafter.
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE
REQUESTED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors.
MARVIN S. MALTZMAN.
Secretary
Sherman Oaks, California
May __, 1994.
<PAGE>
PRELIMINARY COPY
HOUSE OF FABRICS, INC.
13400 Riverside Drive
Sherman Oaks, California 91423-2598
__________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be Held June 22, 1994
____________________
Solicitation of Proxies
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company for use only at the Annual Meeting of Stockholders to
be held on June 22, 1994 and at any and all adjournments thereof. The shares
represented by the proxies received will be voted at the meeting in accordance
with the directions contained in the proxies. Any stockholder giving a proxy may
revoke it at any time prior to its use by filing with the Secretary of the
Company a written revocation of the proxy or another proxy bearing a later date,
or if, personally present at the meeting, by electing to vote in person.
The costs of solicitation of proxies will be borne by the Company.
Directors, officers and other employees of the Company may, without additional
compensation (except for customary overtime pay, when applicable), solicit
proxies by mail, in person or by telecommunication. The Company will reimburse
brokers, fiduciaries, custodians and other nominees for reasonable out-of-pocket
expenses incurred in sending this Proxy Statement and other proxy materials to,
and obtaining instructions relating to such materials from, beneficial owners of
its stock. If the Board of Directors determines it is advisable it may employ
the services of individuals or companies for solicitation of proxies.
-1-
<PAGE>
VOTING RIGHTS
All voting rights are vested exclusively in the holders of the common
stock of the Company. Stockholders of record at the close of business on April
25, 1994 are eligible to vote on all matters presented to the meeting and are
entitled to one vote (except as set forth under "Election of Directors") for
each share of stock held of record on the record date. As of April 25, 1994
there were 13,806,476 shares of common stock outstanding. A majority of the
outstanding shares constitutes a quorum for the transaction of business at the
meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the number of common shares beneficially
owned on January 31, 1994 by (i) owners of more than five percent of outstanding
common stock, based solely on schedules 13G filed by such beneficial owners with
the Securities and Exchange Commission; (ii) each Director or Nominee for
Director, (iii) each of the Executive Officers named in the Summary Compensation
Table at page 5; and (iv) all Directors, Nominees and Executive Officers as a
group. All individuals listed in the table have sole voting and investment power
over the shares reported as owned, except as otherwise stated.
<TABLE>
<CAPTION>
Shares Option
Beneficially Shares Percentage
Owned, Exercisable of
Excluding Within Outstanding
Name Options 60 Days Shares
---- ------------ ----------- -----------
<S> <C> <C> <C>
Franklin Resources, Inc................................ 89,227 -0- 6.5%
777 Mariners Island Boulevard
San Mateo, California 94404
State of Wisconsin Investment Board.................... 1,241,200 -0- 8.9%
P.O. Box 7842
Madison, Wisconsin 53707
Donald R. Ardemagni.................................... 6,000 9,332 (1)
Daniel Greenberg....................................... 1,000 833 (1)
Gary L. Larkins........................................ 15,340 246,000 1.9%
Peter J. Lynch......................................... -0- -0- -
Marvin S. Maltzman..................................... 3,250 76,000 (1)
James J. McMorrow...................................... 6,000 19,000 (1)
Phillip G. Samovar..................................... 10,000 1,666 (1)
Barney Sofro........................................... 791,308 (2) 195,000 7.5%
All Directors, Nominees and Executive Officers as a
Group(21)........................................... 845,502 837,664 12.2%
</TABLE>
_______________
(1) Less than 1%.
(2) Includes 28,441 shares held of record by Barney Sofro's wife, Victoria
Ann Sofro, and 177,829 shares held by Barney Sofro as custodian for his
three children under the California Uniform Gifts to Minors Act.
-2-
<PAGE>
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and By-Laws provide that there
are ten (10) authorized directors divided into three classes. Two directors are
to be elected at this meeting to serve for a three-year term expiring at the
Company's annual meeting in 1997 or until a successor is duly elected and
qualified. Proxies may not be voted for more than the two nominees. There
currently are four vacancies on the Board of Directors. The Board of Directors
does not intend to fill any vacancies at this time. The election will be
conducted under cumulative voting procedures. Accordingly, each stockholder will
be entitled to cast a vote for each share of stock entitled to vote as of the
record date, and such vote may be cast for a single nominee or, distributed
among any or all of the nominees as such stockholder chooses. All proxies will
be voted for the election of the nominees listed below in the discretion of the
proxy if no direction to the contrary is given. In the event a nominee is unable
or declines to serve, the proxies may be voted for the election of a substitute
nominee. The Company knows of no reason to anticipate that any nominee will
decline or refuse to serve.
The Board of Directors of the Company recommends a vote "FOR" Daniel
Greenberg and James J. McMorrow as Directors to hold office until the 1997
Annual Meeting of Stockholders and until their successors are elected and
qualified. Proxies received by the Board of Directors will be so voted unless
stockholders specify in their proxy a contrary choice.
INFORMATION CONCERNING NOMINEES AND DIRECTORS
Nominees for Election at the 1994 Annual Meeting
Class III directors with term expiring in 1997
Daniel Greenberg (52) is the Chairman and Chief Executive Officer of Electro
Rent Corporation. He has been a Director since 1992.
James J. McMorrow (66) is the senior partner of the Foristall Company which is a
financial relations firm. He also serves on the Board of Directors of Electro
Rent Corporation, Farr Company, Superior Industries International, Inc., Wyle
Laboratories and is a Trustee and Secretary at the University of San Diego. He
has been a Director since 1975.
Incumbent Directors Whose Terms Expire Subsequent to the 1994 Annual Meeting
Class I directors with term expiring in 1995
Marvin S. Maltzman (57) has been the Senior Vice President - Administration,
Secretary and General Counsel since 1993. From 1982 to 1993 he was Vice
President, Secretary and General Counsel. He has been a Director since 1991.
Barney Sofro (52) has been the Chairman of the Board since 1986. He has been a
Director since 1970.
Class II directors with term expiring in 1996
Gary L. Larkins (51) has been the President and Chief Executive Officer since
1986. He has been a Director since 1978.
Phillip G. Samovar (51) is an attorney engaged in the private practice of law.
He has been a Director since 1992.
-3-
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended January 31, 1994, the Board of Directors held
five meetings and acted by written consent on two occasions. All of the
directors attended at least 75% of the aggregate number of Board and Board
Committee meetings on which they served.
The Company has an Executive Committee currently composed of Barney Sofro,
Chairman, and Gary L. Larkins. Between meetings of the Board of Directors, the
Executive Committee has all powers which may be delegated to it under Delaware
law. Actions taken by the Executive Committee are subsequently presented for
ratification at the next meeting of the full Board of Directors. The Executive
Committee acted twice in fiscal 1994 by written consent.
The Company's Audit Committee is currently composed of James J. McMorrow,
Chairman, Daniel Greenberg, and Phillip G. Samovar. The primary function of the
committee is to recommend to the Board of Directors the firm of independent
public accountants to be selected as auditors for the year and to consult with
the accountants regarding the scope of their engagement, the audit report and
management letter issued upon the completion of their examination and the
adequacy of the Company's internal accounting controls. The committee also
provides an independent forum for open and candid discussions concerning the
Company's financial statements and related disclosures and the adoption and
review of accounting policies and procedures. While the committee is concerned
with the accuracy and completeness of the Company's financial statements and
matters relating thereto, the committee's role is not designed to provide
stockholders or others with any special assurances with regard thereto, nor
involve the review (in any sense of professional evaluation) of the quality of
the Company's independent audit. It is believed that the committee's activities
serve a useful function in providing ongoing oversight on behalf of the Board of
Directors, but they in no way alter the traditional roles and responsibilities
of the Company's management and independent public accountants with respect to
the accounting and control functions and the financial statements presentation.
The Audit Committee met three times in fiscal 1994.
The Company's Compensation Committee is currently composed of Daniel
Greenberg, Chairman, James J. McMorrow, and Phillip G. Samovar. The committee is
primarily responsible for the review and recommendation of officers' salaries,
bonuses and other forms of compensation and for the periodic review and
evaluation of new and existing forms of employee benefit programs. The members
also serve as the Stock Option Committee of the Compensation Committee and are
responsible for the administration of the Stock Option Plan and to make
recommendations to the Board of Directors regarding stock option awards. The
Compensation Committee and the Stock Option Committee met twice in fiscal 1994.
The Company does not have a Nominating Committee.
Directors who are not employees of the Company are compensated for their
services. Each such director received an annual fee of $7,800, plus $2,500 for
each committee chairmanship held, and a meeting fee of $800 for each board or
committee meeting attended. Directors who are employees of the Company do not
receive any additional compensation for their services as a director. During
fiscal year ended January 31, 1994 the Foristall Company, of which Mr. McMorrow
is a partner, received $40,825 for financial relations services performed for
the Company.
-4-
<PAGE>
EXECUTIVE COMPENSATION
The information in the Summary Compensation Table sets forth the
compensation paid to the Chief Executive Officer and the four most highly
compensated executive officers at the end of the last completed fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
-------------------------------- --------------------------
Fiscal Other
Year Annual
Ended Compensation Securities
Name and Principal Position January 31 Salary Bonus(1) (2)(3) Underlying Stock Options
- --------------------------- ---------- --------- ---------- ------------ ------------------------
<S> <C> <C> <C> <C> <C>
Gary L. Larkins 1994 $229,525 $ -0- $26,856 (4) 15,000
President and 1993 $230,004 $ 32,257 $62,210 -0-
Chief Executive Officer 1992 $216,986 $ 173,272 46,000
Barney Sofro 1994 $139,234 $ -0- $15,765(4) 15,000
Chairman of the Board 1993 $140,004 $ 32,257 $42,449 -0-
1992 $132,503 $ 153,935 46,000
Peter J. Lynch (5) 1994 $133,718 $ 30,000 -0- 9,500
Executive Vice President - Finance 1993 $ 64,167 $ 30,000 -0- 25,000
and Administration
Donald R. Ardemagni 1994 $125,248 $ -0- $12,987(4) 3,500
Executive Vice President - Buying 1993 $125,508 $ 24,193 $37,537 -0-
1992 $122,506 $ 129,957 14,000
Marvin S. Maltzman 1994 $113,261 $ -0- $9,715(4) 3,500
Senior Vice President - Administration 1993 $113,496 $ 9,677 $21,717 -0-
Secretary and General Counsel 1992 $111,246 $ 46,181 8,000
</TABLE>
____________
(1) Bonuses are accrued during a fiscal year but paid in the next fiscal
year.
(2) In accordance with the transitional provision of the Securities and
Exchange Commission ("SEC") rules, the Company has not provided
information in this column for any fiscal year which ended prior to
January 31, 1992.
(3) The aggregate value of the perquisites and other personal benefits
received by each named executive is not reflected because the amount was
below the reporting threshold.
(4) The Company adopted a Qualified Profit Sharing Plan (the "Qualified
Plan") in 1970 which is designed to encourage long range savings, to
meet financial emergencies and retirement needs. The Qualified Plan
covers full-time employees twenty-one years of age who have been
employed by the Company for at least twelve months. An employee may
contribute up to a maximum of 16% of monthly earnings. The Company,
subject to its profitability, will match 1% for each year of employment
up to a maximum of 6%. The Company also makes an excess contribution of
5.7% of the amount by which each participant's annual compensation
exceeds the maximum taxable wage base of the Social Security Act. In
1990, the Company adopted a Non-Qualified Profit Sharing Plan (the "Non
Qualified Plan") for all highly compensated officers and employees
("HCG") of the Company. The HCG is no longer eligible to participate
-5-
<PAGE>
in the Qualified Plan. The Non-Qualified Plan has the same basic terms
and conditions as the Qualified Plan, except that participation in the
Non-Qualified Plan is limited to the HCG. The Non-Qualified Plan is
designed to offer the HCG the same benefits as afforded under the
Qualified Plan. The amounts in this column include: (a) the Company's
matching contributions to the Non-Qualified Plan as follows: Gary L.
Larkins--$17,537; Barney Sofro--$10,295; Peter J. Lynch $-0-; Donald
R. Ardemagni--$8,480, and Marvin S. Maltzman--$6,344, and (b) an amount
for income tax reimbursement which results from Company contributions
made to each employee's account for the calendar year ended January 31,
1994. The amounts paid were Gary L. Larkins--$9,319; Barney Sofro--
$5,471; Peter J. Lynch -0-; Donald R. Ardemagni--$4,506 and Marvin S.
Maltzman--$3,371.
(5) Peter J. Lynch commenced his employment with the Company on August 17,
1992 and resigned on December 16, 1993. At the time of his resignation
an agreement was entered into whereby, in consideration for his entering
into a general release of all claims against the Company, he received
four months of additional compensation totalling $46,667, his Company
automobile, and four months of additional health insurance.
The following information is furnished for the fiscal year ended January
31, 1994 with respect to the Chief Executive Officer and the four most highly
compensated executive officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Number of Percentage of
Securities Total Options Potential Realizable Value at
Underlying Granted Exercise Assumed Stock Appreciation
Options to Employees Price Expiration for Option Term
Granted in Fiscal Year ($/Share) Date 5%($) 10%($)
---------- -------------- --------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C>
Gary L. Larkins 15,000 11.6% 10.75 5/26/03 262,650 418,200
Barney Sofro 15,000 11.6% 10.75 5/26/03 262,650 418,200
Peter J. Lynch 9,500 7.3% 10.75 5/26/03 166,345 264,860
Donald R. Ardemagni 3,500 2.7% 10.75 5/26/03 61,285 97,580
Marvin S. Maltzman 3,500 2.7% 10.75 5/26/03 61,285 97,580
</TABLE>
Each option was granted for a term of ten years at 100% of market value on the
date of grant. The options vest over a three year period so that one third of
the grant is vested at May 25, 1994, two thirds at May 25, 1995 and 100% of the
options are fully vested at May 25, 1996.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Shares Securities Underlying Value of Unexercised
Acquired Unexercised Options In-the-Money Options
on Value as of January 31, 1994 as of January 31, 1994
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gary L. Larkins......... -0- -0- 230,666/30,334 $75,000/-0-
Barney Sofro............ -0- -0- 180,666/30,334 $62,500/-0-
Peter J. Lynch.......... -0- -0- -0- -0-/-0-
Donald R. Ardemagni..... -0- -0- 64,666/8,166 $16,665/-0-
Marvin S. Maltzman...... -0- -0- 73,334/6,166 $52,500/-0-
</TABLE>
-6-
<PAGE>
CORPORATE LOAN PROGRAM
The Board of Directors adopted the 1990 Corporate Loan Program, which is
designed to permit officers of the Company to borrow funds in order to assist
them in the purchase of Company stock through the exercise of their stock
options, and to permit emergency loans for employees of the Company. The program
is administered by a committee composed of the Chairman of the Board, President,
General Counsel and James J. McMorrow, a non-employee Director. No loans may be
approved unless the committee is assured that there is adequate security to
guarantee repayment of the loan in the form of either the stock purchased by the
employee, a pledge of the employee's salary, bonus or any vested profit sharing
interest. Interest to be charged on such loans is at the average applicable
Federal interest rate published by the Internal Revenue Service (the "Federal
Rate"), which interest, at the option of the borrower, may be paid quarterly or
allowed to accrue into the principal amount of the loan. The average Federal
Rate used during the past fiscal year was 3.85%. There is currently outstanding
one loan totalling $494,634 to Barney Sofro.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee ("Committee") is appointed by the Board of
Directors and currently consists of the Company's outside directors, Daniel
Greenberg, Chair, James J. McMorrow and Phillip G. Samovar. One member of the
Committee, Phillip G. Samovar, was formerly a Director, Vice President,
Secretary and Corporate Counsel of the Company. He resigned from that position
in 1979, and is currently an attorney engaged in private practice.
The Committee annually reviews the compensation of all corporate officers,
including the Chief Executive Officer and makes recommendations to the Board of
Directors based upon the criteria which follows.
The Company's overall compensation philosophy has the objectives of (1)
competitiveness, (2) reasonableness, (3) performance, and (4) consistency and
equity. The Committee also believes that the Company's bonus program should
incorporate a philosophy that a substantial portion of the total annual
compensation be "at risk" through short term incentives relating to measured
financial performance and individual incentive during the fiscal year.
The Committee also believes that compensation programs should reflect the
principles of long term value for shareholders, achievement of significant short
term and long term strategic goals for the Company, and significant individual
achievement.
At House of Fabrics, for many years officers' compensation has been
directly linked to performance through a base salary and a bonus percentage
based upon the financial performance of the Company. The bonus portion of
officers' compensation, when the Company has achieved increased operating
results, can constitute a significant percentage of each officer's total
compensation, and conversely, when operating results decline, so do officers'
bonuses.
For the last three years, because of competitive conditions and the
declining performance of the Company, base salaries have remained relatively
unchanged and bonus awards have dropped substantially from year to year.
The long term component of officers' compensation is the award of stock
options, which are designed to establish an effective link between the Company's
long term performance and the officer's long term compensation. The award of
stock options is also designed to link the economic interests of officers and
shareholders by providing officers with an opportunity for the options to gain
in value as the shareholders' values increase. During the last year stock
options were granted to all officers as part of a plan to improve operating
efficiency and achieve specific Company goals. In granting the options during
the last fiscal year, the Committee did not consider the number of options
previously granted to each officer, or the number of shares owned by each
officer.
-7-
<PAGE>
In 1993 Congress adopted legislation that prohibits publicly held
companies from deducting certain compensation that exceeds $1,000,000 in any tax
year. The Company has not modified its incentive plans to comply with this
legislation. Should circumstances change, the Committee will consider a
modification of Company plans to comply with the legislation where practical.
During the fiscal year ended January 31, 1994, the five named executive
officers in the Summary Compensation Table did not receive any increase in
annual base salary. Four of the five officers received no bonus compensation.
Two officers received increases in their base compensation as a result of
increased responsibilities. During the last fiscal year three officers were paid
a guaranteed bonus based upon a commitment made at the time they were hired or
promoted. Four officers' bonus award percentages were increased.
Daniel Greenberg, Chairman
James J. McMorrow
Phillip G. Samovar
-8-
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG HOUSE OF FABRICS, INC.,
NYSE MARKET INDEX AND PEER GROUP INDEX*
ASSUMES $100 INVESTED ON FEBUARY 1, 1989
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDED JANUARY 31, 1994
<TABLE>
<CAPTION>
Measurement Period HOUSE OF PEER NYSE
(Fiscal Year Covered) FABRICS, INC. GROUP INDEX MARKET INDEX
- --------------------- ------------- ----------- ------------
<S> <C> <C> <C>
Measurement Pt-12/31/1989 $100 $100 $100
FYE 12/31/1990 $87.64 $132.51 $112.89
FYE 12/31/1991 $166.91 $200.13 $119.90
FYE 12/31/1992 $229.51 $238.20 $146.83
FYE 12/31/1993 $142.14 $149.34 $156.50
FYE 12/31/1994 $75.63 $110.61 $183.80
</TABLE>
- --------------
* The Peer Group Index is a self-constructed group consisting of House of
Fabrics, Inc., Fabri-Centers of America, Inc. and Hancock Fabrics, Inc.
-9-
<PAGE>
PROPOSAL TO CONSIDER AND VOTE UPON THE ISSUANCE
OF $50,000,000 OF CONVERTIBLE SUBORDINATED NOTES
AND THE ISSUANCE OF COMMON STOCK UPON CONVERSION THEREOF
The Company's stockholders are respectfully requested to vote upon and
approve a proposal to issue and sell $50 million of Convertible Subordinated
Notes ("Notes") in a private placement and to issue common stock of the Company
("Common Stock") upon conversion of the Notes. The placement of the Notes is a
component of a financing plan that the Company has implemented, which includes
the revolving credit facility provided by Bank of America, NT & SA, and certain
other lenders ("Bank of America Credit Facility"). The additional financing will
be used to pay down a portion of the Bank of America Credit Facility and the
balance for general corporate purposes. The Company believes that the equity
feature of the Notes will allow the Company to borrow at more favorable interest
rates than would be available through a sale of non-convertible subordinated
debt securities.
The terms of the Notes, including the interest rate, the conversion
premium, the conversion price, the redemption price, the maturity date, the
sinking fund payments and similar matters have not yet been determined and will
be determined by the Board of Directors of the Company at a later date. It is
currently anticipated, however, that the Notes will have a coupon rate of
approximately 7.75% to 8.25%, a conversion premium of approximately 15% to 20%,
and a maturity date of 2004. Assuming a conversion premium of 17.5%, and
assuming that the stock price of Common Stock (as of the date of conversion) is
$6.25 (which is the Company's stock price at April 20, 1994), the conversion
price would be $7.375 and approximately 6,780,000 shares of Common Stock would
be issued upon conversion of the Notes. Consequently, under those assumptions,
investors in the Notes will hold a potential ownership stake of approximately
30% of the outstanding shares of Common Stock based on 13,806,476 shares of
Common Stock outstanding as of April 20, 1994 and 6,780,000 shares of Common
Stock issuable upon conversion of the Notes. It is currently anticipated that
beginning _______, the Company will make annual sinking fund payments on the
Notes equal to ____% of the aggregate principal amount of the Notes originally
issued, which payments are calculated to retire ____% of such aggregate amount
prior to maturity. It is currently anticipated that at any time after _______,
the Notes may be redeemed at the option of the Company in whole or in part,
initially at par plus accrued interest plus a premium and declining ratably to
par at _____ plus accrued interest through the date of conversion.
No assurance can be given that all or a portion of the Notes will be
issued or that the terms of the Notes will remain as currently anticipated. The
Company may at any time alter the proposed terms of the Notes or determine not
to proceed with the issuance of the Notes.
It is currently anticipated that ____% of the net proceeds to the Company
from the sale of the Notes, which net proceeds are currently anticipated to be
approximately $ ______, will be used to reduce the Company's outstanding
indebtedness under the Bank of America Credit Facility, and the balance of the
net proceeds will be used for general corporate purposes.
Under Delaware law, the Company would be entitled to issue and sell the
Notes and issue the Common Stock upon conversion thereof upon approval by the
Company's Board of Directors of the terms of the proposed issuance and sale of
the Notes and the issuance of such Common Stock, without the necessity of also
obtaining approval by the Company's stockholders. However, under the rules of
The New York Stock Exchange, Inc. ("Exchange"), which lists the Common Stock,
the Company is required to obtain stockholder approval of any issuance, other
than a public offering for cash, of common stock or securities convertible into
common stock if the number of common stock to be issued will be equal to or in
excess of 20% of the number of common stock outstanding before the issuance of
stock. Accordingly, the proposed issuance and sale of the $50 million of Notes,
which are convertible into approximately 6,780,000 shares of Common Stock,
assuming that the conversion premium is 17.5% and assuming that the stock price
of Common Stock as of the date of conversion is $6.25 (which is the Company's
stock price at April 20, 1994), which would represent approximately 30% of the
common Stock outstanding at April 20, 1994, and the issuance of the Common Stock
upon conversion of the Notes, are being submitted to the Company's stockholders
for their approval at this Annual Meeting. The Exchange requires approval of the
proposal by a majority of the votes cast, provided that the total votes cast
represent over 50% of all outstanding Common Stock.
-10-
<PAGE>
If the issuance and sale of the Notes were consummated, a substantial
number of new shares of Common Stock would be issuable upon conversion of the
Notes. (An issuance of Common Stock below the book value per share (for example,
if the conversion price of the Notes were below the book value per share at the
time of conversion) would have a dilutive effect on the book value of
outstanding shares of Common Stock; such issuances may also have a dilutive
effect on earnings per share and the relative voting power of present
stockholders.)
The Board of Directors of the Company recommends a vote "For" this
proposal. Any proxies received by the Board of Directors will be so voted unless
shareholders specify in their proxy a contrary choice.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Upon recommendation of the Audit Committee, the Board of Directors has
appointed Deloitte & Touche to serve as the Company's independent auditors for
the fiscal year ending January 31, 1995, subject to ratification by the holders
of a majority of the shares represented either in person or by proxy at the
Annual Meeting of Stockholders. If the appointment is not ratified, the Board of
Directors will appoint another firm as the Company's independent auditors for
the fiscal year ending January 31, 1995. Deloitte & Touche was first appointed
independent auditors for the Company in 1962 and has conducted the examination
of the Company's financial statements for the past 32 years.
Services rendered by Deloitte & Touche during the last fiscal year
consisted of the examination of the financial statements for the year ended
January 31, 1994, review of the Company's annual report, registration statements
on Form S-8, proxy soliciting materials and periodic filings with the Securities
and Exchange Commission, audit of the Company's Profit Sharing Plans and
consultations with senior management and the Audit Committee regarding various
accounting and financial matters.
Representatives of Deloitte & Touche are expected to attend the Annual
Meeting of Stockholders and will have the opportunity to make a statement, if
they so desire, and to be available to respond to appropriate questions.
The Board of Directors Recommends a Vote "FOR" the ratification of the
appointment of Deloitte & Touche as independent auditors of the Company for the
fiscal year ending January 31, 1995.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers and directors and persons who own more than ten
percent of the Company's common stock file initial reports of ownership of
common stock and reports of changes of ownership with the Securities and
Exchange Commission and the New York Stock Exchange.
Executive officers, directors, and stockholders are required to furnish
the Company with copies of all Section 16(a) forms they file. Based on a review
of such copies and other records available to the Company, the Company believes
that all of its officers, directors and persons who own more than ten percent of
the Company's common stock have complied with all filing requirements except for
Ms. Kimberly Sue Mitchell, Vice President - Merchandising, who failed to file
her initial Form 3 in a timely manner. When the oversight was brought to her
attention a From 3 was immediately filed.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1995 Annual Meeting
of Stockholders must be received at the Company's executive offices at 13400
Riverside Drive, Sherman Oaks, California 91423-2598 no later than December ___,
1994.
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FINANCIAL AND OTHER INFORMATION
The Company's financial statements at January 31, 1994, and for the three
years then ended are included in the accompanying Annual Report. In addition,
the Annual Report includes Management's Discussion and Analysis of Operations
and Financial Condition and Quarterly Data. Such Financial Statements,
Management's Discussion and Quarterly Data are incorporated in this Proxy
Statement by reference to the Annual Report.
OTHER MATTERS
The management does not know of any other matters to be acted upon at the
meeting. If any other matters should properly come before the meeting or any
adjournment thereof, the proxies solicited hereby will be voted by the holders
thereof in accordance with their discretion.
By Order of the Board of Directors
MARVIN S. MALTZMAN
Secretary
Sherman Oaks, California
May , 1994
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<PAGE>
HOUSE OF FABRICS, INC.
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Marvin S. Maltzman and
Barney Sofro or any one of them, (with full power to act alone), with full power
of substitution, to vote all of the common stock of House of Fabrics, Inc. which
the undersigned has the full power to vote at the Annual Meeting of Stockholders
of House of Fabrics, Inc. to be held at Sportmens' Lodge, Starlight Room, 12833
Ventura Blvd., Studio City, California on June 22, 1994 at 10:30 a.m., local
time and at any adjournments.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES. SEE REVERSE SIDE. YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
THE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF
DIRECTORS, FOR APPROVAL OF THE ISSUANCE OF $50,000,000 CONVERTIBLE SUBORDINATED
NOTES AND ISSUANCE OF COMMON STOCK UPON CONVERSION, AND FOR APPROVAL OF THE
APPOINTMENT OF INDEPENDENT AUDITORS.
HOUSE OF FABRICS, INC. (TO BE SIGNED ON REVERSE SIDE)
<PAGE>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
1. ELECTION OF FOR WITHHELD NOMINEES: Daniel Greenberg
DIRECTORS: [_] [_] James J. McMorrow
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S).
- --------------------------------------------------------------------------------
2. Approval of the issuance of FOR AGAINST ABSTAIN
$50,000,000 Convertible [_] [_] [_]
Subordinated Notes and
issuance of common stock
upon conversion.
3. Appointment of Deloitte & Touche FOR AGAINST ABSTAIN
as the Company's Independent Auditors. [_] [_] [_]
4. The transaction of such other business
as may properly come before the Meeting
or any adjournments thereof.
SIGNATURE(S) DATE
------------------------------- -----------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
I hereby revoke all proxies previously given by me to vote at said meeting
or any adjournments thereof.
