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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
(Amendment No. 1)
__________
HOUSE OF FABRICS, INC.
(Name of Subject Company)
HOUSE OF FABRICS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
441759107
(CUSIP Number of Class of Securities)
_________
MARVIN S. MALTZMAN, ESQ.
SENIOR VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
HOUSE OF FABRICS, INC.
13400 RIVERSIDE DRIVE
SHERMAN OAKS, CALIFORNIA 91423
(818) 385-2303
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
With a copy to:
Richard A. Boehmer, Esq.
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
(213) 669-6000
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The last two paragraphs of the Company's Schedule 14D-9
under Item 4(b), "The Solicitation or Recommendation --
Background of the Offer; Reasons for the Recommendation" are
amended in their entirety to read as follows:
In reaching its determination and recommendation described
in paragraph (a) of this Item 4, the Board considered a number of
factors, including the following:
(1) The financial condition and results of operations of
the Company.
(2) The projected financial results, prospects and
strategic objectives of the Company, as well as the risks
involved in achieving those results, prospects and
objectives, including the Company's inability to meet its
projections over the last several quarters and liquidity
constraints which the Company may face in the absence of new
financing. The Board believed there were significant
questions as to whether the Company could obtain new
financing on acceptable terms.
(3) The fact that the $4.25 per Share to be received by the
Company's stockholders in both the Offer and the Merger
represents a substantial premium (approximately 33%) over
the closing market price of $3.19 per Share on January 30,
1998 (the last trading day prior to the Board's approval of
the transaction referred to in paragraph (a) of this Item
4); and the fact that the $4.25 per Share to be received by
the Company's stockholders in both the Offer and the Merger
represents a substantial premium (110%) over the average
market price per Share during the 60-day period prior to the
Board's approval of the transaction referred to in paragraph
(a) of this Item 4.
(4) The Board's view, after consultation with management
and F.M. Roberts, that it was unlikely that other viable
buyers existed who would make firm offers on terms as
favorable as those in the Offer and the Merger.
(5) The presentation to the Company's Board of Directors by
representatives of DLJ and the opinion of DLJ that the $4.25
per Share in cash to be received by the stockholders of the
Company pursuant to the Merger Agreement is fair to such
stockholders from a financial point of view. The full text
of the written opinion of DLJ, which sets forth assumptions
made, procedures followed, matters considered and limits on
the review undertaken, is attached as Exhibit 15 to the
Schedule 14D-9 and is incorporated herein by reference. THE
COMPANY'S STOCKHOLDERS ARE URGED TO READ THIS OPINION IN ITS
ENTIRETY.
The opinion of DLJ was presented for the information of
the Company's Board of Directors in connection with their
consideration of the Merger Agreement and is directed only
to the fairness of the aggregate consideration to be
received by the stockholders of the Company pursuant to the
Merger Agreement. The opinion does not constitute a
recommendation to any stockholder as to whether to tender
Shares in the Offer or how to vote with respect to the
Merger.
(6) The availability of appraisal rights under Section 262
of the Delaware Law for dissenting Shares.
(7) The terms and conditions of the Merger Agreement and
the course of the negotiations resulting in the execution
thereof and the Company's belief that additional negotiation
with Parent would not result in materially better terms for
the Company and could jeopardize a transaction with Parent.
(8) The fact that the Company had not received a firm offer
from any other bidder that was on terms equal or superior to
the terms of the Offer and the Merger and, based upon the
Company's historical results and prospects, especially the
liquidity constraints facing the Company in the absence
of new financing, the significant questions regarding
the likelihood of the Company being able to continue
and prosper as an independent entity.
(9) The likelihood that the proposed acquisition would be
consummated, including the likelihood of obtaining the
regulatory approvals required pursuant to, and satisfying
the other conditions to, the Offer and the Merger contained
in the Merger Agreement. On February 20, 1998, the waiting
period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, terminated, thus satisfying a
significant condition to the Offer.
The members of the Board of Directors evaluated the
factors listed above in light of their knowledge of the
business and operations of the Company and their business
judgment. In view of the wide variety of factors considered
in connection with its evaluation of the Offer and the
Merger, the Board did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its
determination. However, the Board believes that its
evaluation of the factors listed above supported its
recommendation.
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The Summary Compensation Table in Annex A, "Information
Statement Pursuant to Section 14(f) of the Securities Exchange
Act of 1934 and Rule 14(f) thereunder ("Annex A") is hereby
amended in its entirety to read as follows:
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<TABLE>
<S> <C> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Long Term
Compensation
Awards
Fiscal
Year Securities
Ended Other Annual Underlying
January Compensation Stock
Name and Principal Position 31, Salary Bonus(1) (2)(3) Options
Donald L. Richey
President and Chief
Executive Officer(4) 1998 $237,500 $100,000(5) $117,826(6) 200,000
Gary L. Larkins, Former 1998 $247,255 - (8)
Vice Chairman and Chief 1997 $224,254 $ 74,400(9) (8) 76,859
Executive Officer(7) 1996 $224,254 - $ 28,234
John E. Labbett, Executive 1998 $175,000 $ 25,000(5) $139,674(6)
Vice President - Chief 1997 $175,000 $ 25,000(5) (8) 37,492
Financial Officer(10) 1996 $ 43,749 - $ 11,346
Michael E. Brown, Former 1998 $142,206 - (8)
Executive Vice President 1997 $150,000 $108,400(9) (8) 37,492
- - Store Operations(11) 1996 $131,250 $ 10,000(5) $ 13,688
William E. Rapp, Executive 1998 $150,000 - (8)
Vice President - Buying(12) 1997 $150,000 $120,000(13) (8) 37,492
1996 $ 97,210 $ 60,000(13) $ 32,111
(1) There were no performance bonuses paid under the Company's
incentive bonus program for any of the years shown.
(2) The Company adopted a Qualified Profit Sharing Plan (the
"Qualified Plan") in 1970 which was amended to a 401(k) Plan
in 1996. The 401(k) Plan is designed to encourage long
range savings, to meet financial emergencies and retirement
needs. The 401(k) Plan covers fulltime 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, may match 1% for each year of employment
up to a maximum of 6%. 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 since the HCG were no long eligible to participate
in the Qualified Plan. The Non-Qualified Plan is limited to
the HCG. The Non-Qualified Plan was designed to offer the
HCG the same benefits as afforded under the Qualified Plan.
(3) Profit sharing contributions are earned in the prior year
but paid in the following year. Because of the Company
losses in the last three years, there were no Company
matching contributions earned for the fiscal years ended
January 31, 1998, 1997 and 1996.
(4) Mr. Richey became an employee of the Company in April 1997.
See "- Employment Agreement".
(5) Minimum bonus payments guaranteed.
(6) Includes reimbursement of moving and related expenses, term
life insurance premiums for coverage over $50,000 and car
allowance.
(7) Mr. Larkins resigned as Vice Chairman and Chief Executive
Officer effective April 1, 1997.
(8) The aggregate value of the perquisites and other personal
benefits received by the named executive is not reflected
because the amount was below the reporting threshold.
(9) The Board of Directors adopted a Special Bonus Plan ("Plan")
effective during fiscal 1995. The Plan was designed to help
retain executive officers and key employees ("Employees") of
the Company during the period of its Chapter 11 bankruptcy
reorganization. This Plan was designed to offer Employees
the incentive and reward required to maintain their support,
enthusiasm and loyalty through the restructuring process.
The Plan provided for the payment of the bonus in three
stages. The first payment was made upon adoption of the
Plan with each participant receiving 20% of the total amount
designated. The second payment of 20% was made upon the
Company's having secured approval from the Bankruptcy Court
to present a Plan of Reorganization. The final payment of
60% was made on July 31, 1996 upon confirmation of the Plan
of Reorganization.
(10) John E. Labbett was elected as an officer on October 16,
1995.
(11) Michael E. Brown resigned as of December 12, 1997.
(12) William E. Rapp was elected as an officer on May 24, 1995.
(13) Hiring bonus agreed to be paid to William E. Rapp.
</TABLE>
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[CAPTION]
<TABLE>
The table entitled "Aggregate Option Exercises During
Fiscal 1998 and Options Values at Fiscal Year End" in
Annex A is hereby amended in its entirely to read as follows:
<S> <C> <C> <C> <C>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Year End(#) Year End($)(#)
Share
Acquired Value Exercisable/ Exercisable/
on Exercise(#) Realized($) Unexercisable Unexercisable
Donald L. Richey......... -- -- 66,666/133,334 0/0
Gary L. Larkins ......... -- -- 21,251/57,645 0/0
John E. Labbett ......... -- -- 9,373/28,119 0/0
Michael E. Brown ........ -- -- 0 0/0
William E. Rapp ......... -- -- 9,373/28,119 0/0
* Based on the difference the closing sale price of the Common Stock on
January 30, 1998 (the last trading day of fiscal 1998), and the exercise price.
</TABLE>
The table entitled "Security Ownership of Certain Beneficial
Owners and Management" in Annex A is hereby amended in its
entirety to read as follows:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of common shares
beneficially owned on February 1, 1998 by (i) owners of more than
five percent of outstanding common stock, based solely on
Schedules 13Ds filed by such beneficial owners with the
Securities and Exchange Commission; (ii) each director; (iii)
each of the executive officers named in the Summary Compensation
Table; and (iv) all directors 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.
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<TABLE>
<S> <C> <C> <C>
Shares Option Shares
Beneficially Exercisable
Owned, Excluding Within 60 Percentage of
Name Options Days Outstanding Shares
Rumpelstiltskin (USA)(1). . . 873,390 0 16.4%
c/o Goldsher & Goldsher
640 N. LaSalle Street,
Suite 300
Chicago, IL 60610
Gabriel Capital, L.P.(2). . . 331,534 0 6.2%
450 Park Avenue, Suite 3201
New York, New York 10022
Gary L. Larkins . . . . . . . 90 21,251 (3)
Michael E. Brown. . . . . . . 0 0
John E. Labbett . . . . . . . 0 9,373 (3)
William E. Rapp . . . . . . . 0 9,373 (3)
Donald L. Richey. . . . . . . 1,000 66,666 1.2%
Carl C. Gregory, III. . . . . 0 2,343 (3)
R.N. Hankin . . . . . . . . . 0 4,686 (3)
H. Michael Hecht. . . . . . . 0 4,686 (3)
Mitchell G. Lynn. . . . . . . 0 4,686 (3)
Alison L. May . . . . . . . . 0 2,343 (3)
All directors and executive
officers as a group (15). . . 1,000 116,226 2.2%
(1) Based upon Amendment No. 2 to Schedule 13D dated March 31,
1997.
(2) Based upon Schedule 13D dated December 19, 1997.
(3) Less than 1%.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge
and belief, I certify that the information set forth in
this statement is true, complete and correct.
Dated: February 25, 1998.
HOUSE OF FABRICS, INC.
By: /s/ MARVIN S. MALTZMAN
Name: Marvin S. Maltzman
Title: Senior Vice President,
Secretary and General
Counsel
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