<PAGE>
As filed with the Securities and Exchange Commission on May 28, 1999
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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
STROUDS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE>
STROUDS, INC.
780 SOUTH NOGALES STREET
CITY OF INDUSTRY, CALIFORNIA 91748
June 1, 1999
To Our Stockholders:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
(the "Annual Meeting") of Strouds, Inc. (the "Company") which will be held on
Wednesday, June 30, 1999, at 10:00 a.m., local time, at Industry Hills Sheraton,
One Industry Hills Parkway, City of Industry, California. All stockholders of
record at the close of business on May 7, 1999 are entitled to receive notice of
and to vote at the Annual Meeting or any adjournment or postponement thereof.
The Annual Meeting will be held to: (a) elect seven directors to the
Company's Board of Directors to serve until the annual meeting of stockholders
in the year 2000 and until their successors are duly elected and qualified, (b)
ratify the appointment of independent public accountants for the fiscal year
ending on February 26, 2000, and (c) transact such other business as may
properly be brought before the Annual Meeting or any adjournment or postponement
thereof.
We hope you will attend the Annual Meeting in person. Whether or not you
expect to attend the Annual Meeting in person, please complete, sign, date and
return the enclosed proxy card promptly to ensure that your shares will be
represented at the Annual Meeting. If you attend the Annual Meeting, you may
vote in person even if you have sent in your proxy card.
Sincerely,
[SIGNATURE]Charles R. Chinni
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
STROUDS, INC.
780 SOUTH NOGALES STREET
CITY OF INDUSTRY, CALIFORNIA 91748
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1999
------------------------
The 1999 Annual Meeting of Stockholders (the "Annual Meeting") of Strouds,
Inc. (the "Company") will be held on Wednesday, June 30, 1999, at 10:00 a.m.,
local time, at Industry Hills Sheraton, One Industry Hills Parkway, City of
Industry, California to:
1. elect seven directors to the Company's Board of Directors to serve until
the annual meeting of stockholders in the year 2000 and until their
successors are duly elected and qualified;
2. ratify the appointment of KPMG LLP as the Company's independent public
accountants for the fiscal year ending on February 26, 2000; and
3. transact such other business as may properly be brought before the
Annual Meeting or any adjournment or postponement thereof.
Stockholders of record at the close of business on May 7, 1999 are entitled
to receive notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. The list of stockholders will be available for examination
for the ten days prior to the Annual Meeting at Strouds, Inc., 780 South Nogales
Street, City of Industry, California.
THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY,
WHICH RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE DIRECTOR
NOMINEES NAMED THEREIN AND VOTE FOR THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS. Please refer to the attached proxy statement,
which forms a part of this notice and is incorporated herein by reference, for
further information with respect to the business to be transacted at the Annual
Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON,
HOWEVER, PLEASE COMPLETE THE ACCOMPANYING PROXY AND RETURN IT IN THE ENCLOSED
ADDRESSED ENVELOPE. If you attend the Annual Meeting, you may vote in person
even if you have sent in your proxy card.
By Order of the Board of Directors
[SIGNATURE]Charles R. Chinni
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
City of Industry, California
June 1, 1999
<PAGE>
STROUDS, INC.
----------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1999
------------------------
This proxy statement (the "Proxy Statement") is furnished in connection with
the solicitation of proxies by the Board of Directors of Strouds, Inc.
("Strouds" or the "Company") from the holders of its outstanding shares of
common stock, par value $0.0001 per share (the "Common Stock"), for use at the
Annual Meeting of Stockholders to be held on Wednesday, June 30, 1999 (the
"Annual Meeting") to:
1. elect seven directors to the Company's Board of Directors to serve until
the annual meeting of stockholders in the year 2000 (the "2000 Annual
Meeting") and until their successors are duly elected and qualified;
2. ratify the appointment of KPMG LLP as the Company's independent public
accountants for the fiscal year ending on February 26, 2000; and
3. transact such other business as may properly be brought before the
Annual Meeting or any adjournment or postponement thereof.
The Company's principal executive offices are located at 780 South Nogales
Street, City of Industry, California 91748, telephone (626) 912-2866. A copy of
the Company's fiscal 1998 Annual Report to Stockholders and this Proxy Statement
and accompanying proxy card will be first mailed to stockholders on or about
June 1, 1999. The Company defines its fiscal year as the period in which most of
the business activity occurs (e.g., the year ending February 27, 1999 is
referred to as fiscal 1998).
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN
OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED AND
THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
The expense of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be paid by
the Company. In addition to the use of mails, certain directors, officers or
employees of the Company and its subsidiaries, who receive no compensation for
their services other than their regular salaries, may solicit and tabulate
proxies. The Company has retained D.F. King & Co., Inc., 77 Water Street, New
York, New York 10005, telephone (212) 269-5550, to assist in the solicitation of
proxies with respect to the shares of Common Stock held of record by brokers,
nominees and institutions. The estimated cost of the services of D.F. King &
Co., Inc. is $4,000, plus expenses.
VOTING PROCEDURES
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to sign, date and return the proxy card in the accompanying
envelope, which is postage prepaid if mailed in the United States.
You have three choices on each of the matters to be voted upon at the Annual
Meeting. Concerning the election of directors, by checking the appropriate box
on your proxy card you may: (a) vote for all of the director nominees as a
group; (b) withhold authority to vote for all director nominees as a group; or
(c) vote for all director nominees as a group except those nominees you identify
on the appropriate line. Concerning the approval of independent public
accountants, by checking the appropriate box on your
<PAGE>
proxy card you may: (a) vote "For" the item; (b) vote "Against" the item; or
(c)"Abstain" from voting on the item. The effects of abstentions and votes
against certain matters are discussed further below.
Stockholders may vote by either (a) completing and returning the enclosed
proxy card prior to the Annual Meeting, (b) voting in person at the Annual
Meeting, or (c) submitting a signed proxy card at the Annual Meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING
IN PERSON.
You may revoke your proxy at any time before it is actually voted at the
Annual Meeting by (a) delivering written notice of revocation to the Secretary
of the Company at 780 South Nogales Street, City of Industry, California, 91748,
(b) submitting a later dated proxy, or (c) attending the Annual Meeting and
voting in person. Attendance at the Annual Meeting will not, by itself,
constitute revocation of the proxy. You may also be represented by another
person present at the Annual Meeting by executing a form of proxy designating
such person to act on your behalf.
Each unrevoked proxy card properly signed and received prior to the close of
the Annual Meeting will be voted as indicated. Unless otherwise specified on the
proxy, the shares represented by a signed proxy card will be voted FOR items 1
and 2 on the proxy card and will be voted in the discretion of the persons named
as proxies on the other business that may properly come before the Annual
Meeting.
If a proxy card indicates an abstention or a broker non-vote on a particular
matter, then the shares represented by such proxy will be counted for quorum
purposes. If a quorum is present, an abstention will have the effect of a vote
against the matter (except for the election of directors in which case such
abstention has no effect) and broker non-votes will have no effect.
The presence at the Annual Meeting, in person or by proxy, of a majority of
the shares of Common Stock issued and outstanding on May 7, 1999, will
constitute a quorum.
Votes cast at the Annual Meeting will be tabulated by the persons appointed
by the Company to act as inspectors of election for the Annual Meeting.
SHARES ENTITLED TO VOTE AND REQUIRED VOTE
Stockholders of record at the close of business on May 7, 1999 are entitled
to vote at the Annual Meeting. At that date, 7,036,981 shares of Common Stock
were outstanding. Each share of Common Stock is entitled to one vote. In all
matters other than the election of directors, the affirmative vote of a majority
of the shares of Common Stock that are represented in person or represented by
proxy at the Annual Meeting and entitled to vote is required to approve each
matter. Directors shall be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors.
------------------------
The date of this Proxy Statement is June 1, 1999.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS TO THE BOARD OF DIRECTORS
GENERAL INFORMATION--ELECTION OF DIRECTORS
Pursuant to the Company's Bylaws and resolutions adopted by the Company's
Board of Directors, the Company currently has seven directors. Directors are
elected at the Annual Meeting and will serve until the 2000 Annual Meeting and
until each respective successor shall have been duly elected or appointed.
In the absence of instructions to the contrary, votes will be cast for the
election of the following as directors pursuant to the proxies solicited hereby.
In the event any nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxy will be voted for any substitute nominee
selected by the current Board of Directors. However, the proxy cannot be voted
for a greater number of persons than the number of nominees designated by the
Board of Directors. Management has no reason to believe, at this time, that the
persons named herein will be unable or will decline to serve if elected, and
each nominee has informed the Company that he will serve if elected.
NOMINEES FOR ELECTION AS A DIRECTOR
The following table sets forth the name of, and certain information with
respect to, the seven persons nominated by the Company at the Annual Meeting:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITIONS CURRENTLY HELD WITH THE COMPANY
- ------------------------------ --- ----------- -----------------------------------------------------------------
<S> <C> <C> <C>
Charles R. Chinni (1)......... 55 1997 Chairman of the Board of Directors, President and Chief Executive
Officer
Wilfred C. Stroud (1)......... 73 1979 Founder, Chairman Emeritus and Director
Larry R. Bemis (2)............ 54 1997 Director
Dale D. Achabal (1)(3)........ 53 1997 Director
Marco F. Weiss (1)(3)......... 68 1997 Director
Richard F. Clayton (2)........ 57 1998 Director
Marshall S. Geller............ 60 1998 Director
</TABLE>
- --------------------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
The following is a biographical summary of the experience of the nominees
for directors to the Company's Board of Directors:
CHARLES R. CHINNI: On July 7, 1997, Mr. Chinni joined Strouds as its
President, Chief Executive Officer and a director on the Board of Directors. Mr.
Chinni has served as the Chairman of the Board of Directors of the Company since
February 28, 1999. Prior to joining Strouds, Mr. Chinni was Executive
Vice-President of Merchandising for Kmart Corporation, a discount retailer, from
May 1995 to November 1995. Prior to his employment at Kmart Corporation, Mr.
Chinni spent over 30 years with Macy's culminating with the position of
President--Merchandising for the combined Macy's companies before the sale of
Macy's to Federated Department Stores in 1995.
WILFRED C. STROUD: Since February 28, 1999, Mr. Stroud has served as the
Founder, Chairman Emeritus and a director on the Company's Board of Directors.
Prior to that time, Mr. Stroud served as Chairman of the Board of Directors and
a director of the Company since founding Strouds in 1979. Mr. Stroud also served
as Chief Executive Officer from the inception of the Company through May 1994
and as President of the Company from 1979 to May 1991. Prior to founding
Strouds, from 1956 to 1979,
3
<PAGE>
Mr. Stroud was employed by the Broadway Division of Carter-Hawley Hale where he
spent eight years as a Divisional Merchandise Manager.
LARRY R. BEMIS: Mr. Bemis was appointed a director to the Company's Board
of Directors effective June 1, 1997. Mr. Bemis is a partner in the Newport Beach
law firm of Millar, Hodges & Bemis, specializing in business, income and estate
tax planning, real estate and corporate law. Prior to forming Millar, Hodges &
Bemis, Mr. Bemis was a partner at Witter and Harpole, in Newport Beach, where he
began his law practice in 1973. Prior to joining Witter and Harpole, Mr. Bemis
was a revenue agent and appellate conferee with the Internal Revenue Service in
Los Angeles. Mr. Bemis provides certain legal services to the Company. See
"Certain Transactions--Other Relationship."
DALE D. ACHABAL: Dr. Achabal was appointed a director to the Company's
Board of Directors effective June 1, 1997. Dr. Achabal has been the L.J. Skaggs
Distinguished Professor since 1987 and an Associate Dean since 1997 at Santa
Clara University where he has taught since 1980 and Director of the Retail
Management Institute since 1997. Dr. Achabal also directs the Retail Workbench
Research & Education Center since 1990, sponsored by a consortium of leading
retailers from around the world. Dr. Achabal is also a member of the Information
Technology Council of the National Retail Federation since 1992 and the
Editorial Board of the JOURNAL OF RETAILING since 1982. Dr. Achabal is a
consultant to a variety of retail organizations in the United States, Europe and
Asia Pacific in the areas of strategic market planning, retail information
systems and marketing research.
MARCO F. WEISS: Mr. Weiss was elected to the Company's Board of Directors
on July 8, 1997. Mr. Weiss maintains an office with the Goldman & Kagon Law
Corporation and specializes in international business transactions. From 1991 to
1994, Mr. Weiss served as Chairman of ECONT, a Russian-American Joint Venture.
From 1991 to 1994, Mr. Weiss served as Vice-Chairman and Chief Operating Officer
of the Marvol Group, a diversified Russian company with a global presence
dealing, among other things, in manufacturing and the merchandising of consumer
products. From 1992 to 1995, Mr. Weiss also practiced as a consultant
specializing in U.S. law in the United Kingdom. Prior to relocating abroad, Mr.
Weiss was a partner in a number of Los Angeles law firms and specialized in
capital formation and securities transactions.
RICHARD F. CLAYTON: Mr. Clayton was appointed a director to the Company's
Board of Directors on March 19, 1998. Since 1993, Mr. Clayton has been the
President and a partner in Trico Capital Management, a business venture
investment fund focusing in retail and consumer products. He is also the Chief
Executive Officer of JB Research, a privately held manufacturing company
producing products under the Relaxor-Registered Trademark- brand with
distribution throughout the United States, Canada and Europe. Prior to joining
Trico, Mr. Clayton was the Chairman and Chief Executive Officer of STOR
Furnishings International, a furnishings specialty retailer that was sold to
IKEA in 1992. From 1986 to 1990, Mr. Clayton served as President and Chief
Operating Officer of The Broadway Department Stores, Inc., a major department
store chain operating in the western United States.
MARSHALL S. GELLER: Mr. Geller was appointed a director to the Company's
Board of Directors on July 24, 1998. Since 1995, Mr. Geller has been the
Chairman of the board of directors, Chief Executive Officer and Founding Partner
of Geller & Friend Capital Partners, Inc., a company involved in merchant
banking and investment advising, since its formation in November 1995. From 1991
to 1995, Mr. Geller was the Senior Managing Partner and Founder of Golenberg &
Geller, Inc., a merchant banking investment company. From 1967 to 1988, Mr.
Geller was the Senior Managing Director for Bear Stearns & Company. Mr. Geller
currently serves as a director of Hexcel Corporation, Players International,
Inc., Value Vision International, Inc., Ballantyne of Omaha, Inc., iMALL Inc.,
and Cabletel Communications Corporation.
4
<PAGE>
COMPENSATION OF DIRECTORS
The Company provides for the grant to each non-employee director, as of the
date that such non-employee director is initially elected to the Board of
Directors, of non-qualified stock options to purchase 10,000 shares of Common
Stock of the Company. Annual grants of non-qualified stock options to purchase
5,000 shares of Common Stock are presently provided at the time of re-election.
These options have a term of ten years, an exercise price of 100% of the fair
market value of a share of Common Stock on the date the options are granted and
will become exercisable in four cumulative 25% installments on each successive
one year anniversary of the date the option is granted. The Company pays each
director who is neither an employee of the Company nor associated with one of
the Company's principal stockholders a $1,000 fee for each meeting of the
Company's Board of Directors attended and, if not held in conjunction with a
regular Board of Directors meeting, a $500 fee for each Board of Directors
committee meeting attended. The Company also reimburses all directors for all
expenses incurred in connection with their activities as directors.
Messrs. Bemis, Achabal and Weiss in fiscal year 1997, and Messrs. Clayton
and Geller in fiscal year 1998, were awarded stock options to purchase 10,000
shares of Common Stock under the Company's 1994 Equity Participation Plan.
Messrs. Bemis, Achabal and Weiss in fiscal year 1998 were awarded stock options
to purchase 5,000 shares of Common Stock under the Company's 1994 Equity
Participation Plan. These awards vest in 25% installments over the first four
years following the original date of grant.
Mr. Stroud retired on February 27, 1999. For three fiscal years thereafter,
he will serve as the Chairman Emeritus of the Board of Directors and in such
capacity, will consult with the other members of the Board of Directors and the
management of the Company. During such three year period, Mr. Stroud's
compensation will consist of his full base salary, an automobile allowance and
personal and spousal health benefits which are comparable to those provided to
the executive officers of the Company. After such three year period, Mr. Stroud
will receive payments from the Company in an amount of $120,000 per year for the
rest of his life. After his death, Mr. Stroud's wife will receive payments from
the Company in an amount of $50,000 per year and will also receive health
benefits for the rest of her life.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
BOARD OF DIRECTORS
The Board of Directors of the Company met seven times during fiscal year
ended February 27, 1999. During that fiscal year, attendance at the Board of
Directors meetings averaged 98% and attendance at committee meetings of the
Board of Directors averaged 100%. No incumbent directors attended fewer than 75%
of the total number of meetings of the Board of Directors and committees of the
Board of Directors on which they served.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors is presently comprised of
Messrs. Bemis and Clayton. Mr. Bemis serves as the chair of the Audit Committee.
Mr. Weiss was a member of the Audit Committee until June 1998. As directed by
the Board of Directors, the functions of the Audit Committee include (a)
reviewing and monitoring the Company's financial reports and accounting
practices, (b) annually recommending to the Board of Directors for appointment
by the Board of Directors independent public accountants as auditors of the
books, records and accounts of the Company, (c) reviewing the scope of audits
made by the independent public accountants and (d) receiving and reviewing the
audit reports submitted by the independent public accountants and taking such
action in respect of such reports as the Audit Committee deems appropriate.
During the fiscal year ended February 27, 1999, the Audit Committee held two
meetings.
5
<PAGE>
COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is presently comprised
of Messrs. Weiss and Achabal. Mr. Weiss serves as the chair of the Compensation
Committee. As directed by the Board of Directors, the functions of the
Compensation Committee include ensuring that the officers and management
personnel of the Company are compensated in terms of salaries, supplemental
compensation and benefits which are internally equitable and externally
competitive, and administering the following benefit plans (as such plans may be
amended from time to time) of the Company: Stock Option Plan for Executive and
Key Employees; 1994 Equity Participation Plan; and 1994 Employee Qualified Stock
Purchase Plan. During the fiscal year ended February 27, 1999, the Compensation
Committee held nine meetings.
EXECUTIVE COMMITTEE
The Executive Committee of the Board of Directors is presently comprised of
Messrs. Stroud, Chinni, Achabal and Weiss. Mr. Stroud chairs the Executive
Committee. As directed by, and between meetings of, the Board of Directors, the
function of the Executive Committee is to exercise the authority and power of
the Board of Directors to manage the Company's business and affairs, except for
certain duties specifically reserved to the full Board of Directors in the
Company's Bylaws. During the fiscal year ended February 27, 1999, the Executive
Committee held one meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE DIRECTORS NOMINATED
TO THE BOARD OF DIRECTORS AS
SET FORTH IN PROPOSAL NO. 1.
6
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Audit Committee, has
appointed KPMG LLP as the Company's independent public accountants for the
fiscal year ending February 26, 2000. KPMG LLP has been the Company's
independent public accountants since fiscal year 1987. A representative of KPMG
LLP will be present at the Annual Meeting and will be given an opportunity to
make a statement and answer questions. This appointment is being submitted for
ratification at the Annual Meeting. If the appointment is not ratified, the
appointment will be reconsidered by the Board of Directors, although the Board
of Directors will not be required to appoint different independent public
accountants for the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF KPMG LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR
THE FISCAL YEAR ENDING FEBRUARY 26, 2000
AS SET FORTH IN PROPOSAL NO. 2.
7
<PAGE>
EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL
The executive officers and certain key personnel of the Company as of June
1, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS:
Charles R. Chinni............. 55 Chairman of the Board of Directors, President and
Chief Executive Officer
Wilfred C. Stroud............. 73 Founder, Chairman Emeritus and Director
Gary A. Van Wagner............ 36 Corporate Controller
KEY PERSONNEL:
Donna J. Aidekman............. 39 Vice President--Divisional Merchandise Manager
Carolyn A. Bush............... 43 Vice President--Home Services
Roberta A. Chavance........... 48 Vice President--Human Resources
Denise Marsicano.............. 44 Vice President--Stores
Richard L. Stanton............ 50 Vice President--Management Information Systems
Jeffrey L. Stroud............. 38 Vice President--Divisional Merchandise Manager
</TABLE>
In addition to Messrs. Stroud and Chinni whose biographies appear under
"Proposal 1--Election of Directors to the Board of Directors," the following is
a biographical summary of the experience of the executive officers and certain
key personnel of the Company:
GARY A. VAN WAGNER: Mr. Van Wagner joined Strouds in January 1998 as
Corporate Controller. Prior to joining Strouds, Mr. Van Wagner served as
Controller for Reddi Brake Supply Company, Inc., a distributor of parts to the
automotive after-market, from October 1996 to January 1998. From October 1995 to
October 1996, he was a business consultant. Prior to that he served an aggregate
of eight years with Standard Brands Paint Company, Inc., where he was Vice
President/Controller from August 1993 to October 1995. Standard Brands underwent
a voluntary re-organization under the United States Bankruptcy Code in 1992.
DONNA J. AIDEKMAN: Ms. Aidekman was named Vice President--Divisional
Merchandise Manager of the Company in March 1998. She has also served as the
Company's Director of Merchandising--Fashion Bedding from December 1995 to March
1998, Director of Merchandising--Bedding and Juvenile from August 1988 to
November 1995, Regional Store Manager from March to August 1988, and Store
Manager from April 1984 to March 1988. Before joining Strouds, Ms. Aidekman was
employed by J.W. Robinson's, a department store, as a department manager and
assistant buyer.
CAROLYN A. BUSH: Ms. Bush joined Strouds in January 1996 as Vice
President--Home Services. Prior to joining Strouds, Ms. Bush served as Vice
President of Lease and Cost Divisions for Broadway Stores Inc., formerly
Carter-Hawley Hale, from June 1994 through December 1995. From March 1992
through May 1994, she served as Executive Vice President and Chief Operating
Officer for East-West Floor Covering, Inc., a small floor covering company
specializing in operating lease departments within department stores. Prior to
this time, Ms. Bush served as Divisional Vice President of Lease and Home
Services, with Broadway Stores, Inc. Ms. Bush was with Broadway Stores, Inc. for
an aggregate of eleven years.
ROBERTA A. CHAVANCE: Ms. Chavance has served as Vice President--Human
Resources of the Company since 1990. From 1989 to 1990, Ms. Chavance was the
Director of Personnel and, from 1984 to 1989, the Manager of Personnel and
Training.
DENISE MARSICANO: Ms. Marsicano has served as Vice President--Stores of the
Company since 1993. From 1989 to 1993, Ms. Marsicano served as Regional Store
Manager and, from 1988 to 1989, as Store
8
<PAGE>
Manager. Prior to joining Strouds, Ms. Marsicano was employed by Bloomingdales
from 1976 to 1988 where she held the position of Buyer.
RICHARD L. STANTON: Mr. Stanton has served as Vice President--Management
Information Systems of the Company since March 1999. From November 1996 to
February 1999, Mr. Stanton was an Information Systems Management Consultant
associated with R.M. Menar & Associates, a management information systems
consulting firm. During that time, from December 1997 to February 1999, he
worked as a consultant to Strouds in Management Information Systems. From 1989
to 1996, Mr. Stanton served as Divisional Vice President of Services Marketing
for Broadway Stores, Inc., formerly Carter-Hawley Hale. Mr. Stanton was with
Broadway Stores, Inc. in management systems development for an aggregate of
sixteen years.
JEFFREY L. STROUD: Mr. Jeffrey Stroud was appointed to Vice
President--Divisional Merchandise Manager of the Company in October 1997. Mr.
Jeffrey Stroud has been with Strouds since 1990 and has served as the Director
of Merchandising for multiple divisions within the Company. Prior to joining
Strouds, Mr. Jeffrey Stroud was employed by May Company California, a chain of
department stores, from June 1983 to July 1990, where the last position that he
held was as a Buyer. Mr. Jeffrey Stroud is the son of Mr. Wilfred Stroud, the
Founder, Chairman Emeritus and director of the Company.
9
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below sets forth certain compensation
information concerning the Company's Chief Executive Officer, its former Chief
Executive Officer and its other most highly compensated executive officer (the
"Named Executive Officers") for services rendered in all capacities to the
Company during the fiscal year ended February 27, 1999:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------ SHARES OTHER
FISCAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
- --------------------------------- ---- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Charles R. Chinni (2)............ 1998 387,692 175,000(3) 100,000 65,909(4)
Chairman of the Board of 1997 222,116 -- 300,000 29,642(5)
Directors,
President, Chief Executive
Officer,
and Director
Wilfred C. Stroud................ 1998 204,000 -- 12,500 9,100(7)
Founder, Chairman Emeritus and 1997 204,000 -- 45,834(6) 29,246(7)
Director 1996 204,000 -- 12,500 37,293(7)
Douglas C. Felderman (11)........ 1998 183,077 -- 45,000 --
Senior Vice President--Finance, 1997 138,076 -- 55,000(8) 127(9)
Chief Financial Officer and 1996 110,000 12,500(10) 3,000 508(9)
Secretary
</TABLE>
- --------------------------
(1) Perquisites less than $50,000 or 10% of the total of annual salary and bonus
are not disclosed.
(2) Mr. Chinni joined the Company to serve as its President and Chief Executive
Officer in July 1997. The salary reported for fiscal year 1997 reflects
compensation received for a partial year.
(3) Reflects bonus received by Mr. Chinni during fiscal year ended February 27,
1999 for services rendered during fiscal year ended February 28, 1998.
(4) Includes $58,909 relating to housing and travel expenses and $7,000
representing an automobile allowance paid to Mr. Chinni by the Company.
(5) Includes $25,200 relating to relocation and travel expenses and $4,442
representing an automobile allowance paid to Mr. Chinni by the Company.
(6) Of these options, 12,500 represent new grants in fiscal 1997 and 33,334
represent the options that were repriced in May 1997.
(7) The Company contributed $235 and $2,391 to the Company's 401(k) plan on
behalf of Mr. Stroud for the fiscal years ended February 28, 1998 and March
1, 1997, respectively. The Company is a party to "split dollar" life
insurance agreements with a trust established by Mr. Stroud under which the
trust pays the portion of the premiums attributable to the death benefit
under life insurance policies insuring the lives of Mr. Stroud and his
spouse and owned by the trust, and the Company pays the balance of the
premiums. Upon the termination of the agreements or the deaths of Mr. Stroud
and his spouse, all premiums previously advanced by the Company under the
policies are required to be repaid by the trust. Included in the amounts
shown for Mr. Stroud in fiscal years 1997 and 1996 are $29,011 and $34,902,
respectively, representing the value of the premium payments by the Company
in such years, projected on an actuarial basis assuming that Mr. Stroud
retires at age 75 and the agreements are then terminated, and assuming an
interest rate equal to the Company's then incremental borrowing rate. Mr.
Stroud's retirement was effective February 28, 1999 and the value of the
premiums paid in 1998 equalled $9,100.
(8) Of these options, 45,550 represent new grants in fiscal 1997 and 9,450
represent the options that were repriced in May 1997.
(9) Represents Company matching contributions to the Company's 401(k) plan on
behalf of Mr. Felderman.
(10) Reflects bonus received by Mr. Felderman during fiscal year ended March 2,
1996 for services rendered during fiscal year ended February 25, 1995.
(11) Mr. Felderman resigned as an officer of the Company, effective May 27,
1999.
10
<PAGE>
OPTION GRANTS DURING FISCAL YEAR ENDED FEBRUARY 27, 1999
The following table sets forth certain information regarding grants of stock
options made to the Named Executive Officers during the fiscal year ended
February 27, 1999, including information as to the potential realizable value of
such options at assumed annual rates of stock price appreciation for the ten
year option terms:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT
SHARES PERCENT OF TOTAL ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN FISCAL EXERCISE FOR OPTION TERM(1)
GRANTED YEAR ENDED PRICE PER EXPIRATION ----------------------------
NAME (#) FEBRUARY 27, 1999 SHARE DATE 5% ($) 10% ($)
- ----------------------------- ----------- ------------------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Chinni............ 100,000 26.8% $2.88 04-28-08 $ 180,807 $ 458,201
Wilfred C. Stroud............ 12,500 3.4% $3.25 04-24-08 25,549 64,746
Douglas C. Felderman......... 45,000 12.1% $3.25 04-24-08 91,976 233,085
All Optionees................ 373,100 100.0% 1.44-3.25 03-19-08 634,657 1,608,346
01-13-09
All Stockholders (2)......... N/A N/A N/A N/A 15,527,060 39,348,618
All Optionees as a percent of
All Stockholders Gain....... N/A N/A N/A N/A 4.1% 4.1%
</TABLE>
- --------------------------
(1) The dollar amounts under these columns are the result of calculations at
five percent and ten percent rates set by the Securities and Exchange
Commission and therefore are not intended to forecast possible future
appreciation, if any, of the Company's Common Stock price. In the above
table, the Company did not use an alternative formula for a grant date
valuation, as the Company is not aware of any formula which will determine
with reasonable accuracy a present value based on future unknown or volatile
factors.
(2) These amounts represent the appreciated value which common stockholders
would receive at the hypothetical five and ten percent rates based on the
market value of Common Stock outstanding at or near the option grant dates.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED FEBRUARY 27, 1999 AND FISCAL
YEAR END OPTION VALUES
The following table sets forth certain information regarding options
exercised during fiscal year 1998 and options outstanding at February 27, 1999
for the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FEBRUARY 27, 1999 (#) FEBRUARY 27, 1999 ($)(1)
SHARES ACQUIRED -------------------------- --------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ------------------- ------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Chinni................. -- -- 75,000 325,000 $ 4,725 $ 14,175
Wilfred C. Stroud................. -- -- 16,428 41,906 3,088 5,528
Douglas C. Felderman.............. -- -- 14,180 85,820 1,742 3,978
</TABLE>
- --------------------------
(1) Amount represents the difference between the aggregated exercise prices of
unexercised options and a closing price of $1.94 per share of the Common
Stock as reported on the Nasdaq Stock Market on February 26, 1999, the last
trading day in fiscal year 1998.
11
<PAGE>
EMPLOYMENT AGREEMENTS
On July 7, 1997, Mr. Chinni and the Company entered into an employment
agreement (the "1997 Agreement"). Subsequently, on May 20, 1998, the Company and
Mr. Chinni amended and restated the original 1997 Agreement (the "1998
Agreement"), which expires on February 28, 2001. Pursuant to the terms of the
1998 Agreement, Mr. Chinni shall serve as the Company's President and Chief
Executive Officer and the Company will pay Mr. Chinni a base salary equal to
$350,000 during fiscal year 1997, $390,000 during fiscal year 1998, $425,000
during fiscal year 1999 and an amount to be determined by the Company's Board of
Directors for fiscal year 2000. At the end of each fiscal year, subject to
pre-determined improvements of the Company's financial performance, Mr. Chinni
is eligible to receive certain specified bonus amounts consisting of a
combination of cash and stock options. For fiscal year 1999, such amounts shall
not individually exceed $212,500 in cash and 225,000 in stock options, provided
that the Compensation Committee, at its discretion, may choose to pay cash for
all or a portion of such stock options in an amount equal to the fair market
value of such options, as determined in good faith by the Compensation
Committee. The 1998 Agreement further provides that as of the date of
employment, Mr. Chinni was granted options for the purchase of (i) 100,000
shares of Common Stock at an exercise price equal to the fair market value on
the date of grant and (ii) an additional 200,000 shares of Common Stock at the
fair market value on the date of grant, which grant was approved by the
Company's stockholders at the 1998 Annual Meeting of Stockholders. Additionally,
the 1998 Agreement provides for the Company to reimburse Mr. Chinni for certain
re-location, travel, out-of-pocket business and attorney expenses and to provide
Mr. Chinni with medical, hospital, surgical, disability, accidental death,
travel and/or life insurance coverage.
The Company is entitled to terminate Mr. Chinni's employment upon his death,
disability, "for cause" (E.G., neglect of duties, breach of covenants, failure
to correct employment deficiency, fraud, embezzlement, or acceptance of bribe or
kickback), an event of bankruptcy, reorganization or similar circumstances,
failure of Mr. Chinni to be nominated to the Company's Board of Directors or
"without cause" (reasons other than for his death, disability, or for cause).
Mr. Chinni may terminate his employment with the Company for any reason upon 60
days' written notice. In the event of a termination by the Company "without
cause" or failure of Mr. Chinni to be nominated to the Company's Board of
Directors, Mr. Chinni is entitled to a severance payment of his base salary in
effect at the time of termination for the remaining term of the 1998 Agreement
or for one year, whichever is greater.
The 1998 Agreement includes provisions restricting Mr. Chinni from
competing, directly or indirectly, with the Company during employment and for
two years after the termination of employment.
12
<PAGE>
COMPENSATION COMMITTEE REPORT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently is comprised of Messrs. Weiss and
Achabal, neither of whom is or has been an officer or employee of the Company or
any of its subsidiaries. Mr. Weiss serves as the chair of the Compensation
Committee. For a description of the background of each of these individuals, see
"Proposal 1--Election of Directors to the Board of Directors."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THE REPORT OF THE COMPENSATION COMMITTEE SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"1934 ACT"), EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES
THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER
SUCH ACTS.
* * * * * *
The Compensation Committee's policy is to establish compensation levels for
the Chief Executive Officer (the "CEO") and the other executive officers which
reflect the Company's overall performance and the individual executive's
performance, responsibilities and contributions to the long-term growth and
profitability of the Company. The Compensation Committee's policy is to
determine the appropriate executive compensation levels which will enable the
Company to attract and retain qualified executives.
The Compensation Committee, with the assistance of the CEO, determines the
compensation of the executive officers based on its evaluation of the Company's
overall performance, primarily based on the Company's sales and earnings
performance compared with the Company's operating plan, as well as various
qualitative factors such as the Company's product and service quality, the
extent to which the executive officer has contributed to forming a strong
management team and other factors which the Compensation Committee believes are
indicative of the Company's ongoing ability to achieve its long-term sales
growth and profit objectives. With respect to each executive, the Compensation
Committee focuses on that individual executive's areas of responsibility and his
contribution toward achieving corporate objectives.
Total compensation of each executive officer of the Company consists of four
components: (i) base salary, (ii) annual incentive in the form of a cash bonus,
(iii) long-term incentive in the form of equity based stock options and (iv)
miscellaneous benefits and perquisites. Each component is discussed below.
The principal component of the compensation of each executive officer is the
executive's base salary. In setting base salaries, the Compensation Committee
reviews the corporate and individual performance factors described above and the
practices of other public specialty retailers in comparable lines of trade and
public department store retailers. The comparison peer groups are not identical
to the peer group included in the performance comparison graph under "Stock
Performance Graph" below. The Compensation Committee attempts to set the
Company's base executive compensation levels at levels that generally
competitive in the industry. The base salary for Mr. Chinni, the Chairman of the
Board of Directors, President and CEO, for the fiscal year ended February 27,
1999 was $387,692. Mr. Chinni's base salary was established in accordance with
the terms of his employment agreement with the Company.
Executive officers are eligible to receive annual incentives in the form of
a combination of cash bonuses and stock options. For the fiscal year ended
February 27, 1999, the cash bonuses were targeted at 15-50% of base salary and
were based on the Company's financial performance against certain pre-defined
goals. In order to be more comparable with its primary peer group and to put a
greater proportion of its executive officers' total compensation at risk, the
Compensation Committee has determined that annual cash bonuses will be based on
achievement of pre-defined net income levels, as well as an executive's
13
<PAGE>
personal performance (although the Compensation Committee can approve exceptions
for outstanding individual performances). For the fiscal year ended February 27,
1999, the pre-defined financial performance targets were met. Accordingly, the
Compensation Committee awarded incentive cash bonuses to executive officers for
the fiscal year ended February 27, 1999. Mr. Chinni received a bonus of $195,000
for the fiscal year ended February 27, 1999.
The other bonus component of the total compensation of each executive
officer of the Company is long-term incentives in the form of equity-based stock
options. These incentives are used to encourage the Company's management to
maximize stockholder value and utilize vesting periods to assist the Company in
retaining key employees. In general, the number of equity-based stock options
granted by the Compensation Committee to each executive officer is based on an
option grant multiplier (which multiplier is, in part, based on the practices of
the Company's primary peer group) applied to each executive's base salary and an
estimate as to the fair market value of the underlying stock at the time of
grant of such options. The options granted to the CEO for the fiscal year ended
February 27, 1999 were 100,000.
The last component of total compensation is Company benefits and perquisites
generally consisting of car allowances, matching contributions to individual
executive's 401(k) Plans and customary life and health benefits. In addition,
Mr. Wilfred C. Stroud, the Founder, Chairman Emeritus and a director on the
Board of Directors, received split dollar life insurance benefits from the
Company. For a discussion of the benefits payable to Mr. Stroud in connection
with his retirement on February 27, 1999, see "Compensation of Directors."
During 1993, the Internal Revenue Code of 1986 was amended to include
Section 162(m) which denies a deduction to any publicly held corporation for
compensation paid to any "covered employee" (which is defined as the CEO and the
Company's other four most highly compensated officers, as of the end of a
taxable year) to the extent that the compensation exceeds $1.0 million in any
taxable year of the corporation beginning after 1993. Compensation which
constitutes "performance-based compensation" is excludable in applying the $1.0
million limit. It is the Company's policy to qualify compensation paid to its
top executives for deductibility under Section 162(m) in order to maximize the
Company's income tax deductions.
By the Compensation Committee
Marco F. Weiss, Chairman
Dale D. Achabal
14
<PAGE>
STOCK PERFORMANCE GRAPH
THE STOCK PERFORMANCE GRAPH BELOW SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OR UNDER THE 1934 ACT, EXCEPT
TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY
REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
Set forth below is a line graph comparing the total cumulative return of the
Company's Common Stock since the Company's initial public offering on October
12, 1994 to (a) a group of peer issuers with similar home retail businesses and
(b) the Nasdaq Stock Market--U.S. Index.
The historical stock market performance of the Common Stock shown below is
not necessarily indicative of future stock performance.
COMPARISON OF 52 MONTH CUMULATIVE TOTAL RETURN(1)
AMONG STROUDS, INC., A PEER GROUP(2) AND THE NASDAQ STOCK MARKET--US INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
10/12/94 2/25/95 3/2/96 3/1/97 2/28/98 2/27/99
<S> <C> <C> <C> <C> <C> <C>
Strouds, Inc. 100 60 36 31 16 16
Peer Group 100 95 100 120 230 243
NASDAQ Stock Market (U.S.) 100 104 146 176 241 314
</TABLE>
- ------------------------
(1) Assumes $100.00 was invested on October 12, 1994 in stock or index and
assumes dividends are reinvested.
(2) The Peer Group companies consist of Barnes & Noble, Inc., Bed Bath & Beyond
Inc., Bombay Company, Inc., Goodguys, Inc., Lechters, Inc., Linens 'n
Things, Inc., Pier 1 Imports, Inc., Three D Departments, Inc. and
Williams-Sonoma, Inc.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth the beneficial ownership of the Company's Common
Stock as of May 1, 1999 for (1) each of the Named Executive Officers (as defined
under "Executive Compensation-- Summary Compensation Table"), (2) each person
who is, as of May 1, 1999, a director on the Board of Directors of the Company,
including all nominees to the Board of Directors, and (3) all current directors
and current executive officers as of May 1, 1999 as a group. Pursuant to the
rules of the Securities and Exchange Commission, in calculating percentage
ownership, each person is deemed to beneficially own his own shares subject to
options exercisable within 60 days, but options owned by others (even if
exercisable within 60 days) are deemed not to be outstanding shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER POSITION OWNED CLASS
- ------------------------------- -------------------------------------------------- ----------------- -------------
<S> <C> <C> <C>
Charles R. Chinni.............. Chairman of the Board of Directors, President, and 140,000(a) 2.0%
Chief Executive Officer
Wilfred C. Stroud.............. Founder, Chairman Emeritus and Director 831,542(b) 11.8%
Douglas C. Felderman (c)....... Senior Vice President--Finance, Chief Financial 27,480(d) *
Officer and Secretary
Dale D. Achabal................ Director 13,250(e) *
Larry R. Bemis................. Director 8,700(e) *
Richard F. Clayton............. Director 2,500(f) *
Marshall S. Geller............. Director -- *(g)
Marco F. Weiss................. Director 6,750(h) *
All directors and executive 1,032,222(i) 14.3%
officers as a group
(9 persons)...................
</TABLE>
- --------------------------
* Less than 1%.
(a) Beneficial ownership includes 100,000 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next 60 days.
(b) Beneficial ownership includes 26,904 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next 60 days.
(c) Mr. Felderman resigned as an officer of the Company, effective May 27, 1999.
(d) Beneficial ownership includes 24,980 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next 60 days.
(e) Beneficial ownership includes 6,250 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next 60 days.
(f) Beneficial ownership includes 2,500 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next 60 days.
(g) Mr. Geller was appointed a director of the Company effective July 24, 1998.
(h) Beneficial ownership includes 3,750 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next 60 days.
(i) Beneficial ownership includes 172,634 shares of Common Stock which may be
acquired upon exercise of stock options exercisable within the next 60 days.
Also includes beneficial ownership by Gary A. Van Wagner, the Company's
Corporate Controller, of 2,000 shares of Common Stock.
16
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information regarding the beneficial
owners of more than 5% of the Company's Common Stock, other than the Company's
directors and executive officers, as of May 1, 1999:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS
- --------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
BT Capital Partners, Inc. ("BT Capital")......................................... 517,645(1) 7.4%
130 Liberty Street
New York, NY 10006
West Highland Capital, Inc. ("WHC").............................................. 680,000(2) 9.7%
300 Drake's Landing Road, Suite 290
Greenbrace, CA 94904
J.R. Zone, as Trustee of the
J.R. Zone 1983 Trust Agreement.................................................. 539,779(3) 7.7%
20700 Ventura Boulevard, #335
Woodland Hills, CA 91364
Dimensional Fund Advisors Inc. ("DFAI").......................................... 608,400(4) 8.6%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
U.S. Bancorp ("Bancorp")......................................................... 438,000(5) 6.2%
111 S.W. Fifth Avenue
Portland, OR 97204
Gabriel Capital, L.P............................................................. 833,600(6) 11.8%
450 Park Avenue
New York, NY 10022
Heartland Advisors, Inc. ("Heartland")........................................... 700,000(7) 9.9%
790 North Milwaukee Street
Milwaukee, WI 53202
</TABLE>
- --------------------------
(1) Information based solely on Amendment No. 7 dated as of April 21, 1999 to
the Schedule 13G dated February 14, 1995 filed by Bankers Trust Corporation,
a New York corporation, and its indirect wholly-owned subsidiary, BT
Capital, a Delaware corporation, with the Securities and Exchange
Commission. BT Capital has (i) sole voting power with respect to 517,645
shares of Common Stock and (ii) sole dispositive power with respect to
517,645 shares of Common Stock.
(2) Information based solely on the Schedule 13G dated February 14, 1995 filed
by WHC with the Securities and Exchange Commission. Lang H. Gerhard and West
Highland Partners, L.P. may be deemed to beneficially own certain of the
shares beneficially owned by WHC because of commonality of voting and/or
investment power.
(3) Information based solely on the Schedule 13G dated February 1, 1995 filed by
J.R. Zone with the Securities and Exchange Commission.
(4) Information based solely on Amendment No. 3 dated February 11, 1999 to the
Schedule 13G dated February 7, 1996 filed by DFAI with the Securities and
Exchange Commission. DFAI has (i) sole voting power with respect to 608,400
shares of Common Stock and (ii) sole dispositive power with respect to
608,400 shares of Common Stock. Schedule 13G of DFAI states that all
securities reported in the Schedule 13G are owned by DFAI's advisory
clients, including commingled group trusts, none of which, to the knowledge
of DFAI, owns more that 5% of the class.
(5) Information based solely on the Schedule 13G dated February 14, 1997 filed
by Bancorp with the Securities and Exchange Commission. Qualivest Capital
Management, Inc., a registered investment advisor and a wholly owned
subsidiary of United States National Bank of Oregon, a wholly owned
subsidiary of Bancorp, is deemed to have beneficial ownership of 235,300
shares, or 2.8% of the Common Stock. The remaining 202,700 shares or 2.3% of
the Common Stock are deemed to be beneficially held by the Trust Group of
Bancorp. Bancorp has (i) sole voting
17
<PAGE>
power with respect to 438,000 shares of Common Stock, (ii) sole dispositive
power with respect to 199,500 shares of Common Stock and (iii) shared
dispositive power with respect to 1,200 shares of Common Stock.
(6) Information based solely on the Schedule 13G dated April 13, 1998 filed with
the Securities and Exchange Commission jointly by Gabriel Capital, L.P., a
Delaware limited partnership ("Gabriel"), Ariel Fund Limited, a Cayman
Islands corporation ("Ariel Fund"), Ariel Management Corp., a Delaware
corporation and the investment advisor of Ariel Fund ("Ariel"), and J. Ezra
Merkin ("Merkin"), the general partner of Gabriel (collectively, the
"Reporting Persons"). Merkin is also the sole shareholder, sole director and
president of Ariel. The business address of each of Ariel and Merkin is 450
Park Avenue, New York, New York 10022. The business address of Ariel Fund is
c/o Maples & Calder, P.O. Box 309, Grand Cayman, Cayman Islands, British
West Indies. Merkin is a United States citizen. The Reporting Persons
previously filed a Statement on Schedule 13D relating to the event date of
September 15, 1997, as amended, with respect to the Common Stock.
(7) Information based solely on Amendment No. 1 dated February 4, 1999 to the
Schedule 13G dated February 2, 1998 filed by Heartland with the Securities
and Exchange Commission. Heartland has sole dispositive power with respect
to 700,000 shares of Common Stock. Schedule 13G of Heartland states that the
shares of common stock are held in investment advisory accounts of
Heartland. As a result, various persons have the right to receive or the
power to direct the receipt of dividends from, or the proceeds from the sale
of, the securities. The interests of one such account, Heartland Value Fund,
a series of Heartland Group, Inc., a registered investment company, relates
to more than 5% of the class.
18
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS RELATING TO CHF AND REFLECTIONS
In 1979, Mr. Stroud, the Founder, Chairman Emeritus and a director of the
Company, invested in Reflections Fine Bedding Attire, Inc. ("Reflections"), a
manufacturer of bedding merchandise and accessories. Until 1993, Mr. Stroud had
been a director of Reflections and had beneficially owned (along with his
spouse) 45% of the stock of Reflections. In the fiscal year ended February 27,
1999, Reflections sold approximately $0.2 million of merchandise to Strouds at
prices Strouds believes to be competitive with other suppliers of similar
products. The sales to Strouds during this period represented approximately
14.8% of Reflections' total sales.
The stockholders of Reflections had an outstanding debt obligation to a bank
lender in the amount of $675,000, the proceeds of which were loaned to
Reflections. In 1993, Mr. Stroud and his spouse assumed this note. Pursuant to
an understanding among the stockholders of Reflections, at such time as Mr. and
Mrs. Stroud are required to make payments on the note, the other stockholders
are required to reimburse them for their pro rata share (in accordance with
their stock ownership) of the note (the "Reflections Reimbursement Obligation").
On April 2, 1993, Reflections filed a voluntary Chapter 11 bankruptcy
proceeding. On June 1, 1993, CHF Industries, Inc. ("CHF"), an entity
unaffiliated with Reflections or Strouds, acquired substantially all of the
assets and business of Reflections (the "Reflections Business"). As part of the
acquisition, CHF required that Mr. Stroud enter into a Non-Competition and
Consulting Agreement with CHF, dated June 1, 1993 (the "CHF Agreement"). The CHF
Agreement provides generally that for a period of ten years from the date of the
closing of the purchase of the Reflections Business by CHF, neither Mr. Stroud
nor any affiliate of Mr. Stroud's will directly or indirectly compete with the
Reflections Business nor solicit any employee or supplier of Reflections or CHF
to alter or terminate their business relationship. The CHF Agreement further
provides that Mr. Stroud will consult with and advise CHF on an as-needed basis
with respect to the sale and marketing by CHF of merchandise to Reflections
Business customers, including, but not limited to, Strouds. So long as Mr.
Stroud is employed by the Company, the CHF Agreement would prevent the Company
from competing with Reflections in the manufacture of bedding merchandise and
accessories.
As consideration for Mr. Stroud's entering into the CHF Agreement, CHF
agreed to pay Mr. Stroud an amount based on a percentage of gross sales of the
Reflections Business, up to a maximum total payment of $825,000. In the event
that total gross sales of the Reflections Business to Strouds equals or exceeds
$2.5 million (subject to Consumer Price Index ("CPI") adjustment) in any
contract year ending May 31, then CHF is required to pay Mr. Stroud an amount
equal to 4.58% of total gross sales of the Reflections Business to all
customers, including Strouds. In the event that total gross sales of the
Reflections Business to Strouds is less than the $2.5 million target (subject to
CPI adjustment), then the payment would be reduced in the proportion by which
sales to Strouds failed to meet the target payments to Mr. Stroud and may not
exceed $275,000 for any May 31 contract year.
The CHF Agreement was disclosed to the Board of Directors of Strouds, and
all of the directors (except for Mr. Stroud, who abstained) approved the terms
of the CHF Agreement and the payments by CHF to Mr. Stroud.
All purchases by Strouds from Reflections and CHF have represented
independent decisions of the buying staff of Strouds based upon the quality and
design of product, salability, pricing, and the ability of CHF to meet a
satisfactory delivery schedule. The Company believes that all purchases from
Reflections and CHF have been in appropriate amounts and on terms comparable to
those that could have been obtained from other vendors. The Board of Directors
of the Company has adopted a policy of reviewing the Company's purchases from
CHF to determine whether such purchases have been in appropriate amounts and on
terms comparable to those that could have been obtained from other vendors. In
fiscal
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year ended February 27, 1999, purchases by Strouds from Reflections and CHF
equaled 0.1% of the Company's total cost of sales, including buying and
occupancy.
During the contract year ended May 31, 1998, total sales of the Reflections
Business were $2.0 million, of which $0.4 million were sales to Strouds.
Pursuant to the formula described above, Mr. Stroud received a payment of
$15,000 from CHF with respect to that contract year. To the extent that Mr.
Stroud receives payments under the CHF Agreement, the Reflections Reimbursement
Obligation will be reduced. As of May 31, 1998, a total of $548,000 (out of a
maximum of $825,000) had been paid to Mr. Stroud by CHF.
REGISTRATION RIGHTS
In November 1995, the Board of Directors adopted a Rights Agreement pursuant
to which it declared a dividend of one preferred stock purchase right (the
"Rights") for each share of Common Stock outstanding at the close of business on
November 30, 1995. Each Right will entitle the registered holder thereof, after
the Rights become exercisable and until November 17, 2005 (or the earlier
redemption, exchange or termination of the Rights), to purchase from the Company
one one-hundredth of a share of Series B Junior Participating Preferred Stock,
par value $0.0001 per share, at a price of $30.00 per one one-hundredth of a
Preferred Share, subject to certain anti-dilution adjustments.
In connection with the adoption of the Rights Agreement, and in order to
resolve an issue as to whether a previous registration rights agreement was
still in effect with BT Capital (the beneficial owner of approximately 7.4% of
the Company's Common Stock), the Company agreed to provide BT Capital with
certain demand and piggyback registration rights; PROVIDED, HOWEVER, that the
costs associated with exercising any such registration rights would be borne by
BT Capital.
CONFLICT OF INTEREST POLICY
In May 1995, the Board of Directors adopted a conflict of interest policy
which generally provides that no employee, officer or director of the Company
(individually and collectively, a "Company Person") should have any personal
interest that is incompatible with the loyalty and responsibility owed to the
Company. Pursuant to such policy, all Company Persons must discharge their
responsibility solely on the basis of what is in the best interest of the
Company and independent of personal considerations or relationships, and all
Company Persons are expected to adhere to both the letter and spirit of the
Company's conflict of interest policy.
OTHER RELATIONSHIP
Mr. Bemis, a director on the Company's Board of Directors, is a partner in
the law firm of Millar, Hodges & Bemis which has provided legal services to the
Company since the Company's formation and continues to provide such services on
an ongoing basis to the Company. Mr. Bemis's firm receives customary legal fees
for such services. For the fiscal year ended February 27, 1999, the aggregate
fees paid by the Company to the law firm of Millar, Hodges & Bemis was
approximately $13,000.
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OTHER INFORMATION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's directors and officers,
and persons who own more than ten percent of a registered class of the Company's
equity securities (collectively, "Insiders"), to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of the Common Stock. Insiders are required by the Securities and
Exchange Commission's regulations to furnish the Company with copies of all
Section 16(a) reports filed by such persons.
To the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company and written representations from the Insiders
that no other reports were required, during the fiscal year ended February 27,
1999, all Insiders complied with all Section 16(a) filing requirements
applicable to them.
OTHER MATTERS AT THE MEETING
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those mentioned in this Proxy Statement. If any other
matters are properly brought before the Annual Meeting, or any adjournment or
postponement thereof, it is intended that the proxies will be voted in
accordance with the best judgment of the person or persons voting such proxies.
COST OF SOLICITATION
The expense of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be paid by
the Company. In addition to the use of mails, certain directors, officers or
employees of the Company and its subsidiaries, who receive no compensation for
their services other than their regular salaries, may solicit and tabulate
proxies. The Company has retained D.F. King & Co., Inc., 77 Water Street, New
York, New York 10005, telephone (212) 269-5550, to assist in the solicitation of
proxies with respect to the shares of Common Stock held of record by brokers,
nominees and institutions. The estimated cost of the services of D.F. King &
Co., Inc. is $4,000, plus expenses.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any stockholder who meets the requirements of the proxy rules under the 1934
Act may submit to the Board of Directors proposals to be considered for
submission to the stockholders at the 2000 Annual Meeting. Any such proposal
must comply with the requirements of Rule 14a-8 under the 1934 Act and be
submitted in writing by notice delivered or mailed by first-class United States
mail, postage prepaid, to the Corporate Secretary, Strouds, Inc., 780 South
Nogales Street, City of Industry, California 91748, and must be received no
later than February 1, 2000. Any such notice shall set forth: (a) the name and
address of the stockholder and the text of the proposal to be introduced; (b)
the number of shares of stock held of record, owned beneficially and represented
by proxy by such stockholder as of the date of such notice; and (c) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to introduce the proposal specified in the notice. The chairman of
the meeting may refuse to acknowledge the introduction of any stockholder
proposal not made in compliance with the foregoing procedures.
In addition, the Company's Bylaws provide for notice procedures to recommend
a person for nomination as a director and to propose business to be considered
by stockholders at a meeting. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the annual meeting is given or made to the
stockholders, the stockholder's notice, to be timely, must be received no later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting
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was mailed or such public disclosure was made, whichever first occurs. A
stockholder's notice to the secretary of the Company shall set forth: (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and record address of the stockholder proposing such business, (c) the
class, series and number of shares of the Company which are beneficially owned
by the stockholder and (d) any material interest of the stockholder in such
business.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the 1934 Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission. Reports, proxy
statements and other information filed by the Company may be inspected without
charge and copies obtained upon payment of prescribed fees from the Public
Reference Section of the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
Securities and Exchange Commission's regional offices located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621-2511, or by way of the
Securities and Exchange Commission's Internet address, http://www.sec.gov.
The Company's Annual Report to Stockholders, including the Company's audited
financial statements, for the fiscal year ended February 27, 1999 is being
mailed to all stockholders of record. The Company will provide without charge to
each person to whom a copy of the Proxy Statement is delivered, upon the written
or oral request of any such persons, copies of the Company's Annual Report on
Form 10-K for the fiscal year ended February 27, 1999 filed with the Securities
and Exchange Commission. Requests for such copies should be addressed to:
Strouds, Inc., 780 South Nogales Street, City of Industry, California 91748,
Attn: Secretary, telephone (626) 912-2866.
ALL STOCKHOLDERS ARE URGED TO IMMEDIATELY COMPLETE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
[SIGNATURE]Charles R. Chinni
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
City of Industry, California
June 1, 1999
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P R O X Y
STROUDS, INC.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 30, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles R. Chinni or Gary A. Van Wagner, and
each of them, his or her attorneys and agents, with full power of substitution
to vote as proxy for the undersigned, as herein stated, at the Annual Meeting of
Stockholders of Strouds, Inc., to be held at Industry Hills Sheraton, One
Industry Hills Parkway, City of Industry, California, at 10:00 a.m., local time
on Wednesday, June 30, 1999 or at any adjournment or postponement thereof,
according to the number of votes the undersigned would be entitled to vote if
personally present on the proposals set forth below (and as more particularly
set forth in the Notice of Annual Meeting enclosed herewith) and in accordance
with their discretion on any other matters that may properly come before the
Annual Meeting or any adjournment thereof.
PLEASE MARK YOUR CHOICE LIKE THIS / / IN DARK INK AND SIGN AND DATE ON THE
REVERSE SIDE
<PAGE>
(1) ELECTION OF SEVEN DIRECTORS / / VOTE for ALL (EXCEPT AS MARKED TO THE
CONTRARY BELOW) / / WITHHELD for ALL
Charles R. Chinni Wilfred C. Stroud Larry R. Bemis Dale D. Achabal Marco F.
Weiss Richard F. Clayton Marshall S. Geller
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
(2) RATIFY THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
/ / FOR / / AGAINST / / ABSTAIN
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated June 1, 1999.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
Dated: ______________________, 1999
___________________________________
(Signature)
___________________________________
Signature if held jointly
Please sign exactly as your name
appears. Joint owners should each
sign. Trustees and others acting in
a representative capacity should
indicate the capacity in which they
sign.
