<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:
/ / 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 Section 240.14a-11(c) or
Section 240.14a-12
PAPER WAREHOUSE, 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:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
PAPER WAREHOUSE, INC.
7630 Excelsior Boulevard
Minneapolis, Minnesota 55426
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 9, 2000
-----------------------------
TO THE SHAREHOLDERS OF PAPER WAREHOUSE, INC.:
The Annual Meeting of Shareholders of Paper Warehouse, Inc., a
Minnesota corporation (the "Company"), will be held on Friday, June 9, 2000, at
10:00 a.m., local time, at the Company's corporate headquarters at 7630
Excelsior Boulevard, Minneapolis, Minnesota 55426, for the following purposes:
1. To consider and act upon a proposal to decrease the number of
members of the Board of Directors to six (6).
2. To elect six (6) persons to serve as directors until the next
annual meeting of shareholders or until their respective
successors shall be elected and qualified.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on April 30, 2000
will be entitled to notice of, and to vote at, the meeting and any adjournments
thereof.
By Order of the Board of Directors,
/s/ Diane C. Dolginow
Diane C. Dolginow
SECRETARY
May 10, 2000
Minneapolis, Minnesota
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. NO ADMISSION TICKET OR
OTHER CREDENTIALS WILL BE NECESSARY. IF YOU DO NOT PLAN TO ATTEND THE MEETING,
PLEASE BE SURE YOU ARE REPRESENTED AT THE MEETING BY MARKING, SIGNING, DATING
AND MAILING THE ENCLOSED PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED.
- --------------------------------------------------------------------------------
<PAGE>
PAPER WAREHOUSE, INC.
7630 EXCELSIOR BOULEVARD
MINNEAPOLIS, MINNESOTA 55426
(952) 936-1000
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
JUNE 9, 2000
INTRODUCTION
The Annual Meeting of Shareholders (the "Annual Meeting") of Paper
Warehouse, Inc. (the "Company") will be held on Friday, June 9, 2000, at 10:00
a.m., local time, at the Company's corporate headquarters at 7630 Excelsior
Boulevard, Minneapolis, Minnesota 55426, or at any adjournment or adjournments
thereof, for the purposes set forth in the Notice of Meeting.
A proxy card is enclosed for your use. YOU ARE SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS TO SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost of
soliciting proxies, including the preparation, assembly and mailing of proxies
and soliciting material, as well as the cost of forwarding such material to the
beneficial owners of the Company's common stock, $.01 par value (the "Common
Stock"), will be borne by the Company. Directors, officers and regular employees
of the Company may, without compensation other than their regular compensation,
solicit proxies by telephone, telegraph or personal conversation. The Company
may reimburse brokerage firms and others for expenses in forwarding proxy
materials to the beneficial owners of the Common Stock.
Any shareholder giving a proxy may revoke it at any time prior to its
use at the Annual Meeting either by giving written notice of such revocation to
the Secretary of the Company, by filing a duly executed proxy bearing a later
date with the Secretary of the Company, or by appearing at the Annual Meeting
and filing written notice of revocation with the Secretary of the Company prior
to use of the proxy. Proxies will be voted as specified by shareholders. Proxies
that are signed by shareholders but that lack any such specification will be
voted in favor of the proposals set forth in the Notice of Meeting and in favor
of the election of the nominees for directors as listed in this Proxy Statement.
Abstentions from such proposals are treated as votes against such proposals.
Broker non-votes on such proposals (I.E., a card returned by a broker because
voting instructions have not been received and the broker has no discretionary
authority to vote) are treated as shares with respect to which voting power has
been withheld by the beneficial holders of those shares and, therefore, as
shares not entitled to vote on such proposals.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE DECREASE OF THE
NUMBER OF DIRECTORS TO SIX AND THE ELECTION OF THE NOMINEES FOR DIRECTORS LISTED
IN THIS PROXY STATEMENT.
The Company expects that the Proxy Statement and Proxy Card will first
be mailed to shareholders on or about May 10, 2000.
1
<PAGE>
VOTING OF SHARES
Only holders of the Common Stock of record at the close of business on
April 30, 2000 will be entitled to vote at the Annual Meeting. On April 30,
2000, the Company had 4,639,475 outstanding shares of Common Stock. Each share
of Common Stock entitles the holder thereof to one vote on each matter to be
voted on at the Annual Meeting. Holders of shares of Common Stock are not
entitled to cumulative voting rights.
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
at the Annual Meeting (2,319,738 shares) will constitute a quorum for the
transaction of business at the Annual Meeting. Shares of Common Stock
represented by a properly signed and returned proxy card will be counted as
shares present and entitled to vote at the Annual Meeting for purposes of
determining a quorum, without regard to whether the card reflects abstentions
(or is left blank) or reflects a broker non-vote on a matter.
DECREASE THE NUMBER OF DIRECTORS TO SIX
(PROPOSAL NO. 1)
The bylaws of the Company provide that the Board of Directors shall
consist of not less than one (1) nor more than seven (7) directors. The number
of directors may be either increased or decreased by a resolution of the
shareholders at their regular meeting or at a special meeting called for that
purpose, or may be increased by a resolution of the majority of the Board of
Directors.
For most of fiscal 1999, the Board of Directors consisted of seven
members. In December 1999, however, Brent D. Schlosser's resignation left a
vacancy on the Board that the remainder of directors decided not to fill. Based
on Mr. Schlosser's resignation and the current vacancy that the Board has
determined not to fill, the Board recommends that the number of directors on the
Board be decreased to six.
BOARD OF DIRECTORS RECOMMENDATION
The approval of this proposal requires the affirmative vote of a
majority of the shares of Common Stock present and entitled to vote in person or
by proxy on this matter at the Annual Meeting, and at least a majority of the
minimum number of votes necessary for a quorum. Unless a contrary choice is
specified on the proxy card, proxies solicited by the Board of Directors will be
voted FOR approval of the proposal decreasing the number of directors to six.
The Board of Directors recommends that the shareholders vote FOR the decrease of
the number of directors to six. The Board intends to vote the proxies solicited
on its behalf (other than proxies in which the vote is against the proposal) FOR
the decrease in the number of directors to six.
The Board of Directors has nominated six individuals for election to
the Board at the Annual Meeting. See "Election of Directors" below. If the
proposal to decrease the number of directors to six is not approved at the
Annual Meeting, the number of directors will remain at seven and the Board in
its discretion will have the authority to select an additional nominee to be
elected at the Annual Meeting or to fill this vacancy following the Annual
Meeting by appointing a director to serve until his or her successor is elected
by the shareholders at the next annual or special meeting of the shareholders.
2
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL NO. 2)
NOMINATION
The Board has nominated the six individuals named below to stand for
election at the Annual Meeting. Directors elected at the Annual Meeting will
hold office until the next Annual Meeting of Shareholders or until their
respective successors have been elected and qualified. All of the nominees are
current members of the Board and have consented to serve as a director, if
elected.
The election of each director requires the affirmative vote of a
majority of the outstanding shares of Common Stock represented in person or by
proxy at the Annual Meeting, provided that a quorum consisting of a majority of
the voting power of the Company's outstanding shareholders is represented either
in person or by a proxy at the Annual Meeting. The Board recommends a vote FOR
the election of each of the nominees listed in this Proxy Statement. In the
absence of other instructions, the Board intends to vote the proxies solicited
on its behalf (other than proxies in which the vote is withheld) FOR the
election of each of the nominees as directors.
If prior to the Annual Meeting the Board should learn that any of the
nominees will be unable to serve by reason of death, incapacity or other
unexpected occurrence, the proxies will be cast for another nominee to be
designated by the Board to fill such vacancy, unless a shareholder indicates to
the contrary on his or her proxy. Alternatively, the proxies may, at the Board's
discretion, be voted for such fewer nominees as results from such death,
incapacity or other unexpected occurrence. The Board has no reason to believe
that any of the nominees will be unable to serve.
INFORMATION ABOUT NOMINEES
The following table sets forth certain information as of March 1, 2000,
which has been furnished to the Company by the persons who have been nominated
by the Board to serve as directors for the ensuing year.
<TABLE>
<CAPTION>
NAME OF NOMINEES PRINCIPAL DIRECTOR
FOR ELECTION AGE OCCUPATION SINCE
- ------------ --- ---------- -----
<S> <C> <C> <C>
Yale T. Dolginow (1) 57 Chairman of the Board, President and Chief 1986
Executive Officer of the Company
Arthur H. Cobb (2) 49 President of Cobb & Associates, Ltd. 1992
Diane C. Dolginow 56 Secretary of the Company 1986
Jeffrey S. Halpern(1) 57 Chairman of the Board and Chief Executive Officer 1997
of Southwest Casino and Hotel Corp.
Marvin W. Goldstein (1)(2) 56 Private Investor 1996
Martin A. Mayer (1)(2) 57 Financial Consultant 1992
- ----------------------------------
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
3
<PAGE>
OTHER INFORMATION ABOUT NOMINEES
YALE T. DOLGINOW has been President, Chief Executive Officer and a director
of the Company since 1986. From 1982 to 1986, Mr. Dolginow served as President
and Chief Executive Officer of Carlson Catalog Showrooms, Inc., which was a
chain of 59 catalog showrooms located throughout the Midwest. From 1981 to 1982,
Mr. Dolginow served as Assistant to the President of Dayton Hudson Corporation,
k/n/a Target Corporation. From 1978 to 1980, Mr. Dolginow served as President of
Modern Merchandising, Inc., a 70-store retail chain operating in several
markets, and as Executive Vice President from 1977 to 1978. From 1968 until
1976, Mr. Dolginow was the Chief Executive Officer and President of Dolgin's,
Inc., a chain of catalog showroom stores that operated in the Kansas City and
St. Louis metropolitan markets. Mr. Dolginow is a director of Richfield Bank &
Trust Co. and Bet Shalom Congregation. Mr. Dolginow and Diane C. Dolginow are
husband and wife.
ARTHUR H. COBB has been a director of the Company since 1992. He is a
consultant and certified public accountant. Since 1978, he has been engaged in
providing financial consulting services and is President of Cobb & Associates,
Ltd. Mr. Cobb was a partner with Peat Marwick Mitchell & Co., k/n/a KPMG LLP, a
public accounting firm.
DIANE C. DOLGINOW has been a director of the Company since 1986 and
Secretary since August 1997. Ms. Dolginow was a director of Dolgin's Inc. from
1968 to 1976, and since 1994 has been a director on the National Advisory Board
of School of Education at the University of Kansas. Ms. Dolginow and Mr.
Dolginow are husband and wife.
MARVIN W. GOLDSTEIN has been a director of the Company since December 1996.
Mr. Goldstein is currently a private investor. From April 1997 through August
1997, Mr. Goldstein was Executive Vice President and Chief Operating Officer of
Regis Corp., a national chain of hair salons. From August 1995 through April
1997, Mr. Goldstein was Chairman of the Board, Chief Executive Officer and
President of Pet Food Warehouse, Inc., a specialty retailer. From February 1988
to September 1994, Mr. Goldstein served in various positions at the Department
Store Division of Dayton Hudson Corporation, k/n/a/ Target Corporation,
including President and Chief Operating Officer, and Chairman and Chief
Executive Officer. Mr. Goldstein is a director, and serves on the compensation
committee, of each of the following companies: Ali-Mac, A.R.C.A., Inc., Buffets,
Inc., Fieldworks, Inc., Greenspring Company, KBGear, Kidboard, Inc., Red
Tag.com, and Wilson's The Leather Experts. With the exception of A.R.C.A., Inc.,
Buffets, Fieldworks, Inc. and Wilson's The Leather Experts, all of the foregoing
companies are privately held companies.
JEFFREY S. HALPERN has been a director of the Company since 1997. He has
been Chairman of the Board and Chief Executive Officer of Southwest Casino and
Hotel Corp. since 1993. Mr. Halpern was a partner in the law firm of Popham,
Haik, Schnobrich & Kaufman, Ltd. from 1989 until 1993, and a founding partner of
Halpern & Druck from 1980 to 1989.
MARTIN A. MAYER has been a director of the Company since 1992. He has been
an independent financial consultant since 1992. Mr. Mayer was a partner with
Peat Marwick Mitchell & Co., k/n/a KPMG LLP, a public accounting firm, from 1973
until 1992. Mr. Mayer is a certified public accountant. Mr. Mayer is a director
of Direct III Marketing.
4
<PAGE>
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board of Directors met, or took action by written consent, six
times during fiscal 1999. All of the directors attended at least 75% of the
aggregate number of meetings of the Board and all such committees on which they
served during fiscal 1999.
The Board has established and maintains an Audit Committee and a
Compensation Committee. The Audit Committee provides assistance to the Board in
satisfying its responsibilities relating to accounting, auditing, operating and
reporting practices of the Company, and reviews the annual financial statements
of the Company, the selection and work of the Company's independent auditors and
the adequacy of internal controls for compliance with corporate policies and
directives. During fiscal 1999, the Audit Committee consisted of Messrs. Cobb,
Goldstein and Mayer, and met twice. Mr. Cobb, Mr. Goldstein and Mr. Mayer will
serve as members of the Audit Committee during fiscal 2000.
The Compensation Committee makes recommendations to the Board
concerning the compensation of the Company's directors, executive officers and
key managers, and acts on such other matters relating to their compensation as
it deems appropriate. In addition, the Compensation Committee administers the
Company's 1997 Stock Option and Compensation Plan (the "1997 Plan"), and thus it
has the right to determine grants and terms of awards. The Compensation
Committee consisted of Messrs. Dolginow, Goldstein, Halpern and Mayer in fiscal
1999, and met, or took written action, once during fiscal 1999.
DIRECTOR COMPENSATION
DIRECTORS' FEES. The Company pays non-employee directors $10,000 per
year. All out-of-pocket expenses incurred on behalf of the Company are
reimbursed.
OPTIONS. Eligible directors also participate in the Director Stock
Option Plan (the "Director Plan"). The Board administers the Director Plan.
Pursuant to the terms of the Director Plan, upon election to the Board, each
non-employee director will be automatically granted a non-statutory option to
purchase 10,000 shares of Common Stock at an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. Such options
vest in one-third increments beginning on the first anniversary of the date of
grant and on each of the next two anniversaries of such date. On September 9,
1999, pursuant to the Company's 1997 Stock Option and Compensation Plan (as
amended), the Board granted each of its non-employee directors a non-statutory
option to acquire 20,000 shares of Common Stock at an exercise price of $2.00
per share, the closing sale price of the Company's Common Stock on the date of
grant. Each of these options have a term of 10 years from the date of grant and
vest in one-third increments beginning on the first anniversary of the date of
grant and on each of the next two anniversaries of such date. See "Change in
Control Arrangements."
CONSULTING SERVICES. In fiscal 1999, the Company paid Martin A. Mayer
$25,000 plus expenses for consultation and strategic planning services Mr. Mayer
rendered to the Company in connection with senior management strategic planning
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The
following were members of the Compensation Committee for fiscal 1999: Yale T.
Dolginow, Jeffrey S. Halpern, Marvin W. Goldstein and Martin A. Mayer. Mr.
Dolginow served in fiscal 1999 as the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company.
5
<PAGE>
PRINCIPAL SHAREHOLDERS AND BENEFICIAL
OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 1, 2000, unless
otherwise noted, by (a) each shareholder who is known by the Company to
beneficially own more than 5% of the outstanding Common Stock; (b) each director
and nominee for election to the Board; (c) each executive officer named in the
Summary Compensation Table (see page 9 of this Proxy Statement); and (d) all
executive officers and directors of the Company as a group. The address for all
executive officers and directors of the Company is 7630 Excelsior Boulevard,
Minneapolis, Minnesota 55426.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
--------------------------
PERCENT OF
NAME AMOUNT CLASS (2)
- ---- -------------- ----------
<S> <C> <C>
Yale T. Dolginow....................................................... 1,917,443 (3) 41.3%
Arthur H. Cobb......................................................... 11,417 (4) *
Diane C. Dolginow ..................................................... 0 (5) *
Marvin W. Goldstein.................................................... 20,417 (4) *
Jeffrey S. Halpern..................................................... 10,417 (4) *
Martin A. Mayer ....................................................... 53,740 (6) 1.2%
Brent D. Schlosser..................................................... 286,375 (7) 6.2%
Cheryl W. Newell....................................................... 20,000 (8) *
Steven R. Anderson..................................................... 7,967 (9) *
Steven P. Durst........................................................ 11,200 (10) *
Wellington Management Company LLP
75 State Street 444,900 (11) 9.6%
Boston, Massachusetts 02109............................................
All current directors and executive officers
as a group (9 persons) ............................................... 2,059,599 (12) 44.2%
</TABLE>
- -----------------------------------
* Less than 1% of the outstanding shares.
6
<PAGE>
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days are
treated as outstanding only when determining the amount and percent owned
by such person or group. Unless otherwise noted, individuals or entities
possessing sole voting and investment power with respect to such shares
of Common Stock hold all of the shares shown.
(2) Calculated based on 4,639,475 shares of Common Stock outstanding as of
March 1, 2000 plus such amount such person may have the right to acquire
within 60 days.
(3) Includes 300,000 shares owned individually by Mr. Dolginow's three
daughters (100,000 shares each) and 1,000 shares held in trust for one of
Mr. Dolginow's daughters.
(4) Includes options to purchase 10,417 shares of Common Stock exercisable
within 60 days.
(5) Does not include shares beneficially owned by Yale T. Dolginow, Ms.
Dolginow's husband.
(6) Includes options to purchase 48,740 shares of Common Stock exercisable
within 60 days, of which 38,323 shares represent shares issuable upon
exercise of a stock option granted to Mr. Mayer by Mr. Dolginow.
(7) Mr. Schlosser resigned from the Company in December 1999.
(8) Includes options to purchase 17,000 shares of Common Stock exercisable
within 60 days.
(9) Includes options to purchase 7,467 shares of Common Stock exercisable
within 60 days.
(10) Includes options to purchase 11,200 shares of Common Stock exercisable
within 60 days.
(11) Based solely on a Schedule 13G dated December 31, 1999, reporting
beneficial ownership of 444,900 shares of Common Stock held by Wellington
Management Company, LLP ("WMC"), as an investment adviser, which are all
held of record by clients of WMC. WMC has shared voting power over
219,900 shares and shared dispositive power over 444,900 shares.
(12) Includes options to purchase 115,656 shares of Common Stock exercisable
within 60 days.
7
<PAGE>
EXECUTIVE COMPENSATION AND OTHER BENEFITS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides summary information concerning cash and
non-cash compensation for each of the last three fiscal years paid to or earned
by the Company's President and Chief Executive Officer and the four other most
highly compensated executive officers of the Company, each of whose total annual
salary and bonus exceeded $100,000 in the fiscal year ended January 28, 2000
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
NAME AND YEAR SALARY ($) BONUS UNDERLYING ALL OTHER
---- ---------- -----
PRINCIPAL POSITION ($) OPTIONS (#) COMPENSATION ($)(1)
- ------------------ --- ----------- -------------------
<S> <C> <C> <C> <C> <C>
Yale T. Dolginow 1999 $285,000 $--- --- $27,405
PRESIDENT AND 1998 285,000 --- --- 27,405
CHIEF EXECUTIVE OFFICER 1997 285,000 --- --- 27,335
Brent D. Schlosser (2) 1999 145,000 --- --- 1,450
FORMER EXECUTIVE VICE 1998 145,000 --- --- 1,394
PRESIDENT 1997 145,000 --- --- 1,450
Cheryl W. Newell (3) 1999 139,000 --- --- 1,342
VICE PRESIDENT AND 1998 125,000 15,000 17,000 481
CHIEF FINANCIAL OFFICER 1997 62,700 --- 17,000 ---
Steven R. Anderson (4) 1999 135,000 --- --- 53
VICE PRESIDENT AND 1998 20,700 --- 22,400 ---
CHIEF INFORMATION OFFICER
Steven P. Durst (5) 1999 114,400 --- --- 1,023
VICE PRESIDENT OF 1998 93,500 10,000 11,200 787
MERCHANDISING 1997 70,000 5,000 11,200 700
</TABLE>
(1) Represents amounts of matching contributions made by the Company to the
Named Executive Officers' respective 401(k) accounts, except for Mr.
Dolginow which amounts also includes $25,727 for each year as the value of
benefits for Mr. Dolginow, determined as prescribed by the Securities and
Exchange Commission for such valuations, under a "split-dollar" life
insurance arrangement for fiscal 1999, 1998 and 1997, respectively.
(2) Mr. Schlosser resigned from the Company in December 1999.
(3) Ms. Newell has been Vice President and Chief Financial Officer of the
Company since August 1997.
(4) Mr. Anderson has been Vice President and Chief Information Officer of the
Company since November 1998.
(5) Mr. Durst has been Vice President of Merchandising since June 1998 and has
been with the Company since 1995.
8
<PAGE>
OPTION GRANTS AND EXERCISES
No options were granted to or exercised by any of the Named Executive
Officers during the fiscal year ended January 28, 2000.
The following table summarizes the number and value of options held by
the Named Executive Officers as of January 28, 2000.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
JANUARY 28, 2000(#) AT JANUARY 28, 2000($)(1)(2)
-------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Yale T. Dolginow --- --- $--- $---
Brent D. Schlosser (3) --- --- --- ---
Cheryl W. Newell 17,000 17,000 --- ---
Steven R. Anderson 7,467 14,933 --- ---
Steven P. Durst 11,200 11,200 --- ---
</TABLE>
(1) Based on the January 28, 2000 closing price of the Common Stock of
$1.44.
(2) The "Value of Unexercised In-the-Money Options" amounts are calculated
based on the excess of the market value of the Common Stock at January
28, 2000 over the exercise price. The exercise price of options may be
paid in cash or in shares of the Company's Common Stock valued at fair
market value on the day prior to the date of exercise.
(3) Mr. Schlosser resigned from the Company on December 6, 1999.
EMPLOYMENT AGREEMENTS
In July 1997, the Company entered into an employment agreement with Cheryl
W. Newell pursuant to which she serves as Chief Financial Officer of the
Company. Pursuant to Ms. Newell's employment agreement, she receives an annual
base salary of $115,000, subject to increase by the Board based upon
performance, appropriate industry guideline data and other factors. Ms. Newell
may also receive an annual bonus based upon her performance. Upon the completion
of the Company's initial public offering of its Common Stock, Ms. Newell
received an option to purchase 17,000 shares of the Company's Common Stock as
provided in her employment agreement. Pursuant to such agreement, Ms. Newell may
not during the agreement term or for one year thereafter disclose confidential
information about the Company and may not compete with the Company for a
two-year period after any termination of her employment with the Company. Ms.
Newell may terminate her employment with the Company upon 30 days' written
notice to the Company at any time for any reason.
9
<PAGE>
Mr. Schlosser resigned from his position at the Company effective
December 6, 1999. Pursuant to a Separation Agreement between the Company and Mr.
Schlosser, the Company paid Mr. Schlosser his salary for four months. Through
this salary continuation period, the Company agreed to continue to pay its share
of employee benefit coverage for health, life, and dental insurance. In
consideration for these payments and other benefits received by Mr. Schlosser
pursuant to the Separation Agreement, Mr. Schlosser agreed not to compete with
Paper Warehouse for one year.
CHANGE IN CONTROL ARRANGEMENTS
Under the Company's 1997 Stock Option and Compensation Plan, as amended
(the "1997 Plan"), if a change in control (as described below) of the Company
occurs, then, unless otherwise determined by the Board of Directors and a
majority of the "continuing directors" (as defined below), (i) the restrictions
on all shares of Restricted Stock Awards lapse immediately, (ii) all outstanding
Options and Stock Appreciation Rights will become exercisable immediately, and
(iii) all Performance shares shall be deemed to be met and payment made
immediately for purposes of the 197 Plan. Under the 1997 Plan a "change in
control" occurs when (i) any person or group becomes the beneficial owner of 30%
or more of any equity security of the Company entitled to vote for the election
of directors; (ii) a majority of the members of the Board are replaced within
the period of less than two years by directors not nominated and approved by the
Board; or (iii) the shareholders of the Company approve an agreement to merge or
consolidate with or into another corporation or an agreement to sell or
otherwise dispose of all or substantially all of the company's assets (including
a plan of liquidation). Under the 1997 Plan "continuing directors" are defined
as (a) directors who were in office prior to (1) the occurrence of or public
announcement of a "change in control" or (2) any person publicly announcing an
intention to acquire 20% or more of any equity security of the Company, (b)
directors in office for a period of more than two years, and (c) directors
nominated and approved by the "continuing directors".
10
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Compensation Committee") of the Board
has generally made decisions on compensation of the Company's executives. In
fiscal 1999, the Compensation Committee consisted of Messrs. Dolginow,
Goldstein, Halpern and Mayer. Messrs. Goldstein, Halpern and Mayer are
non-employee directors. All decisions by the Compensation Committee relating to
the compensation of the Company's executive officers are reviewed by the full
Board. Pursuant to rules designed to enhance disclosure of the Company's
policies toward executive compensation, set forth below is a report prepared by
the Compensation Committee addressing the Company's compensation policies for
the fiscal year ended January 28, 2000, as they affected the Company's Named
Executive Officers.
The Compensation Committee's executive compensation policies are
designed to:
- align the long-term interests of management with those of the
Company's shareholders,
- provide competitive levels of compensation that integrate pay
with the Company's annual objectives and long-term goals,
- reward above average corporate performance,
- recognize individual initiative and achievements, and
- assist the Company in attracting and retaining qualified
executives.
Executive compensation is set at levels that the Compensation Committee
believes to be competitive with those offered by employers of comparable size,
growth and profitability in the Company's industry.
There are three elements in the Company's executive compensation
program, all determined by individual and corporate performance: base salary
compensation, bonus compensation and long-term incentive compensation. In
determining each component of compensation, the Compensation Committee considers
an executive's total compensation package. Base salary compensation is
determined by the potential impact the individual may have on the Company, the
skills and experiences required by the individual's position, comparisons with
comparable companies and the performance and potential of the incumbent in the
position.
The Compensation Committee determines compensation by reviewing
competitive compensation data and subjectively considering the overall scope of
each position and its strategic importance to the Company, evaluating the
executive's performance and length of time since the executive's last salary
adjustment and bonus. Based on the above criteria, the Company's executive
compensation program for fiscal 1999 did not provide for the payment of annual
bonuses to Mr. Dolginow or any of the other four most highly compensated
executive officers.
Long-term incentive compensation under the Company's 1997 Plan is
designed to align the long-term interests of management with those of the
Company's shareholders, integrate compensation with the Company's annual
objectives and long-term goals, reward above-average corporate performance,
recognize individual initiative and achievements and assist in the retention of
executives. The Compensation Committee makes recommendations to the Board
regarding the granting of awards under the 1997 Plan to executives and key
personnel. Awards vest and options become exercisable based upon criteria
established by the Company. In light of the significant equity ownership of Mr.
Dolginow and Mr. Schlosser, the Compensation Committee did not recommend, and no
awards were granted under the 1997 Plan to either Mr. Dolginow or Mr. Schlosser
in fiscal 1999. During fiscal 1999, the Compensation Committee did not
recommend, and no awards were granted to Ms. Newell, Mr.
Durst or Mr. Anderson.
SECTION 162(m). Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), limits the deductibility of certain compensation paid to
the Chief Executive Officer and each of
11
<PAGE>
the Named Executive Officers of a publicly held corporation to $1,000,000. In
fiscal 1999, the Company did not pay "compensation" within the meaning of
Section 162(m) to such Named Executive Officers in excess of $1,000,000, and
does not believe it will do so in the foreseeable future. The Company does not
have a policy at this time regarding qualifying compensation paid to its
executive officers for deductibility under Section 162(m), but will formulate
such a policy if compensation levels ever approach $1,000,000.
COMPENSATION COMMITTEE
----------------------
Yale T. Dolginow
Marvin W. Goldstein
Jeffrey S. Halpern
Martin A. Mayer
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STOCK PERFORMANCE GRAPH
In accordance with the rules of the Securities and Exchange Commission
("SEC"), the following performance graph compares for the period from November
25, 1997 (the date of the Company's initial public offering) to January 28,
2000, the yearly cumulative total shareholder return on the Company's Common
Stock on the Nasdaq National Market with the yearly cumulative total return over
the same period on the Nasdaq Stock Market of all domestic issuers traded on the
Nasdaq National Market and Small Cap Market (the "Nasdaq Market Index") and the
total return of the Nasdaq Retail Trade Index. The comparison assumes the
investment of $100 on November 25, 1997 in each of the Company's Common Stock,
the Nasdaq Market Index and the Nasdaq Retail Trade Index, and that any
dividends paid were reinvested in the same security.
<TABLE>
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
PAPER WAREHOUSE, INC., NASDAQ MARKET INDEX AND PEER GROUP INDEX
<S> <C> <C> <C> <C>
COMPANY/INDEX/MARKET 11/25/97 1/30/98 1/29/99 1/28/00
-------------------- -------- ------- ------- -------
Paper Warehouse, Inc. 100.00 80.99 28.10 19.01
NASDAQ Retail Trade Index 100.00 101.63 124.17 101.83
NASDAQ Market Index 100.00 101.43 158.30 239.79
</TABLE>
13
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company employs Steven P. Durst as Vice President of Merchandising,
a position he has held since June 1998. Prior to that time, Mr. Durst was the
Company's Vice President of Information Systems since 1997. From 1995 to 1997,
Mr. Durst was the Company's Director of Information Systems. Mr. Durst is the
son-in-law of Yale T. and Diane C. Dolginow, the President and Chief Executive
Officer and Secretary of the Company, respectively. During fiscal 1999, the
Company paid Mr. Durst $114,400 in annual compensation.
Prior to its initial public offering, the Company was treated as an
S-Corporation under the Code for federal and certain state income tax purposes.
As a result, earnings of the Company were taxed directly to its then
shareholders, Mr. Dolginow and Mr. Schlosser (the "Private Shareholders") rather
than to the Company. To provide the Private Shareholders with the funds to pay
income taxes on such earnings and as a return on their investment, the Company
paid annual distributions to the Private Shareholders. In connection with the
completion of its initial pubic offering, the Company converted from an
S-Corporation to a C-Corporation under the Code.
The Company and the Private Shareholders are parties to an
S-Corporation Tax Allocation and Indemnification Agreement (the "Tax Agreement")
relating to their respective income tax liabilities. The Tax Agreement
indemnifies the Private Shareholders for any adjustments causing an increase in
the Private Shareholders' federal and state income tax liability (including
interest and penalties) related to the Company's tax years prior to the
completion of the Company's initial public offering, unless such adjustments
result in or are related to a corresponding decrease in the Private
Shareholders' federal and state income tax liability with respect to another
S-Corporation taxable year. Subject to certain limitations, the Tax Agreement
also provides that the Company will be indemnified by the Private Shareholders
with respect to federal and state income taxes (plus interest and penalties)
related to shifting from an S-Corporation taxable year to a corporate taxable
year following the completion of the Company's initial public offering. Since
the Private Shareholders have not given any security for their indemnification
obligation, the Company's ability to collect such payments would depend upon the
financial condition of the Private Shareholders at the time any such
indemnification obligation arose. The Company is not aware of any tax
adjustments that may arise under the Tax Agreement. The Tax Agreement further
provides that to the extent that the accumulated taxable income of the Company
prior to its conversion to a C-Corporation was less than the S-Corp Dividend,
the Private Shareholders would make a payment equal to such difference to the
Company, and if such accumulated taxable income was greater than the aggregate
amount of the S-Corp Dividend, the Company would make an additional distribution
equal to such difference to the Private Shareholders, in either case, with
interest thereon. Any payment made by the Company to the Private Shareholders
pursuant to the Tax Agreement may be considered by the Internal Revenue Service
or the state taxing authorities to be nondeductible by the Company for income
tax purposes.
Mr. Dolginow is a director of Richfield Bank & Trust Co. ("RB&T"). The
Company had a $7.5 million line of credit with RB&T, which was repaid in full on
June 7,1999. In June 1995, RB&T loaned the Company $525,000 to finance, in part,
the acquisition of the Company's corporate headquarters. This loan was repaid in
full on April 8, 1999. Mr. Dolginow also personally guaranteed a loan to the
Company from the U.S. Small Business Administration in the original principal
amount of $433,000, the proceeds of which were also used to finance, in part,
the acquisition of the Company's corporate headquarters. The loan was repaid in
full and the guaranty released on March 18, 1999.
14
<PAGE>
On February 23, 2000, Yale Dolginow, our Chairman and Chief Executive
Officer signed a letter of intent to purchase our corporate office building at
fair market value, to be determined by an outside appraisal. The transaction is
contingent upon a satisfactory purchase and lease agreement, is subject to
financing and is expected to be completed by the end of the second quarter of
fiscal 2000.
In March 2000, Yale T. Dolginow, our Chairman and Chief Executive
Officer, through Wells Fargo, N.A. issued a $1.2 million Standby Letter of
Credit in favor of Fleet Retail Finance, Inc. as beneficiary. The Standby Letter
of Credit expires on December 6, 2000, although it may expire as early as
September 2000 assuming certain conditions are met. This Standby Letter of
Credit caused Fleet Retail Finance, Inc., the lender for our revolving line of
credit, to provide us with up to a $1.2 million overadvance on our revolving
line of credit. We have agreed to indemnify Mr. Dolginow for any liability he
may incur in connection with the Standby Letter of Credit.
The Company believes that all prior transactions between the Company,
its officers, directors or other affiliates of the Company have been on terms no
less favorable than could have been obtained from unaffiliated third parties.
Any future transactions and loans with officers, directors or 5% beneficial
shareholders of the Company's Common Stock will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties and will be
approved by a majority of the independent outside members of the Company's Board
of Directors who do not have an interest in the transactions.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company does not intend to request that the shareholders approve
the selection of Grant Thornton LLP, independent auditors, for fiscal 2000. The
Company has requested and expects, however, a representative of Grant Thornton
LLP to be present at the Annual Meeting. Such representative will have an
opportunity to make a statement if he or she so desires and will be available to
respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and all
persons who beneficially own more than 10% of the outstanding shares of the
Company's Common Stock to file with the SEC initial reports of ownership and
reports of changes in ownership of the Company's Common Stock. Executive
officers, directors and greater than 10% beneficial owners are also required to
furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based upon a review of the copies of such reports furnished
to the Company during the year ended January 28, 2000 and written
representations by such persons, none of the directors, officers and beneficial
owners of greater than 10% of the Company's Common Stock failed to file on a
timely basis the forms required by Section 16(a) of the Exchange Act.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Shareholder proposals intended to be presented in the Company's proxy
materials relating to the next annual meeting of shareholders must be received
by the Company at its principal executive offices on or before January 6, 2001,
and must satisfy the requirements of the proxy rules promulgated by the SEC.
15
<PAGE>
A shareholder who wishes to make a proposal at the next annual meeting
of shareholders without including the proposal in the Company's proxy materials
must notify the Company by March 19, 2001. If a shareholder fails to give notice
by this date, then the persons named as proxies in the proxy card solicited by
the Company for the next annual meeting of shareholders will have discretionary
authority to vote on the proposal.
OTHER MATTERS
The management of the Company does not intend to present other items of
business and knows of no items of business that are likely to be brought before
the Annual Meeting except those described in this Proxy Statement. However, if
any other matters should properly come before the Annual Meeting, the persons
named in the enclosed proxy card will have discretionary authority to vote such
proxy in accordance with their best judgment on such matters.
MISCELLANEOUS
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON
FORM 10-K (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED JANUARY 28, 2000 TO
EACH PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF APRIL 30, 2000, UPON
RECEIPT FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT.
SUCH REQUEST SHOULD BE SENT TO: PAPER WAREHOUSE, INC., 7630 EXCELSIOR BOULEVARD,
MINNEAPOLIS, MINNESOTA 55426; ATTN: SHAREHOLDER INFORMATION.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Yale T. Dolginow
Yale T. Dolginow
CHAIRMAN OF THE BOARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
May 10, 2000
Minneapolis, Minnesota
16
<PAGE>
PAPER WAREHOUSE, INC.
2000 ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, JUNE 9, 2000
10:00 a.m.
CORPORATE HEADQUARTERS
7630 EXCELSIOR BOULEVARD
MINNEAPOLIS, MINNESOTA 55426
PAPER WAREHOUSE, INC. PROXY
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS SOLICITS THIS PROXY
The undersigned hereby appoints YALE T. DOLGINOW and CHERYL W. NEWELL,
and each of them, as Proxies, each with full power of substitution, and
hereby authorizes each of them to represent and to vote, as designated below,
all the shares of common stock of Paper Warehouse, Inc. held of record by the
undersigned on April 30, 2000, at the Annual Meeting of Shareholders to be
held on June 9, 2000, or any adjournment thereof.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
- PLEASE DETACH HERE -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1 AND
FOR ALL OF THE NOMINEES LISTED IN THE PROPOSAL 2.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
1. Proposal to decrease the number of directors on the Board of Directors to
six:
/ / For / / Against / / Abstain
2. Election of directors: 01 Arthur H. Cobb 02 Yale T. Dolginow
03 Diane C. Dolginow 04 Marvin W. Goldstein
05 Jeffrey S. Halpern 06 Martin A. Mayer
/ / For All / / Against All / / Abstain
Except
nominee(s)
written below.
(Instructions: To withhold authority to vote for -------------------------
indicated nominee, write the number(s) of the / /
nominee(s) in the box provided to the right.) -------------------------
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1 AND FOR ALL NOMINEES NAMED IN PROPOSAL 2 ABOVE.
WHEN JOINT TENANTS HOLD SHARES, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP OR A LIMITED LIABILITY COMPANY, PLEASE
SIGN IN PARTNERSHIP OR APPLICABLE ENTITY NAME BY AN AUTHORIZED PERSON.
Address Change? / / Indicate changes below.
Dated: , 2000
------------------------
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/ /
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Signature
