<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1997
REGISTRATION NO. 333-25061
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
50-OFF STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5651 74-2640559
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION
ORGANIZATION) NUMBER)
----------------
8750 TESORO DRIVE
SAN ANTONIO, TEXAS 78217
(210) 805-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CHARLES J. FUHRMANN II, PRESIDENT AND CHIEF EXECUTIVE OFFICER
8750 TESORO DRIVE
SAN ANTONIO, TEXAS 78217
(210) 805-9300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement has become effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(3) FEE
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<S> <C> <C> <C> <C>
Units................... 122,009 $100.00 $12,200,900 $3,697.24
Common Stock, $.01 par
value................... 7,320,540 ---- ---- (4)
Series A Preferred
Stock, $.01 par value... 2,440,180 ---- ---- (4)
Rights to Purchase
Units................... 12,200,915 ---- ---- (4)
</TABLE>
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(1) Rights represent rights to subscribe for Units. Each Unit represents 20
shares of Common Stock and 20 shares of Series A Preferred Stock. Each
share of Series A Preferred Stock is convertible into two shares of Common
Stock for no additional consideration. No more than 122,009 Units will be
sold.
(2) The Unit price determination was based upon negotiations with the General
Committee of Unsecured Creditors, recent and projected operating results
and pro forma book value.
(3) Estimated solely for the purpose of calculating the registration fee and
assumes all Units are subscribed.
(4) No registration fee payable due to registration fee paid for Units.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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<PAGE>
50-OFF STORES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN
ITEM NUMBER AND CAPTION IN FORM S-1 PROSPECTUS
----------------------------------- ----------------------
<C> <C> <S>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................. Cover Page of
Registration Statement;
Cross Reference Sheet;
Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.................................. Inside Front and Outside
Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Introduction; Summary
Information; Certain
Risk Factors; Selected
Consolidated Financial
Data
4. Use of Proceeds................................ The Offering
5. Determination of Offering Price................ Outside Front Cover Page
of Prospectus; The
Offering
6. Dilution....................................... *
7. Selling Security Holders....................... *
8. Plan of Distribution........................... Outside Front Cover Page
of Prospectus; The
Offering
9. Description of Securities to be Registered..... Outside Front Cover Page
of Prospectus; Dividend
Policy; Description of
Securities
10. Interests of Named Experts and Counsel......... Legal Opinion; Experts
11. Information with Respect to the Registrant..... Outside Front Cover Page
of Prospectus;
Introduction; Summary
Information; The
Company; Business;
Management; Business
Plan; Certain Risk
Factors; Material
Litigation; The
Offering; Description of
Securities; Plan of
Reorganization;
Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification For Securities Act Liabilities. *
</TABLE>
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*Not applicable.
<PAGE>
PROSPECTUS
50-OFF STORES, INC.
12,200,915 RIGHTS TO PURCHASE UNITS
MAXIMUM 122,009 UNITS
MINIMUM 30,500 UNITS
7,320,540 SHARES OF COMMON STOCK AND
2,440,180 SHARES OF SERIES A PREFERRED STOCK
This Prospectus relates to (i) 12,200,915 Rights (the "Rights") to subscribe
for and purchase up to a maximum of 122,009 Units and not less than a minimum
of 30,500 Units (the "Units"), (ii) the 2,440,180 shares of Common Stock and
2,440,180 shares of Series A Preferred Stock represented by the maximum number
of Units issuable by the Company, with each Unit representing 20 shares of
Common Stock and 20 shares of Series A Preferred Stock, and (iii) the
4,880,360 shares of Common Stock issuable upon conversion of the 2,440,180
shares of Series A Preferred Stock (the "Offering"). The Company issued to
each stockholder of record of Common Stock at the close of business on March
21, 1997 ("Record Date") one Right for each share of Common Stock held by such
stockholder on the Record Date. As of March 21, 1997, there were 12,200,915
shares of Common Stock outstanding. Each Right entitled the holder to
subscribe for one Unit for $100.00 (the "Subscription Price") prior to 2:15
p.m. CST on May 22, 1997, at which time the Rights Offering, as extended,
expired. At expiration of the Rights Offering, 44,736 Units were subscribed.
See "The Offering." Any Units unsubscribed for at 2:15 p.m. CST on May 22,
1997 may be offered to the public by the Company until expiration of the
Offering. See "Introduction" and "The Offering" for a discussion of the escrow
arrangement with respect to funds received upon subscription for Units. See
"Description of Securities" for a description of the preferences, limitations
and relative rights of the Series A Preferred Stock.
The Common Stock is traded in the over-the-counter market under the symbol
"FOFFQ." On June 6, 1997, the closing bid and asked prices of the Common
Stock, as reported by the National Association of Securities Dealers ("NASD")
Electronic Bulletin Board were $0.015 and $0.03 respectively. See "Price Range
of Old Common Stock." When and if the requisite criteria are met, application
will be made for the Common Stock and Series A Preferred Stock to be quoted on
the NASDAQ National Market. The Rights and Units are nontransferable and will
not be listed for trading on the NASD Electronic Bulletin Board, the NASDAQ
National Market, or on any exchange.
SEE "CERTAIN RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE UNITS
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
SUBSCRIPTION
PRICE/PRICE TO PROCEEDS TO
PUBLIC COMPANY*
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<S> <C> <C>
Per Unit.......................................... $ 100.00 $ 100.00
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Total
Maximum......................................... $12,200,900.00 $12,200,900.00
Minimum......................................... $ 3,050,000.00 $ 3,050,000.00
</TABLE>
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*Before deducting estimated expenses of $205,697 payable by the Company.
The date of this Prospectus is June 11, 1997.
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
<PAGE>
INTRODUCTION
PRELIMINARY STATEMENT
On October 9, 1996 (the "Petition Date"), 50-OFF Stores, Inc., a Delaware
corporation (the "Company" or "50-Off"), 50-OFF Multistate Operations, Inc., a
Nevada corporation, 50-OFF Texas Stores, L.P., a Texas limited partnership,
and 50-OFF Operating Company, a Nevada corporation (hereinafter collectively,
the "Debtors" or the "Company" where the context requires) filed their
voluntary petitions under chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Western
District of Texas, San Antonio Division (the "Court"). The cases have been
pending since that time before the Honorable Leif M. Clark, United States
Bankruptcy Judge. Since the Petition Date, the Company has operated its
business as a debtor in possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code.
A copy of the Debtors' Joint Plan of Reorganization, as Amended, dated March
27, 1997 (the "Plan") was filed as an Exhibit to the Registration Statement,
of which this Prospectus is a part. For purposes hereof, any term with respect
to the Plan and used in this document (regardless of capitalization), and not
otherwise separately defined herein, shall have the defined meaning ascribed
to it in the Glossary attached as an Appendix to this Prospectus, the Plan or
in section 101 of the Bankruptcy Code.
Included in the Plan is the offering of up to 122,009 Units comprised of
Series A Preferred Stock and Common Stock (the "Units") contemplated hereby
(the "Offering"); and included as part of the Offering is the right of holders
of Public Equity Interests to purchase Units (the "Rights Offering"). Public
Equity Interests refer to the common stock of 50-OFF Stores, Inc., sometimes
referred to herein as "Old Common Stock," which will be canceled upon the
Effective Date of the Plan, along with all currently existing options and
warrants to buy such stock. The record date for determining which such holders
were entitled to vote on the Plan and the record date for determining which
such holders were deemed to have received, pursuant to the Plan, such Rights
was March 21, 1997. Persons who acquired Public Equity Interests after such
record date were not entitled to vote on the Plan and had no protected
opportunity to subscribe to and purchase Units.
On March 20, 1997, the Court approved the Disclosure Statement with respect
to the Plan as containing adequate information in accordance with section 1125
of the Bankruptcy Code. Such Statement was mailed to all creditors of the
bankruptcy estates and all holders of Public Equity Interests as of March 21,
1997 and has been filed as an Exhibit to the Registration Statement of which
this Prospectus is a part.
Stockholders of record on March 21, 1997 were entitled to exercise their
Rights to subscribe for Units pursuant to the Rights Offering described
herein. See "The Offering." To subscribe for Units, stockholders were asked to
complete and return an Expression of Interest in Purchasing Rights Offering
Units distributed with the Disclosure Statement. To exercise Rights to
purchase Units, stockholders were then asked to complete a Subscription
Exercise Form for Rights Offering and return such form together with the full
purchase price for the Units in accordance with accompanying instructions. All
funds received pursuant to the Rights Offering are currently being held and
all funds to be received pursuant to subscriptions of others, if any, will be
held in escrow by Bank One, Texas, NA (the "Subscription and Escrow Agent")
pending the effective date of the Plan.
On May 22, 1997, the Rights Offering, as extended, expired. As of such date,
subscriptions for 44,736 Units ($4,473,600) had been received. The Company
does not anticipate continuing the Offering to the public after June 13, 1997
but reserves the right to do so in its sole discretion. Any funds received by
the Company pursuant to sales of Units to the public after June 16, 1997 will
not be subject to any escrow arrangement inasmuch as the Company will be
entitled to the proceeds of any such Unit sales upon the sale thereof.
At the Company's Confirmation Hearing on June 3, 1997 in the courtroom of
the Honorable Leif M. Clark, United States Bankruptcy Judge for the Western
District of Texas, San Antonio Division, the Company's Plan was confirmed. It
is anticipated that the Company's Plan will become effective on or about June
16, 1997 (the "Effective Date").
On the Effective Date, the name of the Company will be changed to LOT$OFF
Corporation.
The Company's principal executive offices are located at 8750 Tesoro Drive,
San Antonio, Texas 78217; (210) 805-9300.
<PAGE>
CERTAIN RISK FACTORS
The Plan and the securities to be issued pursuant to the Plan and this
Prospectus are subject to a number of material risks, including those
enumerated below. Holders of Public Equity Interests and other prospective
purchasers of Units offered hereby should consider this information in
conjunction with making their subscription and investment decisions.
LACK OF RECENT HISTORICAL PROFITABILITY
The Company has not operated profitably for the most recent four fiscal
years (see Selected Financial Data). There can be no assurances that the
Company can reverse this trend.
LACK OF SIGNIFICANT OPERATING HISTORY WITH LOT$OFF CONCEPT
The Company opened its first LOT$OFF stores in July 1996. Accordingly, the
Company's operating history with such concept is brief and was impacted by the
Company's inability to maintain inventories at planned levels and the Debtors'
chapter 11 filings. While the concept has been successfully implemented by
others, such as Consolidated Stores Corporation, MacFrugal's Bargains & Close-
outs, Inc. and Mazel Stores, Inc., there can be no assurance that growth in
the Company's sales and net income will occur, or if it occurs, will be
maintained.
LIQUIDITY
The Company has certain financial covenants in its loan agreement with GECC
which, if violated, could severely impact the Company's liquidity. Covenants
of such type will likely continue to exist after the Effective Date. Under
such loan agreement, GECC may increase reserves in its discretion to cover
risks or events it perceives may affect its security under the loan or the
business or prospects of the Company. Such increased reserves could
significantly restrict the Company's access to funds under the credit
facility.
Short-term trade credit represents a significant source of financing for
merchandise inventories. Trade credit arises from the willingness of the
Company's vendors to grant payment terms for inventory purchases and is either
financed by the vendors or third-party factors. Business conditions and the
Company's financial performance could result in additional vendors' concerns
regarding the Company's creditworthiness, which could adversely affect the
Company's ability to receive trade credit support sufficient to acquire
adequate levels of inventory in the future.
COMPETITION
The Company faces intense competition for customers, for access to quality
merchandise and for suitable store locations from regional and national close-
out, off-price and discount retail chains, traditional department stores and
specialty retailers. Most of the Company's competitors have greater financial
and marketing resources than the Company. In addition, in the recent past the
Company has experienced more direct price competition from certain department
store chains for limited time periods as a result of promotional pricing
activity. The Company may face similar periods of intense competition in the
future, which could have an adverse effect on its financial results.
GEOGRAPHIC CONCENTRATION OF OPERATIONS
The Company's stores are located in the South and Southwest, and a
substantial number are located in Texas. Consequently, the Company's results
of operations and financial condition are dependent upon general trends in the
economy of these markets. In the event of adverse economic conditions in these
markets, retail spending may decline, resulting in a decrease in the Company's
retail sales.
2
<PAGE>
MEXICAN ECONOMIC CONDITIONS
Although the Company has in recent years significantly reduced its
dependence upon border store operations by the reduction of its border
presence (to eight stores as of fiscal 1997) and expansion into other markets,
the Company's activities were historically dependent to a significant degree
upon its stores located in Texas cities along the Mexican border. During
fiscal 1996, approximately 12% of the Company's net sales were attributable to
the Company's then 13 border stores.
Mexican peso devaluations and duty-free import restrictions, and the
enforcement thereof, have from time to time significantly reduced purchases by
Mexican nationals, who constitute a significant portion of the Company's
customers in certain of its border locations, and have resulted in decreases
in sales during such periods. The Mexican Government devalued the peso and
subsequently released it for free exchange just prior to Christmas 1994, and
the Company has experienced a significant drop in sales from border markets
ever since. The continuing economic weakness along the border and further
erosion of the peso continued to negatively affect sales and operating results
in the Company's 13 border stores throughout fiscal 1996; the Company's border
stores experienced an approximately $10.2 million (32.0%) drop in sales to
$21.8 million for fiscal 1996 compared to $32.0 million for fiscal 1995. With
the continued erosion of the value of the peso well into fiscal 1997 and with
the current peso value still below its comparable level of year ago, sales in
the Company's continuing border stores have continued to suffer. The eight
continuing border stores experienced a 34.2% drop in sales in fiscal 1997 (to
approximately $10.1 million) as compared to their fiscal 1996 results
(approximately $15.4 million); some of the drop, of course, should be
attributed to the Company's inability to maintain inventories at appropriate
levels due to its liquidity problems. While the Company cannot predict the
ultimate effect on future results, continuing weakness in the border economy
and negative comparable peso values would have a continuing negative effect on
sales and other operating results.
DEPENDENCE ON KEY INDIVIDUALS
The Company is dependent on its ability to retain the services of its senior
executives. The loss of one or more of these individuals could have a material
adverse effect on the Company. The Company is also dependent upon its ability
to retain the services of its buyers.
CERTAIN RISKS OF NON-CONSUMMATION
The consummation of the Plan is subject to certain conditions, such as the
ability to consummate the post-confirmation credit facility, which are
described in the Plan and Disclosure Statement and summarized herein. See
"Plan of Reorganization."
If the Plan were not consummated, it is unclear whether a reorganization
comparable to the reorganization contemplated by the Plan could be implemented
in a timely manner and, if so, what distributions holders of Claims and
Interests ultimately would receive with respect to their Claims and Interests.
Moreover, if an alternative reorganization could not be implemented in a
timely manner, it is possible that the Debtors would have to liquidate their
assets, in which case it is likely the holders of Claims and Interests would
receive less than they would have received pursuant to the Plan.
POSSIBLE VOLATILITY OF STOCK, LIQUIDITY AND BLUE SKY CONSIDERATIONS
The Rights and Units are not transferable and will not trade. There is no
assurance that an active market will exist for the other securities offered
hereby. As a result, an investment in the securities may be illiquid, which
could have a material adverse effect on the market value of the securities.
The market price for such securities may be highly volatile depending on
various factors, including, but not limited to, lack of liquidity, the state
of the national economy, stock market conditions, industry research reports,
actions by governmental agencies, litigation involving 50-OFF, earnings and
other announcements by the Company or its competitors and general conditions
in the retail industry. The Company's position is that the Rights Offering and
the offer and sale of securities in connection with such Rights Offering, for
both federal and state law purposes, were and are
3
<PAGE>
exempt pursuant to section 1145 of the Bankruptcy Code, and this position was
confirmed by order of the Bankruptcy Court. As part of a compromise with the
Securities and Exchange Commission, which had challenged the Company's
position with respect to section 1145 at the Company's hearing on its
Disclosure Statement, the Company agreed, without waiving its position with
respect to section 1145, to file a registration statement, of which this
Prospectus is a part. Voluntarily, without waiving its position with respect
to section 1145, the Company is also taking all reasonable action to ensure
that the securities offered hereby are registered or otherwise exempt from
registration under all applicable blue sky laws; however; there can be no
assurance that such securities may be offered or sold in all states.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, 50-OFF's highest net sales and operating income have been
experienced during the fourth quarter, which includes the holiday selling
season. Any adverse trend in net sales for such period could have a material
adverse effect upon the Company's overall profitability and adversely affect
its results of operations for an entire fiscal year.
In addition to seasonality, the Company's results of operations may
fluctuate from quarter to quarter as a result of the timing of store
conversions from 50-OFF to LOT$OFF stores, including the level of advertising
and pre-opening expenses associated with such conversions, as well as other
factors.
GOING CONCERN
The Company's need to attain profitable operations raises substantial doubt
about its ability to continue as a going concern.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Prospectus contains various forward-looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in this document, the
words "believe," "expect," "anticipate" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain
risks, uncertainties and assumptions including those identified herein. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected. In addition to the risk factors set forth
herein, among the key factors that may have a direct bearing on the Company's
results are competitive practices in the close-out merchandising industry
generally and particularly in the Company's targeted market and the ability of
the Company to fund its continuing operations in the event of adverse industry
or economic conditions.
4
<PAGE>
THE COMPANY
FORMATION OF THE COMPANY
50-OFF was incorporated in Delaware in 1992 and is the successor to Shoppers
World Stores, Inc., which was incorporated in Texas in 1983. Shoppers World
Stores, Inc. was the successor to a New York corporation formed in 1975 to
purchase nine junior discount department stores located along the Texas side
of the Mexican border from Daylin, Inc. which had purchased them in
conjunction with its acquisition of King Clothing Company. 50-OFF went public
on July 16, 1984.
PUBLIC TRADING OF COMMON STOCK
50-OFF's Old Common Stock began trading publicly on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") in July of 1984
and was subsequently added to the NASDAQ National Market in September of 1989.
The NASDAQ-NM symbol was "FOFF" until October 15, 1996, when a fifth character
"Q" was appended to denote a company operating under bankruptcy proceedings.
Furthermore, the NASDAQ Listing Qualifications Panel determined to delete 50-
OFF's Old Common Stock from The NASDAQ National Market effective December 31,
1996 due to such stock's failure to meet the bid price and bankruptcy
requirements as set forth in NASD Marketplace Rules 4450(a)(5) and 4450(e).
The following table sets forth for the periods indicated the range of high
and low closing sale prices for the common stock as reported on the NASDAQ
National Market to December 31, 1996.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Fiscal Year Ended February 2, 1996:
Quarter ended May 5, 1995..................................... $3.00 $1.25
Quarter ended August 4, 1995.................................. 2.50 1.75
Quarter ended November 3, 1995................................ 2.25 1.19
Quarter ended February 2, 1996................................ 1.94 0.50
Fiscal Year Ended January 31, 1997:
Quarter ended May 3, 1996..................................... 1.69 0.94
Quarter ended August 2, 1996.................................. 1.50 0.75
Quarter ended November 1, 1996................................ 0.94 0.06
Period ended December 30, 1996................................ 0.44 0.16
</TABLE>
The high and low closing sales prices for the period from December 31, 1996
through June 6, 1997 were $0.19 and $0.01, respectively; and the closing
prices in the over-the-counter market on March 21, 1997 and June 6, 1997 were
$0.08 and $0.03 per share, respectively.
50-OFF has never paid cash dividends on shares of Old Common Stock.
Management presently intends to retain cash for the operation and expansion of
50-OFF's business and does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. The Company is prohibited from paying
cash dividends under its credit facility. ALL OLD COMMON STOCK, ALONG WITH
CURRENTLY EXISTING OPTIONS AND WARRANTS TO PURCHASE SUCH OLD COMMON STOCK WILL
BE CANCELED UPON THE EFFECTIVE DATE OF THE PLAN.
As of March 21, 1997, the number of record holders of 50-OFF's 12,200,915
shares of common stock then outstanding was 700.
OVERVIEW OF RECENT YEARS' OPERATIONS
The Company's operating results in recent years have been disappointing,
reflecting weaknesses in retailing generally and in apparel retailing
specifically. The casualization of apparel hurt many apparel retailers; and
regional, off-price retailers faced increased competition for the "value-
conscious" consumers' purchases. In addition, 50-OFF was especially hard hit
by the last devaluation and continued deterioration of the Mexican peso
5
<PAGE>
and the continuing economic turmoil along the Texas-Mexico border where the
Company operated thirteen 50-OFF stores (currently eight stores and an annex),
historically its best performing locations, and experienced a severe liquidity
crisis due, in part, to the breach of certain foreign purchasers in an
international offering by 50-OFF in late fiscal 1995 of their contractual
obligations to purchase in aggregate 1,500,000 shares of Old Common Stock at
$3.65 per share ($5,475,000 in aggregate).
HISTORICAL AND RECENT DEVELOPMENTS
The Company has experienced net losses for the last four fiscal years. The
Company had a net loss of $8,024,000 in fiscal 1995, including store closing
costs of approximately $5,019,000. Fiscal 1995 results were for a fifty-three
week period and reflected the operations of 111.8 weighted average stores.
The Company's financial performance in fiscal 1996 continued to be
disappointing, especially in the second half. Net sales for the fifty-two
weeks ended February 2, 1996 decreased 13.2% to $175,023,000, and the Company
had a net loss of $6,778,000. The Company operated a weighted average of 104.0
stores in fiscal 1996. Sales on a comparable store basis were down 8.7% (3.4%,
excluding the border stores).
During fiscal 1996, certain factors negatively affected operating results
and corporate liquidity:
. the breach of certain foreign purchasers in an international offering by
the Company in late fiscal 1995 of their contractual obligations to
purchase in aggregate 1,500,000 shares of Old Common Stock at $3.65 per
share ($5,475,000 in aggregate) led to a continuing increase in
borrowings by the Company under its credit facility (and a decrease in
availability under the facility) and contributed to an increase in the
interest rate on borrowings under the facility; therefore, the Company
experienced an approximately $873,000 increase in its net interest
expense for fiscal 1996 compared to fiscal 1995.
. such breach, and the resulting lack of the planned equity infusion and
decrease in availability under the credit facility, negatively impacted
the Company's perceived creditworthiness with sources of trade credit,
which led, in some cases, to shorter payment terms and/or less credit
support from such sources.
. concerns of sources of trade credit with the financial stability of the
retail industry, generally, and with the continuing negative impact of
the economic turmoil in Mexico on retailers with border exposure
similarly affected payment terms and credit support from such sources.
. the economic weakness along the Texas/Mexico border continued to
negatively affect sales and operating results; the Company's border
stores experienced an approximately $10.2 million (32.0%) drop in sales
to $21.8 million for fiscal 1996 compared to $32.0 million for fiscal
1995.
. the physical inventory taken at fiscal year end resulted in an
unanticipated high inventory shrinkage and a $963,000 fourth quarter,
charge to operating results for the additional shrinkage for total fiscal
1996 shrinkage as a percentage of merchandise sales of 4.4%.
. disappointing sales during the "Back-to-School" and Christmas/holiday
selling seasons contributed to lower than expected sales.
During fiscal 1996, the Company took the following affirmative steps in its
continuing efforts to achieve a more disciplined cost structure, to lessen
vulnerability to external factors and to attain profitability:
. filed lawsuits against the defaulting foreign purchasers and others
involved in the international offering by the Company in an effort to
obtain appropriate remedies, including the Company's actual and punitive
damages.
. completed its store consolidation program by closing 14 stores
(anticipated fiscal 1996 store closing costs totaling approximately
$4,107,000 were charged to operating results for fiscal 1995; as a result
of the favorable experience in negotiating certain lease termination
costs, the Company reversed a portion of this charge, approximately
$409,000, in the fourth quarter of fiscal 1996 and approximately
$1,131,000 in the third quarter of fiscal 1997).
. opened five stores.
6
<PAGE>
. negotiated monthly rent reductions in a significant number of its 100
continuing stores with the cooperation of its landlords.
. engaged a new, San Antonio-based marketing and advertising agency.
. made changes in merchandising management to contribute to the flexibility
the Company sought in its product offering mix.
. made plans to expand its offering of shelf-stable food product through
its neighborhood stores (to lessen seasonality and to increase store
traffic), a logical extension of its merchandising commitment to offer
its customers the products they need, conveniently and at the best
prices.
As stated above, during fiscal 1996, certain factors negatively affected the
Company's liquidity, including significant operating losses. In late February
1996, the Company began to address its liquidity problem and anticipated
violations of financial covenants in its credit agreements by restructuring
certain debt obligations, including its unsecured trade obligations owed to
vendors and its long term notes with an affiliate of an insurance company.
With the support of its vendors, the Company implemented a payment plan with
respect to its $8,447,000 of unsecured trade payables as of February 26, 1996.
Under the plan, such payables were to be paid in full within a two year period
without interest. Approximately $4,681,000 of such payables remained
outstanding at January 31, 1997 and is included in liabilities subject to
compromise. In April 1996, the Company restructured its $4,000,000 and
$2,775,000 long term borrowings with MetLife Capital Corporation into one
promissory note for approximately $4,645,000. The restructuring of the notes,
including an extension of the maturity, reduced monthly debt service
requirements. The promissory note provided for monthly installments (including
principal and interest) of $94,638 until March 2001. Interest is charged at a
rate of 8.50%. The note is collateralized by the Company's furniture and
fixtures. Approximately $4,191,000 of such note remained outstanding at
January 31, 1997 and is included in liabilities subject to compromise.
Significant operating losses continued through the Company's first fiscal
quarter of 1997. For the thirteen week period ended May 3, 1996, the Company
had net sales of $32.4 million, down 27.6% from the comparable prior year
period's $44.8 million, and the Company's loss before income taxes rose to
$4.9 million (including an approximate $2.1 million write-down of inventories
in stores scheduled for conversion to LOT$OFF stores late in the second fiscal
quarter) from $1.0 million from the comparable prior year period. The Company
operated a weighted average of 100.5 stores in the fiscal 1997 period as
compared to 109.6 stores in the comparable prior year period. The Company
began fiscal 1997 with cash of $341,334. During the thirteen weeks ended May
3, 1996, the Company decreased borrowings by a net of $1,319,567, generated
$1,701,480 from operating activities, used $282,912 for capital expenditures
(refurbishing existing stores and opening one store) and ended the period with
cash on hand of $440,335.
Faced with such continuing, deteriorating results and the apparent consumer
rejection of the 50-OFF retailing concept in almost all its markets, the Board
of Directors supported a change of leadership in mid-May. On May 7, 1996, the
Company's Board of Directors accepted the resignation of Charles Siegel from
his positions as President and Chief Executive Officer of the Company, as well
as his position on the Board. Mr. Siegel, who resigned to pursue other
endeavors, was a co-founder of the Company. Upon accepting Mr. Siegel's
resignation, the Board acted to appoint Charles J. Fuhrmann II to the
positions of President, Chief Executive Officer and Chief Financial Officer.
Mr. Fuhrmann, a Director of the Company since October 1994, had served in
various consulting capacities for 50-OFF, including Acting Chief
Administrative and Financial Officer until his new appointment. Mr. Fuhrmann,
a private investor and strategic and financial consultant, was formerly
Managing Director-Investment Banking with Merrill Lynch & Co. in New York.
Other management changes included the promotion of James Scogin to Vice
President--Controller, Chief Accounting Officer and Assistant Secretary.
On May 13, 1996, the Company entered into a revolving credit facility with
Foothill Capital Corporation and GBFC, Inc. providing the Company with a line
of credit through May 1998 of up to $22,500,000, including letters of credit.
In conjunction with the establishment of this facility, the Company issued the
lenders a three year warrant to purchase 400,000 shares of its common stock at
$2.50 per share. Borrowings under the line were limited to a borrowing base
equal to the lessor of (i) eligible inventory at cost: December 16 to February
28,
7
<PAGE>
55.75%, March 1 to September 15, 60.75% and September 16 to December 15,
63.75% or (ii) eligible inventory at retail: December 16 to February 28,
33.45%, March 1 to September 15, 37.25% and September 16 to December 15,
39.0%. Interest under the line was charged on funds borrowed at the First
National Bank of Boston's base rate plus 1.75%, and there were monthly
administrative fees and an annual facility fee of $12,000 and 1.5% ($337,500),
respectively. The line of credit was collateralized by inventory, accounts
receivable and other assets. The agreement contained various restrictive
covenants. The agreement also contained minimum gross margin, minimum EBITDA,
minimum and maximum inventory levels, minimum working capital and minimum
trade support financial covenants. This facility replaced a credit facility
with another financial institution providing the Company a line of credit
through January 12, 1998, as amended, of up to $20,000,000. Borrowings under
this prior facility were limited to a borrowing base equal to the lesser of
(i) 45% of eligible inventory or (ii) 80% of liquidation value of inventory,
both minus a permanent block of $1,500,000. Interest under the old line was
charged on funds borrowed at the lender's prime rate plus 1.75%. The prior
agreement contained various restrictive covenants and was collateralized by
inventory, certain accounts receivable and other assets. The Company expected
the increased liquidity under the new facility to provide important cash
resources to 50-OFF and, with the other restructurings discussed above,
increased creditworthiness. As of May 13, 1996, the Company had approximately
$4,061,000 available for use under this line of credit.
For the twenty-six week period ended August 2, 1996, the Company had net
sales of $64.1 million, down 26.3% from the comparable prior year period's
$87.0 million, and the Company's loss before income taxes rose to $9.9 million
(including a $3.6 million write-down of inventories in stores scheduled for
liquidation, but excluding any then undetermined charges for future store
closings and staff reductions) from the comparable prior year period $1.9
million. The Company operated a weighted average of 100.4 stores in the fiscal
1997 period as compared to 106.6 stores in the comparable prior year period.
The Company began fiscal 1997 with cash of $341,334. During the twenty-six
weeks ended August 2, 1996, the Company increased borrowings by a net of
$5,231,763, used $4,546,816 for operating activities, used $433,350 for
capital expenditures (refurbishing existing stores, opening one store and
converting 50-OFF stores to LOT$OFF stores) and ended the period with cash on
hand of $592,931.
On August 8, 1996, the Company was notified by the lender that it was in
violation of the minimum gross margin (disputed) and the minimum working
capital financial covenants of its credit agreement and that such breaches
constituted events of default under the loan documents. The lenders
subsequently established additional availability reserves which reduced
availability, imposed certain increased fees and other charges and accelerated
fees deemed earned at the initial closing, which, individually and together,
substantially impacted the Company's financial liquidity and, therefore, its
ability to acquire and maintain much needed inventory for its stores. The
Company was unable to secure the resources required to cure the defaults under
the loan documents and to implement its business plan and effect the changes
believed necessary to improve operations and reverse the Company's
disappointing operating results without the protections afforded under the
Bankruptcy Code. As stated above, the Company and its significant subsidiaries
filed petitions for relief under chapter 11 of such Code in the Court on
October 9, 1996. As of November 1, 1996, the Company had approximately
$7,335,000 outstanding under the credit facility and, with the support and by
order of the Court, was using cash collateral for working capital needs. This
facility was paid off in November 1996 with proceeds from the Company's line
of credit with GECC.
In September 1996, the Board of Directors approved a plan which provided for
the continued conversion of existing 50-OFF stores to LOT$OFF stores, a
geographic consolidation of the chain (exiting Alabama, Arkansas, Florida,
Georgia, North Carolina, South Carolina and most of Tennessee) and the
liquidation or closing of at least 37 under-performing stores or stores
located outside of the reduced market area (since mid-May 1996, the Company
has closed 60 stores) with appropriate reductions in field and corporate
overhead and staffing.
BUSINESS DURING THE CHAPTER 11 CASES
On October 8, 1996, the Board of Directors approved the Company's and its
significant subsidiaries' filings of petitions for relief under the Bankruptcy
Code, and, as stated above, on October 9, 1996, such petitions were filed in
the Court. The Company had been pursuing an infusion of capital, an external
affiliation with a supplier
8
<PAGE>
of product and credit and additional concessions from lenders and landlords to
secure the resources necessary to implement its business plan and to effect
the changes believed necessary by management to achieve profitability.
Although management believed it had developed an appropriate plan for the
Company, the Company was unable to secure the necessary concessions and
resources to improve operations and to reverse operating trends and its
disappointing operating results and was forced to seek the protections
afforded under the Bankruptcy Code.
On November 18, 1996, the Company, with the approval of the Court, entered
into a credit agreement with GECC providing the Company with a line of credit
through November 1997 of up to $15,000,000, including letters of credit.
Borrowings under the line are limited to a borrowing base equal to a
percentage of eligible inventory at cost: August 15 through December 15, 65%;
and December 16 through August 14, 60%. Interest under the line is charged on
funds borrowed at the annualized yield on 30-day commercial paper (currently
5.62%) plus 3%. The line of credit is secured by inventory, accounts
receivable and other assets. The credit agreement contains various restrictive
covenants. The agreement also contains minimum gross margin, minimum EBITDA,
minimum inventory, minimum sales, minimum trade support and maximum capital
expenditure financial covenants. At January 31, 1997, the Company had
approximately $5,396,580 outstanding under the credit facility and had
approximately $1,238,000 available for use.
For the fifty-two week period ended January 31, 1997, the Company had net
sales of $106.2 million, down 39.3% from the comparable prior year period's
$175.0 million, and the Company's loss before income taxes rose to $43.5
million (including write-downs of inventories of approximately $5.4 million
and write-offs of leasehold improvements in stores closed or scheduled for
liquidation and closing and reorganization expenses, including landlord lease
rejection claims, totaling approximately $23.9 million) from $6.8 million. For
the prior fiscal year, the Company operated a weighted average of 82.8 stores
in the period ended January 31, 1997 as compared to 104.0 stores in the
comparable prior year period. The Company began fiscal 1997 with cash of
$341,334. During the fifty-two weeks ended January 31, 1997, the Company
decreased borrowings by a net of $6,567,499, generated $7,742,003 from
operating activities, including store liquidations, used $694,541 for capital
expenditures (refurbishing existing stores, opening one store and converting
50-OFF stores to LOT$OFF stores) and ended the period with cash on hand of
$821,297.
On February 25, 1997 and April 2, 1997, GECC provided the Debtors written
notice of certain defaults under its existing DIP financing facility. GECC
asserted two events of default: (1) the failure of the Debtors to receive net
proceeds of $1 million from the sale of its headquarters building; (2) the
failure to satisfy certain financial covenants regarding minimum (a) EBITDA
(covenant $400,000 actual ($484,000)), (b) Net Sales (covenant $15,000,000,
actual $12,609,000) and (c) Inventory Balances (covenant $16,000,000, actual
$13,504,000). The Debtors received $997,847.50 of net proceeds from the sale
of the headquarters. The amount that the Debtors fell short upon such covenant
was less than $2,500 and, accordingly, immaterial; and GECC has waived such
default. The Debtors' defaults with regard to financial covenants were a
result of closing the DIP loan approximately ten days after the anticipated
date of closing (due to circumstances beyond the control of the Debtors or
GECC). Such delay in closing caused the Debtors' holiday inventory not to be
stocked at expected levels, which caused the inventory covenant to fail. Such
failure, in turn, caused a ripple effect and subsequent failure in the
Debtors' meeting the net sales and EBITDA tests; a corollary result was less
borrowing and increased availability.
GECC is forebearing from exercising any remedies in connection with such
financial defaults. On March 17, 1997, GECC provided a formal commitment
letter to serve as the Debtors' Senior Secured Exit Financing lender on terms
similar to the existing DIP financing facility. Consummation of such exit
financing would moot existing defaults in the DIP financing facility.
The Company's sales have remained disappointing, due principally to
inventory imbalances among the 41 continuing stores and the lack of resources
to effectively promote customer traffic to the stores. Preliminary results for
the thirteen weeks ended May 2, 1997 are net sales of $11.9 million and a net
loss, including reorganization items, of $2.2 million from a weighted average
41.7 stores. Results for the prior year's comparable period were net sales of
$32.4 million and a net loss of $4.9 million from a weighted average 100.5
stores.
9
<PAGE>
While in chapter 11, the Company has operated its business as a debtor in
possession while formulating and promoting its Plan of Reorganization
originally filed February 6, 1997 with the Court:
. liquidating and closing 60 stores.
. reducing its geographic presence (exiting Alabama, Arkansas, Florida,
Georgia, North Carolina, South Carolina and most of Tennessee).
. closing one of two freight consolidation and distribution centers and
moving the remaining center to San Antonio.
. downsizing its corporate staff and field personnel (corporate and
distribution: 177 to 31; field and stores: 967 full time, 1,482 part
time to 382 and 425, respectively).
. selling its headquarters building and leasing appropriate, reduced
space.
. refinancing its principal credit facility through GECC's providing a
line of credit through November 1997 of up to $15,000,000 (at May 16,
1997, the Company had approximately $6,974,000 outstanding under this
facility and had approximately $611,000 available for use).
. restoring credit facilities with vendors (from 100% prepaid to
approximately 35% terms at fiscal year end).
. redirecting its retail activities from an off-price ("50-Off") to a
close-out ("LOT$OFF") retailing concept.
. restructuring its merchandising department, including a new Vice-
President--Merchandise and a new Vice President--Marketing.
. changing its inventory mix from 25.9% (May 1996) to 45.8% (May 1997)
hardlines through category additions.
. developing marketing and advertising strategies and programs to
revive and increase store traffic.
. generally positioning itself for improved operating results (higher
initial mark-ups, less promotional pricing, fewer markdowns and less
inventory shrinkage).
Management has been redirecting 50-OFF's retail activities from 50-OFF's
off-price retailing concept to LOT$OFF's close-out retailing concept.
Coincident and consistent with this change has been a change in the mix of
products, historically a majority in family apparel, to a majority in non-
apparel merchandise, principally through the addition of new product
categories to the Company's historical non-apparel offerings which include
cosmetics, housewares and giftware, home furnishings, shelf-stable food
products, toys, luggage, footwear, stationery and health and beauty aids. New
categories include sporting goods, automotive, greeting cards, jewelry, books,
party goods, seasonal, pet supplies and hardware, among others. The Company
will continue to maintain a healthy showing of basic family apparel products
in the LOT$OFF stores. The actual merchandise mix will fluctuate by category,
by season and by store based on customer needs and buying trends, demographics
and the availability of products at close-out prices. This merchandising
concept is designed to appeal to value-conscious shoppers and other "bargain
hunters," and management is hopeful its continued implementation will lead to
higher initial mark-ups, less promotional pricing, fewer markdowns, less
inventory shrinkage, increased store traffic and improved operating results.
YEAR-END PHYSICAL INVENTORY
On January 30, 1997, the Company announced the results of its year-end
physical inventory at its 43 off-price/close-out retail stores and its
clearance and distribution centers. Among the factors contributing to the
Company's poor operating performance the last few years had been the Company's
disappointing year-end physical inventories. Management was pleased to
announce that such was not the case with the most recent inventories. While
the inventory shrinkage determined in the 1996 fiscal and 1995 physical
inventories ran 4.17% and 3.82% of sales, respectively, the fiscal 1997
inventory reflected a 1.84% shrinkage, right in line with the
10
<PAGE>
retail industry average as reported by the University of Florida in its
"National Retail Security Survey" and below the reported 2.14% average for
discount stores. Dollar shrinkage dropped for the 43 stores operating at
fiscal year end to $1,069,202 from $3,508,114 and $3,408,714 in fiscal 1996
and 1995, respectively. "Shrinkage" is the book loss on inventory due to the
physical loss of inventory attributed to (industry averages): employee theft
(38.4%), shoplifting (35.8%), administrative error (19.4%) and vendor fraud
(6.4%). Shrinkage reduction has been a major concern of 50-OFF's management,
and the recent results are cause for confidence in programs initiated this
year to reverse historical trends.
SELECTED FINANCIAL DATA
The following selected financial data (dollars in thousands, except per
share data) should be read in conjunction with and are qualified in their
entirety by the Consolidated Financial Statements and the notes thereto which
are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------
JAN. 29, JAN. 28, FEB. 3, FEB. 2, JAN. 31,
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $181,035 $199,589 $201,543 $175,023 $106,194
Cost of sales(1)............. 120,184 137,784 135,560 118,629 78,560
-------- -------- -------- -------- --------
Gross profit................. 60,851 61,805 65,983 56,394 27,634
Selling, advertising, general
and administrative
expenses(2)................. 46,029 65,477 63,827 57,377 42,295
Depreciation and
amortization................ 2,376 3,523 3,779 3,951 3,223
Reorganization items(4)...... -- -- -- -- 23,975
Total operating
expense(1)(2)............... 53,748 69,722 72,624 60,918 69,493
Interest (Income) expense,
net......................... (174) 528 1,382 2,255 1,597
Income (Loss) cumulative
effect of a change in
accounting principle and
income taxes(1)(2).......... 7,277 (8,445) (8,024) (6,778) (43,457)
(Provision for) benefit from
income tax(3)............... (2,462) 2,933 -- -- (153)
Income (Loss) cumulative
effect of a change in
accounting
principle(1)(2)(3).......... $ 4,815 $ (5,512) $ (8,024) $ (6,778) $(43,610)
Cumulative effect of a change
in accounting principle, net
of income tax benefit(2).... -- (3,404) -- -- --
Net income (loss)(1)(2)(3)... $ 4,815 $( 8,916) $ (8,024) $ (6,778) $(43,610)
Fully diluted income (loss)
per common share............ $ 0.45 $ ( 0.86) $ (0.76) $ (0.56) $ (3.57)
</TABLE>
- --------
(1) Total operating expense amounts indicated for January 29, 1993, January
28, 1994, February 3, 1995, February 2, 1996 and January 31, 1997 include
closed store costs (excluding inventory liquidation write-downs of
approximately $ 0, $ 0, $1,129,000, $ 0 and $5,415,000, respectively,
charged to cost of sales) of approximately $ 0, $723,000, $5,019,000,
($409,145) and $0, respectively.
(2) Effective with the beginning of fiscal 1994, the Company changed its
method of accounting for pre-opening store costs to expense such costs as
incurred rather than capitalizing such costs and amortizing them over a
period of 12 months from the store opening date. Selling, advertising,
general and administrative expense amounts indicated for January 28, 1994,
February 3, 1995, February 2, 1996 and January 31, 1997 include pre-
opening expenses of $3,932,554, $250,864, $309,035 and $66,997,
respectively.
(3) In fiscal 1995, 1996 and 1997, no income tax benefit was recorded in
accordance with Statement of Financial Accounting Standards (SFAS) 109
"Accounting for Income Taxes." In fiscal 1997 an income tax provision was
recorded to book additional valuation allowance.
(4) Reorganization items include severance payroll ($191,000), professional
fees ($997,000), loss on disposal of stores ($23,143,000) and gain on sale
of building of ($356,000).
11
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------
JAN. JAN.
29, 28, FEB. 3, FEB. 2, JAN. 31,
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA AMOUNTS:(1)
Net Income.................. 3,275 -- -- -- --
Primary and fully diluted
income per share............ .30 -- -- -- --
OTHER DATA:
Stores open at beginning of
period...................... 66 98 111 109 100
New stores.................. 32 22 5 5 1
Stores closed............... 0 9 7 14 57
Stores open at end of
period...................... 98 111 109 100 44
Softline sales as a
percentage of merchandise
sales(2).................... 82.7% 80.3% 77.4 % 75.8% 69.1%
Hardline sales as a
percentage of merchandise
sales(2).................... 17.3% 19.7% 22.6 % 24.2% 30.9%
Comparable store sales
increase (decrease) from
prior period(3)............ (1.2)% (9.5)% 2.6% (8.7)% (30.9)%
Softline merchandise gross
margin(4)................... 32.3% 29.2% 31.5% 30.9 % 32.2%
Hardline merchandise gross
margin(4)................... 35.0% 34.3% 35.8% 34.7 % 34.6%
Total gross margin(2)(4).... 33.6% 31.0% 32.7% 32.2 % 33.0%
Markdowns as a percentage of
merchandise sales(2)(4)..... 5.9% 9.0% 7.1% 7.1 % 7.3%
Shrinkage a percentage of
merchandise sales(4)........ 3.0% 4.1% 3.9% 4.2 % 1.8%
BALANCE SHEET DATA(5):
Working capital............. $21,471 $12,909 $ 8,503 $11,089 $ 4,073
Total assets................ 72,123 67,601 62,676 55,449 19,255
Long-term obligations,
excluding current
maturities.................. 1,364 6,403 14,012 15,198 --
Liabilities subject to
compromise.................. -- -- -- -- 30,251
Stockholders' (deficit)
equity...................... $44,389 $35,683 $28,557 $21,779 $(21,831)
</TABLE>
- --------
(1) The "Pro Forma Amounts" shown above assume the accounting method for pre-
opening store costs is applied retroactively.
(2) Merchandise sales are net sales less other revenues, principally layaway
fees (no longer applicable, discontinued as of fiscal 1997) and rental
income from leased shoe departments.
(3) Comparable store data are calculated based on stores which have been open
over 24 months.
(4) Total gross margin represents gross profit calculated as a percentage of
net sales and has been adjusted to exclude the sale of inventories at 56
closed stores in fiscal 1997. A similar adjustment has been made to
markdowns as a percentage of merchandise sales.
(5) See "The Offering--Pro Forma Balance Sheet and Capitalization," below. Pro
forma per share and income statement presentation will not change as a
result of the Debtors' Plan of Reorganization and Rights Offering.
No cash dividends with respect to the Company's Old Common Stock were paid
during any of the fiscal periods referred to in the foregoing table.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following tables set forth (i) certain items in the consolidated
statements of operations expressed as a percentage of net sales for the
periods indicated and (ii) the percentage change in certain items in the
consolidated statements of operations and in the weighted average number of
stores from the prior period.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------
FISCAL YEAR ENDED
---------------------------------------
JAN. 31, 1997 FEB. 2, 1996 FEB. 3, 1995
------------- ------------ ------------
<S> <C> <C> <C>
Costs and Expenses:
Cost of sales........................ 74.0% 67.8% 67.3%
Selling, advertising, general and
administrative...................... 39.8 32.6 31.5
Pre-opening store costs.............. -- .2 .1
Depreciation and amortization........ 3.0 2.2 1.9
Closed store cost.................... -- (.2) 2.5
Reorganization items................. (22.6) -- --
Interest (income) expense............ 1.5 1.3 .7
----- ----- -----
Total expenses......................... 140.9 103.9 104.0
----- ----- -----
Loss before income taxes............... (40.9) (3.9) (4.0)
Provision for income taxes............. (.1) -- --
----- ----- -----
Net.................................... (41.0)% (3.9)% (4.0)%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-----------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 31, 1997 FEBRUARY 2, 1996
COMPARED TO COMPARED TO
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 2, 1996 FEBRUARY 3, 1995
----------------- -----------------
<S> <C> <C>
Net sales.................................. (39.3)% (13.2)%
Cost of sales.............................. (33.8) (12.5)
Operating Expenses.........................
Selling, advertising, general and
administrative.......................... (26.3) (10.1)
Depreciation and amortization............ (18.4) 4.5
Closed store costs....................... N/A (108.2)
Reorganization items..................... N/A N/A
Interest income/expense.................. (29.2) 63.1
Total operating expenses................... 14.1 (16.1)
Loss before income taxes................... 541.1 (15.5)
Net loss................................... 543.4 (15.5)
Weighted average number of stores.......... (20.4)% (7.0)%
</TABLE>
13
<PAGE>
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED FEBRUARY 2,
1996
The net sales decrease of 39.3% for fiscal 1997 compared to fiscal 1996 is
attributable to a 20.4% decrease in the weighted average number of stores in
operation (from 104.0 stores to 82.8) and a 30.9% decrease in comparable store
sales. These decreases were partially offset by increased net sales pertaining
to liquidations of inventories at the 50-OFF stores converted to LOT$OFF
stores during the fiscal 1997 period (such stores were closed, however, on
average, 13 days during the period for remodeling and re-merchandising), the
sale to a third party of inventories at 37 stores closed during the period and
the beginning of store liquidations at other stores closed.
Cost of sales as a percentage of net sales increased from 67.8% for fiscal
1996 to 74% for fiscal 1997 due primarily to approximately $5,415,000 in
write-downs of inventories at stores liquidated (including the inventories
sold to a third party at 37 stores closed during the period) and to the store
liquidations which began in September. Excluding the write-downs of inventory
and the sale to a third party of inventories at 37 closed stores, cost of
sales as a percentage of net sales would have been 68.9% for fiscal 1997.
Selling, advertising, general and administrative expenses increased from
32.6% of net sales for fiscal 1996 to 39.8% of net sales for fiscal 1997. The
percentage increase was due to lower sales, offset in part by the cost
reductions implemented by management late in the period.
Depreciation and amortization decreased by 18.4% in fiscal 1997 compared to
the prior fiscal year, due to the decreased number of stores in operation.
Other expense, net, decreased to approximately $1,597,000 in fiscal 1997
compared to approximately $2,255,000 in the prior fiscal year, due primarily
to decreased interest expense attributable to decreased borrowings under the
Company's line of credit and the Company's discontinuing to accrue interest on
certain of its obligations.
The increase in the Company's loss before income taxes for fiscal 1997
compared to fiscal 1996 is primarily due to the Company's reorganization
expenses associated with the bankruptcy filing, lower sales and the write-
downs, sales and liquidations of inventories discussed above.
Income tax benefit related to the losses for fiscal 1997 and 1996 were not
recognized because the utilization of such benefit is not assured. Such
benefit, if any remaining after the Company's reorganization, is available for
recognition in future years.
FISCAL YEAR ENDED FEBRUARY 2, 1996 (52 WEEKS) COMPARED TO FISCAL YEAR ENDED
FEBRUARY 3, 1995
(53 WEEKS)
The net sales decrease of 13.2% for fiscal 1996 compared to fiscal 1995
resulted primarily from (i) the decrease of 7.0% in the weighted average
number of stores in operation during fiscal 1996 as compared to fiscal 1995
and (ii) the devaluation of the Mexican peso and the continued economic
weakness along the Texas/Mexico border which negatively affected the Company's
Texas/Mexico border stores. Such stores experienced an approximate $10,200,000
reduction in sales, which accounted for 38% of the fiscal 1996 net sales
decrease (comparable store sales excluding the border stores decreased 3.4%)
Cost of sales as a percentage of net sales increased to 67.8% for fiscal
1996 compared to 67.3% for fiscal 1995 primarily due to an increase in
inventory shrinkage to 4.4% of net sales as compared to 3.9% for fiscal 1995.
Selling, advertising, general and administrative expenses increased from
31.5% of net sales for fiscal 1995 to 32.6% of net sales for fiscal 1996. The
10.2% decrease in the amount of selling, advertising, general and
administrative expenses compared to fiscal 1995 was the result of the 7.0%
decrease in the weighted average number of stores open and certain cost
reductions, including negotiated monthly rent reductions and personnel.
14
<PAGE>
Depreciation and amortization increased by 4.5% in fiscal 1996 compared to
fiscal 1995, due primarily to approximately $3,700,000 of capital expenditures
in fiscal 1996.
Other expense, net, increased to approximately $2,255,000 for fiscal 1996
compared to approximately $1,382,000 for fiscal 1995, due primarily to
increased interest expense attributable to a higher interest rate and
increased borrowings under the Company's revolving credit line.
Loss before income taxes and closed store costs (a credit of approximately
$409,000 in fiscal 1996 and expense of approximately $5,019,000 in fiscal
1995) for fiscal 1996 increased as compared to fiscal 1995 due primarily to a
decrease in net sales and an increase in other expense, net, offset in part by
a decrease in selling, advertising, general and administrative expense.
Income tax benefits related to the losses for fiscal 1996 and 1995 were not
recognized because the utilization of such benefits are not assured. Such
benefits are available for recognition in future years.
LIQUIDITY AND CAPITAL RESOURCES
The Company began fiscal 1997 with cash of $341,334. During the fiscal year
ended January 31, 1997, the Company decreased borrowings by a net of
$6,897,499, generated $6,399,355 from operating activities, used $694,541 for
capital expenditures in refurbishing existing stores, opening one store and
converting 50-OFF stores to LOT$OFF stores, received net proceeds (before
payment of the related mortgage lien) of $1,342,648 from the sale of the
building and ended the period with cash on hand of $491,297.
On May 13, 1996, the Company entered into a $22.5 million revolving credit
facility with Foothill Capital Corporation and GBFC, Inc. which provided for a
60.75% advance rate on eligible inventory (63.75%, September 16--December 15;
55.75%, December 16--February 28) with interest set at prime plus 1.75%
through May 31, 1998. The line of credit was secured by inventory, accounts
receivable and other assets. The agreement contained various restrictive
covenants, including restrictions on the payment of cash dividends. The
agreement also contained minimum gross margin, minimum EBITDA, minimum and
maximum inventory levels, minimum working capital and minimum trade support
financial covenants. On August 8, 1996, the Company was notified that it was
in violation of the minimum gross margin (disputed) and the minimum working
capital financial covenants and that such breaches constituted events of
default under the loan documents. The lenders subsequently established
additional availability reserves, imposed certain increased fees and other
charges and accelerated fees deemed earned at the initial closing, which
individually and together, substantially impacted the Company's financial
liquidity and therefore, its ability to acquire and maintain much needed
inventory for its stores. The Company was unable to secure the resources
required to cure the defaults under the loan documents and to implement its
business plan and effect the changes believed necessary to improve operations
and reverse the Company's disappointing operating results without the
protections afforded under chapter 11. The Company and its significant
subsidiaries filed petitions for relief under chapter 11 in the Bankruptcy
Court on October 9, 1996. This facility was paid off in November 1996.
On November 18, 1996, the Company, with the approval of the Bankruptcy
Court, entered into a credit agreement with GECC providing the Company with a
line of credit through November 1997 of up to $15,000,000, including letters
of credit. Borrowings under the line are limited to a borrowing base equal to
a percentage of eligible inventory at cost; August 15 through December 15,
65%; and December 16 through August 14, 60%. Interest under the line is
charged on funds borrowed at the annualized yield of 30-day commercial paper
(currently 5.62%) plus 3%. The line of credit is collateralized by inventory,
accounts receivable and other assets. The credit agreement contains various
restrictive covenants. The agreement also contains minimum gross margin,
minimum EBITDA, minimum inventory, minimum sales, minimum trade support and
maximum capital expenditure financial covenants. The Company has violated
certain of these covenants, which GECC is forbearing. As of January 31, 1997,
the Company had approximately $5,396,580 outstanding under the credit
facility. At May 16, 1997, the Company had approximately $6,974,000
outstanding under the credit facility and had approximately $611,000 available
for use.
15
<PAGE>
The Company believes its operating cash flow, its anticipated Senior Secured
Exit Financing, its restructuring of certain other obligations under the Plan,
its cash on hand and the anticipated required minimum subscription in the
Rights Offering contemplated hereby will be adequate to finance its operations
and costs to convert the remaining 50-OFF Stores to LOT$OFF Stores through the
remainder of fiscal 1998, although there can be no assurance that such sources
of capital will be sufficient, assuming that such sources of capital are
received, obtained and realized.
BUSINESS OUTLOOK
The Company opened LOT$OFF stores at 50-OFF's existing locations in Oklahoma
(4), the Dallas Metroplex (4) and San Antonio (6), on July 26, August 1 and
September 27, 1996, respectively. Early operating results for the 14 converted
LOT$OFF stores were encouraging, in spite of difficulties in maintaining
inventories due to serious cash shortages, and significantly surpassed the
results of the remaining 50-OFF stores. During its operation in bankruptcy,
the Company has generally allocated its available resources evenly among all
continuing store locations. The Company is continuing to operate 41 50-OFF and
LOT$OFF stores in New Mexico (3), Texas (28), Oklahoma (4), Louisiana (5) and
Memphis, Tennessee (1). The Company plans to proceed with the conversion of
those 50-OFF stores it elects to continue to operate to LOT$OFF stores. On
March 20, 1997, the Company opened LOT$OFF stores at its existing locations in
Amarillo, Austin, Corpus Christi, Lubbock, Midland and Waco, Texas. The
Company's four existing locations in Houston, Texas were converted during the
week of April 14, 1997.
Through the Plan, the Company is restructuring its obligations and
capitalization in order to strengthen its financial position so management can
more fully implement its business plan and improve the Company's operating
performance. As discussed herein, management has developed and is implementing
a business strategy which seeks to achieve higher gross margins and a return
to profitability; the key elements of this strategy, which included the
geographic consolidation of the chain and the liquidation and closing of
under-performing stores or stores located outside of a reduced market area
with appropriate reductions in field and corporate overhead and staffing, are
converting the continuing 50-OFF stores to LOT$OFF stores, more close-out
buying, higher initial mark-ups, less promotional pricing, new "hardlines"
categories, elimination of certain "softline" categories subject to high
markdowns and inventory shrinkage, extensive programs to control shrinkage
generally and a reduced expense structure.
The Company's ability to successfully reorganize and continue as a going
concern will be affected by a number of factors, including, but not limited
to, the final results of the Offering, the need to sucessfully complete
negotiation of a post-confirmation credit facility and ultimately comply with
its terms, covenants and the conditions, the degree of success in reversing
the Company's recent business trends (increasing sales and operating profit)
and the ability to alleviate trade credit concerns and restore merchandise
flow to adequate levels. While management believes that the recent closings of
stores and the implementation of expense cuts commensurate with the downsizing
of the total stores in operation (from 101 to 41 stores) facilitates its
efforts to improve the Company's operating performance and that the
recapitalization to be implemented upon the confirmation of its Plan of
Reorganization should strengthen its financial position and alleviate concerns
of credit and merchandise suppliers, no assurance can be given that the
Company will be successful in its continuing efforts to reverse recent
business trends which have continued through May 1997 and return to
profitability. The receipt of Net Lawsuit Proceeds from significant litigation
brought by the Company would further strengthen the Company's financial
position. See "Material Litigation." If the Company's plans to improve
operations post-confirmation are not successful, management will consider,
among other alternatives, strategic and/or financial alliances with third
parties (including wholesalers or manufacturers) and the merger, sale or
liquidation of all or a part of the Company.
16
<PAGE>
BUSINESS
MERCHANDISING
50-OFF stores primarily offer moderately priced, regionally and nationally
advertised merchandise, including apparel as well as non-apparel goods. To
respond to a sluggish economy for apparel sales, as consumers concentrated
more on home decor and improvement purchases, the Company increasingly
emphasized the merchandising of non-apparel products, which generally have
higher maintained gross margins. As discussed above, with the introduction of
the LOT$OFF concept, management is redirecting 50-OFF's retail activities from
off-price to close-out retailing. Coincident and consistent with this change
is a change in the mix of products, historically a majority in family apparel,
to a majority in non-apparel offerings which include cosmetics, housewares and
giftware, home furnishings, shelf-stable food products, toys, luggage,
footwear, stationery and health and beauty aids. New categories include
sporting goods, automotive, greeting cards, jewelry, books, party goods,
seasonal, pet supplies and hardware, among others. The Company will continue
to maintain a healthy showing of basic family apparel products in LOT$OFF
stores. The actual merchandise will fluctuate by category, by season and by
store based on consumer needs and buying trends, demographics and the
availability of products at close-out prices. This merchandising concept is
designed to appeal to value-conscious shoppers and other "bargain hunters,"
and management is hopeful its implementation will lead to higher initial
markups, less promotional pricing, fewer markdowns, less inventory shrinkage,
increased store traffic and improved operating results.
Merchandise in 50-OFF stores, previously ticketed at twice the sales price,
is now ticketed "Priced Right at" the price to be paid by customers for their
convenience, to avoid confusion at the cash registers and to minimize
shrinkage. These prices are based upon a combination of factors which include:
the prices paid for such merchandise; the wholesale prices paid by others and
traditional markups; manufacturers' suggested retail prices; locally and
nationally advertised prices; and comparison shopping by the Company's buyers,
distributors and district and store managers.
In each store, apparel is neatly displayed on modern fixtures. Private,
mirrored dressing rooms are provided. Other merchandise, including certain
prepackaged apparel items, is conveniently displayed on gondolas or tables
within easy reach of customers. New store layouts include a central core for
seasonal product presentations, featured items and special promotions. While
principally a self-service store operation, the Company strives to make
personnel promptly available to customers desiring assistance. Purchases are
made at cash registers located at the front of each store, near the entrance
and exit doors.
ADVERTISING AND MARKETING
The Company works closely with its advertising and marketing agency in
implementing a program focusing on direct mail and other print advertising.
Electronic media will be used for special events only.
The Company has developed new pricing statements which accentuate the low
price image implied by the Company's 50-OFF and LOT$OFF names but
strategically avoid any confusion or resistance evoked by the natural
questions, "50 percent off what?" The new pricing statements, "Priced Right.
In Your Neighborhood" and "Quality Merchandise. Close-out Prices," capitalize
on the low price image while highlighting the quality merchandise benefit and
convenience. These pricing statements are now being communicated to customers
through in-store signs and print media.
PURCHASING
The Company's buyers purchase goods at substantially lower than regular
wholesale prices from manufacturers and other vendors. The following factors
contribute to the Company's ability to obtain quality merchandise at reduced
wholesale prices:
. manufacturers' overproduction.
. cancellations of orders by other retailers.
17
<PAGE>
. merchandise which does not meet other retailers' delivery deadlines
for various reasons, including import delays.
. merchandise not shipped to other retailers that have credit problems.
. ability of the Company to buy goods at a time closer to a target
season, or, in some cases, out of season, which is generally not the
normal buying pattern of most other retail stores.
. excess merchandise accumulated by vendors.
. packaging changes by manufacturers.
. increased availability of imports from the Far East in the form of
close-outs and in-stock overruns.
. utilization of left-over piece goods available after production for
traditional department stores.
. discontinued goods.
. ability to commit for categories of merchandise produced specifically
for the Company.
. ability of the Company to prepay or accept abbreviated credit terms.
The Company has historically purchased merchandise from more than 1,300
manufacturers and other vendors. No single manufacturer or other vendor
supplied a significant percentage of the Company's merchandise during the last
fiscal period, or, in the opinion of the Company, was material to its
operations. In the future, however, the Company may seek strategic alliance(s)
with certain manufacturers and/or other vendors. See "Business--Plan" below.
Financial creditability and good relationships with manufacturers and other
vendors, generally, will be critical to the Company's future operations.
INVENTORY MONITORING
The Company's computerized management information system, featuring double-
bar-code-scanning, point-of-sale cash registers in all of its stores and a
computerized perpetual inventory system, permits corporate management to
review each store's inventory on a daily basis. This system enables the
Company to closely monitor its inventory needs and coordinate its purchase
orders.
DISTRIBUTION SYSTEM
Substantially all of the Company's merchandise is shipped directly from
manufacturers or vendors to store locations through a third-party freight
consolidation point in San Antonio, Texas (the prior two such points in
Dallas, Texas and Atlanta, Georgia were terminated with the recent reduction
of stores in operation and the Company's geographic consolidation). This
distribution system generally allows merchandise delivery to the Company's
stores as quickly as ten days after placing an order and, in addition, gives
the Company the flexibility to purchase merchandise for all or a small number
of its stores.
STORE OPERATIONS
Substantially all merchandise decisions with respect to product mix, prices,
markdowns and advertising are made by management at the Company's store
support center in San Antonio, Texas. The Company has district managers who
visit each of the Company's stores on a regular basis to review the
implementation of Company policy, monitor operations and review inventories
and the presentation of merchandise. Accounting and general financial
functions for the Company's stores are also conducted at the store support
center.
Each store has a manager and one or more assistant managers responsible for
store sales and profitability, supervision and overall operations. Store
managers receive a fixed salary and are eligible for bonuses primarily based
on their control of inventory and on their achieving a targeted increase in
sales over budgeted amounts.
18
<PAGE>
REAL ESTATE AND OTHER PROPERTY
The Company's 41 currently existing and continuing stores (including one
annex) are all leased and range in size from 13,000 to 50,000 square feet,
with most containing at least 20,000 square feet of selling space. The
majority of the Company's stores are located in strip shopping centers or
malls. The Company's policy is to locate stores in areas where demographics
indicate that its targeted customers have easy access to the location and
where the targeted customer base is large enough to support a store.
During fiscal 1997, the Company incurred and expensed an aggregate of
approximately $7,353,000 in fixed rent and a nominal amount of additional
percentage rent. Minimum rental commitments (excluding renewal options) under
the 41 store plan (including the one annex to remain open) were approximately
$4,595,000 ($.34 per square foot per month, before any negotiated rent
reductions) for the fiscal year ended January 31, 1997. Minimum rental
commitments (excluding renewal options) under leases having a term of more
than one year at January 31, 1997 are approximately $3,888,000 for the fiscal
year ending January 30, 1998. In addition to its rejection of unproductive
leases through the bankruptcy process, the Company plans to downsize some
continuing stores and to attempt to renegotiate rental rates on remaining
leases.
The following is a list of the 41 stores the Company is currently operating
and expects to operate in fiscal 1998 by state and city (total: 1,107,825
square feet; 951,220 square feet selling space).
<TABLE>
<S> <C> <C> <C>
LOUISIANA OKLAHOMA TEXAS TEXAS
(5) (4) (28) (CONTINUED)
Baton Rouge (2) Lawton* Amarillo* Laredo
Bossier City Oklahoma City (3)* Austin* Lubbock*
New Orleans Brownsville McAllen
Shreveport TENNESSEE Corpus Christi* Midland*
(1)
Memphis Dallas-Fort Worth (4)* Pharr
NEW MEXICO El Paso (2) Roma (and annex)
(3)
Albuquerque (3) Harlingen San Antonio (6)*
Houston (4)* Waco*
</TABLE>
- --------
* LOT$OFF Stores
In most of the Company's stores, a small portion of selling space is
subleased to an unaffiliated party operating shoe departments. Such subleases
generally provide for a percentage rent payable to the Company equal to 12% of
the net sales of such departments. In certain of the San Antonio, Texas
stores, a small portion of selling space is subleased to an unaffiliated party
operating jewelry departments at approximately $100 per square foot plus
percentage rent (6-7% of sales) over established break points. The rental
income from the subleases is included in the Company's reported net sales
figures.
Typical store leases have primary terms of five to ten years with at least
one five-year renewal option. Some leases have provisions that allow the
Company, and in a few cases the landlord, to terminate the lease during the
primary term based on the Company's store not reaching predetermined sales
levels. Most of the Company's leases provide that the landlord will pay for
the major portion of leasehold improvements or allow the Company to recover
its expenditures for such improvements in the form of reduced rent.
The Company owns its equipment, furniture and fixtures which are well-
maintained and suitable for its present store requirements. The Company sold
its store support center in San Antonio, Texas for gross proceeds of
$1,440,000 on January 14, 1997 and leased back the reduced portion of the
building currently occupied by the downsized corporate staff for approximately
$18,000 per month on a full service lease.
The Company has registered (or has applications pending for, where indicated
with an *) its principal logos, which include the phrases "The 50-OFF," "50-
OFF, Why Pay More", "50-OFF Stores, where you save as
19
<PAGE>
much as you spend," "LOTSOFF*," "LOT$OFF*" and "50-OFF" as service marks in
the principal register with the U.S. Patent and Trademark Office. The "50-OFF"
mark is also registered in Mexico.
EMPLOYEES
The Company has recently completed a major downsizing and at the end of
fiscal 1997 was staffed to fit the new 41 store core business group. At May 5,
1996, the Company had 1,134 full time employees (101 corporate management,
administrative and clerical personnel, 10 buyers, 56 distribution and
transportation personnel and 967 store management and store personnel) and
1,482 part-time store employees. After the substantial cutbacks in personnel
and the restructuring of responsibilities to reflect both the reduction in
stores and the increased emphasis on cost and expense containment, the Company
currently has approximately 413 full time employees (24 corporate management,
administrative and clerical personnel, 4 buyers, 3 distribution and
transportation personnel and 382 store management and store personnel) and 425
part-time store employees. Additional part-time employees are usually hired
during the busier Easter/spring, "Back-to-School" and Christmas/holiday
selling seasons. None of the Company's employees are represented by a union,
and employee relations are considered satisfactory.
MANAGEMENT
OFFICERS
The executive and other significant officers of the Company are shown below
with a summary of their backgrounds:
. Charles J. Fuhrmann II (52): President, Chief Executive Officer,
Chief Financial Officer and Director. Has served as President, Chief
Executive Officer and Chief Financial Officer since May 1996 and as a
Director of the Company since October 1994. Since May 1991, has been
a private investor and independent, strategic and financial
consultant to private and public companies, including the Company
since October 1994. From 1978 through May 1991, was Managing
Director, Investment Banking and Vice President of Merrill Lynch &
Co., Inc., New York City, New York.
. Doug Sims (48): Vice-President--Operations. Has served as Vice-
President -Loss Prevention and Internal Audit since March 1994 and
served as Director of Loss Prevention since June 1990. Self-employed
in polygraph/investigations for numerous retail corporations from
July 1980 to June 1990. Filed for a divorce related personal
bankruptcy under chapter 13 in 1995.
. Loretta Marino-Ortiz (31): Vice-President--Merchandise. Has served as
Vice-President-- Merchandise since May 1997. Served as General
Merchandise Manager for Remington Retail Division from January 1993
and, from 1980 to 1993, served principally as Buyer for Job Lot
Pushcart. Has over 16 years of retail experience, primarily in close-
out buying and general merchandising capacities.
. Thomas H. Lazenby II (37): Vice-President--Marketing. Has served as
Vice-President--Marketing since May 1997. Served as Vice-President--
Operations for UETA Inc./Duty Free International from September 1995
and Regional Vice-President from February 1995 and, from 1987 to
1995, served principally as Store Manager for Dillard's Department
Stores. Has over 14 years of retail experience.
. James G. Scogin (35): Vice-President--Chief Accounting Officer,
Controller and Assistant Secretary. Has served as Vice-President--
Chief Accounting Officer, Controller and Assistant Secretary since
May 1996, served as Controller-Chief Accounting Officer since
February 1995 and served as Controller since June 1992. A Certified
Public Accountant, was employed by Deloitte & Touche LLP from August
1985 to June 1992.
20
<PAGE>
. Roy E. Springer (48): Vice-President--Human Resources. Has served as
Vice-President--Human Resources since July 1993 and Director of Human
Resources since 1989. Served as District Store Manager of the Company
from 1988 until 1989. Held various multi-unit management positions
for other retail organizations for 10 years prior to joining the
Company.
DIRECTORS
The Board of Directors of the Company, currently two members including Mr.
Fuhrmann, will be expanded on the Effective Date to add more retail and
general business expertise. See "Directors of the Reorganized Company," below.
The current Director in addition to Mr. Fuhrmann is Cecil Schenker (54), who
has served as a Director since July 1991 and previously from October 1983
until July 1986. Mr. Schenker is a corporate securities attorney and the
managing partner of the San Antonio, Texas office of the law firm of Akin,
Gump, Strauss, Hauer & Feld, L.L.P. of which he has been a partner, through
his professional corporation, for more than 10 years. Akin, Gump, Strauss,
Hauer & Feld, L.L.P. has regularly performed legal services for the Company.
Mr. Schenker also serves as a Director of Taco Cabana, Inc. (a Mexican patio
cafe chain).
FURTHER DISCLOSURES REGARDING OFFICERS AND DIRECTORS
No person is known to own 5% or more of the Old Common Stock of 50-OFF. The
current officers and Directors of 50-OFF, who received Rights and were
entitled to subscribe for Units, currently own or have the following amounts
of Old Common Stock and stock options, all of which will be canceled under the
Plan:
<TABLE>
<CAPTION>
OLD OLD COMMON UNITS
COMMON STOCK STOCK OPTIONS SUBSCRIBED*
------------ ------------- -----------
<S> <C> <C> <C>
Charles J. Fuhrmann II............... 5,000 510,000 50
Doug Sims............................ 325 35,956 10
James G. Scogin...................... 250 20,820 3
Roy E. Springer...................... 1,000 32,364 10
</TABLE>
* Represents number of Units subscribed in the Rights Offering.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Charles J. Fuhrmann II, a
Director of the Company, performed certain financial and strategic advisory
services for the Company and was compensated $31,250 during fiscal 1997 and
$127,500 during fiscal 1996 for such services. On May 7, 1996, Mr. Fuhrmann
was appointed President, Chief Executive and Financial Officer of the Company.
During fiscal periods prior to August 1988, and again since February 1991, the
law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. has regularly performed
legal services as counsel to the Company. Cecil Schenker, a Director of the
Company and a member of the Company's Compensation Committee, is the sole
shareholder of Cecil Schenker, P.C., a partner with Akin, Gump, Strauss, Hauer
& Feld, L.L.P. The investment firm of James M. Raines & Company, the owner of
which was a Director of the Company until May 28, 1997, performed consulting
services for a fee in connection with the Company's Regulation S offering
conducted during the fiscal year ended February 3, 1995. Effective May 7, 1996
and July 8, 1996, Charles M. Siegel and Richard Sherman, respectively,
resigned as Directors of the Company. Effective May 28, 1997, Joseph Lehrman
and James M. Raines resigned as Directors of the Company.
21
<PAGE>
SUMMARY COMPENSATION TABLE The following table sets forth certain
information concerning the compensation earned during the Company's last three
fiscal years by the Company's Chief Executive Officer, the only executive
officer earning compensation in excess of $100,000 in fiscal 1997, and the
Company's former Chief Executive Officer who resigned in May 1996 (the "named
executive officers").
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
---------------- -----------------------------------
AWARDS PAYOUTS
--------------------------- -------
RESTRICTED STOCK SECURITIES LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS AWARD(S) UNDERLYING PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) OPTIONS(#) ($) ($) (1)
------------------ ------ ------- ----- ---------------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles J. Fuhrmann II 1997 156,460(2) -- -- 400,000 -- --
President, CEO and CFO 1996 -- -- -- -- -- --
1995 -- -- -- -- -- --
Charles M. Siegel 1997 82,118(2) -- -- 50,000 -- --
Chairman, President and 1996 203,846 -- -- 50,000 -- --
CEO 1995 250,000 -- -- -- -- 308
</TABLE>
- --------
(1) Represents company matching contributions under the Company's Profit
Sharing Plan and Trust.
(2) Represents partial year compensation.
Perquisites and other personal benefits did not exceed the lesser of either
$50,000 or 10% of the total of annual salary and bonus reported for any named
executive officer.
In May 1996, Charles M. Siegel resigned from his positions as President,
Chief Executive Officer and a Director of the Company. The Company had an
amended employment agreement (the "Agreement") with Charles Siegel, which
expired on June 15, 1996. Upon Mr. Siegel's resignation from his positions as
President and Chief Executive Officer, the Agreement was terminated and a
severance agreement was entered into with Mr. Siegel who received $50,000
severance immediately and severance pay of $250,000 payable in equal monthly
payments over a two year period; $229,000 of such severance pay is included in
liabilities subject to compromise. In May 1996, Charles J. Fuhrmann II became
President, Chief Executive and Financial Officer of the Company. The Company
does not have an employment agreement with Mr. Fuhrmann, but Mr. Fuhrmann
receives a base salary of $200,000 and was granted on May 20, 1996, 400,000
options exercisable at $1.00 per share, of which 100,000 options were
exercisable immediately, with the remaining 300,000 options exercisable in
whole or in part, upon the Company's achieving certain minimum net income
requirements or achieving certain valuations upon any change of control of the
Company. All such options will be canceled on the Effective Date of the Plan.
COMPENSATION OF DIRECTORS Each outside Director received $750 per Board
meeting attended (and $500 per telephone meeting in excess of two hours
duration). In addition, each outside director received $750 per meeting for
services as members of, or $1,000 per meeting for chairing, the Audit and
Compensation Committees. Outside members of the Executive Committee received
$1,000 per meeting attended, the Chairman $1,500, (and $500 per telephone
meeting in excess of two hours duration). Each outside Director also received
stock option grants. See "Stock Option Plan," below.
STOCK OPTION PLAN UPON THE EFFECTIVE DATE OF THE COMPANY'S PLAN, THE
COMPANY'S STOCK OPTION PLAN DESCRIBED BELOW WILL BE DEEMED TERMINATED AND ALL
OUTSTANDING OPTIONS WILL BE DEEMED CANCELED AND OF NO FURTHER FORCE, EFFECT OR
VALUE. SEE "MANAGEMENT--EMPLOYEE AND DIRECTOR OPTIONS" FOR INFORMATION
REGARDING A NEW OPTION PLAN.
Under the Company's current Stock Option Plan (the "Option Plan"), stock
options to purchase up to 3,000,000 shares of Old Common Stock may be granted
to full-time employees, outside Directors, advisors and outside consultants of
the Company. The Company's Compensation Committee set the specific terms and
conditions of options granted under the Option Plan and administered the
Option Plan.
22
<PAGE>
Employees of the Company were eligible to receive either incentive stock
options or non-qualified stock options or a combination of both, as the
Compensation Committee determined. Non-employee participants could be granted
only non-qualified stock options.
In accordance with the terms of the Option Plan, outside directors received
initial grants upon election or appointment and additional grants upon
reelection following five years of service. Such options became exercisable in
five equal annual installments commencing with the first anniversary following
the date of grant. The exercise price was equal to 100% of the fair market
value of a share of Old Common Stock on the date of grant.
As of January 31, 1997 stock options covering an aggregate of 1,417,436
shares of Old Common Stock were outstanding with a weighted average exercise
price of $3.27 per share and 1,043,564 additional shares were available for
issuance upon exercise of options which may be granted in the future. As of
May 30, 1997, stock options covering an aggregate of 812,254 shares of Old
Common Stock were outstanding with a weighted average exercise price of $1.99
per share and 1,648,746 additional shares were available for issuance upon
exercise of options which may be granted in the future.
OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain
information concerning options granted to the named executive officers during
the Company's fiscal year ended January 31, 1997:
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1997
----------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME (#) FISCAL 1997 (2) ($/SH) DATE 5% 10%
---- ---------- --------------- -------- ---------- - ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles J. Fuhrmann II.. 400,000 48% $1.00 5-15-06 $ 252,000 $ 636,000
Charles M. Siegel....... 50,000 6% $1.38 4-12-01 $ 14,000 $ 42,000
</TABLE>
- --------
(1) In fiscal 1997, options for an aggregate 662,084 were granted to executive
officers as a group; and options for an aggregate 171,668 shares were
granted to employees and outside consultants, other than executive
officers, as a group.
(2) The dollar amounts under these columns use the 5% and 10% rates of
appreciation prescribed by the SEC. The 5% rate of appreciation would
result in per share prices of $1.63 and $1.76, respectively. The 10% rate
of appreciation would result in per share prices of $2.22 and $2.59,
respectively. This presentation is not intended to forecast possible
future appreciation of the Company's Old Common Stock.
FISCAL YEAR END OPTION VALUES The following table sets forth certain
information concerning the value of unexercised options held by the named
executive officers at January 31, 1997 (no options were exercised by such
officers during the fiscal year ended on such date):
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END ($) (1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles J. Fuhrmann II...... 165,000 345,000 $0.00 $0.00
Charles M. Siegel........... 100,000 0 $0.00 $0.00
</TABLE>
- --------
(1) Values stated are based on the closing price of the Company's Old Common
Stock as reported in the over-the-counter market on January 31, 1997
(under $0.10) and equal the aggregate amount by which the market value of
the option shares exceeds the exercise price of such options at the end of
the fiscal year (nil).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following
table sets forth, the beneficial ownership (as defined by the rules of the
Securities of Exchange Commission) of the Old Common Stock as of May 30, 1997
by each person known by the Company to be a beneficial owner of more than 5%,
all Directors, the named executive officers, and all Directors and executive
officers as a group.
23
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED CLASS (1)
---- ------------ ----------
<S> <C> <C>
Charles J. Fuhrmann II................................. 170,000(2) 1.4%
Charles M. Siegel...................................... 100,000(2) *
Cecil Schenker......................................... 0 *
All executive officers and Directors as a group (8
persons)............................................... 356,645 2.8%
</TABLE>
- --------
* Less than 1%
(1) This calculation is the quotient of: (a) the number of shares of Old
Common Stock currently beneficially owned by the named individual or
group, plus the number of shares of Old Common Stock, if any, for which
options held by such person or group are currently exercisable or become
exercisable within 60 days of May 30, 1997; divided by (b) the total
number of shares of Old Common Stock outstanding and the number of shares
of Old Common Stock, if any, for which options held by such person or
group are currently exercisable or become exercisable within 60 days of
May 30, 1997.
(2) Includes 165,000 shares in the case of Mr. Fuhrmann and 100,000 shares in
the case of Mr. Siegel, which are issuable pursuant to presently
exercisable options (or those exercisable within 60 days of May 30, 1997).
Excludes 340,000 shares, in the case of Mr. Fuhrmann, which are issuable
pursuant to options which are not currently exercisable or exercisable
within 60 days of May 30, 1997.
PROFIT SHARING PLAN AND TRUST The Company's Profit Sharing Plan and Trust
(the "Profit Sharing Plan") was adopted effective April 1, 1990, and is
intended to constitute a qualified cash or deferred profit sharing plan within
the meaning of Section 401(a) and 401(k) of the Internal Revenue Code of 1986.
The Profit Sharing Plan is subject to the Employee Retirement Income Security
Act of 1974. All employees of the Company who have attained the age of 21,
and, with respect to employees hired on or after April 1, 1990, who have also
completed at least 1,000 hours of service in a 12-month period (a "year of
service"), are eligible to participate. Each eligible employee is allowed to
contribute up to 15% of his earnings as shown on the employee's W-2 form.
Through February 1995, the Company matched 25% of the participating employees'
contributions up to a maximum of 6% of the employees' earnings, and will
determine any future matching after the financial results are known each year.
All participating employees' contributions to the Profit Sharing Plan are at
all times fully vested and nonforfeitable. Contributions made by the Company
and credited to employees' accounts are vested 20% after two years of service,
40% after three years of service, 60% after four years of service, 80% after
five years of service and 100% after six years of service, but all such
Company contributions are fully vested and nonforfeitable upon (i) the
employee's reaching the normal retirement age of 65, or (ii) the employee's
death or disability prior to age 65, or (iii) termination of the Profit
Sharing Plan. All forfeitures of non-vested Company contributions are
reallocated to non-forfeiting participants' accounts.
Participating employees may choose among alternative investment vehicles
(Company Stock is not an option). Distributions may be made prior to normal
retirement age upon showing of hardship. The annual benefits payable upon
retirement at normal retirement age cannot be estimated due to the number of
variables which operate under the Profit Sharing Plan. The Company made
aggregate contributions of $33,575 to the Profit Sharing Plan during fiscal
1995. The Company did not make any contributions during fiscal 1996 or fiscal
1997.
OFFICERS OF THE REORGANIZED COMPANY
The current officers of 50-OFF will remain the officers of Reorganized 50-
OFF. Such officers' salaries will be set by the Board of Directors of
Reorganized 50-OFF.
24
<PAGE>
DIRECTORS OF THE REORGANIZED COMPANY
The initial Board of Directors of Reorganized 50-OFF will consist of five
Directors, selected prior to the commencement of the Confirmation Hearing by
the existing Chief Executive Officer of 50-OFF and upon consultation with the
existing Board and the General Unsecured Creditors Committee (the
"Committee"). The Chief Executive Officer of Reorganized 50-OFF will serve as
an initial Director. Such initial Board of Directors will be appointed
pursuant to the Confirmation Order and Section 303 of the Delaware General
Corporation Law as if unanimously approved by the Board of Directors and
stockholders, and the Board of Directors will be authorized to take such
actions as may be necessary to fully consummate the Plan. The initial Board
will commence serving on the Effective Date of the Plan.
The names and brief biographical information for each of the anticipated
Reorganized 50-OFF's post-Effective Date Directors are as follows:
. Sheryle J. Bolton -- Will serve as initial Director of Reorganized
50-OFF. Has been Chief Executive Officer of Scientific Learning
Corporation (CD/ROM and Net-based training programs for people with
language impairments) since November 1996. Served as President, Chief
Operating Officer and a Director of Physicians' Online, Inc.
(proprietary online service for professionals) from January 1994 to
July 1996. Associated with Rockefeller & Co., Inc. (global investment
management firm) from 1990-1993 with responsibility for all
institutional client services and marketing. Serves as a Director or
trustee of several Scudder, Stevens & Clark, Inc. managed funds.
. Charles J. Fuhrmann II -- Will serve as initial Director and Chairman
of Reorganized 50-OFF. See "Officers" above.
. Cecil Schenker -- Will serve as initial Director of Reorganized 50-
OFF. See "Directors" above.
. William B. Snow -- Will serve as initial Director of Reorganized 50-
OFF. Has been Vice Chairman of Movie Gallery, Inc. (video specialty
retailer) since 1994. Served as Executive Vice President and Director
of Consolidated Stores Corporation (closeout specialty retailer) from
1985 until his retirement in 1994. Serves as Director of Homeland
Stores, Inc. and DePaul University.
. M. David White -- Will serve as initial Director of Reorganized 50-
OFF. Has been Vice-President--Finance of Boston Chicken, Inc. (multi-
unit specialty food retailer) since December 1994. Served as
Director, Investment Banking and Vice-President of Merrill Lynch &
Co., Inc., Houston, Texas from 1986 through December 1994.
The Directors will serve at the pleasure of the stockholders, and new
Directors may be elected at the first annual meeting of stockholders to occur
after the Effective Date of the Plan. The subsequent tenure and manner of
selection of Directors will be as provided in the charter and bylaws of
Reorganized 50-OFF. To provide continuity of management for some period after
confirmation of the Plan, the initial Board of Directors for Reorganized 50-
OFF will call the first annual meeting of stockholders no sooner than twelve
months after the Effective Date unless an earlier meeting is determined to be
called by such Board.
As compensation for their services, each initial Director will receive
$1,000 per meeting attended (a minimum of four per year are expected) and
reimbursement of expenses associated with such attendance. Telephonic meeting
participation lasting over an hour will be compensated for at $500. In
addition, each initial Director of Reorganized 50-OFF will be granted 5-year
options to buy 5,000 shares of Common Stock, effective on the Effective Date
and exercisable after 90 days after the Effective Date at $1.67 per share. See
"--Employee and Directors Options," below for information regarding a new
Stock Option Plan. In the future, 5-year options to buy 5,000 shares of Common
Stock at then fair market will be granted to Directors upon appointment or
election (or re-election) to the Board of Directors. Directors may receive
additional compensation for consulting services as approved by a majority of
the Board of Directors.
EMPLOYEE AND DIRECTOR OPTIONS. Pursuant to the Plan, 5-year options for
400,000 of the authorized shares of Reorganized 50-OFF Common Stock will be
granted to the Company's executive officers under the Reorganized 50-OFF Stock
Option Plan, including 200,000 such options to be granted to Mr. Fuhrmann.
Such
25
<PAGE>
options will be granted on the Effective Date and will be exercisable after 90
days after the Effective Date at $1.67 per share. Pursuant to the Plan,
options for an additional 25,000 shares will be granted to initial Directors
(5,000 per initial Director), including Mr. Fuhrmann, on terms similar to
those discussed above.
Reorganized 50-OFF may grant options to acquire up to an additional 375,000
shares of Reorganized 50-OFF Common Stock (approximately 5% of the fully
diluted shares of Reorganized 50-OFF Common Stock authorized and/or reserved
for issuance on the Effective Date) to officers, including executive officers,
and other key employees and Directors (limited to 5,000/year/individual
Director) of Reorganized 50-OFF pursuant to the terms of the Reorganized 50-
OFF Stock Option Plan, which Stock Option Plan will expire on the fifth
anniversary of the Effective Date. The terms and conditions of the additional
options, if any, related to such shares shall be determined by the post-
confirmation Board of Directors of Reorganized 50-OFF or a committee thereof;
provided, however, that any such initial determination shall be made only
after at least 90 days after the Effective Date. The Reorganized 50-OFF Stock
Option Plan shall become effective on the Effective Date without the necessity
for further corporate action by the Board of Directors of Reorganized 50-OFF
or the holders of Reorganized 50-OFF Common Stock pursuant to the Confirmation
Order and Section 303 of the Delaware General Corporation Law.
SELECTED PORTIONS OF THE COMPANY'S BUSINESS PLAN
EXECUTIVE SUMMARY
As noted, the Company is a regional, off-price/close-out retailer operating
stores under the names "50-OFF" and "LOT$OFF" in five states in the southern
and southwestern United States. Management has selected 42 locations (one is
an annex) which will be incorporated into a new core business from which to
emerge from bankruptcy; the Company is operating and expects to operate 41
stores (and the annex) through fiscal 1998 (ending January 30). Management has
worked to accomplish the following:
. consolidate and solidify the core business in the southern and
southwestern U.S.
. restructure the balance sheet and obtain permanent financing (secured
lender and trade suppliers).
. reorganize the corporate management team to provide value-added
contribution to the overall operating results.
. obtain additional capital through the Offering.
. obtain Court approval of its Plan of Reorganization.
Now it must implement the Court confirmed Plan.
The Company's business plan is focused on redirecting its retail activities
to achieve higher gross margins, higher store contribution and lower corporate
overhead, all promoting overall profitability. The key elements of this
strategy, which included the geographic consolidation of the chain and the
liquidation or closing of under-performing stores or stores located outside of
the reduced market area with appropriate reductions in field and corporate
overhead and staffing, are converting the continuing 50-OFF stores to LOT$OFF
stores (14 of the continuing stores had been converted as of the filing of the
voluntary bankruptcy petitions on October 9, 1996), more close-out buying,
higher initial markups, less promotional pricing, new "hardlines" categories,
elimination of certain "softline" categories subject to high markdowns and
inventory shrinkage, extensive programs to control shrinkage generally and a
reduced overhead structure. While plans are in place to convert the additional
locations (24 are now converted), the conversion schedule is constantly being
reviewed given the bankruptcy filings and available resources.
Under the leadership of CEO Charles Fuhrmann and with the support of the
Board of Directors, management has developed and is implementing a business
plan centered on five basic goals:
. The Company must always operate with a business plan.
. The Company must employ the most qualified people it can afford in
all key management positions.
26
<PAGE>
. The management team must have current and accurate operating
information in order to effectively manage the growth and
profitability of the Company.
. The Company must consistently generate an above average profit from
store operations.
. The Company must maintain financial credibility with its key
suppliers, lenders and stockholders.
Growth will be an objective once the Company has completed the successful
conversion of its 41 continuing locations to the LOT$OFF concept.
The operating performance of 50-OFF deteriorated over the past several years
with important common denominators indicating such slippage. Management is now
targeting the core stores to return to over $90.00 per square foot in revenues
and to generate a 10+ percent individual store contribution on an annual
basis. This level of profitability is being currently generated by companies
with similar concepts (Consolidated Stores Corporation: Odd Lots and Big Lots
stores; MacFrugal's Bargains and Close-Outs, Inc.: MacFrugal's stores; and
Mazel Stores, Inc.: Odd Job stores; among others) and should be attainable
under an experienced, disciplined management team.
The current management team is excited about the opportunities ahead for the
Company and is serious about the attainment of the targeted operating results.
There is a new understanding of the financial information by all key members
of management; they have fully reviewed the historical operating performance
and are now concentrating on optimizing the contribution from store operations
while maintaining only the absolute minimum amount of corporate overhead
necessary to support store operations.
GENERAL BUSINESS PHILOSOPHY
50-OFF's mission is to create a shopping experience that surpasses
customers' expectations as it seeks to be a leading off-price retailer of
close-out merchandise to low-to-moderate income customers and other "bargain
hunters" in the markets it serves. The major elements of the Company's
strategy include:
. Value Leadership: 50-OFF intends to offer its customers a broad
selection of quality merchandise that maintains the credibility and
integrity of the Company's value pricing structure while providing a
pleasant and convenient shopping experience.
. Distinctive Marketing: The Company plans to differentiate itself from
other retail stores through its close-out purchasing and value
pricing.
. Purchasing at Close-out Prices: The Company will purchase a majority
of its merchandise at close-out (substantially lower than regular
wholesale) prices relying upon its buyers' knowledge of, and
reputation among, manufacturers and other vendors and its willingness
to purchase in large quantities, in special situations, in odd lots
and for immediate delivery.
. Merchandising: The Company will offer a mix of products that may
fluctuate by category, by season and by store based on consumer needs
and buying trends and availability of products at close-out prices.
. Emphasis on Low Operating Costs: The Company will focus on
maintaining low operating costs through a cost-effective, drop-ship
distribution system, its approach to store leases (traditionally in
strip centers), its particularly low store operating expenses,
further reductions in corporate overhead and a corporation-wide
effort to minimize inventory shrinkage.
. Store Maturity: The Company will concentrate on developing existing
stores to full maturity and profitability. Over time, the Company
believes a store builds recognition and customer loyalty as
management adjusts the store's merchandise mix in response to local
consumer preferences.
. Expansion: The Company's long-term development plan is to expand its
regional presence in existing and new markets. For the foreseeable
future, however, the Company will concentrate on
27
<PAGE>
converting its continuing 50-OFF stores to LOT$OFF stores. Any store
openings will be limited to existing market areas where the store base
is underdeveloped and will be based on an evaluation of the sales and
income performance of existing stores and the ability to obtain leases
for desirable locations.
THE "LOT$OFF" CONCEPT
The LOT$OFF chain will be an off-price/close-out retail operation located in
Texas, Louisiana, Tennessee, New Mexico and Oklahoma. There are 24 of the
anticipated 41 continuing stores already converted to the LOT$OFF concept.
Stores will average approximately 27,000 square feet (23,000 square feet of
selling space) and will be located in both urban and suburban markets and in
strip centers, enclosed malls and stand alone units. The mix of product will
be 60 percent hardlines:
<TABLE>
<S> <C> <C>
housewares health and beauty aids household chemicals
home decor toys electronics
gifts seasonal small appliances
automotive greeting cards shelf-stable food
sporting goods books hardware
party goods pet supplies garden supplies
</TABLE>
The remaining 40 percent will be softlines comprised of domestics and basic
apparel for men, ladies, infants, boys and girls, including accessories,
underwear, socks and hosiery for all genders.
CUSTOMERS
The LOT$OFF targeted customers are 60 percent female and 40 percent male, 25
to 50 years old and have an average annual income of $15,000 to $45,000 per
household. Their ethnic make-up is 30 percent Anglo, 30 percent Afro-American
and 40 percent Hispanic. The effective means of communication is direct mail
to residences with electronic media used for special events. These customers
shop seeking the best value, not necessarily the lowest price, and are
influenced by nationally advertised brands. LOT$OFF's business will be
heaviest on weekends (Friday through Sunday) and at the beginning of each
month.
PURCHASING
The vast majority of the hardlines portion of LOT$OFF's inventory will be
purchased from a limited number of suppliers in each category, perhaps as few
as one or two manufacturers and/or wholesalers, who will provide product and
credit for these categories. The remaining 40 percent will be purchased by a
team of four to six buyers located in San Antonio, each such buyer being
responsible for purchasing $6 million to $12 million of product at retail.
Their categories of responsibility include:
<TABLE>
<S> <C>
girls' apparel infants' apparel
boys' apparel ladies' apparel
men's apparel domestics
accessories hosiery
lingerie
</TABLE>
Softlines will be purchased from approximately 400 different vendors.
Approximately 30 percent of purchases will be "in-line" product such as
greeting cards (sold at a 40 percent discount from everyday pricing), imports,
seasonal items and basic commodities, including hosiery and socks. The
remaining 70 percent of purchases will be principally from manufacturers'
overruns, cancellations by other retailers, refurbished electronics, late in
the season product and packaging changes.
28
<PAGE>
STORE MERCHANDISING
Store merchandising techniques will include a center core of merchandise as
one enters a store, which, when appropriate, will feature a seasonal theme:
<TABLE>
<S> <C>
Easter Spring cleaning
Mothers' Day Summer
Back-to-school Fall
Halloween Thanksgiving
Christmas
</TABLE>
This area will feature products from any category which relate to that
season. The rest of the offerings will be presented by category, with
hardlines and domestics product presented primarily on gondolas and apparel
featured on four ways and round and straight racks. The floor layout will vary
based on the size and shape of a store, but a consistent flow from one
category to the next will be present in each store. Each store will be stocked
based on the specific demographics of each location with input from store
management and other store personnel. Each store will be encouraged to
communicate directly with buyers and distributors as to their needs and
customers' requests.
GROSS MARGIN
The average initial markup is planned at 45 percent of retail; markdowns are
planned at 5.0 percent of sales (i.e., a targeted gross margin of 42.2 percent
before freight costs and shrinkage).
LOT$OFF CONVERSIONS
The current schedule for the 17 remaining store conversions is July -
October 1997. The incremental cost to convert a store is approximately $20,000
for signage, special advertising and minor painting, touch-up and refixturing;
concept maximization would also require an increase in the average inventory
per store. The stores are scheduled to go dark for no more than a few days
during the conversion process.
29
<PAGE>
MATERIAL LITIGATION REGARDING SALE OF SECURITIES
As was discussed above, among the principal reasons for the Company's having
to file for bankruptcy protection was a severe liquidity crisis caused in part
by the breach of certain foreign purchasers of their contractual obligations
to purchase in aggregate 1,500,000 shares of the Company's common stock at
$3.65 per share ($5,475,000 in aggregate) in an international (Regulation S)
offering by 50-OFF in late fiscal 1995. The Company has filed two Lawsuits
relating to this matter. As per the Plan, the Company proposes to issue
770,170 shares (approximately $3.9 million liquidation value) of Series B
Preferred Stock (with each share convertible into two shares of Common Stock)
to its General Unsecured Creditors for its more than $28 million of pre-
petition obligations to them. Additional shares of Series A Preferred Stock
($5.00 liquidation value per share), not covered by this Prospectus, and/or
Cash would be issued or paid to such Creditors to the extent that the Net
Lawsuits' Proceeds exceed the $3.9 million. The Company's obligations to issue
Series A Conversion Rights, Series A Preferred Stock and/or Cash to such
Creditors are secured by the Net Lawsuits' Proceeds. See "Plan of
Reorganization."
In November 1994, the Company received subscriptions for approximately
1,810,000 shares of its common stock in a Regulation S offering to qualified
investors. The Company received net proceeds of approximately $861,000 from
the purchase of 310,000 shares and has purchase agreements for 1,500,000
shares for which proceeds have not been received.
On February 21, 1995, the Company filed a Lawsuit [50-Off Stores, Inc. v.
Banque Paribas (Suisse), S.A., Betafid, S.A., Yanni Koutsoubos, Andalucian
Villas (Forty Eight) Limited, Arnass Limited, Brocimast Enterprises Ltd.,
Dennis Morris, Howard White, and Morris & Associates, Case No. SA-95-CA-0159]
in United States District Court in San Antonio, Texas against Banque Paribas
(Suisse) S.A., Betafid S.A., three purchaser entities allegedly controlled by
them and certain affiliated individuals in connection with the breach by
certain of the defendants of their contractual obligations to purchase an
aggregate of 1,500,000 shares of the Company's Old Common Stock at $3.65 per
share. The Lawsuit also includes securities fraud, promissory estoppel,
conspiracy and conversion claims. The conversion claim relates to actions of
the defendants in transferring, selling and trading the shares even though the
defendants have never paid for such shares. The Company seeks recovery of
actual and punitive damages, an injunction against the defendants' transfer of
such stock in violation of the Securities Act, pre- and post-judgment
interest, attorneys' fees and such other remedies to which the Company may
show itself entitled.
Dennis Morris and Howard White have answered the complaint with White
raising the affirmative defense of contributory negligence. White also served
a third party complaint on Chase Manhattan Bank, N.A. 50-OFF has recently
joined Chase and Aries Peak, Inc. as additional defendants. Defaults have been
entered against Arnass, Andalucian Villas, Brocimast, Betafid and Koutsoubos
for failure to appear or answer.
Banque Paribas (Suisse) ("Paribas") moved to dismiss the action for lack of
personal jurisdiction, failure to state a claim and for forum non conveniens.
The District Court referred all pre-trial matters to U.S. Magistrate Judge
John W. Primomo, who denied each of Paribas' motions to dismiss. U.S. District
Judge H.F. Garcia has adopted Judge Primomo's rulings in their entirety.
On March 20, 1997, Paribas answered 50-OFF's complaint asserting a number of
affirmative defenses including contributory negligence. Paribas also asserted
a counterclaim against 50-OFF for defamation. 50-OFF has moved to dismiss this
counterclaim and to strike Paribas' affirmative defenses. Judge Primomo has
recommended such dismissal and the striking of the affirmative defenses.
Written discovery has been served on all defendants who have appeared, and
depositions have been taken of numerous parties and non-party witnesses. Judge
Primomo has required that all discovery of Paribas take place pursuant to the
provisions of the Hague Evidence Convention. Paribas recently responded to 50-
OFF's request for production and interrogatories. This case is currently set
for trial on August 25, 1997.
30
<PAGE>
On January 9, 1996, the Company filed a second Lawsuit [50-OFF Stores, Inc.
v. Jefferies & Company, Inc. and Jefferies International, Ltd., Cause No. 96-
CI-00349] in Bexar County District Court in San Antonio, Texas against the
Company's placement agents in the securities offering referenced in the
Lawsuit discussed above. The suit alleges that the defendants breached their
contracts with the Company, breached their fiduciary duties to the Company and
were reckless or grossly negligent in failing to investigate properly the
qualifications of the purchasers they introduced to the Company. The Company
seeks to recover actual and exemplary damages in excess of $10,000,000, pre-
and post-judgment interest, costs and attorneys' fees. Both defendants have
answered the petition and raised the affirmative defense of contributory
negligence. Additionally, Jefferies & Company filed a third party claim
against Howard White. Discovery is proceeding. Soon after the Company filed
for protection under the Bankruptcy Code, Jefferies and White removed this
case to the Court. The United States District Court, however, granted 50-OFF's
motion to abstain from hearing the case and remanded the case back to the
Bexar County District Court. This case is specially set for jury trial on
October 4, 1997. The Bexar County District Court also ordered the parties to
conduct mediation of the case prior to such trial date.
The Company will continue to prosecute these cases vigorously. The Company,
based upon advice of counsel, believes that it will obtain a favorable
judgment against one or more of the defendants referenced in the preceding two
Lawsuits. The Company intends to vigorously pursue all remedies to collect the
sums owing to the Company as per any judgment obtained against one or more of
the defendants. Akin, Gump, Strauss, Hauer & Feld, L.L.P., represents the
Company in these matters on a contingency fee basis.
31
<PAGE>
THE OFFERING
THE OFFERING
SUMMARY OF THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED 122,009 Units.
PRICE $100.00 per Unit.
MINIMUM OFFERING 30,500 Units.
MAXIMUM OFFERING 122,009 Units.
UNITS Each Unit consists of 20 shares of 5.5% cumulative
convertible Series A Preferred Stock ($5.00 per share
liquidation value; convertible into two shares of Common
Stock) and 20 shares of Common Stock $0.01 par value.
ESCROW AGENT Bank One, Texas, NA.
OLD COMMON STOCK
OUTSTANDING AT MARCH
21, 1997 12,200,915 shares.
COMMON STOCK TO BE
OUTSTANDING AFTER THE Minimum: 610,000 shares;
OFFERING* Maximum 2,440,180 shares.
SERIES A PREFERRED STOCK
TO BE OUTSTANDING AFTER Minimum: 610,000 shares;
THE OFFERING* Maximum: 2,440,180 shares.
ESTIMATED GROSS
PROCEEDS* Minimum: $3,050,000;
Maximum: $12,200,900.
</TABLE>
* At May 30, 1997, 44,736 Units had been subscribed and $4,473,600 was being
held in escrow pursuant to the Rights Offering. Such Units represent 894,720
shares of Common Stock and 894,720 shares of Series A Preferred Stock.
USE OF PROCEEDS
The proceeds from the sale of the Units are estimated to be a minimum of
$3,050,000 (and a maximum of $12,200,900). At expiration of the Rights
Offering, $4,473,600 in subscription proceeds had been received. On the
Effective Date, proceeds from the Offering will be applied immediately to pay
down the Company's asset based lending facility which, in turn, will be used,
together with cash from operations and any Net Lawsuits' Proceeds, for working
capital, including the financing of increased inventories for the Company's
stores and to finance its exit from bankruptcy including the costs of the
Offering (with the costs to exit from bankruptcy estimated to require
approximately $2.0 million, $780,000 of which will be paid over approximately
six months).
32
<PAGE>
PRO FORMA BALANCE SHEET AND CAPITALIZATION
The following table sets forth the balance sheet and capitalization of the
Company (in thousands) as of January 31, 1997 giving effect to the Company's
implementation of the Debtors' Plan of Reorganization, including the sale of
44,736 Units ($4,473,600) subscribed for in the Rights Offering.
<TABLE>
<CAPTION>
PRO FORMA
JANUARY 31, 1997 ADJUSTMENT JANUARY 31, 1997
---------------- ---------- ----------------
<S> <C> <C> <C>
Assets:
Current Assets......... $ 14,908 $ 19,306
Net Property, Plant and
Equipment............. 3,989 3,989
Other Assets........... 358 358
-------- ------- --------
Total Assets............. 19,255 23,653
======== ======= ========
Liabilities and
Stockholders' (Deficit)
Equity:
Current Liabilities.... 10,835 (5,397) 5,438
Long-term debt:
Senior secured exit fi-
nancing............... 0(1) 1,129 1,129
MetLife Renewal
Note(2)............... 0 850 850
Other long-term
debt(3)............... 0 589 589
-------- --------
Total long-term debt..... 0 2,568
Liabilities subject to
compromise.............. 30,251 (30,251)(11) 0
Stockholders' (deficit)
equity:
Preferred Stock(4).....
Series A(5).......... 0 4,474 (10) 4,474
Series B(6).......... 0 3,991 (11) 3,991
Common Stock ($0.01 par
value)(7)............. 122 (113)(10)(12) 9
Additional paid-in
capital............... 36,022 20,737 (11)(12) 56,759
Subscription
receivable............ (3,991) 3,991 (11) 0
Accumulated deficit(8). (53,984) (53,984)
-------- --------
Total stockholders'
(deficit) equity......... (21,831) 11,249
-------- ------- --------
Total liabilities and
stockholders' equity..... $ 19,255 $ 23,524
======== ======= ========
Total capitalization(9).. $ 8,420 $ 18,085
======== ========
</TABLE>
- --------
(1) At January 31, 1997, a similar facility is classified as current with
$5,397,000 outstanding.
(2) At January 31, 1997, the Company owed MetLife $4,190,881, which amount was
compromised by agreement with MetLife to $850,000.
(3) Represents note payable for prepetition ad valorem taxes.
(4) At liquidating value of $5.00 per share; convertible into two shares of
Common Stock.
(5) 894,720 shares issued and outstanding (reflects 44,736 Units subscribed
for in the Rights Offering); 5.5% annual cumulative dividend, payable
quarterly in arrears.
(6) 798,210 shares issued and outstanding.
(7) 894,720 shares issued and outstanding; 3,385,860 shares reserved for
potential conversion of all issued and outstanding Preferred Stock (Series
A and Series B); and up to 425,000 shares reserved for potential exercise
of options outstanding as of the Effective Date of the Plan. Pro forma
January 31, 1997 book value per share: $3.26 ($2.57 fully diluted). Upon
receipt of up to $3,991,050 of Net Lawsuits' Proceeds, the Company is not
obligated to issue any additional common stock equivalents or any further
liquidation preference; therefore, should there be Net Lawsuits' Proceeds
of $3,991,050, pro forma book value per share would be $7.72 ($3.42 fully
diluted).
33
<PAGE>
(8) Assuming the Plan had been consummated as of January 31, 1997, the fully
diluted earnings per share based on 4,280,580 equivalent shares would have
been ($10.18) no adjustments have been made to historical earnings as a
result of the implementation of the Plan.
(9) Total capitalization consists of total long-term debt, liabilities subject
to compromise and stockholders' (deficit) equity.
(10) Represents the proceeds from the issuance of 894,720 shares of Common
Stock (par value of $9,000) and Series A Preferred stock (reflects 44,736
Units subscribed for in the Rights Offering) net of estimated offering
expenses of $205,000. Such net proceeds are applied against the Senior
Secured Exit Financing.
(11) Represents the reclassification of $30,251,000 of liabilities subject to
compromise and the subscription receivable of $3,991,000, the rights of
which accrue to the Series B Preferred Shareholders into long-term debt
of $1,439,000; 894,720 shares of new common stock; 798,210 shares of
Series B Preferred stock with a liquidation preference of $3,991,000 and
an increase in additional paid in capital of 20,830,000.
(12) Represents the reclassification of Old Common Stock into additional paid-
in capital for the elimination of the Old Common Stock.
SUMMARY OF THE RIGHTS OFFERING
<TABLE>
<S> <C>
SECURITIES DISTRIBUTED 12,200,915 Rights exercisable for an aggregate maximum of 122,009
Units.
RIGHTS RATIO One Right for each share of Old Common Stock owned on the Record
Date. One Unit could be subscribed for each Right; subject to the
maximum.
<CAPTION>
SUBSCRIPTION PRICE $100.00 per Unit.
<S> <C>
RECORD DATE March 21, 1997.
EXPIRATION DATE May 22, 1997, as extended.*
SUBSCRIPTION AND ESCROW
AGENT Bank One, Texas, N.A.
</TABLE>
- --------
* The extension was to accomodate receipt of additional subscriptions
anticipated from existing stockholders. The Company had received
subscriptions for 42,691 Units ($4,269,100) on May 20, 1997, the original
expiration date of the Rights Offering.
RIGHTS The Company issued to its stockholders of record on March 21, 1997,
Rights to subscribe for a maximum of 122,209 Units, each comprised of 20
shares of Common Stock and 20 shares of Series A Preferred Stock, at $100 per
Unit (the "Subscription Price"). One Right was issued for each share of Old
Common Stock outstanding on the Record Date. Although there could be no
assurance that a Subscriber would receive more than one Unit per 100 shares of
Old Common Stock currently held; Rights allowed the Subscriber to subscribe to
additional Units, up to one Unit per share currently held, to the extent such
Units were available under the Rights Offering (see "Oversubscription
Privilege," below). Rights were not evidenced by Rights Certificates, but
rather were evidenced by the transfer agent's ledger as of the close of
business on March 21, 1997. Stockholders could purchase Units through the
exercise of the Rights or allow the Rights to expire unexercised. The Rights
were not transferable. All Rights expired on May 22, 1997, the extended Rights
Offering Deadline.
OTHER TERMS OF THE RIGHTS OFFERING
RIGHTS OFFERING RECORD DATE FOR HOLDERS OF PUBLIC EQUITY INTERESTS The
Rights Offering Record Date, March 21, 1997, was the date for determining the
holders of Public Equity Interests entitled to receive Rights provided under
the Plan. As of the close of business on the Rights Offering Record Date for
purposes of distribution, the transfer ledger in respect of the Public Equity
Interests was closed. The Debtors, the Disbursing
34
<PAGE>
Agent, broker/dealers and their agents had no obligation to recognize any
transfer of Public Equity Interest occurring after the Rights Offering Record
Date. The Debtors, the Disbursing Agent, broker/dealers and their agents were
entitled instead to recognize and deal with only those holders of record
stated on the transfer ledger maintained by the transfer agent for the Public
Equity Interests as of the close of business on the Rights Offering Record
Date.
On the Effective Date, all outstanding Public Equity Interests will be
canceled on the books of Reorganized 50-OFF as is consistent with the Plan.
REORGANIZED 50-OFF RIGHTS OFFERING AND UNITS Pursuant to the Plan, 50-OFF
issued to the holders of Old Common Stock as of March 21, 1997, the Rights
Offering Record Date, rights to subscribe for Units as described herein (the
"Rights"). One Right was issued for each share of Old Common Stock. Each Right
entitled the holder of such Right to purchase a Reorganized 50-OFF Unit, which
consists of 20 shares of Series A Preferred Stock and 20 shares of Reorganized
50-OFF Common Stock in exchange for $100.00 per Unit in cash, subject to
certain limitations on the number of Units to be sold and the allocation of
such maximum number of Units in the event of an oversubscription, and subject
to the terms and conditions described herein. One Right was required to
subscribe for one Reorganized 50-OFF Unit, except as provided in the
Oversubscription Privilege. No Rights certificates were issued to holders of
Old Common Stock. The ledger maintained by 50-OFF's transfer agent as of the
close of business on the Record Date was deemed to be the ledger of the
holders of such Rights.
MAXIMUM/MINIMUM NUMBER OF UNITS TO BE SOLD A maximum of 122,009 Units would
be sold. In the event that subscriptions for in excess of 122,009 Units were
received on account of the Rights and the oversubscription privilege, the
funds attributable to unfilled subscriptions (as selected pursuant to the
terms hereof), without interest, would have been promptly returned to such
subscribers. A minimum of 30,500 Units would be sold. Had subscriptions for
fewer than 30,500 been received in the Rights Offering, all such
subscriptions, without interest, would have been promptly returned to the
subscribers, and the Rights would have been deemed canceled.
OVERSUBSCRIPTION PRIVILEGE Any holder of a Right could have exercised an
oversubscription privilege to subscribe for additional Units which were
otherwise unsubscribed (the "Oversubscription Privilege"). Such
Oversubscription Privilege must have been exercised prior to the extended
Rights Offering Deadline, May 22, 1997.
ALLOCATION UPON OVERSUBSCRIPTION In the event of an oversubscription of the
Units, each subscriber would have received one Unit for each 100 shares of Old
Common Stock held as of the Record Date; any remaining Units thereafter would
have been divided pro rata among subscribers based upon the number of Units
which had been requested and not provided.
EXERCISE OF RIGHTS Holders of Old Common Stock as of the Record Date who
desired to exercise Rights to purchase Units were requested to fill out an
Expression of Interest in Purchasing Rights Units form. Each party returning a
favorable Expression of Interest was forwarded a Subscription Exercise Form
for Rights Offering. The Expression of Interest in Purchasing Rights Units was
requested to be returned by holders of Old Common Stock in sufficient time to
receive and return the Subscription Exercise Form for Rights Offering prior to
the Rights Offering Deadline. Upon receiving the Subscription Exercise Form
for Rights Offering each holder of Rights desiring to purchase Units was
requested to: (1) execute the Subscription Exercise Form for Rights Offering;
(2) return the executed Subscription Exercise Form for Rights Offering to the
Escrow Agent such that the Subscription Exercise Form for Rights Offering
would be received by the Escrow Agent on or before the Rights Offering
Deadline; and (3) return a check or wire transfer consisting of good funds for
the full price of the number of Units subscribed such that the check or funds
would be received by the Escrow Agent on or before the Rights Offering
Deadline. Persons who appropriately subscribed were bound or deemed bound by
the Subscription Exercise Form and the Escrow Agreement as well as any other
applicable subscription documents.
Holders of Rights were requested to carefully follow all instructions for
due exercise of their Rights, which instructions were provided with the
Subscription Exercise Form for Rights Offering. All questions with respect
35
<PAGE>
to the validity, form and eligibility of any exercise of Rights were to be
determined solely by 50-OFF. 50-OFF, in its sole discretion, could waive any
defect or irregularity, including the waiver of the untimeliness of any
subscription received, permit a defect or irregularity to be corrected within
such time as it may determine or reject the exercise of any Right. A
subscription was not deemed to have been made until all irregularities had
been waived or cured within such time as 50-OFF determined in its sole
discretion. Neither the Debtors nor the Escrow Agent were under any duty to
give notification of any defect in a subscription or incur any liability for
failure to give any such notification.
TRANSMITTAL OF DOCUMENTS AND PURCHASE PRICE The instructions accompanying
the Subscription Exercise Form for Rights Offering were requested to be
carefully read and strictly followed. QUESTIONS RELATING TO THE METHOD OF
SUBSCRIPTION WERE TO BE DIRECTED TO MORROW & CO. AT 909 3RD AVENUE, 20TH
FLOOR, NEW YORK, NY 10022; (212) 754-8000; (800) 566-9061; AND (FOR BANKS AND
BROKERAGE FIRMS) (800) 662-5200. The risk of delivery of all documents and
payments was on the subscribers, not 50-OFF or the Escrow Agent. If the mail
was used, it was recommended that insured registered mail be used and that a
sufficient number of days be allowed to ensure delivery to the Escrow Agent
before the Rights Offering Deadline. The risk of providing the Expression of
Interest in Purchasing Rights Units in sufficient time to allow for the
receiving and returning of the Subscription Exercise Form for Rights Offering
was to be borne by the holders of the Rights.
RIGHTS OFFERING CONDITIONED UPON CONFIRMATION All subscriptions for the
purchase of Units, including all subscriptions described in "Offerings to
Other Persons," below, although binding, were subject to and conditioned upon
the confirmation of the Plan. On or promptly after the Effective Date,
certificates for shares underlying the Units subscribed on or before June 13,
1997 in the Offering will be mailed to subscribers. On the Effective Date the
subscription proceeds held in escrow will be released to the Company.
OFFERING TO OTHER PERSONS
Prior to expiration of the Offering, the Company may offer for sale and sell
to the public all Units unsubscribed in the Rights Offering up to the maximum
number of Units for $100.00 per Unit. As stated above, all sales of Units
prior to the Effective Date are subject to and conditioned upon occurrence of
the Effective Date.
36
<PAGE>
DESCRIPTION OF SECURITIES
Effective on the Effective Date, the Certificate of Incorporation of the
Company will be restated and amended to authorize the issuance of 40,000,000
shares of capital stock, consisting of 25,000,000 shares of Common Stock and
15,000,000 shares of Preferred Stock. Shares of Preferred Stock will be
issuable from time to time in series.
The following summaries of certain provisions of the Certificates of
Designation for Series A and Series B Preferred Stock do not purport to be
complete and are qualified in their entirety by reference to the respective
Certificates of Designation copies of which are filed as exhibits to the
Registration Statement, of which this Prospectus is a part.
SERIES A PREFERRED STOCK
AUTHORIZATION Reorganized 50-OFF will be authorized to issue 10,000,000
shares of Series A Preferred Stock.
PAR VALUE The Series A Preferred Stock will have a par value of $0.01 per
share.
STOCK EXCHANGE LISTING When and if the requisite criteria are met,
Reorganized 50-OFF will use reasonable efforts to cause the Series A Preferred
Stock to be listed on the NASDAQ National Market.
DESIGNATION OF SERIES The designation of the series will be "Series A
Preferred Stock."
DIVIDENDS ON SERIES A PREFERRED STOCK
AMOUNT; DUE DATES The holders of the Series A Preferred Stock will be
entitled to receive, in any calendar year, when and as declared by the Board
of Directors, out of funds legally available therefor and subject to the
further limitations set out in the Series A Preferred Stock Certificate of
Designation, cumulative dividends at the per annum rate of 5.50% of the Series
A Liquidation Preference, all such dividends due quarterly in arrears as of
the last day of each March, June, September and December of each year, the
first dividend being due on the first such date to occur which is at least
ninety (90) days after the Effective Date.
DIVIDENDS OR REDEMPTION REGARDING OTHER CLASSES OR SERIES Dividends will be
payable on account of the Series A Preferred Stock before any sum or sums are
paid or set aside for the purchase, redemption of, or payment of dividends on
the Reorganized 50-OFF Common Stock or any class or series of stock ranking
junior to the Series A Preferred Stock as to dividends or distribution of
assets, except as to the extent of the Series B Preferred Stock Lien
(described generally as a lien granted to holders of Series B Preferred Stock
pursuant to the Plan and the Confirmation Order, securing Reorganized 50-OFF's
obligation to pay the Series B Liquidation Preference in the event of any
liquidation, dissolution or winding up) and the Class 7 Lien (described
generally as a lien granted to holders of allowed general unsecured claims
pursuant to the Plan and Confirmation Order, securing Reorganized 50-OFF's
obligation to issue Series A Preferred Stock and to distribute Excess Net
Lawsuits' Proceeds to such holder when required pursuant to the terms and
conditions of the Plan) upon the Net Lawsuits' Proceeds. Dividends upon the
Series A Preferred Stock will be cumulative. Accumulations of dividends will
not bear interest.
REDEMPTION OF REORGANIZED 50-OFF SERIES A PREFERRED STOCK Subject to
restrictions imposed by Delaware law, Reorganized 50-OFF may, at its option,
redeem the shares of the Series A Preferred Stock in whole or in part, at any
time, in exchange for the payment of the Series A Liquidation Preference;
provided, however, that for the five consecutive days prior to the date of the
notice of redemption, the Reorganized 50-OFF Common Stock must have closed at
a price of $3.00 or more per share. Redemption will be accomplished using the
procedures set forth within the Series A Preferred Stock Certificate of
Designation.
PRIORITY OF THE SERIES A PREFERRED STOCK IN THE EVENT OF DISSOLUTION The
Series A Preferred Stock will have preference over Series B Preferred Stock,
Reorganized 50-OFF Common Stock and any class or series of
37
<PAGE>
stock ranking junior to the Series A Preferred Stock as to the distribution of
assets in the event of any liquidation, dissolution or winding up of
Reorganized 50-OFF and, in that event, subject to the provisions of applicable
law, each Series A Holder will be entitled to receive, out of the assets of
Reorganized 50-OFF available for distribution to its stockholders, $5.00 per
share of Series A Preferred Stock and any accrued and unpaid dividends (the
"Series A Liquidation Preference"). Upon any liquidation, dissolution or
winding up of Reorganized 50-OFF, after payment shall have been made in full
on any other securities which are senior as to distribution of assets to
Series A Preferred Stock, and after payment shall have been made in full on
the Series A Preferred Stock, as provided in the Certificate of Designation
for Series A Preferred Stock, but not prior thereto, the holders of all the
remaining capital stock including Series B Preferred Stock, Reorganized 50-OFF
Common Stock or any other series or class of stock ranking junior to the
Series A Preferred Stock as to distribution of assets shall, subject to the
respective terms and provisions of the Restated Certificate of Incorporation
of Reorganized 50-OFF, if any, applying thereto, be entitled to receive any
and all assets remaining to be paid or distributed, and the holders of Series
A Preferred Stock will not be entitled to share therein. The merger or
consolidation of Reorganized 50-OFF with another corporation and/or the sale,
lease, pledge or mortgage of all or substantially all of the assets of
Reorganized 50-OFF will not be deemed to be a liquidation, dissolution or
winding up of Reorganized 50-OFF for the purposes hereof. Notwithstanding
anything herein to the contrary, the Series A Liquidation Preference will in
all things be junior and subordinate to both the Series B Preferred Stock Lien
and the Class 7 Lien, as to the Net Lawsuits' Proceeds.
RIGHTS OF CONVERSION Subject to the terms of the Certificate of Designation
for Series B Preferred Stock, any share of Series A Preferred Stock may be
converted, provided that such shares have not been redeemed, on or after the
date of issue at the option of each holder of Series A Preferred Stock into
two (subject to adjustment) fully paid and nonassessable shares of Reorganized
50-OFF Common Stock.
VOTING RIGHTS OF SERIES A PREFERRED STOCK Holders of Series A Preferred
Stock will have no voting rights except as provided below and as required by
the Delaware General Corporation Law. Holders of Series A Preferred stock will
be entitled to vote alongside the Reorganized 50-OFF Common Stock on all
matters submitted to a vote of holders of Common Stock from and after the date
that Reorganized 50-OFF fails to pay any three consecutive dividends upon the
Series A Preferred Stock; provided, however, that, for purposes of voting,
each share of Series A Preferred Stock will be entitled to a number of votes
equal to the then applicable conversion rate (expressed as the number of
shares of Common Stock to be acquired upon conversion of one share of Series A
Preferred Stock).
SERIES B PREFERRED STOCK
AUTHORIZATION Reorganized 50-OFF will be authorized to issue 1,000,000
shares of Series B Preferred Stock.
PAR VALUE The Series B Preferred Stock will have a par value of $0.01 per
share.
DESIGNATION OF SERIES The designation of the series shall be "Series B
Preferred Stock."
REDEMPTION OF SERIES B PREFERRED STOCK Subject to restrictions imposed by
Delaware law, Reorganized 50-OFF may, at its option, redeem the shares of the
Series B Preferred Stock, in whole or in part, at any time after the
Disposition of the Lawsuits (described generally as the rendering of Final
Orders with regard to certain pending lawsuits brought by the Company), in
exchange for the payment of the Series B Liquidation Preference. Redemption
will be accomplished using the procedures set forth in the Certificate of
Designation for Series B Preferred Stock.
DIVIDENDS ON SERIES B PREFERRED STOCK Holders of Series B Preferred Stock
will participate in any cash dividends paid to holders of Reorganized 50-OFF
Common Stock as though each share of Series B Preferred Stock is equal to the
then applicable conversion rate (expressed as the number of shares of Common
Stock to be acquired upon conversion of one share of Series B Preferred
Stock).
38
<PAGE>
PRIORITY OF THE SERIES B PREFERRED STOCK IN THE EVENT OF DISSOLUTION
LIEN ON NET LAWSUITS' PROCEEDS The holders of Series B Preferred Stock will
have a lien on the Net Lawsuits' Proceeds subject to the terms and conditions
of the Plan. Such Series B Preferred Stock Lien will be a full assignment and
security interest in and upon the Net Lawsuits' Proceeds, securing Reorganized
50-OFF's obligation to pay the Series B Liquidation Preference in the event of
any liquidation, dissolution or winding up, which lien will be junior in right
and priority to (a) any and all contingent fee interests held by counsel
prosecuting such Lawsuits on behalf of the Debtors and the Reorganized
Debtors, including, without limitation, such contingent fee interest as
secures the reimbursement of all expenses owing to such counsel, (b) the
reimbursement of the Debtors and the Reorganized Debtors of all expenses
directly relating to the prosecution of the Lawsuits paid by the Debtors or
the Reorganized Debtors after the Petition Date, including after confirmation
or after any conversion of the Chapter 11 Cases to Chapter 7, (c) the Class 7
Agents' fees and expenses and the fees and expenses of any professionals hired
by the Class 7 Agent, (d) the Chapter 11 Professional Fee Lawsuit Carve-Out,
and (e) the liens and security interest of the Senior Secured Exit Financing
lender or any successor thereto. The Series B Preferred Stock Lien shall be
senior to the Class 7 Lien. Such Series B Preferred Stock Lien will be
enforceable up to the full amount of the Series B Liquidation Preference in
the event of any liquidation, dissolution or winding up of Reorganized 50-OFF.
Such Series B Preferred Stock Lien will be deemed satisfied and released as to
any portion of the Net Lawsuits' Proceeds for which Series A Conversion Rights
(or fractions thereof) are issued, including Series A Conversion Rights (or
fractions thereof) which are issued and held in the Contested Claims Escrow.
OTHER PREFERENCE The Series B Preferred Stock will have preference over the
Reorganized 50-OFF Common Stock and any class or series of stock ranking
junior to the Series B Preferred Stock as to the distribution of assets in the
event of any liquidation, dissolution or winding up of Reorganized 50-OFF and,
in that event, subject to the provisions of applicable law, each Holder of
Series B Preferred Stock will be entitled to receive, out of the assets of
Reorganized 50-OFF available for distribution to its stockholders, $5.00 per
share of Series B Preferred Stock and any accrued but unpaid dividends (the
"Series B Liquidation Preference"). Upon any liquidation, dissolution or
winding up of Reorganized 50-OFF, after payment has been made in full on any
other securities which are senior as to distribution of assets to Series B
Preferred Stock, and after payment has been made in full on the Series B
Preferred Stock, as provided in the Certificate of Designation for Series B
Preferred Stock, but not prior thereto, the holders of all the remaining
capital stock including Reorganized 50-OFF Common Stock or any other series or
class of stock ranking junior to the Series B Preferred Stock as to
distribution of assets will, subject to the respective terms and provisions of
the Restated Certificate of Incorporation of Reorganized 50-OFF, if any,
applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of Series B Preferred Stock will not be
entitled to share therein. The merger or consolidation of Reorganized 50-OFF
with another corporation and/or the sale, lease, pledge or mortgage of all or
substantially all of the assets of Reorganized 50-OFF will not be deemed to be
a liquidation, dissolution or winding up of Reorganized 50-OFF for the
purposes hereof.
RIGHTS OF CONVERSION INTO SHARES OF COMMON STOCK OF REORGANIZED 50-OFF
Subject to the terms of the Certificate of Designation for Series B Preferred
Stock, each share of Series B Preferred Stock may be converted, provided that
such shares have not been redeemed, on or after the date of issue at the
option of each holder of Series B Preferred Stock, into two (subject to
adjustment) fully paid and nonassessable shares of Reorganized 50-OFF Common
Stock.
RIGHTS OF CONVERSION INTO SHARES OF SERIES A PREFERRED STOCK Subject to the
terms of the Certificate of Designation for Series B Preferred Stock, each
share of Series B Preferred Stock may be converted, provided such shares have
not been redeemed, on or after such time as such share of Series B Preferred
Stock is deemed fully convertible, into fully paid and nonassessable shares of
Series A Preferred Stock. A share of Series B Preferred Stock will be deemed
fully convertible at such time as a full Series A Conversion Right with
respect to such share of Series B Preferred Stock has been deemed distributed
by Reorganized 50-OFF.
39
<PAGE>
VOTING RIGHTS OF SERIES B PREFERRED STOCK Holders of Series B Preferred
Stock will have no voting rights except as provided below and as required by
the Delaware General Corporation Law. Holders of Series B Stock will be
entitled to vote alongside the Reorganized 50-OFF Common Stock on all matters
submitted to a vote of holders of Common Stock from and after the Disposition
of the Lawsuits; provided, however, that for purposes of voting, each share of
Series B Preferred Stock will be entitled to a number of votes equal to the
then applicable conversion rate (expressed as the number of shares of Common
Stock to be acquired upon conversion of one share of Series B Preferred
Stock).
REORGANIZED 50-OFF COMMON STOCK
AUTHORIZATION Reorganized 50-OFF will be authorized to issue 25,000,000
shares of Reorganized 50-OFF Common Stock.
PAR VALUE The Reorganized 50-OFF Common Stock will have par value of $0.01
per share.
RIGHTS Holders of Reorganized 50-OFF Common Stock will be entitled to one
vote per share on all matters submitted to a vote of stockholders of the
Company, including the election of Directors, and to receive dividends when,
as and if declared by the Board of Directors from funds legally available
therefor. Upon liquidation of the Company, holders of Common Stock will be
entitled to share ratably in any assets available for distribution to
stockholders after payment of all obligations of the Company and the
liquidation preference of Preferred Stock to be issued pursuant to the Plan
and the Offering and such as may be issued in the future. Holders of Common
Stock will not have cumulative voting rights or preemptive, subscription,
conversion or redemption rights. The shares of Common Stock offered hereby,
upon issuance, will be validly issued, fully paid and nonassessable.
STOCK EXCHANGE LISTING When and if the requisite criteria are met,
Reorganized 50-OFF will use reasonable efforts to cause the Reorganized 50-OFF
Common Stock to be listed on the NASDAQ National Market.
RIGHTS
Holders of the Rights had no voting rights and were not entitled to
dividends. In the event of liquidation, dissolution or winding up of the
Company, holders of the Rights were not entitled to participate in the
distribution of the Company's assets. For a description of the Rights, see
"The Offering," above.
40
<PAGE>
THE PLAN OF REORGANIZATION
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF THE PLAN DOES NOT PURPORT TO
BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL
PROVISIONS OF THE PLAN, A COPY OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
The Plan requires that the Company's existing senior secured revolving
credit facility lender, General Electric Credit Corporation ("GECC"), provide
a post-confirmation revolving credit facility or be replaced by a new senior
secured lender so that the Company has a source of revolving funds to continue
to operate. GECC has given a formal commitment to the Company to provide such
financing, subject to certain conditions. The Plan also provides for the
restructure of the Company's secured obligation to MetLife Capital Corporation
("MetLife") at a face amount of $850,000. The Plan provides for the payment of
such amount over approximately seven years. MetLife has agreed to such
treatment.
The Plan provides for the cancellation of all non-priority unsecured
indebtedness of the Company. The Company estimates such cancellation will
cause the elimination of approximately $25 million of unsecured debt and $3
million of secured debt which will be converted to unsecured debt from the
Company's balance sheet. Each holder of an allowed general unsecured claim
will, in cancellation of its claim, receive a pro rata share of the Company's
new Series B Preferred Stock. Certain obligations of the Company to such
holders of Series B Preferred Stock will be secured by two liens against
potential net lawsuit proceeds from significant litigation being prosecuted by
the Company. As net proceeds (net of certain items set forth in the Plan) from
such litigation are received by the Company, holders of Series B Preferred
Stock will receive (i) Series A Conversion Rights, which provide for
conversion of Series B Preferred Stock to Series A Preferred Stock, until net
proceeds reach $3,991,050 and (ii) Series A Preferred Stock for net proceeds
in excess of $3,991,050 (provided that "excess" net proceeds, as defined in
the Plan, will be paid in cash). The receipt of Series A Conversion Rights,
Series A Preferred Stock and/or cash by holders of Series B Preferred Stock
will result in a proportionate release of the liens. By issuing such Series B
Preferred Stock to general unsecured creditors, such creditors will be
essentially receiving the net value of the Company's significant litigation
which was pending prepetition.
Finally, the Plan provides for the recapitalization of the Company through
cash raised from the Company's existing common stockholders (the "Rights
Offering") and others (together with the Rights Offering, the "Offering") and,
potentially, as discussed above, from the litigation. Specifically, the Plan
provides for the issuance to such stockholders of rights to subscribe for
units, each consisting of 20 shares of Series A Preferred Stock and 20 shares
of Common Stock (a "Unit") and requires the sale of a minimum of 30,500 Units
at $100.00 per Unit ($3,050,000). The Rights Offering, as extended, expired on
May 22, 1997. The Company received approximately 4.4 million in subscriptions
pursuant to the Rights Offering. Units not subscribed for pursuant to the
Rights Offering may be offered to the public by the Company until such
Offering expires. There can be no assurance that any additional subscriptions
will be received. Subscriptions received in the Offering will be held in
escrow with Bank One, Texas N.A. until the Effective Date of the Plan.
TREATMENT OF CLAIMS WITHIN THE PLAN OF REORGANIZATION
The Bankruptcy Code requires the Debtors to classify Claims asserted against
their estates. The Bankruptcy Code prohibits dissimilar creditors from being
placed within the same class. Except for such prohibition, the Bankruptcy Code
is silent as to other guidelines to be used in classification. Generally,
every secured creditor is classified within a separate class. This is
necessary because a secured creditor's rights against unique collateral are
generally considered to be sufficiently dissimilar from any other creditor's
rights to allow for joint classification. Priority claims, except for section
507(a)(1), (2) and (8) claims, are generally classified within the same class.
To the extent that a Claimant and/or Public Equity Interest Holder has Claims
and/or Interests in different classes, such Claims and/or Interests will not
be aggregated.
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ADMINISTRATIVE CLAIMS
This group consists of all Administrative Claims allowed under section
507(a)(1) of the Bankruptcy Code. This category includes the "hold-back"
portions of Claims for professional fees for various professionals (attorneys,
accountants, financial advisors, etc.) retained by permission of the Court,
estimated at $1,000,000 (approximately $200,000 recorded at January 31, 1997)
at confirmation. This group also includes payments to cure defaults to
landlords on Leases which the Debtors have assumed (payable over six months
with interest at 9% per annum) and payments, which are otherwise unpaid, for
post-petition occupancy on leases which the Debtors have rejected. The Debtors
estimate that the combined total of such liability to landlords is
approximately $730,714 which has been recorded in accrued liabilities at
January 31, 1997. Also within this group of potential Claims, but not
quantified, are obligations generally incurred in the ordinary course of
operations, which Claims will be paid according to the agreed terms with those
parties.
PAYMENT OF ALLOWED ADMINISTRATIVE CLAIMS Each holder of an Allowed
Administrative Claim against a Debtor will receive on the Distribution Date
(1) the amount of such holder's Allowed Claim in one Cash payment on the
Distribution Date or (2) such other treatment as may be agreed upon in writing
by the Committee, the Debtors and such holder; provided, however, that an
Administrative Claim representing a liability incurred in the ordinary course
of business of a Debtor may be paid in the ordinary course of business by such
Debtor; and provided further that the payment of an Allowed Administrative
Claim which is a Cure Payment shall be paid in six equal monthly installments
with interest, due on the tenth day of the month, with the first such
installment being due and payable on the first tenth day of the month to occur
after the later of the Effective Date or the date of allowance of such Claim
by Final Order.
GECC CLAIM All GECC Obligations will be satisfied by refinancing, with GECC
as the Senior Secured Exit Financing lender for the Reorganized 50-OFF
Companies.
PRIORITY TAX CLAIMS
This group consists of all Claims for taxes allowable under section
507(a)(8) of the Bankruptcy Code.
Each holder of an Allowed Priority Tax Claim against a Debtor shall receive
on the Distribution Date, in full satisfaction of such holder's Allowed
Priority Tax Claim, (1) the amount of such holder's Allowed Claim, with
interest accruing after the Effective Date at 6.62% per annum, in equal annual
cash payments on each anniversary of the Distribution Date until the sixth
such anniversary; (2) a lesser amount in one cash payment as may be agreed
upon in writing; or (3) such other treatment as may be agreed upon in writing.
CLASSES
For the purposes of the Plan, those Claimants holding Claims against, or
stockholders holding Interests in, the Debtors are grouped in the following
Classes in accordance with section 1122(a) of the Bankruptcy Code and will be
treated under the Plan as described below.
CLASS 1 -- ANY ALLOWED SECURED CLAIMS OF AD VALOREM TAXING AUTHORITIES
On the Effective Date, each holder of an Allowed Claim in Class 1 will
receive a Plan Secured Note and will retain its Tax Liens securing its Allowed
Secured Claim as security for the Plan Secured Note until such Plan Secured
Note is paid in full.
CLASS 2 -- ANY ALLOWED SECURED CLAIM OF METLIFE
MetLife's Allowed Secured Claim will be treated as follows:
AMOUNT OF ALLOWED SECURED CLAIM OF METLIFE MetLife's Allowed Secured Claim
will be fixed at confirmation at the amount provided for in the MetLife
Settlement Agreement (the "MetLife Allowed Secured Claim Amount").
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ISSUANCE OF RENEWAL NOTE The Reorganized 50-OFF Companies will execute,
jointly and severally, and deliver to MetLife a renewal promissory note (the
"MetLife Renewal Note") on the Distribution Date, which Note will have the
following terms:
<TABLE>
<S> <C>
Original Principal: The MetLife Allowed Secured Claim Amount ($850,000);
Interest Rate: 7.5% per annum;
Payments: Monthly on the first day of each month beginning on the first day
of the first full month occurring after the Effective Date; first
12 payments will be fixed at interest only; the following monthly
payments will be in an amount necessary to amortize the remaining
principal balance until maturity with equal monthly payments due on
the first of each month with the final payment being due on Febru-
ary 1, 2004;
Maturity: February 1, 2004; and
Other: In all other respects, the MetLife Renewal Note will be in a form
substantially similar to the existing note payable to MetLife.
</TABLE>
METLIFE'S COLLATERAL Except as provided as subpart (iv) below, MetLife will
have a first priority senior lien on all FF&E in the Continuing Locations,
which relates back to the date on which MetLife filed its financing statements
against any of the Debtors in each of the states in which the Continuing
Locations are located, which is junior only to the Tax Liens, if any, which
prime a perfected lien creditor. Except as provided as subpart (iv) below,
such lien will attach to "all present and future additions, attachments, and
accessories thereto, all substitutions therefor and replacements thereof and
all proceeds thereof, including all proceeds of insurance" to any of the
following: all furniture, fixtures and equipment, including, but not limited
to, all point of sale systems, telephone systems, surveillance cameras,
security systems, receiving equipment, safes, time clocks, tv/vcr(s), office
desks, chairs, racking, sizers, shelving, panels, tables, hangers and
gondolas.
RETENTION OF LIENS In accordance with section 1129(b)(2)(A), MetLife will
retain its liens on the FF&E at the Continuing Locations or any new location
to which such FF&E may be moved with or without MetLife's consent. Provided,
however, MetLife shall not be given nor will it have a lien on after-acquired
property which has been or is acquired by the Reorganized 50-OFF Companies
after the Petition Date for a new store location so long as none of MetLife's
collateral is moved to the new location, except if MetLife's collateral is
moved to the new location, MetLife will have an after-acquired lien on all
FF&E at that location. Provided, further, however, that MetLife will not have
a senior lien on FF&E purchased or leased by one or more of the Debtors post-
confirmation, upon which a party perfects a purchase money security interest
or in which a party has an ownership interest and/or which is leased to the
Debtors; however, the Debtors will provide MetLife with notice of same. The
Debtors will execute and deliver any documents necessary to implement the
terms of the Plan and/or the MetLife Settlement Agreement, including executing
any documents which may be necessary or helpful to cure any existing
infirmities in MetLife's pre-Petition Date documents, which lien will be a
Senior Lien.
RELEASE OF LIENS Upon satisfaction of the MetLife Renewal Note, MetLife will
release all of its liens in any property of the Reorganized 50-OFF Companies
securing the MetLife Renewal Note.
FF&E IN NON-CONTINUING LOCATIONS. MetLife has repossessed and is in the
process of foreclosing its security interest in FF&E in approximately 65 store
locations at which the Debtors have rejected the leases. To the extent that
MetLife has not completed any of the foreclosure sales as of the Confirmation
Date, MetLife will retain its liens in that FF&E and be allowed to foreclose
on same. Moreover, MetLife will retain its liens on the proceeds of such
Foreclosure Sales. Under the MetLife Settlement Agreement, MetLife has agreed
to give the Debtors credit for the greater of the actual net proceeds of the
Foreclosure Sales or a fixed sum of $350,000.
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COMPROMISE OF AVOIDANCE ACTIONS Because MetLife and the Debtors have reached
a binding agreement, approved by the MetLife Settlement Order, which provides
that MetLife will: (1) not make the section 1111(b) Election, (2) timely vote
all of its Claims, including its Secured Claim and its Deficiency Amount to
accept the Plan without the need of changing its Ballot(s) from an initial
rejection or without voting late, (3) not object to confirmation of the Plan,
(4) stipulate with the Debtors regarding the value of its FF&E in the
Continuing Locations in accordance with the Value Stipulation, (5) agree to
grant the Debtors the releases reflected in the MetLife Settlement Agreement
of certain claims and (6) agree to compromise the amount of its deficiency
unsecured claim; the Debtors have compromised and settled: (1) any preference,
fraudulent transfer and other avoidance actions against MetLife; (2) any
objections which the Debtors may have had, if any, to the commercial
reasonableness of the Foreclosure Sales conducted by MetLife, including but
not limited to the amount of MetLife's Deficiency Claim; (3) the Debtors will
grant MetLife a lien upon all of the Reorganized Debtors' currently existing
FF&E and the proceeds thereof to secure payment of the MetLife Renewal Note
all as provided herein, including executing any documents which may be
necessary or helpful to cure any existing infirmities in MetLife's pre-
Petition Date documents, which lien will be a Senior Lien; and (4) MetLife
will have an Allowed Secured Claim in an amount equal to the MetLife Allowed
Secured Claim Amount and an Allowed General Unsecured Claim in an amount as
set forth in the MetLife Settlement Agreement. This paragraph only summarizes
some of the terms of the MetLife Settlement Agreement.
CLASS 4 -- OTHER SECURED CLAIMS
Each holder of an Allowed Secured Claim against a Debtor which is not
otherwise classified will be treated as though in a separate class as follows:
GENERAL TREATMENT Each holder of an Allowed Secured Claim against the
Debtors will, at the sole option of the Debtors, receive on the Distribution
Date on account of its Allowed Secured Claim: (a) a Plan Secured Note; (b)
treatment as provided under section 1124(2) or (3) of the Bankruptcy Code,
with the cash payments required by section 1124(2)(A) and (C) of the
Bankruptcy Code being made on the Distribution Date; or (c) such holder's
Collateral. If the holder of an Allowed Secured Claim against a Debtor
receives treatment as provided in (a) or (b) above, such holder will retain
the liens securing the Allowed Secured Claim until paid in full. Any
Deficiency Amount related to a Secured Claim will be treated as a Class 7
General Unsecured Claim.
NEGOTIATED TREATMENT Notwithstanding any other provision in the Plan, the
Debtors, Committee and any holder of a Class 4 Allowed Secured Claim may agree
to any alternate treatment of such Secured Claim which treatment will include
preservation of such holder's lien; provided, however, that such treatment
shall not provide a return to such holder of an amount having a present value
in excess of the amount of such holder's Allowed Secured Claim. Each such
agreement will be presented to the Court before or within thirty days after
the Effective Date and will not materially and adversely impact the treatment
of any other Creditor under the Plan.
CLASS 5 -- ANY ALLOWED PRIORITY NON-TAX CLAIMS
Each holder of an Allowed Priority Non-tax Claim against a Debtor will
receive on the Distribution Date on account of its Allowed Priority Non-tax
Claim the amount of such holder's Allowed Priority Non-tax Claim in one cash
payment on the Distribution Date.
CLASS 6 -- ANY ALLOWED CONVENIENCE CLAIMS
In lieu of treatment as any other Class of claimant under the Plan, and in
full satisfaction of any and all Claims against the Debtor, a holder of an
Allowed Convenience Claim against the Debtor will receive, within 90 days of
the Distribution Date, cash equal to the amount of 25% of such Allowed
Convenience Claim.
CLASS 7 -- ANY ALLOWED GENERAL UNSECURED CLAIMS NOT OTHERWISE CLASSIFIED
Allowed Claims in Class 7 will be treated as follows in full satisfaction of
any and all claims:
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Each holder of an Allowed Class 7 Claim will receive on the Distribution
Dates on account of its General Unsecured Claim a Pro Rata Share of Series B
Preferred Stock having an aggregate Series B Liquidation Preference in the
amount of $3,991,050.
Subject to the terms of the Plan, upon the Reorganized 50-OFF's receiving
Net Lawsuits' Proceeds, it will issue Series A Conversion Rights to the
holders of Series B Preferred Stock. A share of Series B Preferred Stock will
be deemed fully convertible at such time as a full Series A Conversion Right
with respect to such share of Series B Preferred Stock has been deemed
distributed by Reorganized 50-OFF. One Series A Conversion Right will be
issued for each $5.00 of Net Lawsuits' Proceeds received by the Reorganized
50-OFF. Series A Conversion Rights will be deemed distributed as and when
sufficient Net Lawsuits' Proceeds are received by Reorganized 50-OFF to
warrant an effective distribution, in Reorganized 50-OFF's discretion;
provided, however, an effective distribution will be made upon receipt of
$250,000 in Net Lawsuits' Proceeds for which no previous 50-OFF Series A
Conversion Rights have been issued. Each distribution will be made on a pro
rata basis to the holders of Series B Preferred Stock on the record date for
the distribution. Upon the effective distribution of 798,210 (which is
3,991,050 divided by 5) Series A Conversion Rights, no further Series A
Conversion Rights shall be issued.
After the Reorganized 50-OFF distributes 798,210 Series A Conversion Rights
and upon the Reorganized 50-OFF receiving any further Net Lawsuits' Proceeds,
Reorganized 50-OFF will issue Series A Preferred Stock to the holders of Class
7 Claims. One share of Series A Preferred Stock will be issued for each $5.00
of Net Lawsuits' Proceeds received in excess of $3,991,050, except no Series A
Preferred Stock will be issued on account of the Excess Net Lawsuits'
Proceeds. Excess Net Lawsuits' Proceeds are payable to the holders of Class 7
Allowed Claims in cash and are defined as: 75% of all Net Lawsuits' Proceeds
over $5 million but less than or equal to $6 million; 50% of all Net Lawsuits'
Proceeds over $6 million but less than or equal to $7 million; and 25% of such
Proceeds over $7 million but less than or equal to $8 million. Such Series A
Preferred Stock will be issued as and when sufficient Net Lawsuits' Proceeds
are received by the Reorganized 50-OFF to warrant a distribution, in
Reorganized 50-OFF's discretion; provided, however, a distribution will be
made upon $250,000 of Net Lawsuits' Proceeds' having been received by the
Reorganized 50-OFF for which no previous 50-OFF Series A Conversion Rights or
Series A Preferred Stock have been issued or for which no Excess Net Lawsuits'
Proceeds have been distributed. Each such distribution will be made on a Pro
Rata basis to the holders of Class 7 Allowed Claims.
The holders of Allowed Claims in Class 7 have, as a Class, a lien against
and assignment of the Net Lawsuits' Proceeds and Excess Net Lawsuits' Proceeds
up to the full face amount of the Allowed Class 7 Claims to secure the
Debtors' obligation to issue Series A Preferred Stock and to distribute the
Excess Net Lawsuits Proceeds in cash to holders of Class 7 Allowed Claims as
required in the Plan (the "Class 7 Lien"). The Class 7 Lien is a full
assignment and security interest in and upon the Net Lawsuits' Proceeds and
Excess Net Lawsuits' Proceeds, subject to the following terms and conditions:
Such Class 7 Lien is junior in right and priority to: (1) any and all
contingent fee interests held by counsel prosecuting such Lawsuits on behalf
of the Debtors or the Reorganized Debtors, including the reimbursement of all
expenses owing to such counsel; (2) the reimbursement of the Debtors and the
Reorganized Debtors of all expenses directly relating to the prosecution of
the Lawsuits paid by the Debtors or the Reorganized Debtors after the Petition
Date, including after confirmation or after any conversion of the Chapter 11
Cases to chapter 7; (3) the Class 7 Agent's fees and expenses and the fees and
expenses of any professionals hired by the Class 7 Agent; (4) the Chapter 11
Professional Fee Lawsuit Carve-Out; (5) the liens and security interest of the
Senior Secured Exit Financing lender or any successor thereto; and (6) the
Series B Preferred Stock Lien.
Such Class 7 Lien is automatically attached and perfected without the need
of the filing of any documents.
Such Class 7 Lien is fully enforceable by judicial foreclosure exclusively
in the Court, if and only if: (1) the Chapter 11 Cases are converted to Cases
under chapter 7 of the Bankruptcy Code, either voluntarily or upon motion
pursuant to Bankruptcy Code section 1112; or (2) Reorganized 50-OFF is filing
a voluntary petition in
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<PAGE>
chapter 7 bankruptcy or an order for relief in an involuntary chapter 7
bankruptcy is entered against Reorganized 50-OFF (collectively, (1) through
(2) is referred to as the "Class 7 Events of Default").
The Class 7 Lien will be deemed satisfied and released as to any portion of
the Net Lawsuits' Proceeds or Excess Net Lawsuits' Proceeds for which either
Series A Conversion Rights or Series A Preferred Stock (including fractions of
such Rights or stock), as the case may be, are issued to the holders of Class
7 Allowed Claims and as to any of the Net Lawsuits' Proceeds distributed to
the holders of Class 7 Claims. The Class 7 Lien will be deemed satisfied and
released as to any portion of the Net Lawsuits' Proceeds for which either
Series A Conversion Rights or Series A Preferred Stock (including fractions of
such Rights or stock), are issued and held in the Contested Claims Escrow and
as to any Excess Net Lawsuits' Proceeds which are distributed to and held in
the contested Claims Escrow.
The Debtors estimate that up to $30 million of claims, held by approximately
1,400 creditors, may exist in Class 7.
CLASS 8 -- POLICY-INSURED TORT CLAIMS
In full satisfaction of any and all Claims, each holder of a Policy-insured
Tort Claim against a Debtor(s) will be treated as follows:
PAYMENT THROUGH INSURANCE ONLY The holder of any Class 8 Allowed Claim will
only receive payment from insurance policies held by the Debtors and will
receive no payment of any amount or kind directly from the Debtors or the
Reorganized 50-OFF Companies. Upon the later of the classification in this
Class or the Effective Date, the stay will be lifted to allow for the
liquidation of Policy-insured Tort Claims in any appropriate forum other than
the Court. The Debtors may be a nominal party to such action, but will not be
required to participate therein except as may be necessary to cooperate with
any insurance company of the Debtors to preserve coverage.
EFFECT OF RETENTION PROVISIONS If insurance proceeds become payable as a
consequence of the Allowance of a Class 8 Claim and the particular insurance
policy involved contains a retention or deductible provision that has not been
previously paid by the Debtors, then and in such event, the amount of proceeds
to be paid to the holder of the Class 8 Claim by the insurer will be reduced
by a credit in an amount equal to the unpaid retention or deductible. The
holder of such Claim will receive nothing on account of the portion of its
Claim attributable to or equal to such unpaid retention or deductible. The
credit upon the Class 8 Claim in the amount of the deductible or retention
will conclusively be deemed to have satisfied such provisions within any and
all insurance policies of the Debtors immediately as of the Effective Date and
therefor to have eliminated any obligation of the Debtors to fund any further
costs of defense.
RIGHT TO OPT OUT OF CLASS In the event that a holder of a Class 8 Claim
believes that the Plan has treated such Claim in a manner that unfairly
discriminates between such Claim and a holder of a Claim in Class 7, such
claimant may opt out of Class 8 by filing written notice of such opt-out with
the Court and serving such notice of opt-out on counsel for the Debtors and
counsel for the Committee before 90 days after the Effective Date. Upon making
such opt-out, the holder of such Claim will have waived any right or ability
to receive any proceeds of the Debtors' insurance coverage; instead, such opt-
out claimant will be treated as a Class 7 Claim to the extent the opt-out
Claim becomes an Allowed Claim.
DUTY OF COOPERATION; EFFECT OF NON-PAYMENT OF DEDUCTIBLE The Reorganized 50-
OFF Companies will have a continuing duty to cooperate with and assist the
insurers issuing or having issued policies to a Debtor(s) in defense of
Claims, to the extent that such duty existed pre-Petition Date; provided,
however, that the obligation to pay any policy retention or deductible shall
be discharged. The discharge of such obligation will have no effect on the
validity and enforceability of any insurance policies in which the Debtors are
the insured party; such policies will remain in full force and effect.
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CLASS 9 -- SELF-INSURED TORT CLAIMS
Any Allowed Self-insured Tort Claim will be treated as a Class 9 Claim;
provided, however, that to the extent that any Allowed Self-insured Tort Claim
exceeds the amount necessary to receive payment from or upon any Stop Loss
Policy, then such Allowed Claim will receive the amount paid pursuant to any
Stop Loss Policy in cash; provided, further, however, that to the extent that
a holder of an Allowed Self-insured Tort Claim receives payment from or as a
result of any Stop Loss Policy, the holder of such Allowed Self-insured Tort
Claim will credit to the portion of its Allowed Claim which is not paid by the
Stop Loss Policy $10.00 for each $1.00 received on account of the Stop Loss
Policy. In the event that a holder of a Class 9 Claim believes that the Plan
has treated such Claim in a manner that unfairly discriminates between such
Claim and a holder of a Claim in Class 7, such claimant may opt out of Class 9
by filing written notice of such op-out with the Court and serving such notice
of opt-out on counsel for the Debtors and counsel for the Committee before 90
days after the Effective Date. Upon making such opt-out, the holder of such
Claim will have waived any right or ability to receive any proceeds of the
Debtors insurance coverage; instead, such opt-out claimant will be treated as
a Class 7 Claim to the extent the opt-out Claim becomes an Allowed Claim.
CLASS 10 -- EQUITY INTERESTS IN THE DEBTOR SUBSIDIARIES
A holder of an Equity Interest in one of the Debtor Subsidiaries will
continue to own and hold such Equity Interest unaffected by the Plan.
CLASS 11 -- PUBLIC EQUITY INTERESTS IN 50-OFF
Holders of Public Equity Interests were provided the opportunity to
participate in the Rights Offering. See "The Offering." Otherwise, all Public
Equity Interests in 50-OFF will be canceled as of the Effective Date.
CLASS 12 -- OTHER EQUITY INTERESTS IN 50-OFF
Each outstanding warrant or option will be canceled and of no further effect
as of the Effective Date.
CLASS 13 -- DISALLOWED CLAIMS, SUBORDINATED CLAIMS, SECURITIES LAWS CLAIMS
AND PENALTY CLAIMS
The holders of Disallowed Claims, Subordinated Claims, Securities Laws
Claims, Penalty Claims and any other Claims against the Debtors not otherwise
expressly provided for in the Plan will receive no distributions under the
Plan on account of such Claims.
SELECTED OTHER PROVISIONS OF THE PLAN
CHARTER AND BYLAWS
The charter and bylaws of Reorganized 50-OFF and the Debtor Subsidiaries
were filed as Plan Documents and contain such provisions as are necessary to
satisfy the provisions of the Plan and, to the extent necessary, subject to
further amendment of the charter and bylaws, as permitted by applicable law.
Such charter and bylaws contain indemnification provisions applicable to the
officers, Directors and employees of the Reorganized 50-OFF Companies and such
other Persons as may, in the discretion of the Boards of Directors of the
Debtors, be appropriate.
CORPORATE AUTHORITY
All actions and transactions contemplated under the Plan, including, but not
limited to, the authorization, offer and sale of Units pursuant to the
Offering and the Rights Offering, the authorization, offer, sale and issuance
of shares of Reorganized 50-OFF Common Stock pursuant to the Offering, the
Rights Offering and the Plan, the authorization and distribution of Rights to
holders of 50-OFF Old Common Stock pursuant to the Plan, the authorization,
offer, sale and issuance of the Series A Preferred Stock pursuant to the
Offering, the Rights
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Offering and the Plan, the authorization and issuance of Reorganized 50-OFF
Series B Preferred Stock pursuant to the Plan, the resizing and reconstituting
of the Reorganized 50-OFF Board of Directors and the issuance of debt
instruments, promissory notes and related securitization documents, were
authorized upon Confirmation of the Plan without the need of Board or
stockholder approval, notice or meetings, other than the notice provided by
serving the Plan on all known Creditors of the Debtors, all Interest Holders
as of March 21, 1997 and all current Directors of the Debtors. The
Confirmation Order includes provisions dispensing with the need of Board or
stockholder approval, notice or meetings in connection with the effectuation
of the Plan and authorizing and directing the President and current Assistant
Secretary of the Debtors to take all action, including the execution of
documents, necessary to effectuate the Plan.
ASSUMPTION OF LIABILITIES
The liability for and obligations under the Plan will be assumed by and
become joint and several obligations of each of the Reorganized 50-OFF
Companies.
SECURITIES LAW MATTERS
r It is an integral and essential element of the Plan that the offer, sale,
distribution and issuance to holders of Allowed Claims and Public Equity
Interests of the Rights to subscribe to Units pursuant to the Rights Offering,
the Units, the Reorganized 50-OFF Common Stock, the Series A Preferred Stock
and the Series B Preferred Stock pursuant to the Plan are exempt from
registration under the Securities Act of 1933, as amended, and similar state
laws pursuant to section 1145 of the Bankruptcy Code. The Confirmation Order
includes a finding and conclusion, binding upon all parties to the Cases, any
subsequent trustee, the Securities and Exchange Commission ("SEC"), and all
state regulatory or enforcement agencies, to the effect that all such offers,
sales, distributions and issuances fall within the section 1145 exemption.
EXIT FINANCING APPROVAL
The Plan was considered a motion, pursuant to Bankruptcy Code sections
364(c) and (d), to approve senior secured exit financing in an amount of up to
$15,000,000, with liens granted to the lender of such senior secured exit
financing in priority to all other liens, including senior to Statutory
Landlords' Liens and Tax Liens, but junior to Senior Liens (the "Senior
Secured Exit Financing"). The Confirmation Order includes provisions approving
such Senior Secured Exit Financing and granting the liens and priority.
DISCHARGE
The rights afforded in the Plan and the payments and distributions to be
made thereunder will discharge all existing debts and Claims of any kind,
nature or description whatsoever against the Debtors or any of their assets or
properties to the fullest extent permitted by section 1141 of the Bankruptcy
Code; upon the Effective Date, all existing Claims against the Debtors will
be, and will be deemed to be discharged; and all holders of Claims will be
precluded from asserting against the Debtors, or any of their assets or
properties, any other or further Claim based upon any act or omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date, whether or not such holder filed a proof of Claim.
Confirmation of the Plan and the obligations imposed on the Debtors therein
are in complete satisfaction, discharge and release of all Claims of any
nature whatsoever against the Debtors or any of their assets or properties;
and, upon the Effective Date, the Debtors will be deemed discharged and
released from any and all Claims, including but not limited to demands and
liabilities that arose before the Effective Date, and all debts of the kind
specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether
or not (a) a proof of Claim based upon such debt is filed or deemed filed
under section 501 of the Bankruptcy Code; (b) a Claim based upon such debt is
allowed under section 502 of the Bankruptcy Code; or (c) the holder of a Claim
based upon such debt has accepted the Plan. Except as provided in the Plan,
the Confirmation Order is a judicial determination of discharge of all
liabilities of the Debtors. As provided in section 524 of the Bankruptcy Code,
such discharge will void any judgment against the Debtors at any time obtained
to the extent it relates to a Claim discharged, and operates as an injunction
against the prosecution of any action against the Debtors, or the property of
any of them, to the extent it relates to a discharged Claim.
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INJUNCTIONS
The Confirmation Order contains such injunctions as may be necessary and
helpful to effectuate the discharge of the Debtors provided in the Plan.
Without limiting the generality of the foregoing, such injunctions include an
absolute prohibition from collecting Claims in any manner other than as
provided for in the Plan.
EXCULPATIONS
Neither the Debtors, the Committee, the Disbursing Agent, the Class 7 Agent
nor any of their respective members, officers, Directors, employees, agents or
professionals will have or incur any liability to any holder of a Claim or
Equity Interest for any act, event or omission in connection with, or arising
out of, the Chapter 11 Cases, the confirmation of the Plan, the consummation
of the Plan or the administration of the Plan or the property to be
distributed under the Plan, except for willful misconduct or gross negligence.
DE MINIMIS DISTRIBUTIONS
No distribution of less than twenty-five dollars ($25.00) will be made to
any holder of an Allowed Claim. Such undistributed amount will be retained by
Reorganized 50-OFF.
BANKRUPTCY RESTRICTIONS
From and after the Effective Date, the Reorganized 50-OFF Companies will no
longer be subject to the restrictions and controls provided by the Bankruptcy
Code (e.g., section 363 or 364). The Reorganized 50-OFF Companies may operate
their businesses in such manner as is consistent with companies not in
bankruptcy without the need of seeking Court approval with regard to any
aspect of the Reorganized 50-OFF Companies' business. No monthly operating
reports will be filed after the Effective Date.
BINDING EFFECT
The Plan will be binding upon and inure to the benefit of the Debtors, the
holders of Claims, the holders of Equity Interests and their respective
successors and assigns.
GOVERNING LAW
Unless a rule of law or procedure is supplied by federal law (including the
Bankruptcy Code and Bankruptcy Rules), the Delaware General Corporation Law or
the law of the jurisdiction of organization of any entity, the internal laws
of the State of Texas will govern the construction and implementation of the
Plan and any agreements, documents and instruments executed in connection with
the Plan or the Chapter 11 Cases, including the Plan Documents, except as may
otherwise be provided in such agreements, documents, instruments and Plan
Documents.
MODIFICATION OF PLAN
The Plan may be modified at any time after the Confirmation Date and before
substantial consummation by the Proponents, provided that (i) the Plan, as
modified, meets the requirements of sections 1122 and 1123 of the Bankruptcy
Code, (ii) the Court, after notice and a hearing, confirms the Plan as
modified, under section 1129 of the Bankruptcy Code and (iii) the
circumstances warrant such modifications. A holder of a Claim or Equity
Interest that has accepted or rejected the Plan will be deemed to have
accepted or rejected, as the case may be, such plan as modified, unless,
within the time fixed by the Court, such holder changes its previous
acceptance or rejection.
CLOSING THE CASES
Upon (1) paying all Allowed Claims required to be paid pursuant to Article 5
of the Plan, (2) making and delivering the promissory notes contemplated by
the Plan to holders of Allowed Claims in Classes 1, 2 and 4, and (3) making
all distributions required to holders of Allowed Claims in Classes 5 and 6,
and (4) after all Class 7 Claims have been liquidated by Final Order and all
Series B Preferred Stock issued, the Plan will be deemed
49
<PAGE>
fully consummated and, upon motion by the Reorganized 50-OFF Companies, the
Chapter 11 Cases will be closed. Upon such motion the Court will issue final
decrees containing such provisions as may be equitable. The Court may reopen
such Cases upon a motion filed by the Class 7 Agent as necessary to enforce
the Class 7 Lien.
OTHER LITIGATION
BANKRUPTCY CAUSES OF ACTION
PREFERENCES Pursuant to the Bankruptcy Code, a debtor may recover certain
preferential transfers of property, including cash, made while insolvent
during the 90 days immediately prior to the filing of its bankruptcy petition
with respect to pre-existing debts to the extent the transferee received more
than it would have in respect of the pre-existing debt had the debtor been
liquidated under chapter 7 of the Bankruptcy Code. In the case of "insiders,"
the Bankruptcy Code provides for a one-year preference period. There are
certain defenses to such recoveries. Transfers made in the ordinary course of
the debtor's and the transferee's business according to the ordinary business
terms are not recoverable. Furthermore, if the transferee extended credit
subsequent to the transfer (and prior to the commencement of the bankruptcy
case), such extension may constitute a defense, to the extent of any new
value, against any otherwise recoverable transfer of property. If a transfer
is recovered by debtor, the transferee has a general unsecured claim against
the debtor to the extent of the recovery. The Debtors reserve all rights to
pursue, in their sole discretion, any preference to the full extent allowed
under the Bankruptcy Code and applicable state laws.
FRAUDULENT TRANSFERS Under the Bankruptcy Code and various state laws, a
debtor may recover certain transfers of property, including the grant of a
security interest in property, made while insolvent or which rendered it
insolvent if, and to the extent, the debtor receives less than fair value for
such property. The Debtors reserve all rights to pursue, in their sole
discretion, any fraudulent transfer to the full extent allowed under the
Bankruptcy Code and applicable state laws.
POTENTIAL LITIGATION In addition to the foregoing, the Debtors believe that
certain of the Claims may be subject to offset. There also may exist claims
and causes of action against third parties arising prior to the Petition Date.
These causes of action may be enforced either by way of setoff against Claims
filed against the bankruptcy estate or may be prosecuted by the Debtors. The
Debtors have sole discretion to object to any Claims and to prosecute any
objection as they see fit.
PRE-PETITION DATE LAWSUITS/INSURANCE
On the Effective Date, all pre-Petition Date lawsuits, litigations,
administrative actions or other proceedings, judicial or administrative, in
connection with the assertion of a Claim, including any Self-insured Tort
Claim, will be dismissed as to the Reorganized Debtors, except claims which
are Policy-insured Tort Claims. Such dismissal will be with prejudice to the
assertion of such Claim in any manner other than as prescribed by the Plan.
All parties to any such action were enjoined by the Court in the Confirmation
Order from taking any action to impede the immediate and unconditional
dismissal of such actions. Confirmation and consummation of the Plan will have
no effect on insurance policies of the Debtors in which the Debtors or any one
of them is or was the insured party; the Reorganized 50-OFF Companies will
become the insured party under any such policies. Each insurance company is
prohibited from, and the Confirmation Order includes an injunction against,
denying, refusing, altering or delaying coverage on any basis regarding or
related to the Debtors' bankruptcies, the Plan or any provision within the
Plan, including the treatment or means of liquidation set out within the Plan
for Policy-insured Tort Claims or Self-insured Tort Claims.
SECURITIES LAWS CONSIDERATIONS
GENERAL
The Reorganized 50-OFF Common Stock and the Reorganized 50-OFF Preferred
Stock (both series) to be issued pursuant to the Plan constitute "securities"
for purposes of federal and state securities laws. As discussed below, section
1145 of the Bankruptcy Code provides that the registration requirements under
federal and state
50
<PAGE>
securities laws do not apply to the issuance of securities by a debtor under a
plan of reorganization to holders of claims or interests wholly or principally
in exchange for those claims or interests. With certain exceptions, recipients
of such securities may also resell them without registration under such laws.
ISSUANCE Section 1145 of the Bankruptcy Code exempts the original issuance
of securities under a plan of reorganization from registration under the
Securities Act of 1933, as amended (the "Securities Act"), and applicable
state securities law registration requirements. For the original issuance of
securities under the Plan to be so exempt, three principal requirements must
be satisfied: (i) the securities must be issued by the Debtors or its
successor under the Plan, (ii) the recipient of the securities must hold a
Claim against or Interest in the Debtors, and (iii) the securities must be
issued entirely in exchange for the recipient's Claim against or Interest in
the Debtors, or "principally" in such exchange and "partly" for cash or
property. The Bankruptcy Code also exempts ". . . the offer of a security
through any warrant, option, right to subscribe or conversion privilege that
was sold in the manner specified in ...(i) through(iii) in the immediately
preceding sentence), or the sale of a security upon the exercise of such a
warrant, option, right or privilege". 11 U.S.C. (S) 1145(a)(2). Although
uncertainty exists with respect to the issuance of the Units and the
securities represented thereby, it is the Company's position that the issuance
of all securities pursuant to the Plan satisfies the foregoing requirements
and, accordingly, is exempt, pursuant to section 1145 of the Bankruptcy Code,
from registration under the Securities Act and state securities laws. The
Bankruptcy Court confirmed the Company's position in its Confirmation Order.
As part of a compromise with the Securities and Exchange Commission, which
had challenged the Company's position at the Company's hearing on its
Disclosure Statement, and to permit offers and sales to non-creditors and non-
holders of Public Equity Interests, the Company agreed, without waiving its
position with respect to section 1145, to file a Registration Statement, of
which this Prospectus is a part. The compromise further provided that the
Units could be offered and subscribed (with the money placed in escrow)
commencing 20 days after the initial filing (on April 11, 1997) of such
Registration Statement with the Securities and Exchange Commission.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Under the Internal Revenue Code of 1986, as amended (the "Tax Code") and
regulations promulgated thereunder (the "Regulations"), there are certain
significant federal income tax consequences associated with the Plan for the
Debtors, Claimants and Interest Holders. Certain of these consequences are
discussed below. The tax consequences described below are subject to
significant uncertainties because of (i) the complexity of the transactions
contemplated by the Plan, (ii) the uncertainty as to the tax consequences of
events in prior years, including changes made by the Bankruptcy Tax Act of
1980 ("BTA80"), the Tax Reform Act of 1985 ("TRA85"), the Tax Reform Act of
1986 ("TRA86"), the Omnibus Reconciliation Act of 1987 ("ORA87"), the
Technical and Miscellaneous Revenue Act of 1988 ("TAMRA"), the Omnibus Budget
Reconciliation Act of 1989 ("OBRA89"), the Revenue Reconciliation Act of 1990
("RRA90") and the Revenue Reconciliation Act of 1993 ("RRA93"), (iii) the
differences in the nature of the Claims of the various Claimants, their
taxpayer status, residence and methods of accounting (including Claimants
within the same Class), (iv) prior actions taken by Claimants with respect to
their Claims and (v) the possibility that events or legislation subsequent to
the date hereof could change the federal tax consequences of the transactions.
There may also be state, local or foreign tax issues that may affect
particular Claimants.
HOLDERS OF PUBLIC EQUITY INTERESTS ARE URGED TO CONSULT THEIR TAX ADVISORS
RESPECTING THE INDIVIDUAL TAX CONSEQUENCES OF THE TRANSACTIONS CONTEMPLATED
UNDER OR IN CONNECTION WITH THE PLAN, INCLUDING STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES.
TAX CONSEQUENCES TO DEBTORS
GENERAL Pursuant to the Plan, a significant portion of the outstanding
indebtedness of the Debtors is being satisfied at a discount. The debt
forgiveness income resulting from the satisfaction of Claims at a discount
should
51
<PAGE>
not constitute taxable income, although it will reduce tax attributes, such as
net operating loss ("NOL") carryovers. The utilization of any NOLs remaining
after application of the attribute reduction rules may be subject to
limitations imposed by section 382 of the Tax Code.
DETERMINATION OF AVAILABLE TAX ATTRIBUTES The Debtors are members of a
consolidated tax return of which 50-OFF is the common parent. The consolidated
tax return for the tax year of the Debtors ended January 31, 1997, reflected
NOL carryovers of $48,032,000. Such NOL carryovers do not take into account
the possibility of adjustments which may be asserted by the Internal Revenue
Service (the "IRS") on any audit.
TREATMENT OF DEBT DISCHARGE INCOME UNDER THE PLAN Pursuant to the Plan, the
aggregate outstanding indebtedness of the Debtors will be substantially
reduced. In general, section 61(a)(12) of the Tax Code provides that a
taxpayer who realizes discharge of indebtedness income must include such
income ("Debt Discharge Income") in taxable gross income. The Tax Code further
provides in section 108(a)(1), however, that if a taxpayer is in a Title 11
case and the discharge of indebtedness is pursuant to a plan approved by a
bankruptcy court, such Debt Discharge Income is not required to be included in
gross income. However, section 108(b) of the Tax Code further provides that
amounts so excluded from gross income will reduce certain tax attributes of
the taxpayer, including NOL carryovers and the adjusted tax bases of assets.
Debt Discharge Income will arise with respect to those Claimants whose
Claims are discharged by a payment of Cash or distributions of property,
including common or preferred stock of Reorganized Debtor, with a value less
than the face amount of the Allowed Claims. The Debt Discharge Income would
equal the excess of the debt canceled over the Cash and fair market value of
property received in exchange therefor. The Debtors are satisfying over $29
million of Claims by delivery of Series B Preferred Stock and, possibly,
Series A Preferred Stock. The Debtors have not determined what the value of
the Series B Preferred Stock will be for purposes of computing the amount of
Debt Discharge Income, however the Debtors believe that the amount of debt
satisfied will exceed the value of such Series B Preferred Stock. The Debtors
estimate that the total amount of Debt Discharge under the Plan will be over
$25 million. Regardless of the amount of Debt Discharge Income, there will be
no taxes payable by the Debtors as a result of the Debt Discharge Income. The
Debt Discharge Income will, however, reduce any NOLs of the Debtor unless the
Debtor elects to apply the Debt Discharge Income to reduce the basis of its
depreciable assets.
EFFECT OF SECTION 382 Under the TRA86, substantial changes were made to Tax
Code Sections 382 and 383. These changes placed limitations on the utilization
of tax attributes, such as NOL carryovers, after certain ownership changes. In
general, an ownership change of more than fifty percent (50%) of the value of
stock in a loss corporation within a three-year testing period (hereinafter
"Ownership Change") will trigger limitations (hereinafter "Section 382
Limitation") as to the use of a loss corporation's NOL carryovers. The NOL
carryovers, which are subject to the Section 382 Limitation, may also include
certain losses and deductions which are generated and reportable after the
Ownership Change, but which are "built-in" as of the date of the Ownership
Change. After an Ownership Change, the amount of a loss corporation's taxable
income that can be offset by any existing NOL carryovers cannot exceed an
amount equal to the value of the loss corporation, multiplied by a specific
rate of return, namely, the federal adjusted long term tax exempt bond rate.
Under the Plan, the ownership of the Debtors may change by more than 50%.
Accordingly, the NOL carryovers existing as of the date of the Ownership
Change could be subject to the Section 382 Limitation. Accordingly, even if
any NOL's did survive after application of the attribute reduction rules, the
ability to utilize such NOL's could be substantially affected due to a change
in ownership of the Debtors unless the Debtors can utilize one of the special
exceptions to the normal Section 382 rules. Section 382 of the Tax Code also
contains a provision, Section 382(1)(5), which provides that in a Title 11 or
similar case under the jurisdiction of a bankruptcy court (hereinafter "Title
11 Case"), the Section 382 Limitation will not apply to any ownership change
resulting from such a proceeding if the creditors and stockholders immediately
before such ownership change, own after such ownership change and as a result
of being stockholders or creditors immediately before
52
<PAGE>
such ownership change, 50% of the stock of the loss corporation. For purposes
of this provision, only claims held by "qualifying creditors," persons who
were creditors as of a date eighteen months before the filing of the petition
under Title 11 or whose claims arose in the ordinary course of the trade or
business of the loss corporation (and were at all times beneficially owned by
such persons), are taken into account.
Under Tax Code (S) 382(1)(5), a "toll charge" must be paid. Specifically,
the existing NOL carryovers are subject to reduction by 100% of the interest
deducted which was paid or accrued during the current and the three tax years
prior to the year of the Effective Date of the Plan on indebtedness which is
converted to stock.
Under the Plan, the Debtors may experience an ownership change and will
consider whether it qualifies for treatment under Tax Code (S) 382(1)(5) and,
if it qualifies, the amount of the "toll charge." In this respect, it is noted
an estimated maximum of $700,000 of interest was deducted with respect to
Claims or debt instruments being converted to stock. The Debtors have not
determined whether the various requirements of (S) 382(l)(5) will be met. The
determination as to whether (S)382(d)(5) will be met is most complex in this
factual pattern. This is because, among other factors, it is not clear how
much stock will be issued to the qualifying creditors inasmuch as the final
distribution will be a function of the recovery from certain litigation
actions which may take some time to resolve. Moreover, they may choose not to
elect to be governed by this provision if they determine there is a
substantial risk of another ownership change. Section 382(l)(5)(D) provides
that if a Debtor experiences another ownership change within two years of
electing the benefits of (S) 382(l)(5), the Section 382 Limitation after such
second ownership change shall be zero, thereby effectively eliminating the NOL
carryovers. If the Debtors believe that a second ownership change may likely
occur they would not elect Section 382(l)(5) even if eligible but could
instead utilize Section 382(l)(6).
Section 382(1)(6) of the Tax Code provides a special rule for debtors in
Title 11 Cases. In the event Tax Code (S) 382(1)(5) is not available or is
undesirable, Reorganized Debtor may benefit from a special valuation rule.
Under this special rule, for purposes of computing the annual Section 382
Limitation, the value of the loss corporation is determined by including the
increase in the value of stock that occurs as the result of any surrender or
cancellation of the Claims of Creditors. This special rule might result in a
greater value for the Debtors and a less onerous Section 382 Limitation on the
use of the Debtors' NOL or credit carryovers by the Reorganized Debtors.
In summary, under the Plan, all the existing stock of the Debtors will be
canceled, although former Stockholders who exercise their rights under a
"Rights Offering" may acquire shares of the Reorganized Debtors by paying
additional Cash. Also, Equity Securities of Reorganized 50-OFF will be issued
to Creditors. The transaction contemplated by the Plan will result in an
ownership change as defined in Tax Code (S) 382. The determination as to
whether the Debtors qualify for the benefits of Section 382(l)(5) and the
decision to elect or utilize the bankruptcy exception under section 382(1)(5)
or to utilize the special valuation rule under Section 382(l)(6) will be made
after a careful examination of all relevant facts, including the value of the
stock, the amount and expiration dates of such carryovers, the existence and
amount of any built-in losses or deductions and the best available projections
of taxable income and loss for succeeding years.
COMPUTATION OF ALTERNATIVE MINIMUM TAX ("AMT") AMT must be paid by a
corporation when and to the extent that its liability for AMT is greater than
its regular tax liability. AMT is equal to twenty percent (20%) of alternative
minimum taxable income ("AMTI") less certain allowable credits. Under the Tax
Code, AMTI generally equals regular taxable income, increased or decreased by
certain adjustments and preference items. However, only ninety percent (90%)
of AMTI can be offset with NOL carryovers. AMT liability, regardless of the
amount of available NOL carryovers, will be at least twenty percent (20%) of
the ten percent (10%) of AMTI that cannot be offset with NOL carryovers. The
Debtors do not believe that they will be liable for the AMT.
53
<PAGE>
TAX CONSEQUENCES TO HOLDERS OF COMMON STOCK
Pursuant to the Plan, all shares of 50-OFF, the parent of the consolidated
group of Debtors are being canceled, subject to the Rights Offering. While the
issue is not free from doubt, the Company believes the existing common
stockholders should be treated as receiving Rights in exchange for their Old
Common Stock. Under this view and under current law, each stockholder will
recognize gain or loss equal to the difference between (i) the fair market
value of the Rights and (ii) the adjusted tax basis the stockholder has in his
shares. Each stockholder will have a basis in its Rights equal to the fair
market value of the Rights. In this respect it should noted that the Treasury
has proposed regulations which would likely cause warrants (subscription
rights) to be treated as stock or securities. If these regulations were
adopted in their proposed form, existing stockholders might be viewed as
participating in a tax-free reorganization and would not be entitled to
recognize any loss. The regulations will not be effective until sixty days
after adopted.
TAX CONSEQUENCES TO NEW INVESTORS AND HOLDERS OF COMMON STOCK
Investors who purchase Units must allocate the amount paid for such Units
between the Common Stock and Series A Preferred Stock based on the fair market
value. Existing holders of Common Stock who received Rights in exchange for
their Old Common Stock will include in their basis in the Common Stock and
Series A Preferred Stock an allocable portion of their basis in the Rights.
BECAUSE THE FINAL OUTCOME DEPENDS SO MUCH ON EACH INDIVIDUAL PUBLIC EQUITY
INTEREST HOLDER'S SITUATION, IT IS IMPERATIVE THAT EACH PUBLIC EQUITY INTEREST
HOLDER SEEK INDIVIDUAL TAX COUNSEL FOR ADVICE ON HIS PARTICULAR SITUATION.
CONFIRMATION OF THE PLAN
At the Confirmation Hearing, the Court determined the requirements of
section 1129(a) of the Bankruptcy Code had been satisfied, and the Court
entered the Confirmation Order. Among the requirements for confirmation under
the Bankruptcy Code are:
. The Plan complies with the applicable provisions of the Bankruptcy
Code.
. The proponents of the Plan have complied with the applicable
provisions of the Bankruptcy Code.
. The Plan has been proposed in good faith and is not by any means
forbidden by law.
. The proponents of the Plan have disclosed the identity and
affiliation of any individual proposed to serve, after confirmation
of the Plan, as Director, officer or voting trustee of the Debtors,
and the appointment to, or the continuance in, such office of such
individual, is consistent with the interests of Creditors and equity
security holders and with public policy.
. The proponents of the Plan have disclosed the identity of any insider
that will be employed or retained by the Reorganized Debtors and the
nature of the compensation for such insider.
. With respect to each Class of impaired Claims, either each holder of
a Claim in such Class has accepted the Plan, or will receive or
retain under the Plan on account of such Claims property of a value,
as of the Effective Date of the Plan, that is not less than the
amount such Claimant would receive or retain if the Debtors were
liquidated on such date under chapter 7 of the Bankruptcy Code.
. Confirmation of the Plan is not likely to be followed by the
liquidation of the Debtors or the need for further financial
reorganization of the Debtors or any successors to the Debtors under
the Plan, unless such liquidation or reorganization is proposed in
the Plan.
54
<PAGE>
LEGAL OPINION
The validity of the Common Stock and Series A Preferred Stock offered hereby
will be passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld LLP,
San Antonio, Texas. In passing on the validity of the Common Stock and Series
A Preferred Stock, Akin, Gump, Strauss, Hauer & Feld, LLP will rely upon the
opinion of Sheinfeld, Maley & Kay, P.C., bankruptcy counsel to the Company,
regarding the confirmation by the United States Bankruptcy Court for the
Western District of Texas, San Antonio Division, of the Company's Joint Plan
of Reorganization, as amended, and matters pertaining to Section 303 of the
Delaware General Corporation Law in connection with the approval of the
Company's Joint Plan of Reorganization, as amended.
EXPERTS
The consolidated financial statements of the Company as of January 31, 1997
and February 2, 1996 and for each of the years in the three-year period ended
January 31, 1997, included in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and in the Registration Statement (which report expresses an unqualified
opinion and includes explanatory paragraphs referring to a substantial doubt
as to 50- OFF Stores, Inc.'s ability to continue as a going concern and
bankruptcy filing), and have been so included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements filed by the Company with the Commission pursuant to
the information requirements of the Exchange Act may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, Seven World Trade Center, 13th
Floor, New York, New York 10048, Los Angeles Regional Office, Suite 1100, 5670
Wilshire Boulevard, Los Angeles, California 90036, and Chicago Regional
Office, 500 W. Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of
such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates or through the Internet from the SEC's home page on the World Wide Web
at http://www.sec.gov.
This Prospectus, which constitutes a part of a Registration Statement filed
by the Company with the Commission under the Securities Act, omits certain
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and to the exhibits thereto for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning provisions of any documents are not
necessarily complete, and each amendment is qualified in its entirety by
reference to the copy of such document filed with the Commission.
55
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets--January 31, 1997 and February 2, 1996... F-3
Consolidated Statements of Operations--Years ended January 31, 1997,
February 2, 1996
and February 3, 1995................................................ F-4
Consolidated Statements of Changes in Stockholders' (Deficit)
Equity--Years ended January 31, 1997, February 2, 1996 and February
3, 1995............................................................. F-5
Consolidated Statements of Cash Flows--Years ended January 31, 1997,
February 2, 1996
and February 3, 1995................................................ F-6; F-7
Notes to Consolidated Financial Statements........................... F-8--F-18
</TABLE>
Schedules are omitted because they are not applicable or not required, or
because the required information is included in the consolidated financial
statements or notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
50-OFF Stores, Inc.
San Antonio, Texas
We have audited the accompanying consolidated balance sheets of 50-OFF
Stores, Inc. and subsidiaries (Debtor in Possession) as of January 31, 1997
and February 2, 1996, and the related consolidated statements of operations,
changes in stockholders' (deficit) equity and cash flows for each of the three
years in the period ended January 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of 50-OFF Stores, Inc. and
subsidiaries as of January 31, 1997 and February 2, 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended January 31, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code.
The accompanying financial statements do not purport to reflect or provide for
the consequences of the bankruptcy proceedings. In particular, such financial
statements do not purport to show (a) as to assets, their realizable value on
a liquidation basis or their availability to satisfy liabilities; (b) as to
prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be
made in its business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's need to increase sales and
ultimately to attain profitable operations; the need to successfully complete
negotiation of a post-confirmation credit facility and ultimately comply with
its terms, covenants and conditions; and the need to complete the offering of
the shares by the Company pursuant to its plan of reorganization which is
required in order for the Company to emerge from bankruptcy raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Antonio, Texas
June 9, 1997
F-2
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, 1997 FEBRUARY 2, 1996
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................... $ 491,297 $ 341,334
Cash in escrow............................... 330,000 --
Accounts receivable.......................... 717,852 1,129,604
Merchandise inventories...................... 12,974,958 27,753,965
Prepaid and other current assets............. 393,526 437,226
----------- -----------
Total current assets....................... 14,907,633 29,662,129
----------- -----------
PROPERTY AND EQUIPMENT-NET................... 3,988,760 24,888,222
OTHER ASSETS................................. 358,343 899,126
----------- -----------
TOTAL ASSETS............................... $19,254,736 $55,449,477
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Credit Facility.............................. $ 5,396,580 $ --
Accounts payable-trade....................... 1,381,708 8,595,246
Accounts payable-other....................... 2,032,512 4,238,123
Accrued expenses and other current
liabilities.................................. 1,757,468 3,280,093
Current portion of closed store costs........ -- 1,168,213
Current portion of long-term debt............ 266,667 1,286,372
----------- -----------
Total current liabilities.................. 10,834,935 18,568,047
----------- -----------
CREDIT FACILITY, refinanced.................. -- 11,218,051
LONG-TERM DEBT, less current portion......... -- 3,884,515
LIABILITIES SUBJECT TO COMPROMISE............ 30,250,544 --
COMMITMENTS AND CONTINGENCIES (NOTE 2, 4, 5,
8 AND 10)
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock, $1.00 par value, 5,000,000
shares authorized,
no shares issued and outstanding............ -- --
Common stock, $.01 par value, 20,000,000
shares authorized,
12,200,915 outstanding at January 31, 1997
and February 2, 1996........................ 122,009 122,009
Additional paid-in-capital................... 36,022,264 36,022,264
Subscription receivable...................... (3,991,050) (3,991,050)
Accumulated deficit.......................... (53,983,966) (10,374,359)
----------- -----------
Total stockholders' (deficit) equity....... (21,830,743) 21,778,864
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY....................................... $19,254,736 $55,449,477
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, FEBRUARY 2, FEBRUARY 3,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES............................ $106,193,561 $175,022,949 $201,543,133
COST OF SALES........................ 78,560,029 118,628,507 135,559,833
------------ ------------ ------------
GROSS PROFIT......................... 27,633,532 56,394,442 65,983,300
------------ ------------ ------------
OPERATING EXPENSES:
Selling, advertising, general and
administrative.................... 42,295,234 57,376,682 63,827,264
Depreciation and amortization...... 3,223,122 3,950,680 3,779,082
Closed store costs................. -- (409,145) 5,018,593
------------ ------------ ------------
------------ ------------ ------------
REORGANIZATION ITEMS:
Severance payroll.................. 191,385
Professional fees.................. 996,841
Loss on disposal of stores......... 23,142,473
Gain on sale of building........... (356,144)
------------ ------------ ------------
23,974,555 -- --
TOTAL OPERATING EXPENSES............. 69,492,911 60,918,217 72,624,939
------------ ------------ ------------
OPERATING LOSS....................... (41,859,379) (4,523,775) (6,641,639)
------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest income.................... (74,270) (111,616) (136,280)
Interest expense................... 1,671,624 2,366,269 1,518,697
------------ ------------ ------------
TOTAL OTHER EXPENSE (INCOME)......... 1,597,354 2,254,653 1,382,417
------------ ------------ ------------
LOSS BEFORE INCOME TAXES............. (43,456,733) (6,778,428) (8,024,056)
------------ ------------ ------------
PROVISION FOR INCOME TAXES........... 152,874 -- --
------------ ------------ ------------
NET LOSS............................. $(43,609,607) $ (6,778,428) $ (8,024,056)
------------ ------------ ------------
LOSS PER COMMON SHARE................ $ (3.57) $ (.56) $ (.76)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------- ADDITIONAL EARNINGS
NUMBER OF PAID-IN SUBSCRIPTION (ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT) TOTAL
---------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE: January 28,
1994................... 10,370,915 $103,709 $31,150,955 $ 4,428,125 $ 35,682,789
Net proceeds from
issuance of common
stock for:
Exercise of stock
options............... 7,500 75 37,960 38,035
1,810,000 share
offering.............. 1,810,000 18,100 4,833,474 4,851,574
Subscription for
1,500,000 shares...... $(3,991,050) (3,991,050)
Net loss................ (8,024,056) (8,024,056)
---------- -------- ----------- ----------- ------------ ------------
BALANCE: February 3,
1995................... 12,188,415 121,884 36,022,389 (3,991,050) (3,595,931) 28,557,292
Other................... 12,500 125 (125)
Net loss................ (6,778,428) (6,778,428)
---------- -------- ----------- ----------- ------------ ------------
BALANCE: February 2,
1996................... 12,200,915 122,009 36,022,264 (3,991,050) (10,374,359) 21,778,864
Net loss................ (43,609,607) (43,609,607)
---------- -------- ----------- ----------- ------------ ------------
BALANCE: January 31,
1997................... 12,200,915 $122,009 $36,022,264 $(3,991,050) $(53,983,966) $(21,830,743)
========== ======== =========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, FEBRUARY 2, FEBRUARY 3,
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................... $(43,609,607) $(6,778,428) $(8,024,056)
Adjustments to reconcile net loss to
net cash
used in operating activities:
Depreciation and amortization...... 3,223,122 3,950,680 3,779,082
Closed store charge................ -- -- 4,942,194
Loss on disposition of fixed
assets............................ -- 187,032 654,311
Loss on disposal of stores......... 23,063,554 -- --
Non-cash interest expense on long-
term debt......................... 117,981 -- --
Changes in assets and liabilities:
Accounts receivables................. 411,752 515,699 1,342,026
Merchandise inventories.............. 14,779,007 3,925,773 (1,050,890)
Prepaid and other current assets..... 43,700 280,335 56,371
Other assets......................... 221,559 337,150 337,170
Accounts payable-trade............... 8,675,907 (1,416,566) (5,208,013)
Accounts payable-other............... 2,010,344 (657,910) (794,383)
Deferred federal income taxes........ 152,874 -- 549,000
Closed store costs................... (1,168,213) (1,566,981) --
Accrued expenses and other current
liabilities......................... (1,522,625) 132,414 (254,557)
------------ ----------- -----------
Net cash provided by (used in)
operating activities.................. 6,399,355 (1,090,802) (3,671,745)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of building....... 1,342,648 -- --
Captial expenditures................. (694,541) (3,691,561) (3,436,475)
------------ ----------- -----------
Net cash provided by (used) in
investing activities................... 648,107 (3,691,561) (3,436,475)
------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, FEBRUARY 2, FEBRUARY 3,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds from credit
facility............................. $(5,821,471) $ 4,263,026 $ 6,945,025
Payments on long-term debt............ (746,028) (1,202,005) (1,223,276)
Cash in escrow........................ (330,000) -- --
Net proceeds from the issuance of
common stock......................... -- -- 898,559
----------- ----------- -----------
Net cash (used in) provided by financing
activities.............................. (6,897,499) 3,061,021 6,620,308
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents.......................... 149,963 (1,721,342) (487,912)
Cash and cash equivalents at beginning
of year.............................. 341,334 2,062,676 2,550,588
----------- ----------- -----------
Cash and cash equivalents at end of
year................................. $ 491,297 $ 341,334 $ 2,062,676
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid/received during the period
for:
Interest paid......................... $ 1,553,643 $ 2,034,339 $ 1,407,788
Income tax refund received............ -- -- 1,658,134
SUPPLEMENTAL DISCLOSURE OF
NON-CASH FINANCING ACTIVITIES:
Subscription receivable for 1,500,000
shares of
common stock......................... -- -- $ 3,991,050
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of 50-OFF Stores, Inc. and its
wholly-owned subsidiaries (50-OFF or the Company). All significant
intercompany balances and transactions have been eliminated.
Operations
The Company operates a chain of close-out retail stores located in 5 states
in the southern and southwestern United States that carry a broad mix of
merchandise targeted at value-conscious, lower to moderate income customers
and other "bargain hunters".
Reorganization
On October 9, 1996 (the "Petition Date"), the Company filed a petition (the
"Filing") for relief under Chapter 11 of the Bankruptcy Code ("Chapter 11") in
the United States Bankruptcy Court for the Western District of Texas (the
"Bankruptcy Court"). The filing was precipitated by the notification from the
Company's asset based lender that it was in violation of the minimum gross
margin (disputed) and the minimum working capital financial covenants of its
credit agreement and that such breaches constituted events of default under
the loan documents. The lenders subsequently established additional
availability reserves, imposed certain increased fees and other charges and
accelerated fees deemed earned at the initial closing, which, individually and
together, substantially impacted the Company's financial liquidity and,
therefore, its ability to acquire and maintain much needed inventory for its
stores. The Company was unable to secure the resources required to cure the
defaults under the loan documents and to implement its business plan and
effect the changes believed necessary to improve operations and reverse the
Company's disappointing operating results without the protections afforded
under the Bankruptcy Code. The Company will continue to manage its affairs and
operate its business under Chapter 11 as debtor in possession while the plan
of reorganization is formulated. Through the reorganization under Chapter 11,
management intends to implement the Company's plan to restructure the
operations and capitalization of the Company in order to strengthen the
Company's financial position and operating performance.
Consistent with the Chapter 11 proceedings, the accompanying financial
statements have been prepared on a going concern basis assuming the
realization of assets and liquidation of liabilities in the ordinary course of
business. However, under Chapter 11, actions to enforce certain claims against
the Company are stayed if such claims arose, or are based on events that
occurred, before the Petition Date. The terms of the ultimate settlement of
these liabilities is determined based on the plan of reorganization approved
by the Bankruptcy Court. Such liabilities in existence at October 9, 1996 are
reflected as Liabilities Subject To Compromise in the January 31, 1997
consolidated balance sheet. Additional liabilities subject to settlement may
arise subsequent to the Petition Date, as a result of claims filed by parties
affected by the Company's rejection of executory contracts, including leases,
and from the Bankruptcy Court's fixing of allowed claims for contingencies and
other disputed amounts. The procedures used to determine the amount of any
additional liabilities have not been completed. Additional liabilities may
arise as the Chapter 11 proceeding continues.
In November 1996, the Company obtained a debtor in possession credit
facility with borrowings up to $15 million from General Electric Capital
Corporation ("GECC"). This facility is for a term of one year and is
collateralized primarily by inventory (see Note 5).
On February 12, 1997, the Bankruptcy Court entered an order to extend the
time for the Company to assume or reject unexpired store leases. The order
provides that the time for which the Company must assume or reject
F-8
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
its store leases is extended to April 14, 1997. Other deadlines were provided
for treatment of specific leases where the landlord objected to the extension
period.
A plan of reorganization (the "Plan" or "Plan of Reorganization") was filed
on February 26, 1997, amended on March 27, 1997 and confirmed by the
Bankruptcy Court on June 3, 1997 (see Note 2).
Fiscal Year
The Company's fiscal year is a fifty-two or fifty-three week period ending
on the Friday nearest to January 31. Fiscal years 1997 and 1996 were comprised
of fifty-two weeks and fiscal year 1995 was comprised of fifty-three weeks.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash equivalents.
In January 1997, the Company sold its corporate headquarters. An order
issued by the Bankruptcy Court escrowed $330,000 to pay the outstanding
principal, accrued interest and attorneys fees. In February 1997,
approximately $301,000 was paid to satisfy the debt (see Note 5).
Pre-opening Store Costs
Pre-opening store costs which are included in selling, advertising, general
and administrative, are charged to income within the fiscal year in which they
are incurred.
Inventory Valuation
Merchandise inventories are valued at the lower of cost (first-in, first-
out) or market, using the retail inventory method. Merchandise inventories
consist entirely of finished goods.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on the
straight-line method at rates based upon the estimated useful lives of the
respective assets. Leasehold improvements are amortized on the straight-line
method over the shorter of the economic life of the improvements or the
respective terms of the lease. Gains and losses upon retirement or disposal of
fixed assets are recognized currently. In connection with the Chapter 11
Filing, the Company recorded as a reorganization expense the write-down to
fair value, as determined by the Company's lender based on the value of
certain assets liquidated by the lender and on the Company's, the lender's and
an independent party's strategic review, certain equipment and leasehold
improvements (see Note 6).
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
reported net of a valuation allowance that reduces deferred tax assets to an
amount that management believes is more likely than not realizable. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
F-9
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loss Per Common Share
Loss per common share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding. Fully diluted loss per
common share is not presented as it is not materially different than the
calculation of primary loss per common share.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares................... 12,200,915 12,200,915 10,539,089
</TABLE>
In February 1997, Statement of Financial Accounting Standard No. 128,
"Earnings Per Share" ("SFAS No. 128") was issued. SFAS No. 128, which
establishes standards for computing and presenting earnings per share, is
effective for the fiscal year ending after December 15, 1997 and when adopted
will require restatement of earnings per share presented in prior periods.
Early adoption is not permitted. The Company believes that the adoption of
SFAS No. 128 will not materially impact its financial condition or results of
operations.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and debt instruments. The
book value of cash and cash equivalents, accounts receivable and accounts
payable are representative of their respective fair values due to the short-
term maturity of these instruments. The book value of the Company's debt
instruments is considered to approximate their fair value, based on current
market rates and conditions. Certain debt instruments classified as
liabilities subject to compromise (see Note 4) may be subject to future
adjustments by the Bankruptcy Court.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method described in Accounting Principles Board No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25) and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's Common Stock at the date of grant over
the amount an employee must pay to acquire the stock. The Company has adopted
the disclosure requirements of Statements of Financial Accounting Standard No.
123, "Accounting for Stock Based Compensation," (SFAS No. 123) as included in
Note 11.
Reclassifications
Certain reclassifications have been made to the fiscal 1996 and 1995
consolidated financial statements to conform to the fiscal 1997 consolidated
financial statement presentation.
NOTE 2--PLAN OF REORGANIZATION AND MANAGEMENT PLANS
The Plan provides for the cancellation of all non-priority unsecured
indebtedness of the Company. The Company estimates such cancellation will
cause the elimination of over $25 million of unsecured debt and $3 million of
secured debt which will be converted to unsecured debt from the Company's
balance sheet. Each holder of an allowed general unsecured claim will, in
cancellation of its claim, receive a pro rata share of the Company's Series B
Preferred Stock. Certain obligations of the Company to such holders of Series
B Preferred Stock will be secured by two liens against potential net lawsuit
proceeds from significant litigation being prosecuted by the Company. As net
proceeds (net of certain items set forth in the Plan) from such litigation are
received by the Company, holders of Series B Preferred Stock will receive (i)
Series A Conversion Rights, which provide for the conversion of Series B
Preferred Stock to Series A Preferred Stock, until net proceeds reach
F-10
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$3,991,050, and (ii) Series A Preferred Stock for net proceeds in excess of
$3,991,050 (provided that "excess" net proceeds, as defined in the Plan, will
be paid in cash). The receipt of Series A Conversion Rights, Series A
Preferred Stock and/or cash by holders of Series B Preferred Stock will result
in a proportionate release of the liens.
By issuing such Series B Preferred Stock to general unsecured creditors,
such creditors are essentially receiving the value of the Company's litigation
which was pending prepetition.
Finally, the Plan provides for the recapitalization of the Company through
cash proposed to be raised from the Company's existing common stockholders and
others. Specifically, the Plan provides for the issuance to existing common
stockholders of rights to purchase units, consisting of 20 shares of Series A
Preferred Stock and 20 shares of new Common Stock (a "Unit"), with a minimum
required purchase amount of $3,050,000. The cumulative dividend rate on the
Series A Preferred Stock is 5.5%. At confirmation, the Company announced it
had received subscriptions for 44,736 ($4,473,600) units at expiration of the
rights offering, and the required minimum would be met.
Contemporaneously with filing the Plan, the Company filed a related
disclosure statement (the "Disclosure Statement") setting forth more detailed
information regarding the Company and the Plan. Under applicable Bankruptcy
Court rules and procedures, a hearing was scheduled by the Court to review and
approve the Disclosure Statement which was approved on March 20, 1997. Upon
approval of the Disclosure Statement, the Plan and Disclosure Statement were
furnished to creditors and stockholders and votes in support of the Plan were
solicited. The Plan was approved by both creditors and stockholders. An order
confirming the Plan was entered on June 3, 1997. Approximately ten days
subsequent to confirmation, the Plan will become effective. It is presently
anticipated that the Effective Date of the Plan will be on or about June 16,
1997.
Management has been redirecting 50-OFF's retail activities from 50-OFF's
off-price retailing concept to LOT$OFF's close-out retailing concept.
Coincident and consistent with this change has been a change in the mix of
products, historically a majority in family apparel, to a majority in non-
apparel merchandise, principally through the addition of new product
categories to the Company's historical non-apparel offerings which include
cosmetics, housewares and giftware, home furnishings, shelf-stable food
products, toys, luggage, footwear, stationery and health and beauty aids. New
categories include sporting goods, automotive, greeting cards, jewelry, books,
party goods, seasonal, pet supplies and hardware, among others. The Company
will continue to maintain a healthy showing of basic family apparel products
in the LOT$OFF stores. The actual merchandise mix will fluctuate by category,
by season and by store based on customer needs and buying trends, demographics
and the availability of products at close-out prices. This merchandising
concept is designed to appeal to value-conscious shoppers and other "bargain
hunters," and management is hopeful its continued implementation will lead to
higher initial mark-ups, less promotional pricing, fewer markdowns, less
inventory shrinkage, increased store traffic and improved operating results.
The Company's ability to successfully reorganize and continue as a going
concern will be affected by a number of factors, including, but not limited
to, the need to complete the offering of shares pursuant to the Plan, the need
to successfully complete negotiations of a post-confirmation credit facility
and ultimately comply with its terms, covenants and conditions, uncertainty
regarding the eventual outcome of the Chapter 11 Cases, the degree of success
in reversing the Company's recent business trends (by increasing sales and
operating profits) and the ability to alleviate trade credit concerns and
restore merchandise flow to adequate levels. While management believes that
the recent closings of stores and the implementation of expense cuts
commensurate with the downsizing of the total stores in operation (from 101 to
41 stores) facilitates its efforts to improve the Company's operating
performance and that the recapitalization to be implemented on the effective
date of its Plan or Reorganization should strengthen its financial position
and alleviate concerns of credit and merchandise suppliers, no assurance can
be given that the Company will be successful in its continuing efforts to
reverse recent business trends which have continued through May 1997 and
return to profitability. The anticipated
F-11
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
judgment and receipt of proceeds from the Company's lawsuits related to certain
parties breach of contractual obligations as well as certain other violations
related to the Company's November 1994 Regulation S offering (see Note 10)
should further strengthen its financial position. If the Company's plans to
improve operations are not successful, management will consider, among other
alternatives, strategic and/or financial alliances with third parties
(including wholesalers or manufacturers) and the merger, sale or liquidation of
all or a part of the Company.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY FEBRUARY 2,
31, 1997 1996
---------- -----------
<S> <C> <C>
Land............................................... $ -- $ 226,608
Building........................................... -- 752,231
Store equipment, furniture and fixtures............ 1,184,242 26,692,653
Leasehold improvements............................. 5,930,742 12,255,958
Other.............................................. 160,657 1,936,223
---------- -----------
7,275,641 41,863,673
Less: accumulated depreciation..................... (3,286,881) (16,975,451)
---------- -----------
$3,988,760 $24,888,222
========== ===========
</TABLE>
NOTE 4--LIABILITIES SUBJECT TO COMPROMISE
The principal categories of claims reclassified in the consolidated balance
sheet as of January 31, 1997 and included in liabilities subject to compromise
are as follows:
<TABLE>
<S> <C>
Secured debt, 8.5%, collateralized by furniture, fixtures
and equipment............................................. $ 4,190,881
Secured debt, capital leases, collateralized by signs...... 80,763
Trade and other miscellaneous claims including costs of
lease rejections.......................................... 25,978,900
-----------
$30,250,544
===========
</TABLE>
These amounts may be subject to future adjustments depending on: filings of
additional claims against the Company; actions of the Bankruptcy Court; further
developments with respect to disputed claims--whether or not such claims are
secured and the value of any security interest securing any such claims; and
other events. The Company has estimated that certain pre-petition debt exceeds
the related collateral and therefore, in accordance with Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code," the Company has discontinued accruing interest on these obligations. The
above amounts represent the Company's best estimate of claims which will
ultimately be allowed by the Court.
NOTE 5--CREDIT FACILITY AND LONG-TERM DEBT
Credit Facility:
On November 18, 1996, the Company, with the approval of the Bankruptcy Court,
entered into a credit agreement with General Electric Capital Corporation
providing the Company with a line of credit through November 1997 of up to
$15,000,000, including letters of credit. Borrowings under the line are limited
to a borrowing base equal to a percentage of eligible inventory at cost: August
15 through December 15, 65%; and December 16 through August 14, 60%. Interest
under the line is charged on funds borrowed at the annualized
F-12
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
yield on 30-day commercial paper (5.95 as of January 31, 1997) plus 3%. The
line of credit is collateralized by inventory, accounts receivable and other
assets. The credit agreement contains various restrictive covenants. The
agreement also contains minimum gross margin, minimum EBITDA, minimum
inventory, minimum sales, minimum trade support and maximum capital
expenditure financial covenants. On February 25, 1997 and April 2, 1997, the
Company was notified that it was in violation of not receiving net proceeds of
$1,000,000 (received $998,000) from the sale of its headquarters building and
the following financial covenants regarding minimum (a) EBITDA, (covenant
$400,000, actual ($484,000)) (b) net sales (covenant $15,900,000, actual
$12,609,000) (c) inventory balances (covenant $16,000,000, actual $13,504,000)
and (d) accounts payable (covenant $2,000,000, actual $1,940,000). The
violations constituted events of default under the loan documents. GECC waived
the default on net proceeds from sale of headquarters building and is
forebearing from exercising any remedies in connection with such financial
defaults. At January 31, 1997, the Company had approximately $5,397,000
outstanding under the credit facility and had approximately $1,225,000
available for use. At May 16, 1997, the Company had approximately $6,974,000
outstanding under the credit facility and had approximately $611,000 available
for use.
On May 13, 1996, the Company entered into a credit facility with two
financial corporations providing the Company with a line of credit through May
1998 of up to $22,500,000, including letters of credit. Borrowings under the
line were limited to a borrowing base equal to the lessor of, (i) eligible
inventory at cost: December 16 to February 28, 55.75%, March 1 to September
15, 60.75% and September 16 to December 15, 63.75% or (ii) eligible inventory
at retail: December 16 to February 28, 33.45%, March 1 to September 15, 37.25%
and September 16 to December 15, 39.0%. Interest under the line was charged on
funds borrowed at the First National Bank of Boston's base rate plus 1.75% and
there was a monthly administrative fee of $12,000 and an annual facility fee
of 1.5% ($337,500). The line of credit was secured by inventory, accounts
receivable and other assets. In addition, the Company issued the lenders a
three year warrant to purchase 400,000 shares of Common Stock at $2.50 per
share. The agreement contained various restrictive covenants, including
minimum gross margin, minimum EBITDA, minimum and maximum inventory levels,
minimum working capital and minimum trade support financial covenants. On
August 8, 1996, the Company was notified that it was in violation of the
minimum gross margin and the minimum working capital financial covenants and
that such breaches constituted events of default under the loan documents. The
lenders subsequently established additional availability reserves, imposed
certain increased fees and other charges and accelerated fees deemed earned at
the initial closing. This facility was paid off in November 1996 after the
Company's bankruptcy filing.
Prior to entering into such credit facility on May 13, 1996, the Company had
a credit facility with a financial institution providing the Company a line of
credit through January 1998, as amended, of up to $20,000,000, including
letters of credit of up to $4,000,000. Borrowings under the facility were
limited to a borrowing base equal to the lesser of, (i) 45% of eligible
inventory, or (ii) 80% of liquidation value of inventory, both minus a
permanent block of $1,500,000. Interest under the line was charged on funds
borrowed at the lender's prime rate plus 1.75%. The agreement contained
various restrictive covenants, including restrictions on the payment of cash
dividends. This credit facility was secured by inventory, certain accounts
receivable and other assets.
The Company had total borrowings of $80,196,626, $51,713,410 and $66,772,292
and repayments of $86,018,097, $47,450,384 and $59,827,267 for fiscal years
1997, 1996, and 1995, respectively, under its lines of credit.
Long-Term Debt:
The long-term debts that will be settled as part of the reorganization have
been classified as "Liabilities Subject to Compromise" (see Note 4) for the
year ending January 31, 1997. In February 1997, the Company received
authorization from the Bankruptcy Court to pay the promissory note secured by
land and building. Due to the uncertain duration of the Chapter 11 proceeding,
no current maturities have been reflected for the year ending January 31,
1997. The Company's bankruptcy filing resulted in events of default for all
pre-petition loan agreements.
F-13
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY
1997 2, 1996
----------- ----------
<S> <C> <C>
Borrowings under promissory notes secured by
furnitures, fixtures and equipment.............. $ -- $4,754,220
Borrowings under promissory note secured by land
and building.................................... 266,667 416,667
Less: Current portion............................ 266,667 1,286,372
------- ----------
$ -- $3,884,515
======= ==========
</TABLE>
In fiscal 1993 the Company borrowed $1,000,000 from a financial institution.
The promissory note provides for outstanding principal to be paid in monthly
installments of $16,666 until January 29, 1998. Interest is charged at a rate
of 7.02%. The note is secured by a deed of trust on the land and building used
for the corporate offices. In February 1997, with the approval of the
Bankruptcy Court, $301,000 was paid to satisfy the outstanding principal,
accrued interest and attorneys' fees.
In February 1996 and with the support of its vendors, 50-OFF implemented a
payment plan with respect to its $8,447,000 of unsecured trade payables as of
February 26, 1996. Under the plan, such payables were to be paid in full
within a two year period. Approximately $4,681,000 of such payables remained
outstanding at January 31, 1997 and are included in "Liabilities Subject To
Compromise" (see Note 4) as trade and other miscellaneous claims.
In April 1996, the Company restructured its $4,000,000 and $2,775,000 long
term borrowings with an affiliate of an insurance company into one promissory
note for approximately $4,645,000. The promissory note provides for monthly
installments (including principal and interest) of $94,638 until March 2001.
Interest is charged at a rate of 8.50%. The note is secured by the Company's
furniture and fixtures. Approximately $4,190,881 of such note remained
outstanding at January 31, 1997 and is included in "Liabilities Subject To
Compromise" (see Note 4).
NOTE 6--CLOSED STORE COSTS
During the third quarter of fiscal 1997, in connection with the Company's
planned Chapter 11 Filing, the Company liquidated inventory at 37 stores in
non-strategic markets through an arrangement with an affiliate of its then
lender. The Company received approximately $5,162,000 representing
approximately 45% of the retail value of the inventory on hand at the 37
stores. During the second quarter, the Company recorded to cost of sales
inventory liquidation markdowns of $2,218,000. Additionally, the Company
recorded reorganization items expense related to fixed asset write-offs of
$12,570,000. During the third quarter of fiscal 1997, the Company recorded
reorganization items expense of approximately $3,956,000 for liabilities
associated with estimated monthly lease payments and $467,000 of other store
closing costs associated with the 37 stores.
After a further review, the Company closed an additional 18 stores during
the fourth quarter of fiscal 1997. Additionally, the Company recorded
reorganization items expense for liabilities associated with estimated monthly
lease payments of approximately $1,592,000; other store closing costs of
approximately $266,000 and related goodwill of approximately $155,000
associated with the 18 stores. The Company also recorded to reorganization
items expense fixed asset write-downs of approximately $4,776,000 for the 18
closed stores as well as an impairment of the fixed assets for the remaining
stores and corporate offices of the Company.
Subsequent to fiscal 1997, the Company closed 3 stores plus the clearance
center. In connection with these closures, the Company recorded inventory
liquidation markdowns of $302,000 during the fourth quarter of fiscal
F-14
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997. Additionally, the Company recorded to reorganization items expenses
associated with estimated monthly lease payments of approximately $321,000 and
other store closing costs of approximately $334,000 associated with the 3
stores and the clearance center.
The 60 stores and the clearance center closed in fiscal 1997 and fiscal 1998
contributed approximately $45,455,000; $86,632,000 and $92,971,000 of net
sales and $11,534,000 and $273,000 of operating losses and $3,169,000 of
operating income during fiscal 1997, 1996 and 1995, respectively, to the
Company's operations.
The Company's store consolidation program closed seven stores in fiscal 1995
and 14 stores in fiscal 1996. The store closings involved exiting certain
smaller markets which proved unable to support a store and certain other
markets in which it would have been cost prohibitive to open the number of
stores required to effectively develop such markets' potential.
The amount of the closing costs associated with the stores closed in fiscal
1996, was approximately $4,942,000 of which approximately $835,000 pertained
to inventory liquidation write-downs charged to cost of sales and
approximately $1,372,000 associated with fixed asset write-downs and was
expensed in fiscal 1995 as part of a formal plan to complete the store
consolidation program. The Company has recorded approximately $1,168,000 of
liabilities associated with estimated monthly lease payments and other store
closing costs at February 2, 1996. During fiscal 1996, the Company undertook
negotiations with the lessors of 12 of the stores closed in fiscal 1996 and
successfully completed early buyouts of the remaining lease obligations for 11
stores, resulting in a credit to closed store costs of $409,000 during the
fourth quarter of fiscal 1996. During fiscal 1997, the Company completed its
negotiations and executed terminations on the remaining obligations from the
store consolidation program plus negotiated other buyouts and recorded income
to reorganization items of approximately $1,295,000.
NOTE 7--INCOME TAXES
The benefit from (provision for) income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 1997 FEBRUARY 2, 1996 FEBRUARY 3, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Federal:
Current................ -- -- $(547,000)
Deferred............... -- -- 547,000
Net operating loss
carryforwards......... -- -- --
State:
Current................ -- $(100,000) --
Deferred............... $ (153,000) 100,000 --
Net operating loss
carryforwards......... -- -- --
---------- --------- ---------
$(153,000) $ -- $ --
========== ========= =========
</TABLE>
F-15
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences which gave rise to deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 1997 FEBRUARY 2, 1996 FEBRUARY 3, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards......... $ 19,269,000 $ 6,448,000 $ 2,801,000
AMT and other credit
carryforwards......... 515,000 515,000 507,000
Merchandise
inventories........... 150,000 45,000 377,000
Lease obligations...... 2,149,000 455,000 1,034,000
Property and equipment. 974,000 -- --
Other.................. 152,000 7,000 49,000
------------ ----------- -----------
23,209,000 7,470,000 4,768,000
Deferred tax liabilities:
Property and equipment. -- (1,536,000) (1,422,000)
Net deferred tax assets
before valuation
allowance............... 23,209,000 5,934,000 3,346,000
Valuation allowance...... (23,209,000) (5,781,000) (3,093,000)
------------ ----------- -----------
Net deferred tax assets.. $ --0-- $ 153,000 $ 253,000
============ =========== ===========
</TABLE>
As of January 31, 1997, the Company had federal tax net operating loss
carryforwards of approximately $48,032,000 expiring through 2012, alternative
minimum tax credit carryforwards of approximately $337,000 which are available
to offset regular federal income taxes in the future until fully utilized, and
targeted jobs credit carryforwards of approximately $178,000 expiring in 2006
through 2009. As a result of the bankruptcy proceedings and related plan of
reorganization, the net operating loss (NOL) carryforwards, tax credit
carryforwards and other tax attributes of the Company may be significantly
reduced as a result of debt forgiveness income in accordance with section
108(b) of the Internal Revenue Code (IRC). In addition, IRC section 382 limits
NOL and tax credit carryforwards when an ownership change of more than fifty
percent of the value of stock in a loss corporation occurs within a three year
testing period. Under the plan of reorganization, the ownership of the Company
may change by more than fifty percent. Accordingly, to the extent NOL and tax
credit carryforwards remain after reduction under IRC section 108(b), the
ability to utilize such remaining NOL and tax credit carryforwards may be
significantly restricted.
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company leases the store facilities, its headquarters and the
distribution warehouse used in its operations under operating leases. Most
leases contain escalation clauses for real estate taxes, renewal options
ranging from five to ten years and required additional payments based on
percentages of sales (contingent rentals). Approximate future minimum lease
payments (excluding renewal options) under leases having a remaining non-
cancelable term in excess of 12 months as of January 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
1998........................................................... $ 3,888,000
1999........................................................... $ 3,882,000
2000........................................................... $ 3,637,000
2001........................................................... $ 3,338,000
2002........................................................... $ 2,715,000
2003 and subsequent............................................ $ 7,920,000
Actual rental expense, including contingent rentals, was as follows:
Year Ended February 3, 1995..................................... $10,762,000
Year Ended February 2, 1996..................................... $ 9,743,000
Year Ended January 31, 1997..................................... $ 7,353,000
</TABLE>
F-16
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the relevant provisions of the Bankruptcy Code, the Company can reject
executory contracts, including leases. In conjunction with the Company's
restructuring process, a review was performed of all lease obligations.
Rejection of a lease gives the right to assert a claim against the Company.
Through January 31, 1997, the Company had rejected 57 leases. Two leases were
subsequently rejected in February 1997. The amounts of the related claims are
included in the loss on disposal of stores of approximately $5,869,000 in the
accompanying consolidated statements of income.
Contingent rentals represented approximately 4% in the year ended February 3,
1995, 2% in the year ended February 2, 1996 and 0% in the year ended January
31, 1997 of actual rent expense.
The Company is party to certain legal proceedings arising in the ordinary
course of business, none of which are believed to be material (see Note 10).
NOTE 9--RELATED PARTY TRANSACTIONS
The Company had three store leases in force during fiscal 1996 and two store
leases in force during fiscal 1995 with Spigel Properties, the owner of which
was a director of the Company through September 1995. The Company paid an
aggregate of approximately $136,000 and $124,000 in minimum rental and
approximately $27,000 and $14,000 in percentage rental for these locations
during fiscal 1995 and 1996, respectively.
The law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. has regularly
performed legal services as counsel to the Company. Cecil Schenker, a director
of the Company, is the sole shareholder of Cecil Schenker, P.C., a partner with
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
The investment firm of James M. Raines & Company, the owner of which is a
director of the Company, performed consulting services in connection with the
Company's Regulation S offering in fiscal 1995.
Charles J. Fuhrmann II, a director of the Company, has performed certain
financial and strategic advisory services for the Company and was compensated
$127,500 and $31,250 during fiscal 1996 and 1997, respectively. In May 1996,
Mr. Fuhrmann was appointed President, Chief Executive and Financial Officer of
the Company.
NOTE 10--COMMON STOCK
In November 1994, the Company received subscriptions for approximately
1,810,000 shares of Common Stock in a Regulation S offering to qualified
investors. The Company received net proceeds of approximately $861,000 from the
purchase of 310,000 shares and has purchase agreements for 1,500,000 shares for
which proceeds have not been received.
On February 21, 1995, the Company filed a lawsuit [50-Off Stores, Inc. v.
Banque Paribas (Suisse), S.A., Betafid, S.A., Yanni Koutsoubos, Andalucian
Villas (Forty Eight) Limited, Arnass Limited, Brocimast Enterprises Ltd.,
Dennis Morris, Howard White, and Morris & Associates, Case No. SA-95-CA-0159]
in the United States District Court in San Antonio, Texas against Banque
Paribas (Suisse) S.A., Betafid S.A., three purchaser entities allegedly
controlled by them and certain affiliated individuals in connection with the
breach by certain of the defendants of their contractual obligations to
purchase an aggregate of 1,500,000 shares of the Company's common stock at
$3.65 per share. The lawsuit also includes securities fraud, promissory
estoppel, conspiracy and conversion claims. The conversion claim relates to
actions of the defendants in transferring, selling and trading the shares even
though the defendants have never paid for such shares. The Company seeks
recovery of actual and punitive damages, an injunction against the defendants'
transfer of such stock in violation of the Securities Act, pre- and post-
judgment interest, attorneys' fees and such other remedies to which the Company
may show itself entitled.
F-17
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dennis Morris and Howard White have answered the complaint with White
raising the affirmative defense of contributory negligence. White also served
a third party complaint on Chase Manhattan Bank, N.A. 50-OFF has recently
joined Chase and Aries Peak, Inc. as additional defendants. Defaults have been
entered against Arnass, Andalucian Villas, Brocimast, Betafid and Koutsoubos
for failure to appear or answer.
Banque Paribas (Suisse) ("Paribas") moved to dismiss the action for lack of
jurisdiction, failure to state a claim and for forum non conveniens. The
District Court referred all pre-trial matters to U.S. Magistrate Judge John W.
Primomo, who denied each of Paribas' motions to dismiss. U.S. District Judge
H.F. Garcia has adopted Judge Primomo's rulings in their entirety.
On March 20, 1997, Paribas answered 50-OFF's complaint asserting a number of
affirmative defenses, including contributory negligence. Paribas also asserted
a counterclaim against 50-OFF for defamation. 50-OFF has moved to dismiss this
counterclaim and strike Paribas' affirmative defenses. Judge Primomo has
recommended such dismissal and the striking of affirmative defenses.
Written discovery has been served on all defendants who have appeared, and
depositions have been taken of numerous parties and non-party witnesses. Judge
Primomo has required that all discovery of Paribas take place pursuant to the
provisions of the Hague Evidence Convention. Paribas recently responded to 50-
OFF's requests for production and interrogatories. This matter is currently
set for trial on August 25, 1997.
On January 9, 1996, the Company filed another lawsuit [50-OFF Stores, Inc.
v. Jefferies & Company, Inc. and Jefferies International, Ltd., Cause No. 96-
CI-00349] in Bexar County District Court in San Antonio, Texas against the
Company's placement agents in the securities offering referenced in the
lawsuit discussed above. The suit alleges that the defendants breached their
contracts with the Company, breached their fiduciary duties to the Company and
were reckless or grossly negligent in failing to investigate properly the
qualifications of the purchasers they introduced to the Company. The Company
seeks to recover actual and exemplary damages in excess of $10,000,000, pre-
and post-judgment interest, costs and attorneys' fees. Both defendants have
answered the petition and raised the affirmative defense of contributory
negligence. Additionally, Jefferies & Company filed a cross-claim against
Howard White. Discovery is proceeding. Soon after the Company filed for
protection under the Bankruptcy Code, Jefferies and White removed this case to
the Bankruptcy Court. The United States District Court granted 50-OFF's motion
to abstain from hearing the case and remanded the case back to the Bexar
County District Court. This matter has been specially set for jury trial on
October 4, 1997. The Bexar County District Court also ordered the parties to
conduct mediation of the case prior to such trial date.
The Company will continue to prosecute these cases vigorously. The Company,
based upon advice of counsel, believes that it will obtain a favorable
judgment against one or more of the defendants referenced in the preceding two
lawsuits. Until the matter has been resolved, the Company will treat the
1,500,000 shares of Common Stock as outstanding with no proceeds recognized
from their sale. The related subscription receivable recorded in the
accompanying consolidated balance sheet is based upon a share price of $2.94,
the closing price of the Company's Common Stock on January 12, 1995 and the
date the stock was removed from escrow.
NOTE 11-- STOCK OPTION PLAN
Under the Company's Stock Option Plan, as amended (the "Option Plan"), stock
options may be granted to full-time employees, outside directors, advisors and
outside consultants of the Company for the purchase of up to a maximum of
3,000,000 shares of common stock. Options (either incentive or nonqualified
options) may be granted for a term not to exceed ten years. The exercise price
of all incentive stock options must be at least equal to the fair market value
of the common stock on the date of grant, or 110% of such fair market value
with respect to any optionee who is more than a 10% stockholder of the
Company's shares. Any nonqualified stock
F-18
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
option issued pursuant to the Option Plan must be at an exercise price equal
to at least 85% of the fair market value of the Company's common stock on the
date of grant. Shares of unissued common stock reserved for the Plan totals
2,461,000 at January 31, 1997.
The following table summarizes certain information regarding stock options
granted under the Plan:
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING
-----------
<S> <C>
Balances at January 28, 1994...................................... 1,170,895
Granted......................................................... 273,250
Exercised....................................................... (7,500)
Canceled........................................................ (110,085)
---------
Balances at February 3, 1995...................................... 1,326,560
Granted......................................................... 247,015
Canceled........................................................ (418,950)
---------
Balances at February 2, 1996...................................... 1,154,615
Granted......................................................... 833,752
Canceled........................................................ (514,116)
---------
Balances at January 31, 1997...................................... 1,464,261
</TABLE>
Options exercisable were 1,220,959, 926,175 and 689,385 at January 31, 1997,
February 2, 1996 and February 3, 1995, respectively.
Options outstanding at January 31, 1997 have a weighted-average remaining
contractual life of 4.2 years with exercise prices ranging from $.94 to $1.56.
Options exercisable at January 31, 1997 have a weighted-average remaining
contractual life of 4.2 years with exercise prices ranging from $1.00 to
$12.75.
The weighted average exercise price for options outstanding at January 31,
1997 was $3.72.
The Company applies APB No. 25 and related interpretations in accounting for
its Option Plan. Accordingly, no compensation expense has been recognized for
stock option transactions discussed above.
Compensation cost for option awards (granted after January 29, 1994) in
accordance with SFAS No. 123, is not material to the results of proforma
operations for fiscal 1997 and 1996, as the estimated fair value of the
options granted was not significant.
In November 1994, the Company's Board of Directors effected a repricing of
employee stock options at $4.125 per share effective December 5, 1994,
excluding executive officers, directors, advisors and outside consultants.
Upon the effective date of the Plan Of Reorganization, the Option Plan and
all outstanding options will be terminated.
F-19
<PAGE>
APPENDIX
GLOSSARY OF SELECTED TERMS USED IN THIS PROSPECTUS
"50-OFF" shall mean 50-OFF Stores, Inc., a Delaware corporation, Debtor and
Debtor-in-possession.
"50-OFF Old Common Stock" shall mean the Public Equity Interests of 50-OFF
which consist of common stock as of the Rights Offering Record Date.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978, as amended,
and codified at title 11 of the United States Code.
"Class 7 Lien" shall mean that certain lien granted to the holders of
Allowed Claims in Class 7 as described in paragraph 4.1(f)(v) of the Plan.
"Chapter 11 Cases" shall mean the cases commenced under chapter 11 of the
Bankruptcy Code by the Debtors on the Petition Date.
"Claim" shall mean (1) any right to payment from any of the Debtors, whether
or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured; (2) any right to an equitable remedy for breach of
performance if such breach gives rise to a right of payment from any of the
Debtors, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured; or (3) any right under section 502(h) of the Bankruptcy Code.
"Confirmation Date" shall mean the date on which the Clerk of the Bankruptcy
Court entered the Confirmation Order.
"Confirmation Hearing" shall mean the hearing held by the Bankruptcy Court
pursuant to Bankruptcy Code section 1128, on June 3, 1997, on confirmation of
the Plan.
"Convenience Claim" shall mean any General Unsecured Claim of $250 or less,
and any such Claim in excess of $250 that, by written election of the holder
prior to the commencement of the Confirmation Hearing, is reduced to $250.
"Committee" shall mean the Official Committee of Unsecured Creditors
appointed in the Chapter 11 Cases.
"Common Stock" shall mean the new Common Stock to be authorized for
Reorganized 50-OFF pursuant to the Plan; such Stock shall from time to time
also be referred to as the "Reorganized 50-OFF Common Stock."
"Court" shall mean the Bankruptcy Court unit of the United States District
Court for the Western District of Texas, San Antonio Division, or such other
court having jurisdiction over the Chapter 11 Cases.
"Cure Payment" shall be the monetary payments required pursuant to
Bankruptcy Code section 365(b)(1)(A) to cure defaults under Leases to which
the Debtors, or any one of them, are a party and which will be assumed
pursuant to the Plan.
"Debtors" shall mean 50-OFF Stores, Inc., 50-OFF Multistate Operations,
Inc., 50-OFF Texas Stores, L.P. and 50-OFF Operating Company.
"Deficiency Amount" shall mean, with respect to a Secured Claim, the amount
by which the Allowed Claim exceeds the sum of (1) any set-off rights of the
holder of such Claim against a Debtor under sections 506 and 553 of the
Bankruptcy Code and (2) the net proceeds realized from the disposition of the
Collateral securing such Claim or, if such Collateral is not liquidated to
Cash, the value of the interest of the holder of the Claim in
A-1
<PAGE>
the Debtor's interest in the Collateral securing such Claim, as determined by
the Bankruptcy Court under section 506 of the Bankruptcy Code; provided,
however, that if the holder of such Claim makes the Election, there shall be
no Deficiency Amount in respect of such Claim.
"Disbursing Agent" shall mean the Reogranized 50-OFF Companies or their
designee(s). The Reorganized 50-Off Companies may, but need not, employ a
third-party to distribute the Series A Preferred Stock, the Series B Preferred
Stock and/or the new Common Stock.
"Disclosure Statement" shall mean the Disclosure Statement that has been
approved by order of the Bankruptcy Court pursuant to section 1125 of the
Bankruptcy Code.
"Disposition of the Lawsuits" shall mean each and all of the Lawsuits being
resolved by Final Orders.
"Distribution Date" shall mean, for any Claim that is an Allowed Claim on
the Effective Date, the Effective Date, and, for any Contested Claim, shall
mean the date as soon as practicable, but within 90 days, after the date upon
which such Claim becomes an Allowed Claim.
"Effective Date" shall mean a Business Day selected by the Debtors or
Reorganized 50-OFF, as the case may be, after the first Business Day which is
10 days after the Confirmation Date on which (i) the Confirmation Order is not
stayed and (ii) all conditions to the effectiveness of the Plan have been
satisfied or waived, provided, however, that the satisfaction of conditions
under this subsection (ii) shall not delay the Effective Date more than 45
days after the Confirmation Date.
"Equity Interest" shall mean the interest represented by an "equity
security," as defined in section 101(16) of the Bankruptcy Code.
"Escrow Agent" shall mean the party designated by the Debtors to receive
Rights subscriptions, Bank One, Texas, NA.
"FF&E" shall mean furniture, fixtures and equipment as such terms are
commonly used in commercial transactions governed by the Uniform Commercial
Code.
"Fee Claim" shall mean a Claim under section 330 or 503 of the Bankruptcy
Code for allowance of compensation and reimbursement of expenses in the
Chapter 11 Cases.
"Final Order" shall mean (1) an order as to which the time to appeal,
petition for certiorari or move for reargument or rehearing has expired and as
to which no appeal, petition for certiorari or other proceedings for
reargument or rehearing shall then be pending or (2) in the event that an
appeal, writ of certiorari, reargument or rehearing thereof has been sought,
such order shall have been affirmed by the highest court to which such order
was appealed, or certiorari has been denied or from which reargument or
rehearing was sought, and the time to take any further appeal, petition for
certiorari or move for reargument or rehearing shall have expired; provided,
however, that no order shall fail to be a Final Order solely because of the
possibility that a motion pursuant to Rule 60 of the Federal Rules of Civil
Procedure may be filed with respect to such order.
"GECC" shall mean General Electric Capital Corporation.
"GECC Loan Agreement" shall mean that certain $15,000,000 Senior Secured
Super Priority, Debtor-in-Possession Revolving Credit Agreement dated as of
November 18, 1996 among GECC and the Debtors.
"General Unsecured Claim" shall mean any Claim against a Debtor that is not
a Secured Claim, an Administrative Claim, a Priority Tax Claim or a Priority
Non-tax Claim.
"Lawsuits" shall mean those actions pending (a) in the United States
District Court, Western District of Texas, San Antonio Division, styled as 50-
OFF Stores, Inc. v. Banque Paribas (Suisse) S.A., et al., Case No.
A-2
<PAGE>
SA-95-CA-0159; and (b) in the Texas District Court for Bexar County, styled as
50-OFF Stores, Inc. v. Jefferies & Company, Inc. & Jefferies Int'l. Ltd.,Cause
No. 96-CI-00349 and any and all claims or causes of actions arising from the
transactions described within such Lawsuits whether presently known or
unknown, asserted or unasserted.
"MetLife" shall mean MetLife Capital Corporation.
"MetLife Settlement Agreement" shall mean that certain agreement dated March
20, 1997, by and between the Debtors and MetLife, which final agreement was
filed with the Bankruptcy Court on March 20, 1997 and which was approved by
the Bankruptcy Court pursuant to the MetLife Settlement Order.
"Net Lawsuits' Proceeds" shall mean all proceeds derived from the Lawsuits,
net of: (1) all contingency fees paid or owing to counsel for the Reorganized
50-OFF Companies which prosecuted such Lawsuits, including the reimbursement
of expenses to such counsel; (2) the reimbursement to the Reorganized 50-OFF
Companies of all expenses incurred by them in connection with the prosecution
of such Lawsuits since the Petition Date; (3) all fees and expenses paid by
the Reorganized 50-OFF Companies to the Class 7 Agent and its Professional
Persons; and (4) the Chapter 11 Professional Fee Carve-Out.
"Old Common Stock" shall mean 50-OFF Old Common Stock.
"Petition Date" shall mean October 9, 1996.
"Plan" or "Plan of Reorganization" shall mean the Joint Plan of
Reorganization, as Amended, dated March 27, 1997, either in its present form
or as it may hereafter be altered, amended or modified from time to time.
"Plan Documents" shall mean the documents that aid in effectuating the Plan
as specifically identified as such in the Plan or as attached as exhibits
thereto, which will be substantially in the respective forms filed by the
Debtors with the Bankruptcy Court.
"Plan Secured Note" shall mean a promissory note made payable jointly and
severally by the Reorganized 50-OFF to a holder of an Allowed Secured Claim in
certain Classes of the Plan. Each such Plan Secured Note shall be in an amount
equal to the amount of such Allowed Secured Claim, bear simple interest at the
Post-confirmation Interest Rate and provide for full amortization of all
principal and interest in equal annual payments over seven years from the
Distribution Date; provided, however, that if such Allowed Secured Claim is
less than $50,000, then the full amortization of all principal and interest
shall be in equal quarterly payments over three years from the Distribution
Date; provided, however, that if the Allowed Secured Claim is held by an Ad
Valorem Taxing Authority, then the full amortization of all principal and
interest shall be in equal quarterly payments over six years from the
Distribution Date, without regard to the amount of the Claim.
"Post-confirmation Interest Rate" shall mean simple interest at the rate
equal to the yield upon United States Treasury Bonds having a maturity as near
to, but greater than, seven years after the date that the Confirmation Hearing
commences, as such yield is published in the Wall Street Journal on the day
that the Confirmation Hearing commences, or such other rate as the Bankruptcy
Court may determine at the Confirmation Hearing is appropriate.
"Pro Rata Share" shall mean the proportion that the amount of an Allowed
Claim in a particular class of Claims bears to the aggregate amount of all
Claims in such class of Claims, including Contested Claims, but not including
Disallowed Claims.
"Proponents" shall mean, collectively, the Debtors.
"Public Equity Interests" shall mean the Equity Interests in 50-OFF as of
the Voting Record Date, March 21, 1997, but only the Old Common Stock and not
any warrants or options with regard to such Common Stock which have not been
fully exercised.
A-3
<PAGE>
"Reorganized 50-OFF" shall mean collectively the Debtors, as reorganized, on
and after the Effective Date.
"Reorganized 50-OFF Common Stock" shall mean new Common Stock.
"Rights Offering Deadline" shall mean May 20, 1997, unless extended in the
sole discretion of the Debtors. The Rights Offering Deadline shall be the
deadline for the Escrow Agent to receive all items and payments necessary for
the purchase of Reorganized 50-OFF Rights Offering Units pursuant to the
Rights Offering.
"Rights Offering Record Date" shall mean March 21, 1997, the date fixed by
the Bankruptcy Court as the Voting Record Date. The Rights Offering Record
Date shall be the date to determine the holders of Old Common Stock which may
purchase Units pursuant to the Rights Offering.
"Senior Liens" shall mean any lien securing any Allowed Secured Claim of:
(1) MetLife on the FF&E as such lien may have existed on the Petition Date or
as it may be granted pursuant to the Plan; and (2) any contractual lien in
favor of a landlord of the Debtor(s) which was validly attached and properly
perfected prior to the Petition Date, which liens shall be senior to any
Senior Secured Exit Financing as to the Collateral held by such Lienholder.
"Series A Preferred Stock" shall mean the new Series A Preferred Stock to be
authorized for Reorganized 50-OFF pursuant to the Plan.
"Series A Preferred Stock Certificate of Designation" shall mean that certain
Series A Preferred Stock Certificate of Designation attached hereto as
Appendix "B."
"Series B Preferred Stock" shall mean the new Series B Preferred Stock to be
authorized for Reorganized 50-OFF pursuant to the Plan.
"Series B Preferred Stock Certificate of Designation" shall mean that
certain Series B Preferred Stock Certificate of Designation attached hereto as
Appendix "C."
"Series B Preferred Stock Lien" shall mean the Lien granted to holders of
Series B Preferred Stock as described in Paragraph 6.2(f)(i) of the Plan.
"Units" shall mean Reorganized 50-OFF Rights Offering Units.
"Voting Record Date" shall mean March 21, 1997, the date set by the
Bankruptcy Court for determining the holders of Public Equity Interests
entitled to vote to accept or reject the Plan.
"Voting Deadline" shall mean May 20, 1997, the date set by the Bankruptcy
Court by which Ballots for accepting or rejecting the Plan must be received by
the Person appointed in the Chapter 11 Cases for tabulating such Ballots.
A-4
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND THE PLAN OF REORGANIZATION, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIEF UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION ON AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction............................................................... 1
Certain Risk Factors....................................................... 2
The Company................................................................ 7
Business................................................................... 17
Management................................................................. 20
Business Plan.............................................................. 26
Material Litigation........................................................ 30
The Offering............................................................... 32
Description of Securities.................................................. 37
Plan of Reorganization..................................................... 41
Legal Opinion.............................................................. 55
Experts.................................................................... 55
Available Information...................................................... 55
Index to Consolidated Financial Statements................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
50-OFF STORES, INC.
RIGHTS TO PURCHASE UNITS
MAXIMUM 122,009 UNITS
MINIMUM 30,500 UNITS
7,320,540 SHARES OF COMMON STOCK
2,440,180 SHARES OF SERIES A
PREFERRED STOCK
----------------
PROSPECTUS
----------------
June 11, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses (other than underwriting discounts and commissions)
in connection with the issuance and distribution of the securities registered
hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................... $ 3,697
Legal fees and expenses............................................ 80,000
Accounting fees and expenses....................................... 25,000
Blue Sky fees and expenses......................................... 30,000
Printing and engraving expenses.................................... 67,000
--------
Total............................................................ $205,697
========
</TABLE>
- --------
The foregoing expenses will be paid by the Registrant.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to provisions of the Delaware General Corporation Law, the
Certificate of Incorporation (and prospective Restated Certificate of
Incorporation) of Registrant (the "Company") includes a provision which
eliminates the personal liability of its directors to the Company and its
stockholders for monetary damage to the fullest extent permissible under
Delaware law. This provision does not eliminate liability (a) for any breach
of a director's duty of loyalty to the Company or its stockholders; (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (c) in connection with payment of any illegal
dividend or an illegal stock repurchase; or (d) for any transaction from which
the director derives an improper personal benefit. Further, this provision has
no effect on claims arising under federal or state securities laws and does
not affect the availability of injunctions and other equitable remedies
available to the Company's stockholders for any violation of a director's
fiduciary duty to the Company or its stockholders.
Section 145 of the Delaware General Corporation Law ("DGCL") authorizes a
corporation to indemnify any person ("indemnitee") who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the
corporation) because such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation in a similar position with another corporation or entity, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. With respect to actions
or suits by or in the right of the corporation, however, an indemnitee who
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation is generally limited to
attorneys' fees and other expenses, and no indemnification shall be made if
such person is adjudged liable to the corporation unless and only tot he
extent that a court of competent jurisdiction determines that indemnification
is appropriate. Section 145 further provides that any indemnification shall be
made by the corporation only as authorized in each specific case upon a
determining by the (i ) board of directors by a majority vote of directors who
were not parties to such action, suit or proceeding even though less than a
quorum, (ii) independent counsel if there are no such disinterested directors
or if such directors so direct, or (iii) stockholders, that indemnification of
the indemnitee is proper because he has met the applicable standard of
conduct. Section 145 provides that indemnification pursuant to its provisions
is not exclusive of other rights of indemnification to which a person may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
II-1
<PAGE>
The Company's Certificate of Incorporation (and prospective Restated
Certificate of Incorporation) and Bylaws (and prospective Amended and Restated
Bylaws) require the Company to indemnify its officers, directors and employees
(and agents under the Bylaws and prospective Amended and Restated Bylaws only)
to the fullest extent permitted by Delaware law.
An insurance policy obtained by the registrant provides for indemnification
of officers and directors of the Registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities were sold by the Registrant within the past 3 years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
2.1 Disclosure Statement, including Joint Plan of Reorganization, as
amended***
2.2 Letter to Stockholders, Expression of Interest, Ballot, Chapter 7
Liquidation Analysis, and Executory Contracts and Leases to be
Assumed and Cure Payments****
2.3 Confirmation Order****
3.1 Certificate of Incorporation*
3.2 Restated Certificate of Incorporation to be effective on the Effective
Date****(1)
3.3 Bylaws*
3.4 Amended and Restated Bylaws to be effective on the Effective Date****
4.1 Certificate of Designation for Series A Preferred Stock to be
effective on the Effective Date****(1)
4.2 Certificate of Designation for Series B Preferred Stock to be
effective on the Effective Date****(1)
4.3 Escrow Agreement****
4.4 Subscription Exercise Form and Instructions****
5.1 Opinion of Sheinfeld, Maley & Kay, P.C.****
5.2 Opinion of Akin, Gump, Strauss, Hauer & Feld LLP****
10.1 Stock Option Plan to be effective on the Effective Date****
10.2 Loan Agreement with General Electric Capital Corporation***
10.3 Promissory Note, Security Agreement, Trademark and License Security
Agreement, Stock Pledge Agreement, Guaranty, and Assignment of
Partnership Interest with General Electric Capital Corporation****
21 Subsidiaries of the Registrant**
23.1 Consent of Deloitte & Touche LLP****
23.2 Consent of Sheinfeld, Maley & Kay, P.C. (included in Exhibit 5.1)****
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, LLP (included in Exhibit
5.2)****
24 Power of Attorney (included on signature page)
27 Financial Data Schedule****(1)
99.1 Notification of resignation to SEC by directors Raines and Lehrman****
99.2 Consents of persons about to become directors****
</TABLE>
- --------
* Contained in exhibits to the Registration Statement No. 33-48216 on Form
S-4 filed with the Securities and Exchange Commission on July 28, 1992.
** Contained in exhibits to the annual report on Form 10-K for the fiscal
year ended January 29, 1993.
*** Contained in exhibits to the Registration Statement No. 333-25061 on Form
S-1 filed with the Securities and Exchange Commission on April 11, 1997.
**** Filed herewith.
(1) Replaces and supercedes document filed as an exhibit to the Registration
Statement No. 333-25061 on Form S-1 filed with the Securities and Exchange
Commission on April 11, 1997.
(b) Financial Statement Schedules
None.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions set forth or described in Item 14 of the
Registration Statement, or otherwise, the registrant has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Exchange Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling proceeding, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Exchange Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of
the subscription offer and the terms of any subsequent reoffering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Antonio, State of Texas, on June 11, 1997.
50-0FF STORES, INC.
BY: Charles J. Fuhrmann II
-----------------------------------
CHARLES J. FUHRMANN II,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Charles J. Fuhrmann II and James G. Scogin, and each of them, each with full
power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution for him and in
his name, place and stead, in any and all capacities, to sign any or all
further amendments to this Registration Statement (including post-effective
amendments), and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person hereby ratifying and confirming
that each of said attorneys-in-fact and agents or his substitutes may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated below.
NAME TITLE DATE
/s/ Charles J. Fuhrmann II President, Chief
- ------------------------------------- Executive and Financial June 11, 1997
CHARLES J. FUHRMANN II Officer and Director
(Principal Executive and
Financial Officer)
/s/ James G. Scogin Vice President,
- ------------------------------------- Controller, Chief June 11, 1997
JAMES G. SCOGIN Accounting Officer,
Assistant Secretary
(Principal Accounting
Officer)
/s/ Cecil Schenker Director June 11, 1997
- -------------------------------------
CECIL SCHENKER
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ----------
<C> <S> <C> <C>
2.1 Disclosure Statement, including Joint Plan of
Reorganization, as amended***
2.2 Letter to Stockholders, Expression of Interest,
Ballot, Chapter 7 Liquidation Analysis, and
Executory Contracts and Leases to be Assumed and
Cure Payments****
2.3 Confirmation Order****
3.1 Certificate of Incorporation*
3.2 Restated Certificate of Incorporation to be effective
on the Effective Date****(1)
3.3 Bylaws*
3.4 Amended and Restated Bylaws to be effective on the
Effective Date****
4.1 Certificate of Designation for Series A Preferred
Stock to be effective on the Effective Date****(1)
4.2 Certificate of Designation for Series B Preferred
Stock to be effective on the Effective Date****(1)
4.3 Escrow Agreement****
4.4 Subscription Exercise Form and Instructions****
5.1 Opinion of Sheinfeld, Maley & Kay, P.C.****
5.2 Opinion of Akin, Gump, Strauss, Hauer & Feld LLP****
10.1 Stock Option Plan to be effective on the Effective
Date****
10.2 Loan Agreement with General Electric Capital
Corporation***
10.3 Promissory Note, Security Agreement, Trademark and
License Security Agreement, Stock Pledge Agreement,
Guaranty, and Assignment of Partnership Interest
with General Electric Capital Corporation****
21 Subsidiaries of the Registrant**
23.1 Consent of Deloitte & Touche LLP****
23.2 Consent of Sheinfeld, Maley & Kay, P.C. (included in
Exhibit 5.1)****
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, LLP
(included in Exhibit 5.2)****
24 Power of Attorney (included on signature page)
27 Financial Data Schedule****(1)
99.1 Notification of resignation to SEC by directors
Raines and Lehrman****
99.2 Consents of persons about to become directors****
</TABLE>
- --------
* Contained in exhibits to the Registration Statement No. 33-48216 on Form
S-4 filed with the Securities and Exchange Commission on July 28, 1992.
** Contained in exhibits to the annual report on Form 10-K for the fiscal
year ended January 29, 1993.
*** Contained in exhibits to the Registration Statement No. 333-25061 on Form
S-1 filed with the Securities and Exchange Commission on April 11, 1997.
**** Filed herewith.
(1) Replaces and supercedes document filed as an exhibit to the Registration
Statement No. 333-25061 on Form S-1 filed with the Securities and Exchange
Commission on April 11, 1997.
<PAGE>
EXHIBIT 2.2
March 27, 1997
To Our Stockholders:
The purpose of this letter is to advise you of the important progress made in
the reorganization of our Company and of your opportunity to participate as an
owner in our post-bankruptcy operations.
THE PLAN OF REORGANIZATION
- --------------------------
Enclosed please find our Disclosure Statement dated March 27, 1997. This
Disclosure Statement relates to the Plan of Reorganization, as Amended (the
"Plan") proposed by 50-OFF Stores, Inc. and our significant affiliates
(collectively, our "Company"), all of which filed voluntary chapter 11
bankruptcy on October 9, 1996.
The Plan provides a mechanism for our Company to emerge from chapter 11 as a
reorganized, viable business concern, and includes an important offer to our
current Stockholders, whose interests will otherwise be canceled on the
Effective Date of the Plan.
The Official Committee for the Unsecured Creditors has expressed its unanimous
support for the Plan, as has MetLife Capital Corporation, an impaired, secured
creditor of our Company. General Electric Capital Corporation, the current
provider of debtor-in-possession financing for our Company, has expressed its
interest in providing the Senior Secured Exit Financing required by the Plan.
WE URGE YOU TO SEND IN YOUR BALLOTS PROMPTLY AND TO VOTE TO ACCEPT THE PLAN.
The Plan is the result of a substantial amount of hard work and negotiations
with creditors of our Company. As a result of those negotiations, the
reorganized Company will emerge from bankruptcy with over 70% of our debt
eliminated, and management has secured the right of our existing Stockholders to
buy new equity in the newly reorganized Company on an advantageous basis.
THE OFFERING
- ------------
The Plan offers our Stockholders of record March 21, 1997 the right to buy Units
which consist of 20 shares of reorganized 50-OFF Series A Preferred Stock and 20
shares of reorganized 50-OFF Common Stock for a price of $100 per Unit (the
"Offering"). Of that price, and for basis purposes, $60, or $3.00 per share, is
being allocated to the purchase of the Series A Preferred Stock and $40, or
$2.00 per share, is being allocated to the purchase of the new Common Stock.
<PAGE>
Letter to Stockholders
March 27, 1997
Page 2
The Plan provides that holders of Series A Preferred Stock will be entitled to:
a liquidation preference in the amount of $5 per share of Series A Preferred
Stock and cumulative dividends of 5.5% of such Preferred Stock's liquidation
value per year ($5.50 per Unit). The Series A Preferred Stock is also
convertible into two shares of new Common Stock.
Participants in this Offering will hold ALL of the new Common Stock issued
pursuant to the Plan.
SIGNIFICANT CHANGES IN THE COMPANY'S OPERATIONS
- -----------------------------------------------
In the course of the reorganization process, many positive changes have occurred
in the core business of our Company. These changes include:
. Our Company is being lead by new management (including my position as
President of our Company for less than one year) and a new Board of Directors
that are committed and motivated to maximize the value of the reorganized
Company's equity securities.
. Our Company has used the bankruptcy process to close undesirable store
locations and retrench geographically; it is now operating a carefully selected,
core group of 41 stores (selected from the 101 stores formerly operated), each
of which has demonstrated the capacity to operate profitably. The bankruptcy
filing allowed the rejection of the lease obligations on the other store
locations with no out-of-pocket payment by our Company.
. Our Company is implementing a program to convert our continuing stores from
the old "50-OFF" off-price retailing concept with its strong weighting of
softline inventories to our new "LOT$OFF" closeout retailing concept with a
majority of inventories in hardlines. Results have been encouraging in the
stores that have been converted to date. This conversion is not merely a name
change; it is a continuation of our commitment to carry a broader mix of
inventory at closeout prices. The concept we are implementing with the LOT$OFF
stores has been implemented successfully by other retail chains which are
experiencing large increases in sales and profits and which enjoy high earnings
multiples for their equities in the stock market.
. Increased discipline and the downsizing in the number of stores we operate
have allowed our Company to reduce our corporate staff and other store support
overhead substantially. Today, our Company employs 44 full time employees at our
store support center, and in the field providing other store support services,
at a total payroll cost of approximately $2.0 million per year. Approximately
one year ago, our Company had 147 such employees at a total payroll cost of $4.9
million per year. This reduction alone should have a meaningful and favorable
impact on our bottom line.
<PAGE>
Letter to Stockholders
March 27, 1997
Page 3
. We have recently sold the corporate headquarters building and leased back
only that portion of the building actually needed for our continuing operations.
The sale eliminated substantial additional overhead at the corporate level and
has also allowed our Company to direct meaningful cash resources to restocking
our remaining stores with more appropriate inventory levels, which should lead
to increased sales and profitability.
. Our Company has filed two major lawsuits to recover damages related to our
issuance of securities in late fiscal 1995 (the "Lawsuits"). In this securities
offering, our Company placed 1.5 million shares of our Common Stock in escrow
pending receipt of the agreed purchase price of $3.65 per share ($5,475,000, in
the aggregate). Before any of the purchase price was paid, our Common Stock was
released to the putative buyers who subsequently traded the stock in the open
market and disappeared. We have sued various parties involved in the
transaction; one of the Lawsuits is currently set for trial in August 1997, and
the second is "specially" set in October 1997. We expect that, within this
calendar year, the Lawsuits will be resolved, and we have a high expectation
that favorable recoveries will be made. Any such recoveries will add important
resources to our implementation of the closeout retailing concept and, coupled
with the required proceeds of the Offering and the Senior Secured Exit Financing
facility, should accelerate our reaching the "Target" operating results in our
business plan (summarized in the Disclosure Statement).
. Under the Plan, over $25 million of liabilities are being eliminated as
liabilities from 50-OFF's balance sheet, while substantial other liabilities are
being compromised and/or paid out over significant periods of time.
. The Company obtained a new revolving, asset based lending facility from
General Electric Capital Corporation during its chapter 11 proceeding. This new
facility has substantially better terms than the prior facility, including a
favorable interest rate. The Company is optimistic that this relationship will
continue after bankruptcy and, although no definitive agreement has been signed,
we have received a letter from General Electric Capital Corporation formally
expressing its interest in providing the Senior Secured Exit Financing required
on the Effective Date of the Plan.
. Under the Plan, the general unsecured creditors are given a lien on the net
proceeds of the Lawsuits (see the Plan and Disclosure Statement regarding such
lien); however, pursuant to the Plan and so long as the reorganized Company is
not in liquidation, general unsecured creditors are REQUIRED to buy Series A
Preferred Stock, including their initial positions, for $5 per share upon
receipt of any Net Lawsuits' Proceeds. Under the Offering, current Stockholders
are buying one share of Series A Preferred Stock AND one share of new Common
Stock for $5.00.
<PAGE>
Letter to Stockholders
March 27, 1997
Page 4
YOUR DECISION
- -------------
The Bankruptcy Court may not confirm the Plan without adequate commitments to
buy the Units. Your subscription for the Units is, therefore, extremely
important to the future of our Company.
WE STRONGLY URGE YOU TO PURCHASE
THE UNITS BEING OFFERED TO YOU IN THE PLAN.
To subscribe for the purchase of Units in the Offering pursuant to the Plan,
fill out the NON-BINDING Expression of Interest in Purchasing Rights Units form
and return the completed form consistent with the instructions. You will then
receive a Subscription Exercise Form for execution to return with your check, or
wire for the full purchase price of the number of Units for which you wish to
subscribe. Your funds will be held in escrow by Bank One, Texas N.A. until the
Offering closes. If the Offering does not close, your funds will be returned to
you by Bank One, Texas, N.A. Complete instructions are included in the Plan and
the Disclosure Statement.
As with any investment, risks are associated with the purchase of the Series A
Preferred Stock and the new Common Stock. You are urged to read this Disclosure
Statement in its entirety for a description of the reorganized Company's
prospects, the associated risks and detailed discussions of each of the matters
outlined above.
Your prompt consideration of this important matter is appreciated.
Sincerely,
/s/ CHARLES J. FUHRMANN II
Charles J. Fuhrmann II
President, CEO & CFO
<PAGE>
================================================================================
50-OFF STORES, INC.
EXPRESSION OF INTEREST IN PURCHASING RIGHTS OFFERING UNITS
(NON-BINDING)
----------------------------------------------------------
As of the close of business on March 21, 1997, the undersigned was the record or
beneficial owner of the following number of shares of common stock of 50-OFF
Stores, Inc.
--------------------
Pursuant to its Plan of Reorganization, as amended, 50-OFF Stores, Inc. is
offering its stockholders of record (as of March 21, 1997) the right to
purchase Rights Offering Units at $100 each (each such Unit consists of 20
shares of Series A Preferred Stock and 20 Shares of New Common Stock both in
reorganized 50-OFF Stores, Inc.). By signing below, you hereby express an
interest in purchasing the following number of such Units (this expression of
interest is non-binding; you are not required to purchase such Units by signing
this document):
--------------------
If you express a favorable interest, a binding Subscription Exercise Form for
Rights Offering, together with instructions, will be mailed to you at the
address below. To exercise your right to purchase Units you must complete the
Subscription Exercise Form for Rights Offering and return it with the full
purchase price on or before May 20, 1997. You will not be obligated to purchase
the Units unless and until you sign and return the Subscription Exercise Form
for Rights Offering. PLEASE RETURN THIS EXPRESSION OF INTEREST PROMPTLY TO
PROVIDE YOU WITH SUFFICIENT TIME TO RECEIVE AND RETURN THE SUBSCRIPTION EXERCISE
FORM FOR RIGHTS OFFERING PRIOR TO MAY 20, 1997.
Upon subscribing, your funds will be held in escrow by Bank One, Texas, N.A.
pending receipt of the required minimum number of subscriptions (30,500 Units)
and the United States Bankruptcy Court's approving 50-OFF's proposed Plan of
Reorganization. Your money will be promptly returned if the required minimum is
not subscribed for or the Court does not approve the Plan.
THIS FORM WILL BE ACCEPTED VIA FACSIMILE.
Date:
-----------------------------
Signature:
-------------------------------
Name (typed or
printed):
--------------------------
Address:
---------------------------------
-----------------------------------------
-----------------------------------------
Phone ( )
-----------------------------------
-------------------------------
Return completed form to:
SHEINFELD, MALEY & KAY, P.C.
ATTN: RICHARD G. GRANT
1700 PACIFIC AVENUE, SUITE 4400
DALLAS, TX 75201
FAX: (214) 953-1189
-------------------------------
IMPORTANT NOTICE REGARDING SHARES
HELD IN THE NAME OF A STOCK BROKER/DEALER
-----------------------------------------
IF YOU ARE THE BENEFICIAL OWNER OF STOCK HELD IN THE NAME OF A STOCK BROKER OR
DEALER, YOU SHOULD DISREGARD THE ADDRESS ABOVE AND INSTEAD RETURN THIS
EXPRESSION OF INTEREST TO YOUR STOCK BROKER/DEALER, WHO IN TURN WILL INDICATE
YOUR INTEREST TO 50-OFF. A SUBSCRIPTION EXERCISE FORM FOR RIGHTS OFFERING
WILL BE PROVIDED TO YOU WHICH YOU SHOULD ALSO RETURN TO YOUR STOCK
BROKER/DEALER. TO ALLOW SUFFICIENT TIME FOR PROCESSING, YOU SHOULD RETURN THIS
EXPRESSION OF INTEREST TO YOUR BROKER/DEALER PRIOR TO APRIL 30, 1997.
==============
================================================================================
<PAGE>
United States Bankruptcy Court
for the Western District of Texas
San Antonio Division
In re: (S)
(S)
50-OFF STORES, INC., (S) Case No. 96-54430-C through
a Delaware corporation; (S) Case No. 96-54433-K, respectively,
50-OFF MULTISTATE OPERATIONS, INC., (S)
a Nevada corporation; (S) Jointly Administered under
50-OFF TEXAS STORES, L.P., (S) Case No. 96-54430-C
a Texas limited partnership; and (S)
50-OFF OPERATING COMPANY, INC., (S) Chapter 11
a Nevada corporation, (S)
(S)
Debtors. (S)
- --------------------------------------------------------------------------------
BALLOT FOR ACCEPTING OR REJECTING
DEBTORS' PLAN OF REORGANIZATION, AS AMENDED
- --------------------------------------------------------------------------------
The Debtors' Plan of Reorganization, as Amended, dated March 27, 1997 (the
"Plan") and filed jointly by the above-captioned Debtors can be confirmed by the
Court and thereby made binding on you if it is accepted by the holders of two-
thirds in amount of the equity security interests (i.e., of the shares of
stock). In the event that the requisite acceptances are not obtained, the Court
may nevertheless confirm the Plan if the Court finds that the Plan accords fair
and equitable treatment to the class rejecting it and otherwise satisfies the
requirements of section 1129(b) of the Bankruptcy Code. To have your vote
counted, you must complete and return this ballot to:
Sheinfeld, Maley & Kay, P.C.
Attn: Richard G. Grant
1700 Pacific, Suite 4400
Dallas, Texas 75201-4618
Facsimile No. 214-953-1189
All ballots must be received at the above address on or prior to May 20, 1997 at
5:00 Central Time. Any ballot received after this date will not be counted.
Ballots that are untimely, unsigned or not properly completed may not be
counted. Ballots will be accepted by telecopy; however, no assurances can be
made that the telecopy number above will not be busy, especially near the
deadline when numerous ballots may be forthcoming. The risk of timely delivery
is upon the voting stockholder. No confirmation of receipt will be provided.
IF YOU ARE THE BENEFICIAL OWNER OF STOCK HELD IN THE NAME OF A STOCK
BROKER/DEALER: YOU SHOULD DISREGARD THE ADDRESS ABOVE AND INSTEAD RETURN THIS
BALLOT TO STOCK BROKER/DEALER, WHO IN TURN WILL VOTE YOUR STOCK ON YOUR BEHALF
IN THE MANNER THAT YOU HAVE INDICATED ON THIS BALLOT. YOUR BROKER/DEALER MUST
VOTE PRIOR TO MAY 20, 1997, THUS YOU SHOULD RETURN YOUR BALLOT TO YOUR
BROKER/DEALER IN SUFFICIENT TIME TO ENSURE SUFFICIENT TIME FOR YOUR
BROKER/DEALER TO CAST YOUR VOTE PRIOR TO MAY 20, 1997. PREFERRABLY, YOU SHOULD
RETURN YOUR BALLOT TO YOUR BROKER/DEALER ON OR BEFORE APRIL 30, 1997.
- --------------------------------------------------------------------------------
YOUR VOTE - CHECK ONLY ONE BOX:
- --------------------------------------------------------------------------------
The undersigned, the beneficial or record holder of _______________ shares of
common stock in 50-OFF Stores, Inc. hereby votes as follows with regard to the
Plan:
[_] ACCEPTS [_] REJECTS
- --------------------------------------------------------------------------------
DATED: _______________________, 1997.
Name of Voting Shareholder (Print or Type):
--------------------------------
Signature:
--------------------------------
Name of Signatory:
--------------------------------
Office or Title of Signatory (if applicable):
--------------------------------
Street Address:
--------------------------------
City/State/Zip:
--------------------------------
Telephone:
--------------------------------
IF YOU WISH TO SUBSCRIBE FOR UNITS IN THE RIGHTS OFFERING,
YOU MUST ALSO FILL OUT AND RETURN THE EXPRESSION OF INTEREST IN PURCHASING
RIGHTS OFFERING UNITS
<PAGE>
HYPOTHETICAL CHAPTER 7 LIQUIDATION ANALYSIS
PRO FORMA FOR MARCH 1, 1997
<TABLE>
<CAPTION>
ASSETS ASSUMPTIONS 000'S
- ------ ----------- -------
<S> <C> <C>
Cash 3 Days Float $ 475
Inventory 74% of Cost 11,822
FF&E 70% of Stipulated Fair Market Value 829
Prepaids and Other 100
-------
Total Assets $13,226
SECURED CLAIMS
- --------------
GECC 57% of Inventory Cost Less Reserves $ 8,206
MetLife Value of FF&E 829
Professional Carve-out Inventory Portion 300
Total Secured Claims $ 9,335
-------
NET UNENCUMBERED PROCEEDS $ 3,891
- ------------------------- =======
CHAPTER 7 EXPENSES
- ------------------
Trustee's Fees 3% of Unencumbered Assets $ 117
Professional Fees Trustee's Counsel and Accountant 250
Lawsuit "Warchest" 300
Miscellaneous Office Rental, Storage, Insurance and
Other 35
-------
Total Chapter 7 Expenses $ 702
CHAPTER 11 EXPENSES AND PRIORITY CLAIMS
- ---------------------------------------
Chapter 11 Professionals 2 Months at 150, Plus Unpaid (Less
Carve-out) $ 325
Post-petition Trade Payables Merchandise 1,000
Payroll One Payroll, In Arrears, Due 3/1/97 327
Insurance 100
Rent October Stub for Occupied Property 752
Unpaid Occupancy Costs Utilities, Phone, Etc. 250
Sales Tax Prepetition and Unpaid Post-petition
at 3/1/97 600
Property Taxes 1996 and 1997 on 44 Stores Only 740
Accrued and Unpaid Overhead 200
-------
Total Chapter 11 Expenses and Priority Claims $ 4,294
TOTAL CHAPTER 7 AND 11 EXPENSES AND
- -----------------------------------
PRIORITY CLAIMS $ 4,996
- --------------- -------
NET AVAILABLE TO NON-PRIORITY, UNSECURED
- ----------------------------------------
CREDITOS/1/ $(1,105)
- ----------- =======
</TABLE>
________________________________________
/1/ Excludes any consideration of Net Lawsuits' Proceeds.
<PAGE>
EXHIBIT "A"
TO THE DEBTORS' JOINT PLAN OF REORGANIZATION, AS AMENDED
EXECUTORY CONTRACTS AND LEASES
TO BE ASSUMED AND CURE PAYMENTS
-------------------------------
PART 1 - STORE LEASES
(42 LEASES CONSTITUTING 41 STORE LOCATIONS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
STORE CITY STREET ADDRESS LANDLORD NAME CURE AMOUNT STORE
NO. NO.
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
854 Albuquerque 9500 Montgomery Blvd., Ste. 5 Sentinel Associates 16,000.00 854
- --------------------------------------------------------------------------------------------------------------------
935 Albuquerque 5555 Zuni Road S.E. WalMart Stores, Inc. 11,150.62 935
- --------------------------------------------------------------------------------------------------------------------
846 Albuquerque 4201 Central Blvd. N.W. WalMart Stores, Inc. 13,346.82 846
- --------------------------------------------------------------------------------------------------------------------
821 Amarillo 3415 Bell Street Amarillo Centers Inc. 26.69 821
C/O Weingarten Realty
- --------------------------------------------------------------------------------------------------------------------
833 Austin 5441 North IH-35 Capital/Highway 35, Ltd. c/o 21,794.66 833
Cencor Realty Service, Inc.
- --------------------------------------------------------------------------------------------------------------------
859 Baton Rouge 7389 Florida Blvd. Bon Marche Mall 14,816.08 859
c/o Sentinel Associates
- --------------------------------------------------------------------------------------------------------------------
858 Baton Rouge 5151 Plank Street Delmont Village S.C. 16,038.71 858
- --------------------------------------------------------------------------------------------------------------------
843 Bossier City 1701 Old Minden Road Heart O Bossier S.C. c/o Latter & 14,534.92 843
Blum
- --------------------------------------------------------------------------------------------------------------------
825 Brownsville 812 North Expressway Fausto Yturria, Jr. 7,096.77 825
- --------------------------------------------------------------------------------------------------------------------
822 Corpus Christi 4717 S. Padre Island Dr. Padre Everheart Corp. 24,143.22 822
- --------------------------------------------------------------------------------------------------------------------
850 Dallas 220 Wynnewood Village Bellaire Capital Partnership LP 17,819.91 850
- --------------------------------------------------------------------------------------------------------------------
847 Dallas 117-123 Pleasant Grove Shopping Pleasant Grove S.C., Inc. c/o 23,345.83 847
Center Intershop
- --------------------------------------------------------------------------------------------------------------------
873 El Paso 5567 Alameda Avenue Nussbaum, Torres & Co., PC -- 31,452.84 873
RPM Fox Plaza
- --------------------------------------------------------------------------------------------------------------------
813 El Paso 1323 Lee Trevino Road The Steel Corp. of Texas 18,565.01 813
- --------------------------------------------------------------------------------------------------------------------
879 Garland 3359 W. Walnut Ste. 100 Holly Webber, Inc. c/o Quine & 19,379.35 879
Assoc
- --------------------------------------------------------------------------------------------------------------------
871 Gretna #8 Westside Shopping Center Sarpy Properties, Inc. 17,146.66 871
Westside North Shopping Center
- --------------------------------------------------------------------------------------------------------------------
839 Haltom City 3125 Denton Highway N.S. Joint Venture c/o Quine & 6,700.00 839
Assoc.
- --------------------------------------------------------------------------------------------------------------------
831 Harlingen 901 N. 13th Street, Space 26 Spigel Properties 12,629.37 831
- --------------------------------------------------------------------------------------------------------------------
851 Houston 1238 Uvalde Bellaire Capital Partnership LP 16,196.66 851
- --------------------------------------------------------------------------------------------------------------------
845 Houston 11737 Eastex Freeway CenterAmerica Property Trust, LP 17,634.90 845
- --------------------------------------------------------------------------------------------------------------------
861 Houston 6059 SLE 610 at Long J. Michael Epstein or Bob Sisson 12,938.28 861
- --------------------------------------------------------------------------------------------------------------------
852 Houston 201 Northline Mall Northline Joint Venture c/o 14,534.98 852
Manley, Berenson & Assoc.
- --------------------------------------------------------------------------------------------------------------------
883 Laredo 4510 San Bernardo Avenue WalMart Stores, Inc. 22,964.07 883
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
- --------------------------------------------------------------------------------
Exhibit "A" to the Debtors' Joint Plan of Reorganization, as Amended--Executory
Contracts and Leases to be Assumed and Cure Payments
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
STORE CITY STREET ADDRESS LANDLORD NAME CURE AMOUNT STORE
NO. NO.
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
912 Lawton 50 N. Sheridan Road Rogers Commercial Properties 9,724.69 912
- --------------------------------------------------------------------------------------------------------------------
818 Lubbock 5025-B 50th Street Equity Development Corp. 20,714.00 818
- --------------------------------------------------------------------------------------------------------------------
896 McAllen 123 S. Main Street Omega Realty, Inc. 24,302.81 896
- --------------------------------------------------------------------------------------------------------------------
880 Memphis 1367 Poplar Avenue Boyle Investment Co. 13,833.34 880
-- D Canale & Co.
- --------------------------------------------------------------------------------------------------------------------
809 Midland 3111 B. Cuthbert Street 3111 Cuthbert Corporation 15,820.38 809
- --------------------------------------------------------------------------------------------------------------------
867 Midwest City 160 Air Depot Road Weingarten/Oklahoma Inc. 3,894.50 867
- --------------------------------------------------------------------------------------------------------------------
832 Oklahoma City 2908 S.W. 29th Street Economy Square Inc. 15,653.80 832
- --------------------------------------------------------------------------------------------------------------------
840 Oklahoma City 7357 South Shields South Shields #1 Ltd. c/o J. Herzog 6,194.64 840
- --------------------------------------------------------------------------------------------------------------------
810 Pharr 500 North Jackson Road WalMart Stores, Inc. 37,623.15 810
- --------------------------------------------------------------------------------------------------------------------
814 Roma River View Shopping Center Hwy. 83 Armando Pena 11,299.77 814
- --------------------------------------------------------------------------------------------------------------------
814A Roma Riverview Shopping Plaza Jose Cantu 3,936.00 814A
- --------------------------------------------------------------------------------------------------------------------
933 San Antonio 4100 S. New Braunfels, Ste. 912 Bexar McCreless Corp 20,000.00 933
c/o MEPC Mgmt
- --------------------------------------------------------------------------------------------------------------------
802 San Antonio 1007 South W.W. White Road HEB Store Property #1 9,102.67 802
- --------------------------------------------------------------------------------------------------------------------
894 San Antonio 1745 S.W. Loop 410 Las Vegas Boys & Girls Club 31,177.56 894
Foundation
- --------------------------------------------------------------------------------------------------------------------
842 San Antonio 4252 Fredericksburg Rd #A18 Madison Marquette Realty Services 15,838.70 842
- --------------------------------------------------------------------------------------------------------------------
801 San Antonio 803 Castroville Road #418 TCP Las Palmas Partners, Ltd. 27,563.91 801
- --------------------------------------------------------------------------------------------------------------------
812 San Antonio 2555 S.W. Military Road W-D Enterprises 33,367.76 812
- --------------------------------------------------------------------------------------------------------------------
838 Shreveport 2707 West 70th Street The Penn Mutual Life Ins. Co. 5,668.50 838
- --------------------------------------------------------------------------------------------------------------------
824 Waco 253-A Lake Air Center Spigel Properties 15,000.00 824
- --------------------------------------------------------------------------------------------------------------------
690,972.53
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PART 2 - CONTRACTS AND PERSONAL PROPERTY LEASES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NAME OF OTHER PARTY TO CONTRACT DESCRIPTION OF CONTRACT CURE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ford Motor Credit Co. Lease of 1994 Ford Taurus
P.O. Box 834101 Vin# 1FALP52UIRA260569 $11,257.53
Richardson, TX 75083-4101 Expires June 1997
- -----------------------------------------------------------------------------------------------------------------
Lease of 1994 Ford Taurus
Vin# 1FALP52UORA259560
Expires July 1997
Car purchased and sold to Doug Sims
- -----------------------------------------------------------------------------------------------------------------
Lease of 1994 Ford Taurus
Vin# 1FALP52U5RA252099
Expires July 1997
Car purchased and sold to Kathy Harvey
- -----------------------------------------------------------------------------------------------------------------
Lease of 1995 Ford Taurus
Vin# 1FALP52U1SA160154
Expires December 1996
---------------------------------------
</TABLE>
Page 2
- --------------------------------------------------------------------------------
Exhibit "A" to the Debtors' Joint Plan of Reorganization, as Amended--Executory
Contracts and Leases to be Assumed and Cure Payments
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NAME OF OTHER PARTY TO CONTRACT DESCRIPTION OF CONTRACT CURE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lease of 1994 Ford Explorer
Vin# 1FMDU32Y8RUA64631
Expires December 1996
- -----------------------------------------------------------------------------------------------------------------
Lease of 1995 Ford Taurus
Vin# 1FALP5ZU4SGZ15368
Expires March 1997
Car totalled, Ford paid by Wassau
- -----------------------------------------------------------------------------------------------------------------
Lease of 1994 Ford Taurus
Vin# 1FALP52UORA232472
Expires June 1997
- -----------------------------------------------------------------------------------------------------------------
Lease of 1994 Ford Taurus
Vin# 1FALP52U6RA273883
Expires September 1997
- -----------------------------------------------------------------------------------------------------------------
Lease of 1994 Ford Taurus
Vin# 1FALP524XRG156904
Expires May 1997
- -----------------------------------------------------------------------------------------------------------------
Lease of 1994 Ford Taurus
Vin# 1FALP52U3RA252098
Expires June 1997
- -----------------------------------------------------------------------------------------------------------------
Lease of 1994 Ford Taurus
Vin# 1FALP52U54A159096
Expires May 1997
- -----------------------------------------------------------------------------------------------------------------
Felco Office Systems, Inc. Lease of office copiers and maintenance agreements
1560 Cable Ranch Road - Mita 8585 Copier $ 5,998.64
San Antonio, TX 78245 - Mita 5685 Copier and 1,709.33
- Mita 20 bin sorter 234.91
----------
$ 7,942.88
- -----------------------------------------------------------------------------------------------------------------
First United Leasing Corporation Lease of mailroom equipment $ 545.42
P. O. Box 828 Expires September 1997
Deerfield, IL 60015-0828
- -----------------------------------------------------------------------------------------------------------------
Advanced Signing Inc. Contract to purchase sign at Albequerque, $ 1,896.00
4202 Dividend NM location in novation of Lease of sign
San Antonio, TX 78219
- -----------------------------------------------------------------------------------------------------------------
The Shoftman Company Sublease of space for shoe department $ 0 .00
P.O. Box 4758 at certain continuing locations
Tyler, TX 75712 Subleases expire at various dates through 2000
- -----------------------------------------------------------------------------------------------------------------
Fox Foto, Inc. Debtor leases property to photo processing Previously
8758 Tesoro Drive store Expires October 1998 assumed and
San Antonio, TX 78217 assigned (no
cure owing)
- -----------------------------------------------------------------------------------------------------------------
New Texas Media, Inc. Debtor leases office suite to media Previously
8750 Tesoro Drive, Suite One group Expires September 1997 assumed and
San Antonio, TX 78217 assigned (no
cure owing)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3
- --------------------------------------------------------------------------------
Exhibit "A" to the Debtors' Joint Plan of Reorganization, as Amended--Executory
Contracts and Leases to be Assumed and Cure Payments
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NAME OF OTHER PARTY TO CONTRACT DESCRIPTION OF CONTRACT CURE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Casa de Oro Enterprises, Inc. Sublease of space for retail jewelry at 6 locations $ 0.00
147 E. Commerce St. Subleases expire September 1999
San Antonio, TX 78205
- -----------------------------------------------------------------------------------------------------------------
Gibson Greetings, Inc. Sublease of space for greeting card dept. at 13 locations $ 0.00
1431 Greenway Drive, Suite 330 Expires October 1996
Irving, TX 75039
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
March 24, 199
Page 4
- --------------------------------------------------------------------------------
Exhibit "A" to the Debtors' Joint Plan of Reorganization, as Amended--Executory
Contracts and Leases to be Assumed and Cure Payments
<PAGE>
EXHIBIT 2.3
UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
In re: (S)
(S)
50-OFF STORES, INC., (S) Case No. 96-54430-C through
a Delaware corporation; (S) Case No 96-54433-K, respectively,
50-OFF MULTISTATE OPERATIONS, INC. (S)
a Nevada corporation; (S) Jointly Administered under
50-OFF TEXAS STORES, L.P., (S) Case No. 96-54430-C
a Texas limited partnership:; and (S)
50-OFF OPERATING COMPANY, (S) Chapter 11
a Nevada corporation, (S)
Debtors (S)
- --------------------------------------------------------------------------------
ORDER CONFIRMING
DEBTORS' JOINT PLAN OF REORGANIZATION,
AS AMENDED AND MODIFIED
- --------------------------------------------------------------------------------
At San Antonio, Texas, on June 3, 1997, the Court convened the confirmation
hearing pursuant to 11 U.S.C (S) l128 upon the Debtors' Joint Plan of
Reorganization, as Amended, dated March 27, 1997 as modified by the First
Modification to Debtors' Joint Plan of Reorganization filed on May 30, 1997, and
orally at the confirmation hearing (the Plan)/1/ filed jointly by 50-OFF Stores,
Inc., a Delaware corporation (the Parent Debtor), 50-OFF Multistate Operations,
Inc., a Nevada corporation, 50-OFF Texas Stores, L.P., a Texas limited
partnership, and 50-OFF Operating Company, a Nevada corporation (collectively,
including the Parent Debtor, the Debtors).
- --------------
/1/ Terms herein shall have the same meaning as set forth in the definitions
provided in the Plan.
<PAGE>
The Court has considered the Plan, the evidence presented, the
presentations of counsels, and the results of the voting on the Plan, and, based
upon such considerations and the findings of facts and conclusions of law stated
in the record at the hearing and/or set forth in the Findings of Fact and
Conclusions of Law Regarding Order Confirming Debtors' Plan, hereby
ORDERS, ADJUDGES and DECREES as follows:
PLAN CONFIRMATION
1. The Plan is in all things CONFIRMED pursuant to 11 U.S.C. (S) 1129.
2. The provisions of the Plan and this Confirmation Order are binding on the
Debtors, each Creditor and Interest Holder and each other party in interest in
these cases.
3. The Plan shall be and hereby is made binding upon any chapter 7 or chapter
11 trustee which may be appointed in any one or more of these cases. In the
event of a conversion of one or more of these cases to chapter 7, the transfers
made and obligations incurred or authorized to be made pursuant to the Plan or
pursuant to order(s) entered as contemplated by the Plan, including financing to
be entered into and all liens granted or authorized to be granted pursuant to
the Plan and including all payments of Administrative Claims (including Cure
Payments and fees and expenses paid to Professional Persons), shall not be
subject to disgorgement or avoidance.
4. As of or following the time at which the conditions to the occurrence of the
Effective Date set forth in the Plan are satisfied or duly waived, the
appropriate Debtors or Reorganized Debtors shall be, and hereby are authorized
to effectuate and perform all transactions, actions and filings contemplated by
the Plan, and in each case in accordance with applicable terms of the Plan, the
Exhibits thereto and this Confirmation Order with each such transaction, action
and filing deemed to have been taken by the unanimous action of directors and
stockholders of the
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 2
<PAGE>
appropriate Debtor or Reorganized Debtor. Such transactions, actions and filings
include, without limitation the following:
a. The amendments to and restatement of the Certificate of Incorporation,
as evidenced by the Restated Certificate of Incorporation to be filed
with the Delaware Secretary of State.
b. The amendments to and restatement of the Bylaws, as evidenced by the
Amended and Restated Bylaws.
c. The creation, establishment and authorization of the Series A
Preferred Stock, as evidenced by the Certificate of Designations in
respect of Series A Preferred Stock to be filed with the Delaware
Secretary of State.
d. The creation, establishment and authorization of the Series B
Preferred Stock, as evidenced by the Certificate of Designations in
respect of Series B Preferred Stock to be filed with the Delaware
Secretary of State.
e. The reconstitution of the Boards of Directors of the Reorganized
Parent Debtor and 50-OFF Operating Company
f. The adoption of the Stock Option Plan in satisfaction of the
stockholder approval requirement of Section 422 of the Internal
Revenue Code of 1986, as amended.
g. The authorization, registration, offer, sale and issuance of the
Rights, Units, Common Stock and Series A Preferred Stock and the
authorization, offer, sale and issuance of the Series B Preferred
Stock. When issued, delivered and paid for (if applicable) in
accordance with the terms of the Plan and the applicable Plan
Documents, each of the Rights, Units, Common Stock, Series A Preferred
Stock and Series B Preferred Stock will be duly and validly issued,
fully paid and non-assessable.
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 3
<PAGE>
h. The obtaining of a secured credit facility including, without
limitation, the execution, delivery and performance of a loan
agreement, note and security agreement. See Senior Secured Exit
Financing, below.
5. Without limiting the generality or effect of any other provision of this
Confirmation Order, the appropriate Debtors and Reorganized Debtors shall be,
and hereby are specifically authorized and empowered to take any and all such
actions as (a) Charles J. Fuhrmann II who is the (i) President of each of the
corporate Debtors and corporate Reorganized Debtors, and (ii) the President of
the general partner of Texas Stores and the Reorganized Texas Stores, and (b)
James G Scogin, who is the (i) Assistant Secretary of each of the corporate
Debtors and the Secretary of the corporate Reorganized Debtors, and (ii) the
Assistant Secretary of the general partner of Texas Stores and the Secretary of
the general partner of the Reorganized Texas Stores (collectively, Messrs.
Fuhrmann and Scogin will be referred to as the Designated Officers) may
determine are necessary or appropriate to implement, effectuate and consummate
the Plan, this Confirmation Order and the transactions respectively contemplated
thereby and hereby, all in accordance with the terms of the Plan and this
Confirmation Order. Each of the Designated Officers of each Debtor and
Reorganized Debtor shall be, and hereby is authorized to execute, deliver, file
or record such contracts, instruments, releases, indentures, mortgages, deeds,
assignments, leases or other agreements or documents and take such other actions
as such Designated Officers may determine are necessary or appropriate to
effectuate and further evidence the terms and conditions of the Plan, this
Confirmation Order and the transactions respectively contemplated thereby and
hereby, all without further application to or order of this Court and whether or
not such actions or documents are specifically referred to in the Plan, the
Disclosure Statement, this Confirmation Order or the Exhibits to any of the
foregoing, and the Secretary or any Assistant Secretary of each such Debtor or
Reorganized Debtor shall be, and
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 4
<PAGE>
hereby is, authorized to certify or attest to any of the foregoing actions. To
the extent that, under applicable non-bankruptcy law, any of the foregoing
actions would otherwise require the consent or approval of the directors or
stockholders or partners of any Debtor or Reorganized Debtor, this Confirmation
Order shall constitute such consent or approval; and such actions shall be, and
hereby are, deemed to have been taken by unanimous action of the directors and
stockholders, or, with regard to Texas Stores, partners, of the appropriate
Debtor or Reorganized Debtor.
6. Bank One, Texas, N.A. (Bank One) is hereby authorized and directed to remit
to 50-OFF Stores, Inc. all of the funds which Bank One currently holds in escrow
pursuant to the Escrow Agreement attached to the Plan as Exhibit E together with
a list of all subscribers which deposited such funds.
LIMITED SUBSTANTIVE CONSOLIDATION
7. The Court hereby orders as follows: (1) all intercompany Claims by and
among the Debtors are hereby eliminated, (2) any pre-Effective Date obligation
of any of the Debtors and all pre-Effective Date guaranties thereof executed by
any of the Debtors are hereby deemed to be prepetition joint and several
obligations of all of the Debtors, (3) any Claim or Claims filed or to be filed
against any of the Debtors are hereby deemed one Claim against each of the
Debtors, (4) for purposes of determining the availability of the right of offset
under section 553 of the Bankruptcy Code, the Debtors shall be treated as one
entity so that, subject to the other provisions of section 553 of the Bankruptcy
Code, debts due to any of the Debtors may be offset against the debts of any of
the Debtors.
8. The Debtors are hereby consolidated for the limited purposes of voting with
regard to the Plan as though the Debtor were a single debtor, nunc pro tunc as
of March 27, 1997.
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 5
<PAGE>
9 All Claims based upon prepetition guaranties of collection, payment or
performance made by one Debtor as to the obligations of any other Debtor are
hereby discharged, released and without further force and effect.
10. Neither the Plan nor this Order effectuate a substantive consolidation of
the assets of the respective Debtors into a single entity or estate and do not
cause the perfection of Liens again any Debtor's assets by any secured lender
which may have a financing statement filed with regard to a separate Debtor.
11. The limited substantive consolidation of the Debtors set out above, and the
stated exceptions to such limited substantive consolidation, shall not affect or
diminish the obligations of the Debtors to MetLife as set forth within the Plan
and the MetLife Settlement Agreement.
BOARD OF DIRECTORS
12. The initial Board of Directors of Reorganized Parent Debtor and 50-OFF
Operating Company will consist of the following directors: Charles J Fuhrmann,
II, Sheryle J. Bolton, Cecil Schenker, William B. Snow and M. David White. The
director of the remaining Reorganized Debtors, excluding Texas Stores, shall be
Charles J. Fuhrmann II. All of the foregoing directors shall be, and hereby are,
deemed appointed as if unanimously approved by the Board of Directors and
stockholders. Such Boards of Directors are hereby authorized and directed to
take such actions as may be necessary to fully consummate the Plan. The initial
Board of Directors for Reorganized Parent Debtor shall call the first annual
meeting of stockholders no sooner than twelve months after the Effective Date,
unless an earlier meeting is determined to be called by such Board upon and with
the consent of a majority of its members. The subsequent tenure and manner of
selection of directors shall be as provided in the respective charters and
bylaws of the respective Debtors.
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 6
<PAGE>
SECURITIES LAWS CLAIMS/PENALTY CLAIMS
13. All Securities Laws Claims and Penalty Claims are hereby subordinated
pursuant to section 510 of the Bankruptcy Code, to all other Claims and Equity
Interests.
CONTRACTS AND LEASES
14. All executory contracts and leases listed in Exhibit "A" to the Plan are
hereby assumed by the Debtors pursuant to the terms of the Plan without the need
of further documentation. The assumption of such executory contracts and leases
is hereby approved, with cure amounts to accrue interest from the effective
date at the rate of 9% The rejection of all other contracts and leases of the
Debtors is hereby approved.
POST CONFIRMATION FINANCING - GECC
15. Pursuant to Bankruptcy Code sections 364(c) and (d), 1123, and 1142 and as
may otherwise be allowed, the Court hereby approves Senior Secured Exit
Financing in an amount of up to $15,000,000 (the "Exit Financing Facility").
General Electric Capital Corporation, as the Exit Financing Facility lender is
hereby granted a fully perfected first priority lien and security interest in
all existing and after acquired real and personal, tangible and intangible,
assets of the Debtors, which shall be subject to no liens, claims and
encumbrances senior in priority to the liens securing the Exit Financing
Facility, except the Senior Liens (which includes certain liens and security
interests of MetLife as granted pursuant to the Plan and the MetLife Settlement
Agreement, including the Assigned Landlord Lien Avoidance Actions on FF&E,
defined hereafter). The liens and security interests hereby granted shall have
priority over all other Liens, including any Statutory Landlords' Liens and Tax
Liens, except the Senior Liens (which include certain liens and security
interests of MetLife as granted pursuant to the Plan and the MetLife Settlement
Agreement, including the Assigned Landlord Lien Avoidance Actions on FF&E). The
security interest and lien granted to the Exit Financing Facility lender
hereunder are merely
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 7
<PAGE>
deemed in and upon those items and such types of collateral in which a security
interest may be created under Article 9 of the Uniform Commercial Code, and
shall not be subject to any lien or Security interest that is avoided and
preserved for the benefit of the Debtors' estate under section 551 of the
Bankruptcy Code, except with respect to the Assigned Landlord Lien.
AVOIDANCE ACTIONS ON FF&E
16. The Debtor and the Designated Officers are expressly authorized and
empowered to enter into, among other documents, a credit agreement with regard
to the Exit Financing Facility and the other attendant loan documents. The terms
and conditions of the Exit Financing Facility are approved, and the Debtors are
authorized to perform and do all acts that may be required in connection with
the Exit Financing Facility, including, without limitations, to pay the fees to
the Exit Financing Facility lender under the commitment letter.
17. This Order is entered pursuant to sections 363, 364, 1123, 1129 and 1142 of
the Bankruptcy Code. The Exit Financing Facility lender is entitled to all
protection afforded by sections 364(e) and 363(m) of the Bankruptcy Code. If any
or all of the provisions of this Order are hereafter reversed, modified, vacated
or stayed, such reversal, stay, modification or vacation shall not affect (a)
the validity of any obligation, indebtedness or liability incurred by the
Debtors to the Exit Financing Facility lender prior to the date of receipt of
written notice to the Exit Financing Facility lender of the effective date of
such reversal, stay, modification or vacation, or (b) the validity and
enforceability of any lien or priority authorized or created hereby or pursuant
to the Exit Financing Facility credit agreement or the other Exit Financing
Facility loan documents. Notwithstanding any such reversal, stay, modification
or vacation, any indebtedness, obligation or liability incurred by the
Debtors to the Exit Financing Facility lender prior to written notice to the
Exit Financing Facility lender of the effective date of such reversal, stay
modification or vacation shall be governed in all respects by the original
provisions of this Order,
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 8
<PAGE>
and the Exit Financing Facility lender shall be entitled to all the rights,
remedies, privileges and benefits granted herein and pursuant to the Exit
Financing Facility credit agreement and the other Exit Financing Facility loan
documents with respect to all such indebtedness, obligation or liability.
l8. In accordance with Bankruptcy Code section 1146(c), the issuance, transfer
or exchange of a security, or the making or delivery of an instrument of
transfer under the Plan, including but not limited to the filing of any
documents necessary to evidence perfection of the senior secured priority
position of GECC, may not be taxed under any law imposing a stamp tax or similar
tax such as recording fees for purposes of recording any lien instruments.
METLIFE PROVISIONS
19. Retention of Liens. In accordance with section 1l29(b)(2)(A), MetLife shall
retain its Liens on the FF&E at the Continuing Locations or any new location to
which such FF&E may be moved with or without MetLife's consent, which Liens
shall be Senior Liens; provided, however, MetLife shall not be given nor shall
it have a Senior Lien on after-acquired property which has been or is acquired
by the Reorganized 50-OFF Companies after the Effective Date for a new store
location so long as none of MetLife's collateral is moved to the new location;
except if MetLife's collateral is moved to the new location, MetLife shall have
a Senior Lien on after-acquired property and all FF&E at that location.
Provided, however, that MetLife will not have a Senior Lien on furniture,
fixtures and equipment purchased by or leased by one or more of the Debtors
post-confirmation, upon which a party timely and properly perfects a purchase
money security interest or which is leased to the Debtors pursuant to a true
lease; however, the Reorganized Debtors shall provide MetLife with written
notice of same at or about the time of entering such arrangements. The Debtors
shall execute and deliver any documents necessary to implement the terms of the
Plan and/or the MetLife Settlement Agreement, including executing
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 9
<PAGE>
any documents which may be necessary or helpful to cure any existing infirmities
in MetLife's pre-Petition Date documents.
20. Further, with regard to the FF&E originally located in the Non-Continuing
Locations and which may be in various stages of foreclosure, MetLife shall
retain its liens and be given a Senior Lien on such FF&E and the proceeds
thereof, which relates back to the date on which MetLife filed its financing
statements in each of the states against any of the Debtors in which the Non-
Continuing locations are located. The Debtors shall execute and deliver any
documents necessary to implement the terms of the MetLife Settlement Agreement
and the Plan, including executing any documents which may be necessary or
helpful to cure any existing infirmities in MetLife's pre-Petition Date
documents, which Lien shall be a Senior Lien.
21. Landlord Liens. In accordance with the MetLife Settlement Agreement, on the
Effective Date, the Debtors shall assign their rights to assert claims to avoid
liens pursuant to Bankruptcy Code section 545(3) and (4) on FF&E (the "Assigned
Landlord Lien Avoidance Actions on FF&E) and the Court hereby approves same.
MetLife shall have no obligation or duty to assert or pursue the Assigned
Landlord Lien Avoidance Actions on FF&E. In determining whether to bring any
such Assigned Landlord Lien Avoidance Actions on FF&E, MetLife may consider only
its own interest. The Debtors shall also assign all proceeds which may be
recovered from such Assigned Landlord Lien Avoidance Actions on FF&E pursuant to
Bankruptcy Code section 550 and all lien interests preserved for the benefit of
the estates pursuant to Bankruptcy Code section 551 in connection with such
Assigned Landlord Lien Avoidance Actions on FF&E.
DISCHARGE
22. The rights afforded in the Plan and the payments and distributions to be
made hereunder shall and do hereby discharge all existing debts and Claims of
any kind, nature or description whatsoever against the Debtors or any of their
assets or properties to the fullest extent permitted
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 10
<PAGE>
by section 1141 of the Bankruptcy Code; upon the Effective Date, all existing
Claims against the Debtors shall be, and shall be deemed to be, discharged;
and all holders of Claims shall be and hereby are precluded from asserting
against the Debtors, or any of their assets or properties, any other or further
Claim based upon any act or omission, transaction or other activity of any kind
or nature that occurred prior to the Effective Date, whether or not such holder
filed a proof of Claim. Confirmation of the Plan and the obligations imposed on
the Debtors therein shall be in complete satisfaction, discharge and release of
all Claims of any nature whatsoever against the Debtors or any of their assets
or properties; and, upon the Effective Date, the Debtors shall be deemed
discharged and released from any and all Claims, including but not limited to
demands and liabilities that arose before the Effective Date, and all debts of
the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not (a) a proof of Claim based upon such debt is filed or deemed
filed under section 501 of the Bankruptcy Code; (b) a Claim based upon such debt
is allowed under section 502 of the Bankruptcy Code; or (c) the holder of a
Claim based upon such debt has accepted the Plan. Except as expressly provided
in the Plan, this Order is a judicial determination of discharge of all
liabilities of the Debtors. As provided in section 524 of the Bankruptcy Code,
such discharge hereby voids any judgment against the Debtors at any time
obtained to the extent it relates to a Claim discharged and operates as an
injunction against the prosecution of any action against the Debtors) or the
property of any of them, to the extent it relates to a Claim discharged.
23. The discharge provided above shall not affect the rights of creditors or
the obligations of the Reorganized Debtors, as such rights and obligations are
created or granted pursuant to the Plan.
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 11
<PAGE>
INJUNCTIONS
24. Collections in General. All holders of Claims or Interests accruing prior
to June 3, 1997 are hereby enjoined from attempting to collect upon such Claims
or Interests, from the Debtors or property of the Debtors, in any manner other
than is provided for in the Plan.
25. Utilities. Any Utility, as such term is used in 11 U.S.C. (S) 366, is
hereby enjoined from seeking or obtaining a security deposit, altering its usual
building practices, or otherwise refusing or discontinuing services to the
Debtors for a period of 18 months after the Effective Date of the Plan;
provided, however, that a Utility will no longer be subject to such injunction
in the event that the Debtors fail to pay the post confirmation utility bills to
such Utility no later than 10 days after such bills are due.
26. Prepetition lawsuits. As of the Effective Date of the Plan, all entities
who are parties to any prepetition date lawsuits, litigation, administrative
actions, or other proceedings, judicial or administrative, in connection with
the assertion of a Claim shall be dismissed as to the Debtors. Such dismissal
shall be with prejudice to the assertion of such Claim in any manner other than
that prescribed in the Plan. All parties to any such action are hereby enjoined
from taking any action to impair or impede the immediate and unconditional
dismissal of such actions. Confirmation and consummation of the Plan shall have
no effect on insurance policies where the Debtors are or were the insured party.
27. Insurance. Each insurance company insuring the Debtors or losses of the
Debtors is hereby enjoined from denying, refusing, altering or denying coverage
on any basis regarding or related to the Debtors' bankruptcy, the Plan, or any
provision within the Plan, including, without limitation, the treatment or means
of liquidation set out within the Plan for Policy-insured Tort Claims or Self-
insured Tort Claims.
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 12
<PAGE>
28. Responsible Party Injunction. Each and every holder of a Priority Tax Claim
and holder of a Class 1 Claim is hereby enjoined from commencing or continuing
any action or proceeding against any responsible Person or officer or director
of any Debtor that otherwise would be liable to such holder for payment of a
Priority Tax Claim or Class 1 Claim so long as the Reorganized Debtors are not
in default of the payment terms of such Priority Tax or Class 1 Claim. All
amounts paid by the Reorganized Debtors; or any one of them, on account of any
Allowed Claim held by a governmental entity shall be applied first to any "trust
fund" amounts owing, then to any other balances due.
OBJECTIONS OVERRULED
29. All objections to confirmation are hereby overruled except as expressly
provided for herein.
DATED: June 3, 1997.
San Antonio, Texas
/s/ LEIF M. CLARK
-------------------------------------
LEIF M. CLARK
UNITED STATES BANKRUPTCY JUDGE
After entry, please transmit a
conformed Copy to;
Samuel M. Stricklin
Richard G. Grant
Sheinfeld, Maley & Kay, P.C.
1700 Pacific Avenue, Suite 4400
Dallas, Texas 75201-4618
Telephone: 214-953-0700
Facsimile: 2l4-953-1189
ORDER CONFIRMING PLAN OF REORGANIZATION
PAGE 13
<PAGE>
EXHIBIT 3.2
RESTATED
CERTIFICATE OF INCORPORATION
(DULY ADOPTED PURSUANT TO A CONFIRMATION ORDER OF
THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT
OF TEXAS, SAN ANTONIO DIVISION AND SECTIONS 242, 245
AND 303 OF THE DELAWARE GENERAL CORPORATION LAW)
OF
50-OFF STORES, INC.
Upon the filing of this Restated Certificate of Incorporation, the
Corporation's name will be changed from 50-OFF Stores, Inc. to LOT$OFF
Corporation. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on May 28, 1992. This Restated
Certificate of Incorporation amends and restates such original Certificate of
Incorporation. This Restated Certificate of Incorporation was duly adopted
pursuant to a Confirmation Order of the United States Bankruptcy Court for the
Western District of Texas, San Antonio Division, dated June 3, 1997 (confirming
the Corporation's Joint Plan of Reorganization, as amended, which Plan of
Reorganization became effective on June ___, 1997) and Sections 242, 245 and 303
of the Delaware General Corporation Law. The Corporation filed for bankruptcy on
October 9, 1996.
NOW, THEREFORE, the text of the present Certificate of Incorporation
is hereby amended and restated to read as follows:
RESTATED CERTIFICATE OF INCORPORATION OF LOT$OFF CORPORATION
ARTICLE ONE
The name of the Corporation is LOT$OFF Corporation.
ARTICLE TWO
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name
of its registered agent at such address is The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE FOUR
The aggregate number of shares of capital stock that the Corporation shall
have the authority to issue is 40,000,000 consisting of 25,000,000 shares of
common stock, $.01 par value (the "Common Stock"), and 15,000,000 shares of
preferred stock, $.01 par value (the "Preferred Stock").
Holders of shares of Common Stock shall be entitled to receive such
dividends as from time to time may be declared by the Board of Directors,
subject to the rights of holders of Preferred Stock. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment shall have been made to holders of Preferred Stock to
which they shall be entitled, the holders of Common Stock shall be entitled to
share ratably based upon the number of shares of Common Stock held by them in
all remaining assets of the Corporation available for distribution to its
stockholders. All shares of Common Stock shall be identical with each other in
every respect. The shares of Common Stock shall entitle the holders thereof to
one vote for each share upon all matters upon which stockholders have the right
to vote.
<PAGE>
Shares of Preferred Stock may be issued from time to time in one or more
series, each such series to have such distinctive designation or title as may be
fixed by the Board of Directors prior to the issuance of any shares thereof.
Each such series shall have such designations, preferences, limitations, and
relative rights, including voting rights, as shall be stated in the resolution
or resolutions providing for the issuance of such series of Preferred Stock, as
may be adopted from time to time by the Board of Directors prior to the issuance
of any shares thereof, in accordance with the laws of the State of Delaware.
The Board of Directors, in such resolution or resolutions, may increase or
decrease the number of shares within each such series; provided, however, the
Board of Directors may not decrease the number of shares within a series to less
than the number of shares within such series that are then issued.
ARTICLE FIVE
The number of directors constituting the Board of Directors, the term
and manner of election thereof, the provisions for removal thereof and the
manner of expanding or filling vacancies upon the Board of Directors shall be
fixed by, or in the manner provided in the Bylaws of the Corporation, as amended
from time to time.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation shall have the power to adopt, amend
or repeal the Bylaws of the Corporation.
ARTICLE SEVEN
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
ARTICLE EIGHT
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that this Article shall not eliminate or
limit the liability of a director: (i) for any breach of the director's duty of
loyalty to the Corporation or stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
If the Delaware General Corporation Law is amended after the date of filing
of this Restated Certificate of Incorporation to authorize corporate action
further limiting or eliminating the personal liability of a director, then the
liability of the directors of the Corporation shall be limited or eliminated to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended. Any repeal or modification of this Article by the stockholders of the
Corporation or otherwise shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE NINE
The Corporation shall indemnify each director, officer or employee of the
Corporation who may be indemnified, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law ("Section 145"), as it may be
amended from time to time, in each and every situation where the Corporation is
obligated to make such indemnification pursuant to Section 145. In addition,
the Corporation shall indemnify each of the Corporation's directors, officers
and employees in each and every situation where, under Section 145, the
Corporation is not obligated, but is permitted or empowered, to make such
indemnification. The Corporation may, in the sole discretion of the Board of
Directors, indemnify any other person who may be indemnified pursuant to
2
<PAGE>
Section 145 to the extent the Board of Directors deems advisable, as permitted
by such section. The Corporation shall promptly make or cause to be made any
determination which Section 145 requires.
ARTICLE TEN
The Corporation shall not be subject to the provisions of Section 203 of
the Delaware General Corporation Law with respect to restrictions upon business
combinations involving the Corporation.
This Restated Certificate of Incorporation has been signed this _____ day
of June, 1997.
----------------------------------------
CHARLES J. FUHRMANN II
President
3
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
LOT$OFF CORPORATION
a Delaware corporation
(the "Corporation")
<PAGE>
TABLE OF CONTENTS
Contents Page
- -------- ----
ARTICLE I. STOCKHOLDER MEETINGS.
1.1. Annual Meetings............................. 1
1.2. Special Meetings............................ 1
1.3. Notice of Meetings.......................... 1
1.4. Adjournments................................ 1
1.5. Quorum...................................... 1
1.6. Organization; Order of Business............. 1
1.7. Voting; Proxies............................. 2
1.8. Stockholder List............................ 2
1.9. Consent of Stockholders in Lieu of Meeting.. 2
1.10. Attendance via Communications Equipment..... 2
ARTICLE II. BOARD OF DIRECTORS...................... 3
2.1. Powers...................................... 3
2.2. Number; Term of Office; Qualifications...... 3
2.3. Removal..................................... 3
2.4. Resignations................................ 3
2.5. Vacancies................................... 3
2.6. Regular Meetings............................ 3
2.7 Special Meetings............................ 3
2.8. Telephonic Meetings Permitted............... 3
2.9. Quorum; Vote Required For Action............ 4
2.10. Action-Without Meeting...................... 4
2.11. Organization................................ 4
2.12. Compensation................................ 4
ARTICLE III. COMMITTEES OF DIRECTORS................. 4
3.1. Establishment............................... 4
3.2. Available Powers............................ 4
3.3. Unavailable Powers.......................... 5
3.4. Conduct of Business......................... 5
ARTICLE IV. OFFICERS................................ 5
4.1. Executive Officers; Term of Office.......... 5
4.2. Powers and Duties........................... 5
4.2.1. President.......................... 5
4.2.2. Vice presidents.................... 6
4.2.3. Secretary.......................... 6
4.2.4. Treasurer.......................... 6
4.2.5. Assistant Secretary................ 6
4.2.6. Assistant Treasurer................ 6
4.3. Resignations and Removal.................... 6
4.4. Vacancies................................... 6
4.5. Compensation................................ 6
<PAGE>
Contents Page
- -------- ----
ARTICLE V. STOCK AND DIVIDENDS....................... 7
5.1. Certificates................................ 7
5.2. Multiple Classes of Stock................... 7
5.3. Payment for Shares.......................... 7
5.4. Transfer of Stock........................... 7
5.5. Transfer and Registry Agents................ 7
5.6. Lost, Stolen or Destroyed Certificates...... 8
5.7. Registered Stockholders..................... 8
5.8. Dividends, Surplus, Reserves................ 8
5.9. Additional Regulations...................... 8
ARTICLE VI. MISCELLANEOUS............................. 8
6.1. Offices..................................... 8
6.2 Place of Meetings........................... 8
6.3. Fixing Record Dates......................... 8
6.4. Means of Giving Notice...................... 9
6.5. Waiver of Notice............................ 9
6.6. Contracts and Negotiable Instruments........ 9
6.7. Facsimile Signatures........................ 9
6.8. Fiscal Year................................. 9
6.9. Seal........................................ 9
6.10. Books and Records........................... 10
6.11. Reliance Upon Books and Records............. 10
6.12. Form of Records............................. 10
6.13. Inspection of Books and Records............. 10
6.14. Indemnification............................. 10
6.15. Insurance................................... 10
6.16. Surety Bonds................................ 10
6.17. Interested Directors, Officers
and Stockholders.......................... 10
6.17.1. Validity...................... 10
6.17.2. Disclosure, Approval.......... 11
6.17.3. Non-Exclusive................. 11
6.18. Voting of Securities of Other Corporations.. 11
6.19. Amendments.................................. 11
<PAGE>
AMENDED AND RESTATED
BYLAWS
ARTICLE I.
STOCKHOLDER MEETINGS.
1.1. Annual Meetings. An annual meeting of the stockholders for the
---------------
purpose of electing directors and for the transaction of such other business as
may be brought before the meeting shall be held at such time and place, within
or without the State of Delaware, as may be designated by the Board of
Directors.
1.2. Special Meetings. Special meetings of the stockholders may be
----------------
called for any purpose or purposes at any time by the President, the Board of
Directors, or a committee of the Board of Directors which has been duly
designated by the Board of Directors and whose powers and authority, as
expressly provided in a resolution of the Board of Directors, include the power
to call such meetings; but such special meetings may not be called by any other
person or persons.
1.3. Notice of Meetings. Whenever stockholders are required or permitted
------------------
to take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, the written notice of any meeting shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation. An affidavit of the Secretary of the Corporation that the
notice required by this Section has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
----- -----
1.4. Adjournments. Any meeting of stockholders, annual or special, may
------------
adjourn to another time or place. Notice of any such adjourned meeting need not
be given if the time and place thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting.
1.5. Quorum. At any meeting of stockholders, the presence, in person or
------
by proxy, of the holders of shares representing a majority of the entire number
of votes entitled to be cast at the meeting shall constitute a quorum for all
purposes, except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws. In the absence of a quorum, the chairman of the meeting or the
holders of shares of stock present in person or by proxy and entitled to vote at
such meeting (determined by a majority of the votes cast) may adjourn the
meeting to another time or place. The stockholders present at a duly convened
meeting may continue to transact business until adjournment, notwithstanding the
subsequent withdrawal of stockholders leaving less than a quorum.
1.6. Organization; Order of Business. Such person as the Board of
-------------------------------
Directors may have designated or, in the absence of such a person, the President
of the Corporation or, in his absence such person as may be chosen by the
holders of shares representing a majority of the votes which could be cast by
those present, in person or by proxy, and entitled to vote shall call to order
any meeting of the stockholders and act as chairman of the meeting. The
Secretary of the Corporation, if present, shall act as secretary of the meeting
but in his absence, the secretary of the meeting shall be such person as the
Chairman appoints. The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including regulation of
the manner of voting and the conduct of discussion; but the order of business to
be followed at any meeting at which a
1
<PAGE>
quorum is present may be changed by the holders of shares of stock present in
person or by proxy and entitled to vote at such meeting (determined by a
majority of the votes cast).
1.7. Voting; Proxies. Except as may be otherwise provided by the
---------------
Certificate of Incorporation or a resolution adopted by the Board of Directors
pursuant to Section 151(a) of the General Corporation Law of the State of
Delaware, each stockholder entitled to vote at any meeting of stockholders shall
be entitled to one vote for each share of stock held by him which has voting
power upon the matter in question. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for him
by proxy, but no such proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. Each proxy shall
be revocable unless expressly provided therein to be irrevocable and unless made
irrevocable by law. Each proxy shall be filed with the Secretary of the
Corporation prior to or at the time of the meeting. A stockholder may revoke
any proxy which is not irrevocable by attending the meeting and voting in person
or by filing with the Secretary of the Corporation an instrument in writing
revoking the proxy or another duly executed proxy bearing a later date. Voting
at meetings of stockholders need not be by written ballot and need not be
conducted by inspectors of election unless so determined by the chairman of such
meeting or the holders of shares representing a majority of the votes that could
be cast by those present, in person or by proxy, and entitled to vote. All
elections shall be determined by a plurality of the votes cast, and except as
otherwise required by law, the Certificate of Incorporation or these Bylaws, all
other matters shall be determined by a majority of the votes cast.
1.8. Stockholder List. A complete list of the stockholders entitled to
----------------
vote at any meeting of stockholders, arranged in alphabetical order and showing
the address of each such stockholder and the number of shares registered in his
name, shall be open to examination by any stockholder, for any purpose germane
to the meeting, during ordinary business hours for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the place of the meeting throughout the
entire meeting and shall be open to examination by any stockholder who is
present. The original stock ledger shall be the only evidence as to the
stockholders entitled to examine such stock ledger, the stockholder list or the
books required by this Corporation or to vote in person or by proxy at any
meeting of stockholders. Failure to comply with the requirements of this
section shall not affect the validity of any action taken at any meeting.
1.9. Consent of Stockholders in Lieu of Meeting. Unless otherwise
------------------------------------------
restricted by the Certificate of Incorporation, any action which must or may be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the actions so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
1.10. Attendance via Communications Equipment. Unless otherwise
---------------------------------------
restricted by law, the stockholders may hold any meeting by means of conference
telephone or other communications equipment by means of which all persons
participating in the meeting can effectively communicate with and hear each
other. Such participation shall constitute presence in person at the meeting.
2
<PAGE>
ARTICLE II.
BOARD OF DIRECTORS.
2.1. Powers. The business and affairs of the Corporation shall be
------
managed by the Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these Bylaws directed or required to be
exercised or done by the stockholders.
2.2. Number; Term of Office; Qualifications. The number of directors
--------------------------------------
constituting the Board of Directors shall be determined from time to time by
resolution of the Board of Directors; provided, however, that at all times the
number of directors shall be at least one (1) and no decrease shall have the
effect of shortening the term of any incumbent director. Except as otherwise
provided herein or required by law, each director shall be elected at each
annual meeting of stockholders and shall hold office until his successor has
been duly elected and qualified. Directors need not be stockholders or
residents of the State of Delaware.
2.3. Removal. Subject to Section 141(k) of the General Corporation Law
-------
of the State of Delaware, any director may be removed, either for or without
cause, at any meeting of stockholders by the holders of shares of stock
representing a majority of the entire number of votes entitled to be cast at an
election of directors, provided that notice of the intention to act upon such
matter shall have been given in the notice calling such meeting if such meeting
is a special meeting.
2.4. Resignations. Any director may resign at any time by written notice
------------
to the Corporation. Such resignation shall take effect at the time therein
specified, or if no such time is specified, upon receipt by the Corporation.
Unless otherwise specified, the acceptance of such resignation shall not be
necessary to make it effective.
2.5. Vacancies. Any vacancy in the Board of Directors caused by death,
---------
resignation, removal (whether or not for cause), disqualification, an increase
in the number of directors or any other cause may be filled by a majority vote
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the
expiration of the term of office of the director whom he has replaced and until
his successor is duly elected and qualified.
2.6. Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held at such places within or without the State of Delaware and at such times as
shall have been established by the Board of Directors and communicated to all
directors. A notice of each regular meeting shall not be required.
2.7. Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time or place within or without the State of Delaware and (i) may be
called by the President, and (ii) must be called by the President or Secretary
on the written request of two directors or the sole director, as the case may
be. Notice of each special meeting of the Board of Directors must be given to
each director at least twenty-four (24) hours before the meeting if such notice
is delivered personally or by means of telegram, telex or facsimile
transmission; two (2) days before the meeting if such notice is delivered by a
recognized express delivery service; and three (3) days before the meeting if
such notice is delivered through the United States mail. Any and all business
which may be transacted at a regular meeting of the Board of Directors may be
transacted at a special meeting. Neither notice of a special meeting nor waiver
of notice of a special meeting need state the purpose of or business to be
transacted at such meeting.
2.8. Telephonic Meetings Permitted. Members of the Board of Directors,
-----------------------------
or any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by
3
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means of which all persons participating in the meeting can hear and communicate
with each other. Such participation shall constitute presence in person at such
meeting.
2.9. Quorum; Vote Required For Action. A majority of the directors shall
--------------------------------
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by law, the Certificate of Incorporation
or these Bylaws. If a quorum shall not be present at any meeting, a majority of
the directors present may adjourn the meeting to another time or place, without
notice other than announcement at the meeting, until a quorum is present. At
any such adjourned meeting any business may be transacted which might have been
transacted at the meeting as originally notified.
2.10. Action Without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors, or any committee thereof,
may be taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
such committee.
2.11. Organization. The Board of Directors may, if it chooses, elect a
------------
Chairman of the Board and a Vice Chairman of the Board from its members.
Meetings of the Board of Directors shall be presided over by the Chairman of the
Board, if any, or in his absence the Vice Chairman of the Board, if any, or in
his absence by the President, or in their absence by a chairman chosen at the
meeting. The Secretary of the Corporation, if present, shall act as secretary
of the meeting; but in his absence, the secretary of the meeting shall be such
person as the chairman of the meeting appoints.
2.12. Compensation. The Board of Directors shall have authority to
------------
determine from time to time the amount of compensation, if any, which shall be
paid to its members for their services as directors and as members of committees
of the Board of Directors. The directors may be reimbursed their expenses, if
any, of attendance at such Board and committee meetings. No director is
precluded from serving the Corporation in any other capacity and receiving
compensation appropriate to the value of such services rendered.
ARTICLE III.
COMMITTEES OF DIRECTORS.
3.1. Establishment. The Board of Directors may, by resolution passed by
-------------
a majority of the whole Board of Directors, designate from time to time one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member.
3.2. Available Powers. Any such committee, to the extent provided in the
----------------
resolution of the Board of Directors establishing such committee and as limited
by law, the Certificate of Incorporation and these Bylaws, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal, if any, of the Corporation to be affixed to all papers which may require
it. Without limiting the generality of the foregoing, a committee of the Board
of Directors may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of the State of
4
<PAGE>
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series.
3.3. Unavailable Powers. No committee of the Board of Directors shall
------------------
have the power or authority to amend the Certificate of Incorporation (except in
connection with the issuance of shares of stock as provided in the previous
section); adopt an agreement of merger or consolidation; recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets; recommend to the stockholders a dissolution
of the Corporation or a revocation of such a dissolution; amend the Bylaws of
the Corporation; and, unless the resolution establishing such committee or the
Certificate of Incorporation expressly so provides, declare a dividend,
authorize the issuance of stock or adopt a certificate of ownership and merger.
3.4. Conduct of Business. Unless the Board of Directors provides
-------------------
otherwise, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules,
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
IV.
OFFICERS.
4.1. Executive Officers; Term of Office. The Board of Directors shall
----------------------------------
elect a President, Secretary and Treasurer. The Board of Directors may elect
one or more Vice Presidents (with such descriptive title, if any, as the Board
of Directors shall deem appropriate), one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other officers as the Board of Directors may
determine. Vice Presidents, Assistant Secretaries and Assistant Treasurers may
also be appointed by the President as provided in Section 4.2.1. Each officer
shall hold office until his successor is elected and qualified or until his
earlier death, resignation or removal in the manner provided in these Bylaws.
Any number of offices may be held by the same person. The Board of Directors
may require any officer to give bond or other security for the faithful
performance of his duties, in such amount and with such sureties as the Board of
Directors may determine.
4.2. Powers and Duties. The officers of the Corporation shall have such
-----------------
powers and duties in the management of the Corporation as may be provided by
applicable laws, the Certificate of Incorporation and these Bylaws, and as may
be prescribed by the Board of Directors and, to the extent not so provided, as
generally pertain and are incident to their respective offices, subject to the
control of the Board of Directors. Without limiting the generality of the
foregoing, the following officers shall have the respective duties and powers
enumerated below:
4.2.1. President. The President shall be the chief executive
---------
officer of the Corporation. He shall have the responsibility for the general
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive. The President may sign and execute, in the name of the
Corporation, stock certificates, deeds, mortgages, bonds, contracts or other
instruments authorized by the Board of Directors, except when signing and
execution thereof shall be expressly and exclusively delegated by the Board of
Directors or the Bylaws to some other person, or shall be required by law to be
signed otherwise. The President shall also have the power to appoint Vice
Presidents, Assistant Secretaries and Assistant Treasurers as he deems necessary
from time to time. The President may remove such appointed officers at any time
for or without cause. The President shall have general supervision and
direction of all other officers, employees and agents of the Corporation.
5
<PAGE>
4.2.2. Vice Presidents. The Vice President, or if there be more
---------------
than one, the Vice Presidents in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election or
appointment) shall, in the absence of the President or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
President and shall perform such other duties and have such other powers as the
President or the Board of Directors may from time to time prescribe. The Vice
President may sign certificates evidencing shares of stock of the Corporation.
4.2.3. Secretary. The Secretary shall issue all authorized
---------
notices for, and shall keep minutes of, all meetings of stockholders and the
Board of Directors. He may sign certificates evidencing shares of stock of the
Corporation. He shall have custody of the corporate seal, if any, and shall
have authority to affix the seal to any instrument requiring it, and when so
affixed, it may be attested by his signature or by the signature of an Assistant
Secretary. The Secretary shall keep and account for all books, documents,
papers and records of the Corporation except those for which some other officer
or agent is properly accountable.
4.2.4. Treasurer. The Treasurer shall be either the chief
---------
accounting or chief financial officer of the Corporation. He shall have the
custody of the corporate funds and securities, and shall disburse the funds of
the Corporation as are authorized. He shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation, and, when
requested by the President or Board of Directors, shall render from time to time
an accounting of all such transactions and of the financial condition of the
Corporation. The Treasurer may sign certificates evidencing shares of stock of
the Corporation.
4.2.5. Assistant Secretary. The Assistant Secretary, or if there
-------------------
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election or appointment) shall, in the absence of the Secretary or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Secretary and shall perform such other duties and have such other powers
as the President, Secretary or Board of Directors may from time to time
prescribe.
4.2.6. Assistant Treasurer. The Assistant Treasurer, or if there
-------------------
be more than one, the Assistant Treasurers in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election or appointment) shall, in the absence of the Treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Treasurer and shall perform such other duties and have such other powers
as the President, Treasurer or Board of Directors may from time to time
prescribe.
4.3. Resignations and Removal. Any officer may resign at any time by
------------------------
giving written notice to the Board of Directors or, if the President is not
resigning, to the President of the Corporation. Such resignation shall take
effect at the time therein specified, or if no time is specified, upon receipt.
Unless otherwise specified, the acceptance of such resignation shall not be
necessary to make it effective. All officers serve at the pleasure of the
Board of Directors; any elected or appointed officer may be removed at any time
for or without cause by the Board of Directors. Officers appointed by the
President may also be removed at any time for or without cause by the President.
4.4. Vacancies. Any vacancy in any office because of death, resignation,
---------
removal, disqualification or any other cause shall be filled for the unexpired
term in the manner prescribed in these Bylaws for the regular election or
appointment to such office.
4.5. Compensation. Salaries or other compensation of officers shall be
------------
set from time to time by the Board of Directors. No officer shall be prevented
from receiving a salary or other compensation by reason of the fact that he is
also a director.
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<PAGE>
ARTICLE V.
STOCK AND DIVIDENDS.
5.1. Certificates. The shares of capital stock of the Corporation shall
------------
be represented by certificates in such form as shall be approved by the Board of
Directors and consistent with the provisions of Section 158 of the General
Corporation Law of the State of Delaware. Unless and to the extent the Board of
Directors by resolution provides that any or all classes or series of stock
shall be uncertificated, every holder of the capital stock of the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or Vice Chairman of the Board of Directors, if any,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, of the Corporation,
certifying the number of shares owned by him in the Corporation. Any of or all
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
5.2. Multiple Classes of Stock. If the Corporation issues more than one
-------------------------
class of stock or more than one series of any class, a statement of the powers,
designations, preferences and rights of each class or series of stock and the
qualifications, limitations or restrictions thereof shall (unless the Board of
Directors provides that such class or series of stock shall be uncertificated)
be set forth in full or summarized on the face or back of the certificate which
the Corporation shall issue to represent such class or series of stock; provided
that, to the extent allowed by law, in lieu of such statement, the face or back
of such certificate may state that the Corporation will furnish a copy of such
statement without charge to each requesting stockholder.
5.3. Payment for Shares. The capital stock so issued shall be considered
------------------
to be fully paid and nonassessable if: (1) the entire amount of such
consideration has been received by the Corporation in the form of cash, services
rendered, personal property, real property, leases of real property, or a
combination thereof; or (2) not less than the amount of the consideration
determined to be capital by the Board of Directors has been received by the
Corporation in such form and the Corporation has received a binding obligation
of the purchaser of the capital stock, in the form of a promissory note fully
secured by collateral, to pay the balance of the purchase price. In the absence
of fraud in the transaction, the judgment of the Board of Directors as to the
value of consideration received shall be conclusive.
5.4. Transfer of Stock. Shares of stock shall be transferable only on
-----------------
the books of the Corporation by the holder thereof in person or by his duly
authorized legal representative. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate or certificates representing
shares, duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, and of the payment by the transferor of
all taxes applicable to the transfer of such shares, it shall be the duty of the
Corporation or the transfer agent of the Corporation to issue a new certificate
or certificates to the person entitled thereto, cancel the old certificate or
certificates and record the transaction upon the corporate books. Provided,
however, that the Corporation shall not be so obligated unless such transfer was
made in compliance with applicable federal and state securities laws and with
any restrictions on transfer contained in the Certificate of Incorporation,
these Bylaws or any agreement which has been filed with the Secretary of the
Corporation.
5.5. Transfer and Registry Agents. The Corporation may from time to time
----------------------------
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board of
Directors.
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<PAGE>
5.6. Lost. Stolen or Destroyed Certificates. The Corporation may issue a
--------------------------------------
new certificate of stock in place of any certificate previously issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any certificate or the issuance of such new certificate.
5.7. Registered Stockholders. The Corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, vote and be held liable for calls and
assessments and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any person other than such
registered owner, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
5.8. Dividends, Surplus, Reserves. Subject to the Certificate of
----------------------------
Incorporation and applicable law, the Board of Directors may, in its absolute
discretion:
5.8.1. Declare and pay dividends or make other distributions on
the outstanding shares of capital stock in such amounts and at such time or
times as the Board of Directors deems advisable.
5.8.2. Use and apply any of the surplus of the Corporation in
purchasing or acquiring any shares of capital stock of the Corporation, or
purchase warrants therefor, in accordance with law, or any of its bonds,
debentures, notes, script or other securities or evidences of indebtedness.
5.8.3. Set aside from time to time out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
thinks proper as a reserve or reserves to meet contingencies, for equalizing
dividends, for repairing or maintaining any property of the Corporation, or for
such other purpose as the Board of Directors shall determine to be in the best
interests of the Corporation; and the Board may modify or abolish any such
reserve in the manner in which it was created.
5.9. Additional Regulations. The issue, transfer, conversion and
----------------------
registration of shares of stock shall be governed by such other rules and
regulations as the Board of Directors may establish from time to time.
ARTICLE VI.
MISCELLANEOUS.
6.1. Offices. The Corporation may have, in addition to its registered
-------
office in the State of Delaware, offices and places of business at such places,
both within and without the State of Delaware, as the Board of Directors may
from time to time determine or as the business and affairs of the Corporation
may require.
6.2. Place of Meetings. All stockholders, directors and committee
-----------------
meetings shall be held at such place or places, within or without the State of
Delaware, as shall be designated from time to time by the Board of Directors or
such committee and stated in the notices thereof. If no such place is so
designated, such meetings shall be held at the principal business office of the
Corporation.
6.3. Fixing Record Dates. In order that the Corporation may determine
-------------------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, to express consent to corporate action in writing
without a meeting, to receive payment of any dividend or other distribution or
allotment of any rights, to exercise any rights in respect of any change,
conversion or exchange of stock or to effect any other lawful action, the Board
of Directors may fix, in advance, a record date, which shall not be more than
sixty (60)
8
<PAGE>
nor less than ten (10) days prior to any such action. In the absence of any
action by the Board of Directors, the record date shall be at the close of
business on the day preceding (i) the date on which a notice of meeting or
request for consent is given, or (ii) the date the Board of Directors adopts the
resolution declaring a dividend or other distribution or allotment or approving
any change, conversion or exchange, as the case may be, shall be the record
date. A record date validly fixed for any meeting of stockholders shall be valid
for any adjournment of said meeting and shall, at the Board of Directors
election, be valid for any reconventions and readjournments of the meeting made
no later than ninety (90) days after such record date.
6.4. Means of Giving Notice. Unless otherwise required by these Bylaws,
----------------------
whenever any notice is required to be given under law, the Certificate of
Incorporation or these Bylaws, such notice may be given in writing and delivered
personally, through the United States mail, by a recognized express delivery
service (such as Federal Express) or by means of telegram, telex or facsimile
transmission, addressed to such director or stockholder at his address or telex
or facsimile transmission number, as the case may be. All notices shall be
deemed to be given at the time when the same shall be deposited in the mail or
with an express delivery service or when transmitted, as the case may be,
addressed or directed to the proper destination as it appears on the records of
the Corporation, with postage and fees thereon prepaid. An affidavit of the
Secretary or Assistant Secretary or of the transfer agent of the Corporation
that the notice has been given shall, in the absence of fraud, be prima facie
----- -----
evidence of the facts stated therein.
6.5. Waiver of Notice. Whenever any notice is required to be given under
----------------
law, the Certificate of Incorporation or these Bylaws, a written waiver of such
notice, sighed before or after the date of the noticed meeting or action by the
person or persons entitled to said notice, shall be deemed equivalent to such
required notice. Neither the business nor the purpose of any meeting need be
specified in such a waiver unless otherwise required. All waivers shall be
filed with the corporate records. Attendance at a meeting shall constitute a
waiver of notice of such meeting, except where a person attends for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
6.6. Contracts and Negotiable Instruments. Except as otherwise provided
------------------------------------
by law or these Bylaws, any contract or other instrument relative to the
business of the Corporation may be executed and delivered in the name of the
Corporation and on its behalf by the Chairman of the Board or the President; and
the Board of Directors may authorize any other officer or agent of the
Corporation to enter into any contract or execute and deliver any contract in
the name and on behalf of the Corporation, and such authority may be general or
confined to specific instances as the Board of Directors may by resolution
determine. All bills, notes, checks or other instruments for the payment of
money shall be signed or countersigned by such officer, officers, agent or
agents and in such manner as are permitted by these Bylaws and/or as, from time
to time, may be prescribed by resolution (whether general or special) of the
Board of Directors. Unless authorized so to do by these Bylaws or by the Board
of Directors, no officer, employee or agent shall have any power or authority to
bind the Corporation by any contract or engagement, or to pledge its credit, or
to render it liable pecuniarily for any purpose or to any amount.
6.7. Facsimile Signatures. In addition to the provisions for use of
--------------------
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
6.8. Fiscal Year. The fiscal year of the Corporation shall be
-----------
determined, and may be changed, by resolution of the Board of Directors.
6.9. Seal. The seal of the Corporation, if any, shall be in such form as
----
shall from time to time be adopted by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or otherwise
reproduced.
9
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6.10. Books and Records. The Corporation shall keep correct and complete
-----------------
books and records of account and shall keep minutes of the proceedings of its
stockholders, Board of Directors and committees and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
6.11. Reliance Upon Books and Records. Each director, each member of any
-------------------------------
committee of the Board of Directors, and each officer of the Corporation shall,
in the performance of his duties, be fully protected in relying in good faith
upon the books of account or other records of the Corporation, including reports
made to the Corporation by any of its officers, by an independent certified
public accountant, or by an appraiser selected with reasonable care.
6.12. Form of Records. Any records maintained by the Corporation in the
---------------
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, micrographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect such records.
6.13. Inspection of Books and Records. Except as otherwise provided by
-------------------------------
law, the Certificate of Incorporation, or these Bylaws, the Board of Directors
shall determine from time to time whether, and, if allowed, when and under what
conditions and regulations, the accounts, books, minutes and other records of
the Corporation, or any of them, shall be open to inspection by any persons.
6.14. Indemnification. The Corporation shall have the power and
---------------
obligation to indemnify any person who was or is a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation, or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, to the extent set forth in the
Certificate of Incorporation.
6.15. Insurance. The Corporation may maintain insurance, at its expense,
---------
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
6.16. Surety Bonds. Such officers and agents of the Corporation as the
------------
President or the Board of Directors may direct from time to time shall be bonded
for the faithful performance of their duties and for the restoration to the
Corporation, in case of their death, resignation, retirement, disqualification
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in their possession or under their control belonging to the
Corporation, in such amounts and by such surety companies as the President or
the Board of Directors may determine. The premiums on such bonds shall be paid
by the Corporation, and the bonds so furnished shall be in the custody of the
Secretary.
6.17. Interested Directors, Officers and Stockholders.
-----------------------------------------------
6.17.1. Validity. Any contract or other transaction between the
--------
Corporation and any of its directors, officers or stockholders (or any
corporation or firm in which any of them are directly or indirectly interested)
shall be valid for all purposes notwithstanding the presence of such director,
officer or stockholder at the meeting authorizing such contract or transaction,
or his participation or vote in such meeting or authorization.
10
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6.17.2. Disclosure, Approval. The foregoing shall apply, however,
--------------------
only if the material facts of the relationship or the interest of each such
director, officer or stockholder is known or disclosed to:
(1) the Board of Directors and it nevertheless authorizes or
ratifies the contract or transaction by a majority of the directors
present, each such interested director to be counted in determining
whether a quorum is present, but not in calculating the majority necessary
to carry the vote; or
(2) the stockholders and they nevertheless authorize or ratify
the contract or transaction (determined by a majority of the votes cast).
6.17.3. Non-Exclusive. This provision shall not be construed to
-------------
invalidate any contract or transaction which would be valid in the absence of
this provision.
6.18. Voting of Securities of Other Corporations. The Chairman of the
------------------------------------------
Board, the President, any Vice President or the Secretary may from time to time
appoint an attorney or attorneys or an agent or agents for the Corporation to
exercise, in the name and on behalf of the Corporation, the powers and rights
which the Corporation may have as the holder of stock or other securities in any
other corporation to vote or consent in respect of such stock or other
securities, and the Chairman of the Board, the President, any Vice President or
the Secretary may instruct the person or persons so appointed as to the manner
of exercising such powers and rights; and the Chairman of the Board, the
President, any Vice President or the Secretary may execute or cause to be
executed, in the name and on behalf of the Corporation and under its corporate
seal or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in order that the Corporation may exercise such powers and
rights.
6.19. Amendments. These Bylaws may be altered, amended, repealed or
----------
replaced by the stockholders or the Board of Directors. The fact that the Board
of Directors has such power shall not operate to divest or limit the
stockholders of the power to alter, amend, repeal or replace the Bylaws.
11
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CERTIFICATE
-----------
I, James G. Scogin, the undersigned Secretary of LOT$OFF Corporation, do
hereby certify that the foregoing is a true and correct copy of the Amended and
Restated Bylaws of said Corporation.
WITNESS my execution on behalf of the Corporation this the ____ day of
________________, 1997.
------------------------------------------
James G. Scogin, Secretary
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EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS
in respect of
SERIES A PREFERRED STOCK
of
LOT$OFF CORPORATION
------------------------------
Pursuant to Sections 151 and 303 of the General Corporation Law
of the State of Delaware and a Confirmation Order of the
United States Bankruptcy Court for the Western District of Texas,
San Antonio Division
------------------------------
The undersigned, being President of LOT$OFF Corporation, formerly 50-
Off Stores, Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, hereby
certifies that, pursuant to a Confirmation Order of the United States
Bankruptcy Court for the Western District of Texas, San Antonio Division,
dated June 3, 1997, relating to the Debtors' Joint Plan of Reorganization,
as Amended, dated March 27, 1997 (the "Confirmation Order") and Sections
151 and 303 of the General Corporation Law of the State of Delaware, the
Corporation is establishing a series of Preferred Stock as described in the
resolution below. The Joint Plan of Reorganization became effective on June
___, 1997. The Corporation filed for bankruptcy on October 9, 1996.
Capitalized terms used herein which are not defined herein shall have the
meanings ascribed to them in the Debtors' Joint Plan of Reorganization, as
Amended (the "Plan"), which is incorporated herein for all relevant
purposes.
RESOLVED, that, pursuant to the Confirmation Order and Sections 151
and 303 of the General Corporation Law of the State of Delaware, the
Corporation hereby establishes a series of Preferred Stock, par value $.01
per share, of the Corporation and fixes the number of shares of such series
and the powers, designations, preferences and relative, participating,
optional or other rights of such series, and the qualifications,
limitations or restrictions thereof as follows:
The series of Preferred Stock, par value $.01 per share, of the
Corporation shall be, and hereby is, designated "Series A Preferred Stock"
(the "Series A Preferred Stock"), and the number of shares constituting
such series shall be ten million (10,000,000). The relative rights and
preferences of the Series A Preferred Stock shall be as follows:
SECTION A. DIVIDENDS AND DISTRIBUTIONS
(1) Amount; Due Dates. The holders of the Series A Preferred Stock,
in preference to Common Stock, Series B Preferred Stock (originally issued
to holders of allowed general unsecured claims pursuant to the Plan and the
Confirmation Order) and
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other junior stock, shall be entitled to receive, when and as declared by
the Board of Directors, out of funds legally available therefor and subject
to the further limitations set out herein, cash dividends at the per annum
rate of 5.50% of the Series A Liquidation Preference (as defined in Section
C hereof), all such dividends due quarterly in arrears as of the last day
of each March, June, September and December of each year, the first
dividend being due on the first such date to occur which is at least 90
days after the Effective Date (as defined in the Plan but generally meaning
the effective date of the Plan). Each date on which a dividend is due is
hereinafter called a "Dividend Date," and each quarterly period ending with
a Dividend Date is hereinafter referred to as a "Dividend Period." If
declared by the Board of Directors (with dividends, if declared, to be
declared on a Dividend Date), dividends shall be paid fifteen calendar days
after the Dividend Date, provided, however, that if such date on which a
dividend is to be paid is a Saturday, Sunday or legal holiday, such
dividend shall be paid on the next following business day to the holders of
record on the Dividend Date. Dividends on the Series A Preferred Stock
shall be paid only out of funds of the Corporation legally available
therefor.
(2) Dividends or Redemption Regarding Other Classes or Series. As
to each Dividend Period, dividends shall be payable on account of the
Series A Preferred Stock before any sum or sums shall be paid or set aside
for the purchase or redemption of, or payment of dividends on, Common Stock
or any class or series of stock ranking junior to the Series A Preferred
Stock as to dividends or distribution of assets, except to the extent of
the Series B Preferred Stock Lien (as defined in the Plan but described
generally as a Lien , granted to holders of Series B Preferred Stock
pursuant to the Plan and the Confirmation Order, securing the Corporation's
obligation to pay the Series B Liquidation Preference in the event of any
liquidation, dissolution or winding up) and the Class 7 Lien (as defined in
the Plan but described generally as a Lien, granted to holders of allowed
general unsecured claims pursuant to the Plan and Confirmation Order,
securing the Corporation's obligation to issue Series A Preferred Stock and
to distribute Excess Net Lawsuits' Proceeds to such holder when required
pursuant to the terms and conditions of the Plan) upon the Net Lawsuits'
Proceeds (as defined in the Plan but described generally as proceeds
derived from certain pending lawsuits brought by the Corporation net of
certain contingency and other fees and expenses).
(3) Dividends Cumulative. Dividends upon the Series A Preferred
Stock shall be cumulative. Accumulations of dividends will not bear
interest.
SECTION B. REDEMPTION OF SERIES A PREFERRED STOCK.
Subject to restrictions imposed by Delaware law, the Corporation may,
at its option, redeem the shares of the Series A Preferred Stock in whole
or in part, at any time, in exchange for the payment of the Series A
Liquidation Preference (as defined in Section C hereof); provided, however,
at the time of providing the notice of redemption the Common Stock must
have closed at a price of at least $3.00 per share for at least five
consecutive days. Redemption shall be accomplished using the procedures
set forth below:
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(1) Notice Procedure. The Corporation shall give notice to each
holder of record (the "Holder") by certified mail, return receipt
requested, at least 20 days in advance of the date set forth in such notice
as the date on which such redemption is to be effected. The shares shall
be redeemed upon payment by the Corporation to Holders of the Series A
Liquidation Preference, together with the amount of any dividends accrued
and unpaid thereon, as of the redemption date. The Corporation shall be
required to redeem pro rata, based on the number of shares of Series A
Preferred Stock held by each Holder in relation to the number of shares of
Series A Preferred Stock issued and outstanding as of the record date for
redemption, at any time it elects to redeem the Series A Preferred Stock in
part. Any redemptions hereunder shall be subject to restrictions imposed
by Delaware law regarding the circumstances under which such a redemption
may be effected.
(2) Payment Procedures. Any notice mailed by the Corporation shall
contain the information required by Delaware law and shall be mailed to
each Holder at its address, certified mail, return receipt requested, as
the same shall appear on the books of the Corporation. If fewer than all
the outstanding shares of Series A Preferred Stock are to be redeemed, the
redemption shall be made pro rata as set forth in Section B.(1) hereof.
From and after the date fixed in any notice from the Corporation as the
date of redemption, and after all amounts necessary to effect such
redemption have been set aside for such purpose, all rights of each Holder
thereof as a stockholder of the Corporation with respect to the shares
redeemed, except the right to receive the redemption price and any accrued
and unpaid dividends, shall cease and terminate.
(3) Delivery of Certificates. Each Holder shall be entitled to
receive the redemption price plus any accrued and unpaid dividends upon
actual delivery to the Corporation or to such other entity as may be
designated by the notice referred to in Subsection (1) of this Section B of
certificates for the number of shares to be redeemed, duly endorsed in
blank or accompanied by proper instruments of assignment and transfer duly
endorsed in blank. Series A Preferred Stock redeemed pursuant to the
provisions of this Section B may be held in the treasury of the Corporation
or retired and canceled and given the status of authorized and unissued
Series A Preferred Stock.
(4) Other Redemption Matters. The Series A Preferred Shares are not
mandatorily redeemable by the Corporation and shall not have the benefit of
any sinking fund for the redemption or purchase of such shares. The Series
A Preferred Shares are not redeemable at the option of the Holder.
SECTION C. PRIORITY OF THE SERIES A PREFERRED STOCK IN THE EVENT OF
DISSOLUTION.
The Series A Preferred Stock shall have preference over the Series B
Preferred Stock, the Common Stock and any other class or series of stock
ranking junior to the Series A Preferred Stock as to the distribution of
assets in the event of any liquidation, dissolution or winding up of the
Corporation and, in that event, subject to the provisions of applicable
law, each Holder of Series A Preferred Stock shall be entitled to receive,
out of the assets of the Corporation available for distribution to its
stockholders, $5.00 per share of Series A Preferred Stock and any accrued
and unpaid dividends (the "Series A Liquidation Preference"). Upon any
liquidation, dissolution or winding up of the Corporation, after payment
shall have been made in full on any other securities which are
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senior as to distribution of assets to Series A Preferred Stock, and after
payment shall have been made in full on the Series A Preferred Stock, as
provided in this Section C, but not prior thereto, the holders of all the
remaining capital stock including Series B Preferred Stock, Common Stock or
any other series or class of stock ranking junior to the Series A Preferred
Stock as to distribution of assets shall, subject to the respective terms
and provisions of the Restated Certificate of Incorporation of the
Corporation, if any, applying thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the Holders of Series A
Preferred Stock shall not be entitled to share therein. The merger or
consolidation of the Corporation with another corporation and/or the sale,
lease, pledge or mortgage of all or substantially all of the assets of the
Corporation shall not be deemed to be a liquidation, dissolution or winding
up of the Corporation for the purpose of this Section C. Notwithstanding
anything herein to the contrary, the Series A Liquidation Preference shall
in all things be junior and subordinate to both the Series B Preferred
Stock Lien and the Class 7 Lien as to the Net Lawsuits' Proceeds.
SECTION D. RIGHTS OF CONVERSION INTO SHARES OF COMMON STOCK OF THE
CORPORATION.
(1) General. Subject to the terms hereof, any share or shares of
Series A Preferred Stock may be converted, provided that such shares have
not been redeemed, on or after the date of issue at the option of each
Holder of Series A Preferred Stock, into fully paid and nonassessable
shares of Common Stock. Each share of Series A Preferred Stock shall be
convertible into Common Stock by surrender to the Corporation of the
certificate representing such shares of Series A Preferred Stock to be
converted by the Holder and by giving written notice to the Corporation of
the Holder's election to convert.
The Corporation shall, as soon as practicable after receipt of such
written notice and the proper surrender to the Corporation of the
certificate or certificates, duly endorsed, representing shares of Series A
Preferred Stock to be converted in accordance with the above provisions,
issue and deliver for the benefit of the Holder at the office of the
Corporation's duly appointed transfer agent (the "Transfer Agent") to the
Holder for whose account such shares of Series A Preferred Stock were so
surrendered or to such Holder's nominee or nominees, certificates for the
number of shares of Common Stock to which the Holder shall be entitled.
The certificates of Common Stock of the Corporation issued upon conversion
shall bear such legends, if any, as may be required by state or federal
laws. Such conversion shall be deemed to have been effective immediately
prior to the close of business on the date on which the Corporation shall
have received both such written notice and the properly surrendered
certificates for shares of Series A Preferred Stock to be converted (the
"Conversion Date"), and at such time the rights of the Holder with respect
to the Series A Preferred Stock so surrendered for conversion shall cease
and such Holder or the person or persons entitled to receive the shares of
Common Stock issuable upon the conversion of such shares of Series A
Preferred Stock shall be deemed to be, and shall be treated for all
purposes as, the record Holder or Holders of such Common Stock on the
Conversion Date.
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(2) Conversion Rate. Each share of Series A Preferred Stock may be
converted, subject to the terms and provisions of this Section D, into two
shares of Common Stock, which is a price equal to one share of Common Stock
for each $2.50 of Series A Liquidation Preference or, in case an adjustment
of such rate has taken place pursuant to the provisions hereof, then at the
Series A Conversion Rate as last adjusted (such rate or adjusted rate shall
be expressed as the number of shares of Common Stock to be acquired upon
conversion of one share of Series A Preferred Stock and shall be referred
to herein as the "Series A Conversion Rate").
(3) Dividends. Shares of Series A Preferred Stock, if any, shall be
entitled to all dividends on account of Series A Preferred Stock declared
prior to the Conversion Date at the rate set forth herein and remaining
unpaid.
(4) Cancellation. Series A Preferred Stock converted into Common
Stock shall be retired and canceled by the Corporation and given the status
of authorized and unissued Series A Preferred Stock.
(5) Reservation of Shares. The Corporation shall, at all times
during which shares of Series A Preferred Stock may be converted into
Common Stock, reserve and keep available, out of any Common Stock held as
treasury stock or out of its authorized and unissued Common Stock, or both,
solely for the purpose of delivery upon conversion of the shares of Series
A Preferred Stock as herein provided, such number of shares of Common Stock
as shall then be sufficient to effect the conversion of all shares of
Series A Preferred Stock from time to time outstanding and shall take such
action as may from time to time be necessary to ensure that such shares of
Common Stock will, when issued upon conversion of Series A Preferred Stock,
be fully paid and nonassessable.
(6) Adjustment of Conversion Rate; Notice Rights. The Series A
Conversion Rate provided in Subsection (2) of this Section D, in respect of
Series A Preferred Stock, shall be subject to adjustment from time to time
and the Holders thereof shall have certain rights as follows:
(a) While any shares of Series A Preferred Stock shall be
outstanding, in case the Corporation shall (i) subdivide the
outstanding shares of Common Stock into a greater number of shares of
Common Stock; (ii) combine the outstanding shares of Common Stock into
a smaller number of shares of Common Stock; (iii) issue, by
reclassification of its shares of Common Stock, any shares of the
Corporation; (iv) make a distribution on its Common Stock in shares of
its capital stock other than Common Stock, or (v) pay a dividend or
make a distribution on its Common Stock in shares of its Common Stock,
the Series A Conversion Rate in effect immediately prior thereto shall
be adjusted so that each Holder shall be entitled to receive upon
conversion the number of shares of capital stock which it would have
owned or been entitled to receive after the happening of any of the
events described above, had such shares of Series A Preferred Stock
been converted immediately prior to the happening of such event, such
adjustment to become effective immediately after the opening of
business on the day following the day upon which such event becomes
effective.
(b) The Corporation shall give to Holders of Series A Preferred
Stock twenty (20) days advance notice (in advance of the record date,
effective date or date of closing of stock transfer books) of any
merger or consolidation with any other corporation, where the
Corporation is not the surviving corporation.
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(c) The Corporation will not, by amendment of its Restated
Certificate of Incorporation or through any reorganization, transfer
of assets, merger, dissolution, issuance or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Corporation, but at all times in good faith will assist in the
carrying out of all the provisions of this Section D and in the taking
of all such action as may be necessary or appropriate in order to
protect the conversion rights of each Holder against impairment.
(d) No adjustment in the Series A Conversion Rate shall be
required, unless such adjustment would require an increase or decrease
of at least ten percent (10%) in the Series A Conversion Rate,
provided that all adjustments which do not meet this minimum
requirement shall be cumulated and the adjustment will be made when
the cumulated total is sufficient to require an adjustment. All
calculations made pursuant to this subsection (d) of this Section
D.(6) shall be made to the nearest one hundredth (l/lOOth) of a share
of Common Stock.
(7) Statement to Transfer Agent. Whenever the Series A Conversion
Rate shall be adjusted pursuant to the provisions of this Section D, the
Corporation shall forthwith maintain at its office and, if applicable, file
with the Transfer Agent for shares of Series A Preferred Stock and for
shares of Common Stock, a statement signed by the President or a Vice
President of the Corporation and by its Treasurer or an Assistant
Treasurer, stating the adjusted Series A Conversion Rate and setting forth
in reasonable detail the method of calculation and the facts requiring such
adjustment, and stating the facts on which the calculation is based. Each
adjustment shall remain in effect until a subsequent adjustment hereunder
is required.
SECTION E. FRACTIONAL SHARES.
No fractional shares of Common Stock or scrip representing fractional
shares of Common Stock shall be issued upon any redemption or conversion of
shares of Series A Preferred Stock but, in lieu thereof, there shall be
paid an amount in cash equal to the same fraction of the current market
price of a whole share of Common Stock on the day preceding the day of
redemption or conversion.
SECTION F. VOTING RIGHTS OF SERIES A PREFERRED STOCK.
Holders of Series A Preferred Stock shall have no voting rights except
as provided below and as required by the Delaware General Corporation Law.
Holders of Series A Preferred Stock shall be entitled to vote alongside the
Common Stock on all matters to be voted upon by holders of Common Stock
from and after the date that the Corporation fails to pay any three
consecutive dividends upon the Series A Preferred Stock; provided, however,
that, for purposes of voting, each share of Series A Preferred Stock shall
be entitled to a number of votes equal to the then applicable Series A
Conversion Rate. Such activation of voting rights shall be the only
penalty or remedy for any failure of the Corporation to pay any dividend
upon the Series A Preferred Stock.
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IN TESTIMONY WHEREOF, LOT$OFF Corporation has caused this Statement to
be signed by its President and its Secretary this day of
----
June, 1997.
LOT$OFF CORPORATION
By:
-------------------------------------
Charles J. Fuhrmann II
President
ATTEST:
-----------------------------------
James G. Scogin
Secretary
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EXHIBIT 4.2
CERTIFICATE OF DESIGNATIONS
in respect of
SERIES B PREFERRED STOCK
of
LOT$OFF CORPORATION
______________________________
Pursuant to Sections 151 and 303 of the General Corporation Law
of the State of Delaware and a Confirmation Order
of the United States Bankruptcy Court for the Western District of Texas
San Antonio Division
______________________________
The undersigned, being President of LOT$OFF Corporation, formerly 50-
Off Stores, Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, hereby
certifies that, pursuant to a Confirmation Order of the United States
Bankruptcy Court for the Western District of Texas, San Antonio Division,
dated June 3, 1997, relating to the Debtors' Joint Plan of Reorganization,
as Amended, dated March 27, 1997 (the "Confirmation Order") and Sections
151 and 303 of the General Corporation Law of the State of Delaware, the
Corporation is establishing a series of Preferred Stock as described in the
resolution below. The Joint Plan of Reorganization became effective on June
___, 1997. The Corporation filed for bankruptcy on October 9, 1996.
Capitalized terms used herein which are not defined herein shall have the
meanings ascribed to them in the Debtors' Joint Plan of Reorganization, as
Amended (the "Plan"), which is incorporated herein for all relevant
purposes.
RESOLVED, that, pursuant to the Confirmation Order and Sections 151
and 303 of the General Corporation Law of the State of Delaware, the
Corporation hereby establishes a series of Preferred Stock, par value $.01
per share, of the Corporation and fixes the number of shares of such series
and the powers, designations, preferences and relative, participating,
optional or other rights of such series, and the qualifications,
limitations or restrictions thereof as follows:
The series of Preferred Stock, par value $.01 per share, of the
Corporation shall be, and hereby is, designated "Series B Preferred Stock"
(the "Series B Preferred Stock"), and the number of shares constituting
such series shall be one million (1,000,000). The relative rights and
preferences of the Series B Preferred Stock shall be as follows:
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Section A. Dividends and Distributions
Holders of Series B Preferred Stock shall participate in any cash
dividends paid to holders of Common Stock as though each share of Series B
Preferred Stock is equal to the then applicable Series B Conversion Rate.
Section B. Redemption of Series B Preferred Stock.
Subject to restrictions imposed by Delaware law, the Corporation may,
at its option, redeem the shares of the Series B Preferred Stock in whole
or in part, at any time after the Disposition of the Lawsuits (as defined
in the Plan but described generally as the rendering of Final Orders with
regard to certain pending lawsuits brought by the Corporation), in exchange
for the payment of the Series B Liquidation Preference (as defined in
Section C hereof). Redemption shall be accomplished using the procedures
set forth below:
(1) Notice Procedure. The Corporation shall give notice to each
holder of record (the "Holder") by certified mail, return receipt
requested, at least 20 days in advance of the date set forth in such notice
as the date on which such redemption is to be effected. The shares shall
be redeemed upon payment by the Corporation to Holders of the Series B
Liquidation Preference, together with the amount of any dividends accrued
and unpaid thereon, as of the redemption date. The Corporation shall be
required to redeem pro rata, based on the number of shares of Series B
Preferred Stock held by each Holder in relation to the number of shares of
Series B Preferred Stock issued and outstanding as of the record date for
redemption, at any time it elects to redeem the Series B Preferred Stock in
part. Any redemptions hereunder shall be subject to restrictions imposed
by Delaware law regarding the circumstances under which such a redemption
may be effected.
(2) Payment Procedures. Any notice mailed by the Corporation shall
contain the information required by Delaware law and shall be mailed to
each Holder at its address, certified mail, return receipt requested, as
the same shall appear on the books of the Corporation. If fewer than all
the outstanding shares of Series B Preferred Stock are to be redeemed, the
redemption shall be made pro rata as set forth in Section B.(1) hereof.
From and after the date fixed in any notice from the Corporation as the
date of redemption, and after all amounts necessary to effect such
redemption have been set aside for such purpose, all rights of each Holder
thereof as a stockholder of the Corporation with respect to the shares
redeemed, except the right to receive the redemption price and any accrued
and unpaid dividends, shall cease and terminate.
(3) Delivery of Certificates. Each Holder shall be entitled to
receive the redemption price plus any accrued and unpaid dividends upon
actual delivery to the Corporation or to such other entity as may be
designated by the notice referred to in Subsection (1) of this Section B of
certificates for the number of shares to be redeemed, duly endorsed in
blank or accompanied by proper instruments of assignment and transfer duly
endorsed in blank. Series B Preferred Stock redeemed pursuant to the
provisions of this Section B may be held in the treasury of the Corporation
or retired and canceled and given the status of authorized and unissued
Series B Preferred Stock.
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<PAGE>
(4) Other Redemption Matters. The Series B Preferred Shares are not
mandatorily redeemable by the Corporation and shall not have the benefit of
any sinking fund for the redemption or purchase of such shares. The Series
B Preferred Shares are not redeemable at the option of the Holder.
Section C. Priority of the Series B Preferred Stock in the Event of
Dissolution.
(1) Lien on Net Lawsuits' Proceeds. The Holders of the Series B
Preferred Stock shall have a Lien on the Net Lawsuits' Proceeds (as defined
in the Plan but described generally as proceeds derived from certain
pending lawsuits brought by the Corporation net of certain contingency and
other fees and expenses) subject to the terms and conditions of the Plan
(the "Series B Preferred Stock Lien"). Such Series B Preferred Stock Lien
shall be a full assignment and security interest in and upon the Net
Lawsuits' Proceeds securing the Corporation's obligation to pay the Series
B Liquidation Preference in the event of any liquidation, dissolution or
winding up, which Lien shall be junior in right and priority to: (A) any
and all contingent fee interests held by counsel prosecuting such Lawsuits
on behalf of the Debtors and the Reorganized Debtors, including such
contingent fee interest as secures the reimbursement of all expenses owing
to such counsel; (B) the reimbursement of the Debtors and the Reorganized
Debtors of all expenses directly relating to the prosecution of the
Lawsuits paid by the Debtors or the Reorganized Debtors after the Petition
Date (October 9, 1996), including after confirmation or after any
conversion of the Chapter 11 Cases to Chapter 7; (C) the Class 7 Agent's
(with Class 7 generally referring to allowed general unsecured claims) fees
and expenses and the fees and expenses of any Professional Persons hired by
the Class 7 Agent; (D) the Chapter 11 Professional Fee Lawsuit Carve-Out;
and (E) the Liens and security interest of the Senior Secured Exit
Financing lender or any successor thereto. The Series B Preferred Stock
Lien shall be senior to the Class 7 Lien (as defined in the Plan but
described generally as a Lien granted to holders of allowed general
unsecured claims pursuant to the Plan and Confirmation Order, securing the
Corporation's obligation to issue Series A Preferred Stock and to
distribute Excess Net Lawsuits' Proceeds to such holder when required
pursuant to the terms and conditions of the Plan). Such Series B Preferred
Stock Lien shall be enforceable up to the full amount of the Series B
Liquidation Preference in the event of any liquidation, dissolution or
winding up of the Corporation. Such Series B Preferred Stock Lien shall be
deemed satisfied and released as to any portion of the Net Lawsuits'
Proceeds for which Series A Conversion Rights (or fractions thereof) are
issued, including Series A Conversion Rights (or fractions thereof) which
are issued and held in the Contested Claims Escrow.
(2) Other Preference. The Series B Preferred Stock shall have
preference over the Common Stock and any other class or series of stock
ranking junior to the Series B Preferred Stock as to the distribution of
assets in the event of any liquidation, dissolution or winding up of the
Corporation and, in that event, subject to the provisions of applicable
law, each Holder of Series B Preferred Stock shall be entitled to receive,
out of the assets of the Corporation available for distribution to its
stockholders, $5.00 per share of Series B Preferred Stock and any accrued
but unpaid dividends (the "Series B Liquidation Preference"). Upon any
liquidation, dissolution or winding up of the Corporation, after payment
shall have been made in full on any other securities which are
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<PAGE>
senior as to distribution of assets to Series B Preferred Stock, and after
payment shall have been made in full on the Series B Preferred Stock, as
provided in this Section C, but not prior thereto, the holders of all the
remaining capital stock including Common Stock or any other series or class
of stock ranking junior to the Series B Preferred Stock as to distribution
of assets shall, subject to the respective terms and provisions of the
Restated Certificate of Incorporation of the Corporation, if any, applying
thereto, be entitled to receive any and all assets remaining to be paid or
distributed, and the Holders of Series B Preferred Stock shall not be
entitled to share therein. The merger or consolidation of the Corporation
with another corporation and/or the sale, lease, pledge or mortgage of all
or substantially all of the assets of the Corporation shall not be deemed
to be a liquidation, dissolution or winding up of the Corporation for the
purpose of this Section C.
Section D. Rights of Conversion into Shares of Common Stock of the
Corporation
(1) General. Subject to the terms hereof, any share or shares of
Series B Preferred Stock may be converted, provided that such shares have
not been redeemed, on or after the date of issue at the option of each
Holder of Series B Preferred Stock, into fully paid and nonassessable
shares of Common Stock. Each share of Series B Preferred Stock shall be
convertible into Common Stock by surrender to the corporation of the
certificate representing such shares of Series B Preferred Stock to be
converted by the Holder and by giving written notice to the Corporation of
the Holder's election to convert.
The Corporation shall, as soon as practicable after receipt of such
written notice and the proper surrender to the Corporation of the
certificate or certificates, duly endorsed, representing shares of Series B
Preferred Stock to be converted in accordance with the above provisions,
issue and deliver for the benefit of the Holder at the office of the
Corporation's duly appointed transfer agent (the "Transfer Agent") to the
Holder for whose account such shares of Series B Preferred Stock were so
surrendered or to such Holder's nominee or nominees, certificates for the
number of shares of Common Stock to which the Holder shall be entitled.
The certificates of Common Stock of the Corporation issued upon conversion
shall bear such legends, if any, as may be required by state or federal
laws. Such conversion shall be deemed to have been effective immediately
prior to the close of business on the date on which the Corporation shall
have received both such written notice and the properly surrendered
certificates for shares of Series B Preferred Stock to be converted (the
"Conversion Date"), and at such time the rights of the Holder with respect
to the Series B Preferred Stock so surrendered for conversion shall cease
and such Holder or the person or persons entitled to receive the shares of
Common Stock issuable upon the conversion of such shares of Series B
Preferred Stock shall be deemed to be, and shall be treated for all
purposes as, the record Holder or Holders of such Common Stock on the
Conversion Date.
(2) Conversion Rate. Each share of Series B Preferred Stock may be
converted, subject to the terms and provisions of this Section D, into two
shares of Common Stock, which is a price equal to one share of Common Stock
for each $2.50 of Series B Liquidation Preference or, in case an adjustment
of such rate has taken place pursuant to the provisions hereof, then at the
Series B Conversion Rate as last adjusted (such rate or adjusted rate shall
be expressed as the number of shares of Common Stock
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<PAGE>
to be acquired upon conversion of one share of Series B Preferred Stock and
shall be referred to herein as the "Series B Conversion Rate").
(3) Dividends. Shares of Series B Preferred Stock, if any, shall be
entitled to all dividends on account of Series B Preferred Stock (as set
forth in Section A hereof) declared and due prior to the Conversion Date
and remaining unpaid.
(4) Cancellation. Series B Preferred Stock converted into Common
Stock shall be retired and canceled by the Corporation and given the status
of authorized and unissued Series B Preferred Stock.
(5) Reservation of Shares. The Corporation shall, at all times during
which shares of Series B Preferred Stock may be converted into Common
Stock, reserve and keep available, out of any Common Stock held as treasury
stock or out of its authorized and unissued Common Stock, or both, solely
for the purpose of delivery upon conversion of the shares of Series B
Preferred Stock as herein provided, such number of shares of Common Stock
as shall then be sufficient to effect the conversion of all shares of
Series B Preferred Stock from time to time outstanding, and shall take such
action as may from time to time be necessary to ensure that such shares of
Common Stock will, when issued upon conversion of Series B Preferred Stock,
be fully paid and nonassessable.
(6) Adjustment of Conversion Rate; Notice Rights. The Series B
Conversion Rate provided in Subsection (2) of this Section D, in respect of
Series B Preferred Stock, shall be subject to adjustment from time to time
and the Holders thereof shall have certain rights as follows:
(a) While any shares of Series B Preferred Stock shall be
outstanding, in case the Corporation shall (i) subdivide the
outstanding shares of Common Stock into a greater number of shares of
Common Stock; (ii) combine the outstanding shares of Common Stock into
a smaller number of shares of Common Stock; (iii) issue, by
reclassification of its shares of Common Stock, any shares of the
Corporation; (iv) make a distribution on its Common Stock in shares of
its capital stock other than Common Stock; or (v) pay a dividend or
make a distribution on its Common Stock in shares of its Common Stock,
the Series B Conversion Rate in effect immediately prior thereto shall
be adjusted so that each Holder shall be entitled to receive upon
conversion the number of shares of capital stock which it would have
owned or been entitled to receive after the happening of any of the
events described above, had such shares of Series B Preferred Stock
been converted immediately prior to the happening of such event, such
adjustment to become effective immediately after the opening of
business on the day following the day upon which such event becomes
effective.
(b) The Corporation shall give to Holders of Series B Preferred
Stock twenty (20) days advance notice (in advance of the record date,
effective date or date of closing of stock transfer books) of any
merger or consolidation with any other corporation, where the
Corporation is not the surviving corporation.
(c) The Corporation will not, by amendment of its Restated
Certificate of Incorporation or through any reorganization, transfer
of assets, merger, dissolution, issuance or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
5
<PAGE>
performance of any of the terms to be observed or performed hereunder
by the Corporation, but at all times in good faith will assist in the
carrying out of all the provisions of this Section D and in the taking
of all such action as may be necessary or appropriate in order to
protect the conversion rights of each Holder against impairment.
(d) No adjustment in the Series B Conversion Rate shall be
required, unless such adjustment would require an increase or decrease
of at least ten percent (10%) in the Series B Conversion Rate,
provided that all adjustments which do not meet this minimum
requirement shall be cumulated and the adjustment will be made when
the cumulated total is sufficient to require an adjustment. All
calculations made pursuant to this subsection (d) of this Section
D.(6) shall be made to the nearest one hundredth (l/lOOth) of a share
of Common Stock.
(7) Statement to Transfer Agent. Whenever the Series B Conversion
Rate shall be adjusted pursuant to the provisions of this Section D, the
Corporation shall forthwith maintain at its office and, if applicable, file
with the Transfer Agent for shares of Series B Preferred Stock and for
shares of Common Stock, a statement signed by the President or a Vice
President of the Corporation and by its Treasurer or an Assistant
Treasurer, stating the adjusted Series B Conversion Rate and setting forth
in reasonable detail the method of calculation and the facts requiring such
adjustment, and stating the facts on which the calculation is based. Each
adjustment shall remain in effect until a subsequent adjustment hereunder
is required.
Section E. Rights of Conversion into Shares of Series A Preferred Stock of
the Corporation.
(8) General. Subject to the terms hereof, any share or shares of
Series B Preferred Stock may be converted, provided such shares have not
been redeemed, on or after such time as such share or shares of Series B
Preferred Stock is or are deemed fully convertible, into fully paid and
nonassessable shares of Series A Preferred Stock. A share of Series B
Preferred Stock shall be deemed fully convertible at such time as a full
Series A Conversion Right with respect to such share of Series B Preferred
Stock has been deemed distributed by the Corporation. One Series A
Conversion Right shall be issued for each $5.00 of Net Lawsuits' Proceeds
received by the Corporation. Series A Conversion Rights shall be deemed
distributed as and when sufficient Net Lawsuits' Proceeds are received by
the Corporation to warrant an effective distribution, in the Corporation's
discretion; provided, however, an effective distribution shall be made upon
receipt of $250,000 in Net Lawsuits' Proceeds for which no previous Series
A Conversion Rights have been issued. Each distribution shall be made on a
pro rata basis to Holders on the record date for the distribution. Upon
the effective distribution of 798,210 Series A Conversion Rights, no
further Series A Conversion Rights shall be issued. Once deemed fully
convertible in accordance with the foregoing and subject to the terms and
provisions of the Plan, each share of Series B Preferred Stock shall be
convertible into Series A Preferred Stock by surrender to the Corporation
of the certificate representing such shares of Series B Preferred Stock to
be converted by the Holder and by giving written notice to the Corporation
of the Holder's election to convert.
6
<PAGE>
The Corporation shall, as soon as practicable after receipt of such
written notice and the proper surrender to the Corporation of the
certificate or certificates, duly endorsed, representing shares of Series B
Preferred Stock to be converted in accordance with the above provisions,
issue and deliver for the benefit of the Holder at the office of the
Corporation's duly appointed transfer agent (the "Transfer Agent") to the
Holder for whose account such shares of Series B Preferred Stock were so
surrendered or to such Holder's nominee or nominees, certificates for the
number of shares of Series A Preferred Stock to which the Holder shall be
entitled. The certificates of Series A Preferred Stock of the Corporation
issued upon conversion shall bear such legends, if any, as may be required
by state or federal laws. Such conversion shall be deemed to have been
effective immediately prior to the close of business on the date on which
the Corporation shall have received both such written notice and the
properly surrendered certificates for shares of Series B Preferred Stock to
be converted (the "Conversion Date"), and at such time the rights of the
Holder with respect to the Series B Preferred Stock so surrendered for
conversion shall cease and such Holder or the person or persons entitled to
receive the shares of Series A Preferred Stock issuable upon the conversion
of such shares of Series B Preferred Stock shall be deemed to be, and shall
be treated for all purposes as, the record Holder or Holders of such Series
A Preferred Stock on the Conversion Date.
(2) Conversion Rate. Each share of Series B Preferred Stock may be
converted, subject to the terms and provisions of this Section E and the
Plan, into one share of Series A Preferred Stock.
(3) Dividends. Shares of Series B Preferred Stock, if any, shall be
entitled to all dividends on account of Series B Preferred Stock (as set
forth in Section A hereof) declared and due prior to the Conversion Date
and remaining unpaid.
(4) Cancellation. Series B Preferred Stock converted into Series A
Preferred Stock shall be retired and canceled by the Corporation and given
the status of authorized and unissued Series B Preferred Stock.
(5) Reservation of Shares. The Corporation shall, at all times during
which shares of Series B Preferred Stock may be converted into Series A
Preferred Stock, reserve and keep available, out of any Series A Preferred
Stock held as treasury stock or out of its authorized and unissued Series A
Preferred Stock, or both, solely for the purpose of delivery upon
conversion of the shares of Series B Preferred Stock as herein provided,
such number of shares of Series A Preferred Stock as shall then be
sufficient to effect the conversion of all shares of Series B Preferred
Stock from time to time outstanding, and shall take such action as may from
time to time be necessary to ensure that such shares of Series A Preferred
Stock will, when issued upon conversion of Series B Preferred Stock, be
fully paid and nonassessable.
Section F. Fractional Shares.
No fractional shares of Common Stock or scrip representing fractional
shares of Common Stock shall be issued upon any redemption or conversion
of shares of Series B Preferred Stock but, in lieu thereof, there shall be
paid an amount in cash equal to the same fraction of the current market
price of a whole share of Common Stock on the day preceding the day of
redemption or conversion.
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<PAGE>
Section G. Voting Rights of Series B Preferred Stock.
Holders of Series B Preferred Stock shall have no voting rights except
as provided below and as required under the Delaware General Corporation
Law. Holders of Series B Preferred Stock shall be entitled to vote
alongside the Common Stock on all matters to be voted upon by holders of
Common Stock from and after the Disposition of the Lawsuits; provided,
however, that for purposes of voting, each share of Series B Preferred
Stock shall be entitled to a number of votes equal to the then applicable
Series B Conversion Rate.
IN TESTIMONY WHEREOF, LOT$OFF Corporation has caused this Statement
to be signed by its President and its Secretary this ____ day of
June, 1997.
LOT$OFF CORPORATION
By:
----------------------------------------
Charles J. Fuhrmann II
President
ATTEST:
-----------------------------
James G. Scogin
Secretary
8
<PAGE>
EXHIBIT 4.3
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of the 25th day
of March, 1997, by and between 50-OFF STORES, INC., a Texas corporation
("ISSUER") and BANK ONE, TEXAS, NA ("ESCROW AGENT").
RECITALS:
A. Issuer proposes to offer for sale to certain holders of Rights an
aggregate of 122,009 units (the "UNITS") at a price of $100 per Unit, payable at
the time of subscribing for a Unit. Each Unit represents 20 shares of Series A
Preferred Stock and 20 shares of Common Stock, both in Reorganized 50-OFF, as
such stock may be issued pursuant to Issuer's Plan of Reorganization, as
Amended, dated March 27, 1997 (the "PLAN," which term shall include any
amendments or modifications thereto), filed in its bankruptcy case, pending in
the United States Bankruptcy Court for the Western District of Texas, San
Antonio Division (the "BANKRUPTCY COURT"), administered under case number 96-
54430-C (the "BANKRUPTCY CASE"). If successful, the payment of $3,050,000 for
at least 30,500 Units will be paid into the escrow created by this Agreement.
B. Issuer intends to allow holders of Rights issued pursuant to the Plan
to purchase the Units, all as described more fully in the Plan.
C. Issuer desires to establish an escrow account in which funds received
from subscribers would be deposited pending completion of the Escrow Period as
defined below). BANK ONE, TEXAS, NA agrees to serve as Escrow Agent in
accordance with the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Issuer hereby appoints BANK ONE, TEXAS, NA as Escrow Agent and Escrow
Agent shall establish an escrow account (the "ESCROW ACCOUNT") on its books
styled "50-OFF Stores, Inc., Rights Offering Escrow Account." Commencing upon
the execution of this Agreement, Escrow Agent shall act as Escrow Agent and
hereby agrees to receive and disburse the proceeds from the offering of the
Units in accordance with the terms herewith. Issuer agrees to notify the Escrow
Agent promptly of the closing of the offering and sale of the Units.
2. Issuer shall cause all checks received from subscribers for Units to be
promptly deposited into the Escrow Account. Subscribers shall forward checks to
Escrow Agent made payable to the order of the 50-OFF Stores, Inc., Rights
Offering Escrow Account. Subject to the provisions of paragraph 11 hereof, any
checks that are received by Escrow Agent that are not made payable to the 50-OFF
Stores, Inc., Rights Offering Escrow Account shall be returned to
<PAGE>
the subscriber which forwarded such check. Escrow Agent shall furnish to the
Issuer at the time of each deposit of the above-mentioned funds a list
containing the name of each subscriber, the subscriber's address, the number of
Units purchased, and the amount of the check being delivered to the Escrow
Agent. Prior to the receipt of the Minimum (as described below) and prior to
the Bankruptcy Court entering an order confirming the Plan, the Issuer is aware
and understands that it is not entitled to any proceeds from subscriptions
deposited into the Escrow Account and no amounts deposited in the Escrow Account
during the Escrow Period shall become the property of the Issuer or any other
entity, or be subject to the debts of the Issuer or any other entity.
3. The Escrow Period shall commence on the date hereof and shall terminate
ten (10) business days following the earlier to occur of the following dates:
(a) The later of both of the following two events to occur: (i) the date
upon which Escrow Agent confirms upon written request of the Issuer
that it has received into the Escrow Account and collected gross
subscription proceeds from the sale of 30,500 Units aggregating
$3,050,000 in deposited funds (the "Minimum"), and (ii) the Bankruptcy
Court entering an order confirming the Plan; or
(b) The "Cessation Date," which for the purposes of this Agreement shall be
June 30, 1997, unless (i) Issuer elects to continue to offer the Units
for sale until some later date, as permitted by the Bankruptcy Court,
and (ii) Issuer notifies Escrow Agent in writing no later than June 20,
1997, of such extension specifying the extended Cessation Date; or
(c) The date upon which a determination is made by the Issuer to terminate
the Offering prior to the sale of the Minimum, as communicated to
Escrow Agent in writing.
Notwithstanding anything to the contrary contained herein, the
Cessation Date is intended to signify the date of the cessation of the
Offering and not the termination of the Escrow Period of this Agreement;
and upon the occurrence of any of the events described in (a), (b) or (c)
above, the Escrow Period shall continue for such ten (10) business-day
period solely for the limited purposes of collecting subscribers' checks
that have been deposited prior to such event and disbursing funds from the
Escrow Account as provided herein. Escrow Agent will not accept deposits of
the subscribers' checks after notice that any of the events described in
subparagraphs (a), (b) and (c) has occurred.
4. The Escrow Agent will deposit the subscribers' checks for collection
and credit the proceeds to the Escrow Account to be held by it under the terms
of this Agreement. Notwithstanding anything to the contrary contained herein,
Escrow Agent is under no duty or responsibility to enforce collection of any
checks delivered to Escrow Agent hereunder. The Escrow Agent hereby is
authorized to forward each check for collection and deposit the proceeds
Page 2
<PAGE>
in the Escrow Account. As an alternative, the Escrow Agent may telephone the
bank on which the check is drawn to confirm that the check has been paid.
Additionally, to insure that such funds have cleared normal banking channels for
collection, Escrow Agent is authorized to hold funds to be released after the
time period that national banks may hold funds deposited into their accounts to
verify funds. Issuer shall immediately reimburse Escrow Agent any monies paid
to it if thereafter the subscriber's check is returned unpaid. Any item
returned unpaid to the Escrow Agent on its first presentation for payment may be
returned to the subscriber and need not be again presented by the Escrow Agent
for collection. Issuer agrees to reimburse Escrow Agent for the cost incurred
with any returned check. For purposes of this Agreement, the term "collected
funds" or the term "collected" when referring to the proceeds of subscribers'
checks shall mean all funds received by Escrow Agent that have cleared normal
banking channels and are in the form of cash.
5. If prior to the Cessation Date, subscriber's checks in an amount of at
least the Minimum have been deposited in the Escrow Account, upon request from
Issuer, Escrow Agent will confirm the amounts collected by it from subscriber's
checks. If such amount is at least equal to the Minimum and if the Bankruptcy
Court has entered an order confirming the Plan, the Issuer may send Escrow Agent
a written notice providing a list of all accepted subscribers, specifying the
total amount of their subscription to be remitted to Issuer, and containing a
request to terminate the Escrow Period pursuant to paragraph 3(a) and remit such
amount, less any fees or other amounts then owing from Issuer to Escrow Agent
hereunder, to the Issuer as promptly as possible, but in no event later than ten
(10) business days after such termination, by issuing its bank check payable to
the Issuer or by depositing such amount directly into the account of Issuer
maintained with BANK ONE, TEXAS, NA, as designated in writing by Issuer to
Escrow Agent. The Escrow Period shall not terminate upon receipt by Escrow Agent
of such notice, but shall continue for such (10) business-day period solely for
the limited purposes of collecting subscribers' checks that have been deposited
prior to Escrow Agent's receipt of such notice and disbursing funds from the
Escrow Account as provided herein. Escrow Agent will not accept deposits of
subscriber's checks after receipt of such notice.
If, on the Cessation Date, the Minimum Amount has not been deposited with
the Escrow Agent and collected, or if Issuer notifies the Escrow Agent in
writing that Issuer elects to terminate the Offering as provided in paragraph
3(c) above, the Escrow Agent shall then issue and mail its bank checks to the
subscribers in the amount of the subscribers' respective checks, without
deduction, penalty or expense to the subscriber, and shall, for this purpose, be
authorized to rely upon the names and addresses of subscribers furnished it as
contemplated above. No subscriber shall be paid interest with respect to such
deposited funds. The purchase money returned to each subscriber shall be free
and clear of any and all claims of the Issuer and any of its creditors. For
each subscription for which the Escrow Agent has not collected funds but has
submitted the subscriber's check for collection, the Escrow Agent shall promptly
issue a check to such subscriber in the amount of the collected funds from such
subscriber's check after the Escrow Agent has collected such funds. If Escrow
Agent has not yet submitted such subscriber's
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<PAGE>
check for collection, the Escrow Agent shall promptly remit the subscriber's
check directly to such subscriber.
At such time as Escrow Agent shall have made the payments and remittances
provided in the Agreement, the Escrow Agent shall be completely discharged and
released of any and all further liabilities and responsibilities hereunder.
6. Notwithstanding the provisions of paragraph 12, as consideration for
its agreement to act as Escrow Agent as herein described, Issuer agrees to pay
the Escrow Agent an administration fee of $3,750 upon execution of this
Agreement, plus the fees described on the attached fee schedule. Further,
Issuer agrees to pay all disbursements and advances incurred or made by the
Escrow Agent in performance of its duties hereunder, including reasonable fees,
expenses and disbursements of its counsel, all in accordance with the attached
fee schedule or the other provisions of this Agreement. No such fees or
reimbursements shall be paid out of or chargeable to the funds on deposit in the
Escrow Account until such time as the Minimum has been collected and the
Bankruptcy Court enters an order confirming the Plan. Any dispute regarding the
reasonableness of the Escrow Agent's fees and expenses will be determined by the
Bankruptcy Court; the Escrow Agent consents to the Bankruptcy Court exercising
jurisdiction over any such dispute.
If the Issuer rejects any subscription for which Escrow Agent has already
collected funds, the Escrow Agent shall promptly issue a refund check to the
rejected subscriber in the amount of the subscriber's check. If the Issuer
rejects any subscription for which the Escrow Agent has not yet collected funds
but has submitted the subscriber's check for collection, the Escrow Agent shall
promptly issue a check in the amount of the collected funds from the
subscriber's check to the rejected subscriber after the Escrow Agent has cleared
such funds. If Escrow Agent has not yet submitted a rejected subscriber's check
for collection, the Escrow Agent shall promptly remit the subscriber's check
directly to the subscriber.
7. This Agreement shall automatically terminate upon the earlier of (i)
twenty (20) days after the Cessation Date or (ii) twenty (20) days after the
date upon which the Escrow Agent has delivered the final portion of Escrow
Account funds pursuant to the terms of this Agreement.
8. Escrow Agent reserves the right to resign hereunder, upon ten (10) days
prior written notice to Issuer. In the event of said resignation, and prior to
the effective date thereof, Issuer, by written notice to Escrow Agent, shall
designate a successor escrow agent to assume the responsibilities of Escrow
Agent under this Agreement, and Escrow Agent immediately shall deliver any
undisbursed Escrow Account funds to such successor escrow agent. If Issuer
shall fail to designate such a successor escrow agent within such time period,
the Escrow Agent may deliver any undisbursed funds into the registry of the
Bankruptcy Court.
9. The parties hereto agree that the following provisions shall control
with respect to the rights, duties, liabilities, privileges and immunities of
the Escrow Agent:
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<PAGE>
a. Subject to the provisions of paragraph 12 hereof, the Escrow Agent
shall have no responsibility except for the safekeeping and delivery of
the amounts deposited in the Escrow Account in accordance with this
Agreement. The Escrow Agent shall not be liable for any act done or
omitted to be done under this Agreement or in connection with the
amounts deposited in the Escrow Account, except as a result of the
Escrow Agent's gross negligence or willful misconduct. The Escrow Agent
is not a party to nor is it bound by, nor need it give consideration to
the terms of provisions of, even though it may have knowledge of (i)
any agreement or undertaking by, between or among the Issuer and any
other party, except this Agreement, (ii) any agreement or undertaking
that may be evidenced by this Agreement, (iii) any other agreements
that may now or in the future be deposited with the Escrow Agent in
connection with this Agreement. The Escrow Agent is not a party to, is
not responsible for, and makes no representation with respect to the
offer, sale or distribution of the Units including, but not limited to,
matters set forth in any offering documents prepared and distributed in
connection with the offer, sale and distribution of the Units. Except
with regard for actions for gross negligence or in willful misconduct
of the Escrow Agent's duties, the Issuer covenants that it will not
commence any action against the Escrow Agent at law, in equity, or
otherwise as a result of any action taken or thing done by the Escrow
Agent pursuant to this Agreement, or for any disbursement made as
authorized herein upon failure of the Issuer to give the notice within
the times herein prescribed. The Escrow Agent has no duty to determine
or inquire into any happening or occurrence of or of any performance or
failure of performance of the Issuer or of any other party with respect
to agreements or arrangements with any other party. If any question,
dispute or disagreement arises among the parties hereto and/or any
other party with respect to the funds deposited in the Escrow Account
or the proper interpretation of this Agreement, the Escrow Agent shall
not be required to act and shall not be held liable for refusal to act
until the question or dispute is settled, and the Escrow Agent has the
absolute right at its discretion to do either or both of the following:
(i) withhold and/or stop all further performance under this Agreement
until the Escrow Agent is satisfied, by receipt of a written
document in form and substance satisfactory to the Escrow Agent
and executed and binding upon all interested parties hereto (who
may include the subscribers), that the question, dispute, or
disagreement had been resolved; or
(ii) file a suit in interpleader and obtain by final judgment,
rendered by the Bankruptcy Court, an order binding all parties
interested in the matter. In any such suit, or should the Escrow
Agent become involved in litigation in any manner whatsoever on
account of this Agreement or the Escrow
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<PAGE>
Account, the Escrow Agent shall be entitled to recover from the
Issuer its attorneys' fees and costs.
The Escrow Agent shall never be required to post a bond in connection
with any services hereunder. The Escrow Agent may consult with counsel
of its own choice and shall have full and complete authorization and
protection for and shall not be liable for any action taken or suffered
by it hereunder in good faith and believed by it to be authorized
hereby, nor for action taken or omitted by it in accordance with the
advice of such counsel (who shall not be counsel for the Issuer).
b. The Escrow Agent shall be obligated only for the performance of such
duties are specifically set forth in this Agreement and may rely and
shall be protected in acting or refraining from acting upon any written
notice, instruction or request furnished to it hereunder and believed
by it to be genuine and to have been signed or presented by the proper
party or parties and to take statements made therein as authorized and
correct without any affirmative duty of investigation.
c. The Issuer hereby agrees to indemnify the Escrow Agent for, and to hold
it harmless against, any loss, liability, or expense (including,
without limitation, all legal expenses incurred in enforcing any of the
provisions of this Agreement or otherwise in connection herewith)
incurred without gross negligence or willful misconduct on the part of
the Escrow Agent, arising out of or in connection with its entering
into this Agreement and carrying out its duties hereunder, including
the costs and expenses of defending itself against any claim of
liability hereunder or arising out of or in connection with the sale of
the Units. This covenant shall survive the termination of this
Agreement.
d. The Escrow Agent shall not be bound by any modification, amendment,
termination, cancellation, rescission or supersession of this Agreement
unless the same shall be in writing and signed by all of the other
parties hereto and, if its duties as Escrow Agent hereunder are
affected thereby, unless it shall have given prior written consent
thereto.
10. Notices required to be sent hereunder shall be delivered by hand, sent
by an express mail service or sent via United States mail, postage prepaid,
certified, return receipt requested, to the following address:
If to Issuer: Charles J. Fuhrmann II
50-OFF Stores, Inc.
8750 Tesoro Drive
San Antonio, Texas 78217
(210)804-4980
Page 6
<PAGE>
with a copy to: Samuel M. Stricklin, Esq.
Sheinfeld, Maley & Kay, P.C.
1700 Pacific Avenue, Suite 4400
Dallas, Texas 75201-4618
(214) 953-0700
If to Escrow Agent: BANK ONE, TEXAS, NA
Corporate Trust Department
500 Throckmorton Street, Suite 704
Fort Worth, Texas 76102
(817) 884-4415 / (817) 884-4417
No notice to the Escrow Agent or Issuer shall be deemed to be delivered
until actually received by the Escrow Agent. From time to time any party hereto
may designate an address other than the address listed above by giving the other
parties hereto not less than five (5) days advance notice of such change in
address in accordance with the provisions hereof.
11. Notwithstanding any provision herein to the contrary, prior to the
Cessation Date the Escrow Agent shall not refuse any subscription or return any
check (even if such check has been presented for payment and dishonored or even
if such check is payable to the wrong payee) without the advance written
approval of the Issuer. This provision is intended to allow the Issuer the
opportunity to waive or seek to cure any defects in any subscription.
12. Pending distribution in accordance with the provisions of paragraph 5
hereof, all collected and available funds held by the Escrow Agent pursuant to
this Escrow Agreement shall be invested at the written direction of the Issuer
in direct obligations of the United States of America issued in the name of
"Bank One, Texas, NA, as Escrow Agent for the benefit of the Subscribers
described in that Escrow Agreement dated March 25, 1997 by and between Escrow
Agent and 50-OFF Stores, Inc." for the payment of which the full faith and
credit of the United States of America is pledged (such obligations shall be
limited to Treasury Bills, Treasury Bonds and Treasury Notes). Issuer
acknowledges that the Escrow Agent will not be required to invest funds below
the authorized minimum denominations; provided, however, that in all events,
funds held by the Escrow Agent which are not so invested shall not exceed
$100,000 in the aggregate at any time. The method of investment of such funds
shall be subject to Bankruptcy Court approval, which the Issuer will seek on an
expedited basis. Interest earned on funds held in escrow, if any, shall be
credited against the fees of the Escrow Agent. Additional interest, if any,
shall be remitted to the Issuer to assist in covering the costs of the Rights
Offering.
13. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Texas and the laws of the United States applicable to
transactions in Texas.
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<PAGE>
EXECUTED on the date first written above.
50-OFF STORES, INC. (Issuer) BANK ONE, TEXAS, NA (Escrow Agent)
By: /s/ CHARLES J. FUHRMANN II By: /s/ Bank One, Texas, N.A.
--------------------------------- ---------------------------------
Charles J. Fuhrmann II Name:
President -------------------------------
Title:
------------------------------
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EXHIBIT 4.4
50-OFF STORES, INC.
SUBSCRIPTION EXERCISE FORM
The following instructions relate to a rights offering (the "OFFERING")
being effected by 50-OFF Stores, Inc., a Delaware corporation (the "COMPANY"),
with respect to Units of the Company and related shares of Common Stock, $.01
par value (the "COMMON STOCK") and Series A Preferred Stock, $.01 par value
(the "PREFERRED STOCK") of the Company, as described below and in the Disclosure
Statement (the "DISCLOSURE STATEMENT") with Respect to Debtors' Joint Plan of
Reorganization, as Amended, dated March 27, 1997 (the "PLAN"). Capitalized terms
used herein without definition shall have the meaning set forth in the Plan.
THE OFFERING
Basic Subscription Privilege. The Company is offering up to 122,009 Units
----------------------------
(the "TOTAL MAXIMUM") and not less than 30,500 Units (the "TOTAL MINIMUM") (with
each Unit representing 20 shares of Common Stock and 20 shares of Series A
Preferred Stock) to current holders of Common Stock as of March 21, 1997 (the
"RECORD DATE") pursuant to Basic Subscription Privileges. The Basic
Subscription Privilege entitles each current holder to purchase one Unit for
each share of Common Stock held on the Record Date at the Subscription Price of
$100.00 per Unit (the "SUBSCRIPTION PRICE"), subject to the Total Maximum and
Total Minimum.
The Oversubscription Privilege. Each current holder may exercise the
------------------------------
Oversubscription Privilege to subscribe for additional Units that are otherwise
unsubscribed.
Allocation Upon Oversubscription. In the event of an oversubscription of
--------------------------------
the Units, each subscriber shall receive one Unit for each 100 shares of Common
Stock held on the record date. Thereafter, any remaining Units will be divided
pro rata among subscribers based upon the number of Units requested and not
provided. Subscribers will be refunded, promptly after the Expiration Date, any
portion of the subscription price, without interest, to the extent their
subscriptions are not filled pursuant to the Basic Subscription Privilege or
Oversubscription Privilege. There can be no assurance that any Units will be
available to satisfy in whole or in part any holder's Basic Subscription
Privilege or Oversubscription Privilege.
TO EXERCISE THE OVERSUBSCRIPTION PRIVILEGE PROPERLY, THE SUBSCRIPTION
EXERCISE FORM MUST BE COMPLETED, AND PAYMENT IN FULL OF THE AGGREGATE
SUBSCRIPTION PRICE FOR THE ADDITIONAL UNITS MUST ACCOMPANY THE EXERCISE FORM.
The Offering will expire at 5:00 p.m., Central Standard Time, on May 20,
1997 (the "EXPIRATION DATE"), unless extended at the discretion of the Company.
YOUR SUBSCRIPTION EXERCISE FORM MUST BE RECEIVED BY THE ESCROW AGENT AT OR
BEFORE 5:00 P.M., CENTRAL STANDARD TIME, ON MAY 20, 1997.
1. SUBSCRIPTION PRICE.
To subscribe for Units in the Offering, complete the Subscription Exercise
Form. Send your properly completed and executed Subscription Exercise Form,
together with payment in full of the Subscription Price for each Unit subscribed
for, to BANK ONE TEXAS, N.A., as Escrow Agent (the "ESCROW AGENT"). Payment of
the Subscription Price must be made for the full number of Units being
subscribed for (a) in U.S. dollars by check or bank draft, payable to "50-OFF
STORES, INC. RIGHTS OFFERING ESCROW ACCOUNT" as Escrow Agent, or (b) by wire
transfer of funds in U.S. dollars to the account maintained by the Escrow Agent
for such purpose, at BANK ONE, TEXAS, N.A.; ABA NO. 0440-000-37; ACCOUNT NO.
833692200; RE: 50-OFF STORES ESCROW; ATTN: MS. TINA VANCE.
<PAGE>
Holders who hold Common Stock for the account of others, such as brokers,
trustees or depositories for securities, should notify the respective beneficial
owners of such shares as soon as possible to ascertain such beneficial owners'
intentions and to obtain instructions with respect to the Subscription Rights.
If such beneficial owner so instructs, the record holder of such Subscription
Right should complete the Exercise Forms and submit them to the Escrow Agent
with the proper payment. In addition, beneficial owners of Common Stock held
through such a nominee holder should contact the holder and request the holder
to effect transactions in accordance with the beneficial owners' instructions.
The address and telephone number of the Escrow Agent are as follows:
BANK ONE TEXAS, N.A.
500 THROCKMORTON STREET, SUITE 704
FORT WORTH, TEXAS 76102
ATTN: LEEANN KELSEY
(817) 884-4422
2. ISSUANCE AND DELIVERY OF STOCK CERTIFICATES, ETC.
Issuances and deliveries of stock certificates will be made to record
holders of Common Stock at the address shown on the face of the Subscription
Exercise Form unless instructions for special delivery to the contrary are
specified in the Subscription Exercise Form.
3. SIGNATURES.
a. Signatures by Registered Holder. The signature on the Subscription
Exercise Form must correspond with the name of the registered current holder of
Common Stock exactly as it appears on the face of the Subscription Exercise Form
without any alteration or change whatsoever. Persons who sign the Subscription
Exercise Form in a representative or other fiduciary capacity must indicate
their capacity when signing and, unless waived by the Company in its sole and
absolute discretion, must present to the Company satisfactory evidence of their
authority to so act.
b. Signature Guarantees. All subscribers who specify special delivery
instructions pursuant to the Subscription Exercise Form must have their
signatures guaranteed with a medallion guarantee by an eligible guarantor
institution pursuant to Rule 17Ad-15 promulgated under the Securities Exchange
Act of 1934, as amended.
4. METHOD OF DELIVERY.
The method of delivery of Subscription Exercise Forms and payment of the
Subscription Price to the Escrow Agent will be at the election and risk of
subscribers, but, if sent by mail, it is recommended that a sufficient number of
days be allowed to ensure delivery to the Escrow Agent prior to 5:00 p.m.,
Central Standard Time, on May 20, 1997.
5. IRREGULARITIES.
All questions concerning the timeliness, validity, form and eligibility of
Subscription Exercise Forms received or any exercise of Subscription Rights will
be determined by the Company, whose determinations will be final and binding.
The Company, in its sole discretion, may waive any defect or irregularity, or
permit a defect or irregularity to be corrected within such time as it may
determine, or reject the proposed subscription for Units. Subscription Exercise
Forms will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Company
determines, in its sole discretion. Neither the Company nor the Escrow Agent
will be under any duty to give notifications of any defect or irregularity in
connection with the submission of Subscription Exercise Forms or incur any
liability for failure to give such notifications.
<PAGE>
50-OFF STORES, INC.
SUBSCRIPTION EXERCISE FORM FOR RIGHTS OFFERING
----------------------------------------------
NOTICE: USE THIS FORM TO EXERCISE YOUR RIGHT TO PURCHASE UNITS PURSUANT TO THE
THE 50-OFF STORES, INC. RIGHTS OFFERING
Name of Record holder of Stock and number of shares held
(number of shares in upper right hand corner of mail label):
- ----------------------------------------------
| |
| |
| |
| |
- ----------------------------------------------
--------------------------------------------------
TERMS AND CONDITIONS
--------------------
THE TERMS AND CONDITIONS OF THE OFFERING ARE SET FORTH IN DEBTORS' JOINT
PLAN OF REORGANIZATION, AS AMENDED, DATED MARCH 27, 1997 (THE "PLAN") FILED BY
50-OFF STORES, INC. (THE "COMPANY") AND ITS SIGNIFICANT SUBSIDIARIES IN THEIR
CHAPTER 11 BANKRUPTCY CASES PENDING BEFORE THE UNITED STATES BANKRUPTCY COURT IN
THE WESTERN DISTRICT OF TEXAS, SAN ANTONIO DIVISION (THE "COURT"), JOINTLY
ADMINISTERED UNDER CASE NUMBER 96-54430-C. THE TERMS OF SUCH PLAN, TOGETHER
WITH ALL OF ITS EXHIBITS AND THE INSTRUCTIONS ACCOMPANYING THIS FORM, ARE
INCORPORATED HEREIN BY REFERENCE. TERMS USED HEREIN SHALL HAVE THE MEANINGS
ASSIGNED TO THEM IN THE PLAN. MATERIAL INFORMATION REGARDING THE RIGHTS
OFFERING IS CONTAINED WITHIN THE COMPANY'S DISCLOSURE STATEMENT WITH RESPECT TO
THE DEBTORS' JOINT PLAN OF REORGANIZATION, AS AMENDED, DATED MARCH 27, 1997,
(THE "DISCLOSURE STATEMENT"). THE PLAN IS ATTACHED TO THE DISCLOSURE STATEMENT
AS EXHIBIT "A." AN ESCROW AGREEMENT WITH REGARD TO THE RIGHTS OFFERING IS
ATTACHED AND INCORPORATED INTO THE PLAN AS EXHIBIT "E." YOU ARE ADVISED TO READ
THE SUBSCRIPTION INSTRUCTIONS, THE PLAN AND THE DISCLOSURE STATEMENT AND EACH OF
THEIR RESPECTIVE EXHIBITS THOROUGHLY. BY SIGNING THIS FORM YOU ARE
ACKNOWLEDGING RECEIPT OF ALL SUCH DOCUMENTS.
THIS FORM MUST BE RECEIVED BY THE ESCROW AGENT AT THE ADDRESS ON THE
====================================================================
REVERSE SIDE OF THIS FORM WITH PAYMENT IN FULL BY 5:00 P.M., CENTRAL STANDARD
=============================================================================
TIME, ON MAY 20, 1997 (THE "EXPIRATION DATE"),
=============================================
unless the Expiration Deadline is extended in the sole discretion of the
Company. Any Rights not exercised prior to the Expiration Date will expire.
The person that signs the reverse side of this form certifies (i) that
he/she was the holder of the number of shares of common stock of 50-OFF Stores,
Inc. as reflected on the mailing label above on March 27, 1997, or (ii) that the
he/she has made the appropriate handwritten changes to the information within
such mailing label to make the information within the mailing label accurate.
YOU MUST COMPLETE BOTH SIDES OF THIS FORM TO PURCHASE UNITS.
<PAGE>
____________
The undersigned hereby elects to purchase the following
number of Units at $100.00 per Unit (a Unit is comprised
of 20 shares of Series A Preferred Stock and 20 shares
of New Common Stock). -----------------
The undersigned hereby tenders payment in full for such
Units in the following amount (such amount being the
number of Units subscribed for multiplied by $100.00). $
----------------
Make payments by check payable to:
"50-OFF STORES, INC. RIGHTS OFFERING ESCROW ACCOUNT"
If you desire to wire transfer your payment instead of paying by check, the
necessary wiring information is set forth in the attached instructions. This
completed form and the full purchase price must be provided to the Escrow Agent
on or before May 20, 1997 in accordance with the Rights Offering Instructions
provided to the undersigned. The undersigned understands that the number of
Units sold may be limited in the manner described within the Plan if there is an
oversubscription of Units.
The undersigned instructs the Company to register the Series A Preferred Stock
and the New Common Stock in the name of (please print)(if blank, name on mailing
label on reverse side will be used): .
----------------------
The undersigned instructs the Company to send Series A Preferred Stock and the
New Common Stock to the following address)(if blank, name on mailing label on
reverse side will be used):
- -------------------------------------------------------------------------------
.
- ------------------------------------------------------------------------------
Date: Please insert social security
------------------------------ number or other identifying number:
-----------------------------------
Signature:
-----------------------------------------
Name (typed or printed):
-----------------------------------------
Phone: ( )
--- -----------------------------------
------------------------------------------------------------------
| Return completed form with purchase price to the Escrow Agent: |
| BANK ONE TEXAS, N.A. |
| 500 THROCKMORTON STREET, SUITE 704 |
| FORT WORTH, TEXAS 76102 |
| ATTN: LEEANN KELSEY |
------------------------------------------------------------------
Signature Guaranteed by:
- -------------------------------------
A signature guarantee is needed only if (i) shares are to be registered in a
name other than the name of current registered owner of common stock (i.e., the
name on the mailing label) or (ii) shares are to be delivered to an address
other than the registered holder's address (i.e., the address on the mailing
label). All subscribers who specify such special delivery instructions must
have their signatures guaranteed with a medallion guarantee by an eligible
guarantor institution pursuant to Rule 17Ad-15 promulgated under the Securities
Exchange Act of 1934, as amended. Provide name, name of firm, address and phone
number of party guaranteeing signature:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[LETTERHEAD OF SHEINFELD, MALEY & KAY]
EXHIBIT 5.1
June 10, 1997
50-OFF Stores, Inc.
8750 Tesoro Drive
San Antonio, Texas 78217
Gentlemen:
We have acted as bankruptcy counsel for 50-OFF Stores, Inc., a Delaware
corporation (the "Company") as the debtor in proceedings under Chapter 11 of the
United States Bankruptcy Code, 11 U.S.C. (S) 101 et seq., currently pending in
the United States Bankruptcy Court for the Western District of Texas, San
Antonio Division (the "Bankruptcy Court"), and in connection with the
confirmation of the Company's Joint Plan of Reorganization, as Amended and
Modified, by the Bankruptcy COurt ("Plan of Reorganization"). As bankruptcy
counsel, our opinion has been requested as to certain matters in connection with
the registration under the Securities Act of 1933, as amended, of (i) 12,200,915
Rights to purchase Units (the "Rights"), (ii) 122,009 Units (the "Units"), with
each Unit representing 20 shares of Common Stock and 20 shares of Series A
Preferred Stock, (iii) 7,320,540 shares of the Company's Common Stock, $.01 par
value (the "Common Stock") representing (a) 2,440,180 shares of Common Stock
issuable in connection with the Units, and (b) 4,880,360 shares of Common Stock
issuable upon conversion of the Series A Preferred Stock, and (iv) 2,440,180
shares of the Company's Series A Preferred Stock, $.01 par value (the "Series A
Preferred Stock"), issuable in connection with the Units, to be offered upon the
terms and subject to the conditions set forth in the Registration Statement on
Form S-1 (the "Registration Statement, as amended at the time it becomes
effective, being herein called the "Registration Statement") relating thereto
filed with the Securities and Exchange Commission.
We have examined such of the Company's records, including the Plan of
Reorganization, the Order Confirming Debtor's Joint Plan of Reorganization as
Amended and Modified, the Company's Restated Certificate of Incorporation,
Bylaws, Certificate of Designations with respect to the Company's Series A
Preferred Stock, Certificate of Designations with respect to the Company's
Series B Preferred Stock, and such other documents and have made such
examinations of law as we have deemed relevant. Based upon the foregoing and
subject to the assumptions and qualifications set forth herein, we are of the
opinion that:
1. The Company's Plan of Reorganization has been confirmed by order of the
Bankruptcy Court, and such Plan was confirmed in accordance with applicable law
and is
<PAGE>
50-OFF Stores, Inc.
June 9, 1997
Page 2
enforceable in accordance with its terms. Each requirement of Section 303 of the
Delaware General Corporation Law (excluding the actual filing of documents with
the Delaware Secretary of State) necessary to effectuate the Corporate Actions
(as defined in paragraph 2 below) without approval of the Company's board of
directors and/or stockholders has been met. Such requirements include, without
limitation, the matters referenced in subparagraphs 2(a) and 2(b) below.
2. With respect to (i) the filing of the Registration Statement and the
effectuation of the offering contemplated thereby, (ii) the increase in
authorized shares, (iii) the creation, establishment, and authorization of the
Series A Preferred Stock and Series B Preferred Stock and the preparation and
filing with the State of Delaware of the Series A Preferred Stock Certificate of
Designations and the Series B Preferred Stock Certificate of Designations, (iv)
the authorization of the Rights and Units, (v) the restatement and amendment of
the Certificate of Incorporation and Bylaws and the preparation and filing with
the State of Delaware of the Restated Certificate of Incorporation, (vi) the
reconstitution of the board of directors, and (vii) the registration, offer,
sale, and issuance of the Rights, Units, Common Stock and Series A Preferred
Stock, (with the actions set forth in (i) through (vii) collectively called the
"Corporate Actions"); the Bankruptcy Court has by order or decree:
(a) Authorized the Company to take each Corporate Action, without
approval of the Company's board of directors or stockholders.
(b) Authorized and designated Charles Fuhrmann to effect each Corporate
Action on behalf of the Company and to take any and all action related thereto
or in furtherance thereof, including, without limitation, the execution and
acknowledgment of any and all documents and instruments contemplated by the
Corporate Actions.
The opinions expressed herein concern and are limited to the laws of the
State of Texas and the State of Delaware, as currently in effect, and the
federal laws of the United States of America, as currently in effect.
This opinion is limited to the matters expressly set forth in this letter,
as limited herein as of the date of this letter, and no opinion is implied or
may be inferred beyond the matters expressly stated.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Opinion" in the Prospectus included as part of the Registration Statement. In
giving this consent, we do not thereby admit that we are
<PAGE>
50-OFF Stores, Inc.
June 9, 1997
Page 3
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
SHEINFELD, MALEY & KAY, P.C.
/s/ LEE POLSON
------------------------------------
Lee Polson, Counsel
<PAGE>
EXHIBIT 5.2
[AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. Letterhead]
June ___, 1997
50-OFF Stores, Inc.
8750 Tesoro Drive
San Antonio, Texas 78217
Gentlemen:
We have acted as counsel for 50-OFF Stores, Inc., a Delaware corporation
(the "Company") in connection with the registration under the Securities Act of
1933, as amended (the "Securities Act"), of (i) 12,200,915 Rights to purchase
Units (the "Rights"), (ii) 122,009 Units (the "Units"), with each Unit
representing 20 shares of Common Stock and 20 shares of Series A Preferred
Stock, (iii) 7,320,540 shares of the Company's Common Stock, $.01 par value (the
"Common Stock") representing (a) 2,440,180 shares of Common Stock issuable in
connection with the Units (the "Unit Common Stock"), and (b) 4,880,360 shares of
Common Stock issuable upon conversion of the Series A Preferred Stock (the
"Conversion Common Stock"), and (iv) 2,440,180 shares of the Company's Series A
Preferred Stock, $.01 par value, issuable in connection with the Units (the
"Preferred Stock"), to be offered upon the terms and subject to the conditions
set forth in the Registration Statement on Form S-1 (the Registration Statement,
as amended at the time it becomes effective, being herein referred to as the
"Registration Statement") relating thereto filed with the Securities and
Exchange Commission.
In connection therewith, we have examined originals or copies certified or
otherwise identified to our satisfaction of such documents and instruments as we
have deemed necessary or appropriate for the expression of the opinions
contained herein.
We have assumed the authenticity and completeness of all records,
certificates and other instruments submitted to us as originals, the conformity
to original documents of all records, certificates and other instruments
submitted to us as copies, the authenticity and completeness of the originals of
those records, certificates and other instruments submitted to us as copies and
the correctness of all statements of fact contained in all records, certificates
and other instruments that we have examined.
Based on the foregoing, and having regard for such legal considerations as
we have deemed relevant, we are of the opinion (i) that upon the effective date
of the Company's Joint Plan of Reorganization, as amended (the "Plan"), the
Rights and the Units will be duly and validly authorized, and (ii) that upon the
effective date of the Plan and the concurrent filing with the Delaware Secretary
of State of the Company's Restated Certificate of Incorporation and Certificate
of Designations with respect to Series A Preferred Stock, the Common Stock and
the Preferred Stock will be duly and validly authorized, and, (a) assuming the
Plan has become effective and the filings referred to in (ii) above have been
effected, when issued, delivered, and paid for in accordance with the terms of
the Registration Statement, the Unit Common Stock and Preferred Stock will be
duly and validly issued, fully paid and nonassessable and, (b) assuming the Plan
has become effective and the filings referred to in (ii) above have been
effected, when issued and delivered upon due conversion in accordance with the
terms of the Registration Statement, the Conversion Common Stock will be duly
and validly issued, fully paid and nonassessable.
In connection with the opinions expressed herein we have relied upon the
opinion rendered by Sheinfeld, Maley & Kay, P.C., bankruptcy counsel to the
Company, which opinion has been filed as an exhibit
<PAGE>
50-OFF Stores, Inc.
June , 1997 -- Page 2
- -----------------------
to the Registration Statement. Such opinion addresses matters pertaining to
Section 303 of the Delaware General Corporation Law (the "Delaware Statute"). If
complied with, the Delaware Statute permits certain corporate actions to be
taken in connection with a plan of reorganization, without Board of Director or
stockholder approval, including, as applicable to the opinions expressed herein,
actions to increase authorized shares, to create and establish a series of
preferred stock, to amend and restate a certificate of incorporation, to
reconstitute a board of directors, and to authorize the issuance of securities.
In conclusion, we have assumed for purposes of the opinions expressed herein, in
reliance upon the above referenced opinion of bankruptcy counsel, that no
approval of the Company's Board of Directors of stockholders is required to (i)
increase the authorized shares of the Company, (ii) amend and restate the
Company's Certificate of Incorporation, (iii) create and establish the Series A
Preferred Stock, (iv) register, offer, sell and issue the Rights, Units, Common
Stock and Preferred Stock, and (v) reconstitute the Company's Board of Directors
and that the effectuation of all of the foregoing matters was properly
authorized by the order confirming the Company's Plan entered by the United
States Bankruptcy Court for the Western District of Texas. We have further
assumed that the Company's Plan has been confirmed in accordance with applicable
laws and is enforceable in accordance with its terms, and that the Delaware
Statute is available to the Company for the purposes stated therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Opinion" in the Prospectus included as part of the Registration Statement.
Very truly yours,
/s/ AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
------------------------------------------------
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
<PAGE>
EXHIBIT 10.1
STOCK OPTION PLAN
OF
LOT$OFF CORPORATION
A. PURPOSE. The purpose of this Plan is to promote the interest of
-------
LOT$OFF CORPORATION (the "Company") and its stockholders by providing an
effective means to attract, retain and increase the commitment of certain
individuals and to provide such individuals with additional incentive to
contribute to the success of the Company.
2. ELIGIBILITY. Options may be granted under the Plan to officers and
-----------
other key employees and directors of the Company, or of any parent or subsidiary
of the Company. The Board of Directors or the Committee (defined below), as the
case may be, shall select from such eligible class the individuals to whom
Options shall be granted from time to time.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
--------------------------
Board of Directors or, if determined by the Board of Directors, by a Committee
consisting of two or more "non-employee directors," as such term is defined in
Rule 16b-3(b)(3) under the Securities and Exchange Act of 1934, as amended (the
"Committee"). A quorum of any such Committee shall consist of a majority of the
members of such Committee, or as may be otherwise provided in the Company's
bylaws. The Committee, if any, shall hold meetings at such times and places and
conduct its business at such meetings as it may determine, subject to any
express provisions of the Company's bylaws. Acts of a majority of the Committee
members attending a meeting at which a quorum is present, or such acts as are
reduced to or approved in writing by the majority of the members of the
Committee, shall be the valid acts of the Committee. The Board of Directors or
the Committee, as the case may be, shall from time to time in its discretion
determine which individuals shall be granted Options, the amount of shares
covered by such Options, and certain other specific terms and conditions of such
Options subject to the terms and conditions contained herein, including those
concerning director Options as set forth in Section 5(F).
The Board of Directors or the Committee, as the case may be, shall
have the sole authority and power, subject to the express provisions and
conditions hereof, to construe this Plan and the Options granted hereunder, and
to adopt, prescribe, amend, and rescind rules and regulations relating to this
Plan, and to make all determinations necessary or advisable for administering
this Plan. The interpretation by the Committee of any provision of this Plan
with respect to any incentive stock option granted hereunder shall be in
accordance with Section 422 of the Internal Revenue Code of 1986 and the
Regulations issued thereunder, as such Section 422 or Regulations may be amended
from time to time, in order that the incentive stock options granted hereunder
("Incentive Stock Options") shall constitute "incentive stock options" within
the meaning of Section 422. Options granted under the Plan which are not
intended to be Incentive Stock Options are referred to herein as "Nonqualified
Stock Options." The term "Options" as used herein shall refer to Incentive
Stock Options and Nonqualified Stock Options, either collectively or without
distinction. The interpretation and construction by the Board of Directors or
the Committee, as the case may be, of any provisions of the Plan or of any
Option granted hereunder shall be final and conclusive. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted hereunder.
4. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 6,
--------------------------
the number of shares subject to Options granted hereunder shall not exceed Eight
Hundred Thousand (800,000) shares of the Company's authorized but unissued or
reacquired common stock (the "Common Stock"). Such number of shares shall be
subject to adjustment from time to time as provided in Section 6.
Shares that by reason of the expiration, termination, cancellation or
surrender of an Option are no longer subject to purchase pursuant to an Option
granted under the Plan (other than by reason of exercise of such Option) may be
reoptioned hereunder.
5. TERMS AND CONDITIONS.
--------------------
(A) Option Price. Each Option shall state the number of shares that
------------
may be purchased
1
<PAGE>
thereunder, shall expressly designate such Option as an Incentive Stock Option
or a Nonqualified Stock Option, and shall state the option price per share (the
"Option Price") which shall be paid in the manner specified in this Section 5(A)
in order to exercise such Option, which Option Price shall not be less than one
hundred percent (100%) of the fair market value of a share on the day the Option
is granted with respect to any Incentive Stock Option granted hereunder, and not
less than eighty-five percent (85%) of the fair market value of a share on the
day the Option is granted with respect to any Nonqualified Stock Option.
For purposes of the Plan, the fair market value per share of the
Company's Common Stock on any date shall be deemed to be the average closing
price over a five-business day period on the principal national securities
exchange on which the Company's Common Stock is then listed or admitted to
trading, if the Company's Common Stock is then listed or admitted to trading on
any national securities exchange. The closing price shall be the last reported
sale price regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices regular way, as reported by said
exchange. If the Company's Common Stock is not then so listed on a national
securities exchange, the fair market value per share of the Company's Common
Stock on any date shall be deemed to be the average closing price (the last
reported sale price regular way) over a five-business day period in the over-
the-counter market as reported by the NASDAQ National Market, if the closing
price is then reported on the NASDAQ National Market, or, if the closing price
is not then reported by the NASDAQ National Market, shall be deemed to be the
average over such five-business day period of the mean of the highest closing
bid and lowest closing asked price each day in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or, if the Company's Common Stock is not then quoted by
NASDAQ, as furnished by any member of the National Association of Securities
Dealers, Inc. selected from time to time by the Company for that purpose. If no
member of the National Association of Securities Dealers, Inc. furnishes quotes
with respect to the Common Stock of the Company, such fair market value shall be
determined by resolution of the Company's Board of Directors. Notwithstanding
the foregoing provisions of this Section 5(A), if the Board of Directors shall
at any time determine that it is impracticable to apply the foregoing methods of
determining fair market value, the Board of Directors is empowered to adopt
other reasonable methods for such purpose. The Board or the Committee may, if
it deems it appropriate, engage the services of an independent qualified expert
or experts to appraise the value of the Common Stock.
Options under the Plan may be exercised by payment of the exercise
price in cash, by delivery of the equivalent fair market value of Common Stock
or by a "cashless exercise" procedure in which an Optionee is permitted to
exercise an Option by arranging with the Company and his or her broker to
deliver the appropriate exercise price from the concurrent market sale of the
acquired shares, or a combination of the foregoing. An employee's withholding
tax due upon exercise of a Nonqualified Stock Option may be satisfied either by
a cash payment or the retention from the exercise of a number of shares of
Common Stock with a fair market value equal to the required withholding tax, as
the Optionee and Board or Committee may agree.
In addition, with respect to the exercise of any Nonqualified Stock
Option, the Board or the Committee shall advise the Optionee, upon receipt of
notice of intent to exercise such Option, of the income tax withholding
consequences to such Optionee of such exercise, the amount of the appropriate
withholding tax and any other payments due by reason thereof. Such Optionee
must satisfy all of the preceding payment requirements in order to receive
Common Stock upon exercise of such Option.
(B) OPTION PERIOD. Any Options granted pursuant to this Plan must be
-------------
granted within five (5) years from the Effective Date (defined as the date upon
which the Company's Joint Plan of Reorganization is deemed effective).
Each Option shall state the date upon which it is granted. Each
Option shall be exercisable during such period as is provided under the terms of
the Option, but in no event shall an Option be exercisable after the expiration
of five (5) years from the date of grant. Except in the case of death or
disability, Incentive Stock Options may be exercised within three months (or for
such shorter period as may be specified in the particular Option) after
termination of employment provided such Options were exercisable at the date of
termination, and Nonqualified Stock Options may be exercised after termination
of employment and/or other service to the Company for such period as may be
specified in the particular Option provided such Options were exercisable at the
date of termination. In the event of
2
<PAGE>
the death or disability of an Optionee, Incentive Stock Options exercisable at
the date of death or disability may be exercised for such period thereafter as
may be specified in the particular Option not to exceed one (1) year thereafter
and Nonqualified Stock Options exercisable at the date of death or disability
may be exercised for such period thereafter as may be specified in the
particular Option.
(C) ASSIGNABILITY. An Option granted pursuant to this Plan shall be
-------------
exercisable during his or her lifetime only by the Optionee and shall not be
assignable or transferable by such person (unless otherwise provided in the
particular Option).
(C) LIMIT ON 10% SHAREHOLDERS. No Incentive Stock Option may be
-------------------------
granted under this Plan to any individual who would, immediately after the grant
of such Incentive Stock Option directly or indirectly own more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
unless such Incentive Stock Option is granted at an Option Price not less than
one hundred ten percent (110%) of the fair market value on the date the
Incentive Stock Option is granted.
(D) LIMITS ON OPTIONS. An individual may be granted one or more
-----------------
Options, provided that the aggregate fair market value (determined as of the
time the Option is granted) of Common Stock for which an individual may be
granted Incentive Stock Options that are first exercisable in any calendar year
(under all stock option plans of the Company and any parent or subsidiary
corporations, if any) may not exceed $100,000.
(F) DIRECTOR OPTIONS. Each director of the Company on the Effective
----------------
Date shall be automatically granted effective on the Effective Date a
Nonqualified Stock Option for 5,000 shares of Common Stock which Options shall
become exercisable (in whole or in part, at an exercise price of $1.67 per
share) commencing 90 days after the Effective Date and remain exercisable until
the Options expire on the fifth anniversary following the Effective Date. In
addition to such initial awards, each director elected or appointed to the
Company's Board of Directors (whether newly elected or appointed or reelected at
a meeting of stockholders) on or after the Effective Date, shall receive upon
such election or appointment an automatic award of a Nonqualified Option for
5,000 shares of Common Stock which Options shall become exercisable (in whole or
in part, at an exercise price per share equal to the fair market value of a
share of Common Stock on the date of grant) commencing after the passage of six
months from the date of grant and remain exercisable until the Options expire on
the fifth anniversary following the date of grant. Directors may receive
additional Option grants as may be determined by the Board of Directors or the
Committee, as the case may be.
(G) RIGHTS AS SHAREHOLDER. An Optionee, or a transferee of an Option,
---------------------
shall have no rights with respect to any shares covered by an Option until the
date of the issuance of a stock certificate for such shares and the recording of
such issuance upon the Company's stock ledger by its duly appointed, regular
transfer agent. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to such date, except as
provided in Section 6 hereof.
(H) ADDITIONAL PROVISIONS. The Options authorized under this Plan
---------------------
shall contain such other provisions as the Board or Committee shall deem
advisable, including, without limitation, further restrictions upon the exercise
of the Option. Any Incentive Stock Option shall contain such limitations and
restrictions upon the exercise of the Option as shall be necessary in order that
the Option shall be an "incentive stock option" as defined in Section 422 of the
Internal Revenue Code of 1986.
(I) COMPLIANCE WITH SECURITIES LAWS. At the time of exercise of any
-------------------------------
Option, the Company may require the Optionee to execute any documents or take
any action which may then be necessary to comply with the Securities Act of 1933
and the rules and regulations adopted thereunder, or any other applicable
federal or state laws regulating the sale and issuance of securities, and the
Company may, if it deems necessary, include provisions in the Options to assure
such compliance. The Company may from time to time change its requirements with
respect to enforcing compliance with federal and state securities laws,
including the request for, or insistence upon, letters of investment intent,
such requirements to be determined by the Company in its judgment as necessary
to assure compliance with said securities laws. Such changes may be made with
respect to any particular Option or to any stock issued upon exercise thereof.
3
<PAGE>
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
------------------------------------------
change in the number of issued and outstanding shares of Common Stock of the
Company which results from a stock split, reverse stock split, the payment of a
stock dividend or any other change in the capital structure of the Company, such
as a merger, consolidation, reorganization or recapitalization, the Board or
Committee shall appropriately adjust (a) the maximum number of shares which may
be issued under this Plan, (b) the number of shares subject to each outstanding
Option, and (c) the Option Price per share thereof, so that upon exercise of the
Option the Optionee shall receive the same number of shares he or she would have
received had he or she been the holder of all shares subject to such outstanding
Options immediately before the effective date of such change in the number of
issued shares of the Common Stock of the Company. Any such adjustment shall not
result in or entitle the Optionee to the issuance of fractional shares. Instead,
appropriate adjustments to any such Option and, in the aggregate, all other
options of the Company of the same class (that is, Incentive Stock Options or
Nonqualified Options) held by each Optionee shall be made so that such Option
and other options of the same class, if any, held by any such Optionee cover the
greatest whole number of shares of the Company's Common Stock which does not
exceed the number of shares which would be covered applying such adjustments in
the absence of any restriction on the issuance of fractional shares. Any excess
fractional share shall be redeemed in cash at the then current fair market value
of the Common Stock (determined as provided in Section 5(A) hereof) multiplied
by the appropriate fraction of a share.
7. TERMINATION OR AMENDMENT OF THE PLAN. The Board of Directors may at
------------------------------------
any time suspend, amend, or terminate this Plan. No amendment may be adopted
without stockholder approval that will: (a) increase the number of shares of
Common Stock which may be issued under this Plan; (b) materially modify the
requirements as to eligibility for participation in the Plan, or (c) effect any
other change requiring stockholder approval under the Internal Revenue Code of
1986, as amended. No amendment or termination of the Plan shall, without the
consent of the Optionee, alter or impair any rights or obligations under any
Option previously granted under the Plan.
4
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE
$15,000,000.00 November 18, 1996
FOR VALUE RECEIVED, the undersigned, 50-OFF STORES, INC., a Delaware
corporation, 50-OFF TEXAS STORES, L.P., a Texas limited partnership, 50-OFF
MULTISTATE OPERATIONS, INC., a Nevada corporation and 50-OFF OPERATING COMPANY,
a Nevada corporation (collectively, "Borrowers"), hereby jointly and severally
promise to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION ("Lender"),
------
at the office of Lender located at 3379 Peachtree Road, N.E., Suite 600,
Atlanta, Georgia 30326, in lawful money of the United States of America and in
immediately available funds, the principal amount of the lesser of (a) FIFTEEN
MILLION DOLLARS ($15,000,000) and (b) the aggregate unpaid principal amount of
all Advances made by Lender to Borrowers pursuant to the Credit Agreement
referred to below. All capitalized terms, unless otherwise defined herein,
shall have the respective meanings assigned to such terms in the Credit
Agreement referred to below.
Borrowers further agree to pay interest on the unpaid principal amount
outstanding hereunder from time to time from the date hereof in like money and
funds at such office at the rates per annum and on the dates provided in the
Credit Agreement referred to below. The date and amount of each Advance made by
Lender to Borrowers, the rate of interest applicable thereto and each payment
made on account of the principal thereof shall be recorded by Lender on its
books, provided that the failure of Lender to make any such recordation or
--------
endorsement shall not affect the obligations of Borrowers to make payments when
due of any amount owing under the Credit Agreement referred to below or this
Promissory Note in respect of the Advances made by Lender.
This Promissory Note is the Note referred to in that certain $15,000,000
Senior Secured Super Priority Debtor-In-Possession Revolving Credit Agreement,
dated as of November 18, 1996, by and among Borrowers and Lender (as amended,
supplemented or otherwise modified from time to time, the "Credit
------
Promissory Note -- Page 1 of 4 pages Initial Makers:
------
------
------
------
<PAGE>
Agreement"), is entitled to the benefits thereof, and is secured as provided
- ---------
therein. Reference is made to the Credit Agreement for all purposes, including,
without limitation, for provisions for the prepayment and repayment hereof.
If any payment of this Promissory Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, all amounts then remaining unpaid on this
Promissory Note shall become, or may be declared to be, immediately due and
payable, all as provided therein.
All parties now or hereafter liable with respect to this Promissory
Note, whether any Borrower, guarantor, endorser or other Person, hereby waive
diligence, presentment, protest, demand, notice of non-payment or dishonor and
other notices of any kind.
Borrowers promise to pay all reasonable out-of-pocket costs of
collection, including reasonable attorneys' fees as provided in the Credit
Agreement, should this Promissory Note be collected by or through an attorney-
at-law or under advice therefrom.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF GEORGIA, WITHOUT GIVING
EFFECT TO CONFLICTS OF LAW PRINCIPLES.
[Remainder of page intentionally left blank.]
Promissory Note -- Page 2 of 4 pages Initial Makers:
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<PAGE>
IN WITNESS WHEREOF, Borrowers have caused this Promissory Note dated November
18, 1996 in the original principal amount of $15,000,000 (subect to the terms
hereof) in favor of General Electric Capital Corporation to be duly executed and
delivered under seal by their respective officers thereunto duly authorized as
of the date hereof.
50-OFF STORES, INC.
By: /s/ CHARLES J. FUHRMANN II
----------------------------
Charles J. Fuhrmann II
President
Attest: /s/ JAMES G. SCOGIN
------------------------
James G. Scogin
Assistant Secretary
50-OFF TEXAS STORES, L.P.
By: 50-OFF Texas Management, Inc.,
Managing General Partner
By: /s/ CHARLES J. FUHRMANN
-------------------------
Charles J. Fuhrmann II
Its President
Attest: /s/ JAMES G. SCOGIN
---------------------
James G. Scogin
Assistant Secretary
Promissory Note -- Page 3 of 4 pages Initial Makers:
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------
------
------
<PAGE>
50-OFF MULTISTATE OPERATIONS, INC.
By: /s/ CHARLES J. FUHRMANN II
----------------------------
Charles J. Fuhrmann II
President
Attest: /s/ JAMES G. SCOGIN
------------------------
James G. Scogin
Assistant Secretary
50-OFF OPERATING COMPANY
By: /s/ CHARLES J. FUHRMANN II
----------------------------
Charles J. Fuhrmann II
President
Attest: /s/ JAMES G. SCOGIN
------------------------
James G. Scogin
Assistant Secretary
Promissory Note -- Page 4 of 4 pages Initial Makers:
------
------
------
------
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of November 18, 1996, made by 50-OFF STORES,
INC., a Delaware corporation, 50-OFF TEXAS STORES, L.P., a Texas limited
partnership, 50-OFF MULTISTATE OPERATIONS, INC., a Nevada corporation and 50-OFF
OPERATING COMPANY, a Nevada corporation, (collectively, "Grantors," and each
--------
individually a "Grantor"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a
-------
New York corporation having an office at 3379 Peachtree Road, N.E., Suite 600,
Atlanta, Georgia 30326 ("Lender").
------
W I T N E S S E T H:
WHEREAS, pursuant to and subject to the terms and conditions of that
certain $15,000,000 Senior Secured Super Priority Debtor-In-Possession Revolving
Credit Agreement dated as of November 18, 1996, by and among Grantors and
Lender (as the same from time to time may be amended, restated, supplemented or
otherwise modified, the "Credit Agreement"), Lender has agreed, among other
----------------
things, to make Advances to Grantors (except as otherwise defined herein, all
capitalized terms used in these recitals having the respective meanings referred
to in Section 1 hereof);
---------
WHEREAS, Lender is willing to make Advances as and to the extent provided
for in the Credit Agreement, but only upon the condition, among others, that
Grantors shall have executed and delivered this Security Agreement in favor of
Lender for its benefit;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINED TERMS. (a) The following capitalized terms used herein have
-------------
the respective meanings set forth or referred to below:
"Accounts" shall mean all "accounts," as such term is defined in the Code
--------
and, in any event, shall include, without limitation, all accounts, accounts
receivable, credit card receivables, notes, drafts, acceptances, and other forms
of obligations and receivables and rights to payment for credit extended and for
goods sold or leased, or services rendered, whether or not yet earned by
performance, and all rights under any Contract, and all "contract rights" as
formerly defined in the Code, and all Inventory which gave rise thereto, and all
rights associated with such Inventory, including the right of stoppage in
transit, and all reclaimed, returned, rejected or repossessed Inventory (if any)
the sale of which gave rise to any Account.
<PAGE>
"Account Debtor" shall mean any Person who is or who may become obligated
--------------
to any Borrower under, with respect to, or on account of, an Account.
"Chattel Paper" shall mean all "chattel paper," as such term is defined in
-------------
the Code, now owned or hereafter acquired and wherever located.
"Code" shall mean the Uniform Commercial Code as the same may, from time to
----
time, be in effect in the State of Georgia; provided, that in the event that by
--------
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or the remedies with respect to, Lender's security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Georgia, the term "Code" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection, priority or
remedies and for purposes of definitions related to such provisions.
"Collateral" shall have the meaning ascribed thereto in Section 2 of this
----------
Agreement.
"Contracts" shall mean, with respect to any Person, all the contracts,
---------
undertakings, or agreements (other than rights evidenced by Chattel Paper,
Documents or Instruments) in or under which such Person may now or hereafter
have any right, title or interest, including any agreement relating to the terms
of payment or the terms of performance of any Account.
"Documents" shall mean, with respect to any Person, all "documents," as
---------
such term is defined in the Code, now owned or hereafter acquired by such
Person, wherever located, and in any event any bills of lading, dock warrants,
dock receipts, warehouse receipts or other documents of title.
"Equipment" shall mean all "equipment" as such term is defined in the Code,
---------
and, in any event, shall include all motor vehicles, rolling stock, machinery,
office equipment, plant equipment, tools, dies, molds, store fixtures,
furnishings, and other goods, property and assets which are used, or were
purchased for use, in the operation or furtherance of any Grantor's business,
and any and all additions, accessions, substitutions and replacements of any of
the foregoing, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto.
"Fixtures" shall, with respect to any Person, mean all "fixtures," as such
--------
term is defined in the Code, now or hereafter owned or acquired by such Person,
wherever located, and, in any event, including all of the fixtures, systems,
machinery,
-2-
<PAGE>
apparatus, equipment and fittings of every kind and nature whatsoever and all
appurtenances and additions thereto and substitutions therefor or replacements
thereof, now or hereafter attached or affixed to or constituting a part of, or
located in or upon, real property wherever located (including all heating,
electrical, mechanical, lighting, lifting, plumbing, ventilating, air-
conditioning and air cooling, refrigerating, incinerating and power, loading and
unloading, signs, escalators, elevators, boilers, communication, switchboards,
sprinkler and other fire prevention and extinguishing fixtures, systems,
machinery, apparatus and equipment, and all engines, motors, dynamos, machinery,
pipes, pumps, tanks, conduits and ducts constituting a part of any of the
foregoing, together with all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, any of
the foregoing property).
"General Intangibles" shall mean, with respect to any Person, all "general
-------------------
intangibles," as such term is defined in the Code, now owned or hereafter
acquired by such Person and, in any event, including without limitation all
right, title and interest which such Person may now or hereafter have in or
under any or all of the following: right to payment for credit extended;
deposits; amounts due to any Grantor; credit memoranda in favor of any Grantor;
warranty claims; tax refunds and abatements; insurance refunds and premium
rebates; all means and vehicles of investment or hedging, including, without
limitation, options, warrants and futures contracts; records; customer lists;
telephone numbers; goodwill; causes of action (including, without limitation,
the proceeds of (a) that action initiated in the United States District Court
for the Western District of Texas, San Antonio Division and styled "50-Off
Stores, Inc. v. Banque Paribas (Suisse) S.A., et al" (Docket No. SA-95-CA-0159),
and (b) that action initiated in the District Court for the 224th Judicial
District, Bexar County, Texas, and styled as "50-OFF Stores, Inc. v. Jefferies &
Company, Inc., et al" (Docket No. 96CI-00349) which is currently pending in Adv.
No. 96-05198 in the Chapter 11 Case, and (c) any action, cause of action or
right to payment which arises out of, or is in respect to, the set of facts
which forms the basis for each aforementioned action); judgments; payments under
any settlement or other agreement; royalties; license and/or franchise fees;
rights of admission; licenses; franchises; and permits; certificates of
convenience and necessity, and similar rights granted by any governmental
authority; proprietary processes; blueprints, drawings, designs, diagrams,
plans, reports and charts; catalogs; manuals; technical data; computer records,
computer software, rights of access to computer record service bureaus, service
bureau computer contracts and computer data; trade names, trademarks, service
marks and all goodwill relating thereto; proposals; cost estimates and
reproductions on paper, or otherwise, of any and all concepts or ideas; and any
matter related to, or connected with, the design, development, manufacture,
sale, marketing, leasing or
-3-
<PAGE>
use of any or all property produced, sold or leased by any Grantor, or credit
extended or services performed by any Grantor, whether intended for an
individual customer or the general business of any Grantor, or used or useful in
connection with research by any Grantor.
"Goods" has the meaning assigned to it in the Code.
-----
"Headquarters Building" shall have the meaning ascribed thereto in Section
---------------------
1(a) of this Agreement.
"Instruments" shall mean, for any Person, all "instruments," as such term
-----------
is defined in the Code, now owned or hereafter acquired by such Person, wherever
located and in any event all certificated securities, certificates of deposit
and all notes and other evidences of indebtedness, other than instruments that
constitute, or are a part of a group of writings that constitute, Chattel Paper.
"Proceeds" shall mean all "proceeds," as such term is defined in the Code
--------
and, in any event, shall include, with respect to any Person: (a) any and all
proceeds of any insurance, indemnity, warranty or guarantee payable to such
Person from time to time with respect to any of its property or assets; (b) any
and all payments (in any form whatsoever) made or due and payable to such Person
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of such Person's property
or assets by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), (c) any recoveries by such Person
against third parties with respect to any litigation or dispute concerning any
of such Person's property or assets (including, without limitation, any recovery
with respect to that litigation specifically identified in the definition of
General Intangibles); and (d) any and all other amounts from time to time paid
or payable under or in connection with any of such Person's property or assets,
upon disposition or otherwise.
"Real Property" shall mean all present and future right, title and interest
-------------
(including, without limitation, any leasehold estate) in (i) any plots, pieces
or parcels of land, (ii) any improvements, buildings, structures and fixtures
now or hereafter located or erected thereon or attached thereto of every nature
whatsoever (the rights and interests described in clauses (i) and (ii) above
being the "Premises"), (iii) all easements, rights of way, gores of land or any
lands occupied by streets, ways, alleys, passages, sewer rights, water courses,
water rights and powers, and public places adjoining such land, and any other
interests in property constituting appurtenances to the Premises, or which
hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all
hereditaments, gas, oil, minerals (with the right to extract, sever and remove
such gas, oil and
-4-
<PAGE>
minerals), and easements, of every nature whatsoever, located in or on the
Premises and (v) all other rights and privileges thereunto belonging or
appertaining and all extensions, additions, improvements, betterments, renewals,
substitutions and replacements to or of an of the rights and interests described
in clauses (iii) and (iv) above, and shall specifically include, but not be
limited to, that real property generally known as the 50-OFF Building and the
land on which it is located together with an adjacent parcel of land, all of
which is the Grantors' corporate headquarters located at 8750 Tesoro Drive, San
Antonio, Texas 78217 (the "Headquarters Building").
(b) Except as expressly defined above or elsewhere herein, all other
capitalized terms used herein shall have the respective meanings set forth in
the Credit Agreement.
2. GRANT OF SECURITY INTEREST. (a) To secure the prompt and complete
--------------------------
payment, performance and observance of all of the Obligations, and to induce
Lender to enter into the Credit Agreement and to make extensions of credit
provided for therein in accordance with the terms thereof, each Grantor hereby
grants to Lender a security interest in all property of such Grantor, including,
without limitation, all of such Grantor's right, title and interest in, to and
under the following, whether now owned by or owing to, or hereafter acquired by
or arising in favor of such Grantor (including, but not limited to, under any
trade names or divisions thereof), and whether owned, leased or consigned by or
to such Grantor, and regardless of where located (all of which being hereinafter
collectively referred to as the "Collateral"):
----------
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all General Intangibles;
(v) all Inventory;
(vi) all Equipment;
(vii) all Instruments, Documents, policies and certificates of
insurance, securities, deposits, deposit accounts, impressed accounts,
compensating balances, money, cash, cash equivalents or other property;
(viii) all lockbox, deposit and other bank accounts of each
Grantor and all deposits therein and investments made with the funds
therein, including, but not limited to, all accounts of any Grantor
maintained at NationsBank or Bank One;
-5-
<PAGE>
(ix) all Real Property;
(x) all Fixtures;
(xi) all other Goods and interests in property of any kind,
nature or description whatsoever, whether tangible or intangible,
whether real or personal, and whether now or hereafter owned or
existing, leased, consigned by or to, or acquired by, any Grantor and
wherever located;
(xii) all books, records and information relating to the
Collateral and/or to the operation of any Borrower's business, and all
rights of access to such books, records and information, and all
property in which such books, records and information are stored,
recorded and maintained;
(xiii) all insurance proceeds, refunds and premium rebates,
including, without limitation, proceeds of fire and credit insurance,
whether any of such proceeds, refunds and premium rebates arise out of
any of the foregoing ((i) through (xii)) or otherwise;
(xiv) all liens, guaranties, rights, remedies and privileges
pertaining to any of the foregoing ((i) through (xii)) including the
right of stoppage in transit; and
(xv) all proceeds of any and all of the foregoing Collateral,
including, but not limited to, that litigation specifically identified
in the definition of General Intangibles and the Headquarters Building
specifically identified in the definition of Real Property, (including,
without limitation, cash proceeds and other proceeds which constitute
property of the types described subsections (i) through (xi) of this
Section 2(a)), and to the extent not otherwise included, all payments
under insurance (whether or not the Lender is the loss payee thereof),
or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral.
(b) In addition, to secure the prompt and complete payment,
performance and observance of the Obligations and in order to induce Lender as
aforesaid, each Grantor hereby grants to Lender a security interest in all
property of such Grantor held by Lender including, without limitation, all
property of every description now or hereafter in the possession or custody of,
or in transit to Lender for any purpose, including safekeeping, collection or
pledge, for the account of such Grantor, or as to which such Grantor may have
any right or power.
-6-
<PAGE>
3. RIGHTS OF LENDER; LIMITATIONS ON OBLIGATIONS OF LENDER. (a) It
------------------------------------------------------
is expressly agreed by each Grantor that, anything herein to the contrary
notwithstanding, such Grantor shall remain liable under each of its Contracts
and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and Lender shall have
no obligation or liability under any Contract or License by reason of or arising
out of this Security Agreement or the granting herein of a security interest
therein or the receipt by Lender of any payment relating to any Contract or
License pursuant hereto, nor shall Lender be required or obligated in any manner
to perform or fulfill any of the obligations of any Grantor under or pursuant to
any Contract or License, or to make any payment, or to make any inquiry as to
the nature or the sufficiency of any payment received by it or the sufficiency
of any performance by any party under any Contract or License, or to present or
file any claim, or to take any action to collect or enforce any performance or
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
(b) Lender may at any time after the occurrence of an Event of Default
and without prior notice to any Grantor, notify Account Debtors, parties to the
Contracts, and obligors in respect of Instruments and Chattel Paper that the
Accounts and the right, title and interest of each Grantor in and under such
Contracts, Instruments and Chattel Paper have been assigned to Lender and that
payments shall be made directly to Lender. Upon the request of Lender, each
Grantor shall so notify such Account Debtors, parties to Contracts and obligors
in respect of Instruments and Chattel Paper.
(c) Lender shall have the right from time to time upon prior notice to
any Grantor to make test verifications of the Accounts and physical
verifications and appraisals of the Inventory and other Collateral in any manner
and through any medium that it considers reasonably advisable, and each Grantor
agrees to furnish all such assistance and information as Lender may require in
connection therewith. Lender may at any time in Lender's own name or in the
name of any Grantor communicate with Account Debtors, parties to Contracts and
obligors in respect of Instruments to verify with such Persons, to Lender's
satisfaction, the existence, amount and terms of any Accounts, Contracts,
Instruments or Chattel Paper.
4. REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents
------------------------------
and warrants that:
(a) Each Grantor is the sole owner of each item of the Collateral in
which it purports to grant a security interest hereunder, having good and
marketable title thereto free and clear of any and all Liens except (i) the
security interest granted to Lender under this Security Agreement, (ii)
Permitted Encumbrances,
-7-
<PAGE>
and (iii) as otherwise expressly permitted by the Credit Agreement. Each Grantor
will warrant and defend such Collateral against all claims and demands of all
persons at any time claiming the same or any interest thereon.
(b) No effective security agreement, financing statement, equivalent
security or Lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except (i) such
as have been or will be filed in favor of Lender pursuant to this Security
Agreement, (ii) such as relate to Permitted Encumbrances or (iii) such as have
been filed by GBFC, Inc. prior to the Relief Date and for which appropriate
termination statements and releases have been delivered to Lender or will be
filed prior to the Funding Date.
(c) Immediately upon the filing of appropriate financing statements in
the jurisdictions listed on Schedule 1 hereto or as may be otherwise provided in
----------
the Orders, this Security Agreement is and will be effective to create a valid
and continuing Lien on and perfected security interest in favor of Lender in the
Collateral with respect to which a security interest may be perfected by filing
pursuant to the Code, which Lien and security interest is prior to all other
Liens except Senior Liens and those Liens specifically disclosed in the Credit
Agreement as being prior to the Lien of this Security Agreement, and is
enforceable as such as against creditors of and purchasers from any Grantor
(other than purchasers of Inventory in the ordinary course of business). All
action (including, without limitation, all filings, registrations and
recordings) necessary or desirable to create, protect and perfect the security
interest granted to Lender hereby in respect of each item of the Collateral has
been duly accomplished.
(d) Each Grantor's chief executive office, principal place of
business, corporate offices, all warehouses and premises within which Collateral
is stored or located and the locations of all of its records concerning the
Collateral are set forth on Schedule 1. Such Schedule 1 correctly identifies
---------- ----------
any of such facilities or locations that are not owned by any Grantor and sets
forth the names of the owners and lessors or collateral of, and the holders of
any mortgages on, such facilities and locations. Each Grantor agrees that it
shall not change its chief executive office, principal place of business,
corporate offices, or warehouses or Collateral premises or the location of its
records concerning the Collateral without giving thirty (30) days prior written
notice thereof to Lender and taking all actions deemed by Lender to be
reasonably necessary or appropriate to protect and perfect Lender's interest in
the Collateral.
5. COVENANTS. Each Grantor covenants and agrees with Lender that
---------
from and after the date of this Security Agreement and until the Termination
Date:
-8-
<PAGE>
(a) Further Assurances; Pledge of Instruments. At any time and from
-----------------------------------------
time to time, upon the written request of Lender and at the sole expense of such
Grantor, each Grantor shall promptly and duly execute and deliver any and all
such further instruments and documents and take such further action as Lender
may reasonably deem desirable to obtain the full benefits of this Security
Agreement and of the rights and powers herein granted, including (i) securing
all consents and approvals necessary or appropriate for the assignment to or for
the benefit of Lender of any License or Contract held by any Grantor or in which
any Grantor has any rights not heretofore assigned, (ii) filing any financing or
continuation statements under the Code with respect to the liens and security
interests granted hereunder or under any other Loan Document, (iii) transferring
Collateral to Lender's possession (if such Collateral consists of Documents, or
Chattel Paper or if a security interest in such Collateral can be perfected by
possession, or if requested by Lender) and (iv) obtaining waivers of liens from
landlords and mortgagees or the subordination of such liens in the Emergency
Interim Order and the Final Order in accordance with Section 6.18 of the Credit
Agreement (it being understood that Lender in its discretion may establish a
reserve against availability under the Credit Agreement until the same have been
obtained). Each Grantor also hereby authorizes Lender to file any such
financing or continuation statement without the signature of such Grantor to the
extent permitted by applicable law. Each Grantor will warrant and defend the
Collateral against all claims and demands of all Persons at any time claiming
the same or any interest thereon. Each Grantor shall give Lender not less than
thirty (30) days prior written notice before moving any Collateral to a location
not set forth in Schedule 1 hereto, and shall in no event move any Collateral
----------
outside the United States of America.
(b) Maintenance of Records. Each Grantor shall keep and maintain, at
----------------------
its own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Each Grantor shall mark its books and records pertaining to the
Collateral to evidence this Security Agreement and the security interests
granted hereby. Upon the occurrence of any Event of Default, each Grantor shall
deliver and turn over all of its books and records pertaining to the Collateral
to Lender or to Lender's representatives at any time on demand of Lender.
(c) Continuous Perfection. Each Grantor agrees that it shall not
---------------------
change its name, identity or corporate structure in any manner which might make
any financing or continuation statement filed in connection herewith seriously
misleading within the meaning of any applicable provision of the Code unless
such Grantor shall have given Lender at least thirty (30) days' prior written
notice thereof and shall have taken all action necessary or
-9-
<PAGE>
requested by Lender to amend such financing statement or continuation statement
so that it is not seriously misleading.
(d) Provisions Regarding Accounts.
-----------------------------
(i) Each Grantor agrees that it shall not re-date any invoice or
sale or make sales on extended dating beyond that customary in such Grantor's
business, or extend or modify any Account (other than correction of errors in
the ordinary course). If any Grantor becomes aware of any matter materially
affecting any Account, including information regarding such Account Debtor's
creditworthiness, such Grantor will promptly so advise Lender; and
(ii) Except as provided in the Credit Agreement, each Grantor
agrees that it shall not grant any discount, credit or allowance to any Account
Debtor without Lender's consent, except for discounts, credits and allowances
for returns, rejections and damaged goods made or given in the ordinary course
of such Grantor's business consistent with past practices.
(e) Provisions Regarding Inventory.
------------------------------
(i) Each Grantor agrees that it will engage in the sale of the
Inventory for fair consideration in the conduct of each Grantor's business in
the ordinary course and that each of the Grantors will not engage in sales or
other dispositions to creditors, sales or other dispositions in bulk, or in any
way use any of the Inventory in breach of any provision of this Agreement;
(ii) Each Grantor agrees that there shall be no sale of
Inventory on consignment, approval, or under any other circumstances such that,
with the exception of the subject Grantor's customary return policy applicable
to the return of Inventory purchased by that Grantor's retail customers in the
ordinary course, such Inventory may be returned to such Grantor without the
consent of the Lender; and
(iii) Each Grantor agrees that all Inventory now owned or
hereafter acquired is and will be of good and merchantable quality free from
defects (other than defects within customary trade tolerances). No tangible
personal property of any Grantor is or will be stored or entrusted with a bailee
or other third party without the Lender's prior written consent and approval.
6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
----------------------------------------
(a) Each Grantor hereby irrevocably constitutes and appoints Lender, and any
designee of Lender, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Grantor and in the name of such Grantor or in its own name, from
time to time in Lender's reasonable discretion, for the purpose of carrying out
the terms of this Security Agreement, to take any and
-10-
<PAGE>
all appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Security Agreement and, without limiting the generality of the foregoing,
hereby grants to Lender the power and right, on behalf of such Grantor, without
notice to or assent by any Grantor, and at any time, to do the following:
(i) in the name of such Grantor, in its own name or otherwise,
take possession of, endorse and receive payment of any checks, drafts,
notes, acceptances or other Instruments for the payment of monies due
under any Collateral;
(ii) if such Grantor fails or refuses to do so, continue any
insurance existing pursuant to the terms of the Loan Documents, and pay
all or any part of the premiums therefor and the costs thereof;
(iii) receive payment of any and all monies, claims and other
amounts due or to become due at any time arising out of or in respect of
any Collateral;
(iv) ask, demand, collect, receive and give acquittances and
receipts for any and all money due or to become due under any
Collateral; and
(v) pay or discharge any taxes, Liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral;
(b) Each Grantor hereby irrevocably constitutes and appoints Lender
and any designee of Lender, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Grantor and in the name of such Grantor or in its own name,
from time to time in Lender's discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may be necessary
or desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby grants to Lender the power and
right, on behalf of such Grantor, without notice to or assent by any Grantor,
upon the occurrence of an Event of Default and until such Event of Default is
waived in writing by the Lender, to do the following:
(i) sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against Account Debtors,
assignments, verifications and notices in connection with accounts and other
documents constituting or related to the Collateral;
-11-
<PAGE>
(ii) settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, give such discharges or releases
as Lender may deem reasonably appropriate;
(iii) file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise deemed reasonably
appropriate by Lender for the purpose of collecting any and all such monies due
under any Collateral whenever payable;
(iv) commence and prosecute any suits, actions or proceedings at law
or in equity in any court to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral;
(v) defend any suit, action or proceeding brought against such
Grantor with respect to any Collateral if such Grantor does not defend such
suit, action or proceeding or if Lender believes that such Grantor is not
pursuing its defense in a manner that will maximize the recovery with respect to
such Collateral;
(vi) license or, to the extent permitted by an applicable License,
sublicense whether general, specific or otherwise, and whether on an exclusive
or non-exclusive basis, any Trademark throughout the world on such terms and
conditions and in such manner as Lender shall, in its sole discretion,
determine; and
(vii) sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
Lender were the absolute owner thereof for all purposes, and to do, at Lender's
option and such Grantor's expense, at any time, or from time to time, all acts
and other things which Lender reasonably deems necessary to perfect, preserve or
realize upon the Collateral and Lender's Lien therein in order to effect the
intent of this Security Agreement, all as fully and effectively as such Grantor
might do and execute, in connection with the sale provided for in Section 8
hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) Each Grantor hereby ratifies, to the extent permitted by law, all
that said attorneys shall lawfully do or cause to be done by virtue hereof. The
power of attorney granted pursuant to this Section 6 is a power coupled with an
interest and shall be irrevocable until the Termination Date.
(d) The powers conferred on Lender hereunder are solely to protect
Lender's security interests in the Collateral and shall not impose any duty upon
it to exercise any such powers. Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and none of
its officers, directors, employees, agents or representatives shall be
-12-
<PAGE>
responsible to any Grantor for any act or failure to act, except for their own
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
7. PERFORMANCE BY LENDER OF ANY GRANTOR'S OBLIGATIONS. If any Grantor
--------------------------------------------------
fails to perform or comply with any of its agreements contained herein or in any
of the other Loan Documents, and Lender, as provided for by the terms of this
Security Agreement or any other Loan Documents, shall itself perform or comply,
or otherwise cause performance of or compliance with such agreement, the
expenses, including reasonable attorneys' fees, of Lender incurred in connection
with such performance or compliance, together with interest thereon at the
default rate provided in the Credit Agreement shall be payable by each Grantor
to Lender on demand and shall constitute part of the Obligations secured hereby.
8. REMEDIES; RIGHTS UPON AN EVENT OF DEFAULT. (a) If any Event of
-----------------------------------------
Default shall occur and until such Event of Default is waived in writing by
Lender, Lender may exercise in addition to all other rights and remedies granted
to it under this Security Agreement, the Credit Agreement, the other Loan
Documents and under any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, each Grantor
expressly agrees that in any such event Lender, without demand of performance or
other demand, advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale or as expressly required by
the Credit Agreement) to or upon any Grantor or any other Person and without any
further order of the Court other than the Final Order (all and each of which
demands, advertisements and notices are hereby expressly waived to the maximum
extent permitted by the Code and other applicable law), may forthwith enter upon
the premises of any Grantor where any Collateral is located through self-help,
without judicial process, without first obtaining a final judgment or giving any
Grantor notice and opportunity for a hearing on Lender's claim or action, and
without paying rent to any Grantor, and collect, receive, assemble, process,
appropriate and realize upon the Collateral, or any part thereof, and may
forthwith sell, lease, assign, give an option or options to purchase, or sell or
otherwise dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. Lender shall have the right
upon any such public sale or sales and, to the extent permitted by law, upon any
such private sale or sales, to purchase for its benefit the whole or any part of
said Collateral so sold, free of any right or equity of redemption, which equity
of redemption each Grantor hereby releases. Such sales may be adjourned or
continued from time to time with or without notice. Lender shall have the right
to conduct such sales on any Grantor's premises or elsewhere and
-13-
<PAGE>
shall have the right to use any Grantor's premises without charge for such sales
for such time or times as Lender deems necessary or advisable except as
otherwise provided in the applicable landlord's waiver. For the purpose of
enabling Lender to exercise rights and remedies under this Section 8, each
Grantor hereby grants to Lender an irrevocable, non-exclusive license to use,
transfer, license or sublicense any trademark or trade name now owned or
hereafter acquired by such Grantor.
Each Grantor further agrees, at Lender's request, to assemble the
Collateral and make it available to Lender at places which Lender shall
reasonably select, whether at any Grantor's premises or elsewhere. Until Lender
is able to effect a sale, lease or other disposition of the Collateral, Lender
shall have the right to hold or use the Collateral on behalf of Lender, or any
part thereof, to the extent that it deems appropriate for the purpose of
preserving the Collateral or its value or for any other purpose deemed
appropriate by Lender. Lender shall have no obligation to any Grantor to
maintain or preserve the rights of such Grantor as against third parties with
respect to the Collateral while the Collateral is in the possession of Lender.
Lender may, if it so elects, seek the appointment of a receiver or keeper to
take possession of the Collateral and to enforce any of Lender's remedies with
respect to such appointment without prior notice or hearing. Lender shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, as provided in Section 8(d) hereof, each Grantor remaining
liable for any deficiency remaining unpaid after such application, and after so
paying over such net proceeds and after the payment in full of the Obligations,
the surplus, if any, will be delivered to the Court. To the maximum extent
permitted by applicable law, each Grantor waives all claims, damages and demands
against Lender arising out of the repossession, retention or sale of the
Collateral except such as arise out of the gross negligence or willful
misconduct of such party. Each Grantor agrees that ten (10) days' prior notice
by Lender of the time and place of any public sale or of the time after which a
private sale may take place is reasonable notification of such matters. Each
Grantor shall remain liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay all amounts to which
Lender is entitled, each Grantor also being liable for any and all costs and
expenses incurred by Lender, including reasonable attorneys' fees, to collect
such deficiency.
(b) Each Grantor agrees to pay any and all costs of Lender, including,
without limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder.
(c) Except as otherwise specifically provided herein or in the Credit
Agreement, to the maximum extent permitted by applicable law, each Grantor
hereby waives presentment, demand,
-14-
<PAGE>
protest or any notice (to the maximum extent permitted by applicable law) of any
kind in connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization upon all
or any part of the Collateral shall be distributed by Lender upon receipt, in
the following order of priorities:
First, the payment in full of all fees and expenses of Lender then
-----
due and payable to Lender, including all expenses of Lender in connection
with such sale, disposition or other realization and all expenses,
liabilities and advances incurred or made by Lender in connection
therewith, including reasonable attorney's fees and any other Obligations
owed to Lender (other than principal, interest or Letter of Credit
Obligations);
Second, to the payment of accrued but unpaid interest on the
------
Obligations;
Third, to cash collaterize Letter of Credit Obligations as provided
-----
for in the Credit Agreement;
Fourth, to the payment of unpaid principal of the Obligations;
------
Fifth, to the payment of all other Obligations until all other
-----
Obligations shall have been paid in full; and
Finally, any surplus then remaining from such proceeds shall be
-------
delivered to the Court or to payment to any Person as the Court may
otherwise direct.
9. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL. Lender shall
----------------------------------------------------
use reasonable care with respect to the Collateral in its possession or under
its control. Lender shall not have any other duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
Lender, or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto. Upon request of any Grantor,
Lender shall account for any monies received by Lender in respect of any
foreclosure on or disposition of the Collateral.
10. NOTICES. Except as otherwise provided herein, whenever it is
-------
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever either of the parties desires to give or
serve upon any communication with respect to this Security Agreement, each such
notice, demand, request, consent, approval, declaration or other
-15-
<PAGE>
communication shall be in writing and shall be given in the manner as provided
for in the Credit Agreement.
11. SEVERABILITY. Any provision of this Security Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. This Security Agreement
is to be read, construed and applied together with the Credit Agreement and the
other Loan Documents, which, taken together, set forth the complete
understanding and agreement of the Lender and each Grantor with respect to the
matters referred to herein and therein.
12. NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any act, delay,
------------------------------
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing, signed by Lender and
then only to the extent therein set forth. A waiver by Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which Lender would otherwise have had on any future occasion.
No failure to exercise nor any delay in exercising on the part of Lender, any
right, power or privilege hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or future exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law. None of the terms or provisions of
this Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Lender and each Grantor.
13. LIMITATION BY LAW. All rights, remedies and powers provided in this
-----------------
Security Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law, and all the provisions of this
Security Agreement are intended to be subject to all applicable mandatory
provisions of law that may be controlling and to be limited to the extent
necessary so that they do not render this Security Agreement invalid,
unenforceable, in whole or in part, or not entitled to be recorded, registered
or filed under the provisions of any applicable law.
14. TERMINATION OF THIS SECURITY AGREEMENT. This Security Agreement
--------------------------------------
shall terminate upon the Termination Date.
15. SUCCESSOR AND ASSIGNS. This Security Agreement and all obligations
---------------------
of each Grantor hereunder shall be binding upon the successors and assigns of
such Grantor, and shall, together with
-16-
<PAGE>
the rights and remedies of Lender hereunder, inure to the benefit of Lender, all
future holders of any instrument evidencing any of the Obligations, any other
Person that becomes a 'Lender' under the Credit Agreement, and their respective
successors and assigns. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or instrument
evidencing the Obligations or any portion thereof or interest therein shall in
any manner affect the security interest granted to Lender hereunder. Each
Grantor acknowledges that it may not assign, sell or otherwise transfer an
interest in this Security Agreement.
16. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. EXCEPT AS
------------------------------------------------
OTHERWISE EXPRESSLY PROVIDED HEREIN OR IN ANY OF THE LOAN DOCUMENTS, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. NOTHING IN THIS SECURITY AGREEMENT SHALL
BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGEMENT OR OTHER COURT ORDER IN
FAVOR OF LENDER. EACH GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY FEDERAL COURT SITTING IN THE
STATE OF TEXAS, AND EACH GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
--------------------
AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. EACH GRANTOR HEREBY WAIVES PERSONAL SERVICE
OF THE SUMMONS, COMPLAINTS AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT
AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL OR BY FEDERAL EXPRESS OR OTHER COURIER
SERVICE ADDRESSED TO EACH GRANTOR AT THE ADDRESSES SET FORTH IN THE CREDIT
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON EACH GRANTOR'S
ACTUAL RECEIPT THEREOF.
[Remainder of page intentionally left blank.]
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Security Agreement to be
executed and delivered by its duly authorized officer on the date first set
forth above.
GRANTORS: 50-OFF STORES, INC.,
- -------- a Delaware corporation
By: /s/ CHARLES J. FUHRMANN II
--------------------------------------
Charles J. Fuhrmann, II
President
50-OFF MULTISTATE OPERATIONS, INC.,
a Nevada corporation
By: /s/ CHARLES J. FUHRMANN II
--------------------------------------
Charles J. Fuhrmann, II
President
50-OFF OPERATING COMPANY
a Nevada corporation
By: /s/ CHARLES J. FUHRMANN II
--------------------------------------
Charles J. Fuhrmann, II
President
50-OFF TEXAS STORES, L.P.,
a Texas limited partnership
By: 50-OFF Texas Management, Inc.,
a Nevada corporation,
its managing general partner
By: /s/ CHARLES J. FUHRMANN II
-----------------------------
Charles J. Fuhrmann, II
President
-18-
<PAGE>
LENDER: GENERAL ELECTRIC CAPITAL CORPORATION
- ------
By: /s/ General Electric Capital Corporation
-----------------------------------------
Name:
---------------------------------------
Its:
----------------------------------------
-19-
<PAGE>
SCHEDULE 1
----------
Location of Collateral
----------------------
1. Collateral is located at each of the non-rejected store locations
identified in the attached exhibit of store leases.
2. Further collateral is located at 8750 Tesoro Drive, San Antonio,
Bexar County, Texas 78217.
3. Further collateral is located at the warehouse of DFW Logistics
located at 3801 La Reunion Parkway, Dallas, Dallas County, Texas 75212.
<PAGE>
TRADEMARK AND LICENSE SECURITY AGREEMENT
----------------------------------------
THIS TRADEMARK AND LICENSE SECURITY AGREEMENT (this "Agreement") is
made as of November 18, 1996, by and among 50-OFF Stores, Inc., a Delaware
corporation, 50-OFF Texas Stores, L.P., a Texas limited partnership, 50-OFF
Operating Company, a Nevada corporation, and 50-OFF Multistate Operations, Inc.,
a Nevada corporation (collectively, the "Borrowers"), and General Electric
Capital Corporation, a New York corporation (the "Lender") (as such terms are
defined in the Credit Agreement defined below).
W I T N E S S E T H:
-------------------
WHEREAS, the Borrowers and the Lender are parties to that certain
$15,000,000 Senior Secured Super Priority Debtor-in-Possession Revolving Credit
Agreement of even date herewith (as the same may hereafter be modified, amended,
restated or supplemented from time to time, the "Credit Agreement"), pursuant to
----------------
which the Lender may, from time to time, extend credit to the Borrowers; and
WHEREAS, the Borrowers and the Lender are parties to that certain
Security Agreement of even date herewith (as the same may hereafter be modified,
amended, restated or supplemented from time to time, the "Security Agreement"),
------------------
pursuant to which each of the Borrowers has granted a security interest in
certain of its assets to the Lender; and
WHEREAS, the Lender has required each of the Borrowers to execute and
deliver this Agreement (i) in order to secure the prompt and complete payment,
observance and performance of all of the Obligations (as defined in the Credit
Agreement) and (ii) as a condition precedent to any extension of credit under
the Credit Agreement;
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, each Borrower agrees as follows:
1. Defined Terms.
-------------
(a) Unless otherwise defined herein, each capitalized term used
herein that is defined in the Credit Agreement shall have the meaning specified
for such term in the Credit Agreement. Unless otherwise defined herein or in
the
<PAGE>
Credit Agreement, each capitalized term used herein that is defined in the
Security Agreement shall have the meaning specified for such term in the
Security Agreement.
(b) The words "hereof," "herein" and "hereunder" and words of like
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and paragraph references are
to this Agreement unless otherwise specified.
(c) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
----------
specified.
2. Incorporation of Premises. The premises set forth above are
-------------------------
incorporated into this Agreement by this reference thereto and are made a part
hereof.
3. Incorporation of the Credit Agreement. The Credit Agreement
-------------------------------------
and the terms and provisions thereof are hereby incorporated herein in their
entirety by this reference thereto.
4. Security Interest in Trademarks. To secure the complete and
-------------------------------
timely payment, performance and satisfaction of all of the Obligations, each
Borrower hereby grants to the Lender, a security interest in, as and by way of a
first mortgage and security interest having priority over all other security
interests, with power of sale to the extent permitted by applicable law, all of
each Borrower's now owned or existing and hereafter acquired or arising: (i)
trademarks, trade names, registered trademarks, trademark applications, service
marks, registered service marks and service mark applications, including,
without limitation, the trademarks, trade names, registered trademarks,
trademark applications, service marks, registered service marks and service mark
applications listed on Schedule 1 attached hereto and made a part hereof, and
----------
(a) all renewals thereof, (b) all income, royalties, damages and payments now
and hereafter due and/or payable under and with respect thereto, including,
without limitation, payments under all licenses entered into in connection
therewith and damages and payments for past or future infringements or dilutions
thereof, (c) the right to sue for past, present and future infringements and
dilutions thereof, (d) the goodwill of each Borrower's business symbolized by
the foregoing and connected therewith, and
2
<PAGE>
(e) all of each Borrower's rights corresponding thereto throughout the world
(all of the foregoing trademarks, trade names, registered trademarks and
trademark applications, service marks, registered service marks and service mark
applications, together with the items described in clauses (a)-(e) in this
---------------
paragraph 4(i), are sometimes hereinafter individually and/or collectively
- --------------
referred to as the "Trademarks"); and (ii) the goodwill of each Borrower's
----------
business connected with and symbolized by the Trademarks.
5. Security Interest in Licenses. To secure the complete and
-----------------------------
timely payment, performance and satisfaction of all of the Obligations, each
Borrower hereby grants to the Lender, a security interest in, as and by way of a
first mortgage and security interest having priority over all other security
interests, with power of sale to the extent permitted by applicable law, all of
each Borrower's now owned or existing and hereafter acquired or arising rights
under or interest in any license agreements with any other party, whether such
Borrower is a licensee or licensor under any such license agreement, including,
without limitation, license agreements listed on Schedule 2 attached hereto and
----------
made a part hereof, together with any goodwill connected with and symbolized by
any such license agreements, and the right to use the foregoing in connection
with the enforcement of the Lender's rights under the Credit Agreement,
including without limitation, the right to prepare for sale and sell any and all
Inventory now or hereafter owned by any Borrower and now or hereafter covered by
such licenses (all of the foregoing are hereinafter referred to collectively as
the "Licenses"). Notwithstanding the foregoing provisions of this paragraph 5,
-------- -----------
the Licenses shall not include any license agreement in effect as of the date
hereof which by its terms prohibits the grant of the security contemplated by
this Agreement; provided, however, that upon the termination of such
-------- -------
prohibitions for any reason whatsoever, the provisions of this paragraph 5 shall
-----------
be deemed to apply thereto automatically.
6. Restrictions on Future Agreements. None of the Borrowers
---------------------------------
will, without the Lender's prior written consent, enter into any agreement,
including, without limitation, any license agreement, which is inconsistent with
this Agreement, and each Borrower further agrees that it will not take any
action, and will use its best efforts not to permit any action to be taken by
others subject to its control, including, without limitation, licensees, or fail
to take any action, which would in any
3
<PAGE>
material respect affect the validity or enforcement of the rights transferred to
the Agent under this Agreement or the rights associated with the Trademarks or
the Licenses.
7. New Trademarks and Licenses. Each Borrower represents and
---------------------------
warrants that, from and after the Closing Date, (a) the Trademarks listed on
Schedule 1 include all of the trademarks, trade names, registered trademarks,
- ----------
trademark applications, service marks, registered service marks and service mark
applications now owned or held by any Borrower, (b) the Licenses listed on
Schedule 2 include all of the license agreements under which any Borrower is the
- ----------
license or licensor, and (c) no liens, claims or security interests in such
Trademarks or Licenses have been granted by any Borrower to any Person other
than the Lender and except as disclosed in the Credit Agreement. If, prior to
the termination of this Agreement, any Borrower shall (i) obtain rights to any
new trademarks, trade names, registered trademarks, trademark applications,
service marks, registered service marks or service mark applications, (ii)
obtain rights to any new license agreements, (iii) become entitled to the
benefit of any trademarks, trade names, registered trademarks, trademark
applications, trademark licenses, trademark license renewals, service marks,
registered service marks, service mark applications, service mark licenses or
service mark license renewals or license agreements whether as licensee or
licensor, or (iv) enter into any new license agreement, the provisions of
paragraphs 4 & 5, as applicable, above shall automatically apply thereto (to the
- ----------------
extent permitted by licensors under agreements in connection with the granting
of such licenses). Each Borrower shall give to the Agent written notice of
events described in clauses (i), (ii), (iii), and (iv) of the preceding sentence
------------------------- ----
promptly after the occurrence thereof. Each Borrower hereby authorizes the
Lender to modify this Agreement unilaterally (i) by amending Schedule 1 to
----------
include any future trademarks, trade names, registered trademarks, trademark
applications, service marks, registered service marks and service mark
applications, which are Trademarks under paragraph 4 above or under this
-----------
paragraph 7, (ii) by amending Schedule 2 to include any future license
- ----------- ----------
agreements which are licenses under paragraph 5 above or under this paragraph 7,
----------- -----------
and (iii) by filing, in addition to and not in substitution for this Agreement,
a duplicate original of this Agreement containing on Schedule 1 thereto, as the
----------
case may be, such future trademarks, trade names, registered trademarks,
trademark applications, service marks, registered service marks and service mark
applications and
4
<PAGE>
containing on Schedule 2 thereto, as the case may be, such future license
----------
agreements.
8. Royalties. Each Borrower hereby agrees that the use by the
---------
Lender of the Trademarks and the Licenses as authorized hereunder in connection
with the Lender's exercise of its rights and remedies under paragraph 16 or
------------
pursuant to any Loan Document shall be coextensive with each Borrower's rights
thereunder and with respect thereto and without any liability for royalties or
other related charges from the Lender to the Borrowers.
9. Right to Inspect; Further Assignments and Security Interest.
-----------------------------------------------------------
The Lender may at all times, in accordance with the Credit Agreement, have
access to, examine, audit, make copies (at such Borrower's expense) and extracts
from and inspect each Borrower's premises and examine each Borrower's books,
records and operations relating to the Trademarks or the Licenses. Each
Borrower agrees (i) not to sell or assign its respective interests in, or grant
any license under, the Trademarks without the prior and express written consent
of the Lender, and (ii) not to sell or assign its respective interests in the
Licenses without the prior and express written consent of the Lender.
10. Nature and Continuation of the Lender's Security Interest;
----------------------------------------------------------
Termination of the Lender's Security Interest. This Agreement is made for
- ---------------------------------------------
collateral security purposes only. This Agreement shall create a continuing
security interest in the Trademarks and the Licenses and shall terminate only
when the Obligations have been paid in full and the Commitment, the Credit
Agreement and the Security Agreement have been terminated. When this Agreement
has terminated, the Lender shall promptly execute and deliver to the Borrower
Representative, at the Borrowers' expense, all termination statements and other
instruments as may be necessary or proper to terminate the Lender's security
interest in the Trademarks and in the Licenses, subject to any disposition
thereof which may have been made by the Lender pursuant to this Agreement or the
Security Agreement.
11. Duties of the Borrowers. Each Borrower shall have the duty:
-----------------------
(i) to the extent desirable in the normal conduct of each Borrower's business,
(x) to prosecute diligently any trademark application or service mark
application that is part of the Trademarks pending as of the date hereof or
hereafter until
5
<PAGE>
the termination of this Agreement and (y) to take all reasonable and necessary
action to preserve and maintain all of each Borrower's rights in the Licenses,
and (ii) to make application for trademarks or service marks. Each Borrower
further agrees (i) not to abandon any Trademark or any License without the prior
written consent of the Lender, and (ii) to use its best efforts to maintain in
full force and effect the Trademarks and the Licenses that are or shall be
necessary or economically desirable in the operation of any Borrower's business.
Any expenses incurred in connection with the foregoing shall be borne by the
Borrowers. The Lender shall not have any duty with respect to the Trademarks or
the Licenses. Without limiting the generality of the foregoing, the Lender
shall not be under any obligation to take any steps necessary to preserve rights
in the Trademarks or the Licenses against any other parties, but the Lender may
do so at its option from and after the occurrence of an Event of Default, and
all expenses incurred in connection therewith shall be for the sole account of
the Borrowers and shall be added to the Obligations secured hereby.
12. The Lender's Right to Sue. From and after the occurrence of
-------------------------
an Event of Default, the Lender shall have the right, but shall not be
obligated, to bring suit in its own name to enforce the Trademarks and Licenses
and, if the Lender shall commence any such suit, each Borrower shall, at the
request of the Lender, do any and all lawful acts and execute any and all proper
documents reasonably required by the Lender in aid of such enforcement. Each
Borrower shall, upon demand, promptly reimburse the Lender for all costs and
expenses incurred by the Lender in the exercise of its rights under this
paragraph 12 (including, without limitation, reasonable fees and expenses of
- ------------
attorneys and paralegals for the Lender).
13. Waivers. The Lender's failure, at any time or times hereafter, to
-------
require strict performance by each Borrower of any provision of this Agreement
shall not waive, affect or diminish any right of the Lender thereafter to demand
strict compliance and performance therewith nor shall any course of dealing
between any Borrower and the Lender have such effect. No single or partial
exercise of any right hereunder shall preclude any other or further exercise
thereof or the exercise of any other right. None of the undertakings,
agreements, warranties, covenants and representations of any Borrower contained
in this Agreement shall be deemed to have been suspended or waived by the Lender
unless such suspension or waiver is in writing signed by
6
<PAGE>
an officer of the Lender and directed to such Borrower specifying such
suspension or waiver.
14. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but the provisions of this Agreement are severable, and if any
clause or provision shall be held invalid and unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part hereof, in such jurisdiction, and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Agreement in any jurisdiction.
15. Modification. This Agreement cannot be altered, amended or
------------
modified in any way, except as specifically provided in paragraph 7 hereof or by
-----------
a writing signed by the parties hereto.
16. Power of Attorney; Cumulative Remedies. (a) Each Borrower
--------------------------------------
hereby irrevocably designates, constitutes and appoints the Lender (and all
officers and agents of the Lender designated by the Lender in its sole and
absolute discretion) as each Borrower's true and lawful attorney-in-fact, and
authorizes the Lender and any of the Lender's designees, in any Borrower's or
the Lender's name, from and after the occurrence of an Event of Default, and
upon the giving by the Lender of notice to any Borrower of the Lender's
intention to enforce its rights and claims against such Borrower, to take any
action and execute any instrument necessary or reasonably advisable to
accomplish the purposes of this Agreement, including, without limitation, to (i)
endorse the Borrower's name on all applications, documents, papers and
instruments necessary or reasonably desirable for the Lender in the use of the
Trademarks or the Licenses, (ii) assign, pledge, convey or otherwise transfer
title in or dispose of the Trademarks or the Licenses to anyone, if permitted by
their terms or by the Court, (iii) grant or issue any exclusive or nonexclusive
license under the Trademarks or the Licenses, if permitted by their terms or by
the Court, to anyone, and (iv) take any other actions with respect to the
Trademarks or the Licenses as the Lender deems in its best interest. Each
Borrower hereby ratifies all that such attorney shall lawfully do or cause to be
done by virtue hereof. This power of attorney is coupled with an interest and
shall be irrevocable. Each Borrower acknowledges and agrees that this Agreement
is not intended to
7
<PAGE>
limit or restrict in any way the rights and remedies of the Lender under the
Security Agreement, any other Loan Document or the Final Order, but rather is
intended to facilitate the exercise of such rights and remedies.
(b) The Lender shall have, in addition to all other rights and
remedies given it by the terms of this Agreement, all rights and remedies
allowed by law and the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in any jurisdiction in which the Trademarks or the
Licenses may be located or deemed located. Upon the occurrence of an Event of
Default and the election by the Lender to exercise any of its remedies under
Section 9-504 or Section 9-505 of the Uniform Commercial Code with respect to
the Trademarks or the Licenses, each Borrower agrees to assign, convey and
otherwise transfer title in and to the Trademarks and the Licenses to the Lender
or any transferee of the Lender and to execute and deliver to the Lender or any
such transferee all such agreements, documents and instruments as may be
necessary, in the Lender's sole discretion, to effect such assignment,
conveyance and transfer. All of the Lender's rights and remedies with respect to
the Trademarks and the Licenses, whether established hereby, by the Security
Agreement or by any other agreements or by law, shall be cumulative and may be
exercised separately or concurrently. Notwithstanding anything set forth herein
to the contrary, it is hereby expressly agreed that upon the occurrence of an
Event of Default, the Lender may exercise any of the rights and remedies
provided in this Agreement, the Security Agreement, any of the other Loan
Documents and the Final Order. Each Borrower agrees that any notification of
intended disposition of any of the Trademarks or Licenses required by law shall
be deemed reasonably and properly given if given at least ten (10) days before
such disposition; provided, however, that the Lender may give any shorter notice
-------- -------
that is commercially reasonable under the circumstances or approved by the
Court.
17. Successors and Assigns. This Agreement shall be binding upon
----------------------
each Borrower and its successors and assigns, and shall inure to the benefit of
each of the Lender and its nominees, successors and assigns. Each Borrower's
successors and assigns shall include, without limitation, a receiver, or a
trustee of or such Borrower; provided, however, that none of the Borrowers shall
-------- -------
voluntarily assign or transfer its rights or obligations hereunder without the
Lender's prior written consent.
8
<PAGE>
18. Governing Law. This Agreement shall be construed and enforced
-------------
and the rights and duties of the parties shall be governed by in all respects in
accordance with the laws and decisions of the State of Georgia without reference
to the conflicts of law principles thereof.
19. Notices. All notices or other communications hereunder shall
-------
be given in the manner and to the addresses set forth in the Credit Agreement.
20. Paragraph Titles. The paragraph titles herein are for
----------------
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.
21. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
22. Merger. This Agreement represents the final agreement of the
------
Borrowers and the Lender with respect to the matters contained herein and may
not be contradicted by evidence of prior or contemporaneous agreements, or
subsequent oral agreements, between any Borrower.
23. This Agreement shall become effective on the Closing Date.
[Remainder of this page intentionally left blank]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
Sworn to and subscribed 50-OFF STORES, INC.
before me this ___ day of
November, 1996.
By: /s/ 50-OFF Stores, Inc.
-----------------------------------
- -------------------------------------- Its:
NOTARY PUBLIC ----------------------------------
- --------------------------------------
My Commission Expires
Accepted and agreed to as
of the day and year first
above written.
Sworn to and subscribed 50-OFF TEXAS STORES, L.P.
before me this ___ day of
November, 1996.
By: /s/ 50-OFF Texas Management, Inc.
-----------------------------------
- -------------------------------------- Its:
NOTARY PUBLIC ----------------------------------
- --------------------------------------
My Commission Expires
Accepted and agreed to as
of the day and year first
above written.
Sworn to and subscribed 50-OFF OPERATING COMPANY
before me this ___ day of
November, 1996.
By: /s/ 50-OFF Operating Company
- -------------------------------------- -----------------------------------
NOTARY PUBLIC Its:
----------------------------------
- --------------------------------------
My Commission Expires
10
<PAGE>
Sworn to and subscribed 50-OFF MULTISTATE OPERATIONS, INC.
before me this ___ day of
November, 1996.
By: /s/ 50-OFF Multistate Operations, Inc.
- ------------------------------- ------------------------------------------
NOTARY PUBLIC Its:
------------------------------------------
- -------------------------------
My Commission Expires
Accepted and agreed to as
of the day and year first
above written.
Sworn to and subscribed GENERAL ELECTRIC CAPITAL
before me this ___ day of CORPORATION
November, 1996.
- ------------------------------- By: /s/ General Electric Capital Corporation
NOTARY PUBLIC ------------------------------------------
Its:
- ------------------------------- -----------------------------------------
My Commission Expires
11
<PAGE>
Schedule 1
to
Trademark and License Security Agreement
Dated as of November 18, 1996
Current Trademarks
------------------
SECTION
8
& 15 DUE RENEWAL
COUNTRY REG. NO. REG. DATE MARK BY DATE
- --------- --------- --------- --------------------- -------- -------
Mexico 482,205 12/22/92 The 50-Off (Plus n/a 4/23/02
Design)
U.S. 1,710,636 8/25/92 The 50-Off (Plus 8/25/98 8/25/02
Design)
U.S. 1,710,637 8/25/92 50 Off (Plus Design) 8/25/98 8/25/02
U.S. 1,716,901 9/16/92 50-Off Why Pay More 9/15/98 9/15/02
(Plus Design)
U.S. 1,818,263 1/25/94 50-Off Stores Where 1/25/00 1/25/04
You Save as Much as
you Spend
U.S. 1,494,671 6/28/88 The 50-Off (Plus n/a 6/28/08
Design)
Tradenames
----------
Trademarks Not Currently In Use
-------------------------------
Name Registration No.
---- ----------------
A-1
<PAGE>
Trademarks and Service Mark Applications
----------------------------------------
Section 8
& Renewal
Country Docket No. Reg. Date Mark 15 Due By Date
- --------- ---------- --------- -------- --------- -------
U.S. 060615.120 n/a Lots Off n/a n/a
A-2
<PAGE>
SCHEDULE 2
----------
License Agreements
------------------
The sole licenses, permits and approvals of Borrowers consist of sales tax
permits, certificates of occupancy, and food and non-alcoholic beverage licenses
which will be provided to Lender within ten (10) business days of written
request therefor from Lender to Borrowers.
<PAGE>
STOCK PLEDGE AGREEMENT
----------------------
This Stock Pledge Agreement (this "Agreement"), entered into as of this
18 day of November, 1996, by and between 50-OFF Stores, Inc., a Delaware
corporation (the "Pledgor") and General Electric Capital Corporation, a New York
corporation (the "Lender"),
W I T N E S S E T H :
---------------------
WHEREAS, the Pledgor is the owner of the issued and outstanding stock of
each of the Subsidiaries listed on Schedule 1 attached hereto in the percentage
----------
amounts set forth on Schedule 1 attached hereto (the "Subsidiaries"); and
----------
WHEREAS, the Pledgor, 50-OFF Texas Stores, L.P., a Texas limited
partnership, 50-OFF Operating Company, a Nevada corporation, and 50-OFF
Multistate Operations, Inc., a Nevada corporation (together with Pledgor,
referred to collectively as the "Borrowers") and the Lender are parties to that
certain $15,000,000 Senior Secured Super Priority Debtor-In-Possession Revolving
Credit Agreement of even date herewith among Pledgor (as amended, modified or
supplemented from time to time, the "Credit Agreement"), pursuant to which the
Lender has agreed to extend credit to the Borrowers in an aggregate amount not
to exceed $15,000,000; and
WHEREAS, in consideration for, among other things, the Lender's execution
of the Credit Agreement, and to secure the payment and performance of the
Obligations of the Borrowers under the Credit Agreement, the Pledgor has agreed
to pledge to the Lender all of the shares of stock of Subsidiaries owned by the
Pledgor (the "Stock");
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that capitalized terms used herein shall
have the meanings ascribed to them in the Credit Agreement to the extent not
otherwise defined or limited herein, and further agree as follows:
<PAGE>
1. Security Interest. The Pledgor hereby unconditionally pledges,
-----------------
transfers, conveys, grants and assigns to the Lender and its successors and
assigns a continuing security interest in and security title to the Stock owned
by it and all substitutions therefor and replacements thereof, all proceeds and
products thereof and all rights relating thereto, including, without limitation,
the certificates representing the Stock, all warrants, options, share
appreciation rights and other rights, contractual or otherwise, in respect
thereof and of all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in addition
to, in substitution of, on account of or in exchange for any or all of the
Stock, whether now owned or hereafter acquired by the Pledgor. The Pledgor has
delivered to the Lender certificates representing the Stock owned by it, and an
undated stock power endorsed in blank, as security for the Obligations; it being
the intention of the parties hereto that record and beneficial ownership of the
Stock including, without limitation, all voting and consensual rights shall
remain in the Pledgor until the occurrence of an Event of Default and until the
Lender shall notify the Pledgor of the Lender's exercise of voting and dividend
rights to the Stock pursuant to Section 9 of this Agreement.
---------
2. Additional Shares. In the event that, during the term of this
-----------------
Agreement:
(a) any stock dividend, stock split, reclassification, readjustment
or other change is declared or made in the capital structure of any of
the Subsidiaries, or any new stock is issued by any of the Subsidiaries,
all new, substituted, and additional shares, or other securities, shall
be issued to the Pledgor, and shall be promptly delivered to the Lender,
together with undated stock powers endorsed in blank by the Pledgor and
shall thereupon constitute additional Stock, to be held by the Lender
under the terms of this Agreement; and
(b) any subscriptions, warrants or any other rights or options
issued in connection with the Stock, all new stock or other securities
acquired through such subscriptions, warrants, rights or options by the
2
<PAGE>
Pledgor, together with appropriate powers, shall be promptly delivered to
the Lender and shall thereupon constitute additional Stock, to be held by
the Lender under the terms of this Agreement.
3. Representations and Warranties. The Pledgor hereby represents and
------------------------------
warrants to the Lender that: (a) except for the security interest created
hereby, the Pledgor is and will at all times be the legal and beneficial owner
of the Stock free and clear of all Liens; (b) all shares of capital stock from
time to time constituting the Stock, either have been or will be duly
authorized, validly issued, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof, and the Stock constitutes such
percentage of the issued and outstanding shares of capital stock of each of the
Subsidiaries as set forth on Schedule 1 attached hereto; (c) the Pledgor has the
----------
unencumbered right and power to pledge the Stock, as provided herein; and (d)
all actions necessary or desirable to perfect, establish the first priority of,
or otherwise protect, the security interest of the Lender in the Stock, have
been duly taken, upon the taking possession by the Lender of certificates
constituting Stock on the date hereof.
4. Default. Upon the occurrence of an Event of Default and until such
-------
Event of Default is waived in writing by the Lender, the Lender may, in
accordance with Section 9.2 of the Credit Agreement, sell or otherwise dispose
-----------
of the Stock, at a public or private sale or make other disposition of the
Stock, or any portion thereof, and the Lender may purchase the Stock, or any
portion thereof at any public sale. The proceeds of the public or private sale
or other disposition shall be first applied to the reasonable costs of the
Lender incurred in connection with the sale, expressly including, but not
limited to, any costs under Section 7 hereof, and then applied as set forth in
---------
the Credit Agreement, and the Borrowers shall remain liable for any deficiency.
5. Additional Rights of Secured Party. In addition to its rights and
----------------------------------
privileges under this Agreement, the Lender, shall have all the rights, powers
and privileges of a secured party under the Uniform Commercial Code as in effect
in any applicable jurisdiction.
3
<PAGE>
6. Return of Stock to the Pledgor. On the Termination Date, the Lender
------------------------------
shall return the remaining Stock and all rights received by the Lender as a
result of its possessory interest in the Stock to the Pledgor (except to the
extent the Stock is subject to remedies then being exercised by the Lender
hereunder), and this Agreement shall terminate.
7. Disposition of Stock by Lender. The Stock is not registered or
------------------------------
qualified under the various Federal or state securities laws of the United
States and disposition thereof after an Event of Default, in accordance with
Section 4 above, may be restricted to one or more private (instead of public)
- ---------
sales in view of the lack of such registration. The Pledgor understands that
upon such disposition, the Lender may approach only a restricted number of
potential purchasers and further understands that a sale under such
circumstances may yield a lower price for the Stock than if the Stock was
registered and qualified pursuant to Federal and state securities laws and sold
on the open market. The Pledgor, therefore, agrees that:
(a) if the Lender shall, pursuant to the terms of this Agreement,
sell or cause the Stock or any portion thereof to be sold at a private
sale, the Lender shall have the right to rely upon the advice and opinion
of any national investment firm (but shall not be obligated to seek such
advice and the failure to do so shall not be considered in determining
the commercial reasonableness of such action) as to the best manner in
which to expose the Stock for sale and as to the best price reasonably
obtainable at the private sale thereof; and
(b) that such reliance shall be conclusive evidence that the Lender
has handled such disposition in a commercially reasonable manner.
8. Pledgor's Obligations Absolute. The obligations of the Pledgor
------------------------------
under this Agreement shall be direct and immediate and not conditional or
contingent upon the pursuit of any remedies against other security or liens
available to the Lender. The Pledgor waives any right to require that resort be
had to any security or to any balance of any deposit account or credit on the
books of the Lender prior to the exercise of remedies hereunder, or to require
action hereunder prior to resort by the Lender to any other security or
collateral for the Obligations.
4
<PAGE>
9. Voting Rights.
-------------
(a) After the occurrence of an Event of Default, motion for
authorization filed with the Court and entry of an order of the Court
pursuant to Section 9.2 of the Credit Agreeent, (i) the Lender may, upon
ten (10) calendar days' prior notice to the Pledgor of its intention to
do so, exercise all voting rights, and all other ownership or consensual
rights of the Stock but under no circumstances is the Lender obligated by
the terms of this Agreement to exercise such rights (and if the Lender
fails to exercise such rights, the Pledgor may continue to exercise such
rights), and (ii) the Pledgor hereby appoints the Lender, which
appointment shall be effective on the 10th day following the giving of
notice by the Lender as provided in the foregoing Section 9(a)(i), the
---------------
Pledgor's true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote
the Stock in any manner the Lender deems advisable for or against all
matters submitted or which may be submitted to a vote of shareholders.
The power-of-attorney granted hereby is coupled with an interest and
shall be irrevocable until this Agreement is terminated pursuant to
Section 6 hereof.
---------
(b) For so long as the Pledgor shall have the right to vote the
Stock, the Pledgor covenants and agrees that it will not, without the
prior written consent of the Lender, vote or take any consensual action
with respect to the Stock which would constitute a breach of any covenant
or condition under the Credit Agreement or any other Loan Document.
10. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be given in the manner and at the
addresses as set forth in the Credit Agreement.
11. Governing Law; Entire Agreement. This Agreement shall be construed
-------------------------------
and interpreted in accordance with the internal laws of the State of Georgia
applicable to agreements made and to be performed wholly within the State of
Georgia. This Agreement, together with all documents referred to herein,
5
<PAGE>
constitutes the entire agreement between the parties with respect to the matters
addressed herein and may not be modified except by a writing executed by the
Lender and the Pledgor and delivered by the Lender to the Pledgor.
12. Severability. If any paragraph of this Agreement, or part thereof,
------------
shall for any reason be held or adjudged to be invalid, illegal or unenforceable
by any court of competent jurisdiction, such paragraph or part thereof so
adjudicated invalid, illegal or unenforceable shall be deemed separate, distinct
and independent, and the remainder of this Agreement shall remain in full force
and effect and shall not be affected by such holding or adjudication.
13. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Pledgor and its successors and assigns, and shall inure to the benefit of the
Lender, any other Person which subsequently becomes a 'Lender' under the Credit
Agreement, and their respective successors and assigns.
14. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
[Remainder of this page intentionally left blank.]
6
<PAGE>
IN WITNESS WHEREOF, the undersigned parties hereto have executed this
Agreement by and through their duly authorized officers, as of the day and year
first above written.
PLEDGOR: 50-OFF STORES, INC.
By: /s/ 50-OFF Stores, Inc.
--------------------------------------------
Its:
-------------------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ General Electric Capital Corporation
--------------------------------------------
Its:
---------------------------------
7
<PAGE>
SCHEDULE 1
----------
Outstanding Stock of Subsidiaries
<TABLE>
<CAPTION>
ENTITY SHARES OWNED BY PERCENTAGE
OUTSTANDING OWNERSHIP
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
50-OFF Multistate Operations, Inc. 25,000 50-OFF Stores, Inc. 100%
- -----------------------------------------------------------------------------------
50-OFF Operating Company 25,000 50-OFF Stores, Inc. 100%
- -----------------------------------------------------------------------------------
50-OFF Texas Management, Inc. 25,000 50-OFF Stores, Inc. 100%
- -----------------------------------------------------------------------------------
You Pay Half Investments, Inc. 25,000 50-OFF Stores, Inc. 100%
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
GUARANTY
--------
THIS GUARANTY (this "Guaranty") is made and entered into as of November
18, 1996 by 50-OFF TEXAS MANAGEMENT, INC., a Nevada corporation (the
"Guarantor"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation having an office at 3379 Peachtree Road, N.E., Suite 600, Atlanta,
Georgia 30326 ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to and subject to the terms and conditions of that
certain $15,000,000 Senior Secured Super Priority Debtor-In-Possession Revolving
Credit Agreement dated as of November 18, 1996, by and among 50-Off Stores,
Inc. a Delaware corporation ("Parent"), 50-Off Texas Stores, L.P., a Texas
limited partnership, 50-Off Multistate Operations, Inc., a Nevada corporation,
and 50-Off Operating Company, a Nevada corporation, (together with Parent,
collectively referred to as "Borrowers" and individually as a "Borrower") and
Lender (as the same from time to time may be amended, restated, supplemented or
otherwise modified, the "Credit Agreement"), Lender has agreed, among other
things, to make Advances to Borrowers pursuant to the Credit Agreement (except
as otherwise defined herein, all other capitalized terms used herein shall have
the respective meanings given to such terms in the Credit Agreement); and
WHEREAS, Parent owns 100% of the issued and outstanding capital
stock of the Guarantor; and
WHEREAS, the transactions contemplated by the Credit Agreement will
confer, directly or indirectly, a benefit on the Guarantor; and
WHEREAS, Lender is willing to make Advances as and to the extent
provided for in the Credit Agreement, but only upon the condition, among others,
that the Guarantor shall have executed and delivered this Guaranty in favor of
Lender for the benefit of securing the Obligations under the Loan Documents;
NOW, THEREFORE, in consideration of the premises and in order to
induce Lender to extend credit under the Credit Agreement, the Guarantor hereby
agrees with Lender, for the benefit of Lender, as follows:
<PAGE>
SECTION 1. THE GUARANTY. The guaranty of the Guarantor hereunder
------------
is as follows:
SECTION 1.1 Guaranty of Extensions of Credit to Borrowers. The
---------------------------------------------
Guarantor hereby unconditionally and irrevocably guarantees to Lender and its
successors, endorsees, transferees and assigns, the prompt and complete payment
when due (whether at stated maturity, by acceleration or otherwise) and
performance of all of the Obligations. The Guarantor agrees that this Guaranty
is a guaranty of payment and performance and not of collection, and that its
obligations under this Guaranty shall be joint and several with every other
guarantor and any other Persons which may at any time or from time to time be or
become directly or indirectly financially responsible to Lender with respect to
the Obligations and shall be under all circumstances primary, absolute and
unconditional, irrespective of, and unaffected by:
(a) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in this Guaranty, the Credit Agreement, any Loan
Document or other agreement, document or instrument to which any Borrower or the
Guarantor (collectively, a "Loan Party") is or may become a party;
(b) the absence of any action to enforce this Guaranty, the
Credit Agreement, any Loan Document or the waiver or consent by Lender with
respect to any of the provisions thereof;
(c) the existence, value or condition of, or failure of Lender to
perfect its Lien against, any security for the Obligations or any action, or the
absence of any action, by Lender in respect thereof (including, without
limitation, the release of any such security);
(d) any bankruptcy, insolvency, reorganization, arrangement,
adjustment, composition, liquidation or the like of the Guarantor;
(e) any merger or consolidation of any Loan Party into or with
any other Person, or any sale, lease or transfer of any or all of the assets of
any Loan Party to any other Person;
(f) any circumstance other than full and final payment which
might constitute a defense available to, or a discharge of, any Loan Party;
2
<PAGE>
(g) absence of any notice to, or knowledge by, the Guarantor of the
existence or occurrence of any of the matters or events set forth in the
foregoing subdivisions (a) through (f); or
(h) any sale, transfer or other disposition by Parent of any stock of
the Guarantor;
it being agreed by the Guarantor that its obligations under this Guaranty shall
not be discharged until the Termination Date or the release in writing of the
Guarantor by Lender of the Guarantor's obligations hereunder, whichever shall
occur first. The Guarantor shall be regarded, and shall be in the same
position, as principal debtor with respect to the Obligations and specifically
agrees that, notwithstanding any discharge of any Borrower or any other Person
or the operation of any provision of the Bankruptcy Code with respect to the
Obligations or any such Persons, the Guarantor shall be fully responsible for
paying all interest and costs of enforcement or preservation and protection of
Collateral which may at any time accrue with respect to the Obligations. The
Guarantor expressly waives all rights it may have now or in the future under any
statute, or at common law, or at law or in equity, or otherwise, to compel
Lender to proceed in respect of the Obligations against any Borrower or any
other Person or against any security for the payment and performance of the
Obligations before proceeding against, or as a condition to proceeding against,
the Guarantor. The Guarantor agrees that any notice or directive given at any
time to Lender which is inconsistent with the waiver in the immediately
preceding sentence shall be null and void and may be ignored by , and, in
addition, may not be pleaded or introduced as evidence in any litigation
relating to this Guaranty for the reason that such pleading or introduction
would be at variance with the written terms of this Guaranty unless Lender has
specifically agreed otherwise in writing. It is agreed between the Guarantor
and Lender that the foregoing waivers are of the essence of the transaction
contemplated by the Loan Documents and that, but for this Guaranty and such
waivers, Lender will decline to extend credit under the Credit Agreement.
SECTION 1.2 Maximum Guaranteed Amount. Notwithstanding any other
-------------------------
provision of this Guaranty to the contrary, if the obligations of the Guarantor
hereunder would otherwise be held or determined by a court of competent
jurisdiction in any action or proceeding involving any state corporate law or
any state or Federal bankruptcy, insolvency, reorganization, moratorium,
3
<PAGE>
fraudulent conveyance or other law affecting the rights of creditors generally,
to be void, invalid or unenforceable to any extent on account of the amount of
the Guarantor's liability under this Guaranty, then notwithstanding any other
provision of this Guaranty to the contrary, the amount of such liability shall,
without any further action by the Guarantor or any other Person, be
automatically limited and reduced to the highest amount which is valid and
enforceable as determined in such action or proceeding.
SECTION 1.3 Enforcement of Guaranty. In no event shall Lender have
-----------------------
any obligation (although it is entitled, at its option) to proceed against any
Borrower or any other Person or any real or personal property pledged to secure
the Obligations before seeking satisfaction from the Guarantor, and Lender may
proceed, prior or subsequent to, or simultaneously with, the enforcement of
Lender's rights hereunder, to exercise any right or remedy which it may have
against any property, real or personal, as a result of any Lien it or they may
have as security for all or any portion of the Obligations.
SECTION 1.4 Waiver. The Guarantor hereby waives diligence,
------
presentment and demand (whether for nonpayment or protest or of acceptance,
maturity, extension of time, change in nature or form of the Obligations,
acceptance of further security, release of further security, composition or
agreement arrived at as to the amount of, or the terms of, the Obligations,
notice of adverse change in any Borrower's financial condition or any other fact
which might materially increase the risk to the Guarantor) with respect to any
of the Obligations or all other demands whatsoever and waives the benefit of all
provisions of law which are or might be in conflict with the terms of this
Guaranty. Lender will use reasonable efforts to mitigate the damages resulting
from any default under the Obligations. Notwithstanding the foregoing, however,
the Guarantor hereby waives any defense based on the failure of Lender or any
holder of any Obligation to mitigate the damages resulting from any default with
respect to such Obligations. The Guarantor represents, warrants and agrees
that, as of the date of this Guaranty, its obligations under this Guaranty are
not subject to any offsets or defenses of any kind against Lender, any Borrower
or any other Person that executes a Loan Document. The Guarantor hereby waives,
to the extent permitted by applicable law: (a) defenses and offsets of any kind
which may arise in the future against Lender, any Borrower or any other Person
that executes a Loan Document, and (b) the right to interpose any counterclaim
or cross-claim, except to the extent
4
<PAGE>
that the failure to assert any such counterclaim or cross-claim would
permanently preclude the prosecution of or recovery upon same; provided that the
--------
Guarantor agrees that any such counterclaim will not be used as an offset
against any recovery by Lender hereunder.
SECTION 1.5 Benefit of Guaranty. The provisions of this Guaranty are
-------------------
for the benefit of Lender and its respective successors, transferees, endorsees
and assigns. In the event all or any part of the Obligations are transferred,
endorsed or assigned by Lender to any Person or Persons in accordance with the
terms of the Credit Agreement, any reference to "Lender" herein shall be deemed
to refer equally to such Person or Persons.
SECTION 1.6 Modification of Obligations. If Lender shall at any time
---------------------------
or from time to time, with or without the consent of, or notice to, the
Guarantor:
(a) change or extend the manner, place or terms of payment of, or
renew or alter all or any portion of, the Obligations;
(b) take any action under or in respect of the Loan Documents in
the exercise of any remedy, power or privilege contained therein or available to
it at law, equity or otherwise, or waive or refrain from exercising any such
remedies, powers or privileges;
(c) amend or modify, in any manner whatsoever, any Loan Document;
(d) extend or waive the time for the Guarantor's or any other
Person's performance of, or compliance with, any term, covenant or agreement on
the Guarantor's or any other Person's part to be performed or observed under the
Loan Documents, or waive such performance or compliance or consent to a failure
of, or departure from, such performance or compliance;
(e) take and hold security or collateral for the payment of the
Obligations, or sell, exchange, release, dispose of, or otherwise deal with, any
property pledged, mortgaged or conveyed, or in which Lender has been granted a
Lien, to secure any indebtedness of the Guarantor or any Borrower to Lender;
5
<PAGE>
(f) release or limit the liability of anyone who may be liable in
any manner for the payment of any amounts owed by the Guarantor or any Borrower
to Lender;
(g) modify or terminate the terms of any intercreditor or
subordination agreement pursuant to which claims of other creditors of the
Guarantor or any Borrower are subordinated to the claims of Lender; and/or
(h) apply any sums by whomever paid or however realized to any
amounts owing by the Guarantor or any Borrower to Lender in such manner as
Lender shall determine in its discretion;
then Lender shall not incur any liability to the Guarantor pursuant hereto as a
result thereof and no such action shall impair or otherwise affect or release
the obligations of the Guarantor under this Guaranty.
SECTION 1.7 Reinstatement. This Guaranty shall remain in full force
-------------
and effect and continue to be effective in the event any petition is filed by or
against the Guarantor for liquidation or reorganization, in the event the
Guarantor becomes insolvent or makes an assignment for the benefit of creditors
or in the event a receiver or trustee is appointed for all or any significant
part of the Guarantor's assets, and shall continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Obligations, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by Lender, whether
as a "voidable preference," "fraudulent conveyance," or otherwise, all as though
such payment or performance had not been made. In the event that any payment,
or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
SECTION 1.8 No Subrogation. Notwithstanding any payment or payments
--------------
made by the Guarantor hereunder, or any set-off or application of funds of the
Guarantor by Lender, the Guarantor shall not be entitled to be subrogated to any
of the rights of Lender against any Borrower or against any collateral security
or guaranty or right of offset held by Lender for the payment of the
Obligations, nor shall the Guarantor seek any reimbursement from any Borrower in
respect of payments made by the Guarantor hereunder, until the Termination Date.
If any amount shall be paid
6
<PAGE>
to the Guarantor on account of such subrogation rights at any time prior to the
Termination Date, such amount shall be held by the Guarantor in trust for
Lender, segregated from other funds of the Guarantor, and shall, forthwith upon
receipt by the Guarantor, be turned over to Lender in the exact form received by
the Guarantor (duly indorsed by the Guarantor to Lender, if required), to be
applied against the Obligations, whether matured or unmatured, in the manner
provided in the Credit Agreement.
SECTION 1.9 Continuing Guaranty. This Guaranty is a continuing
-------------------
guaranty and shall (i) remain in full force and effect until the Termination
Date, (ii) be binding upon the Guarantor and its respective successors and
permitted assigns, and (iii) inure, together with the rights and remedies of the
Lender hereunder, to the benefit of Lender and its respective successors,
transferees and assigns.
SECTION 2. DELIVERIES. In a form satisfactory to Lender, the
----------
Guarantor shall deliver to Lender, concurrently with the execution of this
Guaranty, such Loan Documents and other instruments, certificates and documents
as are required to be delivered by the Guarantor to Lender under the Credit
Agreement.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) The
-----------------------------------------
Guarantor hereby makes all representations and warranties, and agrees to comply
with all of the obligations, requirements and restrictions in the
representations, warranties and covenants contained in the Credit Agreement, to
the extent such obligations, requirements and restrictions are expressly
applicable to the Guarantor.
(b) The Guarantor further represents and warrants to Lender that:
(i) the execution, delivery and performance by the Guarantor of this Guaranty
are within the Guarantor's corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or filing
with, any governmental authority, do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the certificate of
incorporation or bylaws of the Guarantor, or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Guarantor and
will not result in the creation or imposition of any Lien on any asset of the
Guarantor (other than pursuant to the Loan Documents); and (ii) this such
Guaranty has been duly authorized, executed and delivered by the Guarantor and
constitutes a legal, valid and binding obligation of the Guarantor,
7
<PAGE>
enforceable against the Guarantor in accordance with its terms, except as such
enforceability may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and general principles of equity.
SECTION 4. FURTHER ASSURANCES. The Guarantor agrees, upon the
------------------
written request of Lender, and at the Guarantor's expense, to execute and
deliver to Lender, from time to time, any additional instruments or documents
considered reasonably necessary by Lender to cause this Guaranty to be, become
or remain valid and effective in accordance with its terms.
SECTION 5. RIGHT OF SET-OFF. In addition to and not in limitation of
----------------
all rights of offset that Lender or any other holder of any Obligation may have
under applicable law or under the Credit Agreement, Lender or any other holder
of any Obligation shall, upon the occurrence of any Event of Default and whether
or not Lender or such holder has made any demand or whether the Guarantor's
obligations are matured, have the right to appropriate and apply to the payment
of the Guarantor's obligations hereunder, all deposits (general or special, time
or demand, provisional or final) then or thereafter held by, and other
indebtedness or property then or thereafter owing, Lender whether or not related
to this Guaranty or any transaction hereunder.
SECTION 6. MISCELLANEOUS PROVISIONS.
------------------------
SECTION 6.1 Amendments. Any amendment or waiver of any provision of
----------
this Guaranty and any consent to any departure by the Guarantor from any
provision of this Guaranty, shall be effective only if made pursuant to a
written instrument executed by the Guarantor and Lender (or, if a waiver or a
consent, a written letter or agreement executed by Lender).
SECTION 6.2 Headings. The headings in this Guaranty are for purposes
--------
of reference only and shall not otherwise affect the meaning or construction or
any provision of this Guaranty.
SECTION 6.3 Severability. The provisions of this Guaranty are
------------
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
8
<PAGE>
provision in any other jurisdiction, or any other clause or provision of this
Guaranty in any jurisdiction.
SECTION 6.4 NOTICES. Except as otherwise provided herein, whenever
-------
it is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever either of the parties desires to
give or serve upon any communication with respect to this Guaranty, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be given in the manner provided for in Section
10.9 of the Credit Agreement and, in the case of the Guarantor, delivered to the
Guarantor at its respective address listed on Schedule 1 to this Guaranty.
----------
SECTION 6.5 Remedies Cumulative. Each right, power and remedy of
-------------------
Lender provided in this Guaranty or now or hereafter existing at law or in
equity or by statute or otherwise shall be cumulative and concurrent and shall
be in addition to every other right, power or remedy provided for in this
Guaranty or now or hereafter existing at law or in equity or by statute or
otherwise. The exercise or partial exercise by Lender of any one or more of such
rights, powers or remedies shall not preclude the simultaneous or later exercise
by Lender of all such other rights, powers or remedies, and no failure or delay
on the part of Lender to exercise any such right, power or remedy shall operate
as a waiver thereof.
SECTION 6.6 Statute of Limitations. To the full extent permitted by
----------------------
applicable law, the Guarantor hereby waives the right to plead any statute of
limitations as a defense to performance of its obligations under, or enforcement
of, this Guaranty.
SECTION 6.7 Final Expression. This Guaranty, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of this Guaranty and is intended as a complete and exclusive
statement of the terms and conditions thereof. Acceptance of or acquiescence in
a course of performance rendered under this Guaranty shall not be relevant to
determine the meaning of this Guaranty even though the accepting or acquiescing
party had knowledge of the nature of the performance and opportunity for
objection.
SECTION 6.8 Financial Status. The Guarantor hereby assumes
----------------
responsibility for keeping itself informed of the financial
9
<PAGE>
condition of each Borrower and any and all endorsers and/or other guarantors of
any instrument or document evidencing all or any part of the Obligations and of
all other circumstances bearing upon the risk of nonpayment of the Obligations
or any part thereof that diligent inquiry would reveal, and the Guarantor hereby
agrees that Lender shall have no duty to advise the Guarantor of information
known to Lender regarding such condition or any such circumstances.
SECTION 6.9 Assignability. This Guaranty shall be binding on the
-------------
Guarantor and its respective successors and shall inure to the benefit of Lender
and its respective successors and assignees. This Guaranty may not be assigned
by the Guarantor without the prior written consent of Lender.
SECTION 6.10 Non-Waiver. The failure of Lender to enforce any right
----------
or remedy hereunder, or promptly to enforce any such right or remedy, shall not
constitute a waiver thereof, nor give rise to any estoppel against Lender, nor
excuse the Guarantor from its obligations hereunder.
SECTION 6.11 GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.
------------------------------------------------
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. THE GUARANTOR HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF TEXAS, SHALL HAVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE GUARANTOR
AND LENDER PERTAINING TO THIS GUARANTY OR TO ANY MATTER ARISING OUT OF OR
RELATING TO THIS GUARANTY, THE CREDIT AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS, PROVIDED, THAT NOTHING IN THIS GUARANTY SHALL BE DEEMED OR OPERATE TO
--------
PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO ENFORCE A JUDGEMENT OR OTHER COURT ORDER IN FAVOR OF LENDER.
THE GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE GUARANTOR HEREBY WAIVES
ANY OBJECTION WHICH THE GUARANTOR MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
--------------------
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINTS
AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE
10
<PAGE>
OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL OR BY FEDERAL EXPRESS OR OTHER COURIER SERVICE ADDRESSED TO THE
GUARANTOR AT ITS RESPECTIVE ADDRESS SET FORTH ON SCHEDULE 1 HERETO AND THAT
----------
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE GUARANTOR'S ACTUAL RECEIPT
THEREOF.
SECTION 6.12 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
---------------------------
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH, THIS GUARANTY, THE CREDIT AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE TRANSACTION THERETO.
SECTION 6.13 Acknowledgements. The Guarantor hereby acknowledges
----------------
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Guaranty;
(b) Lender has no fiduciary relationship to the Guarantor, and
the relationship between Lender, on the one hand, and the Guarantor, on the
other hand, is solely that of creditor and debtor, respectively; and
(c) no joint venture exists among Lender or among the Guarantor
and Lender.
[Remainder of this page intentionally left blank.]
11
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered as of the date first above written.
GUARANTOR: 50-OFF TEXAS MANAGEMENT, INC.,
- ---------
A NEVADA CORPORATION
By: /s/ 50-OFF Texas Management, Inc.
-------------------------------------------------
Name:
Title:
12
<PAGE>
SCHEDULE 1
----------
Notice Addresses
50-OFF Texas Management, Inc.
Attn: Charles J. Fuhrmann, II.
8750 Tesoro Drive
San Antonio, Texas 78217
Telephone: (210) 805-9300
Facsimile: (210) 804-4980
With a copy to:
Sheinfeld, Maley & Kay, P.C.
Attn: Sam Stricklin, Esq.
1700 Pacific Avneue, Suite 4400
Dallas, Texas 75201-4618
Telephone: (214) 953-0700
Facsimile: (214) 953-1189
<PAGE>
ASSIGNMENT OF PARTNERSHIP INTEREST
THIS ASSIGNMENT OF PARTNERSHIP INTEREST (the "Assignment"), made as of
the 18 day of November, 1996 by the undersigned entity (the "Partner") in
favor of General Electric Capital Corporation (the "Lender"),
W I T N E S S E T H
-------------------
IN CONSIDERATION of the execution and delivery of a certain $15,000,000
Senior Secured Super Priority Debtor-in-Possession Revolving Credit Agreement of
even date (as amended, modified or supplemented from time to time, the "Credit
Agreement") among 50-Off Stores, Inc., a Delaware corporation, 50-Off Texas
Stores, L.P., a Texas limited partnership, 50-Off Operating Company, a Nevada
corporation, and 50-Off Multistate Operations, Inc., a Nevada corporation
(collectively, the "Borrowers") and the Lender pursuant to which the Lender has
agreed to lend up to U.S. $15,000,000 to the Borrowers, and the sum of Ten and
No/100 Dollars ($10.00) in hand paid, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged:
The Partner, as the sole general partner of 50-Off Texas Stores, L.P., a
Texas limited partnership (the "Partnership"), hereby sells, assigns, transfers,
conveys and grants unto the Lender, and its respective successors and assigns,
all of its right, title and interest in and to, and a continuing security
interest in and security title to, all of its economic general partner interest
in the Partnership, as more fully set forth on Schedule 1 hereto, including,
----------
without limitation, right to receive all proceeds, distributions of income,
profits, surplus or other compensation by way of income or liquidating
distributions, in cash or in kind, from the Partnership, including such right,
title and interest now owned by the Partner or which is hereafter acquired by
it, whether a general or limited partnership interest, (the "Assigned Rights"),
as security for payment and performance of the Obligations.
TO HAVE AND TO HOLD UNTO the Lender and it successors and assigns
forever, upon and subject to the following terms and conditions:
<PAGE>
1. For purposes of this Assignment, capitalized terms used herein shall
have the meanings ascribed thereto in the Credit Agreement unless otherwise
defined herein.
2. The Partner hereby constitutes and appoints the Lender as its true
and lawful attorney, in its name and stead upon the occurrence of an Event of
Default: (a) to collect any and all distributions of cash and other assets due
the Partner from the Partnership or otherwise in respect of the Assigned Rights,
and (b) to use such measures, legal or equitable, as in its discretion may be
deemed necessary or appropriate to enforce the payment thereof to the Lender.
The power of attorney hereby created is coupled with an interest and is
irrevocable.
3. The Lender is hereby granted full irrevocable power and authority to
hold, use and apply all cash and non-cash distributions received by it upon the
occurrence of an Event of Default (together with all interest earned thereon) in
full or partial payment of the Obligations and may convert any such non-cash
distributions to cash and may apply the proceeds thereof in payment of charges
or expenses incurred by the Lender in connection with any and all things which
the Lender may do or cause to be done hereunder, and thereafter in the order of
application set forth in the Credit Agreement.
4. The Lender shall not in any way be responsible for any failure to do
any or all of the things for which rights, interests, power and authority are
herein granted. The Lender shall be responsible only for the application of
such cash or other property as it actually receives under the terms hereof;
provided, however, that the failure of the Lender to do any of the things or
exercise any of the rights, interests, powers and authorities hereunder shall
not be construed to be a waiver of any such rights, interests, powers and
authorities.
5. This Assignment shall not operate to place any responsibility or
obligation whatsoever upon the Lender. The Lender shall not have assumed any
liability of the Partner or of the Partnership as a result of this Assignment.
The Partner agrees to protect, indemnify and save harmless the Lender from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses including, without limitation, attorneys' fees and
expenses (except as may arise from the gross negligence or wilful misconduct of
the Lender) imposed upon or incurred by the Lender by reason of this
2
<PAGE>
Assignment and any claim and demand whatsoever which may be asserted against the
Lender by reason of any alleged obligation or undertaking to be performed or
discharged by the Lender under this Assignment. In the event the Lender incurs
any liability, loss or damage by reason of this Assignment, or in curing any
default or breach by the Partner of its obligations under the partnership
agreement of the Partnership (the "Partnership Agreement"), or in the defense of
any claims or demands arising out of or in connection with this Assignment, the
amount of such liability, loss or damage shall be added to the Obligations.
6. The Partner agrees to execute, deliver and record, upon the request
of the Lender, any and all instruments requested by the Lender to carry these
presents into effect or to accomplish any other purpose deemed by the Lender to
be necessary or appropriate in connection with these presents, expressly
including UCC-l financing statements.
7. The Partner hereby warrants and represents that copies of the
Partnership Agreement to which it is a party furnished to the Lender are true,
complete and correct copies of the Partnership Agreement, as amended through the
date hereof; that the Partnership Agreement is unmodified and in full force and
effect; that the Assigned Rights have not been heretofore sold, assigned,
transferred, set over or encumbered by any instrument now in force, and will not
at any time during the term of this Assignment be sold, assigned, transferred,
set over or encumbered by it or by any Person or Persons whomsoever, without the
prior written consent of the Lender; that the Assigned Rights are all of such
rights the Partner has arising from its partnership interests in the Partnership
and that the interests of the Partner in the Partnership represent the
percentage shown on Schedule 1 attached hereto of the general partner ownership
----------
interest in the Partnership; that the Partner has the right to sell, assign,
transfer, set over and encumber the Assigned Rights to the Lender and to grant
to and confer upon the Lender the Assigned Rights; that the Partner is not at
present in default in any material respect under the Partnership Agreement; and
that all actions, approvals and consents required by applicable law or by the
Partnership Agreement have been obtained.
8. The Partner hereby agrees that it will not, at any time during the
term of this Assignment, convey or encumber any of its interests, including,
without limitation, the Assigned Rights, in the Partnership in any manner
whatsoever or consent to
3
<PAGE>
any departure from or any modification or amendment to the Partnership
Agreement, or consent to the admission of any new general or limited partner or
consent to any change in the business of the Partnership, without the prior
written consent of the Lender. The Partner agrees that it will perform all its
obligations as a general or a limited partner, as applicable, under the
Partnership Agreement, and that it will do all things necessary to maintain its
interests in the Partnership in full force and effect.
9. In the event the Partner receives any payment or other distribution
of any kind or character from the Partnership or from any other source
whatsoever in respect of the Partner's interest in the Partnership hereby
assigned, such payments or other distributions shall be received in trust for
the Lender and shall be promptly turned over by the Partner to the Lender. The
Partner will mark its books and records, so as to clearly indicate that the
Partner's rights as a general partner, or a limited partner as applicable, of
the Partnership are subject to the terms of this Assignment.
10. This Assignment and the rights hereunder shall inure to the benefit
of the Lender and may be assigned in whole or in part by the Lender in
connection with any assignment of the Credit Agreement or the Indebtedness
evidenced thereby, as is permitted thereunder, and shall be binding upon the
Partner and its respective successors and assigns.
11. Notwithstanding anything herein to the contrary, it is understood
and agreed that although this Assignment is and shall be effective as of the
date hereof, no right or power granted hereunder or obligation under Section 9
---------
hereof shall be exercised or enforced by the Lender unless and until an Event of
Default shall have occurred. It is the intention of the parties hereto that
beneficial ownership of the Assigned Rights, including, without limitation, all
voting, consensual and distribution rights, shall remain in the Partner until an
Event of Default shall have occurred. Upon the occurrence of any Event of
Default, the Lender may exercise such rights and remedies as are provided in the
Credit Agreement, the other Loan Documents, the Final Order, and in this
Assignment and under applicable law. The rights and remedies granted hereunder
shall be cumulative, and not exclusive. The Partner expressly agrees that the
Lender shall not in any event be under any obligation to resort to any right or
remedy hereunder prior to exercising any
4
<PAGE>
other rights the Lender may have against the Partner or any Borrower or any
other Person to secure repayment of the Obligations, nor shall the Lender be
required to resort to any such other rights prior to the exercise of rights and
remedies hereunder.
12. After the occurrence of an Event of Default, the Lender may exercise
all ownership or consensual rights pertaining to the Assigned Rights of the
Partner and may notify and instruct the Partnership to thereafter make all
payments otherwise due the Partner in respect of the Assigned Rights payable
directly to the Lender, and the Lender shall have the right to apply such
payments in reduction of the Obligations in accordance with the Credit
Agreement. The Partner hereby appoints the Lender as the Partner's true and
lawful attorney-in-fact at such times to exercise such ownership or consensual
rights pertaining to the Assigned Rights in any manner the Lender deems
advisable for or against all matters with respect to the Partnership. The power
of attorney granted hereby is coupled with an interest and shall be irrevocable.
13. The Partner undertakes and agrees, in connection herewith, to
deliver to the Lender a copy of any notice or mailing received by the Partner
from the Partnership, at the address of the Lender given for notices in the
Credit Agreement.
14. In addition to its rights and privileges under this Assignment, the
Lender shall have all of the rights, powers and privileges of a secured party
under the Uniform Commercial Code as in effect in any applicable jurisdiction.
15. This Assignment shall be deemed to be made pursuant to the internal
laws of the State of Georgia with respect to agreements made and to be performed
wholly within the State of Georgia and shall be construed, interpreted,
performed and enforced in accordance therewith.
16. This Assignment may be executed in multiple counterparts, each of
which shall be deemed to be an original, but all such separate counterparts
shall together constitute but one and the same instrument.
17. On the Termination Date, the Lender shall return its remaining
interest in the Assigned Rights to the Partner.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned Partner and the Lender have caused
this instrument to be executed by their duly authorized representatives as of
the day and year first above written.
PARTNER: 50-OFF TEXAS MANAGEMENT, INC.
By: /s/ 50-OFF Texas Management, Inc.
------------------------------------------
Its:
-----------------------------------------
LENDER: GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ General Electric Capital Corporation
------------------------------------------
Its:
-----------------------------------------
5
<PAGE>
SCHEDULE 1
----------
Description of Partnership Interests
50-OFF Texas Management, Inc., Nevada corporation, is the Managing Genral
Partner of 50-OFF Texas Stores, L.P., a Texas limited partnership. A copy of
the Limited Partnership Agreement is attached hereto as Schedule 1(a).
<PAGE>
Schedule 1(a) intentionally omitted
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-25061 of 50-OFF Stores, Inc. of our report (which report expresses an
unqualified opinion and includes explanatory paragraphs referring to 50-OFF
Stores, Inc.'s ability to continue as a going concern and bankruptcy filing)
dated June 9, 1997 appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Antonio, Texas
June 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 50-OFF
STORES, INC.'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JANUARY 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 821
<SECURITIES> 0
<RECEIVABLES> 718
<ALLOWANCES> 0
<INVENTORY> 12,975
<CURRENT-ASSETS> 14,908
<PP&E> 7,276
<DEPRECIATION> 3,287
<TOTAL-ASSETS> 19,255
<CURRENT-LIABILITIES> 10,568
<BONDS> 0
0
0
<COMMON> 122
<OTHER-SE> (21,709)
<TOTAL-LIABILITY-AND-EQUITY> 19,255
<SALES> 106,194
<TOTAL-REVENUES> 106,194
<CGS> 78,560
<TOTAL-COSTS> 78,560
<OTHER-EXPENSES> 44,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,672
<INCOME-PRETAX> (18,812)
<INCOME-TAX> 153
<INCOME-CONTINUING> (18,965)
<DISCONTINUED> 0
<EXTRAORDINARY> (24,645)
<CHANGES> 0
<NET-INCOME> (43,610)
<EPS-PRIMARY> (3.57)
<EPS-DILUTED> (3.57)
</TABLE>
<PAGE>
EXHIBIT 99.1
Joseph Lehrman
May 28, 1997
Board of Directors
50-OFF Stores, Inc.
8750 Tesoro
San Antonio, Texas 78217
Gentlemen:
I do hereby resign as a director and as secretary/treasurer of the Company
(and of each affiliate thereof, to the extent applicable) effective May 28,
1997. In view of my resignation as a director, I will not, of course, be
responsible for matters occurring after my resignation such as the
implementation of the Company's Plan of Reorganization upon confirmation and the
matters contemplated thereby or the registration statement filed with the SEC in
connection with such Plan, when and if it becomes effective.
I have enjoyed serving on the Board of Directors of 50-OFF Stores, Inc. and
wish the Company every success.
Very truly yours,
/s/ JOSEPH LEHRMAN
Joseph Lehrman
cc: Securities and Exchange Commission
<PAGE>
EXHIBIT 99.1
James M. Raines
May 28, 1997
Board of Directors
50-OFF Stores, Inc.
8750 Tesoro
San Antonio, Texas 78217
Gentlemen:
I do hereby resign as a director of the Company (and of each affiliate
thereof, to the extent applicable) effective May 28, 1997. In view of my
resignation from the Company's Board of Directors, I will not, of course, be
responsible for matters occurring after my resignation such as the
implementation of the Company's Plan of Reorganization upon confirmation and the
matters contemplated thereby or the registration statement filed with the SEC in
connection with such Plan, when and if it becomes effective.
I have enjoyed serving on the Board of Directors of 50-OFF Stores, Inc. and
wish the Company every success.
Very truly yours,
/s/ JAMES M. RAINES
James M. Raines
cc: Securities and Exchange Commission
<PAGE>
EXHIBIT 99.2
CONSENT
As a person about to become a director of 50-OFF Stores, Inc. (the
"Company"), I consent to the use of my name in the Prospectus included as part
of the Company's Registration Statement on Form S-1 (No. 333-25061), as amended
at the time it becomes effective.
Dated: June 3, 1997
/s/ SHERYLE J. BOLTON
------------------------------------
Sheryle J. Bolton
<PAGE>
EXHIBIT 99.2
CONSENT
As a person about to become a director of 50-OFF Stores, Inc. (the
"Company"), I consent to the use of my name in the Prospectus included as part
of the Company's Registration Statement on Form S-1 (No. 333-25061), as amended
at the time it becomes effective.
Dated: June 3, 1997
/s/ WILLIAM B. SNOW
------------------------------------
William B. Snow
<PAGE>
EXHIBIT 99.2
CONSENT
As a person about to become a director of 50-OFF Stores, Inc. (the
"Company"), I consent to the use of my name in the Prospectus included as part
of the Company's Registration Statement on Form S-1 (No. 333-25061), as amended
at the time it becomes effective.
Dated: June 3, 1997
/s/ DAVID WHITE
--------------------------------------
M. David White
