SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) March 14, 1996
Family Bargain Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 0-16309 51-0299573
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification
No.)
315 East 62nd Street, 6th Fl., New York, NY 10021
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 980-
9670
(Former Name or Former Address, if Changed Since Last Report )
Item 5. Other Events
On March 14, 1996, Family Bargain Corporation (the
"Company") sold 726,000 shares of Series A 9-1/2% Cumulative
Convertible Preferred Stock (the "Shares") at $4 7/8 per share in
an offshore offering (the "Offering") in accordance with
Regulation S promulgated under the Securities Act of 1933, as
amended (the "Act"). The Company received net proceeds of
$3,220,717.50, after commissions to Commonwealth Associates (the
"Placement Agent") in the amount of $318,532.50 (9% of the
Offering), but before other expenses of the Offering. As
additional compensation in connection with the Offering, the
Company issued to the Placement Agent and its designees five-year
warrants to purchase up to an aggregate of 181,500 shares of the
Company's Common Stock at an exercise price of $1.875 per share.
The Company intends to use the net proceeds of the Offering
for working capital and general corporate purposes, including the
increased working capital requirements created by the addition of
29 stores through the acquisition of Factory 2-U, Inc. in
November 1995.
The Shares are being held by an escrow agent until
April 24, 1996, the end of the 40 day Restricted Period under
Regulation S. In addition, pursuant to certain lockup agreements
between each purchaser, the Placement Agent and the Company, the
Shares may not be transferred prior to June 13, 1996 without the
written consent of the Placement Agent.
Item 7(c). Exhibits
1. Confidential Private Offshore Offering Memorandum
dated March 6, 1996.
2. Confidential Preliminary Private Offshore Offering
Memorandum dated February 16, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Dated: March 19, 1996
FAMILY BARGAIN CORPORATION
By: /s/ John A. Selzer
Name: John A. Selzer
Title: President and
Chief Executive Officer
PRELIMINARY CANADIAN OFFERING MEMORANDUM
Dated February 16, 1996
This Preliminary Canadian Offering Memorandum
constitutes an offering of the securities described herein only
in those jurisdictions and to those persons where and to whom
they may be lawfully offered for sale, and therein only by
persons permitted to sell such securities. The information
contained herein is subject to completion or amendment. This
Preliminary Canadian Offering Memorandum is not, and under no
circumstances is to be construed as, an advertisement or a public
offering of the securities described herein in Canada. No
securities commission or similar authority in Canada has reviewed
or in any way passed upon this document or the merits of the
securities described herein, and any representation to the
contrary is an offense.
FAMILY BARGAIN CORPORATION
Private Placement in Canada of Shares of
Series A 9-1/2% Cumulative Convertible Preferred Stock
Price: US$ ___ per Share
The Offering
The shares of Series A 9-1/2% Cumulative Convertible
Preferred Stock, par value US$0.01 per share (the "Series A
Convertible Preferred Stock"), being offered hereby are part of
an offering (the "Offering") of up to 766,000 shares of Series A
Convertible Preferred Stock by Family Bargain Corporation (the
"Company"), a Delaware corporation. Included in this Preliminary
Canadian Offering Memorandum and forming a part hereof is the
full text of the preliminary private placement memorandum (the
"Confidential Private Offshore Offering Memorandum") regarding
the Offering being made outside the United States. A final
Canadian Offering Memorandum will be delivered to each Canadian
purchaser which will contain the full text of the final
Confidential Private Offshore Offering Memorandum. The Offering
in Canada is being made solely by the final Canadian Offering
Memorandum and any decision to purchase shares of Series A
Convertible Preferred Stock should be based solely on the
information contained herein. No person has been authorized to
give any information or to make any representations other than
those contained herein.
The Offering in Canada is being made solely in the Province
of Ontario.
Resale Restrictions
The distribution of shares of Series A Convertible
Preferred Stock in the Province of Ontario is being made on a
private placement basis. Accordingly, any resale of shares of
Series A Convertible Preferred Stock or the shares of common
stock (the "Common Stock") into which the shares of Series A
Convertible Preferred Stock are convertible must be made in
accordance with an exemption from the registration and prospectus
requirements of applicable securities laws of the Province of
Ontario. Purchasers of shares of Series A Convertible Preferred
Stock are advised to seek legal advice prior to any resale of
shares of Series A Convertible Preferred Stock or shares of
Common Stock.
Representation and Agreement by Purchasers
Confirmations of the acceptance of offers to purchase
any shares of Series A Convertible Preferred Stock will be sent
to purchasers in the Province of Ontario who have not withdrawn
their offers to purchase prior to the issuance of such
confirmations. Each purchaser of shares of Series A Convertible
Preferred Stock in the Province of Ontario who receives a
purchase confirmation will, by the purchaser's receipt thereof,
be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that such purchaser is
entitled under applicable securities laws of the Province of
Ontario to purchase such shares of Series A Convertible Preferred
Stock without the benefit of a prospectus qualified under such
securities laws.
Certain Canadian Income Tax Considerations
The following summary is a general discussion of the
material Canadian federal income tax considerations generally
applicable to a purchaser of Series A Convertible Preferred Stock
pursuant to the final Canadian Offering Memorandum (a "Canadian
Holder") who, for the purposes of the Income Tax Act (Canada)
(the "Tax Act"), is resident in Canada, deals at arm's length
with the Company and holds Series A Convertible Preferred Stock
and, if acquired, Common Stock, as capital property. Certain
"financial institutions", including banks, trust companies,
insurance corporations, registered securities dealers,
corporations controlled by one or more such financial
institutions and trusts and partnerships more than 50% of the
fair market value of the interests in which are held by one or
more such financial institutions will generally be precluded from
treating the Series A Convertible Preferred Stock or Common Stock
as capital property. This summary assumes that the Company will
not be a "foreign affiliate" of any Canadian Holder. In general,
the Company will be a "foreign affiliate" of a Canadian Holder if
the Canadian Holder (i) holds 1% or more of the outstanding
shares of any class of capital stock of the Company, and (ii)
alone or together with related persons holds 10% or more of the
outstanding shares of any class of capital stock of the Company.
This summary is based on the current provisions of the
Tax Act and the regulations thereunder, all specific proposals to
amend the Tax Act and the regulations announced or released by
the Minister of Finance, Canada prior to the date hereof and the
published administrative practices of Revenue Canada, Customs,
Excise and Taxation ("Revenue Canada"). This summary does not
otherwise take into account or anticipate any changes in law
whether by judicial, governmental or legislative decision or
action, nor does it take into account provincial, territorial or
foreign income tax considerations which may differ from the
Canadian federal income tax considerations described herein.
This summary is not exhaustive of all federal income
tax considerations that may be relevant to a particular holder of
Series A Convertible Preferred Stock and, if acquired, Common
Stock, having regard to the holder's particular circumstances nor
does it address the federal income tax considerations relevant to
certain types of holders who may be subject to special treatment
under the Tax Act. This summary is not intended to be, and
should not be interpreted as, legal or tax advice to any
particular holder of Series A Convertible Preferred Stock and, if
acquired, Common Stock, and no representation with respect to the
income tax consequences to any particular holder is made.
Accordingly, prospective purchasers of Series A Convertible
Preferred Stock should consult their own tax advisors with
respect to their individual circumstances.
All amounts relating to the acquisition, holding or
disposition of Series A Convertible Preferred Stock or Common
Stock must be converted into Canadian dollars for the purposes of
the Tax Act and the regulations thereunder.
Dividends
Dividends received by a Canadian Holder on Series A
Convertible Preferred Stock or Common Stock will be included in
such holder's income for the purposes of the Tax Act.
Conversions of Series A Convertible Preferred Stock
The conversion of Series A Convertible Preferred Stock
into Common Stock will not constitute a disposition for purposes
of the Tax Act, and accordingly, will not result in a capital
gain or a capital loss. The Canadian Holder's aggregate cost of
Common Stock acquired on a conversion of Series A Convertible
Preferred Stock will be equal to the Canadian Holder's adjusted
cost base of such Series A Convertible Preferred Stock
immediately before the conversion. Under the current
administrative practices of Revenue Canada, a Canadian Holder
who, upon conversion of Series A Convertible Preferred Stock,
receives cash not in excess of $200 in lieu of a fraction of a
Common Stock, may either treat this amount as proceeds of
disposition of a portion of a Series A Convertible Preferred
Stock or, alternatively, reduce the adjusted cost base of the
Common Stock received on the conversion by the amount of the cash
received. If a Canadian Holder chooses to recognize a
disposition of a portion of a Series A Convertible Preferred
Stock, such holder may realize a capital gain or a capital loss.
Disposition of Series A Convertible Preferred Stock and Common
Stock
On the disposition of Series A Convertible Preferred
Stock or Common Stock (on a redemption or otherwise), a Canadian
Holder will realize a capital gain (or a capital loss) to the
extent that the proceeds of disposition exceed (or are less than)
the aggregate of the Canadian Holder's adjusted cost base of such
stock and any costs of disposition. Three-quarters of any such
capital gain (a "taxable capital gain") will be included in the
Canadian Holder's income and three-quarters of any such capital
loss will be deductible from taxable capital gains in accordance
with the rules in the Tax Act.
Foreign Tax Credits
Subject to certain limitations, a Canadian Holder may
be entitled to claim a credit or a deduction in computing the
Canadian Holder's Canadian income tax liability for any United
States withholding or other income tax payable by the Canadian
Holder in respect of dividends received on, or any gain realized
on a disposition of, Series A Convertible Preferred Stock or
Common Stock.
Deferred Income Plans
The Series A Convertible Preferred Stock and the Common
Stock will be "foreign property" for the purposes of the tax
imposed on deferred income plans under Part XI of the Tax Act.
Enforcement of Legal Rights
Since the Company is organized under the laws of the
State of Delaware, the directors and officers of the Company
reside outside Canada and all of the assets of the Company are
located outside Canada, it may not be possible for purchasers of
shares of Series A Convertible Preferred Stock to enforce against
the Company in Canada judgments obtained in Canadian courts. It
may not be possible for purchasers of shares of Series A
Convertible Preferred Stock to enforce against the Company in the
United States, in original actions or in actions for enforcement
of judgments of Canadian courts, civil liabilities predicated
solely upon securities laws of the Province of Ontario, including
the contractual rights of action described under "Rights of
Action for Damages or Rescission" below.
Rights of Action for Damages or Rescission
The following contractual rights of action for damages
or rescission shall be available to purchasers of the shares of
Series A Convertible Preferred Stock offered hereby resident in
the Province of Ontario.
Ontario. If the final Canadian Offering Memorandum,
together with any amendment thereto, contains an untrue statement
of a material fact or omits to state a material fact that is
required to be stated or is necessary in order to make any
statement therein not misleading in the light of the
circumstances in which it was made (herein called a
"misrepresentation") and it was a misrepresentation on the date
of purchase, purchasers in the Province of Ontario to whom the
final Canadian Offering Memorandum was sent or delivered and who
purchase shares of Series A Convertible Preferred Stock shall
have a right of action against the Company for rescission (while
still the owner of such shares of Series A Convertible Preferred
Stock) or, alternatively, for damages, exercisable on written
notice given not more than 90 days subsequent to the date of
purchase, provided that the Company will not be liable:
(a) if the purchaser purchased such shares
of Series A Convertible Preferred Stock with
knowledge of the misrepresentation;
(b) for all or any portion of any damages
that it proves do not represent the depreciation
in value of such shares of Series A Convertible
Preferred Stock as a result of the
misrepresentation; and
(c) for amounts in excess of the price at
which such shares of Series A Convertible
Preferred Stock were sold to the purchaser.
The foregoing summary is subject to the express
provisions of the Securities Act (Ontario) and the rules and
regulations thereunder and reference is made thereto for the
complete text of such provisions. The contractual rights
discussed above will be provided to purchasers in their purchase
confirmations. The rights discussed above are in addition to and
without derogation from any other right or remedy which
purchasers may have at law.
CONFIDENTIAL PRELIMINARY PRIVATE OFFSHORE OFFERING MEMORANDUM
FAMILY BARGAIN CORPORATION
Offering Of Up To 766,000 Shares
of Series A 9-1/2% Cumulative Convertible Preferred Stock
Minimum Subscription $100,000
500,000 Share Minimum - 766,000 Share Maximum
Family Bargain Corporation (the "Company") is offering for sale
to persons who are not "U.S. persons," as that term is defined in
Regulation S promulgated under the Securities Act of 1933, as
amended ("Regulation S"), a minimum of 500,000 and a maximum of
766,000 shares (the "Shares") of the Company's Series A 9-1/2%
Cumulative Convertible Preferred Stock, $.01 par value per share
(the "Series A Convertible Preferred Stock"), at $__ per share
(equal to __% of the closing bid price for the Series A
Convertible Preferred Stock on the Nasdaq SmallCap Market on
February __, 1996) (the "Offering"). Commonwealth Associates
(the "Placement Agent") has agreed to act as placement agent for
the Company in connection with the Offering. Shares of Series A
Convertible Preferred Stock are convertible, at the option of the
holders thereof, at a conversion price of $3.719 per share of
Common Stock (so that each share of Series A Convertible
Preferred Stock is convertible into 2.689 shares of Common
Stock). The outstanding shares of Series A Convertible Preferred
Stock and Common Stock are currently quoted on the Nasdaq
SmallCap Market under the symbols "FBARP" and "FBAR,"
respectively. The outstanding shares of Common Stock are also
listed on the Chicago Stock Exchange under the symbol "FBAR." On
February 15, 1996, the closing per share bid prices for the
Series A Convertible Preferred Stock and the Common Stock, as
reported by Nasdaq, were $5 7/8 and $1 19/32, respectively.
The information contained herein is subject to completion or
amendment. A final offering memorandum containing pricing
information will be delivered to investors before the closing of
this Offering.
The Shares are being offered on a "best efforts" basis by the
Placement Agent. All proceeds received by the Company from
subscribers for the Shares offered hereby will be deposited by
the Placement Agent in a special non-interest bearing bank
account. If at least 500,000 of the Shares offered hereby (the
"Minimum Financing") have not been subscribed for by the close of
business on March 8, 1996 (or March 29, 1996, if the offer shall
have been extended by the Placement Agent and the Company) (the
"Termination Date"), all proceeds received by the Company from
subscribers will be refunded in full, without deduction and
without interest. If subscriptions for 766,000 of the Shares
(the "Maximum Financing") are received or, at the Company's
discretion, if subscriptions for the Minimum Financing (but less
than the Maximum Financing) are received, on or prior to the
Termination Date, the closing (the "Closing") will be held as
soon as practicable after receipt of such subscriptions or such
determination by the Company, and the funds held in the special
account will be turned over to the Company. If the Company
determines not to close in the event that subscriptions for less
than the Maximum Financing are received, all proceeds received by
the Company from subscribers will be refunded in full, without
deduction and without interest, as soon as practicable following
such determination. See "Terms of the Offering."
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEG
REE
OF RISK. SEE "RISK FACTORS"
THE SHARES ARE BEING OFFERED HEREBY OUTSIDE THE UNITED STATES
IN RELIANCE ON REGULATION S UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THE SHARES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE ACT OR WITH ANY SECURITIES REGULATORY
AUTHORITY OF ANY JURISDICTION. THE SHARES SOLD HEREUNDER MAY NOT
BE OFFERED OR SOLD IN THE UNITED
STATES OR TO "U.S. PERSONS" DURING THE RESTRICTED PERIOD SET
FORTH
IN SECTION 903 OF REGULATION S UNLESS THE SHARES ARE REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE. FOR CERTAIN
RESTRICTIONS ON RESALE, SEE "GENERAL CONDITIONS
OF REGULATION S".
Commonwealth Associates
The date of this Memorandum is February 16, 1996.
THE SHARES ARE BEING OFFERED WITHOUT REGISTRATION UNDER THE ACT
IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY
REGULATION S PROMULGATED THEREUNDER. THE SHARES HAVE NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE ACT. THE SHARES MAY NOT BE
OFFERED, SOLD OR DELIVERED, DIRECTLY OR INDIRECTLY, IN THE UNITED
STATES OF AMERICA ("U.S.") OR TO OR FOR THE BENEFIT OR ACCOUNT OF
U.S. PERSONS UNLESS THE SHARES ARE REGISTERED UNDER THE ACT, OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE. THE SALE, TRANSFER OR OTHER DISPOSITION OF ANY SHARES
PURCHASED PURSUANT HERETO IS RESTRICTED BY APPLICABLE SECURITIES
LAWS.
THIS MEMORANDUM HAS NOT BEEN REVIEWED, APPROVED OR DISAPPROVED,
NOR HAS THE ACCURACY OR ADEQUACY OF THE INFORMATION SET FORTH
HEREIN BEEN PASSED UPON, BY THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR SECURITIES ADMINISTRATOR OF ANY OTHER
JURISDICTION. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE INFORMATION CONTAINED IN THIS MEMORANDUM IS BEING FURNISHED
TO PROSPECTIVE INVESTORS SOLELY FOR SUCH INVESTORS' CONFIDENTIAL
USE WITH THE EXPRESS UNDERSTANDING THAT, WITHOUT THE PRIOR
EXPRESS PERMISSION OF THE COMPANY, SUCH PERSON WILL NOT RELEASE
THIS DOCUMENT OR DISCUSS THE INFORMATION CONTAINED HEREIN OR MAKE
REPRODUCTIONS OF OR USE THIS MEMORANDUM FOR ANY PURPOSE OTHER
THAN AN EVALUATION OF A POTENTIAL INVESTMENT IN THE SHARES AND,
IN THE EVENT ANY SUCH PROSPECTIVE INVESTOR ELECTS NOT TO INVEST,
SUCH PERSON WILL RETURN THIS MEMORANDUM TO THE COMPANY.
THIS OFFERING IS SUBJECT TO WITHDRAWAL, CANCELLATION OR
MODIFICATION BY THE COMPANY WITHOUT NOTICE. THE COMPANY RESERVES
THE RIGHT, IN ITS SOLE DISCRETION, TO REJECT ANY SUBSCRIPTION IN
WHOLE OR IN PART FOR ANY REASON OR TO ALLOT ANY SUBSCRIBER LESS
THAN THE NUMBER OF SHARES SUBSCRIBED FOR.
THE PRICE OF THE SHARES OFFERED HEREBY HAS BEEN DETERMINED BY
NEGOTIATION BETWEEN THE COMPANY AND THE PLACEMENT AGENT, BASED IN
PART ON THE MARKET PRICE FOR THE COMMON STOCK, AND DOES NOT
NECESSARILY BEAR ANY RELATIONSHIP TO THE ASSETS, BOOK VALUE OR
POTENTIAL PERFORMANCE OF THE COMPANY OR ANY OTHER RECOGNIZED
CRITERIA OF VALUE.
OFFEREES MAY, IF THEY SO DESIRE, MAKE INQUIRIES OF THE COMPANY
WITH RESPECT TO THE COMPANY'S BUSINESS OR ANY OTHER MATTERS
RELATING TO THE COMPANY AND AN INVESTMENT IN THE SHARES OFFERED
HEREBY, AND MAY OBTAIN ANY ADDITIONAL INFORMATION WHICH SUCH
PERSONS DEEM TO BE NECESSARY IN CONNECTION WITH MAKING AN
INVESTMENT DECISION IN ORDER TO VERIFY THE ACCURACY OF THE
INFORMATION CONTAINED IN THIS MEMORANDUM (TO THE EXTENT THAT THE
COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT
UNREASONABLE EFFORT OR EXPENSE). IN CONNECTION WITH SUCH
INQUIRY, ANY DOCUMENTS WHICH AN OFFEREE WISHES TO REVIEW WILL BE
MADE AVAILABLE FOR INSPECTION AND COPYING OR PROVIDED, UPON
REQUEST, SUBJECT TO THE OFFEREE'S AGREEMENT TO MAINTAIN SUCH
INFORMATION IN CONFIDENCE AND TO RETURN THE SAME TO THE COMPANY
IF THE RECIPIENT DOES NOT PURCHASE THE SHARES OFFERED HEREUNDER
OR OTHERWISE AS REQUESTED BY THE COMPANY. ANY SUCH REQUESTS FOR
ADDITIONAL INFORMATION OR DOCUMENTS SHOULD BE MADE IN WRITING TO
THE COMPANY, ADDRESSED AS FOLLOWS: FAMILY BARGAIN CORPORATION,
315 EAST 62ND STREET, 6TH FLOOR, NEW YORK, NY 10021, OR BY
TELEPHONE (212) 980-9670, ATTENTION: JOHN A. SELZER, CHIEF
EXECUTIVE OFFICER.
NO PERSON, OTHER THAN AS PROVIDED FOR HEREIN, HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS MEMORANDUM IN CONNECTION WITH THE OFFER
BEING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
OR GIVEN BY THE COMPANY OR THE PLACEMENT AGENT.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SHARES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH SHARES 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.
THE INFORMATION PRESENTED HEREIN WAS PROVIDED BY THE COMPANY AND
IS BEING FURNISHED BY THE PLACEMENT AGENT SOLELY FOR THE USE OF
PROSPECTIVE INVESTORS IN CONNECTION WITH THE OFFERING DESCRIBED
HEREIN. THE PLACEMENT AGENT HAS NOT CONDUCTED ANY INDEPENDENT
INVESTIGATION WITH RESPECT TO THE INFORMATION CONTAINED IN THIS
MEMORANDUM AND MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE
ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN THE
MEMORANDUM, AND EXPRESSLY DISCLAIMS ANY RESPONSIBILITY FOR ANY
INFORMATION CONTAINED HEREIN.
IT IS THE RESPONSIBILITY OF ANY PERSON OR ENTITY WISHING TO
PURCHASE THE SHARES TO SATISFY HIMSELF, HERSELF OR ITSELF AS TO
THE FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE
THE UNITED STATES IN CONNECTION WITH ANY SUCH PURCHASES,
INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS
OR OBSERVING ANY OTHER APPLICABLE FORMALITIES.
PROSPECTIVE INVESTORS MAY NOT CONSTRUE THE CONTENTS OF THIS
MEMORANDUM AS LEGAL, INVESTMENT OR TAX ADVICE. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR ADVISORS AS TO LEGAL, INVESTMENT,
TAX AND RELATED MATTERS CONCERNING AN INVESTMENT BY SUCH
PROSPECTIVE INVESTORS IN THE COMPANY.
THE STATEMENTS CONTAINED HEREIN ARE BASED ON INFORMATION BELIEVED
BY THE COMPANY TO BE RELIABLE. NO WARRANTY CAN BE MADE THAT
CIRCUMSTANCES HAVE NOT CHANGED SINCE THE DATE SUCH INFORMATION
WAS SUPPLIED. THIS MEMORANDUM CONTAINS SUMMARIES OF CERTAIN
PROVISIONS OF DOCUMENTS RELATING TO THE PURCHASE OF THE SHARES OR
RELATING TO THE COMPANY, AS WELL AS SUMMARIES OF VARIOUS
PROVISIONS OF RELEVANT STATUTES AND REGULATIONS. SUCH SUMMARIES
DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY
BY REFERENCE TO THE TEXTS OF THE ORIGINAL DOCUMENTS, STATUTES AND
REGULATIONS, WHICH ARE AVAILABLE UPON REQUEST.
JURISDICTIONAL NOTICES
NOTICE TO RESIDENTS OF ALL JURISDICTIONS:
THE SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE ACT. THE SHARES MAY NOT BE OFFERED, SOLD OR DELIVERED,
DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO OR FOR THE
ACCOUNT OF U.S. PERSONS UNLESS THE SHARES ARE REGISTERED UNDER
THE ACT, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT IS AVAILABLE. THE SHARES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR THE SECURITIES COMMISSION IN ANY JURISDICTION OR
ANY REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING
AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING
OR THE ACCURACY OR ADEQUACY OF THE INFORMATION IN THIS
MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FOR GREAT BRITAIN RESIDENTS ONLY:
NO PERSON MAY OFFER OR SELL THESE SHARES IN GREAT
BRITAIN BY MEANS OF ANY DOCUMENT EXCEPT TO PERSONS WHOSE ORDINARY
BUSINESS IT IS TO BUY OR SELL SECURITIES, WHETHER AS PRINCIPAL OR
AGENT (EXCEPT IN CIRCUMSTANCES WHICH DO NOT CONSTITUTE AN OFFER
TO THE PUBLIC WITHIN THE MEANING OF THE COMPANIES ACT OF 1985 OF
GREAT BRITAIN) AND, UNLESS SUCH PERSON IS A PERSON PERMITTED TO
DO SO UNDER THE SECURITIES LAWS OF GREAT BRITAIN, IT WILL NOT
DISTRIBUTE THIS OFFERING CIRCULAR AND ANY OTHER OFFERING MATERIAL
IN RESPECT OF ANY PROPOSED OFFER OR SALE OF THESE SHARES IN OR
FROM GREAT BRITAIN OTHER THAN TO PERSONS WHOSE BUSINESS INVOLVES
THE ACQUISITION AND DISPOSAL, OR THE HOLDING, OF SECURITIES,
WHETHER AS PRINCIPAL OR AS AGENT.
FOR RESIDENTS OF CANADA ONLY:
SEE THE PRELIMINARY CANADIAN OFFERING MEMORANDUM
SUPPLEMENT ATTACHED HERETO. IF THE SUPPLEMENT BECOMES DETACHED
FROM THIS MEMORANDUM, PLEASE CONTACT THE PLACEMENT AGENT FOR A
REPLACEMENT COPY.
GENERAL CONDITIONS OF REGULATION S
The Securities being offered hereby are being sold
pursuant to an exemption under the Act in accordance with
Regulation S. In accordance with Regulation S, the offer and/or
sale of securities must be made in an "offshore transaction" and
no "directed selling efforts" may be made in the United States.
In addition to the foregoing, offers and sales of the Shares are
subject to certain transaction restrictions and offering
restrictions during a 40 day period commencing on the later of
(i) the date the Shares are first offered to persons other than
distributors or (ii) the date of the final closing of this
offering (the "Restricted Period"). The "offering restrictions"
require (i) each distributor (and all other persons who receive
remuneration in respect of the Shares sold during the Restricted
Period) to agree in writing to make all offers and sales of
Shares during the Restricted Period only in accordance with
Regulation S or an exemption under the Act or pursuant to a
registration statement and (ii) offering materials and documents
(other than press releases) used during the Restricted Period to
disclose that the Shares are not registered under the Act and
that the Shares cannot be offered or sold to U.S. persons or in
the United States during the Restricted Period unless the Shares
are registered or an exemption from registration is available.
The "transaction restrictions" require that, during the
Restricted Period: (i) each distributor selling the Shares to a
distributor, dealer or a person receiving a selling concession
confirm to the purchaser that the purchase is subject to the same
restrictions on offers and sales that apply to a distributor and
(ii) offers and sales of the Shares may not be made to a U.S.
person or for the account or benefit or a U.S. person (other than
a distributor).
In addition to the restrictions imposed by Regulation S, the
Shares offered hereby will not be transferable for 90 days
following the Closing of this Offering except with the prior
written consent of the Placement Agent. See "Terms of the
Offering."
TABLE OF CONTENTS
Page
SUMMARY 8
The Company 8
The Offering 14
PRICE RANGE OF COMMON AND PREFERRED STOCK 17
RISK FACTORS 19
DIRECTORS AND SENIOR MANAGEMENT 24
TERMS OF THE OFFERING 28
DESCRIPTION OF SECURITIES 30
CERTAIN U.S. TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS 38
AVAILABLE INFORMATION 41
EXHIBIT A - PRESS RELEASES DATED
FEBRUARY 1, 1996, JANUARY 4, 1996
AND NOVEMBER 30, 1995 REGARDING
REVENUES AND COMP STORE SALES FOR
THE MONTHS OF JANUARY 1996,
DECEMBER 1995 AND NOVEMBER 1995 AND
FOR THE FOURTH QUARTER OF FISCAL
1996 (THREE MONTHS AND THE YEAR
ENDED JANUARY 27, 1996).
EXHIBIT B - ANNUAL REPORT ON
FORM 10-K AND 10-K/A FOR THE YEAR
ENDED JANUARY 28, 1995
EXHIBIT C - QUARTERLY REPORT ON
FORM 10-Q FOR THE THREE MONTHS
ENDED OCTOBER 28, 1995
EXHIBIT D - CURRENT REPORT ON
FORM 8-K, AS AMENDED BY FORM 8-K/A,
EACH DATED NOVEMBER 28, 1995.
EXHIBIT E - SUBSCRIPTION
AGREEMENT
SUMMARY
The following summary is qualified in its entirety by,
and should be read in conjunction with, the more detailed
information, exhibits and financial statements, including the
notes thereto, appearing elsewhere in this Memorandum and the
attached Exhibits. Each prospective investor should read this
Memorandum in its entirety prior to making an investment in the
securities offered hereby.
The Company
Introduction
Family Bargain Corporation (the "Company") is a New
York-based holding company which, through its two operating
subsidiaries, General Textiles and Factory 2-U, Inc. ("Factory 2-
U"), operates 131 off-price retail stores in seven western
states. General Textiles' 102 stores operate under the name
"Family Bargain Center" and Factory 2-U's 29 stores operate under
the name "Factory 2-U." The Company purchased Factory 2-U in
November 1995.
Business
The Company's stores sell primarily first quality, in-
season clothing for men, women, and children and housewares at
discounted prices that are substantially lower than those of
major discount retailers and other regional off-price chains.
The stores' merchandise is targeted to the low income consumer.
The stores' primary customers are families with annual household
income of under $25,000, a significant portion of whom are of
Hispanic origin. The stores are located primarily in strip
shopping centers, where occupancy costs are most favorable. As
of January 31, 1996, store locations were as follows:
STATE STRIP DOWNTOWN OTHER TOTAL
CENTER
California 47 14 8 69
Arizona 28 4 0 32
Washington 2 3 2 7
New Mexico 6 0 1 7
Nevada 6 0 0 6
Oregon 7 0 1 8
Texas 2 0 0 2
TOTAL 98 21 12 131
Stores typically employ one store manager, two
assistant store managers, and seven to ten sales associates, most
of whom are part-time employees. New store managers are trained
in all aspects of store operations through a Management Training
Program either at the Company's San Diego training center or on
location at stores. The average compensation for store managers
is approximately $28,000, including a bonus of $2,000.
Experienced assistant store managers are often promoted to fill
open manager positions. Other store personnel are trained on
site.
Management believes that the Company's store opening
and operating costs are low compared to those of other retailers
due to the selection of low rent store locations, a self-service
format, use of basic fixtures and use of part-time employees
whenever possible. Stores are generally located in previously
occupied sites leased on terms which Management believes are more
favorable than those available for newly constructed facilities.
Store sites are selected based on demographic analysis of the
market area, sales potential, local competition, occupancy
expense, operations fit and proximity to existing store
locations. Store operating preparations generally take up to two
weeks. Typical new store opening expenses for fixtures,
leasehold improvements and grand opening are approximately
$90,000. Initial inventory investment for an average new store
is approximately $200,000.
The average Family Bargain Center store contains
approximately 11,000 square feet with 9,000 square feet devoted
to selling floor, while the average Factory 2-U store contains
approximately 16,000 square feet with 13,500 square feet of
selling floor. The following provides a breakdown of the
merchandise mix in the respective chains:
Family Factory 2-
Bargain U
Center
Ladies Ready-to-wear 30% 20%
Menswear 30% 20%
Children's (Boys, Girls, 30% 20%
Infants & Toddlers)
Footwear 5% 4%
Domestics 5% 22%
Housewares - 8%
Toys and Miscellaneous - 6%
The Company's stores average approximately $190 of
sales per square foot of selling space per year. This high per
square foot volume, in conjunction with their occupancy costs,
allows the stores to operate at an occupancy cost consistently
below five percent of sales.
Merchandising
The Company's merchandise strategy emphasizes high
inventory turnover to maximize cash flow and minimize markdowns,
thus allowing it to maintain lower initial mark-ups. Inventory
turnover for the past four fiscal years are shown below:
F.Y. ended 1/93 5.5 turns
F.Y. ended 1/94 5.7
F.Y. ended 1/95 5.8
F.Y. ended 1/96 5.6
The Company's buying strategy emphasizes purchases of
manufacturers' over-runs, close-outs and cancellations of orders
placed by major discount retailers, at prices which are generally
30% to 50% below normal wholesale. The buying staff consists of
12 full-time buyers who maintain a constant presence in the
market and who purchase merchandise from approximately 1,000
vendors. The Company's ability to purchase large quantities of
surplus product has resulted in strong relationships with its
vendors and a continuing supply of products for its stores. By
purchasing its merchandise in-season, as opposed to the large
discount retailers who generally purchase goods months in
advance, the Company is better able to determine which products
are popular in a particular season, thus minimizing markdown
exposure.
New merchandise is delivered to the Company's stores on
average twice per week to encourage frequent shopping trips by
its customers and to maximize the rate of inventory turn. As a
result of its purchasing practices, store inventory may not
always include a full range of colors, sizes and styles in a
particular item. Management believes, however, that price,
quality, and product mix are more important to the stores'
customers than the availability of a specific item at a specific
time.
Marketing
The Company allocates approximately 3% of sales to
advertising and marketing. Historically, the majority of the
advertising budget has been devoted to radio (approximately 80%),
both English and Hispanic, and to a lesser extent, to television
(approximately 10%), and the balance to print and in-store
promotion. In the middle of the 1996 fiscal year, management
initiated a major shift of its advertising program with the
development of full-color inserts showing photographs of store
merchandise, which are delivered to the consumer as newspaper
inserts and through direct-mail promotion. This new advertising
approach has attracted a new and broader customer base into the
stores, and contributed to significantly improved sales results
in the Back-to-School and Christmas selling seasons. Same store
sales, since the implementation of this new program in mid-1995,
have generally outpaced the retail industry.
Purchasing
The Company purchases merchandise from approximately
1,000 domestic manufacturers, jobbers, importers and other
vendors. Payment terms are typically net 30 days. The Company
continually adds new vendors and does not maintain long-term or
exclusive purchase commitments or agreements with any vendor.
The Company has generally not had difficulty locating and
purchasing appropriate apparel for its stores. Management
believes that there are a substantial number of additional
sources of supply of first quality, off-price apparel goods and
expects that it will be able to meet its increased inventory
needs as the number of Company stores expands.
Manufacturers ship goods directly to the Company's San
Diego distribution center or, in the case of east coast vendors,
to the Company through its east coast freight consolidator.
Goods received at the Company's warehouse are shipped to the
stores using independent trucking companies generally within two
or three days of their arrival. The Company does not store goods
from season to season at its warehouse.
Competition
The Company's stores operate in a competitive
marketplace. They compete with large discount retail chains such
as Wal-Mart, K-Mart, Target and Mervyn's and with regional off-
price chains, such as MacFrugal's. They also compete with
independent and small chain retailers and flea markets (also
known as "swap meets") which serve the same low and low-middle
income market as the Company. Management believes that the
principal competitive factors in the Company's markets are price,
quality and site location and that the Company is well positioned
to compete on the basis of these factors. In addition,
management believes that the Company's ability to tailor its
merchandising, marketing and advertising programs and store
service to Hispanics and other ethnic groups provides the Company
with an important competitive advantage. Many of the Company's
stores are located within five miles of a Wal-Mart, K-Mart or
Target store. Management believes that this competition draws
increased consumer traffic to these areas and that a portion of
this additional consumer traffic comparative shops and finds the
Company's stores' pricing, merchandise and operating philosophy
appealing.
Employees
The Company employs approximately 2,790 persons,
including 2,635 persons as store employees and field management,
1,896 of whom are part-time, 94 as executive and administrative
employees, and 61 as warehouse employees. None of the employees
of the Company is subject to any collective bargaining agreements
and management considers its relations with its employees to be
good.
Growth
The Company expects to continue its strategy of
controlled growth by continuing to open new stores in its
existing markets. The current plan contemplates a growth rate in
new stores of approximately 15% per year. The acquisition of the
29 store Factory 2-U chain in November 1995 provided the Company
with the opportunity to add significant additional sales with
comparatively low incremental general and administrative ("G&A")
expenses. Buying, administrative, financial and operations
functions of the Factory 2-U stores are managed by the Company's
existing staff in San Diego and New York. The Company intends to
pursue the potential acquisition of other comparable retail
chains as opportunities arise.
The Company has an ongoing program to renovate and
relocate stores. A store is renovated when management believes
that an improvement to the store's physical appearance will
enhance sales. Store renovations include installing new
fixtures, redesigning layout and refurbishing floors and walls.
Renovated stores have historically experienced increased sales,
enabling the Company to rapidly recover renovation costs. A
store is considered for relocation when a superior location
becomes available in its market area. The average expenditure
for a store renovation or relocation is typically $50,000.
Recent and Historical Financial Results
Recent Unaudited Results
For the three months ended October 28, 1995, the
Company's most recently completed fiscal quarter (which does not
include Factory 2-U results), the Company had revenues of $47.3
million compared with revenues of $39.3 million for the three
months ended October 29, 1994 (a 20.1% increase). Net income
from continuing operations in this period totaled $1.7 million,
compared with net income from continuing operations of $1.1
million for the period ended October 1994 (a 50.0% increase).
Net income in this period totaled $1.7 million, compared with net
income of $1.0 million for the period ended October 1994 (a 72.5%
increase). See Form 10-Q for the Period Ended October 28, 1995
attached hereto as Exhibit C.
For the nine months ended October 28, 1995, the Company
had revenues of $115.6 million compared with revenues of $99.3
million for the nine months ended October 1994 (a 16.3%
increase). The Company incurred a net loss from continuing
operations of $2.0 million in this period compared with a net
loss from continuing operations of $740,000 for the period ended
October 1994 (a 177% increase). The Company incurred a net loss
of $2.0 million in this period compared with net income of $4.5
million for the period ended October 1994 (which included an
extraordinary gain of $5.7 million for the retirement of
indebtedness). See Exhibit C.
On February 1, 1996, the Company announced that sales
(unaudited) for the month of January 1996 were $9.7 million,
compared with $6.3 million for January 1995. January comp store
sales (sales for stores operated by the Company both during
January 1996 and January 1995, therefore excluding any Factory 2-
U stores) increased 10.9%. Sales for the fourth quarter ended
January 27, 1996 were approximately $64.2 million compared with
approximately $47.1 million for the fourth quarter ended January
1995. Sales for the fiscal year ended January 27, 1996 totaled
$179.9 million, compared to $146.5 million for the fiscal year
ended January 1995, an increase of 22.8%. Comp store sales for
the fiscal year ended January 1996 increased 2.8% over fiscal
1995. On January 4, 1996, the Company announced that sales
(unaudited) for the month of December 1995 were $37.3 million,
compared with $25.3 million for December 1994 (a 47.1% increase).
December comp store sales (also excluding Factory 2-U stores)
increased 9.2%. On November 30, 1995, the Company announced that
sales (unaudited) for the month of November 1995 were $17.1
million, compared with $15.6 million for November 1994. November
comp store sales (also excluding Factory 2-U stores) decreased
4.4%. The Press Releases relating to these announcements are
attached hereto as Exhibit A.
Audited Historical Results
The Company incurred a net loss from continuing
operations of $0.3 million for its fiscal year ended January
1995. Net income, including losses from discontinued operations
and extraordinary gains, totalled $2.6 million for the fiscal
year ended January 28, 1995.
Dividends
The Company, subject to declaration by its Board of
Directors, pays dividends on its Series A Convertible Preferred
Stock quarterly, in cash, on April 30, July 31, October 31, and
the last Friday in January of each year. The Company has paid
each quarterly dividend (to date totaling $760,000 per quarter)
since the original issuance of Series A Convertible Preferred
Stock in July 1994. See "Risk Factors - Dividends; Dividend
Coverage" and "Description of Securities - Series A Convertible
Preferred Stock - Dividends."
The Company's principal executive office is located at
315 East 62nd Street, New York, New York 10021 and its telephone
number is (212) 980-9670. The principal executive office of
General Textiles and Factory 2-U is located at 4000 Ruffin Road,
San Diego, California 92123 and its telephone number is (619) 627-
1800.
The Offering
Securities Offered A maximum of 766,000 shares
and a minimum of 500,000
shares of Series A Convertible
Preferred Stock.
Offering Price $__ per share (equal to __% of
the closing bid price for the
Series A Convertible Preferred
Stock on the Nasdaq SmallCap
Market on February __, 1996)
Shares Outstanding
Prior to the Following the
Offering Offering
Common Stock1 4,008,310 4,008,310
Series A Convertible Preferred 3,260,000 4,026,000
Stock2,3,5
Shares of Series A Convertible
Preferred Stock Offered 766,000
Hereby3,5
Common Stock issuable upon
conversion of outstanding Series
A Convertible Preferred 8,765,470 10,825,086
Stock2,4,5
Common Stock, assuming 12,773,780 14,833,396
conversion of Series A
Convertible Preferred
Stock1,2,4,5
Common Stock, on a fully-diluted 14,832,608 16,892,224
basis1,2,5,6
Registration Rights The purchasers of the Shares
in the Offering are entitled
to registration rights under
certain circumstances. See
Use of Proceeds "Plan of Distribution."
The net proceeds to the
Company from the sale of the
Shares will be approximately
$____________ if the maximum
number of Shares offered
hereby are sold and
$____________ if the minimum
number of Shares offered
hereby are sold, after
deduction of Placement Agent
commissions but before other
fees and expenses of this
offering. The Company intends
to use the net proceeds of the
Offering for working capital
and general corporate
purposes, including the
increased working capital
requirements created by the
addition of 29 stores through
the acquisition of Factory 2-U
in November 1995. See "Use of
Proceeds."
Restrictions on Transfer The offering of the Shares has
not been registered under the
Act and the Shares are being
offered in reliance upon the
exemption under Regulation S
promulgated under the Act.
Sales of the Shares will be
made only to non- "U.S.
Persons," as such term is
defined in Regulation S under
the Act. Investors will
receive the certificates
representing their shares on
the 41st day following the
Closing of the Offering (the
conclusion of the 40 day
"Restricted Period"). During
the Restricted Period, the
shares will be held by a non-
U.S. Escrow Agent in the form
of a global certificate
consisting of all of the
shares sold in the Offering.
In addition to the
restrictions imposed by
Regulation S, the Shares
offered hereby will not be
transferable for 90 days
following the Closing of this
Offering except with the prior
written consent of the
Placement Agent. See "General
Conditions of Regulation S"
and "Plan of Distribution."
Placement Agent Commonwealth Associates is
acting as Placement Agent in
connection with the sale of
the Shares offered hereby and
will receive a commission of
nine percent (9%) of the gross
proceeds from the sale of the
Shares, warrants to purchase
Common Stock, and
reimbursement of the Placement
Agent's legal fees and
expenses (up to $75,000). See
"Directors and Senior
Management" and "Plan of
Distribution."
Risk Factors The Shares offered hereby
involve substantial risks. See
"Risk Factors."
PRICE RANGE OF COMMON AND PREFERRED STOCK
The Company's Common Stock and Series A Convertible
Preferred Stock is traded over-the-counter and is listed on the
NASDAQ SmallCap Market. The Common Stock is also listed on the
Chicago Stock Exchange. The table below sets forth certain
information with respect to the high and low closing bid prices
(rounded to the nearest hundredth) of the Company's Common Stock
and Series A Convertible Preferred Stock during the twelve months
ended January 28, 1995, the twelve months ended January 27, 1996
and the subsequent interim period, as quoted by NASDAQ. These
quotations represent inter-dealer prices without retail markups,
markdowns or commissions and may not represent actual
transactions. They are also adjusted for a reverse stock split
of the Common Stock which occurred in fiscal 1995.
Commo Serie
n s A
Stock Conve
rtibl
e
Prefe
rred
Stock
High Low High Low
Year Ended January 28, 1995
First Quarter $7.69 $4.13
Second Quarter $5.63 $3.38 $10.5 $10.0
0 0
Third Quarter $3.69 $2.25 $10.5 $8.25
0
Fourth Quarter $3.50 $1.31 $9.62 $5.50
Year Ended January 27, 1996
First Quarter $1.81 $1.13 $6.75 $5.25
Second Quarter $1.25 $1.13 $6.25 $3.37
Third Quarter $1.75 $.87 $6.62 $4.50
Fourth Quarter $2.12 $.75 $6.62 $5.50
Year Ended January 25, 1997
First Quarter (through $2.12 $1.59 $6.50 $5.87
February 15, 1996)
The closing bid prices of the Common Stock and the Series A
Convertible Preferred Stock on February 15, 1996 as reported on
the NASDAQ SmallCap Market were $1 19/32 per share and $5 7/8 per
share, respectively.
The Series A Cumulative Convertible Preferred Stock began
trading on the NASDAQ National Market on July 14, 1994 and on the
NASDAQ SmallCap Market in August 1995.
Other than the Common Stock and the Series A Convertible
Preferred Stock, none of the Company's issued and outstanding
securities is publicly traded on any established securities
market.
As of January 31, 1996, the number of record holders of
Common Stock and Series A Convertible Preferred Stock were
approximately 342 and 91, respectively. These numbers do not
include an indeterminate number of stockholders of theses
securities whose shares are held by financial institutions in
"street name." The Company believes there are substantially in
excess of 308 beneficial holders of its Common Stock and 91
holders of its Series A Convertible Preferred Stock.
RISK FACTORS
An investment in the Series A Convertible Preferred Stock offered
hereby involves substantial risks. Prospective investors should
carefully consider the following risk factors, as well as all the
other information set forth in this Memorandum and the Exhibits
to this Memorandum, before purchasing any Series A Convertible
Preferred Stock:
Historical Losses; No Assurance of Profitability. The Company
incurred a net loss from continuing operations of $0.3 million
for its fiscal year ended January 1995 and a net loss of $2.0
million for the nine months ended October 28, 1995. Net income
(including losses from discontinued operations and extraordinary
gains) was $2.6 million for the fiscal year ended January 28,
1995 and a $4.3 million net loss was incurred for the nine
months ended October 28, 1995. There can be no assurance that
the Company will operate profitably in the future. See "Summary -
Recent and Historical Financial Results."
The Company's operating subsidiaries are General Textiles
and Factory 2-U. The Company acquired a majority interest (later
increased to 100%) in General Textiles in December 1992 during
the pendency of General Textiles' reorganization under Chapter 11
of the U.S. Bankruptcy Code ("Chapter 11 Reorganization").
Affiliates of the Company had acquired General Textiles in July
1993 from an investor group and immediately directed General
Textiles to file for Chapter 11 Reorganization. On May 28, 1993,
General Textiles' Reorganization Plan was declared effective and
General Textiles emerged from Chapter 11 Reorganization. See
"Certain Relationships and Related Transactions" in the Form 10-K
attached as Exhibit B.
Company Cash Flow. The Company's operating subsidiaries are
General Textiles and Factory 2-U. The Company does not, itself,
operate any business. Accordingly, the Company relies on its
cash reserves and payments from General Textiles and Factory 2-U
to finance its ongoing operating expenses and pay its outstanding
indebtedness and dividends on the Series A Convertible Preferred
Stock.
General Textiles finances its operations through credit
provided by suppliers, borrowings under its $17.0 million working
capital and equipment facility (the "GT Revolving Credit
Facility") and internally generated cash flow. Factory 2-U
finances its operations through credit provided by suppliers,
borrowings under its $10.0 million working capital and equipment
facility (the "F2U Revolving Credit Facility," and collectively
with the GT Revolving Credit Facility, the "Revolving Credit
Facilities") and internally generated cash flow.
The Company receives payments from General Textiles pursuant
to a tax sharing agreement, certain subordinated debt and a
secured term note of General Textiles (which the Company owns and
has pledged to the lender under the Revolving Credit Facilities
(defined below)) and a management agreement. The General
Textiles Reorganization Plan and certain of General Textiles'
outstanding debt instruments (including the GT Revolving Credit
Facility), restrict General Textiles from paying dividends or
making other distributions to the Company, except under the
instruments listed above, without the consent of certain holders
of indebtedness. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and
Capital Resources" in Exhibits B and C.
Payments by Factory 2-U to the Company are limited under the
Factory 2-U Revolving Credit Facility to payments pursuant to a
management agreement and a guaranty fee agreement, as well as a
monthly overhead fee allocated based on the relative number of
stores between General Textiles and Factory 2-U.
Management believes that the Company will have sufficient
funds during the current fiscal year ending January 1997,
including funds received from General Textiles and Factory 2-U,
to enable it to satisfy the dividend obligations for the Series A
Convertible Preferred Stock, including the shares being offered
hereby.
Factory 2-U is the borrower under a $2.3 million loan
secured by a mortgage on Factory 2-U's former corporate office
and distribution center facility located in Nogales, Arizona (the
"Nogales Mortgage"). The principal balance under the Nogales
Mortgage is due on February 28, 1996, unless extended. The
Company is the guarantor under the Nogales Mortgage. Factory 2-U
has requested an extension of the maturity date of the Nogales
Mortgage and intends to refinance this obligation. Management
believes that it can obtain such an extension and refinance such
mortgage. However, there is no assurance that an extension will
be granted or that the Company will be able to refinance this
obligation, and the failure to obtain such an extension and
refinancing could have an adverse impact on the Company's
financial position.
In January 1996, the Company settled a lawsuit commenced in
1993 by former owners of the Mandel-Kahn Industries, Inc.
("Mandel-Kahn"), which was purchased by the Company in 1992.
Under the settlement (the "Mandel-Kahn Settlement"), a payment of
$230,000 has been made, a five-year consulting agreement entered
into with Joel Mandel providing for payments of $125,000 per year
for three years and $187,500 for two years along with the
issuance of 60,000 shares of the Company's Series A Convertible
Preferred Stock, and an obligation to pay $1.0 million plus
interest during 1996. The latter obligation is secured by
153,846 shares of Series A Convertible Preferred Stock. The
Company has the obligation to register these shares with the
Commission and may sell such shares, with the proceeds of any
such sale being used to reduce such indebtedness.
Dividends; Dividend Coverage. For the fiscal year ended
January 28, 1995, the Company did not have sufficient earnings to
pay the dividends on the then outstanding shares of Series A
Convertible Preferred Stock, although dividends were paid out of
a combination of that year's earnings and additional paid-in
capital. The Company does not expect to have sufficient earnings
to fully cover such dividend obligations solely out of earnings
during the current fiscal year, although dividends are expected
to be paid out of a combination of earnings or additional paid-in
capital, or both. Based on the annual dividend rate of $.95 per
share, dividend payments on the Series A Convertible Preferred
Stock currently total $3.0 million per year and will, after
completion of the Offering, total between $3.5 million (based on
the Minimum Financing) and $3.7 million per year (based on the
Maximum Financing). Accordingly, there can be no assurance that
earnings during the current or future fiscal years and any
additional paid-in capital will be sufficient to cover the
payment of dividends.
Dividends on the Series A Convertible Preferred Stock are
payable quarterly if, as and when declared by the Board of
Directors. The Company has never paid cash dividends on the
Common Stock and does not anticipate paying cash dividends on the
Common Stock in the foreseeable future.
Lender's Lien on Assets of Subsidiaries; Guarantees of the
Company. The lender under the Revolving Credit Facilities and
the holder of General Textiles' Secured Term Note (currently
pledged to such lender) have been granted a security interest in
all of the assets of General Textiles and Factory 2-U to secure
General Textiles' and Factory 2-U's obligations thereunder. If
General Textiles or Factory 2-U defaults on their respective
obligations under these loans, the lender may foreclose upon the
assets of the defaulting company, retain such assets or cause
them to be sold in a public or private auction. General Textiles
and Factory 2-U are also required to comply with certain
financial and other covenants under the loan agreements,
including limitations on capital expenditures. The Company is a
guarantor of the indebtedness under the Revolving Credit
Facilities as well as under the Nogales Mortgage. In the event
of a default under either of the Revolving Credit Facilities, the
Nogales Mortgage, or certain other liabilities of the
subsidiaries of the Company guaranteed by the Company, the
respective lenders will be entitled to look directly to the
Company for payment as guarantor of such indebtedness. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Liquidity and Capital Resources" in
Exhibits B and C.
Composition of General Textiles' Board; Rights of Creditors in
Event of Non-Payment. In connection with the Reorganization
Plan, General Textiles issued Subordinated Notes. The
Subordinated Notes provide that if General Textiles fails to make
certain minimum payments thereunder the holders of certain of the
notes and the official creditors' committee appointed in
connection with the Chapter 11 Reorganization (the "Creditors
Committee") will be entitled to elect a minority of General
Textiles' directors in certain circumstances and all of General
Textiles' directors in other circumstances. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources -- General Textiles
- -- Subordinated Notes" in Exhibits B and C.
Credit; Continued Financing. General Textiles and Factory 2-U
finance their ongoing retail operations from several sources,
including credit obtained from manufacturers and other vendors on
terms which generally are net 30 days, their Revolving Credit
Facilities and cash flow from operations. Since emerging from
bankruptcy, General Textiles has been granted normal credit
availability by most vendors and other material sources of
supply. However, the Company believes that manufacturers and
vendors would react more quickly to any future financial
difficulties of General Textiles than to those of its
competitors. Any resumption of credit problems would adversely
affect General Textiles' cash flow and its ability to properly
supply its stores. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in Exhibits B and
C.
Expansion. The Company plans to open up to approximately 16 new
stores in the seven states in which it currently operates during
the fiscal year ending January 1997. From July 1992 through
January 1996, the Company opened 36 new stores and renovated 35
stores. There can be no assurance that new stores will achieve
sales or profitability which are comparable to those achieved at
the Company's existing stores. The Company's quarterly financial
results may also fluctuate as a result of the timing and costs of
new store openings and renovations. The Company believes that
internally generated cash flow, funds available from the
Revolving Credit Facility and the proceeds of the Offering will
be sufficient to conduct its planned expansion. If the Company
opens a greater number of stores or acquires another retailer, it
is likely to require additional financing. There can be no
assurance that the Company will be able to obtain such financing.
Competition. The Company's stores compete with large discount
retail chains (such as Wal-Mart, K-Mart, Mervyn's and Target) and
regional off-price chains (such as MacFrugal's), many of which
have substantially greater resources than those of the Company.
While the Company believes that the Company uses an off-price
marketing strategy distinct from those of many of its
competitors, if such competitors were to adopt an off-price
approach that targeted Family Bargain Center's and Factory 2-U's
typical customers, the Company's business could be adversely
affected. See "BUSINESS -- Competition" in Exhibit B.
Seasonality; Weather. The Company historically has realized its
highest level of sales in the "Back-to-School" (August and
September) and Christmas (November and December) seasons. If
sales for either of such periods are poor for any reason,
including adverse weather or adverse economic conditions, the
Company's financial condition could be adversely affected. The
Company historically has realized lower sales in its first two
quarters (February to July), which often has resulted in its
incurring losses during those quarters. The prolonged drought
conditions in California in recent years has had an adverse
impact on the Company's sales (including sales to agricultural
workers) and a resumption of drought conditions or the occurrence
of other severe weather or natural disasters could have an
adverse impact on the Company's business and financial condition.
Dependence on Operating Management; Prior Experience and Part-
time Status of Certain Executive Officers. The Company relies
heavily on senior management, particularly William Mowbray, who
serves as President and Chief Executive Officer of its two
operating subsidiaries, General Textiles and Factory 2-U, as well
as Chief Financial Officer of the Company. Mr. Mowbray has been
a senior officer of General Textiles since July 1991. The loss of
Mr. Mowbray could have a material adverse effect on the Company.
General Textiles has entered into an employment agreement with
Mr. Mowbray that expires in May 1996. The Company does not carry
any key man life insurance on Mr. Mowbray.
While Mr. Mowbray serves on a full-time basis, the other
executive officers of the Company also serve as officers and
directors of other companies and devote to the Company's affairs
such portion of their business time and attention as they and its
Board of Directors deem necessary to fulfill their obligations.
Depending upon the demands of the other companies with which they
are involved, conflicts of interest could arise relating to the
allocation of their time or with respect to their fiduciary
obligations to the Company and such other businesses. The
Company's By-Laws provide that affiliated transactions and
acquisitions by the Company of businesses not within certain
Standard Industrial Classification ("SIC") Codes (including
certain codes covering the wholesale apparel trade, retail stores
and apparel stores) must be unanimously approved by the Audit
Committee; provided, however, that if at any time there are fewer
than two independent directors designated or approved by the
Representative on the Audit Committee, such transactions shall
require the unanimous consent of all independent directors on the
Board of Directors. If at any time there are no shares of Series
A Convertible Preferred Stock outstanding, acquisitions by the
Company of businesses not within certain SIC Codes will require
approval by only a majority of the Audit Committee. See
"DIRECTORS AND SENIOR MANAGEMENT."
Benefits to Affiliates. A Director of the Company is a Managing
Director of the Placement Agent for this Offering. In addition
to a commission on the securities sold in the Offering, the
Placement Agent and certain of its officers, including such
Director of the Company, will also receive warrants to purchase
Common Stock of the Company. See "Plan of Distribution."
Potential Anti-takeover Effects of Rights Plan, Classified Board
of Directors and Delaware Law; Possible Issuances of Preferred
Stock. The Company has adopted a Shareholders' Rights Plan. If
(i) a public announcement is made that any person (other than the
Company), together with all affiliates and associates of such
person, is the beneficial owner of 15% or more of the shares of
the Company's Common Stock outstanding or (ii) any person (other
than the Company) makes a tender or exchange offer, if upon
consummation of such offer such person would beneficially own 15%
or more of the shares of the Company's Common Stock, certain
rights will be triggered under the Company's Shareholders' Rights
Plan which may have the effect of deterring or delaying mergers,
tender offers, or other possible takeover attempts which may be
favored by some or a majority of the Company's stockholders. Any
shares of its Common Stock issued by the Company during the term
of the plan (10 years), including the Common Stock issuable in
connection with the Units, will be subject to the Shareholders'
Rights Plan. See "DESCRIPTION OF SECURITIES - Shareholders'
Rights Plan."
Certain provisions of Delaware law could delay or impede the
removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving the Company, even
if such events could be beneficial to the interests of
stockholders. Such provisions could limit the price that certain
investors might be willing to pay in the future for securities of
the Company, including Common Stock or Series A Convertible
Preferred Stock. In addition, the Company's Board of Directors
is a "classified board," with only one-third of its directors
coming up for election each year. The existence of a classified
board may in certain circumstances deter or delay mergers, tender
offers or other possible takeover attempts which may be favored
by some or a majority of the holders of the Common Stock.
Restrictions on Transferability. The shares being offered hereby
have not been and will not be registered under the Act or with
any securities regulatory authority of any jurisdiction. The
shares offered hereby may not be offered or sold in the United
States to any "U.S. person" (as defined in Rule 902 under the
Act) during the 40-day "Restricted Period", unless the shares are
registered under the Act or an exemption from registration under
the Act is available. Investors participating in this Offering
must expect to bear the economic risk of any investment in the
shares offered hereby for an indefinite period. In addition to
the restrictions imposed by Regulation S, the Shares offered
hereby will not be transferable for 90 days following the Closing
of this Offering except with the prior written consent of the
Placement Agent.
Shares Eligible for Future Sale. Sales of a substantial amount
of the Common Stock or the Series A Convertible Preferred Stock
in the public markets following the Offering could adversely
affect prevailing market prices for the Common Stock and the
Series A Convertible Preferred Stock.
Following the Offering, there will be 473,016 shares of
Common Stock outstanding which are deemed "restricted securities"
within the meaning of Rule 144 under the Securities Act. Of
these shares, approximately 110,516 are currently eligible for
sale subject to the volume limitations of Rule 144 and 362,500
shares will become eligible for sale in July 1996. Certain
members of management and directors of the Company also agreed in
connection with the Company's July 1994 public offering of Series
A Convertible Preferred Stock (the "1994 Offering") that they
would not, directly or indirectly, sell, contract to sell, or
otherwise dispose of an additional 362,500 shares of Common Stock
until August 1996 without the prior written consent of the
representative of the underwriters of the 1994 Offering.
Pursuant to the Mandel-Kahn Settlement, 153,846 restricted
shares of Series A Convertible Preferred Stock were issued as
security and placed into escrow. The Company intends to register
these shares with the Commission and may sell these shares at any
time. If these shares are sold to a non-affiliate of the
Company, they will be freely tradeable upon their sale. The
proceeds of such sale would be applied to reduce the Company's
indebtedness under such secured obligation.
DIRECTORS AND SENIOR MANAGEMENT
Executive Officers and Directors
The following table sets forth the executive officers and
directors of the Company.
NAME AGE PRINCIPAL POSITION DIRECTOR'S
TERM EXPIRES
John A. Selzer 40 Chief Executive Officer 19961
President, Assistant Secretary and Director
William W. Mowbray 55 Chief Financial Officer 1997
and Director; President
and Chief Executive
Officer of General
Textiles and Factory 2-
U
Benson S. Selzer 74 Chairman and Director 1997
Joseph Eiger 64 Vice Chairman, 19967
Executive Vice
President, Secretary
and Director
John J. Borer III 37 Director 1997
Edwin C. Nevis 68 Director 19961
Francis G. 66 Director 19961
Warburton
Barton P. Ferris, 55 Director 19961
Jr.
Joseph J. Collins 45 Director 19961
H. Jurgen 58 Director 19961
Schlichting
James M. Baker 42 Chief Financial Officer
of
General Textiles and Factory 2-U
Kevin Frabotta 44 Senior Vice President
of Store Operations of
General Textiles
Mary McNabb 46 Vice President -
Merchandising of
General Textiles
Denis LeClair 46 Vice President -
Merchandising of
General Textiles
The business experience of each of the directors and
executive officers is as follows:
JOHN A. SELZER, Chief Executive Officer, President and
Director. For more than the past five years, Mr. Selzer has been
engaged in merchant and investment banking and corporate
management activities. His activities have concentrated on
situations involving financially and/or operationally troubled
companies. He has been a Director of the Company since January
1992, its Chief Executive Officer since March 1992, and its
President since January 1993. He has been a Director of General
Textiles since its acquisition in July 1992 (at which time it
filed for Chapter 11 Reorganization and emerged from Chapter 11
Reorganization on May 28, 1993). He served as Secretary and a
Director of Tyco Toys, Inc. ("Tyco"), a publicly held company,
from December 1988 until July 1991. Mr. Selzer served in various
capacities as an officer and director of the following companies
or their affiliates, which filed for Chapter 11 Reorganization
within the past five years: C-B/Murray Corporation, Inc. ("C/B
Murray"), Mandel-Kahn, American Specialty Equipment Corp.
("American Specialty"), and Canadian's Corp. John A. Selzer is
the son of Benson A. Selzer.
WILLIAM W. MOWBRAY, Chief Financial Officer and Director of
the Company and President and Chief Executive Officer of General
Textiles and Factory 2-U. Mr. Mowbray has served as Chief
Financial Officer of the Company since May 1994 and as a Director
since November 1995. Mr Mowbray has served as President and
Chief Executive Officer of General Textiles since June 1995.
Prior to being named President of General Textiles, he served as
Executive Vice President and Chief Financial Officer of General
Textiles since July 1991. General Textiles filed for Chapter 11
Reorganization in July 1992 and emerged from Chapter 11
Reorganization on May 28, 1993. Prior to joining General
Textiles, Mr. Mowbray was employed from July 1990 to July 1991 as
Chief Financial and Operating Officer for Casfam, Inc., an
off-price lingerie retailer. From June 1986 through June 1990,
he was an independent management consultant to retail clients.
From November 1981 to June 1986, Mr. Mowbray was Senior Vice
President and Chief Financial Officer of Clothestime, Inc.
BENSON A. SELZER, Chairman and Director. Mr. Selzer has for
more than the past five years been engaged in merchant and
investment banking and corporate management activities. His
activities have concentrated on situations involving financially
and/or operationally troubled companies. He has been Chairman
and a Director of the Company since January 1992. He has been a
Director of General Textiles since its acquisition in July 1992
(at which time it filed for Chapter 11 Reorganization and emerged
from Chapter 11 Reorganization on May 28, 1993). He was Chairman
of the Board and a Director of Tyco from September 1988 until
July 1991. Mr. Selzer served in various capacities as an officer
and director of the following companies or their affiliates,
which filed for Chapter 11 Reorganization within the past five
years: C-B/Murray, American Specialty, and Canadian's Corp.
Benson A. Selzer is the father of John A. Selzer. Benson A.
Selzer and Joseph Eiger have been business associates in a number
of business ventures during the past 20 years.
JOSEPH EIGER, Vice Chairman, Executive Vice President and
Director. Mr. Eiger has been engaged, for more than the past
five years, as a corporate manager and entrepreneur who has been
involved in numerous acquisitions, divestitures and financings.
His activities have concentrated on situations involving
financially and/or operationally troubled companies. He has been
Vice Chairman, Executive Vice President and a Director of the
Company since January 1992. He has been a Director of General
Textiles since its acquisition in July 1992 (at which time it
filed for Chapter 11 Reorganization and emerged from Chapter 11
Reorganization on May 28, 1993). Mr. Eiger served in various
capacities as an officer and director of the following companies
or their affiliates, which filed for Chapter 11 Reorganization
within the past five years: C-B/Murray, American Specialty and
Canadian's Corp.
JOHN J. BORER III has been a Director of the Company since
July 1994. Since October 1991, Mr. Borer has been a Managing
Director and Senior Vice President of Rodman & Renshaw, Inc., the
Representative of the Underwriters of the Company's 1994
Offering. Prior to October 1991, Mr. Borer was a Senior Vice
President for Security Pacific Business Credit Inc. Mr. Borer
served as a Director of Canadian's Corp., which is filing for
Chapter 11 Reorganization in 1996.
EDWIN C. NEVIS has been a Director of the Company since July
1994. Since 1991, Dr. Nevis has been the Director of Special
Studies, Organizational Learning Center Systems Dynamics Group,
at the Sloan School of Management at the Massachusetts Institute
of Technology. From 1986 to 1991, Dr. Nevis was the Director of
Executive Program Development at the Sloan School of Management.
Since 1969, Dr. Nevis has also been President of Wellfleet House,
Inc., a management education and development and organization
development consulting firm. Dr. Nevis received his Ph.D in
Industrial and Organizational Psychology from Western Reserve
University in 1954.
FRANCIS G. WARBURTON, Director. Mr. Warburton has been a
Director of the Company since March 1992 and a Director of
General Textiles since February 1994. He served as a Director of
Nasta International Inc. from May 1987 until September 1990. He
has been President of Warburton & Associates, Inc., a consulting
firm specializing in mergers and acquisitions, since December
1985.
BARTON P. FERRIS, JR. has been a Director of the Company
since July 1994. Since October 1995, Mr. Ferris has been a
Managing Director of Commonwealth Associates, an investment
banking firm which is the Placement Agent for the Offering. From
1990 to October 1995, Mr. Ferris was a Managing Director of
Lepercq, De Neuflize & Co. Incorporated, a merchant banking firm,
and a member of its Board of Directors. Mr. Ferris is presently
a Director of Ronson Corporation.
JOSEPH J. COLLINS has been a Director of the Company since
July 1994. Mr. Collins has over twenty years of diversified
retail management and consulting experience. Since 1995, Mr.
Collins has been Executive Vice President of Kmart Corporation
("Kmart"). Prior to joining Kmart, Mr. Collins managed retail
business transformation projects for Gemini Consulting, Inc., a
consulting firm which provides business transformation and
information technology services to primarily Fortune 500
companies. From 1990 to 1993, Mr. Collins was President of
Capital Management Corp., a consulting firm specializing in
performing due diligence for acquisitions and management
workouts. From 1992 to 1993, Mr. Collins served as Consultant
and Vice President - Operational Planning of Montgomery Ward.
H. JURGEN SCHLICHTING has been a Director of the Company
since November 1995. From 1986 to 1993, Mr. Schlichting served
as Managing Director and Chief Executive - North America for
Westdeutsche Landesbank. Mr. Schlichting also serves as a
strategic and financial advisor to the Company pursuant to an
Advisory Agreement dated November 1, 1995 which expires in
November 1996.
JAMES M. BAKER has been the Chief Financial Officer of
General Textiles since November, 1995 and of Factory 2-U since
its acquisition by the Company. Mr. Baker joined General
Textiles in May 1991 and served as Director of Budgeting and
Planning responsible for budgeting, warehousing, loss prevention,
inventory control and administration. Prior to joining General
Textiles, Mr. Baker was Controller for Oshman's Sporting Goods.
KEVIN FRABOTTA has been Senior Vice President of Store
Operations of General Textiles since August, 1995. From 1992
until joining the Company, Mr. Frabotta was Vice President of
Operation for General Cinema Theatres. From 1985 to 1992, Mr.
Frabotta was Vice President of Stores with Oshman's Sporting
Goods. Prior to 1985, Mr. Frabotta also held various positions
with General Mills Specialty Retailing Group, including Vice
President of Stores and Vice President of Human Resources.
MARY McNABB, Vice President - Merchandising of General
Textiles, joined General Textiles in 1990 and before then was
employed by One Price Clothing. Ms. McNabb has over 26 years of
experience in retail buying and merchandising.
DENIS LeCLAIR, Vice President - Merchandising of General
Textiles, joined General Textiles in 1991 as a buyer and since
1992 has held his current position. Mr. LeClair has over 25 years
of experience in retail and has served in various buying and
merchandise management positions for several department store and
specialty chains.
Changes in Executive Compensation
Effective January 1, 1996, the annual base salaries of
Benson A. Selzer and Joseph Eiger were increased to $375,000 and
$360,000, respectively. In addition, William Mowbray entered into
a new Employment Agreement with General Textiles, dated as of
August 1, 1995, which provides for a three year term subject to
one year extensions after each year unless terminated by either
party within 60 days of each August 1. The agreement provides
for a base annual salary of $300,000 and bonuses based on the
financial performance of General Textiles.
TERMS OF THE OFFERING
Summary of Subscription Procedures
Exhibit E hereto, the Subscription Agreement, will be
provided to prospective investors for use in subscribing for the
Shares. In order to subscribe for the Shares, a prospective
investor must complete, execute and deliver to Commonwealth
Associates, 733 Third Avenue, New York, New York 10017 Attention:
Keith Rosenbloom, the following items:
1. The Subscription Agreement with the signature page
appropriately completed; and
2. (a) A check payable to "Commonwealth Associates, as
Placement Agent for Family Bargain Corporation" in an amount
equal to the purchase price of the Shares multiplied by the
number of Shares subscribed for; or
(b) Wire transfer in accordance with the instructions
of Commonwealth Associates.
Investor Suitability Standards
(i) The purchaser is not a U.S. person as that term is
defined under Regulation S.
(ii) At the time the buy order for the Shares was
originated, the purchaser was outside the United States and is
outside of the United States as of the date of the execution and
delivery of this Agreement.
(iii) The purchaser is purchasing the Shares for the
purchaser's own account and not on behalf of any U.S. person, and
the sale has not been pre-arranged with a purchaser in the United
States.
(iv) To the best knowledge of the purchaser, each
distributor participating in this offering, if any, has agreed in
writing that all offers and sales of the shares, prior to the
expiration of the Restricted Period (see "General Conditions of
Regulations S") shall only be made in compliance with the safe
harbor provisions contained in Regulation S, or pursuant to an
applicable exemption from registration under the Securities Act.
(v) The purchaser represents and warrants and hereby
agrees that all offers and sales of the Shares prior to the
expiration of the Restricted Period (see "General Conditions of
Regulations S") shall only be made in compliance with the safe
harbor provisions contained in Regulation S, or pursuant to
registration of securities under the Act or pursuant to an
exemption from registration under the Act, and that all offers
and sales after the expiration of the Restricted Period (see
"General Conditions of Regulations S") shall be made only
pursuant to such a registration or such an exemption from
registration.
(vi) All offering documents received by the Purchaser
include statements to the effect that the Shares have not been
registered under the Act and may not be offered or sold in the
United States or to U.S. persons during the Restricted Period
(see "General Conditions of Regulations S") unless such
securities are registered under the Act or an exemption from the
registration requirements of the Act is available.
Release of Certificates
Investors will receive the certificates representing their
shares on the 41st day following the Closing of the Offering (the
conclusion of the 40 day "Restricted Period"). During the
Restricted Period, the shares will be held by a non-U.S. Escrow
Agent in the form of a global certificate consisting of all of
the shares sold in the Offering. In addition to the restrictions
imposed by Regulation S, the Shares offered hereby will not be
transferable for 90 days following the Closing of this Offering
except with the prior written consent of the Placement Agent.
See "General Conditions of Regulation S."
Plan of Distribution
The Company has entered into an agreement with the Placement
Agent, pursuant to which the Placement Agent has agreed to act as
placement agent to the Company in connection with this offering.
Pursuant to its agreement with the Placement Agent, the
Company has agreed to pay to the Placement Agent a commission in
the amount of nine percent (9%) of the gross proceeds and to
reimburse the Placement Agent for up to $75,000 of its expenses
in connection with this offering, including legal fees of its
counsel. In addition, the Placement Agent and certain of its
officers, including Mr. Ferris, will receive, upon the Closing,
an aggregate number of warrants equal to 25% of the number of
shares of Series A Convertible Preferred Stock sold pursuant to
this Offering, with each warrant being exercisable into one share
of Common Stock at an exercise price of $1 7/8 per share (the
then current bid price for the Common Stock on the Nasdaq
SmallCap Market at the time of execution of the Letter of Intent
between the Placement Agent and the Company). A director of the
Company, Barton P. Ferris, Jr., is a Managing Director of the
Placement Agent.
The Shares are being offered on a "best efforts" basis by
the Placement Agent. All proceeds received by the Company from
subscribers for the Shares offered hereby will be deposited by
the Placement Agent in a special non-interest bearing bank
account. If at least 500,000 of the Shares offered hereby (the
"Minimum Financing") have not been subscribed for by the close of
business on March 8, 1996 (or March 29, 1996, if the offer shall
have been extended by the Placement Agent and the Company) (the
"Termination Date"), all proceeds received by the Company from
subscribers will be refunded in full, without deduction and
without interest. If subscriptions for the Maximum Financing are
received or, at the Company's discretion, if subscriptions for
the Minimum Financing (but less than the Maximum Financing) are
received, on or prior to the Termination Date, the closing (the
"Closing") will be held as soon as practicable after receipt of
such subscriptions or such determination by the Company, and the
funds held in the special account will be turned over to the
Company. If the Company determines not to close in the event
that subscriptions for less than the Maximum Financing are
received, all proceeds received by the Company from subscribers
will be refunded in full, without deduction and without interest,
as soon as practicable following such determination.
In the event of certain changes under U.S. federal
securities laws or regulations, the purchasers of the Shares in
the Offering are entitled to registration rights. See Exhibit E.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue up to 80,000,000 shares
of Common Stock, $.01 par value per share. On the date of this
Memorandum, there were 4,008,310 shares of Common Stock issued
and outstanding. All shares of Common Stock have equal voting
rights and have one vote per share on all matters to be voted
upon by stockholders. The shares of Common Stock have no
preemptive, subscription, conversion or redemption rights and may
be issued only as fully paid and nonassessable shares.
Cumulative voting in the election of directors is not allowed,
which means that subject to the limited voting rights of the
holders of the Series A Convertible Preferred Stock, the holders
of a majority of the outstanding shares represented at any
meeting at which a quorum is present will be able to elect all
the directors then subject to election if they choose to do so
and, in such event, the holders of the remaining shares will not
be able to elect any directors. On liquidation of the Company,
each holder of Common Stock is entitled to receive a pro rata
share of the Company's assets, if any, available for distribution
to holders of Common Stock after payment of all liabilities of
the Company and subject to the prior distribution rights of the
holders of any Company preferred stock that may be outstanding at
that time. All outstanding shares of Common Stock are, and all
shares of Common Stock issued on conversion of Series A
Convertible Preferred Stock will be, fully paid and
nonassessable.
Preferred Stock
The Company is authorized to issue 7,500,000 shares of
Preferred Stock, $.01 par value per share, and has authorized the
issuance of up to 4,500,000 shares of Series A Convertible
Preferred Stock and 25,000 shares of Series A Junior
Participating Preferred Stock (the "Junior Preferred"). The only
outstanding shares of Preferred Stock of the Company as of the
date of this Memorandum are 3,260,000 shares of Series A
Convertible Preferred Stock (not including 153,846 shares of
Series A Convertible Preferred Stock which have been pledged by
the Company to secure certain obligations of the Company under
the Mandel-Kahn Settlement and which may be sold or, if not sold,
will be returned to the Company and retired upon the satisfaction
of the obligation which they secure).
Holders of shares of Series A Convertible Preferred Stock,
voting as a single class, have the right to vote on the creation,
authorization or issuance of capital stock ranking senior to or
in parity with the Series A Convertible Preferred Stock.
Shares of preferred stock issued in the future could have
conversion rights which may result in the issuance of additional
shares of Common Stock which could dilute the interests of the
holders of Series A Convertible Preferred Stock and Common Stock.
Such shares could also have voting rights and liquidation
preferences which are senior to the rights and preferences of the
Series A Convertible Preferred Stock and Common Stock.
Additionally, such shares could have dividend rates and
redemption or other provisions which could adversely affect the
Company's ability to pay dividends on the Series A Convertible
Preferred Stock and Common Stock or prohibit payment of such
dividends. Such shares could also be issued, under certain
circumstances, in an attempt to prevent a takeover of the
Company, and such issuance could adversely impact holders of
Series A Convertible Preferred Stock and Common Stock who might
vote in favor of a proposed merger, tender offer or similar
transaction.
Series A Convertible Preferred Stock
In accordance with the Company's Restated Certificate of
Incorporation, the issuance of 4,500,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share, has been
authorized by resolutions adopted by the Board of Directors and
set forth in a Certificate of Designations of Series A
Convertible Preferred Stock, which has been filed with the
Secretary of State of the State of Delaware and contains the
designations, rights, powers, preferences, qualifications and
limitations of the Series A Convertible Preferred Stock. All of
the outstanding shares of Series A Convertible Preferred Stock
are fully paid and non-assessable and, upon issuance, the shares
of Series A Convertible Preferred Stock offered hereby will be
fully paid and non-assessable.
The following is a summary of the terms of the Series A
Convertible Preferred Stock. This summary is not intended to be
complete and is subject to, and qualified in its entirety by
reference to, the Certificate of Designations filed with the
Secretary of State of the State of Delaware amending the
Company's Restated Certificate of Incorporation and setting forth
the rights, preferences and limitations of the Series A
Convertible Preferred Stock.
Dividends
The holders of the Series A Convertible Preferred Stock are
entitled to receive when, as and if declared by the Board of
Directors out of funds legally available as prescribed by
statute, cumulative dividends at the rate of $.95 per share per
year, payable quarterly on July 31, October 31, the last Friday
of January of each year, and April 30 to the holders of record as
of a date not more than 30 days prior to the dividend payment
date, as may be fixed by the Board of Directors. Dividends on
the Series A Convertible Preferred Stock will accrue from the
date of original issuance to a stockholder. The Company has paid
each quarterly dividend in full since the original issuance of
Series A Convertible Preferred Stock in July 1994.
No dividends may be paid on any shares of capital stock
ranking junior to the Series A Convertible Preferred Stock as to
dividends (including Common Stock) unless and until all
accumulated and unpaid dividends on the Series A Convertible
Preferred Stock have been declared and paid in full.
Conversion
At the option of the holder thereof, each share of Series A
Convertible Preferred Stock is, by its terms, convertible at any
time on or after the date of issuance and prior to redemption, at
the option of the holder thereof, into that number of shares
equal to the adjusted conversion price (currently $3.719) divided
by the liquidation preference per share of Series A Convertible
Preferred Stock ($10.00). Accordingly, at this time each share
of Series A Convertible Preferred Stock is convertible into 2.689
shares of Common Stock). The Conversion Price (and,
correspondingly, the number of shares of Common Stock into which
shares of the Series A Convertible Preferred Stock can be
converted) is subject to further adjustment from time to time in
the event of (i) the issuance of Common Stock as a dividend or
distribution on any class of capital stock of the Company, (ii)
the combination, subdivision or reclassification of the Common
Stock, (iii) the distribution to all holders of Common Stock of
evidences of the Company's indebtedness or assets (including
securities, but excluding cash dividends or distributions paid
out of earned surplus), or (iv) the sale of Common Stock at a
price, or the issuance of options, warrants or convertible
securities with an exercise or conversion price per share less
than the higher of the then current Conversion Price or the then
current market price (as defined) of the Common Stock (except in
connection with the exercise of options or warrants outstanding
on the date of this Memorandum and, subject to the restrictions
on stock option issuances otherwise described herein, options
thereafter granted to employees or officers). No adjustment in
the Conversion Price will be required until cumulative
adjustments require an adjustment of at least 3% of the
Conversion Price, as adjusted. In addition, if the Company fails
to declare and pay dividends on the Series A Convertible
Preferred Stock within 90 days after a quarterly dividend payment
date, the Conversion Price will be reduced by $.50 per share in
each instance, but shall not be reduced below the par value of
the Common Stock. No fractional shares will be issued upon
conversion, but any fractions will be paid in cash on the basis
of the then current market price of the Common Stock. Payment of
accumulated and unpaid dividends will be made upon conversion to
the extent of legally available funds as prescribed by statute.
The right to convert the Series A Convertible Preferred Stock
will terminate on the date fixed for redemption.
Redemption
The Company may, at its option, redeem all, but not less
than all, of the shares of Series A Convertible Preferred Stock
upon 30 days written notice at any time on or after July 21,
1997, at a redemption price of $10.00 per share, plus accumulated
and unpaid dividends, provided the closing sale price of the
Common Stock as quoted by the NASDAQ National Market or NASDAQ
SmallCap Market, as applicable, or, if not traded thereon, the
high bid price as reported by NASDAQ or, if not quoted thereon,
the high bid price in the National Quotation Bureau sheet listing
of the Common Stock for 20 consecutive trading days ending no
more than 10 days prior to the date of notice of the call for
redemption is given is at least 137.5% of the Conversion Price
then in effect. In addition, on or after July 21, 1998, the
Company may redeem all or any portion of the shares of Series A
Convertible Preferred Stock at the following per share prices
during the 12-month period beginning July 21:
Year Redemption
Price
1998-1999 $10.70
1999-2001 $10.50
2001-2003 $10.30
2003-thereafter
$10.00
If fewer than all of the outstanding shares of Series A
Convertible Preferred Stock are to be redeemed, the shares to be
redeemed will be determined pro rata or by lot or in such other
manner as prescribed by the Company's Board of Directors.
Notice of redemption must be mailed to each holder of Series
A Convertible Preferred Stock to be redeemed at such holder's
last address as it appears upon the Company's registry books at
least 30 days prior to the record date of such redemption. On
and after the redemption date, dividends will cease to accumulate
on shares of Series A Convertible Preferred Stock called for
redemption.
On or after the redemption date, holders of shares of Series
A Convertible Preferred Stock which have been redeemed shall
surrender their certificates representing such shares to the
Company at its principal place of business or as otherwise
specified and thereupon the redemption price of such shares shall
be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof; provided, that
a holder of Series A Convertible Preferred Stock may elect to
convert such shares into Common Stock at any time prior to the
date fixed for redemption. If fewer than all of the shares
represented by any such certificates are redeemed, a new
certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
From and after the redemption date, all rights of the
holders of such shares shall cease with respect to such shares
(except the right to receive the redemption price) and such
shares shall not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any purpose
whatsoever.
Voting Rights
The holders of the Series A Convertible Preferred Stock are
not entitled to vote, except as set forth below and as provided
by applicable law. Holders of the Series A Convertible Preferred
Stock will not have voting rights except (i) with respect to the
creation, authorization or issuance of capital stock ranking
senior or in parity with the Series A Convertible Preferred Stock
and with respect to certain amendments to the Company's Restated
Certificate of Incorporation, (ii) if the Company shall have
failed to declare and pay in full the dividends accumulated on
the Series A Convertible Preferred Stock for any four quarterly
dividend payment periods, in which case holders shall have the
right to vote on all matters submitted for vote to stockholders,
including the election of the members of the Board of Directors
until such time as accumulated dividends have been paid in full,
(iii) in connection with a consolidation into or merger with any
corporation, firm or entity, unless (a) the Company is the
surviving entity and there is no conversion, exchange or other
change of all or any portion of the Common Stock into cash,
securities or other property in connection therewith or (b) the
merger or consolidation is into a subsidiary of the Company in
which there is an exchange of the Common Stock for common stock
of the subsidiary of the Company and no other consideration is
received in connection therewith, (iv) in connection with any
sale, lease or other disposition of all or substantially all of
the Company's assets, and (v) as otherwise required by law. In
matters in which they are entitled to vote, the holders of the
Series A Convertible Preferred Stock shall be entitled to one
vote per share and shall vote together as a single class with
holders of Common Stock; except that the holders of the Series A
Convertible Preferred shall vote separately as a single class
with respect to votes pursuant to clause (i) above and otherwise
as required by law.
Liquidation
In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company before any payment or
distribution of the assets of the Company (whether capital,
surplus or earnings), or the proceeds thereof, may be made or set
apart for the holders of Common Stock or any stock ranking junior
to the Series A Convertible Preferred Stock as to liquidation,
the holders of Series A Convertible Preferred Stock will be
entitled to receive, out of the assets of the Company available
for distribution to stockholders, a liquidating distribution of
$10.00 per share, plus any accumulated and unpaid dividends.
After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series A Convertible
Preferred Stock will have no right or claim to any of the
remaining assets of the Company. If, upon any voluntary or
involuntary liquidation, dissolution or winding-up of the
Company, the assets of the Company are insufficient to make the
full payment of $10.00 per share, plus all accumulated and unpaid
dividends on the Series A Convertible Preferred Stock and similar
payments on any other class of stock ranking on a parity with the
Series A Convertible Preferred Stock upon liquidation, then the
holders of the Series A Convertible Preferred Stock and such
other shares will share ratably in any such distribution of the
Company's assets in proportion to the full respective
distribution amounts to which they are entitled. Neither the
sale of all or substantially all the property or business of the
Company, nor the merger or consolidation of the Company into or
with any other corporation shall be deemed to be a dissolution,
liquidation, or winding up, voluntary or involuntary, of the
Company.
Miscellaneous
The Company is not subject to any mandatory redemption or
sinking fund provisions with respect to the Series A Convertible
Preferred Stock. The holders of Series A Convertible Preferred
Stock are not entitled to preemptive rights to subscribe for or
to purchase any shares or securities of any class which may at
any time be issued, sold or offered for sale by the Company.
Shares of Series A Convertible Preferred Stock redeemed or
otherwise reacquired by the Company shall be retired by the
Company and shall be unavailable for subsequent issuance.
Options and Warrants
As of January 31, 1996, there are outstanding 2,571,500
Redeemable Class D Common Stock Purchase Warrants (assuming the
separation of the 4,903 warrants not yet separated from the Units
in which they were originally issued) ("Class D Warrants")
(collectively the "Warrants"). Each Class D Warrant entitles the
holder to purchase one-sixth of one share of Common Stock at a
price of $15.00 per share of Common Stock at any time until
September 15, 1996 (unless earlier redeemed by the Company).
The Class D Warrants are redeemable by the Company at a
redemption price of $.06 per Warrant, upon 30 days notice given
at any time if the last sale price per share of the Common Stock
for 20 consecutive trading days ending not more than 10 days
prior to the date notice of redemption is given equals or exceeds
120% of the exercise purchase price therefor (i.e., $18.00). If
the Company gives a redemption notice, a holder would be forced
either to exercise his Warrant within 30 days of the notice of
redemption or accept the redemption price.
In addition, as of the date of this Memorandum, there were
also outstanding 328,831 additional warrants (collectively with
the Class D Warrants, the "Warrants") of the Company expiring
between May 1996 and December 1998 at exercise prices ranging
from $9.00 to $16.20 per share; 15,000 warrants expiring in 1998
may be exercised at the then market price of the Company's common
stock.
The Company agreed with the representative of the
underwriters of the 1994 Offering that there would be no
extension of the term or reduction of the price of any of the
Warrants subsequent to the 1994 Offering without the consent of
the such representative.
The Warrants contain provisions that protect the holders
against dilution by adjustment of the exercise price in certain
events, such as stock dividends and distributions, stock splits
and recapitalizations. The holder of a Warrant will not possess
any rights as a stockholder of the Company unless and until such
holder exercises the Warrant.
In addition, the Placement Agent for the Offering will
receive, upon the Closing, a number of warrants equal to 25% of
the number of shares of Series A Convertible Preferred Stock sold
pursuant to this Offering, with each warrant being exercisable
into one share of Common Stock at an exercise price of $1 7/8 per
share (the then current bid price for the Common Stock on the
Nasdaq SmallCap Market at the time of execution of the Letter of
Intent between the Placement Agent and the Company).
Shareholders' Rights Plan
On November 27, 1995, the Board of Directors of the Company
declared a dividend distribution of one preferred share purchase
right (a "Right") for each outstanding share of Common Stock of
the Company. The dividend is payable to the stockholders of
record as of 5:00 P.M., Eastern Standard Time, on December 8,
1995 (the "Record Date"), and with respect to Common Shares
issued thereafter until the Distribution Date (as defined below)
and, in certain circumstances, with respect to Common Shares
issued after the Distribution Date. Except as set forth below,
each Right, when it becomes exercisable, entitles the registered
holder to purchase from the Company one one-thousandth of a share
of Series B Junior Participating Preferred Stock, par value $.01
per share (the "Preferred Shares") at a price of $9.00 per one
one-thousandth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement (the "Rights Agreement"),
between the Company and Corporate Stock Transfer, Inc. (the
"Rights Agent").
Initially, the Rights will be attached to all certificates
representing Common Shares then outstanding, and no separate
Right Certificates (as hereinafter defined) will be distributed.
The Rights will separate from the Common Shares on the earliest
to occur of (i) the first date of public announcement that a
person or "group" has acquired beneficial ownership of 15% or
more of the outstanding Common Shares (except pursuant to a
Permitted Offer, as hereinafter defined); or (ii) 10 business
days (or such later date as the Board may determine) following
the commencement of, or announcement of an intention to commence,
a tender offer or exchange offer the consummation of which would
result in a person or group becoming an Acquiring Person (as
hereinafter defined) (the earliest of such dates being called the
"Distribution Date"). A person or group whose acquisition of
Common Shares causes a Distribution Date pursuant to clause (i)
above is an "Acquiring Person." The first date of public
announcement that a person or group has become an Acquiring
Person is the "Shares Acquisition Date." "Disinterested
Directors" are directors who are not officers of the Company and
who are not Acquiring Persons or their affiliates, associates or
representatives of any of them, or any Person who directly or
indirectly proposed or nominated as a director of the Company by
a Transaction Person (as defined below).
The Rights Agreement provides that, until the Distribution
Date, the Rights will be transferred with and only with the
Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights) new Common Share
certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or
a copy of a summary of rights being attached thereto, will also
constitute the transfer of the Rights associated with the Common
Shares represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of
record of the Common Shares as of the close of business on the
Distribution Date (and to each initial record holder of certain
Common Shares issued after the Distribution Date), and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date
and will expire at 5:00 P.M., New York City time, on November 27,
2000, unless earlier redeemed by the Company as described below.
In the event that any person becomes an Acquiring Person
(except pursuant to a Permitted Offer as defined below), each
holder of a Right will have (subject to the terms of the Rights
Agreement) the right (the "Flip-In Right") to receive upon
exercise the number of Common Shares, or, in the discretion of
the Board of Directors, of one one-thousandths of a Preferred
Share (or, in certain circumstances, other securities of the
Company) having a value (immediately prior to such triggering
event) equal to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of the
event described above, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or any affiliate or
associate thereof will be null and void. A "Permitted Offer" is
a tender or exchange offer for all outstanding Common Shares
which is at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by a
majority of Disinterested Directors to be adequate (taking into
account all factors that such Disinterested Directors deem
relevant) and otherwise in the best interests of the Company, its
stockholders and its other relevant constituencies (other than
the person or any affiliate or associate thereof on whose basis
the offer is being made) taking into account all factors that
such directors may deem relevant.
In the event that, at any time following the Share
Acquisition Date, (i) the Company is acquired in a merger or
other business combination transaction in which the holders of
all of the outstanding Common Shares immediately prior to the
consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) more than 50% of
the Company's assets or earning power is sold or transferred, in
either case with or to an Acquiring Person or any affiliate or
associate or any other person in which such Acquiring Person,
affiliate or associate has an interest or any person acting on
behalf of or in concert with such Acquiring Person, affiliate or
associate, or, if in such transaction all holders of Common
Shares are not treated alike, any other person, then each holder
of a Right (except Rights which previously have been voided as
set forth above) shall thereafter have the right (the "Flip-Over
Right") to receive, upon exercise, common shares of the acquiring
company having a value equal to two times the exercise price of
the Right.
The Purchase Price payable, and the number of one-
thousandths of a Preferred Share or other securities issuable,
upon exercise of the Rights are subject to adjustment from time
to time to prevent dilution (i) in the event of a stock dividend
on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred
Shares of certain rights or warrants to subscribe for or purchase
Preferred Shares at a price, or securities convertible into
Preferred Shares with a conversion price, less than the then
current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash
dividends) or of subscription rights or warrants (other than
those referred to above).
The Purchase Price is also subject to adjustment in the
event of a stock split of the Common Shares or a stock dividend
on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in
any such case, prior to the Distribution Date.
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price. No fractional
one-thousandths of a Preferred Share will be issued and in lieu
thereof, an adjustment in cash will be made based on the market
price of the Preferred Shares on the last trading day price to
the date of exercise.
Preferred Shares purchasable upon exercise of the Rights
will not be redeemable. Each Preferred Share will be entitled to
a minimum preferential quarterly dividend payment of $1.00 per
share but, if greater, will be entitled to an aggregate dividend
per share of 1000 times the dividend declared per Common Share.
In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of
$1.00 per share; thereafter, and after the holders of the Common
Shares receive a liquidation payment of $0.001 per share, the
holders of the Preferred Shares and the holders of the Common
Shares will share the remaining assets in the ratio of one
thousand to 1 (as adjusted) for each Preferred Share and Common
Share so held, respectively. Finally, in the event of any
merger, consolidation or other transaction in which Common Shares
are exchanged, each Preferred Share will be entitled to receive
one thousand times the amount received per Common Share. These
rights are protected by customary anti-dilution provisions. In
the event that the amount of accrued and unpaid dividends on the
Preferred Shares is equivalent to at least six full quarterly
dividends, the holders of the Preferred Shares shall have the
right, voting as a class, to elect two directors in addition to
the directors elected by the holders of the Common Shares until
all cumulative dividends on the Preferred Shares have been paid
through the last quarterly dividend payment date or until non-
cumulative dividends have been paid regularly for at least one
year.
At any time prior to the earlier to occur of (i) a person
becoming an Acquiring Person or (ii) the expiration of the
Rights, the Company may redeem the rights in whole, but not in
part, at a price of $.001 per Right (the "Redemption Price"),
which redemption shall be effective upon the action of the Board
of Directors. Additionally, the Company may redeem the then
outstanding Rights in whole but not in part, at the Redemption
Price after the triggering of the Flip-in Right and before the
expiration of any period during which the Flip-in Right may be
exercised in connection with a merger or other business
combination transaction or series of transactions involving the
Company in which all holders of Common Shares are treated alike
but not involving a Transaction Person (as defined below). Upon
the effective date of the redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
In the event that a majority of the Board of Directors of
the Company serving following a meeting of stockholders or
stockholder action by written consent are not nominated by the
Board of Directors serving immediately prior to such meeting or
action, then for 365 days following such meeting or action the
Rights may not be redeemed if such redemption is reasonably
likely to facilitate a combination or sale of assets or earning
power (a "Transaction") with an Acquiring Person or affiliate or
associate thereof who has directly or indirectly proposed or
nominated a member of the Board who is in office at the time the
Transaction is being considered (a "Transaction Person"). The
Rights may not be redeemed thereafter if during such 365 day
period the Company enters into any agreement reasonably likely to
facilitate a Transaction with a Transaction Person and the
redemption is reasonably likely to facilitate a Transaction with
a Transaction Person.
Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of the Company, including,
without limitation, the right to vote or to receive dividends.
While the distribution of the Rights will not be taxable to
stockholders of the Company, stockholders may, depending upon the
circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
Section 203 of the Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law
prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which
the person became an interested stockholder, unless (i) prior to
such date the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder is
approved by the Board of Directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder
owns at least 85% of the outstanding voting stock, or (iii) on or
after such date the business combination is approved by the Board
of Directors and by the affirmative vote of at least 66-2/3% of
the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to
the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.
Transfer Agent, Registrar And Warrant Agent
Corporate Stock Transfer, Inc., 370 Seventeenth Street,
Suite 2350, Denver, Colorado 80202, is transfer agent and
registrar for the Common Stock and the Series A Convertible
Preferred Stock.
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United
States federal income and estate tax consequences of the
acquisition, ownership and disposition of Series A Convertible
Preferred Stock and Common Stock by a holder who is not a United
States person (a "Foreign Holder"). For these purposes, "United
States person" means a citizen or resident (as specifically
defined for United States federal income and estate tax purposes)
of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or
any political subdivision thereof or an estate or trust the
income of which is subject to United States federal income
taxation regardless of its source. The discussion does not
address the particular facts and circumstances of each Foreign
Holder's situation. Foreign Holders are urged to consult their
own tax advisors with respect to the United States federal income
and estate tax consequences of acquiring, holding and disposing
of Series A Convertible Preferred Stock and Common Stock, as well
as any tax consequences arising under the laws of any state,
municipality or other taxing jurisdiction.
Dividends. In general, dividends paid to a Foreign
Holder will be subject to United States withholding tax at a 30%
rate, or a lower rate prescribed by an applicable tax treaty,
unless the dividends are effectively connected with a trade or
business carried on by the Foreign Holder within the United
States. To determine the applicability of a tax treaty providing
for a lower rate of withholding, dividends paid to an address in
a foreign country are presumed under current Treasury regulations
to be paid to a resident of that country. Treasury regulations
proposed in 1984 would, if adopted in final form, require Foreign
Holders to file certain forms to obtain the benefit of any
applicable tax treaty providing for a lower rate of withholding
tax on dividends. Such forms would have to contain the name and
address of the holder and an official statement by the competent
authority of the holder's country of residence attesting to the
holder's status as a resident thereof. Dividends effectively
connected with a trade or business carried on by the Foreign
Holder within the United States generally will not be subject to
withholding if the Foreign Holder files Internal Revenue Service
Form 4224 with the payor of the dividend and will generally be
subject to United States federal income tax at regular rates. In
the case of a Foreign Holder that is a corporation, such
effectively connected income may be subject to the branch profits
tax which is generally imposed on a foreign corporation on the
repatriation from the United States of effectively connected
earnings and profits. The branch profits tax may not apply if
the recipient is a qualified resident of one of certain countries
with which the United States has an income tax treaty.
Gain on Disposition. Generally, a Foreign Holder will
not be subject to United States federal income tax on any gain
realized upon the disposition of shares of Series A Convertible
Preferred Stock or Common Stock unless (i) the Company is or has
been during certain periods a "U.S. real property holding
corporation" for federal income tax purposes and, assuming that
the Series A Convertible Preferred Stock or Common Stock is
"regularly traded on an established securities market" for tax
purposes, the Foreign Holder held, directly or indirectly at any
time during the five-year period ending on the date of
disposition (or such shorter period that such shares were held),
more than 5% of the Series A Convertible Preferred Stock or
Common Stock, (ii) the gain is effectively connected with a trade
or business carried on by the Foreign Holder within the United
States, (iii) the Foreign Holder is an individual who has a tax
home (as specifically defined for United States federal income
tax purposes) in the United States, holds the Series A
Convertible Preferred Stock or Common Stock as a capital asset
and is present in the United States for 183 days or more in the
taxable year of the disposition, or (iv) the Foreign Holder is
subject to tax pursuant to the provisions of United States tax
law applicable to certain United States expatriates.
Redemption of Series A Convertible Preferred Stock. A
redemption of shares of Series A Convertible Preferred Stock by
the Company for cash will be treated as a distribution taxable as
a dividend to redeeming stockholders to the extent of the
Company's current or accumulated earnings and profits unless the
redemption (a) results in a "complete termination" of the
stockholder's interest in the Company (within the meaning of
section 302(b)(3) of the United States Internal Revenue Code of
1986, as amended (the "Code")), (b) is "substantially
disproportionate" (within the meaning of section 302(b)(2) of the
Code) with respect to the holder, or (c) is "not essentially
equivalent to a dividend" (within the meaning of section
302(b)(1) of the Code). Based on a published ruling of the
Internal Revenue Service, the redemption of a stockholder's
Series A Convertible Preferred Stock for cash will be treated as
"not essentially equivalent to a dividend" if, taking into
account the constructive ownership rules, (1) the stockholder's
relative stock interest in the Company is minimal, (2) the
stockholder exercises no control over the Company's affairs and
(3) there is a reduction in the holder's proportionate interest
in the Company. In determining whether any of these tests has
been met, shares considered to be owned by the holder by reason
of the constructive ownership rules set forth in section 318 of
the Code, as well as shares actually owned, will be taken into
account. The Company will withhold United States federal income
tax at a rate of 30% from gross redemption proceeds paid to
Foreign Holders, unless the Company determines that a reduced
rate of withholding is applicable pursuant to a tax treaty or
that an exemption from withholding is applicable because such
gross proceeds are effectively connected with the conduct of a
trade or business by the Foreign Holder within the United States.
In order to claim an exemption from withholding on the ground
that gross proceeds are effectively connected with the conduct of
a trade or business within the United States, the Foreign Holder
must deliver to the Company a properly executed Internal Revenue
Service Form 4224. A Foreign Holder may be eligible to file for
a refund of such tax or a portion of such tax if such Foreign
Holder (i) meets the "complete termination", "substantially
disproportionate", or "not essentially equivalent to a dividend"
tests described above, (ii) is entitled to a reduced rate of
withholding pursuant to a treaty and the Company withheld at a
higher rate, or (iii) is otherwise able to establish that no tax
or a reduced amount of tax was due.
Conversion of Series A Convertible Preferred Stock into
Common Stock. No gain or loss will generally be recognized upon
conversion of shares of Series A Convertible Preferred Stock into
shares of Common Stock, except with respect to any cash paid in
lieu of fractional shares of Common Stock. Additionally, if the
conversion takes place when there is a dividend arrearage on the
Series A Convertible Preferred Stock and the fair market value of
the Common Stock exceeds the issue price of the Series A
Convertible Preferred Stock, a portion of the Common Stock
received might be treated as a taxable dividend distribution.
Adjustment of Conversion Price. Holders of convertible
preferred stock may be deemed to have received constructive
distributions where the conversion ratio is adjusted to reflect
property distributions with respect to stock into which such
preferred stock is convertible. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula
which has the effect of preventing the dilution of the interest
of the holders of the preferred stock, however, will generally
not be considered to result in a constructive distribution of
stock. Certain of the possible adjustments provided in the
Series A Convertible Preferred Stock may not qualify as being
pursuant to a bona fide reasonable adjustment formula. If such
adjustments were made, the holders of Series A Convertible
Preferred Stock might be deemed to have received constructive
distributions taxable as dividends.
Federal Estate Tax. Shares of Series A Convertible
Preferred Stock or Common Stock owned or treated as owned by an
individual who is not a citizen or resident of the United States
at the time of death will be includable in the individual's gross
estate for United States federal estate tax purposes, unless an
applicable tax treaty provides otherwise, and may be subject to
United States federal estate tax. Estates of non-resident aliens
are generally allowed a statutory credit which has the effect of
offsetting the United States federal estate tax imposed on the
first $60,000 of the taxable estate.
Dividend Reporting and Backup Withholding Requirements.
The Company must report annually to the Internal Revenue Service
and to each Foreign Holder the amount of dividends paid to, and
the tax withheld with respect to, each Foreign Holder. These
reporting requirements apply regardless of whether withholding
was reduced by an applicable tax treaty. Under the provisions of
a specific treaty or agreement, copies of these information
returns may also be made available to the tax authorities in the
country in which the Foreign Holder resides. United States
backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the United States
information reporting requirements) will generally not apply to
dividends paid on the Series A Convertible Preferred Stock or
Common Stock to a Foreign Holder at an address outside the United
States.
The payment of the proceeds from the disposition of
shares of Series A Convertible Preferred Stock or Common Stock to
or through a United States office of a broker will be subject to
information reporting and backup withholding unless the owner
certifies under penalties of perjury its status as a Foreign
Holder, or otherwise establishes an exemption. The payment of
the proceeds from the disposition of shares of Series A
Convertible Preferred Stock or Common Stock to or through a non-
U.S. office of a non-U.S. broker will generally not be subject to
backup withholding and information reporting. However, in the
case of the payment of proceeds from the disposition of shares of
Series A Convertible Preferred Stock or Common Stock through a
non-U.S. office of a broker that is a United States person or a
"U.S. related person," existing regulations require information
reporting on the payment unless the broker has documentary
evidence in its files that the owner is a Foreign Holder and the
broker has no actual knowledge to the contrary. For this
purpose, a "U.S. related person" is (i) a "controlled foreign
corporation" for United States federal income tax purposes, or
(ii) a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its
taxable year preceding the payment is derived from activities
that are effectively connected with the conduct of a United
States trade or business. Any amounts withheld under the backup
withholding rules from a payment to a Foreign Holder will be
refunded (or credited against that Foreign Holder's United States
federal income tax liability, if any) provided that the required
information is furnished to the Internal Revenue Service.
AVAILABLE INFORMATION
The Company is subject to the information requirements of
the Securities Exchange Act of 1934, as amended, and, in
accordance therewith, files reports, proxy and information
statements and other information with the Commission. Such
reports, statements and other information may be inspected and
copied at the public reference facilities maintained by the
Commission in the United States at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, 7 World Trade Center,
13th Floor, New York, New York 10048; and Chicago Regional
Office, CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621-2511. 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. In addition, the Convertible Preferred Stock and Common
Stock are currently quoted on the NASDAQ SmallCap Market. In
addition, the Common Stock is quoted on the Chicago Stock
Exchange. Reports and other information concerning the Company
may also be inspected at the Records Department of the NASDAQ
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006 U.S.A.
CANADIAN OFFERING MEMORANDUM
Dated March 6, 1996
This Canadian Offering Memorandum constitutes an
offering of the securities described herein only in those
jurisdictions and to those persons where and to whom they may be
lawfully offered for sale, and therein only by persons permitted
to sell such securities. The information contained herein is
subject to completion or amendment. This Canadian Offering
Memorandum is not, and under no circumstances is to be construed
as, an advertisement or a public offering of the securities
described herein in Canada. No securities commission or similar
authority in Canada has reviewed or in any way passed upon this
document or the merits of the securities described herein, and
any representation to the contrary is an offense.
FAMILY BARGAIN CORPORATION
Private Placement in Canada of Shares of
Series A 9-1/2% Cumulative Convertible Preferred Stock
Price: US $4 7/8 per Share
The Offering
The shares of Series A 9-1/2% Cumulative Convertible
Preferred Stock, par value US$0.01 per share (the "Series A
Convertible Preferred Stock"), being offered hereby are part of
an offering (the "Offering") of up to 766,000 shares of Series A
Convertible Preferred Stock by Family Bargain Corporation (the
"Company"), a Delaware corporation. Included in this Canadian
Offering Memorandum and forming a part hereof is the full text of
the private placement memorandum (the "Confidential Private
Offshore Offering Memorandum") regarding the Offering being made
outside the United States. The Offering in Canada is being made
solely by this Canadian Offering Memorandum and any decision to
purchase shares of Series A Convertible Preferred Stock should be
based solely on the information contained herein. No person has
been authorized to give any information or to make any
representations other than those contained herein.
The Offering in Canada is being made solely in the Province
of Ontario.
Resale Restrictions
The distribution of shares of Series A Convertible
Preferred Stock in the Province of Ontario is being made on a
private placement basis. Accordingly, any resale of shares of
Series A Convertible Preferred Stock or the shares of common
stock (the "Common Stock") into which the shares of Series A
Convertible Preferred Stock are convertible must be made in
accordance with an exemption from the registration and prospectus
requirements of applicable securities laws of the Province of
Ontario. Purchasers of shares of Series A Convertible Preferred
Stock are advised to seek legal advice prior to any resale of
shares of Series A Convertible Preferred Stock or shares of
Common Stock.
Representation and Agreement by Purchasers
Confirmations of the acceptance of offers to purchase
any shares of Series A Convertible Preferred Stock will be sent
to purchasers in the Province of Ontario who have not withdrawn
their offers to purchase prior to the issuance of such
confirmations. Each purchaser of shares of Series A Convertible
Preferred Stock in the Province of Ontario who receives a
purchase confirmation will, by the purchaser's receipt thereof,
be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that such purchaser is
entitled under applicable securities laws of the Province of
Ontario to purchase such shares of Series A Convertible Preferred
Stock without the benefit of a prospectus qualified under such
securities laws.
Certain Canadian Income Tax Considerations
The following summary is a general discussion of the
material Canadian federal income tax considerations generally
applicable to a purchaser of Series A Convertible Preferred Stock
pursuant to the final Canadian Offering Memorandum (a "Canadian
Holder") who, for the purposes of the Income Tax Act (Canada)
(the "Tax Act"), is resident in Canada, deals at arm's length
with the Company and holds Series A Convertible Preferred Stock
and, if acquired, Common Stock, as capital property. Certain
"financial institutions", including banks, trust companies,
insurance corporations, registered securities dealers,
corporations controlled by one or more such financial
institutions and trusts and partnerships more than 50% of the
fair market value of the interests in which are held by one or
more such financial institutions will generally be precluded from
treating the Series A Convertible Preferred Stock or Common Stock
as capital property. This summary assumes that the Company will
not be a "foreign affiliate" of any Canadian Holder. In general,
the Company will be a "foreign affiliate" of a Canadian Holder if
the Canadian Holder (i) holds 1% or more of the outstanding
shares of any class of capital stock of the Company, and (ii)
alone or together with related persons holds 10% or more of the
outstanding shares of any class of capital stock of the Company.
This summary is based on the current provisions of the
Tax Act and the regulations thereunder, all specific proposals to
amend the Tax Act and the regulations announced or released by
the Minister of Finance, Canada prior to the date hereof and the
published administrative practices of Revenue Canada, Customs,
Excise and Taxation ("Revenue Canada"). This summary does not
otherwise take into account or anticipate any changes in law
whether by judicial, governmental or legislative decision or
action, nor does it take into account provincial, territorial or
foreign income tax considerations which may differ from the
Canadian federal income tax considerations described herein.
This summary is not exhaustive of all federal income
tax considerations that may be relevant to a particular holder of
Series A Convertible Preferred Stock and, if acquired, Common
Stock, having regard to the holder's particular circumstances nor
does it address the federal income tax considerations relevant to
certain types of holders who may be subject to special treatment
under the Tax Act. This summary is not intended to be, and
should not be interpreted as, legal or tax advice to any
particular holder of Series A Convertible Preferred Stock and, if
acquired, Common Stock, and no representation with respect to the
income tax consequences to any particular holder is made.
Accordingly, prospective purchasers of Series A Convertible
Preferred Stock should consult their own tax advisors with
respect to their individual circumstances.
All amounts relating to the acquisition, holding or
disposition of Series A Convertible Preferred Stock or Common
Stock must be converted into Canadian dollars for the purposes of
the Tax Act and the regulations thereunder.
Dividends
Dividends received by a Canadian Holder on Series A
Convertible Preferred Stock or Common Stock will be included in
such holder's income for the purposes of the Tax Act.
Conversions of Series A Convertible Preferred Stock
The conversion of Series A Convertible Preferred Stock
into Common Stock will not constitute a disposition for purposes
of the Tax Act, and accordingly, will not result in a capital
gain or a capital loss. The Canadian Holder's aggregate cost of
Common Stock acquired on a conversion of Series A Convertible
Preferred Stock will be equal to the Canadian Holder's adjusted
cost base of such Series A Convertible Preferred Stock
immediately before the conversion. Under the current
administrative practices of Revenue Canada, a Canadian Holder
who, upon conversion of Series A Convertible Preferred Stock,
receives cash not in excess of $200 in lieu of a fraction of a
Common Stock, may either treat this amount as proceeds of
disposition of a portion of a Series A Convertible Preferred
Stock or, alternatively, reduce the adjusted cost base of the
Common Stock received on the conversion by the amount of the cash
received. If a Canadian Holder chooses to recognize a
disposition of a portion of a Series A Convertible Preferred
Stock, such holder may realize a capital gain or a capital loss.
Disposition of Series A Convertible Preferred Stock and Common
Stock
On the disposition of Series A Convertible Preferred
Stock or Common Stock (on a redemption or otherwise), a Canadian
Holder will realize a capital gain (or a capital loss) to the
extent that the proceeds of disposition exceed (or are less than)
the aggregate of the Canadian Holder's adjusted cost base of such
stock and any costs of disposition. Three-quarters of any such
capital gain (a "taxable capital gain") will be included in the
Canadian Holder's income and three-quarters of any such capital
loss will be deductible from taxable capital gains in accordance
with the rules in the Tax Act.
Foreign Tax Credits
Subject to certain limitations, a Canadian Holder may
be entitled to claim a credit or a deduction in computing the
Canadian Holder's Canadian income tax liability for any United
States withholding or other income tax payable by the Canadian
Holder in respect of dividends received on, or any gain realized
on a disposition of, Series A Convertible Preferred Stock or
Common Stock.
Deferred Income Plans
The Series A Convertible Preferred Stock and the Common
Stock will be "foreign property" for the purposes of the tax
imposed on deferred income plans under Part XI of the Tax Act.
Enforcement of Legal Rights
Since the Company is organized under the laws of the
State of Delaware, the directors and officers of the Company
reside outside Canada and all of the assets of the Company are
located outside Canada, it may not be possible for purchasers of
shares of Series A Convertible Preferred Stock to enforce against
the Company in Canada judgments obtained in Canadian courts. It
may not be possible for purchasers of shares of Series A
Convertible Preferred Stock to enforce against the Company in the
United States, in original actions or in actions for enforcement
of judgments of Canadian courts, civil liabilities predicated
solely upon applicable provincial securities laws, including the
statutory rights of action described under "Rights of Action for
Damages or Rescission" below.
Rights of Action for Damages or Rescission
The following statutory rights of action for damages or
rescission shall be available to purchasers of the shares of
Series A Convertible Preferred Stock offered hereby in the
Provinces of Saskatchewan and Nova Scotia.
Saskatchewan. The Securities Act, 1988 (Saskatchewan)
(the "Saskatchewan Act") provides purchasers of Series A
Convertible Preferred Stock with a statutory right of action for
damages or rescission in the case of a misrepresentation as more
particularly described in Section 138 of the Saskatchewan Act.
These rights must be exercised within the time periods set forth
in Section 147 of such Act.
Nova Scotia. The Securities Act (Nova Scotia) (the
"Nova Scotia Act") provides purchasers of shares of Series A
Convertible Preferred Stock pursuant to the Canadian Offering
Memorandum with a statutory right of action against the Company
for damages or rescission if the Canadian Offering Memorandum or
any amendment hereto contains a misrepresentation that was a
misrepresentation at the time of purchase, provided that the
Company will not be liable:
(a) if the purchaser purchased such shares
of Series A Convertible Preferred Stock with
knowledge of the misrepresentation;
(b) for all or any portion of any damages
that it proves do not represent the depreciation
in value of the shares of Series A Convertible
Preferred Stock as a result of the
misrepresentation; and
(c) for amounts in excess of the price at
which the shares of Series A Convertible Preferred
Stock were sold to the purchaser.
No action may be commenced to enforce the foregoing right of
action more than 120 days after the date of purchase.
The foregoing summaries are subject to the express
provisions of the Saskatchewan Act and the Nova Scotia Act and
the regulations thereunder and reference is made thereto for the
complete text of such provisions. The rights of action discussed
above will be provided to purchasers resident in the relevant
provinces in their purchase confirmations. The rights of action
discussed above are in addition to and without derogation from
any other right or remedy which purchasers may have at law.
Notice to British Columbia Purchasers
A purchaser of shares of Series A Convertible Preferred
Stock to whom the Securities Act (British Columbia) applies is
advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the
sale of any shares of Series A Convertible Preferred Stock or
shares of Common Stock acquired by such purchaser pursuant to the
Offering. Such report must be in the form attached to British
Columbia Securities Commission Blanket Order BOR #95/17, a copy
of which may be obtained from the Company. Only one such report
must be filed in respect of the shares of Series A Convertible
Preferred Stock acquired on the same date and under the same
prospectus exemption.
CONFIDENTIAL PRIVATE OFFSHORE OFFERING MEMORANDUM
FAMILY BARGAIN CORPORATION
Offering Of Up To 766,000 Shares
of Series A 9-1/2% Cumulative Convertible Preferred Stock
Minimum Subscription 20,000 Shares
500,000 Share Minimum - 766,000 Share Maximum
Family Bargain Corporation (the "Company") is offering for sale
to persons who are not "U.S. persons," as that term is defined in
Regulation S promulgated under the Securities Act of 1933, as
amended ("Regulation S"), a minimum of 500,000 and a maximum of
766,000 shares (the "Shares") of the Company's Series A 9-1/2%
Cumulative Convertible Preferred Stock, $.01 par value per share
(the "Series A Convertible Preferred Stock"), at $4 7/8 per share
(the "Offering"). Commonwealth Associates (the "Placement
Agent") has agreed to act as placement agent for the Company in
connection with the Offering. Shares of Series A Convertible
Preferred Stock are convertible, at the option of the holders
thereof, at a conversion price of $3.719 per share of Common
Stock (so that each share of Series A Convertible Preferred Stock
is convertible into 2.689 shares of Common Stock). The
outstanding shares of Series A Convertible Preferred Stock and
Common Stock are currently quoted on the Nasdaq SmallCap Market
under the symbols "FBARP" and "FBAR," respectively. The
outstanding shares of Common Stock are also listed on the Chicago
Stock Exchange under the symbol "FBAR." On March 5, 1996, the
closing per share bid prices for the Series A Convertible
Preferred Stock and the Common Stock, as reported by Nasdaq, were
$7 1/4 and $2 11/16, respectively.
Certain of the Exhibits to this Memorandum are contained only in
the Preliminary version of this Memorandum dated February 16,
1996 (the "Preliminary Memorandum"), and are incorporated by
reference herein. Each prospective purchaser of Shares shall
have received the Preliminary Memorandum prior to its
subscription being accepted.
The Shares are being offered on a "best efforts" basis by the
Placement Agent. All proceeds received by the Company from
subscribers for the Shares offered hereby will be deposited by
the Placement Agent in a special non-interest bearing bank
account. If at least 500,000 of the Shares offered hereby (the
"Minimum Financing") have not been subscribed for by the close of
business on March 29, 1996 (the "Termination Date"), all proceeds
received by the Company from subscribers will be refunded in
full, without deduction and without interest. If subscriptions
for 766,000 of the Shares (the "Maximum Financing") are received
or, at the Company's discretion, if subscriptions for the Minimum
Financing (but less than the Maximum Financing) are received, on
or prior to the Termination Date, the closing (the "Closing")
will be held as soon as practicable after receipt of such
subscriptions or such determination by the Company, and the funds
held in the special account will be turned over to the Company.
If the Company determines not to close in the event that
subscriptions for less than the Maximum Financing are received,
all proceeds received by the Company from subscribers will be
refunded in full, without deduction and without interest, as soon
as practicable following such determination. See "Terms of the
Offering."
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEG
REE
OF RISK. SEE "RISK FACTORS"
THE SHARES ARE BEING OFFERED HEREBY OUTSIDE THE UNITED STATES
IN RELIANCE ON REGULATION S UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THE SHARES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE ACT OR WITH ANY SECURITIES REGULATORY
AUTHORITY OF ANY JURISDICTION. THE SHARES SOLD HEREUNDER MAY NOT
BE OFFERED OR SOLD IN THE UNITED
STATES OR TO "U.S. PERSONS" DURING THE RESTRICTED PERIOD SET
FORTH
IN SECTION 903 OF REGULATION S UNLESS THE SHARES ARE REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE. FOR CERTAIN
RESTRICTIONS ON RESALE, SEE "GENERAL CONDITIONS
OF REGULATION S".
Commonwealth Associates
The date of this Memorandum is March 6, 1996.
THE SHARES ARE BEING OFFERED WITHOUT REGISTRATION UNDER THE ACT
IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY
REGULATION S PROMULGATED THEREUNDER. THE SHARES HAVE NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE ACT. THE SHARES MAY NOT BE
OFFERED, SOLD OR DELIVERED, DIRECTLY OR INDIRECTLY, IN THE UNITED
STATES OF AMERICA ("U.S.") OR TO OR FOR THE BENEFIT OR ACCOUNT OF
U.S. PERSONS UNLESS THE SHARES ARE REGISTERED UNDER THE ACT, OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE. THE SALE, TRANSFER OR OTHER DISPOSITION OF ANY SHARES
PURCHASED PURSUANT HERETO IS RESTRICTED BY APPLICABLE SECURITIES
LAWS.
THIS MEMORANDUM HAS NOT BEEN REVIEWED, APPROVED OR DISAPPROVED,
NOR HAS THE ACCURACY OR ADEQUACY OF THE INFORMATION SET FORTH
HEREIN BEEN PASSED UPON, BY THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR SECURITIES ADMINISTRATOR OF ANY OTHER
JURISDICTION. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE INFORMATION CONTAINED IN THIS MEMORANDUM IS BEING FURNISHED
TO PROSPECTIVE INVESTORS SOLELY FOR SUCH INVESTORS' CONFIDENTIAL
USE WITH THE EXPRESS UNDERSTANDING THAT, WITHOUT THE PRIOR
EXPRESS PERMISSION OF THE COMPANY, SUCH PERSON WILL NOT RELEASE
THIS DOCUMENT OR DISCUSS THE INFORMATION CONTAINED HEREIN OR MAKE
REPRODUCTIONS OF OR USE THIS MEMORANDUM FOR ANY PURPOSE OTHER
THAN AN EVALUATION OF A POTENTIAL INVESTMENT IN THE SHARES AND,
IN THE EVENT ANY SUCH PROSPECTIVE INVESTOR ELECTS NOT TO INVEST,
SUCH PERSON WILL RETURN THIS MEMORANDUM TO THE COMPANY.
THIS OFFERING IS SUBJECT TO WITHDRAWAL, CANCELLATION OR
MODIFICATION BY THE COMPANY WITHOUT NOTICE. THE COMPANY RESERVES
THE RIGHT, IN ITS SOLE DISCRETION, TO REJECT ANY SUBSCRIPTION IN
WHOLE OR IN PART FOR ANY REASON OR TO ALLOT ANY SUBSCRIBER LESS
THAN THE NUMBER OF SHARES SUBSCRIBED FOR.
THE PRICE OF THE SHARES OFFERED HEREBY HAS BEEN DETERMINED BY
NEGOTIATION BETWEEN THE COMPANY AND THE PLACEMENT AGENT, BASED IN
PART ON THE MARKET PRICE FOR THE COMMON STOCK, AND DOES NOT
NECESSARILY BEAR ANY RELATIONSHIP TO THE ASSETS, BOOK VALUE OR
POTENTIAL PERFORMANCE OF THE COMPANY OR ANY OTHER RECOGNIZED
CRITERIA OF VALUE.
OFFEREES MAY, IF THEY SO DESIRE, MAKE INQUIRIES OF THE COMPANY
WITH RESPECT TO THE COMPANY'S BUSINESS OR ANY OTHER MATTERS
RELATING TO THE COMPANY AND AN INVESTMENT IN THE SHARES OFFERED
HEREBY, AND MAY OBTAIN ANY ADDITIONAL INFORMATION WHICH SUCH
PERSONS DEEM TO BE NECESSARY IN CONNECTION WITH MAKING AN
INVESTMENT DECISION IN ORDER TO VERIFY THE ACCURACY OF THE
INFORMATION CONTAINED IN THIS MEMORANDUM (TO THE EXTENT THAT THE
COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT
UNREASONABLE EFFORT OR EXPENSE). IN CONNECTION WITH SUCH
INQUIRY, ANY DOCUMENTS WHICH AN OFFEREE WISHES TO REVIEW WILL BE
MADE AVAILABLE FOR INSPECTION AND COPYING OR PROVIDED, UPON
REQUEST, SUBJECT TO THE OFFEREE'S AGREEMENT TO MAINTAIN SUCH
INFORMATION IN CONFIDENCE AND TO RETURN THE SAME TO THE COMPANY
IF THE RECIPIENT DOES NOT PURCHASE THE SHARES OFFERED HEREUNDER
OR OTHERWISE AS REQUESTED BY THE COMPANY. ANY SUCH REQUESTS FOR
ADDITIONAL INFORMATION OR DOCUMENTS SHOULD BE MADE IN WRITING TO
THE COMPANY, ADDRESSED AS FOLLOWS: FAMILY BARGAIN CORPORATION,
315 EAST 62ND STREET, 6TH FLOOR, NEW YORK, NY 10021, OR BY
TELEPHONE (212) 980-9670, ATTENTION: JOHN A. SELZER, CHIEF
EXECUTIVE OFFICER.
NO PERSON, OTHER THAN AS PROVIDED FOR HEREIN, HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS MEMORANDUM IN CONNECTION WITH THE OFFER
BEING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
OR GIVEN BY THE COMPANY OR THE PLACEMENT AGENT.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SHARES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH SHARES 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.
THE INFORMATION PRESENTED HEREIN WAS PROVIDED BY THE COMPANY AND
IS BEING FURNISHED BY THE PLACEMENT AGENT SOLELY FOR THE USE OF
PROSPECTIVE INVESTORS IN CONNECTION WITH THE OFFERING DESCRIBED
HEREIN. THE PLACEMENT AGENT HAS NOT CONDUCTED ANY INDEPENDENT
INVESTIGATION WITH RESPECT TO THE INFORMATION CONTAINED IN THIS
MEMORANDUM AND MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE
ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN THE
MEMORANDUM, AND EXPRESSLY DISCLAIMS ANY RESPONSIBILITY FOR ANY
INFORMATION CONTAINED HEREIN.
IT IS THE RESPONSIBILITY OF ANY PERSON OR ENTITY WISHING TO
PURCHASE THE SHARES TO SATISFY HIMSELF, HERSELF OR ITSELF AS TO
THE FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE
THE UNITED STATES IN CONNECTION WITH ANY SUCH PURCHASES,
INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS
OR OBSERVING ANY OTHER APPLICABLE FORMALITIES.
PROSPECTIVE INVESTORS MAY NOT CONSTRUE THE CONTENTS OF THIS
MEMORANDUM AS LEGAL, INVESTMENT OR TAX ADVICE. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR ADVISORS AS TO LEGAL, INVESTMENT,
TAX AND RELATED MATTERS CONCERNING AN INVESTMENT BY SUCH
PROSPECTIVE INVESTORS IN THE COMPANY.
THE STATEMENTS CONTAINED HEREIN ARE BASED ON INFORMATION BELIEVED
BY THE COMPANY TO BE RELIABLE. NO WARRANTY CAN BE MADE THAT
CIRCUMSTANCES HAVE NOT CHANGED SINCE THE DATE SUCH INFORMATION
WAS SUPPLIED. THIS MEMORANDUM CONTAINS SUMMARIES OF CERTAIN
PROVISIONS OF DOCUMENTS RELATING TO THE PURCHASE OF THE SHARES OR
RELATING TO THE COMPANY, AS WELL AS SUMMARIES OF VARIOUS
PROVISIONS OF RELEVANT STATUTES AND REGULATIONS. SUCH SUMMARIES
DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY
BY REFERENCE TO THE TEXTS OF THE ORIGINAL DOCUMENTS, STATUTES AND
REGULATIONS, WHICH ARE AVAILABLE UPON REQUEST.
JURISDICTIONAL NOTICES
NOTICE TO RESIDENTS OF ALL JURISDICTIONS:
THE SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE ACT. THE SHARES MAY NOT BE OFFERED, SOLD OR DELIVERED,
DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO OR FOR THE
ACCOUNT OF U.S. PERSONS UNLESS THE SHARES ARE REGISTERED UNDER
THE ACT, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT IS AVAILABLE. THE SHARES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR THE SECURITIES COMMISSION IN ANY JURISDICTION OR
ANY REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING
AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING
OR THE ACCURACY OR ADEQUACY OF THE INFORMATION IN THIS
MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FOR GREAT BRITAIN RESIDENTS ONLY:
NO PERSON MAY OFFER OR SELL THESE SHARES IN GREAT
BRITAIN BY MEANS OF ANY DOCUMENT EXCEPT TO PERSONS WHOSE ORDINARY
BUSINESS IT IS TO BUY OR SELL SECURITIES, WHETHER AS PRINCIPAL OR
AGENT (EXCEPT IN CIRCUMSTANCES WHICH DO NOT CONSTITUTE AN OFFER
TO THE PUBLIC WITHIN THE MEANING OF THE COMPANIES ACT OF 1985 OF
GREAT BRITAIN) AND, UNLESS SUCH PERSON IS A PERSON PERMITTED TO
DO SO UNDER THE SECURITIES LAWS OF GREAT BRITAIN, IT WILL NOT
DISTRIBUTE THIS OFFERING CIRCULAR AND ANY OTHER OFFERING MATERIAL
IN RESPECT OF ANY PROPOSED OFFER OR SALE OF THESE SHARES IN OR
FROM GREAT BRITAIN OTHER THAN TO PERSONS WHOSE BUSINESS INVOLVES
THE ACQUISITION AND DISPOSAL, OR THE HOLDING, OF SECURITIES,
WHETHER AS PRINCIPAL OR AS AGENT.
FOR RESIDENTS OF CANADA ONLY:
SEE THE CANADIAN OFFERING MEMORANDUM SUPPLEMENT
ATTACHED HERETO. IF THE SUPPLEMENT BECOMES DETACHED FROM THIS
MEMORANDUM, PLEASE CONTACT THE PLACEMENT AGENT FOR A REPLACEMENT
COPY.
GENERAL CONDITIONS OF REGULATION S
The Securities being offered hereby are being sold
pursuant to an exemption under the Act in accordance with
Regulation S. In accordance with Regulation S, the offer and/or
sale of securities must be made in an "offshore transaction" and
no "directed selling efforts" may be made in the United States.
In addition to the foregoing, offers and sales of the Shares are
subject to certain transaction restrictions and offering
restrictions during a 40 day period commencing on the later of
(i) the date the Shares are first offered to persons other than
distributors or (ii) the date of the final closing of this
offering (the "Restricted Period"). The "offering restrictions"
require (i) each distributor (and all other persons who receive
remuneration in respect of the Shares sold during the Restricted
Period) to agree in writing to make all offers and sales of
Shares during the Restricted Period only in accordance with
Regulation S or an exemption under the Act or pursuant to a
registration statement and (ii) offering materials and documents
(other than press releases) used during the Restricted Period to
disclose that the Shares are not registered under the Act and
that the Shares cannot be offered or sold to U.S. persons or in
the United States during the Restricted Period unless the Shares
are registered or an exemption from registration is available.
The "transaction restrictions" require that, during the
Restricted Period: (i) each distributor selling the Shares to a
distributor, dealer or a person receiving a selling concession
confirm to the purchaser that the purchase is subject to the same
restrictions on offers and sales that apply to a distributor and
(ii) offers and sales of the Shares may not be made to a U.S.
person or for the account or benefit or a U.S. person (other than
a distributor).
In addition to the restrictions imposed by Regulation S, the
Shares offered hereby will not be transferable for 90 days
following the Closing of this Offering except with the prior
written consent of the Placement Agent. See "Terms of the
Offering."
TABLE OF CONTENTS
Page
SUMMARY 8
The Company 8
The Offering 14
PRICE RANGE OF COMMON AND PREFERRED STOCK 17
RISK FACTORS 19
DIRECTORS AND SENIOR MANAGEMENT 24
TERMS OF THE OFFERING 28
DESCRIPTION OF SECURITIES 30
CERTAIN U.S. TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS 38
AVAILABLE INFORMATION 41
Exhibits contained in the Preliminary Memorandum:
EXHIBIT A - PRESS RELEASES DATED FEBRUARY 1,
1996, JANUARY 4, 1996 AND NOVEMBER 30, 1995 REGARDING
REVENUES AND COMP STORE SALES FOR THE MONTHS OF JANUARY
1996, DECEMBER 1995 AND NOVEMBER 1995 AND FOR THE
FOURTH QUARTER OF FISCAL 1996 (THREE MONTHS AND THE
YEAR ENDED JANUARY 27, 1996).
EXHIBIT B - ANNUAL REPORT ON FORM 10-K AND 10-
K/A FOR THE YEAR ENDED JANUARY 28, 1995
EXHIBIT C - QUARTERLY REPORT ON FORM 10-Q FOR
THE THREE MONTHS ENDED OCTOBER 28, 1995
EXHIBIT D - CURRENT REPORT ON FORM 8-K, AS
AMENDED BY FORM 8-K/A, EACH DATED NOVEMBER 28, 1995.
Exhibits contained herein:
EXHIBIT E - SUBSCRIPTION AGREEMENT
EXHIBIT F - CONTINGENT REGISTRATION RIGHTS
AGREEMENT
SUMMARY
The following summary is qualified in its entirety by,
and should be read in conjunction with, the more detailed
information, exhibits and financial statements, including the
notes thereto, appearing elsewhere in this Memorandum and the
attached Exhibits. Each prospective investor should read this
Memorandum in its entirety prior to making an investment in the
securities offered hereby.
The Company
Introduction
Family Bargain Corporation (the "Company") is a New
York-based holding company which, through its two operating
subsidiaries, General Textiles and Factory 2-U, Inc. ("Factory 2-
U"), operates 131 off-price retail stores in seven western
states. General Textiles' 102 stores operate under the name
"Family Bargain Center" and Factory 2-U's 29 stores operate under
the name "Factory 2-U." The Company purchased Factory 2-U in
November 1995.
Business
The Company's stores sell primarily first quality, in-
season clothing for men, women, and children and housewares at
discounted prices that are substantially lower than those of
major discount retailers and other regional off-price chains.
The stores' merchandise is targeted to the low income consumer.
The stores' primary customers are families with annual household
income of under $25,000, a significant portion of whom are of
Hispanic origin. The stores are located primarily in strip
shopping centers, where occupancy costs are most favorable. As
of March 5, 1996, store locations were as follows:
STATE STRIP DOWNTOWN OTHER TOTAL
CENTER
California 47 14 8 69
Arizona 29 4 0 33
Washington 1 3 2 6
New Mexico 6 0 1 7
Nevada 6 0 0 6
Oregon 7 0 1 8
Texas 2 0 0 2
TOTAL 98 21 12 131
Stores typically employ one store manager, two
assistant store managers, and seven to ten sales associates, most
of whom are part-time employees. New store managers are trained
in all aspects of store operations through a Management Training
Program either at the Company's San Diego training center or on
location at stores. The average compensation for store managers
is approximately $28,000, including a bonus of $2,000.
Experienced assistant store managers are often promoted to fill
open manager positions. Other store personnel are trained on
site.
Management believes that the Company's store opening
and operating costs are low compared to those of other retailers
due to the selection of low rent store locations, a self-service
format, use of basic fixtures and use of part-time employees
whenever possible. Stores are generally located in previously
occupied sites leased on terms which Management believes are more
favorable than those available for newly constructed facilities.
Store sites are selected based on demographic analysis of the
market area, sales potential, local competition, occupancy
expense, operations fit and proximity to existing store
locations. Store operating preparations generally take up to two
weeks. Typical new store opening expenses for fixtures,
leasehold improvements and grand opening are approximately
$90,000. Initial inventory investment for an average new store
is approximately $200,000.
The average Family Bargain Center store contains
approximately 11,000 square feet with 9,000 square feet devoted
to selling floor, while the average Factory 2-U store contains
approximately 16,000 square feet with 13,500 square feet of
selling floor. The following provides a breakdown of the
merchandise mix in the respective chains:
Family Factory 2-
Bargain U
Center
Ladies Ready-to-wear 30% 20%
Menswear 30% 20%
Children's (Boys, Girls, Infants 30% 20%
& Toddlers)
Footwear 5% 4%
Domestics 5% 22%
Housewares - 8%
Toys and Miscellaneous - 6%
The Company's stores average approximately $190 of
sales per square foot of selling space per year. This high per
square foot volume, in conjunction with their occupancy costs,
allows the stores to operate at an occupancy cost consistently
below five percent of sales.
Merchandising
The Company's merchandise strategy emphasizes high
inventory turnover to maximize cash flow and minimize markdowns,
thus allowing it to maintain lower initial mark-ups. Inventory
turnover for the past four fiscal years are shown below:
F.Y. ended 1/93 5.5 turns
F.Y. ended 1/94 5.7
F.Y. ended 1/95 5.8
F.Y. ended 1/96 5.6
The Company's buying strategy emphasizes purchases of
manufacturers' over-runs, close-outs and cancellations of orders
placed by major discount retailers, at prices which are generally
30% to 50% below normal wholesale. The buying staff consists of
12 full-time buyers who maintain a constant presence in the
market and who purchase merchandise from approximately 1,000
vendors. The Company's ability to purchase large quantities of
surplus product has resulted in strong relationships with its
vendors and a continuing supply of products for its stores. By
purchasing its merchandise in-season, as opposed to the large
discount retailers who generally purchase goods months in
advance, the Company is better able to determine which products
are popular in a particular season, thus minimizing markdown
exposure.
New merchandise is delivered to the Company's stores on
average twice per week to encourage frequent shopping trips by
its customers and to maximize the rate of inventory turn. As a
result of its purchasing practices, store inventory may not
always include a full range of colors, sizes and styles in a
particular item. Management believes, however, that price,
quality, and product mix are more important to the stores'
customers than the availability of a specific item at a specific
time.
Marketing
The Company allocates approximately 3% of sales to
advertising and marketing. Historically, the majority of the
advertising budget has been devoted to radio (approximately 80%),
both English and Hispanic, and to a lesser extent, to television
(approximately 10%), and the balance to print and in-store
promotion. In the middle of the 1996 fiscal year, management
initiated a major shift of its advertising program with the
development of full-color inserts showing photographs of store
merchandise, which are delivered to the consumer as newspaper
inserts and through direct-mail promotion. This new advertising
approach has attracted a new and broader customer base into the
stores, and contributed to significantly improved sales results
in the Back-to-School and Christmas selling seasons. Same store
sales, since the implementation of this new program in mid-1995,
have generally outpaced the retail industry.
Purchasing
The Company purchases merchandise from approximately
1,000 domestic manufacturers, jobbers, importers and other
vendors. Payment terms are typically net 30 days. The Company
continually adds new vendors and does not maintain long-term or
exclusive purchase commitments or agreements with any vendor.
The Company has generally not had difficulty locating and
purchasing appropriate apparel for its stores. Management
believes that there are a substantial number of additional
sources of supply of first quality, off-price apparel goods and
expects that it will be able to meet its increased inventory
needs as the number of Company stores expands.
Manufacturers ship goods directly to the Company's San
Diego distribution center or, in the case of east coast vendors,
to the Company through its east coast freight consolidator.
Goods received at the Company's warehouse are shipped to the
stores using independent trucking companies generally within two
or three days of their arrival. The Company does not store goods
from season to season at its warehouse.
Competition
The Company's stores operate in a competitive
marketplace. They compete with large discount retail chains such
as Wal-Mart, K-Mart, Target and Mervyn's and with regional off-
price chains, such as MacFrugal's. They also compete with
independent and small chain retailers and flea markets (also
known as "swap meets") which serve the same low and low-middle
income market as the Company. Management believes that the
principal competitive factors in the Company's markets are price,
quality and site location and that the Company is well positioned
to compete on the basis of these factors. In addition,
management believes that the Company's ability to tailor its
merchandising, marketing and advertising programs and store
service to Hispanics and other ethnic groups provides the Company
with an important competitive advantage. Many of the Company's
stores are located within five miles of a Wal-Mart, K-Mart or
Target store. Management believes that this competition draws
increased consumer traffic to these areas and that a portion of
this additional consumer traffic comparative shops and finds the
Company's stores' pricing, merchandise and operating philosophy
appealing.
Employees
The Company employs approximately 2,790 persons,
including 2,635 persons as store employees and field management,
1,896 of whom are part-time, 94 as executive and administrative
employees, and 61 as warehouse employees. None of the employees
of the Company is subject to any collective bargaining agreements
and management considers its relations with its employees to be
good.
Growth
The Company expects to continue its strategy of
controlled growth by continuing to open new stores in its
existing markets. The current plan contemplates a growth rate in
new stores of approximately 15% per year. The acquisition of the
29 store Factory 2-U chain in November 1995 provided the Company
with the opportunity to add significant additional sales with
comparatively low incremental general and administrative ("G&A")
expenses. Buying, administrative, financial and operations
functions of the Factory 2-U stores are managed by the Company's
existing staff in San Diego and New York. The Company intends to
pursue the potential acquisition of other comparable retail
chains as opportunities arise.
The Company has an ongoing program to renovate and
relocate stores. A store is renovated when management believes
that an improvement to the store's physical appearance will
enhance sales. Store renovations include installing new
fixtures, redesigning layout and refurbishing floors and walls.
Renovated stores have historically experienced increased sales,
enabling the Company to rapidly recover renovation costs. A
store is considered for relocation when a superior location
becomes available in its market area. The average expenditure
for a store renovation or relocation is typically $50,000.
Recent and Historical Financial Results
Recent Unaudited Results
For the three months ended October 28, 1995, the
Company's most recently completed fiscal quarter (which does not
include Factory 2-U results), the Company had revenues of $47.3
million compared with revenues of $39.3 million for the three
months ended October 29, 1994 (a 20.1% increase). Net income
from continuing operations in this period totaled $1.7 million,
compared with net income from continuing operations of $1.1
million for the period ended October 1994 (a 50.0% increase).
Net income in this period totaled $1.7 million, compared with net
income of $1.0 million for the period ended October 1994 (a 72.5%
increase). See Form 10-Q for the Period Ended October 28, 1995
attached hereto as Exhibit C.
For the nine months ended October 28, 1995, the Company
had revenues of $115.6 million compared with revenues of $99.3
million for the nine months ended October 1994 (a 16.3%
increase). The Company incurred a net loss from continuing
operations of $2.0 million in this period compared with a net
loss from continuing operations of $740,000 for the period ended
October 1994 (a 177% increase). The Company incurred a net loss
of $2.0 million in this period compared with net income of $4.5
million for the period ended October 1994 (which included an
extraordinary gain of $5.7 million for the retirement of
indebtedness). See Exhibit C.
On February 1, 1996, the Company announced that sales
(unaudited) for the month of January 1996 were $9.7 million,
compared with $6.3 million for January 1995. January comp store
sales (sales for stores operated by the Company both during
January 1996 and January 1995, therefore excluding any Factory 2-
U stores) increased 10.9%. Sales for the fourth quarter ended
January 27, 1996 were approximately $64.2 million compared with
approximately $47.1 million for the fourth quarter ended January
1995. Sales for the fiscal year ended January 27, 1996 totaled
$179.9 million, compared to $146.5 million for the fiscal year
ended January 1995, an increase of 22.8%. Comp store sales for
the fiscal year ended January 1996 increased 2.8% over fiscal
1995. On January 4, 1996, the Company announced that sales
(unaudited) for the month of December 1995 were $37.3 million,
compared with $25.3 million for December 1994 (a 47.1% increase).
December comp store sales (also excluding Factory 2-U stores)
increased 9.2%. On November 30, 1995, the Company announced that
sales (unaudited) for the month of November 1995 were $17.1
million, compared with $15.6 million for November 1994. November
comp store sales (also excluding Factory 2-U stores) decreased
4.4%. The Press Releases relating to these announcements are
attached hereto as Exhibit A.
Audited Historical Results
The Company incurred a net loss from continuing
operations of $0.3 million for its fiscal year ended January
1995. Net income, including losses from discontinued operations
and extraordinary gains, totalled $2.6 million for the fiscal
year ended January 28, 1995.
Dividends
The Company, subject to declaration by its Board of
Directors, pays dividends on its Series A Convertible Preferred
Stock quarterly, in cash, on April 30, July 31, October 31, and
the last Friday in January of each year. The Company has paid
each quarterly dividend (to date totaling $760,000 per quarter)
since the original issuance of Series A Convertible Preferred
Stock in July 1994. See "Risk Factors - Dividends; Dividend
Coverage" and "Description of Securities - Series A Convertible
Preferred Stock - Dividends."
The Company's principal executive office is located at
315 East 62nd Street, New York, New York 10021 and its telephone
number is (212) 980-9670. The principal executive office of
General Textiles and Factory 2-U is located at 4000 Ruffin Road,
San Diego, California 92123 and its telephone number is (619) 627-
1800.
The Offering
Securities Offered A maximum of 766,000 shares
and a minimum of 500,000
shares of Series A Convertible
Preferred Stock.
Offering Price $4 7/8 per share
Shares Outstanding
Prior to the Following the
Offering Offering
Common Stock8 4,008,310 4,008,310
Series A Convertible Preferred 3,260,000 4,026,000
Stock9,10,5
Shares of Series A Convertible
Preferred Stock Offered 766,000
Hereby3,5
Common Stock issuable upon
conversion of outstanding Series
A Convertible Preferred 8,765,470 10,825,086
Stock2,4,5
Common Stock, assuming 12,773,780 14,833,396
conversion of Series A
Convertible Preferred
Stock1,2,11,12
Common Stock, on a fully-diluted 14,832,608 16,892,224
basis1,2,5,13
Registration Rights The purchasers of the Shares
in the Offering are entitled
to registration rights under
certain circumstances. See
Use of Proceeds "Plan of Distribution."
The net proceeds to the
Company from the sale of the
Shares will be approximately
$3.32 million if the maximum
number of Shares offered
hereby are sold and $2.14
million if the minimum number
of Shares offered hereby are
sold, after deduction of
Placement Agent commissions
but before other fees and
expenses of this offering.
The Company intends to use the
net proceeds of the Offering
for working capital and
general corporate purposes,
including the increased
working capital requirements
created by the addition of 29
stores through the acquisition
of Factory 2-U in November
1995. See "Use of Proceeds."
Restrictions on Transfer The offering of the Shares has
not been registered under the
Act and the Shares are being
offered in reliance upon the
exemption under Regulation S
promulgated under the Act.
Sales of the Shares will be
made only to non- "U.S.
Persons," as such term is
defined in Regulation S under
the Act. Investors will
receive the certificates
representing their shares on
the 41st day following the
Closing of the Offering (the
conclusion of the 40 day
"Restricted Period"). During
the Restricted Period, the
shares will be held by the
Transfer Agent, in escrow, in
the form of a global
certificate consisting of all
of the shares sold in the
Offering.
In addition to the
restrictions imposed by
Regulation S, the Shares
offered hereby will not be
transferable for 90 days
following the Closing of this
Offering except with the prior
written consent of the
Placement Agent. See "General
Conditions of Regulation S"
and "Plan of Distribution."
Placement Agent Commonwealth Associates is
acting as Placement Agent in
connection with the sale of
the Shares offered hereby and
will receive a commission of
nine percent (9%) of the gross
proceeds from the sale of the
Shares, warrants to purchase
Common Stock, and
reimbursement of the Placement
Agent's legal fees and
expenses (up to $75,000). See
"Directors and Senior
Management" and "Plan of
Distribution."
Risk Factors The Shares offered hereby
involve substantial risks. See
"Risk Factors."
PRICE RANGE OF COMMON AND PREFERRED STOCK
The Company's Common Stock and Series A Convertible
Preferred Stock is traded over-the-counter and is listed on the
NASDAQ SmallCap Market. The Common Stock is also listed on the
Chicago Stock Exchange. The table below sets forth certain
information with respect to the high and low closing bid prices
(rounded to the nearest hundredth) of the Company's Common Stock
and Series A Convertible Preferred Stock during the twelve months
ended January 28, 1995, the twelve months ended January 27, 1996
and the subsequent interim period, as quoted by NASDAQ. These
quotations represent inter-dealer prices without retail markups,
markdowns or commissions and may not represent actual
transactions. They are also adjusted for a reverse stock split
of the Common Stock which occurred in fiscal 1995.
Commo Serie
n s A
Stock Conve
rtibl
e
Prefe
rred
Stock
High Low High Low
Year Ended January 28, 1995
First Quarter $7.69 $4.13
Second Quarter $5.63 $3.38 $10.5 $10.0
0 0
Third Quarter $3.69 $2.25 $10.5 $8.25
0
Fourth Quarter $3.50 $1.31 $9.62 $5.50
Year Ended January 27, 1996
First Quarter $1.81 $1.13 $6.75 $5.25
Second Quarter $1.25 $1.13 $6.25 $3.37
Third Quarter $1.75 $.87 $6.62 $4.50
Fourth Quarter $2.12 $.75 $6.62 $5.50
Year Ended January 25, 1997
First Quarter (through March $2.68 $1.56 $7.25 $5.75
5, 1996)
The closing bid prices of the Common Stock and the Series A
Convertible Preferred Stock on March 5, 1996 as reported on the
NASDAQ SmallCap Market were $2 11/16 per share and $7 1/4 per
share, respectively.
The Series A Cumulative Convertible Preferred Stock began
trading on the NASDAQ National Market on July 14, 1994 and on the
NASDAQ SmallCap Market in August 1995.
Other than the Common Stock and the Series A Convertible
Preferred Stock, none of the Company's issued and outstanding
securities is publicly traded on any established securities
market.
As of January 31, 1996, the number of record holders of
Common Stock and Series A Convertible Preferred Stock were
approximately 342 and 91, respectively. These numbers do not
include an indeterminate number of stockholders of theses
securities whose shares are held by financial institutions in
"street name." The Company believes there are substantially in
excess of 308 beneficial holders of its Common Stock and 91
holders of its Series A Convertible Preferred Stock.
RISK FACTORS
An investment in the Series A Convertible Preferred Stock offered
hereby involves substantial risks. Prospective investors should
carefully consider the following risk factors, as well as all the
other information set forth in this Memorandum and the Exhibits
to this Memorandum, before purchasing any Series A Convertible
Preferred Stock:
Historical Losses; No Assurance of Profitability. The Company
incurred a net loss from continuing operations of $0.3 million
for its fiscal year ended January 1995 and a net loss of $2.0
million for the nine months ended October 28, 1995. Net income
(including losses from discontinued operations and extraordinary
gains) was $2.6 million for the fiscal year ended January 28,
1995 and a $4.3 million net loss was incurred for the nine
months ended October 28, 1995. There can be no assurance that
the Company will operate profitably in the future. See "Summary -
Recent and Historical Financial Results."
The Company's operating subsidiaries are General Textiles
and Factory 2-U. The Company acquired a majority interest (later
increased to 100%) in General Textiles in December 1992 during
the pendency of General Textiles' reorganization under Chapter 11
of the U.S. Bankruptcy Code ("Chapter 11 Reorganization").
Affiliates of the Company had acquired General Textiles in July
1993 from an investor group and immediately directed General
Textiles to file for Chapter 11 Reorganization. On May 28, 1993,
General Textiles' Reorganization Plan was declared effective and
General Textiles emerged from Chapter 11 Reorganization. See
"Certain Relationships and Related Transactions" in the Form 10-K
attached as Exhibit B.
Company Cash Flow. The Company's operating subsidiaries are
General Textiles and Factory 2-U. The Company does not, itself,
operate any business. Accordingly, the Company relies on its
cash reserves and payments from General Textiles and Factory 2-U
to finance its ongoing operating expenses and pay its outstanding
indebtedness and dividends on the Series A Convertible Preferred
Stock.
General Textiles finances its operations through credit
provided by suppliers, borrowings under its $17.0 million working
capital and equipment facility (the "GT Revolving Credit
Facility") and internally generated cash flow. Factory 2-U
finances its operations through credit provided by suppliers,
borrowings under its $10.0 million working capital and equipment
facility (the "F2U Revolving Credit Facility," and collectively
with the GT Revolving Credit Facility, the "Revolving Credit
Facilities") and internally generated cash flow.
The Company receives payments from General Textiles pursuant
to a tax sharing agreement, certain subordinated debt and a
secured term note of General Textiles (which the Company owns and
has pledged to the lender under the Revolving Credit Facilities
(defined below)) and a management agreement. The General
Textiles Reorganization Plan and certain of General Textiles'
outstanding debt instruments (including the GT Revolving Credit
Facility), restrict General Textiles from paying dividends or
making other distributions to the Company, except under the
instruments listed above, without the consent of certain holders
of indebtedness. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and
Capital Resources" in Exhibits B and C.
Payments by Factory 2-U to the Company are limited under the
Factory 2-U Revolving Credit Facility to payments pursuant to a
management agreement and a guaranty fee agreement, as well as a
monthly overhead fee allocated based on the relative number of
stores between General Textiles and Factory 2-U.
Management believes that the Company will have sufficient
funds during the current fiscal year ending January 1997,
including funds received from General Textiles and Factory 2-U,
to enable it to satisfy the dividend obligations for the Series A
Convertible Preferred Stock, including the shares being offered
hereby.
Factory 2-U is the borrower under a $2.3 million loan
secured by a mortgage on Factory 2-U's former corporate office
and distribution center facility located in Nogales, Arizona (the
"Nogales Mortgage"). The principal balance under the Nogales
Mortgage was due on February 28, 1996, and the lender has agreed
in principle to extend the maturity date to May 31, 1996. The
Company is the guarantor under the Nogales Mortgage. Factory 2-U
intends to refinance this obligation. Management believes that
it can refinance such mortgage. However, there is no assurance
that the Company will be able to refinance this obligation, and
the failure to consummate a refinancing could have an adverse
impact on the Company's financial position.
In January 1996, the Company settled a lawsuit commenced in
1993 by former owners of the Mandel-Kahn Industries, Inc.
("Mandel-Kahn"), which was purchased by the Company in 1992.
Under the settlement (the "Mandel-Kahn Settlement"), a payment of
$230,000 has been made, a five-year consulting agreement entered
into with Joel Mandel providing for payments of $125,000 per year
for three years and $187,500 for two years along with the
issuance of 60,000 shares of the Company's Series A Convertible
Preferred Stock, and an obligation to pay $1.0 million plus
interest during 1996. The latter obligation is secured by
153,846 shares of Series A Convertible Preferred Stock. The
Company has the obligation to register these shares with the
Commission and may sell such shares, with the proceeds of any
such sale being used to reduce such indebtedness.
Dividends; Dividend Coverage. For the fiscal year ended
January 28, 1995, the Company did not have sufficient earnings to
pay the dividends on the then outstanding shares of Series A
Convertible Preferred Stock, although dividends were paid out of
a combination of that year's earnings and additional paid-in
capital. The Company does not expect to have sufficient earnings
to fully cover such dividend obligations solely out of earnings
during the current fiscal year, although dividends are expected
to be paid out of a combination of earnings or additional paid-in
capital, or both. Based on the annual dividend rate of $.95 per
share, dividend payments on the Series A Convertible Preferred
Stock currently total $3.0 million per year and will, after
completion of the Offering, total between $3.5 million (based on
the Minimum Financing) and $3.7 million per year (based on the
Maximum Financing). Accordingly, there can be no assurance that
earnings during the current or future fiscal years and any
additional paid-in capital will be sufficient to cover the
payment of dividends.
Dividends on the Series A Convertible Preferred Stock are
payable quarterly if, as and when declared by the Board of
Directors. The Company has never paid cash dividends on the
Common Stock and does not anticipate paying cash dividends on the
Common Stock in the foreseeable future.
Lender's Lien on Assets of Subsidiaries; Guarantees of the
Company. The lender under the Revolving Credit Facilities and
the holder of General Textiles' Secured Term Note (currently
pledged to such lender) have been granted a security interest in
all of the assets of General Textiles and Factory 2-U to secure
General Textiles' and Factory 2-U's obligations thereunder. If
General Textiles or Factory 2-U defaults on their respective
obligations under these loans, the lender may foreclose upon the
assets of the defaulting company, retain such assets or cause
them to be sold in a public or private auction. General Textiles
and Factory 2-U are also required to comply with certain
financial and other covenants under the loan agreements,
including limitations on capital expenditures. The Company is a
guarantor of the indebtedness under the Revolving Credit
Facilities as well as under the Nogales Mortgage. In the event
of a default under either of the Revolving Credit Facilities, the
Nogales Mortgage, or certain other liabilities of the
subsidiaries of the Company guaranteed by the Company, the
respective lenders will be entitled to look directly to the
Company for payment as guarantor of such indebtedness. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Liquidity and Capital Resources" in
Exhibits B and C.
Composition of General Textiles' Board; Rights of Creditors in
Event of Non-Payment. In connection with the Reorganization
Plan, General Textiles issued Subordinated Notes. The
Subordinated Notes provide that if General Textiles fails to make
certain minimum payments thereunder the holders of certain of the
notes and the official creditors' committee appointed in
connection with the Chapter 11 Reorganization (the "Creditors
Committee") will be entitled to elect a minority of General
Textiles' directors in certain circumstances and all of General
Textiles' directors in other circumstances. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources -- General Textiles
- -- Subordinated Notes" in Exhibits B and C.
Credit; Continued Financing. General Textiles and Factory 2-U
finance their ongoing retail operations from several sources,
including credit obtained from manufacturers and other vendors on
terms which generally are net 30 days, their Revolving Credit
Facilities and cash flow from operations. Since emerging from
bankruptcy, General Textiles has been granted normal credit
availability by most vendors and other material sources of
supply. However, the Company believes that manufacturers and
vendors would react more quickly to any future financial
difficulties of General Textiles than to those of its
competitors. Any resumption of credit problems would adversely
affect General Textiles' cash flow and its ability to properly
supply its stores. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in Exhibits B and
C.
Expansion. The Company plans to open up to approximately 16 new
stores in the seven states in which it currently operates during
the fiscal year ending January 1997. From July 1992 through
January 1996, the Company opened 36 new stores and renovated 35
stores. There can be no assurance that new stores will achieve
sales or profitability which are comparable to those achieved at
the Company's existing stores. The Company's quarterly financial
results may also fluctuate as a result of the timing and costs of
new store openings and renovations. The Company believes that
internally generated cash flow, funds available from the
Revolving Credit Facility and the proceeds of the Offering will
be sufficient to conduct its planned expansion. If the Company
opens a greater number of stores or acquires another retailer, it
is likely to require additional financing. There can be no
assurance that the Company will be able to obtain such financing.
Competition. The Company's stores compete with large discount
retail chains (such as Wal-Mart, K-Mart, Mervyn's and Target) and
regional off-price chains (such as MacFrugal's), many of which
have substantially greater resources than those of the Company.
While the Company believes that the Company uses an off-price
marketing strategy distinct from those of many of its
competitors, if such competitors were to adopt an off-price
approach that targeted Family Bargain Center's and Factory 2-U's
typical customers, the Company's business could be adversely
affected. See "BUSINESS -- Competition" in Exhibit B.
Seasonality; Weather. The Company historically has realized its
highest level of sales in the "Back-to-School" (August and
September) and Christmas (November and December) seasons. If
sales for either of such periods are poor for any reason,
including adverse weather or adverse economic conditions, the
Company's financial condition could be adversely affected. The
Company historically has realized lower sales in its first two
quarters (February to July), which often has resulted in its
incurring losses during those quarters. The prolonged drought
conditions in California in recent years has had an adverse
impact on the Company's sales (including sales to agricultural
workers) and a resumption of drought conditions or the occurrence
of other severe weather or natural disasters could have an
adverse impact on the Company's business and financial condition.
Dependence on Operating Management; Prior Experience and Part-
time Status of Certain Executive Officers. The Company relies
heavily on senior management, particularly William Mowbray, who
serves as President and Chief Executive Officer of its two
operating subsidiaries, General Textiles and Factory 2-U, as well
as Chief Financial Officer of the Company. Mr. Mowbray has been
a senior officer of General Textiles since July 1991. The loss of
Mr. Mowbray could have a material adverse effect on the Company.
General Textiles has entered into an employment agreement with
Mr. Mowbray that expires in August 1998. The Company does not
carry any key man life insurance on Mr. Mowbray.
While Mr. Mowbray serves on a full-time basis, the other
executive officers of the Company also serve as officers and
directors of other companies and devote to the Company's affairs
such portion of their business time and attention as they and its
Board of Directors deem necessary to fulfill their obligations.
Depending upon the demands of the other companies with which they
are involved, conflicts of interest could arise relating to the
allocation of their time or with respect to their fiduciary
obligations to the Company and such other businesses. The
Company's By-Laws provide that affiliated transactions and
acquisitions by the Company of businesses not within certain
Standard Industrial Classification ("SIC") Codes (including
certain codes covering the wholesale apparel trade, retail stores
and apparel stores) must be unanimously approved by the Audit
Committee; provided, however, that if at any time there are fewer
than two independent directors designated or approved by the
Representative on the Audit Committee, such transactions shall
require the unanimous consent of all independent directors on the
Board of Directors. If at any time there are no shares of Series
A Convertible Preferred Stock outstanding, acquisitions by the
Company of businesses not within certain SIC Codes will require
approval by only a majority of the Audit Committee. See
"DIRECTORS AND SENIOR MANAGEMENT."
Benefits to Affiliates. A Director of the Company is a Managing
Director of the Placement Agent for this Offering. In addition
to a commission on the securities sold in the Offering, the
Placement Agent and certain of its officers, including such
Director of the Company, will also receive warrants to purchase
Common Stock of the Company. See "Plan of Distribution."
Potential Anti-takeover Effects of Rights Plan, Classified Board
of Directors and Delaware Law; Possible Issuances of Preferred
Stock. The Company has adopted a Shareholders' Rights Plan. If
(i) a public announcement is made that any person (other than the
Company), together with all affiliates and associates of such
person, is the beneficial owner of 15% or more of the shares of
the Company's Common Stock outstanding or (ii) any person (other
than the Company) makes a tender or exchange offer, if upon
consummation of such offer such person would beneficially own 15%
or more of the shares of the Company's Common Stock, certain
rights will be triggered under the Company's Shareholders' Rights
Plan which may have the effect of deterring or delaying mergers,
tender offers, or other possible takeover attempts which may be
favored by some or a majority of the Company's stockholders. Any
shares of its Common Stock issued by the Company during the term
of the plan (10 years), including the Common Stock issuable in
connection with the Units, will be subject to the Shareholders'
Rights Plan. See "DESCRIPTION OF SECURITIES - Shareholders'
Rights Plan."
Certain provisions of Delaware law could delay or impede the
removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving the Company, even
if such events could be beneficial to the interests of
stockholders. Such provisions could limit the price that certain
investors might be willing to pay in the future for securities of
the Company, including Common Stock or Series A Convertible
Preferred Stock. In addition, the Company's Board of Directors
is a "classified board," with only one-third of its directors
coming up for election each year. The existence of a classified
board may in certain circumstances deter or delay mergers, tender
offers or other possible takeover attempts which may be favored
by some or a majority of the holders of the Common Stock.
Restrictions on Transferability. The shares being offered hereby
have not been and will not be registered under the Act or with
any securities regulatory authority of any jurisdiction. The
shares offered hereby may not be offered or sold in the United
States to any "U.S. person" (as defined in Rule 902 under the
Act) during the 40-day "Restricted Period", unless the shares are
registered under the Act or an exemption from registration under
the Act is available. Investors participating in this Offering
must expect to bear the economic risk of any investment in the
shares offered hereby for an indefinite period. In addition to
the restrictions imposed by Regulation S, the Shares offered
hereby will not be transferable for 90 days following the Closing
of this Offering except with the prior written consent of the
Placement Agent.
Shares Eligible for Future Sale. Sales of a substantial amount
of the Common Stock or the Series A Convertible Preferred Stock
in the public markets following the Offering could adversely
affect prevailing market prices for the Common Stock and the
Series A Convertible Preferred Stock.
Following the Offering, there will be 473,016 shares of
Common Stock outstanding which are deemed "restricted securities"
within the meaning of Rule 144 under the Securities Act. Of
these shares, approximately 110,516 are currently eligible for
sale subject to the volume limitations of Rule 144 and 362,500
shares will become eligible for sale in July 1996. Certain
members of management and directors of the Company also agreed in
connection with the Company's July 1994 public offering of Series
A Convertible Preferred Stock (the "1994 Offering") that they
would not, directly or indirectly, sell, contract to sell, or
otherwise dispose of an additional 362,500 shares of Common Stock
until August 1996 without the prior written consent of the
representative of the underwriters of the 1994 Offering.
Pursuant to the Mandel-Kahn Settlement, 153,846 restricted
shares of Series A Convertible Preferred Stock were issued as
security and placed into escrow. The Company intends to register
these shares with the Commission and may sell these shares at any
time. If these shares are sold to a non-affiliate of the
Company, they will be freely tradeable upon their sale. The
proceeds of such sale would be applied to reduce the Company's
indebtedness under such secured obligation.
DIRECTORS AND SENIOR MANAGEMENT
Executive Officers and Directors
The following table sets forth the executive officers and
directors of the Company.
NAME AGE PRINCIPAL POSITION DIRECTOR'S
TERM EXPIRES
John A. Selzer 40 Chief Executive Officer 19961
President, Assistant Secretary and Director
William W. Mowbray 55 Chief Financial Officer 1997
and Director; President
and Chief Executive
Officer of General
Textiles and Factory 2-
U
Benson S. Selzer 74 Chairman and Director 1997
Joseph Eiger 64 Vice Chairman, 199614
Executive Vice
President, Secretary
and Director
John J. Borer III 37 Director 1997
Edwin C. Nevis 68 Director 19961
Francis G. 66 Director 19961
Warburton
Barton P. Ferris, 55 Director 19961
Jr.
Joseph J. Collins 45 Director 19961
H. Jurgen 58 Director 19961
Schlichting
James M. Baker 42 Chief Financial Officer
of
General Textiles and Factory 2-U
Kevin Frabotta 44 Senior Vice President
of Store Operations of
General Textiles
Mary McNabb 46 Vice President -
Merchandising of
General Textiles
Denis LeClair 46 Vice President -
Merchandising of
General Textiles
The business experience of each of the directors and
executive officers is as follows:
JOHN A. SELZER, Chief Executive Officer, President and
Director. For more than the past five years, Mr. Selzer has been
engaged in merchant and investment banking and corporate
management activities. His activities have concentrated on
situations involving financially and/or operationally troubled
companies. He has been a Director of the Company since January
1992, its Chief Executive Officer since March 1992, and its
President since January 1993. He has been a Director of General
Textiles since its acquisition in July 1992 (at which time it
filed for Chapter 11 Reorganization and emerged from Chapter 11
Reorganization on May 28, 1993). He served as Secretary and a
Director of Tyco Toys, Inc. ("Tyco"), a publicly held company,
from December 1988 until July 1991. Mr. Selzer served in various
capacities as an officer and director of the following companies
or their affiliates, which filed for Chapter 11 Reorganization
within the past five years: C-B/Murray Corporation, Inc. ("C/B
Murray"), Mandel-Kahn, American Specialty Equipment Corp.
("American Specialty"), and Canadian's Corp. John A. Selzer is
the son of Benson A. Selzer.
WILLIAM W. MOWBRAY, Chief Financial Officer and Director of
the Company and President and Chief Executive Officer of General
Textiles and Factory 2-U. Mr. Mowbray has served as Chief
Financial Officer of the Company since May 1994 and as a Director
since November 1995. Mr Mowbray has served as President and
Chief Executive Officer of General Textiles since June 1995.
Prior to being named President of General Textiles, he served as
Executive Vice President and Chief Financial Officer of General
Textiles since July 1991. General Textiles filed for Chapter 11
Reorganization in July 1992 and emerged from Chapter 11
Reorganization on May 28, 1993. Prior to joining General
Textiles, Mr. Mowbray was employed from July 1990 to July 1991 as
Chief Financial and Operating Officer for Casfam, Inc., an
off-price lingerie retailer. From June 1986 through June 1990,
he was an independent management consultant to retail clients.
From November 1981 to June 1986, Mr. Mowbray was Senior Vice
President and Chief Financial Officer of Clothestime, Inc.
BENSON A. SELZER, Chairman and Director. Mr. Selzer has for
more than the past five years been engaged in merchant and
investment banking and corporate management activities. His
activities have concentrated on situations involving financially
and/or operationally troubled companies. He has been Chairman
and a Director of the Company since January 1992. He has been a
Director of General Textiles since its acquisition in July 1992
(at which time it filed for Chapter 11 Reorganization and emerged
from Chapter 11 Reorganization on May 28, 1993). He was Chairman
of the Board and a Director of Tyco from September 1988 until
July 1991. Mr. Selzer served in various capacities as an officer
and director of the following companies or their affiliates,
which filed for Chapter 11 Reorganization within the past five
years: C-B/Murray, American Specialty, and Canadian's Corp.
Benson A. Selzer is the father of John A. Selzer. Benson A.
Selzer and Joseph Eiger have been business associates in a number
of business ventures during the past 20 years.
JOSEPH EIGER, Vice Chairman, Executive Vice President and
Director. Mr. Eiger has been engaged, for more than the past
five years, as a corporate manager and entrepreneur who has been
involved in numerous acquisitions, divestitures and financings.
His activities have concentrated on situations involving
financially and/or operationally troubled companies. He has been
Vice Chairman, Executive Vice President and a Director of the
Company since January 1992. He has been a Director of General
Textiles since its acquisition in July 1992 (at which time it
filed for Chapter 11 Reorganization and emerged from Chapter 11
Reorganization on May 28, 1993). Mr. Eiger served in various
capacities as an officer and director of the following companies
or their affiliates, which filed for Chapter 11 Reorganization
within the past five years: C-B/Murray, American Specialty and
Canadian's Corp.
JOHN J. BORER III has been a Director of the Company since
July 1994. Since October 1991, Mr. Borer has been a Managing
Director and Senior Vice President of Rodman & Renshaw, Inc., the
Representative of the Underwriters of the Company's 1994
Offering. Prior to October 1991, Mr. Borer was a Senior Vice
President for Security Pacific Business Credit Inc. Mr. Borer
served as a Director of Canadian's Corp., which is filing for
Chapter 11 Reorganization in 1996.
EDWIN C. NEVIS has been a Director of the Company since July
1994. Since 1991, Dr. Nevis has been the Director of Special
Studies, Organizational Learning Center Systems Dynamics Group,
at the Sloan School of Management at the Massachusetts Institute
of Technology. From 1986 to 1991, Dr. Nevis was the Director of
Executive Program Development at the Sloan School of Management.
Since 1969, Dr. Nevis has also been President of Wellfleet House,
Inc., a management education and development and organization
development consulting firm. Dr. Nevis received his Ph.D in
Industrial and Organizational Psychology from Western Reserve
University in 1954.
FRANCIS G. WARBURTON, Director. Mr. Warburton has been a
Director of the Company since March 1992 and a Director of
General Textiles since February 1994. He served as a Director of
Nasta International Inc. from May 1987 until September 1990. He
has been President of Warburton & Associates, Inc., a consulting
firm specializing in mergers and acquisitions, since December
1985.
BARTON P. FERRIS, JR. has been a Director of the Company
since July 1994. Since October 1995, Mr. Ferris has been a
Managing Director of Commonwealth Associates, an investment
banking firm which is the Placement Agent for the Offering. From
1990 to October 1995, Mr. Ferris was a Managing Director of
Lepercq, De Neuflize & Co. Incorporated, a merchant banking firm,
and a member of its Board of Directors. Mr. Ferris is presently
a Director of Ronson Corporation.
JOSEPH J. COLLINS has been a Director of the Company since
July 1994. Mr. Collins has over twenty years of diversified
retail management and consulting experience. Since 1995, Mr.
Collins has been Executive Vice President of Kmart Corporation
("Kmart"). Prior to joining Kmart, Mr. Collins managed retail
business transformation projects for Gemini Consulting, Inc., a
consulting firm which provides business transformation and
information technology services to primarily Fortune 500
companies. From 1990 to 1993, Mr. Collins was President of
Capital Management Corp., a consulting firm specializing in
performing due diligence for acquisitions and management
workouts. From 1992 to 1993, Mr. Collins served as Consultant
and Vice President - Operational Planning of Montgomery Ward.
H. JURGEN SCHLICHTING has been a Director of the Company
since November 1995. From 1986 to 1993, Mr. Schlichting served
as Managing Director and Chief Executive - North America for
Westdeutsche Landesbank. Mr. Schlichting also serves as a
strategic and financial advisor to the Company pursuant to an
Advisory Agreement dated November 1, 1995 which expires in
November 1996.
JAMES M. BAKER has been the Chief Financial Officer of
General Textiles since November, 1995 and of Factory 2-U since
its acquisition by the Company. Mr. Baker joined General
Textiles in May 1991 and served as Director of Budgeting and
Planning responsible for budgeting, warehousing, loss prevention,
inventory control and administration. Prior to joining General
Textiles, Mr. Baker was Controller for Oshman's Sporting Goods.
KEVIN FRABOTTA has been Senior Vice President of Store
Operations of General Textiles since August, 1995. From 1992
until joining the Company, Mr. Frabotta was Vice President of
Operation for General Cinema Theatres. From 1985 to 1992, Mr.
Frabotta was Vice President of Stores with Oshman's Sporting
Goods. Prior to 1985, Mr. Frabotta also held various positions
with General Mills Specialty Retailing Group, including Vice
President of Stores and Vice President of Human Resources.
MARY McNABB, Vice President - Merchandising of General
Textiles, joined General Textiles in 1990 and before then was
employed by One Price Clothing. Ms. McNabb has over 26 years of
experience in retail buying and merchandising.
DENIS LeCLAIR, Vice President - Merchandising of General
Textiles, joined General Textiles in 1991 as a buyer and since
1992 has held his current position. Mr. LeClair has over 25 years
of experience in retail and has served in various buying and
merchandise management positions for several department store and
specialty chains.
Changes in Executive Compensation
Effective January 1, 1996, the annual base salaries of
Benson A. Selzer and Joseph Eiger were increased to $375,000 and
$360,000, respectively. In addition, William Mowbray entered into
a new Employment Agreement with General Textiles, dated as of
August 1, 1995, which provides for a three year term subject to
one year extensions after each year unless terminated by either
party within 60 days of each August 1. The agreement provides
for a base annual salary of $300,000 and bonuses based on the
financial performance of General Textiles.
TERMS OF THE OFFERING
Summary of Subscription Procedures
Exhibit E hereto, the Subscription Agreement, will be
provided to prospective investors for use in subscribing for the
Shares. In order to subscribe for the Shares, a prospective
investor must complete, execute and deliver to Commonwealth
Associates, 733 Third Avenue, New York, New York 10017 Attention:
Keith Rosenbloom, the following items:
1. The Subscription Agreement with the signature page
appropriately completed. The minimum subscription from any
prospective investor is 20,000 Shares; and
2. (a) A check payable to "Commonwealth Associates, as
Placement Agent for Family Bargain Corporation" in an amount
equal to the purchase price of the Shares multiplied by the
number of Shares subscribed for; or
(b) Wire transfer in accordance with the instructions
of Commonwealth Associates.
Investor Suitability Standards
(i) The purchaser is not a U.S. person as that term is
defined under Regulation S.
(ii) At the time the buy order for the Shares was
originated, the purchaser was outside the United States and is
outside of the United States as of the date of the execution and
delivery of this Agreement.
(iii) The purchaser is purchasing the Shares for the
purchaser's own account and not on behalf of any U.S. person, and
the sale has not been pre-arranged with a purchaser in the United
States.
(iv) To the best knowledge of the purchaser, each
distributor participating in this offering, if any, has agreed in
writing that all offers and sales of the shares, prior to the
expiration of the Restricted Period (see "General Conditions of
Regulations S") shall only be made in compliance with the safe
harbor provisions contained in Regulation S, or pursuant to an
applicable exemption from registration under the Securities Act.
(v) The purchaser represents and warrants and hereby
agrees that all offers and sales of the Shares prior to the
expiration of the Restricted Period (see "General Conditions of
Regulations S") shall only be made in compliance with the safe
harbor provisions contained in Regulation S, or pursuant to
registration of securities under the Act or pursuant to an
exemption from registration under the Act, and that all offers
and sales after the expiration of the Restricted Period (see
"General Conditions of Regulations S") shall be made only
pursuant to such a registration or such an exemption from
registration.
(vi) All offering documents received by the Purchaser
include statements to the effect that the Shares have not been
registered under the Act and may not be offered or sold in the
United States or to U.S. persons during the Restricted Period
(see "General Conditions of Regulations S") unless such
securities are registered under the Act or an exemption from the
registration requirements of the Act is available.
Release of Certificates
Investors will receive the certificates representing their
shares on the 41st day following the Closing of the Offering (the
conclusion of the 40 day "Restricted Period"). During the
Restricted Period, the shares will be held by the Transfer Agent,
in escrow, in the form of a global certificate consisting of all
of the shares sold in the Offering. In addition to the
restrictions imposed by Regulation S, the Shares offered hereby
will not be transferable for 90 days following the Closing of
this Offering except with the prior written consent of the
Placement Agent. See "General Conditions of Regulation S."
Plan of Distribution
The Company has entered into an agreement with the Placement
Agent, pursuant to which the Placement Agent has agreed to act as
placement agent to the Company in connection with this offering.
Pursuant to its agreement with the Placement Agent, the
Company has agreed to pay to the Placement Agent a commission in
the amount of nine percent (9%) of the gross proceeds and to
reimburse the Placement Agent for up to $75,000 of its expenses
in connection with this offering, including legal fees of its
counsel. In addition, the Placement Agent and certain of its
officers, including Mr. Ferris, will receive, upon the Closing,
an aggregate number of warrants equal to 25% of the number of
shares of Series A Convertible Preferred Stock sold pursuant to
this Offering, with each warrant being exercisable into one share
of Common Stock at an exercise price of $1 7/8 per share (the
then current bid price for the Common Stock on the Nasdaq
SmallCap Market at the time of execution of the Letter of Intent
between the Placement Agent and the Company). A director of the
Company, Barton P. Ferris, Jr., is a Managing Director of the
Placement Agent.
The Shares are being offered on a "best efforts" basis by
the Placement Agent. All proceeds received by the Company from
subscribers for the Shares offered hereby will be deposited by
the Placement Agent in a special non-interest bearing bank
account. If at least 500,000 of the Shares offered hereby (the
"Minimum Financing") have not been subscribed for by the close of
business on March 8, 1996 (or March 29, 1996, if the offer shall
have been extended by the Placement Agent and the Company) (the
"Termination Date"), all proceeds received by the Company from
subscribers will be refunded in full, without deduction and
without interest. If subscriptions for the Maximum Financing are
received or, at the Company's discretion, if subscriptions for
the Minimum Financing (but less than the Maximum Financing) are
received, on or prior to the Termination Date, the closing (the
"Closing") will be held as soon as practicable after receipt of
such subscriptions or such determination by the Company, and the
funds held in the special account will be turned over to the
Company. If the Company determines not to close in the event
that subscriptions for less than the Maximum Financing are
received, all proceeds received by the Company from subscribers
will be refunded in full, without deduction and without interest,
as soon as practicable following such determination.
In the event of certain changes under U.S. federal
securities laws or regulations, the purchasers of the Shares in
the Offering are entitled to registration rights. See Exhibit F.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue up to 80,000,000 shares
of Common Stock, $.01 par value per share. On the date of this
Memorandum, there were 4,008,310 shares of Common Stock issued
and outstanding. All shares of Common Stock have equal voting
rights and have one vote per share on all matters to be voted
upon by stockholders. The shares of Common Stock have no
preemptive, subscription, conversion or redemption rights and may
be issued only as fully paid and nonassessable shares.
Cumulative voting in the election of directors is not allowed,
which means that subject to the limited voting rights of the
holders of the Series A Convertible Preferred Stock, the holders
of a majority of the outstanding shares represented at any
meeting at which a quorum is present will be able to elect all
the directors then subject to election if they choose to do so
and, in such event, the holders of the remaining shares will not
be able to elect any directors. On liquidation of the Company,
each holder of Common Stock is entitled to receive a pro rata
share of the Company's assets, if any, available for distribution
to holders of Common Stock after payment of all liabilities of
the Company and subject to the prior distribution rights of the
holders of any Company preferred stock that may be outstanding at
that time. All outstanding shares of Common Stock are, and all
shares of Common Stock issued on conversion of Series A
Convertible Preferred Stock will be, fully paid and
nonassessable.
Preferred Stock
The Company is authorized to issue 7,500,000 shares of
Preferred Stock, $.01 par value per share, and has authorized the
issuance of up to 4,500,000 shares of Series A Convertible
Preferred Stock and 25,000 shares of Series A Junior
Participating Preferred Stock (the "Junior Preferred"). The only
outstanding shares of Preferred Stock of the Company as of the
date of this Memorandum are 3,260,000 shares of Series A
Convertible Preferred Stock (not including 153,846 shares of
Series A Convertible Preferred Stock which have been pledged by
the Company to secure certain obligations of the Company under
the Mandel-Kahn Settlement and which may be sold or, if not sold,
will be returned to the Company and retired upon the satisfaction
of the obligation which they secure).
Holders of shares of Series A Convertible Preferred Stock,
voting as a single class, have the right to vote on the creation,
authorization or issuance of capital stock ranking senior to or
in parity with the Series A Convertible Preferred Stock.
Shares of preferred stock issued in the future could have
conversion rights which may result in the issuance of additional
shares of Common Stock which could dilute the interests of the
holders of Series A Convertible Preferred Stock and Common Stock.
Such shares could also have voting rights and liquidation
preferences which are senior to the rights and preferences of the
Series A Convertible Preferred Stock and Common Stock.
Additionally, such shares could have dividend rates and
redemption or other provisions which could adversely affect the
Company's ability to pay dividends on the Series A Convertible
Preferred Stock and Common Stock or prohibit payment of such
dividends. Such shares could also be issued, under certain
circumstances, in an attempt to prevent a takeover of the
Company, and such issuance could adversely impact holders of
Series A Convertible Preferred Stock and Common Stock who might
vote in favor of a proposed merger, tender offer or similar
transaction.
Series A Convertible Preferred Stock
In accordance with the Company's Restated Certificate of
Incorporation, the issuance of 4,500,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share, has been
authorized by resolutions adopted by the Board of Directors and
set forth in a Certificate of Designations of Series A
Convertible Preferred Stock, which has been filed with the
Secretary of State of the State of Delaware and contains the
designations, rights, powers, preferences, qualifications and
limitations of the Series A Convertible Preferred Stock. All of
the outstanding shares of Series A Convertible Preferred Stock
are fully paid and non-assessable and, upon issuance, the shares
of Series A Convertible Preferred Stock offered hereby will be
fully paid and non-assessable.
The following is a summary of the terms of the Series A
Convertible Preferred Stock. This summary is not intended to be
complete and is subject to, and qualified in its entirety by
reference to, the Certificate of Designations filed with the
Secretary of State of the State of Delaware amending the
Company's Restated Certificate of Incorporation and setting forth
the rights, preferences and limitations of the Series A
Convertible Preferred Stock.
Dividends
The holders of the Series A Convertible Preferred Stock are
entitled to receive when, as and if declared by the Board of
Directors out of funds legally available as prescribed by
statute, cumulative dividends at the rate of $.95 per share per
year, payable quarterly on July 31, October 31, the last Friday
of January of each year, and April 30 to the holders of record as
of a date not more than 30 days prior to the dividend payment
date, as may be fixed by the Board of Directors. Dividends on
the Series A Convertible Preferred Stock will accrue from the
date of original issuance to a stockholder. The Company has paid
each quarterly dividend in full since the original issuance of
Series A Convertible Preferred Stock in July 1994.
No dividends may be paid on any shares of capital stock
ranking junior to the Series A Convertible Preferred Stock as to
dividends (including Common Stock) unless and until all
accumulated and unpaid dividends on the Series A Convertible
Preferred Stock have been declared and paid in full.
Conversion
At the option of the holder thereof, each share of Series A
Convertible Preferred Stock is, by its terms, convertible at any
time on or after the date of issuance and prior to redemption, at
the option of the holder thereof, into that number of shares
equal to the adjusted conversion price (currently $3.719) divided
by the liquidation preference per share of Series A Convertible
Preferred Stock ($10.00). Accordingly, at this time each share
of Series A Convertible Preferred Stock is convertible into 2.689
shares of Common Stock). The Conversion Price (and,
correspondingly, the number of shares of Common Stock into which
shares of the Series A Convertible Preferred Stock can be
converted) is subject to further adjustment from time to time in
the event of (i) the issuance of Common Stock as a dividend or
distribution on any class of capital stock of the Company, (ii)
the combination, subdivision or reclassification of the Common
Stock, (iii) the distribution to all holders of Common Stock of
evidences of the Company's indebtedness or assets (including
securities, but excluding cash dividends or distributions paid
out of earned surplus), or (iv) the sale of Common Stock at a
price, or the issuance of options, warrants or convertible
securities with an exercise or conversion price per share less
than the higher of the then current Conversion Price or the then
current market price (as defined) of the Common Stock (except in
connection with the exercise of options or warrants outstanding
on the date of this Memorandum and, subject to the restrictions
on stock option issuances otherwise described herein, options
thereafter granted to employees or officers). No adjustment in
the Conversion Price will be required until cumulative
adjustments require an adjustment of at least 3% of the
Conversion Price, as adjusted. In addition, if the Company fails
to declare and pay dividends on the Series A Convertible
Preferred Stock within 90 days after a quarterly dividend payment
date, the Conversion Price will be reduced by $.50 per share in
each instance, but shall not be reduced below the par value of
the Common Stock. No fractional shares will be issued upon
conversion, but any fractions will be paid in cash on the basis
of the then current market price of the Common Stock. Payment of
accumulated and unpaid dividends will be made upon conversion to
the extent of legally available funds as prescribed by statute.
The right to convert the Series A Convertible Preferred Stock
will terminate on the date fixed for redemption.
Redemption
The Company may, at its option, redeem all, but not less
than all, of the shares of Series A Convertible Preferred Stock
upon 30 days written notice at any time on or after July 21,
1997, at a redemption price of $10.00 per share, plus accumulated
and unpaid dividends, provided the closing sale price of the
Common Stock as quoted by the NASDAQ National Market or NASDAQ
SmallCap Market, as applicable, or, if not traded thereon, the
high bid price as reported by NASDAQ or, if not quoted thereon,
the high bid price in the National Quotation Bureau sheet listing
of the Common Stock for 20 consecutive trading days ending no
more than 10 days prior to the date of notice of the call for
redemption is given is at least 137.5% of the Conversion Price
then in effect. In addition, on or after July 21, 1998, the
Company may redeem all or any portion of the shares of Series A
Convertible Preferred Stock at the following per share prices
during the 12-month period beginning July 21:
Year Redemption
Price
1998-1999 $10.70
1999-2001 $10.50
2001-2003 $10.30
2003-thereafter
$10.00
If fewer than all of the outstanding shares of Series A
Convertible Preferred Stock are to be redeemed, the shares to be
redeemed will be determined pro rata or by lot or in such other
manner as prescribed by the Company's Board of Directors.
Notice of redemption must be mailed to each holder of Series
A Convertible Preferred Stock to be redeemed at such holder's
last address as it appears upon the Company's registry books at
least 30 days prior to the record date of such redemption. On
and after the redemption date, dividends will cease to accumulate
on shares of Series A Convertible Preferred Stock called for
redemption.
On or after the redemption date, holders of shares of Series
A Convertible Preferred Stock which have been redeemed shall
surrender their certificates representing such shares to the
Company at its principal place of business or as otherwise
specified and thereupon the redemption price of such shares shall
be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof; provided, that
a holder of Series A Convertible Preferred Stock may elect to
convert such shares into Common Stock at any time prior to the
date fixed for redemption. If fewer than all of the shares
represented by any such certificates are redeemed, a new
certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
From and after the redemption date, all rights of the
holders of such shares shall cease with respect to such shares
(except the right to receive the redemption price) and such
shares shall not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any purpose
whatsoever.
Voting Rights
The holders of the Series A Convertible Preferred Stock are
not entitled to vote, except as set forth below and as provided
by applicable law. Holders of the Series A Convertible Preferred
Stock will not have voting rights except (i) with respect to the
creation, authorization or issuance of capital stock ranking
senior or in parity with the Series A Convertible Preferred Stock
and with respect to certain amendments to the Company's Restated
Certificate of Incorporation, (ii) if the Company shall have
failed to declare and pay in full the dividends accumulated on
the Series A Convertible Preferred Stock for any four quarterly
dividend payment periods, in which case holders shall have the
right to vote on all matters submitted for vote to stockholders,
including the election of the members of the Board of Directors
until such time as accumulated dividends have been paid in full,
(iii) in connection with a consolidation into or merger with any
corporation, firm or entity, unless (a) the Company is the
surviving entity and there is no conversion, exchange or other
change of all or any portion of the Common Stock into cash,
securities or other property in connection therewith or (b) the
merger or consolidation is into a subsidiary of the Company in
which there is an exchange of the Common Stock for common stock
of the subsidiary of the Company and no other consideration is
received in connection therewith, (iv) in connection with any
sale, lease or other disposition of all or substantially all of
the Company's assets, and (v) as otherwise required by law. In
matters in which they are entitled to vote, the holders of the
Series A Convertible Preferred Stock shall be entitled to one
vote per share and shall vote together as a single class with
holders of Common Stock; except that the holders of the Series A
Convertible Preferred shall vote separately as a single class
with respect to votes pursuant to clause (i) above and otherwise
as required by law.
Liquidation
In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company before any payment or
distribution of the assets of the Company (whether capital,
surplus or earnings), or the proceeds thereof, may be made or set
apart for the holders of Common Stock or any stock ranking junior
to the Series A Convertible Preferred Stock as to liquidation,
the holders of Series A Convertible Preferred Stock will be
entitled to receive, out of the assets of the Company available
for distribution to stockholders, a liquidating distribution of
$10.00 per share, plus any accumulated and unpaid dividends.
After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series A Convertible
Preferred Stock will have no right or claim to any of the
remaining assets of the Company. If, upon any voluntary or
involuntary liquidation, dissolution or winding-up of the
Company, the assets of the Company are insufficient to make the
full payment of $10.00 per share, plus all accumulated and unpaid
dividends on the Series A Convertible Preferred Stock and similar
payments on any other class of stock ranking on a parity with the
Series A Convertible Preferred Stock upon liquidation, then the
holders of the Series A Convertible Preferred Stock and such
other shares will share ratably in any such distribution of the
Company's assets in proportion to the full respective
distribution amounts to which they are entitled. Neither the
sale of all or substantially all the property or business of the
Company, nor the merger or consolidation of the Company into or
with any other corporation shall be deemed to be a dissolution,
liquidation, or winding up, voluntary or involuntary, of the
Company.
Miscellaneous
The Company is not subject to any mandatory redemption or
sinking fund provisions with respect to the Series A Convertible
Preferred Stock. The holders of Series A Convertible Preferred
Stock are not entitled to preemptive rights to subscribe for or
to purchase any shares or securities of any class which may at
any time be issued, sold or offered for sale by the Company.
Shares of Series A Convertible Preferred Stock redeemed or
otherwise reacquired by the Company shall be retired by the
Company and shall be unavailable for subsequent issuance.
Options and Warrants
As of January 31, 1996, there are outstanding 2,571,500
Redeemable Class D Common Stock Purchase Warrants (assuming the
separation of the 4,903 warrants not yet separated from the Units
in which they were originally issued) ("Class D Warrants")
(collectively the "Warrants"). Each Class D Warrant entitles the
holder to purchase one-sixth of one share of Common Stock at a
price of $15.00 per share of Common Stock at any time until
September 15, 1996 (unless earlier redeemed by the Company).
The Class D Warrants are redeemable by the Company at a
redemption price of $.06 per Warrant, upon 30 days notice given
at any time if the last sale price per share of the Common Stock
for 20 consecutive trading days ending not more than 10 days
prior to the date notice of redemption is given equals or exceeds
120% of the exercise purchase price therefor (i.e., $18.00). If
the Company gives a redemption notice, a holder would be forced
either to exercise his Warrant within 30 days of the notice of
redemption or accept the redemption price.
In addition, as of the date of this Memorandum, there were
also outstanding 328,831 additional warrants (collectively with
the Class D Warrants, the "Warrants") of the Company expiring
between May 1996 and December 1998 at exercise prices ranging
from $9.00 to $16.20 per share; 15,000 warrants expiring in 1998
may be exercised at the then market price of the Company's common
stock.
The Company agreed with the representative of the
underwriters of the 1994 Offering that there would be no
extension of the term or reduction of the price of any of the
Warrants subsequent to the 1994 Offering without the consent of
the such representative.
The Warrants contain provisions that protect the holders
against dilution by adjustment of the exercise price in certain
events, such as stock dividends and distributions, stock splits
and recapitalizations. The holder of a Warrant will not possess
any rights as a stockholder of the Company unless and until such
holder exercises the Warrant.
In addition, the Placement Agent for the Offering will
receive, upon the Closing, a number of warrants equal to 25% of
the number of shares of Series A Convertible Preferred Stock sold
pursuant to this Offering, with each warrant being exercisable
into one share of Common Stock at an exercise price of $1 7/8 per
share (the then current bid price for the Common Stock on the
Nasdaq SmallCap Market at the time of execution of the Letter of
Intent between the Placement Agent and the Company).
Shareholders' Rights Plan
On November 27, 1995, the Board of Directors of the Company
declared a dividend distribution of one preferred share purchase
right (a "Right") for each outstanding share of Common Stock of
the Company. The dividend is payable to the stockholders of
record as of 5:00 P.M., Eastern Standard Time, on December 8,
1995 (the "Record Date"), and with respect to Common Shares
issued thereafter until the Distribution Date (as defined below)
and, in certain circumstances, with respect to Common Shares
issued after the Distribution Date. Except as set forth below,
each Right, when it becomes exercisable, entitles the registered
holder to purchase from the Company one one-thousandth of a share
of Series B Junior Participating Preferred Stock, par value $.01
per share (the "Preferred Shares") at a price of $9.00 per one
one-thousandth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement (the "Rights Agreement"),
between the Company and Corporate Stock Transfer, Inc. (the
"Rights Agent").
Initially, the Rights will be attached to all certificates
representing Common Shares then outstanding, and no separate
Right Certificates (as hereinafter defined) will be distributed.
The Rights will separate from the Common Shares on the earliest
to occur of (i) the first date of public announcement that a
person or "group" has acquired beneficial ownership of 15% or
more of the outstanding Common Shares (except pursuant to a
Permitted Offer, as hereinafter defined); or (ii) 10 business
days (or such later date as the Board may determine) following
the commencement of, or announcement of an intention to commence,
a tender offer or exchange offer the consummation of which would
result in a person or group becoming an Acquiring Person (as
hereinafter defined) (the earliest of such dates being called the
"Distribution Date"). A person or group whose acquisition of
Common Shares causes a Distribution Date pursuant to clause (i)
above is an "Acquiring Person." The first date of public
announcement that a person or group has become an Acquiring
Person is the "Shares Acquisition Date." "Disinterested
Directors" are directors who are not officers of the Company and
who are not Acquiring Persons or their affiliates, associates or
representatives of any of them, or any Person who directly or
indirectly proposed or nominated as a director of the Company by
a Transaction Person (as defined below).
The Rights Agreement provides that, until the Distribution
Date, the Rights will be transferred with and only with the
Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights) new Common Share
certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or
a copy of a summary of rights being attached thereto, will also
constitute the transfer of the Rights associated with the Common
Shares represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of
record of the Common Shares as of the close of business on the
Distribution Date (and to each initial record holder of certain
Common Shares issued after the Distribution Date), and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date
and will expire at 5:00 P.M., New York City time, on November 27,
2000, unless earlier redeemed by the Company as described below.
In the event that any person becomes an Acquiring Person
(except pursuant to a Permitted Offer as defined below), each
holder of a Right will have (subject to the terms of the Rights
Agreement) the right (the "Flip-In Right") to receive upon
exercise the number of Common Shares, or, in the discretion of
the Board of Directors, of one one-thousandths of a Preferred
Share (or, in certain circumstances, other securities of the
Company) having a value (immediately prior to such triggering
event) equal to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of the
event described above, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or any affiliate or
associate thereof will be null and void. A "Permitted Offer" is
a tender or exchange offer for all outstanding Common Shares
which is at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by a
majority of Disinterested Directors to be adequate (taking into
account all factors that such Disinterested Directors deem
relevant) and otherwise in the best interests of the Company, its
stockholders and its other relevant constituencies (other than
the person or any affiliate or associate thereof on whose basis
the offer is being made) taking into account all factors that
such directors may deem relevant.
In the event that, at any time following the Share
Acquisition Date, (i) the Company is acquired in a merger or
other business combination transaction in which the holders of
all of the outstanding Common Shares immediately prior to the
consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) more than 50% of
the Company's assets or earning power is sold or transferred, in
either case with or to an Acquiring Person or any affiliate or
associate or any other person in which such Acquiring Person,
affiliate or associate has an interest or any person acting on
behalf of or in concert with such Acquiring Person, affiliate or
associate, or, if in such transaction all holders of Common
Shares are not treated alike, any other person, then each holder
of a Right (except Rights which previously have been voided as
set forth above) shall thereafter have the right (the "Flip-Over
Right") to receive, upon exercise, common shares of the acquiring
company having a value equal to two times the exercise price of
the Right.
The Purchase Price payable, and the number of one-
thousandths of a Preferred Share or other securities issuable,
upon exercise of the Rights are subject to adjustment from time
to time to prevent dilution (i) in the event of a stock dividend
on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred
Shares of certain rights or warrants to subscribe for or purchase
Preferred Shares at a price, or securities convertible into
Preferred Shares with a conversion price, less than the then
current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash
dividends) or of subscription rights or warrants (other than
those referred to above).
The Purchase Price is also subject to adjustment in the
event of a stock split of the Common Shares or a stock dividend
on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in
any such case, prior to the Distribution Date.
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price. No fractional
one-thousandths of a Preferred Share will be issued and in lieu
thereof, an adjustment in cash will be made based on the market
price of the Preferred Shares on the last trading day price to
the date of exercise.
Preferred Shares purchasable upon exercise of the Rights
will not be redeemable. Each Preferred Share will be entitled to
a minimum preferential quarterly dividend payment of $1.00 per
share but, if greater, will be entitled to an aggregate dividend
per share of 1000 times the dividend declared per Common Share.
In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of
$1.00 per share; thereafter, and after the holders of the Common
Shares receive a liquidation payment of $0.001 per share, the
holders of the Preferred Shares and the holders of the Common
Shares will share the remaining assets in the ratio of one
thousand to 1 (as adjusted) for each Preferred Share and Common
Share so held, respectively. Finally, in the event of any
merger, consolidation or other transaction in which Common Shares
are exchanged, each Preferred Share will be entitled to receive
one thousand times the amount received per Common Share. These
rights are protected by customary anti-dilution provisions. In
the event that the amount of accrued and unpaid dividends on the
Preferred Shares is equivalent to at least six full quarterly
dividends, the holders of the Preferred Shares shall have the
right, voting as a class, to elect two directors in addition to
the directors elected by the holders of the Common Shares until
all cumulative dividends on the Preferred Shares have been paid
through the last quarterly dividend payment date or until non-
cumulative dividends have been paid regularly for at least one
year.
At any time prior to the earlier to occur of (i) a person
becoming an Acquiring Person or (ii) the expiration of the
Rights, the Company may redeem the rights in whole, but not in
part, at a price of $.001 per Right (the "Redemption Price"),
which redemption shall be effective upon the action of the Board
of Directors. Additionally, the Company may redeem the then
outstanding Rights in whole but not in part, at the Redemption
Price after the triggering of the Flip-in Right and before the
expiration of any period during which the Flip-in Right may be
exercised in connection with a merger or other business
combination transaction or series of transactions involving the
Company in which all holders of Common Shares are treated alike
but not involving a Transaction Person (as defined below). Upon
the effective date of the redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
In the event that a majority of the Board of Directors of
the Company serving following a meeting of stockholders or
stockholder action by written consent are not nominated by the
Board of Directors serving immediately prior to such meeting or
action, then for 365 days following such meeting or action the
Rights may not be redeemed if such redemption is reasonably
likely to facilitate a combination or sale of assets or earning
power (a "Transaction") with an Acquiring Person or affiliate or
associate thereof who has directly or indirectly proposed or
nominated a member of the Board who is in office at the time the
Transaction is being considered (a "Transaction Person"). The
Rights may not be redeemed thereafter if during such 365 day
period the Company enters into any agreement reasonably likely to
facilitate a Transaction with a Transaction Person and the
redemption is reasonably likely to facilitate a Transaction with
a Transaction Person.
Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of the Company, including,
without limitation, the right to vote or to receive dividends.
While the distribution of the Rights will not be taxable to
stockholders of the Company, stockholders may, depending upon the
circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
Section 203 of the Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law
prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which
the person became an interested stockholder, unless (i) prior to
such date the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder is
approved by the Board of Directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder
owns at least 85% of the outstanding voting stock, or (iii) on or
after such date the business combination is approved by the Board
of Directors and by the affirmative vote of at least 66-2/3% of
the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to
the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.
Transfer Agent, Registrar And Warrant Agent
Corporate Stock Transfer, Inc., 370 Seventeenth Street,
Suite 2350, Denver, Colorado 80202, is transfer agent and
registrar for the Common Stock and the Series A Convertible
Preferred Stock.
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United
States federal income and estate tax consequences of the
acquisition, ownership and disposition of Series A Convertible
Preferred Stock and Common Stock by a holder who is not a United
States person (a "Foreign Holder"). For these purposes, "United
States person" means a citizen or resident (as specifically
defined for United States federal income and estate tax purposes)
of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or
any political subdivision thereof or an estate or trust the
income of which is subject to United States federal income
taxation regardless of its source. The discussion does not
address the particular facts and circumstances of each Foreign
Holder's situation. Foreign Holders are urged to consult their
own tax advisors with respect to the United States federal income
and estate tax consequences of acquiring, holding and disposing
of Series A Convertible Preferred Stock and Common Stock, as well
as any tax consequences arising under the laws of any state,
municipality or other taxing jurisdiction.
Dividends. In general, dividends paid to a Foreign
Holder will be subject to United States withholding tax at a 30%
rate, or a lower rate prescribed by an applicable tax treaty,
unless the dividends are effectively connected with a trade or
business carried on by the Foreign Holder within the United
States. To determine the applicability of a tax treaty providing
for a lower rate of withholding, dividends paid to an address in
a foreign country are presumed under current Treasury regulations
to be paid to a resident of that country. Treasury regulations
proposed in 1984 would, if adopted in final form, require Foreign
Holders to file certain forms to obtain the benefit of any
applicable tax treaty providing for a lower rate of withholding
tax on dividends. Such forms would have to contain the name and
address of the holder and an official statement by the competent
authority of the holder's country of residence attesting to the
holder's status as a resident thereof. Dividends effectively
connected with a trade or business carried on by the Foreign
Holder within the United States generally will not be subject to
withholding if the Foreign Holder files Internal Revenue Service
Form 4224 with the payor of the dividend and will generally be
subject to United States federal income tax at regular rates. In
the case of a Foreign Holder that is a corporation, such
effectively connected income may be subject to the branch profits
tax which is generally imposed on a foreign corporation on the
repatriation from the United States of effectively connected
earnings and profits. The branch profits tax may not apply if
the recipient is a qualified resident of one of certain countries
with which the United States has an income tax treaty.
Gain on Disposition. Generally, a Foreign Holder will
not be subject to United States federal income tax on any gain
realized upon the disposition of shares of Series A Convertible
Preferred Stock or Common Stock unless (i) the Company is or has
been during certain periods a "U.S. real property holding
corporation" for federal income tax purposes and, assuming that
the Series A Convertible Preferred Stock or Common Stock is
"regularly traded on an established securities market" for tax
purposes, the Foreign Holder held, directly or indirectly at any
time during the five-year period ending on the date of
disposition (or such shorter period that such shares were held),
more than 5% of the Series A Convertible Preferred Stock or
Common Stock, (ii) the gain is effectively connected with a trade
or business carried on by the Foreign Holder within the United
States, (iii) the Foreign Holder is an individual who has a tax
home (as specifically defined for United States federal income
tax purposes) in the United States, holds the Series A
Convertible Preferred Stock or Common Stock as a capital asset
and is present in the United States for 183 days or more in the
taxable year of the disposition, or (iv) the Foreign Holder is
subject to tax pursuant to the provisions of United States tax
law applicable to certain United States expatriates.
Redemption of Series A Convertible Preferred Stock. A
redemption of shares of Series A Convertible Preferred Stock by
the Company for cash will be treated as a distribution taxable as
a dividend to redeeming stockholders to the extent of the
Company's current or accumulated earnings and profits unless the
redemption (a) results in a "complete termination" of the
stockholder's interest in the Company (within the meaning of
section 302(b)(3) of the United States Internal Revenue Code of
1986, as amended (the "Code")), (b) is "substantially
disproportionate" (within the meaning of section 302(b)(2) of the
Code) with respect to the holder, or (c) is "not essentially
equivalent to a dividend" (within the meaning of section
302(b)(1) of the Code). Based on a published ruling of the
Internal Revenue Service, the redemption of a stockholder's
Series A Convertible Preferred Stock for cash will be treated as
"not essentially equivalent to a dividend" if, taking into
account the constructive ownership rules, (1) the stockholder's
relative stock interest in the Company is minimal, (2) the
stockholder exercises no control over the Company's affairs and
(3) there is a reduction in the holder's proportionate interest
in the Company. In determining whether any of these tests has
been met, shares considered to be owned by the holder by reason
of the constructive ownership rules set forth in section 318 of
the Code, as well as shares actually owned, will be taken into
account. The Company will withhold United States federal income
tax at a rate of 30% from gross redemption proceeds paid to
Foreign Holders, unless the Company determines that a reduced
rate of withholding is applicable pursuant to a tax treaty or
that an exemption from withholding is applicable because such
gross proceeds are effectively connected with the conduct of a
trade or business by the Foreign Holder within the United States.
In order to claim an exemption from withholding on the ground
that gross proceeds are effectively connected with the conduct of
a trade or business within the United States, the Foreign Holder
must deliver to the Company a properly executed Internal Revenue
Service Form 4224. A Foreign Holder may be eligible to file for
a refund of such tax or a portion of such tax if such Foreign
Holder (i) meets the "complete termination", "substantially
disproportionate", or "not essentially equivalent to a dividend"
tests described above, (ii) is entitled to a reduced rate of
withholding pursuant to a treaty and the Company withheld at a
higher rate, or (iii) is otherwise able to establish that no tax
or a reduced amount of tax was due.
Conversion of Series A Convertible Preferred Stock into
Common Stock. No gain or loss will generally be recognized upon
conversion of shares of Series A Convertible Preferred Stock into
shares of Common Stock, except with respect to any cash paid in
lieu of fractional shares of Common Stock. Additionally, if the
conversion takes place when there is a dividend arrearage on the
Series A Convertible Preferred Stock and the fair market value of
the Common Stock exceeds the issue price of the Series A
Convertible Preferred Stock, a portion of the Common Stock
received might be treated as a taxable dividend distribution.
Adjustment of Conversion Price. Holders of convertible
preferred stock may be deemed to have received constructive
distributions where the conversion ratio is adjusted to reflect
property distributions with respect to stock into which such
preferred stock is convertible. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula
which has the effect of preventing the dilution of the interest
of the holders of the preferred stock, however, will generally
not be considered to result in a constructive distribution of
stock. Certain of the possible adjustments provided in the
Series A Convertible Preferred Stock may not qualify as being
pursuant to a bona fide reasonable adjustment formula. If such
adjustments were made, the holders of Series A Convertible
Preferred Stock might be deemed to have received constructive
distributions taxable as dividends.
Federal Estate Tax. Shares of Series A Convertible
Preferred Stock or Common Stock owned or treated as owned by an
individual who is not a citizen or resident of the United States
at the time of death will be includable in the individual's gross
estate for United States federal estate tax purposes, unless an
applicable tax treaty provides otherwise, and may be subject to
United States federal estate tax. Estates of non-resident aliens
are generally allowed a statutory credit which has the effect of
offsetting the United States federal estate tax imposed on the
first $60,000 of the taxable estate.
Dividend Reporting and Backup Withholding Requirements.
The Company must report annually to the Internal Revenue Service
and to each Foreign Holder the amount of dividends paid to, and
the tax withheld with respect to, each Foreign Holder. These
reporting requirements apply regardless of whether withholding
was reduced by an applicable tax treaty. Under the provisions of
a specific treaty or agreement, copies of these information
returns may also be made available to the tax authorities in the
country in which the Foreign Holder resides. United States
backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the United States
information reporting requirements) will generally not apply to
dividends paid on the Series A Convertible Preferred Stock or
Common Stock to a Foreign Holder at an address outside the United
States.
The payment of the proceeds from the disposition of
shares of Series A Convertible Preferred Stock or Common Stock to
or through a United States office of a broker will be subject to
information reporting and backup withholding unless the owner
certifies under penalties of perjury its status as a Foreign
Holder, or otherwise establishes an exemption. The payment of
the proceeds from the disposition of shares of Series A
Convertible Preferred Stock or Common Stock to or through a non-
U.S. office of a non-U.S. broker will generally not be subject to
backup withholding and information reporting. However, in the
case of the payment of proceeds from the disposition of shares of
Series A Convertible Preferred Stock or Common Stock through a
non-U.S. office of a broker that is a United States person or a
"U.S. related person," existing regulations require information
reporting on the payment unless the broker has documentary
evidence in its files that the owner is a Foreign Holder and the
broker has no actual knowledge to the contrary. For this
purpose, a "U.S. related person" is (i) a "controlled foreign
corporation" for United States federal income tax purposes, or
(ii) a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its
taxable year preceding the payment is derived from activities
that are effectively connected with the conduct of a United
States trade or business. Any amounts withheld under the backup
withholding rules from a payment to a Foreign Holder will be
refunded (or credited against that Foreign Holder's United States
federal income tax liability, if any) provided that the required
information is furnished to the Internal Revenue Service.
AVAILABLE INFORMATION
The Company is subject to the information requirements of
the Securities Exchange Act of 1934, as amended, and, in
accordance therewith, files reports, proxy and information
statements and other information with the Commission. Such
reports, statements and other information may be inspected and
copied at the public reference facilities maintained by the
Commission in the United States at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, 7 World Trade Center,
13th Floor, New York, New York 10048; and Chicago Regional
Office, CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621-2511. 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. The Convertible Preferred Stock and Common Stock are
currently quoted on the NASDAQ SmallCap Market. In addition, the
Common Stock is quoted on the Chicago Stock Exchange. Reports
and other information concerning the Company may also be
inspected at the Records Department of the NASDAQ Stock Market,
1735 K Street, N.W., Washington, D.C. 20006 U.S.A.
OFFSHORE SECURITIES
SUBSCRIPTION AGREEMENT
Family Bargain Corporation
315 East 62nd Street
New York, New York 10021
Ladies and Gentlemen:
1. Pursuant to the terms of the offer made by Family
Bargain Corporation (the "Company") contained in the Company's
Confidential Private Offshore Offering Memorandum dated March 6,
1996 (said Memorandum, including the exhibits and attachments
thereto (including the Exhibits contained in the preliminary
version of the Memorandum dated February 16, 1996 (the
"Preliminary Memorandum")), being hereinafter called the
"Memorandum"), the undersigned hereby tenders this subscription
and applies for the purchase of the number of shares (the
"Investment Shares") set forth on the signature page of this
Agreement for Series A 9-1/2% Cumulative Convertible Preferred
Stock of the Company, at a purchase price set forth in the
Memorandum. Together with this Subscription Agreement, the
undersigned is delivering to Commonwealth Associates as placement
agent for the Company (the "Placement Agent"), a check payable to
"Commonwealth Associates as Placement Agent for Family Bargain
Corporation" in the full amount of the purchase price for the
Investment Shares which the undersigned is subscribing for
pursuant hereto or funds by wire transfer as instructed by the
Placement Agent. Unless defined herein, all terms used herein
shall have the meaning given to them in the Memorandum.
2. Representations and Warranties. In order to
induce the Company to accept this subscription, the undersigned
hereby represents and warrants to, and covenants with, the
Company as follows:
(i) The undersigned understands that the offer
and sale of the Investment Shares is being made by means of
the Memorandum, acknowledges receipt of the Memorandum
(including the Preliminary Memorandum and the Exhibits
contained therein) and represents that except for the
Memorandum, the undersigned has not been furnished with any
other materials or literature relating to the offer and sale
of the Investment Shares, he has read, is familiar with and
understands the Memorandum and is aware of the substantial
risk associated with an investment in the Investment Shares,
including but not limited to, those risks set forth under
the caption "Risk Factors" in the Memorandum;
(ii) The undersigned has had a reasonable
opportunity to ask questions of and receive answers from the
Company concerning the Company and the offering to which the
Memorandum relates, and all such questions, if any, have
been answered to the full satisfaction of the undersigned;
(iii) The undersigned has such knowledge and
expertise in financial and business matters that the
undersigned is capable of evaluating the merits and risks
involved in an investment in the Investment Shares. The
undersigned is able to bear the economic risk of losing the
entire investment in the Investment Shares. The undersigned
is not relying on the Company with respect to tax and other
economic considerations of an investment in the Investment
Shares, and, in this regard, the undersigned has relied on
the advice of, or consulted with, only the undersigned's
advisors;
(iv) Except as set forth in the Memorandum, no
representations or warranties have been made to the
undersigned by the Company or any agent, employee or
affiliate of the Company and in entering into this
transaction the undersigned is not relying upon any
information, other than that contained in the Memorandum and
the results or independent investigation by the undersigned;
(v) The undersigned understands that (A) the
Investment Shares have not and will not be registered under
the Act or the securities laws of any state and will not be
offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except in accordance
with Regulation S under the Securities Act ("Regulation S")
or pursuant to an exemption from the registration
requirements of the Act; (B) the Company is under no
obligation to register the Investment Shares under the Act
or any state securities laws, or to take any action to make
any exemption from any such registration provisions
available; (C) the certificates for Investment Shares may
bear a legend to the effect that the transfer of the
securities represented thereby is subject to the provisions
hereof. Terms used in this paragraph have the meanings
given to them by Regulation S.
(vi) The offer to sell the Investment Shares was
made to the undersigned outside of the United States and at
the time this letter was prepared and executed, the
undersigned was located outside of the United States.
(vii) The undersigned is not a "U.S. Person" nor
located in the "United States" and is not purchasing the
Investment Shares for the account or benefit of a U.S.
Person, as those terms are defined in Regulation S.
(viii) The undersigned has not offered, sold or
entered into any transaction (e.g., the purchase of any put
or sale of any call) involving the sale or potential sale of
any Common Stock or Series A Preferred Stock of the Company
(including the Investment Shares) in the United States or to
any U.S. Person; except for any such offer, sale or
transaction made or entered into prior to February 16, 1996
(the date of the Preliminary Memorandum).
(ix) The undersigned agrees that prior to the
expiration of a 40-day period commencing on the final
closing date of this Offering, the undersigned will not
offer, sell or contract to sell, any shares of Common Stock
or Series A Preferred Stock of the Company (including the
Investment Shares), or enter into any transaction (e.g. the
purchase of any put or sale of any call) involving the sale
or potential sale of such Common Stock or Series A Preferred
Stock in the United States, or to U.S. persons.
(x) Without the prior written consent of the
Placement Agent, the undersigned will not sell, offer to
sell, solicit an offer to buy, contract to sell, make any
short sale, pledge, grant any option to purchase, or
otherwise transfer or dispose of, directly or indirectly,
any of the Investment Shares for a period of ninety (90)
days after the date of the Closing of the Offering;
(xi) We are familiar with and understand the terms
and conditions contained in Regulation S.
(xii) There have been no "directed selling
efforts" (as is defined in Section 902 of Regulation S)
relating to the undersigned.
(xiii) The undersigned understands that the
Investment Shares shall be held in escrow during the 40 days
following the Closing by an escrow agent in the form of a
global certificate consisting of all of the shares sold in
the Offering, and that the Company shall send to the
undersigned on the first business day following such 40-day
period a certificate representing the Investment Shares;
(xiv) The undersigned is acquiring the Investment
Shares solely for the account of the undersigned, for
investment purposes only, and not with a view towards the
resale or distribution thereof, and will only resell or
redistribute them in compliance with Regulation S;
(xv) The undersigned has full power and authority
to execute and deliver this Subscription Agreement and to
perform the obligations of the undersigned hereunder; and
this Subscription Agreement is a legally binding obligation
of the undersigned in accordance with its terms;
(xvi) The address set forth below is the
undersigned's true and correct residence, and the
undersigned has no present intention of becoming a resident
of any other jurisdiction. (If a corporation, trust or
partnership, the undersigned has its principal place of
business at the address set forth below and was not
organized for the specific purpose of subscribing to the
offerings of Investment Shares);
(xvii) The undersigned understands and
acknowledges that the Placement Agent makes no
representations or warranties as to the accuracy or
completeness of the information contained in the Memorandum;
(xviii) The undersigned has carefully reviewed
the jurisdictional notices of this Subscription Agreement
and agrees to abide by any restrictions contained therein
applicable to the undersigned;
(xix) The undersigned understands that no agency
of any state or country has approved or disapproved the
Investment Shares, passed upon or endorsed the merits of the
offering thereof, or made any finding or determination as to
the fairness of the Investment Shares for investment.
3. The undersigned understands that this subscription
is not binding upon the Company until the Company accepts it,
which acceptance is at the sole discretion of the Company and is
to be evidenced by the Company's execution of this Subscription
Agreement where indicated. This Subscription Agreement shall be
null and void if the Company does not accept it as aforesaid and
all funds remitted by the undersigned shall be returned by the
Placement Agent to the undersigned without interest.
4. The undersigned understands that the Company may,
in its sole discretion, reject this subscription and, in the
event that the offering to which the Memorandum relates is
oversubscribed, offer partial Investment Shares or reduce this
subscription in any amount and to any extent, whether or not pro
rata reductions are made of any other investor's subscription.
5. The undersigned agrees to indemnify and hold
harmless the Company and its officers, directors, employees,
agents and affiliates against any and all loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any
and all expenses reasonably incurred in investigating, preparing
or defending against any litigation commenced or threatened or
any claim whatsoever) arising out of or based upon any false
representation or warranty or failure by the undersigned to
comply with any covenant or agreement made by the undersigned
herein or in any other document furnished by the undersigned to
the Company in connection with this transaction. All
representations, warranties and covenants of the undersigned
shall survive the delivery of the Subscription Agreement and the
purchase by the undersigned of the Investment Shares.
6. Neither this Subscription Agreement nor any of the
rights of the undersigned hereunder may be transferred or
assigned by the undersigned.
7. This Subscription Agreement (i) may only be
modified by a written instrument executed by the undersigned and
the Company; (ii) sets forth the entire agreement of the
Undersigned and the Company with respect to the subject matter
hereof; (iii) shall be governed by the laws of the State of New
York applicable to contracts made and to be wholly performed
therein (except that as to matters of internal corporate affairs
of the Company, the Delaware General Corporation Law shall
govern) and (iv) shall inure to the benefit of, and be binding
upon the Company and the undersigned and its respective heirs,
legal representatives, successors and permitted assigns.
8. Unless the context otherwise requires, all
personal pronouns used in this Subscription Agreement, whether in
the masculine, feminine or neuter gender, shall include all other
genders.
9. All notices or other communications hereunder
shall be in writing and shall be deemed to have been duly given
if delivered personally or mailed by certified or registered
mail, return receipt requested, postage prepaid, as follows: if
to the undersigned, to the address set forth on the signature
page hereof; and if to the Company, to Family Bargain
Corporation, 315 East 62nd Street, New York, New York 10021,
Attention: President, or to such other address as the Company or
the undersigned shall have designated to the other by like
notice.
10. The undersigned agrees that it is not entitled to
cancel, terminate or revoke this Subscription Agreement or any
agreements of the undersigned hereunder unless at the time of
such cancellation, termination or revocation this Subscription
Agreement has not been accepted by the Company. This
Subscription Agreement may be executed in one or more
counterparts.
11. The undersigned agrees that without the consent of
the Company the undersigned will not reproduce the Memorandum or
use the Memorandum for any purpose other than an evaluation of a
potential investment in the Investment Shares.
12. This Agreement may be executed in counterparts,
each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute but one and
the agreement.
JURISDICTIONAL NOTICES
NOTICE TO RESIDENTS OF ALL JURISDICTIONS:
THE INVESTMENT SHARES HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE ACT. THE INVESTMENT SHARES MAY NOT BE
OFFERED, SOLD OR REDELIVERED, DIRECTLY OR INDIRECTLY, IN THE
UNITED STATES OR TO OR FOR THE ACCOUNT OF U.S. PERSONS UNLESS THE
INVESTMENT SHARES ARE REGISTERED UNDER THE ACT, OR AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE. THE
INVESTMENT SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
IN ANY JURISDICTION OR ANY REGULATORY AUTHORITY, NOR HAVE ANY OF
THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF
THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE INFORMATION IN
THE MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FOR GREAT BRITAIN RESIDENTS ONLY:
NO PERSON MAY OFFER OR SELL THESE INVESTMENT SHARES IN
GREAT BRITAIN BY MEANS OF ANY DOCUMENT EXCEPT TO PERSONS WHOSE
ORDINARY BUSINESS IT IS TO BUY OR SELL SECURITIES, WHETHER AS
PRINCIPAL OR AGENT (EXCEPT IN CIRCUMSTANCES WHICH DO NOT
CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING OF THE
COMPANIES ACT OF 1985 OF GREAT BRITAIN) AND, UNLESS -SUCH PERSON
IS A PERSON PERMITTED TO DO SO UNDER THE SECURITIES LAWS OF GREAT
BRITAIN, IT WILL NOT DISTRIBUTE THE OFFERING CIRCULAR AND ANY
OTHER OFFERING MATERIAL IN RESPECT OF ANY PROPOSED OFFER OR SALE
OF THESE INVESTMENT SHARES IN OR FROM GREAT BRITAIN OTHER THAN TO
PERSONS WHOSE BUSINESS INVOLVES THE ACQUISITION AND DISPOSAL, OR
THE HOLDING, OF SECURITIES, WHETHER AS PRINCIPAL OR AS AGENT.
FOR RESIDENTS OF ONTARIO, CANADA ONLY:
THE MEMORANDUM CONSTITUTES AN OFFERING OF THE
SECURITIES DESCRIBED THEREIN ONLY IN THOSE JURISDICTIONS AND TO
THOSE PERSONS WHERE AND TO WHOM THEY MAY BE LAWFULLY OFFERED FOR
SALE, AND THEREIN ONLY BY PERSONS PERMITTED TO SELL SUCH
SECURITIES. THE MEMORANDUM IS NOT, AND UNDER NO CIRCUMSTANCES IS
TO BE CONSTRUED AS, AN ADVERTISEMENT OR A PUBLIC OFFERING OF THE
SECURITIES DESCRIBED THEREIN IN CANADA. NO SECURITIES COMMISSION
OR SIMILAR AUTHORITY IN CANADA HAS REVIEWED OR IN ANY WAY PASSED
UPON THE MEMORANDUM OR THE MERITS OF THE SECURITIES DESCRIBED
THEREIN, AND ANY REPRESENTATION TO THE CONTRARY IS AN OFFENCE.
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement this _____ day of March, 1996.
SIGNATURE PAGE
(Please fill out in full)
Organization Signature: Individual Signature:
Print Name of Subscriber
By:
Signature(s)
Print Name and Title of Print Name(s)
Person Signing
Number of Shares Subscribed
for:
$
Total Purchase Price: (minimum of $100,000)
(All Subscribers should please print information below
exactly as you wish it to appear in the
records of the Company)
Name and capacity in which Social Security Number of
subscription is made Individual or other Taxpayer
I.D. Number
Address (Required) Address for notices if
different:
Number and Street
Number and Street
City State/Province
City State/Province
County Postal Code
County Postal Code
Please check the box to indicate form of ownership (if applicabl
e)
TENANTS-IN-COMMON n JOINT TENANTS WITH RIGHT n
(Both parties must sign above) OF SURVIVORSHIP
(Both parties must sign above)
ACCEPTANCE OF SUBSCRIPTION
FAMILY BARGAIN CORPORATION
The foregoing subscription by ________________ is
hereby accepted by Family Bargain Corporation, this ____ day of
March, 1996, for ____ shares, at an aggregate purchase price of
$________.
FAMILY BARGAIN CORPORATION
By:
Name:
Title:
CONTINGENT REGISTRATION
RIGHTS AGREEMENT
AGREEMENT, between the person whose name and address
appear on the signature page attached hereto (individually, a
"Holder" or collectively with the holders of the other Shares, as
defined below, issued in the offering, the "Holders") and Family
Bargain Corporation, a Delaware corporation having its principal
place of business at 315 East 62nd Street, New York, New York
10021 (the "Company").
WHEREAS, simultaneously with the execution and delivery
of this Agreement, the Holders are purchasing f rom the Company
up to 766,000 Shares of Series A 9-1/2% Cumulative Convertible
Preferred Stock (the "Shares"), each Share convertible, at the
option of the Holder thereof, to shares of Common Stock in the
Company (the "Common Stock"), upon the terms and subject to the
conditions set forth in the Confidential Private Offering
Memorandum of the Company dated March 6, 1996 (the "Memorandum");
and
WHEREAS, the Company desires to grant to the Holder,
effective under certain circumstances, the registration rights
set forth herein with respect to the shares of Common Stock
issuable upon conversion of the Shares (the "Conversion Shares").
NOW, THEREFORE, the parties hereto, intending to be
legally bound, mutually agree as follows.
1. Registrable Securities. As used herein the term
"Registrable Security" means each of the Conversion Shares and
any shares of Common Stock issued upon any stock split or stock
dividend in respect of such Conversion Shares; provided, however,
that, with respect to any particular Registrable Security, such
security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered
under the Securities Act of 1933, as amended (the "Act"), and
disposed of pursuant thereto, (ii) registration under the Act is
no longer required for the immediate public sale of such
security, or (iii) it has ceased to be outstanding. In the event
of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock,
such adjustment shall be made in the definition of "Registrable
Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Agreement.
2. Demand Registration. If, at any time following the
date 40 days after the closing date of the offering, in the
reasonable opinion of Dewey Ballantine, counsel to Commonwealth
Associates, the placement agent for the Shares, there shall be a
change in the Act or other laws of the United States or in rules
or regulations promulgated by the Securities and Exchange
Commission under the Act or other laws of the United States,
which change results in a requirement that the Holders must
register the Registrable Securities in order to sell them
publicly without restriction in the United States (the
"Triggering Event"), then following the Triggering Event, Holders
of at least 25% of the Registrable Securities (the "Demand
Holders") shall have the right, exercisable by written notice to
the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on not
more than two (2) occasions within the five (5) years following
such change in law (the second such demand not to be sooner than
one (1) year following the first such demand), at the sole
expense of the Company, a registration statement and such other
documents, including a prospectus, as may be necessary in the
opinion of both counsel for the Company and counsel for the
Demand Holders, in order to comply with the provisions of the
Act, so as to permit a public offering and sale for nine (9)
consecutive months by the Demand Holders or until such earlier
time as all of the shares for which registration was requested
have been sold.
The Company covenants and agrees to give written notice
of any registration request under this Section 2 by the Demand
Holders to all other registered Holders of the Registrable
Securities within ten (10) days from the date of the receipt of
any such registration request. After receiving notice from the
Company as provided in this Section 2, any Holder of the
Registrable Securities may request the Company to include their
respective Registrable Securities in the registration statement
to be filed pursuant to this Section by notifying the Company of
their decision to include such securities within ten (10) days of
their receipt of the Company notice.
3. Piggyback Registration. At any time following the
Triggering Event the Company shall prepare and file a new
registration statement under the Act (other than in connection
with a merger, acquisition or pursuant to Form S-8 or successor
form), with respect,to a public offering of equity securities or
securities convertible into equity securities of the Company, or
of any such securities of the Company held by its shareholders,
the Company will include in any such registration statement such
information as may be required to permit a public offering of the
Registerable Securities by the Holder or Holders or include in
any such registration statement such number of Registerable
Securities as may be requested by such Holder or Holders,
provided that at least one-third of the total number of
Registrable Securities is included in the registration statement.
The Company will give written notice by registered mail, at least
fifteen (15) business days prior to the filing of each such
registration statement, to the Holder or Holders of the
Registrable Securities of its intention to do so. If the
Holder or Holders of the Registrable Securities notify the
Company within eight (8) business days after receipt of any such
notice of its or their desire to include any Registrable
Securities in such proposed registration statement, the Company
shall afford the Holder or Holders the opportunity to have any
such Registrable Securities registered under such registration
statement at the Company's sole cost and expense. At any time
until the registration statement becomes effective, the Company
may elect to not file the registration statement or to withdraw
the registration statement for any reason.
If a piggyback registration is an underwritten
registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering
without adversely-affecting the marketability of the offering,
the Company will include in such registration (i) first, the
securities the Company proposes to sell and (ii) second, the
securities requested to be included in such registration, pro
rata among the holders of such securities on the basis of the
number of shares requested to be included by each such holder.
If a piggyback registration is an underwritten
registration on behalf of holders of the Company' s securities,
and the managing underwriters advise the Company in writing that
in their opinion the number of securities requested to be
included in such registration exceeds the number that can be sold
in such offering without adversely affecting the marketability of
the offering, the Company will include in such registration the
securities requested to be included in such registration, pro
rata among the holders of all securities included in the
registration on the basis of the number of shares requested to be
included by each such holder.
4. Additional Terms. The following provisions shall
be applicable to any Registration Statement filed pursuant to
Sections 2 or 3 of this Agreement:
(a) The Company will use its best efforts, if any
stop order shall be issued by the Commission in connection with
the Registration Statement therewith, to use its reasonable
efforts to obtain the removal of such order. Following the
effective date of the Registration Statement, the Company shall,
upon the request of the Holder, forthwith supply such reasonable
number of copies of the Registration Statement, preliminary
prospectus and prospectus meeting the requirements of the Act,
and other documents necessary or incidental to the offering of
Registrable Securities pursuant to the Registration Statement, as
shall be reasonably requested by the Holder to permit the Holder
to make a public sale of his or her Registrable Securities. The
Company will use its reasonable efforts to qualify the
Registrable Securities for sale in such states as the Holder of
Registrable Securities shall reasonably request, provided that no
such qualification will be required in any jurisdiction where,
solely as a result thereof, the Company would be subject to
service of general process or to taxation or qualification as a
foreign corporation doing business in such jurisdiction. The
obligations of the Company hereunder with respect to the Holder's
Registrable Securities are expressly conditioned on the Holder's
furnishing to the Company in a timely manner such appropriate
information concerning the Holder, the Holder's Registrable
Securities and the terms of the Holder's offering of such
Registrable Securities as the Company may reasonably request.
(b) The Company shall bear the entire cost and
expense of any registration of the Registrable Securities;
provided, however, that the Holder shall be solely responsible
for the fees and expenses of any counsel retained by the Holder
in connection with such registration and any transfer taxes or
underwriting discounts or commissions applicable to the
Registrable Securities sold by the Holder pursuant thereto.
(c) The Company shall indemnify and hold harmless
the Holder and each underwriter, within the meaning of the Act,
who may purchase from or sell for the Holder, any Registrable
Securities, from and against any and all losses, claims, damages
and liabilities incurred by the Holder and caused by any untrue
statement of a material fact contained in the Registration
Statement, any post-effective amendment to such Registration
Statement, or any prospectus included therein required to be
filed or furnished by reason of this Agreement (unless cured by
an amendment or supplement to the prospectus delivered to the
Holder prior to the sales of the Registrable Securities that are
subject to a claimed right of indemnification) or caused by any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading (unless cured by an amendment or
supplement to the prospectus delivered to the Holder prior to the
sales of the Registrable securities that are subject to a claimed
right of indemnification), except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or
alleged untrue statement or omission or alleged omission based
upon information furnished or required to be furnished in writing
to the Company by a Holder or underwriter for use therein; which
indemnification shall include each person, if any, who controls
any such underwriter within the meaning of the Act and each
officer, director, employee and agent of such underwriter;
provided, however, that the Company shall not be obligated to so
indemnify the Holder or any such underwriter or other person
referred to above unless the Holder or underwriter or other
person, as the case may be, shall, prior to the effective date of
the Registration Statement, agree in writing to indemnify the
Company, its directors, each officer signing the Registration
Statement and each person, if any, who controls the Company
within the meaning of the Act, from and against any and all
losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact
contained in the Registration Statement, any registration
statement or any prospectus required to be filed or furnished by
reason of this Agreement or caused by any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or alleged untrue
statement or omission based upon information furnished in writing
to the Company by the Holder or underwriter expressly for use
therein.
(d) If for any reason the indemnification provided for
in the preceding subparagraph is held by a court of competent
jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage, liability or expense referred
to therein, then the indemnifying party, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount
paid or payable by the indemnified party as a result of such
loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by
the indemnified party and the indemnifying party, but also the
relative fault of the indemnified party and the indemnifying
party, as well as any other relevant equitable considerations.
(e) Neither the filing of a Registration Statement by
the Company pursuant to this Agreement nor the making of any
request for prospectuses by the Holder shall impose upon the
Holder any obligation to sell the Holder's Registrable Securities
or to exercise the conversion of the Holder's Shares to Common
Stock.
(f) The Holder, upon receipt of notice from the
Company that an event has occurred which requires a post-
effective amendment to the Registration Statement or a supplement
to the prospectus included therein, shall promptly discontinue
the sale of the Holder's Registrable Securities until the Holder
receives a copy of a supplemented or amended prospectus from the
Company, which the Company shall provide as soon as practicable
after such notice.
(g) Holder agrees to cooperate with the Company and to
complete any documentation reasonably, requested by the Company
which is necessary to prepare the Registration Statement.
5. Governing Law.
(a) This Agreement shall be deemed to have been made
and delivered in the State of New York and shall be governed as
to validity, interpretation, construction, effect, and in all
other respects by the internal laws of the State of New York.
(b) The Company and the Holder each (a) agrees that
any legal suit, action or proceeding arising out of or relating
to this Agreement shall be instituted exclusively in New York
State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (b) waives
any objection which the Company or such Holder may have now or
hereafter to the venue of any such suit, action or proceeding,
and (c) irrevocably consents to the jurisdiction of the New York
State Supreme Court, County of New York and the United States
District Court for the Southern District of New York in any such
suit, action or proceeding. The Company and the Holder each
further agrees to accept and acknowledge service of any and all
process which may be served in any such suit, action or
proceeding in the New York State Supreme Court, County of New
York or in the United States District Court for the Southern
District of New York and agrees that service of process upon the
Company or the Holder mailed by certified mail to the Company's
or, as the case may be, the Holder's address shall be deemed in
every respect effective service of process upon the Company or
the Holder, as the case may be, in any suit, action or
proceeding.
6. Amendment. This Agreement may only be amended by a
written instrument executed by the Company and the Holder.
7. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to
the subject matter hereof.
8. Execution in Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same document.
9. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed
duly given when delivered by hand or mailed by registered or
certified mail, postage prepaid, return receipt requested, as
follows:
If to the Holder, to the Holder's address
set forth on the signature page of this Agreement.
If to the Company, to the address set
forth on the first page of this Agreement.
10. Binding Effect; Benefits. The
Holder may not assign the Holder's rights
hereunder. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto
and their respective heirs, legal representatives,
successors and permitted assigns. Nothing herein
contained, express or implied, is intended to
confer upon any person other than the parties
hereto and their respective heirs, legal
representatives, successors and such permitted
assigns, any rights or remedies under or by reason
of this Agreement.
11. Headings. The headings contained
herein are for the sole purpose of convenience of
reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms
or provisions of this Agreement.
12. Severability. Any provision of this
Agreement which is held by a court of competent
jurisdiction to be prohibited or unenforceable in
any jurisdictions shall be, as to such
jurisdictions, ineffective to the extent of such
prohibition or unenforceability without
invalidating the remaining provisions of this
Agreement or affecting the validity or
enforceability of such provision in any other
jurisdiction.
IN WITNESS WHEREOF, this Agreement has
been executed and delivered by the parties hereto
this day of March, 1996.
FAMILY BARGAIN CORPORATION
By:
Name:
Title:
HOLDER
Signature(s)
Print Name
Address:
Company Contact: Investor Relations Contact:
John A. Selzer John Nesbett, ext. 101
Chief Executive Officer 212-838-3777
212-980-9670
FAMILY BARGAIN CORPORATION ANNOUNCES THIRD QUARTER
AND NINE MONTHS RESULTS AND NOVEMBER SALES
NEW YORK, NY, NOVEMBER 30, 1995 -- FAMILY
BARGAIN CORPORATION (Nasdaq Symbol: FBAR, Nasdaq
Preferred Symbol: FBARP) today announced financial
results for the third quarter and nine months ended
October 28, 1995, and November sales.
Revenues for the third quarter ended October
28, 1995 increased 20% to $47,322,000 from
$39,370,000 reported for the comparable 1994
period. Operating income for the third quarter was
$2,591,000 compared to operating income of
$1,712,000 for the comparable 1994 period. Net
income from continuing operations was $1,739,000
for the quarter compared to $1,159,000 for the 1994
period. Income per share from continuing
operations after preferred dividends for the third
quarter was $979,000, or $0.24 per share, compared
to $399,000, or $0.10 for the comparable 1994
period.
Revenues for the nine months ended October 28,
1995 increased 16% to $115,672,000 from $99,392,000
reported for the comparable 1994 period. Operating
income for the nine months was $251,000 compared to
operating income of $1,447,000 for the comparable
1994 period. Net income from continuing operations
was a loss of $2,051,000 for the nine months
compared to a loss of $740,000 for the 1994 period.
Income per share from continuing operations after
preferred dividends for the nine months was a loss
of $4,331,000, or $1.08 per share, compared to a
loss of $1,913,000, or $0.48 for the comparable
1994 period.
FAMILY BARGAIN CORPORATION
Page 2
The results for the third quarter and the nine
months do not include the results of
Factory 2-U, since Family Bargain's acquisition of
Factory 2-U was completed in November.
John A. Selzer, Chief Executive Officer of
Family Bargain, said, "We are encouraged by our
third quarter results. After an extremely
difficult first quarter, we implemented an action
plan to improve our performance. Our actions
included the promotion of Bill Mowbray to the
presidency of our operating subsidiary, changes in
advertising, improving our inventory turn and
refocusing ourselves on providing our customers
first quality clothing at bargain prices. Our
actions resulted in modest improvements during the
second quarter. We believe the third quarter
performance, which reflects a substantial
improvement over last year, shows the achievements
of our action plan and postures the Company
advantageously for the fourth quarter and beyond."
Family Bargain also announced that its
November sales were $17.1 million versus $15.6
million reported for November of the prior year, a
9.4% increase. The November results include sales
from the Company's Factory 2-U stores as of
November 11, the date following the completion of
the Factory 2-U acquisition. November comparable
store sales (sales for stores operating both this
year and last year) decreased 4.4%.
Year to date sales through November were
$132.3 million compared to $109.5 million reported
for the first ten months of the prior year, a 20.8%
increase. Comparable store sales increased by 1.0%
for the fiscal year to date.
Family Bargain Corporation operates 133
'Family Bargain Center' and 'Factory 2-U' off-price
retail stores which sell primarily first quality
clothing for men, women and children, and household
goods at prices which generally are significantly
lower than the prices offered by its competitors.
Stores are located in California, Arizona, New
Mexico, Washington, Nevada, Texas and Oregon.
more -
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
For the Three Months For the Nine Months
Ended October Ended October
1995 1994 1995 1994
Net sales $ 47,322,000$ 39,370,000$ 115,672,000$ 99,392,000
Cost of sales 30,393,000 25,915,000 76,178,000 65,597,000
Gross profit 16,929,000 13,455,000 39,494,000 33,795,000
General and administrative
expenses 14,338,000 11,743,000 39,243,000 32,348,000
Operating income (loss) 2,591,000 1,712,000 251,000 1,447,000
Interest 852,000 553,000 2,302,000 2,187,000
Income (loss) from 1,739,000 1,159,000 (2,051,000) (740,000)
continued operations
Income (loss) from 0 (151,000) 0 (408,000)
discontinued operations
Extraordinary gain - - - 5,744,000
Net income $ 1,739,000$ 1,008,000$(2,051,000)$ 4,596,000
Preferred stock dividends 760,000 760,000 2,280,000 1,173,000
Earnings per share - Primary:
Continuing operations 0.24$ 0.10$ (1.08)$ (0.48)$
Discontinued operations 0 (0.04) 0 (0.10)
Extraordinary gain - - - 1.43
Earnings (loss) per share 0.24$ 0.06$ (1.08)$ 0.85$
Earnings per share - Fully Diluted:
Continuing operations 0.14$ 0.10$ (1.08)$ (0.11)$
Discontinued operations 0 (0.04) 0 (0.06)
Extraordinary gain - - - 0.86
Earnings (loss) per share 0.14$ 0.06$ (1.08)$ 0.69$
Weighted average number of
Common shares outstanding:
Primary 4,008,311 4,008,311 4,008,311 4,008,311
Fully diluted 12,008,311 4,008,311 4,008,311 6,674,978
Company Contact: Investor Relations Contact:
John A. Selzer John Nesbett, ext. 101
Chief Executive Officer 212-838-3777
212-980-9670
FAMILY BARGAIN CORPORATION ANNOUNCES DECEMBER SALES
NEW YORK, NY, JANUARY 4, 1996 -- FAMILY
BARGAIN CORPORATION (Nasdaq Symbol: FBAR, Nasdaq
Preferred Symbol: FBARP) today announced that
December sales were $37.3 million versus $25.3
million reported for December of the prior year, a
47.1% increase. Year-to-date sales through
December were $170.1 million compared to $140.4
million reported for the same period of the prior
year, a 21.1% increase. December results include
the sales of the 31 Factory 2-U stores acquired by
Family Bargain on November 14, 1995.
December comparable store sales (sales for
stores operated by Family Bargain Corporation both
this year and last year, thereby excluding Factory
2-U) increased 9.2%. Comparable store sales
increased by 2.4% for the fiscal year-to-date.
Family Bargain Corporation operates 131
'Family Bargain Center' and 'Factory 2-U' off-price
retail stores which sell primarily first quality
clothing for men, women and children, and household
goods at prices which generally are significantly
lower than the prices offered by its competitors.
Stores are located in California, Arizona, New
Mexico, Washington, Nevada, Texas and Oregon.
# # #
Company Contact: Investor Relations Contact:
John A. Selzer John Nesbett, ext. 101
Chief Executive Officer 212-838-3777
212-980-9670
FAMILY BARGAIN CORPORATION ANNOUNCES JANUARY SALES
-January Comparable Store Sales Increase 10.9%-
NEW YORK, NY, FEBRUARY 8, 1996 -- FAMILY
BARGAIN CORPORATION (Nasdaq Symbol: FBAR, Nasdaq
Preferred Symbol: FBARP) today announced that
January sales were $9.7 million versus $6.3 million
reported for January of the prior year, a 53.9%
increase. January sales reflect the addition of 29
Factory 2-U stores acquired by Family Bargain on
November 14, 1995. January comparable store sales
(sales for stores operated by Family Bargain
Corporation both this year and last year, thereby
excluding Factory 2-U) increased 10.9%.
Sales for the full year ended January 27
(including Factory 2-U) were $179.9 million
compared to $146.5 million reported for the year, a
22.8% increase. Comparable store sales (excluding
Factory 2-U) increased by 2.8% for the fiscal year.
Family Bargain Corporation operates 131
'Family Bargain Center' and 'Factory 2-U' off-price
retail stores which sell primarily first quality
clothing for men, women and children, and household
goods at prices which generally are significantly
lower than the prices offered by its competitors.
Stores are located in California, Arizona, New
Mexico, Washington, Nevada, Texas and Oregon.
# # #
