UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-10089
FAMILY BARGAIN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0299573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Ruffin Road, San Diego, CA 92123
(Address of principal executive office) (Zip Code)
(619) 627-1800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] YES [ ] NO
The number of shares outstanding of the registrant's of common stock, as of
August 22, 1997, was 4,929,822 shares.
<PAGE>
<TABLE>
FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 2, 1997
INDEX
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Family Bargain Corporation and Subsidiaries Consolidated
Balance Sheets as of August 2, 1997 (Unaudited) and
February 1, 1997 .................................................F-1
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the 13 weeks
ended August 2, 1997 and July 27, 1996............................F-3
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the 26 weeks
ended August 2, 1997 and July 27, 1996............................F-4
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Cash Flows (Unaudited) for the 26 weeks
ended August 2, 1997 and July 27, 1996............................F-5
Family Bargain Corporation and Subsidiaries Notes to
Consolidated Financial Statements (Unaudited).....................F-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................3
PART II. OTHER INFORMATION
Item 1 Legal Proceedings...................................................9
Item 2 Changes in Securities...............................................9
Item 3 Defaults Upon Senior Securities.....................................9
Item 4 Submission of Matters to a Vote of Security Holders................10
Item 5 Other Information..................................................11
Item 6. Exhibits and Reports on Form 8-K ..................................11
Signatures .................................................13
Exhibit Index .................................................14
</TABLE>
2
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
<CAPTION>
August 2, February 1,
1997 1997
---- ----
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash $ 5,248 $ 3,261
Merchandise inventories 39,241 29,118
Prepaid expenses 1,540 939
---------- ----------
Total current assets 46,029 33,318
Leasehold improvements and equipment, net 12,756 10,714
Other assets 2,393 2,323
Excess of cost over net assets acquired,
less accumulated amortization of
$6,134 and $5,332 at August 2, 1997 and
February 1, 1997, respectively 33,512 34,314
--------- ---------
Total assets $ 94,690 $ 80,669
======== =========
</TABLE>
(continued)
See accompanying notes to consolidated financial statements
F-1
<PAGE>
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
(Continued)
<CAPTION>
<S> <C> <C>
August 2, February 1,
1997 1997
---- ----
(Unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 4,854 $ 5,748
Accounts payable 23,998 17,491
Accrued salaries, wages and bonuses 2,924 2,924
Other accrued expenses 5,990 6,907
---------- ----------
Total current liabilities 37,766 33,070
Revolving credit notes 24,175 17,887
Long-term debt, less current maturities 13,377 14,422
Deferred rent 2,333 2,098
Capital lease and other long-term obligations 3,493 1,984
---------- ----------
Total liabilities 81,144 69,461
---------- ----------
Stockholders' equity:
Series A convertible preferred stock,
$.01 par value, 4,500,000 shares authorized,
3,638,690 and 3,727,415 shares issued and
outstanding (aggregate liquidation preference
of $36,387 and $37,274) at August 2, 1997 and
February 1, 1997, respectively 36 37
Series B junior convertible, exchangeable
preferred stock , $.01 par value, 40,000
shares authorized, 33,465 and 22,000 shares
issued and outstanding (aggregate liquidation
preference of $33,465 and $22,000) at August 2,
1997 and February 1, 1997, respectively - -
Common stock, $.01 par value, 80,000,000
shares authorized, 4,929,822 and 4,693,337
shares issued and outstanding at August 2, 1997
and February 1, 1997, respectively 49 47
Additional paid-in capital 81,944 71,057
Accumulated deficit (68,483) (59,933)
--------- ---------
Total stockholders' equity 13,546 11,208
--------- ---------
Total liabilities and stockholders' equity $ 94,690 $ 80,669
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<CAPTION>
<S> <C> <C>
13 Weeks Ended
--------------
August 2, July 27,
1997 1996
------------ ----------
Net sales $ 69,375 $ 57,509
Cost of sales 46,342 36,258
---------- ---------
Gross profit 23,033 21,251
Selling and administrative expenses 25,474 18,874
Amortization of excess of cost over
net assets acquired 400 477
---------- ----------
Operating income (loss) (2,841) 1,900
Interest expense (1,329) (1,271)
----------- ----------
Net income (loss) (4,170) 629
Preferred stock dividends - Series A (864) (885)
Preferred stock dividends - Series B (635) -
------------ ----------
Net loss applicable
to common stock $ (5,669) $ (256)
============ ==========
Net loss per share applicable to
common stock $ (1.15) $ (0.06)
Weighted average common shares outstanding 4,930 4,588
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<CAPTION>
26 Weeks Ended
--------------
August 2, July 27,
1997 1996
----------- ----------
<S> <C> <C>
Net sales $ 129,811 $ 107,334
Cost of sales 85,655 68,600
----------- ----------
Gross profit 44,156 38,734
Selling and administrative expenses 46,278 36,414
Amortization of excess of cost over
net assets acquired 802 939
----------- ----------
Operating income (loss) (2,924) 1,381
Interest expense (2,606) (2,310)
----------- ----------
Net loss (5,530) (929)
Preferred stock dividends - Series A (1,728) (1,739)
Preferred stock dividends - Series B (1,292) -
------------ ----------
Net loss applicable to common stock $ (8,550) $ (2,668)
=========== ==========
Net loss per share applicable
to common stock $ (1.75) $ (0.62)
Weighted average common shares outstanding 4,874 4,314
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<CAPTION>
26 Weeks Ended
--------------
August 2, July 27,
1997 1996
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (5,530) $ (929)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,479 2,127
Debt discount amortization 1,050 518
Deferred rent expense 235 (179)
Changes in operating assets and liabilities:
Merchandise inventories (10,123) (14,942)
Prepaid expenses (601) (479)
Accounts payable and accrued expenses 5,590 926
Other 954 (2,458)
----------- ----------
Net cash used in operating activities (5,946) (15,416)
----------- ----------
Cash Flows from Investing Activities:
Purchase of leasehold improvements
and equipment (2,952) (2,601)
Sale of real property - 4,500
----------- ---------
Net cash provided by (used in)
investing activities (2,952) 1,899
----------- ---------
Cash Flows from Financing Activities:
Borrowings on revolving credit notes 161,219 150,061
Payments on revolving credit notes (154,931) (138,473)
Proceeds from the issuance of notes payable - 3,100
Payments on notes payable and capital
lease obligations (3,158) (3,100)
Payment of deferred debt issuance costs (113) -
Net proceeds from issuance of preferred
stock 9,596 2,856
Payment of dividends on Series A preferred stock (1,728) (1,739)
---------- ----------
Net cash provided by financing activities 10,885 12,705
---------- ---------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Continued)
<CAPTION>
26 Weeks Ended
--------------
August 2, July 27,
1997 1996
--------- ----------
<S> <C> <C>
Net increase (decrease) in cash $ 1,987 $ (812)
Cash at the beginning of the period 3,261 1,958
------- ----------
Cash at the end of the period $ 5,248 1,146
======= ==========
Supplemental disclosure of
cash flow information:
Cash paid during the period for interest $ 1,453 $ 1,952
Supplemental disclosure of non-cash
investing activities:
Capital lease purchases $ 649 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements do not
include all of the information and footnotes required by generally
accepted accounting principles for annual financial statements and
should be read in conjunction with the financial statements for the
fiscal year ended February 1, 1997 included in the Family Bargain
Corporation and Subsidiaries' (the Company) Form 10-K as filed with the
Securities and Exchange Commission. The unaudited consolidated
financial statements include the accounts of Family Bargain Corporation
and its subsidiaries. All significant intercompany transactions have
been eliminated in consolidation.
In the opinion of management, the unaudited consolidated financial
statements as of and for the 13 weeks and 26 weeks ended August 2, 1997
and July 27, 1996 reflect all adjustments (which include normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for the periods
presented. Due to the seasonal nature of the Company's business, the
results of operations for the interim period may not necessarily be
indicative of the results of operations for a full year.
(2) Long-term Debt and Revolving Credit Notes
At August 2, 1997, the Company was not in compliance with certain
covenants under its revolving credit facilities. The Company's working
capital lender has waived such noncompliance.
In August 1997, the Company agreed with its working capital lender to
amend certain terms and conditions of its revolving credit facilities.
Under the amended terms and conditions, the Company's covenants will be
reset to be reflective of anticipated earnings, capital expenditures
and cash flow over the remaining term of the revolving credit
facilities. In addition, the Company may exceed the 65% of eligible
inventory advance limitation at varying rates, not to exceed $3.5
million, between October 1, 1997 and December 15, 1997. Such excess
borrowings will bear interest at an interest rate of prime plus 3% per
annum.
In June 1997, the Company amended its agreement with its working
capital lender to increase its revolving credit facilities to $50.0
million, with advances limited to 65% of eligible inventory (as
defined), an interest rate of prime plus 3/4% per annum and an
expiration date (subject to annual one year extensions) of November
1999.
F-7
<PAGE>
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
At August 2, 1997, the Company's estimation of cash flows which
determine the timing and amounts of payments of certain subordinated
debt were the same as estimated for February 1, 1997. Consequently,
there were no adjustments to the carrying value of such debt during the
26 weeks ended August 2, 1997 except for recurring amortization of debt
discount.
(3) Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, Earnings per Share
(SFAS No. 128). SFAS No. 128 becomes effective for interim and annual
periods ending after December 15, 1997 and will change the way the
Company computes earnings per share. However, had the Company applied
SFAS No. 128, there would have been no difference between the loss per
share reported under SFAS No. 128 and the loss per share reported on
the accompanying consolidated statement of operations for the 26 weeks
ended August 2, 1997.
(4) Provision for Income Taxes
No provision for income taxes has been reflected in the accompanying
consolidated statements of operations for the 13 weeks and 26 weeks
ended August 2, 1997 and July 27, 1996 since the Company generated tax
losses during these periods. Although such losses would increase the
Company's net operating loss carry forwards (NOLs), realization of such
NOLs is less than likely due to limitations on utilization of NOLs and
the Company's history of losses. As a result, a full valuation
allowance has been recognized against the net deferred tax assets
arising from the increased NOLs and no benefit for income taxes is
reflected in the accompanying consolidated statements of operations.
(5) Dividends
The Series B Junior Convertible, Exchangeable Preferred Stock pays no
dividend through December 31, 2001. Beginning in 2002, the Company is
obligated to pay a dividend to holders of the Series B Preferred Stock
in the amount of $60 per share subject to increases of $20 per share
every year thereafter until 2005 up to a maximum of $120 per share. The
Company imputes dividends on the Series B Preferred Stock utilizing the
effective interest method to provide a level yield until the permanent
dividend of $120 per share is payable. Accreted dividends increase the
carrying value of the Series B Preferred Stock.
F-8
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
Management's discussion of the results of operations provides analyses of the
Company's operations during the 13 and 26 weeks ended August 2, 1997 and July
27, 1996.
Results of Operations
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto included elsewhere
in this Form 10-Q. As of August 2, 1997 there were 165 stores in operation
compared to 140 stores as of July 27, 1996.
13 Weeks Ended August 2, 1997 Compared to the 13 Weeks Ended July 27, 1996
Net sales were $69.4 million for the 13 weeks ended August 2, 1997 compared to
$57.5 million for the 13 weeks ended July 27, 1996, an increase of $11.9
million. Of the total increase, approximately $0.2 million was attributable to a
0.4% increase in comparable store sales and the remaining $11.7 million increase
in sales was attributable to the opening of new stores and expansion of existing
stores.
Gross profit was $23.0 million for the 13 weeks ended August 2, 1997 compared to
$21.3 million for the 13 weeks ended July 27, 1996, an increase of approximately
$1.7 million. As a percentage of sales, gross profit was 33.2% for the 13 weeks
ended August 2, 1997 compared to 37.0% for the 13 weeks ended July 27, 1996. The
decrease in the gross profit margin is primarily attributable to a higher
markdown rate of approximately 1.4% of sales due to heavier clearance activity
in the current year and an increase in shrinkage of approximately 2.2% of sales.
In addition to the increased markdown rate noted, markdowns were an additional
1.2% of sales higher than last year due to valuing the Factory 2-U inventory at
fair value when it was acquired in November 1995. Also, in-bound freight has
increased as a percentage of sales due to changes in the Company's merchandise
mix. The effect of higher shrinkage, markdowns and freight has been partially
offset through higher initial mark-up as a result of the Company's improved
financial condition.
Selling and administrative expenses were $25.5 million for the 13 weeks ended
August 2, 1997 compared to $18.9 million for the 13 weeks ended July 27, 1996,
an increase of approximately $6.6 million. As a percentage of sales, selling and
administrative expenses increased to 36.7% for the 13 weeks ended August 2, 1997
from 32.8% for the 13 weeks ended July 27, 1996. The increase in selling and
administrative expenses as a percentage of sales was primarily attributable to
increases in store labor costs (due to increases in the minimum wage), higher
occupancy and preopening costs. In addition, the Company's President and Chief
Executive Officer resigned effective July 28, 1997. The Company recorded a
charge of approximately $1.8 million in the quarter for payments due in
accordance with an employment contract.
3
<PAGE>
Amortization of excess of cost over net assets acquired was $0.4 million for the
13 weeks ended August 2, 1997 compared to $0.5 million for the 13 weeks ended
July 27, 1996. The decrease is a result of the write-down in the carrying value
of excess of cost over net assets acquired disclosed in the consolidated
financial statements for the fiscal year ended February 1, 1997.
Interest expense was $1.3 million for each of the 13 weeks ended August 2, 1997
and July 27, 1996.
The net loss applicable to common stock was $5.7 million for the 13 weeks ended
August 2, 1997 compared to a net loss of $0.3 million for the 13 weeks ended
July 27, 1996.
26 weeks Ended August 2, 1997 Compared to the 26 weeks Ended July 27, 1996
Net sales were $129.8 million for the 26 weeks ended August 2, 1997 compared to
$107.3 million for the 26 weeks ended July 27, 1996, an increase of
approximately $22.5 million. Of the total increase, approximately $0.9 million
was attributable to a 0.9% increase in comparable store sales and the remaining
$21.6 million increase in sales was attributable to the opening of new stores
and expansion of existing stores.
Gross profit was $44.2 million for the 26 weeks ended August 2, 1997 compared to
$38.7 million for the 26 weeks ended July 27, 1996, an increase of $5.5 million.
As a percentage of sales, gross profit was 34.0% for the 26 weeks ended August
2, 1997 compared to 36.1% for the 26 weeks ended July 27, 1996. The decrease in
the gross profit margin is primarily attributable to a higher markdown rate of
approximately 1.3% of sales due to heavier promotional activity in the current
year and an increase in shrinkage of approximately 1.7% of sales. In addition to
the increased markdown rate noted, markdowns were an additional 0.9% of sales
higher than last year due to valuing the Factory 2-U inventory at fair value
when it was acquired in November 1995. Also, inbound freight has increased as a
percentage of sales due to changes in the Company's merchandise mix. The effect
of higher shrinkage, markdowns and freight has been partially offset through
higher initial mark-up as a result of the Company's improved financial
condition.
Selling and administrative expenses were $46.3 million for the 26 weeks ended
August 2, 1997 compared to $36.4 million for the 26 weeks ended July 27, 1996,
an increase of approximately $9.9 million. As a percentage of sales, selling and
administrative expenses increased to 35.7% for the 26 weeks ended August 2, 1997
from 33.9% for the 26 weeks ended July 27, 1996. The increase in selling and
administrative expenses as a percentage of sales was primarily attributable to
increases in store labor costs (due to increases in the minimum wage), higher
occupancy and preopening costs. In addition, the Company's President and Chief
Executive Officer resigned effective July 28, 1997. The Company recorded a
charge of $1.8 million in the quarter for payments due in accordance with an
employment contract.
Amortization of excess of cost over net assets acquired was $0.8 million for the
26 weeks ended August 2, 1997 compared to $0.9 million for the 26 weeks ended
July 27, 1996. The decrease is a result of the write-down in the carrying value
of excess of cost over net assets acquired disclosed in the consolidated
financial statements for the fiscal year ended February 1, 1997.
4
<PAGE>
Interest expense was $2.6 million for the 26 weeks ended August 2, 1997 compared
to $2.3 million for the 26 weeks ended July 27, 1996. The increase of $0.3
million was attributable primarily to increased debt discount amortization
arising from changes in the projected timing and payment of the reorganization
securities of General Textiles.
The net loss applicable to common stock was $8.6 million for the 26 weeks ended
August 2, 1997 compared to a net loss of $2.7 million for the 26 weeks ended
July 27, 1996.
Liquidity and Capital Resources
Family Bargain Corporation
As of August 2, 1997, Family Bargain Corporation (the "Parent") had outstanding
indebtedness in the principal amount of $2.7 million, no material change from
its debt obligations at February 1, 1997. Of the $2.7 million outstanding
principal amount, $1.9 million is due during the next twelve months.
Distributions of cash from General Textiles and Factory 2-U, (the "Operating
Subsidiaries") to the Parent company to pay Parent company debt service
obligations for the Series A 9 1/2% Convertible Preferred Stock (the "Series A
Preferred Stock") dividends (if declared) and certain administrative expenses
are limited under a plan of reorganization and certain debt agreements of the
Operating Subsidiaries. Permitted cash payments from General Textiles include
payments pursuant to a tax sharing agreement, certain subordinated debt of
General Textiles (which the Parent holds), and a management agreement. Permitted
cash payments by Factory 2-U to the Parent are limited to payments pursuant to a
management agreement and a guaranty fee agreement. Management believes that
permitted cash flows to the Parent company will be adequate to finance its
administrative expenses and meet the obligations under its existing indebtedness
as they become due for at least the next twelve months. The ability of the
Company to make dividend payments on its Series A Preferred Stock as they become
due will be dependent on the results of operations of the Company. To date the
Company has used its borrowing facilities to fund dividend payments.
In February and March 1997, the Company placed 9,600 shares of Series B Junior
Convertible, Exchangeable Preferred Stock (Series B Preferred Stock) with
private investors for net cash proceeds of $9.6 million. The net proceeds of the
private placement were provided to the operating subsidiaries for working
capital purposes.
General Textiles
General Textiles finances its operations through credit provided by suppliers,
amounts borrowed under its $35.0 million revolving credit facility, $3.0 million
in installment notes and internally generated cash flow.
5
<PAGE>
At August 2, 1997, General Textiles was obligated to non-affiliate holders of
its subordinated notes and reorganization securities in the face amount of $22.9
million with a carrying value of $11.9 million, of which management estimates
principal payments in the amount of approximately $1.3 million will be paid in
the next twelve months.
Revolving Credit Facility. As of August 2, 1997, General Textiles had $16.7
million outstanding and $6.8 million available to borrow under its revolving
credit facility.
Effective June 2, 1997, General Textiles amended its agreement with its working
capital lender to increase its revolving credit facility to $35.0 million from
$25.0 million, with advances limited to 65% of eligible inventory (as defined),
an interest rate of prime plus 3/4% per annum and an expiration date (subject to
annual one year extensions) of November 1999.
At August 2, 1997, the Company was not in compliance with certain covenants
under its revolving credit facilities. The Company's working capital lender has
waived such noncompliance.
In August 1997, General Textiles agreed with its working capital lender to amend
certain terms and conditions of its revolving credit facility. Under the amended
terms and conditions, the covenants will be reset to be reflective of
anticipated earnings, capital expenditures and cash flow over the remaining term
of the revolving credit facility. In addition, General Textiles may exceed the
65% of eligible inventory advance limitation at varying rates, not to exceed
$3.5 million, between October 1, 1997 and December 15, 1997. Such excess
borrowings will bear interest at an interest rate of prime plus 3% per annum.
Factory 2-U
Factory 2-U finances its operations through credit provided by suppliers,
amounts borrowed under its $15.0 million revolving credit facility and
internally generated cash flow.
Revolving Credit Facility. As of August 2, 1997, Factory 2-U had $7.5 million
outstanding and $2.5 million available to borrow under its revolving credit
facility.
Effective June 2, 1997, Factory 2-U, amended its agreement with its working
capital lender to increase its revolving credit facility to $15.0 million from
$10.0 million, with advances limited to 65% of eligible inventory (as defined),
an interest rate of prime plus 3/4% per annum and an expiration date (subject to
annual one year extensions) of November 1999.
In August 1997, Factory 2-U agreed with its working capital lender to amend
certain terms and conditions of its revolving credit facility. Under the amended
terms and conditions, the covenants will be reset to be reflective of
anticipated earnings, capital expenditures and cash flow over the remaining term
of the revolving credit facility.
6
<PAGE>
Capital Expenditures
The Company's planned future capital expenditures include costs to open new
Family Bargain Center and Factory 2-U stores, to renovate and/or relocate
existing stores, and to expand its central administrative and distribution
facilities. Management believes that future expenditures will be financed from
internal cash flow, and the General Textiles and Factory 2-U revolving credit
facilities. As of August 2, 1997 approximately $3.0 million has been spent by
the Company on capital expenditures. The Company anticipates spending
approximately $4.4 million during the remainder of the current fiscal year.
Inflation
In general, the Company believes that it will be able to offset the effects of
inflation by increasing operating efficiency, monitoring and controlling
expenses and increasing prices to the extent permitted by competitive factors.
Seasonality and Quarterly Fluctuations
The Company historically has realized its highest level of sales and income
during the third and fourth quarters of the fiscal year (the quarters ending in
fiscal October and January) as a result of the "Back to School" (August and
September) and Christmas (November and December) seasons. If the Company's sales
are substantially below seasonal expectations during the third and fourth
quarters, the Company's annual operating results will be adversely affected. The
Company historically has realized lower sales in its first two quarters, which
often has resulted in the Company incurring losses during those quarters.
Deferred Tax Assets
The Company has net operating loss ("NOL") carryforwards for Federal and
California income tax purposes. The utilization of these NOLs will be partially
limited due to restrictions imposed under the Federal and State laws upon a
change in ownership.
At August 2, 1997, the Company's total net deferred income tax assets, a
significant portion of which relates to NOLs discussed above, have been
subjected to a 100% valuation allowance since realization of such assets is not
more likely than not in light of the Company's recurring losses from operations.
7
<PAGE>
Cautionary Statement Regarding Forward-Looking Information
Statements, other than those based on historical facts, which address
activities, events or developments that the Company expects or anticipates may
occur in the future are forward-looking statements which are based upon a number
of assumptions concerning future conditions that may ultimately prove to be
inaccurate. Actual events and results may materially differ from anticipated
results described in such statements. The Company's ability to achieve such
results is subject to certain risks and uncertainties, including, but not
limited to, economic and weather conditions affect buying patterns of the
Company's customers, changes in consumer spending and the Company's ability to
anticipate buying patterns and implement appropriate inventory strategies,
continued availability of capital and financing, competitive factors and other
factors affecting the Company's business beyond the Company's control.
Consequently, all of the forward-looking statements are qualified by these
cautionary statements and there can be no assurance that the results or
developments anticipated by the Company will be realized or that they will have
the expected effects on the Company or its business or operations.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is at all times subject to pending and threatened legal actions
which arise out of the normal course of business. In the opinion of management,
based in part on the advice of legal counsel, the ultimate disposition of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
9
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of stockholders was held on June 25, 1997.
(b) The directors elected at the meeting were:
Votes For Votes Against Withheld
James D. Somerville 21,349,325 15,056
H. Whitney Wagner 21,349,792 14,589
Thomas G. Weld 21,349,792 14,589
Other directors whose terms of office continued after the meeting are as
follows: William W. Mowbray, John J. Borer III, Peter V. Handal, Ronald Rashkow,
and J. William Uhrig.
(c) Other matters voted upon at the meeting and the results of those votes were
as follows:
The appointment of Arthur Andersen LLP as independent auditors was
approved by the following vote:
Votes for: 21,359,568
Vote against: 443
Abstentions: 3,770
Adoption of the Family Bargain Corporation 1997 Stock Option Plan was
approved by the following vote:
Votes for: 18,018,611
Votes against: 1,036,625
Abstentions: 39,293
The foregoing matters are described in detail in the Company's proxy statement
dated May 22, 1997 for the 1997 Annual Meeting of Stockholders.
10
<PAGE>
PART II
Item 5. Other Information
Jonathan W. Spatz was appointed Executive Vice President - Chief Financial
Officer of Family Bargain Corporation on June 17, 1997. Spatz, 41, has more than
20 years experience in the public and private sector of the retail industry,
with specific expertise in finance, information systems, real estate, marketing
and business development. Most recently he served as Senior Vice President
Finance, Chief Financial Officer, Chief Operating Officer and as a member of the
Board of Directors of Strouds, Inc. (1994 -1997).
Earlier in his career he served in various senior management and finance
positions with Retail Management Associates (1993-1994); Chief Auto Parts Inc.
(1989-1993); Pearle, Inc. (1986-1989) and Peoples Restaurants, Inc. (1983-1986).
He is a certified public accountant and served as audit senior with Price
Waterhouse LLP (1978- 1980). He received a degree in business administration in
1977 from the University of Nebraska.
William W. Mowbray resigned as President, Chief Executive Officer and a Director
of Family Bargain Corporation effective July 28, 1997. The resignation was not a
result of any disagreements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 (a) Amendment No. 5 to Loan and Security Agreement,
dated as of April 23, 1997, between Factory 2-U and
Finova Capital Corporation (5 pages)
10.1 (b) Amendment No. 6 to Loan and Security Agreement,
dated as of May 30, 1997, between Factory 2-U and
Finova Capital Corporation (10 pages)
10.2 (a) Amendment No. 8 to Loan and Security Agreement,
dated as of April 23, 1997, between General Textiles
and Finova Capital Corporation (6 pages)
10.2 (b) Amendment No. 9 to Loan and Security Agreement,
dated as of May 30, 1997, between General Textiles
and Finova Capital Corporation (15 pages)
10.3 (a) Acknowledgment and Reaffirmation (Re: Affiliate Debt, Management
Fees, Intercreditor Agreement), dated as of April 23, 1997,
between Family Bargain Corporation and Finova Capital Corporation
(2 pages)
10.3 (b) Acknowledgment and Reaffirmation (Re: Affiliate Debt, Management
Fees, Intercreditor Agreement), dated as of May 30, 1997, between
Family Bargain Corporation and Finova Capital Corporation
(2 pages)
10.4 Subordination and Standstill Agreement (Re: $6.35 MM Debt), dated
as of May 30, 1997, between Family Bargain Corporation and Finova
Capital Corporation (5 pages)
11
<PAGE>
(a) Exhibits (continued)
10.5 Subordinated Promissory Note ($6.35 MM), dated as of
April 30, 1997 between General Textiles and Family
Bargain Corporation (1 page)
10.6 Modifications to the Loan and Security Agreement, dated as of
August 28, 1997, between Finova Capital Corporation and both
General Textiles and Factory 2-U (2 pages)
11.1 Computation of per share loss
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on May 14, 1997. It was amended in its
entirety by a Form 8-K/A-1 filed May 23, 1997. The reports on Form 8K
and 8K/A-1 reported on a change in certifying accountants filed
pursuant to Section 13 of the Securities Act of 1934.
12
<PAGE>
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 thereunto duly authorized.
FAMILY BARGAIN CORPORATION
Date: September 8, 1997
By: /s/ Jonathan W. Spatz
----------------------
Name: Jonathan W. Spatz
Title: Executive Vice President and Chief Financial Officer
(duly authorized officer and principal financial officer)
13
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
<S> <C> <C>
Exhibit
Number Description Page
10.1 (a) Amendment No. 5 to Loan and Security Agreement, dated as 15 - 19
of April 23, 1997, between Factory 2-U and Finova Capital
Capital Corporation (5 pages)
10.1 (b) Amendment No. 6 to Loan and Security Agreement, dated as 20 - 29
of May 30, 1997, between Factory 2-U and Finova Capital
Corporation (10 pages)
10.2 (a) Amendment No. 8 to Loan and Security Agreement, dated as 30 - 35
of April 23, 1997, between General Textiles and Finova Capital
Capital Corporation (6 pages)
10.2 (b) Amendment No. 9 to Loan and Security Agreement, dated as 36 - 50
of May 30, 1997, between General Textiles and Finova Capital
Capital Corporation (15 pages)
10.3 (a) Acknowledgment and Reaffirmation (Re: Affiliate Debt, 51 - 52
Management Fees, Intercreditor Agreement), dated as of
April 23, 1997, between Family Bargain Corporation and
Finova Capital Corporation (2 pages)
10.3 (b) Acknowledgment and Reaffirmation (Re: Affiliate Debt, 53 - 54
Management Fees, Intercreditor Agreement), dated as of
May 30, 1997, between Family Bargain Corporation and
Finova Capital Corporation (2 pages)
10.4 Subordination and Standstill Agreement (Re: $6.35 MM Debt), 55 - 59
dated as of May 30, 1997, between Family Bargain Corporation
and Finova Capital Corporation (5 pages)
10.5 Subordinated Promissory Note ($6.35 MM), dated as of 60
April 30, 1997 between General Textiles and Family Bargain
Corporation (1 page)
10.6 Modifications to the Loan and Security Agreement, dated as of
August 28,1997, between Finova Capital Corporation and both
General Textiles and Factory 2-U (2 pages) 61 - 62
11.1 Computation of per share loss 63
27 Financial Data Schedule 64
</TABLE>
14
Exhibit 10.1 (a)
AMENDMENT NO. 5 T0 LOAN AND SECURITY
AGREEMENT AND WAIVER
This Amendment No. 5 to Loan and Security Agreement and Waiver
(this "Amendment"), is entered into as of this 23rd day of April, 1997, by and
between FACTORY 2-U, INC., an Arizona corporation ("Borrower"), and FINOVA
CAPITAL CORPORATION, a Delaware corporation ("Lender").
WITNESSETH:
WHEREAS, Borrower and Lender are parties to that certain Loan and Security
Agreement dated as of November 10, 1995, as amended by (i) an Amendment No. 1 to
Loan and Security Agreement and Waiver dated as of April 18,1996, (ii) an
Amendment No.2 to Loan and Security Agreement and Waiver dated as of April 22,
1996, (iii) an Amendment No. 3 to Loan and Security Agreement and Waiver dated
July 10, 1996 an (iv) an Amendment No.4 to Loan and Security Agreement and
Waiver dated December31, 1996 (as so amended, the "Loan Agreement"); and
WHEREAS, Borrower has requested that Lender amend the Loan Agreement in
certain respects and, subject to the terms and conditions set forth below,
Lender is willing to do so.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and undertakings set forth herein, the parties hereby agree as follows:
1. Defined Terms. All capitalized terms used herein and not otherwise
defined shall have the meanings given such terms in the Loan Agreement.
2. Amendment to Loan Agreement. Provided the conditions described in
Section 4 of this Amendment are met to the satisfaction of Lender, the Loan
Agreement and the Schedule are hereby amended, as follows:
2.1 The Net Worth paragraph of that Section of the Schedule to the Loan
Agreement entitled "FINANCIAL COVENANTS (Section 13.14)" is hereby amended to
read in its entirety as follows:
Net Worth. Borrower shall maintain a Net Worth of not less than negative
$9,000,000 for the period of time from February 2, 1997 through January 31,
1998, and for each fiscal year thereafter, in an amount of not less than
$500,000 greater than the required Net Worth Covenant for the immediately
previous fiscal year (the "Net Worth Covenant");
<PAGE>
3. Waiver of Event of Default. Provided the conditions precedent described
in Section 4 of this Amendment are met to the satisfaction of Lender, Lender
hereby waives Borrower's non-compliance with the Net Worth covenant set forth in
that Section of the Schedule entitled "FJNANCIAL COVENANTS (Section 13.14)" for
the fiscal year ending February 1,1997. Borrower acknowledges that Lender is not
waiving any other Events of Default whether known or unknown to Lender.
4. Conditions Precedent. The modifications described in Section 2 of this
Amendment and the waiver set forth in Section 3 of this Amendment will not be
effective unless and until each of the following conditions precedent have been
satisfied, in form, manner and substance satisfactory to Lender:
(a) Borrower shall have delivered or caused to be delivered to Lender the
following documents, all of which shall be properly completed, executed and
otherwise satisfactory to Lender:
(i) This Amendment;
(ii) The Consent of Guarantor in the form attached hereto;
(iii) Such acknowledgments and reaffirmations of the Subordination
Agreement as Lender shall require;
(iv) Any other consents deemed necessary by Lender;
(v) A corporate resolution of Borrower and of Guarantor approving the
transactions contemplated hereby to which each is a party; and
(vi) Such other items as Lender may require.
(b) Lender and General Textiles shall have entered into an Amendment No.8
to Loan and Security Agreement on terms acceptable to Lender and each condition
to the effectiveness thereof shall have been satisfied.
(c) Except as specifically described in Section 3 of this Amendment, there
shall not then exist an Event of Default or any act or event which with notice,
passage of time, or both would constitute an Event of Default.
(d) All the representations and warranties of the Loan Parties in the Loan
Documents shall be true and correct, in all material respects, before and after
giving effect to the making of this Amendment.
(e) Borrower shall have paid all closing costs, recording fees and taxes,
appraisal fees and expenses, travel expenses, fees and expenses of Lender's
counsel, and all other costs and expenses incurred by Lender in connection with
the
<PAGE>
preparation of, closing of and disbursement of the advances pursuant to
this Amendment, which costs, fees and expenses may be payable from the first
advance made pursuant to this Amendment.
5. Indebtedness Acknowledged. Borrower acknowledges that the indebtedness
evidenced by the Loan Documents is just and owing and agrees to pay the
indebtedness in accordance with the terms of the Loan Documents. Borrower
further acknowledges and represents that no event has occurred and no condition
presently exists that would constitute a default or event of default by Lender
under the Loan Agreement or any of the other Loan Documents, with or without
notice or lapse of time.
6. Validity of Documents. Borrower hereby ratifies, reaffirms, acknowledges
and agrees that the Loan Agreement and the other Loan Documents represent valid,
enforceable and collectable obligations of Borrower, and that Borrower presently
has no existing claims, defenses (personal or otherwise) or rights of setoff
whatsoever with respect to the Obligations of Borrower under the Loan Agreement
or any of the other Loan Documents. Borrower furthermore agrees that it has no
defense, counterclaim, offset, cross-complaint, claim or demand of any nature
whatsoever which can be asserted as a basis to seek affirmative relief or
damages from Lender.
7. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender each of
the representations, warranties, covenants and agreements of Borrower as set
forth in each of the Loan Documents with the same force and effect as if each
were separately stated herein and made as of the date hereof Borrower represents
and warrants to Lender that with respect to the financing transaction herein
contemplated, no Person is entitled to any brokerage fee or other commission and
Borrower agrees to indemnify and hold Lender harmless against any and all such
claims,
8. Ratification of Terms and Conditions. All terms, conditions and
provisions of the Loan Agreement4 and of each of the other Loan Documents shall
continue in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby In the event of any conflict between the
terms and conditions of this Amendment and any of the other Loan Documents, the
provisions of this Amendment shall control.
9. Other Writings. Lender and Borrower will execute such other writings as
may be necessary to confirm or carry out the intentions of Lender and Borrower
evidenced by this Amendment.
10. Benefit of the Amendment. The terms and provisions of this Amendment
and the other Loan Documents shall be binding upon and inure to the benefit of
Lender and Borrower and their respective successors and assigns, except that
Borrower shall not have any right to assign its rights under this Amendment or
any of the Loan Documents or any interest therein without the prior written
consent of Lender.
<PAGE>
11. Choice of Law. The Loan Documents and this Amendment shall be performed
and construed in accordance with the laws of the State of Arizona.
12. Entire Agreement. Except as modified by this Amendment, the Loan
Documents remain in flail force and effect. The Loan Documents as modified by
this Amendment embody the entire agreement and understanding between Borrower
and Lender, and supersede all prior agreements and understandings between said
parties relating to the subject matter thereof.
13. Counterparts; Telecopy Execution. This Amendment may be executed in any
number of separate counterparts, all of which when taken together shall
constitute one and the same instrument, admissible into evidence,
notwithstanding the fact that all parties have not signed the same counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsirnile shall also deliver a manually executed counterpart of this
Amendment, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.
FINOVA CAPITAL CORPORATION, a Delaware corporation
By:
Name: Pete Martinez
Title: Vice President
FACTORY 2-U, INC., an Arizona corporation
By:
Name: William W, Mowbray
Title: President and Chief Executive Officer
<PAGE>
CONSENT OF GUARANTOR
The undersigned ("Guarantor'") hereby executes this Consent for the purpose
of(i) evidencing Guarantor's consent to the execution and performance of
Amendment No.5 to Loan and Security Agreement (the "Fifth Amendment") by Lender
and Borrower, (ii) reaffirming the terms of the Guaranty Agreement executed by
Guarantor, (iii) evidencing Guarantor's agreement that the Borrower's
Obligations as set forth in the Guaranty Agreement shall, for all purposes,
include the Loan Documents, as amended by the Fifth Amendment, and shall further
include all additional amounts which may be funded or advanced to Borrower
pursuant to the Loan Agreement as amended by the Fifth Amendment, and (iv)
ratifying and affirming all terms and provisions of the Guaranty Agreement.
Except to the extent otherwise indicated, terms used herein with initial capital
letters shall have the meanings set forth in the Loan Agreement, as amended.
IN WITNESS WHEREOF, the undersigned has hereunto executed this Consent as
of this 23rd day of April, 1997.
FAMILY BARGAIN CORPORATION, a Delaware corporation
By:
Name: William W. Mowbray
Title: President and Chief Executive Officer
Exhibit 10.1 (b)
AMENDMENT NO. 6 TO
LOAN AND SECURITY AGREEMENT
This Amendment No.6 to Loan and Security Agreement (this "Amendment"), is
entered into as of this 30th day of May, 1997, by and between FACTORY 2-U, INC.,
an Arizona corporation ("Borrower"), and FINOVA CAPITAL CORPORATION, a Delaware
corporation ("Lender").
WITNESSETH:
WHEREAS, Borrower and Lender are parties to that certain Loan and Security
Agreement dated as of November 10, 1995, as amended by (i) an Amendment No.1 to
Loan and Security Agreement and Waiver dated as of April 1$, 1996, (ii) an
Amendment No.2 to Loan and Security Agreement and Waiver dated as of April22,
1996, (iii) an Amendment No.3 to Loan and Security Agreement and Waiver dated
July 10, 1996, (iv) an Amendment No.4 to Loan and Security Agreement and Waiver
dated December31, I996E and (v) an Amendment No.5 to Loan and Security Agreement
and Waiver dated April 23, 1997 (as so amended, the "Loan Agreement") that
evidences a loan from Lender to Borrower: and
WHEREAS, Borrower has asked Lender to modify the Loan Agreement in
accordance with the terms of and subject to the conditions contained in, this
Amendment and Lender is willing so to amend the Loan Agreement, upon the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of these recitals, contained in this
Amendment, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lender and Borrower agree as
follows:
1. Definitions. Unless otherwise defined in this Amendment, all terms used
herein, which are defined in the Loan Agreement, have the same set forth in the
Loan Agreement.
2. Amendments to Loan Agreement. The Loan Agreement is amended as follows:
2.1 Section 1.1 of the Loan Agreement is hereby amended in its entirety to
read as follows:
"1.1 Total Facility, Upon the terms and conditions set forth herein and
provided that no Event of Default or event which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default.
<PAGE>
shall have occurred and be continuing, Lender shall, upon Borrower's
request, make advances to Borrower from time to time in an aggregate outstanding
principal amount not to exceed the Total Facility amount (the 'Total Facility')
set forth on the schedule hereto (the 'Schedule'), subject to deduction of
reserves as Lender deems proper from time to time in exercise of its reasonable
credit judgment, which reserves may include, upon and during the continuance of
an Event of Default, accrued interest and other reserves as Lender deems proper.
The foregoing notwithstanding, in the event based upon the results of Lender's
audit1 Lender concludes that Borrower's existing Inventory Shrinkage Reserve is
inadequate, Lender shall have the right to increase the amount of Inventory
Shrinkage Reserve in such amount as Lender, in its sole discretion deems
appropriate. The amount of such reserve shall reduce Borrower's borrowing
availability under the Inventory Loans. The Schedule is an integral part of this
Agreement and all references to 'herein', 'herewith' and words of similar import
shall for all purposes be deemed to include the Schedule."
2.2. That section of the Schedule entitled "TOTAL FACILITY (Section 1.1)"
is hereby amended by deleting the amount of "$10,000,000", and substituting in
its place the amount of "$15,000,000".
2.3. That section of the Schedule to the Loan Agreement entitled "LOANS
(Section 1.2)" is hereby amended to read in its entirety as follows:
"Revolving Loans: A revolving line of credit consisting of loans against
Borrower's Eligible Inventory ('Inventory Loans') in an aggregate outstanding
principal amount not to exceed the lesser of:
(a) Fifteen Million Dollars ($15,000,000); or
(b) the amount obtained when the Advance Rate is multiplied by the value of
Borrower's Eligible Inventory, calculated at the lower of cost or market and
determined on a first-in, first-out basis (and after reserving for Inventory
shrinkage in amounts determined by Lender from time to time in its sole
discretion)."
2.4. The following portions of that section of the Schedule to the Loan
Agreement entitled "INTEREST AND FEES (Section 3.1)" are hereby amended to read
in their entirety as follows:
"Interest. Borrower shall pay Lender interest on the daily outstanding
balance of Borrower's loan account at a per annum rate of three-quarters of one
percent (0.750%) in excess of the rate of interest announced publicly by
Citibank, N.A., from time to time as its 'base rate' (or any successor thereto),
which may
<PAGE>
not be such institution's lowest rate (the 'Base Rate'). The interest rate
chargeable hereunder shah be increased or decreased, as the case may he, without
notice or demand of any kind, upon the announcement of any change in the Base
Rate. Each change in the Base Rate shall be effective hereunder on the first day
following the announcement of such change, provided, that a cumulative change of
less than one-fourth of one percent (0.25%) shall not be considered. Interest
charges and all other fees and charges herein shall be computed on the basis of
a year of 360 days and actual days elapsed and will be payable to Lender in
arrears on the first day of each month.
Collateral Monitoring Fee. On the Closing Date and on the first day or each
month thereafter, commencing on December 1, 1 995, Borrower shall pay to Lender
a collateral monitoring fee of Five Thousand Dollars ($5,000) which shall be
deemed fully earned at the time of each payment. The foregoing notwithstanding,
the Collateral Monitoring Fee shall be prorated as of the Sixth Amendment
Effective Date and no Collateral Monitoring Fee shall be due and payable for the
balance of the term of the Loan Agreement, commencing on the Sixth Amendment
Effective Date.
Unused Line Fee. Borrower shall pay to Lender an unused line fee equal to
one-half of one percent (0.50%) (the "Unused Line Fee") on the difference,
calculated for each calendar month, between the Total Facility and the average
daily outstanding principal balance of all advances thereunder during such
month, payable on the first day of the immediately succeeding month: provided
however, that on and after the Sixth Amendment Effective Date, the Unused Line
Fee will be equal to one-quarter of one percent (0+250%) on the difference,
calculated for each calendar month, between $10,500,000 and the average daily
outstanding principal balance of all advances under the Total Facility during
such month, payable on the first day of the immediately succeeding month. The
Unused Line Fee shall be deemed fully earned as of the first day of each month,"
2.5. The following new Section 5.4 is hereby added to read in its entirety
as follows:
"5.4 Annual Appraisal. From time to time, Borrower shall furnish to Lender,
within forty-five (45) days of Lender's written request, a current appraisal of
Borrower's Inventory valuing the Inventory at the lower of costs or market on a
first-in first-out basis and prepared by an appraiser satisfactory to Lender in
its sole discretion, Lender shall have the right to reduce the Advance Rate to a
percentage acceptable to Lender in the event Lender, in the exercise of its sole
judgment, is not satisfied with the results of the foregoing inventory
appraisal."
<PAGE>
2.6. That section of the Schedule to the Loan Agreement entitled "TERM
(Section 16.1)" is hereby amended to read in its entirety as follows:
"The initial term of this Agreement shall end on November 10, 1999 (the
'Initial Term') and shall be automatically renewed at the discretion of Lender
for successive periods of one (1) year each (each, a 'Renewal Term'), unless
earlier terminated as provided herein. The foregoing notwithstanding, this
Agreement shall terminate and the Obligations shall be due and payable in full
upon a termination by General Textiles or Lender of the GenTex Loan Agreement."
2.7. Section [6.4 of the Loan Agreement is hereby amended in its entirety
to read as follows:
"16.4 Early Termination: Termination Fee. In addition to the procedure set
forth in Section 16.2, Borrower may terminate this Agreement at any time upon
sixty (60) days' prior written notice and prepay the Obligations. Upon any such
early termination by Borrower, any termination of this Agreement by Lender upon
the occurrence of an Event of Default or any termination of this Agreement as a
result of a termination of the GenTex Loan Agreement, then, and in any such
event, Borrower shall pay to Lender upon the effective date of such termination
a fee (the 'Termination Fee') in an amount equal to the amount shown on the
Schedule. The Termination Fee shall be presumed to be the amount of damages
sustained by Lender as a result of the early termination, and Borrower agrees
that because it is difficult to calculate such damages, the Termination Fee
provided for herein is reasonable under the circumstances Borrower shall be
entitled to a credit against the Termination Fee for any termination fees paid
to Lender by General Textiles under the GenTex Loan Agreement."
2.8. That section of the Schedule to the Loan Agreement entitled
"TERMINATION FEE (Section 16.4)" is hereby amended to read in its entirety as
follows:
"The 'Termination Fee' provided in Section 16.4 shall be an amount equal to
Thirty Thousand Dollars ($30,000.00) multiplied by the number of full or partial
calendar months between the effective date of such termination and November 10,
1998."
2.9. That subsection of that Section of the Schedule to the Loan Agreement
entitled "NEGATIVE COVENANTS (Section 14)", which subsection is entitled
"Capital Expenditures", is hereby amended in its entirety to read as follows:
<PAGE>
"Capital Expenditures.
Borrower shall not make or incur any Capital Expenditure if, after giving effect
thereto, the aggregate amount of all Capital Expenditures by Borrower during any
fiscal year would exceed Five Hundred Thousand Dollars ($500,000); provided,
however, that before the aggregate amount of Capital Expenditures incurred by
Borrower and by General Textiles during any fiscal year of Borrower exceeds the
amount of Three Million Dollars ($3,000,000), Borrower shall establish
Availability of not less than Three Hundred Thousand Dollars ($300,000) and
shall maintain such Availability for remaining portion of such fiscal year The
Availability required to be maintained by Borrower pursuant to this subsection
shall be in addition to any required Availability which Borrower must establish
and maintain pursuant to other provisions of the Loan Documents."
2.11. Section 18 of the Loan Agreement is hereby amended by adding the
following new definitions in their respective alphabetical order:
"'Advance Rate' means an amount equal to sixty-five percent (65.0%).
"'Availability' means the positive difference obtained by subtracting from
(a) the then maximum amount available for borrowing under the Inventory Loans,
(b) the aggregate outstanding and unpaid balance of the Inventory Loans and any
reserves that Lender is entitled to establish pursuant to the Loan Agreement."
"'GenTex Loan Agreement' means that certain Loan and Security Agreement by
and between General Textiles and Lender dated as of October 14, 1993, as
previously or hereafter from time to time amended, modified, supplemented,
restated or renewed."
"'Sixth Amendment Effective Date' means June 2, 1997."
"'Unused Line Fee' has the meaning set forth in the Schedule."
<PAGE>
2.12 As an additional covenant under the Loan Agreement. Borrower shall use
its best efforts to obtain landlord Consents from the lessors of each of the
locations in which Inventory or Equipment is located, in a form acceptable to
Lender.
2.13. All references to the "Loan Documents" shall be deemed to refer to
any such Loan Documents as the same may he amended as of the Six Amendment
Effective Date, or as the same may be subsequently modified, amended, renewed or
restated.
3. Fees. In consideration of Lender's agreement to enter into this
Amendment and to the modification to the Loan Documents described herein,
Borrower agrees to pay, on or before the Sixth Amendment Effective Date, the
amount of $37,600 (ie., 1/3 of $112,800) in consideration of Lender's agreement
to increase the amount of Borrower's line of credit for Loans (the "Fee"), of
which the amount of $18,750 (i.e., 1/3 of $56,250) has been previously paid by
Borrower to Lender and is hereby credited against the amount of the Fee.
Borrower and Lender acknowledge that Lender may withhold the Fee from the
proceeds of the Total Facility, to the extent the Fee is not paid prior to
disbursement thereof.
4. Conditions Precedent. This Amendment will not be effective unless and
until each of the following conditions precedent have been satisfied, in form,
manner and substance satisfactory to Lender prior to June 1, 1997:
(a) Borrower shall have delivered or caused to be delivered to Lender the
following documents, alt of which shall be properly completed, executed and
otherwise satisfactory to Lender:
(i) This Amendment;
(ii) Consent of Guarantor in the form attached hereto;
(iii) Such acknowledgments and consents deemed necessary by Lender;
(iv) A corporate resolution of Borrower approving the transactions
contemplated hereby to which it is a party;
(v) A corporate resolution of Guarantor approving the transactions
contemplated hereby to which it is a party;
(vi) An opinion from Borrower's and Guarantor's counsel, which counsel must
be acceptable to Lender, with respect to such matters as Lender shall require;
and
<PAGE>
(vii) Such other items as Lender may require.
(b) Lender and General Textiles shall have executed an Amendment No.9 to
the GenTex Loan Agreement and each condition to the effectiveness thereof shall
have been satisfied other than the execution of this Amendment.
(c) If requested by Lender, in its sole discretion, Borrower shall, at its
expense, cause a "Phase 1" environmental audit to be conducted on any or all of
its distribution centers or retail stores. Such audit(s) shall include, at
Lender's sole discretion, core samplings and/or borings if such further
investigation is indicated by the results of the applicable Phase 1 audit. Such
audit(s) shall he conducted by an environmental engineer acceptable to Lender in
its solo discretion and the standards for conducting, form of reporting and
results of any and all such audits must be acceptable to Lender in its sole
discretion.
(d) There shall not then exist an Event of Default or any act or event
which with notice, passage of time, or both would constitute an Event of
Default.
(e) All the representations and warranties of the Loan Panics in the Loan
Documents shall be true and Correct, in all material respects, before and after
giving effect to the making of this Amendment.
(f) Borrower shall have paid all closing costs, recording fees and taxes,
appraisal fees and expenses, travel expenses, fees and expenses of Lender's
counsel, and all other costs and expenses incurred by Lender in connection with
the preparation of; closing of and disbursement of the advances pursuant to this
Amendment which costs, fees and expenses may be payable from the first advance
made pursuant to this Amendment.
(g) Borrower shall have paid the Fee.
(h) There has occurred no material adverse change in the business,
operations, profits or prospects of' Borrower or on the condition of Borrower's
assets from and after February 2, 1997.
5. Landlord's Consent. Borrower shall use its best efforts to obtain a
Landlord Consent from the lessor of Borrower's Warehouse facility on Ruffin Road
in San Diego, California, in a form acceptable to Lender.
6. Indebtedness Acknowledged. Borrower acknowledges that the indebtedness
evidenced by the Loan Documents is just and owing and agrees to pay the
indebtedness in accordance with the terms of the loan Documents. Borrower
further
<PAGE>
acknowledges and represents that no event has occurred and no condition
presently exists that would constitute a default or event of default by Lender
under the Loan Agreement or any of the other Loan Documents, with or without
notice or lapse of time.
7. Validity of Documents. Borrower hereby ratifies, reaffirms, acknowledges
and agrees that the Loan Agreement and the other Loan Documents represent valid,
enforceable and collectable obligations of Borrower, and that Borrower presently
has no existing claims, defenses (personal or otherwise) or rights of setoff
whatsoever with respect to the Obligations of Borrower under the Loan Agreement
or any of the other Loan Documents. Borrower furthermore agrees that it has no
defense, counterclaim, offset, cross-complaint, claim or demand of any nature
whatsoever which can be asserted as a basis to seek affirmative relief or
damages from Lender.
8. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender each of
the representations, warranties, covenants and agreements of Borrower as set
forth in each of the Loan Documents with the same force and effect as if each
were separately stated herein and made as of the date hereof. Borrower
represents and warrants to Lender that, with respect to the financing
transaction herein contemplated, no Person is entitled to any brokerage fee or
other commission and Borrower agrees to indemnify and hold Lender harmless
against any and all such claims.
9 Ratification of Terms and Conditions. All terms, conditions and
provisions of the Loan Agreement, and of each of the other Loan Documents shall
continue in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby. In the event of any conflict between the
terms and conditions of this Amendment and any of the other Loan Documents, the
provisions of this Amendment shall control. Without limiting the generality of
the foregoing, Borrower reaffirms its obligation to deliver to Lender Landlord's
Consents with respect to all of Borrower's facilities in which Collateral is or
is intended to be kept or maintained and further acknowledges that Lender has
not waived its right to require the delivery of such Landlord's Consents,
10. Other Writings. Lender and Borrower will execute such other writings as
may be necessary to confirm or carry out the intentions of Lender and Borrower
evidenced by this Amendment.
11. Benefit of the Amendment. The terms and provisions of this Amendment
and the other Loan Documents shall be binding upon and inure to the benefit of
Lender and Borrower and their respective successors and assigns, except that
Borrower shall not have any right to assign its rights under this Amendment or
any of the Loan Documents or any interest therein without the prior written
consent of Lender.
12. Choice of Law. The Loan Documents and this Amendment shall be performed
and construed in accordance with the laws of the State of Arizona.
<PAGE>
13. Entire Agreement. Except as modified by this Amendment, the Loan
Documents remain in full force and effect. The Loan Documents as modified by
this Amendment embody the entire agreement and understanding between Borrower
and Lender, and supersede all prior agreements and understandings between said
parties relating to the subject matter thereof.
14. Counterparts; Telecopy Execution. This Amendment may be executed in any
number of separate counterparts, all of which when taken together shall
constitute one and the same instrument, admissible into evidence,
notwithstanding the fact that all parties have not signed the same counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsimile shall also deliver a manually executed counterpart of this
Amendment, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.
FINOVA CAPITAL CORPORATION, a Delaware corporation
By:
Name: Pete Martinez
Title: Vice President
FACTORY 2-U, INC., an Arizona corporation
By:
Name: William W. Mowbray
Title: President and Chief Executive Officer
<PAGE>
CONSENT OF GUARANTOR
The undersigned (Guarantor") hereby executes this Consent for the purpose
of(i) evidencing Guarantor's consent to the execution and performance of
Amendment No. 6 to Loan and Security Agreement (the "Sixth Amendment") by Lender
and Borrower, (ii) reaffirming the terms of the Guaranty Agreement executed by
Guarantor, (iii> evidencing Guarantor's agreement that the Borrower's
Obligations as set forth in the Guaranty Agreement shall, for all purposes,
include the Loan Documents, as amended by the Sixth Amendment, and shall further
include all additional amounts which may be funded or advanced to Borrower
pursuant to the Loan Agreement as amended by the Sixth Amendment, and (iv)
ratifying and affirming all terms and provisions of' the Guaranty Agreement
Except to the extent otherwise indicated, terms used herein with initial capital
letters shall have the meanings set forth in the Loan Agreement, as amended.
Guarantor agrees that it has no defense, counterclaim, of cross-complaint,
claim or demand of any nature whatsoever which can be asserted as a basis to
seek affirmative relief or damages from Lender.
IN WITNESS WHEREOF, the undersigned has hereunto execute Consent as of this
10th day of June, 1997,
FAMILY BARGAIN CORPORATION, a Delaware corporation
By:
Name: William W. Mowbray
Title: President and Chief Executive Officer
Exhibit 10.2 (a)
AMENDMENT NO. 8 TO LOAN AND SECURITY
AGREEMENT AND WAIVER
This Amendment No, 8 to Loan and Security Agreement and Waiver (this
"Amendment") is entered into as of this 23rd day of April, 1997, by and between
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), and GENERAL
TEXTILES, a California corporation ("Borrower").
Witnesseth:
WHEREAS, Borrower and Greyhound Financial Capital Corporation, an
Oregon corporation, predecessor by merger and name change to Lender, entered
into a Loan and Security Agreement dated as of October 14, 1993, as amended by
(i) an Amendment No.1 to Loan and Security Agreement dated as of July 11, 1994,
(ii) an Amendment No.2 to Loan and Security Agreement dated as of March 31,
1995, (iii) an Amendment No. 3 to Loan and Security Agreement dated as of July
27, 1995, (iv) an Amendment No.4 to Loan and Security Agreement dated as of
November 10, 1995, (v) an Amendment No.5 to Loan and Security Agreement dated as
of April 18, 1996, (vi) an Amendment No.6 to Loan and Security Agreement dated
as of July 10, 1996 and (vii) an Amendment No, 7 to Loan and Security Agreement
dated as of December 31, 1996 (as so amended, the "Loan Agreement"), that
evidences a loan from Lender to Borrower; and
WHEREAS, Borrower has asked Lender to modify the Loan Agreement in
accordance with the terms of, and subject to the conditions contained in this
Amendment, Lender is willing so to amend the Loan Agreement, upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of these recitals, the covenants
contained in this Amendment, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lender and Borrower
agree as follows:
1. Definitions. Unless otherwise defined in this Amendment, all capitalized
herein which are defined in the Loan Agreement shall have the same meaning as
set Loan Agreement.
2. Loan Agreement. Provided the conditions precedent described in Section 4 of
this Amendment are met to the satisfaction of Lender, the Loan Agreement are
modified, as of the date hereof, as follows:
2.1 Paragraph 14(0) of the Loan Agreement is hereby amended to read in its
entirety as follows:
Net Worth, As of the end of each fiscal month of Borrower, maintain a Net Worth:
<PAGE>
(i) of not less than Five Million Dollars ($5,000,000) for the period of time
Commencing February 2, 1997 through January 31, 1998;
(ii) of not less than Ten Million Dollars ($10,000,000) for the period of time
and commencing February 1, 1998 through January31, 1999; and
(iii) for each fiscal year thereafter, in an amount of not less than Two Million
Five Hundred Thousand Dollars ($2,500,000) greater than the required Net Worth
covenant for the immediately preceding fiscal year
2.2 Paragraph 22 of the Addendum, entitled Debt Service Coverage Ratio, shall be
amended to provide that Senior Contractual Debt Service and Total
Contractual Debt Service compliance up through January 31, 1998 shall be tested
quarterly as of the last day of July, 1997, October, 1997 and January, 1998 and
shall cover the period from February 2, 1997 through the relevant month.
Commencing with the test for Borrower's fiscal month ending February 28, 1998
and thereafter the foregoing covenants shall be tested monthly, on a rolling
twelve-month basis. Paragraph 22 of the Addendum shall be further amended to
provide that so long as any of the Obligations remain outstanding and the Loan
Agreement is in effect, Borrower shall maintain a ratio of Operating Cash Flow
to Senior Contractual Debt Service of not less than the following:
Test Date Ratio
July 31, 1997 0.9 to 1.0
October31, 1997
and thereafter 1.6 to 1.0
Paragraph 22 of the Addendum shall be further amended to provide
that so long as any of the Obligations remain outstanding and the Loan Agreement
is in effect, Borrower shall maintain a ratio of Operating Cash Flow to Total
Contractual Debt Service of not less than the following:
Test Date Ratio
July 31,1997 0.5 to l.0
October 31, 1997 1.0 to 1.0
January 31, 1999 1.4 to 1.0
and thereafter
<PAGE>
3. Waiver of Event of Default. Provided that the conditions precedent set forth
in Section 4 of this Amendment are met to the satisfaction of Lender, Lender
hereby waives Borrowers non-compliance with the Net Worth covenant contained in
Section 14(0) of the Loan Agreement and the Senior Contractual Debt Service and
Total Contractual Debt Service covenants contained in Paragraph 22 of the
Addendum, for Borrower's fiscal year ending February 1, 1997. Borrower
acknowledges that Lender is not waiving any other Events of Default, whether
known or unknown to Lender.
4. Conditions Precedent. The modifications described in Section 2 of this
Amendment arid the waiver set forth in Section 3 of this Amendment will not be
effective unless and until each of the following conditions precedent have been
satisfied, in form, manner and substance satisfactory to Lender:
(a) Borrower shall have delivered or caused to be delivered to Lender the
following documents, all of which shall be properly completed, executed and
otherwise satisfactory to Lender
(i) This Amendment;
(ii) Consent of Guarantor in the form attached hereto; shall require;
(iii) Such other acknowledgments and reaffirmation as Lender
(iv) Any other consents deemed necessary by Lender; approving the
(v) A corporate resolution of each of Borrower and Guarantor transactions
contemplated hereby to which each is a party; and
(vi) Such other items as Lender may require.
(b) Lender and Factory 2-U shall have entered into an Amendment No.5 to Loan and
Security Agreement on terms acceptable to Lender and each condition to the
effectiveness thereof shall have been satisfied other than the execution of this
Amendment
(c) Except as specifically described in Section 3 of this Amendment, there shall
not then exist an Event of Default or any act or event which with notice,
passage of time, or both would constitute an Event of Default.
(d) All the representations and warranties of the Loan Parties in the Loan
Documents shall be true and correct, in all material respects, before and after
giving effect to the making of this Amendment.
<PAGE>
(e) Borrower shall have paid all closing costs, recording fees and taxes,
appraisal fees and expenses, travel expenses, fees arid expenses of Lender's
counsel, and all other costs and expenses incurred by Lender in connection with
the preparation of, closing of and disbursement of the advances pursuant to this
Amendment, which costs, fees and expenses may be payable from the first advance
made pursuant to this Amendment.
5. Indebtedness Acknowledged. Borrower acknowledges that the indebtedness
evidenced by the Loan Documents is just and owing and agrees to pay the
indebtedness in accordance with the terms of the Loan Documents. Borrower
further acknowledges and represents that no event has occurred arid no condition
presently exists that would constitute a default or event of default by Lender
under the Loan Agreement or any of the other Loan Documents, with or without
notice or lapse of time.
6. Validity of Documents. Borrower hereby ratifies, reaffirms, acknowledges and
agrees that the Loan Agreement and the other Loan Documents represent valid,
enforceable and collectable obligations of Borrower, and that Borrower presently
has no existing claims, defenses (personal or otherwise) or rights of setoff
whatsoever with respect to the Obligations of Borrower under the Loan Agreement
or any of the other Loan Documents. Borrower furthermore agrees that it has no
defense, counterclaim, offset, cross-complaint, claim or demand of any nature
whatsoever which can be asserted Ma basis to seek affirmative relief or damages
from Lender.
7. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender each of the
representations, warranties, covenants and agreements of Borrower as set forth
in each of the Loan Documents with the same force and effect as if each were
separately stated herein and made as of the date hereof Borrower represents and
warrants to Lender that with respect to the financing transaction herein
contemplated, no Person is entitled to any brokerage fee or other commission and
Borrower agrees to indemnify and hold Lender harmless against any and all such
claims,
8. Ratification of Terms and Conditions. All terms, conditions and provisions of
the Loan Agreement, and of each of the other Loan Documents shall continue in
full force and effect and shall remain unaffected and unchanged except as
specifically amended hereby. In the event of any conflict between the terms and
conditions of this Amendment and any of the other Loan Documents, the provisions
of this Amendment shall control. Without limiting the generality of the
foregoing, 8orrower reaffirms its obligation to deliver to Lender Landlord's
Consents with respect to all of Borrower's facilities in which Collateral is or
is intended to be kept or maintained and further acknowledges that Lender has
not waived its right to require the delivery of such Landlord's Consents.
9. Other Writings. Lender and Borrower will execute such other writings as may
be necessary to confirm or carry out the intentions of Lender and Borrower
evidenced by this Amendment.
<PAGE>
10. Benefit of the Amendment. The terms and provisions of this Amendment and the
other Loan Documents shall be binding upon and inure to the benefit of Lender
and Borrower and their respective successors and assigns, except that Borrower
shall not have any right to assign his rights under this Amendment or any of the
Loan Documents or any interest therein without the prior written consent of
Lender.
11. Choice of Law, The Loan Documents and tins Amendment shall be performed and
construed in accordance with the laws of the State of Arizona.
12. Entire Agreement. Except as modified by this Amendment, the Loan
Documents remain in full force and effect. The Loan Documents as modified by
this Amendment embody the entire agreement and understanding between Borrower
and Lender, and supersede all prior agreements and understandings between said
parties relating to the subject matter thereof.
13. Counterparts: Telecopy Execution. This Amendment may be executed in any
number of separate counterparts, all of which when taken together shall
constitute one and the same instrument, admissible into evidence,
notwithstanding the fact that all parties have not signed the same counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Amendment. Any party delivering My executed counterpart of this Amendment by
telefacsimile shall also deliver a manually executed counterpart of this
Amendment, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding affect of this Amendment.
FINOVA CAPITAL CORPORATION, a Delaware corporation, successor-by-merger to
Greyhound Financial Capital Corporation, an Oregon corporation
By: /s/
Name: Pete Martinez
Title: Vice President
GENERAL TEXTILES, a California corporation
By: /s/
Name: William W. Mowbray
Title: President and Chief Executive Officer
<PAGE>
CONSENT or GUARANTOR
The undersigned ("Guarantor") hereby executes this Consent for the purpose of
(i) evidencing Guarantor's consent to the execution arid performance of
Amendment No.8 to Loan and Security Agreement (the "Eighth Amendment") by Lender
and Borrower, (ii) reaffirming the terms of the Guaranty Agreement executed by
Guarantor, (iii) evidencing Guarantor's agreement that the Borrower's
Obligations as set forth in the Guaranty Agreement Shall, for all purposes,
include the Loan Documents, as amended by the Eighth Amendment, and shall
further include all additional amounts which may be funded or advanced to
Borrower pursuant to the Loan Agreement as amended by the Eighth Amendment, and
(iv) ratifying and affirming all terms and provisions of the Guaranty Agreement
Except to the extent otherwise indicated, terms used herein with initial capital
letters shall have the meanings set forth in the Loan Agreement, as amended.
IN WITNESS WHEREOF, the undersigned has hereunto executed this
Consent as of this 23rd day of April 1997.
FAMILY BARGAIN CORPORATION
By
Name: William W. Mowbray
Tide: President and Chief Executive Officer
Exhibit 10.2 (b)
AMENDMENT NO. 9 TO LOAN AND SECURITY AGREEMENT
This Amendment No. 9 to Loan and Security Agreement (this "Amendment") is
entered into as of this 30th day of May, 1997, by and between FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), and (GENERAL TEXTILES, a
California corporation ("Borrower").
WITNESSETH:
WHEREAS, Borrower and (Greyhound Financial Capital Corporation, an Oregon
corporation, predecessor by merger and name change to Lender, entered into a
Loan and Security Agreement dated as of October 14, 1993, as amended by (i) an
Amendment No.1 to Loan and Security Agreement dated as of July 11, 1994, (ii) an
Amendment No. 2 to Loan and Security Agreement dated as of March 31, 1995, (iii)
an Amendment No.3 to Loan and Security Agreement dated as of July 27, 1995, (iv)
an Amendment No.4 to Loan and Security Agreement dated as of November IC), 1995,
(v) an Amendment No.5 to Loan and Security Agreement dated as of April 18,1996,
(vi) an Amendment No.6 to Loan and Security Agreement dated as of July 10, 1996,
(vii) an Amendment No.7 to Loan and Security Agreement dated as of December 31,
1996, (viii) a Letter Agreement dated January 10,1997 with respect to the
establishment of certain letters of credit and (ix) an Amendment No.8 to the
Loan and Security Agreement and Waiver dated April23, 1997 (as so amended, the
"Loan Agreement"), that evidences a loan from Lender to Borrower; and
WHEREAS. Borrower has asked Lender to modify the Loan Agreement in
accordance with the terms of, and subject to the conditions contained in, this
Amendment and Lender is willing so to amend the Loan Agreement, upon the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of these recitals, the covenants contained
in this Amendment, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Lender and Borrower agree as
follows:
1. Definitions. Unless otherwise defined in this Amendment. all capitalized
terms used herein which are defined in the Loan Agreement have the same meaning
as set forth in the Loan Agreement.
2. Loan Agreement. The Loan Agreement is modified as follows:
2.1. Section 1(A) is hereby amended by adding or substituting, as the case may
be, the following definitions:
"'Advance Rate' means an amount equal to sixty-five percent (65.0%).
<PAGE>
"'Availability' means the positive difference obtained by subtracting from (a)
the then maximum amount available for borrowing under the Inventory Loans, (b)
the sum of the aggregate outstanding and unpaid balances of all Inventory Loans,
the Capex Loan, the Term Loan and the Additional Term Loan and any reserves that
Lender is entitled to establish pursuant to the Loan Agreement."
"'Default' means an event that, with the giving of notice or passage of time, or
both, would constitute an Event of Default."
"'EBITDA' means for any fiscal period of Person means the net income of such
Person for such fiscal period, plus interest expense, depreciation, amortization
and other non-cash expense and provision for income taxes for such fiscal
period, and minus non-recurring miscellaneous income and expenses, all
calculated in accordance with generally accepted accounting principles,
consistently applied."
"Inventory Loans Cap' has the meaning given to it in Paragraph 23."
"'Letter Agreement' that certain Letter Agreement between Borrower and lender
dated January 10, 1997, as amended
"'L/C Fee' has the meaning given to it in the Letter Agreement."
"'Letters of Credit' has the meaning given to it in the Letter of Agreement."
"'Ninth Amendment' means that certain Amendment No. 9 to Loan and Security
Agreement between Lender and Borrower dated as of May 30, 1997."
"'Ninth Amendment Effective Date' means June 2, 1997, the date upon which the
Ninth Amendment became effective pursuant to the terms and upon the conditions
thereof."
"'Term Loan D' means the term loan made by Lender to Borrower in the amount of
$5,000,000 pursuant to the terms of the Ninth Amendment."
"'Term Note D' means the promissory note of Borrower made payable to Lender to
evidence Term Loan D, in form and substance satisfactory to Lender, repayable in
accordance with the terms set forth therein and in this Amendment."
"'6.35MM Debt' means the Borrower's Indebtedness to Guarantor, in the original
principal amount not to exceed $6,350,000, evidenced by the Borrower's
promissory note payable to Guarantor's order, and subordinated to the Borrower's
Indebtedness to Lender pursuant to a Subordination and Standstill Agreement by
and between Lender and Guarantor dated May 30, 1997."
<PAGE>
2.2. Paragraph 2(A) is hereby amended in its entirety to read as follows:
"2(A) Total Facility. Upon the terms and conditions set forth herein and
provided that no Event of Default or event which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default, shall have
occurred and be continuing, Lender shall upon Borrower's request, make advances
to Borrower from time to time in an aggregate outstanding principal amount not
to exceed Forty Million Dollars ($40,000,000) (the 'Total Facility'), subject to
deduction of reserves as Lender deems proper from time to time in exercise of
its reasonable credit judgment, which reserves may include, upon and during the
continuance of an Event of Default, accrued interest and other reserves as
Lender deems proper." The foregoing notwithstanding, in the event based upon the
results of Lender's audit, Lender concludes that Borrower's existing Inventory
Shrinkage Reserve is inadequate, Lender shall have the right to increase the
amount of Inventory Shrinkage Reserve in such amount as Lender, in its sole
discretion, deems appropriate.
2.3. Paragraph 2(B) is hereby amended in its entirety to read as follows:
"2(B) Loans. Advances of the Total Facility shall be comprised of the following:
(i) Inventory Loans. A revolving line of credit consisting of loans against
Borrower's Eligible Inventory ('Inventory Loans') in an aggregate outstanding
principal amount not to exceed the lesser of:
(a) the sum of (1) the amount obtained when the Advance Rate is multiplied by
the value of Borrower's Eligible Inventory, calculated at the lower of cost or
market and determined on a first-in, first-out basis (and after reserving for
Inventory shrinkage in amounts determined by Lender from time to time in its
sole discretion) minus (2) the aggregate face amount of all outstanding Letters
of Credit; or
(b) Thirty-Five Million Dollars ($35,000,000) minus the sum of the aggregate
outstanding balances of (A) the Capex Note, (B) the Term Note and (C) the
Additional Term Note.
(ii) Capital Expenditure Line. The Capital Expenditure Line in such amounts and
on such terms as are set forth in the Second Amendment and in the Capex Note.
(iii) Term Loan. The Term Loan on such terms as are set forth in the Fifth
Amendment and in the Term Note.
<PAGE>
(iv) Additional Term Loan. The Additional term loan on such terms as are set
forth in The Sixth Amendment and in the Additional Term Note.
(V) Term Loan D. Term Loan D on such terms as are set forth in the Ninth
Amendment and in Term Note D."
2.4. Paragraph 2 is hereby amended to add a new Paragraph 2(K), to read in its
entirety as follows:
"2(K) Term Loan D. Upon satisfaction of each condition precedent contained in
the Ninth Amendment, Lender shall make Term Loan D to Borrower. Lender shall
advance Term Loan D in a single advance credited to Borrower. Term Loan D shall
be evidenced by, and repaid in accordance with, Term Note D."
2.5 Paragraph 3(A) is hereby amended in its entirety to read as follows:
"3(A) Interest. Borrower shall pay Lender interest on the daily outstanding
balance of Borrower's loan account at a per annum rate of three-quarters of one
percent (0.750%) in excess of the rate of interest announced publicly by
Citibank, N.A., from time to time as its "base rate" (or any successor thereto),
which may not be such institution's lowest rate (the "Base Rate"); provided,
however, that the outstanding and unpaid principal balance of each of the Capex
Note, the Term Note, the Additional Term Note and Term Loan D shall accrue
interest at the per annum rate respectively provided therein. The interest rate
chargeable hereunder shall be increased or decreased, as the case may be,
without notice or demand of any kind, upon the announcement of any change in the
Base Rate. Each change in the Base Rate shall be effective hereunder on the
first day following the announcement of such change, provided, that a cumulative
change of less than one-fourth of one percent (0.25%) shall not be considered.
interest charges and all other fees and charges herein shall be computed on the
basis of a year of 360 days and actual days elapsed and will be payable to
Lender in arrears on the first day of each month hereafter at its address set
forth in Exhibit B of the Original Agreement
2.6. Paragraph 3(D) providing for quarterly collateral monitoring fees, is
hereby deleted in its entirety effective on the Ninth Amendment Effective Date
and any collateral monitoring fees due for the period prior thereto shall be
prorated as of that date.
2.7. Paragraph 5(B) shall be amended with the addition of the following
provision;
From time to time, Borrower shall furnish to Lender, within forty-five (45) days
of Lender's written request, a current appraisal of Borrower's
<PAGE>
Inventory valuing the Inventory at the lower of costs or market on a first-in
first-out basis and prepared by an appraiser satisfactory to Lender in its sole
discretion. Lender shall have the right to reduce the Advance Rate to a
percentage acceptable to Lender in the event Lender, in the exercise of its sole
judgment, is not satisfied with the results of the foregoing inventory
appraisal.
2.8. Each of the financial covenants set forth in Paragraph 14(0) and Paragraph
14(P) is hereby amended in part to provide that, for the purposes of calculating
such covenant, "Net Worth" shall be increased by, and "indebtedness" shall be
decreased by, the unpaid and outstanding principal balance of the 6.35MM Debt at
date of calculation of such covenant.
2.9. Paragraph 15(I) is hereby amended in its entirety to read as follows:
"15(I) Capital Expenditures. Make or incur any Capital Expenditure except to the
extent set forth in this paragraph. Borrower shall be permitted to make or incur
Capital Expenditures during each fiscal year of Borrower in an aggregate amount
not in excess of the sum of Five Million Dollars ($5,000,000); provided that all
Capital Expenditures are made from (A) the proceeds of capital contributions
made by Guarantor to Borrower, (B) the proceeds of Permitted Guarantor
Indebtedness or (C) the proceeds of Permitted Equipment Indebtedness or (D)
working capital representing the proceeds of an advance of the Inventory Loans
or Term Loan D; provided further, that before the aggregate amount of Capital
Expenditures incurred by Borrower and by Factory 2-U during any fiscal year of
Borrower exceeds the amount of Three Million Dollars ($3,000,000), Borrower
shall establish Availability of not less than Seven Hundred Thousand Dollars
($700,000) and shall maintain such Availability for remaining portion of such
fiscal year. The Availability required to be maintained by Borrower pursuant to
this paragraph shall be in addition to any required Availability which Borrower
must establish and maintain pursuant to other provisions of the Loan Documents.
2.10. The following negative covenants are hereby added to Section 15:
"Payments to Berkeley Capital. Any payments negotiated to be made by Borrower
with respect to obligations owed to or on account of Berkeley Capital
Corporation are subject to Lender's written consent, which may be withheld at
Lender's sole discretion, and are further subject to the condition that, after
having made such payment, Borrower shall have Availability of at least One
Million Dollars ($1,000,000). The Availability required to be maintained by
Borrower pursuant to this paragraph shall be in addition to any required
Availability which Borrower must establish and maintain pursuant to other
provisions of the Loan Documents.
<PAGE>
6.35MM Debt. Borrower shall not make any payment with respect to or on account
of the 6.35MM Debt while a Default or an Event of Default exists or if a Default
or an Event of Default would exist after giving effect to such payment."
In addition, Section 15(k)(iii) of the Loan Agreement is hereby amended in part
to provided that the 6.35M.M Debt shall be considered "other Indebtedness
existing on the date of this Agreement and reflected in the Prepared
Financials."
2.11. Section 17(A) of the Loan Agreement is hereby amended in its entirety to
read as follows:
"17(A) Term. The initial term of this Agreement shall end on November 10, 1999
(the Initial Term') and shall be automatically renewed at the discretion of
Lender for successive periods of one (1) year each (each, a 'Renewal Term'),
unless earlier terminated as provided herein. The foregoing notwithstanding,
this Agreement shall terminate and the Obligations shall be due and payable in
full upon a termination by Factory 2-U or Lender of the Factory 2-U Loan
Agreement."
2.12. Section 17(D) of the Loan Agreement is hereby amended in its entirety to
read as follows:
"17(D) Early Termination: Termination Fee. In addition to the procedures set
forth in Paragraph 17(A), Borrower may terminate this Agreement at any time upon
sixty (60) days' prior written notice and prepay the Obligations. Upon any such
early termination by Borrower, any termination of this Agreement by Lender upon
the occurrence of an Event of Default or any termination of this Agreement as a
result of a termination of the Factory 2-U Loan Agreement, then, and in any such
event, Borrower shall pay to Lender upon the effective date of such termination
a fee ("Termination Fee") in an amount equal to Thirty Thousand Dollars
($30,000.00) multiplied by the number of full or partial calendar months between
the effective date of such termination and November 10, 1998. The Termination
Fee shall be presumed to be the amount of damages sustained by Lender as a
result of the early termination, and Borrower agrees that because it is
difficult to calculate such damages, the Termination Fee provided for herein is
reasonable under the circumstances. Borrower shall be entitled to a credit
against the Termination Fee for any termination fees paid to Lender by Factory
2-U under the Factory 2-U Loan Agreement."
2.13. Paragraph 17 of the Loan Agreement is hereby amended to add a new
Paragraph 17(G), to read in its entirety as follows:
"(0) Term Loan D. Borrower may voluntarily prepay that portion of the
Obligations evidenced by Term Note D at any time, in whole or in part, without
premium or penalty; provided, however, any such funds received from Borrower
<PAGE>
shall be applied first to any Obligations then due and payable, second, to all
sums other than principal and interest than due and payable in respect of the
Term Loan D, third to interest due on Term Loan D and fourth, the balance to
reduction of the principal balance of Term Loan D."
2.14. Paragraph 23 of the Addendum to the Loan Agreement is hereby amended in
its entirety to read as follows:
"23. Unused Line Fee. To the extent that the average daily unpaid balance of the
Inventory Loans does not equal $24,500,000 (the 'Inventory Loans Cap'), then
Borrower shall pay to Lender a fee (the 'Unused Line Fee') at a rate equal to
one-quarter of one percent (O.250%) per annum on the amount by which the
Inventory Loans Cap exceeds such sum. Such fee shall be payable to Lender in
arrears on the first Business Day of each fiscal quarter of Borrower and shall
be deemed fully earned at the time such fee accrues."
2.l5. The Special Purpose line is hereby terminated.
2.16 As an additional covenant under the Loan Agreement, Borrower shall use its
best efforts to obtain Landlord Consents from the lessors of each of the
locations in which Inventory or Equipment is located, in a form acceptable to
Lender.
2.17. All references in the Loan Agreement to the "Obligations" shall be deemed
to include, in addition to the Inventory Loans, the Capital Expenditure Line,
the Term Loan, the Additional Term Loan and the Overlines, all obligations of
Borrower to Lender in respect of Indebtedness arising under Term Loan D or
evidenced by Term Note D; all references to the "Total Facility" shall be deemed
to include the Inventory Loans, the Capital Expenditure Line, the Term Loan, the
Additional Term Loan, Term Loan D and the Overlines; all references to the "Loan
Documents" shall be deemed to refer to any such Loan Document as the same may be
amended as of the Ninth Amendment Effective Date, or as the same may
subsequently be modified, amended, renewed or restated, and shall specifically
include Term Note D. All references in the Loan Documents to the "Note" or the
"Notes" shall be deemed to include Term Note D.
3. Fees. In consideration of Lender's agreement to enter into this Amendment and
to the modification to the Loan Documents described herein, Borrower agrees to
pay the following fees on or before the Ninth Amendment Effective Date:
(a) $75,000 in consideration of Lender's willingness to extend the Term Loan D
(the Term Loan D Fee"); and
(b) $75,200 (i.e. 2/3 of $112,800) in consideration of Lender's agreement to
increase the amount of Borrower's line of credit for Inventory Loans (the "Line
Increase Fee"; and, together with the Term Loan D Fee, the "Fees"), of which the
amount of
<PAGE>
$37,500 (i.e., 2/3 of $56,250) has been previously paid by Borrower to Lender
and is hereby credited against the amount of the Line Increase Fee.
Borrower and Lender acknowledge that Lender ray withhold the Fees from the
proceeds of the Total Facility, to the extent such Fees are not paid prior to
disbursement thereof.
4. Subordination Agreement. Borrower is a party to that certain Standstill and
Subordination Agreement dated November 10, 1995, Factory 2-U and Lender (the "GT
Subordination Agreement"). Borrower hereby acknowledge that the GT Subordination
Agreement shall remain in full force and effect notwithstanding the making of
Amendment No. 6 to the Factory 2-U Loan Agreement and notwithstanding the making
of any previous amendments thereto. Borrower restates and confirms each of
Borrower's representations and warranties set forth the GT Subordination
Agreement as if made on the date hereof.
5. Conditions Precedent. This Amendment will not be effective unless and until
each of the following conditions precedent have been satisfied, in form, manner
and substance satisfactory to Lender prior to June 1, 1997:
(a) Borrower shall have delivered or caused to be delivered to Lender the
following documents, all of which shall be property completed, executed and
otherwise satisfactory to Lender:
(i) This Amendment;
(ii) Term Note D;
(iii) Consent of Guarantor in the form attached hereto;
(iv) Such acknowledgments and reaffirmations of the Affiliate Debt
Subordination Agreement as Lender shall require;
(v) Such acknowledgments and reaffirmations of the Intercreditor Agreement
as Lender shall require;
(vi) Such acknowledgments and reaffirmations of the Subordination Agreement
as Lender shall require;
(vii) Any other consents deemed necessary by Lender;
(viii) A corporate resolution of Borrower approving the transactions
contemplated hereby to which it is a party;
(ix) A corporate resolution of Guarantor approving the transactions
contemplated hereby to which it is a party;
<PAGE>
(x) A Subordination and Standstill Agreement of Guarantor with respect to
the 6.35MM Debt; and
(xi) Such other items as Lender may require.
(b) As a condition precedent to Lender's obligation to make Term Loan D, Lender
shall have reached agreement acceptable to Lender in its sole discretion with
another financial institution to participate in not less than forty-five percent
(45%) of Term Loan D.
(c) Lender and Factory 2EU shall have executed an Amendment No.6 to the Factory
2-U Loan Agreement and each condition to the effectiveness thereof shall have
been satisfied other than the execution of this Amendment.
(d) If requested by Lender, in its sole discretion, Borrower shall, at its
expense, cause a "Phase I" environmental audit to be conducted on any or all of
its distribution centers or retail stores. Such audit(s) shall include, at
Lender's sole discretion, core samplings and/or borings if such further
investigation is indicated by the results of the applicable Phase I audit. Such
audit(s) shall be conducted by an environmental engineer acceptable to Lender in
its sole discretion and the standards for conducting, form of reporting and
results of any and all such audits must be acceptable to Lender in its sole
discretion.
(e) There shall not then exist an Event of Default or any act or event which
with notice, passage of time, or both would constitute an Event of Default.
(f) All the representations and warranties of the Loan Parties in the Loan
Documents shall be true and correct, in all material respects, before and after
giving effect to the making of this Amendment.
(g) Borrower shall have paid all closing costs, recording fees and taxes,
appraisal fees and expenses, travel expenses, fees and expenses of Lender's
counsel, and all other costs and expenses incurred by Lender in connection with
the preparation of; closing of and disbursement of the advances pursuant to this
Amendment, which costs, fees and expenses may be payable from the first advance
made pursuant to this Amendment,
(h) Borrower shall have paid the Fees (provided, however, that the Term Loan D
Fee shall be due and payable by Borrower only in the event Lender is obligated
to make Term Loan D).
(i) There has occurred no material adverse change in the business, operations,
profits or prospects of Borrower or on the condition of Borrower's assets from
and after February 2,1997.
<PAGE>
6. Landlord's Consent. Borrower shall use its best efforts to obtain a
Landlord's Consent from the lessor of Borrower's warehouse facility on Ruffin
Road in San Diego, California, in a form acceptable to Lender.
7. Indebtedness Acknowledged. Borrower acknowledges that the indebtedness
evidenced by the Loan Documents is just and owing and agrees to pay the
indebtedness in accordance with the terms of the Loan Documents. Borrower
further acknowledges and represents that no event has occurred and no condition
presently exists that would constitute a default or event of default by Lender
under the Loan Agreement or any of the other Loan Documents, with or without
notice or lapse of time.
8. Validity of Documents. Borrower hereby ratifies, reaffirms, acknowledges and
agrees that the Loan Agreement and the other Loan Documents represent valid,
enforceable and collectable obligations of Borrower, and that Borrower presently
has no existing claims, defenses (personal or otherwise) or rights of setoff
whatsoever with respect to tile Obligations of Borrower under the Loan Agreement
or any of the other Loan Documents. Borrower furthermore agrees that it has no
defense, counterclaim, offset, cross-complaint, claim or demand of any nature
whatsoever which can be asserted as a basis to seek affirmative relief or
damages from Lender.
9. Reaffirmation of Warranties Borrower hereby reaffirms to Lender each of the
representations, warranties, covenants and agreements of Borrower as set forth
in each of the Loan Documents with the same force and effect as if each were
separately stated herein and made as of the date hereof. Borrower represents and
warrants to Lender that with respect to the financing transaction herein
contemplated, no Person is entitled to any brokerage fee or other commission and
Borrower agrees to indemnify and hold Lender harmless against any and all such
claims.
10. Ratification of Terms and Conditions. All terms, conditions and
provisions of the Loan Agreement, and of each of the other Loan Documents shall
continue in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby. In the event of any conflict between the
terms and conditions of this Amendment and any of the other Loan Documents, the
provisions of this Amendment shall control. Without limiting the generality of
the foregoing, Borrower reaffirms its obligation to deliver to Lender Landlord's
Consents with respect to all of Borrower's facilities in which Collateral is or
is intended to be kept or maintained and further acknowledges that Lender has
not waived its right to require the delivery of such Landlord's Consents.
11. Other Writings. Lender and Borrower will execute such other writings as may
be necessary to confirm or carry out the intentions of Lender and Borrower
evidenced by this Amendment.
12. Benefit of the Amendment. The terms and provisions of this Amendment and the
other Loan Documents shall be binding upon and inure to the benefit of Lender
and Borrower and their respective successors and assigns, except that Borrower
shall not have any right to
<PAGE>
assign its rights under this Amendment or any of the Loan Documents or any
interest therein without the prior written consent of Lender.
13. Choice of Law. The Loan Documents and this Amendment shall be performed and
construed in accordance with the laws of the State of Arizona.
14. Entire Agreement. Except as modified by this Amendment, the Loan Documents
remain in full force and effect. The Loan Documents as modified by this
Amendment embody the entire agreement and understanding between Borrower and
Lender, and supersede all prior agreements and understandings between said
parties relating to the subject matter thereof.
15. Counterparts. This Amendment may be executed In any number of separate
counterparts, all of which when taken together shall constitute one and the same
instrument, admissible into evidence, notwithstanding the fact that all parties
have not signed the same counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
FINOVA CAPI TAL CORPORATION, a Delaware corporation, successor- by- merger to
Greyhound Financial Capital Corporation, an Oregon corporation
By:
Name: Pete Martinez
Title: Vice President
GENERAL TEXTILES, a California corporation
By:
Name: William W. Mowbray
Title: President and Chief Executive Officer
<PAGE>
Attached are the revised pages 5 and 5A to the Amendment No. 9 to Loan and
Security Agreement. These changed pages insert a new Section 2.8(A) into the
Ninth Amendment. If these changes are acceptable, please have Bill Mowbray sign
on the signature block set forth below, fax one copy to Ron Golberg and fax one
copy to Pete Martinez.
Insertion of attached pages 5 and 5A into Ninth Amendment hereby agreed to and
approved by:
GENERAL TEXTILES, a California Corporation
By: /s/
Name: William W. Mowbray
Title: President and Chief Executive Officer
<PAGE>
Inventory valuing the Inventory at the lower of costs or market on a first-in
first-out basis and prepared by an appraiser satisfactory to Lender in its sole
discretion. Lender shall have the right to reduce the Advance Rate to a
percentage acceptable to Lender in the event Lender, in the exercise of its sole
judgment, is not satisfied with the results of the foregoing inventory
appraisal.
2.8 Each of the financial covenants set forth in Paragraph 14(O) and Paragraph
14(P) is hereby amended in part to provide that, for the purposes of calculating
such covenant, "Net Worth" shall be increased by, and "Indebtedness" shall be
decreased by, the unpaid and outstanding principal balance of the 6.35MM Debt at
date of calculation of such covenant.
2.8A Paragraph 14(Q) of the Loan Agreement, set forth In Section 2.2 of the
Seventh Amendment, is hereby amended in its entirety to read as follows:
"(Q) Merger or Acquisition. No later than one hundred and twenty (120) days
following Borrower's retiring in full all bankruptcy debt of Borrower held by a
creditor other than Guarantor or any other Affiliate, Borrower shall have merged
with Factory 2-U, or have acquired all of the outstanding capital stock of
Factory 2-U, in either case on standard commercially reasonable terms and
conditions, comparable to those of an arm's-length transaction between
unaffiliated entities and accompanied by a valuation opinion satisfactory to
Lender in the exercise of its reasonable business judgment, prepared by an
accounting or investment firm acceptable to Lender. For the purposes of this
Paragraph 14(Q), 'bankruptcy debt of Borrower' means the New Subordinated Notes,
the Subordinated Reorganization Notes and the Junior Subordinated Reorganization
Notes."
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
2.9. Paragraph 15(I) is hereby amended in its entirety to read as follows:
15(I) Capital Expenditures. Make or incur any Capital Expenditure except to the
extent set forth in this paragraph. Borrower shall be permitted to make or incur
Capital Expenditures during each fiscal year of Borrower in an aggregate amount
not in excess of the sum of Five Million Dollars ($5,000,000); provided that all
Capital Expenditures are made from (A) the proceeds of capital contributions
made by Guarantor to Borrower, (B) the proceeds of Permitted Guarantor
Indebtedness or (C) the proceeds of Permitted Equipment Indebtedness or (D)
working capital representing the proceeds of an advance of the Inventory Loans
or Term Loan D; provided further, that before the aggregate amount of Capital
Expenditures incurred by Borrower and by Factory 2-U during any fiscal year of
Borrower exceeds the amount of Three Million Dollars ($3,000,000), Borrower
shall establish Availability of not less than Seven Hundred Thousand Dollars
($700,000) and shall maintain such Availability for remaining portion of such
fiscal year. The Availability required to be maintained by Borrower pursuant to
this paragraph shall be in addition to any required Availability which Borrower
must establish and maintain pursuant to other provisions of the Loan Documents.
2.1O. The following negative covenants are hereby added to Section 15:
"Payments to Berkeley Capital. Any payments negotiated to be made by Borrower
with respect to obligations owed to or on account of Berkeley Capital
Corporation are subject to Lender's written consent, which may be withheld at
Lender's sole discretion, and are further subject to the condition that, after
having made such payment, Borrower shall have Availability of at Ieast One
Million Dollars ($1,000,000). The Availability required to be maintained by
Borrower pursuant to this paragraph shall be in addition to any required
Availability which Borrower must establish and maintain pursuant to other
provisions of the Loan Documents.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
CONSENT OF GUARANTOR
The undersigned ("Guarantor") hereby executes this Consent for the purpose of
(i) evidencing Guarantor's consent to the execution and performance of Amendment
No. 9 to Loan and Security Agreement (the "Ninth Amendment") by Lender and
Borrower, (ii) reaffirming the terms of the Guaranty Agreement executed by
Guarantor, (iii) evidencing Guarantor's agreement that the Borrowers Obligations
as set forth in the Guaranty Agreement shall, for all purposes, include the Loan
Documents, as amended by the Ninth Amendment, and shall further include all
additional amounts which may be funded or advanced to Borrower pursuant to the
Loan Agreement as amended by the Ninth Amendment, and (iv) ratifying and
affirming all terms and provisions of the Guaranty Agreement. Except to the
extent otherwise indicated, terms used herein with initial capital letters shall
have the meanings set forth in the Loan Agreement, as amended.
Guarantor agrees that it has no defense, counterclaim, offset, cross-complaint,
claim or demand of any nature whatsoever which can be asserted as a basis to
seek affirmative relief or damages from Lender.
IN WITNESS WHEREOF, the undersigned has hereunto executed this Consent as of
this 30th day of May, 1997.
FAMILY BARGAIN CORPORATION
By: /s/
Name: William W. Mowbray
Title: President and Chief Executive Officer
Exhibit 10.3 (a)
ACKNOWLEDGMENT AND REAFFIRMATION
(re: Affiliate Debt, Management Fees, Intercreditor Agreement)
The undersigned FAMILY BARGAIN CORPORATION, a Delaware corporation ("FBC")
acknowledges:
1. FBC is a party to that certain Standstill and Subordination Agreement
(re: Affiliate Debt) dated as of July 11, 1994, as amended by that certain
Amendment No.1 to Standstill and Subordination Agreement dated as of March 31,
1995, and that certain Amendment No.2 to Standstill and Subordination Agreement
dated as of July 27, 1995 (as amended, the "Affiliate Debt Subordination
Agreement").
2. FBC is a party to that certain Standstill and Subordination Agreement
dated October 14, 19937 as amended by that certain Amendment No. I to Standstill
and Subordination Agreement dated as of July 11, 1994, as amended by that
certain Amendment No.2 to Standstill and Subordination Agreement dated as of
March 31, 1995, and that certain Amendment No.3 to Standstill and Subordination
Agreement dated as of July 27, 1995 (as amended, the "Management Fees
Subordination Agreement").
3. FBC is a patty to that certain Intercreditor, Standstill and
Subordination Agreement dated as of October 14, 1993, originally executed by and
among Greyhound Financial Capital Corporation, Westinghouse Electric
Corporation, Guilford Investments, Inc. and General Textiles, as amended by that
certain Amendment No.1 to Intercreditor, Standstill and Subordination Agreement
dated as of July 11, 1994, that certain Amendment No. 2 to Intercreditor,
Standstill and Subordination Agreement dated as of March 31, 1995, and that
certain Amendment No. 3 to Intercreditor, Standstill and Subordination Agreement
dated as of July 27, 1995 (as amended, the Intercreditor Agreement").
4. FBC is a party to that certain Standstill and Subordination Agreement
dated as of November 10, 1995 (the "F2U Subordination Agreement").
5. FINOVA Capital Corporation, successor by merger and name change to
Greyhound Financial Capital Corporation ("FINOVA") is also a party to the
Affiliate Debt Subordination Agreement, Management Fees Subordination Agreement,
the Intercreditor Agreement and F2U Subordination Agreement.
6. FBC has received a copy of that certain Loan and Security Agreement
dated as of October 14, 1993, by and between FINOVA and General Textiles, a
California corporation, and each amendment thereto, including without
<PAGE>
limitation, that certain Amendment No.8 to Loan and Security Agreement of even
date herewith.
7. FBC has received a copy of that certain Loan and Security Agreement dated as
of November 10, 1995, by and between FINOVA and Factory 2-U, Inc.1 an Arizona
corporation, and each amendment thereto, including without limitation that
certain Amendment No.5 to Loan and Security Agreement of even date herewith.
8. Each of the Affiliate Debt Subordination Agreement, Management Fees
Subordination Agreement, Intercreditor Agreement arid F2U Subordination
Agreement remains in effect and EBC re-states and confirms each term thereof;
notwithstanding the terms of the Amendment.
9. FBC restates and confirms each of FBC's representations and warranties set
forth in each of the Affiliate Debt Subordination Agreement, Management Fees
Subordination Agreement, Intercreditor Agreement and F2U Subordination Agreement
as if made on the date hereof.
Executed as of this 23rd day of April, 1997.
FAMILY BARGAIN CORPORATION
By: /s/
Name: William W. Mowbray
Title: President and Chief Executive Officer
Exhibit 10.3 (b)
ACKNOWLEDGMENT AND REAFFIRMATION
(re: Affiliate Debt, Management Fees, Intercreditor Agreement)
The undersigned FAMILY BARGAIN CORPORATION, a Delaware corporation ("FBC")
acknowledges:
1. FBC is a party to that certain Standstill and Subordination Agreement
(re: Affiliate Debt) dated as of July 11, 1994, as amended by that certain
Amendment No.1 to Standstill and Subordination Agreement dated as of March 31,
1995, and that certain Amendment No.2 to Standstill and Subordination Agreement
dated as of July 27, 1995 (as amended, the "Affiliate Debt Subordination
Agreement").
2. FBC is a party to that certain Standstill and Subordination Agreement
dated October 14, 19937 as amended by that certain Amendment No. I to Standstill
and Subordination Agreement dated as of July 11, 1994, as amended by that
certain Amendment No.2 to Standstill and Subordination Agreement dated as of
March 31, 1995, and that certain Amendment No.3 to Standstill and Subordination
Agreement dated as of July 27, 1995 (as amended, the "Management Fees
Subordination Agreement").
3. FBC is a patty to that certain Intercreditor, Standstill and
Subordination Agreement dated as of October 14, 1993, originally executed by and
among Greyhound Financial Capital Corporation, Westinghouse Electric
Corporation, Guilford Investments, Inc. and General Textiles, as amended by that
certain Amendment No.1 to Intercreditor, Standstill and Subordination Agreement
dated as of July 11, 1994, that certain Amendment No. 2 to Intercreditor,
Standstill and Subordination Agreement dated as of March 31, 1995, and that
certain Amendment No. 3 to Intercreditor, Standstill and Subordination Agreement
dated as of July 27, 1995 (as amended, the Intercreditor Agreement").
4. FBC is a party to that certain Standstill and Subordination Agreement
dated as of November 10, 1995 (the "F2U Subordination Agreement").
5. FINOVA Capital Corporation, successor by merger and name change to
Greyhound Financial Capital Corporation ("FINOVA") is also a party to the
Affiliate Debt Subordination Agreement, Management Fees Subordination Agreement,
the Intercreditor Agreement and F2U Subordination Agreement.
6. FBC has received a copy of that certain Loan and Security Agreement
dated as of October 14, 1993, by and between FINOVA and General Textiles, a
California corporation, and each amendment thereto, including without
<PAGE>
limitation, that certain Amendment No.9 to Loan and Security Agreement of even
date herewith.
7. FBC has received a copy of that certain Loan and Security Agreement dated as
of November 10, 1995, by and between FINOVA and Factory 2-U, Inc., an Arizona
corporation,. and each amendment thereto, including without limitation that
certain Amendment No.6 to Loan and Security Agreement of even date herewith.
8. Each of the Affiliate Debt Subordination Agreement, Management Fees
Subordination Agreement, Intercreditor Agreement and F2U Subordination Agreement
remains in effect and FBC re-states and confirms each term thereof
notwithstanding the terms of the Amendment.
9. FBC restates and confirms each of FBC's representations and warranties set
forth in each of the Affiliate Debt Subordination Agreement, Management Fees
Subordination Agreement, Intercreditor Agreement and F2U Subordination Agreement
as if made on the date hereof.
Executed as of this 3Oth day of May, 1997.
FAMILY BARGAIN CORPORATION
By: /s/
Name: William W. Mowbray
Title: President and Chief Executive Officer
Exhibit 10.4
SUBORDINATION AND STANDSTILL AGREEMENT (re: 6.35MM Debt)
THIS AGREEMENT is made and entered into effective as of the 30th day of May,
1997 by and between FINOVA CAPITAL CORPORATION, a Delaware corporation,
successor-by-merger to Greyhound Financial Capital Corporation, an Oregon
corporation ("Lender") and FAMILY BARGAIN CORPORATION, a Delaware corporation
("FBC").
R E C I TA L S:
A. Lender and General Textiles, a California corporation ("Borrower") have
entered into a Loan and Security Agreement dated as of October 14, 1993, as
amended to date (as amended through and including the Ninth Amendment described
below, and as hereafter modified, extended, renewed or restated from time to
time, the "Loan Agreement"). Capitalized terms used but not otherwise defined
herein shall have the same meanings as set forth in the Loan Agreement.
B. FBC is an Affiliate of Borrower and is the holder of a promissory note made
by Borrower in favor of FBC evidencing Borrower's obligation to repay to FBC the
sum of Six Million Three Hundred-Fifty Thousand Dollars ($6,350,000) (the "6.35
MM Debt").
C. Borrower has requested that Lender make certain changes to the Loan Agreement
as more fully set forth in that certain Amendment No.9 to Loan and Security
Agreement of even date herewith by and between Borrower and Lender (the "Ninth
Amendment").
D. As a condition to its willingness to enter into the Ninth Amendment, Lender
has required that FBC subordinate FBC's interests in certain payments to be
received from Borrower to the repayment by Borrower to Lender of the Total
Facility, upon the terms and pursuant to the conditions herein contained.
E. In consideration of the making of the Ninth Amendment by Lender, from which
FBC will benefit due to its affiliation with Borrower, FBC is willing to agree
to such subordination provisions.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants hereinafter expressed, the parties hereto do hereby agree as follows:
1. Subordination. FBC hereby agrees that all principal, interest and other
amounts payable to it from Borrower with respect to the 6.35MM Debt, including
without limitation any liens, security interests, and/or claims of any kind
which FBC may now have or hereafter acquire against Borrower and/or Borrower's
property with respect to the 6.35MM Debt (collectively, the "Subordinated
Indebtedness"), are and shall be subordinate, inferior, and subject to the
claims and rights of Lender against Borrower and/or Borrower's property under
the terms of any of the Loan Documents, whether direct or contingent and whether
now or hereafter created.
2. Standstill. As long as any part of Borrower's obligations to Lender under the
Loan Documents (including without limitation Borrower's obligation to repay in
full the Total Facility) remains outstanding, FBC shall not (a) demand or accept
from Borrower any payment of all or any portion of the Subordinated Indebtedness
while a Default or an Event of Default exists or if a Default or an Event of
Default would exist after giving effect to such payment; (b) obtain or enforce
any security interest in any of the Borrower's property designed to secure
payment of the Subordinated Indebtedness; (c) initiate any proceedings in
arbitration, judicially, or otherwise designed to enforce payment of the
Subordinated Indebtedness; or (d) take any action as a creditor which would in
any manner adversely affect any or all of the liens, security interests, or
claims of any kind which Lender may now have or hereafter acquire against
Borrower and/or Borrower's property. FBC shall refrain from taking any action as
a creditor, which is in any way inconsistent with or in derogation of this
subordination or of the rights of Lender hereunder, and covenants to perform
such further acts as may be necessary or appropriate to give effect to this
subordination. If any portion of the Subordinated lndebtedness is paid to and
received by FBC in violation of that Agreement, FBC shall promptly deliver to
Lender all amounts received by it.
3. Entire Agreement. This Agreement represents the complete understanding of the
parties with respect to the subject matter hereof, and may not be amended or
modified except in a writing signed by all parties hereto.
4. Notices. All notices and communications under this Agreement shall be in
writing and shall be (i) delivered in person, or (ii) mailed, postage prepaid,
either by registered or certified mail, return receipt requested, or (iii)
delivered by overnight express carrier, addressed in each case to FBC and Lender
at their respective addresses set forth in that certain Standstill and
Subordination Agreement (re: Affiliate Debt) dated as of July 11, 1994, as
amended by that certain Amendment
<PAGE>
No. I to Standstill and Subordination Agreement (re: Affiliate Debt) dated as of
March 31, 1995 and that certain Amendment No. 2 to Standstill and Subordination
Agreement (re: Affiliate Debt) dated as of July 27, 1995 (as amended to dare and
as the same may hereafter be amended, modified or restated, the "Affiliate Debt
Agreement").
5. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER
THE LAWS OF THE STATE OF ARIZONA.
6. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of and be enforceable against the respective successors and assigns of
the parties hereto.
7. Jurisdiction and Venue. FBC HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS
INITIATED BY ITSELF AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT
SHALL BE LITIGATED IN THE SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY, OR THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA OR, IF LENDER INITIATES
SUCH ACTION, IN ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION, TO THE
EXTENT SUCH COURT HAS JURISDICTION. FBC HEREBY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN
ANY OF SUCH COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SUCH
SERVICE OF THE SUMMONS AND COMPLAINT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT TO
SECTION 4. FBC WAIVES ANY CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA
IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD FBC
AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT,
PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER
TRE MAILING THEREOF, FBC SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT
MAY BE ENTERED BY LENDER AGAINST FBC AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS,
COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR FBC SET FORTH IN
THIS SECTION 7 SHALL NOT DE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER9 OF
ANY JUDGMENT OBTAINED IN ANY
<PAGE>
OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION.
8. Waiver of Right to Jury Trial. THE PARTIES ACKNOWLEDGE AND AGREE THAT ANY
CONTROVERSY WHICH MAY ARISE `UNDER THIS AGREEMENT OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED THEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX
ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY
SUCH CONTROVERSY SHALL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY
Initials of Lender: _____ Initials of FBC: ______
9. Counterparts and Titles. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which,
when taken together, shall be one and the same instrument. The titles of the
sections of this Agreement are for convenience only and shall not be used to
interpret or construe any provision hereof.
10. Construction. This Agreement has been reviewed and negotiated by counsel for
each party and no ambiguity herein shall be construed against either party based
upon its having prepared the same. This Agreement is in addition to the
Affiliate Debt Agreement. In the event of any conflict between the terms and
provisions of this Agreement and the terms and provisions of the Affiliate Debt
Agreement, each such agreement shall be construed so as to give effect to the
terms and provisions of such agreement, but in all events this Agreement shall
control with respect to the 6.35MM Debt.
11. Further Acts. Each party hereto shall, from time to time, do and perform
such other and further acts and execute and deliver such other and further
instruments as may be required or reasonably requested by the other party to
establish, maintain and protect the respective rights and remedies of such other
party and to carry out and effect the intents and purposes hereof.
12. Severability. If any term or provision of this Agreement, or the application
thereof to any circumstance, shall be invalid, illegal or unenforceable to any
extent, such term or provision shall not invalidate or render unenforceable any
other term or provision of this Agreement, or the application of such term or
provision to any other circumstance. To the extent permitted by law, the parties
hereby waive any provision of law that renders any term or provision hereof
invalid or unenforceable in any respect.
<PAGE>
This Agreement has been executed and delivered by each of the parties hereto by
a duly authorized officer of each such party effective as of the date First set
forth above.
FINOVA CAPITAL CORPORATION, a Delaware corporation, successor-by-merger to
Greyhound Financial Capital Corporation, an Oregon corporation
By:
Name: Pete Martinez
Title: Vice President
X Check here to confirm that Section 8 has been initialed.
FAMILY BARGAIN CORPORATION, a Delaware corporation
By
Name William W. Mowbray
Title: President and Chief Executive Officer
X Check here to confirm that Section 8 has been initialed.
Exhibit 10.5
SUBORDINATED PROMISSORY NOTE for $6,350,000
San Diego, California April 30,1997
FOR VALUE RECEIVED, the undersigned General Textiles, a California
corporation ("Maker") promises to pay to the order of Family Bargain
Corporation, a Delaware corporation, ("Lender") at San Diego, California or such
other place as the Lender hereof may from time to time designate in writing, the
principal sum of Six Million Three Hundred and Fifty Thousand and No/100 Dollars
($6,350,000) on April 30, 2002.
This note shall not bear interest. There shall be no prepayment
penalties. Payments under this note are subordinated to all other debt of the
Maker including without limitation all present and future debt owed by Maker to
Finova Capital Corporation and its successors and assigns.
Family Bargain Corporation, a Delaware Corporation
By: /s/
Name: William W. Mowbray
Title: President and Chief Executive Officer
Exhibit 10.6
FINOVA Financial Innovators
355 South Grand Avenue, Suite 2400
Los Angeles, CA 90071
Tel: 213 253-1600
Fax: 213 625-3501
August 26, 1997
Mr. Jonathan W. Spatz
Executive Vice President
Chief Financial Officer
Family bargain Corporation
4000 Ruffin Road
San Diego, CA 92123-1866
Re: General Textiles ("GT") and Factory 2-U, Inc.("F2U")
Dear Jon:
Based on our discussion, FINOVA Capital Corporation has approved the following
modifications to the Loan and Security Agreement of "GT" and "F2U".
The amendments to the terms and conditions are as follows:
General Textiles
1. Waive the current ratio through October 31, 1997, and change the test
period from monthly to quarterly starting October 31, 1997. 2. Waive and reset
the Debt to Net Worth from <1.3 to 1.0 to <1.70 to 1.0 and continue with the
monthly test period. 3. Reset the capital expenditures covenant from <$5,000M to
<$6,500M, continue with the monthly test period. 4. Waive and reset the senior
contractual debt service ratio (SCDS) and total contractual debt service ratio
(CDS). SCDC form .9 to 1.0 to 1.6 to 1.0 and the CDS .5 to 1.0 to 1.4 to 1.0 to
be tested quarterly on a cumulative quarter rolling basis up to 12 months
commencing with the quarter ending October 31, 1997. 5. Maximum temporary over
advance available from October 1st through December 15th of $1,750M based on a
temporary inventory advance rate increase of 5%.
<PAGE>
FINOVA Financial Innovators
Factory 2U, Inc.
1. Waive the capital expenditures violation for the period ending July 31,
1997 and reset the covenant at $1,600M. 2. Waive the total contractual debt
service ratio for the month of August 1997.
The fee for the waivers and covenant resets and temporary over advance is
$50,000. Any usage of the over advance will be priced at Prime + 3.00%.
If you have any questions, please contact me at (213) 253-1617.
Sincerely,
FINOVA Capital Corporation
Pete Martinez
Assistant Vice President
Managing Account Executive
Above agreed to and accepted this 28th day of August 1997:
General Textiles
By: /s/
Name: Jonathan W. Spatz
Its: Executive Vice President
Factory 2-U, Inc.
By: /s/
Name: Jonathan W. Spatz
Its: Executive Vice President
<TABLE>
Exhibit 11.1
Family Bargain Corporation
Computation of Net Loss Per Common Share
(Dollars in Thousands, except per share data)
(Unaudited)
<CAPTION>
13 Weeks Ended 26 Weeks Ended
-------------- --------------
Aug 2, July 27, Aug 2, July 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
The Computation of net (loss)
available & adjusted shares
outstanding follows:
Net income (loss) $(4,170) $ 629 $ (5,530) $ (929)
Less: Preferred stock dividends
Series A $ (864) $ (885) $ (1,728) $ (1,739)
Series B $ (635) $ - $ (1,292) $ -
-------- ----------- ----------- ----------
Net (loss) used for primary and
diluted computation $(5,669) $ (256) $ (8,550) $ (2,668)
-------- ---------- ---------- ----------
Weighted average number of
common shares outstanding 4,929,822 4,588,345 4,873,949 4,314,189
Add:
Assumed exercise of those options
that are common stock equivalents
Assumed exercise of convertible
preferred stock ________ ________ ________ ________
Adjusted shares outstanding,
used for primary & fully
diluted computation 4,929,822 4,588,345 4,873,949 4,314,189
--------- --------- --------- ----------
Net loss applicable to common
stock per common & common
share equivalent $ (1.15) $ (0.06) $ (1.75) $ (0.62)
---------- ---------- ---------- ----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Statement of Operations as of and for the 26 weeks ended August 2,
1997 and is qualified in its entirety by reference to such financial statements
as included in the Company's Quarterly Report on Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-2-1997
<PERIOD-END> AUG-2-1997
<CASH> 5,248
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 39,241
<CURRENT-ASSETS> 46,029
<PP&E> 19,030
<DEPRECIATION> 6,274
<TOTAL-ASSETS> 94,690
<CURRENT-LIABILITIES> 37,766
<BONDS> 0
0
36
<COMMON> 49
<OTHER-SE> 13,461
<TOTAL-LIABILITY-AND-EQUITY> 94,690
<SALES> 129,811
<TOTAL-REVENUES> 129,811
<CGS> 85,655
<TOTAL-COSTS> 85,655
<OTHER-EXPENSES> 47,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,606
<INCOME-PRETAX> (5,530)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,530)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,530)
<EPS-PRIMARY> (1.75)
<EPS-DILUTED> (1.75)
</TABLE>
